SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) February 9, 1999
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USA Networks, Inc.
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(Exact name of Registrant as specified in Charter)
Delaware 0-20570 59-2712887
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(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
152 West 57th Street, New York, New York 10019
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 314-7300
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ITEM 5. OTHER EVENTS
On February 9, 1999, USA Networks, Inc. ("USAi"), Lycos, Inc.
("Lycos") and Ticketmaster Online-CitySearch, Inc. ("TMCS") announced that they
had entered into definitive agreements (the "Agreements") relating to the
combination of TMCS, Lycos and USAi's Home Shopping, Ticketmaster and Internet
Shopping Network/First Auction businesses (the "Contributed Businesses") in a
new company to be named USA/Lycos Interactive Networks, Inc. ("Newco"). The
transactions will be effected by mergers of Lycos and TMCS with subsidiaries of
Newco and the contribution by USAi to Newco of the Contributed Businesses, in
exchange for the consideration summarized below (the "Transactions").
Pursuant to the Agreements, upon consummation of the
Transactions:
(i) each share of Lycos Common Stock will be converted
into the right to receive (a) 1 share of Newco
Common Stock and (b) 0.2963 of a share of Newco
Series A Convertible Redeemable Preferred Stock
(the "Series A Preferred Stock");
(ii) each share of TMCS Class B Common Stock (the
publicly traded TMCS stock) will be converted into
the right to receive (x) 0.4464 of a share of Newco
Common Stock and (y) 0.0584 of a share of Series A
Preferred Stock;
(iii) each share of TMCS Class A Common Stock will be
converted into the right to receive 0.4464 of a
share of Newco Class B Common Stock; and
(iv) USAi will receive 88,353,398 shares of Newco Class
B Common Stock and 1,938,853 shares of Series A
Preferred Stock in exchange for the Contributed
Businesses.
Both the Newco Common Stock and the Series A Preferred Stock
will be publicly traded. The Newco Class B common stock will not be publicly
traded. Except as otherwise provided by Delaware law, the Newco Common Stock
will have one vote per share, and the Newco Class B Common Stock will have 15
votes per share on all matters submitted to a vote of Newco's stockholders,
including the election of directors of Newco.
Upon closing of the Transactions, based on the expected
initial ownership of Newco on an adjusted fully diluted basis, former Lycos
shareholders will own 30% of the Newco equity, former TMCS shareholders (other
than USAi) will own 8.5% of the Newco equity and USAi will own 61.5% of the
Newco equity (including 10.9% relating to USAi's controlling interest in TMCS).
Upon the closing, USAi will beneficially own shares of Newco stock representing
approximately 96% of the combined voting power of
2
Newco, assuming all holders of TMCS Class A Common Stock, other than USAi,
convert their shares into shares of TMCS Class B Common Stock prior to the
closing.
The terms of the Series A Preferred Stock provide for the
issuance in certain circumstances of additional shares of Newco Common Stock to
the holders thereof following the 39-month anniversary of the closing of the
Transactions. Each share of Series A Preferred Stock will be, following such
anniversary, automatically converted into the right to receive a number of
shares of Newco Common Stock based on the "Final Market Price" of the Newco
Common Stock, which is equal to the sum of (i) .5 times the average of the
90-day, volume-weighted average closing price (the "Market Price") of the Newco
Common Stock ending on (x) the 90th day following the closing, (y) the 15-month
anniversary of the closing and (z) the 27-month anniversary of the closing, and
(ii) .5 times the Market Price for the 90-day period ending on the 39-month
anniversary of the closing (the sum of (i) and (ii), the "Final Market Price").
If the Final Market Price is equal to or greater than $257.88 (which would imply
a market capitalization, based on Newco's expected initial capitalization at
closing, of $45 billion), each share of Series A Preferred Stock will be
converted into 1 share of Newco Common Stock, if the Final Market Price is equal
to or less than $143.27 (which would imply a market capitalization, based on
Newco's expected initial capitalization at closing, of $25 billion), each Series
A Preferred Stock share will be convertible into no shares of Newco Common Stock
and the shares of Series A Preferred Stock will be redeemed by Newco for $.01
per share. At Final Market Prices between $143.27 and $257.88, the shares to be
issued will vary, on an interpolated basis. The Series A Preferred Stock will
contain customary anti-dilution adjustments for the Final Market Price and the
conversion ratio. The terms of the Series A Preferred Stock are set forth in
Exhibit B to the Agreement and Plan of Reorganization, filed as an exhibit
hereto.
The parties have also entered into option agreements, filed as
exhibits hereto, which under certain circumstances provide USAi and TMCS with
the right to acquire, in the aggregate, up to 19.9% of the outstanding Lycos
Common Stock.
The Transactions are subject to Lycos shareholder approval as
well as receipt of required regulatory approvals and other customary conditions.
Upon closing of the Transactions, Barry Diller, Chairman and
Chief Executive Officer of USAi, will be Chairman of the Board of Newco; Robert
J. Davis, the President and Chief Executive Officer of Lycos, will be the
President and Chief Executive Officer of Newco; and Edward M. Philip, Chief
Operating Officer and Chief Financial Officer of Lycos, will be the Chief
Financial Officer of Newco. In addition to Mr. Diller, Messrs. Davis and Philip
will be directors of Newco. Lycos will be entitled to appoint one additional
director to serve for a one-year term, and USAi will appoint the remaining
directors of Newco.
3
The Agreements summarized above are filed as exhibits hereto,
and the foregoing summary descriptions of such agreements are qualified in their
entirety by reference to such exhibits, which are incorporated herein by
reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits.
Exhibit No. Description
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2.1 Agreement and Plan of Reorganization, dated as of February
8, 1999, by and among USA Networks, Inc., Ticketmaster
Online-CitySearch, Inc., Lycos, Inc., USA Interactive Inc.,
Lemma, Inc. and Tycho, Inc. (the "Merger Agreement"),
including Form of Certificate of Designations, Preferences
and Rights of Series A Convertible Redeemable Preferred
Stock of USA/Lycos Interactive Networks, Inc. (Exhibit B to
the Merger Agreement)
2.2 Contribution Agreement, dated as of February 8, 1999, by and
among USA Networks, Inc., USANi LLC and USA Interactive Inc.
2.3 Stock Option Agreement, dated February 8, 1999, between Lycos,
Inc. and USA Networks, Inc. (Exhibit A-1 to the Merger
Agreement)
2.4 Stock Option Agreement, dated February 8, 1999, between Lycos,
Inc. and Ticketmaster Online-CitySearch, Inc. (Exhibit A-2 to
the Merger Agreement)
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
USA NETWORKS, INC.
Date: February 25, 1999 By: /s/ Thomas J. Kuhn
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Thomas J. Kuhn
Senior Vice President
and General Counsel
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EXHIBIT INDEX
Exhibit No. Description Page No.
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2.1 Agreement and Plan of Reorganization, dated as of
February 8, 1999, by and among USA Networks, Inc.,
Ticketmaster Online-CitySearch, Inc., Lycos, Inc.,
USA Interactive Inc., Lemma, Inc. and Tycho, Inc.
(the "Merger Agreement"), including Form of Certificate
of Designations, Preferences and Rights of Series A
Convertible Redeemable Preferred Stock of USA/Lycos
Interactive Networks, Inc. (Exhibit B to the Merger
Agreement)
2.2 Contribution Agreement, dated as of February 8, 1999,
by and among USA Networks, Inc., USANi LLC and USA
Interactive Inc.
2.3 Stock Option Agreement, dated February 8, 1999, between
Lycos, Inc. and USA Networks, Inc. (Exhibit A-1 to the
Merger Agreement)
2.4 Stock Option Agreement, dated February 8, 1999, between
Lycos, Inc. and Ticketmaster Online-CitySearch, Inc.
(Exhibit A-2 to the Merger Agreement)
6
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
by and among
USA NETWORKS, INC.,
TICKETMASTER ONLINE-CITYSEARCH, INC.,
LYCOS, INC.,
USA INTERACTIVE INC.,
(TO BE RENAMED USA/LYCOS INTERACTIVE NETWORKS, INC.)
LEMMA, INC.
AND
TYCHO, INC.
________
DATED AS OF FEBRUARY 8, 1999
TABLE OF CONTENTS
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AGREEMENT AND PLAN OF REORGANIZATION
ARTICLE I
THE MERGERS; CLOSING
1.1 The Mergers..................................................... 2
1.2 The Closing..................................................... 2
ARTICLE II
DIRECTORS AND OFFICERS, CERTIFICATES OF INCORPORATION AND CERTAIN OTHER MATTERS
2.1 Directors....................................................... 3
2.2 Officers........................................................ 3
2.3 Certificate of Incorporation and By-Laws........................ 3
ARTICLE III
EFFECT OF THE REORGANIZATION ON THE SECURITIES
OF LYCOS, TMCS AND THE MERGER SUBSIDIARIES
3.1 Conversion of Common Stock...................................... 4
3.2 Cancellation of Newco Stock..................................... 6
3.3 Merger Subs Stock............................................... 6
3.4 Lycos Options................................................... 7
3.5 TMCS Class B Options............................................ 8
3.6 TMCS Class A Options............................................ 8
3.7 Tax Consequences................................................ 9
ARTICLE IV
EXCHANGE OF SHARES
4.1 Newco to Make Shares Available.................................. 9
4.2 Exchange of Shares.............................................. 10
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TMCS
5.1 Corporate Organization.......................................... 13
5.2 Capitalization.................................................. 13
5.3 Authority; No Violation......................................... 14
5.4 Consents and Approvals.......................................... 15
5.5 Financial Statements............................................ 16
5.6 Broker's Fees................................................... 17
5.7 Absence of Certain Changes or Events............................ 17
5.8 Legal Proceedings............................................... 17
5.9 Taxes and Tax Returns........................................... 17
5.10 Employees....................................................... 18
5.11 SEC Reports..................................................... 20
5.12 Compliance with Applicable Law.................................. 20
5.13 Intellectual Property; Proprietary Rights; Employee Restrictions 20
5.14 Certain Contracts............................................... 22
5.15 Undisclosed Liabilities......................................... 22
5.16 Insurance....................................................... 22
5.17 Environmental Liability......................................... 23
5.18 State Takeover Laws............................................. 23
5.19 Year 2000 Compliance............................................ 23
5.20 Certain Tax Matters............................................. 23
5.21 Registration Statement.......................................... 23
5.22 Ownership of Lycos Capital Stock................................ 24
5.23 Opinion of Financial Advisors................................... 24
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF LYCOS
6.1 Corporate Organization.......................................... 24
6.2 Capitalization.................................................. 25
6.3 Authority; No Violation......................................... 25
6.4 Consents and Approvals.......................................... 26
6.5 Financial Statements............................................ 27
6.6 Broker's Fees................................................... 27
6.7 Absence of Certain Changes or Events............................ 27
6.8 Legal Proceedings............................................... 28
6.9 Taxes and Tax Returns........................................... 28
6.10 Employees....................................................... 29
6.11 SEC Reports..................................................... 30
6.12 Compliance with Applicable Law.................................. 31
6.13 Intellectual Property; Proprietary Rights; Employee Restrictions 31
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Page
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6.14 Certain Contracts............................................... 32
6.15 Undisclosed Liabilities......................................... 33
6.16 Insurance....................................................... 33
6.17 Environmental Liability......................................... 33
6.18 State Takeover Laws............................................. 33
6.19 Year 2000 Compliance............................................ 33
6.20 Certain Tax Matters............................................. 34
6.21 Registration Statement.......................................... 34
6.22 Ownership of TMCS Capital Stock................................. 34
6.23 Opinion of Financial Advisors................................... 34
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF PARENT, NEWCO, L MERGER SUB AND T MERGER SUB
7.1 Representations and Warranties of Parent and Newco.............. 34
7.2 Corporate Organization of Merger Subs........................... 35
7.3 Capitalization.................................................. 35
7.4 Authority; No Violation......................................... 35
7.5 Conduct of Business............................................. 36
7.6 Broker's Fees................................................... 36
ARTICLE VIII
COVENANTS RELATING TO CONDUCT OF BUSINESS
8.1 Conduct of Businesses Prior to the Effective Time............... 36
8.2 Forbearances.................................................... 36
ARTICLE IX
ADDITIONAL AGREEMENTS
9.1 Regulatory Matters.............................................. 39
9.2 Access to Information........................................... 40
9.3 No Solicitation................................................. 41
9.4 Stockholders' Approvals......................................... 41
9.5 Legal Conditions to Merger...................................... 41
9.6 Affiliates...................................................... 42
9.7 Nasdaq Quotation................................................ 42
9.8 Employee Benefit Plans.......................................... 42
9.9 Indemnification; Directors' and Officers' Insurance............. 43
9.10 Additional Agreements........................................... 44
9.11 Advice of Changes............................................... 44
9.12 Section 16...................................................... 44
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Page
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9.13 Contribution Agreement.......................................... 44
9.14 Other Businesses................................................ 45
9.15 Affiliate Sales Agreement....................................... 45
9.16 Limitations on Sale of Parent Shares............................ 46
9.17 Promotion....................................................... 46
ARTICLE X
CONDITIONS PRECEDENT
10.1 Conditions to Each Party's Obligation to Effect the Mergers..... 46
10.2 Conditions to Obligations of Lycos.............................. 47
10.3 Conditions to Obligations of TMCS and Newco..................... 48
ARTICLE XI
TERMINATION AND AMENDMENT
11.1 Termination..................................................... 48
11.2 Effect of Termination........................................... 49
11.3 Amendment....................................................... 49
11.4 Extension; Waiver............................................... 50
ARTICLE XII
GENERAL PROVISIONS
12.1 Nonsurvival of Representations, Warranties and Agreements....... 50
12.2 Expenses........................................................ 50
12.3 Notices......................................................... 50
12.4 Interpretation.................................................. 52
12.5 Counterparts.................................................... 52
12.6 Entire Agreement................................................ 52
12.7 Governing Law................................................... 52
12.8 Publicity....................................................... 52
12.9 Assignment; Third Party Beneficiaries........................... 52
12.10 Standards; Disclosure Schedules................................. 53
Exhibit A - Form of Option Agreements
Exhibit B - Form of Certificate of Designations for Series A Convertible
Redeemable Preferred Stock
Exhibit 9.6(a) - Form of Affiliate Letter from Lycos Affiliates
Exhibit 9.6(b) - Form of Affiliate Letter from TMCS Affiliates
Ticketmaster Online-CitySearch, Inc. Disclosure Schedule
Lycos, Inc. Disclosure Schedule
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INDEX OF DEFINED TERMS
Section Page No.
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Agreement............................... Preamble.......................... 1
CERCLA.................................. 5.17.............................. 23
Class A Exchange Ratio.................. 3.1(b)............................ 4
Class B Exchange Ratio.................. 3.1(c)............................ 4
Closing................................. 1.2............................... 2
Closing Date............................ 1.2............................... 2
Code.................................... 3.4(b) ........................... 7
Confidentiality Agreement............... 9.2(b) ........................... 40
Contribution............................ Recitals.......................... 1
Contribution Agreement.................. Recitals.......................... 1
DGCL.................................... 1.1(a) ........................... 2
Dissenting Share........................ 3.1(h) ........................... 6
Effective Time.......................... 1.1(c) ........................... 2
ERISA................................... 5.10(a) .......................... 19
Excess Class B Shares................... 4.2(e)............................ 11
Excess Common Shares.................... 4.2(e)............................ 11
Excess Shares........................... 4.2(e)............................ 11
Exchange Act............................ 5.11.............................. 20
Exchange Agent.......................... 4.1............................... 9
Exchange Fund........................... 4.1............................... 9
GAAP.................................... 5.5............................... 15
Goldman Sachs........................... 5.6............................... 17
Government Approvals.................... 5.4............................... 15
Governmental Entity..................... 5.4............................... 16
HSN..................................... 9.15.............................. 45
HSR Act................................. 5.4............................... 15
Indemnified Parties..................... 9.9(a) ........................... 43
Injunction.............................. 10.1(e) .......................... 47
Intellectual Property Rights............ 5.13(a) .......................... 20
IRS..................................... 5.9(a) ........................... 18
L Merger Sub............................ Preamble ......................... 1
Liens................................... 5.2(b)............................ 14
LLC..................................... Recitals ......................... 1
Lycos................................... Recitals.......................... 1
Lycos 10-K.............................. 6.5............................... 27
Lycos Benefit Plans..................... 6.10(a) .......................... 29
Lycos Bylaws............................ 6.1(a) ........................... 24
Lycos Capital Stock..................... 6.2(a)............................ 25
Lycos Certificate....................... 3.1(d)............................ 4
Lycos Charter........................... 6.1(a) ........................... 24
Lycos Common Exchange Ratio............. 3.1(a)............................ 4
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Section Page No.
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Lycos Common Stock...................... 3.1(a) ........................... 4
Lycos Contract.......................... 6.14(a)........................... 32
Lycos Disclosure Schedule............... Article VI........................ 24
Lycos ERISA Affiliate................... 6.10(a) .......................... 29
Lycos Merger............................ Recitals.......................... 1
Lycos Preferred Exchange Ratio.......... 3.1(a) ........................... 4
Lycos Preferred Stock................... 6.2(a) ........................... 25
Lycos Reports........................... 6.11 ............................. 30
Lycos Stock Plans....................... 6.2(a) ........................... 25
Material Adverse Effect................. 5.1(a) ........................... 13
Merger Subs............................. Preamble.......................... 1
Mergers................................. 1.1(b) ........................... 2
NASD.................................... 4.2(e)............................ 11
Nasdaq.................................. 4.2(e)............................ 11
New Benefit Plans....................... 9.8(a) ........................... 42
Newco................................... Preamble.......................... 1
Newco Capital Stock..................... 3.1(b)............................ 4
Newco Class B Common Stock.............. 3.1(b)............................ 4
Newco Common Stock...................... 3.1(a)............................ 4
Newco Convertible Preferred Stock....... 3.1(a)............................ 4
Option Agreements....................... Recitals.......................... 1
Parent.................................. Preamble.......................... 1
Parent Sunset Threshold................. 9.14(b)........................... 45
Proxy/Information Statement............. 5.4............................... 15
Requisite Regulatory Approvals.......... 10.1(c) .......................... 46
Reorganization.......................... Recitals.......................... 1
S-4..................................... 5.4............................... 15
SEC..................................... 5.4............................... 15
Securities Act.......................... 5.11.............................. 20
Section 16 Securities................... 9.12.............................. 44
Shares Trust............................ 4.2(e)............................ 12
Subsidiary.............................. 5.1(a)............................ 13
Surviving Corporation................... Recitals.......................... 1
T Merger Sub............................ Preamble ......................... 1
Tax(es)................................. 5.9(b) ........................... 18
TMCS.................................... Preamble.......................... 1
TMCS Balance Sheet...................... 5.5............................... 16
TMCS Benefit Plans...................... 5.10(a) .......................... 18
TMCS Bylaws............................. 5.1(a) ........................... 13
TMCS Capital Stock...................... 5.2(a) ........................... 14
TMCS Charter............................ 5.1(a) ........................... 13
TMCS Class A Certificate................ 3.1(f) ........................... 5
TMCS Class A Common Stock............... 3.1(b) ........................... 4
TMCS Class B Certificate................ 3.1(e) ........................... 5
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Section Page No.
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TMCS Class B Common Stock............... 3.1(c) ........................... 4
TMCS Contract........................... 5.14(a)........................... 22
TMCS Disclosure Schedule................ ArticleV.......................... 13
TMCS ERISA Affiliate.................... 5.10(a)........................... 19
TMCS Merger............................. Recitals.......................... 1
TMCS Preferred Exchange Ratio........... 3.1(c)............................ 4
TMCS Preferred Stock.................... 5.2(a) ........................... 13
TMCS Prospectus......................... 5.5............................... 16
TMCS Reports............................ 5.11.............................. 20
TMCS Stock Plans........................ 5.2(a) ........................... 14
Transactions............................ Recitals.......................... 1
Wasserstein Perella..................... 6.6............................... 27
Wired Merger Agreement.................. 6.2(a) ........................... 25
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AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of February 8, 1999
(this "Agreement"), by and among USA Networks, Inc., a Delaware corporation
("Parent"), Ticketmaster Online-CitySearch, Inc., a Delaware corporation
("TMCS"), Lycos, Inc., a Delaware corporation ("Lycos") , USA Interactive Inc.,
a Delaware corporation ("Newco"), Lemma, Inc., a Delaware corporation ("L Merger
Sub"), and Tycho, Inc., a Delaware corporation ("T Merger Sub" and together with
L Merger Sub, the "Merger Subs").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Boards of Directors of Parent, Lycos, Newco, L Merger Sub
and T Merger Sub have determined that it is in the best interests of their
respective companies and their stockholders to consummate the strategic business
combination transaction provided for herein in which (i) T Merger Sub, a wholly
owned subsidiary of Newco, will, subject to the terms and conditions set forth
herein, merge with and into TMCS (the "TMCS Merger"), so that TMCS is the
surviving corporation in the TMCS Merger, and (ii) L Merger Sub will, subject to
the terms and conditions set forth herein, merge with and into Lycos (the "Lycos
Merger" and, together with the TMCS Merger, the "Reorganization"), so that Lycos
is the surviving corporation in the Lycos Merger (each of Lycos and TMCS herein
sometimes referred to in its capacity as the surviving corporation in the Lycos
Merger and the TMCS Merger, respectively, the "Surviving Corporation"); and
WHEREAS, as a condition to, and simultaneously with, the execution of
this Agreement, Parent, Newco and USANi LLC, a Delaware limited liability
company ("LLC"), are entering into a contribution agreement (the "Contribution
Agreement") that provides for the contribution of certain businesses of Parent
and its Subsidiaries to Newco (the "Contribution" and, together with the
Reorganization, the "Transactions"); and
WHEREAS, as a condition to, and simultaneously with, the execution of
this Agreement, Parent and TMCS are each entering into a stock option agreement
with Lycos with respect to shares of common stock of Lycos in the forms attached
hereto as Exhibit A (the "Option Agreements"); and
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Mergers and also to prescribe certain
conditions to the Mergers.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGERS; CLOSING
1.1 The Mergers. Subject to the terms and conditions of this Agreement,
at the Effective Time:
(a) L Merger Sub shall be merged with and into Lycos in accordance with
the applicable provisions of the General Corporation Law of the State of
Delaware (the "DGCL"). Lycos shall be the surviving corporation in the Lycos
Merger and shall continue its corporate existence under the laws of the State of
Delaware. As a result of the Lycos Merger, Lycos shall become a wholly owned
Subsidiary of Newco and the separate corporate existence of L Merger Sub shall
terminate. The Lycos Merger shall have the effects and consequences specified in
Sections 259 and 261 of the DGCL .
(b) T Merger Sub will be merged with and into TMCS in accordance with
the applicable provisions of the DGCL. TMCS shall be the surviving corporation
in the TMCS Merger and shall continue its corporate existence under the laws of
the State of Delaware. As a result of the TMCS Merger, TMCS shall become a
wholly owned Subsidiary of Newco and the separate corporate existence of T
Merger Sub shall terminate. The TMCS Merger shall have the effects and
consequences specified in Sections 259 and 261 of the DGCL. The term "Mergers"
shall mean the Lycos Merger and the TMCS Merger.
(c) The term "Effective Time" shall mean the time and date which is the
later of (i) the date and time of the filing of the certificate of merger
relating to the Lycos Merger with the Secretary of State of the State of
Delaware (or such other date and time as may be specified in such certificate as
may be permitted by Delaware law) and (ii) the date and time of the filing of a
certificate of merger with the Secretary of State of the State of Delaware with
respect to the TMCS Merger (or such other date and time as may be specified in
such certificate as may be permitted by Delaware law).
1.2 The Closing. Subject to the terms and conditions of this Agreement,
the closing of the transactions contemplated by this Agreement (the "Closing")
shall take place (a) at the offices of Wachtell, Lipton, Rosen & Katz, 51 West
52nd Street, New York, New York, at 10:00 a.m., local time, on the third
business day following the day on which the last to be fulfilled or waived of
the conditions set forth in Article X shall be fulfilled or waived in accordance
herewith or (b) at such other time, date or place as Parent, Lycos and TMCS may
agree. The date on which the Closing occurs is hereinafter referred to as the
"Closing Date."
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ARTICLE II
DIRECTORS AND OFFICERS, CERTIFICATES OF INCORPORATION
AND CERTAIN OTHER MATTERS
2.1 Directors. The Board of Directors of Newco at the Effective Time
shall consist of a majority of directors appointed by Parent, the Chief
Executive Officer of Lycos, the Chief Financial Officer of Lycos and one
additional director, who shall serve for at least a one-year term, to be
selected prior to the Closing by the mutual agreement of Lycos and Parent, such
agreement not to be unreasonably withheld. The directors of Lycos Merger Sub
immediately prior to the Effective Time shall be the directors of the surviving
corporation of the Lycos Merger as of the Effective Time and until their
successors are duly appointed or elected in accordance with applicable law. The
directors of T Merger Sub immediately prior to the Effective Time shall be the
directors of the surviving corporation of the TMCS Merger as of the Effective
Time and until their successors are duly appointed or elected in accordance with
applicable law.
2.2 Officers. At the Effective Time, the Chief Executive Officer of
Parent shall be Chairman of the Board of Directors of Newco, the Chief Executive
Officer of Lycos shall be Chief Executive Officer of Newco and the Chief
Financial Officer of Lycos shall be Chief Financial Officer of Newco, in each
case, until their successors are duly appointed or elected in accordance with
applicable law. The officers of Lycos and TMCS immediately prior to the
Effective Time shall be the officers of the surviving corporations of the Lycos
Merger and the TMCS Merger, respectively, as of the Effective Time and until
their successors are duly appointed or elected in accordance with applicable
law.
2.3 Certificate of Incorporation and By-Laws. At the Effective Time,
the Certificate of Incorporation and By-Laws of Newco shall be amended to (a)
change the name of Newco to "USA/Lycos Interactive Networks, Inc." and (b) to
provide that at such time as Parent, the LLC and their respective Subsidiaries
no longer own a number of shares of Newco Common Stock or Newco Class B Common
Stock at least equal to the Parent Sunset Threshold, all shares of Newco Class B
Common Stock owned directly or indirectly by such entities shall be promptly
exchanged for an equal number of shares of Newco Common Stock pursuant to the
Newco Certificate of Incorporation, provided that any such exchange shall be
postponed in order to comply with applicable securities laws and not to cause
Parent, LLC or their respective Subsidiaries adverse tax consequences. Such
amendments shall be reasonably satisfactory to Parent, Lycos and TMCS. At the
Effective Time, the Certificate of Incorporation and By-Laws of the Surviving
Corporation in the Lycos Merger and the TMCS Merger, respectively, shall be
amended to provide for substantially identical terms as the Certificate of
Incorporation and By-Laws of L Merger Sub and T Merger Sub, respectively,
immediately prior to the Effective Time and such Certificates of Incorporation
and By-Laws of the Surviving Corporations, respectively, as so amended, shall be
the Certificate and By-Laws of the Surviving Corporation in the Lycos Merger and
the TMCS Merger, respectively, in each case, until thereafter amended in
accordance with applicable law.
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ARTICLE III
EFFECT OF THE REORGANIZATION ON THE SECURITIES
OF LYCOS, TMCS AND THE MERGER SUBSIDIARIES
3.1 Conversion of Common Stock. At the Effective Time, by virtue of the
Lycos Merger and the TMCS Merger and without any action on the part of Lycos,
TMCS, Newco or the holder of any of the following securities:
(a) Subject to Section 4.2(e), each share of common stock, par value
$.01 per share, of Lycos ("Lycos Common Stock") issued and outstanding
immediately prior to the Effective Time, except for shares of Lycos Common Stock
owned by Lycos as treasury stock or owned, directly or indirectly, by Lycos, L
Merger Sub, TMCS, T Merger Sub, Newco or any of their respective wholly owned
subsidiaries, shall be converted into the right to receive (i) 1.0 share (the
"Lycos Common Exchange Ratio") of common stock, par value $.01 per share, of
Newco ("Newco Common Stock") and (ii) 0.2963 of a share (the "Lycos Preferred
Exchange Ratio") of Series A Convertible Redeemable Preferred Stock, par value
$.01 per share, of Newco ("Newco Convertible Preferred Stock"), with the
designations, powers, preferences, rights and qualifications, limitations and
restrictions substantially as set forth in Exhibit B hereto.
(b) Subject to Section 4.2(e), each share of Class A common stock, par
value $.01 per share, of TMCS ("TMCS Class A Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into the
right to receive 0.4464 of a share (the "Class A Exchange Ratio") of Class B
common stock, par value $.01 per share, of Newco (the "Newco Class B Common
Stock" and together with Newco Common Stock and Newco Convertible Preferred
Stock, "Newco Capital Stock").
(c) Subject to Section 4.2(e), each share of the Class B common stock,
par value $.01 per share, of TMCS ("TMCS Class B Common Stock") issued and
outstanding immediately prior to the Effective Time, except for shares of TMCS
Class B Common Stock owned by TMCS as treasury stock or owned, directly or
indirectly, by TMCS, T Merger Sub, Lycos, L Merger Sub, Newco or any of their
respective wholly owned subsidiaries, shall be converted into the right to
receive (i) 0.4464 of a share (the "Class B Exchange Ratio") of Newco Common
Stock and (ii) 0.0584 of a share of Newco Convertible Preferred Stock (the "TMCS
Preferred Exchange Ratio").
(d) All of the shares of Lycos Common Stock converted into the right to
receive Newco Common Stock and Newco Convertible Preferred Stock pursuant to
this Article III shall no longer be outstanding and shall automatically be
cancelled and shall cease to exist as of the Effective Time, and each
certificate (each a "Lycos Certificate") previously representing any such shares
of Lycos Common Stock shall thereafter represent only the right to receive a
certificate representing the number of whole shares of Newco Common Stock, cash
in lieu of fractional shares and a certificate representing the number of shares
of Newco Convertible Preferred Stock into which the shares of Lycos Common Stock
represented by such Lycos Certificate have been converted pursuant to this
Section 3.1 and Section 4.2(e). Lycos Certificates previously repre-
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senting shares of Lycos Common Stock shall be exchanged for certificates
representing whole shares of Newco Common Stock, cash in lieu of fractional
shares and certificates representing shares of Newco Convertible Preferred Stock
issued in consideration therefor upon the surrender of such Lycos Certificates
in accordance with Section 4.2, without any interest thereon. If, prior to the
consummation of the Lycos Merger, the outstanding shares of Lycos Common Stock
shall have been increased, decreased, changed into or exchanged for a different
number or kind of shares or securities as a result of a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar change in capitalization, an appropriate and
proportionate adjustment shall be made to each of the Lycos Common Exchange
Ratio and the Lycos Preferred Exchange Ratio.
(e) All of the shares of TMCS Class B Common Stock converted into the
right to receive Newco Common Stock and Newco Convertible Preferred Stock
pursuant to this Article III shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist as of the Effective Time,
and each certificate (each a "TMCS Class B Certificate") previously representing
any such shares of TMCS Class B Common Stock shall thereafter represent only the
right to receive a certificate representing the number of whole shares of Newco
Common Stock, cash in lieu of fractional shares of Newco Common Stock and a
certificate representing the number of shares of Newco Convertible Preferred
Stock into which the shares of TMCS Class B Common Stock represented by such
TMCS Class B Certificate have been converted pursuant to this Section 3.1 and
Section 4.2(e). TMCS Class B Certificates previously representing shares of TMCS
Class B Common Stock shall be exchanged for certificates representing whole
shares of Newco Common Stock, cash in lieu of fractional shares and certificates
representing shares of Newco Convertible Preferred Stock issued in consideration
therefor upon the surrender of such TMCS Class B Certificates in accordance with
Section 4.2, without any interest thereon. If, prior to the consummation of the
TMCS Merger, the outstanding shares of TMCS Class B Common Stock shall have been
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities as a result of a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, or other
similar change in capitalization, an appropriate and proportionate adjustment
shall be made to each of the Class B Exchange Ratio and the TMCS Preferred
Exchange Ratio.
(f) All of the shares of TMCS Class A Common Stock converted into the
right to receive Newco Class B Common Stock pursuant to this Article III shall
no longer be outstanding and shall automatically be cancelled and shall cease to
exist as of the Effective Time, and each certificate (each a "TMCS Class A
Certificate") previously representing any such shares of TMCS Class A Common
Stock shall thereafter represent only the right to receive a certificate
representing the number of whole shares of Newco Class B Common Stock and cash
in lieu of fractional shares into which the shares of TMCS Class A Common Stock
represented by such TMCS Class A Certificate have been converted pursuant to
this Section 3.1 and Section 4.2(e). TMCS Class A Certificates previously
representing shares of TMCS Class A Common Stock shall be exchanged for
certificates representing whole shares of Newco Class B Common Stock and cash in
lieu of fractional shares issued in consideration therefor upon the surrender of
such TMCS Class A Certificates in accordance with Section 4.2, without any
interest thereon. If, prior to the consummation of the TMCS Merger, the
outstanding shares of TMCS Class A
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Common Stock shall have been increased, decreased, changed into or exchanged for
a different number or kind of shares or securities as a result of a
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, or other similar change in capitalization, an appropriate
and proportionate adjustment shall be made to the Class A Exchange Ratio.
(g) At the Effective Time, (i) all shares of Lycos Common Stock that
are owned, directly or indirectly, by Lycos, TMCS, T Merger Sub, Newco or any of
their respective wholly owned Subsidiaries (other than L Merger Sub) shall be
cancelled and shall cease to exist and no stock of Newco or other consideration
shall be delivered in exchange therefor and (ii) all shares of TMCS Class B
Common Stock that are owned, directly or indirectly, by Lycos, TMCS, L Merger
Sub or Newco or any of their respective wholly owned Subsidiaries (other than T
Merger Sub) shall be cancelled and shall cease to exist and no stock of Newco or
other consideration shall be delivered in exchange therefor. At the Effective
Time, (i) all shares of Lycos Common Stock that are owned by L Merger Sub or any
of its wholly owned Subsidiaries shall as of the Effective Time become treasury
shares of Lycos Common Stock and (ii) all shares of TMCS Class B Common Stock
that are owned by T Merger Sub or any of its wholly owned Subsidiaries shall as
of the Effective Time become treasury shares of TMCS Class B Common Stock.
(h) Notwithstanding anything in this Agreement to the contrary, with
respect to each share of TMCS Class A Common Stock as to which the holder
thereof shall have properly complied with the provisions of Section 262 of the
DGCL as to appraisal rights (each a "Dissenting Share"), such holder will be
entitled to payment, solely from the surviving corporation of the TMCS Merger,
of the appraised value of such Dissenting Shares to the extent permitted by and
in accordance with the provisions of Section 262 of the DGCL; provided, however,
that (i) if any holder of Dissenting Shares, under the circumstances permitted
by the DGCL, affirmatively withdraws his or her demand for appraisal of such
Dissenting Shares, (ii) if any holder fails to establish his or her entitlement
to rights to payment as provided in such Section 262, or (iii) if neither any
holder of Dissenting Shares nor the surviving corporation has filed a petition
demanding a determination of the value of all Dissenting Shares within the time
provided in such Section 262, such holder will forfeit such right to payment for
such Dissenting Shares pursuant to Section 262 and, as of the later of the
Effective Time or the occurrence of such event, such holder's TMCS Class A
Certificate will automatically be converted into and represent only the right to
receive the consideration to which such holder would have been entitled pursuant
to the TMCS Class A Exchange Ratio, without any interest thereon, upon surrender
of such TMCS Class A Certificate.
3.2 Cancellation of Newco Stock. At the Effective Time, each share of
the capital stock of Newco issued and outstanding immediately prior to the
Effective Time shall be cancelled and shall cease to exist.
3.3 Merger Subs Stock. At the Effective Time, each share of common
stock of L Merger Sub outstanding immediately prior to the Effective Time shall
be converted into and shall become one share of common stock of the Surviving
Corporation of the Lycos Merger. At the Effective Time, each share of common
stock of T Merger Sub outstanding immediately prior
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to the Effective Time shall be converted into and shall become one share of
common stock of the Surviving Corporation of the TMCS Merger.
3.4 Lycos Options. (a) At the Effective Time, each option granted by
Lycos to purchase shares of Lycos Common Stock which is outstanding and
unexercised immediately prior thereto shall cease to represent a right to
acquire shares of Lycos Common Stock and shall be converted automatically into
an option to purchase shares of Newco Common Stock and shares of Newco
Convertible Preferred Stock in an amount, at an exercise price and on the
vesting schedule determined as provided below (and otherwise subject to the
terms of the Lycos Stock Plans, as the case may be, and the agreements
evidencing grants thereunder):
(i) The number of shares of Newco Common Stock and of Newco
Convertible Preferred Stock, respectively, to be subject to the new
option shall be equal to (A) the product of the number of shares of
Lycos Common Stock subject to the original option and the Lycos Common
Exchange Ratio and (B) the product of the number of shares of Lycos
Common Stock subject to the original option and the Lycos Preferred
Exchange Ratio, provided that any fractional shares of Newco Common
Stock or Newco Convertible Preferred Stock resulting from such
calculations shall be rounded to the nearest whole share.
(ii) The exercise price for the combination of one share of
Newco Common Stock and a number of shares of Newco Convertible
Preferred Stock equal to the ratio of the Lycos Preferred Exchange
Ratio to the Lycos Common Exchange Ratio under the new option shall be
equal to the exercise price per share of Lycos Common Stock under the
original option divided by the Lycos Common Exchange Ratio, provided
that such exercise price shall be rounded to the nearest whole cent.
(iii) Each vesting date with respect to any such option or
portion thereof (other than those held by the Chief Executive Officer
of Lycos and the Chief Financial Officer of Lycos pursuant to
employment agreements dated as of the date hereof), to the extent such
date has not occurred prior to the Effective Time, shall be deemed to
be a date that is six months earlier than the original vesting date for
such option or portion thereof.
(b) The adjustment provided herein with respect to any options which
are "incentive stock options" (as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code")), shall be and is intended to be effected
in a manner which is consistent with Section 424(a) of the Code. The duration
and other terms of the new option shall be the same as the original option
except that all references to Lycos shall be deemed to be references to Newco.
(c) Notwithstanding anything to the contrary in this Section 3.4, each
of Lycos and Newco agrees to cooperate from and after the date hereof and before
the Effective Time to effect such amendments to the Lycos Stock Plans and the
agreements evidencing options thereunder so that each option converted pursuant
to this Section 3.4 shall be, if exercised following the period for conversion
of the Newco Convertible Preferred Stock, exercisable for such additional shares
of Newco Common Stock as the holder thereof would have been entitled to receive
in respect of a share of Newco Convertible Preferred Stock covered by such
option had such option been ex-
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ercised and such share of Newco Convertible Preferred Stock converted during
such period for conversion.
3.5 TMCS Class B Options. (a) At the Effective Time, each option
granted by TMCS to purchase shares of TMCS Class B Common Stock which is
outstanding and unexercised immediately prior thereto shall cease to represent a
right to acquire shares of TMCS Class B Common Stock and shall be converted
automatically into an option to purchase shares of Newco Common Stock and of
Newco Convertible Preferred Stock in an amount and at an exercise price
determined as provided below (and otherwise subject to the terms of the TMCS
Stock Plans, as the case may be, and the agreements evidencing grants
thereunder):
(i) The number of shares of Newco Common Stock and of Newco
Convertible Preferred Stock, respectively, to be subject to the new
option shall be equal to (A) the product of the number of shares of
TMCS Class B Common Stock subject to the original option and the Class
B Exchange Ratio and (B) the product of the number of shares of TMCS
Class B Common Stock subject to the original option and the TMCS
Preferred Exchange Ratio, provided that any fractional shares of Newco
Common Stock or of Newco Convertible Preferred Stock resulting from
such calculations shall be rounded to the nearest whole share; and
(ii) The exercise price for the combination of one share of
Newco Common Stock and a number of shares of Newco Convertible
Preferred Stock equal to the ratio of the TMCS Preferred Exchange Ratio
to the Class B Exchange Ratio under the new option shall be equal to
the exercise price per share of TMCS Class B Common Stock under the
original option divided by the TMCS Common Exchange Ratio, provided
that such exercise price shall be rounded to the nearest whole cent.
(b) The adjustment provided herein with respect to any options which
are "incentive stock options" shall be and is intended to be effected in a
manner which is consistent with Section 424(a) of the Code. The duration and
other terms of the new option shall be the same as the original option except
that all references to TMCS shall be deemed to be references to Newco.
(c) Notwithstanding anything to the contrary in Section 3.5(a) or
3.6(a), each of Newco and TMCS agrees to cooperate from and after the date
hereof and before the Effective Time to effect such amendments to the TMCS Stock
Plans and the agreements evidencing options thereunder so that each option to
purchase TMCS Class B Common Stock or TMCS Class A Common Stock converted
pursuant to Section 3.5(a) or 3.6(a) shall be, if exercised following the period
for conversion of the Newco Convertible Preferred Stock, exercisable for such
additional shares of Newco Common Stock as the holder thereof would have been
entitled to receive in respect of a share of Newco Convertible Preferred Stock
covered by such option had such option been exercised and such share of Newco
Convertible Preferred Stock converted on the Conversion Date (as such term is
defined in Exhibit B hereto).
3.6 TMCS Class A Options. (a) At the Effective Time, each option
granted by TMCS to purchase shares of TMCS Class A Common Stock which is
outstanding and unexer-
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cised immediately prior thereto shall cease to represent a right to acquire
shares of TMCS Class A Common Stock and shall be converted automatically into an
option to purchase shares of Newco Common Stock and Newco Convertible Preferred
Stock in an amount and at an exercise price determined as provided below (and
otherwise subject to the terms of the TMCS Stock Plans, as the case may be, and
the agreements evidencing grants thereunder):
(i) The number of shares of Newco Common Stock and Newco
Convertible Preferred Stock, respectively, to be subject to the new
option shall be equal to (A) the product of the number of shares of
TMCS Class A Common Stock subject to the original option and the Class
B Exchange Ratio and (B) the product of the number of shares of TMCS
Class A Common Stock subject to the original option and the TMCS
Preferred Exchange Ratio, provided that any fractional shares of Newco
Common Stock and Newco Convertible Preferred Stock resulting from such
calculations shall be rounded to the nearest whole share; and
(ii) The exercise price for the combination of one share of
Newco Common Stock and a number of shares of Newco Convertible
Preferred Stock equal to the ratio of the TMCS Preferred Exchange Ratio
to the Class B Exchange Ratio under the new option shall be equal to
the exercise price per share of TMCS Class A Common Stock under the
original option divided by the Class B Exchange Ratio, provided that
such exercise price shall be rounded to the nearest whole cent.
(b) The adjustment provided herein with respect to any options which
are "incentive stock options" shall be and is intended to be effected in a
manner which is consistent with Section 424(a) of the Code. The duration and
other terms of the new option shall be the same as the original option except
that all references to TMCS shall be deemed to be references to Newco.
3.7 Tax Consequences. It is intended that each of the Lycos Merger and
the TMCS Merger shall constitute a "reorganization" within the meaning of
Section 368(a) of the Code, that this Agreement shall constitute a "plan of
reorganization" for the purposes of Sections 354 and 361 of the Code and that
the Reorganization and the Contribution, taken together, shall constitute an
exchange of the kind described in Section 351 of the Code.
ARTICLE IV
EXCHANGE OF SHARES
4.1 Newco to Make Shares Available. At or prior to the Effective Time,
Newco shall deposit, or shall cause to be deposited, with a bank or trust
company designated by Newco and reasonably acceptable to Lycos and TMCS (the
"Exchange Agent"), for the benefit of the holders of Lycos Certificates, TMCS
Class A Certificates and TMCS Class B Certificates, for exchange in accordance
with this Article IV, certificates representing the shares of Newco Common
Stock, Newco Class B Common Stock, and Newco Convertible Preferred Stock (such
certificates, together with any dividends or distributions with respect thereto,
being hereinafter referred to as the "Exchange Fund"), to be issued pursuant to
Section 3.1 and paid pursuant to Section 4.2(a) in
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exchange for outstanding shares of Lycos Common Stock, TMCS Class A Common Stock
and TMCS Class B Common Stock, as the case may be.
4.2 Exchange of Shares. (a) As soon as practicable after the Effective
Time, and in no event later than five business days thereafter, the Exchange
Agent shall mail to each holder of record of one or more Lycos Certificates,
TMCS Class A Certificates and TMCS Class B Certificates a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to such certificates shall pass, only upon delivery of the certificates to the
Exchange Agent) and instructions for use in effecting the surrender of such
certificates in exchange for certificates representing the shares of Newco
Common Stock, Newco Class B Common Stock, Newco Convertible Preferred Stock, as
the case may be, and any cash in lieu of fractional shares into which the shares
represented by such certificate or certificates shall have been converted
pursuant to this Agreement. Upon proper surrender of a Lycos Certificate, TMCS
Class A Certificate or TMCS Class B Certificate or Certificates, as the case may
be, for exchange and cancellation to the Exchange Agent, together with such
properly completed letter of transmittal, duly executed, and any other required
documents the holder of such certificate or certificates shall be entitled to
receive in exchange therefor, as applicable, (i) a certificate representing that
number of whole shares of Newco Common Stock and a certificate representing that
number of shares of Newco Convertible Preferred Stock, in the case of a holder
of Lycos Common Stock or a holder of TMCS Class B Common Stock, or a certificate
representing that number of whole shares of Newco Class B Common Stock, in the
case of a holder of TMCS Class A Common Stock, in each case, to which such
holder shall have become entitled pursuant to the provisions of Article III and
(ii) a check representing the amount of any cash in lieu of fractional shares
which such holder has the right to receive in respect of the certificate or
certificates surrendered pursuant to the provisions of this Article IV, and the
certificate or certificates so surrendered shall forthwith be cancelled. No
interest will be paid or accrued on any cash in lieu of fractional shares or on
any unpaid dividends and distributions payable to holders of such certificates.
(b) No dividends or other distributions declared with respect to Newco
Common Stock, Newco Class B Common Stock or Newco Convertible Preferred Stock
and payable to holders of record thereof after the Effective Time shall be paid
to the holder of any unsurrendered Lycos Certificate, TMCS Class A Certificate
or TMCS Class B Certificate until the holder thereof shall surrender such
certificate in accordance with this Article IV. After the surrender of such a
certificate in accordance with this Article IV, the record holder thereof shall
be entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares of
Newco Common Stock, Newco Class B Common Stock and Newco Convertible Preferred
Stock represented by such certificate.
(c) If any certificate representing shares of Newco Common Stock, Newco
Class B Common Stock or Newco Convertible Preferred Stock is to be issued in a
name other than that in which the certificate or certificates surrendered in
exchange therefor is or are registered, it shall be a condition of the issuance
thereof that the certificate or certificates so surrendered shall be properly
endorsed (or accompanied by an appropriate instrument of transfer) and otherwise
in proper form for transfer, and that the person requesting such exchange shall
pay to the Exchange Agent in advance any transfer or other taxes required by
reason of the issuance of a certificate
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representing shares of Newco Common Stock, Newco Class B Common Stock or Newco
Convertible Preferred Stock in any name other than that of the registered holder
of the certificate or certificates surrendered, or required for any other
reason, or shall establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not payable.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of Lycos of the shares of Lycos Common Stock, or on the stock
transfer books of TMCS of shares of TMCS Class A Common Stock or TMCS Class B
Common Stock, in each case, that were issued and outstanding immediately prior
to the Effective Time. If, after the Effective Time, certificates representing
such shares are presented for transfer to the Exchange Agent, they shall be
cancelled and exchanged for certificates representing shares of Newco Common
Stock, or Newco Class B Common Stock and Newco Convertible Preferred Stock, in
each case, as provided in this Article IV.
(e) No Issuance of Fractional Shares
(i) No certificates or scrip for fractional shares of Newco
Common Stock or Newco Class B Common Stock shall be issued upon the
surrender for exchange of Lycos Certificates, TMCS Class A Certificates
or TMCS Class B Certificates, and such fractional share interests will
not entitle the owner thereof to vote or to any rights as a stockholder
of Newco.
(ii) As promptly as practicable following the Effective Time,
the Exchange Agent shall determine (A) the excess of the number of full
shares of Newco Common Stock delivered to the Exchange Agent by Newco
pursuant to Section 4.1 over the aggregate number of full shares of
Newco Common Stock to be distributed to holders of Lycos Common Stock
and TMCS Class B Common Stock pursuant to Section 4.2(a) (such excess
being herein called the "Excess Common Shares") and (B) the excess of
the number of full shares of Newco Class B Common Stock delivered to
the Exchange Agent by Newco pursuant to Section 4.1 over the aggregate
number of full shares of Newco Class B Common Stock to be distributed
to holders of TMCS Class A Common Stock pursuant to Section 4.2(a)
(such excess being herein called the "Excess Class B Shares" and,
together with the Excess Common Shares, the "Excess Shares"). As soon
after the Effective Time as practicable, the Exchange Agent, as agent
for the holders of Newco Common Stock and Newco Class B Common Stock,
as the case may be, shall sell the Excess Common Shares and Excess
Class B Shares at then prevailing prices for Newco Common Stock (it
being understood that the Excess Class B Shares shall first be
converted pursuant to their terms to shares of Newco Common Stock prior
to such sale) on the Nasdaq National Market tier of The Nasdaq Stock
Market ("Nasdaq"), all in the manner provided in paragraph (iii) of
this Section 4.2(e).
(iii) The sale of the Excess Shares by the Exchange Agent
shall be executed on Nasdaq by one or more member firms of the National
Association of Securities Dealers, Inc. (the "NASD") and shall be
executed in round lots to the extent practicable. Until the net
proceeds of such sale or sales have been distributed to the holders of
Newco
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Common Stock or Newco Class B Common Stock, as the case may be, the
Exchange Agent shall hold such proceeds in trust for the holders of
such stock (the "Shares Trust"). Newco shall pay all commissions,
transfer taxes and other out-of-pocket transaction costs, including the
expenses and compensation of the Exchange Agent incurred in connection
with such sale of the Excess Shares. The Exchange Agent shall determine
the portion of the Shares Trust to which each holder of Newco Common
Stock or Newco Class B Common Stock shall be entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the
Shares Trust by a fraction, the numerator of which is the amount of the
fractional share interest to which such holder of Newco Common Stock or
Newco Class B Common Stock, as applicable, is entitled and the
denominator of which is the aggregate amount of fractional share
interests to which all holders of Newco Common Stock or Newco Class B
Common Stock, as applicable, are entitled.
(iv) As soon as practicable after the determination of the
amount of cash, if any, to be paid to the holders of Newco Common Stock
and Newco Class B Common Stock, as the case may be, in lieu of
fractional share interests, the Exchange Agent shall make available
such amounts to such holders, net of any applicable withholding tax.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Lycos or TMCS for 12 months after the Effective Time shall be
paid to Newco. Any former stockholders of Lycos or TMCS who have not theretofore
complied with this Article IV shall thereafter look only to Newco for payment of
the shares of Newco Common Stock, Newco Class B Common Stock, Newco Convertible
Preferred Stock, cash in lieu of any fractional shares and any unpaid dividends
and distributions on Newco Common Stock, Newco Class B Common Stock or Newco
Convertible Preferred Stock deliverable in respect of each share of Lycos Common
Stock, TMCS Class A Common Stock or TMCS Class B Common Stock, as the case may
be, such stockholder holds as determined pursuant to this Agreement, in each
case, without any interest thereon. Notwithstanding the foregoing, none of
Lycos, TMCS, Newco, the Exchange Agent or any other person shall be liable to
any former holder of shares of Lycos Common Stock, TMCS Class A Common Stock or
TMCS Class B Common Stock for any amount delivered in good faith to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(g) In the event any Lycos Certificate, TMCS Class A Certificate or
TMCS Class B Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such certificate to
be lost, stolen or destroyed and, if reasonably required by Newco, the posting
by such person of a bond in such amount as Newco may determine is reasonably
necessary as indemnity against any claim that may be made against it with
respect to such certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed certificate the shares of Newco Common Stock, Newco
Class B Common Stock, Newco Convertible Preferred Stock and any cash in lieu of
fractional shares deliverable in respect thereof pursuant to this Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TMCS
Except as disclosed in the TMCS disclosure schedule delivered to Lycos
and Newco concurrently herewith (the "TMCS Disclosure Schedule") and subject to
the standard set forth in Section 12.10, TMCS hereby represents and warrants to
Lycos and Newco as follows:
5.1 Corporate Organization. (a) TMCS is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
TMCS has the corporate power and authority to own or lease all of its properties
and assets and to carry on its business as it is now being conducted, and is
duly licensed or qualified to do business in each jurisdiction in which the
nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not, either individually or in the aggregate, have a Material Adverse
Effect on TMCS. As used in this Agreement, the term "Material Adverse Effect"
means, with respect to Lycos or TMCS, as the case may be, a material adverse
effect on (i) the business, operations, results of operations or financial
condition of such party and its Subsidiaries taken as a whole or (ii) the
ability of such party to timely consummate the transactions contemplated hereby.
As used in this Agreement, the word "Subsidiary" when used with respect to any
party, means any corporation, partnership, limited liability company, or other
organization, whether incorporated or unincorporated, which is consolidated with
such party for financial reporting purposes. True and complete copies of the
Amended and Restated Certificate of Incorporation of TMCS ( the "TMCS Charter")
and Amended and Restated By-Laws of TMCS (the "TMCS Bylaws"), as in effect as of
the date of this Agreement, have previously been made available by TMCS to Newco
and Lycos.
(b) Each TMCS Subsidiary (i) is duly organized and validly existing
under the laws of its jurisdiction of organization, (ii) is duly qualified to do
business and, if applicable, in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and in which the
failure to be so qualified would have a Material Adverse Effect on TMCS and
(iii) has all requisite corporate, partnership or similar power and authority to
own or lease its properties and assets and to carry on its business as now
conducted.
5.2 Capitalization. (a) The authorized capital stock of TMCS consists
of (i) 352,883,506 shares of TMCS Common Stock of which 100 million shares are
designated as shares of TMCS Class A Common Stock, 250 million shares are
designated as shares of TMCS Class B Common Stock and 2,883,506 shares are
designated as shares of TMCS Class C Common Stock, and (ii) 2 million shares of
preferred stock, par value $.01 per share, of TMCS ("TMCS Preferred Stock"). As
of February 5, 1999, 63,070,884 shares of TMCS Class A Common Stock were issued
and outstanding and no shares thereof were held in treasury, 8,392,109 shares of
TMCS Class B Common Stock were issued and outstanding and no shares thereof were
held in treasury, no shares of TMCS Class C Common Stock were issued and
outstanding or held in treasury, and no shares of TMCS Preferred Stock were
outstanding or held in treasury. All of
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the issued and outstanding shares of TMCS Common Stock (together with the TMCS
Preferred Stock, the "TMCS Capital Stock") have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. As of the date of this
Agreement, except pursuant to this Agreement, the outstanding TMCS Class A
Common Stock and the terms of stock options issued pursuant to the 1998 Employee
Stock Purchase Plan and the CitySearch, Inc. 1996 Stock Option Plan as in effect
as of the date hereof (the "TMCS Stock Plans"), TMCS does not have and is not
bound by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of TMCS Capital Stock or any other equity securities of TMCS or any securities
representing the right to purchase or otherwise receive any shares of TMCS
Capital Stock. As of the date hereof, no shares of TMCS Capital Stock were
reserved for issuance, except for (i) shares of TMCS Class A Common Stock and,
as disclosed on Schedule 5.2(a) of the TMCS Disclosure Schedule, shares of TMCS
Class B Common Stock reserved for issuance upon the exercise of stock options
pursuant to the TMCS Stock Plans, (ii) shares of TMCS Class B Common Stock
reserved for issuance upon conversion of the outstanding shares of TMCS Class A
Common Stock; and (iii) approximately 800,000 shares reserved for issuance or
which TMCS otherwise is committed to issue in respect of the transactions
contemplated by the definitive agreement to acquire City Auction. Since February
5, 1999, TMCS has not issued any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock. TMCS has
previously provided or promptly after the date hereof will provide Lycos and
Newco with a list of the option holders, the date of each option to purchase
TMCS Common Stock granted, the number of shares subject to each such option, the
expiration date of each such option, and the price at which each such option may
be exercised under the applicable TMCS Stock Plan.
(b) TMCS owns, directly or indirectly, all of the issued and
outstanding shares of capital stock or other equity ownership interests of each
of the TMCS Subsidiaries, free and clear of any liens, pledges, charges,
encumbrances and security interests whatsoever ("Liens"), and all of such shares
or equity ownership interests are duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. No TMCS Subsidiary has or is bound
by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of capital stock or any other equity security of such Subsidiary or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of such Subsidiary.
5.3 Authority; No Violation. (a) TMCS has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized (including such authorization as may be required so that no
state anti-takeover statute or similar statute or regulation, including, without
limitation, Section 203 of the DGCL, is or becomes operative with respect to
this Agreement or the transactions contemplated hereby) and this Agreement has
been duly and validly adopted, by the Board of Directors of TMCS. The Board of
Directors of TMCS has directed that an information statement describing this
Agreement and the transactions contemplated hereby be mailed
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to TMCS's stockholders and, except for (i) obtaining the requisite vote of the
holders of TMCS Class A Common Stock and TMCS Class B Common Stock, voting
together as a single class, for the adoption of this Agreement and the
transactions contemplated hereby (it being understood that, pursuant to Section
9.4(b) hereof, Parent has agreed to cause to be voted in favor of the adoption
of this Agreement the shares of TMCS Class A Common Stock it owns or the votes
of which it controls, and that such number of shares is sufficient to obtain
such stockholder approval) and (ii) the filing by TMCS with the Delaware
Secretary of State of a certificate of merger with respect to the TMCS Merger
and the matters contemplated by Article I of this Agreement, no other corporate
proceedings on the part of TMCS are necessary to approve this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by TMCS and (assuming due authorization,
execution and delivery by the other parties hereto) constitutes a valid and
binding obligation of TMCS, enforceable against TMCS in accordance with its
terms (except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally and
the availability of equitable remedies).
(b) Neither the execution and delivery of this Agreement by TMCS nor
the consummation by TMCS of the transactions contemplated hereby, nor compliance
by TMCS with any of the terms or provisions hereof, will (i) violate any
provision of the TMCS Charter or TMCS By-Laws or (ii) assuming that the consents
and approvals referred to in Section 5.4 are duly obtained, (A) violate any
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to TMCS, any of its Subsidiaries or any of their
respective properties or assets or (B) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of TMCS or any of its Subsidiaries under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which TMCS or any of its
Subsidiaries is a party, or by which they or any of their respective properties
or assets may be bound or affected, except (in the case of clause (ii) above)
for such violations, conflicts, breaches or defaults which, either individually
or in the aggregate, will not have a Material Adverse Effect on TMCS.
5.4 Consents and Approvals. Except for (i) the filing of the pre-merger
notification report under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (ii) the filing of any required applications
or notices with any state or foreign agencies and approval of such applications
and notices (the "Government Approvals"), (iii) the filing with the Securities
and Exchange Commission (the "SEC") of a joint proxy/information statement in
definitive form relating to the meeting of Lycos's stockholders to be held in
connection with this Agreement and the transactions contemplated hereby (which
shall also constitute an information statement in definitive form to be mailed
to TMCS stockholders) (the "Proxy/Information Statement"), and of the
registration statement on Form S-4 (the "S-4") of Newco in which the
Proxy/Information Statement will be included as a prospectus, (iv) the filing of
Certificates of Merger with respect to the TMCS Merger and the Lycos Merger with
the Secretary of State of the State of Delaware pursuant to the DGCL, (v) such
filings and approvals as are required to be
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made or obtained under the securities or "Blue Sky" laws of various states in
connection with the issuance of the shares of Newco Capital Stock pursuant to
this Agreement, (vi) the filing of applications for the authorization for
quotation on Nasdaq of the shares of Newco Common Stock and Newco Convertible
Preferred Stock to be issued pursuant to the Transactions and the approvals
thereof and (vii) the approval of this Agreement by the requisite vote of the
stockholders of Lycos and TMCS, no consents or approvals of or filings or
registrations with any court, administrative agency or commission or other
governmental authority or instrumentality (each a "Governmental Entity") are
necessary in connection with (A) the execution and delivery by TMCS of this
Agreement and (B) the consummation by TMCS of the Reorganization and the other
transactions contemplated hereby.
5.5 Financial Statements. TMCS has previously made available to Lycos
copies of (a) the unaudited condensed balance sheets of TMCS and its
Subsidiaries as of December 31, 1998, and the related unaudited condensed
combined statements of operations for the year ended December 31, 1998 and the
fiscal year ended January 31, 1998; (b) the audited balance sheets of TMCS as of
January 31, 1997 and 1998 and the related statements of operations,
stockholders' equity and cash flows for the three fiscal years in the period
ended January 31, 1998, in each case, accompanied by the audit report of Ernst
and Young LLP, independent public accountants with respect to TMCS; and (c) the
audited consolidated balance sheets of the predecessors of TMCS as of December
31, 1996 and 1997 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the period commencing
September 20, 1995 and ending on December 31, 1997, in each case, accompanied by
the audit report of Ernst and Young LLP, independent public accountants with
respect to the predecessor of TMCS; in each case, except for subsection 5.5(a),
as set forth in the prospectus, dated December 2, 1998, filed with the SEC on
December 2, 1998 (the "TMCS Prospectus"). The unaudited condensed balance sheet
of TMCS as of December 31, 1998, together with the notes thereto, is referred to
herein as the "TMCS Balance Sheet". The TMCS Balance Sheet (including the
related notes, where applicable) is based on the historical financial statements
of TMCS and the predecessors to TMCS as adjusted. The financial statements
should be read in conjunction with the audited and unaudited financial
statements, including the related notes where applicable, of TMCS and the
predecessor to TMCS. The TMCS Balance Sheet fairly presents in all material
respects the consolidated financial position of TMCS and its Subsidiaries as of
the date thereof. The audited and unaudited historical financial statements
referred to in this Section 5.5 (including the related notes, where applicable)
fairly present in all material respects the results of the consolidated
operations and changes in stockholders' equity and consolidated financial
position of TMCS and its Subsidiaries or, as the case may be, its predecessors,
for the respective fiscal periods or as of the respective dates therein set
forth, subject to normal adjustments in the case of unaudited statements; each
of such statements (including the related notes, where applicable) complies in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto; and each of
such statements (including the related notes, where applicable) has been
prepared in all material respects in accordance with United States generally
accepted accounting principles ("GAAP") consistently applied during the periods
involved, except, in each case, as indicated in such statements or in the notes
thereto. The books and records of TMCS and its Subsidiaries have been, and are
being, maintained in all material respects in ac-
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cordance with GAAP and any other applicable legal and accounting requirements
and reflect only actual transactions.
5.6 Broker's Fees. Other than Goldman, Sachs & Co. ("Goldman Sachs"),
neither TMCS nor any TMCS Subsidiary nor any of their respective officers or
directors has employed any broker or finder or incurred any liability for any
broker's fees, commissions or finder's fees in connection with the Transactions.
A true and complete copy of Goldman Sachs' engagement letter with respect to the
Transactions has been previously delivered to the other parties hereto.
5.7 Absence of Certain Changes or Events. (a) Except as publicly
disclosed in the TMCS Reports filed prior to the date hereof, since January 31,
1998, no event or events have occurred that have had, either individually or in
the aggregate, a Material Adverse Effect on TMCS.
(b) Except as disclosed in the TMCS Reports filed prior to the date
hereof, since January 31, 1998, TMCS and its Subsidiaries have carried on their
respective businesses in all material respects in the ordinary course.
(c) Since January 31, 1998, neither TMCS nor any of its Subsidiaries
has (i) except for such actions as are in the ordinary course of business or
except as required by applicable law, (A) increased the wages, salaries,
compensation, pension, or other fringe benefits or perquisites payable to any
executive officer, employee, or director from the amount thereof in effect as of
January 31, 1998, or (B) granted any severance or termination pay, entered into
any contract to make or grant any severance or termination pay, or paid any
bonuses (other than customary year-end bonuses for the year ended December 31,
1998) or (ii) suffered any strike, work stoppage, slowdown, or other labor
disturbance which will, either individually or in the aggregate, have a Material
Adverse Effect on TMCS.
5.8 Legal Proceedings. (a) Except as disclosed in the TMCS Reports
filed prior to the date hereof, neither TMCS nor any of its Subsidiaries is a
party to any, and there are no pending or, to the best of TMCS's knowledge,
threatened, legal, administrative, arbitral or other proceedings, claims,
actions or governmental or regulatory investigations of any nature against TMCS
or any of its Subsidiaries or challenging the validity or propriety of the
transactions contemplated by this Agreement or the Option Agreements which, in
any such case, is reasonably likely, either individually or in the aggregate, to
have a Material Adverse Effect on TMCS.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon TMCS, any of its Subsidiaries or the assets of TMCS or
any of its Subsidiaries that has had, or will have, either individually or in
the aggregate, a Material Adverse Effect on TMCS.
5.9 Taxes and Tax Returns. (a) Each of TMCS and its Subsidiaries has
duly filed all federal, state, foreign and local information returns and tax
returns required to be filed by it on or prior to the date hereof (all such
returns being accurate and complete in all material respects) and has duly paid
or made adequate provision for the payment of all Taxes and other governmental
charges which have been incurred or are due or claimed to be due from it by
federal, state, foreign or local taxing authorities on or prior to the date of
this Agreement (including, without
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limitation, if and to the extent applicable, those due in respect of its
properties, income, business, capital stock, deposits, franchises, licenses,
sales and payrolls) other than information returns, tax returns, Taxes or other
governmental charges as to which the failure to file, pay or make provision for
will not, either individually or in the aggregate, have a Material Adverse
Effect on TMCS. Except as would not, individually or in the aggregate, have a
Material Adverse Effect on TMCS, there are no disputes pending, or claims
asserted for, Taxes or assessments upon TMCS or any of its Subsidiaries for
which TMCS does not have adequate reserves. In addition, (A) proper and accurate
amounts have been withheld by TMCS and its Subsidiaries from their employees for
all prior periods in compliance in all material respects with the tax
withholding provisions of applicable federal, state and local laws, except where
failure to do so will not, either individually or in the aggregate, have a
Material Adverse Effect on TMCS, (B) federal, state, and local returns which are
accurate and complete in all material respects have been filed by TMCS and its
Subsidiaries for all periods for which returns were due with respect to income
tax withholding, Social Security and unemployment taxes, except where failure to
do so will not, either individually or in the aggregate, have a Material Adverse
Effect on TMCS, (C) the amounts shown on such federal, state or local returns to
be due and payable have been paid in full or adequate provision therefor has
been included by TMCS in its consolidated financial statements, except where
failure to do so will not, either individually or in the aggregate, have a
Material Adverse Effect on TMCS and (D) there are no Tax liens upon any property
or assets of TMCS or its Subsidiaries except liens for current taxes not yet due
or liens that will not, either individually or in the aggregate, have a Material
Adverse Effect on TMCS. Neither TMCS nor any of its Subsidiaries has been
required to include in income any adjustment pursuant to Section 481 of the Code
by reason of a voluntary change in accounting method initiated by TMCS or any of
its Subsidiaries, and the Internal Revenue Service (the "IRS") has not initiated
or proposed any such adjustment or change in accounting method, in either case
which has had or will have, either individually or in the aggregate, a Material
Adverse Effect on TMCS. Except as set forth in the financial statements
described in Section 6.5, neither TMCS nor any of its Subsidiaries has entered
into a transaction which is being accounted for as an installment obligation
under Section 453 of the Code, which will have, either individually or in the
aggregate, a Material Adverse Effect on TMCS.
(b) As used in this Agreement, the term "Tax" or "Taxes" means all
federal, state, local, and foreign income, excise, gross receipts, gross income,
ad valorem, profits, gains, property, capital, sales, transfer, use, payroll,
employment, severance, withholding, duties, intangibles, franchise, backup
withholding, and other taxes, charges, levies or like assessments together with
all penalties and additions to tax and interest thereon.
(c) No disallowance of a deduction under Section 162(m) of the Code for
employee remuneration of any amount paid or payable by TMCS or any Subsidiary of
TMCS under any contract, plan, program, arrangement or understanding will have,
either individually or in the aggregate, a Material Adverse Effect on TMCS.
5.10 Employees. (a) Promptly following the date hereof, TMCS will
deliver a true and complete list of each material employee or director benefit
plan, arrangement or agreement that is maintained, or contributed to, as of the
date of this Agreement (the "TMCS Benefit
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Plans") by TMCS, any of its Subsidiaries or by any trade or business, whether or
not incorporated (a "TMCS ERISA Affiliate"), all of which together with TMCS
would be deemed a "single employer" within the meaning of Section 4001 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) TMCS has heretofore made or promptly following the date hereof will
make available to Lycos true and complete copies of each of the TMCS Benefit
Plans and certain related documents, including, but not limited to, (i) the
actuarial report for such TMCS Benefit Plan (if applicable) for each of the last
two years and (ii) the most recent determination letter from the IRS (if
applicable) for such TMCS Benefit Plan.
(c) (i) Each of the TMCS Benefit Plans has been operated and
administered in all material respects in compliance with applicable laws,
including, but not limited to, ERISA and the Code, (ii) each of the TMCS Benefit
Plans intended to be "qualified" within the meaning of Section 401(a) of the
Code is so qualified, and there are no existing circumstances or any events that
have occurred that will adversely affect the qualified status of any such TMCS
Benefit Plan, (iii) with respect to each TMCS Benefit Plan that is subject to
Title IV of ERISA, the present value of accrued benefits under such TMCS Benefit
Plan, based upon the actuarial assumptions used for funding purposes in the most
recent actuarial report prepared by such TMCS Benefit Plan's actuary with
respect to such TMCS Benefit Plan, did not, as of its latest valuation date,
exceed the then current value of the assets of such TMCS Benefit Plan allocable
to such accrued benefits, (iv) no TMCS Benefit Plan provides benefits,
including, without limitation, death or medical benefits (whether or not
insured), with respect to current or former employees or directors of TMCS or
its Subsidiaries beyond their retirement or other termination of service, other
than (A) coverage mandated by applicable law, (B) death benefits or retirement
benefits under any "employee pension plan" (as such term is defined in Section
3(2) of ERISA), (C) deferred compensation benefits accrued as liabilities on the
books of TMCS or its Subsidiaries or (D) benefits the full cost of which is
borne by the current or former employee or director (or his beneficiary), (v) no
material liability under Title IV of ERISA has been incurred by TMCS, its
Subsidiaries or any TMCS ERISA Affiliate that has not been satisfied in full,
and no condition exists that presents a material risk to TMCS, its Subsidiaries
or any TMCS ERISA Affiliate of incurring a material liability thereunder, (vi)
no TMCS Benefit Plan is a "multiemployer pension plan" (as such term is defined
in Section 3(37) of ERISA), (vii) all contributions or other amounts payable by
TMCS or its Subsidiaries as of the Effective Time with respect to each TMCS
Benefit Plan in respect of current or prior plan years have been paid or accrued
in accordance with GAAP and Section 412 of the Code, (viii) none of TMCS, its
Subsidiaries or any other person, including any fiduciary, has engaged in a
transaction in connection with which TMCS, its Subsidiaries or any TMCS Benefit
Plan will be subject to either a material civil penalty assessed pursuant to
Section 409 or 502(i) of ERISA or a material tax imposed pursuant to Section
4975 or 4976 of the Code, and (ix) to the best knowledge of TMCS there are no
pending, threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of the TMCS Benefit Plans or any
trusts related thereto that will have, either individually or in the aggregate,
a Material Adverse Effect on TMCS.
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(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone or in
conjunction with any other event) (i) result (either alone or upon the
occurrence of any additional acts or events) in any payment (including, without
limitation, severance, unemployment compensation, "excess parachute payment"
(within the meaning of Section 280G of the Code), forgiveness of indebtedness or
otherwise) becoming due to any director or any employee of TMCS or any of its
affiliates from TMCS or any of its affiliates under any TMCS Benefit Plan or
otherwise, (ii) increase any benefits otherwise payable under any TMCS Benefit
Plan or (iii) result in any acceleration of the time of payment or vesting of
any such benefits which will, either individually or in the aggregate, have a
Material Adverse Effect on TMCS.
5.11 SEC Reports. TMCS has previously made available to Lycos an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1998 by
TMCS or any of its predecessors with the SEC pursuant to the Securities Act of
1933, as amended (the "Securities Act"), or the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (the "TMCS Reports") and prior to the date
hereof and (b) communication mailed by TMCS or any of its predecessors to its
stockholders since January 1, 1998 and prior to the date hereof, and no such
TMCS Report or communication (including without limitation the TMCS Prospectus),
as of the date thereof, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading, except that information as of a later date (but
before the date hereof) shall be deemed to modify information as of an earlier
date. Since January 1, 1998, as of their respective dates, all TMCS Reports
filed under the Securities Act and the Exchange Act complied in all material
respects with the published rules and regulations of the SEC with respect
thereto.
5.12 Compliance with Applicable Law. Except as disclosed in the TMCS
Reports filed prior to the date hereof, TMCS and each of its Subsidiaries hold
all material licenses, franchises, permits and authorizations necessary for the
lawful conduct of their respective businesses under and pursuant to each, and
have complied in all material respects with and are not in default in any
material respect under any, applicable law, statute, order, rule, regulation,
policy and/or guideline of any Governmental Entity relating to TMCS or any of
its Subsidiaries, except where the failure to hold such license, franchise,
permit or authorization or such noncompliance or default will not, either
individually or in the aggregate, have a Material Adverse Effect on TMCS.
5.13 Intellectual Property; Proprietary Rights; Employee Restrictions.
(a) All material registered copyrights, copyright registrations and copyright
applications, trademark registrations and applications for registration, patents
and patent applications, trademarks, service marks, trade names, or Internet
domain names (collectively, "Intellectual Property Rights") used by TMCS or its
Subsidiaries in their respective businesses, are owned by TMCS or such
Subsidiaries by operation of law, or have been validly assigned to TMCS or such
Subsidiaries or TMCS otherwise has the right to use such Intellectual Property
Rights in its business as currently conducted. TMCS believes that the
Intellectual Property Rights are sufficient to carry on the business of TMCS as
presently conducted. TMCS or one of its Subsidiaries has exclusive ownership
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of or a license to use all Intellectual Property Rights used by TMCS or its
Subsidiaries in TMCS's business as presently conducted, including all other
registered Intellectual Property Rights used in connection with or contained in
all versions of TMCS's World Wide Web sites and all licenses, assignments and
releases of Intellectual Property Rights of others without which TMCS or its
Subsidiaries could not offer the services they currently offer or has obtained
any licenses, releases or assignments reasonably necessary to use all third
parties' Intellectual Property Rights in works embodied in its services, except
as would not, individually or in the aggregate, have a Material Adverse Effect
on TMCS. The present business activities or products of TMCS do not infringe any
Intellectual Property Rights of others, except as would not, individually or in
the aggregate, have a Material Adverse Effect on TMCS. To its knowledge, TMCS
has not received any notice or other claim from any person asserting that any of
TMCS's present activities infringe or may infringe any Intellectual Property
Rights of such person.
(b) Except as would not have a Material Adverse Effect on TMCS or as
disclosed in the TMCS Reports filed prior to the date hereof, (i) TMCS has the
right to use all trade secrets, customer lists, hardware designs, programming
processes, software and other information required for its services or its
business as presently conducted or contemplated; (ii) TMCS has taken all
reasonable measures to protect and preserve the security and confidentiality of
its trade secrets and other confidential information; (iii) all employees and
consultants of TMCS or its Subsidiaries involved in the design, review,
evaluation or development of products or Intellectual Property Rights have
executed nondisclosure and assignment of inventions agreements to protect the
confidentiality of TMCS's trade secrets and other confidential information and
to vest in TMCS exclusive ownership of such Intellectual Property Rights; (iv)
to the knowledge of TMCS, all trade secrets and other confidential information
of TMCS are not part of the public domain or knowledge, nor, to the knowledge of
TMCS, have they been misappropriated by any person having an obligation to
maintain such trade secrets or other confidential information in confidence for
TMCS; and (v) to the knowledge of TMCS, no employee or consultant of TMCS or any
or its Subsidiaries has used any trade secrets or other confidential information
of any other person in the course of their work for TMCS or such Subsidiary.
(c) To the knowledge of TMCS, no university, government agency (whether
federal or state) or other organization sponsored research and development
conducted by TMCS or any of its Subsidiaries or has any claim of right to or
ownership of or other encumbrance upon the Intellectual Property Rights there of
TMCS. TMCS is not aware of any infringement by others of its copyrights or other
Intellectual Proprietary Rights in any of its technology or services, or any
violation of the confidentiality of any of its proprietary information. To
TMCS's knowledge, TMCS is not making unlawful use of any confidential
information or trade secrets of any past or present employees of TMCS or any of
its Subsidiaries. For the purposes of this Section 5.13, and except where the
context otherwise requires, Intellectual Property Rights also includes any and
all intellectual property rights, licenses, databases, computer programs and
other computer software user interfaces, know-how, trade secrets, customer
lists, proprietary technology, processes and formulae, source code, object code,
algorithms, architecture, structure, display screens, layouts, development
tools, instructions, templates, marketing materials created by TMCS or its
Subsidiaries, inventions, trade dress, logos and designs.
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5.14 Certain Contracts. (a) Neither TMCS nor any of its Subsidiaries is
a party to or bound by any contract, arrangement, commitment or understanding
(whether written or oral) (i) with respect to the employment of any directors,
officers or employees, other than in the ordinary course of business consistent
with past practice, (ii) which, upon the consummation or stockholder approval of
the Transactions will (either alone or upon the occurrence of any additional
acts or events) result in any payment (whether of severance pay or otherwise)
becoming due from TMCS, Newco, or any of their respective Subsidiaries to any
officer or employee thereof, (iii) which is a "material contract" (as such term
is defined in Item 601(b)(10) of Regulation S-K of the SEC) to be performed
after the date of this Agreement that has not been filed or incorporated by
reference in the TMCS Reports, (iv) which materially restricts the conduct of
any line of business by TMCS or upon consummation of the Transactions will
materially restrict the ability of Newco to engage in any line of business, (v)
with or to a labor union or guild (including any collective bargaining
agreement) or (vi) (including any stock option plan, stock appreciation rights
plan, restricted stock plan or stock purchase plan) any of the benefits of which
will be increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any stockholder approval or the consummation of the
Transactions, or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement. TMCS has
previously made or promptly following the date hereof will make available to
Lycos true and correct copies of all material employment and deferred
compensation agreements which are in writing and to which TMCS is a party. Each
contract, arrangement, commitment or understanding of the type described in this
Section 5.14(a), whether or not set forth in the TMCS Disclosure Schedule, is
referred to herein as a "TMCS Contract," and neither TMCS nor any of its
Subsidiaries knows of, or has received notice of, any violation of the above by
any of the other parties thereto which, either individually or in the aggregate,
will have a Material Adverse Effect on TMCS.
(b) (i) Each TMCS Contract is valid and binding on TMCS or any of its
Subsidiaries, as applicable, and in full force and effect, (ii) TMCS and each of
its Subsidiaries has in all material respects performed all obligations required
to be performed by it to date under each TMCS Contract, except where such
noncompliance, either individually or in the aggregate, will not have a Material
Adverse Effect on TMCS, and (iii) no event or condition exists which constitutes
or, after notice or lapse of time or both, will constitute, a material default
on the part of TMCS or any of its Subsidiaries under any such TMCS Contract,
except where such default, either individually or in the aggregate, will not
have a Material Adverse Effect on TMCS.
5.15 Undisclosed Liabilities. Except for those liabilities that are
fully reflected or reserved against on the consolidated TMCS Balance Sheet and
for liabilities incurred in the ordinary course of business consistent with past
practice, since September 28, 1998, neither TMCS nor any of its Subsidiaries has
incurred any liability of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether due or to become due) that, either
individually or in the aggregate, has had or will have a Material Adverse Effect
on TMCS.
5.16 Insurance. TMCS and its Subsidiaries have in effect insurance
coverage with reputable insurers or are self-insured, which in respect of
amounts, premiums, types and risks insured, constitutes reasonably adequate
coverage against all risks customarily insured against by
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bank holding companies and their subsidiaries comparable in size and operations
to TMCS and its Subsidiaries.
5.17 Environmental Liability. There are no legal, administrative,
arbitral or other proceedings, claims, actions, causes of action, private
environmental investigations or remediation activities or governmental
investigations of any nature seeking to impose, or that could reasonably result
in the imposition, on TMCS of any liability or obligation arising under common
law or under any local, state or federal environmental statute, regulation or
ordinance including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), pending
or, to TMCS's knowledge, threatened against TMCS, which liability or obligation
will, either individually or in the aggregate, have a Material Adverse Effect on
TMCS. To the knowledge of TMCS, there is no reasonable basis for any such
proceeding, claim, action or governmental investigation that would impose any
liability or obligation that will, individually or in the aggregate, have a
Material Adverse Effect on TMCS. TMCS is not subject to any agreement, order,
judgment, decree, letter or memorandum by or with any court, governmental
authority, regulatory agency or third party imposing any liability or obligation
with respect to the foregoing that will have, either individually or in the
aggregate, a Material Adverse Effect on TMCS.
5.18 State Takeover Laws. Section 203 of the DGCL will not apply to
this Agreement or any of the transactions contemplated hereby or thereby.
5.19 Year 2000 Compliance. TMCS has adopted and implemented a
commercially reasonable plan to provide (a) that the change of the year from
1999 to the year 2000 will not materially and adversely affect the information
and business systems or online operations of TMCS or its Subsidiaries and (b)
that the impacts of such change on the vendors and customers of TMCS and its
Subsidiaries will not have a Material Adverse Effect on TMCS. In TMCS's
reasonable best estimate, no expenditures materially in excess of currently
budgeted items previously disclosed to Lycos will be required in order to cause
the information and business systems of TMCS and its Subsidiaries to operate
properly following the change of the year 1999 to the year 2000. TMCS reasonably
expects that it will resolve any issues related to such change of the year in
accordance with the timetable contemplated by such plan (and in any event on a
timely basis in order to be resolved before the year 2000). Between the date of
this Agreement and the Effective Time, TMCS shall continue to use all
commercially reasonable efforts to implement such plan.
5.20 Certain Tax Matters. As of the date of this Agreement, TMCS has no
reason to believe that the Reorganization and the Contribution, taken together,
will not qualify as an exchange within the meaning of Section 351 of the Code.
5.21 Registration Statement. None of the information supplied or to be
supplied by TMCS in writing for inclusion or incorporation by reference in the
S-4 will, at the time it becomes effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. If at any
time prior to the meeting of the stockholders of Lycos to be held in connection
with the
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adoption of this Agreement, or any adjournment thereof, any event with respect
to TMCS, its officers and directors or any of its Subsidiaries shall, occur
which is required to be described in an amendment of, or a supplement to the
S-4, TMCS shall notify Newco and Lycos thereof by reference to this Section 5.21
and such event shall be so described. Any such amendment or supplement shall be
promptly filed with the SEC and, as and to the extent required by law,
disseminated to the stockholders of TMCS, and such amendment or supplement shall
comply in all material respects with all provisions of the Securities Act.
5.22 Ownership of Lycos Capital Stock. Neither TMCS nor any of it
Subsidiaries owns any shares of Lycos Capital Stock.
5.23 Opinion of Financial Advisors. The Special Committee of the Board
of Directors of TMCS has received the opinion, dated as of the date hereof, of
Goldman Sachs to the effect that the Class A Exchange Ratio, the Class B
Exchange Ratio and the TMCS Preferred Exchange Ratio in the TMCS Merger are,
taken as a whole, fair to the holders of TMCS Common Stock, other than Parent
and its Subsidiaries (other than TMCS), from a financial point of view.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF LYCOS
Except as disclosed in the Lycos disclosure schedule delivered to TMCS
and Newco concurrently herewith (the "Lycos Disclosure Schedule") and subject to
the standard set forth in Section 12.10, Lycos hereby represents and warrants to
TMCS and Newco as follows:
6.1 Corporate Organization. (a) Lycos is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Lycos has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not, either individually or in the aggregate, have a Material Adverse
Effect on Lycos. True and complete copies of the Restated Certificate of
Incorporation (the "Lycos Charter") and the Amended and Restated By-Laws of
Lycos (the "Lycos Bylaws"), as in effect as of the date of this Agreement, have
previously been made available by Lycos to Newco and TMCS.
(b) Each Lycos Subsidiary (i) is duly organized and validly existing
under the laws of its jurisdiction of organization, (ii) is duly qualified to do
business and in good standing in all jurisdictions (whether Federal, state,
local or foreign) where its ownership or leasing of property or the conduct of
its business requires it to be so qualified and in which the failure to be so
qualified would have a Material Adverse Effect on Lycos and (iii) has all
requisite corporate power and authority to own or lease its properties and
assets and to carry on its business as now conducted.
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6.2 Capitalization. (a) The authorized capital stock of Lycos consists
of 100,000,000 shares of Lycos Common Stock, of which, as of February 5, 1999,
43,174,101 shares were issued and outstanding, and 5,000,000 shares of preferred
stock, par value $.01 per share, of Lycos ("Lycos Preferred Stock" and, together
with Lycos Common Stock, "Lycos Capital Stock") of which as of the date hereof
no shares were issued and outstanding. As of the date hereof, not more than
1,000,000 shares of Lycos Common Stock are held in Lycos's treasury. As of the
date hereof, no shares of Lycos Common Stock or Lycos Preferred Stock were
reserved for issuance, except for (i) the shares of Lycos Common Stock issuable
pursuant to the Option Agreements, (ii) 15,100,000 shares reserved for issuance
pursuant to the Lycos 1995 Stock Option Plan, the Lycos 1996 Stock Option Plan,
the Lycos 1996 Non-Employee Director Stock Option Plan, the 1996 Employee Stock
Purchase Plan and other employee and director stock plans of Lycos in effect as
of the date hereof (the "Lycos Stock Plans") and (iii) up to 3,371,442 shares
reserved for issuance in respect of the transactions contemplated by the
definitive merger agreement entered into on October 5, 1998, and amended and
restated on November 23, 1998, by the Company and Wired Ventures Inc. (the
"Wired Merger Agreement"). All of the issued and outstanding shares of Lycos
Common Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. As of the date of this Agreement, except for
the Lycos Option Agreements, the Lycos Stock Plans, the Wired Merger Agreement
and as contemplated by the engagement letter described in Section 6.6 hereof,
Lycos does not have and is not bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
purchase or issuance of any shares of Lycos Capital Stock or any other equity
securities of Lycos or any securities representing the right to purchase or
otherwise receive any shares of Lycos Capital Stock. Since February 5, 1999,
Lycos has not issued any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock, other than
as permitted by Section 8.2(b) and pursuant to (A) the exercise of employee
stock options granted prior to such date and (B) pursuant to the Option
Agreements. Lycos has previously provided or promptly after the date hereof will
provide TMCS and Newco with a list of the option holders, the date of each
option to purchase Lycos Common Stock granted, the number of shares subject to
each such option, the expiration date of each such option and the price at which
each such option may be exercised under an applicable Lycos Stock Plan.
(b) Lycos owns, directly or indirectly, all of the issued and
outstanding shares of capital stock or other equity ownership interests of each
of the Lycos Subsidiaries, free and clear of any Liens, and all of such shares
or equity ownership interests are duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. No Lycos Subsidiary has or is
bound by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of capital stock or any other equity security of such Subsidiary or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of such Subsidiary.
6.3 Authority; No Violation. (a) Lycos has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contem-
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plated hereby have been duly and validly authorized (including such
authorization as may be required so that no state anti-takeover statute or
similar statute or regulation, including, without limitation, Section 203 of the
DGCL) by the Board of Directors of Lycos. The Board of Directors of Lycos has
directed that this Agreement and the transactions contemplated hereby be
submitted to Lycos's stockholders for adoption at a meeting of such stockholders
and, except for (i) the adoption of this Agreement by the affirmative vote of
the holders of a majority of the outstanding shares of Lycos Common Stock and
(ii) the filing by Lycos with the Delaware Secretary of State of a certificate
of merger with respect to the Lycos Merger and the matters contemplated by
Article I of this Agreement, no other corporate proceedings on the part of Lycos
are necessary to approve this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Lycos and (assuming due authorization, execution and delivery by
the other parties hereto) constitutes a valid and binding obligation of Lycos,
enforceable against Lycos in accordance with its terms (except as may be limited
by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting
the rights of creditors generally and the availability of equitable remedies).
(b) Neither the execution and delivery of this Agreement by Lycos, nor
the consummation by Lycos of the transactions contemplated hereby, nor
compliance by Lycos with any of the terms or provisions hereof, will (i) violate
any provision of the Lycos Charter or Lycos By-Laws, or (ii) assuming that the
consents and approvals referred to in Section 6.4 are duly obtained, (A) violate
any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to Lycos, any of its Subsidiaries or any of their
respective properties or assets or (B) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of Lycos or any of its Subsidiaries under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Lycos or any of its
Subsidiaries is a party, or by which they or any of their respective properties
or assets may be bound or affected, except (in the case of clause (ii) above)
for such violations, conflicts, breaches or defaults which, individually or in
the aggregate, will not have a Material Adverse Effect on Lycos.
6.4 Consents and Approvals. Except for (i) the filing of the pre-merger
notification report under the HSR Act, (ii) the Government Approvals, (iii) the
filing with the SEC of the Proxy/Information Statement and of the S-4, (iv) the
filing of Certificates of Merger with respect to the TMCS Merger and the Lycos
Merger with the Secretary of State of the State of Delaware pursuant to the
DGCL, (v) such filings and approvals as are required to be made or obtained
under the securities or "Blue Sky" laws of various states in connection with the
issuance of the shares of Newco Capital Stock pursuant to this Agreement, (vi)
the filing of applications for the authorization of quotation on Nasdaq of Newco
Class B Common Stock and Newco Convertible Preferred Stock to be issued pursuant
hereto and the approvals thereof, and (vii) the approval of this Agreement by
the requisite vote of the stockholders of Lycos, no consents or approvals of or
filings or registrations with any Governmental Entity are necessary in
connection with (A) the
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execution and delivery by Lycos of this Agreement and (B) the consummation by
Lycos of the Merger and the other transactions contemplated hereby.
6.5 Financial Statements. Lycos has previously made available to TMCS
copies (i) of the consolidated balance sheets of Lycos and its Subsidiaries as
of July 31, 1998 and 1997 and the related consolidated statements of operations,
stockholders' equity and cash flows for the fiscal years 1996 through 1998,
inclusive, as reported in Lycos's Annual Report on Form 10-K for the fiscal year
ended July 31, 1998 filed with the SEC under the Exchange Act (the "Lycos
10-K"), in each case, accompanied by the audit report of KPMG LLP, independent
public accountants with respect to Lycos; and (ii) the consolidated balance
sheets of Lycos and its Subsidiaries as of October 31, 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period ended October 31, 1998, as reported in Lycos's Quarterly Report on
Form 10-Q for the three months ended October 31, 1998 filed with the SEC under
the Exchange Act. The October 31, 1998 consolidated balance sheet of Lycos
(including the related notes, where applicable) fairly presents in all material
respects the consolidated financial position of Lycos and its Subsidiaries as of
the date thereof, and the other financial statements referred to in this Section
6.5 (including the related notes, where applicable) fairly present in all
material respects the results of the consolidated operations and changes in
stockholders' equity and consolidated financial position of Lycos and its
Subsidiaries for the respective fiscal periods or as of the respective dates
therein set forth, subject to normal year-end audit adjustments in the case of
unaudited statements; each of such statements (including the related notes,
where applicable) complies in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto; and each of such statements (including the related notes, where
applicable) has been prepared in all material respects in accordance with GAAP
consistently applied during the periods involved, except, in each case, as
indicated in such statements or in the notes thereto. The books and records of
Lycos and its Subsidiaries have been, and are being, maintained in all material
respects in accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transactions.
6.6 Broker's Fees. Other than Wasserstein Perella & Co. ("Wasserstein
Perella"), neither Lycos nor any Lycos Subsidiary nor any of their respective
officers or directors has employed any broker or finder or incurred any
liability for any broker's fees, commissions or finder's fees in connection with
the Mergers or related transactions contemplated by this Agreement, the
Contribution Agreement or the Option Agreements. A true and complete copy of
Wasserstein Perella's engagement letter with respect to the Transactions has
been previously delivered to the other parties hereto.
6.7 Absence of Certain Changes or Events. (a) Except as publicly
disclosed in Lycos Reports filed prior to the date hereof, since July 31, 1998,
no event or events have occurred which has had or would have, individually or in
the aggregate, a Material Adverse Effect on Lycos.
(b) Except as disclosed in Lycos Reports filed prior to the date
hereof, since July 31, 1998, Lycos and its Subsidiaries have carried on their
respective businesses in all material respects in the ordinary course.
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(c) Except as contemplated by the employment agreements, dated as of
the date hereof, with the Chief Executive Officer of Lycos and the Chief
Financial Officer of Lycos, since July 31, 1998, neither Lycos nor any of its
Subsidiaries has (i) except for such actions as are in the ordinary course of
business or except as required by applicable law, (A) increased the wages,
salaries, compensation, pension, or other fringe benefits or perquisites payable
to any executive officer, employee, or director from the amount thereof in
effect as of July 31, 1998, or (B) granted any severance or termination pay,
entered into any contract to make or grant any severance or termination pay, or
paid any bonuses (other than customary bonuses for fiscal 1998) or (ii) suffered
any strike, work stoppage, slowdown, or other labor disturbance which will have,
either individually or in the aggregate, a Material Adverse Effect on Lycos.
6.8 Legal Proceedings. (a) Except as disclosed in the Lycos Reports
filed prior to the date hereof, neither Lycos nor any of its Subsidiaries is a
party to any, and there are no pending or, to the best of Lycos's knowledge,
threatened, legal, administrative, arbitral or other proceedings, claims,
actions or governmental or regulatory investigations of any nature against Lycos
or any of its Subsidiaries or challenging the validity or propriety of the
transactions contemplated by this Agreement or the Option Agreements which, in
any such case, is reasonably likely, either individually or in the aggregate, to
have a Material Adverse Effect on Lycos.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon Lycos, any of its Subsidiaries or the assets of Lycos
or any of its Subsidiaries that has had or will have, either individually or in
the aggregate, a Material Adverse Effect on Lycos.
6.9 Taxes and Tax Returns. (a) Each of Lycos and its Subsidiaries has
duly filed all federal, state, foreign and local information returns and tax
returns required to be filed by it on or prior to the date hereof (all such
returns being accurate and complete in all material respects) and has duly paid
or made adequate provision for the payment of all Taxes and other governmental
charges which have been incurred or are due or claimed to be due from it by
federal, state, foreign or local taxing authorities on or prior to the date of
this Agreement (including, without limitation, if and to the extent applicable,
those due in respect of its properties, income, business, capital stock,
deposits, franchises, licenses, sales and payrolls) other than information
returns, tax returns, Taxes or other governmental charges as to which the
failure to file, pay or make provision for will not have, either individually or
in the aggregate, a Material Adverse Effect on Lycos. Except as would not,
individually or in the aggregate, have a Material Adverse Effect on Lycos, there
are no disputes pending, or claims asserted for, Taxes or assessments upon Lycos
or any of its Subsidiaries for which Lycos does not have adequate reserves. In
addition, (i) proper and accurate amounts have been withheld by Lycos and its
Subsidiaries from their employees for all prior periods in compliance in all
material respects with the tax withholding provisions of applicable federal,
state and local laws, except where failure to do so will not, either
individually or in the aggregate, have a Material Adverse Effect on Lycos, (ii)
federal, state and local returns which are accurate and complete in all material
respects have been filed by Lycos and its Subsidiaries for all periods for which
returns were due with respect to income tax withholding, Social Security and
unemployment taxes, except where failure to do so will not, either individually
or in the aggregate, have a Material Adverse Effect on Lycos, (iii) the amounts
shown on such federal, state or local returns to be due and payable have been
paid in full or adequate provision
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therefor has been included by Lycos in its consolidated financial statements,
except where failure to do so will not, individually or in the aggregate, have a
Material Adverse Effect on Lycos and (iv) there are no Tax liens upon any
property or assets of Lycos or its Subsidiaries except liens for current taxes
not yet due or liens that will not have, either individually or in the
aggregate, a Material Adverse Effect on Lycos. Neither Lycos nor any of its
Subsidiaries has been required to include in income any adjustment pursuant to
Section 481 of the Code by reason of a voluntary change in accounting method
initiated by Lycos or any of its Subsidiaries, and the IRS has not initiated or
proposed any such adjustment or change in accounting method, in either case,
which has had or will have, either individually or in the aggregate, a Material
Adverse Effect on Lycos. Except as set forth in the financial statements
described in Section 6.5, neither Lycos nor any of its Subsidiaries has entered
into a transaction which is being accounted for as an installment obligation
under Section 453 of the Code, which will have, either individually or in the
aggregate, a Material Adverse Effect on Lycos.
(b) No disallowance of a deduction under Section 162(m) of the Code for
employee remuneration of any amount paid or payable by Lycos or any Subsidiary
of Lycos under any contract, plan, program, arrangement or understanding will
have, either individually or in the aggregate, a Material Adverse Effect on
Lycos.
6.10 Employees. (a) Promptly following the date hereof, Lycos will
deliver a true and complete list of each material employee benefit plan,
arrangement or agreement that is maintained, or contributed to, as of the date
of this Agreement (the "Lycos Benefit Plans") by Lycos, any of its Subsidiaries
or by any trade or business, whether or not incorporated (a "Lycos ERISA
Affiliate"), all of which together with Lycos would be deemed a "single
employer" within the meaning of Section 4001 of ERISA.
(b) Lycos has heretofore made or promptly following the date hereof
will make available to TMCS true and complete copies of each of the Lycos
Benefit Plans and certain related documents, including, but not limited to, (i)
the actuarial report for such Lycos Benefit Plan (if applicable) for each of the
last two years, and (ii) the most recent determination letter from the IRS (if
applicable) for such Lycos Benefit Plan.
(c) (i) Each of the Lycos Benefit Plans has been operated and
administered in all material respects in compliance with applicable laws,
including, but not limited to, ERISA and the Code, (ii) each of the Lycos
Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of
the Code is so qualified, and there are no existing circumstances or any events
that have occurred that will adversely affect the qualified status of any such
Lycos Benefit Plan, (iii) with respect to each Lycos Benefit Plan which is
subject to Title IV of ERISA, the present value of accrued benefits under such
Lycos Benefit Plan, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial report prepared by such Lycos Benefit
Plan's actuary with respect to such Lycos Benefit Plan, did not, as of its
latest valuation date, exceed the then current value of the assets of such Lycos
Benefit Plan allocable to such accrued benefits, (iv) no Lycos Benefit Plan
provides benefits, including, without limitation, death or medical benefits
(whether or not insured), with respect to current or former employees or
directors of Lycos or its Subsidiaries beyond their retirement or other
termination of service, other
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than (A) coverage mandated by applicable law, (B) death benefits or retirement
benefits under any "employee pension plan" (as such term is defined in Section
3(2) of ERISA), (C) deferred compensation benefits accrued as liabilities on the
books of Lycos or its Subsidiaries or (D) benefits the full cost of which is
borne by the current or former employee or director (or his beneficiary), (v) no
material liability under Title IV of ERISA has been incurred by Lycos, its
Subsidiaries or any Lycos ERISA Affiliate that has not been satisfied in full,
and no condition exists that presents a material risk to Lycos, its Subsidiaries
or any Lycos ERISA Affiliate of incurring a material liability thereunder, (vi)
no Lycos Benefit Plan is a "multiemployer pension plan" (as such term is defined
in Section 3(37) of ERISA), (vii) all contributions or other amounts payable by
Lycos or its Subsidiaries as of the Effective Time with respect to each Lycos
Benefit Plan in respect of current or prior plan years have been paid or accrued
in accordance with GAAP and Section 412 of the Code, (viii) none of Lycos, its
Subsidiaries or any other person, including any fiduciary, has engaged in a
transaction in connection with which Lycos, its Subsidiaries or any Lycos
Benefit Plan will be subject to either a material civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a material tax imposed pursuant to
Section 4975 or 4976 of the Code, and (ix) to the best knowledge of Lycos there
are no pending, threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of the Lycos Benefit Plans or any
trusts related thereto which will have, either individually or in the aggregate,
a Material Adverse Effect on Lycos.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone or in
conjunction with any other event) (i) result (either alone or upon the
occurrence of any additional acts or events) in any payment (including, without
limitation, severance, unemployment compensation, "excess parachute payment"
(within the meaning of Section 280G of the Code), forgiveness of indebtedness or
otherwise) becoming due to any director or any employee of Lycos or any of its
affiliates from Lycos or any of its affiliates under any Lycos Benefit Plan or
otherwise, (ii) increase any benefits otherwise payable under any Lycos Benefit
Plan or (iii) result in any acceleration of the time of payment or vesting of
any such benefits that will have, either individually or in the aggregate, a
Material Adverse Effect on Lycos.
6.11 SEC Reports. Lycos has previously made available to TMCS an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since August 1, 1997 by
Lycos with the SEC pursuant to the Securities Act or the Exchange Act (the
"Lycos Reports") and prior to the date hereof and (b) communication mailed by
Lycos to its stockholders since August 1, 1997 and prior to the date hereof, and
no such Lycos Report or communication, as of the date thereof, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading,
except that information as of a later date (but before the date hereof) shall be
deemed to modify information as of an earlier date. Since August 1, 1997, as of
their respective dates, all Lycos Reports filed under the Securities Act and the
Exchange Act complied in all material respects with the published rules and
regulations of the SEC with respect thereto.
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6.12 Compliance with Applicable Law. Except as disclosed in the Lycos
Reports filed prior to the date hereof, Lycos and each of its Subsidiaries hold
all material licenses, franchises, permits and authorizations necessary for the
lawful conduct of their respective businesses under and pursuant to each, and
have complied in all material respects with and are not in default in any
material respect under any, applicable law, statute, order, rule, regulation,
policy and/or guideline of any Governmental Entity relating to Lycos or any of
its Subsidiaries, except where the failure to hold such license, franchise,
permit or authorization or such noncompliance or default will not, either
individually or in the aggregate, have a Material Adverse Effect on Lycos.
6.13 Intellectual Property; Proprietary Rights; Employee Restrictions.
(a) All Intellectual Property Rights used by Lycos or its Subsidiaries in their
respective businesses are owned by Lycos or such Subsidiaries by operation of
law, have been validly assigned to Lycos or such Subsidiaries or Lycos otherwise
has the right to use such Intellectual Property Rights in its business as
currently conducted. Lycos believes that the Intellectual Property Rights are
sufficient to carry on the business of Lycos as presently conducted. Lycos or
one of its Subsidiaries has exclusive ownership of or a license to use all
Intellectual Property Rights all Intellectual Property Rights used by Lycos or
its Subsidiaries in Lycos's business as presently conducted, including all other
registered Intellectual Property Rights used in connection with or contained in
all versions of Lycos's World Wide Web sites and all licenses, assignments and
releases of Intellectual Property Rights of others without which Lycos or its
Subsidiaries could not offer the services they currently offer or has obtained
any licenses, releases or assignments reasonably necessary to use all third
parties' Intellectual Property Rights in works embodied in its services, except
as would not, individually or in the aggregate, have a Material Adverse Effect
on Lycos. The present business activities or products of Lycos do not infringe
any Intellectual Property Rights of others, except as would not, have a Material
Adverse Effect on Lycos. To its knowledge, Lycos has not received any notice or
other claim from any person asserting that any of Lycos's present activities
infringe or may infringe any Intellectual Property Rights of such person.
(b) Except as would not have a Material Adverse Effect on Lycos or as
disclosed in the Lycos Reports filed prior to the date hereof, (i) Lycos has the
right to use all trade secrets, customer lists, hardware designs, programming
processes, software and other information required for its services or its
business as presently conducted or contemplated; (ii) Lycos has taken all
reasonable measures to protect and preserve the security and confidentiality of
its trade secrets and other confidential information; (iii) all employees and
consultants of Lycos or its Subsidiaries involved in the design, review,
evaluation or development of products or Intellectual Property Rights have
executed nondisclosure and assignment of inventions agreements to protect the
confidentiality of Lycos's trade secrets and other confidential information and
to vest in Lycos exclusive ownership of such Intellectual Property Rights; (iv)
to the knowledge of Lycos, all trade secrets and other confidential information
of Lycos are not part of the public domain or knowledge, nor, to the knowledge
of Lycos, have they been misappropriated by any person having an obligation to
maintain such trade secrets or other confidential information in confidence for
Lycos; (v) to the knowledge of Lycos, no employee or consultant of Lycos or any
of its Subsidiaries has used any trade secrets or other confidential information
of any other person in the course of their work for Lycos or such Subsidiary.
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(c) To the knowledge of Lycos, no university, government agency
(whether federal or state) or other organization sponsored research and
development conducted by Lycos or any of its Subsidiaries or has any claim of
right to or ownership of or other encumbrance upon the Intellectual Property
Rights of Lycos. Lycos is not aware of any infringement by others of its
copyrights or other Intellectual Proprietary Rights in any of its technology or
services, or any violation of the confidentiality of any of its proprietary
information. To Lycos's knowledge, Lycos is not making unlawful use of any
confidential information or trade secrets of any past or present employees of
Lycos or any of its Subsidiaries. For the purposes of this Section 6.13, and
except where the context otherwise requires, Intellectual Property Rights also
includes any and all intellectual property rights, licenses, databases, computer
programs and other computer software user interfaces, know-how, trade secrets,
customer lists, proprietary technology, processes and formulae, source code,
object code, algorithms, architecture, structure, display screens, layouts,
development tools, instructions, templates, marketing materials created by Lycos
or its Subsidiaries, inventions, trade dress, logos and designs.
6.14 Certain Contracts. (a) Neither Lycos nor any of its Subsidiaries
is a party to or bound by any contract, arrangement, commitment or understanding
(whether written or oral) (i) with respect to the employment of any directors,
officers or employees other than in the ordinary course of business consistent
with past practice, (ii) which, upon the consummation or stockholder approval of
the Transactions will (either alone or upon the occurrence of any additional
acts or events) result in any payment (whether of severance pay or otherwise)
becoming due from Lycos or Newco or any of their respective Subsidiaries to any
officer or employee thereof, (iii) which is a "material contract" (as such term
is defined in Item 601(b)(10) of Regulation S-K of the SEC) to be performed
after the date of this Agreement that has not been filed or incorporated by
reference in the Lycos Reports, (iv) which materially restricts the conduct of
any line of business by Lycos or upon consummation of the Transactions will
materially restrict the ability of Newco to engage in any line of business, (v)
with or to a labor union or guild (including any collective bargaining
agreement) or (vi) (including any stock option plan, stock appreciation rights
plan, restricted stock plan or stock purchase plan) any of the benefits of which
will be increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any stockholder approval or the consummation of the
Transactions, or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement. Lycos has
previously made or promptly following the date hereof will make available to
TMCS true and correct copies of all material employment and deferred
compensation agreements which are in writing and to which Lycos is a party. Each
contract, arrangement, commitment or understanding of the type described in this
Section 6.14(a), whether or not set forth in the Lycos Disclosure Schedule, is
referred to herein as a "Lycos Contract," and neither Lycos nor any of its
Subsidiaries knows of, or has received notice of, any violation of the above by
any of the other parties thereto which will have, individually or in the
aggregate, a Material Adverse Effect on Lycos.
(b) (i) Each Lycos Contract is valid and binding on Lycos or any of its
Subsidiaries, as applicable, and in full force and effect, (ii) Lycos and each
of its Subsidiaries has in all material respects performed all obligations
required to be performed by it to date under each Lycos Contract, except where
such noncompliance, either individually or in the aggregate, will not have
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a Material Adverse Effect on Lycos, and (iii) no event or condition exists which
constitutes or, after notice or lapse of time or both, will constitute, a
material default on the part of Lycos or any of its Subsidiaries under any such
Lycos Contract, except where such default, either individually or in the
aggregate, will not have a Material Adverse Effect on Lycos.
6.15 Undisclosed Liabilities. Except for those liabilities that are
fully reflected or reserved against on the consolidated balance sheet of Lycos
included in the Lycos October 31, 1998 Form 10-Q and for liabilities incurred in
the ordinary course of business consistent with past practice, since October 31,
1998, neither Lycos nor any of its Subsidiaries has incurred any liability of
any nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due) that, either individually or in the aggregate, has
had or will have, a Material Adverse Effect on Lycos.
6.16 Insurance. Lycos and its Subsidiaries have in effect insurance
coverage with reputable insurers or are self-insured, which in respect of
amounts, premiums, types and risks insured, constitutes reasonably adequate
coverage against all risks customarily insured against by bank holding companies
and their subsidiaries comparable in size and operations to Lycos and its
Subsidiaries.
6.17 Environmental Liability. There are no legal, administrative,
arbitral or other proceedings, claims, actions, causes of action, private
environmental investigations or remediation activities or governmental
investigations of any nature seeking to impose, or that reasonably could result
in the imposition, on Lycos of any liability or obligation arising under common
law or under any local, state or federal environmental statute, regulation or
ordinance including, without limitation, CERCLA, pending or, to Lycos's
knowledge, threatened against Lycos, which liability or obligation will have,
either individually or in the aggregate, a Material Adverse Effect on Lycos. To
the knowledge of Lycos, there is no reasonable basis for any such proceeding,
claim, action or governmental investigation that would impose any liability or
obligation that will have, either individually or in the aggregate, a Material
Adverse Effect on Lycos. Lycos is not subject to any agreement, order, judgment,
decree, letter or memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any liability or obligation with
respect to the foregoing that will have, either individually or in the
aggregate, a Material Adverse Effect on Lycos.
6.18 State Takeover Laws. (a) The Board of Directors of Lycos has
approved the transactions contemplated by this Agreement and the Option
Agreements for purposes of Section 203(a)(1) of the DGCL such that the
provisions of Section 203 of the DGCL will not apply to this Agreement or the
Option Agreements or any of the transactions contemplated hereby or thereby.
6.19 Year 2000 Compliance. Lycos has adopted and implemented a
commercially reasonable plan to provide (A) that the change of the year from
1999 to the year 2000 will not materially and adversely affect the information
and business systems or online operations of Lycos or its Subsidiaries and (B)
that the impacts of such change on the vendors and customers of Lycos and its
Subsidiaries will not have a Material Adverse Effect on Lycos. In Lycos's
reason-
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able best estimate, no expenditures materially in excess of currently budgeted
items previously disclosed to TMCS will be required in order to cause the
information and business systems of Lycos and its Subsidiaries to operate
properly following the change of the year 1999 to the year 2000. Lycos
reasonably expects that it will resolve any issues related to such change of the
year in accordance with the timetable contemplated by such plan (and in any
event on a timely basis in order to be resolved before the year 2000). Between
the date of this Agreement and the Effective Time, Lycos shall continue to use
all commercially reasonable efforts to implement such plan.
6.20 Certain Tax Matters. As of the date of this Agreement, Lycos has
no reason to believe that the Reorganization and the Contribution, taken
together, will not qualify as an exchange contemplated by Section 351 of the
Code.
6.21 Registration Statement. None of the information supplied or to be
supplied by Lycos in writing for inclusion or incorporation by reference in the
S-4 will, at the time it becomes effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. If at any
time prior to the date of the meeting of stockholders of Lycos held in
connection with the adoption of this Agreement, or any adjournment thereof, any
event with respect to Lycos, its officers and directors or any of its
Subsidiaries shall occur which is required to be described in an amendment of,
or a supplement to the S-4, Lycos shall notify Newco and TMCS thereof by
reference to this Section 6.21 and such event shall be so described. Any such
amendment or supplement shall be promptly filed with the SEC and, as and to the
extent required by law, disseminated to the stockholders of Lycos, and such
amendment or supplement shall comply in all material respects with all
provisions of the Securities Act.
6.22 Ownership of TMCS Capital Stock. Neither Lycos nor any of it
Subsidiaries owns any shares of TMCS Capital Stock.
6.23 Opinion of Financial Advisors. The Board of Directors of Lycos has
received the opinion, dated as of the date hereof, of Wasserstein Perella to the
effect that the consideration to be received by holders of Lycos Common Stock in
the Lycos Merger is fair to such holders from a financial point of view.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF PARENT, NEWCO, L MERGER SUB AND T MERGER SUB
Each of Parent, Newco, L Merger Sub and T Merger Sub hereby represents
and warrants to Lycos and TMCS as follows:
7.1 Representations and Warranties of Parent and Newco. The
representations and warranties of each of Parent and Newco set forth in the
Contribution Agreement are hereby incorporated herein by reference (including
the disclosure schedules relating thereto) as if set forth
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herein, for the benefit of Lycos and TMCS as if made by Parent to each of Lycos
and TMCS. True and complete copies of the Certificate of Incorporation of Newco
have previously been made available by Parent or Newco to each of Lycos and
TMCS. Parent has previously delivered to Lycos and TMCS a true and complete copy
of the disclosure schedule delivered to Newco in connection with the
Contribution Agreement.
7.2 Corporate Organization of Merger Subs. Each of the Merger Subs is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. True and complete copies of the Certificate of
Incorporation of each of the Merger Subs have previously been made available by
Parent or Newco to each of Lycos and TMCS. Neither Merger Sub has any
Subsidiaries or investments in any entity.
7.3 Capitalization. The authorized capital stock of each Merger Sub
consists of 1,000 shares of common stock. All of the issued and outstanding
shares of each Merger Sub are owned by Newco free and clear of any Liens. All of
the issued and outstanding shares of each Merger Sub have been duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights, with no personal liability attaching to the ownership thereof. The
Merger Subs do not have and are not bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of capital stock or any other equity
securities thereof or any securities representing the right to purchase or
otherwise receive any shares of such capital stock. As of the date hereof, no
shares of capital stock of the Merger Subs were reserved for issuance.
7.4 Authority; No Violation. (a) Each of the Merger Subs has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly approved, and this Agreement has been duly and validly
adopted, by the Board of Directors of each Merger Sub and by Newco as the sole
shareholder thereof. Except for the filing by each Merger Sub with the Delaware
Secretary of a certificate of merger with respect to the Mergers and the matters
contemplated by Article I of this Agreement, no other corporate proceedings on
the part of either Merger Sub are necessary to approve this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by each Merger Sub and (assuming due
authorization, execution and delivery by the other parties hereto) constitutes a
valid and binding obligation of each Merger Sub, enforceable against each Merger
Sub in accordance with its terms (except as may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the rights of
creditors generally and the availability of equitable remedies).
(b) Neither the execution and delivery of this Agreement by either
Merger Sub, nor the consummation by either Merger Sub of the transactions
contemplated hereby, nor compliance by TMCS with any of the terms or provisions
hereof, will violate any provision of the certificate by-laws of such Merger Sub
or, assuming receipt of the consents and approvals referred to in Section 5.4,
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to such Merger Sub.
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7.5 Conduct of Business. Each of the Merger Subs and Newco is a
corporation formed solely for the purpose of consummating the Transactions and
has not engaged in any business activity except as contemplated by this
Agreement and the Contribution Agreement.
7.6 Broker's Fees. Other than as set forth herein, neither Merger Sub
nor any of their respective officers, directors or affiliates has employed any
broker or finder or incurred any liability for any broker's fees, commissions or
finder's fees in connection with the Mergers or related transactions
contemplated by this Agreement, the Contribution Agreement or the Option
Agreements.
ARTICLE VIII
COVENANTS RELATING TO CONDUCT OF BUSINESS
8.1 Conduct of Businesses Prior to the Effective Time. During the
period from the date of this Agreement to the Effective Time, except as
expressly contemplated or permitted by this Agreement, the Contribution
Agreement or the Option Agreements, or as disclosed in the TMCS Disclosure
Schedule and the Lycos Disclosure Schedule, each of Lycos, TMCS, Newco, L Merger
Sub and T Merger Sub shall, and shall cause each of their respective
Subsidiaries to, (a) conduct its business in the ordinary course consistent with
past practices, (b) use reasonable best efforts to maintain and preserve intact
its business organization, employees and advantageous business relationships and
retain the services of its key officers and key employees and (c) take no action
which would adversely affect or delay the ability of either Lycos or TMCS to
obtain any necessary approvals of any regulatory agency or other governmental
authority required for the transactions contemplated hereby, perform its
covenants and agreements under this Agreement or the Option Agreements or to
consummate the transactions contemplated hereby or thereby or otherwise delay or
prohibit consummation of the Transactions.
8.2 Forbearances. During the period from the date of this Agreement to
the Effective Time, except as set forth in the Lycos Disclosure Schedule or the
TMCS Disclosure Schedule, or as disclosed prior to the date hereof in the TMCS
Reports or the Lycos Reports, as the case may be, and, except as expressly
contemplated by this Agreement, the Contribution Agreement or the Option
Agreements, none of Lycos, TMCS, Newco, L Merger Sub and T Merger Sub shall, and
none of Lycos, TMCS or Newco shall permit any of their respective Subsidiaries
to, without the prior written consent of the other parties to this Agreement
(provided that the consent of Parent shall be deemed to be the consent of Newco
and the Merger Subs)
(a) other than in the ordinary course of business and amounts
that are not material, incur any indebtedness for borrowed money (other
than short-term indebtedness incurred to refinance short-term
indebtedness and indebtedness of TMCS or any of its wholly-owned
Subsidiaries to TMCS or any of its Subsidiaries, on the one hand, or of
Lycos or any of its Subsidiaries to Lycos or any of its wholly-owned
Subsidiaries, on the other hand), assume, guarantee, endorse or
otherwise as an accommodation become responsible for the obligations of
any other individual, corporation or other entity, or make any loan or
advance;
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(b) (i) adjust, split, combine or reclassify any capital
stock;
(ii) make, declare or pay any dividend, or make any
other distribution on, or directly or indirectly
redeem, purchase or otherwise acquire or encumber,
any shares of its capital stock or any securities
or obligations convertible (whether currently
convertible or convertible only after the passage
of time or the occurrence of certain events) into
or exchangeable for any shares of its capital
stock, except in connection with cashless exercise
or similar transactions pursuant to the exercise of
stock options issued and outstanding as of the date
hereof under the TMCS Stock Plans or Lycos Stock
Plans;
(iii) grant any stock appreciation rights or grant any
individual, corporation or other entity any right
to acquire any shares of its capital stock, other
than (A) in each case only in the ordinary course
of business in connection with grants to employees,
of options to acquire up to an aggregate of 500,000
shares of Lycos Common Stock issuable under the
Lycos Stock Plans or an aggregate of 200,000
shares of TMCS Class B Common Stock issuable under
the TMCS Stock Plans, and (B) in connection with
the consummation of the transactions contemplated
by the Wired Merger Agreement as publicly disclosed
as of the date hereof, in the case of Lycos; or
(iv) issue any additional shares of capital stock except
pursuant to (A) the exercise of stock options under
the TMCS Stock Plans or Lycos Stock Plans, as the
case may be, issued and outstanding as of the date
hereof, (B) the Option Agreements, in the case of
Lycos, (C) in connection with the consummation of
the transactions contemplated by the Wired Merger
Agreement as publicly disclosed as of the date
hereof, in the case of Lycos and (D) the conversion
of shares of TMCS Class A Common Stock pursuant to
the terms of the TMCS Charter, in the case of TMCS.
(c) sell, transfer, mortgage, encumber or otherwise dispose of
any of its material properties or assets to any individual, corporation
or other entity, other than to a wholly owned Subsidiary, or cancel,
release or assign any indebtedness to any such person or any claims
held by any such person, except pursuant to contracts or agreements in
force at the date of this Agreement;
(d) except for transactions in the ordinary course of business
or pursuant to contracts or agreements in force at the date of or
expressly permitted by this Agreement, make any material investment or
acquisition, whether by purchase of stock or securities,
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contributions to capital, property transfers, or purchase of any
property or assets of any other individual, corporation or other entity
other than a Subsidiary thereof;
(e) except for transactions in the ordinary course of
business, terminate, or amend or waive any material provision of, any
TMCS Contract or Lycos Contract, as the case may be, or make any
material change in any instrument or agreement governing the terms of
any material lease or contract other than normal renewals of contracts
and leases without material adverse changes of terms, or its
securities;
(f) except in the ordinary course of business consistent with
past practice, increase in any manner the compensation or fringe
benefits of any of its employees or pay any pension, severance or
retirement allowance not required by any existing plan or agreement to
any such employees or become a party to, amend or commit itself to any
pension, retirement, profit-sharing or welfare benefit plan or
agreement or employment agreement with or for the benefit of any
employee, or accelerate the vesting of, or the lapsing of restrictions
with respect to, any stock options or other stock-based compensation;
(g) settle any material claim, action or proceeding involving
money damages, except in the ordinary course of business;
(h) knowingly take any action that would prevent or impede the
Reorganization and the Contribution, taken together, from qualifying as
an exchange contemplated by Section 351 of the Code;
(i) amend its certificate of incorporation or its bylaws,
except that Newco may amend its Certificate of Incorporation to provide
for the Newco Convertible Preferred Stock and to make the changes set
forth in Section 2.3;
(j) take any action that is intended or would reasonably be
expected to result in any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material
respect at any time prior to the Effective Time, or in any of the
conditions to the Merger set forth in Article X not being satisfied or
in a violation of any provision of this Agreement;
(k) other than in the ordinary course of business consistent
with past practices, (i) sell or enter into any material license
agreement with respect to any Intellectual Property Rights used by it
in its business with any person or entity or buy or enter into any
material license agreement with respect to the Intellectual Property
Rights of any person or entity; (ii) sell or transfer to any person or
entity any material rights to any Intellectual Property Rights used by
it in its business; or (iii) enter into or materially amend any TMCS
Contract or Lycos Contract, as the case may be, pursuant to which any
other party is granted marketing or distribution rights of any type or
scope with respect to any material products of its or any its
Subsidiaries;
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(l) except to the extent permitted by Section 8.2(k), enter
into any "non-compete" or similar agreement that would materially
restrict the businesses of Newco following consummation of the
Transactions;
(m) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of such entity (other than the Transactions);
(n) implement or adopt any change in its accounting
principles, practices or methods, other than as may be required by GAAP
or regulatory guidelines; or
(o) agree to take, make any commitment to take, or adopt any
resolutions of its board of directors in support of, any of the actions
prohibited by this Section 8.2.
ARTICLE IX
ADDITIONAL AGREEMENTS
9.1 Regulatory Matters. (a) Newco, Lycos and TMCS shall promptly
prepare and file with the SEC the Proxy/Information Statement, and Newco shall
promptly prepare and file with the SEC the S-4, in which the Proxy/Information
Statement will be included as a prospectus. Newco shall use its reasonable best
efforts to have the S-4 declared effective under the Securities Act as promptly
as practicable after such filing, and Lycos and TMCS shall thereafter mail or
deliver the Proxy/Information Statement to their respective stockholders. Newco
shall use its reasonable best efforts to obtain all necessary state securities
law or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement, and Lycos and TMCS shall furnish all information
concerning Lycos and the holders of Lycos Capital Stock, or TMCS and the holders
of TMCS Capital Stock, as the case may be, as may be reasonably requested in
connection with any such action.
(b) The parties hereto shall cooperate with each other and use their
reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, to
obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and Governmental Entities which are
necessary or advisable to consummate the transactions contemplated by this
Agreement (including, without limitation, the Mergers) and the Option
Agreements, and to comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such Governmental Entities.
Parent, Lycos and TMCS shall have the right to review in advance, and, to the
extent practicable, each will consult the other on, in each case subject to
applicable laws relating to the exchange of information, all the information
relating to Parent, TMCS or Lycos, as the case may be, and any of their
respective Subsidiaries, which appear in any filing made with, or written
materials submitted to, any third party or any Governmental Entity in connection
with the transactions contemplated by this Agreement. In exercising the
foregoing right, each of the parties hereto shall act reasonably and as promptly
as practicable. The parties hereto agree that they will consult with each other
with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the transactions con-
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templated by this Agreement and the Option Agreements and each party will keep
the other apprised of the status of matters relating to completion of the
transactions contemplated herein.
(c) Newco, Lycos and TMCS shall, upon request, furnish the other
parties hereto with all information concerning themselves, their Subsidiaries,
affiliates, directors, officers and stockholders and such other matters as may
be reasonably necessary or advisable in connection with the Proxy/Information
Statement, the S-4 or any other statement, filing, notice or application made by
or on behalf of Newco, Lycos, TMCS or any of their respective Subsidiaries to
any Governmental Entity in connection with the Transactions contemplated by this
Agreement.
(d) Lycos and TMCS shall, and Parent shall cause Newco to, promptly
advise the other parties hereto upon receiving any communication from any
Governmental Entity whose consent or approval is required for consummation of
the transactions contemplated by this Agreement or the Option Agreements that
causes such party to believe that there is a reasonable likelihood that any
Requisite Regulatory Approval will not be obtained or that the receipt of any
such approval will be materially delayed.
9.2 Access to Information. (a) Upon reasonable notice and subject to
applicable laws relating to the exchange of information, each of the parties
hereto, for the purposes of verifying the representations and warranties of the
other and preparing for the Merger and the other matters contemplated by this
Agreement and the Contribution Agreement, shall, and shall cause each of their
respective Subsidiaries to, afford to the officers, employees, accountants,
counsel and other representatives of the other parties, access, during normal
business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records and, during such period,
each of the parties hereto shall, and shall cause their respective Subsidiaries
to, make available to the other parties (i) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of federal securities laws (other than
reports or documents which such party is not permitted to disclose under
applicable law) and (ii) all other information concerning its business,
properties and personnel as such party may reasonably request. No party hereto
shall be required to provide access to or to disclose information where such
access or disclosure would violate or prejudice the rights of its customers,
jeopardize the attorney-client privilege of the institution in possession or
control of such information or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties hereto will make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply.
(b) Each of the parties hereto shall hold all information furnished by
or on behalf of any other party or any of such party's Subsidiaries or
representatives pursuant to Section 9.2(a) in confidence to the extent required
by, and in accordance with, the provisions of the confidentiality agreement,
among Parent, Lycos and TMCS (the "Confidentiality Agreement").
(c) No investigation by any of the parties or their respective
representatives shall affect the representations and warranties of the other set
forth herein.
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9.3 No Solicitation. Without the prior written consent of Newco and
TMCS, Lycos shall not, and shall cause its Subsidiaries and its and its
Subsidiaries' officers, directors, agents, advisors and affiliates not to,
solicit or encourage inquiries or proposals with respect to, or engage in any
negotiations concerning, or provide any confidential information to, or have any
discussions with, any person relating to any tender offer or exchange offer for,
or any proposal for the acquisition of a substantial equity interest in, or of a
substantial portion of the assets of, or any merger, consolidation or other
business combination with, Lycos or any of its Subsidiaries. Lycos shall
promptly, but in any event within 24 hours, advise Newco and TMCS of its receipt
of any such proposal or inquiry, of the substance thereof, and of the identity
of the person making such proposal or inquiry. Lycos shall immediately cease and
cause to be terminated any activities, discussions or negotiations conducted
prior to the date of this Agreement with any parties other than the parties
hereto with respect to any of the foregoing.
9.4 Stockholders' Approvals. (a) Lycos shall call a meeting of its
stockholders to be held as soon as reasonably practicable for the purpose of
obtaining the requisite stockholder approval required in connection with this
Agreement and the Lycos Merger, and shall use its reasonable best efforts to
cause such meetings to occur as soon as reasonably practicable. The Board of
Directors of Lycos shall use its reasonable best efforts to obtain from the
stockholders of Lycos the vote in favor of the adoption of this Agreement
required by the DGCL to consummate the transactions contemplated hereby, and
shall recommend to the stockholders of Lycos that they so vote; provided that
the Board of Directors shall not be required to use such reasonable best efforts
to obtain the vote in favor of the adoption of this Agreement or to make or
continue to make such recommendation if such Board of Directors, after having
consulted with and considered the advice of outside counsel, has determined that
the making of such reasonable best efforts to obtain the vote in favor of the
adoption of this Agreement or making or continuing to make such recommendation
would cause the members of the Board of Directors of Lycos to breach their
fiduciary duties under applicable laws.
(b) Promptly after the date hereof (but in no event later than the date
on which the S-4 is filed with the SEC), Parent shall vote or cause to be voted
all shares of TMCS Class A Common Stock and TMCS Class B Common Stock owned by
it, or of which it otherwise is entitled to direct the voting, in favor of the
adoption of this Agreement. Parent represents and warrants to Lycos and TMCS
that such shares represent voting power sufficient to obtain the requisite vote
of TMCS stockholders in favor of the adoption of this Agreement under the DGCL.
9.5 Legal Conditions to Merger. Each of Parent, Newco, Lycos and TMCS
shall, and shall cause its Subsidiaries to, use their reasonable best efforts
(a) to take, or cause to be taken, all actions necessary, proper or advisable to
comply promptly with all legal requirements that may be imposed on such party or
its Subsidiaries with respect to the Merger and, subject to the conditions set
forth in Article X hereof, to consummate the transactions contemplated by this
Agreement, and (b) to obtain (and to cooperate with the other party to obtain)
any material consent, authorization, order or approval of, or any exemption by,
any Governmental Entity and any other third party that is required to be
obtained by Parent, Newco, TMCS or Lycos or any of their respective Subsidiaries
in connection with the Merger and the other transactions contemplated by this
Agreement or the Contribution Agreement. Without limiting the foregoing, Parent,
Newco,
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Lycos and TMCS agree to use reasonable best efforts to cooperate to effect any
amendments to, or obtain any consents under, the Lycos Option Plans and the TMCS
Option Plans as are necessary or desirable to give effect to the provisions of
Article III with respect to the options granted under such plans.
9.6 Affiliates. Each of Lycos and TMCS shall use its reasonable best
efforts to cause each director, executive officer and other person who is an
"affiliate" (for purposes of Rule 145 under the Securities Act) of such party to
deliver to Newco, as soon as practicable after the date of this Agreement, and
in any event prior to the Effective Time, a written agreement, in the form of
Exhibit 9.6(a) or 9.6(b) hereto, as applicable, providing that such person will
not sell, pledge, transfer or otherwise dispose of any shares of Newco Series A
Common Stock, Newco Series B Common Stock or Newco Convertible Preferred Stock
to be received by such "affiliate" in the Merger, other than as contemplated in
such written agreement.
9.7 Nasdaq Quotation. Newco shall use reasonable best efforts to cause
the shares of Newco Common Stock and Newco Convertible Preferred Stock to be
issued in the Mergers to be authorized for quotation on Nasdaq, subject to
official notice of issuance, prior to the Effective Time.
9.8 Employee Benefit Plans. (a) From and after the Effective Time,
unless otherwise mutually determined, the TMCS Benefit Plans and Lycos Benefit
Plans in effect as of the date of this Agreement shall remain in effect with
respect to employees of TMCS or Lycos (or their Subsidiaries), respectively,
covered by such plans at the Effective Time until such time as the Surviving
Corporations and Newco shall, subject to applicable law, the terms of this
Agreement and the terms of such plans, adopt new benefit plans with respect to
employees of Newco and its Subsidiaries (the "New Benefit Plans"). Prior to the
Closing Date, Parent, TMCS and Lycos shall cooperate in reviewing, evaluating
and analyzing the Lycos Benefit Plans and TMCS Benefit Plans with a view towards
developing appropriate New Benefit Plans for the employees covered thereby.
Newco will, or will cause the Surviving Corporations to, (i) waive all
limitations as to preexisting conditions, exclusions and waiting periods with
respect to participation and coverage requirements applicable to employees of
TMCS and Lycos under any welfare plan that such employees may be eligible to
participate in after the Effective Time, to the extent that such conditions
would have been waived under the corresponding welfare plan in which any such
employee participated immediately prior to the Effective Time, (ii) provide each
employee of TMCS or Lycos with credit for any co-payments and deductibles paid
prior to the Effective Time, for the calendar year in which the Effective Time
occurs, in satisfying any applicable deductible or out-of-pocket requirements
under any welfare plans that such employees are eligible to participate in after
the Effective Time, and (iii) provide each employee with credit for all service
for purposes of eligibility, vesting and benefit accruals (but not for benefit
accruals under any defined benefit pension plan) with TMCS or Lycos and their
affiliates, as applicable, under each employee benefit plan, program, or
arrangement of Newco, the Surviving Corporation or their subsidiaries in which
such employees are eligible to participate in after the Effective Time;
provided, however, that in no event shall the employees be entitled to any
credit to the extent that it would result in a duplication of benefits with
respect to the same period of service.
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(b) The foregoing notwithstanding, Newco shall, and shall cause the
Surviving Corporations to, honor in accordance with their terms all benefits
accrued as of the date hereof under the Lycos Benefit Plans or the TMCS Benefit
Plans or under other contracts, arrangements, commitments, or understandings
described in the Lycos Disclosure Schedule and the TMCS Disclosure Schedule.
(c) Unless mutually agreed upon by the parties hereto, TMCS shall
terminate the TMCS 1998 Employee Stock Purchase Plan prior to Effective Time and
a "new exercise date" under such plan shall occur prior to the Effective Time,
and Lycos shall terminate the Lycos 1996 Employee Stock Purchase Plan and the
"exercise date" under such plan shall occur prior to the Effective Time.
(d) Nothing in this Section 9.8 shall be interpreted as preventing the
Surviving Corporations from amending, modifying or terminating any Lycos Benefit
Plans, TMCS Benefit Plans, or other contracts, arrangements, commitments or
understandings, in accordance with their terms and applicable law.
9.9 Indemnification; Directors' and Officers' Insurance. (a) In the
event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative, including, without
limitation, any such claim, action, suit, proceeding or investigation in which
any individual who is now, or has been at any time prior to the date of this
Agreement, or who becomes prior to the Effective Time, a director or officer of
Lycos or any of its Subsidiaries or of TMCS or any of its Subsidiaries (the
"Indemnified Parties"), is, or is threatened to be, made a party based in whole
or in part on, or arising in whole or in part out of, or pertaining to (i) the
fact that he is or was a director or officer of Lycos or any of its Subsidiaries
or TMCS or any of its Subsidiaries or any of their respective predecessors or
(ii) this Agreement, the Contribution Agreement, the Option Agreements or any of
the transactions contemplated hereby or thereby, whether in any case asserted or
arising before or after the Effective Time, the parties hereto agree to
cooperate and use their best efforts to defend against and respond thereto. It
is understood and agreed that after the Effective Time, Newco shall indemnify
and hold harmless, as and to the fullest extent permitted by law, each such
Indemnified Party against any losses, claims, damages, liabilities, costs,
expenses (including reasonable attorney's fees and expenses in advance of the
final disposition of any claim, suit, proceeding or investigation to each
Indemnified Party to the fullest extent permitted by law upon receipt of any
undertaking required by applicable law), judgments, fines and amounts paid in
settlement in connection with any such threatened or actual claim, action, suit,
proceeding or investigation.
(b) Newco shall use its reasonable best efforts to cause the
individuals serving as officers and directors of Lycos and its Subsidiaries, or
officers and directors of TMCS and its Subsidiaries, in each case, immediately
prior to the Effective Time to be covered for a period of three (3) years from
the Effective Time (or the period of the applicable statute of limitations, if
longer) by the directors' and officers' liability insurance policy maintained by
Lycos or TMCS, as the case may be (provided that Newco may substitute therefor
policies of at least the same coverage and amounts containing terms and
conditions in the aggregate which are not in the aggregate less advantageous
than such policy and that Newco shall not be obligated to pay annual premiums in
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excess of 300% of the last annual premium paid by TMCS or Lycos, as the case may
be) with respect to acts or omissions occurring prior to the Effective Time
which were committed by such officers and directors in their capacity as such.
(c) In the event Newco or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Newco
assume the obligations set forth in this Section 9.9.
(d) The provisions of this Section 9.9 shall survive the Effective Time
and are intended to be for the benefit of, and shall be enforceable by, each
Indemnified Party and his or her heirs and representatives.
9.10 Additional Agreements. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement or to vest the Surviving Corporations or Newco with full title to
all properties, assets, rights, approvals, immunities and franchises of any of
the parties to the Merger, the proper officers and directors of each party to
this Agreement and their respective Subsidiaries shall take all such necessary
action as may be reasonably requested by, and at the sole expense of, Newco.
9.11 Advice of Changes. Lycos and TMCS shall each promptly advise the
other parties hereto of any change or event (a) having a Material Adverse Effect
on it or (b) which it believes would or would be reasonably likely to cause or
constitute a material breach of any of its representations, warranties or
covenants contained herein.
9.12 Section 16. Each of Lycos and TMCS shall, reasonably promptly
following the date hereof, provide to Newco a list of (a) the directors and
officers (as such terms are used under Section 16 of the Exchange Act and the
rules and regulations of the SEC thereunder) of such company, (b) the number of
shares of Newco Common Stock and Newco Class B Common Stock and options thereon
and the number of shares of Newco Convertible Preferred Stock (together, the
"Section 16 Securities") expected to be received pursuant to the Reorganization
by each such officer or director at the Effective Time on account of shares of
Lycos Common Stock, TMCS Class A Common Stock or TMCS Class B Common Stock, as
the case may be, reasonably expected to be held by such directors and officers
immediately prior to the Effective Time and (c) a description of the material
terms of such options. Prior to the Effective Time, the Newco Board of Directors
shall take such action consistent with the SEC's interpretive guidance to
approve the issuance of the Section 16 Securities to each such director and
officer of such company for purposes of Rule 16b-3(d) under the Exchange Act
such that the deemed "purchase" of such Section 16 Securities by such persons
pursuant to the Reorganization shall be exempt from liability pursuant to
Section 16(b) of the Exchange Act.
9.13 Contribution Agreement. Newco shall not amend or enter into any
agreement amending the Contribution Agreement, or waive or modify any of the
rights and obligations of any of the parties thereunder, without the prior
written consent of each of Lycos and a majority
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of the independent directors of TMCS. Parent and Newco agree to cause the
consummation of the Contribution immediately following the satisfaction, or
waiver in compliance with this Agreement, of the conditions set forth in Article
VI of the Contribution Agreement.
9.14 Other Businesses. (a) Subject to paragraph (b) below, neither
anything contained in this Agreement nor the ownership of shares of Newco Common
Stock (except as may be provided in the Newco certificate of incorporation)
shall (i) restrict Parent or any of its Subsidiaries from engaging in or owning
an interest in any business which competes with Newco or any Subsidiary of
Newco, or (ii) restrict Newco or any of its Subsidiaries from engaging in or
owning an interest in any business which competes with Parent or any of its
Subsidiaries.
(b) From and after the date hereof, until such time as Parent no longer
owns, directly or indirectly (including through LLC), a number of shares of
Newco Common Stock and/or Newco Class B Common Stock (including shares of Newco
Common Stock acquired by Parent, the LLC and their Subsidiaries after the date
hereof) equal to at least one-third of the number of shares of Newco Class B
Common Stock issued to Parent, LLC or Parent's other Subsidiaries in connection
with the Transactions (such number of shares, as equitably adjusted to reflect
any stock split, stock dividend or similar event affecting Newco Common Stock,
the "Parent Sunset Threshold"), Parent agrees, subject to the next sentence
below, that all business opportunities relating to online activities, automated
ticketing services and on-air home shopping businesses (other than such
activities, services and businesses that are incidental to Parent's other lines
of business, such as USA.com and SciFi.com) will be conducted in Newco and its
Subsidiaries. However, the preceding sentence shall not apply if Newco has
rejected such business opportunity.
(c) In the event that Parent acquires a business that has, as part of
it, a substantial business described in paragraph (b) above (other than a
business described in the last sentence of paragraph (b) above), Parent shall
use its commercially reasonable best efforts to cause such portion of the
acquired business to be available to be acquired by Newco, or otherwise operated
or managed by Newco in order to permit Newco the benefit of such businesses on
such terms as the parties may mutually agree, using their respective
commercially reasonable best efforts and good faith to negotiate such terms.
(d) For the avoidance of doubt, the restrictions contained in this
Section 9.14 shall not apply to Universal Studios, Inc. and Liberty Media Corp.
and their respective affiliates (other than Parent and the LLC, and their
respective Subsidiaries).
9.15 Affiliate Sales Agreement. Consistent with past practice, Parent
shall continue to secure, at Newco's direction and request, carriage as
available for The Home Shopping Network ("HSN") on cable systems or broadcast
stations. Parent shall charge Newco for such services an amount equal to
allocated overhead at cost plus a nominal service fee, such service fee to be in
such amounts as is consistent with the past practice between Parent and HSN. In
fulfilling its obligations under the first sentence of this paragraph, Parent
shall use commercially reasonable efforts, acting in good faith, to secure such
coverage at the most favorable rates, and on the most favorable terms, available
to Parent.
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9.16 Limitations on Sale of Parent Shares. Parent, on its behalf and on
behalf of LLC and their respective Subsidiaries, agrees that, during the 10
trading days preceding and following each measurement period (as defined in the
Certificate of Designations with respect to Newco Convertible Preferred Stock),
it will not sell (other than in private transactions), or permit the
announcement of an anticipated sale in the open market of, any shares of Newco
Common Stock or Newco Class B Common Stock owned by such entities (other than to
another Subsidiary of Parent or LLC). During each measurement period, Parent
shall be permitted to so effect sales of shares of Newco Common Stock or Newco
Class B Common Stock (either through conversion into shares of Newco Common
Stock or otherwise), provided that the aggregate number of shares sold during
any one measurement period does not exceed the greater of (i) 1% of the
outstanding shares of Newco Common Stock or (ii) the average weekly volume over
the four-week period immediately preceding the commencement of such measurement
period. Notwithstanding the provisions of this Section 9.16, Parent, the LLC and
their respective Subsidiaries shall be permitted to enter into and effect sales
of shares of Newco stock during the Second Measurement Period and the Third
Measurement Period (each as defined in the Newco Convertible Preferred Stock
Designations) which are effected in private transactions.
9.17 Promotion. It is the intention of the Parent to cause its
Subsidiaries to endeavor to promote the businesses of Newco.
ARTICLE X
CONDITIONS PRECEDENT
10.1 Conditions to Each Party's Obligation to Effect the Mergers. The
respective obligations of the parties to effect the Mergers shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement shall have been
adopted by the respective requisite affirmative vote of the holders of
Lycos Common Stock entitled to vote thereon.
(b) Nasdaq Listings. The shares of Newco Common Stock and
Newco Convertible Preferred Stock which shall be issued to the
stockholders of Lycos and TMCS upon consummation of the Mergers shall
have been authorized for quotation on Nasdaq, subject to official
notice of issuance.
(c) Other Approvals. All regulatory approvals required to
consummate the transactions contemplated hereby shall have been
obtained and shall remain in full force and effect and all statutory
waiting periods in respect thereof shall have expired (all such
approvals and the expiration of all such waiting periods being referred
to herein as the "Requisite Regulatory Approvals").
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(d) S-4. The S-4 shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
S-4 shall have been issued and no proceedings for that purpose shall
have been initiated or threatened by the SEC.
(e) No Injunctions or Restraints; Illegality. No order,
injunction or decree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the Mergers or any of the other
transactions contemplated by this Agreement shall be in effect. No
statute, rule, regulation, order, injunction or decree shall have been
enacted, entered, promulgated or enforced by any Governmental Entity
which prohibits, materially restricts or makes illegal consummation of
the Merger.
(f) No Conditions to the Contribution. All of the conditions
(other than the conditions set forth in Sections 6.1(a) and 6.2(c) of
the Contribution Agreement) to the obligations of the parties to the
Contribution Agreement to consummate the Contribution shall have been
satisfied (or waived, but only to the extent permitted by this
Agreement), and each of Lycos and TMCS shall have received a
certificate executed on behalf of Parent by an appropriate executive by
an officer of Parent and Newco to such effect.
10.2 Conditions to Obligations of Lycos. The obligations of Lycos to
effect the Lycos Merger are also subject to the satisfaction, or waiver by
Lycos, at or prior to the Effective Time, of the following conditions:
(a) Representations and Warranties. Subject to the standard
set forth in Section 12.10(b), the representations and warranties of
TMCS and Newco set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to
the extent such representations and warranties speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing
Date. Lycos shall have received a certificate signed on behalf of each
of TMCS and Newco by an appropriate executive officer of each company
to such effect.
(b) Performance of Obligations of TMCS. Each of TMCS and Newco
shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Closing
Date, and Lycos shall have received a certificate signed on behalf of
each of TMCS and Newco by an appropriate executive officer of each
company to such effect.
(c) Federal Tax Opinion. Lycos shall have received an opinion
of Wachtell, Lipton, Rosen & Katz, dated the Closing Date,
substantially to the effect that (i) the Reorganization and the
Contribution, taken together, will constitute an exchange described in
Section 351(a) or 351(b) of the Code and (ii) no gain or loss will be
recognized by the stockholders of Lycos upon the receipt of shares of
Newco Common Stock in exchange for their shares of Lycos Common Stock
pursuant to the Lycos Merger, except to the extent of other property or
money received and with respect to cash received in lieu of a
fractional share interest in Newco Common Stock.
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10.3 Conditions to Obligations of TMCS and Newco. The obligations of
TMCS to effect the TMCS Merger and the obligations of Newco to effect the
Mergers are also subject to the satisfaction or waiver by TMCS and Newco at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. Subject to the standard
set forth in Section 12.10(b), the representations and warranties of
Lycos set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date)
as of the Closing Date as though made on and as of the Closing Date.
TMCS and Newco shall each have received a certificate signed on behalf
of Lycos by its Chief Executive Officer or Chief Financial Officer to
such effect.
(b) Performance of Obligations of Lycos. Lycos shall have
performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date,
and TMCS and Newco shall each have received a certificate signed on
behalf of Lycos by its Chief Executive Officer or its Chief Financial
Officer to such effect.
(c) Federal Tax Opinion. TMCS shall have received an opinion
of Gibson, Dunn & Crutcher, dated the Closing Date, substantially to
the effect that (i) the Reorganization and the Contribution, taken
together, will constitute an exchange described in Section 351(a) or
351(b) of the Code and (ii) no gain or loss will be recognized by the
stockholders of TMCS upon the receipt of shares of Newco Common Stock
or Newco Class B Common Stock in exchange for their shares of TMCS
Class A Common Stock or TMCS Class B Common Stock pursuant to the TMCS
Merger, except to the extent of other property or money received and
with respect to cash received in lieu of a fractional share interest in
Newco Common Stock or Newco Class B Common Stock.
ARTICLE XI
TERMINATION AND AMENDMENT
11.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the matters presented in
connection with the Mergers by the stockholders of Lycos or TMCS:
(a) by mutual consent of Lycos, TMCS and Newco in a written
instrument;
(b) by any of Newco, Lycos or TMCS if any Governmental Entity
that must grant a Requisite Regulatory Approval has denied approval of
the Mergers and such denial has become final and nonappealable or any
Governmental Entity of competent jurisdiction shall have issued a final
nonappealable order permanently enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement;
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(c) by any of Newco, Lycos or TMCS, if the approval of the
Lycos stockholders required by Section 10.1(a) shall not have been
obtained at a meeting duly convened therefor or at any adjournment
thereof;
(d) by Newco, Lycos or TMCS if the Transactions shall not have
been consummated on or before the first anniversary of the date of this
Agreement, unless the failure of the Closing to occur by such date
shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe the covenants and agreements of such
party set forth herein; or
(e) by any of Newco, Lycos or TMCS (provided that the
terminating party is not then in breach of any representation,
warranty, covenant or other agreement contained herein) if there shall
have been a breach of any of the covenants or agreements or any of the
representations or warranties set forth or expressly incorporated in
this Agreement on the part of Parent, Newco or TMCS, in the case of a
termination by Lycos; Parent, Newco or Lycos, in the case of a
termination by TMCS, or TMCS or Lycos, in the case of a termination by
Newco, which breach, either individually or in the aggregate, would
constitute, if occurring or continuing on the Closing Date, the failure
of the conditions set forth in Section 10.1(f), 10.2(a), 10.2(b),
10.3(a) or 10.3(b), as the case may be, and which is not cured within
30 days following written notice to the party committing such breach or
by its nature or timing cannot be cured prior to the Closing Date.
11.2 Effect of Termination. In the event of termination of this
Agreement by either Lycos or TMCS as provided in Section 11.1, this Agreement
shall forthwith become void and have no effect, and none of Parent, Newco, L
Merger Sub, T Merger Sub, Lycos, TMCS, any of their respective Subsidiaries or
any of the officers or directors of any of them shall have any liability of any
nature whatsoever hereunder, or in connection with the transactions contemplated
hereby, except that (i) Sections 9.2(b), 11.2, 12.1 and 12.2 shall survive any
termination of this Agreement, and (ii) notwithstanding anything to the contrary
contained in this Agreement, no party shall be relieved or released from any
liabilities or damages arising out of its willful breach of any provision of
this Agreement.
11.3 Amendment. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the Mergers by the stockholders of
Lycos and TMCS; provided, however, that after any approval of the transactions
contemplated by this Agreement by the respective stockholders of Lycos or TMCS,
there may not be, without further approval of such stockholders, any amendment
of this Agreement that changes the amount or the form of the consideration to be
delivered hereunder to the holders of Lycos Common Stock, TMCS Class A Common
Stock or TMCS Class B Common Stock, other than as contemplated by this
Agreement. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto. No amendment of this Agreement
by TMCS shall be effective unless approved by the independent members of the
TMCS Board of Directors.
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11.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein; provided, however,
that after any approval of the transactions contemplated by this Agreement by
the respective stockholders of Lycos or TMCS, there may not be, without further
approval of such stockholders, any extension or waiver of this Agreement or any
portion thereof which reduces the amount or changes the form of the
consideration to be delivered to the holders of Lycos Common Stock, TMCS Class A
Common Stock or TMCS Class B Common Stock, hereunder, other than as contemplated
by this Agreement. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party, but such extension or waiver or failure to
insist on strict compliance with an obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. No extension or waiver pursuant to this Agreement by TMCS shall
be effective unless approved by the independent members of the TMCS Board of
Directors.
ARTICLE XII
GENERAL PROVISIONS
12.1 Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement (other than the Option
Agreements and the Confidentiality Agreement, which shall terminate in
accordance with their terms) shall survive the Effective Time, except for
Sections 3.4, 3.5, 3.6, 9.9, the last sentence of Section 9.13, 9.14, 9.15, 9.16
and 9.17 and for those other covenants and agreements contained herein and
therein which by their terms apply in whole or in part after the Effective Time.
12.2 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, provided, however, that the costs and expenses of
printing and mailing the Proxy/Information Statement, and all filing and other
fees paid to the SEC in connection with the Merger, shall be borne equally by
Parent, Lycos and TMCS.
12.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
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(a) if to Lycos, to:
Lycos, Inc.
400-2 Totten Pond Road
Waltham, MA 02460
Attention: General Counsel
Telecopier: 781-370-2600
with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Attention: Mark H. Burnett, Esq.
Kenneth J. Gordon, Esq.
Telecopier: 617-248-7100;
(b) if to TMCS, to:
Ticketmaster Online-CitySearch, Inc.
790 East Colorado Boulevard, Suite 200
Pasadena, CA 91101
Attention: General Counsel
Telecopier: 626-405-9929
with a copy to:
Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, CA 90071
Attention: Andrew E. Bogen, Esq.
Telecopier: 213-229-7520
and
(c) if to Parent or Newco, to:
c/o USA Networks, Inc.
152 West 57th Street
New York, NY 10019
Attention: General Counsel
Telecopier: 212-314-7329
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with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Pamela S. Seymon, Esq.
Andrew J. Nussbaum, Esq.
Telecopier: 212-403-2000
12.4 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." Notwithstanding anything to the contrary in this Agreement or the
Option Agreements, nothing herein or therein shall require any party hereto or
thereto to take any action in violation of law.
12.5 Counterparts. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
12.6 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof other than the Contribution
Agreement, the Option Agreements and the Confidentiality Agreement.
12.7 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without regard to any
applicable conflicts of law principles.
12.8 Publicity. Except as otherwise required by applicable law or the
rules of Nasdaq, none of the parties hereto shall, or shall permit any of its
Subsidiaries to, issue or cause the publication of any press release or other
public announcement with respect to, or otherwise make any public statement
concerning, the transactions contemplated by this Agreement without the consent
of the other parties hereto, which consent shall not be unreasonably withheld
(provided that the consent of Parent shall be deemed to be the consent of Newco
and the Merger Subs).
12.9 Assignment; Third Party Beneficiaries. Neither this Agreement nor
any of the rights, interests or obligations shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns. Except as otherwise
specifically
-52-
provided in Section 9.9, this Agreement (including the documents and instruments
referred to herein) is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
12.10 Standards; Disclosure Schedules. (a) Prior to the execution and
delivery of this Agreement, Lycos delivered the Lycos Disclosure Schedule to
TMCS and Newco, and TMCS delivered the TMCS Disclosure Schedule to Lycos and
Newco, each of which disclosure schedule sets forth, among other things, items
the disclosure of which is necessary or appropriate either in response to an
express disclosure requirement contained in a provision hereof or as an
exception to one or more of such party's representations or warranties contained
in Article V, in the case of TMCS, or Article VI, in the case of Lycos, or to
one or more of such party's covenants contained in Article VII; provided,
however, that notwithstanding anything in this Agreement to the contrary, (i) no
such item is required to be set forth in a Disclosure Schedule as an exception
to a representation or warranty if its absence would not result in the related
representation or warranty being deemed untrue or incorrect under the standard
set forth in Section 10.2(a) or Section 10.3(a), as the case may be, and (ii)
the mere inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that such
item represents a material exception or a material fact, event or circumstance
or that such item has had or would have had a Material Adverse Effect with
respect to Lycos or TMCS, as the case may be; provided, further, that no
Disclosure Schedule or other information, or modification thereof, that is
provided following the execution and delivery of this Agreement by the parties
hereto shall be deemed to modify any representation, warranty or covenant set
forth herein or in the Contribution Agreement.
(b) No representation or warranty of TMCS contained in Article V
(except for Section 5.7(a) and representations relating to the capitalization of
TMCS in Section 5.2) or of Lycos contained in Article VI (except for Section
6.7(a) and representations relating to the capitalization of Lycos in Section
6.2) shall be deemed untrue or incorrect for any purpose under this Agreement,
and no party hereto shall be deemed to have breached a representation or
warranty for any purpose under this Agreement, in any case, as a consequence of
the existence or absence of any fact, circumstance or event unless such fact,
circumstance or event, individually or when taken together with all other facts,
circumstances or events inconsistent with any representations or warranties
contained in Article V, in the case of TMCS, or Article VI, in the case of
Lycos, has had a Material Adverse Effect with respect to TMCS or Lycos,
respectively. For all purposes of determining whether any facts or events
contravening a representation or warranty contained herein constitute,
individually or in the aggregate, a Material Adverse Effect, representations and
warranties contained in Article V (other than Section 5.7(a) and the
capitalization representations) or Article VI (other than Section 6.7(a) and the
capitalization representations) shall be read without regard to any reference to
materiality or Material Adverse Effect set forth therein.
(c) The foregoing standards of this Section 12.10 shall apply, mutatis
mutandis, to the representations and warranties of Parent and Newco contained
herein.
-53-
IN WITNESS WHEREOF, Parent, Lycos, TMCS, Newco, L Merger Sub and T
Merger Sub have caused this Agreement to be executed by their respective
officers thereunto duly authorized as of the date first above written.
USA NETWORKS, INC.
By: /s/ Victor A. Kaufman
---------------------------------------
Name: Victor A. Kaufman
Title: Office of the Chairman and Chief
Financial Officer
LYCOS, INC.
By: /s/ Robert M. Davis
---------------------------------------
Name: Robert M. Davis
Title: President and Chief Executive
Officer
TICKETMASTER ONLINE-CITYSEARCH, INC.
By: /s/ Michael Guttentag
---------------------------------------
Name: Michael Guttentag
Title: Vice President - Business
Development
USA INTERACTIVE INC.
By: /s/ Dara Khosrowshahi
---------------------------------------
Name: Dara Khosrowshahi
Title: Vice President and Treasurer
[Agreement and Plan of Reorganization]
-54-
LEMMA, INC.
By: /s/ Dara Khosrowshahi
---------------------------------------
Name: Dara Khosrowshahi
Title: President
TYCHO, INC.
By: /s/ Dara Khosrowshahi
---------------------------------------
Name: Dara Khosrowshahi
Title: President
[Agreement and Plan of Reorganization]
-55-
Exhibit B
FORM OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
USA/LYCOS INTERACTIVE NETWORKS, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
USA/Lycos Interactive Networks, Inc., a Delaware corporation
(the "Corporation"), certifies that pursuant to the authority contained in
Article [FOURTH] of its Certificate of Incorporation, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, its Board of Directors has adopted the following resolution creating a
series of its Preferred Stock, par value $0.01 per share, designated as Series A
Convertible Redeemable Preferred Stock:
RESOLVED, that a series of the class of authorized Convertible
Redeemable Preferred Stock, par value $0.01 per share, of the Corporation be
hereby created, and that the designation and amount thereof and the voting
powers, preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as the "Series A Convertible Redeemable Preferred Stock"
(the "Series A Convertible Preferred Stock") and the number of shares
constituting such series shall be _________.
Section 2. Dividends. The holders of shares of Series A
Convertible Preferred Stock shall not be entitled to receive dividends with
respect to such shares.
Section 3. Voting Rights. Except as provided by law or as may
otherwise be provided in the Certificate of Incorporation of the Corporation or
in any amendment thereto, the holders of shares of Series A Convertible
Preferred Stock shall not be entitled to any voting rights as stockholders with
respect to such shares.
Section 4. Redemption.
(a) Shares of Series A Convertible Preferred Stock shall not
be redeemable except as provided in this Section 4.
(b) If as of the 39-month anniversary following the date of
the initial issuance of the shares of Series A Convertible Preferred
Stock (the "Initial Issuance Date"), the Average Market Price (as
defined in Section 9) is less than or equal to the First Target
Price (as defined in Section 9), the Board of Directors of the
Corporation shall direct that all of the shares of Series A Convertible
Preferred Stock then outstanding be redeemed by paying therefor in cash
$0.01 per share.
(c) On the date that redemption is being made pursuant to
paragraph (b) of this Section 4, the Corporation shall deposit for the
benefit of the holders of shares of Series A Convertible Preferred
Stock the funds necessary for such redemption with a bank or trust
company in the Borough of Manhattan, the City of New York, having a
capital and surplus of at least $500,000,000. Any monies so deposited
by the Corporation and unclaimed at the end of one year from the date
designated for such redemption shall revert to the general funds of the
Corporation. After such reversion, any such bank or trust company
shall, upon demand, pay over to the Corporation such unclaimed amounts
and thereupon such bank or trust company shall be relieved of all
responsibility in respect thereof and any holder of shares of Series A
Convertible Preferred Stock shall look only to the Corporation for the
payment of the redemption price. Any interest accrued on funds
deposited pursuant to this paragraph (c) shall be paid from time to
time to the Corporation for its own account.
(d) Upon the deposit of funds pursuant to paragraph (c) in
respect of shares of Series A Convertible Preferred Stock being
redeemed pursuant to paragraph (b) of this Section 4, notwithstanding
that any certificates for such shares shall not have been surrendered
for cancellation, the shares represented thereby shall no longer be
deemed outstanding, and all rights of the holders of shares of Series A
Convertible Preferred Stock shall cease and terminate, excepting only
the right to receive the redemption price therefor.
Section 5. Reacquired Shares. Any shares of Series A
Convertible Preferred Stock converted, redeemed, purchased or otherwise acquired
by the Corporation in any manner whatsoever shall be retired and canceled
promptly after the acquisition thereof. All such shares shall upon their
cancellation, and upon the filing of an appropriate certificate with the
Secretary of State of the State of Delaware, become authorized but unissued
shares of Preferred Stock, par value $0.01 per share, of the Corporation and may
be reissued as part of another series of Preferred Stock, par value $0.01 per
share, of the Corporation subject to the conditions or restrictions on issuance
set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(a) Except as provided in paragraph (b) of this Section 6,
upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (i) to the holders of shares of capital
stock of the Corporation ranking junior (upon liquidation, dissolution
or winding up) to the Series A Convertible Preferred Stock unless,
prior thereto, the holders of shares of Series A Convertible Preferred
Stock shall have received the Liquidation Value with respect to such
shares or (ii) to the holders of shares of capital stock ranking on a
parity (upon liquidation, dissolution or winding up) with the Series A
Convertible Preferred Stock, except distributions made ratably on the
Series A Convertible Preferred Stock and all such parity stock in
proportion to the total amounts to
2
which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. For purposes of this Section 6,
the Liquidation Value shall be $0.01 per share.
(b) If the Corporation shall commence a voluntary case under
the Federal bankruptcy laws or any other applicable Federal or State
bankruptcy, insolvency or similar law, or consent to the entry of an
order for relief in an involuntary case under any such law or to the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or make an assignment for the benefit
of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the Federal
bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official)
of the Corporation or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and any such
decree or order shall be unstayed and in effect for a period of 90
consecutive days and on account of any such event the Corporation shall
liquidate, dissolve or wind up, no distribution shall be made (i) to
the holders of shares of capital stock of the Corporation ranking
junior (upon liquidation, dissolution or winding up) to the Series A
Convertible Preferred Stock unless, prior thereto, the holders of
shares of Series A Convertible Preferred Stock shall have received the
Liquidation Value with respect to such shares or (ii) to the holders of
shares of capital stock ranking on a parity (upon liquidation,
dissolution or winding up) with the Series A Convertible Preferred
Stock, except distributions made ratably on the Series A Convertible
Preferred Stock and all such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
(c) Neither the consolidation, merger or other business
combination of the Corporation with or into any other Person or Persons
nor the sale of all or substantially all of the assets of the
Corporation shall be deemed to be a liquidation, dissolution or winding
up of the Corporation for purposes of this Section 6.
Section 7. Conversion. On the Conversion Date, each share of
Series A Convertible Preferred Stock shall automatically be converted into the
right to receive shares of common stock, par value $.01 per share, of the
Corporation ("Common Stock"), on the terms and conditions set forth in this
Section 7.
(a) Subject to the provisions for adjustment hereinafter set
forth, each share of Series A Convertible Preferred Stock shall be
converted into the right to receive a number of fully paid and
nonassessable shares of Common Stock equal to the "Conversion Ratio,"
which shall initially be equal to one (1) and which shall be subject to
adjustment as provided in this Section 7.
(b) The Conversion Ratio shall be subject to adjustment from
time to time as follows:
3
(i) In case the Corporation shall at any time or from
time to time declare a dividend, or make a distribution, on
the outstanding shares of Common Stock in shares of Common
Stock or subdivide or reclassify the outstanding shares of
Common Stock into a greater number of shares or combine or
reclassify the outstanding shares of Common Stock into a
smaller number of shares of Common Stock, then, and in each
such case, the Conversion Ratio shall be adjusted to equal the
number determined by multiplying (A) the Conversion Ratio
immediately prior to such adjustment by (B) a fraction, the
numerator of which shall be the number of shares of Common
Stock outstanding immediately after such dividend,
distribution, subdivision or reclassification, and the
denominator of which shall be the number of shares of Common
Stock outstanding immediately before such dividend,
distribution, subdivision or reclassification. An adjustment
made pursuant to this clause (i) shall become effective (A) in
the case of any such dividend or distribution, immediately
after the close of business on the record date for the
determination of holders of shares of Common Stock entitled to
receive such dividend or distribution, or (B) in the case of
any such subdivision, reclassification or combination, at the
close of business on the day upon which such corporate action
becomes effective.
(ii) In case the Corporation shall at any time or
from time to time declare, order, pay or make a dividend or
other distribution (including, without limitation, any
distribution of stock or other securities, cash or other
property or rights or warrants to subscribe for securities of
the Corporation or any of its Subsidiaries by way of dividend
or spinoff, but excluding regular ordinary cash dividends as
may be declared from time to time by the Corporation) on its
Common Stock, other than shares of Common Stock which are
referred to in clause (i) of this paragraph (b), then, and in
each such case, the Conversion Ratio shall be adjusted to
equal the number determined by multiplying (A) the Conversion
Ratio immediately prior to the record date fixed for the
determination of stockholders entitled to receive such
dividend or distribution by (B) a fraction, the numerator of
which shall be the Current Market Price per share of Common
Stock on the last Trading Day on which purchasers of Common
Stock in regular way trading would be entitled to receive such
dividend or distribution and the denominator of which shall be
the Current Market Price per share of Common Stock on the
first Trading Day on which purchasers of Common Stock in
regular way trading would not be entitled to receive such
dividend or distribution (the "Ex-dividend Date"); provided
that the fraction determined by the foregoing clause (B) shall
not be less than 1. An adjustment made pursuant to this clause
(ii) shall be effective at the close of business on the
Ex-dividend Date. If the Corporation completes a tender offer
or otherwise repurchases shares of Common Stock in a single
transaction or a related series of transactions, provided such
tender offer or offer to repurchase is open to all or
substantially all holders of Common Stock (not including open
market or other selective repurchase programs), the Conversion
Ratio shall be adjusted as though (A) the Corporation had
effected a reverse split of the Common Stock to reduce the
number of shares of Common Stock outstanding
4
from (x) the number outstanding immediately prior to the
completion of the tender offer or to the first repurchase for
which the adjustment is being made to (y) the number
outstanding immediately after the completion of the tender
offer or the last repurchase for which the adjustment is being
made and (B) the Corporation had paid a dividend on the Common
Stock outstanding immediately after completion of the tender
offer or of the last repurchase for which the adjustment is
being made in an aggregate amount equal to the aggregate
consideration paid by the Corporation pursuant to the tender
offer or repurchases for which the adjustment is being made.
In applying the first two sentences of this Section 7(b)(ii)
to the event described in the clause (B) of the preceding
sentence, the Current Market Price of the Common Stock on the
date of the closing of any such tender offer or on the date of
the last repurchase shall be taken as the value of the Common
Stock on the Ex-Dividend Date, and the value of the Common
Stock on the day preceding the Ex-Dividend Date shall be
assumed to be equal to the sum of (x) the value on the
Ex-Dividend Date and (y) the per share amount of the dividend
described in such clause (B). In the event that any of the
consideration paid by the Corporation in any tender offer or
repurchase to which this Section 7(b)(ii) applies is in a form
other than cash, the value of such consideration shall be
determined by an independent investment banking firm of
nationally recognized standing to be selected by the Board of
Directors of the Corporation.
(iii) In case at any time the Corporation shall be a
party to any transaction (including, without limitation, a
merger, consolidation, sale of all or substantially all of the
Corporation's assets, liquidation or recapitalization (other
than solely a change in the par value of equity securities) of
the Common Stock and excluding any transaction to which clause
(i) or (ii) of this paragraph (b) applies) in which the
previously outstanding Common Stock shall be changed into or
exchanged for different securities of the Corporation or
common stock or other securities of another corporation or
interests in a noncorporate entity or other property
(including cash) or any combination of any of the foregoing
(each such transaction being herein called the "Transaction,"
the date of consummation of the Transaction being herein
called the "Consummation Date", and the Corporation (in the
case of a recapitalization of the Common Stock to which this
clause (iii) applies or any other such transaction in which
the Corporation retains substantially all of its assets and
survives as a corporation) or such other corporation or entity
(in each other case) being herein called the "Acquiring
Company"), then, as a condition of the consummation of the
Transaction, the Corporation shall, as determined in good
faith by its Board of Directors based on advice as agreed to
by two investment banking firms of nationally recognized
standing, one selected by the Corporation and one selected by
USA Networks, Inc. ("USA Networks") (or any successor
stockholder of the Corporation holding a majority of the
voting power thereof), provide (as evidenced by a resolution
of the Board of Directors) for the shares of Series A
Convertible Preferred Stock outstanding at the Consummation
Date to be exchanged, without any vote of the holders of the
Series A Convertible Preferred Stock, for such other common
stock
5
or other securities, or cash or property as equitably reflects
the fair market value of a share of Series A Convertible
Preferred Stock at such Consummation Date, taking into account
all relevant factors, in the absence of the Transaction;
provided, however, that if the two investment banking firms
referred to in this sentence are unable to agree on such fair
market value, then such firms shall select a third investment
banking firm of nationally recognized standing which shall
then render such advice to the Board of Directors; and
provided, further, that in the event that at the time the
Corporation becomes a party to a Transaction there is no
shareholder holding a majority of the voting power of the
Corporation, the Corporation shall choose a single investment
banking firm of national standing to render the advice as to
fair market value contemplated by this Section 7(b)(iii).
(iv) Subject to Section 7(b)(iii), at the opening of
business on the Conversion Date, the Conversion Ratio shall be
adjusted to equal the number determined by multiplying (A) the
Conversion Ratio immediately prior to such adjustment by (B)
the Final Adjustment Factor.
All calculations under this paragraph (b) shall be made to the nearest
one ten-thousandth of a share.
(c) If any adjustment (other than the adjustment provided in
paragraph (b)(iv)) in the number of shares of Common Stock into which
each share of Series A Convertible Preferred Stock may be converted
required pursuant to this Section 7 would result in an increase or
decrease of less than 1% in the number of shares of Common Stock into
which each share of Series A Convertible Preferred Stock is then
convertible, the amount of any such adjustment shall be carried forward
and adjustment with respect thereto shall be made at the earlier of (i)
the time of and together with any subsequent adjustment, which,
together with such amount and any other amount or amounts so carried
forward, shall aggregate at least 1% of the number of shares of Common
Stock into which each share of Series A Convertible Preferred Stock is
then convertible or (ii) the opening of business on the Conversion
Date.
(d) The Board of Directors may at its option increase the
number of shares of Common Stock into which each share of Series A
Convertible Preferred Stock may be converted, in addition to the
adjustments required by this Section 7, as shall be determined by it
(as evidenced by a resolution of the Board of Directors) to be
advisable in order to avoid or diminish any income deemed to be
received by any holder for federal income tax purposes of shares of
Common Stock or Series A Convertible Preferred Stock resulting from any
events or occurrences giving rise to adjustments pursuant to this
Section 7 or from any other similar event.
(e) The holder of any shares of Series A Convertible Preferred
Stock may exercise his right to receive in respect of such shares the
shares of Common Stock or other property or securities, as the case may
be, to which such holder has become entitled by surrendering for such
purpose to the Corporation, at its principal office or at such other
office or agency maintained by the Corporation for that purpose, a
certificate or
6
certificates representing the shares of Series A Convertible Preferred
Stock to be converted accompanied by such other customary documents as
are necessary to effect the conversion and specifying the name or names
in which such holder wishes the certificate or certificates for shares
of Common Stock or other property or securities as the case may be, to
which such holder has become entitled to be issued. In case such notice
shall specify a name or names other than that of such holder, such
notice shall be accompanied by payment of all transfer taxes payable
upon the issuance of shares of Common Stock or other property or
securities as the case may be, to which such holder has become entitled
in such name or names. Other than such taxes, the Corporation will pay
any and all issue and other taxes (other than taxes based on income)
that may be payable in respect of any issue or delivery of shares of
Common Stock or other property or securities, as the case may be, to
which such holder has become entitled on conversion of Series A
Convertible Preferred Stock pursuant hereto. As promptly as
practicable, and in any event within five business days after the
surrender of such certificate or certificates and the receipt of such
notice relating thereto and, if applicable, payment of all transfer
taxes (or the demonstration to the satisfaction of the Corporation that
such taxes have been paid), the Corporation shall deliver or cause to
be delivered certificates representing the number of validly issued,
fully paid and nonassessable full shares of Common Stock to which the
holder of shares of Series A Convertible Preferred Stock so converted
shall be entitled or other property or services as the case may be, to
which such holder has become entitled.
(f) From and after the Conversion Date or the Redemption Date,
a holder of shares of Series A Convertible Preferred Stock shall have
no voting or other rights, other than the right to receive upon
delivery of the certificate or certificates evidencing shares of Series
A Convertible Preferred Stock as provided by paragraph 7(e), the
securities or property described in Section 7, if any, or the
redemption price as set forth in Section 4, as applicable.
(g) In connection with the conversion of any shares of Series
A Convertible Preferred Stock, no fractions of shares of Common Stock
shall be issued, but in lieu thereof the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to
such fractional interest multiplied by the Current Market Price per
share of Common Stock on the day on which such shares of Series A
Convertible Preferred Stock are deemed to have been converted.
(h) The Corporation shall at all times reserve and keep
available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Series A Convertible
Preferred Stock, such number of shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all then
outstanding shares of Series A Convertible Preferred Stock. The
Corporation shall from time to time, in accordance with the laws of
Delaware, increase the authorized amount of Common Stock if at any time
the number of authorized shares of Common Stock remaining unissued
shall not be sufficient to permit the conversion at such time of all
then outstanding shares of Series A Convertible Preferred Stock.
7
Section 8. Reports as to Adjustments. Whenever the Conversion
Ratio is adjusted as provided in Section 7 hereof, the Corporation shall (i)
promptly place on file at its principal office and at the office of each
transfer agent for the Series A Convertible Preferred Stock, if any, a
statement, signed by an officer of the Corporation, setting forth in reasonable
detail the event requiring the adjustment and the method by which such
adjustment was calculated and specifying the new Conversion Ratio, and (ii)
promptly mail to the holders of record of the outstanding shares of Series A
Convertible Preferred Stock at their respective addresses as the same shall
appear in the Corporation's stock records a notice stating that the number of
shares of Common Stock into which the shares of Series A Convertible Preferred
Stock are convertible has been adjusted and setting forth the new Conversion
Ratio (or describing the new stock, securities, cash or other property) as a
result of such adjustment, a brief statement of the facts requiring such
adjustment and the computation thereof, and when such adjustment became
effective.
Section 9. Definitions. For the purposes of the Certificate of
Designations, Preferences and Rights of Series A Convertible Redeemable
Preferred Stock which embodies this resolution:
"Conversion Date" shall mean the date that is 5 business days
following the earlier of (x) the 39-month anniversary of the Initial Issuance
Date and (y) the Consummation Date, in the event of a Transaction contemplated
by Section 7(b)(iii) hereof.
"Current Market Price" per share of Common Stock on any date
shall be deemed to be the closing price per share of Common Stock for such date.
The closing price for each day shall be the last sale price, regular way or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or,
admitted to trading on the New York Stock Exchange or, if the Common Stock is
not listed or admitted to trading on the New York Stock Exchange, as reported in
the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if the Common Stock is not
listed or admitted to trading on any national securities exchange, the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ")
or such other system then in use, or, if on any such date the Common Stock is
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the Common
Stock selected by the Board of Directors. If the Common Stock is not publicly
held or so listed or publicly traded, "Current Market Price" shall mean the Fair
Market Value per share as determined in good faith by the Board of Directors of
the Corporation.
"Fair Market Value" means the amount which a willing buyer
would pay a willing seller in an arm's-length transaction as determined in good
faith by the Board of Directors of the Corporation, unless otherwise provided
herein.
8
"Final Adjustment Factor": When the Conversion Date is as
specified in clause (x) of the definition of Conversion Date, the Final
Adjustment Factor shall equal
0 if AMP < or = TP1
1 if AMP > or = TP2
AMP - TP1 otherwise
---------
TP2 - TP1
where
AMP = Average Market Price: [MP1 + MP2 + MP3] [MP4]
--------------- + ---
6 2
TP1 = First Target Price: $143.27
TP2 = Second Target Price: $257.88
MP1 = First Measured Price: the daily volume weighted average of the
Adjusted Current Market Prices for the Trading Days during the
First Measurement Period
MP2 = Second Measured Price: the daily volume weighted average of the
Adjusted Current Market Prices for the Trading Days during the
Second Measurement Period
MP3 = Third Measured Price: the daily volume weighted average of the
Adjusted Current Market Prices for the Trading Days during the
Third Measurement Period
MP4 = Fourth Measured Price: the daily volume weighted average of the
Adjusted Current Market Prices for the Trading Days during the
Fourth Measurement Period
First Measurement Period: 90 calendar day period following the Initial
Issuance Date.
Second Measurement Period: 90 calendar day period ending on the
15-month anniversary of the Initial Issuance Date.
Third Measurement Period: 90 calendar day period ending on the
27-month anniversary of the Initial Issuance Date.
Fourth Measurement Period: 90 calendar day period ending on the
39-month anniversary of the Initial Issuance Date.
Adjusted Current Market Price: as of any date, the product of the
Current Market Price on such date times the Conversion Ratio applicable
at the close of business on such date.
9
When the Conversion Date is as specified in clause (y) of the
definition of Conversion Date, the Final Adjustment Factor shall be inapplicable
and Section 7(b)(iii) shall govern.
"Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
"Trading Day" means a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, any day other than a
Saturday, Sunday, or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close.
Section 10. Rank. The Series A Convertible Preferred Stock
shall rank prior to each other class or series of capital stock (including,
without limitation, each class of common stock of the Corporation) of, or other
equity interests (including, without limitation, warrants, rights, calls or
options exercisable for or convertible into capital stock or equity interests)
in, the Corporation.
Section 11. Transfer. To the extent held by USANi LLC, a
Delaware limited liability company ("LLC"), USA Networks or any of their
respective subsidiaries, or any limited liability companies or limited
partnerships controlled by LLC or USA Networks, shares of the Series A
Convertible Preferred Stock shall not be transferable or assignable (except by
operation of law) and any certificates representing shares of Series A
Convertible Preferred Stock held by any such person shall contain a legend to
the effect that such securities are nontransferable, nonassignable and
nonnegotiable except by operation of law. Nothing herein shall affect the
transferability of any Common Stock into which any shares of the Series A
Convertible Preferred is convertible.
IN WITNESS WHEREOF, USA/Lycos Interactive Networks, Inc. has
caused this Certificate of Designations, Preferences and Rights of Series A
Convertible Redeemable Preferred Stock to be duly executed by its ___________
and attested to by its Secretary this ___ day of ______________, 1999.
USA/LYCOS INTERACTIVE NETWORKS, INC.
By: __________________________________
Name:
ATTEST:
By: _____________________________
Name:
10
EXHIBIT 2.2
================================================================================
CONTRIBUTION AGREEMENT
AMONG
USA NETWORKS, INC.,
USANI LLC,
AND
USA INTERACTIVE INC.
(TO BE RENAMED USA/LYCOS INTERACTIVE NETWORKS, INC.)
DATED AS OF FEBRUARY 8, 1999
================================================================================
TABLE OF CONTENTS
PAGE
----
ARTICLE I. THE CONTRIBUTION
1.1 Parent and LLC Contributions............................ 2
1.2 Closing................................................. 2
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF PARENTS
2.1 Organization and Good Standing.......................... 2
2.2 Capitalization.......................................... 2
2.3 Due Authorization; Execution and Delivery............... 3
2.4 Absence of Breach; No Conflict.......................... 3
2.5 Brokers................................................. 4
2.6 Commission Documents; Financial Information............. 4
2.7 Approvals............................................... 6
2.8 Benefit Arrangements.................................... 6
2.9 Transactions with Affiliates; Completeness of Assets.... 8
2.10 Absence of Changes; Conduct of Business................. 8
2.11 Claims and Legal Actions................................ 9
2.12 Compliance with Laws.................................... 9
2.13 Intellectual Property; Proprietary Rights; Employee
Restrictions............................................ 9
2.14 Certain Contracts....................................... 10
2.15 Undisclosed Liabilities................................. 11
2.16 Labor Matters........................................... 11
2.17 Environmental Liability................................. 11
2.18 Year 2000 Compliance.................................... 12
2.19 Properties.............................................. 12
2.20 Ownership of Lycos Common Stock......................... 13
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF NEWCO
3.1 Organization, Standing, and Authority................... 13
3.2 No Business Activity.................................... 13
3.3 Authorization and Binding Obligation.................... 13
3.4 Capitalization.......................................... 13
3.5 Absence of Conflicting Agreements; Consents............. 14
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ARTICLE IV. TAX MATTERS
4.1 Tax Representations..................................... 14
4.2 Tax Indemnification by Newco............................ 14
4.3 Tax Indemnification by Parent and LLC................... 14
4.4 Allocation of Certain Taxes............................. 14
4.5 Filing Responsibility................................... 15
4.6 Refunds................................................. 15
4.7 Cooperation and Exchange of Information................. 15
4.8 Carrybacks; Tax Sharing Agreements...................... 16
4.9 Survival................................................ 17
4.10 Payments................................................ 17
4.11 Timing Differences...................................... 17
4.12 Definitions............................................. 17
ARTICLE V. ADDITIONAL COVENANTS
5.1 Regulatory Matters...................................... 18
5.2 Conduct of Business Prior to the Effective Time......... 18
5.3 Forbearances............................................ 18
5.4 Information and Access.................................. 20
5.5 Transactions with Affiliates............................ 20
5.6 Reservation and Listing of Newco Common Stock........... 21
5.7 Further Action.......................................... 21
5.8 Employees............................................... 21
5.9 Representations and Warranties.......................... 24
5.10 Voting of Parent TMCS Shares............................ 24
5.11 Indemnification of Officers and Directors............... 24
5.12 Cash.................................................... 24
ARTICLE VI. CONDITIONS
6.1 Conditions to Parent's Obligations...................... 24
6.2 Conditions to Newco's Obligations....................... 25
ARTICLE VII. SURVIVAL AND INDEMNIFICATION
7.1 Survival................................................ 25
7.2 Indemnification......................................... 25
7.3 Third-Party Claims...................................... 26
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ARTICLE VIII. TERMINATION
8.1 Termination of the Merger Agreement..................... 27
ARTICLE IX. GENERAL
9.1 Definitions............................................. 27
9.2 Efforts to Proceed Promptly............................. 30
9.3 Standards; Disclosure Schedules......................... 31
9.4 Notices................................................. 31
9.5 Specific Enforcement.................................... 32
9.6 Severability............................................ 32
9.7 Entire Agreement........................................ 33
9.8 Amendment; Waiver....................................... 33
9.9 Headings; References.................................... 33
9.10 Counterparts............................................ 33
9.11 Governing Law........................................... 33
9.12 Public Announcement..................................... 33
9.13 Third Party Beneficiaries............................... 33
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CONTRIBUTION AGREEMENT
CONTRIBUTION AGREEMENT (the "Agreement"), dated as of February
8, 1999, among USA NETWORKS, INC. ("Parent"), USANi LLC ("LLC") and USA
INTERACTIVE INC. ("Newco"). The Parties agree to consummate the following
transactions (the "Contribution") upon the terms and subject to the conditions
set forth herein. Capitalized terms used herein without definition have the
meanings ascribed to such terms in Article IX hereof.
WHEREAS, as a condition to, and simultaneously with, the
execution hereof, Parent, Lycos, Inc. ("Lycos"), Ticketmaster Online-CitySearch,
Inc. ("TMCS"), Newco and certain subsidiaries of Newco (Lycos, TMCS, Parent, LLC
and Newco, collectively, the "Parties") are entering into an agreement and plan
of reorganization (the "Merger Agreement") pursuant to which, among other
things, subject to the terms and conditions contained therein, each of Lycos and
TMCS shall merge with wholly owned subsidiaries of Newco (collectively, the
"Mergers" and together with the Contribution, the "Transactions") with Lycos and
TMCS as the surviving corporations, and the shareholders of Lycos and TMCS shall
receive shares of Newco Common Stock and Newco Class B Common Stock and Newco
Series A Convertible Redeemable Preferred Stock in the Mergers as described in
the Merger Agreement;
WHEREAS, as a condition, and simultaneously with, the
execution hereof, Parent and TMCS are each entering into a stock option
agreement with Lycos (the "Option Agreements" and together with this Agreement,
the Merger Agreement and other agreements contemplated by the Merger Agreement,
the "Transaction Agreements") pursuant to which, among other things, subject to
the terms and conditions contained therein, Lycos has granted to TMCS and Parent
options to acquire collectively up to an aggregate of 19.9% of the Lycos
outstanding common stock in the event of certain events described therein;
WHEREAS, subject to the terms and conditions contained herein,
the parties to this Agreement desire for Parent and/or LLC to contribute or
cause to be contributed to Newco the Contributed Businesses in exchange for
shares of Newco Class B Common Stock as described herein; and
WHEREAS, the contribution of the Contributed Businesses to
Newco pursuant to this Agreement is intended to be a transaction that, taken
together with the Mergers, constitutes an exchange described in Section 351 of
the Code;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements contained herein and in the other Transaction
Agreements, and intending to be legally bound hereby, Parent and Newco hereby
agree as follows:
ARTICLE I
THE CONTRIBUTION
1.1. Parent and LLC Contributions. At the Closing, Parent or
LLC shall cause to be contributed, transferred, assigned and conveyed
(collectively, "Contribute") to Newco 100% of the equity of the entities (or
their successors pursuant to the last sentence of this Section 1.1) listed on
Schedule 1.1 (the "Contributed Businesses") in exchange for 88,353,398 shares of
Newco Class B Common Stock and 1,938,853 shares of Newco Series A Convertible
Redeemable Preferred Stock. The form of contribution, which may include
contributing some or all of the Contributed Businesses through transfer of all
of the equity of a limited liability company or other entity, shall not
adversely affect the benefits to Newco of the Contributed Businesses.
1.2. Closing. Subject to the conditions set forth below, the
closing of the transactions contemplated hereby (the "Closing") shall take place
at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York,
New York 10019 promptly following the satisfaction or waiver of all of the
conditions to the parties' respective obligations to consummate the transactions
contemplated hereby (other than those requiring the delivery of documents or the
taking of other action at the Closing) or such earlier date or time as may be
agreed upon by the parties. The date on which the Closing is consummated is
hereinafter called the "Closing Date."
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as disclosed in the Parent disclosure schedule
delivered to Newco concurrently herewith (the "Parent Disclosure Schedule") and
subject to the standard set forth in Section 9.3, Parent and LLC, jointly and
severally, represent and warrant to Newco as follows:
2.1. Organization and Good Standing. Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. LLC is a limited liability company duly organized, validly
existing and in good standing under the laws of Delaware. True and complete
copies of the Certificate of Formation of LLC and all agreements relating to the
governance of LLC, as in effect as of the date of this Agreement, have
previously been made available by Parent to Lycos, except to the extent publicly
available prior to the date hereof. Each of the entities comprising the
Contributed Businesses (a) is (or if newly formed, will be) duly organized and
validly existing under the laws of its jurisdiction of organization, (b) is (or
if newly formed, will be) duly qualified to do business and in good standing in
all jurisdictions (whether federal, state, local or foreign) where its ownership
or leasing of property or the conduct of its business requires it to be so
qualified and in which the failure to be so qualified would have a Parent
Material Adverse Effect and (c) has or will have all requisite corporate power
and authority to own or lease its properties and assets and to carry on its
business as now conducted, in each case, except as would not have a Parent
Material Adverse Effect.
2.2. Capitalization. The authorized capitalization, number of
outstanding shares (and similar information for non-stock forms of ownership)
and shareholders (or other persons and entities with ownership interests) of
each of the entities comprising the Contributed Businesses as of the date hereof
is set forth on Schedule 2.2. Except as set forth on Schedule 2.2, as of the
date
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hereof, there are no outstanding options, warrants, rights, puts, calls,
commitments, or other contracts, arrangements, or understandings issued by or
binding upon the Contributed Businesses requiring or providing for, and there
are no outstanding debt or equity securities of the Contributed Businesses which
upon the conversion, exchange or exercise thereof would require or provide for,
the purchase or issuance by any of the Contributed Businesses of any new or
additional shares or ownership interests in the Contributed Businesses (or any
other debt or equity securities of the Contributed Businesses) which, with or
without notice, lapse of time and/or payment of monies, are or would be
convertible into or exercisable or exchangeable for shares or ownership
interests in the Contributed Businesses. There are no preemptive or other
similar rights available with respect to the Contributed Businesses or other
securities of the Contributed Businesses.
Parent owns, directly or indirectly, all of the issued and
outstanding shares of capital stock or other equity ownership interests of each
of the Contributed Businesses, free and clear of any liens, pledges, charges,
encumbrances and security interests whatsoever ("Liens"), and all of such shares
or equity ownership interests are duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof except as set forth on Schedule
2.2.
2.3. Due Authorization; Execution and Delivery. The execution,
delivery and performance of this Agreement and, in the case of Parent only, the
Merger Agreement, and the agreements contemplated hereby and by any such other
agreements to which it is a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by each of the board
of directors, managers or general partners, as appropriate, of Parent, LLC and
each of the Contributed Businesses (including such authorization as may be
required so that no state anti-takeover statute or similar statute or regulation
including, without limitation, Section 203 of the Delaware General Corporation
Law, is or becomes operative with respect to this Agreement or the transactions
contemplated hereby), and no other corporate proceedings on the part of Parent,
LLC, any of the Contributed Businesses or any of the holders of capital stock or
other equity ownership interests in the Contributed Businesses are necessary to
authorize this Agreement and, in the case of Parent only, the Merger Agreement,
and to consummate the transactions contemplated hereby and thereby. This
Agreement has been duly executed and delivered by each of Parent and LLC and
constitutes the legal, valid and binding obligation of each of Parent and LLC,
enforceable against Parent and LLC in accordance with its terms, and the Merger
Agreement has been duly executed and delivered by Parent and constitutes the
legal and valid binding obligation of Parent, enforceable against Parent in
accordance with its terms, in each case, except to the extent limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting creditors' rights generally and by general equity principles
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
2.4. Absence of Breach; No Conflict. Except as set forth on
Schedule 2.4 hereto, neither the execution and delivery of this Agreement by
Parent or LLC and, in the case of Parent only, the Merger Agreement, nor the
consummation by Parent or LLC of the transactions contemplated hereby or, in the
case of Parent only, the Merger Agreement, nor compliance by Parent or by LLC
with any of the terms or provisions hereof or, in the case of Parent only, the
Merger Agreement, will (i) violate any provision of the certificate of
incorporation, by-laws,
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operating agreements or partnership agreements, as appropriate, of Parent, LLC
or the Contributed Businesses or (ii) assuming that the consents and approvals
referred to in Section 2.7 are duly obtained, (x) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to Parent, LLC or any of the Contributed Businesses or any of the
properties or assets of the Contributed Businesses or (y) violate, conflict
with, result in a breach of any provision of or the loss of any benefit under,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of the Contributed Businesses under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which any of the
Contributed Businesses is a party, or by which any of them or any of their
respective properties or assets may be bound or affected, except, in the case of
clauses (ii)-(iii), for such violations, conflicts, breaches or defaults which,
either individually or in the aggregate, will not have a Parent Material Adverse
Effect.
2.5. Brokers. Other than Lazard Freres & Co. LLC and Allen &
Company Incorporated, the fees of which shall be the responsibility of Parent
and LLC, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Transactions based
upon arrangements made by or on behalf of Parent and/or LLC.
2.6. Commission Documents; Financial Information. (a) The
Parent Form 10-K in respect of the fiscal years ended December 31, 1997 and 1996
(the "Parent Forms 10-K") and each report, schedule, proxy, information
statement or registration statement (including all exhibits and schedules
thereto and documents incorporated by reference therein) filed by Parent or any
of its predecessors with the Securities and Exchange Commission (the
"Commission") following December 31, 1996 and on or before the date hereof are
collectively referred to as the "Parent Commission Documents." As of their
respective filing dates, with respect to the Contributed Businesses, (i) the
Parent Commission Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder applicable to such Parent Commission Documents, and (ii) none of the
Parent Commission Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that information as of a later date (but
before the date hereof) shall be deemed to modify information as of an earlier
date. The segment information for "Retailing" and "Ticketing operations"
included in the Parent Commission Documents (i) comply as of their respective
dates in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission with respect thereto (except
as may be indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-Q promulgated by the Commission), and (ii)
present fairly as of their respective dates, in all material respects, the
results of operations of the Contributed Businesses (without giving effect to
pro forma adjustments reflected on the Balance Sheet, as defined below) for each
of the respective periods and each has been prepared in conformity with GAAP
consistently applied during the periods involved except, in each case, as
indicated in the notes thereto.
-4-
(b) Parent has previously made available to Newco copies of
(i) the audited consolidated balance sheets of Parent and its subsidiaries as of
December 31, 1997 and 1996, and the related audited statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1997 and
1996, accompanied by the audit report of Ernst and Young LLP, independent public
accountants with respect to Parent (as to the consolidated balance sheets as of
December 31, 1997 and 1996 and the related statements of operations,
stockholders' equity and cash flows for the two years in the period ended
December 31, 1997) and the audit report of Deloitte & Touche LLP (as to the
consolidated statements of operations, stockholders' equity and cash flows for
the year ended December 31, 1995); the audited financial statements of Parent
(including the related notes) comply in all material respects with applicable
accounting requirements and with the published rules and regulations of the
Commission with respect thereto; (ii) the audited consolidated balance sheets of
the predecessor company to LLC and its subsidiaries as of December 31, 1997 and
1996, and the related audited statements of operations, members' equity and cash
flows for the year ended December 31, 1997, in each case, accompanied by the
audit report of Ernst and Young LLP, independent public accountants with respect
to LLC; the audited financial statements of Parent and LLC (including the
related notes) have been prepared in all material respects in accordance with
GAAP consistently applied during the periods presented, except, in each case, as
indicated in such statements or in the notes thereto; (iii) the unaudited
balance sheet of HSN Group, Inc. as of December 31, 1998, and the related
unaudited statement of operations for the year ended December 31, 1998; (iv) the
unaudited balance sheet of HSN as of December 31, 1998, and the related
unaudited statement of operations for the year ended December 31, 1998; (v) the
unaudited consolidated balance sheets of Parent and its subsidiaries as of
December 31, 1998, and the related unaudited statement of operations for the
year ended December 31, 1998; (vi) the unaudited consolidated balance sheet of
Internet Shopping Network as of December 31, 1998, and the related unaudited
statements of operations; (vii) the unaudited balance sheet of Ticketmaster
Group, Inc. as of December 31, 1998, and the related unaudited statement of
operations for the year ended December 31, 1998; and the audited and unaudited
historical financial statements referred to in this Section 2.6 (including the
related notes, where applicable) fairly present in all material respects the
results of the consolidated operations and changes in stockholders' equity and
consolidated financial positions of the applicable entity or entities or, as the
case may be, its or their predecessors, for the respective fiscal periods or as
of the respective dates therein set forth, subject to normal adjustments in the
case of unaudited statements; and (viii) the unaudited pro forma balance sheet
of the Contributed Businesses as of December 31, 1998. The books and records of
Parent and each of its Subsidiaries have been, and are being, maintained in all
material respects in accordance with GAAP consistently applied and any other
applicable legal and accounting requirements and reflect only actual
transactions, except as would not have a Parent Material Adverse Effect. The
unaudited pro forma balance sheet of the Contributed Businesses as of December
31, 1998 is referred to herein as the "Balance Sheet," and December 31, 1998, is
referred to herein as the "Balance Sheet Date." The Balance Sheet is based on
the historical financial statements of the respective entities as adjusted to
exclude certain assets and liabilities, primarily cash, intercompany accounts
with Parent, deferred and current tax accounts and minority interest (the "pro
forma adjustments"). The pro forma statements should be read in conjunction with
the audited and unaudited financial statements, including the related notes
where applicable, of Parent and LLC. The Balance Sheet presents fairly in all
material respects the financial position of the Contributed Businesses as of
December 31, 1998 after giving effect to the
-5-
pro forma adjustments. At the Closing and except as reflected on the Balance
Sheet, the Contributed Businesses shall have no indebtedness for borrowed money
other than debt of Pacer/CATS Corporation (now PCC Management Corporation),
which shall not exceed the amount set forth with respect thereto on the Balance
Sheet plus accrued interest. The indebtedness for borrowed money of Pacer/CATS
Corporation is not guaranteed by any Contributed Business nor does such
indebtedness contain any provision that would cause a cross default under any
other instrument that would bind the Contributed Businesses.
2.7. Approvals. Except (a) as set forth on Schedule 2.7(a)
hereof, and (b) for any filings, notices, applications and other information as
may be required to be made or supplied pursuant to the HSR Act, the Exchange Act
any state or foreign agencies and approval of such filings, notices or
applications, no notices, reports or other filings are required to be made by
Parent, LLC or any of the Transferring Entities with, nor are any consents,
registrations, applications, approvals, permits, licenses or authorizations
required to be obtained by Parent, LLC or any of the Transferring Entities from,
any public or governmental authority or other third party in connection with the
execution and delivery of this Agreement and, in the case of Parent only, the
Merger Agreement, and the consummation of the Transactions (other than consents
that would not, if not given, have a Parent Material Adverse Effect).
2.8. Benefit Arrangements. (a) Promptly following the date
hereof, Parent will provide Schedule 2.8(a) containing a true and complete list
of all material employee benefit plans or arrangements that cover any employee
of the Contributed Businesses (the "Contributed Employees") including any
employment, severance, or other similar contract, arrangement, or policy and
each material plan or arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation rights, stock purchases, or other forms of incentive
compensation or post-retirement insurance, compensation, or benefits
(collectively, "Benefit Arrangements"). Such list shall also denote all Benefit
Arrangements pursued or maintained by the Contributed Businesses that do not
provide benefits for other employees of Parent (a "Contributed Benefit
Arrangement"). There is no formal commitment, whether legally binding or not, to
create any additional Benefit Arrangements or to modify or change any existing
Benefit Arrangements. With respect to each Benefit Arrangement, Parent has
provided, or prior to the Closing Date, will provide to Newco true and complete
copies of: (i) all Benefit Arrangement documents and all amendments thereto; and
(ii) the most recent summary plan descriptions.
(b) No Benefit Arrangement is an "employee pension benefit
plan," as defined in Section 3(2) of ERISA that is subject to Title IV of ERISA
or Section 412 of the Code. No Benefit Arrangement provides post-retirement
welfare benefits, except as required by law or which would not have a Parent
Material Adverse Effect. None of the Contributed Businesses has incurred or
expects to incur any liability or lien under Title IV of ERISA or Section 412 of
the Code, which liability or lien would be reasonably expected to have a Parent
Material Adverse Effect.
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(c) None of the Contributed Businesses, nor any entity
required to be combined with the Contributed Businesses under Section 414(b),
Section 414(c), Section 414(m), or Section 414(o) of the Code (an "ERISA
Affiliate"), has incurred, or expects to incur solely as a result of the
consummation of the Contribution (including any termination of employment in
connection therewith), any cost, fee, expense, liability, claim, suit,
obligation, or other damage with respect to any pension plan or any Benefit
Arrangement that could give rise to the imposition of any liability, cost, fee,
expense, or obligation on Newco or any of its affiliates, which would be
reasonably expected to have a Parent Material Adverse Effect, and, to Parent's
knowledge, no facts or circumstances exist that could give rise to any such
cost, fee, expense, liability, claim, suit, obligation, or other damage, which
would be reasonably expected to have a Parent Material Adverse Effect.
(d) Neither the execution and delivery of this Agreement nor
the consummation of the Contribution (including any terminations of employment
in connection therewith) will (i) increase any benefits otherwise payable under
any Benefit Arrangement, which would be reasonably expected to have a Parent
Material Adverse Effect, (ii) result in the acceleration of the time of payment
or vesting of any such payment, or (iii) obligate Newco or the Contributed
Businesses to make any payment to any Contributed Employee that will not be
deductible as a result of the application of Section 280G of the Code, which
would be reasonably expected to have a Parent Material Adverse Effect.
(e) No controversies, disputes, or proceedings are pending or,
to Parent's knowledge, threatened, between any of the Contributed Businesses or
Benefit Arrangements and any Contributed Employee or any governmental agency
(other than routine claims for benefits), which would be reasonably expected to
have a Parent Material Adverse Effect.
(f) Except where any such failure would not be reasonably
expected to have a Parent Material Adverse Effect, all Benefit Arrangements (i)
comply in all material respects with applicable law, including but not limited
to ERISA and the Code, (ii) have been administered in all material respects in
accordance with their terms, and (iii) all required contributions have been made
to such Benefit Arrangements. All Benefit Arrangements that are intended to be
qualified under Section 401(a) of the Code have received a favorable
determination letter from the Internal Revenue Service, and Parent has no
knowledge of any events that would cause such letter to be revoked. Except as
set forth on Schedule 2.8(f), none of Parent, the Contributed Businesses, their
affiliates or any other person, including any fiduciary, has engaged in a
transaction in connection with which the Contributed Businesses or any
Contributed Benefit Arrangement will be subject to either a material civil
penalty assessed pursuant to Section 409 or 502(i) of ERISA or a material tax
imposed pursuant to Section 4975 or 4976 of the Code.
(g) Except where the failure to do so would not have a Parent
Material Adverse Effect, all Benefit Arrangements subject to or governed by the
law or a jurisdiction outside of the United States comply with applicable local
law and are funded and/or book reserved (or otherwise reflected on the Balance
Sheet) with respect to the Contributed Employees in a manner sufficient to
provide for accrued benefits according to reasonable actuarial or other
applicable assumptions and
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valuations most recently used to determine employer contributions to or the
funded status or book reserve of such Benefits Arrangements.
2.9. Transactions with Affiliates; Completeness of Assets.
Except as set forth on Schedule 2.9, there are no material agreements between
the Contributed Businesses, on the one hand, and Parent or any of its
Subsidiaries (other than the entities comprising the Contributed Businesses or
TMCS), on the other hand, relating to the business or operations of the
Contributed Businesses, except for transactions on an arm's-length basis,
transactions pursuant to customary intercompany management and operations and
transactions that are not material to the Contributed Businesses. With respect
to the Contributed Businesses, neither Parent nor any of its Subsidiaries (other
than the Contributed Businesses or TMCS) owns any asset, property or right,
tangible or intangible, that is primarily used or held for use in the business
or operations of the Contributed Businesses, other than such assets, properties
and rights that will be included in the Contributed Businesses and provided that
the Contributed Businesses do not include certain incidental businesses that are
primarily related to the other businesses of Parent and its Subsidiaries (other
than the Contributed Businesses and TMCS). The Contributed Businesses include
all of the assets used or held for use by Parent and its Subsidiaries (other
than TMCS) in connection with Parent's conduct of the business and operations of
the Contributed Businesses and the Contributed Businesses do not include any
other assets. The business and operations of the Contributed Businesses include
without limitation all online businesses, automated ticketing services and
on-air home shopping businesses (other than such activities, services and
businesses that are incidental to Parent's other lines of businesses, such as
SciFi.com and USA Network.com) owned or operated by Parent or any of its
Subsidiaries (other than TMCS).
2.10. Absence of Changes; Conduct of Business. Except as
disclosed in the Parent Commission Documents, no event or events have occurred
that have had, either individually or in the aggregate, a Material Adverse
Effect on the Contributed Businesses. Except as disclosed in the Parent
Commission Documents, since the Balance Sheet Date, Parent, LLC and the
Transferring Entities have, in all material respects, conducted their business
operations relating to the Contributed Businesses in the ordinary course, and
there has not occurred any event or condition having or that would have a Parent
Material Adverse Effect. Without limiting the generality of the foregoing, other
than as is disclosed in the Parent Commission Documents or on Schedule 2.10
hereto, since the Balance Sheet Date there has not occurred:
(a) any change or agreement to change the character or nature
of the Contributed Businesses in any material respects;
(b) other than in the ordinary course, any purchase, sale,
transfer, assignment, conveyance or pledge of the assets or properties contained
in the Contributed Businesses;
(c) any waiver or modification by Parent or LLC or the
Transferring Entities of any right or rights of substantial value, or any
material payment, direct or indirect, in satisfaction of any liability with
respect to the Contributed Businesses;
(d) any change in the accounting principles, methods,
practices or procedures followed by Parent, LLC or the Transferring Entities in
connection with the Contributed Businesses
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or any change in the depreciation or amortization policies or rates theretofore
adopted by Parent, LLC or the Transferring Entities in connection with the
Contributed Businesses;
(e) any grant or award of any options, warrants, conversion
rights or other rights to acquire any shares of capital stock of any of the
entities comprising the Contributed Businesses; or
(f) except for (i) such actions as are in the ordinary course
of business (ii) required by applicable law, or (iii) for liabilities that would
not be the responsibility of the Contributed Businesses following the Closing,
(A) any increase in the wages, salaries, compensation, pension, or other fringe
benefits or perquisites payable to any executive officer, employee, or director
of the Contributed Businesses from the amount thereof in effect as of December
31, 1998, or (B) the grant of any severance or termination pay, the entering
into of any contract to make or grant any severance or termination pay or to pay
any bonuses (other than customary year-end bonuses for fiscal 1998) or (ii) any
strike, work stoppage, slowdown, or other labor disturbance which would have,
either individually or in the aggregate, a Parent Material Adverse Effect; or
(g) any agreement with respect to any of the foregoing.
2.11. Claims and Legal Actions. Except as disclosed in the
Parent Commission Documents, there are no judicial, administrative, arbitral or
other actions, suits, claims, inquiries, investigations or proceedings in
respect of the Contributed Businesses or challenging the validity or propriety
of the transactions contemplated by this Agreement (whether of a public or
private nature) pending or, to the knowledge of Parent, threatened against
Parent or any of its Subsidiaries, which, individually or in the aggregate,
would have a Material Adverse Effect on the Contributed Businesses considered as
a whole. There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon Parent, any of its Subsidiaries or the assets of the
Contributed Businesses that has had, or will have, either individually or in the
aggregate, a Parent Material Adverse Effect.
2.12. Compliance with Laws. Parent and each of its
Subsidiaries hold all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of the Contributed Businesses under and
pursuant to each, and have complied in all material respects with and are not in
default in any material respect under any, applicable law, statute, order, rule,
regulation, policy and/or guideline of any governmental entity relating to the
Contributed Businesses, except where the failure to hold such license,
franchise, permit or authorization or such noncompliance or default will not,
either individually or in the aggregate, have a Parent Material Adverse Effect.
2.13. Intellectual Property; Proprietary Rights; Employee
Restrictions. (a) Parent or its Subsidiaries owns or has the right to use all
material registered copyrights, copyright registrations and copyright
applications, trademark registrations and applications for registration, patents
and patent applications, trademarks, service marks, trade names, or Internet
domain names (collectively, "Intellectual Property Rights") used by Parent or
its Subsidiaries principally in connection with the Contributed Businesses,
except for the absence of which would not, individually or in the aggregate,
have a Parent Material Adverse Effect. Parent believes that the Intellectual
Property Rights used by Parent or its Subsidiaries principally in connection
with the Contributed Businesses are sufficient to carry on the Contributed
Businesses as presently
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conducted. The Contributed Businesses have, or will have prior to the Closing
Date, exclusive ownership of or a license to use all Intellectual Property
Rights used by Parent or its subsidiaries principally in connection with the
Consolidated Businesses that Parent and its Subsidiaries owns or has the right
to use (provided, however, that the Contributed Businesses shall have no right
to use the "USA Networks" name, or names derivative thereof, which right is
expressly retained by Parent). The present business activities or products of
the Contributed Businesses do not infringe any Intellectual Property Rights of
others, except as would not have a Parent Material Adverse Effect. Parent has
not received any written notice or other claim or to the knowledge of Parent,
oral notice or other claim, from any person asserting that any of Parent's
present activities in connection with the Contributed Businesses infringe or may
infringe any Intellectual Property Rights of such person.
(b) (i) Parent or its Subsidiaries have, and the Contributed
Businesses will have prior to the Closing Date, the right to use all trade
secrets, customer lists, hardware designs, programming processes, software and
other information required for its services or its business as presently
conducted by the Contributed Businesses; (ii) Parent or its Subsidiaries have
taken all reasonable measures to protect and preserve the security and
confidentiality of its trade secrets and other confidential information; (iii)
to the knowledge of Parent, all trade secrets and other confidential information
of Parent or its Subsidiaries and related to the Contributed Businesses are not
part of the public domain or knowledge, nor, to the knowledge of Parent, have
they been misappropriated by any person having an obligation to maintain such
trade secrets or other confidential information in confidence for Parent; and
(iv) to the knowledge of Parent, no employee or consultant of Parent or any or
its Subsidiaries has used any trade secrets or other confidential information of
any other person in the course of their work for Parent or such Subsidiary in
connection with the Contributed Businesses.
(c) To the knowledge of Parent, no university, government
agency (whether federal or state) or other organization sponsored research and
development conducted by Parent or any of its Subsidiaries or has any claim of
right to or ownership of or other encumbrance upon the Intellectual Property
Rights there of Parent. Parent is not aware of any infringement by others of its
copyrights or other Intellectual Proprietary Rights used in connection with the
Contributed Business in any of its technology or services, or any violation of
the confidentiality of any of its proprietary information. To Parent's
knowledge, Parent is not making unlawful use of any confidential information or
trade secrets of any past or present employees of the Contributed Businesses.
2.14. Certain Contracts. (a) Except as set forth on Schedule
2.14, as relates to the Contributed Businesses, neither Parent nor any of its
Subsidiaries is a party to or bound by any contract, arrangement, commitment or
understanding (whether written or oral) (i) with respect to the employment of
any directors, officers or employees of the Contributed Businesses, other than
in the ordinary course of business consistent with past practice, (ii) which,
upon the consummation of the transactions contemplated by this Agreement will
(either alone or upon the occurrence of any additional acts or events) result in
any payment (whether of severance pay or otherwise) becoming due to any officer
or employee of the Contributed Businesses, (iii) which materially restricts the
conduct of any line of business of the Contributed Businesses, (iv) with or to a
labor union or guild
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(including any collective bargaining agreement) or (v) (including any stock
option plan, stock appreciation rights plan, restricted stock plan or stock
purchase plan) any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of any stockholder
approval or the consummation of any of the Transactions, or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. Parent has previously made, or will make,
available to Newco true and correct copies of all material employment and
deferred compensation agreements which are in writing and to which Parent or any
of its Subsidiaries is a party and relate to the Contributed Businesses. Each
contract, arrangement, commitment or understanding of the type described in this
Section 2.14(a), whether or not set forth in the Parent Disclosure Schedule, is
referred to herein as a "Parent Contract," and neither Parent nor any of its
Subsidiaries knows of, or has received notice of, any violation of the above by
any of the other parties thereto which, either individually or in the aggregate,
will have a Parent Material Adverse Effect.
(b) (i) Each Parent Contract is valid and binding on Parent or
any of its Subsidiaries, as applicable, and in full force and effect, (ii)
Parent and each of its Subsidiaries have in all material respects performed all
obligations required to be performed by it to date under each Parent Contract,
except where such noncompliance, either individually or in the aggregate, will
not have a Parent Material Adverse Effect, and (iii) no event or condition
exists which constitutes or, after notice or lapse of time or both, will
constitute, a material default on the part of Parent or any of its Subsidiaries
under any such Parent Contract, except where such default, either individually
or in the aggregate, will not have a Parent Material Adverse Effect.
2.15. Undisclosed Liabilities. Except for those liabilities
that are fully reflected or reserved against on the Balance Sheet and for
liabilities incurred in the ordinary course of business consistent with past
practice, since the Balance Sheet Date, neither Parent nor any of its
Subsidiaries has incurred any liability of any nature whatsoever (whether
absolute, accrued, contingent or otherwise and whether due or to become due)
that, either individually or in the aggregate, has had or will have a Parent
Material Adverse Effect.
2.16. Labor Matters. Except as disclosed in the Parent
Commission Documents publicly filed prior to the date hereof or as set forth on
Schedule 2.14 hereto, none of the Contributed Businesses is a party to or
otherwise bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor, as of
the date hereof, are any of the Contributed Businesses the subject of any
material proceeding asserting that any of the Contributed Businesses has
committed (in each case, which will have, either individually or in the
aggregate, a Parent Material Adverse Effect) an unfair labor practice or is
seeking to compel it to bargain with any labor union or labor organization nor,
as of the date of this Agreement, is there pending or, to the knowledge of
Parent, threatened, any material labor strike, dispute, walkout, work stoppage,
slow-down or lockout involving any of the Contributed Businesses.
2.17. Environmental Liability. There are no legal,
administrative, arbitral or other proceedings, claims, actions, causes of
action, private environmental investigations or remediation activities or
governmental investigations of any nature seeking to impose, or that could
reasonably
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result in the imposition, on any of the Contributed Businesses of any liability
or obligation arising under common law or under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), pending or, to Parent's knowledge, threatened
against any of the Contributed Businesses, which liability or obligation will,
either individually or in the aggregate, have a Parent Material Adverse Effect.
To the knowledge of Parent, there is no reasonable basis for any such
proceeding, claim, action or governmental investigation that would impose any
liability or obligation that will, individually or in the aggregate, have a
Parent Material Adverse Effect. With respect to the Contributed Businesses,
Parent is not subject to any agreement, order, judgment, decree, letter or
memorandum by or with any court, governmental authority, regulatory agency or
third party imposing any liability or obligation with respect to the foregoing
that will have, either individually or in the aggregate, a Parent Material
Adverse Effect.
2.18. Year 2000 Compliance. Parent has adopted and implemented
a commercially reasonable plan to provide (a) that the change of the year from
1999 to the year 2000 will not materially and adversely affect the information
and business systems or online operations of any of the Contributed Businesses
and (b) that the impacts of such change on the vendors and customers of the
Contributed Businesses will not have a Parent Material Adverse Effect. In
Parent's reasonable best estimate, no expenditures materially in excess of
currently budgeted items previously disclosed to Newco will be required in order
to cause the information and business systems of the Contributed Businesses and
its Subsidiaries to operate properly following the change of the year 1999 to
the year 2000. Parent reasonably expects that it will resolve any issues related
to such change of the year that could reasonably be expected to have a material
impact upon the Contributed Businesses in accordance with the timetable
contemplated by such plan (and in any event on a timely basis in order to be
resolved before the year 2000). Between the date of this Agreement and the
Effective Time, Parent shall continue to use all commercially reasonable efforts
to implement such plan.
2.19. Properties. (a) None of the Contributed Businesses is in
default under any of their respective leases for real property, and no event or
condition exists which constitutes or, after notice or lapse of time or both,
would constitute, a default on the part of any such entity under any of such
leases, except where the existence of such defaults, individually or in the
aggregate, is not reasonably likely to have a Parent Material Adverse Effect.
(b) Except as set forth on Schedule 2.19, with respect to each
item of real property owned by the Contributed Businesses, except for such
matters that, individually or in the aggregate, are not reasonably likely to
have a Parent Material Adverse Effect: (i) such entity has good and clear record
and marketable title to such property, insurable by a recognized national title
insurance company at standard rates, free and clear of any lien, encumbrance,
security interest, easement, covenant or other restriction, except for recorded
easements, covenants and other restrictions which do not materially impair the
current uses or occupancy of such property; and (ii) the improvements
constructed on such property are in good condition, and all mechanical and
utility systems servicing such improvements are in good condition, subject to
ordinary wear and tear, and free in each case of material defects.
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2.20. Ownership of Lycos Common Stock. Neither Parent nor any
of its Subsidiaries owns any shares of Lycos common stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco represents and warrants to Parent and LLC as follows:
3.1. Organization, Standing, and Authority. Newco is a
corporation duly organized, validly existing, and in good standing under the
laws of Delaware. Newco has all requisite corporate power and authority to
execute and deliver this Agreement and the Merger Agreement and the documents
contemplated hereby (to the extent a party to such documents), and to perform
and comply with all of the terms, covenants, and conditions to be performed and
complied with by them hereunder and thereunder.
3.2. No Business Activity. Newco is a corporation newly formed
solely for the purpose of consummating the Transactions and has not engaged in
any business activity except in connection with this Agreement and consummation
of the Transactions.
3.3. Authorization and Binding Obligation. The execution,
delivery, and performance of this Agreement and the Merger Agreement, and each
of the agreements contemplated hereby and thereby, and the consummation of the
Transactions by Newco (with respect to such agreements to which it is a party)
have been duly authorized by all necessary corporate action on the part of
Newco. This Agreement and the Merger Agreement have each been duly executed and
delivered by Newco and constitute the legal, valid, and binding obligation of
Newco, enforceable against Newco in accordance with their respective terms,
except to the extent limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting creditors' rights generally
and by general equity principles regardless of whether such enforceability is
considered in a proceeding in equity or at law.
3.4. Capitalization. (a) The authorized capitalization of
Newco as of the date hereof consists of: 1,000,000,000 shares of Common Stock,
$.01 par value per share ("Newco Common Stock"), 600,000,000 shares of Newco
Class B Common Stock, $.01 par value per share ("Newco Class B Common Stock" and
together with Newco Common Stock, "Newco Stock"), and 150,000,000 shares of
preferred stock, $.01 par value per share, of Newco ("Newco Preferred Stock"),
of which, as of the date hereof, there were 10 shares of Newco Class B Common
Stock outstanding, all of which shares are owned by Parent, no shares of Newco
Common Stock outstanding and no shares of Newco Preferred Stock outstanding.
Such shares outstanding on the date hereof are duly authorized, validly issued
and fully paid and nonassessable. As of the date hereof, except pursuant to the
Transaction Agreements, there are no outstanding options, warrants, rights,
puts, calls, commitments, or other contracts, arrangements, or understandings
issued by or binding upon Newco requiring or providing for, and there are no
outstanding debt or equity securities of Newco which upon the conversion,
exchange or exercise thereof would require or provide for, the issuance by Newco
of any new or additional shares of Newco Stock (or any other
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securities of Newco) which, with or without notice, lapse of time and/or payment
of monies, are or would be convertible into or exercisable or exchangeable for
shares of Newco Stock. There are no preemptive or other similar rights available
to the existing holder of Newco Stock except as contemplated by the Transaction
Agreements. Upon issuance of shares of Newco Class B Common Stock pursuant to
this Agreement, such shares of Newco Class B Common Stock will be duly
authorized, validly issued, fully paid, nonassessable and free of preemptive or
similar rights.
3.5. Absence of Conflicting Agreements; Consents. Subject to
any filings, notices, applications and other information as may be required to
be made or supplied pursuant to the HSR Act or the Exchange Act, the execution,
delivery and performance of this Agreement, the Merger Agreement and the
documents contemplated hereby and thereby by Newco (with or without the giving
of notice, the lapse of time, or both): (a) do not require any notices, reports
or other filings to be made by Newco with any public or governmental authority;
(b) do not require the consent of any third party (including any governmental or
regulatory authority); (c) will not conflict with any provision of the
Certificate of Incorporation or By-Laws of Newco, and (d) will not violate or
result in a breach of, or contravene any law, judgment, order, ordinance,
injunction, decree, rule, regulation or ruling of any court or governmental
instrumentality applicable to Newco except, in the case of clauses (a), (b) and
(d), for violations, breaches, contraventions or conflicts, which would not have
a Newco Material Adverse Effect.
ARTICLE IV
TAX MATTERS
4.1. Tax Representations. Parent represents and warrants to
Newco that all material Returns required to be filed for taxable periods ending
on or prior to the Closing Date by the Contributed Businesses have been or will
be filed in accordance with all applicable laws, and all Taxes due by the
Contributed Businesses have been or will be paid, except where the failure to so
file or so pay would not, in the aggregate, have a Parent Material Adverse
Effect.
4.2. Tax Indemnification by Newco. Newco shall be liable for,
and shall hold the Parent Indemnified Parties (and the direct and indirect
owners of LLC), and any successor thereto or affiliates thereof harmless from
and against, any and all Taxes with respect to Newco, any of its Subsidiaries or
any of the Contributed Businesses for any taxable period, other than Taxes for
which Parent or LLC is liable pursuant to Section 4.3.
4.3. Tax Indemnification by Parent and LLC. Parent or LLC
shall be liable for, and shall hold the Newco Indemnified Parties harmless from
and against: (i) any Income Taxes and any Sales Taxes with respect to the
Contributed Businesses for any period (or portion thereof) ending on or prior to
the Closing Date (calculated based on a closing of the books of the Contributed
Businesses as of the Closing Date) and (ii) any several liability under Treasury
Regulation Section 1.1502-6 (or under any comparable or similar provision under
state, local or foreign laws or regulations) with respect to any Consolidated
Return Taxes.
4.4. Allocation of Certain Taxes. The Parties agree that if
any entity transferred to Newco is permitted but not required under applicable
foreign, state or local Income Tax laws or Sales Tax laws, respectively, to
treat the day before the Closing Date or the Closing Date as the last
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day of a taxable period, such day shall be treated as the last day of a taxable
period for purposes of such relevant Tax law.
4.5. Filing Responsibility. (a) Any Return with respect to the
Contributed Businesses shall be prepared and filed by the person required under
the law to file such Return.
(b) With respect to any Income Tax or Sales Tax Return
required to be filed by Newco or any of its Subsidiaries that could reasonably
be expected to include or affect the Taxes for which Parent or LLC is liable
under Section 4.3, Newco shall deliver to Parent for its review, comment and
approval (which approval shall not be unreasonably withheld) a copy of its
proposed Return no later than 45 days prior to the due date (including
extensions).
4.6. Refunds. (a) Parent or the LLC, as the case may be, shall
be entitled to any refunds, and the benefit of any credits, of or with respect
to any Income Taxes and any Sales Taxes with respect to the Contributed
Businesses for any period (or portion thereof) ending on or prior to the Closing
Date (calculated based on a closing of the books of the Contributed Businesses
as of the Closing Date). Subject to the provisions of Section 4.8, Newco shall
be entitled to any other refunds and credits of Taxes with respect to any of the
Contributed Businesses for any taxable period.
(b) Newco shall promptly forward to Parent or LLC,
respectively, any refunds or credits received by Newco or any of its
Subsidiaries to which Parent or LLC is entitled under Section 4.6(a). Parent or
LLC shall promptly forward to Newco any refunds or credits received by Parent
(or any of its Subsidiaries, other than Newco or any of its Subsidiaries) or LLC
(or any of its Subsidiaries, other than Newco or any of its Subsidiaries),
respectively, to which Newco is entitled under Section 4.6(a).
4.7. Cooperation and Exchange of Information. (a) The Parties
shall cooperate with one another with respect to Tax matters. As soon as
practicable, but in any event within thirty (30) days after request by Parent or
LLC, from and after the Closing Date, Newco shall provide Parent or LLC with
such cooperation and shall deliver to Parent or LLC such information and data
concerning the operations of the Contributed Businesses and make available such
knowledgeable employees of the Contributed Businesses as Parent or LLC may
reasonably request, in order to enable Parent or LLC to complete and file all
Returns which it or any of its Subsidiaries may be required to file with respect
to the operations and business of the Contributed Businesses or to respond to
audits by any Taxing Authorities with respect to such operations and to
otherwise enable Parent or LLC to satisfy its internal accounting, Tax and other
legitimate requirements. Such cooperation and information by or from Newco shall
include provision of powers of attorney for the purpose of signing Returns and
defending audits and promptly forwarding copies of appropriate notices and forms
or other communications received from or sent to any Taxing Authority which
relate to the Contributed Businesses, and providing copies of all relevant
Returns, together with accompanying schedules and related workpapers, documents
relating to rulings or other determinations by any Taxing Authority and records
concerning the ownership and Tax basis of property, which Newco or its
Subsidiaries may possess. As soon as practicable, but in any event within thirty
(30) days after request by Newco, from and after the Closing Date, Parent and
LLC shall each provide Newco with such cooperation and shall deliver to Newco
such information and
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data concerning the pre-Closing operations of the Contributed Businesses and
make available such knowledgeable employees of Parent or LLC as Newco may
reasonably request, in order to enable Newco to complete and file all Returns
which it or any of its Subsidiaries may be required to file with respect to the
operations and business of the Contributed Businesses or to respond to audits by
any Taxing Authorities with respect to such operations. Such cooperation and
information by or from Parent or LLC shall include furnishing records concerning
the ownership and Tax basis of property, which Parent or LLC may possess. The
Parties shall make their and their Subsidiaries' employees and facilities
available on a mutually convenient basis to provide explanation of any documents
or information provided hereunder.
(b) For a period of seven (7) years after the Closing Date or
such longer period as may be required by law, Newco shall, and shall cause its
Subsidiaries to, retain all, and neither destroy nor dispose of any, Returns,
books and records (including computer files) of, or with respect to the
activities of, the Contributed Businesses for all taxable periods ending on or
prior to the Closing Date. Thereafter, Newco shall not, and shall cause its
Subsidiaries not to, destroy or dispose of any such Returns, books or records
unless it first offers in writing to deliver such Returns, books and records to
Parent and LLC (at the expense of Parent and LLC) and Parent and LLC fail to
accept such offer within sixty (60) days of its being made.
(c) The Parties shall cooperate in the preparation of all
Returns relating in whole or in part to taxable periods ending on or before or
including the Closing Date that are required to be filed after such date. Such
cooperation shall include, but not be limited to, furnishing relevant portions
of prior years' Returns or Return preparation packages illustrating previous
reporting practices or containing historical information relevant to the
preparation of such Returns, and furnishing such other information within such
Party's possession reasonably requested by the person filing such Returns as is
relevant to their preparation. In the case of any federal, state, local or
foreign joint, consolidated, combined, unitary or group relief system Returns,
such cooperation shall also relate to any other taxable periods in which one
Party could reasonably require the assistance of another Party in obtaining any
necessary information.
(d) Parent shall have the right, at its own expense, to
control any audit or examination by any Taxing Authority ("Tax Audit"), initiate
any claim for refund, contest, resolve and defend against any assessment, notice
of deficiency, or other adjustment or proposed adjustment to the extent relating
to any Income Taxes or Sales Taxes of the Contributed Businesses for any taxable
period (or portion thereof) ending on or before the Closing Date. Newco shall
have the right, at its own expense, to control any other Tax Audit, initiate any
other claim for refund, and contest, resolve and defend against any other
assessment, notice of deficiency, or other adjustment or proposed adjustment
relating to all other Taxes with respect to the Contributed Businesses. The
Parties shall cooperate with one another in a manner comparable to that
described for such Party in paragraph (a) of this Section to effect the purposes
of this Section.
4.8. Carrybacks; Tax Sharing Agreements. The Contributed
Businesses shall not carry back any deductions, losses or credits to a taxable
period (or portion thereof) ending on or prior to the Closing Date with respect
to any consolidated, combined, unitary or group relief system Taxes without the
prior written consent of Parent. Any Tax sharing agreement between Parent or
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LLC, on the one hand, and any of the Contributed Businesses, on the other hand,
shall be terminated as of the Closing Date and shall thereafter have no further
effect for any taxable year.
4.9. Survival. Notwithstanding any other provision of this
Agreement, the provisions of this Article IV, other than Section 4.1, shall
survive the Closing until the expiration of all applicable statutes of
limitations.
4.10. Payments. To the extent not paid prior to the Closing
Date, in the case of Separate Return Taxes of the Contributed Businesses for
which Parent or LLC, respectively, is liable pursuant to Section 4.3, Parent or
LLC, respectively, shall pay Newco as a contribution to capital the amount of
such Taxes on or prior to the date such Taxes are due to the relevant Taxing
Authority. Newco shall, or shall cause, such amounts to be paid over to the
Taxing Authority.
4.11. Timing Differences. (a) In the event of any adjustment,
including a final determination, of a Tax item attributable to the Contributed
Businesses that results in a Tax benefit or Tax detriment for the account of one
Party (the "Adjusted Party") and a corresponding Tax detriment or Tax benefit
(the "Corresponding Item") for the account of another Party (the "Corresponding
Party"), then, no later than five business days after the Corresponding Item is
actually realized (i) if the Corresponding Item is a Tax benefit, the
Corresponding Party shall pay the Adjusted Party and (ii) if the Corresponding
Item is a Tax detriment, the Adjusted Party shall pay the Corresponding Party,
in each case, the lesser of the Tax benefit and the Tax detriment.
(b) Section 4.11(a) shall not apply to any change in a Tax
item arising as a result of a claim for refund initiated by the taxpayer.
4.12. Definitions. For purposes of this Article IV, the
following terms shall have the meanings ascribed to them below:
(a) "Consolidated Return Taxes" shall mean any Income Taxes
and any Sales Taxes that are filed on a consolidated, combined, unitary or group
relief system basis that include any of the Contributed Businesses, on the one
hand, and Parent, LLC or any of their respective Subsidiaries, other than the
Contributed Businesses, on the other hand.
(b) "Income Taxes" means all Taxes based upon or measured by
income.
(c) "Returns" means returns, reports and forms required to be
filed with any domestic or foreign Taxing Authority.
(d) "Separate Return Taxes" means Income Taxes and Sales Taxes
other than Consolidated Return Income Taxes.
(e) "Sales Taxes" shall mean sales Taxes and use Taxes.
(f) "Taxes" means (i) all taxes (whether federal, state, local
or foreign) based upon or measured by income and any other tax whatsoever,
including gross receipts, profits, sales, use, occupation, value added, ad
valorem, transfer, franchise, withholding, payroll, employment, excise, or
property taxes, together with any interest or penalties imposed with respect
thereto and
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(ii) any obligations under any agreements or arrangements with respect to any
Taxes described in clause (i) above.
(g) "Taxing Authority" means any government authority having
jurisdiction over the assessment, determination, collection, or other imposition
of Tax.
ARTICLE V
ADDITIONAL COVENANTS
5.1. Regulatory Matters. Following the date hereof, Parent and
Newco shall file promptly any forms required under applicable law and take any
other action reasonably necessary in connection with (a) obtaining the
expiration or termination of the waiting periods under the HSR Act applicable to
the Contribution and the other Transactions, and (b) the matters described in
Section 9.1 of the Merger Agreement.
5.2. Conduct of Business Prior to the Effective Time. During
the time from the date of this Agreement to the Effective Time, except as
expressly contemplated or permitted by this Agreement, the Merger Agreement or
the Option Agreements, or as disclosed in the Parent Disclosure Schedule, (a)
Parent and its Subsidiaries shall based on its reasonable commercial judgment,
conduct the Contributed Businesses in the ordinary course, (b) based on its
reasonable commercial judgment, use reasonable best efforts to maintain and
preserve intact the business organization, employees and advantageous business
relationships of the Contributed Businesses and retain the services of the
officers and key employees of the Contributed Businesses, and (c) take no action
which would adversely affect or delay the ability of the Contributed Businesses
to obtain any necessary approvals of any Regulatory Agency or other governmental
authority required for the Transactions or to perform its covenants and
agreements under this Agreement, the Merger Agreement or the Option Agreements
or to consummate the Transactions or otherwise delay or prohibit consummation of
the Transactions.
5.3. Forbearances. During the period from the date of this
Agreement to the Effective Time, except as set forth in the Parent Disclosure
Schedule or as disclosed in the Parent Commission Documents filed prior to the
date hereof and, except as expressly contemplated by this Agreement, the Merger
Agreement or the Option Agreements, neither Parent nor LLC shall permit any of
their respective Subsidiaries to, without the prior written consent of Lycos and
TMCS:
(a) other than in the ordinary course of business and in
amounts that are not material, incur any indebtedness on behalf of the
Contributed Businesses, for borrowed money (other than short-term indebtedness
incurred to refinance short-term indebtedness and indebtedness of the
Contributed Businesses, on the one hand, to any of its Subsidiaries, on the
other hand), assume, guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other individual, corporation or other
entity, or make any loan or advance;
(b) (i) make, declare or pay any dividend, or make any other
distribution on, or directly or indirectly redeem, purchase or
otherwise acquire or encumber, any shares of the capital stock or any
securities or obligations convertible (whether currently convertible or
convertible only after the passage of time or the occurrence of certain
events) into or
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exchangeable for any shares of the capital stock, of any Contributed
Businesses provided, however, that Parent shall be permitted to sweep
or otherwise cause to be distributed cash from the Contributed
Businesses;
(i) grant any stock appreciation rights or grant any
individual, corporation or other entity any right to acquire any shares
of the stock of any entity included in the Contributed Businesses; or
(ii) issue any additional shares of capital stock of the
Contributed Businesses except pursuant to the exercise of stock options
under the Internet Shopping Network stock option plans issued and
outstanding as of the date hereof.
(c) other than in the ordinary course of business, consistent
with past practice, increase in any manner the compensation or fringe benefits
of any of the employees of the Contributed Businesses or pay any pension,
severance or retirement allowance not required by any existing plan or agreement
to any such employees or become a party to, amend or commit itself to any
pension, retirement, profit-sharing or welfare benefit plan or agreement or
employment agreement with or for the benefit of such employee, or accelerate the
vesting of, or the lapsing of restrictions with respect to, any stock options or
other stock-based compensation;
(d) except in the ordinary course of business, settle any
material claim, action or proceeding involving money damages, provided that such
money damages are paid prior to the Closing;
(e) knowingly take any action that would prevent or impede the
Mergers and the Contribution, taken together, from qualifying as an exchange
contemplated by Section 351 of the Code;
(f) take any action that is intended or expected to result in
any of its representations and warranties set forth in this Agreement being or
becoming untrue in any material respect at any time prior to the Effective Time,
or in any of the conditions to the Mergers set forth in Article X of the Merger
Agreement not being satisfied or in a violation of any provision of this
Agreement, except, in every case, as may be required by applicable law;
(g) enter into any "non-compete" or similar agreement that
would materially restrict the businesses of Newco following consummation of the
Transactions;
(h) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of any of the Contributed Businesses (other than as contemplated
by the Transactions);
(i) implement or adopt any change in its accounting
principles, practices or methods as they relate to the Contributed Businesses,
other than as may be required by GAAP or regulatory guidelines; or
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(j) agree to take, make any commitment to take, or adopt any
resolutions of its board of directors in support of, any of the actions
prohibited by this Section 5.3.
5.4. Information and Access. (a) From the date hereof and
continuing until the Closing, each of Parent, as to itself and its Subsidiaries
and affiliates (other than Newco and TMCS), and Newco, as to itself and its
Subsidiaries, agrees that it shall afford and, with respect to clause (ii)
below, shall cause its independent auditors to afford, (i) to the officers,
independent auditors, counsel and other representatives of the other or of Lycos
reasonable access or of Lycos to its properties, books, records (including Tax
Returns filed and those in preparation) and personnel in order that the other or
Lycos may have a full opportunity to make such investigation as it reasonably
desires to make of the other or others consistent with their rights under this
Agreement, and (ii) to the independent auditors of the other, reasonable access
to the audit work papers and other records of its independent auditors. No
investigation pursuant to this Section 5.4 shall affect or otherwise obviate or
diminish any representations and warranties of any party or conditions to the
obligations of any party. Except as required by law or stock exchange or NASD
regulation, any information furnished pursuant to this Section 5.4 (including
any information furnished to the other prior to the date hereof) shall be held
in confidence to the extent required by, and in accordance with, the provisions
of the confidentiality agreement among Parent, Lycos and TMCS.
(b) From and after the Closing, each of Parent, as to itself
and its Subsidiaries and affiliates (other than Newco and TMCS), on the one
hand, and each of Newco and its Subsidiaries, on the other hand, agrees that it
shall afford to the officers, independent auditors, counsel and other
representatives of the other reasonable access to its books, records and
personnel for reasonable business purposes, for example in order that the party
requesting access can prepare tax and other filings with respect to any periods
prior to Closing, or respond to, negotiate, settle or litigate any claims
related to the Contributed Businesses for which the requesting party has any
liability hereunder.
5.5. Transactions with Affiliates. (a) Except as otherwise
agreed to by Parent, Newco, TMCS and Lycos, all agreements and transactions
between the Contributed Businesses, on the one hand, and Parent and its
Subsidiaries (other than TMCS), on the other hand, shall be terminated effective
as of the Closing without any liability to any party except for payments due, if
any, for goods and services provided prior to the Closing.
(b) From and after the Closing, Parent agrees that it will
provide carriage on all of its broadcast stations that presently offer Home
Shopping programming of programming relating to the Home Shopping business of
Newco in exchange for payment by Newco of the direct operating costs and related
expenses of such carriage and without any distribution fee, provided, however,
that, upon 90 days' notice by Parent, such carriage arrangements with respect to
any or all of the Parent broadcast stations that then carry Home Shopping
programming may be terminated. In the event that Parent provides such notice,
Newco shall not be obligated to reimburse Parent for the direct operating costs
and related expenses described in this sentence as of the date of termination of
the related carriage arrangement. Newco, on its behalf and on behalf of the
Contributed Businesses, and Parent, on its behalf and on behalf of its
Subsidiaries (other than the Contributed Businesses and TMCS) agree that the
arrangements described in this Section 5.5(b) shall, as of the
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Closing, supersede in their entirety any other agreement or arrangement with
respect to the carriage of Home Shopping programming on any broadcast station
owned or controlled, directly or indirectly, by Parent. In the case of a station
that Parent does not hold a direct or indirect controlling interest in, but has
a significant minority interest in, Newco agrees that any carriage agreement
with such station may be terminated by such station on 90 days' notice with the
concurrence of Parent, regardless of the provisions of the applicable carriage
agreement.
5.6. Reservation and Listing of Newco Common Stock. Newco
hereby covenants to Parent that it shall reserve and keep available out of its
authorized but unissued shares of Newco Common Stock, such number of its duly
authorized shares of Newco Common Stock as shall be sufficient to issue upon the
exchange of all shares of Newco Class B Common Stock held by Parent and its
affiliates. All shares of Newco Common Stock to be issued pursuant to this
Agreement, including upon exchange of shares of Newco Common Stock for Newco
Class B Common Stock shall, upon issuance, be duly qualified for quotation for
trading on The Nasdaq Stock Market.
5.7. Further Action. (a) Each of the parties hereto shall use
all reasonable efforts to take, or cause to be taken, all appropriate action, do
or cause to be done all things necessary, proper or advisable under applicable
law, and execute and deliver such documents and other papers, as may be required
to carry out the provisions of this Agreement and the other Transaction
Agreements and consummate and make effective the Transactions contemplated by
the Transactions Agreements (including without limitation the Contribution of
the Contributed Businesses to Newco as an exchange described in Section 351 of
the Code).
(b) In the event that at any time or from time to time
following the Closing, Parent (or its Subsidiaries) shall receive or otherwise
possess any asset that comprises the businesses to be Contributed at the Closing
to Newco, or Newco (or its Subsidiaries) shall receive or otherwise possess any
asset that comprises the businesses of Parent other than the businesses to be
Contributed at the Closing was not of the sort contemplated to be Contributed by
Parent (or its Subsidiaries) at the Closing, such party shall promptly use all
reasonable efforts to transfer, or cause to be transferred, such asset to the
party so entitled thereto. Prior to any such transfer, the party (or its
affiliates) possessing such asset shall hold such asset (and all earnings
generated by such asset from and after the Closing) in trust for such other
party.
5.8. Employees. (a) Except as otherwise agreed to by Parent
and Newco, the active participation of Contributed Employees in Benefit
Arrangements that are not Contributed Benefit Arrangements shall cease as of the
Closing Date, and no additional benefits shall accrue thereunder in respect of
periods following the Closing Date for such Contributed Employees. To the extent
the Benefit Arrangements are no longer continued after the Closing Date, with
respect to the Contributed Employees who are employed immediately following the
Closing Date by Newco or its Subsidiaries (the "Continued Employees"), the
Continued Employees shall be provided with benefits under plans maintained or
established by Newco that are substantially similar to those provided to
similarly-situated employees of Newco (taking into account all relevant factors,
including, without limitation, geographic location, position and duties), and
such Newco benefit
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plans shall provide benefits thereunder on a basis that does not discriminate
between the Continued Employees and the other employees of Newco.
(b) The parties hereto intend that there shall be continuity
of employment with respect to all of the Contributed Employees. Newco shall
provide employment, commencing on the Closing Date, to all Contributed
Employees, including, without limitation, those who as of the Closing Date are
on disability or leave of absence, and any active employee as of the Closing
Date who is hired by the Contributed Businesses after the date of this
Agreement, and excluding any Contributed Employee whose employment terminates
for any reason with the Contributed Businesses prior to the Closing Date, on
substantially the same terms (including salary, job responsibility and location)
as those provided to such employees immediately prior to the Closing Date.
(c) Newco will (i) waive all limitations as to preexisting
conditions, exclusions and waiting periods with respect to participation and
coverage requirements applicable to Continued Employees under any welfare plan
that such employees may be eligible to participate in after the Closing Date, to
the extent that such conditions would have been waived under the corresponding
welfare plan in which any such employee participated in immediately prior to the
Closing Date, (ii) provide each Continued Employee with credit for any
co-payments and deductibles paid prior to the Closing Date, for the calendar
year in which the Closing Date occurs, in satisfying any applicable deductible
or out-of-pocket requirements under any welfare plans that such employees are
eligible to participate in after the Closing Date, and (iii) provide each
Continued Employee with credit for all service for purposes of eligibility,
vesting and benefit accruals (but not for benefit accruals under any defined
benefit pension plan) with Parent and its affiliates, as applicable, under each
employee benefit plan, program, or arrangement of Newco or its affiliates in
which such employees are eligible to participate in after the Closing Date;
provided, however, that in no event shall the employees be entitled to any
credit to the extent that it would result in a duplication of benefits with
respect to the same period of service.
(d) Parent and Newco agree to cooperate reasonably and in good
faith to lower any costs that may be borne by Parent or Newco as a result of the
contemplated Transactions (e.g., severance costs) and to cooperate reasonably
and in good faith on other transition matters relating to the Continued
Employees and their benefits; provided, however, that nothing in this provision
shall require Newco to continue to participate in or maintain any benefit plans
or arrangements that existed prior to the Closing Date. Parent shall cooperate
reasonably and in good faith to bifurcate, to the extent necessary, the payroll
systems between the Contributed Employees and employees of Parent effective as
of the Closing Date (or such later date as is administratively feasible).
(e) Certain Continued Employees currently participate in the
USA Networks, Inc. Retirement Savings Plan (the "Parent DC Plan"). With respect
to the Parent DC Plan, such Continued Employees shall not accrue benefits and
service credit under such plan in respect of periods after the Closing Date, and
shall commence participation in the Newco savings plan (the "Newco Savings
Plan") as soon as practicable following the Closing Date with full credit, for
purposes of vesting, for all service credited for such purposes as of the
Closing Date under the Parent DC Plan. Newco shall provide to Parent evidence
reasonably satisfactory to Parent that the
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Newco Savings Plan and the corresponding trust qualify under the requirements of
Sections 401(a) and 501(a) of the Code, respectively. Parent shall provide to
Newco evidence reasonably satisfactory to Newco that the Parent DC Plan and the
corresponding trust remain qualified under the requirements of Sections
401(a)and 501(a) of the Code, respectively. Provided Parent and Newco have
received evidence reasonably satisfactory to them in accordance with the
preceding sentences, as soon as is reasonably practicable following the Closing
Date, but in no event later than 60 days following receipt of such mutually
satisfactory evidence, Parent shall take or cause to be taken all action
required or appropriate to transfer the account balances of all Continued
Employees to the trust associated with the Newco Savings Plan. Such transfers
shall be made in cash or in kind (as elected by Newco), and in the case of
participant loans, notes (or other assets reasonably acceptable to Newco) equal
in value to the account balances to be transferred, determined as of the last
valuation date preceding the transfer. For the period from the Closing Date
until the transfer, Newco shall collect by payroll deduction and promptly pay
over to the Parent DC Plan all loan payments required on participant loans made
by the plan to any Continued Employee and Parent shall cause the Parent DC Plan
to administer and pay all distributions, withdrawals and loans payable under the
terms of such plan to any Continued Employee until the transfer. Upon the
transfer of the account balances (including participant loans) to the Newco
Savings Plan, Newco shall assume all liabilities specifically attributable to
the account balances of Continued Employees in respect of the Parent DC Plan
from which that transfer was made.
(f) To the extent permitted by applicable law, Newco shall
assume and be responsible for all accrued vacation through the Closing Date in
respect of the Continued Employees.
(g) All medical, life insurance, disability and other welfare
plan expenses and benefits for each Continued Employee with respect to claims
incurred by such employees or their covered dependents prior to the Closing Date
shall be covered under the Benefit Arrangements as in effect prior to the
Closing Date. Expenses and benefits with respect to claims incurred by Continued
Employees or their covered dependents on or after the Closing Date shall be the
responsibility of Newco. For purposes of this paragraph, a medical claim is
deemed incurred when the services that are the subject of the claim are
performed; in the case of life insurance, when the death occurs, in the case of
long-term disability benefits, when the disability is determined to have
occurred.
(h) Without limiting the generality of the foregoing,
effective as of the Closing Date, Newco shall assume, and become the successor
entity, with respect to the Contributed Benefit Arrangements. Newco shall assume
all collective bargaining agreements applicable to the Continued Employees, as
modified by any negotiations between Newco and the applicable union.
(i) Notwithstanding anything contained herein to the contrary,
from and after the Closing Date, Parent and its affiliates shall jointly and
severally indemnify and hold harmless Newco and its Affiliates (other than
Parent and its Affiliates) from any joint and several Controlled Group Liability
of Parent or its affiliates. For this purpose, "Controlled Group Liability"
shall mean any and all claims, losses, expenses, costs or obligations arising
out of or relating to (i) Title IV of ERISA; (ii) Section 302 of ERISA; (iii)
Sections 412 and 4971 of the Code; and (iv) the
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continuation coverage requirements of Section 601 et seq. of ERISA and Section
4980B of the Code, with respect to any plan or program of Parent or its
affiliates which is not a Benefit Arrangement and which becomes a liability of
Newco solely as a result of the purchase of the Contributed Business pursuant to
the Transaction.
5.9. Representations and Warranties. From the date hereof
until the Closing Date, none of Parent, LLC or Newco shall take or omit to take
any action that is intended or expected to result in any of the representations
and warranties made by it in this Agreement being or becoming untrue in any
material respect, or in any of the conditions to this Agreement set forth in
Article VI not being satisfied or in violation of any provision of this
Agreement.
5.10. Voting of Parent TMCS Shares. Parent agrees that, at a
meeting duly called by TMCS or pursuant to an action by written consent, Parent
shall vote or provide a written consent with respect to all shares of TMCS owned
by it in favor of approval of the Transaction Agreements and the Transactions
and any related matters to be acted upon by the TMCS shareholders in connection
with consummation of the Transactions.
5.11. Indemnification of Officers and Directors. From and
after the Closing, Newco shall indemnify any person who now is, or has been at
any time prior to the date of this Agreement, or who becomes prior to the
Closing, a director or officer of the Contributed Businesses, including any
Subsidiary thereof or any of their respective predecessors, in the same manner
and to the same extent as provided for with respect to the indemnification of
the individuals identified in Section 9.9 of the Merger Agreement (including
with respect to the provision of insurance).
5.12. Cash. Until the Closing Date, Parent and its
Subsidiaries shall be entitled to sweep all cash and shall manage the
indebtedness, accounts and notes receivable, capital expenditures and the cash
flows related to the Contributed Businesses in the ordinary course of business
and consistent with past practice. Without limiting the foregoing, neither
Parent nor any of its Subsidiaries shall accelerate the collection of its
accounts and notes receivable with respect to the Contributed Businesses,
increase the amount of time to pay any of its indebtedness or dispose of any
material amount of the assets of the Contributed Businesses. At the Closing, the
Contributed Businesses shall include $9.5 million in cash.
ARTICLE VI
CONDITIONS
6.1. Conditions to Parent's Obligations. The obligations
hereunder of Parent to consummate the Contribution, are subject to the
satisfaction, at or before the Closing, of each of the following conditions.
These conditions are for the sole benefit of Parent and may be waived by Parent
(in whole or in part) at any time in its sole discretion.
(a) Each of the conditions to the Merger Agreement (other than
Section 10.1(f) of the Merger Agreement) shall have been satisfied or waived in
accordance with the terms of the Merger Agreement and this Agreement, and the
Mergers shall have been consummated in accordance with the terms of the Merger
Agreement.
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(b) Parent shall have received from each of Lycos and TMCS a
certificate attesting to the satisfaction of the conditions described in
Sections 10.3 and 10.2, respectively, of the Merger Agreement.
(c) Parent shall have received the opinion of Wachtell,
Lipton, Rosen & Katz, addressed to Parent and LLC, dated the Closing Date, to
the effect that the contribution of the Contributed Businesses to Newco pursuant
to this Agreement, taken together with the Mergers, constitutes an exchange
described in Section 351 of the Code.
6.2. Conditions to Newco's Obligations. The obligations of
Newco hereunder to consummate the Contribution are subject to the satisfaction,
at or before the Closing, of each of the following conditions. Subject to
Section 9.13 of the Merger Agreement, these conditions are for the benefit of
Newco and, subject to Section 9.13 of the Merger Agreement, may be waived (in
whole or in part) at any time in its sole discretion.
(a) Subject to the standard set forth in Section 9.3(b), the
representations and warranties of Parent set forth in this Agreement shall be
true and correct in all material respects as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing Date. Newco
shall have received a certificate signed on behalf of Parent by an appropriate
executive officer to such effect.
(b) Parent shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and Newco shall have received a certificate signed on behalf
of Parent by an appropriate executive officer to such effect..
(c) Each of the conditions to the Merger Agreement (other than
Section 10.1(f) of the Merger Agreement) shall have been satisfied or waived in
accordance with the terms of the Merger Agreement and the Mergers shall have
been consummated in accordance with the terms of the Merger Agreement.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
7.1. Survival. All representations and warranties of the
parties contained in this Agreement or in any Schedule hereto, or any
certificate, document or other instrument delivered in connection herewith shall
not survive the Closing. All covenants and agreements which by their terms
contemplate performance after the Closing Date (including but not limited to the
indemnities) shall survive the Closing.
7.2. Indemnification. (a) From and after the Closing Date,
Parent and its Subsidiaries (other than Newco) shall jointly and severally
indemnify and hold harmless Newco, Newco's affiliates, each of their respective
directors, officers, employees and agents, and each of the heirs, executors,
successors and assigns of any of the foregoing (collectively, the "Newco
Indemnified Parties") from and against any and all damages, claims, losses,
expenses, costs, obligations, and liabilities including, without limiting the
generality of the foregoing, liabilities for
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all reasonable attorneys' fees and expenses (including, but not limited to,
attorney and expert fees and expenses incurred to enforce the terms of this
Agreement) net of tax benefits and any recovery from any third party including,
without limitation, insurance proceeds and taking into account tax costs
(collectively, "Loss and Expenses") suffered, directly or indirectly (other than
through any equity interest in Newco) by any Newco Indemnified Party by reason
of, or arising out of any failure by Parent and its Subsidiaries (other than
Newco) to pay, perform or discharge any liabilities of Parent and its
Subsidiaries other than those of the Contributed Businesses. Such
indemnification obligation shall also extend to liability of any Contributed
Business other than Pacer/CATS due to a cross-default, guarantee or other surety
obligation of such party triggered by a default under the Pacer/CATS credit
agreement.
(b) From and after the Closing Date, Newco and its
Subsidiaries shall jointly and severally indemnify and hold harmless Parent,
Parent's affiliates (other than Newco), each of their respective directors,
officers, employees and agents, and each of the heirs, executors, successors and
assigns of any of the foregoing (collectively, the "Parent Indemnified Parties")
from and against any and all Loss and Expenses suffered, directly or indirectly
by any Parent Indemnified Parties by reason of, or arising out of, any failure
by Newco and its Subsidiaries to pay, perform or discharge any liabilities of
the Contributed Businesses.
(c) Except with respect to third-party claims being defended
in good faith or claims for indemnification with respect to which there exists a
good faith dispute, the indemnifying party shall satisfy its obligations
hereunder within 30 days of receipt of the indemnified party's notice of a claim
under this Article VII.
(d) The provisions of this Section 7.2 shall not affect the
obligations and benefits of the parties set forth in Sections 4.2 and 4.3 of
this Agreement.
7.3. Third-Party Claims. If a claim by a third party is made
against an indemnified party (i.e., a Newco Indemnified Party or Parent
Indemnified Party), and if such indemnified party intends to seek indemnity with
respect thereto under this Article VII, such indemnified party shall promptly
notify the indemnifying party in writing of such claims setting forth such
claims in reasonable detail. The indemnifying party shall have twenty (20) days
after receipt of such notice to undertake, through counsel of its own choosing
and at its own expense, the settlement or defense thereof, and the indemnified
party shall cooperate with it in connection therewith; provided, however, that
the indemnified party may participate in such settlement or defense through
counsel chosen by such indemnified party, provided that the fees and expenses of
such counsel shall be borne by such indemnified party unless the indemnified
party shall have reasonably determined that representation by the same counsel
would be inappropriate under the applicable standards of appropriate conduct due
to actual or potential differing interests between them, and in that event, the
fees and expenses of such counsel shall be paid by the indemnifying party. If
the indemnifying party assumes such defense, the indemnified party shall have
the right to participate in the defense thereof and to employ counsel, at its
own expense, separate from the counsel employed by the indemnifying party, it
being understood that the indemnifying party shall control such defense. In the
event that the indemnifying party assumes such defense, the indemnified party
shall cooperate with the indemnifying party in such defense and make available
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to the indemnifying party, at the indemnifying party's expense, all pertinent
records, materials and information in its possession or under its control
relating thereto as is reasonably required by the indemnifying party. The
indemnified party shall not pay or settle any claim which the indemnifying party
is contesting without the prior written consent of the indemnifying party, which
consent shall not be unreasonably withheld. The indemnifying party shall not
settle any claim unless it contains an unconditional release of the indemnified
party from any and all liability with respect to such third party claim without
the prior written consent of the indemnifying party, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, the indemnified party
shall have the right to pay or settle any such claim, provided that in such
event it shall waive any right to indemnity therefor by the indemnifying party.
If the indemnifying party does not notify the indemnified party within twenty
(20) days after the receipt of the indemnified party's notice of a claim of
indemnity hereunder that it elects to undertake the defense thereof, the
indemnified party shall have the right to contest, settle or compromise the
claim but shall not thereby waive any right to indemnity therefor pursuant to
this Agreement.
ARTICLE VIII
TERMINATION
8.1. Termination of the Merger Agreement. This Agreement shall
terminate automatically upon, and may only be terminated upon, the termination
of the Merger Agreement. In the event of termination of this Agreement as
provided herein, this Agreement shall be of no further force or effect, except
(a) as provided in the last sentence of Section 5.4, this Section 8.1 and
Article IX, each of which shall survive termination of this Agreement, and (b)
nothing herein shall relieve any party from liability for any breach of this
Agreement.
ARTICLE IX
GENERAL
9.1. Definitions. The capitalized terms used herein shall have
the respective meanings assigned to such terms set forth below (such definitions
to be equally applicable to both the singular and plural forms of the terms
defined):
(a) "Adjusted Party" shall have the meaning set forth in
Section 4.11;
(b) "Agreement" shall have the meaning set forth in the
Preamble;
(c) "Balance Sheet" shall have the meaning set forth in
Section 2.6(b);
(d) "Balance Sheet Date" shall have the meaning set forth in
Section 2.6(b);
(e) "Benefit Arrangements" shall have the meaning set forth in
Section 2.8(a);
(f) "CERCLA" shall have the meaning set forth in Section 2.17;
(g) "Closing" shall have the meaning set forth in Section 1.2;
(h) "Closing Date" shall have the meaning set forth in Section
1.2;
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(i) "Code" shall mean the Internal Revenue Code of 1986
amended;
(j) "Commission" shall have the meaning set forth in Section
2.6(a);
(k) "Consolidated Return Taxes" shall have the meaning set
forth in Section 4.12(a);
(l) "Continued Employees" shall have the meaning set forth in
Section 5.8(a);
(m) "Contracts" shall mean all executory written agreements,
contracts, commitments, understandings and other instruments or arrangements;
(n) "Contribute" shall have the meaning set forth in Section
1.1;
(o) "Contributed Benefit Arrangement" shall have the meaning
set forth in Section 2.8(a);
(p) "Contributed Businesses" shall have the meaning set forth
in Section 1.1;
(q) "Contributed Employees" shall have the meaning set forth
in Section 2.8(a);
(r) "Contribution" shall have the meaning set forth in the
Preamble;
(s) "Controlled Group Liability" shall have the meaning set
forth in Section 5.8(i);
(t) "Corresponding Item" shall have the meaning set forth in
Section 4.11(a);
(u) "Corresponding Party" shall have the meaning set forth in
Section 4.11(a);
(v) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended;
(w) "ERISA Affiliate" shall have the meaning set forth in
Section 2.8(c);
(x) "Exchange Act" shall mean the Securities Exchange Act of
1934 and the regulations promulgated thereunder, each as amended;
(y) "GAAP" shall mean United States generally accepted
accounting principles;
(z) "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, and the regulations promulgated thereunder, each as
amended;
(aa) "Income Taxes" shall have the meaning set forth in
Section 4.12(b);
(bb) "Intellectual Property Rights" shall have the meaning set
forth in Section 2.13(a);
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(cc) "Liens" shall have the meaning set forth in Section 2.2;
(dd) "LLC" shall have the meaning set forth in the Preamble;
(ee) "Lycos" shall have the meaning set forth in the Recitals;
(ff) "Newco Material Adverse Effect" shall mean a material
adverse effect on (i) the business, operations, results of operations, or
financial condition of Newco and its Subsidiaries, taken as a whole, or (ii) the
ability of Newco to timely consummate the Transactions;
(gg) "Merger Agreement" shall have the meaning set forth in
the Recitals;
(hh) "Mergers" shall have the meaning set forth in the
Recitals;
(ii) "NASD" shall mean the National Association of Securities
Dealers, Inc.;
(jj) "Newco" shall have the meaning set forth in the Preamble;
(kk) "Newco Class B Common Stock" shall have the meaning set
forth in Section 3.4(a);
(ll) "Newco Common Stock" shall have the meaning set forth in
Section 3.4(a);
(mm) "Newco Indemnified Parties" shall have the meaning set
forth in Section 7.2(a);
(nn) "Newco Preferred Stock" shall have the meaning set forth
in Section 3.4(a);
(oo) "Newco Savings Plan" shall have the meaning set forth in
Section 5.8(e);
(pp) "Newco Stock" shall have the meaning set forth in Section
3.4(a);
(qq) "Option Agreements" shall have the meaning set forth in
the Recitals;
(rr) "Parent" shall have the meaning set forth in the
Preamble;
(ss) "Parent Commission Documents" shall have the meaning set
forth in Section 2.6(a);
(tt) "Parent Contract" shall have the meaning set forth in
Section 2.14(a);
(uu) "Parent DC Plan" shall have the meaning set forth in
Section 5.8(e);
(vv) "Parent Disclosure Schedule" shall have the meaning set
forth in Article II;
(ww) "Parent Forms 10-K" shall have the meaning set forth in
Section 2.6(a);
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(xx) "Parent Indemnified Parties" shall have the meaning set
forth in Section 7.2(b);
(yy) "Parent Material Adverse Effect" shall mean a material
adverse effect on (i) the business, operations, results of operations, or
financial condition of the Contributed Businesses considered as a whole or (ii)
the ability of Parent or LLC to timely consummate the Transactions;
(zz) "Parties" shall have the meaning set forth in the
Recitals;
(aaa) "Returns" shall have the meaning set forth in Section
4.12(c);
(bbb) "Sales Taxes" shall have the meaning set forth in
Section 4.12(e);
(ccc) "Securities Act" shall mean the Securities Act of 1933
and the regulations promulgated thereunder, each as amended;
(ddd) "Separate Return Taxes" shall have the meaning set forth
in Section 4.12(d);
(eee) "Subsidiaries" shall mean, with respect to any person,
each of the direct or indirect subsidiary of such person and each limited
liability company and limited partnership controlled by such person;
(fff) "Tax Audit" shall have the meaning set forth in Section
4.7(d);
(ggg) "Taxes" shall have the meaning set forth in Section
4.12(f);
(hhh) "Taxing Authority" shall have the meaning set forth in
Section 4.12(g);
(iii) "TMCS" shall have the meaning set forth in the Recitals;
(jjj) "Transaction Agreements" shall have the meaning set
forth in the Recitals;
(kkk) "Transactions" shall have the meaning set forth in the
Recitals; and
(lll) "Transferring Entities" shall mean, collectively, the
direct holders of 100% of the Contributed Businesses, all of which holders are
Subsidiaries of Parent.
9.2. Efforts to Proceed Promptly. Each of the parties agrees
to use their respective reasonable best efforts to take all such action
(including, without limitation, executing such other agreements and instruments,
and making such filings, including filings required under the HSR Act) as may be
necessary or appropriate in order to effectuate the Transactions as promptly as
practicable. Each party to this Agreement agrees to execute, acknowledge,
deliver, file and record such further certificates, amendments, instruments,
agreements and documents and to do all such other acts and things, as may be
required by law or as, in the opinion of the parties, may be necessary or
advisable to carry out the intent and purposes of this Agreement. Each party
agrees that it will act diligently and in good faith to carry out its respective
obligations under this Agreement.
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9.3. Standards; Disclosure Schedules. (a) Prior to the
execution and delivery of this Agreement, Parent delivered the Parent Disclosure
Schedule to Newco, which disclosure schedule sets forth, among other things,
items the disclosure of which is necessary or appropriate either in response to
an express disclosure requirement contained in a provision hereof or as an
exception to one or more of such party's representations or warranties contained
in Article II or Section 4.1, or to one or more of such party's covenants
contained in Article V; provided, however, that notwithstanding anything in this
Agreement to the contrary, (i) no such item is required to be set forth in a
Disclosure Schedule as an exception to a representation or warranty if its
absence would not result in the related representation or warranty being deemed
untrue or incorrect under the standard set forth in Section 6.2(a), and (ii) the
mere inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that such
item represents a material exception or a material fact, event or circumstance
or that such item has had or would have had a Material Adverse Effect with
respect to Parent or Newco, as the case may be; provided, further, that no
Disclosure Schedule or other information, or modification thereof, that is
provided following the execution and delivery of this Agreement by the parties
hereto shall be deemed to modify any representation, warranty or covenant set
forth herein or in the Merger Agreement.
(b) No representation or warranty of Parent contained in
Article II (except for the first sentence of Section 2.10) or Section 4.1 or of
Newco contained in Article III shall be deemed untrue or incorrect for any
purpose under this Agreement, and no party hereto shall be deemed to have
breached a representation or warranty for any purpose under this Agreement, in
any case, as a consequence of the existence or absence of any fact, circumstance
or event unless such fact, circumstance or event, individually or when taken
together with all other facts, circumstances or events inconsistent with any
representations or warranties contained in Article II or Section 4.1, in the
case of Parent, or Article III, in the case of Newco, has had a Material Adverse
Effect with respect to Parent or Newco, respectively. For all purposes of
determining whether any facts or events contravening a representation or
warranty contained herein constitute, individually or in the aggregate, a
Material Adverse Effect, representations and warranties contained in Article II
(other than the first sentence of Section 2.10) or Section 4.1 or Article III
shall be read without regard to any reference to materiality or Material Adverse
Effect set forth therein.
9.4. Notices. Any notices, requests, demands or other
communications to be given by a Party hereunder shall be in writing and shall be
deemed to have been duly given when delivered personally or by facsimile
transmission, in either case with receipt acknowledged, or three days after
being sent by registered or certified mail, return receipt requested, postage
prepaid, addressed (until another address is supplied by notice duly given
hereunder) as follows:
If given to Parent or LLC:
USA Networks, Inc.
152 West 57th Street
New York, New York 10019
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Attention: General Counsel
Facsimile: (212) 314-7329
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Pamela S. Seymon, Esq.
Andrew J. Nussbaum, Esq.
Facsimile: (212) 403-2000
If given to Newco:
USA Interactive Inc.
c/o USA Networks, Inc.
at the address above
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Pamela S. Seymon, Esq.
Andrew J. Nussbaum, Esq.
Facsimile: (212) 403-2000
9.5. Specific Enforcement. Each of parties hereto recognize
and agree that, in the event that any of the provisions of this Agreement are
not performed in accordance with their specific terms or otherwise are breached,
immediate irreparable injury would be caused for which there is no adequate
remedy at law. It is accordingly agreed that in the event of a failure by a
party to perform its obligations under this Agreement, the non-breaching party
shall be entitled to specific performance through injunctive relief to prevent
breaches of the provisions of this Agreement and to enforce specifically the
provisions of this Agreement in any action instituted in any court having
subject matter jurisdiction, in addition to any other remedy to which such party
may be entitled, at law or in equity.
9.6. Severability. Any term or provision of this Agreement
that is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable. The
exercise of any rights or obligations hereunder shall be subject to such
reasonable delay as may be required to prevent a party from incurring any
liability under the federal securities laws, and the parties agree to cooperate
in good faith in respect thereof.
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9.7. Entire Agreement. This Agreement, the Merger Agreement,
the schedules and exhibits hereto and thereto and any documents delivered
hereunder constitute the entire agreement between the parties and supersede any
prior agreement or understanding between the parties with respect to the subject
matter hereof.
9.8. Amendment; Waiver. Except as provided otherwise herein,
this Agreement may not be amended nor may any rights hereunder be waived except
by an instrument in writing signed by each of Parent and Newco. Newco hereby
agrees with Parent that it will not enter into or permit any amendment to, or
waiver or modification of any rights or obligations under, the Merger Agreement
(including the exhibits attached thereto) or any agreement to which it is a
party without the prior consent of Parent.
9.9. Headings; References. Article headings are inserted for
convenience and reference purposes only, and are not and shall not be deemed to
be a part of this Agreement or affect any meaning or interpretation hereof.
References herein to "the date hereof," "the date of this Agreement," and
similar references are to February 8, 1999.
9.10. Counterparts. This Agreement may be executed in one or
more counterpart copies and by facsimile; each of which shall be considered an
original, but together shall constitute one agreement.
9.11. Governing Law. This Agreement and all matters collateral
hereto shall be governed by and construed in accordance with the laws of the
State of Delaware, without giving effect to the conflicts of law principles
thereof.
9.12. Public Announcement. So long as this Agreement is in
effect, each of Parent and Newco agree to consult with each other and with Lycos
and TMCS before issuing any press release or otherwise making any public
statement with respect to the Transactions; and neither Parent nor Newco will
issue any press release or make any such public statement with respect to the
Transactions without the consent of the other party and of Lycos and TMCS,
except as may be required by law (including, without limitation, disclosure
required in public filings required to be made by Parent) or the requirements of
any securities exchange.
9.13. Third Party Beneficiaries. Nothing contained in this
Agreement is intended to or shall confer upon any person other than the parties
any rights or remedies hereunder; provided, however, that (a) Lycos and TMCS
each shall be a third party beneficiary to the rights of Newco under this
Agreement and whenever they or either of them is expressly identified herein and
(b) the persons identified in Section 5.11 shall be beneficiaries of the
provisions thereof.
* * *
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
USA NETWORKS, INC.
By: /s/ Victor A. Kaufman
----------------------------------------
Name: Victor A. Kaufman
Title: Office of the Chairman and
Chief Financial Officer
USANi LLC
By: /s/ Victor A. Kaufman
-----------------------------------------
Name: Victor A. Kaufman
Title: Office of the Chairman and
Chief Financial Officer
USA INTERACTIVE INC.
By: /s/ Dara Khosrowshahi
-----------------------------------------
Name: Dara Khosrowshahi
Title: Vice President and Treasurer
EXHIBIT 2.3
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated February 8, 1999, between Lycos,
Inc., a Delaware corporation ("Issuer"), and USA Networks, Inc., a Delaware
corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and
Plan of Reorganization of even date herewith (the "Reorganization Agreement"),
which agreement has been executed by the parties hereto immediately prior to the
execution of this Stock Option Agreement (the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the
Reorganization Agreement and in consideration therefor, Issuer has agreed to
grant Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein and in the Reorganization
Agreement, the parties hereto agree as follows:
1. The Option. (a) Issuer hereby grants to Grantee an
unconditional, irrevocable option (the "Option") to purchase, subject to the
terms hereof, up to 7,559,785 fully paid and nonassessable shares of Issuer's
common stock, par value $0.01 per share (the "Common Stock"), at a price of
$127.14 per share (the "Option Price"); provided, that in no event shall the
number of shares of Common Stock for which this Option is exercisable exceed
17.51% (and together with the number of shares for which that certain option of
even date herewith granted to Ticketmaster Online-CitySearch, Inc. is
exercisable exceed 19.9%) of the Issuer's issued and outstanding shares of
Common Stock at the time of exercise. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock
are issued or otherwise become outstanding after the date of this Agreement
(except for shares issued pursuant to this Agreement), the number of shares of
Common Stock subject to the Option shall be increased so that, after such
issuance, such number equals 17.51% (and together with the number of shares for
which that certain option of even date herewith granted to Ticketmaster
Online-CitySearch, Inc. is exercisable equals 19.9%) of the number of shares of
Common Stock then issued and outstanding without giving effect to any shares
subject or issued pursuant to the Option. Nothing contained in this Section 1(b)
or elsewhere in this Agreement shall be deemed to authorize Issuer to breach any
provision of the Reorganization Agreement.
2. Exercise; Transfer of Shares; Closing. (a) The Holder (as
defined below) may exercise the Option, in whole or part, and from time to time,
but only following an Initial Triggering Event (as defined below) that occurs
prior to the occurrence of an Exercise Termination Event (as defined below).
(b) Each of the following shall be an "Exercise Termination
Event":
(i) the Effective Time (as defined in the
Reorganization Agreement) of the Merger;
(ii) termination of the Reorganization Agreement in
accordance with the provisions thereof if such termination occurs prior
to the occurrence of an Initial Triggering Event, except a termination
by Grantee pursuant to Section 11.1(e) of the Reorganization Agreement
(unless the breach giving rise to such termination was not willful); or
(iii) the passage of 12 months after termination of
the Reorganization Agreement (or such later period as provided in
Section 10) if such termination (A) follows or is concurrent with the
occurrence of an Initial Triggering Event or (B) is a termination by
Grantee pursuant to Section 11.1(e) of the Reorganization Agreement.
(c) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer, without having received Grantee's prior
written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as defined below) with any person (the term
"person" for purposes of this Agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act
of 1934, as amended (the "1934 Act"), and the rules and regulations
thereunder) other than Grantee or any of its Subsidiaries (each a
"Grantee Subsidiary") or the Board of Directors of Issuer shall have
recommended that the stockholders of Issuer approve or accept any
Acquisition Transaction (other than the transactions referred to in the
Reorganization Agreement). For purposes of this Agreement, "Acquisition
Transaction" shall mean (w) a merger or consolidation, or any similar
transaction, involving Issuer, (x) a purchase, lease or other
acquisition or assumption of all or more than 30% of the assets of
Issuer, (y) a purchase or other acquisition (including by way of
merger, consolidation, share exchange or otherwise) of beneficial
ownership (the term "beneficial ownership" for purposes of this
Agreement having the meaning assigned thereto in Section 13(d) of the
Exchange Act, and the rules and regulations thereunder) of securities
representing 20% or more of the voting power of Issuer, or (z) any
substantially similar transaction; provided, however, that in no event
shall the transactions contemplated by the Wired Reorganization
Agreement (as defined in the Reorganization Agreement) or any merger,
consolidation, purchase or similar transaction involving only the
Issuer and one or more of its wholly-owned Subsidiaries or involving
only any two or more of such wholly-owned Subsidiaries, be deemed to be
an Acquisition Transaction, if such transaction is not entered into in
violation of the terms of the Reorganization Agreement;
2
(ii) Issuer, without having received Grantee's prior
written consent, shall have authorized, recommended, proposed or
publicly announced its intention to authorize, recommend or propose, to
engage in an Acquisition Transaction with any person other than Grantee
or a Grantee Subsidiary or shall have authorized or engaged in, or
announced its intention to authorize or engage in, any negotiations
regarding an Acquisition Transaction with any person other than the
Grantee or a Grantee Subsidiary, or the Board of Directors of Issuer
shall have failed to recommend or shall have publicly withdrawn or
modified, or publicly announced its intention to withdraw or modify, in
any manner adverse to Grantee, its recommendation that the stockholders
of Issuer approve the transactions contemplated by the Reorganization
Agreement in anticipation of engaging in an Acquisition Transaction;
(iii) The shareholders of Issuer shall have voted and
failed to approve and adopt the Reorganization Agreement and the
Reorganization at a meeting which has been held for that purpose or any
adjournment or postponement thereof, or such meeting shall not have
been held in violation of the Reorganization Agreement or shall have
been canceled prior to termination of the Reorganization Agreement if,
prior to such meeting (or if such meeting shall not have been held or
shall have been canceled, prior to such termination), any person (other
than the Grantee or a Grantee Subsidiary) shall have made a bona fide
proposal to Issuer or its stockholders by public announcement or
written communication that is or becomes the subject of public
disclosure to engage in an Acquisition Transaction;
(iv) (a) Any person other than Grantee, any Grantee
Subsidiary or any Issuer Subsidiary acting in a fiduciary capacity in
the ordinary course of its business shall have acquired beneficial
ownership or the right to acquire beneficial ownership of 20% or more
of the then outstanding shares of Common Stock or (b) any group (the
term "group" having the meaning assigned in Section 13(d)(3) of the
Exchange Act), other than a group of which the Grantee or any Grantee
Subsidiary is a member, shall have been formed that beneficially owns
20% or more of the shares of Common Stock then outstanding;
(v) Any person other than Grantee or any Grantee
Subsidiary shall have made a bona fide proposal to Issuer or its
stockholders by public announcement or written communication that is or
becomes the subject of public disclosure to engage in an Acquisition
Transaction; or
(vi) After an overture is made by a third party to
Issuer or its stockholders to engage in an Acquisition Transaction,
Issuer shall have breached any covenant or obligation contained in the
Reorganization Agreement and such breach (x) would entitle Grantee to
terminate the Reorganization Agreement and (y) shall not have been
cured prior to the Notice Date (as defined below).
(d) The term "Subsequent Triggering Event" shall mean either
of the following events or transactions occurring after the date hereof:
3
(i) The acquisition by any person or by a group of
beneficial ownership of 50% or more of the then outstanding Common
Stock; or
(ii) The occurrence of the Initial Triggering Event
described in paragraph (i) of subsection (c) of this Section 2, except
that the percentage referred to in clause (y) shall be 50%; provided
that in no event shall any merger, consolidation or similar transaction
involving Issuer in which the voting securities of Issuer outstanding
immediately prior thereto continue to represent (by either remaining
outstanding or being converted into the voting securities of the
surviving entity of any such transaction) at least 65% of the combined
voting power of the voting securities of the Issuer or the surviving
entity (or any entity controlling the surviving entity) outstanding
immediately after the consummation of such merger, consolidation or
similar transaction be deemed to be an Acquisition Transaction for the
purposes of this clause (ii).
(e) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event of
which it has notice (together, a "Triggering Event"), it being understood that
the giving of such notice by Issuer shall not be a condition to the right of the
Holder to exercise the Option.
(f) In the event the Holder is entitled to and wishes to
exercise the Option (or any portion thereof), it shall send to Issuer a written
notice (the date of which being herein referred to as the "Notice Date")
specifying (i) the total number of shares it will purchase pursuant to such
exercise and (ii) a place and date not earlier than three business days nor
later than 60 business days from the Notice Date for the closing of such
purchase (the "Closing Date"); provided that if prior notification to or
approval of any regulatory agency is required in connection with such purchase,
the Holder shall promptly file the required notice or application for approval
and shall expeditiously process the same and the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on which any
required notification periods have expired or been terminated or such approvals
have been obtained and any requisite waiting period or periods shall have
passed. Any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto.
(g) At the closing referred to in subsection (f) of this
Section 2, the Holder shall pay to Issuer the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated by
Issuer; provided that failure or refusal of Issuer to designate such a bank
account shall not preclude the Holder from exercising the Option.
(h) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (g) of this Section 2,
Issuer shall deliver to the Holder a certificate or certificates representing
the number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares of Common Stock purchasable
hereunder, and the Holder shall deliver to Issuer a copy of this Agreement and a
letter agreeing
4
that the Holder will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Agreement.
(i) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy
of such agreement is on file at the principal office of Issuer
and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the
resale restrictions of the Securities Act of 1933, as amended (the "1933 Act"),
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the Holder shall have delivered to Issuer a copy of a
letter from the staff of the SEC, or an opinion of counsel, in form and
substance reasonably satisfactory to Issuer, to the effect that such legend is
not required for purposes of the 1933 Act; (ii) the reference to the provisions
of this Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares of Common Stock delivered
pursuant hereto have been sold or transferred in compliance with the provisions
of this Agreement under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(j) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under subsection (f) of this
Section 2 and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder.
3. Covenants of Issuer. In addition to its other agreements
and covenants herein, Issuer agrees: (i) that it shall at all times maintain,
free from subscriptive or preemptive rights, sufficient authorized but unissued
or treasury shares of Common Stock so that the Option may be exercised without
additional authorization of Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Common
Stock; (ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Issuer; (iii) promptly to take all action as may from time to time be required
(including complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. Section 18a and regulations
promulgated thereunder) in order to permit
5
the Holder to exercise the Option and Issuer to duly and effectively issue
shares of Common Stock pursuant hereto; (iv) promptly to take all action
provided herein to protect the rights of the Holder against dilution; and (v)
not to enter or agree to enter into any Acquisition Transaction unless the other
party or parties thereto agree to assume in writing all of Issuer's obligations
hereunder; provided that nothing in this Section 3 or elsewhere in this
Agreement shall be deemed to authorize Issuer to breach any provision of the
Reorganization Agreement. Notwithstanding any notice of revocation delivered
pursuant to the proviso to Section 7(c), a Holder may require such other party
or parties to perform Issuer's obligations under Section 7(a) unless such other
party or parties are prohibited by law or regulation from such performance.
4. Exchange; Replacement. This Agreement (and the Option
granted hereby) are exchangeable, without expense, at the option of the Holder,
upon presentation and surrender of this Agreement at the principal office of
Issuer, for other Agreements providing for Options of different denominations
entitling the holder thereof to purchase, on the same terms and subject to the
same conditions as are set forth herein, in the aggregate the same number of
shares of Common Stock purchasable hereunder. The terms "Agreement" and "Option"
as used herein include any Agreements and related Options for which this
Agreement (and the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction
or mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, Issuer will execute and deliver a new Agreement
of like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
5. Adjustments. In addition to the adjustment in the number of
shares of Common Stock that are purchasable upon exercise of the Option pursuant
to Section 1 of this Agreement, the number of shares of Common Stock purchasable
upon the exercise of the Option and the Option Price shall be subject to
adjustment from time to time as provided in this Section 5. In the event of any
change in, or distributions in respect of, the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares, distributions on or in respect of the Common
Stock that would be prohibited under the terms of the Reorganization Agreement,
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof and the Option Price shall be appropriately adjusted in such
manner as shall fully preserve the economic benefits provided hereunder and
proper provision shall be made in any agreement governing any such transaction
to provide for such proper adjustment and the full satisfaction of the Issuer's
obligations hereunder.
6. Registration. Upon the occurrence of a Subsequent
Triggering Event that occurs prior to an Exercise Termination Event, Issuer
shall, at the request of Grantee delivered within 180 days (or such later period
as provided in Section 10) of such Subsequent Triggering Event (whether on its
own behalf or on behalf of any subsequent holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto), promptly
prepare, file and keep current a shelf registration statement under the 1933 Act
covering this Option and any
6
shares issued and issuable pursuant to this Option and shall use its reasonable
best efforts to cause such registration statement to become effective and remain
current in order to permit the sale or other disposition of this Option and any
shares of Common Stock issued upon total or partial exercise of this Option
("Option Shares") in accordance with any plan of disposition requested by
Grantee. Issuer will use its reasonable best efforts to cause such registration
statement promptly to become effective and then to remain effective for a period
not in excess of 180 days from the day such registration statement first becomes
effective or such shorter time as may be reasonably necessary, in the judgment
of the Grantee or the Holder, to effect such sales or other dispositions.
Grantee shall have the right to demand two such registrations. The Issuer shall
bear the costs of such registrations (including, but not limited to, Issuer's
attorneys' fees, printing costs and filing fees, except for underwriting
discounts or commissions, brokers' fees and the fees and disbursements of
Grantee's counsel related thereto). The foregoing notwithstanding, if, at the
time of any request by Grantee for registration of the Option or Option Shares
as provided above, Issuer is in registration with respect to an underwritten
public offering of shares of Common Stock, and if in the good faith judgment of
the managing underwriter or managing underwriters, or, if none, the sole
underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
provided, however, that after any such required reduction the number of Option
Shares to be included in such offering for the account of the Holder shall
constitute at least 25% of the total number of shares to be sold by the Holder
and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance of such shares of Common Stock issuable pursuant to this Option as
promptly as practical following such reduction and no reduction in the number of
shares of Common Stock to be sold by the Holder shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Holder as a
result of any assignment or division of this Agreement.
7. Repurchase of Option and/or Option Shares. (a) At any time
after the occurrence of a Repurchase Event (as defined below), (i) following a
request of the Holder, given prior to an Exercise Termination Event (or such
later period as provided in Section 10), Issuer (or any successor thereto) shall
repurchase the Option from the Holder at a price (the "Option Repurchase Price")
equal to the amount by which (A) the Market/Offer Price (as defined below)
exceeds (B) the Option Price, multiplied by the number of shares for which this
Option may then be exercised and (ii) at the request of the owner of Option
Shares from time to time (the
7
"Owner"), delivered within 90 days of such occurrence (or such later period as
provided in Section 10), Issuer shall repurchase such number of the Option
Shares from the Owner as the Owner shall designate at a price (the "Option Share
Repurchase Price") equal to the Market/Offer Price multiplied by the number of
Option Shares so designated; provided, however, that the Option Repurchase Price
and the Option Share Repurchase Price, individually and in the aggregate and as
paid from time to time, shall be subject to the limitations on Notional Total
Profit set forth in Section 14. The term "Market/Offer Price" shall mean the
greatest of (i) the price per share of Common Stock at which a tender offer or
exchange offer therefor has been made, (ii) the price per share of Common Stock
to be paid by any third party pursuant to an agreement with Issuer, (iii) the
highest closing price per share of Common Stock within the six-month period
immediately preceding the date on which the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required repurchase
of Option Shares, as the case may be, or (iv) in the event of a sale of all or a
substantial portion of Issuer's assets, the sum of the price paid in such sale
for such assets and the current market value of the remaining assets of Issuer
as determined by a nationally recognized investment banking firm mutually
selected by the Holder or the Owner, as the case may be, on the one hand, and
the Issuer, on the other, divided by the number of shares of Common Stock of
Issuer outstanding at the time of such sale. In determining the Market/Offer
Price, the value of consideration other than cash shall be determined by a
nationally recognized investment banking firm mutually selected by the Holder or
Owner, as the case may be, on the one hand, and the Issuer, on the other.
(b) Following a Repurchase Event, the Holder or the Owner, as
the case may be, may exercise its right to require Issuer to repurchase the
Option and any Option Shares pursuant to this Section 7 by surrendering for such
purpose to Issuer, at its principal office, a copy of this Agreement or
certificates for Option Shares, as applicable, accompanied by a written notice
or notices stating that the Holder or the Owner, as the case may be, elects to
require Issuer to repurchase this Option and/or the Option Shares, as the case
may be, in accordance with the provisions of this Section 7. Prior to the later
of (x) the date that is five business days after the surrender of the Option
and/or certificates representing Option Shares and the receipt of such notice or
notices relating thereto and (y) the day on which a Repurchase Event occurs,
Issuer shall deliver or cause to be delivered to the Holder the Option
Repurchase Price and/or to the Owner the Option Share Repurchase Price or the
portion thereof that Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable
law or regulation from repurchasing the Option and/or the Option Shares in full,
Issuer shall immediately so notify the Holder and/or the Owner and thereafter
shall deliver or cause to be delivered, from time to time, to the Holder and/or
the Owner, as appropriate, that portion of the Option Repurchase Price and the
Option Share Repurchase Price, respectively, that it is no longer prohibited
from delivering, in each case within five business days after the date on which
Issuer is no longer so prohibited; provided, however, that if Issuer at any time
after delivery of a notice of repurchase delivered by the Holder or the Owner
pursuant to paragraph (b) of this Section 7 is prohibited under applicable law
or regulation from delivering to the Holder and/or the Owner, as the case may
be, the Option Repurchase Price or the Option Share Repurchase Price,
respectively, in full (and
8
Issuer hereby undertakes to use its best efforts to obtain all required
regulatory and legal approvals and to file any required notices as promptly as
practicable in order to accomplish such repurchase), the Holder or Owner may
revoke its notice of repurchase of the Option or the Option Shares either in
whole or to the extent of the prohibition, whereupon, in the latter case, Issuer
shall promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price or the Option Share Repurchase Price that
Issuer is not prohibited from delivering; and (ii) deliver, as appropriate,
either (A) to the Holder, a new Stock Option Agreement evidencing the right of
the Holder to purchase that number of shares of Common Stock obtained by
multiplying the number of shares of Common Stock for which the surrendered Stock
Option Agreement was exercisable at the time of delivery of the notice of
repurchase by a fraction, the numerator of which is the Option Repurchase Price
less the portion thereof theretofore delivered to the Holder and the denominator
of which is the Option Repurchase Price, or (B) to the Owner, a certificate for
the Option Shares it is then so prohibited from repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall
be deemed to have occurred (i) upon the consummation of any merger,
consolidation or similar transaction involving Issuer or any purchase, lease or
other acquisition of all or a substantial portion of the assets of Issuer, other
than any such transaction which would not constitute an Acquisition Transaction
pursuant to the provisos to Sections 2(c)(i) or 2(d)(ii) hereof or (ii) upon the
acquisition by any person of beneficial ownership of more than 50% of the then
outstanding shares of Common Stock; provided that no such event shall constitute
a Repurchase Event unless a Subsequent Triggering Event shall have occurred
prior to an Exercise Termination Event. The parties hereto agree that Issuer's
obligations to repurchase the Option or Option Shares under this Section 7 shall
not terminate upon the occurrence of an Exercise Termination Event unless no
Subsequent Triggering Event shall have occurred prior to the occurrence of an
Exercise Termination Event.
8. Substitute Option. (a) In the event that prior to an
Exercise Termination Event, Issuer shall enter into an agreement (i) to
consolidate with or merge into any person, other than Grantee or one of its
Subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or one of
its Subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or other
securities of any other person or cash or any other property or the then
outstanding shares of Common Stock shall after such merger represent less than
50% of the outstanding voting shares and voting share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its Subsidiaries, then, and
in each such case, the agreement governing such transaction shall make proper
provision so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option (the "Substitute Option"), at the election of
the Holder, of either (x) the Acquiring Corporation (as defined below) or (y)
any person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
9
(1) "Acquiring Corporation" shall mean (i) the
continuing or surviving corporation of a consolidation or merger with
Issuer (if other than Issuer), (ii) Issuer in a merger in which Issuer
is the continuing, surviving or acquiring person, and (iii) the
transferee of all or substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common
stock (or similar equity interest) issued by the issuer of the
Substitute Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the Market/Offer
Price, as defined in Section 7.
(4) "Average Price" shall mean the average closing
price of a share of the Substitute Common Stock for the one year
immediately preceding the consolidation, merger or sale in question but
in no event higher than the closing price of the shares of Substitute
Common Stock on the day preceding such consolidation, merger or sale;
provided that if Issuer is the issuer of the Substitute Option, the
Average Price shall be computed with respect to a share of common stock
issued by the person merging into Issuer or by any company which
controls or is controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the
Option; provided, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
to the terms of the Option and in no event less advantageous to the Holder. The
issuer of the Substitute Option shall also enter into an agreement with the then
Holder or Holders of the Substitute Option in substantially the same form as
this Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this clause (e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in this
clause (e) over (ii) the value of the Substitute Option after giving effect to
the limitation in this clause (e). This difference in value
10
shall be determined by a nationally recognized investment banking firm selected
by the Holder or the Owner, as the case may be.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. Repurchase of Substitute Option. (a) At the request of the
holder of the Substitute Option (the "Substitute Option Holder"), the Substitute
Option Issuer shall repurchase the Substitute Option from the Substitute Option
Holder at a price (the "Substitute Option Repurchase Price") equal to the sum of
the amount by which (i) the Highest Closing Price (as defined below) exceeds
(ii) the exercise price of the Substitute Option, multiplied by the number of
shares of Substitute Common Stock for which the Substitute Option may then be
exercised (after giving effect to any limitations on such number under the
provisions of Section 14 hereof), and at the request of the owner (the
"Substitute Share Owner") of shares of Substitute Common Stock (the "Substitute
Shares"), the Substitute Option Issuer shall repurchase the Substitute Shares at
a price (the "Substitute Share Repurchase Price") equal to the Highest Closing
Price multiplied by the number of Substitute Shares so designated. The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder or the Substitute Share
Owner, as the case may be, may exercise its respective right to require the
Substitute Option Issuer to repurchase the Substitute Option or the Substitute
Shares, as the case may be, pursuant to this Section 9 by surrendering for such
purpose to the Substitute Option Issuer, at its principal executive office, the
agreement for such Substitute Option (or, in the absence of such an agreement, a
copy of this Agreement) and certificates for Substitute Shares accompanied by a
written notice or notices stating that the Substitute Option Holder or the
Substitute Share Owner, as case may be, elects to require the Substitute Option
Issuer to repurchase the Substitute Option and/or the Substitute Shares, as the
case may be, in accordance with the provisions of this Section 9. As promptly as
practicable, and in any event within five business days after the surrender of
the Substitute Option and/or certificates representing Substitute Shares and the
receipt of such notice or notices delivered pursuant to this subsection (b) of
this Section 9 relating thereto, the Substitute Option Issuer shall deliver or
cause to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price or, in either case, the portion thereof which the Substitute
Option Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation from repurchasing the Substitute
Option and/or the Substitute Shares in part or in full, the Substitute Option
Issuer, following a request for repurchase pursuant to this Section 9, shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and shall thereafter deliver or cause to be delivered, from time to time,
to the Substitute Option
11
Holder and/or the Substitute Share Owner, as appropriate, that portion of the
Substitute Share Repurchase Price, respectively, which it is no longer
prohibited from delivering, in each case, within five business days after the
date on which the Substitute Option Issuer is no longer so prohibited; provided,
however, that if the Substitute Option Issuer at any time after delivery of a
notice of repurchase delivered by the Substitute Share Owner or Substitute
Option Holder pursuant to subsection (b) of this Section 9 is prohibited under
applicable law or regulation from delivering to the Substitute Option Holder
and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts to receive all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder or Substitute Share
Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Common Shares it is then so prohibited
from repurchasing.
10. Extension. The period for exercise of certain rights under
Sections 6, 7 and 13 shall be extended: (i) to the extent necessary to obtain
all regulatory approvals for the exercise of such rights, and for the expiration
of all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act by reason of such exercise.
11. Representations and Warranties of Issuer. Issuer hereby
represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its terms
will have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock
12
at any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests and will not be subject to any preemptive
rights.
(c) The execution, delivery and performance of this Agreement
does not or will not, and the consummation by Issuer of any of the transactions
contemplated hereby will not, constitute or result in (i) a breach or violation
of or a default under, its articles or certificate of incorporation or by-laws,
or the comparable governing instruments of any of its subsidiaries, or (ii) a
breach or violation of or a default under, any agreement, lease, contract, note,
mortgage, indenture, arrangement or other obligation of it or any of its
subsidiaries (with or without the giving of notice, the lapse of time or both)
or under any law, rule, ordinance or regulation or judgment, decree, order,
award or governmental or non-governmental permit or license to which it or any
of its subsidiaries is subject.
(d) No "fair price", "moratorium", "control share acquisition"
or other similar anti-takeover statute or regulation enacted under state or
federal laws applicable to the Issuer or any of its Subsidiaries is applicable
to this Agreement or any of the transactions contemplated hereby.
12. Representations and Warranties of Grantee. Grantee hereby
represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to
enter into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or
other securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in conformance with Section 2(a)
hereof and in a transaction registered or exempt from registration under the
Securities Act.
13. Assignment. Neither of the parties hereto may assign any
of its rights or obligations under this Agreement or the Option created
hereunder to any other person, without the express written consent of the other
party, except that in the event a Subsequent Triggering Event shall have
occurred prior to an Exercise Termination Event, Grantee, subject to the express
provisions hereof, may assign in whole or in part its rights and obligations
hereunder within 90 days following such Subsequent Triggering Event (or such
later period as provided in Section 10).
14. Notional Total Profit. (a) Notwithstanding any other
provision of this Agreement, this Option may not be exercised, and this Option
and/or the Option Shares issued
13
upon exercise hereof may not be presented for repurchase under Sections 2, 7 or
9 hereof, for a number of shares, or a total repurchase price, as the case may
be, that would, as of the date of exercise or presentment, result in a Notional
Total Profit (as defined below) of more than $176,000,000. Notwithstanding the
foregoing, this Section 14 shall not apply to any exercise of this Option by
Grantee pursuant to Section 2(a) hereof; provided, however, that if (x) at any
time prior to the one-year anniversary of any such exercise, the holder of any
Option Shares issued upon such exercise shall sell, tender for sale, convey,
hypothecate, transfer or otherwise dispose of ("Transfer") such Option Shares
(or any other securities into which such Option Shares are converted or
exchanged), or any interest therein, including any transaction contemplated by
Sections 7 or 9 hereof (other than in connection with a merger, consolidation or
similar business combination pursuant to the terms of which the Common Stock is
exchanged solely for equity or equity-related securities of another corporation
and cash in lieu of fractional shares thereof and any remaining unexercised
portion of this Option is converted in such transaction into an Option to
acquire such equity or equity-related securities) or (y) this Option is
presented for repurchase under Section 7 or 9 hereof, then this Section 14 shall
be deemed to retroactively apply to any and all exercises of this Option
preceding such Transfer or presentment, without giving effect to the exception
therefrom provided by this sentence, as if such exercises had occurred on the
date of such Transfer. In such an event, such holder shall, within 10 business
days of such Transfer, notify the Issuer of such Transfer and pay to the Issuer,
by wire transfer of immediately available funds, the excess of any Notional
Total Profit (calculated in respect of all transactions covered by this Section
14 without giving effect to the exception from this Section 14 provided by the
foregoing sentence) over $176,000,000 (the "Repayment"); provided, however,
that, at the Issuer's election, the Repayment shall be paid in shares of Common
Stock to the extent that Grantee then holds such shares, and the per share value
of such shares of Common Stock shall be deemed to be the closing price of the
Common Stock on the trading date immediately preceding the date the Repayment is
due.
(b) As used herein and subject to Section 14(a), the term
"Notional Total Profit" with respect to any number of shares as to which
Grantee may propose to, or be deemed to, exercise this Option shall be the
Total Profit determined as of the date of such proposed exercise assuming that
this Option were exercised on such date for such number of shares and assuming
that such shares, together with all other Option Shares held by Grantee and
its affiliates as of such date, were sold for cash at the closing market price
for the Common Stock as of the close of business on the preceding trading day
(less customary brokerage commissions).
(c) As used herein, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) the amount received by
Grantee pursuant to Issuer's repurchase of the Option (or any portion thereof)
pursuant to Section 7, (ii) (x) the amount received by Grantee pursuant to
Issuer's repurchase of Option Shares pursuant to Section 7, less (y) the
Grantee's purchase price for such Option Shares, (iii) (x) the net cash
amounts received by Grantee pursuant to the sale of Option Shares (or any
other securities into which such Option Shares are converted or exchanged) to
any unaffiliated party, less (y) the Grantee's purchase price of such Option
Shares, (iv) any amounts received by Grantee on the transfer of the Option (or
any portion thereof) to any unaffiliated party, and (v) any amount equivalent
to the foregoing with respect to the Substitute Option.
14
15. Best Efforts. Each of Grantee and Issuer will use its best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary for the consummation of the transactions
contemplated by this Agreement, including without limitation making application
for quotation on the Nasdaq National Market of the shares of Common Stock
issuable hereunder upon official notice of issuance.
16. Specific Performance. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this Agreement by either
party hereto and that the obligations of the parties hereto shall be enforceable
by either party hereto through injunctive or other equitable relief.
17. Severability. If any term, provision, covenant or
restriction contained in this Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Agreement shall remain in full force and effect,
and shall in no way be affected, impaired or invalidated. If for any reason such
court or regulatory agency determines that the Holder is not permitted to
acquire, or Issuer is not permitted to repurchase pursuant to Section 7, the
full number of shares of Common Stock provided in Section 1(a) hereof (as
adjusted pursuant to Section 1(b) or 5 hereof), it is the express intention of
Issuer to allow the Holder to acquire or to require Issuer to repurchase such
lesser number of shares as may be permissible, without any amendment or
modification hereof.
18. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Reorganization Agreement or such other address as
shall be provided in writing.
19. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
20. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
21. Expenses. Except as otherwise expressly provided herein,
each of the parties hereto shall bear and pay all costs and expenses incurred by
it or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
22. Entire Agreement. Except as otherwise expressly provided
herein or in the Reorganization Agreement, this Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
hereunder and supersedes all prior arrangements or understandings with respect
thereof, written or oral. The terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors
15
and permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
23. Captions; Capitalized Terms. The section and paragraph
captions herein are for convenience of reference only, do not constitute part of
this Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Reorganization Agreement.
16
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
LYCOS, INC.
By /s/ Robert M. Davis
---------------------------------------
Name: Robert M. Davis
Title: President and Chief Executive
Officer
USA NETWORKS, INC.
By: /s/ Victor A. Kaufman
--------------------------------------
Name: Victor A. Kaufman
Title: Office of the Chairman and
Chief Financial Officer
[Lycos/USA Stock Option]
EXHIBIT 2.4
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated February 8, 1999, between Lycos,
Inc., a Delaware corporation ("Issuer"), and Ticketmaster Online-CitySearch,
Inc., a Delaware corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and
Plan of Reorganization of even date herewith (the "Reorganization Agreement"),
which agreement has been executed by the parties hereto immediately prior to the
execution of this Stock Option Agreement (the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the
Reorganization Agreement and in consideration therefor, Issuer has agreed to
grant Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein and in the Reorganization
Agreement, the parties hereto agree as follows:
1. The Option. (a) Issuer hereby grants to Grantee an
unconditional, irrevocable option (the "Option") to purchase, subject to the
terms hereof, up to 1,031,861 fully paid and nonassessable shares of Issuer's
common stock, par value $0.01 per share (the "Common Stock"), at a price of
$127.14 per share (the "Option Price"); provided, that in no event shall the
number of shares of Common Stock for which this Option is exercisable exceed
2.39% (and together with the number of shares for which that certain option of
even date herewith granted to USA Networks, Inc. is exercisable exceed 19.9%) of
the Issuer's issued and outstanding shares of Common Stock at the time of
exercise. The number of shares of Common Stock that may be received upon the
exercise of the Option and the Option Price are subject to adjustment as herein
set forth.
(b) In the event that any additional shares of Common Stock
are issued or otherwise become outstanding after the date of this Agreement
(except for shares issued pursuant to this Agreement), the number of shares of
Common Stock subject to the Option shall be increased so that, after such
issuance, such number equals 2.39% (and together with the number of shares for
which that certain option of even date herewith granted to USA Networks, Inc. is
exercisable equals 19.9%) of the number of shares of Common Stock then issued
and outstanding without giving effect to any shares subject or issued pursuant
to the Option. Nothing
contained in this Section 1(b) or elsewhere in this Agreement shall be deemed to
authorize Issuer to breach any provision of the Reorganization Agreement.
2. Exercise; Transfer of Shares; Closing. (a) The Holder (as
defined below) may exercise the Option, in whole or part, and from time to time,
but only following an Initial Triggering Event (as defined below) that occurs
prior to the occurrence of an Exercise Termination Event (as defined below).
(b) Each of the following shall be an "Exercise Termination
Event":
(i) the Effective Time (as defined in the
Reorganization Agreement) of the Merger;
(ii) termination of the Reorganization Agreement in
accordance with the provisions thereof if such termination occurs prior
to the occurrence of an Initial Triggering Event, except a termination
by Grantee pursuant to Section 11.1(e) of the Reorganization Agreement
(unless the breach giving rise to such termination was not willful); or
(iii) the passage of 12 months after termination of
the Reorganization Agreement (or such later period as provided in
Section 10) if such termination (A) follows or is concurrent with the
occurrence of an Initial Triggering Event or (B) is a termination by
Grantee pursuant to Section 11.1(e) of the Reorganization Agreement.
(c) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer, without having received Grantee's prior
written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as defined below) with any person (the term
"person" for purposes of this Agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act
of 1934, as amended (the "1934 Act"), and the rules and regulations
thereunder) other than Grantee or any of its Subsidiaries (each a
"Grantee Subsidiary") or the Board of Directors of Issuer shall have
recommended that the stockholders of Issuer approve or accept any
Acquisition Transaction (other than the transactions referred to in the
Reorganization Agreement). For purposes of this Agreement, "Acquisition
Transaction" shall mean (w) a merger or consolidation, or any similar
transaction, involving Issuer, (x) a purchase, lease or other
acquisition or assumption of all or more than 30% of the assets of
Issuer, (y) a purchase or other acquisition (including by way of
merger, consolidation, share exchange or otherwise) of beneficial
ownership (the term "beneficial ownership" for purposes of this
Agreement having the meaning assigned thereto in Section 13(d) of the
Exchange Act, and the rules and regulations thereunder) of securities
representing 20% or more of the voting power of Issuer, or (z) any
substantially similar transaction; provided, however, that in no event
shall the transactions contemplated by the Wired Reorganization
Agreement (as defined in the Reorganization Agreement) or any merger,
consolidation, purchase or similar transaction involving only the
Issuer and one or more
2
of its wholly-owned Subsidiaries or involving only any two or more of
such wholly-owned Subsidiaries, be deemed to be an Acquisition
Transaction, if such transaction is not entered into in violation of
the terms of the Reorganization Agreement;
(ii) Issuer, without having received Grantee's prior
written consent, shall have authorized, recommended, proposed or
publicly announced its intention to authorize, recommend or propose, to
engage in an Acquisition Transaction with any person other than Grantee
or a Grantee Subsidiary or shall have authorized or engaged in, or
announced its intention to authorize or engage in, any negotiations
regarding an Acquisition Transaction with any person other than the
Grantee or a Grantee Subsidiary, or the Board of Directors of Issuer
shall have failed to recommend or shall have publicly withdrawn or
modified, or publicly announced its intention to withdraw or modify, in
any manner adverse to Grantee, its recommendation that the stockholders
of Issuer approve the transactions contemplated by the Reorganization
Agreement in anticipation of engaging in an Acquisition Transaction;
(iii) The shareholders of Issuer shall have voted and
failed to approve and adopt the Reorganization Agreement and the
Reorganization at a meeting which has been held for that purpose or any
adjournment or postponement thereof, or such meeting shall not have
been held in violation of the Reorganization Agreement or shall have
been canceled prior to termination of the Reorganization Agreement if,
prior to such meeting (or if such meeting shall not have been held or
shall have been canceled, prior to such termination), any person (other
than the Grantee or a Grantee Subsidiary) shall have made a bona fide
proposal to Issuer or its stockholders by public announcement or
written communication that is or becomes the subject of public
disclosure to engage in an Acquisition Transaction;
(iv) (a) Any person other than Grantee, any Grantee
Subsidiary or any Issuer Subsidiary acting in a fiduciary capacity in
the ordinary course of its business shall have acquired beneficial
ownership or the right to acquire beneficial ownership of 20% or more
of the then outstanding shares of Common Stock or (b) any group (the
term "group" having the meaning assigned in Section 13(d)(3) of the
Exchange Act), other than a group of which the Grantee or any Grantee
Subsidiary is a member, shall have been formed that beneficially owns
20% or more of the shares of Common Stock then outstanding;
(v) Any person other than Grantee or any Grantee
Subsidiary shall have made a bona fide proposal to Issuer or its
stockholders by public announcement or written communication that is or
becomes the subject of public disclosure to engage in an Acquisition
Transaction; or
(vi) After an overture is made by a third party to
Issuer or its stockholders to engage in an Acquisition Transaction,
Issuer shall have breached any covenant or obligation contained in the
Reorganization Agreement and such breach (x) would entitle Grantee to
terminate the Reorganization Agreement and (y) shall not have been
cured prior to the Notice Date (as defined below).
3
(d) The term "Subsequent Triggering Event" shall mean either
of the following events or transactions occurring after the date hereof:
(i) The acquisition by any person or by a group of
beneficial ownership of 50% or more of the then outstanding Common
Stock; or
(ii) The occurrence of the Initial Triggering Event
described in paragraph (i) of subsection (c) of this Section 2, except
that the percentage referred to in clause (y) shall be 50%; provided
that in no event shall any merger, consolidation or similar transaction
involving Issuer in which the voting securities of Issuer outstanding
immediately prior thereto continue to represent (by either remaining
outstanding or being converted into the voting securities of the
surviving entity of any such transaction) at least 65% of the combined
voting power of the voting securities of the Issuer or the surviving
entity (or any entity controlling the surviving entity) outstanding
immediately after the consummation of such merger, consolidation or
similar transaction be deemed to be an Acquisition Transaction for the
purposes of this clause (ii).
(e) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event of
which it has notice (together, a "Triggering Event"), it being understood that
the giving of such notice by Issuer shall not be a condition to the right of the
Holder to exercise the Option.
(f) In the event the Holder is entitled to and wishes to
exercise the Option (or any portion thereof), it shall send to Issuer a written
notice (the date of which being herein referred to as the "Notice Date")
specifying (i) the total number of shares it will purchase pursuant to such
exercise and (ii) a place and date not earlier than three business days nor
later than 60 business days from the Notice Date for the closing of such
purchase (the "Closing Date"); provided that if prior notification to or
approval of any regulatory agency is required in connection with such purchase,
the Holder shall promptly file the required notice or application for approval
and shall expeditiously process the same and the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on which any
required notification periods have expired or been terminated or such approvals
have been obtained and any requisite waiting period or periods shall have
passed. Any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto.
(g) At the closing referred to in subsection (f) of this
Section 2, the Holder shall pay to Issuer the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated by
Issuer; provided that failure or refusal of Issuer to designate such a bank
account shall not preclude the Holder from exercising the Option.
(h) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (g) of this Section 2,
Issuer shall deliver to the Holder a certificate or certificates representing
the number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares of Common Stock purchasable
4
hereunder, and the Holder shall deliver to Issuer a copy of this Agreement and a
letter agreeing that the Holder will not offer to sell or otherwise dispose of
such shares in violation of applicable law or the provisions of this Agreement.
(i) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy
of such agreement is on file at the principal office of Issuer
and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the
resale restrictions of the Securities Act of 1933, as amended (the "1933 Act"),
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the Holder shall have delivered to Issuer a copy of a
letter from the staff of the SEC, or an opinion of counsel, in form and
substance reasonably satisfactory to Issuer, to the effect that such legend is
not required for purposes of the 1933 Act; (ii) the reference to the provisions
of this Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares of Common Stock delivered
pursuant hereto have been sold or transferred in compliance with the provisions
of this Agreement under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(j) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under subsection (f) of this
Section 2 and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder.
3. Covenants of Issuer. In addition to its other agreements
and covenants herein, Issuer agrees: (i) that it shall at all times maintain,
free from subscriptive or preemptive rights, sufficient authorized but unissued
or treasury shares of Common Stock so that the Option may be exercised without
additional authorization of Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Common
Stock; (ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Issuer; (iii) promptly to take all action as may from time to time be required
(including complying with all premerger notification, reporting and waiting
period requirements
5
specified in 15 U.S.C. Section 18a and regulations promulgated thereunder) in
order to permit the Holder to exercise the Option and Issuer to duly and
effectively issue shares of Common Stock pursuant hereto; (iv) promptly to take
all action provided herein to protect the rights of the Holder against dilution;
and (v) not to enter or agree to enter into any Acquisition Transaction unless
the other party or parties thereto agree to assume in writing all of Issuer's
obligations hereunder; provided that nothing in this Section 3 or elsewhere in
this Agreement shall be deemed to authorize Issuer to breach any provision of
the Reorganization Agreement. Notwithstanding any notice of revocation delivered
pursuant to the proviso to Section 7(c), a Holder may require such other party
or parties to perform Issuer's obligations under Section 7(a) unless such other
party or parties are prohibited by law or regulation from such performance.
4. Exchange; Replacement. This Agreement (and the Option
granted hereby) are exchangeable, without expense, at the option of the Holder,
upon presentation and surrender of this Agreement at the principal office of
Issuer, for other Agreements providing for Options of different denominations
entitling the holder thereof to purchase, on the same terms and subject to the
same conditions as are set forth herein, in the aggregate the same number of
shares of Common Stock purchasable hereunder. The terms "Agreement" and "Option"
as used herein include any Agreements and related Options for which this
Agreement (and the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction
or mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, Issuer will execute and deliver a new Agreement
of like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
5. Adjustments. In addition to the adjustment in the number of
shares of Common Stock that are purchasable upon exercise of the Option pursuant
to Section 1 of this Agreement, the number of shares of Common Stock purchasable
upon the exercise of the Option and the Option Price shall be subject to
adjustment from time to time as provided in this Section 5. In the event of any
change in, or distributions in respect of, the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares, distributions on or in respect of the Common
Stock that would be prohibited under the terms of the Reorganization Agreement,
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof and the Option Price shall be appropriately adjusted in such
manner as shall fully preserve the economic benefits provided hereunder and
proper provision shall be made in any agreement governing any such transaction
to provide for such proper adjustment and the full satisfaction of the Issuer's
obligations hereunder.
6. Registration. Upon the occurrence of a Subsequent
Triggering Event that occurs prior to an Exercise Termination Event, Issuer
shall, at the request of Grantee delivered within 180 days (or such later period
as provided in Section 10) of such Subsequent Triggering Event (whether on its
own behalf or on behalf of any subsequent holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto), promptly
prepare, file
6
and keep current a shelf registration statement under the 1933 Act covering this
Option and any shares issued and issuable pursuant to this Option and shall use
its reasonable best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition of
this Option and any shares of Common Stock issued upon total or partial exercise
of this Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement promptly to become effective and then to remain effective
for a period not in excess of 180 days from the day such registration statement
first becomes effective or such shorter time as may be reasonably necessary, in
the judgment of the Grantee or the Holder, to effect such sales or other
dispositions. Grantee shall have the right to demand two such registrations. The
Issuer shall bear the costs of such registrations (including, but not limited
to, Issuer's attorneys' fees, printing costs and filing fees, except for
underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto). The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
the Option or Option Shares as provided above, Issuer is in registration with
respect to an underwritten public offering of shares of Common Stock, and if in
the good faith judgment of the managing underwriter or managing underwriters,
or, if none, the sole underwriter or underwriters, of such offering the
inclusion of the Holder's Option or Option Shares would interfere with the
successful marketing of the shares of Common Stock offered by Issuer, the number
of Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; provided, however, that after any such
required reduction the number of Option Shares to be included in such offering
for the account of the Holder shall constitute at least 25% of the total number
of shares to be sold by the Holder and Issuer in the aggregate; and provided
further, however, that if such reduction occurs, then the Issuer shall file a
registration statement for the balance of such shares of Common Stock issuable
pursuant to this Option as promptly as practical following such reduction and no
reduction in the number of shares of Common Stock to be sold by the Holder shall
thereafter occur. Each such Holder shall provide all information reasonably
requested by Issuer for inclusion in any registration statement to be filed
hereunder. If requested by any such Holder in connection with such registration,
Issuer shall become a party to any underwriting agreement relating to the sale
of such shares, but only to the extent of obligating itself in respect of
representations, warranties, indemnities and other agreements customarily
included in secondary offering underwriting agreements for the Issuer. Upon
receiving any request under this Section 6 from any Holder, Issuer agrees to
send a copy thereof to any other person known to Issuer to be entitled to
registration rights under this Section 6, in each case by promptly mailing the
same, postage prepaid, to the address of record of the persons entitled to
receive such copies. Notwithstanding anything to the contrary contained herein,
in no event shall Issuer be obligated to effect more than two registrations
pursuant to this Section 6 by reason of the fact that there shall be more than
one Holder as a result of any assignment or division of this Agreement.
7. Repurchase of Option and/or Option Shares. (a) At any time
after the occurrence of a Repurchase Event (as defined below), (i) following a
request of the Holder, given prior to an Exercise Termination Event (or such
later period as provided in Section 10), Issuer (or any successor thereto) shall
repurchase the Option from the Holder at a price (the "Option Repurchase Price")
equal to the amount by which (A) the Market/Offer Price (as defined below)
exceeds (B) the Option Price, multiplied by the number of shares for which this
Option may then
7
be exercised and (ii) at the request of the owner of Option Shares from time to
time (the "Owner"), delivered within 90 days of such occurrence (or such later
period as provided in Section 10), Issuer shall repurchase such number of the
Option Shares from the Owner as the Owner shall designate at a price (the
"Option Share Repurchase Price") equal to the Market/Offer Price multiplied by
the number of Option Shares so designated; provided, however, that the Option
Repurchase Price and the Option Share Repurchase Price, individually and in the
aggregate and as paid from time to time, shall be subject to the limitations on
Notional Total Profit set forth in Section 14. The term "Market/Offer Price"
shall mean the greatest of (i) the price per share of Common Stock at which a
tender offer or exchange offer therefor has been made, (ii) the price per share
of Common Stock to be paid by any third party pursuant to an agreement with
Issuer, (iii) the highest closing price per share of Common Stock within the
six-month period immediately preceding the date on which the Holder gives notice
of the required repurchase of this Option or the Owner gives notice of the
required repurchase of Option Shares, as the case may be, or (iv) in the event
of a sale of all or a substantial portion of Issuer's assets, the sum of the
price paid in such sale for such assets and the current market value of the
remaining assets of Issuer as determined by a nationally recognized investment
banking firm mutually selected by the Holder or the Owner, as the case may be,
on the one hand, and the Issuer, on the other, divided by the number of shares
of Common Stock of Issuer outstanding at the time of such sale. In determining
the Market/Offer Price, the value of consideration other than cash shall be
determined by a nationally recognized investment banking firm mutually selected
by the Holder or Owner, as the case may be, on the one hand, and the Issuer, on
the other.
(b) Following a Repurchase Event, the Holder or the Owner, as
the case may be, may exercise its right to require Issuer to repurchase the
Option and any Option Shares pursuant to this Section 7 by surrendering for such
purpose to Issuer, at its principal office, a copy of this Agreement or
certificates for Option Shares, as applicable, accompanied by a written notice
or notices stating that the Holder or the Owner, as the case may be, elects to
require Issuer to repurchase this Option and/or the Option Shares, as the case
may be, in accordance with the provisions of this Section 7. Prior to the later
of (x) the date that is five business days after the surrender of the Option
and/or certificates representing Option Shares and the receipt of such notice or
notices relating thereto and (y) the day on which a Repurchase Event occurs,
Issuer shall deliver or cause to be delivered to the Holder the Option
Repurchase Price and/or to the Owner the Option Share Repurchase Price or the
portion thereof that Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable
law or regulation from repurchasing the Option and/or the Option Shares in full,
Issuer shall immediately so notify the Holder and/or the Owner and thereafter
shall deliver or cause to be delivered, from time to time, to the Holder and/or
the Owner, as appropriate, that portion of the Option Repurchase Price and the
Option Share Repurchase Price, respectively, that it is no longer prohibited
from delivering, in each case within five business days after the date on which
Issuer is no longer so prohibited; provided, however, that if Issuer at any time
after delivery of a notice of repurchase delivered by the Holder or the Owner
pursuant to paragraph (b) of this Section 7 is prohibited under applicable law
or regulation from delivering to the Holder and/or the Owner, as the case may
be,
8
the Option Repurchase Price or the Option Share Repurchase Price, respectively,
in full (and Issuer hereby undertakes to use its best efforts to obtain all
required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to accomplish such repurchase), the Holder or
Owner may revoke its notice of repurchase of the Option or the Option Shares
either in whole or to the extent of the prohibition, whereupon, in the latter
case, Issuer shall promptly (i) deliver to the Holder and/or the Owner, as
appropriate, that portion of the Option Repurchase Price or the Option Share
Repurchase Price that Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) to the Holder, a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of Common
Stock obtained by multiplying the number of shares of Common Stock for which the
surrendered Stock Option Agreement was exercisable at the time of delivery of
the notice of repurchase by a fraction, the numerator of which is the Option
Repurchase Price less the portion thereof theretofore delivered to the Holder
and the denominator of which is the Option Repurchase Price, or (B) to the
Owner, a certificate for the Option Shares it is then so prohibited from
repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall
be deemed to have occurred (i) upon the consummation of any merger,
consolidation or similar transaction involving Issuer or any purchase, lease or
other acquisition of all or a substantial portion of the assets of Issuer, other
than any such transaction which would not constitute an Acquisition Transaction
pursuant to the provisos to Sections 2(c)(i) or 2(d)(ii) hereof or (ii) upon the
acquisition by any person of beneficial ownership of more than 50% of the then
outstanding shares of Common Stock; provided that no such event shall constitute
a Repurchase Event unless a Subsequent Triggering Event shall have occurred
prior to an Exercise Termination Event. The parties hereto agree that Issuer's
obligations to repurchase the Option or Option Shares under this Section 7 shall
not terminate upon the occurrence of an Exercise Termination Event unless no
Subsequent Triggering Event shall have occurred prior to the occurrence of an
Exercise Termination Event.
8. Substitute Option. (a) In the event that prior to an
Exercise Termination Event, Issuer shall enter into an agreement (i) to
consolidate with or merge into any person, other than Grantee or one of its
Subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or one of
its Subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or other
securities of any other person or cash or any other property or the then
outstanding shares of Common Stock shall after such merger represent less than
50% of the outstanding voting shares and voting share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its Subsidiaries, then, and
in each such case, the agreement governing such transaction shall make proper
provision so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option (the "Substitute Option"), at the election of
the Holder, of either (x) the Acquiring Corporation (as defined below) or (y)
any person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
9
(1) "Acquiring Corporation" shall mean (i) the
continuing or surviving corporation of a consolidation or merger with
Issuer (if other than Issuer), (ii) Issuer in a merger in which Issuer
is the continuing, surviving or acquiring person, and (iii) the
transferee of all or substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common
stock (or similar equity interest) issued by the issuer of the
Substitute Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the Market/Offer
Price, as defined in Section 7.
(4) "Average Price" shall mean the average closing
price of a share of the Substitute Common Stock for the one year
immediately preceding the consolidation, merger or sale in question but
in no event higher than the closing price of the shares of Substitute
Common Stock on the day preceding such consolidation, merger or sale;
provided that if Issuer is the issuer of the Substitute Option, the
Average Price shall be computed with respect to a share of common stock
issued by the person merging into Issuer or by any company which
controls or is controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the
Option; provided, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
to the terms of the Option and in no event less advantageous to the Holder. The
issuer of the Substitute Option shall also enter into an agreement with the then
Holder or Holders of the Substitute Option in substantially the same form as
this Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this clause (e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in this
clause (e) over (ii) the value of the Substitute Option after giving effect to
the limitation in this clause (e). This difference in value
10
shall be determined by a nationally recognized investment banking firm selected
by the Holder or the Owner, as the case may be.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. Repurchase of Substitute Option. (a) At the request of the
holder of the Substitute Option (the "Substitute Option Holder"), the Substitute
Option Issuer shall repurchase the Substitute Option from the Substitute Option
Holder at a price (the "Substitute Option Repurchase Price") equal to the sum of
the amount by which (i) the Highest Closing Price (as defined below) exceeds
(ii) the exercise price of the Substitute Option, multiplied by the number of
shares of Substitute Common Stock for which the Substitute Option may then be
exercised (after giving effect to any limitations on such number under the
provisions of Section 14 hereof), and at the request of the owner (the
"Substitute Share Owner") of shares of Substitute Common Stock (the "Substitute
Shares"), the Substitute Option Issuer shall repurchase the Substitute Shares at
a price (the "Substitute Share Repurchase Price") equal to the Highest Closing
Price multiplied by the number of Substitute Shares so designated. The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder or the Substitute Share
Owner, as the case may be, may exercise its respective right to require the
Substitute Option Issuer to repurchase the Substitute Option or the Substitute
Shares, as the case may be, pursuant to this Section 9 by surrendering for such
purpose to the Substitute Option Issuer, at its principal executive office, the
agreement for such Substitute Option (or, in the absence of such an agreement, a
copy of this Agreement) and certificates for Substitute Shares accompanied by a
written notice or notices stating that the Substitute Option Holder or the
Substitute Share Owner, as case may be, elects to require the Substitute Option
Issuer to repurchase the Substitute Option and/or the Substitute Shares, as the
case may be, in accordance with the provisions of this Section 9. As promptly as
practicable, and in any event within five business days after the surrender of
the Substitute Option and/or certificates representing Substitute Shares and the
receipt of such notice or notices delivered pursuant to this subsection (b) of
this Section 9 relating thereto, the Substitute Option Issuer shall deliver or
cause to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price or, in either case, the portion thereof which the Substitute
Option Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation from repurchasing the Substitute
Option and/or the Substitute Shares in part or in full, the Substitute Option
Issuer, following a request for repurchase pursuant to this Section 9, shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and shall thereafter deliver or cause to be delivered, from time to time,
to the Substitute Option
11
Holder and/or the Substitute Share Owner, as appropriate, that portion of the
Substitute Share Repurchase Price, respectively, which it is no longer
prohibited from delivering, in each case, within five business days after the
date on which the Substitute Option Issuer is no longer so prohibited; provided,
however, that if the Substitute Option Issuer at any time after delivery of a
notice of repurchase delivered by the Substitute Share Owner or Substitute
Option Holder pursuant to subsection (b) of this Section 9 is prohibited under
applicable law or regulation from delivering to the Substitute Option Holder
and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts to receive all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder or Substitute Share
Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Common Shares it is then so prohibited
from repurchasing.
10. Extension. The period for exercise of certain rights under
Sections 6, 7 and 13 shall be extended: (i) to the extent necessary to obtain
all regulatory approvals for the exercise of such rights, and for the expiration
of all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act by reason of such exercise.
11. Representations and Warranties of Issuer. Issuer hereby
represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its terms
will have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock
12
at any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests and will not be subject to any preemptive
rights.
(c) The execution, delivery and performance of this Agreement
does not or will not, and the consummation by Issuer of any of the transactions
contemplated hereby will not, constitute or result in (i) a breach or violation
of or a default under, its articles or certificate of incorporation or by-laws,
or the comparable governing instruments of any of its subsidiaries, or (ii) a
breach or violation of or a default under, any agreement, lease, contract, note,
mortgage, indenture, arrangement or other obligation of it or any of its
subsidiaries (with or without the giving of notice, the lapse of time or both)
or under any law, rule, ordinance or regulation or judgment, decree, order,
award or governmental or non-governmental permit or license to which it or any
of its subsidiaries is subject.
(d) No "fair price", "moratorium", "control share acquisition"
or other similar anti-takeover statute or regulation enacted under state or
federal laws applicable to the Issuer or any of its Subsidiaries is applicable
to this Agreement or any of the transactions contemplated hereby.
12. Representations and Warranties of Grantee. Grantee hereby
represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to
enter into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or
other securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in conformance with Section 2(a)
hereof and in a transaction registered or exempt from registration under the
Securities Act.
13. Assignment. Neither of the parties hereto may assign any
of its rights or obligations under this Agreement or the Option created
hereunder to any other person, without the express written consent of the other
party, except that in the event a Subsequent Triggering Event shall have
occurred prior to an Exercise Termination Event, Grantee, subject to the express
provisions hereof, may assign in whole or in part its rights and obligations
hereunder within 90 days following such Subsequent Triggering Event (or such
later period as provided in Section 10).
14. Notional Total Profit. (a) Notwithstanding any other
provision of this Agreement, this Option may not be exercised, and this Option
and/or the Option Shares issued
13
upon exercise hereof may not be presented for repurchase under Sections 2, 7 or
9 hereof, for a number of shares, or a total repurchase price, as the case may
be, that would, as of the date of exercise or presentment, result in a Notional
Total Profit (as defined below) of more than $24,000,000. Notwithstanding the
foregoing, this Section 14 shall not apply to any exercise of this Option by
Grantee pursuant to Section 2(a) hereof; provided, however, that if (x) at any
time prior to the one-year anniversary of any such exercise, the holder of any
Option Shares issued upon such exercise shall sell, tender for sale, convey,
hypothecate, transfer or otherwise dispose of ("Transfer") such Option Shares
(or any other securities into which such Option Shares are converted or
exchanged), or any interest therein, including any transaction contemplated by
Sections 7 or 9 hereof (other than in connection with a merger, consolidation or
similar business combination pursuant to the terms of which the Common Stock is
exchanged solely for equity or equity-related securities of another corporation
and cash in lieu of fractional shares thereof and any remaining unexercised
portion of this Option is converted in such transaction into an Option to
acquire such equity or equity-related securities) or (y) this Option is
presented for repurchase under Section 7 or 9 hereof, then this Section 14 shall
be deemed to retroactively apply to any and all exercises of this Option
preceding such Transfer or presentment, without giving effect to the exception
therefrom provided by this sentence, as if such exercises had occurred on the
date of such Transfer. In such an event, such holder shall, within 10 business
days of such Transfer, notify the Issuer of such Transfer and pay to the Issuer,
by wire transfer of immediately available funds, the excess of any Notional
Total Profit (calculated in respect of all transactions covered by this Section
14 without giving effect to the exception from this Section 14 provided by the
foregoing sentence) over $24,000,000 (the "Repayment"); provided, however, that,
at the Issuer's election, the Repayment shall be paid in shares of Common Stock
to the extent that Grantee then holds such shares, and the per share value of
such shares of Common Stock shall be deemed to be the closing price of the
Common Stock on the trading date immediately preceding the date the Repayment is
due.
(b) As used herein and subject to Section 14(a), the term
"Notional Total Profit" with respect to any number of shares as to which
Grantee may propose to, or be deemed to, exercise this Option shall be the
Total Profit determined as of the date of such proposed exercise assuming that
this Option were exercised on such date for such number of shares and assuming
that such shares, together with all other Option Shares held by Grantee and
its affiliates as of such date, were sold for cash at the closing market price
for the Common Stock as of the close of business on the preceding trading day
(less customary brokerage commissions).
(c) As used herein, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) the amount received by
Grantee pursuant to Issuer's repurchase of the Option (or any portion thereof)
pursuant to Section 7, (ii) (x) the amount received by Grantee pursuant to
Issuer's repurchase of Option Shares pursuant to Section 7, less (y) the
Grantee's purchase price for such Option Shares, (iii) (x) the net cash
amounts received by Grantee pursuant to the sale of Option Shares (or any
other securities into which such Option Shares are converted or exchanged) to
any unaffiliated party, less (y) the Grantee's purchase price of such Option
Shares, (iv) any amounts received by Grantee on the transfer of the Option (or
any portion thereof) to any unaffiliated party, and (v) any amount equivalent
to the foregoing with respect to the Substitute Option.
14
15. Best Efforts. Each of Grantee and Issuer will use its best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary for the consummation of the transactions
contemplated by this Agreement, including without limitation making application
for quotation on the Nasdaq National Market of the shares of Common Stock
issuable hereunder upon official notice of issuance.
16. Specific Performance. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this Agreement by either
party hereto and that the obligations of the parties hereto shall be enforceable
by either party hereto through injunctive or other equitable relief.
17. Severability. If any term, provision, covenant or
restriction contained in this Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Agreement shall remain in full force and effect,
and shall in no way be affected, impaired or invalidated. If for any reason such
court or regulatory agency determines that the Holder is not permitted to
acquire, or Issuer is not permitted to repurchase pursuant to Section 7, the
full number of shares of Common Stock provided in Section 1(a) hereof (as
adjusted pursuant to Section 1(b) or 5 hereof), it is the express intention of
Issuer to allow the Holder to acquire or to require Issuer to repurchase such
lesser number of shares as may be permissible, without any amendment or
modification hereof.
18. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Reorganization Agreement or such other address as
shall be provided in writing.
19. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
20. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
21. Expenses. Except as otherwise expressly provided herein,
each of the parties hereto shall bear and pay all costs and expenses incurred by
it or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
22. Entire Agreement. Except as otherwise expressly provided
herein or in the Reorganization Agreement, this Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
hereunder and supersedes all prior arrangements or understandings with respect
thereof, written or oral. The terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors
15
and permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
23. Captions; Capitalized Terms. The section and paragraph
captions herein are for convenience of reference only, do not constitute part of
this Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Reorganization Agreement.
16
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
LYCOS, INC.
By /s/Robert M. Davis
------------------------------------
Name: Robert M. Davis
Title: President and Chief Executive
Officer
TICKETMASTER ONLINE-
CITYSEARCH, INC.
By: /s/ Michael Guttentag
------------------------------------
Name: Michael Guttentag
Title: Vice President - Business
Development
[Lycos/TMCS Stock Option]