<PAGE>
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): June 28, 1996
---------------
Individual, Inc.
----------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-27734 04-3036959
- ---------------------------- ----------- ----------
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
8 New England Executive Park
West,
Burlington, Massachusetts 01803
- ------------------------------- ----------
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code: (617) 273-6000
--------------
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On June 28, 1996, Individual, Inc. ("Individual") completed the
acquisition of FreeLoader, Inc. a Delaware corporation ("FreeLoader"), by means
of a merger (the "Merger") of FL Merger Corp., a Delaware corporation and
wholly-owned subsidiary of Individual ("Merger Sub"), with and into FreeLoader,
with FreeLoader continuing as the surviving corporation, pursuant to that
certain Agreement and Plan of Reorganization dated as of May 30, 1996 by and
among Individual, Merger Sub, FreeLoader and Mark Pincus and Sunil Paul (the
"Principal Stockholders") (the "Merger Agreement"). As a result
of the Merger, FreeLoader became a wholly-owned subsidiary of Individual. The
Merger was effected by the filing of a Certificate of Merger with the Secretary
of State of the State of Delaware on June 28, 1996.
Individual develops and markets a suite of customized information
services that provide knowledge workers with daily personalized current
awareness reports, while offering information providers and advertisers new
ways, to reach targeted audiences. FreeLoader's client-based software provides
user-specified retrieval of Internet and World Wide Web content for downloading
directly to the users hard drive, and advertising-based screen savers.
Pursuant to the terms of the Merger Agreement, upon the effectiveness of
the Merger, each outstanding share of FreeLoader Common Stock, $ .001 par value
per share (the "FreeLoader Common Stock"), was converted into the right to
receive 0.1305 (the "Exchange Ratio") shares of Individual Common Stock, $.01
par value (the "Individual Common Stock") (subject to payment in cash in lieu of
any fractional shares). For purposes of calculating the Exchange Ratio, each
issued and outstanding share of FreeLoader Common Stock prior to the Merger was
valued at $2.545. As a result of the Merger, the former stockholders of
FreeLoader received an aggregate of 1,514,309 shares of Individual Common Stock.
In addition, pursuant to the terms of the Merger Agreement, upon the
effectiveness of the Merger, Individual assumed all outstanding options (the
"FreeLoader Options") under FreeLoader's 1996 Stock Plan. In connection with
Individual's assumption of the FreeLoader Options, based on the Exchange Ratio,
the shares of FreeLoader Common Stock reserved for issuance upon exercise of the
outstanding FreeLoader Options were converted into an aggregate of approximately
360,180 shares of Individual Common Stock reserved for issuance thereunder.
The terms of the Merger and the consideration received by FreeLoader's
securityholders in connection therewith were the result of arm's-length
negotiations between the representatives of Individual and the representatives
of FreeLoader, and took into account various factors concerning the relative
valuations of the businesses and the securities of Individual and FreeLoader.
The terms of the Merger and the exchange of FreeLoader Common Stock for
Individual Common Stock are more fully described in the Merger Agreement, a copy
of which is filed as Exhibit 2.1 to this Report and is incorporated herein by
reference.
The acquisition of FreeLoader is intended to qualify as a tax-free
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended.
The shares of Individual Common Stock issued to the FreeLoader
stockholders in connection with the Merger
<PAGE>
(the "Merger Shares") contain "shelf" resale registration rights pursuant to the
terms of that certain Registration Rights Agreement dated as of June 28, 1996
among Individual and the FreeLoader stockholders listed therein (the
"Registration Rights Agreement"), a copy of which is filed as Exhibit 99.1 to
this Report and is incorporated herein by reference. Pursuant to the
Registration Rights Agreement, Individual is obligated to use its best efforts
to file a Registration Statement on Form S-1 no later than July 18, 1996 to
register the resale of the Merger Shares, and to keep the Registration Statement
effective for a period of up to three years after the date of the Merger,
subject to certain conditions and limitations set forth therein.
In addition, in accordance with the terms of the Merger Agreement,
Individual, the FreeLoader securityholders, Frederick Wilson, as representative
of the FreeLoader securityholders, and Fleet National Bank, as escrow agent
("Fleet Bank"), entered into an Escrow Agreement dated as June 28, 1996 (the
"Escrow Agreement"), pursuant to which ten percent (10%) of the Merger Shares
and the shares of Common Stock issued and issuable under the FreeLoader Options
(the "Escrow Shares") are to be held in escrow with Fleet Bank to secure
indemnification obligations of and representations and warranties made by
FreeLoader and the Principal Stockholders under the Merger Agreement. The Escrow
Shares shall be released from escrow one (1) year after the effectiveness of the
Merger, except with respect to any Escrow Shares required to be retained in
escrow after one year to secure pending or unresolved claims against the escrow,
subject to all terms and conditions set forth in the Escrow Agreement. A copy of
the Escrow Agreement is filed as Exhibit 99.2 to this Report and is incorporated
herein by reference.
Individual also entered into a risk sharing arrangement (the "Risk
Sharing Arrangement") with the Principal Stockholders with respect to sales by
each of the Principal Stockholders of up to an aggregate of 130,500 shares of
Individual Common Stock in one or more transactions between December 31, 1996
and May 31, 1997 (the "Risk Sharing Period"). The general purpose of the Risk
Sharing Arrangement is for the parties to share the risks of fluctuations
(either up or down) in the market price of Individual Common Stock of greater
than approximately twenty percent with respect to sales made by the Principal
Stockholders during the Risk Sharing Period. A copy of the Risk Sharing
Arrangement is attached as Exhibit 99.3 to this Report and is incorporated by
reference herein.
Acquisitions, including Individual's acquisition of FreeLoader, involve
a number of potential risks, including difficulties in the assimilation of the
acquired company's operations, products and personnel, diversion of management's
resources, uncertainties associated with operating in new markets and working
with new employees and customers, and the potential loss of the acquired
company's key employees. In order for Individual to achieve anticipated
benefits from its acquisition of FreeLoader, Individual will need to integrate
FreeLoader's business and key employees with Individual's existing operations
and employees and to make significant expenditures for sales and marketing and
product development to further develop FreeLoader's products and services and
business. No assurance can be given that Individual will be successful in this
regard. Moreover, even if successfully integrated, the acquired FreeLoader
operations may not achieve levels of revenues or productivity comparable to
those achieved by Individual's existing operations, or otherwise perform as
expected.
Management may from time to time consider other acquisitions of assets
or businesses that it believes may enable Individual to acquire complementary
skills and capabilities, offer new products, expand its customer base or obtain
other competitive advantages. There can be no assurance that Individual will be
able to successfully identify suitable acquisition candidates or complete future
acquisitions. In order to finance such acquisitions, it may be necessary for
Individual to raise additional funds either through public or private
financings, including bank borrowings. Any financing, if available at all, may
be on terms which are not favorable to Individual. In addition, issuances of
Individual's equity securities for future acquisitions could result in dilution
to Individual's existing stockholders.
<PAGE>
There can also be no assurance that the FreeLoader acquisition and any
future acquisitions will not have a material adverse effect upon Individual's
business and results of operations.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
-----------------------------------------
FREELOADER, INC.
(A Development Stage Enterprise)
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets at December 31, 1995 and March 31, 1996 (unaudited)
Statements of Operations for the Period from November 13, 1995
(Date of Inception) to December 31, 1995, the three months
ended March 31, 1996 (unaudited), and the Period from
November 13, 1995 (Date of Inception) to March 31, 1996
(unaudited)
Statements of Stockholders' Equity (Deficit) for the Period from
November 13, 1995 (Date of Inception) to December 31, 1995
and the three months ended March 31, 1996 (unaudited)
Statements of Cash Flows for the Period from November 13, 1995
(Date of Inception) to December 31, 1995, the three
months ended March 31, 1996 (unaudited), and the Period from
November 13, 1995 (Date of Inception) to March 31, 1996
(unaudited)
Notes to Financial Statements
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
FreeLoader, Inc. (A Development Stage Enterprise):
We have audited the accompanying balance sheet of FreeLoader, Inc. (a
development stage enterprise) as of December 31, 1995, and the related
statements of operations, stockholders' deficit and cash flows for the period
from November 13, 1995 (date of inception) to December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FreeLoader, Inc. (a development
stage enterprise) as of December 31, 1995, and the results of its operations and
its cash flows for the period from November 13, 1995 (date of inception) to
December 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
May 29, 1996
Except as to the information in Note J,
for which the date is June 28, 1996
<PAGE>
FREELOADER, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1995 1996
------------ -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash $ 233,695 $ 2,246,748
Prepaid expenses 7,463 17,810
------------ -----------
Total current assets 241,158 2,264,558
Property and equipment, net 11,733 115,889
Other assets, net 7,963 70,809
------------ -----------
Total assets $ 260,854 $ 2,451,256
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable 31,686 210,700
Deposits - 50,000
Note payable 250,000 -
------------ -----------
Total current liabilities 281,686 260,700
Commitments (Note D)
Stockholders' equity (deficit):
Common stock, $.001 par value; authorized 6,000,000 shares at
December 31, 1995, 17,000,000 shares at March 31, 1996;
6,000,000 shares issued and outstanding at December 31, 1995
and March 31, 1996 6,000 6,000
Convertible preferred stock, $.001 par value; 6,000,000 shares
authorized; 5,363,637 shares issued and outstanding at
March 31,1996 - 5,364
Additional paid-in capital 28,000 2,972,636
Deficit accumulated during the development stage (54,832) (793,444)
------------ -----------
Total stockholders' equity (deficit) (20,832) 2,190,556
------------ -----------
Total liabilities and stockholders' equity (deficit) $ 260,854 $ 2,451,256
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FREELOADER, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from
November 13, November 13,
1995 (date of Three Months 1995 (date of
inception) to Ended inception) to
December 31, March 31, March 31,
1995 1996 1996
------------- ------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Operating expenses:
Research and development $ 35,315 $ 352,783 $ 388,098
General and administrative 19,649 390,719 410,368
----------- ----------- -----------
Total operating expenses 54,964 743,502 798,466
Interest income, net 132 4,890 5,022
----------- ----------- -----------
Net loss $ (54,832) $ (738,612) $ (793,444)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FREELOADER, INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
Common Stock Preferred Stock Accumulated
-------------------- -------------------- Additional during the Total
Shares Shares Paid-In Development Stockholders'
Issued Amount Issued Amount Capital Stage Equity (Deficit)
------ ------ ------ ------ ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 13, 1995
(date of inception)
Issuance of common stock on
November 30, 1995 6,000,000 $ 6,000 $ 28,000 $ 34,000
Net loss $ (54,832) (54,832)
--------- -------- ---------- ------------- --------------
Balance at December 31, 1995 6,000,000 6,000 28,000 (54,832) (20,832)
Issuance of Series A Convertible
Preferred Stock for cash and
exchange of note on
February 29, 1996 5,363,637 $ 5,364 2,944,636 2,950,000
Net loss (738,612) (738,612)
--------- -------- --------- -------- ---------- ------------- --------------
Balance at March 31, 1996
(unaudited) 6,000,000 $ 6,000 5,363,637 $ 5,364 $2,972,636 $ (793,444) $ 2,190,556
========= ======== ========= ======== ========== ============= ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FREELOADER, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Period from November Three Months November 13, 1995
13, 1995 (date of inception) Ended (date of inception)
to December 31, 1995 March 31, 1996 to March 31, 1996
---------------------------- -------------- -------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (54,832) $ (738,612) $ (793,444)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 469 5,867 6,336
Stock issued for expenses 34,000 - 34,000
Interest paid with Preferred Stock 4,111 4,111
Changes in assets and liabilities:
Increase in prepaid expenses (7,463) (10,347) (17,810)
Increase in other assets (8,089) (63,754) (71,843)
Increase in accounts payable 31,686 179,014 210,700
Increase in deposits - 50,000 50,000
-------- ---------- ----------
Net cash used in operating activities (4,229) (573,721) (577,950)
Cash flows from investing activities:
Purchase of property and equipment (12,076) (109,115) (121,191)
-------- ---------- ----------
Net cash used in investing activities (12,076) (109,115) (121,191)
Cash flows from financing activities:
Issuance of note payable 250,000 - 250,000
Proceeds from issuance of Preferred Stock - 2,695,889 2,695,889
-------- ---------- ----------
Net cash provided by financing activities 250,000 2,695,889 2,945,889
-------- ---------- ----------
Net increase in cash 233,695 2,013,053 2,246,748
Cash at beginning of period - 233,695 -
-------- ---------- ----------
Cash at end of period $233,695 $2,246,748 $2,246,748
======== ========== ==========
Supplemental cash flow information:
Noncash financing activities:
Note payable and accrued interest
converted into Preferred Stock $254,111 $254,111
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FREELOADER, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months ended
March 31, 1996 is unaudited)
A. Nature of Business:
------------------
Freeloader, Inc. (the "Company") was incorporated under the laws of Delaware
on November 13, 1995. The Company was formed primarily to offer Internet
users an application with which they may subscribe to home pages of their
choice. Through automatic daily or weekly downloads, users will be able to
view their chosen Web pages off-line in real time with their current
browsers.
Since its inception, the Company has devoted its efforts to establishing its
business, raising capital, recruiting personnel, developing technology, and
marketing. Accordingly, the Company is considered to be a development stage
enterprise for the periods presented.
B. Significant Accounting Policies:
-------------------------------
Research and Development Costs
Research and development costs, which principally represent consulting fees
incurred in the conceptual formulation and development of the Company's
technology, are expensed as incurred. Software development costs that would
be required to be capitalized under Statement of Financial Accounting
Standards (SFAS) No. 86, "Accounting for the Costs of Computer Software to
Be Sold, Leased or Otherwise Marketed", have not been material.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for maintenance and
repairs are charged to operations. Depreciation is computed using the
straight-line method over the estimated useful lives of 5 years for computer
equipment and 2 years for purchased software.
Upon retirement or sale, the cost of the assets disposed and the related
accumulated depreciation and amortization are removed from the accounts and
any resulting gain or loss is included in the determination of net income.
Other Assets
Other assets principally include organization costs and trademarks at cost,
net of amortization on a straight-line basis over a five-year period.
Accumulated amortization relating to organization costs and trademarks was
$126 and $1,034 for the period from November 13, 1995 (date of inception) to
December 31, 1995 and the three months ended March 31, 1996, respectively.
Continued
<PAGE>
FREELOADER, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the three months ended March 31, 1996 is
unaudited).
Income Taxes
The Company accounts for income taxes according to SFAS No. 109, "Accounting
for Income Taxes." Under the liability method specified by SFAS No. 109, a
deferred tax asset or liability is determined based on the difference
between the financial statement and tax basis of assets and liabilities as
measured by the enacted tax rates which will be in effect when these
differences reverse. SFAS No. 109 also requires a valuation account against
deferred tax assets if, based on available weighted evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized.
Risk and Uncertainties
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash. The Company deposits its cash
in banks which it believes are creditworthy.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and contingent
liabilities at the date of the financial statements and the reported amounts
of expenses during the reporting periods. Actual results could differ from
those estimates.
C. Property and Equipment:
----------------------
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
------------ ------------
<S> <C> <C>
Computer equipment and purchased software $ 12,076 $ 121,191
Accumulated depreciation (343) (5,302)
--------- ----------
$ 11,733 $ 115,889
========= ==========
</TABLE>
Depreciation expense amounted to $343 and $4,959 for the period from November
13, 1995 (date of inception) to December 31, 1995 and the three months ended
March 31, 1996, respectively.
Continued
<PAGE>
FREELOADER, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the three months ended March 31, 1996
is unaudited).
D. Commitments:
-----------
During 1995, the Company entered into an operating lease for office space.
The lease expires on March 31, 1996. Rental expense for the period from
November 13, 1995 (date of inception) to December 31, 1995 under the
operating lease was $3,500. The remaining commitment of $3,000 was paid in
1996.
On March 7, 1996, the Company entered into a new operating lease for office
space. The term of the lease commenced on May 1, 1996 and expires on
May 1, 1999. The minimum future rental expenses are as follows:
1996 $ 93,123
1997 124,164
1998 124,164
1999 31,041
--------
$372,492
========
E. Series A Convertible Preferred Stock:
------------------------------------
On February 29, 1996, the Board of Directors authorized 6,000,000 shares of
Preferred Stock, of which 5,900,000 shares were designated as Series A
Convertible Preferred Stock with the rights, terms and privileges set forth
in the Series A Convertible Preferred Stock Purchase Agreement (the
"Agreement"). Subject to and in accordance with the provisions of the
Agreement, any share of Series A Convertible Preferred Stock may, at the
option of the holder, be converted at any time into fully-paid and
nonassessable shares of common stock on a one-to-one basis, subject to
adjustment from time to time in accordance with the Agreement. On
April 29, 1996, the Company issued 136,364 shares of Series A Convertible
Preferred Stock, $.001 par value, for an aggregate purchase price of
$75,000.
F. Note Payable:
------------
On December 15, 1995, the Company issued a $250,000 convertible promissory
note (the "Note") with an annual interest rate of 8%. The Note and any
accrued interest is due on or before April 15, 1996.
The principal outstanding under this Note and any accrued interest is
convertible, at the option of the holder, immediately upon the sale by the
Company of equity securities of the Company. The conversion price will be
equal to the per share purchase price of the sale.
Continued
<PAGE>
FREELOADER, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the three months ended March 31, 1996
is unaudited).
The Note was converted as part of the first closing, which took place on
February 29, 1996, of the Series A Convertible Preferred Stock issuance. The
outstanding principal and interest of $254,111 were converted into shares of
Series A Convertible Preferred Stock for an aggregate of 462,000 shares.
In consideration of the purchase of the Note, the Company issued a warrant
to the investor for common stock of the Company, with an insignificant fair
value. The number of shares to be issued shall be approximately 129,000 at
an exercise price of $0.50 per share. The warrant shall expire at the close
of business on December 15, 2000. As of May 29, 1996, the warrant has not
been exercised.
G. Stock Option Plan:
-----------------
On December 14, 1995, the Board of Directors approved the establishment of
an Incentive Stock Option Plan (the "Plan"). The Plan will initially have
1,000,000 options which will vest over a four-year period. The Plan provides
for the granting of incentive stock options ("ISOs") and nonqualified stock
options ("NQSOs"). Any nonqualified options issued to outside directors,
advisors or consultants will be included in the 1,000,000 share allocation.
As of December 31, 1995, no options under the Plan had been granted. On
February 29, 1996, the Board of Directors approved an increase in the number
of authorized shares under the Plan to 2,050,000 shares of common stock for
issuance to employees, consultants, and contractors. As of March 31, 1996,
1,462,000 ISOs had been granted under the Plan with an option price per
share of $0.055, of which no shares were exercisable.
H. Income Taxes:
------------
No income tax provision or benefit has been provided for federal income tax
purposes as the Company has incurred losses since inception. As of
December 31, 1995, the net deferred tax asset totaled approximately $20,000,
principally related to net operating loss carryforwards of approximately
$55,000. As of March 31, 1996, the net deferred tax asset totaled
approximately $301,000, principally related to net operating loss
carryforwards of approximately $793,000. These net operating loss
carryforwards, if not utilized, will commence expiring in 2010. Due to the
uncertainty surrounding the realization of these favorable tax attributes in
future tax returns, all of the net deferred tax assets has been fully offset
by a valuation allowance.
Continued
<PAGE>
FREELOADER, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Information with respect to the three months ended March 31, 1996
is unaudited).
I. Related Party Transactions:
--------------------------
The founders of the Company paid certain expenses of the Company and
accordingly were reimbursed with 6,000,000 shares of common stock, which
were determined to have a fair value of $34,000 by the Board of Directors.
Expenses paid by the founders in excess of $34,000, which totaled $4,339 and
were included in accounts payable at December 31, 1995, were reimbursed to
the founders in January 1996.
J. Subsequent Event:
----------------
On June 28, 1996, Individual, Inc., a Delaware corporation, completed the
acquisition of FreeLoader, Inc., by means of a merger (the "Merger"),
pursuant to the Agreement and Plan of Reorganization dated as of
May 30, 1996. As a result of the Merger, FreeLoader, Inc. became a wholly-
owned subsidiary of Individual, Inc.
<PAGE>
(b) Pro Forma Financial Information.
-------------------------------
Individual, Inc. and FreeLoader, Inc. Pro Forma
Combined Condensed Consolidated Balance Sheet as
of March 31, 1996 (Unaudited)
Individual, Inc. and FreeLoader, Inc. Pro Forma
Combined Condensed Consolidated Statement of
Operations for the Year Ended March 31, 1996
(Unaudited)
Individual, Inc. and FreeLoader, Inc. Notes to
Unaudited Pro Forma Combined Condensed Consolidated
Financial Statements
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed consolidated financial
statements give effect to the acquisition of FreeLoader, Inc. ("FreeLoader") by
Individual, Inc. ("Individual"), by means of a merger (the"Merger"), under the
purchase method of accounting. The unaudited pro forma combined condensed
consolidated balance sheet combines Individual's unaudited consolidated balance
sheet and FreeLoader's unaudited balance sheet at March 31, 1996 as if the
Merger occurred on March 31, 1996. The unaudited pro forma combined condensed
consolidated statement of operations combine the historical results of
operations of Individual and FreeLoader, for the three months ended March 31,
1996 as if the Merger had occurred at the beginning of such period. The
operating results of FreeLoader for the year ended December 31, 1995 was not
material to the results of operations of Individual. Therefore, the pro forma
combined condensed consolidated statement of operations for the year ended
December 31, 1995 has been omitted.
The unaudited pro forma combined condensed consolidated financial
statements do not reflect cost savings and synergies which might be achieved
from the Merger. The unaudited pro forma combined condensed consolidated
financial statements do not purport to be indicative of the operating results or
financial position that would have been achieved had the Merger been effected
for the period indicated or the results or financial position which may by
obtained in the future.
These combined condensed consolidated pro forma financial statements are
based on and should be read in conjunction with the audited and unaudited
consolidated financial statements of Individual, including the notes thereto,
and the audited and unaudited financial statements of FreeLoader, including the
notes thereto.
The Merger transaction did not result in any significant pro forma
adjustments to the pro forma combined condensed consolidated statement of
operations.
<PAGE>
INDIVIDUAL, INC.
AND
FREELOADER, INC.
Pro Forma Combined Condensed Consolidated Balance Sheet
As of March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
ASSETS Pro Forma Combined
Individual Inc. FreeLoader Adjustments Pro Forma
--------------- ---------- ----------- ---------
(note B)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $34,221,852 $2,246,748 $36,468,600
Investments in marketable securities 1,954,794 -- 1,954,794
Accounts receivable, net 4,589,052 -- 4,589,052
Prepaid expenses 199,672 17,810 217,482
------- ------ -------
Total current assets 40,965,370 2,264,558 43,229,928
Property and equipment, net 2,824,450 115,889 2,940,339
Other assets, net 256,323 70,809 327,132
------- ------ -------
Total assets $44,046,143 $2,451,256 $46,497,399
=========== ========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable $925,628 $210,700 $1,136,328
Accrued expenses 3,614,239 50,000 $2,400,000 6,064,239
Deferred revenue 9,002,318 -- 9,002,318
Bank loans 638,067 -- 638,067
Current obligations under capital leases 127,073 -- 127,073
---------- --------- ----------- ----------
Total current liabilities 14,307,325 260,700 2,400,000 16,968,025
Capital lease obligations 750,856 -- 750,856
Bank loans 48,028 -- 48,028
Stockholders' equity:
Common stock 121,166 6,000 9,143 136,309
Preferred stock -- 5,364 (5,364) 0
Additional paid-in capital 49,886,574 2,972,636 30,993,306 83,852,516
Accumulated deficit (21,054,929) (793,444) (33,397,085) (55,245,458)
---------- --------- ----------- ----------
28,952,811 2,190,556 (2,400,000) 28,743,367
Treasury stock (12,877) -- (12,877)
-------- -------- ----------- --------
Total stockholders' equity 28,939,934 2,190,556 (2,400,000) 28,730,490
---------- --------- ----------- ----------
Total liabilities and stockholders' equity $44,046,143 $2,451,256 $0 $46,497,399
=========== ========== =========== ===========
</TABLE>
<PAGE>
INDIVIDUAL, INC.
AND
FREELOADER, INC.
Pro Forma Combined Condensed Consolidated Statement of Operations
For the Three Months Ended March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Combined
Individual Inc. FreeLoader Pro Forma
--------------- ---------- ---------
<S> <C> <C> <C>
Revenue $5,029,291 $5,029,291
Cost of revenue 2,257,506 2,257,506
--------- ---------
Gross margin 2,771,785 2,771,785
Operating expense:
Sales and marketing 1,060,544 1,060,544
New subscriber acquisition 2,230,703 2,230,703
Research and development 838,725 $352,783 1,191,508
General and administrative 655,422 390,719 1,046,141
------- ------- ---------
Total operating expense 4,785,394 743,502 5,528,896
--------- ------- ---------
Loss from operations (2,013,609) (743,502) (2,757,111)
Interest income and other income (expense), net 241,594 9,001 250,595
Interest expense (738,206) (4,111) (742,317)
--------- ------- ---------
Net loss ($2,510,221) ($738,612) ($3,248,833)
============ ========== ============
Historical pro forma net loss per common share ($0.25)
=======
Historical pro forma weighted average common
shares outstanding 9,844,520
=========
Pro forma net loss per common share ($0.29)
=======
Pro forma weighted average common
shares outstanding 11,358,829
==========
</TABLE>
<PAGE>
INDIVIDUAL, INC.
AND
FREELOADER, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. PRO FORMA BASIS OF PRESENTATION
On June 28, 1996, Individual completed the acquisition of FreeLoader, Inc.,
a Delaware corporation, by means of the Merger of FL Merger Corp., a Delaware
corporation and wholly owned subsidiary of Individual, ("Merger Sub"), with and
into FreeLoader, with FreeLoader continuing as the surviving corporation,
pursuant to that certain Agreement and Plan of Reorganization dated as of May
30, 1996 by and among Individual, Merger Sub, FreeLoader and certain
stockholders of FreeLoader (the "Merger Agreement"). As a result of the Merger,
FreeLoader became a wholly-owned subsidiary of Individual.
B. PRO FORMA ADJUSTMENTS
The pro forma adjustments described below are required to allocate the
purchase price and the estimated acquisition costs to the net assets of
FreeLoader based upon their estimated fair values at March 31, 1996 as
determined by the management of Individual. Such allocations will be revised to
reflect changes in purchased technology, assets, and liabilities through June
28, 1996 (the date of the acquisition), as well as the determination of the
actual acquisition costs and final evaluation of fair value.
Pursuant to the Merger Agreement, Individual acquired FreeLoader in
exchange for approximately 1,514,309 shares of common stock, options to
purchase 360,180 shares of common stock and other consideration and costs with
a total estimated purchase price of approximately $36,400,000 (based on the fair
value of Individual, Inc. Common Stock and options at May 30, 1996 and estimated
accrued deal costs of $2,400,000). The transaction will be accounted for as a
purchase. Approximately $2,200,000 of the purchase price has been allocated to
the net identifiable assets acquired and approximately $34,200,000 has been
allocated to purchased technology determined to be in-process and accordingly,
expensed at consumation. This nonrecurring charge was not reflected in the pro
forma combined condensed consolidated statement of operations, and is reflected
as a component of the pro forma balance sheet adjustments to accumulated
deficit.
The issuance of Individual's common stock, net of the elimination of
FreeLoader's common stock, preferred stock, additional paid-in capital, and
accumulated deficit, is reflected in the pro forma balance sheet adjustments.
<PAGE>
(c) Exhibits.
--------
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Reorganization dated as of May 30, 1996 by and
among Individual, Inc., FL Merger Corp., FreeLoader, Inc. and
certain stockholders of FreeLoader, Inc.
99.1 Registration Rights Agreement dated as of June 28, 1996 by and among
Individual, Inc. and the securityholders of FreeLoader, Inc.
99.2 Escrow Agreement dated as of June 28, 1996 by and among Individual,
Inc., the securityholders of FreeLoader, Inc., Frederick Wilson, as
representative of the securityholders of FreeLoader, Inc., and Fleet
National Bank, as escrow agent.
99.3 Risk Sharing Arrangement
<PAGE>
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.
Individual, Inc.
---------------------------------
(Registrant)
/s/ Robert L. Lentz
Date: July 12, 1996 --------------------------------
Robert L. Lentz
Vice President, Finance and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Page Number in
Sequentially
Exhibit No. Description Numbered Copy
- ----------- ----------- -------------
2.1 Agreement and Plan of Reorganization
dated as of May 30, 1996 by and among
Individual, Inc., FL Merger Corp.,
FreeLoader, Inc. and certain
stockholders of FreeLoader, Inc.
99.1 Registration Rights Agreement dated as of
June 28, 1996 by and among Individual, Inc.
and the securityholders of FreeLoader, Inc.
99.2 Escrow Agreement dated as of June 28, 1996
by and among Individual, Inc., the
securityholders of FreeLoader, Inc.,
Frederick Wilson, as representative of the
securityholders of FreeLoader, Inc., and
Fleet National Bank, as escrow agent.
99.3 Risk Sharing Arrangement
<PAGE>
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
INDIVIDUAL, INC.,
FL MERGER CORP.,
FREELOADER, INC.
and
CERTAIN STOCKHOLDERS OF FREELOADER, INC.
================================================================================
May 30, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - DEFINITIONS 2
1.01. Definitions.................................................... 2
ARTICLE II - PLAN OF REORGANIZATION...................................... 5
2.01. The Merger........................................................ 5
2.02. Effective Time................................................... 5
2.03. Effect of the Merger............................................. 5
2.04. Certificate of Incorporation; By-Laws............................ 5
2.05. Directors and Officers........................................... 6
2.06. Effect on Capital Stock.......................................... 6
2.07. Escrow Agreement................................................. 7
2.08. Exchange of Certificates......................................... 7
2.09. Stock Transfer Books............................................. 9
2.10. Dissenting Shares................................................ 9
2.11. No Further Ownership Rights in Company Common Stock.............. 9
2.12. Lost, Stolen or Destroyed Certificates........................... 10
2.13. Tax and Accounting Consequences.................................. 10
2.14. Taking of Necessary Action; Further Action....................... 10
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE SELLER............... 10
3.01. Ownership of Shares; Binding Effect.............................. 10
3.02. Corporate Existence and Power.................................... 11
3.03. Governmental Authorization; Consents............................. 11
3.04. Non-Contravention................................................ 11
3.05. Capitalization................................................... 12
3.06. Subsidiaries..................................................... 12
3.07. Financial Statements............................................. 12
3.08. Absence of Certain Changes....................................... 13
3.09. Property and Equipment........................................... 14
3.10. No Undisclosed Material Liabilities.............................. 14
3.11. Litigation....................................................... 15
3.12. Material Contracts............................................... 15
3.13. Insurance Coverage............................................... 16
3.14. Compliance with Laws; Permits; No Defaults....................... 16
3.15. Finder's Fees.................................................... 17
3.16. Intellectual Property............................................ 17
3.17. Taxes............................................................ 18
3.18. Employees........................................................ 20
3.19. Transactions with Affiliates..................................... 20
3.20. Other Information................................................ 20
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
3.21. Products......................................................... 20
3.22. Vote Required.................................................... 21
3.23. Tax Opinion...................................................... 21
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE BUYER................. 21
3.01. Ownership of Shares; Binding Effect.............................. 21
3.02. Corporate Existence and Power.................................... 21
4.03. Governmental Authorization....................................... 22
4.04. Non-Contravention................................................ 22
4.05. Finders' Fees.................................................... 22
4.06. Capitalization................................................... 22
4.07. Purchase for Investment.......................................... 23
4.08. Litigation....................................................... 23
4.09. SEC Reports...................................................... 23
ARTICLE V - COVENANTS OF THE SELLER...................................... 23
5.01. Conduct of the Company........................................... 23
5.02. Access to Information............................................ 24
5.03. Notices of Certain Events........................................ 25
5.04. No Negotiations with Third Parties............................... 25
5.05. Confidentiality.................................................. 25
5.06. Continuing Disclosure............................................ 26
5.07. Stockholder Approval............................................. 26
5.08. Approval of Parachute Payments................................... 26
ARTICLE VI - COVENANTS OF THE BUYER...................................... 27
6.01. Confidentiality.................................................. 27
6.02. Access........................................................... 27
6.03. Documents to be Furnished........................................ 27
6.04. Establishment of Management Committee............................ 28
6.05. Payment of Additional Merger Consideration....................... 28
ARTICLE VII - COVENANTS OF ALL PARTIES................................... 28
7.01. Best Efforts..................................................... 28
7.02. Certain Filings.................................................. 28
7.03. Public Announcements............................................. 28
7.04. Assumption of Company Stock Options.............................. 29
ARTICLE VIII - EMPLOYEE BENEFITS......................................... 29
8.01. Employee Benefits Definitions.................................... 29
8.02. Employee Benefit Representations................................. 30
8.03. No Third Party Beneficiaries..................................... 32
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
ARTICLE IX - CONDITIONS TO CLOSING....................................... 32
9.01. Conditions to the Obligations of Each Party...................... 32
9.02. Conditions to Obligation of the Buyer............................ 32
9.03. Conditions to Obligation of the Stockholders..................... 34
ARTICLE X - SURVIVAL; INDEMNIFICATION.................................... 35
10.01. Survival........................................................ 35
10.02. Indemnification................................................. 35
10.03. Procedures; No Waiver........................................... 36
ARTICLE XI - TERMINATION................................................. 36
11.01. Grounds for Termination......................................... 36
11.02. Effect of Termination........................................... 37
ARTICLE XII - MISCELLANEOUS.............................................. 38
12.01. Notices......................................................... 38
12.02. Amendments; No Waivers.......................................... 39
12.03. Expenses........................................................ 39
12.04. Successors and Assigns.......................................... 39
12.05. Further Assurances.............................................. 39
12.06. Governing Law................................................... 39
12.07. Counterparts; Effectiveness..................................... 39
12.08. Entire Agreement................................................ 39
12.09. Captions........................................................ 40
12.10. Jurisdiction.................................................... 40
</TABLE>
Schedules
- ---------
Schedule 3.05 Capitalization
Schedule 3.07 Financial Statements
Schedule 3.08 Absence of Changes
Schedule 3.10 Liabilities
Schedule 3.12 Material Contracts
Schedule 3.13 List of Insurance Policies
Schedule 3.14 Permits
Schedule 3.16(a) Intellectual Property
Schedule 3.16(c) Intellectual Property Agreements
Schedule 3.16(e) Intellectual Property Claims
Schedule 3.17 Tax Returns
Schedule 3.18 Employees
Schedule 3.21 Acceleration of Company Options
Schedule 7.04 Terms of Assumed Options
(iii)
<PAGE>
Schedule 9.02(c) Opinion of Company Counsel
Schedule 9.03(c) Opinion of Buyer's Counsel
Exhibits
- --------
Exhibit 1 Certificate of Merger
Exhibit 2 Form of Employment Agreement
Exhibit 3 Form of Escrow Agreement
Exhibit 4 Form of Noncompetition Agreement
Exhibit 5 Form of Registration Rights Agreement
Exhibit 6 Form of Amended and Restated Repurchase Agreement
Exhibit 7A Company Certificate
Exhibit 7B Stockholder Certificate
(iv)
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is dated as of
---------
May 30, 1996 by and among Individual, Inc., a Delaware corporation ("Buyer"),
-----
FL Merger Corp., a Delaware corporation and wholly-owned subsidiary of the Buyer
("Merger Sub"), FreeLoader, Inc., a Delaware corporation (the "Company"), and
certain stockholders of the Company listed on the signature pages hereto (the
"Stockholders").
- -------------
WITNESSETH:
WHEREAS, the Boards of Directors of the Buyer, Merger Sub and the
Company have each determined that it is advisable and in the best interests of
their respective stockholders for the Buyer to enter into a business combination
with the Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors
of the Buyer, Merger Sub and the Company have each approved the merger (the
"Merger") of Merger Sub with and into the Company, all pursuant to the terms and
conditions of this Agreement and an Agreement of Merger in the form of Exhibit 1
---------
(the "Agreement of Merger") and the applicable provisions of the Delaware
General Corporation Law ("Delaware Law");
WHEREAS, pursuant to the Merger, each outstanding share (a "Share") of
the Company's Common Stock, $.001 par value per share (the "Company Common
Stock"), including all shares of Company Common Stock issuable upon conversion
of the Company's issued and outstanding preferred stock, shall be converted into
the right to receive shares of Buyer Stock, upon the terms and subject to the
conditions set forth herein and in the Agreement of Merger;
WHEREAS, the Buyer, Merger Sub and the Company intend, by approving
resolutions authorizing this Agreement, to adopt this Agreement as a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and the regulations thereunder, and to cause
the Merger to qualify as a reorganization under the provisions of Section 368(a)
of the Code;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, and intending to be legally bound,
the parties hereto agree as follows:
<PAGE>
-2-
ARTICLE I
DEFINITIONS
1.01. Definitions. The following terms, as used herein, shall
------------
have the following meanings:
"Affiliate" means, with respect to any Person, any Person directly or
---------
indirectly controlling, controlled by, or under common control with such Person.
"Ancillary Agreements" means the Escrow Agreement, the Registration
--------------------
Rights Agreement, the Stock Repurchase Agreements, the Noncompetition Agreements
and the Employment Agreements.
"Balance Sheet" means the balance sheet of the Company as of
-------------
April 30, 1996 referred to in Section 3.07.
"Balance Sheet Date" means April 30, 1996.
------------------
"Buyer Stock" means Common Stock, $.01 par value per share, of
-----------
the Buyer.
"Buyer's Counsel" means the law firm of Testa, Hurwitz & Thibeault,
---------------
LLP, Boston, Massachusetts.
"Closing Date" means the date of the Closing.
------------
"Company Common Stock" means the Common Stock, $.001 par value,
--------------------
of the Company.
"Company Certificate" means the Company Certificate executed and
-------------------
delivered by the Company substantially in the form attached hereto as Exhibit
-------
7A.
"Company Counsel" means Venture Capital Law Group, A Professional
---------------
Corporation, Menlo Park, California.
"Employment Agreement" means an Employment Agreement in
--------------------
substantially the form attached hereto as Exhibit 2.
---------
"Escrow Agreement" means the Escrow Agreement entered into by Buyer,
----------------
the Company, Frederick Wilson, as Representative of the stockholders and
optionholders of the Company, and the Escrow Agent named therein, in
substantially the form attached hereto as Exhibit 3.
---------
"Escrow Period" means the one-year period commencing on the
-------------
Closing Date.
<PAGE>
-3-
"Escrow Shares" means the aggregate of ten percent (10%) of the shares
-------------
of Buyer Stock to be issued to the holders of Company Common Stock in accordance
with Section 2.06, and ten percent (10%) of any shares of Buyer Stock issuable
upon the exercise of the Company Options assumed by Buyer in accordance with
Section 7.04.
"Fair Market Value" shall mean, with reference to Buyer Stock, $19.50
-----------------
per share of Buyer Stock.
"Intellectual Property" shall mean (i) all domestic and foreign
---------------------
letters patent, patents, patent applications and patent licenses; know-how and
know-how licenses; inventions, discoveries, ideas, trade secrets and trade
secret licenses; proprietary (including "confidential") information of every
nature, and proprietary information licenses; software and software licenses,
including all source code and object code, algorithms, architecture, structure,
display screens, layouts, development tools, and documentation and media
constituting, describing or relating to the foregoing; all moral rights or other
similar rights of paternity, integrity or authorship; common law trademarks;
trademarks and trademark registration applications and registrations therefor;
service marks, registered service marks and service mark registration
applications; trade names, registered trade names and trade name registration
applications; common law copyrights, registered copyrights and copyright
registration applications; all other technical or technological information or
rights of every nature, owned by or licensed to the Company, whether or not used
by the Company in, or necessary to the conduct of, its business as presently
conducted; and all rights, claims, credits, causes of action or rights of set-
off against third parties relating to the foregoing.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
----
charge, security interest, restriction or encumbrance of any kind in respect of
such asset.
"Material Adverse Change" means a material adverse change in the
-----------------------
business, assets, liabilities, condition (financial or otherwise) or results of
operations of the Company or the Buyer, as the case may be.
"Material Adverse Effect" means a material adverse effect on the
-----------------------
business, assets, liabilities, condition (financial or otherwise) or results or
operations of the Company or the Buyer, as the case may be.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and
--------
the rules and regulations promulgated thereunder.
"1933 Act" means the Securities Act of 1933, as amended, and the
--------
rules and regulations promulgated thereunder.
"1933 Act Legend" means the following legend:
---------------
"The Securities represented hereby have not been registered under the
Securities Act of 1933, as amended, and may not be sold,
<PAGE>
-4-
transferred or otherwise disposed of except in accordance with the
terms thereof and unless registered with the Securities and Exchange
Commission of the United States and the securities regulatory
authorities of certain states or unless an exemption from such
registration is available."
"Noncompetition Agreement" means the Noncompetition, Nondisclosure and
------------------------
Developments Agreement entered into by the Stockholders in substantially the
form attached hereto as Exhibit 4.
---------
"Person" means an individual, corporation, partnership, limited
------
liability company or partnership, association, trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement entered into among the Buyer and certain stockholders of the Company
in substantially the form attached hereto as Exhibit 5.
---------
"Risk Sharing Agreement" means an agreement satisfactory in form and
----------------------
substance to Buyer and the Stockholders providing for either: (a) a cash
settlement between the parties to the extent that the Stockholders each sell up
to 130,500 shares of Buyer Stock (the "Subject Buyer Stock") during the period
from January 1, 1997 through May 30, 1997 at sales prices greater than $20.475
per share or less than $18,525 per share, on terms such that such cash
settlement shall not constitute a "purchase" for purposes of Section 16(b) under
the Securities Exchange Act of 1934; or (b) an agreement to sell and purchase
the Subject Buyer Stock at the fair market value thereof based upon the average
of the closing sale price of the Buyer Stock or the ten prior trading days (but
not greater than $20.475 per share or less than $18.525 per share).
"Stock Repurchase Agreement" means the Amended and Restated Repurchase
--------------------------
Agreement entered into by the Buyer and the Stockholders in substantially the
form of Exhibit 6.
---------
"Stockholder Certificate" means the Stockholder Certificate executed
-----------------------
and delivered by each holder of outstanding capital stock of the Company
substantially in the form attached hereto as Exhibit 7B.
----------
"Subsidiary" means any entity of which securities or other ownership
----------
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Company.
<PAGE>
-5-
ARTICLE II
THE PLAN OF REORGANIZATION
2.01. The Merger.
(a) Effective Time. At the Effective Time (as defined in Section
2.02), and subject to and upon the terms and conditions of this Agreement and
Delaware Law, Merger Sub shall be merged with and into the Company, the separate
corporate existence of Merger Sub shall cease, and the Company shall continue as
the surviving corporation. The Company as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
(b) Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
11.01 and subject to the satisfaction or waiver of the conditions set forth in
Article IX, the consummation of the Merger (the "Closing") will take place as
promptly as practicable (and in any event within two business days) after
satisfaction or waiver of the conditions set forth in Article IX, at the offices
of Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston, Massachusetts,
unless another date, time or place is agreed to in writing by the parties
hereto.
2.02. Effective Time. As promptly as practicable after the satisfaction
or waiver of the conditions set forth in Article IX, the parties hereto shall
cause the Merger to be consummated by filing a certificate of merger as
contemplated by Section 251 of Delaware Law (the "Certificate of Merger"),
together with any required related certificates, with the Secretary of State of
the State of Delaware, in such form as required by, and executed in accordance
with the relevant provisions of, Delaware Law (the time of such filing being the
"Effective Time").
2.03. Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
2.04. Certificate of Incorporation; By-Laws.
(a) Certificate of Incorporation. Unless otherwise determined by the
Buyer prior to the Effective Time, at the Effective Time, the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by Delaware Law and such Certificate of
Incorporation; provided, however, that Article I of the Certificate of
Incorporation of the Surviving Corporation shall be amended to read as follows:
"FIRST: The name of the corporation is "FreeLoader, Inc."
<PAGE>
-6-
(b) By-Laws. The By-Laws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the By-Laws of the Surviving Corporation
until thereafter amended as provided by Delaware Law, the Certificate of
Incorporation of the Surviving Corporation and such By-Laws.
2.05. Directors and Officers The directors of Merger Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of the
Merger Subimmediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
2.06. Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the Buyer, Merger Sub, the Company
or the holders of any of the following securities:
(a) Conversion of Securities. Each Share issued and outstanding (or
issuable pursuant to outstanding Company Options and the Company's outstanding
common stock purchase warrant) immediately prior to the Effective Time
(excluding any Dissenting Shares (as defined in Section 2.09)) shall be valued
at $2.5450 per Share and shall be converted into the right to receive .1305
shares of validly issued, fully paid and nonassessable shares of Buyer Stock,
(the ratio of such number of shares of Buyer Stock for each Share hereinafter
referred to as the "Exchange Ratio"); provided, however, that if the Company
shall have issued Company Options to purchase up to 200,000 Shares to a newly-
hired vice president of software prior to the Effective Time, each such Share
shall be valued at $2.5265 and the Exchange Ratio shall be .1296.
(b) Cancellation. Each Share held in the treasury of the Company and
each Share owned by the Buyer, Merger Sub or any direct or indirect wholly-owned
subsidiary of the Company or the Buyer immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist.
(c) Assumption of Stock Options. All options to purchase Company
Common Stock then outstanding under the Company Stock Option Plan (as defined in
Section 7.04) shall be assumed by the Buyer in accordance with Section 7.04.
(d) Exercise of Warrant. The Company's outstanding Common Stock
Purchase Warrant shall be automatically exercised in full according to its terms
immediately prior to the Effective Time.
(e) Capital Stock of Merger Sub. Each share of Common Stock, $0.01
par value per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of Common Stock, no par value, of the
Surviving Corporation. Each stock certificate of Merger
<PAGE>
-7-
Sub evidencing ownership of any such shares shall continue to evidence ownership
of such shares of capital stock of the Surviving Corporation.
(f) Fractional Shares. No fraction of a share of Buyer Stock will be
issued, but, except as provided in Section 7.04, in lieu thereof each holder of
Company Common Stock who would otherwise be entitled to a fraction of a share of
Buyer Stock (after aggregating all fractional shares of Buyer Stock to be
received by such holder) shall receive from the Buyer an amount of cash (rounded
to the nearest whole cent), without interest, equal to the product of (i) such
fraction, multiplied by (ii) the Fair Market Value of Buyer Stock.
2.07. Escrow Agreement. At the Closing (and thereafter, in the case of
----------------
Escrow Shares resulting from the exercise of Company Options), Buyer will
deliver to the Escrow Agent certificates representing the Escrow Shares. The
Escrow Shares will be held in escrow by the Escrow Agent as collateral for the
indemnification obligations under Section 10.02 and pursuant to the provisions
of the Escrow Agreement. The Escrow Shares will be represented by certificates
issued in the name of the Escrow Agent and will be held by the Escrow Agent from
the Closing until expiration of the Escrow Period. In the event that the Merger
is approved by the Company stockholders as provided herein, the Company
stockholders shall, without any further act of any Company stockholder, be
deemed to have consented to and approved (i) the use of the Escrow Shares as
collateral for the indemnification obligations under Section 10.02 and in the
manner set forth in the Escrow Agreement, (ii) the appointment of Frederick
Wilson as the representative of the Company stockholders (the "Representative")
--------------
under the Escrow Agreement and as the attorney-in-fact and agent for and on
behalf of each Company stockholder (other than holders of Dissenting Shares),
and the taking by the Representative of any and all actions and the making of
any decisions required or permitted to be taken by him under the Escrow
Agreement (including, without limitation, the exercise of the power to:
authorize delivery to Buyer of Escrow Shares in satisfaction of claims by Buyer;
agree to, negotiate, enter into settlements and compromises of and demand
arbitration and comply with orders of courts and awards of arbitrators with
respect to such claims; resolve any claim made pursuant to Section 10.02; and
take all actions necessary in the judgment of the Representative for the
accomplishment of the foregoing) and (iii) to all of the other terms, conditions
and limitations in the Escrow Agreement.
2.08. Exchange of Certificates.
(a) Exchange Agent. Immediately prior to the Effective Time, the
Buyer shall supply, or shall cause to be supplied, to or for the account of a
bank or trust company designated by the Buyer, which may be the Buyer's transfer
agent (the "Exchange Agent"), in trust for the benefit of the holders of Company
Common Stock (other than Dissenting Shares), for exchange in accordance with
this Section 2.08, through the Exchange Agent, certificates evidencing the
shares of Buyer Stock issuable pursuant to Section 2.06 in exchange for
outstanding Shares plus cash in an amount sufficient for payment in lieu of
fractional shares as provided in Section 2.06(e).
<PAGE>
-8-
(b) Exchange Procedures. Promptly after the Effective Time, the Buyer
shall cause the Exchange Agent to mail to each holder of record of a certificate
or certificates which immediately prior to the Effective Time evidenced
outstanding Shares (other than Dissenting Shares) (the "Certificates") (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Exchange Agent and shall be in such form and have
such other provisions as the Buyer may reasonably specify) and (ii) instructions
to effect the surrender of the Certificates in exchange for the certificates
evidencing shares of Buyer Stock and, in lieu of any fractional shares thereof,
cash. Upon surrender of a Certificate for cancellation to the Exchange Agent
together with such letter of transmittal, duly executed, and such other
customary documents as may be required pursuant to such instructions, the holder
of such Certificate shall be entitled to receive in exchange therefor (A)
certificates evidencing that number of whole shares of Buyer Stock which such
holder has the right to receive in accordance with the Exchange Ratio in respect
of the Shares formerly evidenced by such Certificate less any Escrow Shares
----
attributable to such holder, (B) any dividends or other distributions to which
such holder is entitled pursuant to Section 2.08(c), and (C) cash in lieu of
fractional shares of Buyer Stock to which such holder is entitled pursuant to
Section 2.06(e) (the Buyer Stock, dividends, distributions and cash described in
this clause (C) being, collectively, the "Merger Consideration"), and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Shares which is not registered in the transfer records
of the Company immediately prior to the Effective Time, Buyer Stock and cash may
be issued and paid in accordance with this Article to a transferee if the
Certificate evidencing such Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer
pursuant to this Section 2.08(b) and by evidence that any applicable stock
transfer taxes have been paid. Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of the Company
Common Stock will be deemed from and after the Effective Time, for all corporate
purposes, other than the payment of dividends, to evidence the ownership of the
number of full shares of Buyer Stock into which such shares of the Company
Common Stock shall have been so converted and the right to receive an amount in
cash in lieu of the issuance of any fractional shares in accordance with Section
2.06.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time, with respect to
Buyer Stock with a record date after the Effective Time, shall be paid to the
holder of any unsurrendered Certificate until the holder of such Certificate
shall surrender such Certificate. Subject to applicable law, following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole shares of Buyer Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Buyer Stock.
(d) Transfers of Ownership. If any certificate for shares of Buyer
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
<PAGE>
-9-
exchange will have paid to the Buyer or any person designated by it any transfer
or other taxes required by reason of the issuance of a certificate for shares of
Buyer Stock in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of the Buyer or any
agent designated by it that such tax has been paid or is not payable.
(e) Withholding Rights. The Buyer, the Surviving Corporation and the
Exchange Agent shall be entitled to deduct and withhold from the Merger
Consideration otherwise payable pursuant to this Agreement to any holder of
Company Common Stock such amounts as the Buyer, the Surviving Corporation or the
Exchange Agent are required to deduct and withhold with respect to the making of
such payment under the Internal Revenue Code of 1986, as amended (the "Code") or
any provision of state, local, provincial or foreign tax law. To the extent
that amounts are so withheld, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the Shares in
respect of which such deduction and withholding was made by the Buyer or the
Exchange Agent.
2.09. Stock Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed, and there shall be no further registration
of transfers of the Company Common Stock thereafter on the records of the
Company.
2.10. Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of capital stock of the Company held by a holder who has exercised
dissenters' rights for such shares in accordance with Delaware Law and who, as
of the Effective Time, has not effectively withdrawn or lost such dissenters'
rights ("Dissenting Shares"), shall not be converted into or represent a right
to receive Merger Consideration pursuant to Section 2.06, but the holder thereof
shall only be entitled to such rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of subsection (a), if any holder of
Dissenting Shares shall effectively withdraw or lose (through failure to perfect
or otherwise) such holder's dissenters' rights, then, at the later of the
Effective Time or the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive the
Merger Consideration, without interest thereon, upon surrender of the
certificate or certificates representing such Dissenting Shares.
(c) The Company shall give the Buyer (i) prompt notice of any written
demands received by the Company for an appraisal of shares of capital stock of
the Company pursuant to Section 262 of Delaware Law, withdrawals of such
demands, and any other related instruments served pursuant to Delaware Law and
received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of the Buyer, voluntarily make any
payment with respect to any such demands or offer to settle or settle any such
demands.
2.11. No Further Ownership Rights in Company Common Stock. The Merger
Consideration delivered upon the surrender for exchange of Shares in accordance
with the terms
<PAGE>
-10-
hereof shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Shares, and there shall be no further registration of
transfers on the records of the Surviving Corporation of Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article II.
2.12. Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of Buyer
Stock as may be required pursuant to Section 2.06; provided, however, that the
Buyer may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against the Buyer or the Exchange Agent with respect to
the Certificates alleged to have been lost, stolen or destroyed.
2.13. Tax and Accounting Consequences. It is intended by the parties
hereto that the Merger shall constitute a reorganization within the meaning of
Section 368 of the Code.
2.14. Taking of Necessary Action; Further Action. Subject to the terms
and conditions herein, each of the Buyer, Merger Sub and the Company in good
faith will take all such commercially reasonable and lawful action as may be
necessary or appropriate in order to effectuate the Merger in accordance with
this Agreement as promptly as possible. If, at any time after the Effective
Time, any such further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS
Except as is otherwise set forth in the disclosure schedules attached
hereto, which disclosure schedules shall specifically identify or cross-
reference the paragraph or paragraphs of this Article III to which the
exceptions therein relate, the Company and the Stockholders (but only to the
extent that such representations and warranties are stated expressly to relate
to or to be made to the knowledge of the Stockholders) hereby jointly and
severally represent and warrant to the Buyer that:
3.01. Binding Effect. The Company and the Stockholders have full legal
--------------
right, power and authority to enter into this Agreement and the Ancillary
Agreements, to perform their obligations hereunder and thereunder, and to
consummate the transactions contemplated hereby
<PAGE>
-11-
and thereby. The execution and delivery of this Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions so
contemplated (other than the approval and adoption of the Merger by the holders
of at least a majority of the outstanding shares of the Company Common Stock
entitled to vote in accordance with Delaware Law and the Company's charter and
by-laws). The Board of Directors of the Company has determined that it is
advisable and in the best interest of the Company's stockholders for the Company
to enter into a business combination with the Buyer upon the terms and subject
to the conditions of this Agreement. This Agreement and the Ancillary
Agreements have been duly and validly executed and delivered by the Company and
the Stockholders, as applicable, and constitute the legal, valid and binding
obligation of the Company and the Stockholders, as the case may be, enforceable
against them in accordance with their respective terms.
3.02. Corporate Existence and Power. The Company is a corporation
-----------------------------
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, and has all corporate powers and authority and all
governmental licenses, authorizations, consents and approvals required to own,
lease and operate the properties it purports to own, operate or lease and to
carry on its business as now conducted. The Company is duly qualified to do
business as a foreign corporation in the District of Columbia and in each
jurisdiction where the character of the property owned or leased by it or the
nature of its activities make such qualification necessary, except for those
jurisdictions where the failure to be so qualified and in good standing would
not, individually or in the aggregate, have a Material Adverse Effect. The
Company has heretofore delivered to the Buyer true and complete copies of the
corporate charter and bylaws of the Company as currently in effect.
3.03. Governmental Authorization; Consents. (a) The execution, delivery
------------------------------------
and performance by the Company and the Stockholders of this Agreement and the
Ancillary Agreements requires no action by or in respect of, or filing with, any
governmental body, agency, official or authority (each a "Governmental
------------
Authority").
- ---------
(b) No consent, approval, waiver or other action by any Person under
any contract, agreement, indenture, lease, instrument or other document to which
the Company is a party or by which any of them is bound is required or necessary
for the execution, delivery and performance of this Agreement and each of the
Ancillary Agreements by the Company and the Stockholders or the consummation of
the transactions contemplated hereby and thereby, except for those consents,
approvals, waivers or other actions as shall have been obtained prior to the
Closing.
3.04. Non-Contravention. The execution, delivery and performance
-----------------
by the Company and the Stockholders of this Agreement and each of the Ancillary
Agreements and the consummation of the transactions contemplated hereby and
thereby do not and will not (i) contravene or conflict with the corporate
charter or bylaws of the Company, (ii) contravene or conflict with or constitute
a violation of any provision of any law, regulation, judgment,
<PAGE>
-12-
injunction, order or decree binding upon or applicable to the Company; (iii)
constitute a default under or give rise to any right of termination,
cancellation or acceleration of any right or obligation of the Company or to a
loss of any benefit to which the Company is entitled under any provision of any
agreement, contract or other instrument binding upon the Company or any permit
held by the Company or (iv) assuming the receipt of all required consents,
result in the creation or imposition of any Lien on any asset of the Company.
3.05. Capitalization. The authorized capital stock of the Company
--------------
consists of 6,000,000 shares of Preferred Stock, $.001 per share, of which
5,900,000 shares have been designated as Series A Preferred Stock, and
17,000,000 shares of Company Common Stock. As of the date hereof, there are
outstanding 5,500,001 shares of Series A Preferred Stock (which shares are
convertible into 5,500,001 shares of Company Common Stock) and 6,000,000 shares
of Company Common Stock. All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and non-
assessable and are not subject to any right of rescission. As of the date
hereof, there are outstanding options to purchase 2,150,000 shares of Company
Common Stock and a common stock purchase warrant to purchase 129,415 shares of
Company Common Stock, which is exercisable in full and will be automatically
exercised immediately prior to the Effective Time on the basis of a net exercise
(such that 103,940 shares of Company Common Stock will be issuable thereunder).
A complete and accurate list of the holders of all such outstanding shares of
Company Common Stock, Series A Preferred Stock, options and the common stock
purchase warrant is set forth in the Schedule 3.05 hereto. Except as set forth
-------------
in this Section, there are no outstanding (i) shares of capital stock, other
securities or phantom or other equity interests of the Company, (ii) securities
of the Company convertible into or exchangeable for shares of capital stock or
other securities of the Company or (iii) options, warrants or other rights to
acquire from the Company any capital stock, other securities or phantom or other
equity interests of the Company (the items in clauses (i), (ii) and (iii) being
referred to collectively as the "Company Securities"). There are no outstanding
------------------
obligations of the Company, actual or contingent, to issue or deliver or to
repurchase, redeem or otherwise acquire any Company Securities, except as
disclosed on Schedule 3.05 hereto.
-------------
3.06. Subsidiaries. The Company does not own, directly or indirectly,
------------
any capital stock or other equity ownership or proprietary interest in any
Subsidiary or other Person.
3.07. Financial Statements. The Company has previously furnished to
--------------------
the Buyer a true and complete copy of its unaudited Balance Sheet at April 30,
1996 and its statement of operations of the Company for the period from
inception through April 30, 1996 (as well as copies of the respective United
States federal and state income tax returns of the Company) (collectively, the
"Financial Statements," copies of which are attached hereto as Schedule 3.07).
-------------------- -------------
Each of the balance sheet and statement of operations included in the Financial
Statements has been prepared from the books and records of the Company and
fairly and accurately presents in all material respects the financial position
of the Company as of its date and the results of operations of the Company for
the periods therein set forth.
<PAGE>
-13-
3.08. Absence of Certain Changes. Except as set forth upon
--------------------------
Schedule 3.08 attached hereto, since the Balance Sheet Date, the Company
- -------------
has conducted its business in the ordinary course consistent with past
practices and there has not been:
(a) any Material Adverse Change or any event, occurrence, development
or state of circumstances or facts which could reasonably be expected to result
in a Material Adverse Change;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any Company Securities or any repurchase,
redemption or other acquisition by the Company of any outstanding shares of
capital stock or other securities of, or other ownership interests in, the
Company;
(c) any amendment of any outstanding security of the Company;
(d) any incurrence, assumption or guarantee by the Company of any
indebtedness for borrowed money;
(e) any creation or assumption by the Company of any Lien on any
asset;
(f) any making of any loan, advance or capital contribution to or
investment in any Person other than loans, advances or capital contributions
made in the ordinary course of business consistent with past practices;
(g) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company;
(h) any transaction or commitment made, or any contract or agreement
entered into, by the Company relating to its assets or business (including the
acquisition or disposition of any assets) or any relinquishment by the Company
of any contract or other right, other than transactions and commitments in the
ordinary course of business consistent with past practices and those
contemplated by this Agreement;
(i) any change in any method of accounting or accounting practice by
the Company; or
(j) any (i) grant of any severance or termination pay to any director,
officer or employee of the Company, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, officer or employee of the Company, (iii)
change in benefits payable under existing severance or termination pay policies
or employment agreements or (iv) change in compensation, bonus or other benefits
payable to directors, officers or employees of the Company, other than in the
ordinary course of business consistent with past practice or as specifically
contemplated by this Agreement.
<PAGE>
-14-
3.09. Property and Equipment. (a) The Company does not own any
----------------------
real property. The Company has good and marketable title to, or in the case of
leased property has valid leasehold interests in, all property and assets
(whether real or personal, tangible or intangible) reflected on the Balance
Sheet or acquired after the Balance Sheet Date, except for properties and assets
sold since the Balance Sheet Date in the ordinary course of business consistent
with past practices. None of such properties or assets is subject to any Liens,
except:
(i) Liens disclosed on the Balance Sheet;
(ii) Liens for purchase money security interests;
(iii) Liens for taxes not yet due or being contested in good
faith (and for which adequate accruals or reserves have been established on the
Balance Sheet); or
(iv) Liens which do not materially detract from the value of
such property or assets as now used, or materially interfere with any present or
intended use of such property or assets.
(b) There are no developments affecting any of such properties or
assets pending or, to the knowledge of the Company and/or any of the
Stockholders, threatened, which might materially detract from the value of such
property or assets, materially interfere with any present or intended use of any
such property or assets or materially adversely affect the marketability of such
properties or assets.
(c) The equipment owned by the Company has no material defects, is in
good operating condition and repair (ordinary wear and tear excepted), and is
substantially adequate for the uses to which it is being put.
(d) The assets owned or leased by the Company, or which it otherwise
has the right to use, constitute all of the assets held for use or used in
connection with the business of the Company and are generally adequate to
conduct such business as currently conducted.
3.10. No Undisclosed Material Liabilities. Except as set forth
-----------------------------------
in Schedule 3.10, there are no liabilities of the Company of any kind
-------------
whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise, and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a liability,
other than:
(a) liabilities disclosed or provided for in the Balance Sheet;
(b) liabilities incurred in the ordinary course of business consistent
with past practice since the Balance Sheet Date which in the aggregate are not
material to the Company; and
(c) liabilities which individually or in the aggregate do not have a
Material Adverse Effect.
<PAGE>
-15-
3.11. Litigation. There is no action, suit, investigation or proceeding
----------
(or any basis therefor) pending against, or to the knowledge of the Company
and/or any of the Stockholders threatened against or affecting, the Company or
any of its properties or the transactions contemplated hereby before any court
or arbitrator or any Governmental Authority, which action, suit, investigation
or proceeding would, if determined adversely to the Company, have a Material
Adverse Effect. To the knowledge of the Company and/or any of the Stockholders,
there is no such action, suit, investigation or proceeding challenging or
seeking to prevent, enjoin, alter or delay the transactions contemplated by this
Agreement.
3.12. Material Contracts. (a) Except for agreements, contracts, plans,
------------------
leases, arrangements or commitments (including oral agreements, contracts,
plans, leases, arrangements or commitments) disclosed in Schedule 3.12, the
Company is not a party to or subject to:
(i) any lease providing for annual rentals of $10,000 or more;
(ii) any contract for the purchase of materials, supplies,
goods, services, equipment or other assets providing for annual payments by the
Company of $10,000 or more;
(iii) any sales, distribution or other similar agreement
providing for the sale by the Company of materials, supplies, goods, services,
equipment or other assets providing for annual payments to the Company of
$10,000 or more;
(iv) any partnership, joint venture or other similar contract,
arrangement or agreement;
(v) any contract relating to indebtedness for borrowed money
or the deferred purchase price of property (whether incurred, assumed,
guaranteed or secured by any asset), except contracts relating to indebtedness
incurred in the ordinary course of business in an amount not exceeding $10,000;
(vi) any license agreement, franchise agreement or agreement in
respect of similar rights granted to or held by the Company;
(vii) any agency, dealer, sales representative or other similar
agreement;
(viii) any contract or agreement, or any judgment, decree or
order of any Governmental Authority, that prohibits, limits or materially
impairs the ability of the Company or any of the Stockholders to engage in any
line of business or with any Person or in any area or which would so prohibit,
limit or impair the freedom of the Company or any of the Stockholders after the
Effective Time;
<PAGE>
-16-
(ix) any agreement with any current or former consultant or
independent contractor engaged by the Company to perform product development,
engineering or other technical services;
(x) any contract or agreement relating to the bartering or other
non-monetary exchange of goods or services; or
(xi) any other contract or commitment that is material to the
Company.
(b) Each agreement, contract, plan, lease, arrangement and commitment
disclosed in any Schedule to this Agreement or required to be disclosed pursuant
to Section 3.12(a) is a valid and binding agreement of the Company and is in
full force and effect, and neither the Company, nor, to the knowledge of the
Company and/or any of the Stockholders, any other party thereto is in default in
any material respect under the terms of any such agreement, contract, plan,
lease, arrangement or commitment.
3.13. Insurance Coverage. Schedule 3.13 sets forth a complete
------------------ -------------
and correct list of, and true and complete copies of, all insurance policies and
fidelity bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company. To the knowledge of the
Company and/or any of the Stockholders and after due inquiry, there is no claim
by the Company pending under any of such policies or bonds as to which coverage
has been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums payable under all such policies and bonds have been paid and
the Company is otherwise in full compliance with the terms and conditions of all
such policies and bonds. Such policies of insurance and bonds (or other policies
and bonds providing substantially similar insurance coverage) have been in
effect since February 29, 1996 and remain in full force and effect. Neither the
Company nor any of the Stockholders knows of any threatened termination of, or
premium increase with respect to, any of such policies or bonds.
3.14. Compliance with Laws; Permits; No Defaults.
-------------------------------------------
(a) The Company is in compliance with all applicable laws, rules,
regulations, orders, judgments, awards and decrees, including, without
limitation, all federal, state and local laws relating to (i) the sale,
licensing, ownership or management of the Company's Intellectual Property, (ii)
employment practices, terms and conditions of employment and wages and hours,
and (iii) safety, health, environmental protection, toxic waste disposal and
other similar matters, except in any case or in the aggregate where such failure
to comply does not have a Material Adverse Effect.
(b) Schedule 3.14 correctly sets forth and describes each license,
-------------
franchise and permit, (each a "Permit") material to the business of the Company,
------
together with the name of the Governmental Authority issuing such license,
franchise or permit. Such licenses, franchises and permits are valid and in
full force and effect and none of such licenses, franchises or permits will be
terminated or impaired or become terminable as a result of the transactions
contemplated hereby.
<PAGE>
-17-
(c) The Company is not in default under, and no condition exists that
with notice or lapse of time or both would constitute a default under, (i) any
mortgage, loan agreement, indenture or evidence of indebtedness for borrowed
money or any other agreement or instrument to which the Company is a party or by
which the Company or any of its assets is bound or (ii) any judgment, order or
injunction of any court, arbitrator or Governmental Authority, in either case
which defaults or potential defaults individually or in the aggregate could
result in a Material Adverse Effect.
3.15. Finders' Fees. Except for Robertson Stephens & Co. LLP, there
-------------
is no investment banker, broker, "finder" or other intermediary which has been
retained by or is authorized to act on behalf of the Company and/or the
Stockholders who might be entitled to any fee or commission from the Buyer, the
Company, or any of their respective Affiliates upon consummation of the
transactions contemplated by this Agreement.
3.16. Intellectual Property. (a) Schedule 3.16(a) lists all
--------------------- ----------------
of the documented Intellectual Property as well as Intellectual Property
licensed by the Company to others. Unless otherwise indicated on Schedule
--------
3.16(a), the Company owns the entire right, title and interest in and to the
- -------
Intellectual Property (including, without limitation, the exclusive and
unrestricted right to use and license the same) and is not contractually
obligated to pay any compensation or other amount to any third party in respect
thereof. Each item constituting part of the Intellectual Property which is owned
by the Company, to the extent indicated on Schedule 3.16(a), has been duly
----------------
registered with, filed in or issued by, as the case may be, the United States
Patent and Trademark Office or such other government entities, domestic or
foreign, as are indicated on Schedule 3.16(a), and such registrations, filings
----------------
and issuances remain in full force and effect.
(b) Schedule 3.16(a) also identifies all of the Intellectual Property
----------------
used by the Company in its business which is owned or controlled by any
shareholder, director, officer or employee of the Company. The Company will
cause full right, title and interest in any such Intellectual Property to be
duly and effectively transferred to the Company as of or prior to the Effective
Time, and no royalties will be due and payable by the Company or the Buyer with
respect to such Intellectual Property.
(c) Except as set forth on Schedule 3.16(c), all current and former
----------------
employees and consultants of the Company have entered into non-disclosure and
assignment of inventions agreements with the Company relating to Intellectual
Property, substantially in the form of the agreements attached to Schedule
--------
3.16(c) and previously furnished to the Buyer.
- -------
(d) There are no pending or, to the knowledge of the Company and/or
any Stockholder, threatened proceedings, litigation or other adverse claims
affecting or with respect to any part of the Intellectual Property, and, to the
knowledge of the Company and/or any Stockholder, no Person is infringing the
Intellectual Property. The Intellectual Property comprises all such rights
necessary to permit the operation of the business of the Company in all material
respects as now being conducted. None of the Intellectual Property is subject
to any
<PAGE>
-18-
outstanding order, decree, judgment, stipulation, lien, charge, encumbrance or
attachment known to the Company and/or any Stockholder.
(e) Schedule 3.16(e) lists all notices or claims (whether written or
----------------
oral) received by the Company which claim infringement, violation or breach by
the Company of any domestic or foreign letters patent, patents, and patent
licenses; software and software licenses; know-how and know-how licenses; trade
secrets and trade secret licenses; proprietary (including "confidential")
information and proprietary information licenses; common law trademarks;
trademarks and registrations therefor; service marks and registrations therefor;
trade names and registrations therefor; common law copyrights; and copyrights
and registrations therefor; and all other technical or technological information
or rights of every nature, owned or controlled by parties other than the Company
or any of their respective directors, officers and employees (collectively,
"Others' Intellectual Property"). To the knowledge of the Company and/or any of
- ------------------------------
the Stockholders, except as set forth on Schedule 3.16(e), neither the Company
----------------
nor any of the Stockholders infringes, violates or is in breach of any part of
Others' Intellectual Property which will, individually or in the aggregate, have
a Material Adverse Effect. The execution, delivery and performance by the
Company and the Stockholders of this Agreement and each of the Ancillary
Agreements and the consummation of the transactions contemplated hereby and
thereby and the Buyer's ownership and usage of the Intellectual Property as
presently used after the Effective Time will not infringe, violate or breach any
part of Others' Intellectual Property.
3.17. Taxes. (a) The term "Taxes" as used herein means all federal,
----- -----
state, local, foreign and other net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease,
service, service use, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, windfall profits, customs duties,
unemployment insurance, environmental, worker's compensation, Pension Benefit
Guaranty Corporation premiums and all other taxes, fees, assessments or other
charges of any kind similar to Taxes, together with any interest and any
penalties, additions to tax or additional amounts with respect thereto, and the
term "Tax" means any one of the foregoing taxes. The term "Returns" as used
--- -------
herein means all returns, declarations, reports, statements and other documents
required to be filed in respect of Taxes, including information returns or
reports with respect to backup withholding and other payments to third parties,
and "Return" means any one of the foregoing returns. All citations to the Code,
------
or the Treasury Regulations promulgated thereunder, shall include any amendments
or any substitute or successor provisions thereto. The Representations and
Warranties contained in this Section 3.17 shall pertain to the period from the
Company's inception up to and including the Effective Time.
(b) Except as disclosed on Schedule 3.17 hereto, the Company has filed
-------------
all material Returns required to be filed by or on its behalf on a timely basis
and such Returns are true, complete and correct in all material respects. None
of the Returns filed or required to be filed by the Company contains or will
contain a disclosure statement under Section 6661 of the Code or any similar
provision of any state, local or foreign law.
(c) All Taxes shown to be payable by the Company on the Returns or on
subsequent assessments with respect thereto have been paid in full on a timely
basis, and no
<PAGE>
-19-
other Taxes are payable by the Company with respect to items or periods covered
by such Returns (whether or not shown on or reportable on such Returns) or with
respect to any period ending on or prior to the Effective Time. The Company has
withheld and paid over all Taxes required to have been withheld and paid over by
it, and complied in all material respects with all information reporting and
backup withholding requirements, including maintenance of required records with
respect thereto, in connection with amounts paid or owing to any employee,
creditor, independent contractor or other third party. There are no Liens on any
of the assets of the Company with respect to Taxes, other than Liens for Taxes
not yet due and payable or for Taxes that the Company is contesting in good
faith through appropriate proceedings and for which appropriate reserves have
been established, which reserves are fully reflected in the Financial
Statements.
(d) The amount of the Company's liability for unpaid Taxes for all
periods covered by the Balance Sheet does not, in the aggregate, exceed the
amount of the net current liability accruals for Taxes set forth on the Balance
Sheet and the Company will incur no additional material taxes subsequent to the
Balance Sheet Date until the Effective Time except in the ordinary course of
business.
(e) No issues have been raised (and are currently pending) by any
taxing authority in connection with any of the Returns of the Company. No
waivers of statutes of limitation with respect to any of the Returns have been
given by or requested from the Company. All deficiencies asserted or
assessments made as a result of any examinations have been fully paid, or are
fully reflected as a liability in the Financial Statements, or are being
contested and an appropriate reserve therefor has been established and is fully
reflected in the Financial Statements. All material elections with respect to
Taxes affecting the Company, as of the date hereof, are set forth in the
Returns, other than any such elections which are not required to be included in
the Returns, copies of which have been made available to Buyer. The Company is
not a party to any agreement, contract, arrangement or plan that has resulted or
would result, separately or in the aggregate, in the payment of (i) any "excess
parachute payments" within the meaning of Section 280G of the Code (without
regard to the exception in Sections 280G(b)(4) and 280G(b)(5) of the Code) or
(ii) any other amount for which a deduction would be disallowed under Section
162(m) of the Code, except as may be contemplated by this Agreement or any
Ancillary Agreement. The Company has not agreed to make any adjustment under
Section 481(a) of the Code by reason of a change in accounting method or
otherwise, and the Company will not be required to make any such adjustment as a
result of the acquisition of the Shares by the Buyer. The Company has not and
has not had a permanent establishment in any foreign country, as defined in any
applicable tax treaty or convention between the United States of America and
such foreign country. The Company is not a party to any safe harbor lease within
the meaning of Section 168(f)(8) of the Code, as in effect prior to amendment by
the Tax Equity and Fiscal Responsibility Act of 1982. The Company is not and has
not ever been, a "United States real property holding corporation" within the
meaning of Section 897(c)(2) of the Code. None of the Stockholders is a
"foreign person" as that term is defined in Section 1445 of the Code. The
Company is not (and has not ever been) a party to a tax-sharing agreement and
has not assumed the liability of any other Person, for Taxes under contract. The
Company has not ever been a member of a group of corporations filing a
consolidated, unitary or combined Return.
<PAGE>
-20-
The Company has not taken any action that would have the effect of deferring any
material liability for Taxes for the Company from any taxable period ending at
or before the Effective Time to any taxable period thereafter. No consent has
been filed under Section 341(f) of the Code with respect to the Company. The
Company has not participated in or cooperated with any international boycott
within the meaning of Section 999 of the Code. As of the Closing Date the
ability of the Company to use its net operating loss and other carryovers will
not have been affected by Sections 382, 383 or 384 of the Code (other than as a
result of the Merger). Each Company Option (as defined in Section 7.04 below)
qualified, when granted, was an incentive stock option within the meaning of
Section 422 of the Code.
3.18. Employees. Schedule 3.18 sets forth a true and complete list of
--------- -------------
(a) the names, titles, annual salaries and other compensation of all
employees of the Company (the "Employees") and the location at which such
---------
Employees regularly perform services for the Company and (b) the wage rates for
non-salaried Employees of the Company (by classification). Any agreements,
commitments or understandings between the Company and any Employee concerning
such Employee's future salary, compensation or terms of employment are described
in Schedule 3.18. None of such Employees has indicated to the Company that he
-------------
intends to resign or retire as a result of the transactions contemplated by this
Agreement or otherwise. The Company has no employees represented by a union and
the Company (i) to its knowledge, is in compliance with all applicable laws and
regulations respecting employment wages and laws and (ii) is not engaged in any
unfair labor practice.
3.19. Transactions with Affiliates. Except as set forth in
----------------------------
Schedule 3.19, there are no loans, leases, royalty agreements or other
- -------------
continuing transactions between the Company, on the one hand, and any Affiliate
of the Company, any of the Stockholders, any Affiliate of any Stockholder, or
any member of any Stockholder's family, on the other hand. To the knowledge of
the Company and/or any of the Stockholders, none of the officers or directors of
the Company (a) has any material direct or indirect interest in any entity which
does business with the Company; (b) has any direct or indirect interest in any
property, asset or right which is used by the Company in the conduct of its
business; or (c) has any contractual relationship with the Company other than
such relationships which occur from being an officer, director or stockholder of
the Company.
3.20. Other Information. None of the documents or information
-----------------
delivered to the Buyer in connection with the transactions contemplated by this
Agreement and the Ancillary Agreements contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained therein not misleading.
3.21. Option Plans. The Board of Directors of the Company has taken all
------------
necessary action (or refrained from taking action, where appropriate) under the
Company Stock Option Plans (as defined in Section 7.04) so that no Company
Options (or any portion thereof) will be accelerated or entitled to receive cash
or other property as a result of the consummation of the transactions
contemplated hereby, but instead shall be assumed as provided in Sections
2.06(c) and 7.04 hereof; provided, however, that the Board of Directors of the
Company may accelerate the vesting of the shares of Company Common Stock subject
to each Company Option effective
<PAGE>
-21-
at the Effective Time, subject to certain conditions upon the optionee
acceptable to the Buyer, as set forth in Schedule 7.04.
-------------
3.22. Vote Required. The affirmative vote of the holders of at least a
-------------
majority of the outstanding shares of Company Common Stock and two-thirds of the
outstanding shares of Series A Preferred Stock are the only votes of the holders
of any class or series of the Company's capital stock necessary to approve the
Merger.
3.23. Tax Opinion. The Company has been advised by Venture Law Group, A
-----------
Professional Corporation, that, subject to receipt of the Stockholder
certificates and the Company Certificate, they have no reason to believe that
they will not be in a position to deliver the tax opinion described in Section
9.03(j).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE BUYER
The Buyer hereby represents and warrants to the Company and the
Stockholders that:
4.01. Binding Effect. The Buyer has full legal right, power
--------------
and authority to enter into this Agreement and the Ancillary Agreements to be
executed by it, to perform its obligations hereunder and thereunder, and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement by the Buyer and the consummation by the Buyer of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action of the Buyer and no other corporate proceedings on
the part of the Buyer are necessary to authorize this Agreement or to consummate
the transactions so contemplated. The Board of Directors of the Buyer has
determined that it is advisable and in the best interest of the Buyer's
stockholders for the Buyer to enter into a business combination with the Company
upon the terms and subject to the conditions of this Agreement. This Agreement
and the Ancillary Agreements to be executed by the Buyer have been duly and
validly executed and delivered by the Buyer, and constitute the legal, valid and
binding obligation of the Buyer, enforceable against it in accordance with their
respective terms.
4.02. Corporate Existence and Power. The Buyer is a corporation duly
-----------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and has all corporate powers and authority and all governmental
licenses, authorizations, consents and approvals required to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as now conducted. The Buyer is duly qualified to do business as a
foreign corporation in the States of New York and California and the
Commonwealth of Massachusetts and in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities make such
qualification necessary, except for those jurisdictions where the failure to be
so qualified and in good standing would not, individually or in the aggregate,
have a Material Adverse Effect.
<PAGE>
-22-
4.03. Governmental Authorization. (a) The execution, delivery
--------------------------
and performance by the Buyer of this Agreement and each of the Ancillary
Agreements to be executed by it requires no action by or in respect of, or
filing with, any Governmental Authority, other than compliance with any
applicable requirements of the 1933 Act and United States state securities or
"Blue Sky" laws and compliance with any applicable requirements of the Nasdaq
Stock Market.
(a) Except for consents, approvals or waivers or other actions which
have been received by the Buyer or will be received by the Buyer prior to the
Effective Time, no consent, approval, waiver or other action by any Person under
any contract, agreement, indenture, lease, instrument or other document to which
the Buyer is a party or by which it is bound is required or necessary for the
execution, delivery and performance by the Buyer of this Agreement and each of
the Ancillary Agreements to be executed by the Buyer or the consummation of the
transactions contemplated hereby and thereby.
4.04. Non-Contravention. The execution, delivery and performance by
-----------------
the Buyer of this Agreement and each of the Ancillary Agreements to be executed
by it and the consummation of the transactions contemplated hereby and thereby
does not and will not (i) contravene or conflict with the corporate charter or
bylaws of the Buyer, (ii) assuming compliance with the matters referred to in
Section 4.03, contravene or conflict with any provision of any material law,
regulation, judgment, injunction, order or decree binding upon or applicable to
the Buyer, (iii) assuming receipt of all required consents, constitute a default
under or give rise to any right of termination, cancellation or acceleration of
any right or obligation of the Buyer or to a loss of any benefit to which the
Buyer is entitled under any provision of any agreement, contract or other
instrument binding upon the Buyer or any permit held by the Buyer or (iv)
assuming the receipt of all required consents, result in the creation or
imposition of any Lien on any asset of the Buyer.
4.05. Finders' Fees. There is no investment banker, broker, "finder" or
-------------
other intermediary which has been retained by or is authorized to act on behalf
of the Buyer who might be entitled to any fee or commission from the
Stockholders, the Company or any of their respective Affiliates upon
consummation of the transactions contemplated by this Agreement.
4.06. Capitalization. The authorized share capital of the Buyer
--------------
consists of (i) 25,000,000 million shares of Common Stock, $.01 par value per
share, and (ii) 1,000,000 shares of Preferred Stock (the "Preferred Stock"). As
of May 15, 1996, there were outstanding 12,401,306shares of Buyer Stock and no
shares of Preferred Stock. Except for outstanding stock options and warrants to
acquire up to 4,996,094 shares of Buyer Stock, as of May 15, 1996 there were no
outstanding (i) shares of capital stock, other securities or phantom or other
equity interests of the Buyer, (ii) securities of the Buyer convertible into or
exchangeable for shares of capital stock or other securities of the Buyer or
(iii) options, warrants or other rights to acquire from the Buyer any capital
stock, other securities or phantom or other equity interests of the Buyer. As of
the date hereof, there are no outstanding obligations of the Buyer to issue or
deliver any securities of the Buyer other than pursuant to this Agreement and
pursuant to the outstanding stock options and warrants described in the
preceding sentence.
<PAGE>
-23-
4.07. Purchase for Investment. The Buyer is purchasing the Shares
-----------------------
for investment for its own account and not with a view to, or for sale in
connection with, any distribution thereof; provided, however, that the
-------- -------
disposition of the Buyer's property shall at all times remain within the sole
control of the Buyer.
4.08. Litigation. There is no action, suit, investigation or
----------
proceeding (or any basis therefor) pending against, or to the knowledge of the
Buyer threatened against or affecting, the Buyer or any of its properties or the
transactions contemplated hereby before any court or arbitrator or any
Governmental Authority. To the knowledge of the Buyer, there is no such action,
suit, investigation or proceeding challenging or seeking to prevent, enjoin,
alter or delay the transactions contemplated by this Agreement.
4.09. SEC Reports. The Buyer has previously furnished to the
-----------
Company true and correct copies of its (i) Prospectus dated March 15, 1996
relating to the initial public offering of Buyer Stock; (ii) its Quarterly
Report on Form 10-Q for the first quarter of 1996, and (iii) all other reports
and registration statements filed by the Buyer with the United States Securities
and Exchange Commission (the "SEC") under the 1934 Act and the 1933 Act, all in
---
the form as so filed (collectively, the "SEC Reports"). As of their respective
-----------
dates, the SEC Reports did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the audited consolidated financial statements and
unaudited interim financial statements included in the SEC Reports has been
prepared in accordance with GAAP (except as may be indicated therein or in the
notes thereto) and fairly presents the consolidated financial position of the
Buyer as at its date or the results of operations, stockholders equity or cash
flows, subject to normal year-end adjustments and any other adjustments
described therein. Since the date of the most recent SEC Report, the Company has
not incurred any Material Adverse Change.
ARTICLE V
COVENANTS OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders agree that:
5.01. Conduct of the Company"5.01. Conduct of the Company" . From the
------------------------------------------------------
date hereof until the Effective Time, the Company and the Stockholders shall,
and the Stockholders shall cause the Company to, conduct its businesses in the
ordinary course consistent with past practices and to use their best efforts to
preserve intact its business organizations and relationships with third parties
and to keep available the services of its present officers and employees.
Without limiting the generality of the foregoing, from the date hereof until the
Effective Time, the Company and the Stockholders will not, and the Stockholders
will not permit the Company, without the prior written consent of the Buyer, to:
<PAGE>
-24-
(a) adopt or propose any change in its corporate charter or bylaws;
(b) merge or consolidate with any other Person or acquire a material
amount of assets or share capital of any other Person;
(c) sell, lease, license or otherwise dispose of any material assets
or property or enter into any distribution agreement with respect to any of its
products except (i) pursuant to existing contracts or commitments and (ii) in
the ordinary course consistent with past practices;
(d) effect any direct or indirect redemption, purchase or other
acquisition of any Company Securities, or declare, set aside or pay any dividend
or make any other distribution of assets of any kind whatsoever with respect to
any Company Securities;
(e) issue any Company Securities, except that the Company may grant to
-----------
a newly-hired vice president of software stock options to purchase up to an
aggregate of 200,000 shares of Company Common Stock (all of which options
described in this paragraph (e) shall vest in not less than 36 equal monthly
installments and all of which options shall constitute Company Options to be
assumed by the Buyer pursuant to Section 7.04 hereof);
(f) enter into any license agreement in the ordinary course of
business in which the Company is either a licensor or licensee or any OEM,
distributor, or other reseller agreement;
(g) enter into any agreements or commitments involving expenditures by
the Company in excess of $50,000 singly or $100,000 in the aggregate, or incur
any liabilities, contingent or otherwise, in excess of $50,000 singly or
$100,000 in the aggregate; or
(h) agree or commit to do any of the foregoing.
Neither the Company nor any of the Stockholders will, and none of the
Stockholders will permit the Company to, (i) take or agree or commit to take any
action that would make any representation and warranty of the Company and/or any
of the Stockholders under this Agreement on the date of its execution and
delivery inaccurate in any respect at, or at any time prior to the Effective
Time or (ii) omit or agree or commit to omit to take any action necessary to
prevent any such representation or warranty from being inaccurate in any respect
at any such time.
5.02. Access to Information. From the date hereof until the Effective
---------------------
Time, the Company and the Stockholders shall, and the Stockholders shall cause
the Company, to (a) give the Buyer, its counsel, financial advisors, financing
sources, auditors and other authorized representatives full access to the
offices, properties, books and records of the Company, (b)
<PAGE>
-25-
furnish the Buyer, its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information relating to the Company as such Persons may reasonably request and
(c) instruct the employees, counsel and financial advisors of the Company to
cooperate with the Buyer in its investigation of the Company; provided that no
--------
investigation pursuant to this Section shall affect any representation or
warranty given by the Company and/or any of the Stockholders.
5.03. Notices of Certain Events. The Company and the Stockholders will,
-------------------------
and the Stockholders will cause the Company to, promptly notify the Buyer of:
(i) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement and/or the Ancillary Agreements;
(ii) any notice or other communication from any Governmental
Authority in connection with the transactions contemplated by this Agreement
and/or the Ancillary Agreements; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or involving or
otherwise affecting the Company and/or any of the Stockholders which are
required to be disclosed pursuant to Section 3.11.
5.04. No Negotiations with Third Parties. From the date hereof until
----------------------------------
the earlier of the Effective Time or the date which is 30 days after the date on
which this Agreement is terminated, none of the Stockholders, the Company nor
any of their respective Affiliates, agents or representatives, shall, directly
or indirectly, encourage, solicit or engage in any discussions or negotiations
with, or provide any information to, any Person or group concerning the possible
acquisition by such third party of all or any part of the business of the
Company, whether by purchase of assets, stock, merger or otherwise, other than
as contemplated or permitted by this Agreement. Each of the Company and the
Stockholders agrees to, and the Stockholders agree to cause the Company to,
promptly notify the Buyer of any indication of interest by any Person with
respect to any such possible transaction. Notwithstanding the foregoing, the
provisions of this Section 5.04 shall expire and be of no further force and
effect if this Agreement is terminated by both parties pursuant to Section
11.01(i), either party pursuant to Section 11.01(ii) or (iii) or by the Company
pursuant to Section 11.01(v).
5.05. Confidentiality. Prior to the Effective Time and after any
---------------
termination of this Agreement, the Company and the Stockholders will, and the
Stockholders will cause the Company and its Affiliates to hold, and use their
best efforts to cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning the
Buyer or any of its Affiliates furnished to the Stockholders, the Company or any
of their Affiliates in connection with the transactions contemplated by this
Agreement and the Ancillary Agreements, and (after the Effective Time) all
confidential documents and information concerning the Company, except
<PAGE>
-26-
to the extent that such information can be shown to have been (i) previously
known on a nonconfidential basis by the Company or such Stockholder, (ii) in the
public domain through no fault of the Company or the Stockholders or (iii) later
lawfully acquired by the Company or the Stockholders from sources other than the
Buyer; provided that the Company may disclose such information to its officers,
--------
directors, employees, accountants, counsel, consultants, advisors and agents in
connection with the transactions contemplated by this Agreement, and to its
stockholders in connection with any solicitation of such stockholders for the
purpose of seeking approval of the Merger, in each case so long as such Persons
are informed by the Company of the confidential nature of such information and
are directed by the Company to treat such information confidentially. The
obligation of the Stockholders, the Company and their Affiliates to hold any
such information in confidence shall be satisfied if they exercise the same care
with respect to such information as they would take to preserve the
confidentiality of their own similar information. If this Agreement is
terminated, the Company, the Stockholders and their respective Affiliates will,
and will use their best efforts to cause their respective officers, directors,
employees, accountants, counsel, consultants, advisors and agents to, destroy or
deliver to the Buyer, upon request, all documents and other materials, and all
copies thereof, obtained by the Stockholders, the Company, and/or their
Affiliates or on their behalf from the Buyer in connection with this Agreement
that are subject to such confidence. The terms of this Agreement and the
Ancillary Agreements shall be treated as confidential information of Buyer for
purposes of this Section.
5.06. Continuing Disclosure. The Company and the Stockholders shall
---------------------
have the continuing obligation promptly to advise the Buyer with respect to any
matter hereafter arising or discovered that, if existing or known at the date of
this Agreement, would have been required to be set forth or described in a
Schedule to this Agreement, or that constitutes a breach or prospective breach
of this Agreement by the Company and/or any of the Stockholders. The delivery of
any such notice shall not affect the Buyer's remedies hereunder, it being
understood by Buyer that disclosure by the Company or the Stockholders prior to
the time of Closing of any such matters, which matters are also set forth in an
exception to the certificate to be provided to Buyer pursuant to Section
9.02(a)(iii), shall be deemed to have been waived by Buyer if Buyer thereafter
consummates the Merger.
5.07. Stockholder Approval. The Company and the Stockholders shall
--------------------
promptly convene a duly and validly constituted meeting of the stockholders of
the Company, or prepare and circulate to the stockholders of the Company a
written consent in lieu of meeting, for the purposes of obtaining the approval
of the Merger by such stockholders in accordance with Delaware law and shall use
their respective best efforts to obtain such approval as promptly as possible
after the execution of this Agreement.
5.08. Approval of Parachute Payments. With respect to all payments that
------------------------------
would constitute "excess parachute payments" (within the meaning of Section 280G
of the Code) but for the exceptions set forth in Sections 280G(b)(4) and
280G(b)(5) of the Code, the Company shall obtain the shareholder approval
described in Section 280G(b)(5)(B) of the Code so that such payments will not be
nondeductible under Section 280G of the Code and will not be subject to the tax
imposed under Section 4999 of the Code.
<PAGE>
ARTICLE VI
COVENANTS OF THE BUYER
The Buyer agrees that:
6.01. Confidentiality. Prior to the Effective Time and after any
---------------
termination of this Agreement, the Buyer and its Affiliates will hold, and will
use their best efforts to cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning the
Company furnished to the Buyer or its Affiliates in connection with the
transactions contemplated by this Agreement and the Ancillary Agreements, except
to the extent that such information can be shown to have been (i) previously
known on a nonconfidential basis by the Buyer, (ii) in the public domain through
no fault of the Buyer or (iii) later lawfully acquired by the Buyer from sources
other than the Company; provided that the Buyer may such information to
--------
its officers, directors, employees, accountants, counsel, consultants, advisors
and agents in connection with the transactions contemplated by this Agreement so
long as such Persons are informed by the Buyer of the confidential nature of
such information and are directed by the Buyer to treat such information
confidentially. The obligation of the Buyer and its Affiliates to hold any such
information in confidence shall be satisfied if they exercise the same care with
respect to such information as they would take to preserve the confidentiality
of their own similar information. If this Agreement is terminated, the Buyer and
its Affiliates will, and will use their best efforts to cause their respective
officers, directors, employees, accountants, counsel, consultants, advisors and
agents to, destroy or deliver to the Company, upon request, all documents and
other materials, and all copies thereof, obtained by the Buyer or its Affiliates
or on their behalf from the Stockholders or the Company in connection with this
Agreement that are subject to such confidence.
6.02. Access. After the Effective Time, Buyer will afford promptly to
------
the Stockholders and their agents reasonable access to their properties, books,
records, employees and auditors to the extent necessary to permit the
Stockholders to determine any matter relating to their rights and obligations
hereunder or to any period ending prior to the Effective Time. The Stockholders
will hold, and will cause their accountants, counsel, consultants, advisors and
agents to hold, in confidence, unless compelled to disclose by judicial or
administrative process or by other requirements of law, all confidential
documents and information concerning the Company and the Subsidiaries provided
to them pursuant to this Section.
6.03. Documents to be Furnished. The Buyer shall furnish to
-------------------------
the Stockholders promptly after such documents are available to the Buyer's
stockholders all reports, statements, documents and other items the Buyer
delivers, or is required to deliver, to its stockholders prior to the Effective
Time.
<PAGE>
-28-
6.04. Establishment of Management Committee. Following the Effective
-------------------------------------
Time, the Buyer will establish a committee, which will consist of the
Stockholders, members of Buyer's management team and such other employees of the
Surviving Corporation as such members deem appropriate, for the purpose of
developing short- and long-term business planning, budgeting and strategic
direction for the business of the Surviving Corporation. The parties
acknowledge and agree, however, that decisions concerning the conduct of the
business of the Surviving Corporation will at all times be within the sole
discretion and authority of the Board of Directors of the Buyer.
6.05. Payment of Additional Merger Consideration. On the first business
------------------------------------------
day after the third anniversary of the Closing Date, Buyer shall pay to each of
the Stockholders additional merger consideration of $1,000,000 (the "Additional
Merger Consideration").
ARTICLE VII
COVENANTS OF ALL PARTIES
The parties hereto agree that:
7.01. Best Efforts. Subject to the terms and conditions of this
------------
Agreement, each party will use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary or desirable
under applicable laws and regulations to consummate the transactions
contemplated by this Agreement, including the seeking and obtaining of any
consents or approvals required to be obtained by it to consummate the
transactions contemplated hereby or by the Ancillary Agreements. Each of the
Company, the Stockholders and the Buyer agree, and the Stockholders, prior to
the Effective Time, and the Buyer, after the Effective Time, agree to cause the
Company to execute and deliver such other documents, certificates, agreements
and other writings and to take such other actions as may be necessary or
desirable in order to consummate or implement expeditiously the transactions
contemplated by this Agreement.
7.02. Certain Filings. The Company and the Buyer shall cooperate
---------------
with each other (a) in determining whether any action by or in respect of, or
filing with, any Governmental Authority is required, or any actions, consents,
approvals or waivers are required to be obtained from parties to any material
contracts, in connection with the consummation of the transactions contemplated
by this Agreement and the Ancillary Agreements and (b) in taking such actions or
making any such filings, furnishing information required in connection therewith
and seeking timely to obtain any such actions, consents, approvals or waivers.
7.03. Public Announcements. The parties agree to consult with
--------------------
each other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except as
may be required by applicable law or any listing agreement with any securities
exchange, will not issue any such press release or make any such public
statement prior to such consultation.
<PAGE>
-29-
7.04. Assumption of Company Stock Options.
-----------------------------------
(a) At the Effective Time, the Company's obligations with respect to
each outstanding option to purchase shares of Company Common Stock (each, a
"Company Option") under the Company's 1996 Stock Plan (the "Company Stock Option
Plan"), whether vested or unvested, will be assumed by the Buyer. Each Company
Option so assumed by the Buyer under this Agreement shall continue to have, and
be subject to, the same terms and conditions set forth in the Company Stock
Option Plan and agreement pursuant to which such Company Option was issued as in
effect immediately prior to the Effective Time, except that (i) such Company
Option will be exercisable for that number of shares of Buyer Stock equal to the
product of the number of shares of Company Common Stock that were purchasable
under such Company Option immediately prior to the Effective Time multiplied by
the Exchange Ratio, rounded down to the nearest whole number of shares of Buyer
Stock, (ii) the per share exercise price for the shares of Buyer Stock issuable
upon exercise of such assumed Company Option will be equal to the quotient
determined by dividing the exercise price per share of Company Common Stock at
which such Company Option was exercisable immediately prior to the Effective
Time by the Exchange Ratio, and rounding the resulting exercise price up to the
nearest whole cent, and (iii) such Company Options may be amended by the Board
of Directors of the Company to provide for accelerated vesting under certain
circumstances, as set forth in Schedule 7.04.
-------------
(b) It is the intention of the parties that the Company Options
assumed by the Buyer qualify following the Effective Time as incentive stock
options as defined in the Code ("ISO's") to the extent the Company Options
qualified as ISO's prior to the Effective Time.
(c) After the Effective Time, the Buyer will issue to each holder of
an outstanding Company Option a document evidencing the foregoing assumption by
the Buyer, substantially in the form set forth in Schedule 7.04.
-------------
(d) The Buyer will file a registration statement on Form S-8 with the
SEC covering the Company Options assumed by the Buyer under this Section not
later than June 15, 1996, which registration statement will include a resale
prospectus covering any Employee of the Company holding Company Options who is
deemed to be an affiliate of Buyer following the Merger.
ARTICLE VIII
EMPLOYEE BENEFITS
8.01. Employee Benefits Definitions. The following terms, as used
-----------------------------
herein, shall have the following meanings:
"Benefit Arrangement" means each employment, severance or other
-------------------
similar contract, arrangement or policy (written or oral) and each plan or
arrangement (written or oral) providing for severance benefits, insurance
coverage (including any self-insured arrangements),
<PAGE>
-30-
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits or for deferred compensation, profit-
sharing, bonuses, stock options, stock appreciation rights or other forms of
incentive compensation or post-retirement insurance, compensation or benefits
which (i) is not an Employee Plan, (ii) is entered into, maintained or
contributed to, as the case may be, by the Stockholders, the Company or any
Subsidiary or any of their Affiliates and (iii) covers any employee or former
employee of the Company or any of its Subsidiaries.
"Employee Plans" means each "employee benefit plan", as such term is
-------------- ---------------------
defined in Section 3(3) of ERISA, that (i) is subject to any provision of ERISA
and (ii) is maintained or contributed to by the Company, any Subsidiary or any
of their ERISA Affiliates, as the case may be.
"ERISA" means the Employment Retirement Income Security Act of 1974,
-----
as amended.
"ERISA Affiliate" of any entity means any other entity that, together
---------------
with such entity, would be treated as a single employer under Section 414 of the
Code.
"Multiemployer Plan" means each Employee Plan that is a multiemployer
------------------
plan, as defined in Section 3(37) of ERISA.
8.02. Employee Benefit Representations. The Company represents and
--------------------------------
warrants to the Buyer that:
(a) Schedule 8.02 lists each Employee Plan that covers any employee of
-------------
the Company or any of its Subsidiaries, copies or descriptions of all of which
have previously been made available or furnished to the Buyer. With respect to
each Employee Plan, the Company has provided the most recently filed Form 5500
and an accurate summary description of such plan. The Company has provided the
Buyer with complete age, salary, service and related data as of the most recent
practicable date for employees of the Company.
(b) Schedule 8.02 also includes a list of each Benefit Arrangement of
-------------
the Company, copies or descriptions of which have been made available or
furnished previously to the Buyer.
(c) None of the Employee Plans or other arrangements listed on
Schedule 8.02 covers any non-United States employee or former employee of the
- -------------
Company.
(d) No "prohibited transaction", as defined in Section 406 of ERISA or
----------------------
Section 4975 of the Code, has occurred with respect to any Employee Plan.
(e) No Employee Plan is a Multiemployer Plan and no Employee Plan is
subject to Title IV of ERISA. The Company and its Affiliates have not incurred
any liability
<PAGE>
-31-
under Title IV of ERISA arising in connection with the termination of any plan
covered or previously covered by Title IV of ERISA.
(f) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code. The Company has furnished to the
Buyer copies of the most recent Internal Revenue Service determination letters
with respect to each such plan. Each Employee Plan has been maintained in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, which are applicable to such plan.
(g) To the knowledge of the Company, each Employee Plan and each
Benefit Arrangement has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Benefit Arrangement.
(h) With respect to the employees and former employees of the Company,
there are no employee post-retirement medical or health plans in effect, except
as required by Section 4980B of the Code.
(i) All contributions and payments accrued under each Employee Plan
and Benefit Arrangement, determined in accordance with prior funding and accrual
practices, as adjusted to include proportional accruals for the period ending at
the Effective Time, will be discharged and paid prior to the Effective Time
except to the extent reflected on the Balance Sheet. Except as disclosed in
writing to the Buyer prior to the date hereof, there has been no amendment to,
written interpretation of or announcement (whether or not written) by the
Stockholders or any of their ERISA Affiliates relating to, or change in employee
participation or coverage under, any Employee Plan or Benefit Arrangement that
would increase materially the expense of maintaining such Employee Plan or
Benefit Arrangement above the level of the expense incurred in respect thereof
for the fiscal year ended prior to the date hereof.
(j) No tax under Section 4980B of the Code has been incurred in
respect of any Employee Plan that is a group health plan, as defined in Section
5000(b)(1) of the Code.
(k) No employee of the Company will become entitled to any bonus,
retirement, severance or similar benefit or enhanced benefit solely as a result
of the transactions contemplated hereby.
(l) The Company does not have, and is it not reasonably expected to
have, any liability under Title IV of ERISA.
<PAGE>
-32-
8.03. No Third Party Beneficiaries"8.03. No Third Party Beneficiaries" .
------------------------------------------------------------------
(a) No provision of this Article VIII shall create any third party
beneficiary or other rights in any employee or former employee (including any
beneficiary or dependent thereof) of the Company in respect of continued
employment (or resumed employment) with the Company and no provision of this
Article VIII shall create any such rights in any such Persons in respect of any
benefits that may be provided, directly or indirectly, under any Employee Plan
or Benefit Arrangement or any plan or arrangement that may be established by the
Buyer or any of its Affiliates. No provision of this Agreement shall constitute
a limitation on rights to amend, modify or terminate after the Effective Time
any Employee Plan or Benefit Arrangement.
(b) Notwithstanding the foregoing, Employees of the Company shall be
eligible following the Merger to participate in Employee Plans and Benefit
Arrangements of Buyer on the same basis as employees of Buyer generally,
including, to the extent permissible under the terms of such Employee Plan or
Benefit Arrangement, with full credit for employment with the Company for
purposes of eligibility and vesting.
ARTICLE IX
CONDITIONS TO THE MERGER
9.01. Conditions to the Obligations of Each Party. The respective
-------------------------------------------
obligations of each party to consummate the Merger are subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) No proceeding challenging this Agreement or the Ancillary
Agreements or the transactions contemplated hereby or thereby or seeking to
prohibit, alter, prevent or materially delay the Closing shall have been
instituted by any Person before any court, arbitrator or governmental body,
agency or official and be pending.
(b) All actions by or in respect of or filings with any Governmental
Authority required to permit the consummation of the Closing shall have been
obtained.
9.02. Conditions to Obligation of the Buyer. The obligation of the
-------------------------------------
Buyer to consummate the Merger is subject to the satisfaction of the following
further conditions:
(a)(i) The Company and the Stockholders shall have performed in all
material respects all of their obligations hereunder required to be performed as
of or prior to the Effective Time, (ii) the representations and warranties of
the Company and the Stockholders contained in this Agreement at the time of its
execution and delivery and in any certificate or other writing delivered by the
Company or the Stockholders pursuant hereto, shall be true and correct at and as
of the Effective Time, as if made at and as of such date and (iii) the Buyer
shall have received a certificate signed by the Company and the Stockholders to
the foregoing effect.
<PAGE>
-33-
(b) No court, arbitrator or governmental body, agency or official
shall have issued any order, and there shall not be any statute, rule or
regulation, restraining the effective operation by the Buyer of the business of
the Company after the Effective Time, and no proceeding challenging this
Agreement or the transactions contemplated hereby or seeking to prohibit, alter,
prevent or materially delay the Closing shall have been instituted by any Person
before any court, arbitrator or governmental body, agency or official and be
pending.
(c) The Buyer shall have received an opinion of Company Counsel, dated
the Closing Date, reasonably satisfactory to the Buyer and Buyer's Counsel
covering the matters set forth in Schedule 9.02(c).
----------------
(d) The Company shall have received and provided copies to Buyer of
all consents, authorizations or approvals from the Governmental Authorities
referred to in Section 3.03(a), in each case in form and substance reasonably
satisfactory to the Buyer, and no such consent, authorization or approval shall
have been revoked.
(e) The Buyer shall have received all other closing documents
specified in Section 2.02 of this Agreement, all in form and substance
reasonably satisfactory to the Buyer.
(f) Each of the Stockholders shall have executed and delivered to the
Buyer an Employment Agreement, a Stock Repurchase Agreement and a Noncompetition
Agreement.
(g) There shall have been no Material Adverse Change as of or prior to
the Effective Time.
(h) There shall be no action, suit, investigation or proceeding
pending or threatened against or affecting the Company or any Subsidiary or any
of their respective properties before any court, arbitrator or Governmental
Authority.
(i) The Company shall have delivered to the Buyer the resignations of
all officers and directors of the Company from their positions with the Company
at or prior to the Effective Time, unless otherwise specified by the Buyer.
(j) The Buyer shall have received the Escrow Agreement executed by the
Company, Frederick Wilson, as the Representative for all Company stockholders,
and the other parties thereto, providing for the escrow of the Buyer Stock.
(k) The Dissenting Shares shall not constitute more than 2% of the
total number of shares of Company Common Stock outstanding immediately prior to
the Effective Time.
(l) Any registration rights, rights of first refusal, rights to any
liquidation preference or redemption rights of any Company stockholder shall
have been terminated or irrevocably waived as of the Closing.
<PAGE>
-34-
(m) Each of the holders of outstanding Company Common Stock and Series
A Preferred Stock shall have executed and delivered to Buyer a Stockholder
Certificate in substantially the form attached hereto as Exhibit 7.
---------
(n) The Buyer shall have received a written fairness opinion (the
"Fairness Opinion") from Goldman, Sachs & Co. ("Goldman"), satisfactory to the
Board of Directors of the Buyer, that, in the opinion of Goldman, determined as
of the date of this Agreement based on the market conditions and other facts and
circumstances in effect as of such date, the terms of the Merger are fair to the
stockholders of the Buyer from a financial point of view; provided, however,
-----------------
that either party may terminate this Agreement prior to the Effective Time
pursuant to Article XI if the Fairness Opinion is not delivered to the Buyer on
or before 5:00 PM on the second full business day after the date of execution of
this Agreement.
9.03. Conditions to Obligation of the Company. The obligations of
---------------------------------------
the Company to consummate the Closing are subject to the satisfaction of the
following further conditions:
(a)(i) The Buyer shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) the representations and warranties of the Buyer contained
in this Agreement at the time of its execution and delivery and in any
certificate or other writing delivered by the Buyer pursuant hereto shall be
true and correct at and as of the Effective Time, as if made at and as of such
date and (iii) the Company shall have received a certificate signed by the
President and the Chief Financial Officer of the Buyer to the foregoing effect.
(b) No proceeding challenging this Agreement or the transactions
contemplated hereby or seeking to prohibit, alter, prevent or materially delay
the Closing shall have been instituted by any Person before any court,
arbitrator or governmental body, agency or official and be pending.
(c) The Company shall have received an opinion or opinions of Buyer's
Counsel, dated the Closing Date, reasonably satisfactory to the Company and
Company Counsel covering the matters set forth in Schedule 9.03(c).
----------------
(d) The Buyer shall have received all consents, authorizations or
approvals from the Governmental Authorities referred to in Section 4.03, in each
case in form and substance reasonably satisfactory to the Stockholders, and no
such consent, authorization or approval shall have been revoked.
(e) The Buyer shall have executed and delivered to the Stockholders
the Registration Rights Agreement.
<PAGE>
-35-
(f) There shall have been no material adverse change in the business,
assets, liabilities, condition (financial or otherwise) or results of operations
of the Buyer since the Balance Sheet Date.
(g) There shall be no action, suit, investigation or proceeding
pending or threatened against or affecting the Buyer or any of its properties
before any court, arbitrator or Government Authority.
(h) The Buyer shall have executed and delivered to each Stockholder an
Employment Agreement.
(i) The Company and the Stockholders shall have entered into the Risk
Sharing Agreement.
(j) The Company shall have received the opinion of Venture Law Group,
A Professional Corporation, to the effect that the Merger shall qualify as a
reorganization under the provisions of Section 368(a) of the Code.
ARTICLE X
SURVIVAL; INDEMNIFICATION
10.01. Survival. The covenants, agreements, representations and
--------
warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection herewith
shall survive the Closing until the expiration of the Escrow Period.
Notwithstanding the preceding sentence, any covenant, agreement, representation
or warranty in respect of which indemnity may be sought under Section 10.02
shall survive the time at which it would otherwise terminate pursuant to the
preceding sentence, if notice of the inaccuracy or breach thereof giving rise to
such right to indemnity shall have been given to the party against whom such
indemnity may be sought prior to such time.
10.02. Indemnification. (a) The Company stockholders will indemnify
---------------
the Buyer and, effective at and as of the Effective Time, without duplication,
the Company against, and hold them harmless from, any and all damage, loss,
liability and expense (including without limitation reasonable expenses of
investigation and reasonable attorneys' fees and expenses in connection with any
action, suit or proceeding) (collectively, "Loss") incurred or suffered by the
----
Buyer and the Company arising out of any misrepresentation or breach of
warranty, covenant or agreement made or to be performed by the Company or the
Stockholders pursuant to this Agreement; provided that (i) Buyer may not make
--------
any claims for Losses beyond the respective survival date set forth in Section
10.01 above; (ii) Buyer's sole recourse against such Company stockholders
(including the Stockholders) for indemnity and any breaches of representations
and warranties hereunder shall be for recovery of the Escrow Shares in
accordance with the Escrow Agreement; and (iii) the Company stockholders shall
not be liable under this Section 10.02(a) unless the aggregate amount of Loss
with respect to all claims for Loss brought pursuant to this Section (determined
without regard to any materiality qualification contained in any
representations,
<PAGE>
-36-
warranty or covenant giving rise to the claim for indemnity hereunder) exceeds
$75,000, and then, solely to the extent of such excess.
(b) The Buyer hereby indemnifies the Company stockholders against and
agrees to hold such stockholders harmless from any and all Loss incurred or
suffered by such stockholders arising out of any misrepresentation or breach of
warranty, covenant or agreement made or to be performed by the Buyer pursuant to
this Agreement (determined without regard to any materiality qualification
contained in any representation, warranty or covenant giving rise to claim for
indemnity hereunder); provided that (i) the Company stockholders may not make
any claims for Losses beyond the respective survival date set forth in Section
10.01 above; (ii) the sole recourse of the Company stockholders against the
Buyer for indemnity and any breaches of representations and warranties hereunder
shall in no event exceed $3,500,000; and (iii) the Buyer shall not be liable
under this Section 10.02(b) unless the aggregate amount of Loss with respect to
all claims for Loss brought pursuant to this Section (determined without regard
to any materiality qualification contained in any representations, warranty or
covenant giving rise to the claim for indemnity hereunder) exceeds $75,000, and
then, solely to the extent of such excess.
(c) The Buyer shall satisfy any claim for any Loss hereunder in
accordance with the terms and conditions of the Escrow Agreement.
10.03. Procedures; No Waiver. (a) The party seeking indemnification
---------------------
under Section 10.02 (the "Indemnified Party") agrees to give prompt notice
-----------------
to the party against whom indemnity is sought (the "Indemnifying Party")
------------------
of the assertion of any claim, or the commencement of any suit, action or
proceeding in respect of which indemnity may be sought under such Section. The
Indemnifying Party may, and at the request of the Indemnified Party shall,
participate in and control the defense of any third party suit, action or
proceeding at its own expense. The Indemnifying Party shall not be liable under
Section 10.02 for any settlement effected without its consent of any claim,
litigation or proceeding in respect of which indemnity may be sought hereunder.
(b) No waiver of a closing condition by either the Buyer or the
Stockholders shall limit its rights under Section 10.02.
ARTICLE XI
TERMINATION
11.01. Grounds for Termination. This Agreement may be terminated
-----------------------
at any time prior to the Effective Time:
(i) by mutual written agreement duly authorized by the Board of
Directors of the Buyer and the Company;
<PAGE>
-37-
(ii) by either the Buyer or the Company if the Merger shall not have
been consummated on or before June 30, 1996 (provided that the right to
terminate this Agreement under this subsection shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before such
date);
(iii) by either the Buyer or the Company if there shall be any law or
regulation that makes consummation of the transactions contemplated hereby
illegal or otherwise prohibited or if consummation of the transactions
contemplated hereby would violate any nonappealable final order, decree or
judgment of any court or Governmental Authority having competent jurisdiction;
(iv) by the Buyer in the event of a material breach by the Company
or the Stockholders of any of their covenants, representations or warranties set
forth herein and the Company or the Stockholders, as the case may be, fail to
cure such breach within 15 days of written notice of such material breach from
the Buyer;
(v) by the Company in the event of a material breach by the Buyer
of any of its covenants, representations or warranties set forth herein and the
Buyer fails to cure such breach within 15 days of written notice of such
material breach from the Company; or
(vi) by either the Buyer or the Company if the Buyer shall not have
received the Fairness Opinion satisfactory to Buyer's Board of Directors in
accordance with Section 9.02(n).
The party desiring to terminate this Agreement pursuant to clauses (ii),
(iii), (iv), (v) or (vi) shall give notice of such termination to the other
party.
11.02. Effect of Termination. If this Agreement is terminated as
---------------------
permitted by Section 11.01, such termination shall be without liability of any
party (or any shareholder, director, officer, employee, agent, consultant or
representative of such party) to the other parties to this Agreement; provided
--------
that if such termination shall result from the willful failure of any party to
fulfill a condition to the performance of the obligations of another party or
from the failure to perform a covenant of this Agreement or from a breach of any
representation or warranty by any party to this Agreement, such party shall be
fully liable for any and all damages incurred or suffered by the other party as
a result of such failure or breach. The provisions of Sections 5.05, 6.01, 7.03
and 12.03 shall survive any termination hereof pursuant to Section 11.01.
<PAGE>
-38-
ARTICLE XII
MISCELLANEOUS
12.01. Notices. All notices, requests and other communications to
-------
either party hereunder shall be in writing (including telecopy or similar
writing) and shall be given,
if to the Buyer, to:
Individual, Inc.
8 New England Executive Park W.
Burlington, MA 01803
Attention: President
Telecopy: (617) 273-6060
with a copy to:
William B. Asher, Jr., Esq.
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Telecopy: (617) 248-7100
if to the Company, to:
FreeLoader, Inc.
3299 K Street NW
Suite 300
Washington, DC 20007
Telecopy: (202) 686-0685
with a copy to:
Michael W. Hall, Esq.
Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, CA 94025
Telecopy: (415) 233-8386
if to the Stockholders, to:
The Stockholders at the addresses set forth
on the signature pages hereto.
<PAGE>
-39-
12.02. Amendments; No Waivers. (a) Any provision of this Agreement
----------------------
may be amended or waived prior to the Effective Time if, and only if, such
amendment or waiver is in writing and signed by all of the parties hereto.
(b) No failure or delay by either party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
12.03. Expenses. All costs and expenses incurred in connection with
--------
this Agreement shall be paid by the party incurring such cost or expense (except
as otherwise expressly set forth in the Escrow Agreement).
12.04. Successors and Assigns. The provisions of this Agreement
----------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign,
--------
delegate or otherwise transfer any of his or its rights or obligations under
this Agreement without the consent of the other parties hereto, except that the
Buyer may transfer or assign, in whole or from time to time in part, to one or
more of its Affiliates, the Shares or the right to purchase all or a portion of
the Shares, but no such transfer or assignment will relieve the Buyer of its
obligations hereunder.
12.05. Further Assurances. From time to time after the Closing, at
------------------
the request of a party hereto and without further consideration, the other party
will execute and deliver to such requesting party such other documents, and take
such other action, as such party may reasonably request in order to consummate
more effectively the transactions contemplated hereby and to vest in the Buyer
good, valid and marketable title to the Shares, or to vest in the Stockholders
good, valid and marketable title to the shares of Buyer Stock, as the case may
be.
12.06. Governing Law. This Agreement shall be construed in accordance
-------------
with and governed by the laws of the State of Delaware, without regard to the
conflicts of law rules of such State.
12.07. Counterparts; Effectiveness. This Agreement may be signed
---------------------------
in any number of counterparts, each of which shall be an original, but all of
which taken together shall constitute the same instrument with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received a
counterpart or counterparts hereof signed by the other parties hereto.
12.08. Entire Agreement. This Agreement and the Ancillary Agreements
----------------
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter hereof, except, with respect to any provision of this
------
Agreement,
<PAGE>
-40-
as may be otherwise agreed to in any of the Ancillary Agreements provided that
specific reference is made in such Ancillary Agreements to the affected Section
or provision of this Agreement. No representation, inducement, promise,
understanding, condition or warranty not set forth herein has been made or
relied upon by either party hereto. Neither this Agreement nor any provision
hereof is intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder.
12.09. Captions. The captions herein are included for convenience of
--------
reference only and shall be ignored in the construction or interpretation
hereof.
12.10. Jurisdiction. Any action or proceeding seeking to enforce any
------------
provision of, or based on any right arising out of, this Agreement may be
brought against any of the parties in the federal or state courts of The
Commonwealth of Massachusetts, and each of the parties hereby consents to the
jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any such action or proceeding may be served on any party anywhere in
the world, whether within or without The Commonwealth of Massachusetts.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-41-
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
INDIVIDUAL, INC.
By:
------------------------------------
Name:
Title:
FL MERGER CORP.
By:
------------------------------------
Name:
Title:
FREELOADER, INC.
By:
------------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ Mark J. Pincus
---------------------------------------
Mark J. Pincus
/s/ Sunil Paul
---------------------------------------
Sunil Paul
<PAGE>
Exhibits and schedules omitted here. The Company will furnish
supplementally to the Commission upon request a copy of any omitted exhibit or
schedule.
<PAGE>
EXHIBIT 99.1
------------
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
---------
into as of June 28, 1996 by and among Individual, Inc., a Delaware corporation
("Individual" or the "Company"), and certain stockholders of FreeLoader, Inc., a
---------- -------
Delaware corporation ("FreeLoader") listed on the signature pages hereto
----------
(collectively the "Stockholders" and individually a "Stockholder").
------------ -----------
RECITALS
A. The Company, FL Acquisition Corp., a Delaware corporation and wholly-
owned subsidiary of Individual (the "Purchaser"), FreeLoader, and the
---------
Stockholders are parties to an Agreement and Plan of Reorganization (the "Merger
------
Agreement") pursuant to which Individual will acquire FreeLoader through a
- ---------
merger of Purchaser with and into FreeLoader in which shares of Common Stock of
Individual, $.01 par value per share (the "Individual Common Stock"), will be
-----------------------
issued to the Stockholders as set forth in the Merger Agreement.
B. The execution and delivery of this Agreement by the parties hereto is a
condition precedent to the obligations of the parties under the Merger
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties hereto agree as follows:
1. Definitions
For the purposes of this Agreement, the following terms have the meanings
indicted below:
1933 Act. The Securities Act of 1933, as amended, and the rules and
--------
regulations promulgated thereunder, as in effect from time to time
1934 Act. The Securities Exchange Act of 1934, as amended, and the
--------
rules and regulations promulgated thereunder, as in effect from time to time.
Business Day. Each weekday that is not a day on which banking
------------
institutions in New York are authorized or obligated by law or executive order
to close.
Commission. The United States Securities and Exchange Commission.
----------
Holder. Any person owning Registrable Securities who is a party to
------
this Agreement, and any transferee thereof in accordance with Section 7 or 11 of
this Agreement.
<PAGE>
-2-
Prospectus. The prospectus included in any Registration Statement, as
----------
amended or supplemented by any prospectus supplement (including, without
limitation, any prospectus supplement with respect to the terms of the offering
of any portion of the Registrable Securities covered by such Registration
Statement), and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
Register, registration and registered. A registration effected by
-------------------------------------
preparing and filing a registration statement or similar document with the
Commission in compliance with the 1933 Act, and the declaration or ordering of
effectiveness of such registration statement or document.
Registrable Securities. The shares of Individual Common Stock issued
----------------------
to the Stockholders pursuant to the Merger Agreement or issued pursuant to
exercise of FreeLoader stock options assumed by Individual pursuant to the
Merger Agreement and any securities that may be issued by the Company or any
successor to the Company from time to time with respect to, in exchange for, or
in replacement of such shares of Individual Common Stock, including, without
limitation, securities issued as a stock dividend on or pursuant to a stock
split of such shares of Individual Common Stock; provided, however, that those
-----------------
shares as to which the following apply shall cease to be Registrable Securities:
(a) a Registration Statement with respect to the sale of such Registrable
Securities shall have become effective under the 1933 Act and such Registrable
Securities shall have been disposed of under such Registration Statement; (b)
such Registrable Securities shall have become transferable, or have become
eligible and remain eligible for transfer (whether or not so transferred), in
accordance with Rule 144(K), or any successor rule or provision, under the 1933
Act; (c) such Registrable Securities shall have been transferred in a
transaction in which the Holder's rights and obligations under this Agreement
were not assigned in accordance with this Agreement; or (d) such Registrable
Securities shall have ceased to be outstanding.
Registration Expenses. All expenses incident to the Company's
---------------------
performance of or compliance with Sections 2 and 4 hereof, including, without
limitation, all registration and filing fees (including filing fees with respect
to the Commission and to the National Association of Securities Dealers, Inc.
and listing fees of the Nasdaq National Market System), all fees and expenses of
complying with state securities or "blue sky" laws (including fees and
disbursements of underwriters' counsel in connection with any "blue sky"
memorandum or survey, but excluding any fees and expenses for foreign
qualification in such jurisdictions), all printing expenses, all registrars' and
transfer agents' fees and all fees and disbursements of the Company's counsel
and independent public accountants; provided, however, that Registration
-----------------
Expenses shall not include the fees and expenses of more than one counsel to the
holders of Registrable Securities, or underwriters' discounts or commissions
associated with the sale of the Registrable Securities.
<PAGE>
-3-
Registration Statement. A registration statement prepared and filed
----------------------
with the Commission in compliance with the 1933 Act.
Seller. Any person, including any Holder, participating in an
------
offering of any Registrable Securities of the Company pursuant to this
Agreement.
Selling Expenses. All applicable transfer taxes and any fees and
----------------
disbursements of more than one counsel or any accountants or other advisors for
the Sellers of the Registrable Securities being registered.
2. "Piggy-Back" Registration Rights
If at any time Individual shall determine to register in a public
offering under the 1933 Act any of its Common Stock for its own account, or the
account of other stockholders of the Company desiring to sell "restricted
securities" of the Company (as defined in Rule 144 of the 1933 Act), it shall
send to the Stockholders written notice of such determination and, if within 15
calendar days after receipt of such notice, any Stockholder shall so request in
writing, Individual shall include in such registration statement all or any part
of the Registrable Securities the Stockholder requests to be registered. This
right shall not apply to a registration of shares of Individual Common Stock on
Form S-8 or Form S-4 (or their then equivalents) relating to shares of
Individual Common Stock to be issued by Individual in connection with any
acquisition of any entity or business, or shares of Individual Common Stock
issuable in connection with any stock option, stock purchase plan or other
employee benefit plan.
If, in connection with any offering involving an underwriting of
Individual Common Stock to be issued for the account of the Company or selling
securityholders, the managing underwriter shall impose a limitation on the
number of shares of such Individual Common Stock which may be included in any
such registration statement because, in its judgment, such limitation is
necessary to effect an orderly public distribution of the Individual Common
Stock and to maintain a stable market for the securities of the Company, then
the Company shall be obligated to include in such registration statement only
such limited portion of the stock with respect to which the Stockholder has
requested inclusion hereunder, on a pro rata basis based on the number of shares
--------
of Common Stock originally requested for inclusion therein by the Company, the
Stockholders, and all other selling securityholders.
3. Shelf Registration
3.1 Undertaking to Register
As soon as practicable following the Effective Time (as that term is
defined in the Merger Agreement), Individual will use its best efforts to
prepare and file a registration statement under the Securities Act within 20
days following the date of the Merger to register
<PAGE>
-4-
all of the Registrable Securities for resale in the public market in brokerage
transactions or transactions with market makers, in block trades, and in
privately negotiated transactions.
3.2 Selling Procedures; Suspension
(a) Except in the event that paragraph (b) below applies, the Company
shall (i) if deemed necessary by the Company, prepare and file from time-to-time
with the Commission a post-effective amendment to the Registration Statement or
a supplement to the related Prospectus or a supplement or amendment to any
document incorporated therein by reference or file any other required document
so that such Registration Statement will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and so that, as
thereafter delivered to purchasers of the Registrable Securities being sold
thereunder, such Prospectus will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; (ii) provide the Holders of the Registrable
Securities copies of any documents filed pursuant to Section 3.2(a)(i); and
(iii) inform each Holder that the Company has complied with its obligations in
Section 3.2(a)(i) (or that, if the Company has filed a post-effective amendment
to the Registration Statement which has not yet been declared effective, the
Company will notify each such Holder to that effect, will use its best efforts
to secure the effectiveness of such post-effective amendment and will
immediately notify each such Holder pursuant to Section 3.2(a)(i) hereof when
the amendment has become effective).
(b) In the event (i) of any request by the Commission or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement for amendments or supplements to a Registration
Statement or related Prospectus or for additional information; (ii) of the
issuance by the Commission or any other federal or state governmental authority
of any stop order suspending the effectiveness of a Registration Statement or
the initiation of any proceedings for that purpose; (iii) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) of any event or circumstance which necessitates the making of any
changes in the Registration Statement or Prospectus, or any document
incorporated or deemed to be incorporated therein by reference, so that, in the
Registration Statement, it will not contain any untrue statement of a material
fact or any omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
any omission to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; or (v) that, in the good faith judgment of the
Company's Board of Directors, upon the advice of counsel, (A) the offering of
securities
<PAGE>
-5-
pursuant thereto would materially and adversely affect (i) a pending or
scheduled public offering or private placement of Individual's securities, (ii)
a pending or proposed acquisition, merger, consolidation, reorganization,
restructuring or similar transaction of or by Individual, (iii) bona fide
negotiations, discussions or proposals with respect to any of the foregoing, or
(iv) the position or strategy of Individual in connection with any pending or
threatened litigation, claim, assessment or government investigation and (B) in
the event sales of Registrable Securities were made under the Registration
Statement and disclosure of all material information with respect to the
applicable circumstance(s) described in subparagraph (A) had not been made, such
circumstances would cause a violation of the 1933 Act or the 1934 Act and result
in potential liability to Individual (each a "Suspension Event"); then, subject
to paragraph (d) below, the Company shall deliver a certificate in writing to
the Notice Holders (the "Suspension Notice") to the effect of the foregoing and,
-----------------
upon receipt of such Suspension Notice, each such Holder will refrain from
selling any Registrable Securities pursuant to the Registration Statement (a
"Suspension") until such Holder's receipt of copies of the supplemented or
- -----------
amended Prospectus provided for in Section 3.2(a)(i) hereof, or until it is
advised in writing by the Company that the Prospectus may be used, and has
received copies of any additional or supplemental filings that are incorporated
or deemed incorporated by reference in such Prospectus.
(c) In the event of any Suspension, or any delay in effecting the
Registration under Section 3.2 above, the Company will use its best efforts to
ensure that the use of the Prospectus so suspended or delayed may be commenced
or resumed, as the case may be, and that any Selling Period so suspended will
commence or resume, as the case may be, as soon as practicable and, in the case
of a pending development, filing or event referred to in Section 3.2(b)(iv) or
(v) hereof, as soon, in the judgment of the Company's Board of Directors (in
accordance with the provisions of Section 3.2), as disclosure of the material
relating to such pending development, filing or event would not have an adverse
effect on the Company's ability to consummate the transaction, if any, to which
such development, filing or event relates. Notwithstanding any other provision
of this Agreement, the Company shall have the right to cause a maximum of two
(2) Suspensions, neither of which may be within 30 days of the other, as
provided above (including for this purpose a delay in effecting the Registration
pursuant to Section 3.2 above) during any 12-month period after the initial
effective date of the Registration Statement, and the total number of days
during which any Suspension (including for this purpose a delay in effecting the
Registration Statement pursuant to Section 3.2 above) may be in effect shall not
exceed 20 days.
(d) The Company will use its best efforts to maintain the
effectiveness of any registration statement pursuant to which any of the
Registrable Securities are being offered for (i) up to 90 days, (or such shorter
period of time as the underwriters need to complete the distribution of the
registered offering in any Company-primary or secondary offering), in the case
of a registration pursuant to Section 2, or (ii) in the case of a "shelf"
registration statement pursuant to Section 3.1 until the earlier of (A) the
third anniversary of the Effective Time or
<PAGE>
-6-
(B) the date on which each Holder may sell all Registrable Securities then held
by such Holder without restriction by the volume limitations of Rule 144(e). The
Company from time to time will amend or supplement such registration statement
and the prospectus contained therein to the extent necessary to comply with the
1933 Act and any applicable state securities statue or regulation. The Company
will also provide each holder of Registrable Securities with as many copies of
the prospectus contained in any such registration statement as it may reasonably
request.
3.3 Underwriting Agreement
If in connection with any proposed distribution by the Stockholders
under the "piggy back" registration referred to in Section 2, the Company in its
discretion shall determine that it is in the best interests of the Company to
effect distribution by means of an underwriting, the Company shall promptly
notify the Stockholders of such determination. In such event, the right of any
Stockholder to participate in such distribution shall be conditioned upon such
Stockholder's participation in the underwriting arrangements required by this
Section 3.3, including without limitation, the requirement that the Stockholder
enter into an underwriting agreement and a lock-up agreement (for a period not
to exceed lesser period as shall apply to the directors and officers of the
Company), each in customary form with the managing underwriter selected for the
underwriting by the Company.
4. Volume Limitations
Notwithstanding any other provision of this Agreement, no Holder of
Registrable Securities shall dispose of Registrable Securities in any twelve-
month period in such a way as to result in the merger contemplated by the Merger
Agreement not qualifying as a tax-free reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended.
5. Expenses
The Company will pay all Registration Expenses in connection with the
registration of Registrable Securities effected by the Company pursuant to
Section 4. Holders of Registrable Securities registered pursuant to this
Agreement shall pay all Selling Expenses with each such Holder bearing a pro
rata portion of the Selling Expenses based upon the number of Registrable
Securities registered by each such Holder.
6. Expiration of Registration Rights
The obligations of the Company under Section 2 of this Agreement to
register the Registrable Securities shall expire and terminate at such time as
the Stockholder shall be entitled or eligible to sell all such securities
without restriction and without a need for the filing of a registration
statement under the Securities Act, including without limitation, for any
resales of restricted securities made pursuant to Rule 144(k) as promulgated by
the Securities and
<PAGE>
-7-
Exchange Commission. The determination as to whether the Stockholder is entitled
or eligible to sell all Registrable Securities without the need for registration
under the Securities Act shall be based on a written opinion of counsel that
registration of the Registrable Securities is not required under the Securities
Act, sufficient to permit the transfer agent to transfer such securities upon a
sale by the Stockholder. The obligations of the Company under Section 3 of this
Agreement shall expire at the time specified in Section 3.2(e)(ii).
7. Registration Procedures
In connection with the registration of Registrable Securities under this
Agreement, and subject to the other provisions of this Agreement, the Company
shall:
(a) use its best efforts to cause the Registration Statement filed in
accordance with Section 2 or Section 3 to become effective as soon as
practicable after the date of filing thereof;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep such Registration Statement continuously
effective for the shorter of (i) the duration of its registration obligations,
or (ii) until there are no Registrable Securities outstanding, and to comply
with the provisions of the 1933 Act with respect to the disposition of the
Registrable Securities;
(c) furnish to each Seller of such Registrable Securities such number
of copies of the Prospectus included in such Registration Statement as such
Seller may reasonably request in order to facilitate the sale or disposition of
such Registrable Securities;
(d) use its best efforts to register or qualify all securities covered
by such Registration Statement under such other securities or "blue sky" laws of
such jurisdictions as each Seller shall reasonably request, and do any and all
other acts and things that may be necessary to enable such Seller to consummate
the disposition in such jurisdictions of its Registrable Securities covered by
such Registration Statement, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified, or to subject itself to
taxation in respect of doing business in any such jurisdiction, or to consent to
general service of process in any such jurisdiction;
(e) notify each Seller of Registrable Securities covered by such
Registration Statement, at any time when a Prospectus relating thereto is
required to be delivered under the 1933 Act, of the happening of any event as a
result of which the Prospectus included in such Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
<PAGE>
-8-
therein not misleading in light of the circumstances then existing or if it is
necessary to amend or supplement such Prospectus to comply with the law, and at
the request of any such Seller, prepare and furnish to such Seller a reasonable
number of copies of a supplement to or an amendment of such Prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such Registrable
Securities or securities, such Prospectus, as amended or supplemented, will
comply with the law;
(f) timely file with the Commission such information as the Commission
may prescribe under Section 13 or 15(d) of the 1934 Act and otherwise use its
best efforts to ensure that the public information requirements of Rule 144
under the 1933 Act are satisfied with respect to the Company. The Company shall
furnish to any Holder of Registrable Securities, upon request, copies of the
Company's most recent annual and quarterly reports and other publicly available
documents filed with the Commission as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing such Holder
to sell Registrable Securities without registration.
(g) use its best efforts to qualify such securities for inclusion in
the Nasdaq National Market, and provide a transfer agent and registrar for such
Registrable Securities not later than the effective date of such Registration
Statement; and
(h) issue to any person to which any Holder of Registrable Securities
may sell such Registrable Securities in connection with such registration
certificates evidencing such Registrable Securities without any legend
restricting the transferability of the Registrable Securities.
From time to time, the Company will amend or supplement such
registration statement and the prospectus contained therein to the extent
necessary to comply with the 1933 Act and any applicable state securities
statute or regulation. The Company will also provide the holder of Registrable
Securities with as many copies of the prospectus contained in any such
registration statement as it may reasonably request.
8. 1934 Act Registration
The Company shall timely file with the Commission such information as the
Commission may require under Section 13 or 15(d) of the 1934 Act; and in such
event, the Company shall use its best efforts to take all action pursuant to
Rule 144(c) as may be required as a condition to the availability of Rule 144
under the 1933 Act (or any successor exemptive rule hereinafter in effect) with
respect to such Common Stock. The Company shall furnish to any holder of
Registrable Securities forthwith upon request (i) a written statement by the
Company as to its compliance with the reporting requirements of Rule 144(c),
(ii) a copy of the most recent annual or quarterly report of the Company as
filed with the Commission, and (iii) such other publicly-filed reports and
documents as a holder may reasonably request in
<PAGE>
-9-
availing itself of any rule or regulation of the Commission allowing a holder to
sell any such Registrable Securities without registration.
9. Stockholder Information
It shall be a condition precedent to the obligations of the Company to take
any action pursuant to this Agreement that all Stockholders of Registrable
Securities shall furnish to the Company such information regarding themselves,
the Registrable Securities held by them and the intended method of disposition
of such Registrable Securities as shall be reasonably required to effect the
registration of their Registrable Securities and to execute such documents in
connection with such registration as the Company may reasonably request.
10. Indemnification and Contribution
In the event any Registrable Securities are included in a Registration
Statement under Sections 2 and 3:
(a) The Company will indemnify and hold harmless each Seller, the
officers, directors, partners, agents and employees of each Seller, any
underwriter (as defined in the 1933 Act) for such Seller and each person, if
any, who controls such Seller or underwriter within the meaning of the 1933 Act
or the 1934 Act, against any losses, claims, damages or liabilities (joint or
several) to which they may become subject under the 1933 Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively, a
"Violation"): (i) any untrue statement or alleged untrue statement of a
---------
material fact contained in such Registration Statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto; (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; or (iii) any violation or alleged violation by the Company of the
1933 Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the 1933 Act, the 1934 Act or any state securities law; and
the Company will reimburse each such Seller, officer, director, partner, agent,
employee, underwriter or controlling person for any reasonable legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 6(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld or delayed), nor shall the Company be liable
in any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Seller, underwriter or
controlling person.
<PAGE>
-10-
(b) Each Seller will indemnify and hold harmless the Company, each of
its officers, directors, partners, agents or employees, each person, if any, who
controls the Company within the meaning of the 1933 Act, any underwriter and any
other Seller or any of its directors, officers, partners, agents or employees or
any person who controls such Seller, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, partner, agent, employee, controlling person or underwriter, or other
such Seller or director, officer, partner, agent, employee or controlling person
may become subject, under the 1933 Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Seller expressly
for use in connection with such registration; and each such Seller will
reimburse any reasonable legal or other expenses reasonably incurred by the
Company or any such director, officer, partner, agent, employee, controlling
person or underwriter, other Seller, officer, director, partner, agent, employee
or controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action. Notwithstanding anything contained in
this Agreement to the contrary, the indemnity agreement contained in this
Section 6(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Seller, which consent shall not be unreasonably withheld or
delayed; provided further, that the aggregate liability of each Seller in
connection with any sale of Registrable Securities pursuant to a Registration
Statement in which a Violation occurred shall be limited to the net proceeds
from such sale.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 10, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing or conflicting interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, to the extent prejudicial to its ability to
defend such action, shall relieve such indemnifying party of liability to the
indemnified party under this Section 6 to the extent of such prejudice, but the
omission so to deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under this Section 10.
<PAGE>
-11-
(d) If recovery is not available under the foregoing indemnification
provisions of this Section 10, for any reason other than as specified therein,
the parties entitled to indemnification by the terms thereof shall be entitled
to contribution to liabilities and expenses in such proportion as is appropriate
to reflect the relative fault of the indemnifying parties and the indemnified
parties, except to the extent that contribution is not permitted under Section
11(f) of the 1933 Act. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among other things, the
parties' relative knowledge and access to information concerning the matter with
respect to which the claim was asserted, the opportunity to correct and prevent
any statement or omission and any other equitable considerations appropriate
under the circumstances, including, without limitation, whether any untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
Company, on the one hand, or by the Holder of Registrable Securities, on the
other hand. The Company and the Stockholders of the Registrable Securities
covered by such Registration Statement agree that it would not be equitable if
the amount of such contribution were determined by pro rata or per capita
allocation. No seller of Registrable Securities covered by such Registration
Statement or person controlling such Seller shall be obligated to make any
contribution hereunder which in the aggregate exceeds the net proceeds of the
securities sold by such seller, less the aggregate amount of any damages which
such seller and its controlling persons have otherwise been required to pay in
respect of the same claim or any substantially similar claim. The obligations
of such Stockholders to contribute are several in proportion to their respective
ownership of the Registrable Securities covered by such Registration Statement
and not joint.
11. Transferability
Each Holder agrees that he will not make any disposition of all or any
portion of the Registrable Securities (a) except in a registered public offering
pursuant to the rights granted in this Agreement; or (b) until (i) such Holder
shall have furnished the Company with a statement of the circumstances
surrounding the proposed disposition and (ii) if reasonably requested by the
Company, such Holder shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to counsel for the Company, that such
disposition will not require registration of such Registrable Securities or such
transaction under the 1933 Act or applicable state securities laws.
The registration rights set forth in this Agreement are not transferable
except to (i) a trust created for the benefit of any of the Stockholders or
their immediate family members such as a spouse or lineal descendants, (ii) a
register of any of the Stockholders, or (iii) any partner (including a limited
partner) or affiliate of a Stockholder. All transferees shall agree in writing
to be bound by all of the provisions of this Agreement. A Stockholder shall
promptly advise the Company in writing of the identity and address of any person
to whom it transferred its registration rights hereunder.
<PAGE>
-12-
12. Legends
Each Holder understands and agrees that the certificates evidencing the
Registrable Securities will bear legends in substantially the following form:
"This security has not been registered under the Securities Act of
1933 or any state securities laws and may not be transferred or
otherwise disposed of unless it has been registered under such act
and all such applicable laws or an exemption from registration is
available."
13. Miscellaneous
13.1 Amendments and Waivers
Any provision of this Agreement may be amended and the observance thereof
may only be waived (either generally or in a particular instance and either
retroactively or prospectively), with the written consent of the Company and the
Holders of a majority of the Registrable Securities then outstanding. Any
amendment or waiver effected in accordance with this Section 9.1 shall be
binding upon each Holder of Registrable Securities at the time outstanding, each
future Holder of Registrable Securities, and the Company.
<PAGE>
-13-
13.2 Notices
Any notice required or permitted to be given hereunder shall be in writing
and shall be deemed given at the opening of business on the first Business Day
following the time (a) delivery is made, if by hand delivery, (b) the facsimile
is successfully transmitted, if by telecopier or facsimile machine, or (c) the
Business Day after such notice is deposited with a reputable overnight courier
service, postage prepaid, for next-day delivery, addressed as respectively set
forth below or to such other address as any party shall have previously
designated by such a notice.
To the Company:
Individual, Inc.
8 New England Executive Park West
Burlington, MA 01803
Fax: (617) 273-6090
Attention: Yosi Amram, President
with a copy to:
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, Massachusetts 02110
Fax: (617) 248-7100
Attention: William B. Asher, Jr.
To a Holder of Registrable Securities:
At the addresses listed in Schedule A hereto.
13.3 Governing Law
This Agreement shall for all purposes be governed by and construed in
accordance with the internal laws of the State of Delaware without regard to
conflicts-of-laws principles. The parties hereto agree to submit to the
jurisdiction of the federal and state courts of the State of Delaware with
respect to the breach or interpretation of this Agreement or the enforcement of
any and all rights, duties, liabilities, obligations, powers and other relations
between parties arising under this Agreement.
<PAGE>
-14-
13.4 Severability
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excised from this Agreement, and
the remainder of this Agreement shall be interpreted as if such provision were
so excised and shall be enforceable in accordance with its remaining terms.
13.5 Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-15-
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
INDIVIDUAL, INC.
By:
-----------------------------------
Title:
--------------------------------
STOCKHOLDERS:
/s/ Mark Pincus
--------------------------------------
Mark Pincus
/s/ Sunil Paul
--------------------------------------
Sunil Paul
Euclid Partners IV, L.P.
By:
-----------------------------------
Its:
----------------------------------
SOFTBANK Holdings Inc.
By:
-----------------------------------
Its:
----------------------------------
<PAGE>
-16-
/s/ David Mixer
---------------------------------
David Mixer
/s/ Jordan Levy
---------------------------------
Jordan Levy
/s/ Ronald Schreiber
---------------------------------
Ronald Schreiber
/s/ Harry Hopper
---------------------------------
Harry Hopper
VLG Investments 1996
By:
------------------------------
Its:
-----------------------------
VLG Retirement Savings Plan Trust
Account FBO Michael W. Hall
By:
------------------------------
Its:
-----------------------------
<PAGE>
-17-
Peter Cohn as Trustee, or the Successor Trustee
or Trustees, U/A/D June 29, 1995, as
amended, creating the Peter Cohn
Revocable Trust
By:
------------------------------
Its:
-----------------------------
<PAGE>
-18-
SCHEDULE A
[Omitted]
<PAGE>
EXHIBIT 99.2
------------
ESCROW AGREEMENT
----------------
ESCROW AGREEMENT (this "Agreement") made this 28th day of June, 1996 by and
---------
among Individual, Inc., a Delaware corporation (the "Buyer"), FreeLoader, Inc.,
-----
a Delaware corporation (the "Company"), the stockholders (the "Stockholders")
-------
and optionholders (the "Optionholders") of the Company listed on Schedule 1
----------
hereto (collectively, the "Securityholders"), Frederick Wilson, as
representative (the "Representative") of the Securityholders (the Company, the
Securityholders and the Representative are sometimes collectively referred to
hereinafter as the "Sellers"), and Fleet National Bank, a national banking
association, as escrow agent (the "Escrow Agent").
------------
WHEREAS, the Buyer, the Company, certain of the Stockholders and FL
Acquisition Corp., a wholly-owned subsidiary of Buyer ("Merger Sub") have
entered into an Agreement and Plan of Reorganization dated as of May 30, 1996
(the "Merger Agreement"), pursuant to which Merger Sub will merge (the "Merger")
----------------
with and into the Company at and as of the Effective Time (as defined in the
Merger Agreement), with the Company remaining as the surviving entity.
WHEREAS, pursuant to the Merger, an aggregate of approximately (i)
1,514,309 shares of the Common Stock of the Buyer, $.01 par value per share (the
"Buyer Stock") will be issued to the Stockholders (the "Stockholders'
Consideration"), and (ii) 360,180 shares of Buyer Stock will be reserved for
issuance upon exercise of outstanding Company options (the "Options") which
shall be assumed by the Buyer in connection with the Merger.
WHEREAS, pursuant to Section 2.07 of the Merger Agreement, the parties to
the Merger Agreement have agreed that (i) approximately 151,430 shares of Buyer
Stock (equal to 10% of the Stockholders' Consideration) (the "Initial Escrow
Shares") shall be deposited with the Escrow Agent and held in escrow (the
"Escrow") pursuant to the terms of the Merger Agreement and this Agreement as
collateral for the Securityholders' indemnification obligations under Section
10.02, (ii) 10% of all shares of Buyer Stock issued after the Effective Time
during the term of this Agreement upon exercise of Options (the "Additional
Escrow Shares") shall be deposited into Escrow with the Escrow Agent as
collateral for the Securityholders' indemnification obligations under Section
10.02 of the Merger Agreement, and (iii) 10% of all outstanding and unexercised
Options after the Effective Time during the term of this Agreement shall be and
remain at all times subject to this Escrow Agreement as collateral for the
Securityholders' indemnification obligations under Section 10.02 of the Merger
Agreement.
WHEREAS, the parties desire to establish the terms and conditions pursuant
to which the Escrow Shares (as defined below) will be deposited, held in, and
disbursed from the Escrow.
<PAGE>
-2-
WHEREAS, pursuant to Section 9.02 of the Merger Agreement, it is a
condition to the Buyer's obligations under the Merger Agreement that the Sellers
execute and deliver this Agreement.
WHEREAS, the parties hereto intend that the provisions of this Agreement
comply in all respects with the requirements of Revenue Procedure 84-42, 1984-1
C.B. 521.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Definitions. Capitalized terms used in this Agreement and not defined
-----------
herein shall have the meaning assigned thereto in the Merger Agreement.
2. Security Interest in Shares. The Sellers hereby grant a security
---------------------------
interest in the Escrow Shares to be held by the Escrow Agent hereunder to the
Buyer to secure the performance of the Sellers' indemnification obligations
pursuant to Section 10.02 of the Merger Agreement, subject to the terms and
conditions hereinafter set forth.
3. Escrow. As promptly as practicable following the Effective Time, the
------
Buyer, on behalf of the Sellers, shall deliver to the Escrow Agent one or more
stock certificates, issued in the name of the Escrow Agent, representing the
Initial Escrow Shares. Upon all exercises of Options at any time or times after
the Effective Time during the term of this Agreement, one or more stock
certificates issued in the name of the Escrow Agent representing the Additional
Escrow Shares shall be delivered to the Escrow Agent pursuant to Section 2.07 of
the Merger Agreement to be held in Escrow as collateral for the Securityholders'
indemnification obligations under Section 10.02 of the Merger Agreement. The
Initial Escrow Shares and Additional Escrow Shares are referred to herein
collectively as the "Escrow Shares." All Escrow Shares are to be held in Escrow
by the Escrow Agent as collateral for the indemnification obligations under
Section 10.02 of the Merger Agreement, and pursuant to the terms and conditions
of this Agreement. The percentage interest of each of the Stockholders and
Optionholders in the Escrow Shares is set forth on Annex B attached hereto
-------
(each, a "Securityholder's Pro-Rata Interest"). The Buyer shall provide the
Escrow Agent with an updated Annex B upon each delivery of Additional Escrow
--------
Shares to the Escrow Agent hereunder if necessary to reflect any changes in any
Securityholder's Pro-Rata Interest.
4. Release of Escrow Shares. Except as otherwise expressly provided in
------------------------
this Agreement, the Escrow Shares shall be released by the Escrow Agent only as
follows:
(a) If the Buyer, and after the Closing the Company or any Subsidiary,
or any of their Affiliates, shall incur or suffer any Loss for which it is
entitled to indemnification under Section 10.02 of the Merger Agreement, the
Chief Executive Officer, President (if different from the Chief Executive
Officer), any Executive Vice President or the Chief Financial Officer of the
Buyer shall give written notice (a "Claim Notice") of its claim to
------------
indemnification (a "Claim") to the Escrow Agent and the Representative. Each
-----
Claim Notice shall identify in reasonable detail
<PAGE>
-3-
the nature of the claim and shall specify the amount of the claimed Loss, if
reasonably determinable. The Escrow Agent shall have no duty to determine
whether the detail of the nature of the claim set forth in such Claim Notice is
reasonable. A notice of claim is deemed received on the second business day
after the date sent by registered or certified mail, return receipt requeested,
or if sent by hand delivery, on the same business day on which such delivery is
made (or on the next business day after delivery is made if not made on a
business day).
(b) If the Representative objects to the validity of the Claim or the
amount of Loss with respect thereto, the Representative shall, within fifteen
(15) days after its receipt of the Claim Notice, provide written notice (the
"Response Notice") of such objection to the Escrow Agent and the Buyer. The
- ----------------
Response Notice shall set forth in detail the basis of the Sellers' objection to
the Claim and the amount of Loss which is in dispute. If a Response Notice is
received by the Escrow Agent within the required time period, the Escrow Agent
shall retain a sufficient number of Escrow Shares (valued at the Value (as
defined below) of a share of Buyer Stock) to satisfy the entire Loss, and shall
not release such shares until the dispute is resolved in accordance with Section
4(d) below.
(c) In the event that the Representative (i) shall not have provided a
Response Notice within the 15-day period described in Section 4(b) or (ii) shall
have objected in a Response Notice only to the amount of Loss set forth in a
Claim Notice, then the Sellers shall be deemed to have approved and consented to
the release to the Buyer of a portion of the Escrow Shares (valued at the Value
of a share of Buyer Stock) sufficient in the case of clause (i) above to satisfy
the entire Loss described in the Claim Notice and in the case of clause (ii)
above to satisfy the amount of the Loss described in the Claim Notice as to
which the Representative has not objected in the Response Notice, and the Escrow
Agent shall forthwith release that portion of the Escrow Shares to Buyer.
(d) Resolution of any dispute relating to the Escrow Shares or the
amount of Loss set forth in any Claim Notice shall be evidenced by (i) a written
notification to the Escrow Agent signed by each of the Buyer and the
Representative or (ii) a final order or decision of any court of competent
jurisdiction or arbitration panel.
(e) The Escrow Agent shall not release any Escrow Shares to the
Representative prior to the first anniversary of the Closing Date, at which time
it shall distribute to the Representative all Escrow Shares not then the subject
of an unresolved Claim Notice, in such certificates and such denominations as
are based on each Securityholder's Pro-Rata Interest in such Escrow Shares.
(f) Cash will be paid in lieu of fractions of Escrow Shares required
to be released or otherwise delivered hereunder in an amount equal to the
product (rounded to the nearest whole cent) determined by multiplying such
fraction by the Value on the date of required payment.
(g) The Escrow Agent shall hold the Escrow Shares for the entire term
of this Agreement and, unless otherwise required herein, shall not sell, assign
or otherwise transfer or
<PAGE>
-4-
dispose of such Escrow Shares unless it shall have received instructions in
writing from both the Buyer and the Representative. Notwithstanding the
foregoing, Buyer may require the Escrow Agent to sell any Escrow Shares that are
required to be returned to Buyer hereunder and to remit the proceeds thereof to
Buyer, in lieu of transferring the Escrow Shares themselves.
(h) For purposes of this Section 4, the "Value" of a share of Buyer
Stock shall be the average of the reported last sale price of the Buyer Stock on
the Nasdaq National Market for the ten trading days ended on (and including) the
third trading day immediately preceding the date on which the Value is required
to be determined for purposes hereof.
5. Dividends and Other Distributions. All cash dividends payable with
---------------------------------
respect to the Escrow Shares, and all non-cash dividends and distributions with
respect to the Escrow Shares, shall be distributed directly to the appropriate
Securityholders.
6. Exercise of Rights by the Representative. For so long as the Escrow
----------------------------------------
Shares are held hereunder, and except as otherwise set forth herein, the
Representative shall be entitled to exercise all voting and consensual powers
and all other rights pertaining to the Escrow Shares.
7. Matters Relating to the Escrow Agent.
------------------------------------
(a) The duties and obligations of the Escrow Agent hereunder shall be
determined solely by the express provisions of this Agreement and no implied
duties or obligations shall be read into this Agreement against the Escrow
Agent. Except for the "Definitions" set forth in Section 1.01 of the Merger
Agreement, the Escrow Agent shall be under no obligation to refer to any other
documents between or among the parties related in any way to this Escrow
Agreement. Except for its obligation to comply with all release procedures
expressly set forth herein or as otherwise expressly set forth herein, the
Escrow Agent shall have no obligation to confirm the accuracy or correctness of
claims made by the other parties hereto pursuant to the Merger Agreement with
respect to the Escrow Shares. The Escrow Agreement shall not be subject to or
bound by the terms of the Merger Agreement or any other related agreement
executed pursuant thereto (collectively, the "Related Agreements") to which the
Escrow Agent is not a party (regardless of whether the Escrow Agent has
knowledge of such agreement).
(b) The Escrow Agent shall not be liable to anyone by reason of any
error of judgment, or for any act done or step taken or omitted by it in good
faith, or for any mistake of fact or law, or for any thing which it may do or
refrain from doing in connection herewith, unless caused by or arising out of
its own gross negligence or bad faith.
(c) The Escrow Agent shall be entitled to rely and shall be protected
in acting in reliance upon any writing furnished to it by any party hereto in
accordance with the terms hereof, and shall be entitled to treat as genuine, and
as the document it purports to be, any letter, paper or other document furnished
to it by any party and believed by the Escrow Agent to be genuine and to have
been signed by the proper party. The Escrow Agent shall not be responsible
<PAGE>
-5-
or liable for the completeness, correctness or accuracy of any of the Merger
Agreement or Related Agreements to which the Escrow Agent is not a party.
(d) The Escrow Agent may consult with independent counsel with respect
to any question relating to its duties or responsibilities hereunder and shall
not be liable for any action taken or omitted in good faith on advice of such
counsel.
(e) In the event of any disagreement or dispute concerning the rights
and obligations of the Escrow Agent, the Escrow Agent shall be entitled, at its
option, to refuse to comply with the claims or demands of any party hereto until
such disagreement or dispute is finally resolved by arbitration or a court of
competent jurisdiction (in proceedings which it or any other party may initiate)
and the time for appeal of any such arbitration award or final order shall have
expired without an appeal being made, and in so doing the Escrow Agent shall not
be or become liable to any party.
(f) The Escrow Agent and successor escrow agent, as the case may be,
may resign its duties and be discharged from all other further duties and
obligations hereunder at any time upon giving thirty (30) days' prior written
notice to the Representative and the Buyer. The Representative and the Buyer
shall thereupon jointly designate a successor escrow agent hereunder within said
thirty day period, to whom the Escrow Agent shall deliver the Escrow Shares. In
the absence of such a joint designation of a successor escrow agent, the Escrow
Agent shall, without further liability or responsibility, retain the Escrow
Shares as custodian thereof until otherwise directed jointly by the
Representative and the Buyer.
8. Fees and Expenses of Escrow Agent. The Escrow Agent will be
---------------------------------
compensated on the basis of its reasonable fees as set forth on the Fee Schedule
attached hereto as Annex A, plus reasonable legal fees, costs, liabilities and
--------
other expenses (the "Escrow Expenses") incurred by the Escrow Agent in
connection with or as a result of any disagreement between or among the Sellers,
the Buyer, any of the Subsidiaries or any of their Affiliates or in connection
with the performance or enforcement of this Agreement. The Buyer will pay such
Escrow Expenses, provided, however, that (i) in the event any such Escrow
Expenses result from transfers of ownership of any Escrow Shares by the
beneficial owner thereof, such expenses shall be borne by the transferring owner
and (ii) in the event that any such Escrow Expenses result from any
disagreement, such expenses shall be borne by the party who does not prevail in
the resolution of such disagreement.
9. Notices. Any notice or other communication required or permitted
-------
hereunder shall be in writing, and shall be given by registered or certified
mail, return receipt requested (postage prepaid), personal delivery, telecopier
(confirmed by mail as aforesaid) or courier service (such as Federal Express)
addressed as follows:
if to the Buyer, to:
Individual, Inc.
8 New England Executive Park W.
<PAGE>
-6-
Burlington, MA 01803
Attention: President
Telecopy: (617) 273-6060
with a copy to:
William B. Asher, Jr., Esq.
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Telecopy: (617) 248-7100
<PAGE>
-7-
if to the Company, to:
FreeLoader, Inc.
3299 K Street NW
Suite 300
Washington, D.C. 20007
Telecopy: (202) 686-0660
with a copy to:
Michael W. Hall, Esq.
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Telecopy: (415) 233-8386
If to the Representative, to:
Frederick Wilson
Euclid Partners
Suite 1022
50 Rockefeller Plaza
New York, NY 10020
Telecopy: (212) 757-1686.
with a copy to:
Michael W. Hall, Esq.
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Telecopy: (415) 233-8386
If to Escrow Agent:
Fleet National Bank
Corporate Trust Department
One Federal Street, Boston, MA 02211
Attention: Corporate Trust Department
Telecopier: 617-346-5501
Each of the parties hereto shall be entitled to specify a different address by
giving notice as aforesaid. Such notices and communications shall be deemed
effective upon receipt or on the
<PAGE>
-8-
date delivered, if delivered personally, transmitted by telecopier or delivered
by courier service such as Federal Express.
10. Headings. Section headings are not to be considered part of this
--------
Agreement, are included solely for convenience of reference and are not intended
to be full or accurate descriptions of the contents of Sections to which they
relate.
11. Governing Law. The validity, construction and interpretation of this
-------------
Agreement shall be governed by the laws of The Commonwealth of Massachusetts
applicable to contracts made and to be performed wholly within that
commonwealth.
12. Termination. This Agreement shall terminate automatically upon the
-----------
distribution of all of the Escrow Shares in accordance with the terms of this
Agreement.
13. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
14. Amendments. This Agreement may only be amended by an instrument in
----------
writing signed by the Buyer and the Representative.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-9-
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
as of the day and year first above written.
INDIVIDUAL, INC.
By:
----------------------------------------
Name:
Title:
SECURITYHOLDERS
By: REPRESENTATIVE
/s/ Frederick Wilson
-------------------------------------------
Frederick Wilson
REPRESENTATIVE
/s/ Frederick Wilson
------------------------------------------
Frederick Wilson
ESCROW AGENT
FLEET NATIONAL BANK
By:
--------------------------------------
Name:
Title:
<PAGE>
-10-
Annex A
ESCROW AGENT FEE SCHEDULE
<TABLE>
<S> <C>
Acceptance Fee: $500
Annual Administrative Fee: $1,750
Initial Legal Fees $500
Wire Transfer Fees $25/wire sent
Investment Fee (if applicable) $15/transaction
</TABLE>
<PAGE>
-11-
Annex B
[Omitted]
<PAGE>
INDIVIDUAL, INC.
EXHIBIT 99.3
June 28, 1996
Mark Pincus
Sunil Paul
c/o FreeLoader, Inc.
3299 K Street NW
Suite 300
Washington, DC 20007
Re: Risk Sharing Arrangement
------------------------
Dear Mark and Paul:
This letter is being delivered to you pursuant to Section 9.03(i) of that
certain Agreement and Plan of Reorganization (the "Merger Agreement") dated as
of May 30, 1996 among Individual, Inc., ("Individual"), FL Merger Corp., a
wholly-owned subsidiary of Individual ("Merger Sub"), FreeLoader, Inc.
("FreeLoader") and certain stockholders of FreeLoader, pursuant to which,
subject to the terms and conditions set forth in the Merger Agreement, Merger
Sub will merge with and into FreeLoader, with FreeLoader surviving as a wholly-
owned subsidiary of Individual.
Individual hereby covenants and agrees with each of you that, solely with
respect to the first 130,500 shares of Buyer Stock (as defined in the Merger
Agreement) sold by each of you on the Nasdaq National Market (or if no longer
traded thereon, on such other market as Individual's stock is then traded) in
one or more transactions after December 31, 1996 and prior to May 31, 1997
(collectively, the "Share Transactions"), Individual will share with you the
risks of fluctuations in the market price of such Buyer Stock with respect to
such Share Transactions, as follows:
1. For each Share Transaction in which the gross sale price (before fees,
discounts, commissions or other selling costs and taxes) for the Buyer
Stock (the "Sale Price") is less than $18.525 per share, Individual will
pay to you in cash, within five (5) days after receipt of written notice
from you that such Share Transaction has settled, the product of:
($18.525 - Sale Price) x (the number of shares of Buyer Stock sold
in such Share Transaction)
<PAGE>
2. For each Share Transaction in which the Sale Price is greater than
$20.475 per share, you will pay to Individual in cash, within five (5)
days after the settlement of such Share Transaction, the product of:
(Sale Price - $20.475) x (the number of shares of Buyer Stock sold
in such Share Transaction),
but less the amount of any fees, discounts, commissions or other
----
selling costs (not including taxes).
The parties agree that you will be solely responsible for all of your
federal, state and local taxes resulting from the Share Transactions described
in paragraphs 1 and 2 above. The parties further agree and acknowledge that in
no event shall the risk sharing arrangements detailed in this letter apply to
the sale by each of you of greater than 130,500 shares of Buyer Stock in the
aggregate.
Very truly yours,
INDIVIDUAL, INC.
By: /s/ Robert Lentz
----------------------------------
Robert Lentz
Vice President, Finance and
Chief Financial Officer
AGREED TO AND ACCEPTED by:
/s/ Mark Pincus
- ----------------------------------
Mark Pincus
/s/ Sunil Paul
- ----------------------------------
Sunil Paul
