<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 3, 2000
HEARME
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 000-25399 94-3217317
(State or other jurisdiction of (Commission (IRS Employer incorporation or
organization) File Number) Identification No.)
</TABLE>
685 CLYDE AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(Address of principal executive offices) (Zip code)
(650) 429-3900
(Registrant's telephone number, including area code)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On March 8, 2000, HearMe ("HearMe" or "the Company") entered into an
Agreement and Plan of Merger (the "Merger Agreement") with AudioTalk Networks,
Inc. ("AudioTalk"), a California corporation. The Merger Agreement provided for
the merger of a newly formed wholly owned subsidiary of HearMe with and into
AudioTalk. AudioTalk became a wholly owned subsidiary of HearMe. The merger is
being accounted for under the purchase method of accounting. The merger was
consummated on April 3, 2000.
The purchase price of approximately $116.7 million comprised approximately
$100.5 million of common stock, $10.0 million in cash, $5.7 million in options
to purchase common stock issued to AudioTalk employees, and $500,000 in
estimated expenses. The purchase price was allocated as follows: $6.4 million to
the estimated fair value of AudioTalk net tangible assets, $580,000 to purchased
technology, $550,000 to purchased in-process research and development, $900,000
to existing sales contracts, $1,250,000 to workforce-in-place and $108.1 million
to goodwill. The allocation of the purchase price to intangibles was based upon
an independent, third party appraisal and management's estimates.
The purchased technology and sales contracts will be amortized over two
years and the workforce and goodwill will be amortized over three years.
The value assigned to purchased in-process research and development
("IPR&D") was determined by identifying research projects in areas for which
technological feasibility had not been established. These include projects for
the development of a hardware-based real-time voice communication product as
well as other specialized software technologies totaling $550,000. The value was
determined by estimating the expected cash flows from the projects once
commercially viable, applying a percentage of completion to the calculated value
and then discounting the net cash flows back to their present value.
The net cash flows from the identified projects are based on estimates of
revenues, the related estimated cost of sales and operating expenses, estimated
charges for use of assets by the projects and income taxes from those projects.
These estimates are based on the assumptions mentioned below.
Projected gross profits from AudioTalk's technology products are in line
with comparable industry margins. The estimated charges for use of assets are
consistent with AudioTalk's historical cost structure, which is in line with
industry averages at approximately 1.3% of revenues.
Discounting the net cash flows back to their present value is based on the
industry weighted average cost of capital ("WACC"). The industry WACC is
approximately 20%. The discount rate used in discounting the net cash flows from
IPR&D is 25%. This discount rate is higher than the industry WACC due to
inherent uncertainties surrounding the successful development of the IPR&D,
market acceptance of the technology, the useful life of such technology and the
uncertainty of technological advances which could potentially impact the
estimates described above.
The percentage of completion for each project was determined using costs
incurred to date on each project as compared to the remaining research and
development to be completed to bring each project technological feasibility. The
percentage of completion varied by individual project ranging from 44% to 60%.
If the projects discussed above are not successfully developed, the sales
and profitability of the combined company may be adversely affected in future
periods.
<PAGE>
Item 7. FINANCIAL STATEMENTS, PROFORMA FINANCIAL INFORMATION AND EXHIBITS
The Registrant hereby amends the following item of its Report on Form 8-K
filed with the Securities and Exchange Commission on April 18, 2000.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
AUDIOTALK NETWORKS, INC.
FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
(See Accountants' Audit Report)
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
AudioTalk Networks, Inc.
We have audited the accompanying balance sheet of AudioTalk Networks, Inc. (a
development stage company) as of June 30, 1999, and related statements of
income, stockholders' equity, and cash flows from the date business began
(August 9, 1998) to June 30, 1999. 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 AudioTalk Networks, Inc. as of
June 30, 1999, and the results of its operations and its cash flows for the
period then ended in conformity with generally accepted accounting principles.
December 21, 1999
/s/ Finck, Rudnick & Company
- ----------------------------
Finck, Rudnick & Company
Menlo Park, California
<PAGE>
AUDIOTALK NETWORKS, INC.
(A Development Stage Company)
BALANCE SHEET
AS OF JUNE 30, 1999
(See Accountants' Audit Report)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2, 12) $ 334,682
Interest Receivable 5,711
--------------
Total Current Assets 340,393
FIXED ASSETS, net (Note 2) 191,095
NONCURRENT ASSETS:
Licenses 28,753
Rent Deposit 20,550
--------------
49,303
--------------
$ 580,791
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 26,723
Accrued Liabilities (Note 3) 45,623
Franchise Tax Payable (Note 4) 800
--------------
Total Current Liabilities 73,146
COMMITMENTS (Note 5) -
STOCKHOLDERS' EQUITY:
Series A Preferred Stock, no par, 3,600,000 authorized and 1,800,000
outstanding (Note 6)
Common Stock 15,000,000 authorized, 4,394,000
issued and outstanding 119,080
Notes receivable stockholders (Note 9) (118,380)
Deficit accumulated during the development stage (1,293,055)
--------------
Total Stockholders' Equity 507,645
--------------
TOTAL LIABILITIES & EQUITY $ 580,791
==============
The accompanying notes are an integral part of this balance sheet.
<PAGE>
AUDIOTALK NETWORKS, INC.
(A Developmental Stage Company)
STATEMENT OF OPERATIONS
AUGUST 9, 1998 THROUGH JUNE 30, 1999
(See Accountants' Audit Report)
COSTS AND EXPENSES
Research and Development Costs (Note 10) $502,969
Payroll and Related Costs 287,024
Outside Services 174,662
Rent (Note 5) 96,804
Professional Fees 89,111
Insurance 43,384
Depreciation and Amortization (Note 2) 32,972
Trade Shows and Conference fees 23,199
Travel 16,263
Dues and Subscriptions 12,500
Computer Supplies 11,327
Telephone & Internet 10,593
Miscellaneous 25,131 $ 1,325,939
---------- -----------
Loss from operations (1,325,939)
OTHER INCOME
Interest Income 33,684
------------
Net loss before income tax (1,292,255)
PROVISION FOR INCOME TAX 800
------------
Net loss $(1,293,055)
============
The accompanying notes are an integral part of these financial statements.
<PAGE>
AUDIOTALK NETWORKS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1999
(See Accountants' Audit Report)
DEFICIT
ACCUMULATED
RECEIVABLE DURING THE
SERIES A COMMON FROM SALE DEVELOPMENT
PREFERRED STOCK OF STOCK STAGE
---------- -------- ---------- -----------
Net loss $ - $ - $ - $(1,293,055)
Sales of stock 1,800,000 119,080 - -
Notes receivable - stockholder - - (118,380) -
---------- -------- ---------- -----------
Total equity $1,800,000 $119,080 $(118,380) $(1,293,055)
========== ======== ========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
AUDIOTALK NETWORKS, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
AUGUST 9, 1998 THROUGH JUNE 30, 1999
(See Accountants' Audit Report)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,293,055)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 32,972
Legal fees paid in stock 700
(Increase) decrease in current assets:
Interest receivable (5,711)
Increase (decrease) in current liabilities:
Accounts payable 26,723
Other current liabilities 46,423
------------
NET CASH USED BY OPERATING ACTIVITIES (1,191,948)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Licenses (28,753)
Lease deposit on facilities (20,550)
Acquisition of equipment (224,067)
------------
NET CASH USED BY INVESTING ACTIVITIES (273,370)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 1,800,000
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,800,000
------------
- Statement Continued -
AUDIOTALK NETWORKS, INC.
(A Development Stage Company)
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CASH FLOWS
AUGUST 9, 1998 THROUGH JUNE 30, 1999
(See Accountants' Audit Report)
- Continued -
NET INCREASE IN CASH 334,682
CASH, at beginning of year -
--------
CASH, at end of year $334,682
========
SUPPLEMENTAL CASH FLOW INFORMATION:
Noncash Financing Activities:
Common stock issued in exchange for notes
receivable from stockholders $118,380
Common stock issued in payment of legal expenses $ 700
The accompanying notes are an integral part of these financial statements.
<PAGE>
AUDIOTALK NETWORKS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENT
JUNE 30, 1999
(SEE ACCOUNTANTS' AUDIT REPORT)
1. ORGANIZATION AND BUSINESS
AudioTalk Networks, Inc. (a California corporation) has been in the
development stage since business began on August 9, 1998, and provides live
voice technology and turnkey services for the Internet. Their technology
and services enrich users' online experience in the areas of community live
chat, electronic commerce, customer care and other applications.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements and notes are representations of the Company's
management, who is responsible for their integrity and objectivity. The
accounting policies of the Company are in accordance with generally
accepted accounting principles and conform to the standards applicable to
development stage companies. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect certain
disclosures. Accordingly, actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight line method and Modified Accelerated Cost Recovery System,
required under the Internal Revenue Code over 3 - 7 years.
At June 30, 1999, fixed assets consist of:
Computer software $ 104,697
Computer equipment 111,034
Office furniture & equipment 8,336
---------
224,067
Less accumulated depreciation
(32,972)
----------
$ 191,095
==========
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<PAGE>
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents. At June 30, 1999, cash equivalents consist of
a money market account with an interest rate of approximately 2.74%.
3. ACCRUED LIABILITIES
Accrued liabilities for the year ended June 30, 1999, consist of the
following:
Legal and accounting fees $ 20,756
Outside services 15,210
Employee benefits 9,397
Other 260
------------
$ 45,623
============
4. INCOME TAXES
Provisions for income taxes are based on income and expenses in accordance
with the Company's regular accounting practices. The income tax effects of
differences in timing when revenues and expenses are reflected in
accordance with regular accounting practices and when they are recognized
for income tax purposes are reflected in the balance sheet as deferred
income taxes.
As of June 30, 1999, the Company's income tax expense (benefit) consists of
the following:
CURRENT DEFERRED TOTAL
------- -------- -----
Federal $ - $ - $ -
State 800 - 800
------- -------- ----------
$ 800 $ - $ 800
============ ============= ==========
The actual tax benefit differs from the expected tax benefit computed by
applying the current tax rates to the loss before income taxes. The
difference primarily relates to book expenses not deducted for tax
purposes.
The Company has elected to comply with the standards prescribed in the
Statement of Accounting Standards No. 109, Accounting for Income Taxes. FAS
No. 109 requires a valuation allowance to be recorded for that portion of a
deferred tax asset for which, more likely than not, a tax benefit will not
be utilized.
4. INCOME TAXES (CONTINUED)
A valuation allowance has been recorded in the amount of $513,633 due to
the uncertainty over when and if Federal and California net operating loss
carryforwards will in fact
<PAGE>
save the Company taxes.
At June 30, 1999, the Company has Federal and California net operating loss
(NOL) carryovers which may be applied against future taxable income. The
NOL carryovers expire as follows:
FISCAL YEAR ENDED JUNE 30 FEDERAL CALIFORNIA
------------------------- ------- ----------
2007 $ - $ 1,194,189
2014 1,191,692 -
------------ ----------------
$ 1,191,692 $ 1,194,189
============ ================
At June 30, 1999, the Company has Federal and California R & D credits of
$32,693 and $25,218 respectively, which may be carried forward, and used to
reduce regular income taxes. The Federal credit expires in fiscal year
ending June 30, 2019. The California credit carries forward indefinitely.
5. OPERATING LEASE COMMITMENTS
The Company leases its facilities and certain equipment. Rent expense for
1999 is $96,804, including furniture and equipment rental. At June 30, 1999
AudioTalk Networks, Inc., leased their facilities under an agreement with
an annual rental expense of $122,939. Subsequent to June 30, 1999, a new
Sublease was executed that begins in December, 1999, and terminates on
March 31, 2002. The initial monthly sublease payments are $30,323 per
month, with increases to $31,233 on April 1, 2000, $37,890 on June 1, 2000,
$44,546 on July 1, 2000 and $45,883 on April 1, 2001.
Minimum future rental payments are as follows:
Year ended
JUNE 30
---------
2000 $ 269,297
2001 542,116
2002 416,495
2003 3,549
2004 1,282
------------
$ 1,232,739
============
6. PREFERRED STOCK
The Company has 3,600,000 outstanding shares of no par Series A Preferred
Stock. The Series A Preferred Stock has a liquidation preference of $0.50
per share and carries a non-cumulative dividend of $0.025 per share payable
when and if declared by the Board of Directors. Each share of Series A
Preferred Stock is convertible into shares
<PAGE>
of the Company's common stock at the initial conversion rate of $0.50 per
share, subject to adjustment to protect against dilution as outlined in the
First Amended and Restated Articles of Incorporation dated July 28, 1998.
The Company has reserved 3,600,000 shares of common stock for issuance upon
conversion of the Series A Preferred Stock (See Note 13).
7. STOCK OPTIONS
The 1998 Stock Option Plan provides for granting of options to buy Common
Shares intended either to qualify as "incentive stock options" (ISO) under
the Internal Revenue Code or "non-statutory stock options" (NQ) not
intended to so qualify, up to an amount equal to Five Hundred Thousand
(500,000) shares. The Plan terminates on September 25, 2000. The option
price under all plans is the fair market value of the shares as determined
by the Board on the date of grant. Options become exercisable at such times
and under such circumstances as determined by the Board and remain
exercisable for a period determined by the Board at the date of grant. The
ISO Plan options shall not be exercisable after the expiration of ten years
(five years for options granted to a ten percent optionee).
At June 30, 1999, 500,000 shares have been reserved for issuance under the
Plans and non-statutory stock options totaling 39,000 shares have been
granted, leaving 461,000 shares for future grants (See Note 13).
Non-statutory stock option plan summary:
Number of Option Price
Shares Per Share
----------------- -----------------
Granted at June 30, 1999 39,000 $ 0.05
Exercised 0
Cancelled 0
-----------------
Outstanding at June 30, 1999 39,000
=================
8. EMPLOYEE STOCK PURCHASE PLAN
Under the 1998 employee stock purchase plan, the Company may offer shares
to employees, consultants, and directors at fair market value. The maximum
aggregate number of Common Shares that may be issued under the plan is two
million (2,000,000).
8. EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
At June 30, 1999, 524,000 shares of common stock were issued under the plan
at $0.05 per share (See Note 9).
9. RELATED PARTY TRANSACTIONS
At June 30, 1999, the Company has notes receivable from various
stockholders and
<PAGE>
directors in connection with the issuance of common stock under the
Company's Employee Stock Purchase Plan and in connection with issuance of
the founders' shares. The terms of the notes include varying interest rates
and maturities with accrued interest being payable at least annually.
10. RESEARCH AND DEVELOPMENT COSTS
Research and developments costs are charged to operations when incurred and
are included in operating expenses. The amounts charged from inception to
June 30, 1999 were $502,969.
11. 401 (K) PROFIT SHARING PLAN
The Company maintains a 401(k) profit sharing plan which covers all
employees over the age of 21. Employee contributions to the plan are
optional, in amounts equal to a percentage of the contributing
participant's compensation from 1-12%. The Plan provides for the Company to
make qualified nonelective contributions to The Plan for applicants who are
not highly compensated employees. The amount of employer qualified
nonelective contributions is determined by the employer and is allocated in
the ratio which each participants total compensation for the plan year
bears to the total compensation of all participants for such plan year.
There was no employer contribution to The Plan for the year.
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Financial Accounting Standards No. 105, requires disclosure of
information about financial instruments with off-balance risk and about
financial instruments with concentration of credit risk.
At June 30, 1999, AudioTalk Networks, Inc. had an account at one financial
institution which exceeded the Federal Deposit Insurance Corporation (FDIC)
limits of insurance. The FDIC insures individual account balances of the
above mentioned financial institution up to $100,000 each.
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
If the above mentioned financial institution were to fail, the Company
would realize an accounting loss as of June 30, 1999 as follows:
Cash on deposit at June 30, 1999 $ 304,593
Less amount insured by the FDIC 100,000
------------
Accounting loss $ 204,593
============
<PAGE>
13. SUBSEQUENT EVENTS
PREFERRED STOCK
In August, 1999, the Company sold one million (1,000,000) shares of its
Series B Preferred stock at $1.00 per share. In December, 1999, an
additional four million (4,000,000) shares of Series B Preferred Stock was
issued at $1.00 per share. The Series B Preferred Stock has the same
preferences and liquidation rights as the Company's Series A Preferred (See
Note 6). The proceeds are being used to fund the Company's continuing
research and development projects and to fund current operating needs.
COMMON STOCK
In October, 1999, the Company issued two hundred seventy thousand (270,000)
shares of common stock at a price of $0.10 per share under the Employee
Stock Purchase Plan (See Note 8) in exchange for promissory notes secured
by the issued shares.
STOCK OPTIONS
In September, 1999, the Company granted four thousand five hundred (4,500)
non- qualified stock options under the 1998 Stock Option Plan (See Note 7).
Two thousand five hundred shares were granted with an exercise price of
$0.05 per share. The remaining two thousand shares were granted with an
exercise price of $0.10 per share. None of the options granted have been
exercised to date.
<PAGE>
AUDIOTALK NETWORKS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
DECEMBER 31,
1999
------------
ASSETS
Cash and cash equivalents $ 3,229
Accounts Receivable 500
Other current assets 12
------------
Total current assets 3,741
Fixed assets, net 463
Other assets 251
------------
$4,455
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 133
Accrued liabilities 134
Deferred revenue 500
------------
Total current liabilities 767
Stockholders' equity:
Common stock: no par value, 20,000,000 shares
authorized, 4,919,000 shares
issued and outstanding 173
Preferred stock: no par value,8,600,000 shares
authorized, 8,050,000 shares issued and
outstanding 6,250
Additional paid-in capital 73
Notes receivable from shareholders (171)
Deficit accumulated during the development stage
(2,563)
------------
Total stockholders' equity 3,688
------------
$4,455
============
The accompanying notes are an integral part of these financial statements.
<PAGE>
AUDIOTALK NETWORKS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
YEAR ENDED
DECEMBER 31,
1999
------------
Net revenues $ 5
Cost of net revenues -
------------
Gross profit ............................. 5
------------
Operating expenses:
Research and development.............................. 1,074
Sales and marketing................................. 386
General and administrative.......................... 777
------------
Total operating expenses.................. 2,237
------------
Loss from operations (2,232)
Interest income 41
------------
Provision for income taxes.................................. -
Net loss............................. $ (2,191)
============
Net loss per common share:
Basic & diluted....................................... $ (0.17)
=============
Weighted average shares outstanding:
Basic & diluted....................................... 12,969
The accompanying notes are an integral part of these financial statements.
<PAGE>
AUDIOTALK NETWORKS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOW
(IN THOUSANDS)
(unaudited)
YEAR ENDED
DECEMBER 31,
1999
-------------
Cash flows from operating activities:
Net loss $ (2,235)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 93
Changes in assets and liabilities:
Other assets 25
Accounts receivable (500)
Deferred revenue 500
Accounts payable 199
Accrued expenses 129
Prepaid license (194)
Prepaid expenses (71)
-------------
Net cash used in operating activities (2,054)
Cash flows used in investing activities:
Acquisition of property and equipment (452)
-------------
Net cash used in investing activities (2,506)
Cash flows from financing activities:
Repayment of stockholders' notes -
Proceeds from issuance of Series A preferred stock 1,800
Proceeds from issuance of Series B preferred stock 2,650
Proceeds from issuance of common stock 1
-------------
Net cash provided by financing
activities 4,451
-------------
Net increase in cash and cash equivalents 1,945
Cash and cash equivalents, beginning of period 1,284
-------------
Cash and cash equivalents, end of period $3,229
=============
The accompanying notes are an integral part of these financial statements.
<PAGE>
AUDIOTALK NETWORKS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
(unaudited)
<TABLE>
<CAPTION>
DEFICIT
NOTES ACCUMULATED TOTAL
PREFERRED STOCK COMMON STOCK RECEIVABLE DURING THE STOCKHOLDERS'
--------------- -------------- FROM DEVELOPMENT EQUITY
SHARES AMOUNT SHARES AMOUNT STOCKHOLDERS STAGE (DEFICIT)
------ ----------------- ------ -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 3,600 $1,800 $ (356) $ 1,444
Issuance of Series B convertible
preferred (unaudited) 4,450 $4,450 4,450
Issuance of notes for common
stock (unaudited) 4,919 $ 171 $ (171) -
Issuance of common for cash
(unaudited) 1 1
Net loss (unaudited) (2,207) (2,270)
Balance at December 31, 1999
(unaudited) 8,050 $6,250 4,919 $ 172 $ (171) $(2,563) $3,688
====== ================= ====== ============== ============ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AUDIOTALK NETWORKS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. FORMATION AND BUSINESS OF THE COMPANY:
AudioTalk Networks, Inc. (the Company), was incorporated in California and
commenced operations on August 9, 1998 ("inception"). The Company provides live
voice technology and turnkey services for the Internet.
Since its inception, the Company has been primarily involved in research and
development and financing activities. In addition, the Company has not completed
the development of its anticipated product; accordingly, it has been considered
to be in the development stage since its inception.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with original maturities of
three months or less, to be cash equivalents. Cash and cash equivalents are
stated at cost, which approximates market.
CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of cash. The Company deposits its cash and cash
equivalents with one major bank. The Company has not experienced any losses on
its deposits of cash and cash equivalents. Management believes that these banks
are financially sound and, accordingly, minimal credit risk exists.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets, generally three to seven years.
INCOME TAXES:
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
RESEARCH AND DEVELOPMENT COSTS:
Research and development expenditures are charged to operations as incurred.
CERTAIN RISKS AND UNCERTAINTIES:
The Company is subject to all of the risks inherent in a development stage
company in the technology industry. The risks include but are not limited to
limited operating history, limited management resources, dependence on the
Internet and related security risks and the changing nature of the Internet
industry.
USE OF ESTIMATES:
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 liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
<PAGE>
AUDIOTALK NETWORKS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
COMPREHENSIVE INCOME:
The Company has adopted the accounting treatment prescribed by Statements of
Financial Accounting Standards No. 130, "Comprehensive Income." The adoption of
this statement had no impact on the Company's financial statements for the
periods presented.
3. STOCKHOLDERS' EQUITY
The Company has authorized a total of 15,000,000 shares of common stock and
8,600,000 shares of preferred stock.
In August 1999, the Company issued a total of 1,000,000 shares of Series B
preferred stock of no par value at a price of $1.00 per share. In December 1999,
an additional 4,000,000 shares were issued at $1.00 per share. The proceeds are
being used to fund the Company's continuing research and development projects
and to provide working capital.
On December 29, 1999, the Company issued a warrant to a customer to purchase
1,000,000 shares of Series B preferred stock at $2.00 per share.
4. TAXES
At June 30, 1999, the Company has net operating loss carryforwards and research
and development tax credits of approximately $1,190,000 and $32,000,
respectively, available to reduce future taxable income, which expire through
2014. Pursuant to Section 382 of the Internal Revenue Code, utilization of the
net operating loss carryforwards may be subject to annual limitations due to
certain changes ownership.
5. OPERATING LEASE COMMITMENTS
The Company leases its facilities under a sublease which commenced in December
1999 and terminates in March 2002. Minimum future rental payments are as
follows:
Year ended
June 30
----------
2000 $269,000
2001 542,000
2002 416,000
2003 3,000
2004 1,000
Total $1,231,000
7. SUBSEQUENT EVENTS
In March 2000, A customer holding warrants to purchase 1,000,000 shares of
Series B preferred stock exercised the warrants for a total stock purchase price
of $2,000,000.
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the combined financial position or results of operations of future periods or
the results that actually would have been realized had HearMe ("HearMe" or the
"Company") and AudioTalk Networks, Inc. ("AudioTalk") been a combined company
during the specified periods. The pro forma combined financial statements,
including the notes thereto, are qualified in their entirety by reference to,
and should be read in conjunction with, the historical consolidated financial
statements of HearMe, and AudioTalk.
The following pro forma combined financial statements give effect to the
merger of HearMe and AudioTalk using the purchase method of accounting. The pro
forma combined financial statements are based on the respective historical
consolidated balance sheet and income statement of HearMe as of and for the year
ended December 31, 1999 and the balance sheet and income statement of AudioTalk,
as of and for the 12 months ended December 31, 1999.
The pro forma combined balance sheet assumes that the acquisition took
place December 31, 1999 and the pro forma combined statements of operations
assume the acquisition took place as of January 1, 1999.
<PAGE>
<TABLE>
<CAPTION>
HEARME
PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS)
HEARME AUDIOTALK
DECEMBER 31, DECEMBER 31, PRO FORMA PRO FORMA
1999 1999 ADJUSTMENTS COMBINED
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 2,568 $ 3,229 $ 2,550 (f) $ 8,347
Short-term investments 66,756 - (10,000)(a) 56,756
Accounts receivable, net 5,767 500 - 6,267
Interest and other receivables 946 12 - 958
Other current assets 1,697 - - 1,697
------------ ------------ ---------- -------------
Total current assets 77,734 374 (7,450) 74,025
Property and equipment, net 4,500 463 - 4,963
Goodwill 17,708 - 108,065 (c) 125,773
Intangible assets 4,153 - 2,730 (c) 6,883
Other assets 461 251 - 712
------------ ------------ ---------- -------------
Total assets $ 104,556 $ 4,455 $103,345 $ 212,356
============ ============ ========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 557 $ 133 $ 500 (d) $ 1,190
Accrued liabilities 5,833 134 - 5,967
Deferred revenue 396 500 - 896
Short-term debt - - - -
Current portion of long-term
liabilities 322 - - 322
------------ ------------ ----------- -------------
Total current liabilities 7,108 767 500 8,375
Deferred tax liability 1,661 - 1,092 (e) 2,753
Other long-term liabilities 19 - 19
------------ ------------ ----------- -------------
Total liabilities 8,788 767 1,592 11,147
Redeemable Common Stock 2,000 - - 2,000
Stockholders' equity:
Common stock and APIC 183,204 6,423 99,190 (a) 288,817
Warrants 2 - - 2
Notes receivable from stockholders (2,325) (172) - (2,497)
Deferred compensation (9,027) - - (9,027)
Accumulated deficit (78,086) (2,563) (2,563) (b) (78,086)
------------ ------------ ----------- -------------
Total stockholders' equity 93,768 3,688 101,753 199,209
------------ ------------ ----------- -------------
$ 104,556 $ 4,455 $ 103,345 $ 212,356
============ ============ =========== =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HEARME
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HEARME AUDIOTALK
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, PRO FORMA PRO FORMA
1999 1999 ADJUSTMENTS COMBINED
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
Net revenues $ 15,522 $ 5 $ - $ 15,527
Cost of net revenues 5,591 - - 5,591
---------- ----------- ------------ ----------
Gross profit................... 9,931 5 - 9,936
Operating expenses:
Research and development 7,937 1,075 - 9,012
Sales and marketing.................. 15,505 386 - 15,891
General and administrative........... 6,594 777 - 7,371
In-process research and development.. 850 - 850
Stock based compensation............. 3,816 - - 3,816
Goodwill and intangibles............. 2,175 - 37,178 (c) 39,353
---------- ----------- ------------ ----------
Total operating expenses....... 36,877 2,238 37,178 76,293
---------- ----------- ------------ ----------
Loss from operations........... (26,946) (2,233) (37,178) (66,357)
Interest and other income (expense),net.. 10,874 41 - 1,915
---------- ----------- ------------ ----------
Loss before provision for income taxes (25,072) (2,192) (37,178) (64,442)
Provision for income taxes............... (9) - - (9)
---------- ----------- ------------ ----------
Net loss................... $ (25,081) $ (2,192) $(37,178) $(64,451)
=========== =========== ============ ==========
Net loss per common share:
Basic & diluted...................... $ (1.60) $ (0.48) $ (3.19)
=========== ========== ==========
Weighted average shares outstanding:
Basic & diluted...................... 15,673 4,520 20,193
=========== =========== ==========
</TABLE>
<PAGE>
Notes to Pro Forma Financial Statements
Note 1: Basis of Presentation
The pro forma combined balance sheet assumes that the Merger took place
December 31, 1999 and the pro forma combined statements of operations assume the
Merger took place as of January 1, 1999.
Note 2. Pro Forma Adjustments
These unaudited pro forma combined financial statements reflect the
issuance of 4,520,327 shares of HearMe common stock in exchange for an aggregate
15,437,133 shares of AudioTalk common and preferred stock based on an exchange
ratio of 3.42.
The total purchase price of AudioTalk has been calculated as follows (in
thousands):
Cash $ 10,000
Value of securities issued 100,467
Assumption of AudioTalk options 5,695
---------
Subtotal 116,162
---------
Transaction costs and expenses 500
---------
Total estimated purchase $ 116,662
=========
The purchase price has been allocated as follows (in thousands):
<TABLE>
<S> <C> <C> <C>
Amount Annual Amortization Useful Life
Tangible net assets acquired $6,408 N/A N/A
In-process research and development 550 N/A N/A
Developed technologies 580 290 2 years
Contracts in place 900 450 2 years
Workforce 1,250 417 3 years
Goodwill 108,065 36,021 3 years
</TABLE>
Based on the finalization of the integration plans and other factors, the
pro forma adjustments may differ materially from those presented in these pro
forma combined financial statements.
(a) Adjustments to record the issuance of 4,520,327 shares of HearMe common
stock and options to purchase HearMe common stock issued in exchange for
options to purchase AudioTalk common stock as well as the cash payment of
$10 million, and the elimination of AudioTalk common stock and to record the
write-off of $550,000 in purchased in-process research and development.
(b) Adjustment for accumulated deficit on AudioTalk records.
(c) Adjustments to record the intangible assets of $110,795,000 comprising
purchased technology ($580,000), workforce-in-place ($1,250,000), sales
contracts ($900,000 ) and goodwill ($108,065,000).
<PAGE>
The estimated annual amortization charge to income related to intangible assets
acquired of $37,178,000 is reflected in the pro forma combined statement of
operations
(d) Adjustment to record estimated acquisition-related expenses.
(e) Adjustment to record deferred tax liabilities associated with certain
intangible assets. This liability was estimated using a statutory rate of
40%.
(f) Adjustment to record cash received by AudioTalk for issuance of stock
subsequent to Dec 31, 1999.
Note 3. Pro Forma Earnings Per Common Share
Basic pro forma earnings per common share was calculated based on the
issuance of 4,520,327 shares of shares of HearMe common stock. Diluted earnings
per common share did not include equivalent HearMe common shares, as their
effect was antidilutive.
(c) EXHIBITS.
2.22 AGREEMENT AND PLAN OF MERGER dated as of March 8, 2000 among
HearMe, AT Acquisition Corp., and AudioTalk Networks, Inc.
23.1 Consent of Independent Accountants
Reports on Form 8-K
On April 18, 2000, the Registrant filed on Form 8-K relating to the
acquisition by the Registrant of Audio Talk Networks, Inc., which acquisition
was consummated on April 3, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
HearMe
(Registrant)
Dated: May 5, 2000 By:/s/ Linda Palmor
--------------------------------
Title: Linda Palmor,
CHIEF FINANCIAL OFFICER
<PAGE>
INDEX TO EXHIBITS
EXHIBIT EXHIBIT
NO.
- ------- -------
2.22 AGREEMENT AND PLAN OF MERGER
dated March 8, 2000 between
HearMe, AT Acquisition
Corp., and AudioTalk
Networks, Inc.
23.1 Consent of Independent Accountants
<PAGE>
EXHIBIT 2.22
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 10, 2000
AMONG
HEARME,
AT ACQUISITION CORP.
AND
AUDIOTALK NETWORKS, INC.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGER 1
SECTION 1.1 EFFECTIVE TIME OF THE MERGER 1
SECTION 1.2 CLOSING 2
SECTION 1.3 EFFECTS OF THE MERGER 2
SECTION 1.4 DIRECTORS AND OFFICERS 2
ARTICLE II CONVERSION OF SECURITIES 2
SECTION 2.1 CONVERSION OF CAPITAL STOCK 2
SECTION 2.2 ESCROW AGREEMENT 5
SECTION 2.3 DISSENTING SHARES 5
SECTION 2.4 EXCHANGE OF CERTIFICATES 5
SECTION 2.5 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES 6
SECTION 2.6 NO FRACTIONAL SHARES 6
SECTION 2.7 TAX AND ACCOUNTING CONSEQUENCES 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF TARGET 7
SECTION 3.1 ORGANIZATION OF TARGET 7
SECTION 3.2 TARGET CAPITAL STRUCTURE 7
SECTION 3.3 AUTHORITY; NO CONFLICT; REQUIRED FILINGS
AND CONSENTS 8
SECTION 3.4 FINANCIAL STATEMENTS; ABSENCE OF
UNDISCLOSED LIABILITIES 9
SECTION 3.5 TAX MATTERS 9
SECTION 3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS 11
SECTION 3.7 TITLE AND RELATED MATTERS 12
SECTION 3.8 PROPRIETARY RIGHTS 12
SECTION 3.9 EMPLOYEE BENEFIT PLANS 14
SECTION 3.10 BANK ACCOUNTS 15
SECTION 3.11 CONTRACTS 15
SECTION 3.12 COMPLIANCE WITH LAW 16
SECTION 3.13 LABOR DIFFICULTIES; NO DISCRIMINATION 17
SECTION 3.14 INSIDER TRANSACTIONS 17
SECTION 3.15 EMPLOYEES, INDEPENDENT CONTRACTORS AND CONSULTANTS 17
SECTION 3.16 INSURANCE 17
SECTION 3.17 LITIGATION 18
SECTION 3.18 GOVERNMENTAL AUTHORIZATIONS AND REGULATIONS 18
SECTION 3.19 SUBSIDIARIES 18
SECTION 3.20 COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS 18
SECTION 3.21 CORPORATE DOCUMENTS 18
SECTION 3.22 NO BROKERS 18
SECTION 3.23 TARGET ACTION 19
SECTION 3.24 OFFERS 19
SECTION 3.25 DISCLOSURE 19
SECTION 3.26 DISCLOSURE TO SHAREHOLDERS 19
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HEARME AND SUB 19
SECTION 4.1 ORGANIZATION OF HEARME AND SUB 19
SECTION 4.2 CAPITALIZATION 19
SECTION 4.3 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS 20
SECTION 4.4 COMMISSION FILINGS; FINANCIAL STATEMENTS 20
SECTION 4.5 COMPLIANCE WITH LAWS 21
SECTION 4.6 INTERIM OPERATIONS OF SUB 21
SECTION 4.7 SHAREHOLDERS CONSENT 21
SECTION 4.8 DISCLOSURE 21
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE V PRECLOSING COVENANTS OF TARGET 22
SECTION 5.1 APPROVAL OF TARGET SHAREHOLDERS 22
SECTION 5.2 ADVICE OF CHANGES 22
SECTION 5.3 OPERATION OF BUSINESS 22
SECTION 5.4 ACCESS TO INFORMATION 24
SECTION 5.5 SATISFACTION OF CONDITIONS PRECEDENT 24
SECTION 5.6 OTHER NEGOTIATIONS 24
SECTION 5.7 GRANT OF ADDITIONAL OPTIONS 25
SECTION 5.8 CONSENTS 25
ARTICLE VI PRECLOSING AND OTHER COVENANTS OF HEARME AND SUB 25
SECTION 6.1 ADVICE OF CHANGES 25
SECTION 6.2 RESERVATION OF HEARME COMMON STOCK 25
SECTION 6.3 SATISFACTION OF CONDITIONS PRECEDENT 25
SECTION 6.4 NASDAQ NATIONAL MARKET LISTING 25
SECTION 6.5 STOCK OPTIONS AND WARRANTS 25
SECTION 6.6 REGISTRATION OF SHARES ISSUED IN THE MERGER 27
SECTION 6.7 PROCEDURES FOR SALE OF SHARES UNDER
REGISTRATION STATEMENT 29
SECTION 6.8 CERTAIN EMPLOYEE BENEFIT MATTERS 30
ARTICLE VII OTHER AGREEMENTS 30
SECTION 7.1 CONFIDENTIALITY 30
SECTION 7.2 NO PUBLIC ANNOUNCEMENT 30
SECTION 7.3 REGULATORY FILINGS; CONSENTS; REASONABLE EFFORTS 30
SECTION 7.4 FURTHER ASSURANCES 30
SECTION 7.5 ESCROW AGREEMENT 30
SECTION 7.6 FIRPTA 30
SECTION 7.7 BLUE SKY LAWS 31
SECTION 7.8 OTHER FILINGS 31
ARTICLE VIII CONDITIONS TO MERGER 31
SECTION 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER 31
SECTION 8.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF HEARME
AND SUB 32
SECTION 8.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF TARGET 32
ARTICLE IX TERMINATION AND AMENDMENT 33
SECTION 9.1 TERMINATION 33
SECTION 9.2 EFFECT OF TERMINATION 34
SECTION 9.3 FEES AND EXPENSES 34
ARTICLE X ESCROW AND INDEMNIFICATION 34
SECTION 10.1 INDEMNIFICATION 34
SECTION 10.2 ESCROW FUND 35
SECTION 10.3 DAMAGE THRESHOLD 35
SECTION 10.4 ESCROW PERIODS 35
SECTION 10.5 CLAIMS UPON ESCROW FUND 35
SECTION 10.6 VALUATION 36
SECTION 10.7 OBJECTIONS TO CLAIMS 36
SECTION 10.8 RESOLUTION OF CONFLICTS 36
SECTION 10.9 SHAREHOLDERS' AGENTS 36
SECTION 10.10 ACTIONS OF THE SHAREHOLDERS' AGENTS 37
SECTION 10.11 CLAIMS 37
ARTICLE XI MISCELLANEOUS 37
-ii-
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 11.1 SURVIVAL OF REPRESENTATIONS AND COVENANTS 37
SECTION 11.2 NOTICES 37
SECTION 11.3 INTERPRETATION 38
SECTION 11.4 COUNTERPARTS 38
SECTION 11.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES 38
SECTION 11.6 GOVERNING LAW 39
SECTION 11.7 ASSIGNMENT 39
SECTION 11.8 AMENDMENT 39
SECTION 11.9 EXTENSION; WAIVER 39
SECTION 11.10 SPECIFIC PERFORMANCE 39
-iii-
<PAGE>
TABLE OF CONTENTS
EXHIBITS
EXHIBIT A - CONSENT
EXHIBIT B - NONCOMPETITION AGREEMENT
EXHIBIT C - STOCKHOLDERS AGREEMENT
EXHIBIT D - FOUNDERS' PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS
EXHIBIT E - INVESTOR REPRESENTATION STATEMENT
EXHIBIT F - ESCROW AGREEMENT
EXHIBIT G - FOUNDERS' INVENTION AGREEMENT
EXHIBIT H - SUBJECT MATTER OF OPINION OF COUNSEL TO TARGET
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of March 10, 2000 (this
"AGREEMENT"), is entered into by and among HearMe, a Delaware corporation
("HEARME"), AT Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of HearMe ("SUB"), and AudioTalk Networks, Inc., a California
corporation ("TARGET").
RECITALS
A. The Boards of Directors of HearMe, Sub and Target deem it advisable and
in the best interests of each corporation and their respective stockholders that
HearMe and Target combine in order to advance the long-term business interests
of HearMe and Target;
B. The combination of HearMe and Target shall be effected by the terms of
this Agreement through a transaction in which Sub will merge with and into
Target, Target will become a wholly-owned subsidiary of HearMe and the
stockholders of Target will become stockholders of HearMe (the "MERGER");
C. For Federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "CODE");
D. For accounting purposes, it is intended that the Merger shall be
accounted for as a purchase transaction;
E. As a condition and inducement to HearMe's willingness to enter into this
Agreement, Frank Chu, Virgil Dobjanschi and Corey Gates (the "FOUNDERS"), and
certain other Target stockholders holding in the aggregate, at least 66-2/3% of
the issued and outstanding Series A Preferred Stock of Target, 50% of the issued
and outstanding Series B Preferred Stock of Target have, concurrently with the
execution of this Agreement, executed and delivered Consents to the Merger in
the form attached hereto as EXHIBIT A (the "CONSENTS"), pursuant to which such
stockholders have, among other things, consented to the Merger and agreed to
grant HearMe irrevocable proxies to vote such shares;
F. As a further condition and inducement to HearMe's willingness to enter
into this Agreement, certain employees of Target have, concurrently with the
execution of this Agreement, executed and delivered Noncompetition Agreements in
the form attached hereto as EXHIBIT B (the "NONCOMPETITION AGREEMENTS"), which
agreements shall only become effective at the Effective Time (as defined in
Section 1.1 below);
G. As a further condition and inducement to HearMe's willingness to enter
into this Agreement, certain stockholders of Target have executed and delivered
to HearMe Stockholders Agreements in the form attached hereto as EXHIBIT C (the
"STOCKHOLDERS AGREEMENTS").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 EFFECTIVE TIME OF THE MERGER.
(a) Subject to the provisions of this Agreement, (i) an Agreement of
Merger (the "AGREEMENT OF MERGER") in such mutually acceptable form as is
required by the relevant provisions of the California Corporations Code
("CALIFORNIA LAW") shall be duly executed and delivered by the parties hereto
and thereafter delivered to the Secretary of State of the State of CALIFORNIA
and (ii) a Certificate of Merger (the
<PAGE>
"CERTIFICATE OF MERGER") and any other required documents have been filed with
the Secretary of State of the State of Delaware in accordance with the Delaware
General Corporation Law (the "DGCL") for filing on the Closing Date (as defined
in Section 1.2).
(b) The Merger shall become effective upon the due and valid filing of
the Agreement of Merger with the Secretary of State of the State of California
and the filing of the Certificate of Merger or at such time thereafter as is
provided in the Agreement of Merger (the "EFFECTIVE TIME").
Section 1.2 CLOSING. The closing of the Merger (the "CLOSING") will take
place at 10:00 a.m., California time, on a date (the "CLOSING DATE") to be
specified by HearMe and Target, which shall be no later than the second business
day after satisfaction or waiver of the latest to occur of the conditions set
forth in Article VIII, at the offices of Venture Law Group, A Professional
Corporation, 2775 Sand Hill Road, Menlo Park, California unless another date,
time or place is agreed to in writing by HearMe and Target.
Section 1.3 EFFECTS OF THE MERGER.
(a) At the Effective Time (i) the separate existence of Sub shall cease and
Sub shall be merged with and into Target (Sub and Target are sometimes referred
to herein as the "CONSTITUENT CORPORATIONS" and Target following consummation of
the Merger is sometimes referred to herein as the "SURVIVING CORPORATION"), (ii)
the Articles of Incorporation of Target shall be the Articles of Incorporation
of the Surviving Corporation and (iii) the Bylaws of Sub as in effect
immediately prior to the Effective Time shall become the Bylaws of the Surviving
Corporation, provided, however, that if the total value of the HearMe Common
Stock to be issued to holders of issued and outstanding shares of Target Stock
pursuant to this Agreement is less than 80% of the sum of such value and the
total amount of cash to be paid to such holders pursuant to section 2.1(c) and
9.1(g) Target shall merge with and into Sub, the separate existence of Target
shall cease, Sub shall be the Surviving Corporation, and the parties shall take
all steps necessary to complete such merger as soon as possible, including
obtaining all necessary consents and approvals. (b) At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of
California and Delaware Law. Without limiting the generality of the foregoing,
at and after the Effective Time, the Surviving Corporation shall possess all the
rights, privileges, powers and franchises, and be subject to all the
restrictions, disabilities and duties of each of the Constituent Corporations.
Section 1.4 DIRECTORS AND OFFICERS. The directors of Sub immediately prior
to the Effective Time shall become the directors of the Surviving Corporation,
each to hold office in accordance with the Articles of Incorporation and Bylaws
of the Surviving Corporation, and the officers of Sub immediately prior to the
Effective Time shall become the officers of the Surviving Corporation, in each
case until their respective successors are duly elected or appointed and
qualified.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 CONVERSION OF CAPITAL STOCK. At the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
Series A Preferred Stock, with no par value of Target (the "TARGET SERIES A
PREFERRED STOCK"), shares of Series B Preferred Stock, with no par value of
Target (the "TARGET SERIES B PREFERRED STOCK" and together with the Target
Series A Preferred Stock, the "TARGET PREFERRED STOCK"), or shares of Common
Stock, with no par value, of Target ("TARGET COMMON STOCK", and collectively
with Target Preferred Stock, "TARGET STOCK"), or capital stock of Sub:
(a) CAPITAL STOCK OF SUB. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, $0.01 par value, of the Surviving
Corporation.
(b) CANCELLATION OF HEARME-OWNED AND TARGET-OWNED STOCK. Any shares of
Target Stock that are owned by HearMe, Sub, Target or any other direct or
indirect wholly-owned Subsidiary of HearMe or Target shall be canceled and
retired and shall cease to exist and no stock of HearMe or other consideration
shall be
-2-
<PAGE>
delivered in exchange. As used in this Agreement, the word "SUBSIDIARY" means,
with respect to any other party, any corporation or other organization, whether
incorporated or unincorporated, of which (i) such party or any other Subsidiary
of such party is a general partner (excluding partnerships, the general
partnership interests of which held by such party or any Subsidiary of such
party do not have a majority of the voting interest in such partnership) or (ii)
at least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization or a majority of the profit interests in such other organization is
directly or indirectly owned or controlled by such party or by any one or more
of its Subsidiaries, or by such party and one or more of its Subsidiaries.
(c) EXCHANGE RATIO.
(i) Each issued and outstanding share of Target Stock (other than
shares to be canceled in accordance with Section 2.1(b) and any Dissenting
Shares as defined in and to the extent provided in Section 2.3) shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into the right to receive:
(A) a fraction of a fully paid and nonassessable share of
HearMe Common Stock (as defined in Section 4.2) equal to the Exchange Ratio, as
defined in and determined in accordance with the provisions of subparagraph (ii)
below; PLUS
(B) an amount in cash equal to the Cash Payment, as defined
in and determined in accordance with subparagraph (iii) below, PLUS
(C) in the case of an outstanding share of Target Preferred
Stock, a fraction of a fully paid and nonassessable share of HearMe Common Stock
(as defined in Section 4.2) equal to the quotient of the liquidation preference
of such share and the Stock Value as defined below.
(ii) For purposes of this Agreement:
(A) the "STOCK VALUE" shall equal the average closing price
(the "AVERAGE CLOSING PRICE") of HearMe's Common Stock on the Nasdaq Stock
Market for the ten (10) trading day period beginning fourteen (14) trading days
before the Closing Date and ending four (4) trading days prior to the Closing
Date, PROVIDED, HOWEVER, that in the event the Average Closing Price is less
than $23.81, the Stock Value shall equal $23.81, and in the event that the
Average Closing Price is greater than $26.31, the Stock Value shall equal
$26.31.
(B) the "CASH COMPONENT" shall mean (i) if Target shall have
given HearMe written notice at least two (2) trading days prior to the Closing
Date of its intent to elect to receive cash, $10,000,000 or (ii) if Target shall
not have given such notice, the difference between (1) the lesser of (a)
$125,000,000 and (b) the product of the Average Closing Price and 5,250,000
shares and (2) the product of the Average Closing Price and 19.99% of the number
of shares of HearMe Common Stock issued and outstanding on the Closing Date
(within the meaning of Rule 4310 of the NASD Marketplace Rules), but not less
than zero .
(C) the "TOTAL CONSIDERATION SHARES" shall be equal to that
number of shares of HearMe Common Stock equal to (1) $125,000,000 divided by the
Stock Value, less (2) that number of shares equal to the quotient obtained by
DIVIDING (x) the Cash Component by (y) the Stock Value. Except as provided in
Section 9.1(g), below, Total Consideration Shares will not exceed the lesser of
(i) 19.99% of the number of shares of HearMe Common Stock issued and outstanding
on the Closing Date (within the meaning of Rule 4310 of the NASD Marketplace
Rules) and 5,250,000 shares, and (ii), except as provided in clause (i), shall
not be less than 4,370,961 shares.
(D) The "EXCHANGE RATIO" shall be equal to the quotient
obtained by DIVIDING (1) difference between (x) the number of the Total
Consideration Shares and (y) the sum of the Option Shares and the Preferred
Share Number by (2) the number of shares of Target Stock outstanding or subject
to
-3-
<PAGE>
issuance upon conversion of all shares of Target Preferred Stock issued and
outstanding, in each case immediately prior to the Effective Time.
(E) The "CASH PAYMENT" shall be equal to the quotient
obtained by DIVIDING (1) the Cash Component by (2) the number of shares of
Target Stock outstanding or subject to issuance upon conversion of all shares of
Target Preferred Stock issued and outstanding, in each case immediately prior to
the Effective Time.
(F) The "OPTION SHARES" shall equal that number of shares of
HearMe Common Stock issuable upon exercise of Target Options (as defined in
Section 2.1(d) below) and upon exercise of Target Warrants (as defined in
Section 2.1(d) below).
(G) The "PREFERRED SHARE NUMBER" shall equal the total
number of shares of HearMe Common Stock issuable pursuant to Section
2.1(c)(i)(C), above.
(iii) Other than as provided in Section 9.1(g), below, in no
event will the total number of shares of HearMe Common Stock issuable by HearMe
pursuant to the Merger (including shares of HearMe Common Stock issuable upon
exercise of Target Options or Target Warrants assumed by HearMe in the Merger)
exceed the Total Consideration Shares, nor shall the total of all Cash Payments
exceed $10,000,000. The allocation of the Total Consideration Shares among each
holder of Target capital stock, warrants and options based upon the
capitalization of Target as of the date of this Agreement is set forth in the
Target Disclosure Schedule. An updated version of such Schedule reflecting the
capitalization of Target on the Closing Date shall be delivered by Target to
HearMe on the Closing Date.
(iv) If, on or after the date of this Agreement and prior to the
Effective Time, the outstanding shares of HearMe Common Stock or Target capital
stock shall have been changed into a different number of shares or a different
class by reason of any reclassification, split-up, stock dividend or stock
combination, then the Exchange Ratio and the Cash Payment, if any, shall be
correspondingly adjusted. The Exchange Ratio shall not change as a result of
fluctuations in the market price of HearMe Common Stock between the date of this
Agreement and the Effective Time.
(v) All such shares of Target Common Stock and Target Preferred
Stock, when so converted, shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights with
respect thereto, except the right to receive the shares of HearMe Common Stock,
the Cash Payment, if any, and any cash in lieu of fractional shares of HearMe
Common Stock to be issued or paid in consideration therefor upon the surrender
of such certificate in accordance with Section 2.4, without interest.
(d) TARGET STOCK OPTIONS AND WARRANTS. At the Effective Time, all then
outstanding options, whether vested or unvested ("TARGET OPTIONS"), to purchase
Target Common Stock issued under Target's 1999 Stock Option Plan (the "TARGET
OPTION PLAN") and all outstanding warrants to purchase Target capital stock
("TARGET WARRANTS") that by their terms survive the Closing will be assumed by
HearMe in accordance with Section 6.5. All of the Target Options and all of the
Target Warrants issued and outstanding as of the date of this Agreement are
listed on Schedule 2.1(d) attached hereto. An updated Schedule 2.1(d) reflecting
Target Options and Target Warrants on the Closing Date shall be delivered by
Target to HearMe on the Closing Date.
(e) RESTRICTED SHARES. Any shares of Target Common Stock which are
subject to repurchase by Target in the event the holder thereof ceases to be
employed by Target ("TARGET RESTRICTED SHARES") shall be converted into HearMe
Common Stock on the same basis as provided in subsection (c) above and shall be
registered in such holder's name, but shall be held by the Surviving Corporation
or HearMe pursuant to the Stock Repurchase Agreements. Holders of the Target
Restricted Shares are identified on Schedule 2.1(e) of the Target Disclosure
Schedule. The vesting schedule of Target Restricted Shares will not accelerate,
and, if necessary, Target will amend the Stock Repurchase Agreements to provide
that such schedule will not accelerate, as a result of the Merger, PROVIDED,
HOWEVER, that on the first anniversary of the Effective Time, HearMe's right to
repurchase HearMe Common Stock (other than shares owned by the Founders) granted
under Target's stock purchase plan prior to the execution of this Agreement from
former employees of Target who are still employed by HearMe shall lapse with
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respect to those shares that would vest in the next 12 months. Repurchase rights
applicable to Target Common Stock held by the Target's board of directors shall
lapse upon the Merger. Repurchase rights applicable to Target Common Stock held
by Founders shall lapse in the event HearMe terminates their employment other
than for cause, as such term is defined in the Founders' Stock Purchase
Agreements dated July 13, 1998.
Section 2.2 ESCROW AGREEMENT. At the Effective Time or such later time as
determined in accordance with Section 2.3(b), HearMe will, on behalf of the
holders of Target Common Stock and Target Preferred Stock deposit in escrow
certificates representing ten percent (10%) of the Total Consideration Shares
allocable to Target Common Stock and Target Preferred Stock in the Merger
(calculated as if the Cash Component were zero). Such shares shall be held in
escrow on behalf of the persons who are the holders of Target Common Stock or
Target Preferred Stock in the Merger immediately prior to the Effective Time
(the "FORMER TARGET STOCKHOLDERS"), in accordance with the portion of Total
Consideration Shares allocable to each such Former Target Stockholder in the
manner contemplated by Section 2.1 ("PRO RATA PORTION"). Such shares
(collectively, the "ESCROW SHARES") shall be held and applied pursuant to the
provisions of an escrow agreement (the "ESCROW AGREEMENT") to be executed
pursuant to Section 7.5. All calculations to determine the number of Escrow
Shares to be delivered by each stockholder of Target into escrow as aforesaid
shall be rounded down to the nearest whole share.
Section 2.3 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Target Common Stock or Target Preferred Stock held by a holder who
has exercised such holder's appraisal rights in accordance with Section 2115 of
the California Corporations Code, and who, as of the Effective Time, has not
effectively withdrawn or lost such appraisal rights ("DISSENTING SHARES"), shall
not be converted into or represent a right to receive HearMe Common Stock or the
Cash Payment (if any) pursuant to Section 2.1, but the holder of the Dissenting
Shares shall only be entitled to such rights as are granted to such persons in
Chapter 13 of the California Corporations Code.
(b) Notwithstanding the provisions of Section 2.3(a), if any holder of
shares of Target Common Stock or Target Preferred Stock who demands his
appraisal rights with respect to such shares under Section 2.1 shall effectively
withdraw or lose (through failure to perfect or otherwise) his rights to receive
payment for such shares under California Law, then, as of 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 HearMe
Common Stock, the Cash Payment, if any, and payment for fractional shares as
provided in Section 2.1(c), without interest, upon surrender of the certificate
or certificates representing such shares; PROVIDED that if such holder
effectively withdraws or loses his right to receive payment for such shares
after the Effective Time, then, at such time HearMe will deposit in the escrow
created pursuant to the Escrow Agreement additional certificates representing
such holder's Pro Rata Portion of the Escrow Shares.
(c) Target shall give HearMe (i) prompt notice of any written demands
for payment with respect to any shares of capital stock of Target pursuant to
the appraisal rights under California Law, withdrawals of such demands, and any
other instruments served pursuant to California Law and received by the Target
and (ii) the opportunity to participate at its own expense in all negotiations
and proceedings with respect to demands for appraisal rights under California
Law. Target shall not, except with the prior written consent of HearMe,
voluntarily make any payment with respect to any demands for appraisal rights
with respect to Target Common Stock or Target Preferred Stock or offer to settle
or compromise any such demands.
Section 2.4 EXCHANGE OF CERTIFICATES.
(a) From and after the Effective Time, each holder of an outstanding
certificate or certificates ("CERTIFICATES") which represented shares of Target
Common Stock or Target Preferred Stock immediately prior to the Effective Time
shall have the right to surrender each Certificate to HearMe (or at HearMe's
option, an exchange agent to be appointed by HearMe), and receive promptly in
exchange for all Certificates held by such holder a certificate representing the
number of whole shares of HearMe Common Stock (other than the Escrow Shares)
plus the Cash Payment, if any, into which the Target Common Stock or Target
Preferred Stock evidenced by the Certificates so surrendered shall have been
converted pursuant to the provisions of Article II of this Agreement. The
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surrender of Certificates shall be accompanied by duly completed and executed
Letters of Transmittal in such form as may be reasonably specified by HearMe.
Until surrendered, each outstanding Certificate which prior to the Effective
Time represented shares of Target Common Stock or Target Preferred Stock shall
be deemed for all corporate purposes to evidence ownership of the number of
whole shares of HearMe Common Stock plus the Cash Payment, if any, into which
the shares of Target Common Stock have been converted but shall, subject to
applicable appraisal rights under CALIFORNIA Law, have no other rights. Subject
to applicable appraisal rights under CALIFORNIA Law, from and after the
Effective Time, the holders of shares of Target Common Stock and Target
Preferred Stock shall cease to have any rights in respect of such shares and
their rights shall be solely in respect of the HearMe Common Stock and the Cash
Payment, if any, into which such shares of Target Common Stock or Target
Preferred Stock have been converted. From and after the Effective Time, there
shall be no further registration of transfers on the records of Target of shares
of Target Common Stock and Target Preferred Stock outstanding immediately prior
to the Effective Time.
(b) If any shares of HearMe Common Stock are to be issued in the name
of a person other than the person in whose name the Certificate(s) surrendered
in exchange therefor is registered, it shall be a condition to the issuance of
such shares that (i) the Certificate(s) so surrendered shall be transferable,
and shall be properly assigned, endorsed or accompanied by appropriate stock
powers, (ii) such transfer shall otherwise be proper and (iii) the person
requesting such transfer shall pay HearMe, or its exchange agent, any transfer
or other taxes payable by reason of the foregoing or establish to the
satisfaction of HearMe that such taxes have been paid or are not required to be
paid. Notwithstanding the foregoing, neither HearMe nor Target shall be liable
to a holder of shares of Target Common Stock or Target Preferred Stock for
shares of HearMe Common Stock or any Cash Payment issuable to such holder
pursuant to the provisions of Article II of this Agreement that are delivered to
a public official pursuant to applicable abandoned property, escheat or similar
laws.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, HearMe shall issue in exchange
for such lost, stolen or destroyed Certificate the shares of HearMe Common Stock
issuable in exchange therefor and pay the Cash Payment, if any, pursuant to the
provisions of Article II of the Agreement. The Board of Directors of HearMe may
in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed Certificate to provide to HearMe an
indemnity agreement or bond against any claim that may be made against HearMe
with respect to the Certificate alleged to have been lost, stolen or destroyed.
Section 2.5 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends
or other distributions declared or made after the Effective Time with respect to
HearMe Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the shares of HearMe
Common Stock represented thereby and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 2.6 below until the
holder of record of such Certificate shall surrender such Certificate. Subject
to the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the record holder of the certificates representing whole
shares of HearMe Common Stock issued in exchange therefor, without interest, (i)
at the time of such surrender, the amount of any cash payable in lieu of a
fractional share of HearMe Common Stock to which such holder is entitled
pursuant to Section 2.6 below and the amount of any dividends or other
distributions with a record date after the Effective Time previously paid with
respect to such whole shares of HearMe Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of HearMe Common Stock.
Section 2.6 NO FRACTIONAL SHARES. No certificate or scrip representing
fractional shares of HearMe Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of HearMe.
Notwithstanding any other provision of this Agreement, each holder of shares of
Target Common Stock or Target Preferred Stock exchanged pursuant to the Merger
who would otherwise have been entitled to receive a fraction of a share of
HearMe Common Stock (after taking into account all Certificates delivered by
such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of HearMe Common Stock
multiplied by the Stock Value.
Section 2.7 TAX AND ACCOUNTING CONSEQUENCES.
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(a) It is intended by the parties hereto that the Merger shall
constitute a "reorganization" within the meaning of Section 368 of the Code. The
parties hereto adopt this Agreement as a "plan of reorganization" within the
meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax
Regulations.
(b) It is intended by the parties hereto that the Merger shall qualify
for financial accounting treatment as purchase accounting.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TARGET
Target represents and warrants to HearMe and Sub that the statements
contained in this Article III are true and correct, except as expressly set
forth in the disclosure schedule delivered by Target to HearMe on or before the
date of this Agreement (the "TARGET DISCLOSURE SCHEDULE"). The Target Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article III.
Section 3.1 ORGANIZATION OF TARGET. Target is a corporation duly
organized, validly existing and in good standing under the laws of the State of
CALIFORNIA, has all requisite corporate power to own, lease and operate its
property and to carry on its business as now being conducted, and is duly
qualified or licensed to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of its business or
ownership or leasing of properties makes such qualification or licensing
necessary and where the failure to be so qualified or licensed could
reasonably be expected to result in a material adverse effect on the business,
assets (including intangible assets), liabilities, condition (financial or
otherwise), prospects or results of operations (a "MATERIAL ADVERSE EFFECT") of
Target. The Target Disclosure Schedule contains a true and complete listing of
the locations of all sales offices, development facilities, and any other
offices or facilities of Target and a true and complete list of all states in
which Target maintains any employees. The Target Disclosure Schedule contains a
true and complete list of all states in which Target is duly qualified or
licensed to transact business as a foreign corporation.
Section 3.2 TARGET CAPITAL STRUCTURE.
(a) The authorized capital stock of Target consists of Twenty Million
(20,000,000) shares of Target Common Stock and Eight Million Six Hundred
Thousand (8,600,000) shares of Preferred Stock, of which 3,600,000 shares are
designated as Series A Preferred Stock and 5,000,000 shares are designated as
Series B Preferred Stock. As of the date of this Agreement, there are (i)
5,772,133 shares of Target Common Stock issued and outstanding, all of which are
validly issued, fully paid and nonassessable and 4,078,625 of which are subject
to repurchase rights pursuant to agreements or arrangements between the holder
thereof and Target, (ii) 3,600,000 shares of Series A Preferred Stock issued and
outstanding, all of which are validly issued, fully paid and nonassessable, and
each share of which is convertible into one share of Target Common Stock, (iii)
5,000,000 shares of Series B Preferred Stock issued and outstanding, all of
which are validly issued, fully paid and nonassessable, and each share of which
is convertible into one share of Target Common Stock (iv) Target Warrants to
purchase up to 1,000,000 shares of Series B Preferred Stock; (v) Target Options
to purchase up to 158,117 shares of Target Common Stock, of which 105,417 have
not fully vested; (vi) 8,600,000 shares of Target Common Stock reserved for
future issuance upon conversion of the Target Preferred Stock; and (vii) 303,000
shares of Target Common Stock reserved for issuance upon exercise of options
available to be granted in the future under the Target Option Plan. The issued
and outstanding shares of Target Common Stock and of Target Preferred Stock are
held of record by the stockholders of Target as set forth and identified on
Schedule 3.2(a) of the Target Disclosure Schedule. The issued and outstanding
Target Options are held of record by the option holders identified on, in the
amounts and subject to the vesting schedules set forth on, Schedule 3.2(a) of
the Target Disclosure Schedule. The issued and outstanding Target Warrants are
held of record by the warrantholders as set forth and identified on Schedule
3.2(a) of the Target Disclosure Schedule. All shares of Target Common Stock
subject to issuance upon the exercise of Target Options and Target Warrants,
upon issuance on the terms and conditions (including payment) specified in the
instrument pursuant to which they are issuable, will be duly authorized, validly
issued, fully paid and nonassessable. All outstanding shares of Target Common
Stock, Target Preferred Stock and outstanding Target Options and Target Warrants
(collectively "TARGET SECURITIES") were issued in compliance with applicable
federal and state securities laws. Except as set forth in the Target Disclosure
Schedule, there are no obligations, contingent or otherwise, of
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Target to repurchase, redeem or otherwise acquire any shares of Target Common
Stock or Target Preferred Stock or make any investment (in the form of a loan,
capital contribution or otherwise) in any other entity. An updated Schedule
3.2(a) reflecting changes permitted by this Agreement in the capitalization of
Target between the date hereof and the Effective Time shall be delivered by
Target to HearMe on the Closing Date.
(b) Except as set forth in this Section 3.2, there are no equity
securities of any class or series of Target, or any security exchangeable into
or exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except as set forth in this Section 3.2, there are no options,
warrants, equity securities, calls, rights, commitments or agreements of any
character to which Target is a party or by which it is bound obligating Target
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of Target or obligating Target to grant, extend,
accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement. Target is not in active
discussion, formal or informal, with any person or entity regarding the issuance
of any form of additional Target equity that has not been issued or committed to
prior to the date of this Agreement. Except as provided in this Agreement and
the other Transaction Documents (as defined in Section 3.3(a)) or any
transaction contemplated hereby or thereby, there are no voting trusts, proxies
or other agreements or understandings with respect to the voting of the shares
of capital stock of Target.
(c) All Target Options have been issued in accordance with the terms
of the Target Option Plan and pursuant to the standard forms of option agreement
previously provided to HearMe or its representatives. No Target Option will by
its terms require an adjustment in connection with the Merger. Except as
otherwise contemplated by Sections 2.1(e) and 6.5(b), neither the consummation
of transactions contemplated by this Agreement or the other Transaction
Documents, nor any action taken or to be taken by Target in connection with such
transactions will result in (i) any acceleration of vesting in favor of any
optionee under any Target Option; (ii) any additional benefits for any optionee
under any Target Option; or (iii) the inability of HearMe after the Effective
Time to exercise any right or benefit held by Target prior to the Effective Time
with respect to any Target Option assumed by HearMe, including, without
limitation, the right to repurchase an optionee's unvested shares on termination
of such optionee's employment. Except as otherwise contemplated by Section s
2.1(e) and 6.5(b), the assumption by HearMe of Target Options in accordance with
Section 6.5 hereunder will not (i) give the optionees additional benefits which
they did not have under their options prior to such assumption (after taking
into account the existing provisions of the options, such as their respective
exercise prices and vesting schedules) or (ii) constitute a breach of the Target
Plan or any agreement entered into pursuant to such plan.
Section 3.3 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Target has all requisite corporate power and authority to enter
into this Agreement and all Transaction Documents to which it is or will become
a party and to consummate the transactions contemplated by this Agreement and
such Transaction Documents. The execution and delivery of this Agreement and
such Transaction Documents and the consummation of the transactions contemplated
by this Agreement and such Transaction Documents have been duly authorized by
all necessary corporate action on the part of Target, subject only to the
approval of the Merger by Target's stockholders under the provisions of
CALIFORNIA Law and Target's Articles of Incorporation. This Agreement has been
and such Transaction Documents have been or, to the extent not executed by
Target as of the date hereof, will be duly executed and delivered by Target.
This Agreement and each of the Transaction Documents to which Target is a party
constitutes, and each of the Transaction Documents to which Target will become a
party, when executed and delivered by Target, will constitute, assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
the valid and binding obligation of Target, enforceable against Target in
accordance with their respective terms. For purposes of this Agreement,
"TRANSACTION DOCUMENTS" means all documents or agreements required to be
delivered by any party under this Agreement including the Agreement of Merger,
the Escrow Agreement, the Proxies, the Consents, the Stockholders Agreements,
the Stock Repurchase Agreements and the Noncompetition Agreements.
(b) The execution and delivery by Target of this Agreement and the
Transaction Documents to which it is or will become a party does not, and the
consummation of the transactions contemplated by this Agreement and the
Transaction Documents to which it is or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the
Articles of Incorporation or Bylaws of Target, (ii) result in any violation or
breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit) under any of the terms,
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conditions or provisions of any note, bond, mortgage, indenture, lease, contract
or other agreement, instrument or obligation to which Target is a party or by
which it or any of its properties or assets may be bound, or (iii) conflict or
violate any permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Target or any of its
properties or assets.
(c) None of the execution and delivery by Target of this Agreement or
of any other Transaction Document to which Target is or will become a party or
the consummation of the transactions contemplated by this Agreement or such
Transaction Document will require any consent, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission or other governmental authority or instrumentality
("GOVERNMENTAL ENTITY"), except for (i) the filing of the Agreement of Merger
with the California Secretary of State, (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and (iii) such other consents,
authorizations, filings, approvals and registrations which are listed on the
Target Disclosure Schedule.
Section 3.4 FINANCIAL STATEMENTS; ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Target has delivered to HearMe copies of Target's unaudited
balance sheet as of February 29, 2000 (the "MOST RECENT BALANCE SHEET") and
statements of operations for the eight-month period then-ended (together with
the Most Recent Balance Sheet, the "TARGET INTERIM FINANCIALS") and Target's
audited balance sheet as of June 30, 1999, and the related audited statements of
operations, stockholders' equity and cash flows for the year ended June 30, 1999
(collectively, the "TARGET FINANCIAL STATEMENTS").
(b) The Target Financial Statements are in accordance with the books
and records of Target and present fairly in all material respects the financial
position, results of operations and cash flows of Target as of their historical
dates and for the periods indicated. The Target Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with prior periods. The reserves, if any, reflected on the
Target Financial Statements are adequate in light of the contingencies with
respect to which they were made.
(c) Target has no material debt, liability, or obligation of any
nature, whether accrued, absolute, contingent, or otherwise, and whether due or
to become due, that is not reflected or reserved against in the Most Recent
Balance Sheet, except for those that may have been incurred after the date of
the Most Recent Balance Sheet, which were incurred in the ordinary course of
business and are not material both individually and in the aggregate to Target
or its business.
Section 3.5 TAX MATTERS.
(a) For purposes of this Section 3.5 and other provisions of this
Agreement relating to Taxes, the following definitions shall apply:
(i) The term "TAXES" shall mean all taxes, however denominated,
including any interest, penalties or other additions to tax that may become
payable in respect thereof, (A) imposed by any federal, territorial, state,
local or foreign government or any agency or political subdivision of any such
government, which taxes shall include, without limiting the generality of the
foregoing, all income or profits taxes (including but not limited to, federal
income taxes and state income taxes), payroll and employee withholding taxes,
unemployment insurance, social security taxes, sales and use taxes, ad valorem
taxes, excise taxes, franchise taxes, gross receipts taxes, business license
taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, ozone depleting chemicals taxes, transfer taxes, workers'
compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar nature
to any of the foregoing, which are required to be paid, withheld or collected,
(B) any liability for the payment of amounts referred to in (A) as a result of
being a member of any affiliated, consolidated, combined or unitary group, or
(C) any liability for amounts referred to in (A) or (B) as a result of any
obligations to indemnify another person.
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(ii) The term "RETURNS" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns relating to,
or required to be filed in connection with, any Taxes, including information
returns or reports with respect to backup withholding and other payments to
third parties.
(b) All Returns required to be filed prior to the date hereof by or on
behalf of Target have been duly filed on a timely basis, and such Returns are
true, complete and correct in all material respects. All Taxes shown to be
payable on such Returns or on subsequent assessments with respect thereto, and
all payments of estimated Taxes required to be made prior to the date hereof by
or on behalf of Target under Section 6655 of the Code or comparable provisions
of state, local or foreign law, have been paid in full on a timely basis or if
not yet due, have been accrued on the Most Recent Balance Sheet, and no other
Taxes are payable by Target with respect to items or periods covered by such
Returns (whether or not shown on or reportable on such Returns). Target has
withheld and paid over all Taxes required to have been withheld and paid over
prior to the date hereof , and complied 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. Target has received from
each employee who holds stock that is subject to a substantial risk of
forfeiture as of the date hereof, a copy of the election(s) made under Section
83(b) of the Code with respect to all such shares, and such elections were
validly made and filed with the Internal Revenue Service in a timely fashion.
There are no liens on any of the assets of Target with respect to Taxes, other
than liens for Taxes not yet due and payable or for Taxes that Target is
contesting in good faith through appropriate proceedings and for which
appropriate reserves have been established on the Most Recent Balance Sheet.
Target has not at any time been (i) a member of an affiliated group of
corporations filing consolidated, combined or unitary income or franchise tax
returns, or (ii) a member of any partnership or joint venture for a period for
which the statute of limitations for any Tax potentially applicable as a result
of such membership has not expired.
(c) The amount of Target's liability for unpaid Taxes (whether actual
or contingent) for all periods through the date of the Most Recent Balance Sheet
does not, in the aggregate, exceed the amount of the current liability accruals
for Taxes reflected on the Most Recent Balance Sheet, and the Most Recent
Balance Sheet reflects proper accrual in accordance with generally accepted
accounting principles applied on a basis consistent with prior periods of all
liabilities for Taxes payable after the date of the Most Recent Balance Sheet
attributable to transactions and events occurring prior to such date. No
material amount of taxable income or liability for Taxes has been recognized or
incurred (or prior to the Effective Time will be incurred) since such date other
than in the ordinary course of business.
(d) HearMe has been furnished by Target with true and complete copies
of (i) relevant portions of income tax audit reports, statements of
deficiencies, closing or other agreements received by or on behalf of Target
relating to Taxes, and (ii) all federal and state income or franchise tax
Returns and state sales and use tax Returns for or including Target for all
periods since the inception of Target. Target does not do business in or derive
income from any state other than states for which Returns have been duly filed
and furnished to HearMe.
(e) The Returns of or including Target have never been audited by a
government or taxing authority, nor is any such audit in process, pending or, to
Target's knowledge, threatened (either in writing or verbally, formally or
informally). No deficiencies exist or have been asserted (either in writing or
verbally, formally or informally), and Target has not received notice (either in
writing or verbally, formally or informally) that it has not filed a Return or
paid Taxes required to be filed or paid. Target is neither a party to any action
or proceeding for assessment or collection of Taxes, nor has such event been
asserted or threatened (either in writing or orally, formally or informally)
against Target or any of its assets. No waiver or extension of any statute of
limitations is in effect with respect to Taxes or Returns of Target. Target has
disclosed on its federal and state income and franchise tax Returns all
positions taken therein that could give rise to a substantial understatement
penalty within the meaning of Code Section 6662 or comparable provisions of
applicable state, local, foreign or other tax laws.
(f) Target has not been and will not be required to include any
material adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or Section 263A of the Code or any comparable provision
under state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the Effective Time.
(g) Target is not, nor has it ever been, a party to any tax sharing
agreement.
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(h) Target is not, nor has it been, a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code, and
HearMe is not required to withhold tax by reason of Section 1445 of the Code.
Target is not a "consenting corporation" under Section 341(f) of the Code.
Target has not entered into any compensatory agreements with respect to the
performance of services which payment thereunder would result in a nondeductible
expense to Target pursuant to Section 280G of the Code or an excise tax to the
recipient of such payment pursuant to Section 4999 of the Code. Target has not
agreed to, nor is it required to make any adjustment under Code Section 481(a)
by reason of, a change in accounting method. Target is not, nor has it been, a
"reporting corporation" subject to the information reporting and record
maintenance requirements of Section 6038A and the regulations thereunder. Target
is in compliance with the terms and conditions of any applicable tax exemptions,
agreements or orders of any foreign government to which it may be subject or
which it may have claimed, and the transactions contemplated by this Agreement
will not have any adverse effect on such compliance.
(i) The Target Disclosure Schedule sets forth accurate and complete
information regarding Target's net operating losses for federal and each
applicable state income tax purposes. Except as a result of the transactions
contemplated hereby, Target has no net operating losses and credit carryovers or
other tax attributes currently subject to limitation under Sections 382, 383, or
384 of the Code.
Section 3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since February 29, 2000,
Target has not:
(a) suffered any material adverse change in its business, assets
(including intangible assets), liabilities, condition (financial or otherwise),
prospects or results of operations ("MATERIAL ADVERSE CHANGE");
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, that has resulted, or could be reasonably expected to result,
in a Material Adverse Effect on Target;
(c) granted or agreed to make any increase in the compensation payable
or to become payable by Target to its officers or employees, except pursuant to
annual raises in the ordinary course of business;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of Target or
declared any direct or indirect redemption, retirement, purchase or other
acquisition by Target of such shares;
(e) issued any shares of capital stock of Target or any warrants,
rights, options or entered into any commitment relating to the shares of Target,
except for the issuance of shares of Target capital stock pursuant to the
exercise of Target Options and Target Warrants listed in the Target Disclosure
Schedule and the conversion of outstanding Target Preferred Stock;
(f) made any change in the accounting methods or practices it follows,
whether for general financial or tax purposes, or any change in depreciation or
amortization policies or rates adopted therein;
(g) sold, leased, abandoned or otherwise disposed of any real property
or any machinery, equipment or other operating property with an individual net
book value in excess of $5,000;
(h) sold, assigned, transferred, licensed or otherwise disposed of any
patent, trademark, trade name, brand name, copyright (or pending application for
any patent, trademark or copyright) invention, work of authorship, process,
know-how, formula or trade secret or interest thereunder or other intangible
asset;
(i) permitted or allowed any of its property or assets to be subjected
to any mortgage, deed of trust, pledge, lien, security interest or other
encumbrance of any kind (except those permitted under Section 3.7);
(j) made any capital expenditure or commitment individually in excess
of $50,000 or in the aggregate in excess of $200,000;
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(k) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any agreement or arrangement
with, any of its Affiliates (as defined in Section 3.14), officers, directors or
shareholders or any affiliate of any of the foregoing;
(l) made any amendment to or terminated any agreement which, if not so
amended or terminated, would be required to be disclosed on the Target
Disclosure Schedule; or
(m) agreed to take any action described in this Section 3.6 or outside
of its ordinary course of business or which would constitute a breach of any of
the representations of Target contained in this Agreement.
Section 3.7 TITLE AND RELATED MATTERS. Target has good and valid title to
all its properties, interests in properties and assets, real and personal, free
and clear of all mortgages, liens, pledges, charges or encumbrances of any kind
or character, except the lien of current taxes not yet due and payable and minor
imperfections of and encumbrances on title, if any, as do not materially detract
from the value of or interfere with the present use of the property affected
thereby. The equipment of Target used in the operation of its business is, taken
as a whole, (i) adequate for the business conducted by Target and (ii) in good
operating condition and repair, ordinary wear and tear excepted. All personal
property leases to which Target is a party are valid, binding, enforceable
against the parties thereto and in effect in accordance with their respective
terms. To the knowledge of Target, there is not under any of such leases any
existing default or event of default or event which, with notice or lapse of
time or both, would constitute a default. The Target Disclosure Schedule
contains a description of all items of personal property with an individual net
book value in excess of $2,000 and real property leased by Target, describing
its interest in said property. True and correct copies of Target's real property
and personal property leases have been provided to HearMe or its
representatives.
Section 3.8 PROPRIETARY RIGHTS.
(a) Target owns all right, title and interest in and to, or otherwise
possesses legally enforceable rights to use, all patents, copyrights,
technology, software, software tools, know-how, processes, trade secrets,
trademarks, service marks, trade names, Internet domain names and other
proprietary rights used in the conduct of Target's business as conducted to the
date of this Agreement and as reasonably expected to be conducted following the
date hereof, including, without limitation, the technology, information,
databases, data lists, data compilations, and all proprietary rights developed
or discovered or used in connection with or contained in all versions and
implementations of Target's World Wide Web sites (including www.audiotalk.com
and the other domain names listed in the Target Disclosure Schedule) or any
product which has been or is being distributed or sold by Target or currently is
under development by Target or has previously been under development by Target
(collectively, including such Web sites, the "TARGET PRODUCTS"), free and clear
of all liens, claims and encumbrances (including without limitation licensing
and distribution rights) (all of which are referred to as "TARGET PROPRIETARY
RIGHTS"). The Target Disclosure Schedule contains an accurate and complete (i)
description of all patents, trademarks (with separate listings of registered and
unregistered trademarks), trade names, Internet domain names and registered
copyrights in or related to the Target Products or otherwise included in the
Target Proprietary Rights and all applications and registration statements
therefor, including the jurisdictions in which each such Target Proprietary
Right has been issued or registered or in which any such application of such
issuance and registration has been filed, (ii) list of all licenses and other
agreements with third parties (the "THIRD PARTY LICENSES") relating to any
material patents, copyrights, trade secrets, software, inventions, technology,
know-how, processes or other proprietary rights that Target is licensed or
otherwise authorized by such third parties to use, market, distribute or
incorporate in Target Products (such patents, copyrights, trade secrets,
software, inventions, technology, know-how, processes or other proprietary
rights are collectively referred to as the "THIRD PARTY TECHNOLOGY") and (iii)
list of all licenses and other agreements with third parties relating to any
material information, compilations, data lists or databases that Target is
licensed or otherwise authorized by such third parties to use, market,
disseminate distribute or incorporate in Target Products. All of Target's
patents, copyrights, trademarks, trade names or Internet domain name
registrations related to or in the Target Products are valid and in full force
and effect, and consummation of the transactions contemplated by this Agreement
will not alter or impair any such rights. No claims have been asserted or
threatened against Target (and Target is not aware of any claims which are
likely to be asserted or threatened against Target or which have been asserted
or threatened against others relating to Target Proprietary Rights or Target
Products) by any person challenging Target's use, possession, manufacture, sale
or distribution of Target Products under any Target Proprietary Rights
(including, without limitation, the Third Party Technology) or
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challenging or questioning the validity or effectiveness of any material license
or agreement relating thereto (including, without limitation, the Third Party
Licenses) or alleging a violation of any person's or entity's privacy, personal
or confidentiality rights. Target knows of no valid basis for any claim of the
type specified in the immediately preceding sentence which could in any material
way relate to or interfere with the continued enhancement and exploitation by
Target of any of the Target Products. None of the Target Products nor the use or
exploitation of any Target Proprietary Rights in Target's current business
infringes on the rights of or constitutes misappropriation of any proprietary
information or intangible property right of any third person or entity,
including without limitation any patent, trade secret, copyright, trademark or
trade name, and except as set forth on the Target Disclosure Schedule, Target
has not been sued or named in any suit, action or proceeding which involves a
claim of such infringement, misappropriation or unfair competition ...
(b) Target has not granted any third party any right to reproduce,
distribute, market or exploit any of the Target Products or any adaptations,
translations, or derivative works based on the Target Products or any portion
thereof. Except with respect to the rights of third parties to the Third Party
Technology, no third party has any express right to reproduce, distribute,
market or exploit any works or materials of which any of the Target Products are
a "derivative work" as that term is defined in the United States Copyright Act,
Title 17, U.S.C. Section 101.
(c) All material designs, drawings, specifications, source code,
object code, scripts, documentation, flow charts, diagrams, data lists,
databases, compilations and information incorporating, embodying or reflecting
any of the Target Products at any stage of their development (the "TARGET
COMPONENTS") were written, developed and created solely and exclusively by
employees of Target without the assistance of any third party or entity or were
created by third parties who assigned ownership of their rights to Target by
means of valid and enforceable confidentiality and invention assignment
agreements, copies of which have been delivered to HearMe. Target has at all
times used commercially reasonable efforts customary in its industry to treat
the Target Proprietary Rights related to Target Products and Target Components
as containing trade secrets and has not disclosed or otherwise dealt with such
items in a manner intended or reasonably likely to cause the loss of such trade
secrets by release into the public domain.
(d) To Target's knowledge, no employee, contractor or consultant of
Target is in violation in any material respect of any term of any written
employment contract, patent disclosure agreement or any other written contract
or agreement relating to the relationship of any such employee, consultant or
contractor with Target or, to Target's knowledge, any other party because of the
nature of the business conducted by Target or proposed to be conducted by
Target. The Target Disclosure Schedule lists all employees, contractors and
consultants who have participated in any way in the development of any material
portion of the Target Products or the Target Proprietary Rights.
(e) Each person presently or previously employed by Target (including
independent contractors, if any) with access authorized by Target to
confidential information of Target has executed a confidentiality and
non-disclosure agreement pursuant to the form of agreement previously provided
to HearMe or its representatives.
(f) No product liability or warranty claims have been communicated in
writing to or threatened against Target.
(g) To Target's knowledge, there is no material unauthorized use,
disclosure, infringement or misappropriation of any Target Proprietary Rights,
or any Third Party Technology to the extent licensed by or through Target, by
any third party, including any employee or former employee of Target. Target has
not entered into any agreement to indemnify any other person against any charge
of infringement of any Target Proprietary Rights.
(h) Target has taken all steps customary and reasonable in the
industry to protect and preserve the confidentiality and proprietary nature of
all Target Proprietary Rights and other confidential information not otherwise
protected by patents, patent applications or copyright ("CONFIDENTIAL
INFORMATION"). All use, disclosure or appropriation by Target or, to the best of
the knowledge of Target, by another party pursuant to rights granted to it by
Target, of Confidential Information owned by Target to a third party has been
pursuant to the
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terms of a written agreement between Target and such third party. All use,
disclosure or appropriation by Target of Confidential Information not owned by
Target has been pursuant to the terms of a written agreement between Target and
the owner of such Confidential Information, or is otherwise lawful.
(i) Target has not relied upon, or utilized, or expects to rely
on or utilize, any of the Founders' prior inventions as listed in the Founders'
Proprietary Information and Inventions Agreement attached hereto as Exhibit D in
operating Target's business.
Section 3.9 EMPLOYEE BENEFIT PLANS.
(a) The Target Disclosure Schedule lists, with respect to Target and
any trade or business (whether or not incorporated) which is treated as a single
employer with Target (an "ERISA AFFILIATE") within the meaning of Section
414(b), (c), (m) or (o) of the Code, (i) all employee benefit plans (as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), (ii) each loan to a non-officer employee, loans to officers
and directors and any stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, sabbatical, medical,
dental, vision care, disability, employee relocation, cafeteria benefit (Code
Section 125) or dependent care (Code Section 129), life insurance or accident
insurance plans, programs or arrangements, (iii) all bonus, pension, profit
sharing, savings, deferred compensation or incentive plans, programs or
arrangements, (iv) other fringe or employee benefit plans, programs or
arrangements that apply to senior management of Target and that do not generally
apply to all employees, and (v) any current or former employment or executive
compensation or severance agreements, written or otherwise, for the benefit of,
or relating to, any present or former employee, consultant or director of Target
as to which (with respect to any of items (i) through (v) above) any potential
liability is borne by Target (together, the "TARGET EMPLOYEE PLANS").
(b) Target has delivered to HearMe or its representatives a copy of
each of the Target Employee Plans and related plan documents (including trust
documents, insurance policies or contracts, employee booklets, summary plan
descriptions and other authorizing documents, and, to the extent still in its
possession, any material employee communications relating thereto) and has, with
respect to each Target Employee Plan which is subject to ERISA reporting
requirements, provided copies of any Form 5500 reports filed for the last three
plan years. Any Target Employee Plan intended to be qualified under Section
401(a) of the Code has either obtained from the Internal Revenue Service a
favorable determination letter as to its qualified status under the Code,
including all amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent legislation, or has applied to the Internal Revenue Service for such
a determination letter prior to the expiration of the requisite period under
applicable Treasury Regulations or Internal Revenue Service pronouncements in
which to apply for such determination letter and to make any amendments
necessary to obtain a favorable determination. Target has also furnished HearMe
with the most recent Internal Revenue Service determination letter issued with
respect to each such Target Employee Plan, and nothing has occurred since the
issuance of each such letter which could reasonably be expected to cause the
loss of the tax-qualified status of any Target Employee Plan subject to Code
Section 401(a).
(c) (i) None of the Target Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person; (ii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Target Employee Plan; (iii) each
Target Employee Plan has been administered in accordance with its terms and in
compliance with the requirements prescribed by any and all statutes, rules and
regulations (including ERISA and the Code), and Target and each subsidiary or
ERISA Affiliate have performed all material obligations required to be performed
by them under, are not in any material respect in default, under or violation
of, and have no knowledge of any material default or violation by any other
party to, any of the Target Employee Plans; (iv) neither Target nor any
subsidiary or ERISA Affiliate is subject to any liability or penalty under
Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any
of the Target Employee Plans; (v) all contributions required to be made by
Target or any subsidiary or ERISA Affiliate to any Target Employee Plan have
been made on or before their due dates and a reasonable amount has been accrued
for contributions to each Target Employee Plan for the current plan years; (vi)
with respect to each Target Employee Plan, no "reportable event" within the
meaning of Section 4043 of ERISA (excluding any such event for which the thirty
(30) day notice requirement has been waived under the regulations to Section
4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA
has occurred; and (vii) no Target Employee Plan is covered by, and neither
Target nor any subsidiary or ERISA Affiliate has incurred or expects to incur
any material liability under Title IV of ERISA or Section 412 of the Code. With
respect to each Target
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Employee Plan subject to ERISA as either an employee pension plan within the
meaning of Section 3(2) of ERISA or an employee welfare benefit plan within the
meaning of Section 3(1) of ERISA, Target has prepared in good faith and timely
filed all requisite governmental reports (which were true and correct as of the
date filed) and has properly and timely filed and distributed or posted all
notices and reports to employees required to be filed, distributed or posted
with respect to each such Target Employee Plan. No suit, administrative
proceeding, action or other litigation has been brought, or to the knowledge of
Target is threatened, against or with respect to any such Target Employee Plan,
including any audit or inquiry by the IRS or United States Department of Labor.
Neither Target nor any ERISA Affiliate is a party to, or has made any
contribution to or otherwise incurred any obligation under, any "multi-employer
plan" as defined in Section 3(37) of ERISA.
(d) With respect to each Target Employee Plan, Target has complied
with (i) the applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
proposed regulations thereunder, (ii) the applicable requirements of the Family
Leave Act of 1993 and the regulations thereunder, and (iii) the applicable
requirements of the Health Insurance Portability and Accountability Act of 1996
("HIPAA") and the temporary regulations thereunder.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Target or any other ERISA Affiliate to severance benefits or any
other payment (including, without limitation, unemployment compensation, golden
parachute or bonus), except as expressly provided in this Agreement, or (ii)
accelerate the time of payment or vesting of any such benefits, or (iii)
increase or accelerate any benefits or the amount of compensation due any such
employee or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Target or other ERISA Affiliate
relating to, or change in participation or coverage under, any Target Employee
Plan which would materially increase the expense of maintaining such Plan above
the level of expense incurred with respect to that Plan for the most recent
fiscal year included in the Target Financial Statements.
Section 3.10 BANK ACCOUNTS. The Target Disclosure Schedule sets forth the
names and locations of all banks, trust companies, savings and loan
associations, and other financial institutions at which Target maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
Section 3.11 CONTRACTS.
(a) A list of the Company's Material Contracts (the "MATERIAL
CONTRACTS") is attached as Schedule 3.11(a) to the Target Disclosure Schedule.
Except as identified in such Schedule 3.11(a):
(i) Target has no agreements, contracts or commitments that
provide for the sale, licensing or distribution by Target of any Target Products
or Target Proprietary Rights. Without limiting the foregoing, except as set
forth on the Target Disclosure Schedule, Target has not granted to any third
party (including, without limitation, original equipment manufacturers ("OEMS")
and site-license customers) any rights to reproduce, manufacture or distribute
any of the Target Products, nor has Target granted to any third party any
exclusive rights of any kind (including, without limitation, exclusivity with
regard to categories of advertisers on Target's World Wide Web site, territorial
exclusivity or exclusivity with respect to particular versions, implementations
or translations of any of the Target Products), nor has Target granted any third
party any right to market any of the Target Products under any private label or
"OEM" arrangements, nor has Target granted any license of any Target trademarks
or service marks.
(ii) Target has no Third Party Licenses.
(iii) Target has no agreements, contracts or commitments that
call for fixed and/or contingent payments or expenditures by or to Target
(including, without limitation, any advertising or revenue sharing arrangement).
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(iv) Target has no outstanding sales or advertising contract,
commitment or proposal (including, without limitation, insertion orders,
slotting agreements or other agreements under which Target has allowed third
parties to advertise on or otherwise be included in Target's World Wide Web
sites) that Target currently expects to result in any loss to Target upon
completion or performance thereof.
(v) Target has no outstanding agreements, contracts or
commitments with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers that are not cancelable by Target
"at will" and without liability, penalty or premium.
(vi) Target has no employment, independent contractor or similar
agreement, contract or commitment that is not terminable on thirty (30) days'
notice or less without penalty, liability or premium of any type, including,
without limitation, severance or termination pay.
(vii) Target has no currently effective collective bargaining or
union agreements, contracts or commitments.
(viii) Target is not restricted by agreement from competing with
any person or from carrying on its business anywhere in the world.
(ix) Target has not guaranteed any obligations of other persons
or made any agreements to acquire or guarantee any obligations of other persons.
(x) Target has no outstanding loan or advance to any person; nor
is it party to any line of credit, standby financing, revolving credit or other
similar financing arrangement of any sort which would permit the borrowing by
Target of any sum.
(xi) Target has no agreements pursuant to which Target has agreed
to manufacture for, supply to or distribute to any third party any Target
Products or Target Components.
True and correct copies of each document or instrument listed on the Target
Disclosure Schedule pursuant to this Section 3.11(a) have been provided to
HearMe or its representatives.
(b) All of the Material Contracts listed on the Target Disclosure
Schedule are valid, binding, in full force and effect, and enforceable by Target
in accordance with their respective terms. Except as disclosed in the Target
Disclosure Schedule, no Material Contract contains any liquidated damages,
penalty or similar provision. To the knowledge of Target, no party to any such
Material Contract intends to cancel, withdraw, modify or amend such contract,
agreement or arrangement.
(c) Target is not in default under or in breach or violation of, nor,
to Target's knowledge, is there any valid basis for any claim of default by
Target under, or breach or violation by Target of, any material provision of any
Material Contract. To Target's knowledge, no other party is in default under or
in breach or violation of, nor is there any valid basis for any claim of default
by any other party under or any breach or violation by any other party of, any
Material Contract.
(d) Except as specifically indicated on the Target Disclosure
Schedule, none of the Material Contracts provides for indemnification by Target
of any third party. No claims have been made or threatened that would require
indemnification by Target, and Target has not paid any amounts to indemnify any
third party as a result of indemnification requirements of any kind.
Section 3.12 COMPLIANCE WITH LAW. Target and the operation of its business
are in compliance in all material respects with all applicable laws and
regulations material to the operation of its business. Neither Target nor, to
Target's knowledge, any of its employees has directly or indirectly paid or
delivered any fee, commission or other sum of money or item of property, however
characterized, to any finder, agent, government official or other party in the
United States or any other country, that was or is in violation of any federal,
state, or local statute or law or of any statute or law of any other country
having jurisdiction. Target has not participated directly or indirectly in
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any boycotts or other similar practices affecting any of its customers. Target
has complied in all material respects at all times with any and all applicable
federal, state and foreign laws, rules, regulations, proclamations and orders
relating to the importation or exportation of its products, except for such
noncompliances as would not in the aggregate reasonably be expected to have a
Material Adverse Effect on Target. Target has complied with all applicable
federal, state and local laws, and regulations relating to the collection and
use of user information gathered in the course of Target's operations, and
Target has at all times complied with all rules, policies and procedures
established by Target from time to time with respect to the foregoing.
Section 3.13 LABOR DIFFICULTIES; NO DISCRIMINATION.
(a) Target is not engaged in any unfair labor practice and is not in
material violation of any applicable laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours. There is no
unfair labor practice complaint against Target actually pending or, to the
knowledge of Target, threatened before the National Labor Relations Board. There
is no strike, labor dispute, slowdown, or stoppage actually pending or, to the
knowledge of Target, threatened against Target. To the knowledge of Target, no
union organizing activities are taking place with respect to the business of
Target. No grievance, nor any arbitration proceeding arising out of or under any
collective bargaining agreement is pending and, to the knowledge of Target, no
claims therefor exist. No collective bargaining agreement that is binding on
Target restricts it from relocating or closing any of its operations. Target has
not experienced any material work stoppage or other material labor difficulty.
(b) There is and has not been any claim against Target or its officers
or employees, or to Target's knowledge, threatened against Target or its
officers or employees, based on actual or alleged race, age, sex, disability or
other harassment or discrimination, or similar tortious conduct, or based on
actual or alleged breach of contract with respect to any person's employment by
Target, nor, to the knowledge of Target, is there any basis for any such claim.
(c) There are no pending claims against Target under any workers
compensation plan or policy or for long term disability. Target has no material
obligations under COBRA with respect to any former employees or qualifying
beneficiaries thereunder. There are no proceedings pending or, to the knowledge
of Target, threatened, between Target and any of its employees, which
proceedings have or could reasonably be expected to have a Material Adverse
Effect on Target.
Section 3.14 INSIDER TRANSACTIONS. To the knowledge of Target, no
affiliate ("AFFILIATE") as defined in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT") of Target has any interest in any
equipment or other property, real or personal, tangible or intangible of Target,
including, without limitation, any Target Proprietary Rights or any creditor,
supplier, customer, manufacturer, agent, representative, or distributor of
Target Products; PROVIDED, HOWEVER, that no such Affiliate or other person shall
be deemed to have such an interest solely by virtue of the ownership of less
than 1% of the outstanding stock or debt securities of any publicly-held
company, the stock or debt securities of which are traded on a recognized stock
exchange or quoted on the Nasdaq Stock Market.
Section 3.15 EMPLOYEES, INDEPENDENT CONTRACTORS AND CONSULTANTS. The
Target Disclosure Schedule lists all past and all currently effective written or
oral consulting, independent contractor and/or employment agreements and other
material agreements concluded with individual employees, independent contractors
or consultants to which Target is a party. True and correct copies of all such
written agreements have been provided to HearMe or its representatives. All
independent contractors have been properly classified as independent contractors
for the purposes of federal and applicable state tax laws, laws applicable to
employee benefits and other applicable law. All salaries and wages paid by
Target are in compliance in all material respects with applicable federal, state
and local laws. Also shown on the Target Disclosure Schedule are the names,
positions and salaries or rates of pay, including bonuses, of all persons
presently employed by Target.
Section 3.16 INSURANCE. The Target Disclosure Schedule contains a list of
the principal policies of fire, liability and other forms of insurance currently
or previously held by Target, and all claims made by Target under such policies.
To the knowledge of Target, Target has not done anything, either by way of
action or inaction, that might invalidate such policies in whole or in part.
There is no claim pending under any of such policies or bonds as
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to which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and Target is otherwise in compliance with the terms of
such policies and bonds in all material respects. Target has no knowledge of any
threatened termination of, or material premium increase with respect to, any of
such policies.
Section 3.17 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target, threatened
against Target or any of its properties or any of its officers or directors (in
their capacities as such). There is no judgment, decree or order against Target,
or, to the knowledge of Target, any of its directors or officers (in their
capacities as such). To Target's knowledge, no circumstances exist that could
reasonably be expected to result in a claim against Target as a result of the
conduct of Target's business (including, without limitation, any claim of
infringement of any intellectual property right).
Section 3.18 GOVERNMENTAL AUTHORIZATIONS AND REGULATIONS. Target has
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Target currently operates or holds any interest in any of its
properties or (ii) that is required for the operation of Target's business or
the holding of any such interest, and all of such authorizations are in full
force and effect, except when the failure to obtain such authorization could not
be reasonably expected to have a Material Adverse Effect.
Section 3.19 SUBSIDIARIES. Target has no Subsidiaries. Target does not own
or control (directly or indirectly) any capital stock, bonds or other securities
of, and does not have any proprietary interest in, any other corporation,
general or limited partnership, firm, association or business organization,
entity or enterprise, and Target does not control (directly or indirectly) the
management or policies of any other corporation, partnership, firm, association
or business organization, entity or enterprise.
Section 3.20 COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS. Target has
obtained all permits, licenses and other authorizations which are required under
federal, state and local laws applicable to Target and relating to pollution or
protection of the environment, including laws or provisions relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials, substances, or wastes into air,
surface water, groundwater, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials,
substances, or wastes or which are intended to assure the safety of employees,
workers or other persons, except where the failure to obtain such authorizations
could not be reasonably expected to have a Material Adverse Effect. Target is in
compliance in all material respects with all terms and conditions of all such
permits, licenses and authorizations. There are no conditions, circumstances,
activities, practices, incidents, or actions known to Target which could
reasonably be expected to form the basis of any claim, action, suit, proceeding,
hearing, or investigation of, by, against or relating to Target, based on or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant, or
hazardous or toxic substance, material or waste, or relating to the safety of
employees, workers or other persons.
Section 3.21 CORPORATE DOCUMENTS. Target has furnished to HearMe or its
representatives: (a) copies of its Articles of Incorporation and Bylaws, as
amended to date; (b) its minute book containing consents, actions, and meetings
of the shareholders, the board of directors and any committees thereof; (c) all
material permits, orders, and consents issued by any regulatory agency with
respect to Target, or any securities of Target, and all applications for such
permits, orders, and consents; and (d) the stock transfer books of Target
setting forth all transfers of any capital stock. The corporate minute books,
stock certificate books, stock registers and other corporate records of Target
are complete and accurate, and the signatures appearing on all documents
contained therein are the true or facsimile signatures of the persons purporting
to have signed the same.
Section 3.22 NO BROKERS. Neither Target nor, to Target's knowledge, any
Target shareholder is obligated for the payment of fees or expenses of any
broker or finder in connection with the origin, negotiation or execution of this
Agreement or the other Transaction Documents or in connection with any
transaction contemplated hereby or thereby.
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Section 3.23 TARGET ACTION. The Board of Directors of Target, by unanimous
written consent or at a meeting duly called and held, has by the unanimous vote
of all directors (i) determined that the Merger is fair and in the best
interests of Target and its shareholders, (ii) approved the Merger and this
Agreement in accordance with the provisions of Delaware and California Law, and
(iii) directed that this Agreement and the Merger be submitted to Target
shareholders for their approval and resolved to recommend that Target
shareholders vote in favor of the approval of this Agreement and the Merger.
Section 3.24 OFFERS. Target is not party to or bound by any agreement with
respect to, and has suspended or terminated, and has the legal right to
terminate or suspend, all negotiations and discussions of Acquisition
Transactions (as defined in Section 5.6) with parties other than HearMe.
Section 3.25 DISCLOSURE. None of this Agreement, its exhibits and
schedules or any of the certificates or documents, including any of the
Transaction Documents, delivered or required to be delivered by Target to HearMe
or Sub under this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made. Target has disclosed to HearMe all material information of
which it is aware relating specifically to the operations and business of Target
as of the date of this Agreement or the transactions contemplated by this
Agreement.
Section 3.26 DISCLOSURE TO SHAREHOLDERS. The information supplied by
Target for inclusion in the information statement to be sent to the shareholders
of Target in connection with the meeting of Target shareholders to consider the
Merger (the "TARGET SHAREHOLDERS MEETING") or in connection with any written
consent of shareholders of Target (such information statement as amended or
supplemented is referred to herein as the "INFORMATION STATEMENT") shall not, on
the date the Information Statement is first mailed to Target shareholders, at
the time of the Target Shareholders Meeting, or written consent of shareholders
and at the Effective Time, contain any statement which is false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they are made, not false or misleading. Whenever any event occurs
which should be set forth in an amendment or supplement to the Information
Statement, Target or HearMe, as the case may be, will promptly inform the other
of such occurrence and cooperate in making any appropriate amendment or
supplement, and/or mailing to shareholders of Target, such amendment or
supplement. Notwithstanding the foregoing, Target makes no representation,
warranty or covenant with respect to any information supplied by HearMe or Sub
which is contained in any of the foregoing documents, whether such information
is incorporated directly into the foregoing documents or forms the basis for
information provided by Target.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HEARME AND SUB
HearMe and Sub jointly and severally represent and warrant to Target that,
except as disclosed in a filing with the Securities and Exchange Commission (the
"COMMISSION"), the statements contained in this Article IV are true and correct.
Section 4.1 ORGANIZATION OF HEARME AND SUB. Each of HearMe and its
Subsidiaries, including Sub, is a corporation duly organized, validly existing
and in good standing under the laws of its respective jurisdiction of
incorporation and has all requisite corporate power to own, lease and operate
its property and to carry on its business as now being conducted and is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed would have a
Material Adverse Effect on HearMe or Sub. The authorized capital stock of Sub
consists of 1,000 shares of Common Stock, all of which are issued and
outstanding, duly paid and nonassessable and are owned by HearMe free and clear
of all liens, charges and encumbrances.
Section 4.2 CAPITALIZATION.
(a) The authorized capital stock of HearMe consists of 150,000,000
shares of Common Stock, par value $0.00005 per share ("HEARME COMMON STOCK"),
and 5,000,000 shares of undesignated Preferred
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Stock, par value $0.00005 per share ("HEARME PREFERRED STOCK"). As of February
29, 2000, there were (i) 24,197,926 shares of HearMe Common Stock issued and
outstanding, all of which are validly issued, fully paid and non-assessable,
(ii) no shares of HearMe Preferred Stock issued or outstanding, (iii) warrants
to purchase 364,250 shares of HearMe Common Stock at a weighted average exercise
price of $14.34 per share outstanding, and (iv) options to purchase 4,245,046
shares of HearMe Common Stock at a weighted average exercise price of $11.02 per
share outstanding.
(b) The shares of HearMe's Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, and non-assessable.
Section 4.3 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Each of HearMe and Sub has all requisite corporate power and
authority to enter into this Agreement and the other Transaction Documents to
which it is or will become a party and to consummate the transactions
contemplated by this Agreement and such Transaction Documents. The execution and
delivery of this Agreement and such Transaction Documents and the consummation
of the transactions contemplated by this Agreement and such Transaction
Documents have been duly authorized by all necessary corporate action on the
part of HearMe and Sub. This Agreement has been and such Transaction Documents
have been or, to the extent not executed as of the date hereof, will be duly
executed and delivered by HearMe and Sub. This Agreement and each of the
Transaction Documents to which HearMe or Sub is a party constitutes, and each of
the Transaction Documents to which HearMe or Sub will become a party when
executed and delivered by HearMe or Sub will constitute, a valid and binding
obligation of HearMe or Sub, enforceable by Target against HearMe or Sub, as the
case may be, in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting the enforcement of creditors'
rights generally and by general principles of equity, regardless of whether such
enforceability is considered.
(b) The execution and delivery by HearMe or Sub of this Agreement and
the Transaction Documents to which it is or will become a party does not, and
consummation of the transactions contemplated by this Agreement or the
Transaction Documents to which it is or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the
Articles of Incorporation or Bylaws of HearMe or Sub, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of time,
or both) a default (or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any material benefit) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
contract or other agreement, instrument or obligation to which HearMe or Sub is
a party or by which either of them or any of their properties or assets may be
bound, or (iii) conflict or violate any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to HearMe or Sub or any of their properties or assets, except in the case of
(ii) and (iii) for any such conflicts, violations, defaults, terminations,
cancellations or accelerations which would not have a Material Adverse Effect on
HearMe and its Subsidiaries, taken as a whole.
(c) Neither the execution and delivery of this Agreement by HearMe or
Sub or the Transaction Documents to which HearMe or Sub is or will become a
party or the consummation of the transactions contemplated hereby or thereby
will require any consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, except for (i) the filing
of the Agreement of Merger with the California Secretary of State, (ii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities laws
and the laws of any foreign country, and (iii) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, could be expected to have a Material Adverse Effect on HearMe and its
Subsidiaries, taken as a whole.
Section 4.4 COMMISSION FILINGS; FINANCIAL STATEMENTS.
(a) HearMe has filed with the Commission and made available to Target
or its representatives all forms, reports and documents required to be filed by
HearMe with the Commission since February 16, 1999 (collectively, the "HEARME
COMMISSION Reports"). The HearMe Commission Reports (i) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended, (the "SECURITIES ACT"), and the Exchange
Act, as the case may be, and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing).
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contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such HearMe Commission Reports or necessary in order to
make the statements in such HearMe Commission Reports, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the financial statements (including, in each case, any
related notes) contained in the HearMe Commission Reports, including any HearMe
Commission Reports filed after the date of this Agreement until the Closing,
complied or will comply as to form in all material respects with the applicable
published rules and regulations of the Commission with respect thereto, was
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes to such financial statements or, in the case of unaudited
statements, as permitted by Form 10-Q of the Commission) and fairly presented
the consolidated financial position of HearMe and its Subsidiaries as at the
respective dates and the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
Section 4.5 COMPLIANCE WITH LAWS. HearMe has complied with, is
not in violation of, and has not received any notices of violation with respect
to, any federal, state or local statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for failures to comply or violations which would not have a Material Adverse
Effect on HearMe and its Subsidiaries, taken as a whole.
Section 4.6 INTERIM OPERATIONS OF SUB. Sub was formed by HearMe solely for
the purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement. Sub has no liabilities and, except for a
subscription agreement pursuant to which all of its authorized capital stock was
issued to HearMe, is not a party to any agreement other than this Agreement.
Section 4.7 STOCKHOLDERS CONSENT. No consent or approval of the
stockholders of HearMe is required or necessary for HearMe to enter into this
Agreement or the Transaction Documents or to consummate the transactions
contemplated hereby and thereby.
Section 4.8 DISCLOSURE. No statements by HearMe contained in this
Agreement, its exhibits and schedules, or any of the certificates or documents,
including any of the Transaction Documents, required to be delivered by HearMe
or Sub to Target under this Agreement contain any untrue statement of material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made. The information supplied by HearMe for inclusion in the
Information Statement shall not, on the date the Information Statement is first
mailed to Target shareholders, at the time of the Target Shareholders Meeting or
at the time of execution of a written consent of shareholders in lieu of such
meeting and at the Effective Time, contain any statement which is false or
misleading with respect to any material fact, or admit to state any material
fact necessary in order to make the statement made therein, in light of the
circumstances under which they were made, not false or misleading.
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ARTICLE V
PRECLOSING COVENANTS OF TARGET
Section 5.1 APPROVAL OF TARGET SHAREHOLDERS. Prior to the Closing Date and
at the earliest practicable date following the date hereof, Target will solicit
written consents from its shareholders seeking, or hold a Target Shareholders
Meeting for the purpose of seeking, approval of this Agreement, the Merger and
related matters. If Target holds a shareholders' meeting, the Board of Directors
of Target will solicit proxies from Target's shareholders to vote such
shareholders' shares at the Target Shareholders' Meeting. In soliciting such
written consent or proxies, the Board of Directors of Target will recommend to
the shareholders of Target that they approve this Agreement and the Merger and
shall use its reasonable efforts to obtain the approval of the shareholders of
Target entitled to vote on or consent to this Agreement and the Merger in
accordance with California Law and Target's Articles of Incorporation and
Bylaws. Target will prepare as soon as reasonably practicable the Information
Statement in form and substance reasonably acceptable to HearMe, with respect to
the solicitation of written consents and/or proxies from the shareholders of
Target to approve this Agreement, the Merger and related matters. The
Information Statement shall be in such form and contain such information so as
to permit compliance by HearMe with the requirements of Regulation D under the
Securities Act in connection with the issuance of shares of HearMe Common Stock
in the Merger and will comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder. The
Information Statement shall include as an attachment an Investor Representation
Statement, in substantially the form attached hereto as Exhibit E (an "INVESTOR
REPRESENTATION Statement"), to be completed by each shareholder of Target and
delivered to HearMe for purposes of confirming the availability of an exemption
from registration under the Securities Act for the issuance by HearMe of shares
of HearMe Common Stock in the Merger. Within five (5) business days after the
execution of this Agreement, Target will distribute the Information Statement to
the shareholders of Target. Whenever any event occurs which should be set forth
in an amendment or supplement to the Information Statement, Target or HearMe, as
the case may be, will promptly inform the other of such occurrence and cooperate
in making any appropriate amendment or supplement, and/or mailing to
shareholders of Target, such amendment or supplement. The Information Statement
will include the recommendation of the Board of Directors of Target in favor of
adoption and approval of this Agreement and approval of the Merger.
Section 5.2 ADVICE OF CHANGES. Target will promptly advise HearMe in
writing of any event known to Target occurring subsequent to the date of this
Agreement which would render any representation or warranty of Target contained
in this Agreement, if made on or as of the date of such event or the Closing
Date, untrue or inaccurate in any material respect without such notice
constituting an admission that such representation or warranty is untrue or
inaccurate.
Section 5.3 OPERATION OF BUSINESS. During the period from the date of this
Agreement and continuing until the earlier of the termination of the Agreement
or the Effective Time, Target agrees (except to the extent that HearMe shall
otherwise consent in writing), to carry on its business in the usual, regular
and ordinary course in substantially the same manner as previously conducted, to
pay its debts and taxes when due, subject to good faith disputes over such debts
or taxes, to pay or perform other obligations when due, and, to the extent
consistent with such business, use all reasonable efforts consistent with past
practices and policies to preserve intact its present business organization,
keep available the services of its present officers and employees and preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, to the end that its goodwill and
ongoing businesses would be unimpaired at the Effective Time. Target shall
promptly notify HearMe of any event or occurrence not in the ordinary course of
business of Target. Except as expressly contemplated by this Agreement, Target
shall not, without the prior written consent of HearMe:
(a) except as provided in Section 5.6, below, issue, deliver or sell
or authorize or propose the issuance, delivery or sale of, or purchase or
propose the purchase of, any shares of its capital stock or securities
convertible into shares of its capital stock, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities, other
than (i) the issuance to newly hired Target employees and ongoing consultants of
up to 200,000 Target shares, on terms, including prices, with a view to causing
such issuances to be done without the incurrence of compensation expense, (ii)
the issuance of (A) shares of Target Common Stock issuable upon exercise of
Target Options or Target Warrants, which are outstanding on the date of this
Agreement or (B) shares of Target Common Stock issuable upon
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conversion of shares of Target Preferred Stock or (iii) the repurchase of shares
of Common Stock from terminated employees pursuant to the terms of outstanding
stock restriction or similar agreements;
(b) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others;
(c) except as otherwise contemplated by Sections 2.1(e) and Section
6.5(b), accelerate, amend or change the period of exercisability or the vesting
schedule of Target Restricted Shares or Target Options granted under any
employee stock plan or agreements or authorize cash payments in exchange for any
Target Restricted Shares or Target Options granted under any of such plans
except as specifically required by the terms of such plans or any related
agreements or any such agreements in effect as of the date of this Agreement and
disclosed in the Target Disclosure Schedule;
(d) declare or pay any dividends on or make or agree to make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of such party, or purchase or
otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service by such party;
(e) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership
or other business organization or division, or otherwise acquire or agree to
acquire any assets;
(f) sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the business
of Target, except in the ordinary course of business consistent with past
practice;
(g) (i) increase or agree to increase the compensation payable or to
become payable to its officers or employees, except pursuant to annual raises in
the ordinary course of business, (ii) grant any additional severance or
termination pay to, or enter into any employment or severance agreements with,
officers, employees or agents, (iii) enter into any collective bargaining
agreement, or (iv) establish, adopt, enter into or amend in any material respect
any bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination, severance
or other plan, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees;
(h) revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable;
(i) amend or propose to amend its Articles of Incorporation or Bylaws;
(j) lease, license, sell, transfer or encumber or permit to be
encumbered any asset, Target Proprietary Right or other property associated with
the business of Target (including sales or transfers to Affiliates of Target);
(k) enter into any lease or contract for the purchase or sale of any
property, real or personal, except in the ordinary course of business consistent
with past practice;
(l) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained up to the date
of this Agreement, subject only to ordinary wear and tear;
(m) change accounting methods;
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(n) amend or terminate any material contract, agreement or license to
which it is a party;
(o) loan any amount to any person or entity, or guaranty or act as a
surety for any obligation;
(p) waive or release any material right or claim;
(q) make or change any Tax or accounting election, change any annual
accounting period, adopt or change any accounting method, file any amended
Return, enter into any closing agreement, settle any Tax claim or assessment
relating to Target, surrender any right to claim refund of Taxes, consent to any
extension or waiver of the limitation period applicable to any Tax claim or
assessment relating to Target, or take any other action or omit to take any
action that would have the effect of increasing the Tax liability of Target or
HearMe;
(r) take any action or fail to take any action that would cause there
to be a Material Adverse Change with respect to Target;
(s) enter into any agreement outside of the ordinary course of
business in which the obligation of Target exceeds $200,000 without HearMe's
consent;
(t) enter into any agreement not in the ordinary course of business;
(u) allow any intellectual property deadline, registrations or
applications to lapse; or
(v) take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (u) above, or any action which is reasonably
likely to make any of Target's representations or warranties contained in this
Agreement untrue or incorrect in any material respect on the date made (to the
extent so limited) or as of the Effective Time.
Section 5.4 ACCESS TO INFORMATION. Until the Closing, Target shall allow
and shall cause its affiliates, officers and agents to allow HearMe and its
agents reasonable free access during normal business hours upon reasonable
notice to its properties, personnel, files, books, records, and offices,
including, without limitation, any and all information relating to taxes, legal
advice, commitments, contracts, leases, licenses, personnel, and personal
property and financial condition and such other information and data requested
by HearMe or its agents. Until the Closing, Target shall cause its accountants
to cooperate with HearMe and its agents in making available all financial
information requested, including without limitation the right to examine all
working papers pertaining to all financial statements prepared or audited by
such accountants. No information or knowledge obtained in any investigation
pursuant to this Section shall affect or be deemed to modify any representation
or warranty contained in this Agreement or its exhibits and schedules. All such
access shall be subject to the terms of the Confidentiality Agreement (as
defined in Section 7.1).
Section 5.5 SATISFACTION OF CONDITIONS PRECEDENT. Target will use its best
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Sections 8.1 and 8.2, and Target will use its best efforts to
cause the transactions contemplated by this Agreement to be consummated, and,
without limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties which may be necessary or reasonably required on its
part in order to effect the transactions contemplated by this Agreement. Target
shall use its best efforts to obtain any and all consents necessary with respect
to those Material Contracts listed on Schedule 5.5 of the Target Disclosure
Schedule required to consummate the Merger (the "MATERIAL CONSENTS").
Section 5.6 OTHER NEGOTIATIONS. Following the date hereof and until
termination of this Agreement pursuant to Section 9.1, Target will not (and it
will not permit any of its officers, directors, employees, agents and Affiliates
on its behalf to) take any action to solicit, initiate, entertain, seek,
encourage or support any inquiry, proposal or offer from, furnish any
information to, or participate in any negotiations with, any corporation,
partnership, person or other entity or group (other than HearMe) regarding any
acquisition of Target, any merger or consolidation with or involving Target, or
any acquisition of any material portion of the assets of Target, or any
acquisition of any capital stock of Target, or any material license of Target
Proprietary Rights (any of the foregoing
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being referred to in this Agreement as an "ACQUISITION TRANSACTION") or enter
into an agreement concerning any Acquisition Transaction with any party other
than HearMe. If between the date of this Agreement and the termination of this
Agreement pursuant to Section 9.1, Target receives from a third party any offer
or indication of interest regarding any Acquisition Transaction, or any request
for information regarding any Acquisition Transaction, (an "ACQUISITION
PROPOSAL") Target shall (i) notify HearMe immediately (orally and in writing) of
such offer, indication of interest or request, including the identity of such
party and the full terms of any proposal therein, and (ii) notify such third
party of Target's obligations under this Agreement (without any reference to
HearMe). Notwithstanding the foregoing, nothing in this Section 5.6 shall be
construed to restrict the ability of the Target Board of Directors to take such
actions in connection with any proposed Acquisition Transactions that such Board
reasonably determines in good faith based upon written advice of counsel to be
required to permit it to discharge properly its fiduciary duties, PROVIDED that
this qualification shall in no way affect the obligations of Target and the
Target Board of Directors pursuant to Section 5.1.
Section 5.7 GRANT OF ADDITIONAL OPTIONS. Target will issue unvested
options to purchase at least 600,000 additional shares of Target Common Stock to
existing employees on terms, including exercise price, mutually acceptable to
HearMe and Target with a view to causing such issuances to be done without the
incurrence of compensation expense, which options shall vest over a four year
period, 25% on the first anniversary of the grant, and 1/48th per month
thereafter.
Section 5.8 CONSENTS. Within seven (7) days after the execution of this
Agreement, Target will deliver to HearMe, valid and enforceable agreements
executed by holders of at least 80% of Target's capital stock, including the
holders of more than 66-2/3's% of Target's Series A Preferred Shares and 50% of
Target's Series B Preferred Shares, consents in the form attached hereto as
EXHIBIT A (the "CONSENTS"), pursuant to which such shareholders have, among
other things, consented to the Merger and agreed to grant HearMe irrevocable
proxies to vote such shares.
ARTICLE VI
PRECLOSING AND OTHER COVENANTS OF HEARME AND SUB
Section 6.1 ADVICE OF CHANGES. HearMe and Sub will promptly advise Target
in writing of any event occurring subsequent to the date of this Agreement which
would render any representation or warranty of HearMe or Sub contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect.
Section 6.2 RESERVATION OF HEARME COMMON STOCK. HearMe shall prior to the
Effective Time reserve for issuance, out of its authorized but unissued capital
stock, the maximum number of shares of HearMe Common Stock as may be issuable
upon consummation of the Merger.
Section 6.3 SATISFACTION OF CONDITIONS PRECEDENT. HearMe and Sub will use
their best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Sections 8.1 and 8.3, and HearMe and Sub will
use their best efforts to cause the transactions contemplated by this Agreement
to be consummated, and, without limiting the generality of the foregoing, to
obtain all consents and authorizations of third parties and to make all filings
with, and give all notices to, third parties which may be necessary or
reasonably required on its part in order to effect the transactions contemplated
hereby.
Section 6.4 NASDAQ NATIONAL MARKET LISTING. HearMe shall prior to the
Effective Time cause the shares of HearMe Common Stock issuable to the
shareholders of Target in the Merger to be authorized for listing on the Nasdaq
National Market.
Section 6.5 STOCK OPTIONS AND WARRANTS.
(a) At the Effective Time, each outstanding Target Option under the
Target Option Plan, whether vested or unvested, shall be assumed by HearMe and
deemed to constitute an option (an "HEARME OPTION") to acquire the same number
of shares of HearMe Common Stock as the holder of such Target Option
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would have been entitled to receive pursuant to the Merger had such holder
exercised such option in full immediately prior to the Effective Time, and the
Cash Component been zero (rounded down to the nearest whole number), at a price
per share (rounded up to the nearest whole cent) equal to (i) the aggregate
exercise price for the shares of Target Common Stock otherwise purchasable
pursuant to such Target Option divided by (ii) the number of full shares of
HearMe Common Stock deemed purchasable pursuant to such HearMe Option in
accordance with the foregoing; PROVIDED, HOWEVER, that, in the case of any
Target Option to which Section 422 of the Code applies ("INCENTIVE STOCK
OPTIONS"), the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in order to comply with Section 424(a) of the Code. In connection
with the assumption by HearMe of the Target Options pursuant to this Section
6.5(a), Target shall be deemed to have assigned to HearMe, effective at the
Effective Time, Target's right to repurchase unvested shares of Target Common
Stock issuable upon the exercise of the Target Options or previously issued upon
the exercise of options granted under the Target Option Plan, in accordance with
the terms of the Target Option Plan and the related stock option agreements and
stock purchase agreements entered into under the Target Option Plan. The vesting
schedule of the Target Options shall not accelerate, and if necessary, Target
shall amend the Target Option Plan to provide that such schedule will not
accelerate, as a result of the Merger, PROVIDED, HOWEVER, that all options held
by non-employee advisors shall vest in full at the Effective Time.
(b) As soon as practicable after the Effective Time, HearMe shall
deliver to the participants in the Target Option Plan appropriate notice setting
forth such participants' rights pursuant thereto and the grants pursuant to the
Target Option Plan shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 6.5 and Section 2.1(e)
hereof). HearMe shall comply with the terms of the Target Option Plan and the
parties intend that, to the extent required by, and subject to the provisions
of, such Target Option Plan and Sections 422 and 424(a) of the Code, that Target
Options which qualified as incentive stock options prior the Effective Time
continue to qualify as incentive stock options after the Effective Time, and
this provision shall be interpreted consistent with that intent.
(c) HearMe shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of HearMe Common Stock for delivery upon
exercise of Target Options assumed in accordance with this Section 6.5.
(d) Each Target Warrant, to the extent outstanding at the Effective
Time, whether or not exercisable and whether or not vested at the Effective
Time, shall remain outstanding at the Effective Time. At the Effective Time,
Target Warrants shall, by virtue of the Merger and without any further action on
the part of Target or the holder of any of Target Warrants (unless further
action may be required by the terms of any of Target Warrants), be assumed by
HearMe pursuant to such documentation as is reasonably acceptable to Target and
each Target Warrant assumed by HearMe shall be exercisable upon the same terms
and conditions as under the applicable warrant agreements with respect to such
Target Warrants, except that (A) each such Target Warrant shall be exercisable
for that whole number of shares of HearMe Common Stock (rounded down to the
nearest whole share) into which the number of shares of Target Common Stock
subject to such Target Warrant would be converted under Section 2.1(c)
(calculated as if the Cash Component were zero), and (B) the exercise price per
share of HearMe Common Stock shall be an amount equal to the exercise price per
share of Target Common Stock subject to such Target Warrant in effect
immediately prior to the Effective Time divided by the applicable Exchange Ratio
(the exercise price per share, so determined, being rounded to the nearest full
cent). From and after the Effective Time, all references to Target in the
warrant agreements underlying Target Warrants shall be deemed to refer to
HearMe. HearMe further agrees that, notwithstanding any other term of this
Section 6.5(d) to the contrary, if required under the terms of Target Warrants
or if otherwise appropriate under the terms of Target Warrants, it will execute
a supplemental agreement with the holders of Target Warrants to effectuate the
foregoing. No payment shall be made for fractional shares. HearMe shall (i) on
or prior to the Effective Time, reserve for issuance the number of shares of
HearMe Common Stock that will become subject to warrants to purchase HearMe
Common Stock ("HEARME WARRANTS") pursuant to this Section 6.5(d), (ii) from and
after the Effective Time, upon exercise of the HearMe Warrants in accordance
with the terms thereof, make available for issuance all shares of HearMe Common
Stock covered thereby and (iii) as promptly as practicable following the
Effective Time, issue to each holder of an outstanding Target Warrant a document
evidencing the foregoing assumption by HearMe.
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Section 6.6 REGISTRATION OF SHARES ISSUED IN THE MERGER.
(a) REGISTRABLE SHARES. For purposes of this Agreement, "REGISTRABLE
SHARES" shall mean the shares of Acquiror Common Stock issued in the Merger,
including any and all Escrow Shares, and the shares of Acquiror Common Stock
issuable upon the exercise of the Target Warrants assumed by Acquiror pursuant
to Section 6.5(d), but excluding shares of Acquiror Common Stock issued in the
Merger or issuable upon the exercise of the Target Warrants that have been sold
or otherwise transferred by the shareholders of Target who initially received
such shares in the Merger or by the holder of the Target Warrants prior to the
effective date of the Registration Statement (as defined below) (collectively,
the "HOLDERS"); provided however, that a distribution of shares of Acquiror
Common Stock issued in the Merger without additional consideration, to
underlying beneficial owners (such as the general and limited partners,
shareholders or trust beneficiaries of a Holder) shall not be deemed such a sale
or transfer for purposes of this Section 6.6 and such underlying beneficial
owners shall be entitled to the same rights under this Section 6.6 as the
initial Holder from which the Registrable Shares were received and shall be
deemed a Holder for the purposes of this Section 6.6.
(b) REQUIRED REGISTRATION. Acquiror shall prepare and file with the
Commission a registration statement on Form S-3 (or such successor or other
appropriate form) under the Securities Act with respect to the Registrable
Shares (the "REGISTRATION STATEMENT") prior to May 5, 2000, and shall use all
reasonable efforts to have such Registration Statement be declared effective as
soon as possible thereafter. Acquiror shall effect all such registrations,
qualifications and compliances (including, without limitation, obtaining
appropriate qualifications under applicable state securities or "blue sky" laws
and compliance with any other applicable governmental requirements or
regulations) as any selling Holder may reasonably request and that would permit
or facilitate the sale of all Registrable Shares (PROVIDED, HOWEVER, that
Acquiror shall not be required in connection therewith to qualify to do business
or to file a general consent to service of process in any such state or
jurisdiction), and in each case Acquiror will use its best efforts to cause such
Registration Statement and all other such registrations, qualifications and
compliances to become effective as soon as practicable thereafter.
(c) EFFECTIVENESS; SUSPENSION RIGHT.
(i) Acquiror will use its best efforts to maintain the
effectiveness of the Registration Statement and other applicable registrations,
qualifications and compliances until the first anniversary of the Closing Date
(the "REGISTRATION EFFECTIVE PERIOD"), and from time to time will amend or
supplement the Registration Statement and the prospectus contained therein as
and to the extent necessary to comply with the Securities Act, the Exchange Act
and any applicable state securities statute or regulation, subject to the
following limitations and qualifications.
(ii) Following the date on which the Registration Statement is
first declared effective, the Holders will be permitted (subject in all cases to
the terms of the Shareholders Agreements and to Section 6.7 below) to offer and
sell Registrable Shares during the Registration Effective Period in the manner
described in the Registration Statement provided that the Registration Statement
remains effective and has not been suspended.
(iii) Notwithstanding any other provision of this Section 6.6 but
subject to Section 6.7, Acquiror shall have the right at any time to require
that all Holders suspend further open market offers and sales of Registrable
Shares whenever, and for so long as, in the reasonable judgment of Acquiror
after consultation with counsel there is or may be in existence material
undisclosed information or events with respect to Acquiror (the "SUSPENSION
RIGHT"). In the event Acquiror exercises the Suspension Right, such suspension
will continue for the period of time reasonably necessary for disclosure to
occur at a time that is not detrimental to Acquiror and its shareholders or
until such time as the information or event is no longer material, each as
determined in good faith by Acquiror after consultation with counsel. Acquiror
will promptly give the Holders notice of any such suspension and prompt notice
of the cessation of such suspension. Acquiror will use all reasonable efforts to
minimize the length of the suspension.
(d) EXPENSES. The costs and expenses to be borne by Acquiror for
purposes of this Section 6.6 shall include, without limitation, printing
expenses (including a reasonable number of prospectuses for circulation by the
selling Holders), legal fees and disbursements of counsel for Acquiror, "blue
sky" expenses,
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accounting fees and filing fees, but shall not include underwriting commissions
or similar charges, or any legal fees and disbursements of counsel for the
selling Holders.
(e) INDEMNIFICATION.
(i) To the extent permitted by law, Acquiror will indemnify and
hold harmless each Holder, any underwriter (as defined in the Securities Act)
for such Holder, its officers, directors, shareholders or partners and each
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange 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"): (A) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (B) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (C) any violation or alleged
violation by Acquiror of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law; and Acquiror will pay to each such
Holder (and its officers, directors, shareholders or partners), underwriter or
controlling person, any 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 6.6(e)(i) 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 Acquiror; nor shall Acquiror 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) a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in the
Registration Statement by any such Holder, or (b) a Violation that would not
have occurred if such Holder had delivered to the purchaser the version of the
Prospectus most recently provided by Acquiror to the Holder as of the date of
such sale.
(ii) To the extent permitted by law, each selling Holder will
indemnify and hold harmless Acquiror, each of its directors, each of its
officers who has signed the Registration Statement, each person, if any, who
controls Acquiror within the meaning of the Securities Act, any underwriter, any
other Holder selling securities pursuant to the Registration Statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange 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
(which includes without limitation the failure of the Holder to comply with the
prospectus delivery requirements under the Securities Act, and the failure of
the Holder to deliver the most current prospectus provided by Acquiror prior to
such sale), 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 Holder expressly for use in the Registration Statement or such
Violation is caused by the Holder's failure to deliver to the purchaser of the
Holder's Registrable Shares a prospectus (or amendment or supplement thereto)
that had been made available to the Holder by Acquiror; and each such Holder
will pay any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this Section 6.6(e)(ii) in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this Section
6.6(e)(ii) 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 Holder, which consent shall not be unreasonably withheld. The
aggregate indemnification and contribution liability of each Holder under this
Section 6.6(e)(ii) shall not exceed the net proceeds received by such Holder in
connection with sale of shares pursuant to the Registration Statement.
(iii) Each person entitled to indemnification under this Section
6.6(e) (the "INDEMNIFIED PARTY") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought and shall permit the Indemnifying Party to assume the defense of any such
claim and any litigation resulting therefrom, PROVIDED that counsel for the
Indemnifying Party who conducts the defense of such claim or any litigation
resulting therefrom shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party may participate
in such defense at such party's expense, and PROVIDED FURTHER that the failure
of any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations
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under this Section 6.6 unless the Indemnifying Party is materially prejudiced
thereby. No Indemnifying Party, in the defense of any such claim or litigation,
shall (except with the consent of each Indemnified Party) consent to entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
(iv) To the extent that the indemnification provided for in this
Section 6.6(e) is held by a court of competent jurisdiction to be unavailable to
an Indemnified Party with respect to any loss, liability, claim, damage or
expense referred to herein, then the Indemnifying Party, in lieu of indemnifying
such Indemnified Party hereunder, shall contribute to the amount paid or payable
by such Indemnified Party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
Section 6.7 PROCEDURES FOR SALE OF SHARES UNDER REGISTRATION STATEMENT.
(a) NOTICE AND APPROVAL. If any Holder shall propose to sell any
Registrable Shares pursuant to the Registration Statement, it shall notify
Acquiror of its intent to do so (including the proposed manner and timing of all
sales) at least two (2) full trading days prior to such sale, and the provision
of such notice to Acquiror shall conclusively be deemed to reestablish and
reconfirm an agreement by such Holder to comply with the registration provisions
set forth in this Agreement. Unless otherwise specified in such notice, such
notice shall be deemed to constitute a representation that any information
previously supplied by such Holder expressly for inclusion in the Registration
Statement (as the same may have been superseded by subsequent such information)
is accurate as of the date of such notice. At any time within such two (2)
trading-day period, Acquiror may delay, consistent with Acquiror's obligations
under Section 6.6(c)(iii) to minimize any delay, the resale by such Holder of
any Registrable Shares pursuant to the Registration Statement only if a sale
pursuant to the Registration Statement in its then current form without the
addition of material, non-public information about Acquiror could reasonably
constitute a violation of the federal securities laws; PROVIDED, HOWEVER, that
in order to exercise this right, Acquiror must deliver a certificate in writing
to the Holder to such effect not later than the close of business on the second
trading day following receipt of any notice from any Holder indicating an intent
to sell any Registrable Shares, provided that such notice from such Holder shall
have included a working facsimile number for purposes of delivery of such
response from Acquiror. Notwithstanding the foregoing, Acquiror will ensure that
in any event the Holders shall have at least twenty (20) trading days (prorated
for partial quarters) available to sell Registrable Shares during each calendar
quarter (or portion thereof) during the Registration Effective Period and, upon
written request of any Holder, will notify such Holder of the commencement date
and ending date of each such 20-day period.
(b) DELIVERY OF PROSPECTUS. For any offer or sale of any of the
Registrable Shares by a Holder in a transaction that is not exempt under the
Securities Act, the Holder, in addition to complying with any other federal
securities laws, shall deliver a copy of the final prospectus (or amendment of
or supplement to such prospectus) of Acquiror covering the Registrable Shares in
the form furnished to the Holder by Acquiror to the purchaser of any of the
Registrable Shares on or before the settlement date for the purchase of such
Registrable Shares.
(c) COPIES OF PROSPECTUSES. Subject to the provisions of this Section
6.7, when a Holder is entitled to sell and gives notice of its intent to sell
Registrable Shares pursuant to the Registration Statement, Acquiror shall,
within two (2) trading days following the request, furnish to such Holder 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 Shares, such prospectus shall not as of the date
of delivery to the Holder include
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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
or incomplete in the light of the circumstances then existing.
Section 6.8 CERTAIN EMPLOYEE BENEFIT MATTERS. From and after the Effective
Time, employees of Target at the Effective Time (each, an "TARGET EMPLOYEE")
will be provided with employee benefits by the Surviving Corporation or HearMe
which in the aggregate are no less favorable to such employees than those
provided from time to time by HearMe to its similarly situated employees. If any
employee of Target becomes a participant in any employee benefit plan, program,
policy or arrangement of HearMe, such employee shall be given credit for all
service prior to the Effective Time with Target to the extent permissible under
such plan, program, policy or arrangement.
ARTICLE VII
OTHER AGREEMENTS
Section 7.1 CONFIDENTIALITY. Each party acknowledges that HearMe and
Target have executed a Mutual Confidential Information Non-Disclosure Agreement
dated January 18, 2000 (the "CONFIDENTIALITY AGREEMENT"), which agreement shall
continue in full force and effect in accordance with its terms.
Section 7.2 NO PUBLIC ANNOUNCEMENT. Each of HearMe and Target agrees that
neither it nor any of their respective representatives, officers, directors,
agents, shareholder or affiliates shall make any public announcement with
respect to this Agreement or the transactions contemplated hereby, or disclose
the terms or existence of this Agreement to any third party prior to the public
announcement of the transactions contemplated hereby. All public announcements
with respect to this Agreement or the transactions contemplated hereby will be
made upon the mutual agreement of the parties and only after each party has had
the opportunity to review and comment on the proposed public announcement.
Section 7.3 REGULATORY FILINGS; CONSENTS; REASONABLE EFFORTS. Subject to
the terms and conditions of this Agreement, Target and HearMe shall use their
respective reasonable good faith efforts to (i) make all necessary filings with
respect to the Merger and this Agreement under the Exchange Act and applicable
blue sky or similar securities laws and obtain required approvals and clearances
with respect thereto and supply all additional information requested in
connection therewith; (ii) make merger notification or other appropriate filings
with federal, state or local governmental bodies or applicable foreign
governmental agencies and obtain required approvals and clearances with respect
thereto and supply all additional information requested in connection therewith;
(iii) obtain all consents, waivers, approvals, authorizations and orders
required in connection with the authorization, execution and delivery of this
Agreement and the consummation of the Merger; and (iv) take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable.
Section 7.4 FURTHER ASSURANCES. Prior to and following the Closing, each
party agrees to cooperate fully with the other parties and to execute such
further instruments, documents and agreements and to give such further written
assurances, as may be reasonably requested by any other party to better evidence
and reflect the transactions described herein and contemplated hereby and to
carry into effect the intents and purposes of this Agreement.
Section 7.5 ESCROW AGREEMENT. On or before the Effective Time, HearMe
shall, and the parties hereto shall exercise their reasonable good faith efforts
to cause the Escrow Agent (as defined in Section 10.2) and the Shareholders'
Agents (as defined in Section 10.9), to enter into an Escrow Agreement in
substantially the form attached hereto as EXHIBIT F.
Section 7.6 FIRPTA. Target shall, prior to the Closing Date, provide
HearMe with a properly executed Foreign Investment and Real Property Tax Act of
1980 ("FIRPTA") FIRPTA Notification Letter which states that shares of capital
stock of Target do not constitute "United States real property interests" under
Section 897(c) of the Code, for purposes of satisfying HearMe's obligations
under Treasury Regulation Section 1.1445-2(c)(3). In addition, simultaneously
with delivery of such FIRPTA Notification Letter, Target shall provide to
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HearMe, as agent for Target, a form of notice to the Internal Revenue Service in
accordance with the requirements of Treasury Regulation Section 1.897-2(h)(2),
along with written authorization for HearMe to deliver such notice form to the
Internal Revenue Service on behalf of Target upon the Closing of the Merger.
Section 7.7 BLUE SKY LAWS. HearMe shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the HearMe Common Stock in connection
with the Merger. Target shall use its reasonable good faith efforts to assist
HearMe as may be necessary to comply with the securities and blue sky laws of
all jurisdictions which are applicable in connection with the issuance of HearMe
Common Stock in connection with the Merger.
Section 7.8 OTHER FILINGS. As promptly as practicable after the date of
this Agreement, Target and HearMe will prepare and file any other filings
required under the Exchange Act, the Securities Act or any other Federal,
foreign or state securities or blue sky laws relating to the Merger and the
transactions contemplated by this Agreement (the "OTHER FILINGS"). The Other
Filings will comply in all material respects with all applicable requirements of
law and the rules and regulations promulgated thereunder. Whenever any event
occurs which is required to be set forth in an amendment or supplement to the
Other Filings, Target or HearMe, as the case may be, will promptly inform the
other of such occurrence and cooperate in making any appropriate amendment or
supplement, and/or mailing to shareholders of Target, such amendment or
supplement.
ARTICLE VIII
CONDITIONS TO MERGER
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) SHAREHOLDER APPROVAL. The shareholders of Target entitled to vote
on or consent to this Agreement and the Merger in accordance with California Law
and Target's Articles of Incorporation, shall have approved this Agreement and
the Merger.
(b) APPROVALS. Other than the filing provided for by Section 1.1, all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any Governmental Entity
shall have been filed, occurred or been obtained.
(c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger or limiting or restricting the conduct
or operation of the business of Target by HearMe after the Merger shall have
been issued, nor shall any proceeding brought by a domestic administrative
agency or commission or other domestic Governmental Entity or other third party,
seeking any of the foregoing be pending; nor shall there be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger which makes the consummation of the Merger illegal.
(d) NASDAQ. The shares of HearMe Common Stock to be issued in the
Merger shall have been approved for quotation on the Nasdaq Stock Market.
(e) TAX OPINION. Target shall have received the opinion dated the
Closing Date of Ritchey Fisher Whitman & Klein to the effect that the Merger
will be treated for federal income tax purposes as a tax-free reorganization
within the meaning of Section 368(a) of the Code. In rendering such opinion,
counsel shall be entitled to rely upon, among other things, reasonable
assumptions as well as representations of HearMe, Sub and Target.
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Section 8.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF HEARME AND SUB. The
obligations of HearMe and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by HearMe and Sub:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Target set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, except for changes
contemplated by this Agreement; and HearMe shall have received a certificate
signed on behalf of Target by the chief executive officer and the chief
financial officer of Target to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF TARGET. Target shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date; and HearMe shall have received a
certificate signed on behalf of Target by the chief executive officer of Target
to such effect.
(c) BLUE SKY LAWS. HearMe shall have received all state securities or
"Blue Sky" permits and other authorizations necessary to issue shares of HearMe
Common Stock pursuant to the Merger.
(d) DISSENTING SHAREHOLDERS. Holders of no more than five percent (5%)
of Target's issued and outstanding capital stock as of the Closing shall have
elected to, or continue to have contingent rights to, exercise appraisal rights
under California Law as to such shares.
(e) ESCROW AGREEMENT. The Escrow Agent and Shareholders' Agents shall
have executed and delivered to HearMe the Escrow Agreement and such agreement
shall remain in full force and effect.
(g) ANCILLARY AGREEMENTS. Each of the SHAREHOLDERs Agreements, the
Noncompetition Agreements and the Stock Repurchase Agreements executed and
delivered concurrently with the execution of this Agreement shall remain in full
force and effect.
(h) FOUNDERS' INVENTION AGREEMENT. Each of the Founders have executed
and delivered concurrently with the execution of this Agreement a Founders'
Invention Agreement attached hereto as Exhibit G.
(h) OPINION OF TARGET'S COUNSEL. HearMe shall have received an opinion
dated the Closing Date of Ritchey Fisher Whitman & Klein, counsel to Target, as
to the matters set forth on EXHIBIT H.
(i) APPROVALS. All authorizations, consents (including the Material
Consents), or approvals of, or notifications to any third party, required by
Target's contracts, agreements or other obligations in connection with the
consummation of the Merger shall have occurred or been obtained.
(j) BOARD RESIGNATIONS. Target shall have received written letters of
resignation from the Target Board of Directors from each of the current members
of such Board, in each case effective at the Effective Time.
(l) SECURITIES EXEMPTION. Each shareholder of Target shall have
executed and delivered to HearMe an Investor Representation Statement and, based
upon the information supplied in such Investor Representation Statement, HearMe
shall have reasonably concluded that the issuance of shares of HearMe Common
Stock shall be exempt from registration under the Securities Act pursuant to
Section 4(2) thereof and Regulation D promulgated thereunder.
Section 8.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF TARGET. The obligation
of Target to effect the Merger is subject to the satisfaction of each of the
following conditions, any of which may be waived, in writing, exclusively by
Target:
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(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of HearMe and Sub set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
such representations speak as of an earlier date) as of the Closing Date as
though made on and as of the Closing Date, and Target shall have received a
certificate signed on behalf of HearMe by the chief financial officer of HearMe
to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF HEARME AND SUB. HearMe and Sub shall
have performed in all material respects all obligations required to be performed
by them under this Agreement at or prior to the Closing Date; and Target shall
have received a certificate signed on behalf of HearMe by the chief financial
officer of HearMe to such effect.
(c) OPINION OF HEARME'S COUNSEL. Target shall have received an opinion
dated the Closing Date of Venture Law Group, counsel to HearMe, as to the
matters set forth on EXHIBIT H.
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual written consent of HearMe and Target;
(b) by either HearMe or Target, by giving written notice to the other
party, if a court of competent jurisdiction or other Governmental Entity shall
have issued a nonappealable final order, decree or ruling or taken any other
action, in each case having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger, except, if such party relying on such order,
decree or ruling or other action shall not have complied with its respective
obligations under Sections 5.5 or 6.3 of this Agreement, as the case may be;
(c) by HearMe or Target, by giving written notice to the other party,
if the other party is in material breach of any representation, warranty, or
covenant of such other party contained in this Agreement, which breach shall not
have been cured, if subject to cure, within 10 business days following receipt
by the breaching party of written notice of such breach by the other party;
(d) by HearMe, by giving written notice to Target, if the Closing
shall not have occurred on or before May 31, 2000 by reason of the failure of
any condition precedent under Section 8.1 or 8.2 (unless the failure results
primarily from a breach by HearMe of any representation, warranty, or covenant
of HearMe contained in this Agreement or HearMe's failure to fulfill a condition
precedent to closing or other default);
(e) by Target, by giving written notice to HearMe, if the Closing
shall not have occurred on or before May 31, 2000 by reason of the failure of
any condition precedent under Section 8.1 or 8.3 (unless the failure results
primarily from a breach by Target of any representation, warranty, or covenant
of Target contained in this Agreement or Target's failure to fulfill a condition
precedent to closing or other default);
(f) by HearMe, by giving written notice to Target, if the required
approvals of the shareholders of Target contemplated by this Agreement shall not
have been obtained by reason of the failure to obtain the required consents or
votes upon a vote taken by written consent or at a meeting of shareholders, duly
convened therefor or at any adjournment thereof;
(g) by Target, by giving written notice to HearMe at least two
business days prior to the scheduled Closing Date, if the Average Closing Stock
Price is less than $19.05, unless HearMe shall elect, by giving Target written
notice at least one business day prior to the scheduled Closing Date, of its
intention to issue additional shares of HearMe Common Stock, or to pay
additional cash, so that the sum of (i) the amount of cash to be paid in the
Merger (including the Cash Component and the additional cash to be paid pursuant
to such election) and (ii) the
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product of the total number of shares to be issued in the Merger (including the
Total Consideration Shares and the additional shares, if any, to be issued
pursuant to such election, and including shares of HearMe Common Stock issuable
upon exercise of Target Options or Target Warrants assumed by HearMe in the
Merger) and the Average Closing Price equals $100,000,000; or
(h) by HearMe if Target shall have failed to deliver the Consents in
accordance with Section 5.8 hereof.
Section 9.2 EFFECT OF TERMINATION. (a) If this Agreement is terminated
pursuant to Section 9.1, this Agreement shall become void and of no effect with
no liability on the part of any party (or any shareholder, director, officer,
employee, agent, consultant or representative of such party) to the other party
hereto except as provided in paragraph (b) below, provided that, if such
termination shall result from the willful (a) failure of either party to fulfill
a condition to the performance of the obligations of the other party, (b)
failure of either party to perform a covenant hereof or (c) material breach by
either party hereto of any representation or warranty or agreement contained
herein, such party shall be fully liable for any and all liabilities and damages
incurred or suffered by the other party as a result of such failure or breach.
The provisions of Sections 7.2, 9.2, 9.3(a), 11.6 and 11.5 shall survive any
termination hereof pursuant to Section 9.1.
(b) In the event that (i) this Agreement is terminated by HearMe pursuant
to Section 9.1(c), (ii) any Person shall have made an Acquisition Proposal, and
(iii) any Person and Target close a definitive agreement with respect to an
Acquisition Proposal within nine (9) months of such termination, then upon
closing of such transaction, Target shall pay to HearMe, by wire transfer of
same day funds, within two (2) business days after such amount becomes due, a
termination fee of five percent (5%) of the value of Target based upon such
definitive agreement. The amount payable pursuant to this Section 9.2(b)
constitutes liquidated damages and not a penalty, and is the sole and exclusive
remedy of HearMe with respect to events giving rise to an obligation to make
such payment, and HearMe shall not be entitled to any direct or indirect
damages, including without limitation any incidental, special, exemplary or
consequential damages, in connection with any such event.
(c) In the event that this Agreement is terminated by the Target pursuant
to Section 9.1(c), then HearMe shall pay to Target, by wire transfer of same day
funds, two (2) business days after such amount becomes due, a termination fee of
$6,000,000. The amount payable pursuant to this Section 9.2(c) constitutes
liquidated damages and not a penalty, and is the sole and exclusive remedy of
Target with respect to events giving rise to an obligation to make such payment,
and Target shall not be entitled to any direct or indirect damages, including
without limitation any incidental, special, exemplary or consequential damages,
in connection with any such event.
Section 9.3 FEES AND EXPENSES.
(a) Except as set forth in this Section 9.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not the
Merger is consummated.
(b) If the Merger is consummated, all legal, accounting, investment
banking, broker's and finder's fees and expenses incurred by Target or its
shareholders in connection with the Merger shall be deemed expenses of the
shareholders of Target to the extent such fees and expenses exceed $150,000, and
shall be borne by the shareholders of Target to such extent and will not become
obligations of Target. Target will make arrangements for the payments of such
fees acceptable to HearMe. Any such fees and expenses in excess of $150,000
incurred by Target shall be recoverable from the Escrow Fund (as defined in
Section 10.2) as Damages (as defined in Section 10.1) without regard to the
damage threshold as contemplated by Section 10.3.
ARTICLE X
ESCROW AND INDEMNIFICATION
Section 10.1 INDEMNIFICATION. From and after the Effective Time and
subject to the limitations contained in Section 10.2, the Former Target
Shareholders will, severally and pro rata, in accordance with their Pro
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Rata Portion, indemnify and hold HearMe harmless against any loss, expense,
liability or other damage, including attorneys' fees, to the extent of the
amount of such loss, expense, liability or other damage (collectively "DAMAGES")
that HearMe has incurred by reason of the breach by Target of any
representation, warranty, covenant or agreement of Target contained in this
Agreement, ... ...HearMe, Target and Sub acknowledge and agree, and the Former
Target Shareholders, by their approval of this Agreement and their execution of
the Shareholders Agreement, agree that notwithstanding anything to the contrary
contained in this Agreement or any other Transaction Document, such
indemnification under this Article X shall be the sole and exclusive remedy for
any such claim of breach by Target, except for Damages based upon a claim of
fraud or intentional misrepresentation.
Section 10.2 ESCROW FUND. As security and the sole and exclusive recourse
for the indemnities in Section 10.1, as soon as practicable after the Effective
Time, the Escrow Shares shall be deposited with U.S. Bank Trust, National
Association (or such other institution selected by HearMe with the reasonable
consent of Target) as escrow agent (the "ESCROW AGENT"), such deposit to
constitute the Escrow Fund (the "ESCROW FUND") and to be governed by the terms
set forth in this Article X and in the Escrow Agreement. Notwithstanding the
foregoing or anything to the contrary contained in this Agreement or in any
Transaction Document, the indemnification obligations of the Former Target
Shareholders pursuant to this Article X or otherwise shall be limited to the
amount and assets deposited and present in the Escrow Fund and HearMe shall not
be entitled to pursue any claims for indemnification under this Article X or
otherwise against the Former Target Shareholders directly or personally, and the
sole recourse of HearMe shall be to make claims against the Escrow Fund in
accordance with the terms of the Escrow Agreement.
Section 10.3 DAMAGE THRESHOLD. Notwithstanding the foregoing, the Former
Target Shareholders shall have no liability under Section 10.1 and HearMe may
not receive any shares from the Escrow Fund unless and until an Officer's
Certificate or Certificates (as defined in Section 10.5 below) for an aggregate
amount of HearMe's Damages in excess of ... has been delivered to the
Shareholders' Agents and to the Escrow Agent; PROVIDED, HOWEVER, that after an
Officer's Certificate or Certificates for an aggregate of .... in Damages has
been delivered, HearMe shall be entitled to receive Escrow Shares equal in value
to the full amount of Damages identified in such Officer's Certificate or
Certificates.
Section 10.4 ESCROW PERIODS. The Escrow Fund shall terminate upon the
first anniversary date of the Closing Date (the period from the Closing Date to
such date referred to as the "Escrow Period"), PROVIDED, HOWEVER, that the
number of Escrow Shares, which, in the reasonable judgment of HearMe, subject to
the objection of the Shareholders' Agents and the subsequent resolution of the
matter in the manner provided in Section 10.8, are necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate theretofore delivered
to the Escrow Agent and the Shareholders' Agents prior to termination of the
Escrow Period with respect to Damages incurred or litigation pending prior to
expiration of the Escrow Period, shall remain in the Escrow Fund until such
claims have been finally resolved.
Section 10.5 CLAIMS UPON ESCROW FUND. Upon receipt by the Escrow Agent on
or before the last day of the Escrow Period of a certificate signed by any
appropriately authorized officer of HearMe (an "OFFICER'S CERTIFICATE"):
(i) Stating the aggregate amount of HearMe's Damages or an estimate
thereof, in each case to the extent known or determinable at such time; and
(ii) Specifying in reasonable detail the individual items of such
Damages included in the amount so stated, the date each such item was paid or
properly accrued or arose, and the nature of the misrepresentation, breach or
claim to which such item is related,
the Escrow Agent shall, subject to the provisions of Sections 10.3 and 10.8
hereof and of the Escrow Agreement, deliver to HearMe out of the Escrow Fund, as
promptly as practicable, Escrow Shares having a value equal to such Damages all
in accordance with the Escrow Agreement and Section 10.6 below. Amounts paid or
distributed from the Escrow Fund shall be paid or distributed pro rata among the
Holders (as defined in the Escrow Agreement) based upon their respective
percentage interests therein at the time.
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Section 10.6 VALUATION. For the purpose of compensating HearMe for its
Damages pursuant to this Agreement, the value per share of the Escrow Shares
which shall be released to HearMe in respect of a claim for Damages shall be the
Stock Value, or if HearMe makes the election referred to in Section 9.1(g), the
Average Closing Price.
Section 10.7 OBJECTIONS TO CLAIMS. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such Officer's
Certificate shall be delivered to the Shareholders' Agents (as defined in
Section 10.9 below) and for a period of thirty (30) days after such delivery,
the Escrow Agent shall make no delivery of Escrow Shares pursuant to Section
10.4 unless the Escrow Agent shall have received written authorization from the
Shareholders' Agents to make such delivery. After the expiration of such thirty
(30) day period, the Escrow Agent shall make delivery of the Escrow Shares in
the Escrow Fund in accordance with Section 10.4, PROVIDED that no such delivery
may be made if the Shareholders' Agents shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent and to HearMe prior to the expiration of such
thirty (30) day period.
Section 10.8 RESOLUTION OF CONFLICTS.
(a) In case the Shareholders' Agents shall so object in writing to any
claim or claims by HearMe made in any Officer's Certificate, HearMe shall have
thirty (30) days to respond in a written statement to the objection of the
Shareholders' Agents. If after such thirty (30) day period there remains a
dispute as to any claims, the Shareholders' Agents and HearMe shall attempt in
good faith for thirty (30) days to agree upon the rights of the respective
paRTIes with respect to each of such claims. If the Shareholders' Agents and
HearMe should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and shall
distribute the Escrow Shares from the Escrow Fund in accordance with the terms
of the memorandum.
(b) If no such agreement can be reached after good faith negotiation,
either HearMe or the Shareholders' Agents may, by written notice to the other,
demand arbitration of the matter unless the amount of the damage or loss is at
issue in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained or both paRTIes agree to
arbitration; and in either such event the matter shall be settled by arbitration
conducted by three arbitrators. Within fifteen (15) days after such written
notice is sent, HearMe (on the one hand) and the Shareholders' Agents (on the
other hand) shall each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator. The decision of the arbitrators as to
the validity and amount of any claim in such Officer's Certificate shall be
binding and conclusive upon the parties to this Agreement, and notwithstanding
anything in Section 10.4, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance with such decision.
(c) Judgment upon any award rendered by the arbitrators may be entered
in any court having jurisdiction. Any such arbitration shall be held in Santa
Clara County, California under the commercial rules then in effect of the
American Arbitration Association. The non-prevailing party to an arbitration
shall pay its own expenses, the fees of each arbitrator, the administrative fee
of the American Arbitration Association, and the expenses, including, without
limitation, the reasonable attorneys' fees and costs, incurred by the prevailing
party to the arbitration.
Section 10.9 SHAREHOLDERS' AGENTS.
(a) Frank Chu and Corey Gates shall be constituted and appointed as
agents (the "SHAREHOLDERS' AGENTS") for and on behalf of the Former Target
SHAREHOLDERs to give and receive notices and communications, to authorize
delivery to HearMe of the Escrow Shares or other property from the Escrow Fund
in satisfaction of claims by HearMe, to object to such deliveries, to 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, and to take all actions necessary or appropriate in the judgment of the
SHAREHOLDERs' Agents for the accomplishment of the foregoing. All actions of the
SHAREHOLDERs' Agents shall be taken jointly, not individually. Such agency may
be changed by the holders of a majority in interest of the Escrow Shares from
time to time upon not less than ten (10) days' prior written notice to HearMe.
No bond shall be required of the SHAREHOLDERs' Agents,
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and the SHAREHOLDERs' Agents shall receive no compensation for services. Notices
or communications to or from the SHAREHOLDERs' Agents shall constitute notice to
or from each of the Former Target SHAREHOLDERs.
(b) The SHAREHOLDERs' Agents shall not be liable for any act done or
omitted hereunder as SHAREHOLDERs' Agent while acting in good faith, and any act
done or omitted pursuant to the advice of counsel shall be conclusive evidence
of such good faith. The Former Target SHAREHOLDERs shall severally and pro rata,
in accordance with their Pro Rata PoRTIon, indemnify the SHAREHOLDERs' Agents
and hold them harmless against any loss, liability or expense incurred without
gross negligence or bad faith on the part of the SHAREHOLDERs' Agents and
arising out of or in connection with the acceptance or administration of their
duties hereunder under this Agreement or the Escrow Agreement.
(c) The SHAREHOLDERs' Agents shall have reasonable access to
information about Target and HearMe and the reasonable assistance of Target's
and HearMe's officers and employees for purposes of performing their duties and
exercising their rights under this ARTIcle X, PROVIDED that the SHAREHOLDERs'
Agents shall treat confidentially and not disclose any nonpublic information
from or about Target or HearMe to anyone (except on a need to know basis to
individuals who agree to treat such information confidentially).
Section 10.10 ACTIONS OF THE SHAREHOLDERS' AGENTS. A decision, act,
consent or instruction of the Shareholders' Agents shall constitute a decision
of all of the Former Target Shareholders for whom shares of HearMe Common Stock
otherwise issuable to them are deposited in the Escrow Fund and shall be final,
binding and conclusive upon each such Former Target Shareholder, and the Escrow
Agent and HearMe may rely upon any decision, act, consent or instruction of the
Shareholders' Agents as being the decision, act, consent or instruction of each
and every such Former Target Shareholder. The Escrow Agent and HearMe are hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Shareholders'
Agents.
Section 10.11 CLAIMS. In the event HearMe becomes aware of a third-party
claim which HearMe believes may result in a demand against the Escrow Fund,
HearMe shall promptly notify the Shareholders' Agents of such claim, and the
Shareholders' Agents and the Former Target Shareholders for whom shares of
HearMe Common Stock otherwise issuable to them are deposited in the Escrow Fund
shall be entitled, at their expense, to participate in any defense of such
claim. HearMe shall have the right in its sole discretion to settle any such
claim; PROVIDED, HOWEVER, that HearMe may not effect the settlement of any such
claim without the consent of the Shareholders' Agents, which consent shall not
be unreasonably withheld. In the event that the Shareholders' Agents have
consented to any such settlement, the Shareholders' Agents shall have no power
or authority to object to the amount of any claim by HearMe against the Escrow
Fund for indemnity with respect to such settlement in the amount agreed to.
ARTICLE XI
MISCELLANEOUS
Section 11.1 SURVIVAL OF REPRESENTATIONS AND COVENANTS. All
representations, warranties, covenants and agreements of Target contained in
this Agreement shall survive the Closing and any investigation at any time made
by or on behalf of HearMe until the end of the Escrow Period. If Escrow Shares
or other assets are retained in the Escrow Fund beyond expiration of the period
specified in the Escrow Agreement, then (notwithstanding the expiration of such
time period) the representation, warranty, covenant or agreement applicable to
such claim shall survive until, but only for purposes of, the resolution of the
claim to which such retained Escrow Shares or other assets relate. All
representations, warranties, covenants and agreements of HearMe contained in
this Agreement shall terminate as of the Effective Time, PROVIDED that the
covenants and agreements contained in Sections 6.5, 6.6, 6.7, 6.8, and 9.3 shall
survive the Closing and shall continue in full force and effect.
Section 11.2 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or two business days after being mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
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(a) if to HearMe or Sub:
HearMe
665 Clyde Avenue
Mountain View, CA 94043
Attention: Chief Executive Officer
Fax No:
Telephone No: (650) 429-3900
with a copy to:
Venture Law Group
A Professional Corporation
2775 Sand Hill Road
Menlo Park, California 94025
Attention: Steven J. Tonsfeldt
Fax No:
Telephone No: (650) 854-4488
(b) if to Target, to:
AudioTalk Networks, Inc.
1901 Landings Dr.
Mountain View, CA 94043
Attention: Frank Chu
Fax No:
Telephone No: (650) 988-2040
with a copy to:
Ritchey Fisher Whitman & Klein
1717 Embarcadero Road
Palo Alto, CA 94303
Attention: Terrence Kelly
Fax No:
Telephone No: (650) 857-1717
Section 11.3 INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "INCLUDE,"
"INCLUDES" or "INCLUDING" are used in this Agreement they shall be deemed to be
followed by the words "WITHOUT LIMITATION." Whenever the words "TO THE KNOWLEDGE
OF TARGET" or "KNOWN TO TARGET" or similar phrases are used in this Agreement,
they mean to the actual knowledge, after reasonable inquiry, of the Founders and
all other executive officers of Target.
Section 11.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 11.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement (including the documents and the instruments referred to herein), the
Confidentiality Agreement, and the Transaction Documents (a) constitute the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) are not intended to confer upon any person other than the parties hereto
(including without limitation any Target employees) any rights or remedies
hereunder.
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Section 11.6 GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of California without regard to any
applicable conflicts of law.
Section 11.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the PARTIes
and their respective successors and assigns.
Section 11.8 AMENDMENT. This Agreement may be amended by the parties
hereto, at any time before or after approval of matters presented in connection
with the Merger by the shareholders of Target, but after any such shareholder
approval, no amendment shall be made which by law requires the further approval
of shareholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 11.9 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or the other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations or warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
Section 11.10 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to injunctive relief to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, HearMe, Sub and Target have caused this Agreement and
Plan of Merger to be signed by their respective officers thereunto duly
authorized as of the date first written above.
HEARME
By: /s/Paul Matteucci
-------------------------
Title: President & CEO
----------------------
AT ACQUISITION CORP.
By: /s/Paul Matteucci
-------------------------
Title: President
----------------------
AUDIOTALK NETWORKS, INC.
By: /s/Frank Chu
-------------------------
Title: President
----------------------
<PAGE>
EXHIBIT A
CONSENT
<PAGE>
EXHIBIT A
ACTION BY WRITTEN CONSENT
OF THE SHAREHOLDERS OF
AUDIOTALK NETWORKS, INC.
MARCH 10, 2000
In accordance with Section 603 of the California Corporations Code and
Section 2.12 of the Bylaws of AudioTalk Networks, Inc., a California corporation
(the "COMPANY"), the undersigned shareholders hereby adopt the following
resolutions, effective as of the date first written above:
1. MERGER TRANSACTION
RESOLVED: That the merger of AT Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of HearMe, a Delaware
Corporation, with and into the Company with the Company surviving as a
wholly-owned subsidiary of HearMe (the "MERGER") is hereby approved and
the terms of the Agreement and Plan of Merger and Certificate of
Merger, in the form attached hereto as EXHIBIT A, together with all
agreements and documents contemplated thereby (collectively, the
"RELATED AGREEMENTS"), are hereby adopted and approved; provided,
however, that the officers of the Company are hereby authorized to make
such changes and amendments to such Merger Documents as they may deem
necessary or appropriate.
RESOLVED FURTHER: That the officers of the Company are hereby
authorized and directed to execute and deliver on behalf of the Company
the Related Agreements and thereafter to cause the Company to perform
all of its obligations and duties with respect to such agreements.
RESOLVED FURTHER: That the prior actions by the officers of the Company
in connection with the Merger and the Related Agreements are hereby
approved, adopted and ratified.
RESOLVED FURTHER: That the Company's shareholders waive any notice with
respect to the Merger to which such shareholders may be entitled
pursuant to the Company's Restated Articles of Incorporation, or any
agreements among the Company and any or all of such shareholders.
RESOLVED FURTHER: That the officers of the Company are hereby
authorized and directed to execute and deliver all documents and take
such additional actions as may be necessary or appropriate to carry out
the intent of the foregoing resolutions.
2. OMNIBUS RESOLUTION
RESOLVED: That the officers of the Company are authorized and empowered
to make, provide, execute, deliver and file all statements,
representations, applications, agreements, certificates, payments,
notifications and other documents and instruments, and to take or cause
to be taken all such action as may be necessary or advisable to carry
out the intent and accomplish the purpose of the foregoing resolutions,
all of which actions to be taken or previously taken are hereby
ratified and confirmed in all respects.
[SIGNATURE PAGE FOLLOWS]
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This Consent may be signed in one or more counterparts, and delivered
by facsimile, each of which shall be deemed an original and all of which
together will constitute one instrument. This Consent was executed as of date
first set forth above.
SHAREHOLDER
By:/s/ Kulin R Tantod
------------------------------------------
SHAREHOLDER
By:/s/ Michael Chiu
------------------------------------------
SHAREHOLDER
By:/s/ Ketan Tantod
------------------------------------------
SHAREHOLDER
By:/s/ Shane Moore
------------------------------------------
SHAREHOLDER
By:/s/ Chuck Chan
------------------------------------------
SHAREHOLDER
By:/s/ Lily Miao
------------------------------------------
SHAREHOLDER
By:/s/ Charles Herrera
------------------------------------------
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SHAREHOLDER
By:/s/ Michael Wehle
------------------------------------------
SHAREHOLDER
By:/s/ Bing Chen
------------------------------------------
SHAREHOLDER
By:/s/ Fernando Sibayan
------------------------------------------
SHAREHOLDER
By:/s/ Rong Kuo Wei
------------------------------------------
SHAREHOLDER
By:/s/ Frank Chu On Behalf of Jim Chu
------------------------------------------
SHAREHOLDER
By:/s/ Bren C Smith
------------------------------------------
SHAREHOLDER
By:/s/ Scott Brear
------------------------------------------
SHAREHOLDER
By:/s/ Katherine Kwan
------------------------------------------
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SHAREHOLDER
By:/s/ Aruna Erra
------------------------------------------
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SHAREHOLDER
By:/s/ Bruce Kwan
------------------------------------------
SHAREHOLDER
By:/s/ Maria Diana Medina
------------------------------------------
SHAREHOLDER
By:/s/ Shelley Prill
------------------------------------------
SHAREHOLDER
By:/s/ Kingston Choy
------------------------------------------
SHAREHOLDER
By:/s/ Craig & Suzanne Mchugh
------------------------------------------
SHAREHOLDER
By:/s/ Kyle Allen Yoshioa
------------------------------------------
-7-
<PAGE>
SHAREHOLDER
By:/s/ Michelle Varno
------------------------------------------
SHAREHOLDER
By:/s/ Ed Brayman
------------------------------------------
SHAREHOLDER
By:/s/ David W. Roberts
------------------------------------------
SHAREHOLDER
By:/s/ Matthew Micklin
------------------------------------------
SHAREHOLDER
By:/s/ Virgil Dobjanschi
------------------------------------------
SHAREHOLDER
By:/s/ Au Revokable Trust
------------------------------------------
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SHAREHOLDER
By:/s/ David Weng
------------------------------------------
SHAREHOLDER
By:/s/ Dan Wright
------------------------------------------
SHAREHOLDER
By:/s/ WQ Investments LLC
------------------------------------------
SHAREHOLDER
By:/s/ Luan Wan Wey
------------------------------------------
SHAREHOLDER
By:/s/ Roger Su
------------------------------------------
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SHAREHOLDER
By:/s/ Kwok-lung Matthew Tong
------------------------------------------
SHAREHOLDER
By:/s/ Douglas W. Tsui
------------------------------------------
SHAREHOLDER
By:/s/ Devadas Varma
------------------------------------------
SHAREHOLDER
By:/s/ Paul Steiner
------------------------------------------
SHAREHOLDER
By:/s/ Corey Gates
------------------------------------------
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SHAREHOLDER
By:/s/ Erika Rottenberg
------------------------------------------
SHAREHOLDER
By:/s/ Corey and Maggie Gates
------------------------------------------
SHAREHOLDER
By:/s/ Tim Riley
------------------------------------------
SHAREHOLDER
By:/s/ Pacific Line Investment
------------------------------------------
SHAREHOLDER
By:/s/ Roger Ying Lo and Catherine Ka Wai
------------------------------------------
Wong (Lo Family Trust)
---------------------------------------------
SHAREHOLDER
By:/s/ Chon Kar Leow
------------------------------------------
SHAREHOLDER
By:/s/ C. Hock Leow
------------------------------------------
SHAREHOLDER
By:/s/ Mark M. Lee
------------------------------------------
SHAREHOLDER
By:/s/ M. H Lalif
------------------------------------------
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SHAREHOLDER
By:/s/ Mark Kaleem
------------------------------------------
SHAREHOLDER
By:/s/ Weibing Hung
------------------------------------------
SHAREHOLDER
By:/s/ Tony Huang
------------------------------------------
SHAREHOLDER
By:/s/ Daniel Tsz-tak Ho
------------------------------------------
SHAREHOLDER
By:/s/ B.s. Gill
------------------------------------------
SHAREHOLDER
By:/s/ Ng Leh Long (CTI Limited)
------------------------------------------
SHAREHOLDER
By:/s/ John Chu
------------------------------------------
SHAREHOLDER
By:/s/ Chiu Living Trust
------------------------------------------
SHAREHOLDER
By:/s/ Jerry Chen
------------------------------------------
SHAREHOLDER
By:/s/ Kevin L. Cheek
------------------------------------------
SHAREHOLDER
By:/s/ Paul A. Bock
------------------------------------------
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<PAGE>
SHAREHOLDER
By:/s/ Bel Air Internet Partners
------------------------------------------
SHAREHOLDER
By:/s/ Angel Investors II, L.P.
------------------------------------------
SHAREHOLDER
By:/s/ Mike Hewitt
------------------------------------------
SHAREHOLDER
By:/s/ Shi-wei Chu, Sho Mei Chu
------------------------------------------
SHAREHOLDER
By:/s/ Warren J. Kaplan
------------------------------------------
SHAREHOLDER
BY: /s/ Wendy Hui
------------------------------------------
SHAREHOLDER
By:/s/ Julia Yeh and Chin-chou Lee
------------------------------------------
SHAREHOLDER
By:/s/ Chen Kar Leow
------------------------------------------
SHAREHOLDER
By:/s/ Gene Choy
------------------------------------------
SHAREHOLDER
By:/s/ Soheil Mallick
------------------------------------------
SHAREHOLDER
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<PAGE>
BY:/s/ William Tai
------------------------------------------
SHAREHOLDER
BY:/s/ Lawrence Kwan
------------------------------------------
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<PAGE>
EXHIBIT B
NON-COMPETITION AGREEMENT
-15-
<PAGE>
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "AGREEMENT") is entered into as of
March 10, 2000, by and between HearMe, a Delaware corporation ("HEARME") and
___________________ ("INDIVIDUAL"), an employee of AudioTalk Networks, Inc., a
California Corporation ("AUDIOTALK").
RECITALS
A. AudioTalk is engaged in the business of providing full
duplex, interactive voice services (including PC to phone capabilities) to
Internet businesses and enabling technology, turnkey services and infrastructure
that that allow for point to point and multi user voice communications to
applications and services without installing additional hardware and software
(the "BUSINESS").
B. Individual is a stockholder and an employee of AudioTalk an
has confidential and proprietary information relating to the business and
operation of AudioTalk.
C. Individual's covenant not to compete with HearMe, as
reflected in this Agreement, is an essential part of the transactions described
in that certain Agreement and Plan of Merger dated as of March 10, 2000 (the
"MERGER AGREEMENT"), among HearMe, AT Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of HearMe ("SUB"), and AudioTalk, whereby
AudioTalk will be merged with and into Sub (the transactions contemplated by the
Merger Agreement are referred to hereinafter as the "MERGER").
D. As a condition to its willingness to enter into the Merger
Agreement, AudioTalk has required that Individual agree, and Individual has
agreed, to the noncompetition and nonsolicitation covenants and the
confidentiality agreements provided in this Agreement.
E. References to HearMe hereinafter shall include all
subsidiaries of HearMe and shall include AudioTalk which is the surviving
corporation in the Merger.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and to induce HearMe
to consummate the transactions contemplated by the Merger Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Individual hereby covenants and agrees as follows:
1. NONCOMPETITION.
(a) Individual and HearMe agree that due to the nature
of Individual's employment with AudioTalk, Individual has confidential and
proprietary information relating to the business and operations of AudioTalk.
Individual acknowledges that such information is of importance to the Business
and will continue to be so after the Merger and that disclosure of such
confidential information to others or the unauthorized use of such information
by others would cause substantial loss and harm to AudioTalk and, following the
Merger, HearMe.
(b) During the period which shall commence at the
Effective Time and shall terminate on the earlier of: (i) the second anniversary
of the Effective Time, (ii) a termination without cause as "cause" is defined in
the Individual's Founder's Stock Purchase Agreement; or (iii) a Corporate
Transaction as defined in the Individual's Founder's Stock Purchase Agreement
(such period, the "RESTRICTED PERIOD"); Individual shall not directly or
indirectly (including without limitation, through any Affiliate (as defined
below) of Individual), own, manage, operate, control or otherwise engage or
participate in, or be connected as an owner, partner, principal, creditor,
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<PAGE>
salesman, guarantor, advisor, member of the board of directors of, employee of
or consultant in i) the companies listed on EXHIBIT A or any of their respective
controlled Affiliates to the extent that Individual's relationship , employment
by or participation with such companies that devote 20% or more of its resources
to engaging in the Business or generating 20% or more of its gross revenues or
earnings from any entity or business, or any division, group, or other subset of
any business engaged in the Business; or ii) any entity or business, or any
division, group, or other subset of any business engaged in the Business
devoting 20% or more of its resources to engaging in or developing a business
engaged in the Business or generating 20% or more of its gross revenues or
earnings from a business engaged in the Business.
(c) Notwithstanding the foregoing provisions of Section
1(b) and the restrictions set forth therein, Individual may own securities in
any publicly held corporation that is covered by the restrictions set forth in
Section 1(b), but only to the extent that Individual does not own, of record or
beneficially, more than 1% of the outstanding beneficial ownership of such
corporation.
(d) The restrictions set forth in Section 1(b) shall apply
worldwide (the "BUSINESS AREA").
(e) "AFFILIATE" as used herein, means, with respect to
any person or entity, any person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such other person
or entity.
2. NONSOLICITATION OF HEARME EMPLOYEES. During the Restricted
Period, Individual shall not, without the prior written consent of HearMe,
directly or indirectly (including without limitation, through any Affiliate of
Individual), solicit, request, cause or induce any person who is at the time, an
employee of or a consultant of HearMe to leave the employ of or terminate such
person's relationship with HearMe.
3. NONSOLICITATION OF CUSTOMERS. During the Restricted Period,
Individual shall not, directly or indirectly (including without limitation,
through any Affiliate of Individual) (i) solicit, induce or attempt to induce
any customer of HearMe, including but not limited to any customer of AudioTalk
that was a customer of HearMe or AudioTalk while the Individual was an employee
of HearMe or AudioTalk, as the case may be, or during the Restricted Period, to
cease doing business in whole or in part with HearMe with respect to the
Business; (ii) attempt to limit or interfere with any business agreement or
relationship existing between HearMe and/or its Affiliates with any third party;
or (iii) make materially false statements, or take intentional actions, which
are intended to disparage the business reputation of HearMe (or its management
team) or take any intentional actions which are intended to result in material
harm to HearMe's goodwill with its customers, content providers, bandwidth or
other network infrastructure providers, vendors, employees, the media or the
public.
4. CONFIDENTIALITY. Prior to the Effective Time, Individual
will execute HearMe's standard employee proprietary information and inventions
agreement in the form attached hereto as EXHIBIT B.
5. STAY OF TIME. In the event that either party shall request a
court of competent jurisdiction (collectively a "Court") or other entity or
person mutually selected by the parties to determine whether the Individual has
violated the provisions of this Agreement, the running of the time period of
such provisions so violated shall be automatically suspended as of the date of
such violation and shall resume on the date of the final order or remedy that
the Court or other entity or person rules or determines that such violation
occurred.
6. INJUNCTIVE RELIEF. The remedy at law for any breach of this
Agreement is and will be inadequate, and in the event of a breach or threatened
breach by Individual of the provisions of Sections 1, 2 or 3 of this Agreement,
AudioTalk and HearMe shall be entitled to seek an injunction restraining
Individual from the conduct which would constitute a breach of this Agreement.
Nothing herein contained shall be construed as prohibiting AudioTalk or HearMe
from pursuing any other remedies available to it or them for such breach or
threatened breach, including, without limitation, the recovery of damages from
Individual.
7. SEPARATE COVENANTS. This Agreement shall be deemed to
consist of a series of separate covenants, one for each line of business carried
on by the Business and each county, state, country or other region included
within the Business Area. The parties expressly agree that the character,
duration and geographical scope of this
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<PAGE>
Agreement are reasonable in light of the circumstances as they exist on the date
upon which this Agreement has been executed. However, should a determination
nonetheless be made by a court of competent jurisdiction at a later date that
the character, duration or geographical scope of this Agreement is unreasonable
in light of the circumstances as they then exist, then it is the intention and
the agreement of Individual that this Agreement shall be construed by the court
in such a manner as to impose only those restrictions on the conduct of
Individual that are reasonable in light of the circumstances as they then exist
and as are necessary to assure AudioTalk and HearMe of the intended benefit of
this Agreement. If, in any judicial proceeding, a court shall refuse to enforce
all of the separate covenants deemed included herein because, taken together,
they are more extensive than necessary to assure HearMe of the intended benefit
of this Agreement, it is expressly understood and agreed among the parties
hereto that those of such covenants that, if eliminated, would permit the
remaining separate covenants to be enforced in such proceeding shall, for the
purpose of such proceeding, be deemed eliminated from the provisions hereof.
8. SEVERABILITY. If any of the provisions of this Agreement
shall otherwise contravene or be invalid under the laws of any state, country or
other jurisdiction where this Agreement is applicable but for such contravention
or invalidity, such contravention or invalidity shall not invalidate all of the
provisions of this Agreement but rather it shall be construed, insofar as the
laws of that state, country or jurisdiction are concerned, as not containing the
provision or provisions contravening or invalid under the laws of that state or
jurisdiction, and the rights and obligations created hereby shall be construed
and enforced accordingly.
9. CONSTRUCTION. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of California, without
regard to principles of conflicts or choice of laws; provided, however, that
with respect to activities occurring in a particular jurisdiction, the law of
such jurisdiction shall apply solely to the extent it results in the greatest
enforcement of the terms of this Agreement.
10. AMENDMENTS AND WAIVERS. This Agreement may be modified only
by a written instrument duly executed by each party hereto. No breach of any
covenant, agreement, warranty or representation shall be deemed waived unless
expressly waived in writing by the party who might assert such breach. No waiver
of any right hereunder shall operate as a waiver of any other right or of the
same or a similar right on another occasion.
11. ENTIRE AGREEMENT. This Agreement, together with the Merger
Agreement and the ancillary documents executed in connection therewith, contains
the entire understanding of the parties relating to the subject matter hereof,
supersedes all prior and contemporaneous agreements and understandings relating
to the subject matter hereof and shall not be amended except by a written
instrument signed by each of the parties hereto.
12. COUNTERPARTS. This Agreement may be executed by the parties
in separate counterparts and delivered by facsimile, each of which, when so
executed and delivered, shall be an original, but all of which, when taken as a
whole, shall constitute one and the same instrument.
13. SECTION HEADINGS. The headings of each Section, subsection
or other subdivision of this Agreement are for reference only and shall not
limit or control the meaning thereof.
14. ASSIGNMENT. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof nor any of the
documents executed in connection herewith may be assigned by any party without
the consent of the other parties; provided, however, that HearMe and AudioTalk
may assign their rights hereunder, without the consent of Individual, to any
entity that acquires or succeeds to the Business.
15. FURTHER ASSURANCES. From time to time, at HearMe's request
and without further consideration, Individual shall execute and deliver such
additional documents and take all such further action as reasonably requested by
AudioTalk or HearMe to be necessary or desirable to make effective, in the most
expeditious manner possible, the terms of this Agreement.
16. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or two
business days after being mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
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(a) if to HearMe:
HearMe
665 Clyde Avenue
Mountain View, CA 94043
Attention: Chief Executive Officer
with a copy to:
Venture Law Group
A Professional Corporation
2775 Sand Hill Road
Menlo Park, CA 94025
Attention: Steven J. Tonsfeldt
(b) if to Individual:
to the address set forth below the name of Individual
on the signature page hereof.
17. EFFECTIVENESS. Notwithstanding any other provision of this
Agreement, this Agreement shall become effective only upon the Effective Time,
and if such Effective Time shall not occur prior to the termination of the
Merger Agreement this Agreement shall be deemed void ab initio and have no
further force or effect upon such termination of the Merger Agreement.
18 DEFINED TERMS. Capitalized terms not otherwise defined herein
shall have the meanings given to them in the Merger Agreement.
********
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Noncompetition
Agreement as of the date first above written.
By: /s/ Frank Chu
------------------------------
Name: Frank Chu
------------------------------
Title: President
------------------------------
_____________________________________
Name:
Address:
****NONCOMPETITION AGREEMENT****
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Noncompetition
Agreement as of the date first above written.
By: /s/ Virgil Dobjanschi
------------------------------
Name: Virgil Dobjanschi
------------------------------
Title:
------------------------------
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Noncompetition
Agreement as of the date first above written.
By: /s/ Corey Gates
------------------------------
Name: Corey Gates
------------------------------
Title:
------------------------------
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Noncompetition
Agreement as of the date first above written.
HEARME
By: /s/ Paul Matteucci
------------------------------
Name: Paul Matteucci
------------------------------
Title:
------------------------------
_____________________________________
Name:
Address:
4
<PAGE>
EXHIBIT A
....
<PAGE>
EXHIBIT B
FORM OF EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
SEE EXHIBIT D
-6-
<PAGE>
EXHIBIT C
-7-
<PAGE>
EXHIBIT C
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "AGREEMENT") is entered into as of
March 10, 2000, among HearMe, a Delaware corporation ("HEARME"), and the
undersigned Stockholder ("STOCKHOLDER") of AudioTalk Networks, Inc., a
California corporation ("AUDIOTALK").
RECITALS
A. Concurrently with the execution of this Agreement, HearMe,
AudioTalk and AudioTalk Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of HearMe ("MERGER SUB"), have entered into an Agreement
and Plan of Merger (the "MERGER AGREEMENT"), which provides for the merger (the
"MERGER") of AudioTalk with and into Merger Sub and the conversion of each
outstanding share of AudioTalk's capital stock into shares of HearMe Common
Stock.
B. In the Merger, outstanding shares of AudioTalk capital
stock, including any such shares owned by Stockholder, will be converted into
the right to receive shares of HearMe Common Stock (the "SHARES") subject to the
terms of, and as set forth in, the Merger Agreement.
C. At the time of issuance to the Stockholder, the Shares to be
received by Stockholder in the Merger will not have been registered under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), but will have been
issued in reliance upon the exemption from registration contained in Section
4(2) of the Securities Act or Regulation D promulgated thereunder.
D. Pursuant to the terms of the Merger Agreement, after the
Effective Time (as defined in the Merger Agreement), HearMe will prepare and
file with respect to the Shares a registration statement on Form S-3 (the
"REGISTRATION STATEMENT") under the Securities Act, to permit Stockholder, to
sell the Shares registered for sale under the Registration Statement.
E. In order to induce HearMe to enter into the Merger Agreement
and to grant such registration rights, Stockholder is willing to agree to be
bound by certain requirements and to execute and deliver this Agreement.
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. ACKNOWLEDGMENTS BY STOCKHOLDER. Stockholder acknowledges and
understands that the representations, warranties and covenants made by
Stockholder set forth herein shall be relied upon by HearMe, AudioTalk, and
their respective affiliates, counsel and accounting firms, and that substantial
losses and damages may be incurred by such persons if Stockholder's
representations, warranties or covenants are breached. Stockholder has carefully
read this Agreement and the Merger Agreement (including the Escrow Agreement
attached thereto as EXHIBIT F) and has discussed the requirements of this
Agreement with Stockholder's professional advisors to the extent Stockholder has
deemed necessary.
2. STOCKHOLDER'S REPRESENTATIONS. Stockholder represents,
warrants and covenants that:
(a) ACQUIRE SOLELY FOR OWN ACCOUNT. The Shares to be
received by Stockholder in the Merger will be acquired for investment for
Stockholder's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof in violation of the Securities Act of
1933, as amended. Stockholder does not presently have any contract,
understanding, agreement or arrangement with any person to sell, transfer or
grant participations to such person or to any third party with respect to any of
the Shares.
(b) RESTRICTED SECURITIES. Stockholder understands that
the Shares will be "restricted securities" under applicable federal and state
securities laws. Accordingly Stockholder will not make any sale, transfer, or
other disposition of Shares unless (i) such sale, transfer, or other disposition
is within the applicable
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<PAGE>
limitations of and in compliance with Rule 144 promulgated by the Securities and
Exchange Commission (the "COMMISSION") under the Securities Act, or (ii) some
other exemption from registration under the Securities Act is available with
respect to any such proposed sale, transfer or other disposition of Shares, or
(iii) such distribution of Shares has been registered under the Securities Act.
Stockholder has no present intention to sell or otherwise dispose of the Shares
and is acquiring such Shares for investment and not with a view to resale or
distribution in a manner that would violate applicable securities laws.
(c) INFORMATION CONCERNING HEARME AND AUDIOTALK.
(i) Stockholder, either alone or together with his
or her purchaser representative (the "PURCHASER REPRESENTATIVE"), has had the
opportunity to ask questions of, and obtain any additional information
reasonably available to HearMe and AudioTalk with respect to their respective
plans, results of operations, financial conditions, businesses, properties,
assets or business prospects, and Stockholder, either alone or together with the
Purchaser Representative, has received all such information as Stockholder or
the Purchaser Representative deems necessary and appropriate to enable
Stockholder, either alone or together with the Purchaser Representative, to
evaluate the risks and merits of the Merger and the Shares.
(ii) If Stockholder has retained a Purchaser
Representative, Stockholder has been informed in writing by the Purchaser
Representative of any material relationship between the Purchaser Representative
and its affiliates and HearMe and its affiliates that currently exists, that is
understood to be contemplated or has existed at any time during the previous two
years, and any compensation received or to be received as a result of such
relationship, and has, to the extent necessary to evaluate the risks and merits
of the Merger, relied upon the advice of the Purchaser Representative in
connection with the Merger;
(iii) Stockholder acknowledges he or she has
previously received (A) an Information Statement from AudioTalk's Board of
Directors soliciting the consent of AudioTalk's Stockholders to the Merger, (B)
a copy of the Merger Agreement and (C) a copy of HearMe's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999.
(d) ECONOMIC RISK. Stockholder, either alone or
together with the Purchaser Representative, can look after Stockholder's
financial interests in connection with the Merger; has such knowledge and
experience in financial or business matters as to be able to evaluate the merits
and risks of the Merger; and is able to acquire the Shares without impairing
Stockholder's financial condition, to hold the Shares for an indefinite period
of time and to suffer a complete loss on Stockholder's investment. Stockholder
has not been organized solely for the purpose of acquiring the Shares.
3. RESTRICTIONS ON AND PROCEDURE FOR SALES.
(a) LEGEND. Stockholder understands that all
certificates representing Shares deliverable to Stockholder pursuant to the
Merger shall, until the occurrence of one of the events referred to below, bear
a legend substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD,
PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH
THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
OTHER CONDITIONS SPECIFIED IN THE STOCKHOLDERS AGREEMENT DATED AS OF
MARCH __, 2000 BETWEEN THE HOLDER OF THIS CERTIFICATE AND HEARME, A
COPY OF WHICH AGREEMENT WILL BE FURNISHED BY HEARME TO THE HOLDER OF
THIS CERTIFICATE UPON WRITTEN REQUEST AND WITHOUT CHARGE."
HearMe, in its discretion, may cause stop transfer orders to be placed
with its transfer agent with respect to the certificates for the Shares which
are required to bear such legend.
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<PAGE>
4. INFORMATION FOR USE IN REGISTRATION STATEMENT. In connection
with any Registration Statement being prepared by HearMe to register the Shares
to permit Stockholder to sell the Shares registered for sale under the
Registration Statement, the Stockholder represents and warrants that the
information set forth below is true, accurate and complete:
(a) Except as described on Schedule 4 hereto, the
undersigned has not had a material relationship with HearMe or any of its
predecessors or affiliates within the last three years, except that the
undersigned has been a Stockholder, officer, director, advisor or employee of
AudioTalk.
The term "material relationship" has not been defined by the
Commission. However, the Commission has indicated that it will probably construe
as a "material relationship" any relationship which tends to prevent arms length
bargaining in dealings with a company, whether arising from a close business
connection or family relationship, a relationship of control or otherwise. It
seems prudent, therefore, to consider that the undersigned would have such a
relationship, for example, with any organization of which the undersigned is an
officer, director, trustee or partner or in which the undersigned owns, directly
or indirectly, 10% or more of the outstanding voting stock, or in which the
undersigned has some other substantial interest, and with any person or
organization with whom the undersigned has, or with whom any relative or spouse
of the undersigned (or any other person or organization as to which the
undersigned has any of the foregoing other relationships) has, a contractual
relationship.
(b) The undersigned acknowledges that the anti-manipulation
rules under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), may apply to sales of the Shares owned by the undersigned and to the
activities of the undersigned and his or her affiliates.
(c) Stockholder represents, warrants and covenants to
HearMe to provide such additional information related to the Stockholder as
shall be reasonably requested by HearMe to enable HearMe to cause any
registration statement to comply with the Securities Act and the rules and
regulations thereunder and that the information so provided is and will be true,
accurate and complete in all material respects. Stockholder understands that
such information is being provided to HearMe specifically for use in, or in
connection with, a registration statement and the prospectus contained therein,
and has executed this Agreement with such knowledge.
5. ACCESS TO INFORMATION. Stockholder acknowledges that HearMe
is a publicly held company that files reports and other information under the
Exchange Act with the Commission and with the National Association of Securities
Dealers, Inc. Stockholder further acknowledges the availability of information
about HearMe through such reports and other information.
6. ADDITIONAL PROVISIONS REGARDING INDEMNIFICATION. Stockholder
approves and agrees to be bound by all provisions of Section 2.2 and Article X
of the Merger Agreement and the Escrow Agreement attached as EXHIBIT F to the
Merger Agreement. Without limiting the generality of the foregoing, Stockholder
consents and agrees to the appointment of Stockholders' Agent pursuant to
Article X of the Merger Agreement and to the indemnification obligations
provided for in Section 10.8(b) of the Merger Agreement.
7. CONFIDENTIALITY. Stockholder agrees to at all times keep
confidential and not divulge, furnish or make accessible to anyone any
information regarding or relating to the signing of the Merger Agreement or the
Closing of the Merger until HearMe has publicly announced the Merger or such
other time as requested by HearMe.
8. TERMINATION OF CERTAIN AGREEMENTS. AudioTalk and each
Stockholder acknowledge and agree that each of (i) Series A and B Investors
Rights Agreement by and among the Company, the holders of Series A Preferred
Stock, the holders of Series B Preferred Stock, Frank Chu, Corey Gates and
Virgil Dobjanschi (the "Founders"), dated August 16, 1999; (ii) Amended and
Restated Series A and B Shareholder Agreement by and among the Company, the
holders of Series A Preferred Stock, the holders of Series B Preferred Stock and
the Founders dated December 15, 1999; (iii) Series A and B voting Agreement by
and among the Company, the holders of Series A Preferred Stock, the holders of
Series B Preferred Stock and the Founders, dated August 16, 1998, as amended by
the First Amendment to Series A and B Voting Agreement, dated December 13, 1999
shall each terminate and be of no further force or effect as of the Closing Date
(as defined in Merger Agreement) of the Merger.
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<PAGE>
9. MISCELLANEOUS.
(a) This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof. No waiver of any of
the provisions of this Agreement shall be deemed, or shall constitute, a waiver
of any other provision, whether or not similar, nor shall any waiver constitute
a continuing waiver. No waiver shall be binding unless executed in writing by
the party making the waiver.
(b) For the convenience of the parties hereto, this
Agreement may be executed in one or more counterparts and delivered by
facsimile, each of which shall be deemed an original, but all of which together
shall constitute one and the same document.
(c) This Agreement shall be enforceable by, and shall
inure to the benefit of and be binding upon, the parties hereto and their
respective successors and assigns. As used herein, the term "successors and
assigns" shall mean, where the context so permits, heirs, executors,
administrators, trustees and successor trustees, and personal and other
representatives.
(d) This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State of
Delaware (without regard to the principles of conflict of laws thereof).
(e) If a court of competent jurisdiction determines
that any provision of this Agreement is not enforceable or enforceable only if
limited in time and/or scope, this Agreement shall continue in full force and
effect with such provision stricken or so limited
[Signature Page Follows.]
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<PAGE>
Executed as of the date shown on the first page of this Agreement.
HEARME
By: /s/ Paul Matteucci
----------------------------
Name: Paul Matteucci
----------------------
Title:
----------------------
STOCKHOLDER
By: /s/ RFWK Distributions
----------------------------
Name of Stockholder:RFWK Distributions
STOCKHOLDER
By: /s/ David Weng
----------------------------
Name of Stockholder: David Weng
STOCKHOLDER
By: /s/ Shi-wei Chu, Sho Mei Chu
----------------------------
Name of Stockholder: Shi-Wei Chu,
Sho Mei Chu
STOCKHOLDER
By: /s/ Frank Chu On behalf Of
----------------------------
Name of Stockholder: Jim Chu
STOCKHOLDER
By: /s/ Dan Wright
----------------------------
Name of Stockholder: Dan Wright
<PAGE>
STOCKHOLDER
By: /s/ Luen Wan Wey
----------------------------
Name of Stockholder: Luen Wan Wey
STOCKHOLDER
By: /s/ M. Teng
----------------------------
Name of Stockholder: Kwok Lung
Matthew Teng
STOCKHOLDER
By: /s/ Douglas W. Tsui
----------------------------
Name of Stockholder: Douglas W. Tsui
STOCKHOLDER
By: /s/ Bruce A. Wilford
----------------------------
Name of Stockholder: WQ
Investments LLC
STOCKHOLDER
By: /s/ Roger Su
----------------------------
Name of Stockholder: Roger Su
STOCKHOLDER
By: /s/ Paul Steiner
----------------------------
Name of Stockholder: Paul Steiner
STOCKHOLDER
By: /s/ Erika Rottenberg
----------------------------
Name of Stockholder: Erika
Rottenberg
STOCKHOLDER
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<PAGE>
By: /s/ Timothy Riley
----------------------------
Name of Stockholder: Timothy Riley
STOCKHOLDER
By: /s/ Qin Zheng
----------------------------
Name of Stockholder: Pacific Line
Investment, Ltd.
STOCKHOLDER
By: /s/
----------------------------
Name of Stockholder: Roger Ying
Kuen Lo & Catherine Ka Wai Wong as
trustee of the Lo's family trust
dated November 22, 1999
STOCKHOLDER
By: /s/ Chon Kar Leow
----------------------------
Name of Stockholder: Chon Kar Leow
STOCKHOLDER
By: /s/ C. Hock Leow
----------------------------
Name of Stockholder: C. Hock Leow
STOCKHOLDER
By: /s/ Mark Lee
----------------------------
Name of Stockholder: Mark Lee
STOCKHOLDER
By: /s/ M.H. Latif
----------------------------
Name of Stockholder: Mannan
Margaret Latif Trustee, 1999 Latif
Revocable Trust
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<PAGE>
STOCKHOLDER
By: /s/ Warren J. Kaplan
----------------------------
Name of Stockholder: Warren J.
Kaplan
STOCKHOLDER
By: /s/ Mark Kalpan
----------------------------
Name of Stockholder: Mark Kalpan
STOCKHOLDER
By: /s/ Wei-Bing Hung
----------------------------
Name of Stockholder: Wei-Bing Hung
STOCKHOLDER
By: /s/ Wendy Hui
----------------------------
Name of Stockholder: Wendy Hui
STOCKHOLDER
By: /s/ Tony Huang
----------------------------
Name of Stockholder: Tony Huang
STOCKHOLDER
By: /s/ Tsz-Tak Daniel Ho and
Frenda Man-Ling Ho
----------------------------
Name of Stockholder: Tsz-Tak
Daniel Ho and Frenda Man-Ling Ho
STOCKHOLDER
By: /s/ Mike Hewitt
----------------------------
Name of Stockholder: Mike Hewitt
STOCKHOLDER
-15-
<PAGE>
By: /s/ Barjinderpal S. Gill
----------------------------
Name of Stockholder: Barjinderpal
S. Gill
STOCKHOLDER
By: /s/ Corey Gates
----------------------------
Name of Stockholder: Corey Gates
STOCKHOLDER
By: /s/ John Chu
----------------------------
Name of Stockholder: John Chu
STOCKHOLDER
By: /s/
----------------------------
Name of Stockholder: Chiu Living
Trust dtd 12/2/86
STOCKHOLDER
By: /s/ Jerry C. Chen
----------------------------
Name of Stockholder: Jerry C. Chen
STOCKHOLDER
By: /s/ Kevin L. Cheek
----------------------------
Name of Stockholder: Kevin Cheek
STOCKHOLDER
By: /s/ Paul A. Bock
----------------------------
Name of Stockholder: Paul A. Bock
STOCKHOLDER
-16-
<PAGE>
By: /s/ Kurt L. Kamm, Manager
Name of Stockholder: Bel Air
Internet Partners
STOCKHOLDER
By: /s/ J. Casey Mcglynn
----------------------------
Name of Stockholder: Angel (Q)
Investors II, L.P.
STOCKHOLDER
By: /s/ Julia Yeh and Chin-Chou
Lee
----------------------------
Name of Stockholder: Julia Yeh and
Chin-Chou Lee
STOCKHOLDER
By: /s/ Devadas Varma
----------------------------
Name of Stockholder: Varma Family
Trust UTD 11/20/98
STOCKHOLDER
By: /s/ Ng Keh Long
----------------------------
Name of Stockholder: CTI Limited
STOCKHOLDER
By: /s/ Virgil Dobjanschi
----------------------------
Name of Stockholder: Virgil
Dobjanschi
-17-
<PAGE>
STOCKHOLDER
By: /s/ Paul Berberian
----------------------------
Name of Stockholder: Evoke
Incorporate
STOCKHOLDER
By: /s/ Frank Chu
----------------------------
Name of Stockholder: Frank Chu
STOCKHOLDER
By: /s/ Corey and Maggie Gates
----------------------------
Name of Stockholder: Corey and Maggie
Gates
STOCKHOLDER
By: /s/ Chen Kar Leow
----------------------------
Name of Stockholder: Chen Kar Leow
STOCKHOLDER
By: /s/ Au Revokable Trust
----------------------------
Name of Stockholder: Au Revokable
Trust
STOCKHOLDER
By: /s/ Gene Choy
----------------------------
Name of Stockholder: Gene Choy
STOCKHOLDER
By: /s/ Soheil Mallick
----------------------------
Name of Stockholder: Soheil Mallick
STOCKHOLDER
By: /s/ William Tai
----------------------------
Name of Stockholder: William Tai
-18-
<PAGE>
STOCKHOLDER
By: /s/ Kulin Tantod
----------------------------
Name of Stockholder: Kulin Tantod
STOCKHOLDER
By: /s/ Ketan Tantod
----------------------------
Name of Stockholder: Ketan Tantod
STOCKHOLDER
By: /s/ Shane P. Moore
----------------------------
Name of Stockholder: Shane Moore
STOCKHOLDER
By: /s/ Chuck Chan
----------------------------
Name of Stockholder: Chuck Chan
STOCKHOLDER
By: /s/ Lily Miao
----------------------------
Name of Stockholder: Lily Miao
STOCKHOLDER
By: /s/ Charles S Herrerra
----------------------------
Name of Stockholder: Charles S
Herrerra
STOCKHOLDER
By: /s/ Michael Wehle
----------------------------
Name of Stockholder: Michael Wehle
STOCKHOLDER
By: /s/ Bing Chen
----------------------------
Name of Stockholder: Bing Chen
STOCKHOLDER
By: /s/ Fernando Sibayan
----------------------------
-19-
<PAGE>
Name of Stockholder: Fernando
Sibayan
STOCKHOLDER
By: /s/ Michael Chiu
----------------------------
Name of Stockholder: Micheal Chiu
STOCKHOLDER
By: /s/ Rong Kuo Wei
----------------------------
Name of Stockholder: Rong Kuo Wei
STOCKHOLDER
By: /s/ Scott Brear
----------------------------
Name of Stockholder: Scott Brear
STOCKHOLDER
By: /s/ Katherine Kwan
----------------------------
Name of Stockholder: Katherine Kwan
STOCKHOLDER
By: /s/ Aruna Erra
----------------------------
Name of Stockholder: Aruna Erra
STOCKHOLDER
By: /s/ Bruce Kwan
----------------------------
Name of Stockholder: Bruce Kwan
STOCKHOLDER
By: /s/ Maria Diana Medina
----------------------------
Name of Stockholder: Maria Diana
Medina
STOCKHOLDER
By: /s/ Shelley Pril
----------------------------
Name of Stockholder: Shelley Prill
STOCKHOLDER
By: /s/ Kingston Choy
----------------------------
Name of Stockholder: Kingston Choy
-20-
<PAGE>
STOCKHOLDER
By: /s/ Craig & Suzanne Mchugh
----------------------------
Name of Stockholder: Craig and
Suzanne Mchugh
STOCKHOLDER
By: /s/ Kyle Allen Yoshioa
----------------------------
Name of Stockholder: Kyle Allen
Yoshioa
STOCKHOLDER
By: /s/ Michelle Varno
----------------------------
Name of Stockholder: Michelle Varno
STOCKHOLDER
By: /s/ Bren C. Smith
----------------------------
Name of Stockholder: Bren C. Smith
STOCKHOLDER
By: /s/ Ed Brayman
----------------------------
Name of Stockholder: Ed Brayman
STOCKHOLDER
By: /s/ David Roberts
----------------------------
Name of Stockholder: David Roberts
STOCKHOLDER
By: /s/ Matthew Micklin
-------------
Name of Stockholder: Matthew Micklin
STOCKHOLDER
By: /s/ Lawrence Kwan
----------------------------
Name of Stockholder: Lawrence Kwan
-21-
<PAGE>
EXHIBIT D
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
-22-
<PAGE>
EXHIBIT D
STRATABEAM TECHNOLOGY, INC.
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
In consideration of my employment and the wages, salary or other
compensation paid to me for my services during my employment with StrataBeam
Technology, Inc., a California corporation, or any subsidiary or affiliate
thereof (hereinafter "Company"), I agree as follows:
1. NON-DISCLOSURE OBLIGATION TO COMPANY. At all times during and after my
employment, I will hold in strictest confidence, and not use for my own purposes
or the purposes of others or disclose to any person, firm or corporation,
without express authorization from an officer of Company, any Proprietary
Information as defined below. I will not publish or submit for publication any
technical or other articles pertaining in any way to Proprietary Information
without first obtaining Company's written consent.
2. PROPRIETARY INFORMATION OF COMPANY. The term "Proprietary Information,"
as it is used in this Agreement, shall include, but not be limited to, the
following: (i) business or financial records, strategies, forecasts, budgets,
projections, licenses, prices, costs, customer or vendor lists; and (ii)
manufacturing techniques, plans, processes, formulas, developments, experiments,
work-in-process, trade secrets, ideas, processes, formulas, source codes, data,
programs, inventions, confidential information, data, designs, drawings,
concepts, know-how, or any other information (collectively "inventions"), in
whatever form, including but not limited to magnetic storage media, computer
memories or any electronic storage media, which relates to the actual or
prospective products, sales or business of Company and which is not readily
available to the public. That term shall also include any information belonging
to third parties in Company's possession and any information conceived,
originated, discovered or developed by me in the course of my employment by
Company.
3. INVENTIONS DURING AND IMMEDIATELY AFTER TERM OF EMPLOYMENT.
a. DISCLOSURE AND ASSIGNMENT TO COMPANY. I will promptly make full
disclosure to Company, and will hold in trust for the sole right and
benefit of Company, and assign, and hereby do assign, to Company, all my
right, title and interest (including patent or copyright, if any) to any
and all inventions (whether or not patentable, or registrable under
copyright, mask work, or similar statute) which I may solely or jointly
conceive, develop, reduce to practice, or cause to be conceived, or
developed, or reduced to practice, during my employment with Company. This
Agreement does not require assignment of an invention which qualifies fully
under Section 2870 of the California Labor Code which provides as follows:
"(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the
employer's equipment, supplies, facilities, or trade secret information
except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer; or
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable."
-23-
<PAGE>
b. MAINTENANCE OF RECORDS. I agree to keep and maintain adequate
and current records of all inventions made by me, which records shall
be available to and remain the sole property of the Company at all
times.
c. DISCLOSURE OF INVENTIONS. I will promptly disclose in writing
to the Company all inventions made or conceived or used in practice by
me, either alone or jointly with others, during the period of my
employment, and for one (1) year after termination of my employment
with the Company, whether or not I believe the inventions qualify
fully under Section 2870 of the California Labor Code. Such disclosure
shall be received in confidence by the Company.
d. NO INFRINGEMENT. I hereby waive and quitclaim to Company any
and all claims, of any nature whatsoever, which I now or may hereafter
have for infringement of any patent or copyright resulting from any
application for letters patent or copyright assigned hereunder to
Company.
e. COOPERATION WITH COMPANY. I agree to assist and cooperate with
Company in protecting its rights under this Agreement, including the
procurement and enforcement of patents or copyrights in the United
States or in any foreign countries, execution of any documents deemed
necessary or appropriate by Company, and testimony in any litigation
or other legal proceeding involving the assignments hereunder. All
such cooperation and assistance shall be at Company's expense, but for
no consideration to me in addition to my salary or wages. If Company
requires my assistance under this paragraph after termination of my
employment, I shall be compensated for my time actually spent in
providing that cooperation and assistance at an hourly rate equivalent
to my salary or wages during the last period of my employment.
f. COMPANY AS ATTORNEY-IN-FACT. In the event Company is unable
because of my mental or physical incapacity or for any other reason
whatsoever to secure my signature to apply for, or to pursue any
application for, any United States or foreign letters patent or
copyright covering any rights assigned to Company hereunder, I
irrevocably designate and appoint Company, through its duly authorized
officers and agents, as my agent and attorney-in-fact, to act for and
in my behalf and stead, to execute and file any such applications and
to do all other lawfully permitted acts to further the prosecution and
issuance of letters patent or copyrights thereon, with the same legal
force and effect as if executed by me.
4. RETURN OF COMPANY PROPERTY. At the time of leaving the employ of Company
for any reason, I will deliver to Company, and will not keep in my possession
nor deliver to anyone else, any and all files, drawings, blueprints, notes,
notebooks, memoranda, correspondence, specifications, devices, documents,
customer or supplier lists, disks, manuals, or any other material that embodies
any Proprietary Information in a tangible medium of expression. I will not
recreate any of the foregoing. This obligation shall extend to originals and any
copies in my possession, custody or control.
5. CONFIDENTIAL INFORMATION OF FORMER EMPLOYERS. I will not in my
employment at Company improperly use or disclose any confidential information or
trade secrets of my former employers or companies, if any, and I represent that
I have not brought and will not bring onto the premises of Company any
unpublished document or any property belonging to my former employers or
companies, if any, unless consented to in writing by said employers or
companies.
6. EXCLUSIVE EMPLOYMENT. During my employment with Company, I will not
engage in any other employment, occupation, consultation or other activity
relating to any actual or anticipated business, research, development, product,
service, or activity of Company, or otherwise conflicting with my obligations to
Company as an employee, without first obtaining Company's written consent
thereto. I represent that my performance under the terms of this Agreement and
as an employee of Company does not and will not breach any agreement to keep in
confidence any proprietary information acquired by me prior to my employment by
the Company. I agree that during my employment and for one (1) year after
termination of my employment I will not induce any employee of the Company to
leave the Company or solicit the business of any customer of the Company.
7. PRIOR INVENTIONS EXCLUDED FROM ASSIGNMENT TO COMPANY. I have attached
hereto as Exhibit A, a list describing all inventions made by me prior to my
employment by the Company that I wish to have excluded from this Agreement, or,
if there is no such list, I represent there are no such items to be excluded. I
agree to notify
-24-
<PAGE>
the Company in writing before I make any disclosure or perform any work on
behalf of the Company which appears to threaten or conflict with proprietary
rights I claim in any invention or idea. I will advise Company promptly in
writing of any inventions which I believe meet the criteria of Paragraph 2.a
above with respect to inventions excluded from assignment to the Company and
will at that time provide to Company in writing all evidence necessary to
substantiate that belief. Company will keep in confidence and will not disclose
to third parties without my consent any confidential information disclosed in
writing to Company relating to inventions which qualify fully under the
provisions of Section 2870 of the California Labor Code for exclusion.
8. TERMINATION AT WILL. I understand and agree that my employment in any
position with Company shall be for an indefinite period and is terminable at the
will of Company with or without cause unless the Company and I have expressly
agreed to the contrary in a written agreement which writing refers to this
provision.
9. MISCELLANEOUS. I will follow all Company policies, rules and
regulations. This Agreement shall not be terminated or altered by changes in the
other terms of my employment, such as changes in duties, position, or
compensation. I further agree that this Agreement shall be governed for all
purposes by the laws of the State of California, as such law applies to
contracts to be performed within California by residents of California. If any
part of this Agreement is declared void by a court of competent jurisdiction,
such part shall be deemed severed from this Agreement, which shall otherwise
remain in full force and effect. The provisions of this Agreement shall survive
termination of my employment.
IN WITNESS WHEREOF, I have signed my name hereto this 6th day of August,
1998.
/s/ Frank Chu
---------------------------------
Frank Chu
/s/ Terence Kelly
- ---------------------------------
Witness
Terrence M. Kelly
- ---------------------------------
(Print Name)
-25-
<PAGE>
EXHIBIT A
FRANK CHU
LIST OF PRIOR WORK AND INVENTIONS
1. ...
2. ...
3. ...
5. ...
<PAGE>
IN WITNESS WHEREOF, I have signed my name hereto this 4th day of August,
1998.
/s/
--------------------------
Virgil Dobjanschi
/s/
- -------------------------------------------
Witness
Terence Kelly
- -------------------------------------------
(Print Name)
<PAGE>
EXHIBIT A
VIRGIL DOBJANSCHI
LIST OF PRIOR INVENTIONS
1. ...
2. ...
3. ...
<PAGE>
IN WITNESS WHEREOF, I have signed my name hereto this 13th day of July,
1998.
/s/
------------
Corey Gates
/s/
- -------------------------------------
Witness
Virgil Dobjanschi
- -------------------------------------
(Print Name)
<PAGE>
EXHIBIT A
COREY GATES
LIST OF PRIOR INVENTIONS
1. ....
2. ....
3. ....
4. ....
5. ....
6. ....
7. ....
8. ....
<PAGE>
EXHIBIT E
INVESTOR REPRESENTATION STATEMENT
2
<PAGE>
EXHIBIT E
Name of AudioTalk Networks, Inc. Stockholder: __________________________
(Please Print)
State of Domicile:_____________________________
AUDIOTALK NETWORKS, INC.
--------------------------
INVESTOR REPRESENTATION STATEMENT
--------------------------
INSTRUCTIONS: IN CONNECTION WITH THE CLOSING OF THE PROPOSED MERGER BETWEEN
AUDIOTALK, INC. AND A WHOLLY OWNED SUBSIDIARY OF HEARME, PLEASE COMPLETE THIS
INVESTOR REPRESENTATION STATEMENT BY FILLING IN THE INFORMATION CALLED FOR,
CHECKING THE APPROPRIATE BOXES, AND SIGNING AT PAGE 3. PLEASE RETURN THE
COMPLETED QUESTIONNAIRE AS SOON AS POSSIBLE TO COUNSEL TO AUDIOTALK, INC.
AUDIOTALK NETWORKS, INC.
--------------------------
INVESTOR REPRESENTATION STATEMENT
--------------------------
3
<PAGE>
TO: HEARME
665 CLYDE AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
Ladies and Gentlemen:
In connection with the proposed merger between a wholly owned
subsidiary of HearMe (the "CORPORATION") and AUDIOTALK NETWORKS, INC, the
undersigned hereby represents as follows:
1. REPRESENTATIONS AS TO ACCREDITED INVESTOR STATUS. The undersigned has
read the definition of "Accredited Investor" from Rule 501 of Regulation D
attached hereto as Exhibit A, and certifies that either (check one):
A. / / The undersigned is an "Accredited Investor" for one or more of the
following reasons:
/ / (a) The undersigned is an individual (not a partnership,
corporation, etc.) whose individual net worth, or joint net
worth with his or her spouse, presently exceeds $1,000,000;
/ / (b) The undersigned is an individual (not a partnership,
corporation, etc.) who had an income in excess of $200,000
in each of the two most recent years, or joint income with
their spouse in excess of $300,000 in each of those years
(in each case including foreign income, tax exempt income
and full amount of capital gains and losses but excluding
any income of other family members and any unrealized
capital appreciation) and has a reasonable expectation of
reaching the same income level in the current year;
4
<PAGE>
/ / (c) The undersigned is a director or executive officer of the
Corporation which is issuing and selling the Shares;
/ / (d) The undersigned is a corporation, partnership, Massachusetts
business trust, or non-profit organization within the
meaning of Section 501(c)(3) of the Internal Revenue Code,
in each case not formed for the specific purpose of
acquiring the Shares and with total assets in excess of
$5,000,000;
------------------------------------------------------------
------------------------------------------------------------
(describe entity)
/ / (e) The undersigned is a trust with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring
the Shares, where the purchase is directed by a
"sophisticated person" as defined in
Regulation 506(b)(2)(ii).;
/ / (f) The undersigned is an entity all the equity owners of which
are "accredited investors" within one or more of the above
categories. IF RELYING UPON THIS CATEGORY ALONE, EACH EQUITY
OWNER MUST COMPLETE A SEPARATE COPY OF THIS AGREEMENT;
------------------------------------------------------------
------------------------------------------------------------
(describe entity)
B. / / The undersigned is NOT an "Accredited Investor" but has
completed the statement concerning his/her knowledge and
experience in financial and business matters included in
Exhibit B hereto. Kindly provide sufficient detail so that
the Corporation's legal counsel may conclude that the
undersigned is capable of evaluating the merits and risks of
investment in the Corporation.
2. ENTITY TYPE. The undersigned is:
/ / An individual
/ / A corporation
/ / A partnership
/ / A trust
/ / Other___________________
3. TAX I.D. NUMBER. The social security number or federal tax I.D. number
of the undersigned is:_____________________.
4. ADDRESS. The address of the undersigned is:____________________________
__________________________________________________________________________
__________________________________________________________________________
5
<PAGE>
The phone, fax and contact person (if an entity) are as follows:
Phone:______________________________________________
Fax:________________________________________________
Contact:____________________________________________
5. INDIVIDUALS. If the undersigned is an individual:
Name of Employer:
Position:___________________________________________
6. INSTITUTIONS. If the undersigned is an institution:
Nature of business:
Date of inception of business:______________________
If the answer to Question 1 is that the undersigned is an "Accredited
Investor", the questionnaire is complete and please simply sign below. Any
potential investor who is not an "Accredited Investor" also must complete the
supplemental questionnaire attached hereto as Exhibit B to assure compliance
with state and federal securities laws.
6
<PAGE>
The foregoing representation is true and accurate as of the date
hereof and shall be true and accurate as of the date of Closing. IF IN ANY
RESPECT SUCH REPRESENTATION SHALL NOT BE TRUE AND ACCURATE PRIOR TO CLOSING, THE
UNDERSIGNED SHALL GIVE IMMEDIATE NOTICE OF SUCH FACT TO THE PRESIDENT OF THE
CORPORATION.
Very truly yours,
Print Name of Investor
Dated: ____________________
Signature
Print Title (if applicable)
Print Name of joint investor or other
person whose signature is required
Signature
Print Title (if applicable)
7
<PAGE>
EXHIBIT A
RULE 501. DEFINITIONS AND TERMS USED IN REGULATION D.
As used in Regulation D, the following terms have the meaning
indicated:
(a) ACCREDITED INVESTOR. "Accredited investor" shall mean any person
who comes within any of the following categories, or who the issuer reasonably
believes comes within any of the following categories, at the time of the sale
of the securities to that person:
(1) Any bank as defined in section 3(a)(2) of the Act or any
savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the Act whether acting in its
individual or fiduciary capacity; any broker dealer
registered pursuant to Section 15 of the Securities Exchange
Act of 1934; insurance company as defined in Section 2(13)
of the Act; investment company registered under the
Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of that Act; Small
Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958; employee benefit plan
within the meaning of Title I of the Employee Retirement
Income Security Act of 1974, if the investment decision is
made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan
association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in
excess of $5,000,000; or, if a self-directed plan, with
investment decisions made solely by persons that are
accredited investors;
(2) Any private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific
purpose of acquiring the securities offered, with total
assets in excess of $5,000,000;
(4) Any director, executive officer, or general partner of the
issuer of the securities being offered or sold, or any
director, executive officer, or general partner of a general
partner of that issuer;
(5) Any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his purchase
exceeds $1,0000,000;
(6) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint
income with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation of
reaching the same income level in the current year;
(7) Any trust with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated
person as described in Rule 506(b)(2)(ii); and
(8) Any entity in which all of the equity owners are accredited
investors. [Remainder omitted]
-6-
<PAGE>
EXHIBIT B
CONFIDENTIAL SUPPLEMENTAL INFORMATION STATEMENT
(TO BE COMPLETED BY STOCKHOLDERS OF AUDIOTALK, INC. THAT ARE NOT
"ACCREDITED INVESTORS")
In order to assure compliance with applicable federal and state laws, it is
necessary to obtain information regarding the financial position and experience
of stockholders of AudioTalk, Inc. that are not "Accredited Investors."
I. GENERAL INFORMATION (For INDIVIDUAL STOCKHOLDERS AND EACH INDIVIDUAL
PARTNER OR STOCKHOLDER IF THE STOCKHOLDER IS A PARTNERSHIP OR CORPORATION THAT
IS NOT AN "ACCREDITED INVESTOR" -- attach additional sheets if necessary)
A. PURCHASERS
1. Name:
---------------------------------------------------------
2. Address:
Business:
----------------------------------------
----------------------------------------
----------------------------------------
Residence:
----------------------------------------
----------------------------------------
3. Telephone:
Business: (________) ________________
Residence: (________) ________________
4. State where registered to vote:
---------------------------------------------
5. Social Security Number:
---------------------------------------------
6. Date of Birth:
---------------------------------------------
7. Country of citizenship, if
other than the United States
----------------------------
8. Marital status:
---------------------------------------------
9. Please state your education and degrees earned:
DEGREE SCHOOL YEAR
----------- ------------------------ ---------------
----------- ------------------------ ---------------
----------- ------------------------ ---------------
10. Current occupation (if retired, please described your last
occupation):
<PAGE>
Employer:
Nature of Business:
Position and/or duties:
Period Employed:
11. If current employment is less than five years, please
complete the following chart on your employment history for
the past five (5) years:
EMPLOYER AND TITLE PRIMARY DUTIES FROM TO
------------------- ------------------ ---------- -------
------------------- ------------------- ---------- -------
------------------- ------------------- ---------- -------
12. Please list all professional qualifications that you have held
or currently hold, including bar admissions, accounting
certificates, brokerage licenses and other professional
licenses or certificates:
YEAR
PROFESSIONAL QUALIFICATIONS RECEIVED STILL EFFECTIVE
Yes / / No / /
------------------------ -------------
Yes / / No / /
------------------------ -------------
Yes / / No / /
------------------------ -------------
<PAGE>
II. FINANCIAL INFORMATION (For INDIVIDUAL STOCKHOLDERS AND EACH INDIVIDUAL
PARTNER OR STOCKHOLDER IF THE STOCKHOLDER IS A PARTNERSHIP OR CORPORATION
THAT IS NOT AN "ACCREDITED INVESTOR" -- attach additional sheets if
necessary)
A. To confirm that each individual investor meets the financial
requirements established for this offering, please answer the
questions set forth below, as appropriate.
1. Please indicate your net worth (including spouse, if applicable)
EXCLUDING home, home furnishings and automobiles:
$ 25,000 - 75,000 / / $250,000 - 500,000 / /
$ 75,000 - 150,000 / / $500,000 - 1,000,000 / /
$150,000 - 250,000 / /
Greater than $1,000,000 / /
2. What was your income for 1998 and 1999?
1998 ________________
1999 ________________
Do you expect your income for 2000 to equal or exceed 1999?
Yes / / No / /
If no, what do you expect your 2000 income will be?
2000 ________________
III. INVESTMENT EXPERIENCE REPRESENTATIONS
A. Indicate how often you invest in:
1. Marketable Securities
Often / / Occasionally / / Seldom / / Never / /
2. Restricted Securities
Often / / Occasionally / / Seldom / / Never / /
3. Venture Capital Limited Partnership Funds
Often / / Occasionally / / Seldom / / Never / /
4. Please list below your most recent private investments (attach
a separate sheet if necessary):
Private When Amount of
Offering Type of Investment Purchased Investment
- ------------ ------------------------------$--------------
- ------------ ------------------------------$--------------
- ------------ ------------------------------$--------------
- ------------ ------------------------------$--------------
<PAGE>
- ------------ ------------------------------$--------------
B. Please answer each of the following questions regarding your
investment experience:
1. Do you have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and
risks of an investment in the Corporation?
Yes / / No / /
2. Do you, either alone by reason of your business or financial
experience or together with your professional advisor or
advisors, have the capacity to protect your own interests in
connection with a purchase of the Shares in the Corporation?
Yes / / No / /
3. Are you (or the trust beneficiary for which you are the
fiduciary) able to bear the economic risk of the investment,
including a complete loss of the investment?
Yes / / No / /
C. What is your relationship to the founders of the Corporation?
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
<PAGE>
I confirm that the foregoing statements are complete and accurate to
the best of my knowledge and belief, and that I undertake to notify the
Corporation regarding any material change in the information set forth above
prior to the closing of the merger referred to in this Investor Representation
Statement.
- -------------------------------------------
Print Name of Purchaser
By:
____________________________________________ Date_________
Signature
- --------------------------------------------
Print Title
- --------------------------------------------
Print Name of joint purchaser or other person
whose signature is required
By:
____________________________________________ Date_________
Signature
- --------------------------------------------
Print Title (if applicable)
<PAGE>
EXHIBIT F
ESCROW AGREEMENT
<PAGE>
EXHIBIT F
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "AGREEMENT") is entered into as of March
__, 2000, by and among HearMe, a Delaware corporation ("HEARME"), AudioTalk
Networks, Inc., a California corporation ("AUDIOTALK"), U.S. Bank National trust
Association, as Escrow Agent ("ESCROW AGENT") and Frank Chu and Corey Gates, as
Stockholders' Agents ("STOCKHOLDERS' AGENTS") with respect to the shares of
HearMe capital stock to be issued to the stockholders (collectively, the
"HOLDERS") of AudioTalk in the Merger (as defined below).
RECITALS
A. HearMe, AudioTalk and AudioTalk Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of HearMe ("SUB"), have
entered into a Agreement and Plan of Merger dated as of March 10, 2000 (the
"MERGER AGREEMENT") pursuant to which AudioTalk will merge with and into Sub
(the "MERGER"), with Sub surviving the Merger as the surviving corporation.
Capitalized terms used in this Agreement and not otherwise defined in this
Agreement shall have the meanings given them in the Merger Agreement.
B. Section 2.2 of the Merger Agreement provides that at the
Effective Time, or such later time as determined in accordance with Section
2.3(b) of the Merger Agreement with respect to Dissenting Shares for which
dissenters' rights shall have been withdrawn or lost, HearMe will deposit in the
Escrow Fund certificates representing the Escrow Shares, on a pro rata basis, in
accordance with each Holder's percentage ownership of HearMe Common Stock
issuable pursuant to the Merger. Such shares (the "ESCROW SECURITIES") shall be
held as security for HearMe's indemnification obligations under Article X of the
Merger Agreement and shall represent HearMe's sole and exclusive remedy with
respect to such indemnification obligations.
C. The parties to this Agreement desire to establish the terms and
conditions pursuant to which the Escrow Securities will be deposited, held in,
and disbursed from the Escrow Fund.
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. ESCROW FUND. The Escrow Agent agrees to: (a) accept delivery
of the Escrow Securities; and (b) hold such Escrow Securities in escrow as part
of the Escrow Fund, all subject to the terms and conditions of this Agreement
and Article X of the Merger Agreement (which Article X is attached to this
Agreement as APPENDIX I and incorporated by reference into this Agreement)
(collectively, the "ESCROW PROVISIONS"). The Escrow Securities will include
"ADDITIONAL ESCROW SECURITIES" as that term is defined in Section 2(c) of this
Agreement.
<PAGE>
2. DEPOSIT OF ESCROW SECURITIES: RELEASE FROM ESCROW.
(a) DELIVERY OF ESCROW SECURITIES. As soon as
practicable after the Effective Time, the Escrow Securities will be delivered by
HearMe on behalf of the Holders to the Escrow Agent. Such shares shall be issued
in the name of the Escrow Agent. In the event HearMe issues any Additional
Escrow Securities, such Escrow Securities will be issued in the name of the
Escrow Agent and delivered to the Escrow Agent in the same manner as the Escrow
Securities.
(b) HOLDERS' ACCOUNTS. The Escrow Agent will maintain
for each Holder an accounting record (each Holder's "ACCOUNT") specifying the
Escrow Securities held for the record of each Holder pursuant to the Escrow
Provisions. All Escrow Securities received under Section 2(a) will be allocated
to each Holder's Account in accordance with such Holder's percentage interest in
the Escrow Fund as set forth on APPENDIX II.
(c) DIVIDENDS, VOTING AND RIGHTS OF OWNERSHIP. Except
for tax-free dividends paid in stock declared with respect to the Escrow
Securities pursuant to Section 305(a) of the Internal Revenue Code of 1986, as
amended (the "CODE") ("ADDITIONAL ESCROW SECURITIES"), there will be distributed
promptly to the Holders any cash dividends or dividends payable in securities or
other distributions of any kind made in respect of the Escrow Securities. Each
Holder will have voting rights with respect to the Escrow Securities deposited
in the Escrow Fund with respect to such Holder so long as such Escrow Securities
are held in escrow, and HearMe will take all reasonable steps necessary to allow
the exercise of such rights. While the Escrow Securities remain in the Escrow
Agent's possession pursuant to this Agreement and the Merger Agreement, the
Holders will retain and will be able to exercise all other incidents of
ownership of said Escrow Securities which are not inconsistent with the terms
and conditions of this Agreement and the Merger Agreement.
(d) RELEASE. The Escrow Securities will be held by the
Escrow Agent until required to be released to the Holders pursuant to Section
10.4 of the Merger Agreement. Within five (5) business days after the release
condition set forth in Section 10.4 of the Merger Agreement is met, the Escrow
Agent will deliver to HearMe's transfer agent a letter of instruction together
with the Escrow Securities to be released on such date as identified by HearMe
and the Stockholders' Agents to the Escrow Agent in writing and HearMe shall
then cause the transfer agent to promptly deliver stock certificate(s) issued in
the name of each Holder. HearMe and the Stockholders' Agents will undertake to
deliver a notice to the Escrow Agent identifying the number of Escrow Securities
to be released with respect to each Holder within such five-day period. Escrow
Securities will be released to the respective Holders in accordance with their
respective Accounts. HearMe will take such action as may be necessary to cause
such certificates to be issued in the names of the appropriate Holders.
Certificates representing Escrow Securities so issued will bear the legend
contained in the Stockholders Agreement of each Holder. Cash will be paid in
lieu of fractions of Escrow Securities in an amount equal to the product
determined by multiplying such fraction by $_______ (the "PER SHARE VALUE").
Within five (5) business days after written request from the Stockholders'
Agents, HearMe will deposit with the Escrow Agent sufficient funds to pay such
cash amounts for fractional shares.
(e) NO ENCUMBRANCE. Except as provided in this
Agreement and as may be set forth in the AudioTalk Disclosure Schedule, no
Escrow Securities or any beneficial interest in the Escrow Securities may be
pledged, sold, assigned or transferred, including by operation of law, by a
Holder or be taken or reached by any legal or equitable process in satisfaction
of any debt or other liability of a Holder, prior to the delivery to such Holder
of the Escrow Securities by the Escrow Agent.
(f) POWER TO TRANSFER ESCROW SECURITIES. The Escrow
Agent is granted the power to effect any transfer of Escrow Securities
contemplated by the Escrow Provisions. HearMe will cooperate with the Escrow
Agent in promptly issuing stock certificates to effect such transfers.
(g) REPORTING. Each Holder will provide the Escrow
Agent with his/her/its Taxpayer Identification Number at or prior to Closing. On
or before January 31 of each year under this Agreement, the Escrow Agent will
prepare and mail to each Holder, other than Holders who demonstrate their status
as non-resident aliens in accordance with the United States Treasury
Regulations, a Form 1099-B reporting any cash payments, in accordance with such
Treasury Regulations. The Escrow Agent will also prepare and file copies of such
Forms
<PAGE>
1099-B by magnetic tape with the IRS, in accordance with Treasury Regulations.
If the Escrow Agent has not received notice from a Holder of such Holder's
certified Taxpayer Identification Number, the Escrow Agent shall deduct and
withhold backup withholding tax from any cash payment made pursuant to the
Internal Revenue Code and applicable regulations thereunder. Should any issue
arise regarding federal income tax reporting or withholding, the Escrow Agent
shall act in accordance with the written instructions of the Stockholders'
Agents and HearMe.
3. LIMITATION OF THE ESCROW AGENT'S LIABILITY.
(a) The Escrow Agent will incur no liability with
respect to any action taken or suffered by it in reliance upon any notice,
direction, instruction, consent, statement or other document believed by it to
be genuine and duly authorized, nor for any other action or inaction, except its
own willful misconduct, bad faith or gross negligence. The Escrow Agent will not
be responsible for the validity or sufficiency of the Escrow Provisions. In all
questions arising under the Escrow Provisions, the Escrow Agent may rely on the
advice of counsel, and for anything done, omitted or suffered in good faith by
the Escrow Agent based on such advice, the Escrow Agent will not be liable to
anyone. The Escrow Agent will not be required to take any action under the
Escrow Provisions involving any expense unless the payment of such expense is
made or provided for in a manner satisfactory to it.
(b) In the event conflicting demands are made or
notices are served upon the Escrow Agent with respect to the Escrow Fund, the
Escrow Agent will have the absolute right, at the Escrow Agent's election, to do
either or both of the following: resign so a successor can be appointed pursuant
to Section 5 or file a suit in interpleader and obtain an order from a court of
competent jurisdiction requiring the parties to interplead and litigate in such
court their several claims and rights among themselves. In the event such
interpleader suit is brought, the Escrow Agent will thereby be fully released
and discharged from all further obligations imposed upon it under the Escrow
Provisions, and HearMe will pay the Escrow Agent (subject to reimbursement from
the Holders pursuant to Section 4) all costs, expenses and reasonable attorney's
fees expended or incurred by the Escrow Agent pursuant to the exercise of the
Escrow Agent's rights under this Section 3 (such costs, fees and expenses will
be treated as extraordinary fees and expenses for the purposes of Section 4).
4. EXPENSES.
(a) ESCROW AGENT. All fees and expenses of the Escrow
Agent incurred in performing its responsibilities hereunder will be paid by
HearMe upon receipt of a written invoice by the Escrow Agent. In the event the
Escrow Agent incurs any liability to any person, firm or corporation by reason
of its acceptance or administration of this Escrow Agreement, HearMe agrees to
indemnify the Escrow Agent for its costs and expenses, including, without
limitation, reasonable counsel fees and expenses. Notwithstanding the foregoing,
no indemnity need be paid in the event of the Escrow Agent's gross negligence,
bad faith or willful misconduct.
(b) STOCKHOLDERS' AGENTS. The Stockholders' Agents will
not be entitled to receive any compensation from HearMe or the Holders in
connection with this Agreement. Any fees and expenses incurred by the
Stockholders' Agents in connection with actions taken pursuant to the terms of
the Escrow Provisions will be paid by the Holders.
5. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent
becomes unavailable or unwilling to continue in its capacity as such, the Escrow
Agent may resign and be discharged from its duties or obligations hereunder by
giving resignation to the parties to this Agreement, specifying not less than
thirty (30) days' prior written notice of such a date when such resignation will
take effect. HearMe will designate a successor Escrow Agent prior to the
expiration of such 30-day period by giving written notice to the Escrow Agent
and the Stockholders' Agents. HearMe may appoint a successor Escrow Agent with
the consent of the Stockholders' Agents, which will not be unreasonably
withheld. The Escrow Agent will promptly transfer the Escrow Securities to such
designated successor. In the event no successor Escrow Agent is appointed as
described in this Section 5, the Escrow Agent may apply to a court of competent
jurisdiction for the appointment of a successor Escrow Agent.
6. LIMITATION OF RESPONSIBILITY. The Escrow Agent's duties are
limited to those set forth in the Escrow Provisions and the Escrow Agent may
rely upon the written notices delivered to the Escrow Agent under the Escrow
Provisions.
<PAGE>
7. INCORPORATION BY REFERENCE OF ARTICLE X. The parties agree
that the terms of Article X of the Merger Agreement shall be deemed to be
incorporated by reference in this Agreement as if such Article had been set
forth in its entirety herein. The parties acknowledge that the administration of
the Escrow Fund by the Escrow Agent will require reference to both the terms of
this Agreement as well as the terms of such Article X.
8. NOTICES. Any notice provided for or permitted under the
Escrow Provisions will be treated as having been given when (i) delivered
personally, (ii) sent by confirmed telex or Fax, (iii) sent by commercial
overnight courier with written verification of receipt, or (iv) mailed postage
prepaid by certified or registered mail, return receipt requested, to the party
to be notified, at the address set forth below, or at such other place of which
the other party has been notified in accordance with the provisions of this
Section 10.
HearMe: HearMe
665 Clyde Avenue
Mountain View, California 94043
Attention: Chief Executive Officer
Telephone No: (650) 429-3900
With copy to: Venture Law Group
A Professional Corporation
2775 Sand Hill Road
Menlo Park, California 94025
Attention: Steven J. Tonsfeldt
Telephone No: (650) 854-4488
AudioTalk, Inc.:
With copy to: Ritchey Fisher Whitman & Klein
Attention: Terence M. Kelly
1717 Embarcadero Road
P.O. Box 51050
Palo Alto,CA 94303
Telephone No: (650) 857-1717
Escrow Agent: Anne Gadsby
U.S. Bank Trust National Association
Corporate Trust Services
One California Street
San Francisco, CA 94111
Stockholders' Agents: Frank Chu
Corey Gates
Such notice will be treated as having been received upon actual receipt.
9. GENERAL.
(a) GOVERNING LAWS. It is the intention of the parties
hereto that the internal laws of the State of California (irrespective of its
choice of law principles) shall govern the validity of this Agreement, the
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties to this Agreement.
<PAGE>
(b) BINDING UPON SUCCESSORS AND ASSIGNS. Subject to,
and unless otherwise provided in, this Agreement, each and all of the covenants,
terms, provisions, and agreements contained in this Agreement shall be binding
upon, and inure to the benefit of, the permitted successors, executors, heirs,
representatives, administrators and assigns of the parties to this Agreement.
(c) COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original as against any party
whose signature appears on such counterpart and all of which together shall
constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts of this Agreement, individually or taken together,
shall bear the signatures of all of the parties reflected in this Agreement as
signatories.
(d) ENTIRE AGREEMENT. Except as set forth in the Merger
Agreement, this Agreement, the documents referenced in this Agreement and the
exhibits to such documents, constitute the entire understanding and agreement of
the parties to this Agreement with respect to the subject matter of this
Agreement and of such documents and exhibits and supersede all prior and
contemporaneous agreements or understandings, inducements or conditions, express
or implied, written or oral, between the parties with respect to this Agreement.
The express terms of this Agreement control and supersede any course of
performance or usage of the trade inconsistent with any of the terms of this
Agreement.
(e) WAIVERS. No waiver by any party to this Agreement
of any condition or of any breach of any provision of this Agreement will be
effective unless in writing. No waiver by any party of any such condition or
breach, in any one instance, will be deemed to be a further or continuing waiver
of any such condition or breach or a waiver of any other condition or breach of
any other provision contained in this Agreement.
(f) AMENDMENT. This Agreement may be amended with the
written consent of HearMe, the Escrow Agent and the Stockholders' Agents,
PROVIDED, HOWEVER, that if the Escrow Agent does not agree to an amendment
agreed upon by HearMe and the Stockholders' Agents, a successor Escrow Agent
will be appointed in accordance with Section 5.
[Signature Page Follows.]
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written and will be effective as to all the Holders
when executed by HearMe, the Escrow Agent and the Stockholders' Agents.
HEARME
By: /s/ Linda Palmor
---------------------------
Its: Chief Financial Officer
---------------------------
AUDIOTALK NETWORKS, INC.
By: /s/ Frank Chu
---------------------------
Its: President
---------------------------
ESCROW AGENT:
By: /s/ Anne Gadsby
----------------------------
Its: Vice President
----------------------------
STOCKHOLDERS' AGENTS:
BY: /s/ Frank Chu
----------------------------
BY: /s/ Corey Gates
----------------------------
****ESCROW AGREEMENT****
<PAGE>
APPENDIX I
ARTICLE X OF MERGER AGREEMENT
<PAGE>
ARTICLE X
ESCROW AND INDEMNIFICATION
Section 10.1 INDEMNIFICATION. From and after the Effective Time and subject
to the limitations contained in Section 10.2, the Former Target Shareholders
will, severally and pro rata, in accordance with their Pro Rata Portion,
indemnify and hold HearMe harmless against any loss, expense, liability or other
damage, including attorneys' fees, to the extent of the amount of such loss,
expense, liability or other damage (collectively "DAMAGES") that HearMe has
incurred by reason of the breach by Target of any representation, warranty,
covenant or agreement of Target contained in this Agreement, ... ...HearMe,
Target and Sub acknowledge and agree, and the Former Target Shareholders, by
their approval of this Agreement and their execution of the Shareholders
Agreement, agree that notwithstanding anything to the contrary contained in this
Agreement or any other Transaction Document, such indemnification under this
Article X shall be the sole and exclusive remedy for any such claim of breach by
Target, except for Damages based upon a claim of fraud or intentional
misrepresentation.
Section 10.2 ESCROW FUND. As security and the sole and exclusive recourse
for the indemnities in Section 10.1, as soon as practicable after the Effective
Time, the Escrow Shares shall be deposited with U.S. Bank Trust, National
Association (or such other institution selected by HearMe with the reasonable
consent of Target) as escrow agent (the "ESCROW AGENT"), such deposit to
constitute the Escrow Fund (the "ESCROW FUND") and to be governed by the terms
set forth in this Article X and in the Escrow Agreement. Notwithstanding the
foregoing or anything to the contrary contained in this Agreement or in any
Transaction Document, the indemnification obligations of the Former Target
Shareholders pursuant to this Article X or otherwise shall be limited to the
amount and assets deposited and present in the Escrow Fund and HearMe shall not
be entitled to pursue any claims for indemnification under this Article X or
otherwise against the Former Target Shareholders directly or personally, and the
sole recourse of HearMe shall be to make claims against the Escrow Fund in
accordance with the terms of the Escrow Agreement.
Section 10.3 DAMAGE THRESHOLD. Notwithstanding the foregoing, the Former
Target Shareholders shall have no liability under Section 10.1 and HearMe may
not receive any shares from the Escrow Fund unless and until an Officer's
Certificate or Certificates (as defined in Section 10.5 below) for an aggregate
amount of HearMe's Damages in excess of ... has been delivered to the
Shareholders' Agents and to the Escrow Agent; PROVIDED, HOWEVER, that after an
Officer's Certificate or Certificates for an aggregate of .... in Damages has
been delivered, HearMe shall be entitled to receive Escrow Shares equal in value
to the full amount of Damages identified in such Officer's Certificate or
Certificates.
Section 10.4 ESCROW PERIODS. The Escrow Fund shall terminate upon the first
anniversary date of the Closing Date (the period from the Closing Date to such
date referred to as the "Escrow Period"), PROVIDED, HOWEVER, that the number of
Escrow Shares, which, in the reasonable judgment of HearMe, subject to the
objection of the Shareholders' Agents and the subsequent resolution of the
matter in the manner provided in Section 10.8, are necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate theretofore delivered
to the Escrow Agent and the Shareholders' Agents prior to termination of the
Escrow Period with respect to Damages incurred or litigation pending prior to
expiration of the Escrow Period, shall remain in the Escrow Fund until such
claims have been finally resolved.
Section 10.5 CLAIMS UPON ESCROW FUND. Upon receipt by the Escrow Agent on
or before the last day of the Escrow Period of a certificate signed by any
appropriately authorized officer of HearMe (an "OFFICER'S CERTIFICATE"):
(i) Stating the aggregate amount of HearMe's Damages or an estimate
thereof, in each case to the extent known or determinable at such time; and
<PAGE>
(ii) Specifying in reasonable detail the individual items of such
Damages included in the amount so stated, the date each such item was paid or
properly accrued or arose, and the nature of the misrepresentation, breach or
claim to which such item is related,
the Escrow Agent shall, subject to the provisions of Sections 10.3 and 10.8
hereof and of the Escrow Agreement, deliver to HearMe out of the Escrow Fund, as
promptly as practicable, Escrow Shares having a value equal to such Damages all
in accordance with the Escrow Agreement and Section 10.6 below. Amounts paid or
distributed from the Escrow Fund shall be paid or distributed pro rata among the
Holders (as defined in the Escrow Agreement) based upon their respective
percentage interests therein at the time.
Section 10.6 VALUATION. For the purpose of compensating HearMe for its
Damages pursuant to this Agreement, the value per share of the Escrow Shares
which shall be released to HearMe in respect of a claim for Damages shall be the
Stock Value, or if HearMe makes the election referred to in Section 9.1(g), the
Average Closing Price.
Section 10.7 OBJECTIONS TO CLAIMS. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Shareholders' Agents (as defined in Section 10.9
below) and for a period of thirty (30) days after such delivery, the Escrow
Agent shall make no delivery of Escrow Shares pursuant to Section 10.4 unless
the Escrow Agent shall have received written authorization from the
Shareholders' Agents to make such delivery. After the expiration of such thirty
(30) day period, the Escrow Agent shall make delivery of the Escrow Shares in
the Escrow Fund in accordance with Section 10.4, PROVIDED that no such delivery
may be made if the Shareholders' Agents shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent and to HearMe prior to the expiration of such
thirty (30) day period.
Section 10.8 RESOLUTION OF CONFLICTS.
(a) In case the Shareholders' Agents shall so object in writing to any
claim or claims by HearMe made in any Officer's Certificate, HearMe shall have
thirty (30) days to respond in a written statement to the objection of the
Shareholders' Agents. If after such thirty (30) day period there remains a
dispute as to any claims, the Shareholders' Agents and HearMe shall attempt in
good faith for thirty (30) days to agree upon the rights of the respective
paRTIes with respect to each of such claims. If the Shareholders' Agents and
HearMe should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and shall
distribute the Escrow Shares from the Escrow Fund in accordance with the terms
of the memorandum.
(b) If no such agreement can be reached after good faith negotiation,
either HearMe or the Shareholders' Agents may, by written notice to the other,
demand arbitration of the matter unless the amount of the damage or loss is at
issue in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained or both paRTIes agree to
arbitration; and in either such event the matter shall be settled by arbitration
conducted by three arbitrators. Within fifteen (15) days after such written
notice is sent, HearMe (on the one hand) and the Shareholders' Agents (on the
other hand) shall each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator. The decision of the arbitrators as to
the validity and amount of any claim in such Officer's Certificate shall be
binding and conclusive upon the parties to this Agreement, and notwithstanding
anything in Section 10.4, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance with such decision.
(c) Judgment upon any award rendered by the arbitrators may be entered
in any court having jurisdiction. Any such arbitration shall be held in Santa
Clara County, California under the commercial rules then in effect of the
American Arbitration Association. The non-prevailing party to an arbitration
shall pay its own expenses, the fees of each arbitrator, the administrative fee
of the American Arbitration Association, and the expenses, including, without
limitation, the reasonable attorneys' fees and costs, incurred by the prevailing
party to the arbitration.
<PAGE>
Section 10.9 SHAREHOLDERS' AGENTS.
(a) Frank Chu and Corey Gates shall be constituted and appointed as
agents (the "SHAREHOLDERS' AGENTS") for and on behalf of the Former Target
SHAREHOLDERS to give and receive notices and communications, to authorize
delivery to HearMe of the Escrow Shares or other property from the Escrow Fund
in satisfaction of claims by HearMe, to object to such deliveries, to 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, and to take all actions necessary or appropriate in the judgment of the
SHAREHOLDERS' Agents for the accomplishment of the foregoing. All actions of the
SHAREHOLDERS' Agents shall be taken jointly, not individually. Such agency may
be changed by the holders of a majority in interest of the Escrow Shares from
time to time upon not less than ten (10) days' prior written notice to HearMe.
No bond shall be required of the SHAREHOLDERS' Agents, and the SHAREHOLDERS'
Agents shall receive no compensation for services. Notices or communications to
or from the SHAREHOLDERS' Agents shall constitute notice to or from each of the
Former Target SHAREHOLDERS.
(b) The SHAREHOLDERS' Agents shall not be liable for any act done or
omitted hereunder as SHAREHOLDERS' Agent while acting in good faith, and any act
done or omitted pursuant to the advice of counsel shall be conclusive evidence
of such good faith. The Former Target SHAREHOLDERS shall severally and pro rata,
in accordance with their Pro Rata Portion, indemnify the SHAREHOLDERS' Agents
and hold them harmless against any loss, liability or expense incurred without
gross negligence or bad faith on the part of the SHAREHOLDERS' Agents and
arising out of or in connection with the acceptance or administration of their
duties hereunder under this Agreement or the Escrow Agreement.
(c) The SHAREHOLDERS' Agents shall have reasonable access to
information about Target and HearMe and the reasonable assistance of Target's
and HearMe's officers and employees for purposes of performing their duties and
exercising their rights under this Article X, PROVIDED that the SHAREHOLDERS'
Agents shall treat confidentially and not disclose any nonpublic information
from or about Target or HearMe to anyone (except on a need to know basis to
individuals who agree to treat such information confidentially).
Section 10.10 ACTIONS OF THE SHAREHOLDERS' AGENTS. A decision, act, consent
or instruction of the Shareholders' Agents shall constitute a decision of all of
the Former Target Shareholders for whom shares of HearMe Common Stock otherwise
issuable to them are deposited in the Escrow Fund and shall be final, binding
and conclusive upon each such Former Target Shareholder, and the Escrow Agent
and HearMe may rely upon any decision, act, consent or instruction of the
Shareholders' Agents as being the decision, act, consent or instruction of each
and every such Former Target Shareholder. The Escrow Agent and HearMe are hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Shareholders'
Agents.
Section 10.11 Claims. In the event HearMe becomes aware of a third-party
claim which HearMe believes may result in a demand against the Escrow Fund,
HearMe shall promptly notify the Shareholders' Agents of such claim, and the
Shareholders' Agents and the Former Target Shareholders for whom shares of
HearMe Common Stock otherwise issuable to them are deposited in the Escrow Fund
shall be entitled, at their expense, to participate in any defense of such
claim. HearMe shall have the right in its sole discretion to settle any such
claim; provided, however, that HearMe may not effect the settlement of any such
claim without the consent of the Shareholders' Agents, which consent shall not
be unreasonably withheld. In the event that the Shareholders' Agents have
consented to any such settlement, the Shareholders' Agents shall have no power
or authority to object to the amount of any claim by HearMe against the Escrow
Fund for indemnity with respect to such settlement in the amount agreed to.
<PAGE>
APPENDIX II
HOLDERS' INTEREST IN ESCROW FUND
<PAGE>
EXHIBIT G
<PAGE>
FOUNDERS' INVENTION AGREEMENT
This FOUNDERS' INVENTION AGREEMENT ("AGREEMENT") is entered into March 10,
2000 by and among AudioTalk Networks, Inc., a California corporation
("COMPANY"), and the individual set forth on the signature page hereto (the
"FOUNDER").
RECITALS
WHEREAS, the Company and the Founder are parties to a certain Proprietary
Information and Inventions Agreement dated as of _______, 1998 (the "INVENTIONS
AGREEMENT");
WHEREAS, the Company, HearMe, a Delaware corporation ("HearMe") and AT
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
HearMe ("Merger Sub") have entered into an Agreement and Plan of Merger (the
"Merger Agreement") which provides for the merger (the "Merger") of Merger Sub
with and into the Company and the conversion of each outstanding share of the
Company's capital stock into shares of HearMe Common Stock;
WHEREAS, in order to induce HearMe to enter into the Merger Agreement,
Founder is willing to agree to be bound by certain requirements and to execute
and deliver this Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein set forth, and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto hereby mutually covenant and represents
as follows:
AGREEMENT
1. ACKNOWLEDGMENTS BY STOCKHOLDER. Founder acknowledges and understands
that the representations, warranties and covenants made by Stockholder set forth
herein shall be relied upon by HearMe, AudioTalk, and their respective
affiliates, counsel and accounting firms, and that substantial losses and
damages may be incurred by such persons if Stockholder's representations,
warranties or covenants are breached. Stockholder has carefully read this
Agreement and the Merger Agreement (including the Escrow Agreement attached
thereto as EXHIBIT F) and has discussed the requirements of this Agreement with
Stockholder's professional advisors to the extent Stockholder has deemed
necessary.
2. STOCKHOLDER'S REPRESENTATIONS. Founder represents, warrants and
covenants that:
(a) COMPLIANCE WITH INVENTIONS AGREEMENT That the undersigned
has complied with all provisions of the Inventions Agreement including, but not
limited to, the requirement in Section 7 of the Inventions Agreement that the
Founder advise of the Company of any work on behalf of the Company that appears
to threaten or conflict with proprietary rights claimed by the undersigned in
his Inventions Agreement.
(b) COMPANY DOES NOT UTILIZE FOUNDERS' PROPRIETARY
INFORMATION The Company has not relied upon, or utilized, any of the
undersigned's Prior Inventions as listed on Exhibit A to the Inventions
Agreement in the operation of its business.
3. EFFECTIVENESS. Notwithstanding any other provision, this Amendment shall
become effective only upon the Effective Time (as such term is defined in the
Merger Agreement), and if such Effective Time shall not occur prior to the
termination of the Merger Agreement this Amendment shall be deemed void ab
initio and have no further force or effect upon such termination of the Merger
Agreement.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
<PAGE>
The parties have executed this Founders' Invention Agreement as of the date
first set forth above.
COMPANY:
AUDIOTALK NETWORKS, INC.
By: /s/ FRANK CHU
-------------------------
Name: Frank Chu
Title: President
FOUNDER:
By: /s/ COREY GATES
-------------------------
Name: Corey Gates
<PAGE>
The parties have executed this Founders' Invention Agreement as of the date
first set forth above.
COMPANY:
AUDIOTALK NETWORKS, INC.
By: /s/ FRANK CHU
-------------------------
Name: Frank Chu
Title: President
FOUNDER:
By: /s/ VIRGIL DOBJANSCHI
-------------------------
Name: Virgil Dobjanschi
<PAGE>
The parties have executed this Founders' Invention Agreement as of the date
first set forth above.
COMPANY:
AUDIOTALK NETWORKS, INC.
By: /S/ COREY GATES
-------------------------
Name: Corey Gates
Title: Vice President
FOUNDER:
By: /S/ FRANK CHU
-------------------------
Name: Frank Chu
<PAGE>
EXHIBIT I
SUBJECT MATTER OF OPINION OF COUNSEL TO HEARME
<PAGE>
EXHIBIT I
SUBJECT MATTER OF OPINION OF COUNSEL TO HEARME
All capitalized terms used herein and not otherwise defined have the
meanings given them in the Agreement and Plan of Merger dated as of March 10,
2000 (the "MERGER AGREEMENT"), by and among HearMe, a Delaware corporation
("ACQUIROR"), AT Acquisitions Corp., a Delaware corporation and wholly-owned
subsidiary of Acquiror ("SUB"), and AudioTalk Networks, Inc., a California
corporation ("TARGET").
(1) Acquiror is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, has all requisite
corporate power to own, lease and operate its property and to carry on its
business as now being conducted.
(2) The shares of Acquiror's Common Stock to be issued pursuant
to the Merger are be duly authorized, validly issued, fully paid, and
non-assessable and no person will have any preemptive right of subscription or
purchase in respect thereof.
(3) Acquiror has all requisite power and authority to execute
and deliver the Agreement and to perform its obligations thereunder. The
execution and delivery by Acquiror of the Agreement and the consummation by
Acquiror of the transactions contemplated by the Agreement have been duly and
validly authorized by all necessary corporate action on the part of Acquiror.
The Agreement has been duly and validly executed and delivered by Acquiror and
constitutes a valid and binding obligation of Acquiror, enforceable against
Acquiror in accordance with its terms. The Agreement of Merger is in the proper
form for filing with the Secretary of State of the State of California in
accordance with the California Corporations Code. Upon the filing of the
Agreement of Merger and Certificate of Merger with the Secretaries of State of
the States of California and Delaware, respectively, the Merger will be
effective under California law.
<PAGE>
EXHIBIT E
SUBJECT MATTER OF OPINION OF COUNSEL TO TARGET
<PAGE>
SUBJECT MATTER OF OPINION OF COUNSEL TO TARGET
All capitalized terms used herein and not otherwise defined have the
meanings given them in the Agreement and Plan of Merger dated as of March 10,
2000 (the "MERGER AGREEMENT"), by and among HearMe, a Delaware corporation
("ACQUIROR"), AT Acquisitions Corp., a Delaware corporation and wholly-owned
subsidiary of Target ("SUB"), and AudioTalk Networks Inc., a California
corporation ("TARGET").
(1) Target is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, has all requisite corporate
power to own, lease and operate its property and to carry on its business as now
being conducted.
(2) The shares of Target's Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid, and non-assessable and no
person has any preemptive right of subscription or purchase in respect thereof.
(3) Target has all requisite corporate power and authority to enter into
the Merger Agreement and the Certificate of Merger, and to consummate the
transactions contemplated thereby. The Escrow Agreement, the Merger Agreement
and the Certificate of Merger are collectively referred to herein as the
"OPINION DOCUMENTS." The execution and delivery of the Opinion Documents and the
consummation of the transactions contemplated thereby have been duly authorized
by all necessary corporate action on the part of Target. The Opinion Documents
have been duly and validly executed and delivered by Target and, assuming due
execution and delivery by the other parties thereto, constitute the valid and
binding obligations of Target, enforceable against Target in accordance with
their respective terms.
(4) The execution and delivery by Target of the Opinion Documents and the
consummation of the transactions contemplated thereby will not, (i) result in
any violation or breach of any provision of the Articles of Incorporation, or
any Certificate of Designation thereunder, or Bylaws of Target, or (ii) to our
knowledge, violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Target or any
of its properties or assets.
(5) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required on the part of
Target in connection with the execution and delivery of the Opinion Documents or
the consummation of the transactions contemplated thereby, except for (i) the
filing of the Certificate of Merger with the Secretary of State of the State of
California, (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the laws of any foreign country, and (iii)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, could not be expected to have a Material Adverse Effect
on Target.
<PAGE>
EXHIBIT 23.1
Consent of Independent Accountants
We hearby consent to the incorporation by reference in this Registration
Statement on Form S-3 of HearMe of our report dated December 21, 1999 relating
to the financial statements of AudioTalk Networks, Inc., which appears in the
Current Report on Form 8-K/A of HearMe dated May 5, 2000.
/s/Finck, Rudnick & Company
Menlo Park, California
May 5, 2000
