<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ___ to ____
-------------------
Commission File number 000-26671
ENGAGE TECHNOLOGIES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3281378
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Brickstone Square, Andover, Massachusetts 01810
(Address of principal executive offices) (Zip Code)
(978) 684-3884
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
The number of shares outstanding of the registrant's Common Stock as of December
1, 1999 was 48,739,479.
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<PAGE>
ENGAGE TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 1999
-------------------
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
a) Consolidated Balance Sheets as of July 31, 1999 and October 31, 1999 (unaudited).............. 3
b) Consolidated Statements of Operations (unaudited) for the three months ended
October 31, 1998 and 1999.................................................................... 4
c) Consolidated Statements of Cash Flows (unaudited) for the three months ended
October 31, 1998 and 1999.................................................................... 5
d) Notes to Interim Consolidated Financial Statements............................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................ 15
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds......................................................... 16
Item 6. Exhibits and Reports on Form 8-K.................................................................. 17
Signatures
Exhibit Index
</TABLE>
<PAGE>
ENGAGE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
<TABLE>
<CAPTION>
July 31, October 31,
1999 1999
---------- ----------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents .................................................. $ 112,034 $ 46,134
Available-for-sale securities .............................................. 1,067 55,066
Accounts receivable, less allowance for doubtful accounts of $986 and
$1,226 at July 31, 1999 and October 31, 1999, respectively ................ 5,632 6,927
Prepaid expenses ........................................................... 595 1,129
---------- ----------
Total current assets ...................................................... 119,328 109,256
---------- ----------
Property and equipment, net ................................................. 1,801 2,150
Investment in joint venture ................................................. 1,047 810
Intangible assets, net of accumulated amortization of $7,903 and $10,417 at
July 31, 1999 and October 31, 1999, respectively ........................... 41,401 38,887
Other assets ................................................................ 371 2,370
---------- ----------
Total assets .............................................................. $ 163,948 $ 153,473
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Debt to CMGI ............................................................... $ 131 $ 1,314
Obligation under capital lease ............................................. 302 256
Accounts payable ........................................................... 2,987 999
Accrued expenses ........................................................... 8,062 9,497
Deferred revenue ........................................................... 4,293 3,895
---------- ----------
Total current liabilities ................................................. 15,775 15,961
---------- ----------
Deferred revenue ............................................................ 1,508 1,194
Obligation under capital lease, net of current portion ...................... 367 330
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000 shares authorized,
0 issued and outstanding .................................................. - -
Common Stock, $.01 par value, 150,000 shares authorized, 48,674
and 48,708 shares issued and outstanding at July 31, 1999
and October 31, 1999, respectively ........................................ 487 487
Additional paid-in capital ................................................. 208,669 207,015
Deferred compensation ...................................................... (4,024) (2,249)
Accumulated other comprehensive loss ....................................... (353) (238)
Accumulated deficit ........................................................ (58,481) (69,027)
---------- ----------
Total stockholders' equity ................................................ 146,298 135,988
---------- ----------
Total liabilities and stockholders' equity ................................ $ 163,948 $ 153,473
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ENGAGE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
October 31,
---------------------------
1998 1999
----------- ---------
<S> <C> <C>
Revenue:
Product revenue............................................................ $ 1,145 $ 5,234
Product revenue, related parties........................................... 186 1,582
Services and support revenue............................................... 234 1,168
Services and support revenue, related parties.............................. 21 318
----------- ---------
Total revenue........................................................... 1,586 8,302
----------- ---------
Cost of revenue:
Cost of product revenue.................................................... 582 3,188
Cost of services and support revenue....................................... 625 1,162
----------- ---------
Total cost of revenue................................................... 1,207 4,350
----------- ---------
Gross profit............................................................ 379 3,952
----------- ---------
Operating expenses:
Research and development................................................... 1,960 3,293
Selling and marketing...................................................... 1,858 8,031
General and administrative................................................. 687 1,815
Amortization of goodwill and other intangibles............................. 1,043 2,283
Stock compensation......................................................... 196 102
----------- ---------
Total operating expenses................................................ 5,744 15,524
----------- ---------
Loss from operations......................................................... (5,365) (11,572)
Other income (expense):
Equity in loss of joint venture............................................ (10) (326)
Other income............................................................... - 8
Interest (expense) income, net............................................. (160) 1,344
----------- ---------
Net loss..................................................................... $ (5,535) $ (10,546)
=========== =========
Basic and diluted net loss per share......................................... $ (0.22)
=========
Weighted average number of basic and diluted shares outstanding.............. 48,690
=========
Pro forma basic and diluted net loss per share............................... $ (0.17)
===========
Pro forma weighted average number of basic and diluted shares outstanding.... 33,522
===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ENGAGE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months ended October 31,
------------------------------
1998 1999
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ....................................................................... $ (5,535) $ (10,546)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization .............................................. 1,245 2,862
Equity in loss of joint venture ............................................ 10 326
Provision for bad debts .................................................... 20 205
Stock compensation ......................................................... 196 102
Amortization of bond discount .............................................. - (94)
Changes in operating assets and liabilities, net of impact of acquisitions:
Accounts receivable ...................................................... (2,784) (1,501)
Prepaid expenses and other assets ........................................ 58 (415)
Accounts payable ......................................................... 320 (1,988)
Accrued expenses ......................................................... 1,171 1,434
Deferred revenue ......................................................... 4,116 (714)
--------- ----------
Net cash used for operating activities ................................. (1,183) (10,329)
--------- ----------
Cash flows from investing activities:
Purchase of available-for-sale securities ...................................... - (54,016)
Investment in joint venture .................................................... (1,424) -
Long-term investment at cost ................................................... - (2,000)
Purchases of property and equipment ............................................ (26) (706)
Proceeds from sale of property and equipment ................................... - 8
--------- ----------
Net cash used for investing activities ................................. (1,450) (56,714)
--------- ----------
Cash flows from financing activities:
Net change in debt to CMGI ..................................................... 594 1,183
Proceeds from stock option exercises ........................................... 9 21
Issuance of preferred stock, net of issuance costs ............................. 1,934 -
Repayment of capital lease obligations ......................................... - (82)
--------- ----------
Net cash provided by financing activities .............................. 2,537 1,122
--------- ----------
Effect of exchange rate changes on cash and cash equivalents ...................... - 21
--------- ----------
Net decrease in cash and cash equivalents ......................................... (96) (65,900)
Cash and cash equivalents, beginning of period .................................... 96 112,034
--------- ----------
Cash and cash equivalents, end of period .......................................... $ - $ 46,134
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by Engage Technologies, Inc. ("Engage" or the "Company") in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, these unaudited consolidated financial statements do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
accompanying consolidated financial statements contain all adjustments,
consisting only of those of a normal recurring nature, necessary for a fair
presentation of the Company's financial position, results of operations and cash
flows at the dates and for the periods indicated. While the Company believes
that the disclosures presented are adequate to make the information not
misleading, these consolidated financial statements should be read in
conjunction with the audited financial statements and related notes for the year
ended July 31, 1999 which are contained in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission ("the SEC") on October
29, 1999. The results for the three-month period ended October 31, 1999 are not
necessarily indicative of the results to be expected for the full fiscal year.
B. Cash and Short-Term Investments
Engage's cash is invested in debt instruments of financial institutions and
corporations, and in a money market mutual fund. Engage has established
guidelines relative to credit ratings, diversification, and maturities that help
maintain safety and liquidity. Cash equivalents include highly liquid
investments with maturity periods of three months or less when purchased. Short-
term investments include those investments with maturities in excess of three
months but less than one year. Equity securities represent shares of Informix
Corporation. Short-term investments and marketable equity securities are
classified as available for sale and reported at fair value with unrealized
gains and losses included in stockholders' equity. Engage has not had any
significant losses related to its investments.
C. Earnings Per Share
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". Basic
earnings per share is computed based on the weighted average number of common
shares outstanding during the period. The dilutive effect of common stock
equivalents are included in the calculation of diluted earnings per share only
when the effect of their inclusion would be dilutive.
Pro forma basic loss per share is based upon the weighted average number of
common shares outstanding during the period. Pro forma diluted loss per share is
based upon the weighted average number of common shares outstanding during the
period plus additional weighted average common equivalent shares outstanding
during the period, computed using the "if-converted method". Common equivalent
shares have been excluded from the computation of diluted loss per share in each
period, as their effect would have been anti-dilutive in each period presented.
Conversion of all preferred stock and debt to CMGI occurred upon the
completion of the Company's initial public offering in July 1999. The pro forma
basic and diluted net loss per share information included in the accompanying
statements of operations for the three months ended October 31, 1998 reflects
the impact on pro forma basic and diluted net loss per share of such conversion
as of the beginning of each period or date of issuance, if later, using the if-
converted method. Historical basic and diluted net loss per share has not been
presented for the three-month period ended October 31, 1998 because it is
irrelevant due to the change in the Company's capital structure and resultant
basic and diluted loss per share that resulted upon conversion of the
convertible preferred stock and debt to CMGI. Pro forma basic and diluted net
loss per share has been presented for comparative purposes.
The reconciliation of the numerators and denominators of the basic and
diluted loss per share computation for the Company's reported net loss is as
follows:
6
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(unaudited)
BASIC AND DILUTED NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
October 31, 1999
----------------------
(In thousands,
except per share data)
<S> <C>
Numerator:
Net loss............................................................ $ (10,546)
Denominator:
Weighted average shares outstanding................................ 48,690
----------
Basic and diluted net loss per share............................... $ (0.22)
==========
</TABLE>
Options to purchase 9,144,000 shares of common stock during the three
months ended October 31, 1999 were excluded from the calculation of diluted loss
per share because the effect would have been anti-dilutive.
The reconciliation of the numerators and denominators of the pro forma
basic and pro forma diluted loss per share computation for the Company's
reported net loss is as follows:
PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
October 31, 1998
----------------------
(In thousands,
except per share data)
<S> <C>
Numerator:
Net loss........................................................... $ (5,535)
Denominator:
Weighted average shares outstanding................................ 202
Assumed conversion of preferred stock.............................. 30,379
Assumed conversion of debt to CMGI................................. 2,942
----------
Weighted average number of diluted shares outstanding.............. 33,523
----------
Pro forma basic and diluted net loss per share..................... $ (0.17)
==========
</TABLE>
Options to purchase 4,181,000 shares of common stock during the three
months ended October 31, 1998 were excluded from the calculation of pro forma
diluted loss per share because the effect would have been anti-dilutive.
D. Comprehensive Loss
The components of comprehensive loss for the Company include net loss, the
net change in foreign currency translation adjustments and unrealized holding
gains and losses on available-for-sale securities.
The components of comprehensive loss, net of income taxes, are as follows:
<TABLE>
<CAPTION>
October 31, October 31,
1998 1999
----------- ------------
<S> <C> <C>
Net loss........................................................... $ (5,535) $ (10,546)
Foreign currency adjustments....................................... 342 109
Net unrealized holding gain arising during the period.............. 168 6
----------- ------------
Comprehensive loss................................................. $ (5,025) $ (10,431)
=========== ============
</TABLE>
7
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(unaudited)
E. Investments
The fair value of investments has been determined through information
obtained from market sources. Engage uses a specific identification cost method
to determine the gross realized gains and losses on the sale of securities. No
securities were sold in the three months ended October 31, 1999 and 1998. The
Company's cash and cash equivalents and available-for-sale securities at October
31, 1999 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Cash and money market mutual fund $ 11,341 $ - $ - $ 11,341
Commercial paper 83,810 - (16) 83,794
Equity securities 1,761 - (671) 1,090
Certificate of deposit 4,976 - (1) 4,975
------------ ------------ ------------ -------------
Total investments $ 101,888 $ - $ (688) $ 101,200
============ ============ ============ =============
Amounts included in:
Cash and cash equivalents $ 46,134 $ - $ - $ 46,134
Available-for-sale securities 55,754 - (688) 55,066
------------ ------------ ------------ -------------
$ 101,888 $ - $ (688) $ 101,200
============ ============ ============ =============
</TABLE>
At July 31, 1999, the Company had available-for sale securities recorded at
amortized cost totaling $1,067,000.
F. Non-Cash Transactions
During the three months ended October 31, 1999, as the result of the
termination of employment of certain employees prior to the vesting of their
stock options, unvested stock options for which deferred compensation costs had
been recorded in a prior period were cancelled. As a result of these
cancellations, the Company has recorded a reduction of $1,673,000 in both
deferred compensation and additional paid-in capital.
G. Subsequent Event
In September 1999, the Company signed an agreement pursuant to which it
will acquire AdKnowledge, Inc. ("AdKnowledge"), a provider of products and
services which allow online marketers and ad agencies to plan, target, serve,
track and analyze advertising campaigns. Under the terms of the merger and
contribution agreement, CMGI will initially acquire control of AdKnowledge
through the issuance of approximately $170 million of CMGI common stock in a
merger of a subsidiary of CMGI into AdKnowledge. The value of the CMGI common
stock being delivered is based on $93.28, the average of the last reported sales
prices of the CMGI common stock over the 45 consecutive trading days ending two
trading days prior to the effective time of this merger. This merger was
completed on November 30, 1999, with CMGI owning approximately 88% of the common
stock of AdKnowledge on such date. This merger will be followed by a
contribution of AdKnowledge shares held by CMGI and AdKnowledge shareholders to
the Company in exchange for approximately $193 million of the Company's common
stock, $0.01 par value per share (the "Common Stock"). The value of the Common
Stock being delivered is $34.59, the average of the last reported sales price of
the Company's Common Stock over the 45 consecutive trading days ending two
trading days prior to the effective time of this merger. Any remaining holders
of AdKnowledge common stock will receive the Company's Common Stock in a short-
form merger with a subsidiary of the Company. Included in the purchase price are
$19.3 million in Common Stock that will be held in escrow for the purpose of
securing the indemnification obligations of those AdKnowledge shareholders who
receive merger shares and certain performance and employee retention milestones.
Additional information related to the proposed interested party transaction is
available in the Company's definitive proxy statement filed with the Securities
and Exchange Commission on November 19, 1999.
8
<PAGE>
H. New Accounting Pronouncements
In November 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 100, "Restructuring and Impairment
Charges." In December 1999 the SEC issued SAB No. 101, "Revenue Recognition in
Financial Statements." SAB No. 100 expresses the views of the SEC staff
regarding the accounting for and disclosure of certain expenses not commonly
reported in connection with exit activities and business combinations. This
includes the accrual of exit and employee termination costs and the recognition
of impairment charges. SAB No. 101 expresses the views of the SEC staff in
applying generally accepted accounting principles to certain revenue recognition
issues. Although the Company is still in the process of analyzing the impact of
SAB No. 100 and SAB No. 101, if any, on its consolidated financial statements
and related disclosures, the Company expects that there will be no material
impact on its financial position or its results of operations.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain statements contained in this Quarterly Report on Form 10-Q, including
information with respect to the Company's future business plans, the Company's
expectation that it will continue to expand its services and support staff, the
Company's belief that costs will continue to exceed revenues for several more
quarters, the Company's liquidity, the Company's Year 2000 readiness and the
Company's disclosure about market risk, constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "plans," "expects" and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the results of the Company to
differ materially from those indicated by such forward-looking statements.
These factors include those set forth in this section, the "Risk Factors"
section included in the Company's Annual Report on Form 10-K filed with the SEC
on October 29, 1999, and the risk factors discussed in the Company's other
filings with the SEC.
Results of Operations
Engage is a leading provider of profile-based Internet marketing solutions.
Engage is an approximately 79% owned subsidiary of CMGI, Inc ("CMGI"). The
Company offers a range of products and services that enable Web publishers,
advertisers and merchants to target the delivery of advertisements, content and
e-commerce offerings to their audiences and to measure their effectiveness.
Engage has generated most of its revenue to date through sales of its local
profiling and advertising management software and outsourced services, as well
as its services for measuring and analyzing Web site traffic. In July 1999,
Engage commercially introduced its Engage Knowledge data service to customers.
Engage Knowledge provides real-time access to Engage's database of more than 42
million anonymous profiles of Web users for more effective targeting of online
advertising, promotions and content. In October 1999, Engage introduced Engage
AudienceNet, the first Web-wide profile driven advertising and marketing network
that uses Engage's anonymous, behavior based profiles to deliver substantial
benefits to media buyers, Web sites and ad networks.
In April 1999, Engage acquired Internet Profiles Corporation ("I/PRO"), which
provides Web site traffic measurement and audit services. The acquisition has
been accounted for using the purchase method, and accordingly, the purchase
price has been allocated to the assets purchased and liabilities assumed based
upon their fair values at the date of acquisition.
In September 1999, the Company signed an agreement pursuant to which it will
acquire AdKnowledge, Inc. ("AdKnowledge"), a provider of products and services
which allow online marketers and ad agencies to plan, target, serve, track and
analyze advertising campaigns. Under the terms of the merger and contribution
agreement, CMGI will initially acquire control of AdKnowledge through the
issuance of approximately $170 million of CMGI common stock in a merger of a
subsidiary of CMGI into AdKnowledge. The value of the CMGI common stock being
delivered is based on $93.28, the average of the last reported sales prices of
the CMGI common stock over the 45 consecutive trading days ending two trading
days prior to the effective time of this merger. This merger was completed on
November 30, 1999, with CMGI owning approximately 88% of the common stock of
AdKnowledge on such date. This merger will be followed by a contribution of
AdKnowledge shares held by CMGI and AdKnowledge shareholders to the Company in
exchange for approximately $193 million of the Company's common stock, $0.01 par
value per share (the "Common Stock"). The value of the Common Stock being
delivered is $34.59, the average of the last reported sales price of the
Company's Common Stock over the 45 consecutive trading days ending two trading
days prior to the effective time of this merger. Any remaining holders of
AdKnowledge common stock will receive the Company's Common Stock in a short-form
merger with a subsidiary of the Company. Included in the purchase price are
$19.3 million in Common Stock that will be held in escrow for the purpose of
securing the indemnification obligations of those AdKnowledge shareholders who
receive merger shares and certain performance and employee retention milestones.
10
<PAGE>
Revenue
Total revenue increased from $1.6 million for the three months ended October
31, 1998 to $8.3 million for the three months ended October 31, 1999. Revenue
from the Company's product offerings accounted for approximately 84% of total
revenue for the three months ended October 31, 1998, compared to 82% of total
revenue for the three months ended October 31, 1999. The increase in total
revenue was primarily the result of an increase in revenue derived from the
increased sales of the Company's AdManager, DecisionSupportServer and
ProfileServer products, and to a lesser extent, the inclusion of I/PRO's
revenue in product revenue for the three months ended October 31, 1999.
Product revenue increased from $1.3 million for the three months ended October
31, 1998 to $6.8 million for the three months ended October 31, 1999.
Approximately 50% of this increase resulted from increased sales of products
available in each period due to increased market awareness and acceptance of the
Company's products. The balance of the increase was the result of the I/PRO
acquisition and the introduction of new products that were not available for the
three months ended October 31, 1998.
Service and support revenue increased from $255,000 for the three months ended
October 31, 1998 to $1.5 million for the three months ended October 31, 1999.
The 483% increase quarter-over-quarter was the result of increased software
support and maintenance revenue resulting from increased product revenue and two
large consulting arrangements during the three months ended October 31, 1999.
Cost of Revenue
Cost of product revenue includes royalties paid to various parties for the
incorporation of their technology into Engage's products, costs associated with
the I/PRO, Engage Knowledge and AudienceNet product offerings, as well as fees
paid for outsourced data center operations and the amortization of developed
technology acquired in the Accipiter and I/PRO acquisitions. Cost of support and
services revenue is primarily comprised of payroll and benefits, and allocated
overhead costs associated with Engage's customer support and consulting groups.
Cost of product revenue increased from $582,000 for the three months ended
October 31, 1998 to $3.2 million for the three months ended October 31, 1999. Of
the total dollar increase, $1.6 million was due to the I/PRO acquisition and the
resultant three months of incremental operational costs associated with I/PRO's
product offerings. In addition, a significant portion of the increase was
associated with Engage's AdBureau, Engage Knowledge and AudienceNet products.
Finally, a portion of the increase was the result of increased amortization
costs resulting from the amortization of developed technology acquired in the
I/PRO acquisition. Cost of product revenue was 44% of product revenue for the
three months ended October 31, 1998, compared to 47% of product revenue for the
three months ended October 31, 1999. The increase in cost of product revenue as
a percentage of product revenue was the result of the inclusion of revenue from
I/PRO products in revenue for the three months ended October 31, 1999.
Cost of service and support revenue increased from $625,000 for the three
months ended October 31, 1998 to $1.2 million for the three months ended October
31, 1999. Costs for the three months ended October 31, 1998 exceeded the related
revenue due to Engage's continued investment in service and support staff in
advance of anticipated product sales. Engage's service and support staff
increased 227% from October 31, 1998 to October 31, 1999. Engage expects to
continue to expand its service and support staff and anticipates that costs may
exceed revenue for several more quarters. Cost of service and support revenue
was 245% of service and support revenue at October 31, 1998, compared to 78% of
service and support revenue at October 31, 1999. As a percentage of service and
support revenue, the improvement in costs reflects the continued growth of the
Company's service and support business and the spreading of certain fixed costs
over a growing revenue base. Additionally, the Company had two large consulting
arrangements during the three months ended October 31, 1999.
Operating Expenses
Research and Development. Research and development expenses consist primarily
of payroll and related costs, consulting and contractor fees, facility-related
costs, such as rent and computer and network services, and depreciation expense.
Research and development expenses increased from $2.0 million for the three
months ended
11
<PAGE>
October 31, 1998 to $3.3 million for the three months ended October
31, 1999, a 68% increase. This increase was due to the I/PRO acquisition and the
inclusion of I/PRO's operations for the three months ended October 31, 1999, and
to a lesser extent, the expansion of the Company's research and development
activities. Overall, including the acquisition of I/PRO, Engage's research and
development staff increased 121% from October 31, 1998 to October 31, 1999.
These increases were offset somewhat by a decrease in spending on the
translation of Engage's products into certain foreign languages, projects which
were substantially completed during fiscal 1999. Research and development
expenses were 124% of total revenue for the three months ended October 31, 1998,
compared to 40% of total revenue for the three months ended October 31, 1999.
This decrease is the direct result of the increase in quarter over quarter
revenue.
Selling and Marketing. Selling and marketing expenses consist primarily of
payroll and related costs, consulting and professional fees and advertising
expenses. Selling and marketing expenses increased from $1.9 million for the
three months ended October 31, 1998 to $8.0 million for the three months ended
October 31, 1999, a 332% increase. The increase in costs was primarily due to
the continuing expansion of Engage's sales force, as well as approximately $1.6
million resulting from the I/PRO acquisition and the inclusion of I/PRO's
operations for the three months ended October 31, 1999. Overall, including the
acquisition of I/PRO, Engage's sales and marketing staff increased 359% from
October 31, 1998 to October 31, 1999. In addition, a portion of the increase was
related to increases in product advertising costs resulting from the release of
new products. Sales and marketing expenses were 117% of total revenues for the
three months ended October 31, 1998, compared to 97% for the three months ended
October 31, 1999. The decrease is the result of the increase in quarter over
quarter revenue.
General and Administrative. General and administrative costs consist
principally of payroll and related costs, consulting and professional fees,
facility and related costs and depreciation expense. General and administrative
expenses increased from $687,000 for the three months ended October 31, 1998 to
$1.8 million for the three months ended October 31, 1999, a 164% increase. The
increase was primarily due to an increase in payroll and related costs
associated with the support of growing operations and from the inclusion of
I/PRO's operations for the three months ended October 31, 1999. General and
administrative costs were 43% of total revenue for the three months ended
October 31, 1998, compared to 22% for the three months ended October 31, 1999.
The decrease is the result of the increase in quarter over quarter revenue.
Amortization of Goodwill and Other Intangibles. Amortization of intangible
assets increased from $1.0 million for the three months ended October 31, 1998
to $2.3 million for the three months ended October 31, 1999. The increase was
due to the acquisition of I/PRO in April 1999.
Stock Compensation. Stock compensation costs decreased from $196,000 for the
three months ended October 31, 1998 to $102,000 for the three months ended
October 31, 1999. Beginning in April 1998, Engage commenced the recognition of
compensation expense relating to approximately 173,080 shares of CMGI common
stock held in escrow to be issued to the employee stockholders of Accipiter who
satisfy a two-year employment continuation provision. Additionally, beginning in
February 1999, Engage began to recognize stock compensation costs as a result of
stock options granted during fiscal 1999 with exercise prices below the
estimated fair market value of the common stock at the date of grant. During the
three months ended October 31, 1999, as the result of the termination of
employment of certain employees prior to the vesting of their stock options, the
Company reversed $122,000 of stock compensation expense that had been recorded
in prior quarters and ceased monthly stock compensation expense recognition
related to the terminated employees. As such, for the three months ended October
31, 1999 the increase in stock compensation costs resulting from the stock
options issued in February 1999 was more than offset by the reversal of
compensation costs recorded in prior periods.
Equity in Loss of Joint Venture
Equity in loss of Engage's 46% interest in a Japanese joint venture was
$10,000 for the three months ended October 31, 1998, compared to $326,000 for
the three months ended October 31, 1999. The increase in Engage's share of
losses in the joint venture represents the joint venture's continued investment
in expanding its sales and marketing presence within its market.
12
<PAGE>
Interest (Expense) Income, Net
Interest expense, net was $160,000 for the three months ended October 31,
1998, compared to interest income, net of $1.3 million for the three months
ended October 31, 1999. During fiscal 1998, Engage entered into an arrangement
with CMGI which required Engage to accrue interest on intercompany debt at a
rate of 7% per annum. During the three months ended October 31, 1998, interest
expense was recorded on this debt, all of which was converted into equity in
connection with Engage's initial public offering in July 1999. During the three
months ended October 31, 1999, interest income was earned from investing the
proceeds of the Company's initial public offering.
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased from $112.0 million at July
31, 1999 to $46.1 million at October 31, 1999, primarily the result of investing
$54.0 million in available-for-sale securities and investing $2.0 million in a
strategic partner of the Company. The company recorded the $2.0 million
investment at cost, and has classified the investment within Other Assets In
addition, a portion of the decrease is the result of $10.3 million used to fund
operating activities and $706,000 used to acquire property and equipment.
Historically, the Company has funded its operations and capital expenditures
through funds received from CMGI and recently from its initial public offering
proceeds.
The Company has experienced a substantial increase in its expenditures since
inception consistent with its growth in operations and staffing. The Company
anticipates that expenditures will continue to increase for the foreseeable
future as the Company accelerates the growth of its business. Additionally, the
Company will continue to evaluate investment opportunities in businesses that
management believes will complement its technologies and marketing strategies.
The Company currently anticipates that its available cash resources will be
sufficient to meet its anticipated needs for working capital and capital
expenditures for at least the next 12 months. However, the Company may need to
raise additional funds in order to fund more rapid expansion, to develop new or
enhance existing services or products, to respond to competitive pressures or to
acquire complementary products, businesses or technologies. On a long-term
basis, the Company may require additional external financing through credit
facilities, sales of additional equity or other debt instruments. If additional
funds are raised through the issuance of equity or convertible debt securities,
the percentage ownership of the Company's stockholders will be reduced and its
stockholders may experience additional dilution. If adequate funds are not
available or are not available on acceptable terms, the Company's ability to
fund its expansion, take advantage of unanticipated opportunities, develop or
enhance services or products or otherwise respond to competitive pressures may
be significantly limited.
Foreign Operations
The results of the Company's international operations are subject to currency
fluctuations. As of October 31, 1999, the Company had subsidiaries in the
United Kingdom and Germany, and had a joint venture in Japan. To date, the
Company's financial condition and results of operations have not been materially
affected by exchange rate fluctuations. However, as these operations continue
to grow, and operations are commenced in additional countries, there can be no
guarantee that the Company's financial condition and results of operations will
not be adversely affected by exchange rate fluctuations.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, many companies' software and computer systems
may need to be upgraded or replaced in order to comply with these "Year 2000"
requirements or risk system failure or miscalculations causing disruptions of
normal business activities. The Company is in the process of correcting the Year
2000 compliance of its proprietary products and services and third party
equipment and software that it uses, as well as its non-information technology
systems, such as building security, voice mail and other systems.
13
<PAGE>
State of Readiness
The Company has made an assessment of the Year 2000 readiness of its
operating, financial and administrative systems, including the hardware and
software that support the Company's systems. The Company's Year 2000 compliance
efforts and status of such efforts as of December 1999 consist of the following:
. Identification of all software products, information technology systems
and non-information technology systems that may be affected by Year 2000
issues. This phase has been substantially completed.
. Assessment of repair or replacement requirements. This phase has been
substantially completed.
. Repair or replacement. This phase has been substantially completed.
. Testing of software products is substantially completed.
. Implementation of repaired software products is substantially completed.
. Creation of contingency plans in the event of Year 2000 failures. This
phase has been substantially completed.
For its currently marketed software products, the Company has substantially
completed its Year 2000 compliance testing efforts and believes that its
products are Year 2000 compliant in all material respects. The Company also has
conducted less extensive testing of older versions of its products. While the
Company is not aware of any material respect in which its older products are not
Year 2000 compliant, it has offered customers using older products the option to
upgrade to current versions at no additional charge. The Company also has tested
its internal and third party provided systems that are used to deliver customer
services. The Company has received assurances from NaviSite, a major third-party
vendor and affiliate, that NaviSite will be responsible for ensuring that its
system is Year 2000 ready.
For all other systems, the Company's Year 2000 task force has inventoried and
tested all software and related systems that it believes may be affected by Year
2000 issues. Since third parties developed and currently support many of the
systems that the Company uses, a significant part of this effort has been to
ensure that these third-party systems are Year 2000 compliant. The internal
evaluation has resulted in the identification of a small number of desktop
computers whose operating systems were not Year 2000 compliant. These computers
were replaced by the Company in the third quarter of fiscal 1999.
Costs
At October 31, 1999, the Company had spent approximately $960,000 on Year
2000 compliance issues and expects to incur an additional $240,000 in connection
with identifying, evaluating and addressing Year 2000 compliance issues. Most of
the Company's expenses have related to the operating costs associated with time
spent by employees and consultants in the evaluation process and Year 2000
compliance matters and costs to replace non-compliant equipment. Future costs
are expected to consist principally of operating costs associated with
consultants. Such expenses, if higher than anticipated, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Risks
The Company is not currently aware of any Year 2000 compliance problems
relating to its products or systems that would have a material adverse effect on
its business, financial condition and results of operations, without taking into
account the Company's efforts to avoid or fix such problems. There can be no
assurance that the Company will not discover Year 2000 compliance problems in
its products or systems that will require substantial revision. In addition,
there can be no assurance that third-party software, hardware or services
incorporated into the Company's material systems will not need to be revised or
replaced, all of which could be time-consuming and expensive. The failure of the
Company to fix or replace its internally developed proprietary software or
third-party software, hardware or services on a timely basis could result in
lost revenue, increased operating costs, the loss of
14
<PAGE>
customers and other business interruptions, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. Moreover, the failure to adequately address Year 2000 compliance
issues in its internally developed proprietary software could result in claims
of mismanagement, misrepresentation or breach of contract and related
litigation, which could be costly and time-consuming to defend.
The Company is heavily dependent on NaviSite to provide outsourced data
services. A significant Year 2000 related disruption of the outsourced data
services that NaviSite provides to the Company could cause customers to consider
canceling services with the Company or cause an unmanageable burden on the
Company's technical support, which in turn could materially and adversely affect
the Company's business, financial condition and results of operations.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of the Company's control will be Year 2000 compliant. The failure by
such entities to be Year 2000 compliant could result in a systemic failure
beyond the control of the Company, such as a prolonged Internet,
telecommunications or electrical failure, which could also prevent the Company
from delivering its services to its customers, decrease the use of the Internet
or prevent users from accessing its Web sites which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Contingency Plan
As discussed above, the Company has developed Year 2000 contingency plans. The
results of the Company's Year 2000 simulation testing and the responses received
from third-party vendors and service providers were taken into account in
writing contingency plans. Contingency plans will be reviewed and updated as
needed to reflect any changes in staffing, business process, or vendor
dependencies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The carrying values of financial instruments including cash and cash
equivalents, available-for-sale securities, accounts receivable, accounts
payable and notes payable, approximate fair value because of the short maturity
of these instruments.
The Company has historically had very low exposure to changes in foreign
currency exchange rates, and as such, has not used derivative financial
instruments to manage foreign currency fluctuation risk. As the Company expands
globally, the risk of foreign currency exchange rate fluctuation may increase.
Therefore, in the future, the Company may consider utilizing derivative
instruments to mitigate such risks.
15
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
In September 1999, five former employees exercised options to purchase an
aggregate of 31,743 shares of the Company's Common Stock for an aggregate
purchase price of $19,971. In October 1999, two former employees exercised
options to purchase an aggregate of 1,864 shares of the Company's Common Stock
for an aggregate purchase price of $736. No underwriters were involved in the
foregoing offers and sales of securities. Such offers and sales were made in
reliance upon an exemption from the registration provisions of the Securities
Act of 1933, as amended (the "Securities Act"), set forth in Rule 701 under the
Securities Act.
In connection with the Company's initial public offering, on July 19, 1999,
the Securities and Exchange Commission declared the Company's Registration
Statement on Form S-1 (File No. 333-78015) effective. Goldman, Sachs & Co.,
Hambrecht & Quist and Bear Stearns & Co. served as managing underwriters of the
offering. On July 23, 1999, the Company sold 6,900,000 shares of its Common
Stock (including the underwriters' over-allotment option) at $15 per share to
the underwriters. Net proceeds received by the Company in the initial public
offering were approximately $94.8 million reflecting gross proceeds of $103.5
million net of underwriter commissions of approximately $7.2 million and other
estimated offering costs of approximately $1.5 million.
The following table sets forth all expenses, including underwriting discounts
and commissions, payable by the Company in connection with the sale of 6,900,000
shares of Common Stock registered in the offering, as well as the net offering
proceeds after deducting all such expenses:
(in thousands)
Gross proceeds $103,500
Underwriting discounts and commission 7,245
Finder's fee -
Expenses paid to or for underwriters -
Other expenses 1,500
--------
Total expenses 8,745
--------
Net offering proceeds to Company after expenses $ 94,755
========
The following table sets forth the Company's cumulative use of proceeds as of
October 31, 1999:
(in thousands)
Construction of plant, building and facilities $ -
Purchase and installation of machinery and equipment 706
Purchases of real estate -
Acquisition of other businesses -
Repayment of indebtedness -
Working capital 10,258
Temporary investments: cash and cash equivalents 27,775
Temporary investments: available for sale securities 54,016
Temporary investments: other 2,000
All other purposes -
16
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Agreement and Plan of Merger and Contribution, dated September 23,
1999, by and among the Registrant, CMGI, Inc., AK Acquisition
Corp., and AdKnowledge, Inc.
10.2 Inter-Company Agreement, dated September 23, 1999, by and between
the Registrant and CMGI, Inc.
10.3 Lease Agreement By and Between Carolina Blackhawk, LLC, as
Landlord and Engage Technologies, Inc., as Tenant, dated October
1999.
27 Financial Data Schedule
(b) Reports on Form 8-K
On October 6, 1999, the Company filed a report on Form 8-K announcing that on
September 23, 1999, the Company, CMGI, Inc., AK Acquisition Corp., a
California corporation and a wholly-owned subsidiary of CMGI, AdKnowledge, a
California corporation, a provider of products and services which allow online
marketers and ad agencies to plan, target, serve, track and analyze advertising
campaigns, and Steve Findley, John Mracek and Kevin Wandryk (collectively, the
"Shareholder Representative") executed an Agreement and Plan of Merger and
Contribution. Upon the completion of the transactions contemplated by the
Agreement and Plan of Merger and Contribution, AdKnowledge will become a wholly-
owned subsidiary of the Company.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, in Andover, Massachusetts on
December 15, 1999.
By: /s/ Paul L. Schaut
----------------------------------
Paul L. Schaut
Chief Executive Officer and President
By: /s/ Stephen A. Royal
------------------------------------
Stephen A. Royal
Chief Financial Officer and Treasurer
(Principal Accounting and Financial
Officer of the Registrant)
18
<PAGE>
Exhibit 10.1
AGREEMENT AND PLAN OF MERGER AND CONTRIBUTION
BY AND AMONG
CMGI, INC., ENGAGE TECHNOLOGIES, INC., AK ACQUISITION CORP.,
ADKNOWLEDGE INC.
AND
THE SHAREHOLDER REPRESENTATIVE
September 23, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE MERGER.................................................................................. 2
1.1 The Merger................................................................................... 2
1.2 The Merger Closing........................................................................... 2
1.3 Actions at the Merger Closing................................................................ 2
1.4 Additional Action............................................................................ 3
1.5 Conversion of Shares......................................................................... 3
1.6 Merger Dissenting Shares..................................................................... 5
1.7 Exchange of Shares........................................................................... 5
1.8 Fractional Shares............................................................................ 7
1.9 Company Options and Warrants................................................................. 7
1.10 Escrow....................................................................................... 8
1.11 Articles of Incorporation and By-laws........................................................ 10
1.12 No Further Rights............................................................................ 10
1.13 Merger Closing of Transfer Books............................................................. 10
ARTICLE II THE CONTRIBUTION........................................................................... 11
2.1 The Contribution............................................................................. 11
2.2 The Contribution Closing..................................................................... 11
2.3 Actions at the Contribution Closing.......................................................... 11
2.4 Additional Action............................................................................ 11
2.5 Conversion of Shares......................................................................... 12
2.6 Contribution Dissenting Shares............................................................... 13
2.7 Exchange of Shares........................................................................... 13
2.8 Fractional Shares............................................................................ 14
2.9 CMGI Representations; Engage Acknowledgement................................................. 14
ARTICLE IIA SUBSIDIARY MERGER......................................................................... 15
2A.1 The Engage Merger............................................................................ 15
2A.2 The Engage Merger Closing.................................................................... 15
2A.3 Actions at the Engage Merger Closing......................................................... 15
2A.4 Additional Action............................................................................ 16
2A.5 Conversion of Shares......................................................................... 16
2A.6 Engage Merger Dissenting Shares.............................................................. 16
2A.7 Exchange of Shares........................................................................... 17
2A.8 Fractional Shares............................................................................ 18
2A.9 Articles of Incorporation and By-laws........................................................ 18
2A.10 No Further Rights............................................................................ 18
2A.11 Engage Merger Closing of Transfer Books...................................................... 19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................. 19
3.1 Organization, Qualification and Corporate Power.............................................. 19
3.2 Capitalization............................................................................... 20
3.3 Authorization of Transaction................................................................. 21
3.4 Noncontravention............................................................................. 21
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.5 Subsidiaries................................................................................... 22
3.6 Financial Statements........................................................................... 23
3.7 Absence of Certain Changes..................................................................... 23
3.8 Undisclosed Liabilities........................................................................ 23
3.9 Tax Matters.................................................................................... 24
3.10 Assets......................................................................................... 25
3.11 Owned Real Property............................................................................ 26
3.12 Real Property Leases........................................................................... 26
3.13 Intellectual Property.......................................................................... 26
3.14 Year 2000 Compliance........................................................................... 28
3.15 Contracts...................................................................................... 29
3.16 Accounts Receivable............................................................................ 30
3.17 Powers of Attorney............................................................................. 30
3.18 Insurance...................................................................................... 30
3.19 Litigation..................................................................................... 31
3.20 Employees...................................................................................... 31
3.21 Employee Benefits.............................................................................. 31
3.22 Environmental Matters.......................................................................... 34
3.23 Legal Compliance............................................................................... 35
3.24 Customers and Suppliers........................................................................ 35
3.25 Permits........................................................................................ 35
3.26 Certain Business Relationships With Affiliates................................................. 36
3.27 Brokers' Fees.................................................................................. 36
3.28 Books and Records.............................................................................. 36
3.29 Information Statement and Proxy................................................................ 36
3.30 Disclosure..................................................................................... 37
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CMGI, ENGAGE AND TRANSITORY SUBSIDIARY..................... 37
4.1 Organization, Qualification and Corporate Power................................................ 37
4.2 Capitalization................................................................................. 38
4.3 Authorization of Transaction................................................................... 38
4.4 Noncontravention............................................................................... 39
4.5 Reports and Financial Statements............................................................... 39
4.6 Absence of Material Adverse Change............................................................. 40
4.7 Litigation..................................................................................... 40
4.8 Interim Operations of Transitory Subsidiary.................................................... 40
4.9 Brokers' Fees.................................................................................. 40
4.10 Customers and Suppliers........................................................................ 41
4.11 Tax Matters.................................................................................... 41
4.12 Information Statement or Form S-4.............................................................. 42
ARTICLE V COVENANTS..................................................................................... 43
5.1 Closing Efforts................................................................................ 43
5.2 Governmental and Third-Party Notices and Consents.............................................. 43
5.3 Shareholder Approval........................................................................... 44
5.4 Operation of Business.......................................................................... 45
</TABLE>
ii
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<TABLE>
<S> <C>
5.5 Access to Information.......................................................................... 47
5.6 Exclusivity.................................................................................... 47
5.7 Expenses....................................................................................... 48
5.8 Qualification of Merger Shares and Contribution Shares......................................... 48
5.9 Listing of Merger and Contribution Shares...................................................... 48
5.10 Withdrawal of Form S-1......................................................................... 49
5.11 Exchange of Common Stock; Agreement of Company Preferred Stockholders; Exercise of Warrants.... 49
5.12 Tax Matters.................................................................................... 49
5.13 Treatment of the Merger and the Contribution for Income Tax Purposes........................... 49
5.14 Loan........................................................................................... 49
5.15 Dilution of Shareholder Support Agreements..................................................... 498
ARTICLE VI CONDITIONS TO CONSUMMATION OF MERGER......................................................... 50
6.1 Conditions to Each Party's Obligations......................................................... 50
6.2 Conditions to Obligations of CMGI and Transitory Subsidiary.................................... 51
6.3 Conditions to Obligations of the Company....................................................... 53
ARTICLE VII CONDITIONS TO CONSUMMATION OF CONTRIBUTION.................................................. 54
7.1 Conditions to Each Party's Obligations......................................................... 54
ARTICLE VIII............................................................................................ 54
INDEMNIFICATION......................................................................................... 54
8.1 Indemnification by the Company Shareholders.................................................... 54
8.2 Indemnification Claims......................................................................... 55
8.3 Survival of Representations and Warranties..................................................... 58
8.4 Limitations.................................................................................... 59
8.5 Shareholder Representative..................................................................... 60
ARTICLE IX LOCK-UP...................................................................................... 60
9.1 Lock-Up........................................................................................ 60
9.2 Exempt Transactions............................................................................ 609
ARTICLE X TERMINATION................................................................................... 62
10.1 Termination of Agreement....................................................................... 62
10.2 Effect of Termination.......................................................................... 63
ARTICLE XI DEFINITIONS.................................................................................. 63
ARTICLE XII MISCELLANEOUS............................................................................... 66
12.1 Press Releases and Announcements............................................................... 66
12.2 No Third Party Beneficiaries................................................................... 66
12.3 Entire Agreement............................................................................... 67
12.4 Succession and Assignment...................................................................... 67
12.5 Counterparts and Facsimile Signature........................................................... 67
12.6 Headings....................................................................................... 67
12.7 Notices........................................................................................ 67
12.8 Governing Law.................................................................................. 68
12.9 Amendments and Waivers......................................................................... 68
12.10 Severability................................................................................... 69
12.11 Construction................................................................................... 69
</TABLE>
iii
<PAGE>
Exhibits:
Exhibit A - Form of Escrow Agreement
Exhibit B - List of Executive Officers
Exhibit C - Form of Shareholder Support Agreement
Exhibit D - Form of Lock-Up Agreement
Exhibit E - Promissory Note
Exhibit F - Form of Opinion of Counsel to the Company
Exhibit G - Form of Opinion of Counsel to CMGI and Engage
Schedules:
Schedule 1.10(e) Key Employees
Schedule 1.10(g) Quarterly Operating Forecasts
Schedule 4.7 CMGI, Engage and Transitory Subsidiary Disclosures
Schedule 5.3(f) Shareholders Signing Shareholder Support Agreement
Schedule 6.2(i) Employees Signing Non-Competition Agreements
Disclosure Schedule
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER AND CONTRIBUTION
Agreement and Plan of Merger and Contribution (the "Agreement") entered
into as of September 23, 1999 by and among CMGI, Inc., a Delaware corporation
("CMGI"), Engage Technologies, Inc., a Delaware corporation and a majority-owned
subsidiary of CMGI ("Engage"), AK Acquisition Corp., a California corporation
and a wholly-owned subsidiary of CMGI (the "Transitory Subsidiary"), AdKnowledge
Inc., a California corporation (the "Company"), and Steve Findley, John Mracek
and Kevin Wandryk (collectively, the "Shareholder Representative") (CMGI,
Engage, Transitory Subsidiary, the Company and the Shareholder Representative
are referred to collectively herein as the "Parties.")
This Agreement contemplates:
First, a merger of Transitory Subsidiary with and into the Company,
with the Company being the surviving corporation. In such merger, (i) all
the shareholders of the Company holding shares of Company Preferred Stock
(as defined below) will receive shares of (A) the common stock, $.01 par
value par share, of CMGI ("CMGI Common Stock") and (B) a new class of
common stock of the surviving corporation, $.01 par value per share
("Surviving Corporation Common Stock"), in exchange therefor, (ii) all the
shareholders of the Company holding shares of the Company's common stock
("Company Common Stock") will receive shares of Surviving Corporation
Common Stock, in exchange therefor (the Surviving Corporation Common Stock
issued under (i) and (ii) shall aggregate approximately 12% of the issued
and outstanding Surviving Corporation Common Stock), and (iii) CMGI will
receive Surviving Corporation Common Stock in exchange for the common
stock, $.01 par value per share, of Transitory Subsidiary ("Transitory
Subsidiary Stock"), in an aggregate amount equal to approximately 88% of
the issued and outstanding Surviving Corporation Common Stock. The merger
is intended to qualify as a tax-free reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
Second, all the shareholders of the surviving corporation will
contribute their Surviving Corporation Common Stock to Engage in exchange
for shares of the common stock, $.01 par value per share, of Engage
("Engage Common Stock"), in a transaction intended to qualify as a
transaction under Section 351 of the Code.
Third, Engage will consummate a California short-form merger between
the Surviving Corporation and a wholly-owned subsidiary of Engage ("Engage
Sub"), pursuant to which Engage Sub will merge with and into the Surviving
Corporation, with the Surviving Corporation being the surviving corporation
in such merger and the remaining holders of Surviving Corporation Common
Stock will receive Engage Common Stock in exchange therefor.
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
1
<PAGE>
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
----------
Agreement, Transitory Subsidiary shall merge with and into the Company (with
such merger referred to herein as the "Merger") at the Merger Effective Time (as
defined below). From and after the Merger Effective Time, the separate corporate
existence of Transitory Subsidiary shall cease and the Company shall continue as
the surviving corporation in the Merger (the "Surviving Corporation"). The
"Merger Effective Time" shall be the time at which the Surviving Corporation
files the Merger Agreement in the form required by the California General
Corporation Law (the "California Law"), together with the required officers'
certificates and the certificates of satisfaction from the California Franchise
Tax Board for Transitory Subsidiary and the Company (collectively, the "Merger
Filings"), in accordance with Section 1103 of the Law, with the Secretary of
State of the State of California. The Merger shall have the effects set forth in
Section 1107 of the California Law.
1.2 The Merger Closing. The closing of the Merger (the "Merger Closing")
------------------
shall take place at the offices of Brobeck, Phleger & Harrison LLP at 2200 Geng
Road, Palo Alto, California, commencing at 12:00 a.m. local time on November 15,
1999, or, if all of the conditions to the obligations of the Parties to
consummate the transactions contemplated hereby have not been satisfied or
waived by such date, on such mutually agreeable later date as soon as
practicable (and in any event not later than three business days) after the
satisfaction or waiver of all conditions (excluding the delivery of any
documents to be delivered at the Merger Closing by any of the Parties) set forth
in Article VI hereof (the "Merger Closing Date").
1.3 Actions at the Merger Closing. At the Merger Closing:
-----------------------------
(a) the Company shall deliver to CMGI and Transitory Subsidiary the
various certificates, instruments and documents referred to in Section 6.2;
(b) CMGI and Transitory Subsidiary shall deliver to the Company the
various certificates, instruments and documents referred to in Section 6.3;
(c) the Surviving Corporation shall file with the Secretary of State
of the State of California the Merger Filings;
(d) CMGI shall deliver a certificate for the Initial Merger Shares (as
defined below) to a bank trust company or other entity reasonably satisfactory
to the Company appointed by CMGI to act as the exchange agent (the "Exchange
Agent") in accordance with Section 1.7;
(e) the Surviving Corporation shall deliver a certificate for the
Surviving Corporation Common Stock to the Exchange Agent in accordance with
Section 1.7; and
(f) Steve Findley, John Mracek and Kevin Wandryk and StateStreet Bank,
N.A. (the "Escrow Agent") shall execute and deliver the Escrow Agreement in the
form attached
2
<PAGE>
hereto as Exhibit A (the "Escrow Agreement") and CMGI shall deliver to the
---------
Escrow Agent a certificate for the Escrow Shares being placed in Escrow (as such
terms are defined below) on the Merger Closing Date pursuant to Section 1.10.
1.4 Additional Action. The Surviving Corporation may, at any time after
-----------------
the Merger Effective Time, take any action, including executing and delivering
any document, in the name and on behalf of either the Company or Transitory
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
1.5 Conversion of Shares. At the Merger Effective Time, by virtue of the
--------------------
Merger and without any action on the part of any Party or the holder of any of
the following securities:
(a) Conversion of Company Preferred Stock.
-------------------------------------
(i) Each share of the Company's Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock, Series C-1 Convertible Preferred
Stock, Series C-2 Convertible Preferred Stock, Series C-3 Convertible Preferred
Stock, Series D Convertible Preferred Stock, Series E Convertible Preferred
Stock and Series F Convertible Preferred Stock (collectively, the "Company
Preferred Stock") issued and outstanding immediately prior to the Merger
Effective Time (other than Merger Dissenting Shares) shall be converted into and
represent the right to receive (subject to the provisions of Section 1.10) (A)
the number of shares of CMGI Common Stock determined by multiplying the CMGI
Conversion Ratio by the number of shares of Company Common Stock into which each
share of Company Preferred Stock is convertible immediately prior to the Merger
Effective Time, and (B) the number of shares of Surviving Corporation Common
Stock determined by multiplying the Preferred Ratio by the number of shares of
Company Common Stock into which each share of Company Preferred Stock is
convertible immediately prior to the Merger Effective Time.
(ii) The "Preferred Ratio" shall be equal to the remainder of
subtracting (A) the quotient of (x) 88.083% of the number of shares of Company
Common Stock outstanding immediately prior to the Merger Effective Time
(assuming the conversion into Company Common Stock of all outstanding Company
Preferred Stock and the exercise of all Company Options and Warrants) (the
"Total Outstanding Company Common Stock") divided by (y) the number of shares of
Company Common Stock which would be issuable upon conversion of all Company
Preferred Stock outstanding immediately prior to the Merger Effective Time into
Company Common Stock, from (B) one (1).
(iii) The "CMGI Conversion Ratio" shall be the result obtained by
dividing (A) the quotient of (i) $170,000,000 divided by (ii) the CMGI Lock-In
Value (as defined below) by (B) the number of shares of Company Common Stock
which would be issuable upon conversion of all Company Preferred Stock
outstanding immediately prior to the Merger Effective Time into Company Common
Stock.
(iv) The "CMGI Lock-In Value" shall be determined as follows:
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(A) In the event that the average of the last reported sale
prices per share of CMGI Common Stock on the Nasdaq National Market over the
forty-five (45) consecutive trading days ending on the trading day that is two
trading days prior to the Merger Effective Time (the "CMGI Final Value") is
equal to or less than ninety percent (90%) of the average of the last reported
sale prices per share of CMGI Common Stock on the Nasdaq National Market over
the forty-five (45) consecutive trading days ending on the trading day that is
two trading days prior to the date of this Agreement (the "CMGI Initial Value"),
then the CMGI Lock-In Value shall be ninety percent (90%) of the CMGI Initial
Value.
(B) In the event that the CMGI Final Value is equal to or
greater than one hundred ten percent (110%) of the CMGI Initial Value, the CMGI
Lock-In Value shall be one hundred ten percent (110%) of the CMGI Initial Value.
(C) In the event that the CMGI Final Value is greater than
ninety percent (90%) and less than one hundred ten percent (110%) of the CMGI
Initial Value, the CMGI Lock-In Value shall be the CMGI Final Value.
(v) The CMGI Conversion Ratio shall be subject to equitable
adjustment in the event of any stock split, stock dividend, reverse stock split
or similar event affecting the CMGI Common Stock between the beginning of such
forty-five day period used to determine the CMGI Initial Value and the Merger
Effective Time.
(b) Conversion of Company Common Stock. Each share of Company Common
----------------------------------
Stock issued and outstanding immediately prior to the Merger Effective Time
(other than Merger Dissenting Shares) shall be converted into and represent the
right to receive one share of Surviving Corporation Common Stock.
(c) Surviving Corporation Common Stock. The Surviving Corporation
----------------------------------
Common Stock will have the same terms as the Company Common Stock; provided,
however, the Surviving Corporation Common Stock shall have a stated par value of
$.01 per share and any Surviving Corporation Common Stock issued in the Merger
in exchange for Company Common Stock subject to a right of repurchase in favor
of the Company shall be subject to a right of repurchase in favor of the
Surviving Corporation upon the same terms and conditions as that of the original
repurchase right.
(d) Cancellation of Shares. Each share of Company Common Stock and
----------------------
Company Preferred Stock held in the Company's treasury immediately prior to the
Merger Effective Time shall be cancelled and retired without payment of any
consideration therefor.
(e) Conversion of Transitory Subsidiary Stock. All shares of
-----------------------------------------
Transitory Subsidiary Stock issued and outstanding immediately prior to the
Merger Effective Time shall be converted into and thereafter evidence that
number of shares of Surviving Corporation Common Stock equal to 88.083% of the
issued and outstanding Surviving Corporation Common Stock, on a fully-diluted
basis.
1.6 Merger Dissenting Shares.
------------------------
4
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(a) For purposes of this Agreement, "Merger Dissenting Shares" means
(i) Company Common Stock and/or Company Preferred Stock (collectively, the
"Company Shares") held as of the Merger Effective Time by a Company Shareholder
who has not voted such Company Shares in favor of the adoption of this Agreement
and the Merger and with respect to which appraisal shall have been duly demanded
and perfected in accordance with Chapter 13 of the California Law and not
effectively withdrawn or forfeited prior to the Merger Effective Time. Merger
Dissenting Shares shall not be converted into or represent the right to receive
the Merger Shares, unless such Company Shareholder's right to appraisal shall
have ceased in accordance with Section 1309 of the California Law. If such
Company Shareholder has so forfeited or withdrawn his, her or its right to
appraisal of Merger Dissenting Shares, then, (i) as of the occurrence of such
event, such holder's Merger Dissenting Shares shall cease to be Merger
Dissenting Shares and shall be converted into and represent the right to receive
the Merger Shares issuable in respect of such Company Shares pursuant to Section
1.5, and (ii) promptly following the occurrence of such event, CMGI shall
deliver to the Exchange Agent a certificate representing the Merger Shares to
which such holder is entitled pursuant to Section 1.5 (which shares shall be
considered Initial Merger Shares for all purposes of this Agreement) and shall
deliver to the Escrow Agent a certificate representing the remaining Merger
Shares to which such holder is entitled pursuant to Section 1.10 (which shares
shall be considered Escrow Shares for all purposes of this Agreement).
(b) The Company shall give CMGI (i) prompt notice of any written
demands for appraisal of any Company Shares, withdrawals of such demands, and
any other instruments that relate to such demands received by the Company and
(ii) the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the California Law. The Company shall not, except
with the prior written consent of CMGI, make any payment with respect to any
demands for appraisal of Company Shares or offer to settle or settle any such
demands.
1.7 Exchange of Shares.
------------------
(a) Prior to the Merger Effective Time, CMGI shall appoint the
Exchange Agent to effect the exchange for the Initial Merger Shares of
certificates that, immediately prior to the Merger Effective Time, represented
Company Shares converted into Merger Shares pursuant to Section 1.5 (including
any Company Shares referred to in the last sentence of Section 1.6(a)). On the
Merger Closing Date, CMGI shall deliver to the Exchange Agent, in trust for the
benefit of holders of such certificates, a stock certificate (issued in the name
of the Exchange Agent or its nominee) representing the Initial Merger Shares, as
described in Section 1.5. As soon as practicable after the Merger Effective
Time, CMGI shall cause the Exchange Agent to send a notice and a transmittal
form to each holder of a certificate advising such holder of the effectiveness
of the Merger and the procedure for surrendering to the Exchange Agent such
certificate in exchange for the Initial Merger Shares issuable pursuant to
Section 1.5. Each holder of a certificate, upon proper surrender thereof to the
Exchange Agent in accordance with the instructions in such notice, shall be
entitled to receive in exchange therefor (subject to any taxes required to be
withheld) the Initial Merger Shares and the Surviving Corporation Common Stock
issuable pursuant to Section 1.5 plus cash in lieu of any fractional
5
<PAGE>
shares, as provided in Section 1.8 below. Until properly surrendered, each such
certificate shall be deemed for all purposes to evidence only the right to
receive a certificate for the Initial Merger Shares and Surviving Corporation
Common Stock issuable pursuant to Section 1.5. Holders of certificates shall not
be entitled to receive certificates for the Initial Merger Shares and Surviving
Corporation Common Stock to which they would otherwise be entitled until such
certificates are properly surrendered.
(b) If any Initial Merger Shares are to be issued in the name of a
person other than the person in whose name the certificate surrendered in
exchange therefor is registered, it shall be a condition to the issuance of such
Initial Merger Shares that (i) the certificate 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 to the Exchange Agent any transfer
or other taxes payable by reason of the foregoing or establish to the
satisfaction of the Exchange Agent that such taxes have been paid or are not
required to be paid. Notwithstanding the foregoing, neither the Exchange Agent
nor any Party shall be liable to a holder of Company Shares for any Initial
Merger Shares issuable to such holder pursuant to Section 1.5 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, CMGI shall issue in exchange
for such lost, stolen or destroyed certificate the Initial Merger Shares
issuable in exchange therefor pursuant to Section 1.5. The Board of Directors
of CMGI may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate to give
CMGI a bond in such sum as it may direct as indemnity against any claim that may
be made against CMGI with respect to the certificate alleged to have been lost,
stolen or destroyed.
(d) No dividends or other distributions that are payable to the
holders of record of CMGI Common Stock as of a date on or after the Merger
Closing Date shall be paid to shareholders of record of the Company immediately
prior to the Merger Effective Time ("Company Shareholders") entitled by reason
of the Merger to receive Initial Merger Shares until such holders surrender
their certificates for certificates representing the Merger Shares. Upon such
surrender, CMGI shall pay or deliver to the persons in whose name the
certificates representing such Initial Merger Shares are issued any dividends or
other distributions that are payable to the holders of record of CMGI Common
Stock as of a date on or after the Merger Closing Date and which were paid or
delivered between the Merger Effective Time and the time of such surrender;
provided that no such person shall be entitled to receive any interest on such
dividends or other distributions.
(e) On the Merger Closing Date, the Surviving Corporation shall
deliver to the Exchange Agent, in trust for the benefit of holders of
certificates that represented Company Shares and shares of Transitory
Subsidiary, a stock certificate (issued in the name of the Exchange Agent or its
nominee) representing the Surviving Corporation Common Stock, as described in
Section 1.5. Such certificate shall be held by the Exchange Agent until the
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<PAGE>
Contribution Closing Date (as defined below). In the event that the Contribution
does not take place on or prior to March 15, 2000, the Exchange Agent shall take
such steps as are necessary to issue to each former Company Shareholder and
Transitory Subsidiary shareholder a stock certificate evidencing his, her or its
shares of Surviving Corporation Common Stock, as described in Section 1.5.
1.8 Fractional Shares. No certificates or scrip representing fractional
-----------------
Initial Merger Shares shall be issued to former Company Shareholders upon the
surrender for exchange of certificates, and such former Company Shareholders
shall not be entitled to any voting rights, rights to receive any dividends or
distributions or other rights as a stockholder of CMGI with respect to any
fractional Initial Merger Shares that would have otherwise been issued to such
former Company Shareholders. Each former Company Shareholder that would have
been entitled to receive a fractional Initial Merger Share shall receive a cash
payment equal to the CMGI Lock-In Value multiplied by the fraction of an Initial
Merger Share that such former Company Shareholder would otherwise be entitled to
receive.
1.9 Company Options and Warrants.
----------------------------
(a) Each option to purchase Company Common Stock issued by the
Company pursuant to its stock option plans or otherwise (a "Company Option")
which is not exercised prior to the Merger Effective Time shall be converted
into an option to acquire the same number of shares of Surviving Corporation
Common Stock for the same exercise price (a "Surviving Corporation Option"). All
other terms of the Surviving Corporation Options shall remain the same as those
contained in the Company Options. The Company shall use its Reasonable Best
Efforts to obtain, prior to the Merger Closing, the consent from each holder of
a Company Option to the foregoing.
(b) Warrants to acquire Company Common Stock or Company Preferred
Stock (the "Warrants") in the amount specified in Section 6.2(m) hereof shall be
exercised prior to the Merger Effective Time. Any Warrants which are not
exercised by the Merger Effective Time shall be converted into and represent the
right to receive (A) the number of shares of CMGI Common Stock determined by
multiplying the CMGI Conversion Ratio by the number of shares of Company Common
Stock into which each share of Company Preferred Stock (which would be issuable
upon the exercise of such Warrant) is convertible immediately prior to the
Merger Effective Time, rounded down to the nearest whole number, and (B) the
number of shares of Surviving Corporation Common Stock determined by multiplying
the Preferred Ratio by the number of shares of Company Common Stock into which
each share of Company Preferred Stock (which would be issuable upon the exercise
of such Warrant) is convertible immediately prior to the Merger Effective Time,
rounded up to the nearest whole number.
1.10 Escrow. At the Merger Closing, shares of CMGI Common Stock into
------
which Company Preferred Stock was converted pursuant to Section 1.5 equal to
$19,300,000 divided by the CMGI Lock-In Value, rounded down to the nearest whole
number (the "Escrow Shares"), shall be deposited into escrow (the "Escrow") and
shall be held and disposed of in accordance with the terms of the Escrow
Agreement. Company Shareholders shall be entitled to receive at the Merger
Closing the remaining shares of CMGI Common Stock into which their Company
7
<PAGE>
Preferred Stock was converted pursuant to Section 1.5 (the "Initial Merger
Shares"). The Initial Merger Shares and the Escrow Shares shall together be
referred to herein as the "Merger Shares." On the Merger Closing Date, CMGI
shall deliver to the Escrow Agent a certificate (issued in the name of the
Escrow Agent or its nominee) representing the Escrow Shares, (i) to be issued
upon the attainment of certain financial and employee retention goals set forth
below and (ii) for the purpose of securing the indemnification obligations of
the Indemnifying Shareholders (as defined in Section 8.1) set forth in this
Agreement. The Escrow Shares shall be held by the Escrow Agent under the Escrow
Agreement pursuant to the terms thereof. The Escrow Shares shall be held as a
trust fund and shall not be subject to any lien, attachment, trustee process or
any other judicial process of any creditor of any party, and shall be held and
disbursed solely for the purposes and in accordance with the terms of the Escrow
Agreement and this Agreement.
(a) Within thirty (30) days after December 31, 2000, CMGI shall
deliver to the Shareholder Representative an income statement showing gross
revenues for the Surviving Corporation (or, if the Surviving Corporation is
merged or combined with CMGI or any other party, the gross revenues attributable
to the business of the Company) for the period from January 1, 2000 to December
31, 2000, prepared in accordance with GAAP on a basis consistent with the
accounting practices previously utilized in the preparation of CMGI's year-end
financial statements ("Gross Revenues"). CMGI shall provide the Shareholder
Representative with reasonable access to the work papers in connection with such
calculation and shall make itself available at reasonable times upon request of
the Shareholder Representative to discuss such calculations.
(b) If the Shareholder Representative objects to CMGI's calculation
of Gross Revenues, the Shareholder Representative shall deliver to CMGI, within
thirty (30) days after receipt of CMGI's calculation (the "Objection Period"), a
written statement describing his, her or its objection thereto. In the event
that the Shareholder Representative fails to deliver such written statement to
CMGI prior to the expiration of the Objection Period, CMGI's calculation shall
be final, conclusive and binding upon the parties hereto. In the event that the
Shareholder Representative delivers such written statement prior to the
expiration of the Objection Period, the Parties will use all reasonable efforts
to resolve any dispute. If a final resolution is not obtained within thirty (30)
days after the Shareholder Representative has delivered such written notice,
either CMGI or the Shareholder Representative may submit any remaining disputes
for resolution to a nationally-recognized accounting firm mutually agreeable to
CMGI and the Shareholder Representative (the "Selected Accountants"), which firm
shall resolve such dispute within thirty (30) days following its selection. In
resolving any dispute, the Selected Accountants shall examine only those issues
in dispute and shall not assign a value greater than the highest value claimed
by a party or lower than the lowest value claimed by a party. The Selected
Accountants' determination shall be final, binding and conclusive upon the
parties hereto. The calculation of Gross Revenues as finally revised based on
the mutual agreement of CMGI and the Shareholder Representative shall be final,
conclusive and binding upon the Parties.
(c) CMGI, Engage and the Shareholder Representative shall cooperate
with the Selected Accountants in all respects, including providing the Selected
Accountants with all
8
<PAGE>
work papers and back-up materials used in preparation and review of their
calculations of Gross Revenues.
(d) All fees, expenses and costs of the Selected Accountants shall be
borne by the Party whose estimation of Gross Revenues, taking into account any
changes made prior to submission to the Selected Accountants, is farthest from
the sum of Gross Revenues as finally determined by the Selected Accountants.
(e) Subject to Article VIII and subsection (g) below, in the event
that either (i) Gross Revenues as finally determined is less than $12,750,000 or
(ii) as of the first anniversary of the Merger Closing Date, more than two (2)
of the employees listed on Schedule 1.10(e) (the "Key Employees") had either
----------------
voluntarily terminated their employment with the Surviving Corporation (except
for Good Reason, as defined below) or had been terminated for Cause (as defined
below), CMGI shall notify the Escrow Agent to release all of the Escrow Shares
to CMGI as provided in the Escrow Agreement. As used herein, "Good Reason"
shall mean any of the following: (A) the employer's material breach of
employee's employment agreement or other agreement with the employer or a
material reduction in the employee's compensation level other than for Cause;
(B) the relocation of the employer's principal executive offices outside of the
San Francisco/Bay Area; (C) the requirement by the employer that the employee be
based anywhere other than the San Francisco/Bay Area; (D) the assignment of the
employee to a position with responsibilities or duties inconsistent with his or
her title or of a lesser status or degree of responsibility than his or her
prior position with the Company; or (E) any Change of Control (as defined below)
in the Surviving Corporation, in any such cases, without the employee's consent.
"Cause" shall mean: (A) the employee's material breach of any agreement entered
into with the employer; (B) the employee's material failure to adhere to any
written employer policy consistent with such employee's position,
responsibilities and duties, if the employee has been given a reasonable
opportunity to comply with such policy or cure his or her failure to comply; (C)
the misappropriation of any of the employer's funds or material property; (D)
the conviction of, the indictment for, or the entering of a guilty plea or plea
of no contest with respect to a felony; or (E) the employee's prolonged absence
or gross dereliction of duty, after written notice and reasonable opportunity to
cure. "Change of Control" shall mean the sale of all or substantially all of
the assets of the Surviving Corporation, or a merger, consolidation or other
business combination resulting in the holders of capital stock of the Surviving
Corporation immediately prior to such transaction holding less than fifty
percent (50%) of the capital stock of the surviving entity in such transaction;
provided, however, that any transaction in which either CMGI or any of its
Affiliates or Engage or any of its Affiliates beneficially own at least fifty
percent (50%) of the capital stock of the surviving corporation in such
transaction or of the purchasers of all or substantially all of the assets of
the surviving corporation will not constitute a Change of Control.
(f) Subject to subsection (g) below, in the event that both (1) Gross
Revenues as finally determined is at least $12,750,000 and (2) as of the first
anniversary of the Merger Closing Date, no more than two (2) of the Key
Employees have either voluntarily terminated their employment with the Surviving
Corporation (except for Good Reason) or been terminated for Cause, CMGI shall
notify the Escrow Agent to release a pro rata portion of the Escrow Shares
corresponding to a fraction (not to exceed 1), the numerator of which is the
actual Gross
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Revenues and the denominator of which is $15,000,000, less any Shares delivered
to any Indemnified Party in satisfaction of an indemnity claim, or retained in
Escrow by the Escrow Agent pursuant to a Claim Notice or Expected Claim Notice,
under Article VIII hereof, to the Company Shareholders as provided in the Escrow
Agreement, and the remaining Escrow Shares shall be returned to CMGI by the
Escrow Agent.
(g) If CMGI or Engage do not provide quarterly funding to the
Surviving Corporation during calendar year 2000 equal to or greater than the
funding amounts set forth in the Company's quarterly operating forecasts during
calendar year 2000 attached as Schedule 1.10(g) (which amounts shall exclude
----------------
non-cash expenses, including but not limited to, depreciation, amortization and
stock compensation, in deriving the required operating cash funding), the
Surviving Corporation shall be deemed to have achieved Gross Revenues of
$15,000,000 for the purposes of subsection (f) above; provided, however, the
receipt of any such amounts may be waived with the written consent of the
Shareholder Representative.
1.11 Articles of Incorporation and By-laws.
-------------------------------------
(a) The Articles of Incorporation of the Surviving Corporation
immediately following the Merger Effective Time shall be the same as the
Articles of Incorporation of Transitory Subsidiary immediately prior to the
Merger Effective Time, except that (1) the name of the corporation set forth
therein shall be changed to the name of the Company and (2) the identity of the
incorporator shall be deleted.
(b) The By-laws of the Surviving Corporation immediately following
the Merger Effective Time shall be the same as the By-laws of Transitory
Subsidiary immediately prior to the Merger Effective Time, except that the name
of the corporation set forth therein shall be changed to the name of the
Company.
1.12 No Further Rights. From and after the Merger Effective Time, no
-----------------
Company Shares shall be deemed to be outstanding, and holders of certificates
shall cease to have any rights with respect thereto, except as provided herein
or by law.
1.13 Merger Closing of Transfer Books. At the Merger Effective Time, the
--------------------------------
stock transfer books of the Company shall be closed and no transfer of Company
Shares shall thereafter be made. If, after the Merger Effective Time,
certificates are presented to CMGI, the Surviving Corporation or the Exchange
Agent, they shall be cancelled and exchanged for Initial Merger Shares in
accordance with Section 1.5, subject to Section 1.10 and to applicable law in
the case of Merger Dissenting Shares.
ARTICLE II
THE CONTRIBUTION
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2.1 The Contribution. Upon and subject to the terms and conditions of
----------------
this Agreement, holders of Surviving Corporation Common Stock shall contribute
their Surviving Corporation Common Stock to Engage in exchange for shares of
Engage Common Stock, at the Contribution Closing (as defined below) (the
"Contribution"). The Contribution is intended to qualify as a transaction under
Section 351 of the Code.
2.2 The Contribution Closing. The closing of the Contribution (the
------------------------
"Contribution Closing") shall take place at the offices of Brobeck, Phleger &
Harrison LLP at 2200 Geng Road, Palo Alto, California, commencing at 12:00 a.m.
local time on November 15, 1999, or, if all of the conditions to the obligations
of the Parties to consummate the transactions contemplated hereby have not been
satisfied or waived by such date, on such mutually agreeable later date as soon
as practicable (and in any event not later than three business days) after the
satisfaction or waiver of all conditions (excluding the delivery of any
documents to be delivered at the Contribution Closing by any of the Parties) set
forth in Article VII hereof (the "Contribution Closing Date").
2.3 Actions at the Contribution Closing. At the Contribution Closing:
-----------------------------------
(a) the Exchange Agent shall deliver to Engage a stock certificate
for the Surviving Corporation Common Stock; and
(b) Engage shall deliver a certificate for the Contribution Shares
(as defined below) to the Exchange Agent in accordance with Section 2.5.
2.4 Additional Action. Engage may, at any time after the Contribution
-----------------
Closing Date, take any action, including executing and delivering any document
in order to consummate the transactions contemplated by this Agreement.
2.5 Conversion of Shares. At the Contribution Closing Date:
--------------------
(a) Conversion of Surviving Corporation Common Stock.
------------------------------------------------
(i) Each share of Surviving Corporation Common Stock issued and
outstanding immediately prior to the Contribution Closing Date shall be
converted into and represent the right to receive such number of shares of
Engage Common Stock (the "Contribution Shares") as is equal to the Engage
Conversion Ratio (as defined below); provided, however, Engage Common Stock
issued in the Contribution in exchange for Surviving Corporation Common Stock
subject to a right of repurchase in favor of the Surviving Corporation shall be
subject to a right of repurchase in favor of Engage upon the same terms and
conditions as that of the original repurchase right.
(ii) Engage shall, in its discretion, either assume the stock
option plans of the Surviving Corporation (as assumed from the Company in the
Merger), or substitute Engage Options (as defined below) for Surviving
Corporation Options. Each Surviving Corporation Option shall be converted into a
similar stock option to acquire such number of shares of Engage Common Stock (an
"Engage Option") as is equal to the Engage Conversion
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Ratio (as defined below), with an exercise price equal to the quotient
determined by dividing the exercise price of the Surviving Corporation Option by
the Engage Conversion Ratio, rounded down to the nearest whole cent. Engage
Options shall be fully exercisable as of the Contribution Closing Date and such
shares of Engage Common Stock issuable upon exercise thereof shall be subject to
a right of repurchase by Engage at the exercise price thereof which repurchase
right shall lapse on the same schedule as provided in the original Company
Options. If Engage Options are substituted for outstanding Surviving Corporation
Options, such Engage Options will be governed by the terms of Engage's stock
option plans, provided, that such Engage Options shall preserve substantially
all the rights and benefits contained in such Surviving Corporation Options
(except that the Engage Options shall have a term of five (5) years), and if
Engage assumes Surviving Corporation stock option plans, the resulting Engage
Options will be governed by the terms of the assumed Surviving Corporation
plans.
(iii) The "Engage Conversion Ratio" shall be the result obtained
by dividing (A) the quotient of (i) $193,000,000 divided by (ii) the Engage
Lock-In Value (as defined below) by (B) the Total Outstanding Company Common
Stock.
(iv) The "Engage Lock-In Value" shall be determined as follows:
(A) In the event that the average of the last reported
sale prices per share of Engage Common Stock on the Nasdaq National Market over
the forty-five (45) consecutive trading days ending on the trading day that is
two trading days prior to the Merger Effective Time (the "Engage Final Value")
is equal to or less than ninety percent (90%) of the average of the last
reported sale prices per share of Engage Common Stock on the Nasdaq National
Market over the forty-five (45) consecutive trading days (or fewer trading days
if forty-five (45) trading days have not elapsed) ending on the trading day that
is two trading days prior to the date of this Agreement (the "Engage Initial
Value"), then the Engage Lock-In Value shall be ninety percent (90%) of the
Engage Initial Value.
(B) In the event that the Engage Final Value is equal to
or greater than one hundred ten percent (110%) of the Engage Initial Value, the
Engage Lock-In Value shall be one hundred ten percent (110%) of the Engage
Initial Value.
(C) In the event that the Engage Final Value is greater
than ninety percent (90%) and less than one hundred ten percent (110%) of the
Engage Initial Value, the Engage Lock-In Value shall be the Engage Final Value.
(b) Adjustment. The Engage Conversion Ratio shall be subject to
----------
equitable adjustment in the event of any stock split, stock dividend, reverse
stock split or similar event affecting the Engage Common Stock between the
beginning of such forty-five (or lesser) day period used to determine the Engage
Initial Value and the Contribution Closing Date.
2.6 Contribution Dissenting Shares.
------------------------------
(a) For purposes of this Agreement, "Contribution Dissenting Shares"
means Surviving Corporation Common Stock held as of the Contribution Closing
Date by a former
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Company Shareholder who has not voted the Company Shares to be converted into
such Surviving Corporation Common Stock or such Surviving Corporation Common
Stock, as the case may be, in favor of the adoption of this Agreement and the
Contribution and with respect to which appraisal shall have been duly demanded
and perfected in accordance with Chapter 13 of the California Law and not
effectively withdrawn or forfeited prior to the Contribution Closing Date.
Contribution Dissenting Shares shall not be converted into or represent the
right to receive the Contribution Shares, unless such former Company
Shareholder's right to appraisal shall have ceased in accordance with Section
1309 of the California Law. If such former Company Shareholder has so forfeited
or withdrawn his, her or its right to appraisal of Contribution Dissenting
Shares, then, (i) as of the occurrence of such event, such holder's Contribution
Dissenting Shares shall cease to be Contribution Dissenting Shares and shall be
converted into and represent the right to receive the Contribution Shares
issuable in respect of such Surviving Corporation Common Stock pursuant to
Section 2.5, and (ii) promptly following the occurrence of such event, Engage
shall deliver to the Exchange Agent a certificate representing the Contribution
Shares to which such holder is entitled pursuant to Section 2.5.
(b) The Company shall give Engage (i) prompt notice of any written
demands for appraisal of any Surviving Corporation Common Stock, withdrawals of
such demands, and any other instruments that relate to such demands received by
the Company and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the California Law. The Company
shall not, except with the prior written consent of CMGI, make any payment with
respect to any demands for appraisal of Surviving Corporation Common Stock or
offer to settle or settle any such demands.
2.7 Exchange of Shares.
------------------
(a) Prior to the Contribution Closing Date, Engage shall appoint the
Exchange Agent to effect the exchange for the Contribution Shares of
certificates that, immediately prior to the Contribution Closing Date,
represented Surviving Corporation Common Stock converted into Contribution
Shares pursuant to Section 2.5. On the Contribution Closing Date, Engage shall
deliver to the Exchange Agent, in trust for the benefit of holders of
certificates, a stock certificate (issued in the name of the Exchange Agent or
its nominee) representing the Contribution Shares, as described in Section 2.5.
Each holder of a certificate shall be entitled to receive in exchange therefor
(subject to any taxes required to be withheld) the Contribution Shares issuable
pursuant to Section 2.5 plus cash in lieu of any fractional shares, as provided
in Section 2.8 below.
(b) If any Contribution Shares are to be issued in the name of a
person other than the person in whose name the certificate surrendered in
exchange therefor is registered, it shall be a condition to the issuance of such
Contribution Shares that (i) the certificate 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 to the Exchange Agent any transfer
or other taxes payable by reason of the foregoing or establish to the
satisfaction of the Exchange Agent that such taxes have been paid or are not
required to be paid. Notwithstanding the foregoing, neither the Exchange Agent
nor any Party shall be liable to a holder of Surviving Corporation Common
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<PAGE>
Stock for any Contribution Shares issuable to such holder pursuant to Section
2.5 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, Engage shall issue in exchange
for such lost, stolen or destroyed certificate the Contribution Shares issuable
in exchange therefor pursuant to Section 2.5. The Board of Directors of Engage
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate to give Engage a
bond in such sum as it may direct as indemnity against any claim that may be
made against Engage with respect to the certificate alleged to have been lost,
stolen or destroyed.
(d) No dividends or other distributions that are payable to the
holders of record of Engage Common Stock as of a date on or after the
Contribution Closing Date shall be paid to holders of Surviving Corporation
Common Stock entitled by reason of the Contribution to receive Contribution
Shares until the Exchange Agent surrenders its certificate for certificates
representing the Contribution Shares. Upon such surrender, Engage shall pay or
deliver to the persons in whose name the certificates representing such
Contribution Shares are issued any dividends or other distributions that are
payable to the holders of record of Engage Common Stock as of a date on or after
the Contribution Closing Date and which were paid or delivered between the
Contribution Closing Date and the time of such surrender; provided that no such
person shall be entitled to receive any interest on such dividends or other
distributions.
2.8 Fractional Shares. No certificates or scrip representing fractional
-----------------
Contribution Shares shall be issued to holders of Surviving Corporation Common
Stock upon the surrender for exchange of certificates, and such holders shall
not be entitled to any voting rights, rights to receive any dividends or
distributions or other rights as a stockholder of Engage with respect to any
fractional Contribution Shares that would have otherwise been issued to such
holders. Each holder of Surviving Corporation Common Stock that would have been
entitled to receive a fractional Contribution Share shall receive a cash payment
equal to the Engage Lock-In Value multiplied by the fraction of an Contribution
Share that such former Company Shareholder would otherwise be entitled to
receive.
2.9 CMGI Representations; Engage Acknowledgement. CMGI has all requisite
--------------------------------------------
power and authority to deliver the Surviving Corporation Common Stock to Engage.
Engage agrees and acknowledges that Engage will accept the Surviving Corporation
Common Stock from CMGI "as is" with no representations other than as provided in
this Section 2.9.
ARTICLE IIA
SUBSIDIARY MERGER
2A.1 The Engage Merger. Engage shall establish Engage Sub as a wholly-
-----------------
owned subsidiary of Engage. Engage shall contribute Surviving Corporation Common
Stock received
14
<PAGE>
by Engage in the Contribution to Engage Sub. Upon and subject to the terms and
conditions of this Agreement, Engage Sub shall merge with and into the Surviving
Corporation (with such Engage Merger referred to herein as the "Engage Merger")
at the Engage Merger Effective Time (as defined below). From and after the
Engage Merger Effective Time, the separate corporate existence of Engage Sub
shall cease and the Surviving Corporation shall continue as the surviving
corporation in the Engage Merger. The "Engage Merger Effective Time" shall be
the time at which the Surviving Corporation files a certificate of merger in the
form required by the California Law together with the required officers'
certificates and the certificates of satisfaction from the California Franchise
Tax Board for Engage Sub and the Surviving Corporation (collectively, the
"Engage Merger Filings"), in accordance with Section 1110 of the Law, with the
Secretary of State of the State of California. The Engage Merger shall have the
effects set forth in Section 1107 of the California Law.
2A.2 The Engage Merger Closing. The closing of the Engage Merger (the
-------------------------
"Engage Merger Closing") shall take place at the offices of Hale and Dorr LLP,
at 60 State Street, Boston, Massachusetts, commencing at 12:00 a.m. local time
within thirty (30) days after the Contribution Closing Date (the "Engage Merger
Closing Date").
2A.3 Actions at the Engage Merger Closing. At the Engage Merger Closing:
------------------------------------
(a) the Surviving Corporation shall file with the Secretary of State
of the State of California the Engage Merger Filings; and
(b) the Surviving Corporation shall deliver certificates for Engage
Common Stock to its stockholders.
2A.4 Additional Action. The Surviving Corporation may, at any time after
-----------------
the Engage Merger Effective Time, take any action, including executing and
delivering any document, in the name and on behalf of either the Surviving
Corporation or Engage Sub, in order to consummate the transactions contemplated
by this Agreement.
2A.5 Conversion of Shares. At the Engage Merger Effective Time, by virtue
--------------------
of the Engage Merger and without any action on the part of any Party or the
holder of any of the following securities:
(a) Conversion of Surviving Corporation Common Stock. Each share of
------------------------------------------------
Surviving Corporation Common Stock issued and outstanding immediately prior to
the Engage Merger Closing Date shall be converted into and represent the right
to receive such number of shares of Engage Common Stock (the "Engage Merger
Shares") as is equal to the Engage Conversion Ratio.
(b) Cancellation of Shares. Each share of Surviving Corporation
----------------------
Common Stock held in the Surviving Corporation's treasury immediately prior to
the Engage Merger Effective Time shall be cancelled and retired without payment
of any consideration therefor.
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<PAGE>
(c) Conversion of Engage Sub Stock. All shares of Engage Sub Stock
------------------------------
issued and outstanding immediately prior to the Engage Merger Effective Time
shall be converted into and thereafter evidence shares of Surviving Corporation
Common Stock.
2A.6 Engage Merger Dissenting Shares.
-------------------------------
(a) For purposes of this Agreement, "Engage Merger Dissenting Shares"
means (i) Surviving Corporation Common Stock held as of the Engage Merger
Effective Time by a stockholder who has not voted such Surviving Corporation
Common Stock in favor of the adoption of this Agreement and the Engage Merger
and with respect to which appraisal shall have been duly demanded and perfected
in accordance with Chapter 13 of the California Law and not effectively
withdrawn or forfeited prior to the Engage Merger Effective Time. Engage Merger
Dissenting Shares shall not be converted into or represent the right to receive
the Engage Merger Shares, unless such Surviving Corporation Shareholder's right
to appraisal shall have ceased in accordance with Section 1309 of the California
Law. If such Surviving Corporation Shareholder has so forfeited or withdrawn
his, her or its right to appraisal of Engage Merger Dissenting Shares, then, (i)
as of the occurrence of such event, such holder's Engage Merger Dissenting
Shares shall cease to be Engage Merger Dissenting Shares and shall be converted
into and represent the right to receive the Engage Merger Shares issuable in
respect of such Surviving Corporation Common Stock pursuant to Section 2A.5, and
(ii) promptly following the occurrence of such event, the Surviving Corporation
shall deliver to each holder a certificate representing the Engage Merger Shares
to which such holder is entitled pursuant to Section 2A.5.
(b) The Surviving Corporation shall give Engage (i) prompt notice of
any written demands for appraisal of any Surviving Corporation Common Stock,
withdrawals of such demands, and any other instruments that relate to such
demands received by the Surviving Corporation and (ii) the opportunity to direct
all negotiations and proceedings with respect to demands for appraisal under the
California Law. The Surviving Corporation shall not, except with the prior
written consent of Engage, make any payment with respect to any demands for
appraisal of Surviving Corporation Common Stock or offer to settle or settle any
such demands.
2A.7 Exchange of Shares.
------------------
(a) Prior to the Engage Merger Effective Time, Engage shall appoint
the Exchange Agent to effect the exchange for the Engage Merger Shares of
certificates that, immediately prior to the Engage Merger Effective Time,
represented Surviving Corporation Common Stock converted into Engage Merger
Shares pursuant to Section 2A.5 (including any Surviving Corporation Common
Stock referred to in the last sentence of Section 2A.6(a)). Each holder of a
certificate, upon proper surrender thereof to the Exchange Agent in accordance
with the instructions in such notice, shall be entitled to receive in exchange
therefor (subject to any taxes required to be withheld) Engage Merger Shares
plus cash in lieu of any fractional shares, as provided in Section 2A.8 below.
Until properly surrendered, each such certificate shall be deemed for all
purposes to evidence only the right to receive a certificate for Engage Merger
Shares issuable pursuant to Section 2A.5. Holders of certificates shall not be
entitled to receive certificates for the Engage Merger Shares to which they
would otherwise be entitled until such certificates are properly surrendered.
16
<PAGE>
(b) If any Engage Merger Shares are to be issued in the name of a
person other than the person in whose name the certificate surrendered in
exchange therefor is registered, it shall be a condition to the issuance of such
Engage Merger Shares that (i) the certificate 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 to the Exchange Agent any transfer
or other taxes payable by reason of the foregoing or establish to the
satisfaction of the Exchange Agent that such taxes have been paid or are not
required to be paid. Notwithstanding the foregoing, neither the Exchange Agent
nor any Party shall be liable to a holder of Surviving Corporation Common Stock
for any Engage Merger Shares issuable to such holder pursuant to Section 2A.5
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, Engage shall issue in exchange
for such lost, stolen or destroyed certificate the Engage Merger Shares issuable
in exchange therefor pursuant to Section 2A.5. The Board of Directors of Engage
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate to give Engage a
bond in such sum as it may direct as indemnity against any claim that may be
made against Engage with respect to the certificate alleged to have been lost,
stolen or destroyed.
(d) No dividends or other distributions that are payable to the
holders of record of Engage Common Stock as of a date on or after the Engage
Merger Closing Date shall be paid to shareholders of record of the Surviving
Corporation immediately prior to the Engage Merger Effective Time ("Surviving
Corporation Shareholders") entitled by reason of the Engage Merger to receive
Engage Merger Shares until such holders surrender their certificates for
certificates representing the Engage Merger Shares. Upon such surrender, Engage
shall pay or deliver to the persons in whose name the certificates representing
such Engage Merger Shares are issued any dividends or other distributions that
are payable to the holders of record of Engage Common Stock as of a date on or
after the Engage Merger Closing Date and which were paid or delivered between
the Engage Merger Effective Time and the time of such surrender; provided that
no such person shall be entitled to receive any interest on such dividends or
other distributions..
2A.8 Fractional Shares. No certificates or scrip representing fractional
-----------------
Engage Merger Shares shall be issued to former Surviving Corporation
Shareholders upon the surrender for exchange of certificates, and such former
Surviving Corporation Shareholders shall not be entitled to any voting rights,
rights to receive any dividends or distributions or other rights as a
stockholder of Engage with respect to any fractional Engage Merger Shares that
would have otherwise been issued to such former Surviving Corporation
Shareholders. Each former Surviving Corporation Shareholder that would have been
entitled to receive a fractional Engage Merger Share shall receive a cash
payment equal to the Engage Lock-In Value multiplied by the fraction of an
Engage Merger Share that such former Surviving Corporation Shareholder would
otherwise be entitled to receive.
17
<PAGE>
2A.9 Articles of Incorporation and By-laws.
-------------------------------------
(a) The Articles of Incorporation of the Surviving Corporation
immediately following the Engage Merger Effective Time shall be the same as the
Articles of Incorporation of Engage Sub immediately prior to the Engage Merger
Effective Time, except that (1) the name of the corporation set forth therein
shall be changed to the name of the Surviving Corporation and (2) the identity
of the incorporator shall be deleted.
(b) The By-laws of the Surviving Corporation immediately following
the Engage Merger Effective Time shall be the same as the By-laws of Engage Sub
immediately prior to the Engage Merger Effective Time, except that the name of
the corporation set forth therein shall be changed to the name of the Surviving
Corporation.
2A.10 No Further Rights. From and after the Engage Merger Effective Time,
-----------------
no Surviving Corporation Common Stock shall be deemed to be outstanding, and
holders of certificates shall cease to have any rights with respect thereto,
except as provided herein or by law.
2A.11 Engage Merger Closing of Transfer Books. At the Engage Merger
---------------------------------------
Effective Time, the stock transfer books of the Surviving Corporation shall be
closed and no transfer of Surviving Corporation Common Stock shall thereafter be
made. If, after the Engage Merger Effective Time, certificates are presented to
Engage, the Surviving Corporation or the Exchange Agent, they shall be cancelled
and exchanged for Engage Merger Shares in accordance with Section 2A.5, subject
to applicable law in the case of Engage Merger Dissenting Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of CMGI and Engage that the
statements contained in this Article III are true and correct, except as set
forth in the disclosure schedule provided by the Company to CMGI and Engage on
the date hereof (the "Disclosure Schedule"). The Disclosure Schedule shall be
arranged in paragraphs corresponding to the numbered and lettered Sections
contained in this Article III, and the disclosures in any paragraph of the
Disclosure Schedule shall not qualify any other Section in this Article III
unless it is reasonably apparent from a reading of such Section or paragraph of
the Disclosure Schedule that it also qualifies or applies to such other Section
of this Article III. For purposes of this Article III, the phrase "to the
knowledge of the Company" or any phrase of similar import shall be deemed to
refer to the actual knowledge of those executive officers of the Company listed
on Exhibit B, as well as any other knowledge which such executive officers would
---------
have possessed had they made reasonable inquiry of appropriate employees and
agents of the Company with respect to the matter in question, and the Company's
obligation to deliver documents or other materials to CMGI or Engage pursuant to
this Article III or the Disclosure Schedule shall be deemed satisfied
18
<PAGE>
if the Company has delivered such documents or materials to the authorized
representatives of either CMGI or Engage.
3.1 Organization, Qualification and Corporate Power. The Company is a
-----------------------------------------------
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the State of California. The Company is duly
qualified to conduct business and is in corporate and tax good standing under
the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification. The Company
has all requisite corporate power and authority to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it. The
Company has furnished to CMGI or Engage complete and accurate copies of its
Articles of Incorporation and By-laws. The Company is not in default under or in
violation of any provision of its Articles of Incorporation or By-laws.
3.2 Capitalization. As of the date of this Agreement, the authorized
--------------
capital stock of the Company consists of (a) 97,424,000 shares of Company Common
Stock, of which 8,190,925 shares were issued and outstanding, of which 2,091,938
shares are subject to a repurchase right in favor of the Company, and no shares
were held in the treasury of the Company and (b) 41,232,478 shares of Company
Preferred Stock, of which: (i) 525,000 shares have been designated as Series A
Convertible Preferred Stock, all of which were issued and outstanding; (ii)
5,512,000 shares have been designated as Series B Convertible Preferred Stock,
all of which were issued and outstanding; (iii) 576,192 shares have been
designated as Series C-1 Convertible Preferred Stock, of which 569,525 shares
were issued and outstanding; (iv) 615,016 shares have been designated as Series
C-2 Convertible Preferred Stock, of which 605,122 shares were issued and
outstanding; (v) 2,442,366 shares have been designated as Series C-3 Convertible
Preferred Stock, of which 2,282,730 shares were issued and outstanding; (vi)
15,138,784 shares have been designated as Series D Convertible Preferred Stock,
of which 14,432,618 shares were issued and outstanding; and (vii) 16,423,120
shares have been designated as Series E Convertible Preferred Stock, of which
15,555,557 shares were issued and outstanding. Section 3.2 of the Disclosure
Schedule sets forth a complete and accurate list as of the date of this
Agreement of (i) all shareholders of the Company, indicating the number and
class or series of Company Shares held by each shareholder and (for Company
Shares other than Company Common Stock) the number of shares of Company Common
Stock (if any) into which such Company Shares are convertible, (ii) all
outstanding Company Options and Warrants, indicating (A) the holder thereof, (B)
the number and class or series of shares of Company Shares subject to each
Company Option and Warrant and (for Company Shares other than Company Common
Stock) the number of shares of Company Common Stock (if any) into which such
Company Shares are convertible, (C) the exercise price, date of grant, vesting
schedule and expiration date for each Company Option or Warrant, and (D) any
terms regarding the acceleration of vesting, and (iii) all stock option plans
and other stock or equity-related plans of the Company. All of the issued and
outstanding Company Shares are, and all Company Shares that may be issued upon
exercise of Company Options or Warrants will be (upon issuance in accordance
with their terms), duly authorized, validly issued, fully paid, nonassessable
and free of all preemptive rights. Other than the Company Options and Warrants
listed in Section 3.2 of the Disclosure Schedule, there are no outstanding or
authorized options, warrants, rights, agreements or commitments to which the
Company is a party or which are binding upon the Company providing for the
issuance or
19
<PAGE>
redemption of any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock or similar rights with respect to the Company.
There are no agreements to which the Company is a party or by which it is bound
with respect to the voting (including without limitation voting trusts or
proxies), registration under the Securities Act of 1933, as amended (the
"Securities Act"), or sale or transfer (including without limitation agreements
relating to pre-emptive rights, rights of first refusal, co-sale rights or
"drag-along" rights) of any securities of the Company. To the knowledge of the
Company, there are no agreements among other parties, to which the Company is
not a party and by which it is not bound, with respect to the voting (including
without limitation voting trusts or proxies) or sale or transfer (including
without limitation agreements relating to rights of first refusal, co-sale
rights or "drag-along" rights) of any securities of the Company. All of the
issued and outstanding Company Shares were issued in compliance with applicable
federal and state securities laws.
3.3 Authorization of Transaction. The Company has all requisite power and
----------------------------
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery by the Company of this Agreement and,
subject to the adoption of this Agreement and the approval of the Merger by and
the Contribution by the required shareholder vote (the "Requisite Shareholder
Approval"), the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of the Company. Without limiting the generality of the foregoing,
the Board of Directors of the Company, at a meeting duly called and held, by the
unanimous vote of all directors (i) adopted this Agreement in accordance with
the provisions of the California Law, and (ii) directed that this Agreement and
the Merger and the Contribution be submitted to the shareholders of the Company
for their adoption and approval and resolved to recommend that the shareholders
of Company vote in favor of the adoption of this Agreement and the approval of
the Merger and the Contribution. This Agreement has been duly and validly
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to creditors'
rights generally, and general principles of equity.
3.4 Noncontravention. Subject to compliance with the applicable
----------------
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws, and the filing of the Merger Filings as
required by the California Law, neither the execution and delivery by the
Company of this Agreement, nor the consummation by the Company of the
transactions contemplated hereby, will (a) conflict with or violate any
provision of the Articles of Incorporation or By-laws of the Company or the
charter, By-laws or other organizational document of any Subsidiary (as defined
below), (b) require on the part of the Company or any Subsidiary any filing
with, or any permit, authorization, consent or approval of, any court,
arbitrational tribunal, administrative agency or commission or other
governmental or regulatory authority or agency (a "Governmental Entity"), (c)
conflict with, result in a breach of, constitute (with or without due notice or
lapse of time or both) a default under, result in the acceleration of
obligations under, create in any party the right to terminate, modify or cancel,
or require any notice, consent or waiver under, any material
20
<PAGE>
contract or instrument, (d) result in the imposition of any Security Interest
(as defined below) upon any assets of the Company or any Subsidiary or (e)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, any Subsidiary or any of their properties or assets.
For purposes of this Agreement, "Security Interest" means any mortgage, pledge,
security interest, encumbrance, charge or other lien (whether arising by
contract or by operation of law), other than (i) mechanic's, materialmen's, and
similar liens, (ii) liens arising under worker's compensation, unemployment
insurance, social security, retirement, and similar legislation, and (iii) liens
on goods in transit incurred pursuant to documentary letters of credit, in each
case arising in the Ordinary Course of Business (as defined below) of the
Company and not material to the Company, and "Ordinary Course of Business" means
the ordinary course of the Company's business, consistent with past custom and
practice (including with respect to frequency and amount).
3.5 Subsidiaries.
------------
(a) Section 3.5 of the Disclosure Schedule sets forth: (i) the name
of each corporation, partnership, joint venture or other entity in which the
Company has, directly or indirectly, an equity interest representing 50% or more
of the capital stock thereof or other equity interests therein (individually, a
"Subsidiary" and, collectively, the "Subsidiaries"); (ii) the number and type of
outstanding equity securities of each Subsidiary and a list of the holders
thereof; (iii) the jurisdiction of organization of each Subsidiary; (iv) the
names of the officers and directors of each Subsidiary; and (v) the
jurisdictions in which each Subsidiary is qualified or holds licenses to do
business as a foreign corporation.
(b) Each Subsidiary is a corporation duly organized, validly existing
and in corporate and tax good standing under the laws of the jurisdiction of its
incorporation. Each Subsidiary is duly qualified to conduct business and is in
corporate and tax good standing under the laws of each jurisdiction in which the
nature of its businesses or the ownership or leasing of its properties requires
such qualification, except where the failure to be so qualified or in good
standing, individually or in the aggregate, has not had and would not reasonably
be expected to have a Company Material Adverse Effect. For purposes of this
Agreement, "Company Material Adverse Effect" means a material adverse effect on
the assets, business, condition (financial or otherwise), results of operations
or prospects of the Company and the Subsidiaries (as defined below), taken as a
whole. Each Subsidiary has all requisite power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. The Company has delivered to CMGI or Engage complete and accurate
copies of the charter, By-laws or other organizational documents of each
Subsidiary. No Subsidiary is in default under or in violation of any provision
of its charter, By-laws or other organizational documents. All of the issued and
outstanding shares of capital stock of each Subsidiary are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. All
shares of each Subsidiary that are held of record or owned beneficially by
either the Company or any Subsidiary are held or owned free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), claims, Security Interests, options, warrants, rights,
contracts, calls, commitments, equities and demands. There are no outstanding or
authorized options, warrants, rights, agreements or commitments to which the
Company or any Subsidiary is a party or which
21
<PAGE>
are binding on any of them providing for the issuance, disposition or
acquisition of any capital stock of any Subsidiary. There are no outstanding
stock appreciation, phantom stock or similar rights with respect to any
Subsidiary. There are no voting trusts, proxies or other agreements or
understandings with respect to the voting of any capital stock of any
Subsidiary.
(c) The Company does not control directly or indirectly or have any
direct or indirect equity participation or similar interest in any corporation,
partnership, limited liability company, joint venture, trust or other business
association which is not a Subsidiary.
3.6 Financial Statements. The Company has provided to CMGI or Engage (a)
--------------------
the audited consolidated balance sheets and statements of income, changes in
shareholders' equity and cash flows of the Company as of December 31, 1997 and
1998 and for the periods from July 10, 1996 (inception) to December 31, 1996 and
each of the fiscal years ending December 31, 1997 and 1998; and (b) the
unaudited consolidated balance sheet and statements of income, changes in
shareholders' equity and cash flows as of and for the six months ended as of
June 30, 1999 (such balance sheet is referred to as the "Most Recent Balance
Sheet" and the date thereof is the "Most Recent Balance Sheet Date"). The Most
Recent Balance Sheet has been reviewed by the Company's accountants. Such
financial statements (collectively, the "Financial Statements") have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods covered
thereby, fairly present the financial condition, results of operations and cash
flows of the Company and the Subsidiaries as of the respective dates thereof and
for the periods referred to therein and are consistent with the books and
records of the Company and the Subsidiaries; provided, however, that the
Financial Statements referred to in clause (b) above are subject to normal
recurring year-end adjustments (which will not be material) and do not include
footnotes.
3.7 Absence of Certain Changes. Since the Most Recent Balance Sheet Date,
--------------------------
(a) there has occurred no event or development which has had, or could
reasonably be expected to have in the future, a Company Material Adverse Effect,
and (b) neither the Company nor any Subsidiary has taken any of the actions set
forth in paragraphs (a) through (n) of Section 5.4.
3.8 Undisclosed Liabilities. None of the Company and its Subsidiaries has
-----------------------
any material liability (whether known or unknown, whether absolute or
contingent, whether liquidated or unliquidated and whether due or to become
due), except for (a) liabilities shown on the Most Recent Balance Sheet, (b)
liabilities which have arisen since the Most Recent Balance Sheet Date in the
Ordinary Course of Business and which are similar in nature and amount (as a
percentage of revenues) to the liabilities which arose during the comparable
period of time in the immediately preceding fiscal period and (c) contractual
and other liabilities incurred in the Ordinary Course of Business which are not
required by GAAP to be reflected on a balance sheet. For purposes of this
Section 3.8, "material" shall mean any liability equal to or greater than
$35,000.
22
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3.9 Tax Matters.
-----------
(a) For purposes of this Agreement, the following terms shall have
the following meanings:
(i) "Taxes" means all taxes, charges, fees, levies or other
similar assessments or liabilities, including without limitation income, gross
receipts, ad valorem, premium, value-added, excise, real property, personal
property, sales, use, transfer, withholding, employment, unemployment insurance,
social security, business license, business organization, environmental, workers
compensation, payroll, profits, license, lease, service, service use, severance,
stamp, occupation, windfall profits, customs, duties, franchise and other taxes
imposed by the United States of America or any state, local or foreign
government, or any agency thereof, or other political subdivision of the United
States or any such government, and any interest, fines, penalties, assessments
or additions to tax resulting from, attributable to or incurred in connection
with any tax or any contest or dispute thereof.
(ii) "Tax Returns" means all reports, returns, declarations,
statements or other information required to be supplied to a taxing authority in
connection with Taxes.
(iii) "Affiliated Group" means a group of corporations with which
the Company or any Subsidiary has filed (or was required to file) consolidated,
combined, unitary or similar Tax Returns.
(b) Each of the Company and the Subsidiaries has filed on a timely
basis all Tax Returns that it was required to file, and all such Tax Returns
were complete and accurate in all material respects. Neither the Company nor any
Subsidiary is or has ever been a member of a group of corporations with which it
has filed (or been required to file) consolidated, combined or unitary Tax
Returns, other than a group of which only the Company and the Subsidiaries are
or were members. Each of the Company and the Subsidiaries has paid on a timely
basis all Taxes that were due and payable. The unpaid Taxes of the Company and
the Subsidiaries for tax periods through the Most Recent Balance Sheet Date do
not exceed the accruals and reserves for Taxes (excluding accruals and reserves
for deferred Taxes established to reflect timing differences between book and
Tax income) set forth on the Most Recent Balance Sheet. Neither the Company nor
any Subsidiary has any actual or potential liability for any Tax obligation of
any taxpayer (including without limitation any affiliated group of corporations
or other entities that included the Company or any Subsidiary during a prior
period) other than the Company and the Subsidiaries. All Taxes that the Company
or any Subsidiary is or was required by law to withhold or collect have been
duly withheld or collected and, to the extent required, have been paid to the
proper Governmental Entity.
(c) The Company has delivered to CMGI or Engage complete and accurate
copies of all federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by the Company or any Subsidiary
since July 10, 1996. The federal income Tax Returns of the Company and each
Subsidiary have been audited by the Internal Revenue Service or are closed by
the applicable statute of limitations for all taxable years through the taxable
year specified in Section 3.9(c) of the Disclosure Schedule. The Company
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has delivered or made available to CMGI or Engage complete and accurate copies
of all other Tax Returns of the Company and the Subsidiaries together with all
related examination reports and statements of deficiency for all periods from
and after July 10, 1996. No examination or audit of any Tax Return of the
Company or any Subsidiary by any Governmental Entity is currently in progress
or, to the knowledge of the Company, threatened or contemplated. Neither the
Company nor any Subsidiary has been informed by any jurisdiction that the
jurisdiction believes that the Company or Subsidiary was required to file any
Tax Return that was not filed. Neither the Company nor any Subsidiary has waived
any statute of limitations with respect to Taxes or agreed to an extension of
time with respect to a Tax assessment or deficiency.
(d) Neither the Company nor any Subsidiary: (i) is a "consenting
corporation" within the meaning of Section 341(f) of the Code and none of the
assets of the Company or the Subsidiaries are subject to an election under
Section 341(f) of the Code; (ii) has 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)(l)(A)(ii) of the Code; (iii) has
made any payments, is obligated to make any payments, or is a party to any
agreement that could obligate it to make any payments that may be treated as an
"excess parachute payment" under Section 280G of the Code; (iv) has any actual
or potential liability for any Taxes of any person (other than the Company and
its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of federal, state, local, or foreign law), or as a transferee or
successor, by contract, or otherwise; or (v) is or has been required to make a
basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury
Regulation Section 1.337(d)-2(b).
(e) None of the assets of the Company or any Subsidiary: (i) is
property that is required to be treated as being owned by any other person
pursuant to the provisions of former Section 168(f)(8) of the Code; (ii) is
"tax-exempt use property" within the meaning of Section 168(h) of the Code; or
(iii) directly or indirectly secures any debt the interest on which is tax
exempt under Section 103(a) of the Code.
(f) Neither the Company nor any Subsidiary has undergone a change in
its method of accounting resulting in an adjustment to its taxable income
pursuant to Section 481 of the Code.
(g) Neither the Company nor any Subsidiary is or has been a member of
an Affiliated Group.
3.10 Assets. Each of the Company and the Subsidiaries owns or leases all
------
tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted. Each such tangible asset is
free from material defects, has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to normal
wear and tear) and is suitable for the purposes for which it presently is used.
No asset of the Company or any Subsidiary (tangible or intangible) is subject to
any Security Interest, except as reflected in the Financial Statements and
except for liens for current taxes not yet due and payable.
24
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3.11 Owned Real Property. Neither the Company nor any Subsidiary owns any
-------------------
real property.
3.12 Real Property Leases. Section 3.12 of the Disclosure Schedule lists
--------------------
all real property leased or subleased to or by the Company or any Subsidiary and
lists the term of such lease and the rent payable thereunder. The Company has
delivered to CMGI or Engage complete and accurate copies of the leases and
subleases (as amended to date) listed in Section 3.12 of the Disclosure
Schedule. With respect to each lease and sublease listed in Section 3.12 of the
Disclosure Schedule:
(a) assuming the due execution and delivery thereof by the parties
thereto, the lease or sublease is in full force and effect, legal, valid,
binding and enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency, moratorium or
similar laws affecting or relating to creditors' rights generally, and general
principles of equity;
(b) the lease or sublease will continue to be in full force and
effect, legal, valid, binding and enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, moratorium or similar laws affecting or relating to creditors'
rights generally, and general principles of equity, immediately following the
Merger Closing in accordance with the terms thereof as in effect immediately
prior to the Merger Closing;
(c) neither the Company nor any Subsidiary nor, to the knowledge of
the Company, any other party, is in breach or violation of, or default under,
any such lease or sublease, and no event has occurred, is pending or, to the
knowledge of the Company, is threatened, which, after the giving of notice, with
lapse of time, or otherwise, would constitute a breach or default by the Company
or any Subsidiary or, to the knowledge of the Company, any other party under
such lease or sublease;
(d) neither the Company nor any Subsidiary has assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold
or subleasehold; and
(e) the Company is not aware of any Security Interest, easement,
covenant or other restriction applicable to the real property subject to such
lease, except for recorded easements, covenants and other restrictions which do
not materially impair the current uses or the occupancy by the Company or a
Subsidiary of the property subject thereto.
3.13 Intellectual Property.
---------------------
(a) Each of the Company and the Subsidiaries owns or has the right to
use all Intellectual Property (as defined below) necessary (i) to use,
manufacture, market and distribute the products manufactured, marketed, sold or
licensed, and to provide the services provided, by the Company to other parties
(together, the "Customer Deliverables") or (ii) to operate the Company's
internal systems that are material to the business or operations of the Company,
25
<PAGE>
including, without limitation, computer hardware systems, software applications
and embedded systems (the "Internal Systems"; the Intellectual Property owned by
or licensed to the Company and incorporated in or underlying the Customer
Deliverables or the Internal Systems is referred to herein as the "Company
Intellectual Property"). Each item of Company Intellectual Property will be
owned or available for use by the Surviving Corporation immediately following
the Merger Closing on substantially similar terms and conditions as it was
immediately prior to the Merger Closing. The Company has taken all commercially
reasonable measures to protect the proprietary nature of each item of Company
Intellectual Property. To the knowledge of the Company, (a) no other person or
entity has any rights to any of the Company Intellectual Property owned by the
Company (except pursuant to agreements or licenses specified in Section 3.13(c)
of the Disclosure Schedule), and (b) no other person or entity is infringing,
violating or misappropriating any of the Company Intellectual Property. For
purposes of this Agreement, "Intellectual Property" means all (u) patents and
patent applications, (v) copyrights and registrations thereof, (w) computer
software, data and documentation, (x) trade secrets and confidential business
information, whether patentable or unpatentable and whether or not reduced to
practice, know-how, manufacturing and production processes and techniques,
research and development information, copyrightable works, financial, marketing
and business data, pricing and cost information, business and marketing plans
and customer and supplier lists and information, (y) trademarks, service marks,
trade names, domain names and applications and registrations therefor and (z)
other proprietary rights relating to any of the foregoing. Section 3.13(a) of
the Disclosure Schedule lists each patent, patent application, copyright
registration or application therefor, mask work registration or application
therefor, and trademark, service mark and domain name registration or
application therefor of the Company or any Subsidiary.
(b) None of the Customer Deliverables, or the marketing,
distribution, provision or use thereof, infringes or violates, or constitutes a
misappropriation of, any Intellectual Property rights of any person or entity.
None of the Internal Systems, or the use thereof, infringes or violates, or
constitutes a misappropriation of, any Intellectual Property rights of any
person or entity. Section 3.13(b) of the Disclosure Schedule lists any
complaint, claim or notice, or written threat thereof, received by the Company
or any Subsidiary alleging any such infringement, violation or misappropriation;
and the Company has provided to CMGI or Engage complete and accurate copies of
all written documentation in the possession of the Company or any Subsidiary
relating to any such complaint, claim, notice or threat. The Company has
provided to CMGI or Engage complete and accurate copies of all written
documentation in the Company's possession relating to claims or disputes known
to the Company concerning any Company Intellectual Property.
(c) Section 3.13(c) of the Disclosure Schedule identifies each
license or other agreement (or type of license or other agreement) pursuant to
which the Company or a Subsidiary has licensed, distributed or otherwise granted
any rights to any third party with respect to, any Company Intellectual
Property, other than nonexclusive end-user licenses entered into in the Ordinary
Course of Business pursuant to the Company's standard forms of license
agreement.
(d) Section 3.13(d) of the Disclosure Schedule identifies each item
of Company Intellectual Property that is owned by a party other than the Company
or a Subsidiary,
26
<PAGE>
and the license or agreement pursuant to which the Company or a Subsidiary uses
it (excluding off-the-shelf software programs licensed by the Company pursuant
to "shrink wrap" licenses).
(e) Neither the Company nor any Subsidiary has disclosed the source
code for any of the software owned by the Company or a Subsidiary (the
"Software") or other confidential information constituting, embodied in or
pertaining to the Software to any person or entity, except pursuant to the
agreements listed in Section 3.13(e) of the Disclosure Schedule, and the Company
has taken commercially reasonable measures to prevent disclosure of such source
code.
(f) All of the copyrightable materials (including Software)
incorporated in or bundled with the Customer Deliverables have been created by
employees of the Company or a Subsidiary within the scope of their employment by
the Company or a Subsidiary, by former employees of the Company or a Subsidiary
within the scope of their then-employment by the Company or a Subsidiary, or by
independent contractors of the Company or a Subsidiary who have executed
agreements expressly assigning all right, title and interest in such
copyrightable materials to the Company or a Subsidiary. No portion of such
copyrightable materials was jointly developed with any third party.
(g) To the knowledge of the Company, the Customer Deliverables and
the Internal Systems are free from significant defects or programming errors and
conform in all material respects to the written documentation and specifications
therefor.
(h) To the knowledge of the Company, neither the Company nor any
Subsidiary is a party to any agreement that grants to any third party any rights
to any intellectual property of an Affiliate of the Company (other than a
Subsidiary).
3.14 Year 2000 Compliance.
--------------------
(a) All of the Customer Deliverables currently being marketed,
distributed or licensed by the Company or a Subsidiary or which previously were
marketed, distributed or licensed by the Company or a Subsidiary, and all
Internal Systems, are Year 2000 Compliant. The Company is not aware of any
failure to be Year 2000 Compliant of any third-party system that is material to
the business or operations of the Company, including without limitation any
system belonging to any of the Company's suppliers, service providers or
customers.
(b) The Company has not provided any guaranty or warranty for any
service or product or the effect that such service or product is or will be Year
2000 Compliant or will not be adversely affected by virtue of the arrival of
Year 2000, other than standard warranties provided by the Company in the
Ordinary Course of Business pursuant to the Company's standard forms of license
agreement.
(c) For purposes of this Agreement, "Year 2000 Compliant" means that
the applicable system or item:
27
<PAGE>
(i) will accurately receive, record, store, provide, recognize
and process all date and time data from, during, into and between the twentieth
and twenty-first centuries, the years 1999 and 2000 and all leap years;
(ii) will accurately perform all date-dependent calculations and
operations (including, without limitation, mathematical operations, sorting,
comparing and reporting) from, during, into and between the twentieth and
twenty-first centuries, the years 1999 and 2000 and all leap years; and
(iii) will not malfunction, cease to function or provide invalid
or incorrect results as a result of (x) the change of years from 1999 to 2000,
(y) date data, including date data which represents or references different
centuries, different dates during 1999 and 2000, or more than one century or (z)
the occurrence of any particular date;
in each case without human intervention, other than original data entry.
3.15 Contracts.
---------
(a) Section 3.15 of the Disclosure Schedule lists the following
agreements (written or oral) to which the Company or any Subsidiary is a party
as of the date of this Agreement:
(i) any agreement (or group of related agreements) for the
lease of personal property from or to third parties providing for lease payments
in excess of $50,000 per annum or having a remaining term longer than twelve
(12) months;
(ii) any agreement (or group of related agreements) for the
purchase or sale of products or for the furnishing or receipt of services (A)
which calls for performance over a period of more than one year, (B) which
involves more than the sum of $2,500 per month, or (C) in which the Company or
any Subsidiary has granted, "most favored nation" pricing provisions or
exclusive marketing or distribution rights relating to any products or territory
or has agreed to purchase a minimum quantity of goods or services or has agreed
to purchase goods or services exclusively from a certain party;
(iii) any agreement establishing a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which
it has created, incurred, assumed or guaranteed (or may create, incur, assume or
guarantee) indebtedness (including capitalized lease obligations) involving more
than $10,000 or under which it has imposed (or may impose) a Security Interest
on any of its assets, tangible or intangible;
(v) any agreement containing a noncompetition or similar
covenant;
(vi) any employment or consulting agreement;
28
<PAGE>
(vii) other than Company Options and offer letters, any
agreement involving any officer, director or shareholder of the Company or any
affiliate (an "Affiliate"), as defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), thereof;
(viii) any agreement under which the consequences of a default or
termination would reasonably be expected to have a Company Material Adverse
Effect;
(ix) any agreement which contains any provisions requiring the
Company or any Subsidiary to indemnify any other party thereto (excluding
indemnities contained in agreements for the purchase, sale or license of
products entered into in the Ordinary Course of Business); and
(x) any other agreement (or group of related agreements)
either involving more than $25,000 or not entered into in the Ordinary Course of
Business
(b) The Company has delivered to CMGI or Engage a complete and
accurate copy of each agreement listed in Section 3.13 or Section 3.15 of the
Disclosure Schedule. With respect to each agreement so listed: (i) the agreement
is in full force and effect, legal, valid, binding and enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting or
relating to creditors' rights generally, and general principles of equity; (ii)
the agreement will continue to be legal, valid, binding and enforceable against
the Company in accordance with its terms and in full force and effect
immediately following the Merger Closing in accordance with the terms thereof as
in effect immediately prior to the Merger Closing; and (iii) neither the Company
nor any Subsidiary nor, to the knowledge of the Company, any other party, is in
breach or violation of, or default under, any such agreement, and no event has
occurred, is pending or, to the knowledge of the Company, is threatened, which,
after the giving of notice, with lapse of time, or otherwise, would constitute a
breach or default by the Company or any Subsidiary or, to the knowledge of the
Company, any other party under such contract.
3.16 Accounts Receivable. All accounts receivable of the Company and the
-------------------
Subsidiaries reflected on the Most Recent Balance Sheet are valid receivables
subject to no known setoffs or counterclaims and are, in the best judgment of
the Company, current and collectible, net of the applicable reserve for bad
debts on the Most Recent Balance Sheet.
3.17 Powers of Attorney. There are no outstanding powers of attorney
------------------
executed on behalf of the Company or any Subsidiary.
3.18 Insurance. Section 3.18 of the Disclosure Schedule lists each
---------
insurance policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Company or any Subsidiary is a party. Such insurance policies are of the type
and in amounts customarily carried by organizations conducting businesses or
owning assets similar to those of the Company and the Subsidiaries. There is no
material claim pending under any such policy as to which coverage has been
questioned, denied or disputed by the
29
<PAGE>
underwriter of such policy. All premiums due and payable under all such policies
have been paid, neither the Company nor any Subsidiary may be liable for
retroactive premiums or similar payments, and the Company and the Subsidiaries
are otherwise in compliance in all material respects with the terms of such
policies. Each such policy will continue to be enforceable against the Company
and in full force and effect immediately following the Merger Closing in
accordance with the terms thereof as in effect immediately prior to the Merger
Closing.
3.19 Litigation. There is no action, suit, proceeding, claim, arbitration
----------
or investigation before any Governmental Entity or before any arbitrator (a
"Legal Proceeding") which is pending or, to the knowledge of the Company, has
been threatened against the Company or any Subsidiary which (a) seeks either
damages in excess of $10,000 or equitable relief, (b) in any manner challenges
or seeks to prevent, enjoin, alter or delay the transactions contemplated by
this Agreement, or (c) could reasonably be expected to have a Company Material
Adverse Effect.
3.20 Employees.
---------
(a) Section 3.20 of the Disclosure Schedule contains a list of all
employees of the Company and each Subsidiary, along with the position and the
annual rate of compensation of each such person. Each such employee has entered
into an Employee Confidential Information and Inventions Agreement with the
Company or a Subsidiary, a form of which has previously been delivered to CMGI
or Engage. Section 3.20 of the Disclosure Schedule contains a list of all
employees of the Company or any Subsidiary who are a party to a non-competition
agreement with the Company or any Subsidiary; forms of such agreements have
previously been delivered to CMGI or Engage. To the knowledge of the Company, no
key employee or group of employees has any plans to terminate employment with
the Company or any Subsidiary. No employee of the Company is a party to an
Employee Confidential Information and Inventions Agreement or non-competition
agreement with the Company which deviates from the form agreements described
above.
(b) Neither the Company nor any Subsidiary is a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. The Company has no knowledge of any organizational effort
made or threatened, either currently or within the past two years, by or on
behalf of any labor union with respect to employees of the Company or any
Subsidiary.
3.21 Employee Benefits.
-----------------
(a) For purposes of this Agreement, the following terms shall have
the following meanings:
(i) "Employee Benefit Plan" means any "employee pension benefit
plan" (as defined in Section 3(2) of ERISA), any "employee welfare benefit plan"
(as defined in Section 3(1) of ERISA), and any other written or oral plan,
agreement or arrangement involving direct or indirect compensation, including
without limitation insurance coverage, severance benefits, disability benefits,
deferred compensation, bonuses, stock options, stock purchase,
30
<PAGE>
phantom stock, stock appreciation or other forms of incentive compensation or
post-retirement compensation.
(ii) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
(iii) "ERISA Affiliate" means any entity which is, or at any
applicable time was, a member of (1) a controlled group of corporations (as
defined in Section 414(b) of the Code), (2) a group of trades or businesses
under common control (as defined in Section 414(c) of the Code), or (3) an
affiliated service group (as defined under Section 414(m) of the Code or the
regulations under Section 414(o) of the Code), any of which includes or included
the Company or a Subsidiary.
(b) Section 3.21(b) of the Disclosure Schedule contains a complete
and accurate list of all Employee Benefit Plans maintained, or contributed to,
by the Company, any Subsidiary or any ERISA Affiliate. Complete and accurate
copies of (i) all Employee Benefit Plans which have been reduced to writing,
(ii) all related trust agreements, insurance contracts and summary plan
descriptions, and (iii) all annual reports filed on IRS Form 5500, 5500C or
5500R and (for all funded plans) all plan financial statements for the last five
plan years for each Employee Benefit Plan, have been delivered to CMGI or
Engage. Each Employee Benefit Plan has been administered in all material
respects in accordance with its terms and each of the Company, the Subsidiaries
and the ERISA Affiliates has in all material respects met its obligations with
respect to such Employee Benefit Plan and has made all required contributions
thereto. The Company, each Subsidiary, each ERISA Affiliate and each Employee
Benefit Plan are in compliance in all material respects with the currently
applicable provisions of ERISA and the Code and the regulations thereunder
(including without limitation Section 4980 B of the Code, Subtitle K, Chapter
100 of the Code and Sections 601 through 608 and Section 701 et seq. of ERISA).
All filings and reports as to each Employee Benefit Plan required to have been
submitted to the Internal Revenue Service or to the United States Department of
Labor have been duly submitted. Other than as disclosed in Section 3.21(k) of
the Disclosure Schedule, the Company does not maintain any unwritten Employee
Benefit Plan which would result in an annual cost of more than $10,000.
(c) There are no Legal Proceedings (except claims for benefits
payable in the normal operation of the Employee Benefit Plans and proceedings
with respect to qualified domestic relations orders) against or involving any
Employee Benefit Plan or asserting any rights or claims to benefits under any
Employee Benefit Plan that could give rise to any material liability.
(d) All the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code have either received determination letters from
the Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code,
determination letters have been submitted within the time period prescribed by
the Internal Revenue Service or determination letters have not been submitted
for those Employee Benefit Plans as to which the Internal Revenue Service
remedial amendment
31
<PAGE>
period has not expired. No such determination letter has been revoked and
revocation has not been threatened, and no such Employee Benefit Plan has been
amended or operated since the date of its most recent determination letter or
application therefor in any respect, and no act or omission has occurred, that
would adversely affect its qualification or materially increase its cost. Each
Employee Benefit Plan which is required to satisfy Section 401(k)(3) or Section
401(m)(2) of the Code has been tested for compliance with, and satisfies the
requirements of, Section 401(k)(3) and Section 401(m)(2) of the Code for each
plan year ending prior to the Merger Closing Date.
(e) Neither the Company, any Subsidiary, nor any ERISA Affiliate has
ever maintained an Employee Benefit Plan subject to Section 412 of the Code or
Title IV of ERISA.
(f) At no time has the Company, any Subsidiary or any ERISA Affiliate
been obligated to contribute to any "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA).
(g) There are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination of employment to any employee of the
Company or any Subsidiary (or to any beneficiary of any such employee),
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980B of the Code or other applicable law and insurance conversion
privileges under state law. The assets of each Employee Benefit Plan which is
funded are reported at their fair market value on the books and records of such
Employee Benefit Plan.
(h) No act or omission has occurred and no condition exists with
respect to any Employee Benefit Plan maintained by the Company, any Subsidiary
or any ERISA Affiliate that would subject the Company, any Subsidiary or any
ERISA Affiliate to (i) any material fine, penalty, tax or liability of any kind
imposed under ERISA or the Code or (ii) any contractual indemnification or
contribution obligation protecting any fiduciary, insurer or service provider
with respect to any Employee Benefit Plan.
(i) No Employee Benefit Plan is funded by, associated with or related
to a "voluntary employee's beneficiary association" within the meaning of
Section 501(c)(9) of the Code.
(j) Each Employee Benefit Plan is amendable and terminable
unilaterally by the Company at any time without liability to the Company as a
result thereof and no Employee Benefit Plan, plan documentation or agreement,
summary plan description or other written communication distributed generally to
employees by its terms prohibits the Company from amending or terminating any
such Employee Benefit Plan.
(k) Section 3.21(k) of the Disclosure Schedule discloses each: (i)
agreement with any shareholder, director, executive officer or other key
employee of the Company or any Subsidiary (A) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving the Company or any Subsidiary of the nature of any of
the transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the
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<PAGE>
termination of employment of such director, executive officer or key employee;
(ii) agreement, plan or arrangement under which any person may receive payments
from the Company or any Subsidiary that may be subject to the tax imposed by
Section 4999 of the Code or included in the determination of such person's
"parachute payment" under Section 280G of the Code; and (iii) agreement or plan
binding the Company or any Subsidiary, including without limitation any stock
option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan, severance benefit plan or Employee Benefit Plan, any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
3.22 Environmental Matters.
---------------------
(a) Each of the Company and the Subsidiaries has complied with all
applicable Environmental Laws (as defined below). There is no pending or, to the
knowledge of the Company, threatened civil or criminal litigation, written
notice of violation, formal administrative proceeding, or investigation, inquiry
or information request by any Governmental Entity, relating to any Environmental
Law involving the Company or any Subsidiary. For purposes of this Agreement,
"Environmental Law" means any federal, state or local law, statute, rule or
regulation or the common law relating to the environment or occupational health
and safety, including without limitation any statute, regulation, administrative
decision or order pertaining to (i) treatment, storage, disposal, generation and
transportation of industrial, toxic or hazardous materials or substances or
solid or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater
and soil contamination; (iv) the release or threatened release into the
environment of industrial, toxic or hazardous materials or substances, or solid
or hazardous waste, including without limitation emissions, discharges,
injections, spills, escapes or dumping of pollutants, contaminants or chemicals;
(v) the protection of wild life, marine life and wetlands, including without
limitation all endangered and threatened species; (vi) storage tanks, vessels,
containers, abandoned or discarded barrels, and other closed receptacles;
(vii) health and safety of employees and other persons; and (viii)
manufacturing, processing, using, distributing, treating, storing, disposing,
transporting or handling of materials regulated under any law as pollutants,
contaminants, toxic or hazardous materials or substances or oil or petroleum
products or solid or hazardous waste. As used above, the terms "release" and
"environment" shall have the meaning set forth in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA").
(b) The Company is not aware of any releases of any Materials of
Environmental Concern (as defined below) into the environment at any parcel of
real property or any facility formerly or currently owned, operated or
controlled by the Company or a Subsidiary. With respect to any such releases of
Materials of Environmental Concern, the Company or such Subsidiary has given all
required notices to Governmental Entities (copies of which have been provided to
CMGI or Engage). The Company is not aware of any releases of Materials of
Environmental Concern at parcels of real property or facilities other than those
owned, operated or controlled by the Company or a Subsidiary that could
reasonably be expected to have an impact on the real property or facilities
owned, operated or controlled by the Company or a
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Subsidiary. For purposes of this Agreement, "Materials of Environmental Concern"
means any chemicals, pollutants or contaminants, hazardous substances (as such
term is defined under CERCLA), solid wastes and hazardous wastes (as such terms
are defined under the Resource Conservation and Recovery Act), toxic materials,
oil or petroleum and petroleum products or any other material subject to
regulation under any Environmental Law.
(c) Set forth in Section 3.22(c) of the Disclosure Schedule is a list
of all documents (whether in hard copy or electronic form) that contain any
environmental reports, investigations and audits relating to premises currently
or previously owned or operated by the Company or a Subsidiary (whether
conducted by or on behalf of the Company or a Subsidiary or a third party, and
whether done at the initiative of the Company or a Subsidiary or directed by a
Governmental Entity or other third party) which the Company has possession of or
access to. A complete and accurate copy of each such document has been provided
to CMGI or Engage.
3.23 Legal Compliance. Each of the Company and the Subsidiaries, and the
----------------
conduct and operations of their respective businesses, are in compliance with
each applicable law (including rules and regulations thereunder) of any federal,
state, local or foreign government, or any Governmental Entity.
3.24 Customers and Suppliers. Section 3.24 of the Disclosure Schedule sets
-----------------------
forth a list of (a) the largest twenty (20) customers of the Company during the
last full fiscal year or the interim period through the Most Recent Balance
Sheet Date and the amount of revenues accounted for by each such customer during
each such period and (b) each supplier that is the sole supplier of any
significant product to the Company or a Subsidiary. No such customer or supplier
has indicated within the past year that it will stop, or decrease the rate of,
buying products or supplying products, as applicable, to the Company or any
Subsidiary.
3.25 Permits. Section 3.25 of the Disclosure Schedule sets forth a list of
-------
all permits, licenses, registrations, certificates, orders or approvals from any
Governmental Entity (including without limitation those issued or required under
Environmental Laws and those relating to the occupancy or use of owned or leased
real property) ("Permits") issued to or held by the Company or any Subsidiary.
Such listed Permits are the only Permits that are required for the Company and
the Subsidiaries to conduct their respective businesses as presently conducted
or as proposed to be conducted. Each such Permit is in full force and effect
and, to the knowledge of the Company, no suspension or cancellation of such
Permit is threatened and there is no basis for believing that such Permit will
not be renewable upon expiration. Each such Permit will continue in full force
and effect immediately following the Merger Closing.
3.26 Certain Business Relationships With Affiliates. No Affiliate of the
----------------------------------------------
Company or of any Subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Company or any Subsidiary, (b)
has any claim or cause of action against the Company or any Subsidiary, or (c)
owes any money to, or is owed any money by, the Company or any Subsidiary.
3.27 Brokers' Fees. Neither the Company nor any Subsidiary has any
-------------
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the
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transactions contemplated by this Agreement, other than the fee due to Broadview
International LLC by the Company.
3.28 Books and Records. The minute books and other similar records of the
-----------------
Company and each Subsidiary contain complete and accurate records of all actions
taken at any meetings of the Company's or such Subsidiary's shareholders, Board
of Directors or any committee thereof and of all written consents executed in
lieu of the holding of any such meeting. The books and records of the Company
and each Subsidiary accurately reflect in all material respects the assets,
liabilities, business, financial condition and results of operations of the
Company or such Subsidiary and have been maintained in accordance with good
business and bookkeeping practices.
3.29 Information Statement and Proxy. The information concerning the
-------------------------------
Company supplied by the Company for inclusion in the Information Statement to be
reviewed by the California Department of Corporations in reliance on Section
3(a)(10) of the Securities Act and sent to the Company Shareholders (the
"Information Statement") or the prospectus prepared as part of the Form S-4(s)
and sent to the Company Shareholders shall not, on the date that the Information
Statement or prospectus is first mailed to the Company Shareholders, at the time
of the Company's shareholders' meeting to consider this Agreement, the Merger
and the Contribution (the "Company Shareholders Meeting") and at the Merger
Effective Time and the Contribution Closing Date, contain any statement which,
at such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements included therein, in
light of the circumstances under which they were made, not misleading, or omit
to state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Shareholders Meeting which has become false or misleading. If at any time prior
to the Merger Effective Time any event relating to the Company or any of its
affiliates, officers or directors should be discovered by the Company which
should be set forth in an amendment to the Information Statement or a supplement
to the prospectus, the Company shall promptly inform CMGI and Engage which shall
file and distribute such amendment or supplement.
3.30 Disclosure. No representation or warranty by the Company contained in
----------
this Agreement, and no statement contained in the Disclosure Schedule or any
other document, certificate or other instrument delivered or to be delivered by
or on behalf of the Company pursuant to this Agreement, when taken together with
all the written documents, certificates and other instruments furnished or to be
furnished by or on behalf of the Company pursuant to this Agreement, contains or
shall contain any untrue statement of a material fact or omits or shall omit to
state any material fact required to be stated therein or necessary in order to
make such statements, in light of the circumstances under which they were made,
not misleading. The Company has delivered or made available to CMGI or Engage or
their representatives true and complete copies of all documents which are
referred to in this Article III or in the Disclosure Schedule.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CMGI, ENGAGE
AND TRANSITORY SUBSIDIARY
Each of CMGI, Engage and Transitory Subsidiary represents and warrants to the
Company as follows:
4.1 Organization, Qualification and Corporate Power. Each of CMGI, Engage
-----------------------------------------------
and Transitory Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation. CMGI is duly
qualified to conduct business and is in corporate and tax good standing under
the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, except where
the failure to be so qualified or in good standing would not have a CMGI
Material Adverse Effect (as defined below). Engage is duly qualified to conduct
business and is in corporate and tax good standing under the laws of each
jurisdiction in which the nature of its businesses or the ownership or leasing
of its properties requires such qualification, except where the failure to be so
qualified or in good standing would not have an Engage Material Adverse Effect
(as defined below). Each of CMGI and Engage has all requisite corporate power
and authority to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it. Each of CMGI and Engage has furnished
or made available to the Company complete and accurate copies of its Certificate
of Incorporation and By-laws. CMGI, Engage and Transitory Subsidiary are not in
violation of any of the provisions of their respective articles or certificates
of incorporation, bylaws or other charter documents. For purposes of this
Agreement, "CMGI Material Adverse Effect" means a material adverse effect on the
assets, business, condition (financial or otherwise), results of operations or
prospects of CMGI and its subsidiaries, taken as a whole, and "Engage Material
Adverse Effect" means a material adverse effect on the assets, business,
condition (financial or otherwise), results of operations or prospects of Engage
and its subsidiaries, taken as a whole.
4.2 Capitalization. CMGI is authorized to issue 400,000,000 shares of
--------------
CMGI Common Stock, of which 116,177,788 shares were issued and outstanding as of
September 20, 1999, and 5,000,000 shares of preferred stock, $.01 par value per
share, issuable in series, (a) 250 of which are designated Series A Preferred
Stock, none of which were issued and outstanding as of September 20, 1999, (b)
50,000 of which are designated Series B Preferred Stock, 35,000 of which were
issued and outstanding as of September 20, 1999, (c) 375,000 of which are
designated Series C Preferred Stock, all of which were issued and outstanding as
of September 20, 1999, and (d) 18,090.45 of which are designated Series D
Preferred Stock, all of which were issued and outstanding as of September 20,
1999. All of the issued and outstanding shares of CMGI Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of all preemptive
rights. Transitory Subsidiary is authorized to issue 10,000 shares of Transitory
Subsidiary Common Stock, of which 1,000 shares were issued and outstanding as of
the date of this Agreement. Engage is authorized to issue 150,000,000 shares of
Engage Common Stock, of which 48,706,005 shares were issued and outstanding as
of September 21, 1999, and 5,000,000 shares of preferred stock, $.01 par value
per share, none of which are issued and outstanding. All
36
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of the issued and outstanding shares of Engage Common Stock are duly authorized,
validly issued, fully paid, nonassessable and free of all preemptive rights. All
shares of Transitory Subsidiary that are owned by CMGI are free and clear of all
security interests, liens, claims, pledges, agreements, limitations on CMGI's
voting rights, charges or other encumbrances of any nature. All of the Merger
Shares will be, when issued in accordance with this Agreement, duly authorized,
validly issued, fully paid and nonassessable, and will not be subject to any
preemptive rights or rights of first refusal created by statute, the charter
documents of CMGI or any agreement to which CMGI is a party. All of the
Contribution Shares will be, when issued in accordance with this Agreement, duly
authorized, validly issued, fully paid and nonassessable, and will not be
subject to any preemptive rights or rights of first refusal created by statute,
the charter documents of Engage or any agreement to which Engage is a party.
None of the Transitory Subsidiary Stock will be, when issued in accordance with
this Agreement, subject to any preemptive rights or rights of first refusal
created by statute, the charter documents of CMGI, Engage or Transitory
Subsidiary or any agreement to which CMGI, Engage or Transitory Subsidiary is a
party. As of the date of this Agreement, except for benefit plans maintained by
CMGI or Engage, or as previously publicly disclosed in the CMGI Reports, the
Engage Reports, a press release or otherwise, there are outstanding no rights,
warrants or options to purchase CMGI Common Stock or Engage Common Stock,
respectively.
4.3 Authorization of Transaction. Each of CMGI, Engage and Transitory
----------------------------
Subsidiary has all requisite power and authority to execute and deliver this
Agreement and (in the case of CMGI and Engage) the Escrow Agreement and to
perform its obligations hereunder and thereunder. The execution and delivery by
CMGI, Engage and Transitory Subsidiary of this Agreement and (in the case of
CMGI and Engage) the Escrow Agreement and the consummation by CMGI, Engage and
Transitory Subsidiary of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary corporate action on the part
of CMGI, Engage and Transitory Subsidiary, respectively. This Agreement has been
duly and validly executed and delivered by CMGI, Engage and Transitory
Subsidiary and constitutes a valid and binding obligation of CMGI, Engage and
Transitory Subsidiary, enforceable against them in accordance with its terms.
4.4 Noncontravention. Subject to compliance with the applicable
----------------
requirements of the Securities Act and any applicable state securities laws, the
Exchange Act, the HSR Act and the Nasdaq National Market and the filing of the
Merger Filings as required by the California Law, neither the execution and
delivery by CMGI, Engage or Transitory Subsidiary of this Agreement or (in the
case of CMGI and Engage) the Escrow Agreement, nor the consummation by CMGI,
Engage or Transitory Subsidiary of the transactions contemplated hereby or
thereby, will (a) conflict with or violate any provision of the charter or By-
laws of CMGI, Engage or Transitory Subsidiary, (b) require on the part of CMGI,
Engage or Transitory Subsidiary any filing with, or permit, authorization,
consent or approval of, any Governmental Entity, (c) conflict with, result in
breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of obligations under, create in any
party any right to terminate, modify or cancel, or require any notice, consent
or waiver under, any contract or instrument to which CMGI, Engage or Transitory
Subsidiary is a party or by which either is bound or to which any of their
assets are subject, except for (i) any conflict, breach, default,
37
<PAGE>
acceleration, termination, modification or cancellation which would not
adversely affect the consummation of the transactions contemplated hereby or
(ii) any notice, consent or waiver the absence of which would not adversely
affect the consummation of the transactions contemplated hereby, or (d) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
CMGI, Engage or Transitory Subsidiary or any of their properties or assets,
except for any violation which would not adversely affect the consummation of
the transactions contemplated herein
4.5 Reports and Financial Statements. CMGI and Engage have previously
--------------------------------
furnished or made available to the Company complete and accurate copies, as
amended or supplemented, of: (a) CMGI's Annual Report on Form 10-K for the
fiscal year ended July 31, 1998, as filed with the Securities and Exchange
Commission (the "SEC"); (b) all other reports filed by CMGI under Section 13 or
subsections (a) or (c) of Section 14 of the Exchange Act with the SEC since July
31, 1998; (c) Engage's final prospectus dated July 19, 1999 filed with the SEC
as part of its initial public offering of Engage Common Stock; and (d) all
reports filed by Engage under Section 13 or subsections (a) or (c) of Section 14
of the Exchange Act with the SEC since the closing of its initial public
offering of Engage Common Stock (the reports listed in subsections (a) and (b)
are collectively referred to herein as the "CMGI Reports" and the reports listed
in subsections (c) and (d) are collectively referred to herein as the "Engage
Reports"). The CMGI Reports and the Engage Reports constitute all of the
documents required to be filed by CMGI and Engage, respectively, under Section
13 or subsections (a) or (c) of Section 14 of the Exchange Act with the SEC from
July 31, 1998 through the date of this Agreement. The CMGI Reports and Engage
Reports complied in all material respects with the requirements of the Exchange
Act and the rules and regulations thereunder when filed. As of their respective
dates, the CMGI Reports and Engage Reports did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited financial
statements and unaudited interim financial statements included in the CMGI
Reports and Engage Reports (i) complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto when filed, (ii) were prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby
(except as may be indicated therein or in the notes thereto, and in the case of
quarterly financial statements, as permitted by Form 10-Q under the Exchange
Act), (iii) fairly present the consolidated financial condition, results of
operations and cash flows of CMGI and Engage, as the case may be, as of the
respective dates thereof and for the periods referred to therein, and (iv) are
consistent with the books and records of CMGI and Engage, as the case may be.
4.6 Absence of Material Adverse Change. Since April 30, 1999, there has
----------------------------------
occurred no event or development which has had, or could reasonably be expected
to have in the future, a CMGI Material Adverse Effect and CMGI has not agreed to
take any action outside the ordinary course of business or that would (if the
action were taken immediately) constitute a breach of any of its representations
and warranties contained herein. Since the date that Engage filed its final
prospectus dated July 19, 1999 with the SEC as part of its initial public
offering of Engage Common Stock, there has occurred no event or development
which has had, or could reasonably be expected to have in the future, an Engage
Material Adverse Effect and Engage has not agreed
38
<PAGE>
to take any action outside the ordinary course of business or that would (if the
action were taken immediately) constitute a breach of any of its representations
and warranties contained herein.
4.7 Litigation. Except as disclosed in the CMGI Reports and Engage
----------
Reports, as of the date of this Agreement, there is no Legal Proceeding which is
pending or, to CMGI's or Engage's knowledge, threatened against CMGI or any
subsidiary of CMGI which would reasonably be expected to have a CMGI Material
Adverse Effect or Engage Material Adverse Effect, respectively, or which in any
manner challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement.
4.8 Interim Operations of Transitory Subsidiary. Transitory Subsidiary was
-------------------------------------------
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement and has engaged in no business activities other than as
contemplated by this Agreement.
4.9 Brokers' Fees. Neither CMGI, Engage nor Transitory Subsidiary has any
-------------
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement, other
than the fee due to Goldman Sachs & Co., Inc. by Engage.
4.10 Customers and Suppliers. No customer or supplier of CMGI or Engage,
-----------------------
respectively, has indicated within the past year that it will stop or decrease
the rate of buying products and/or services or supplying products to CMGI or
Engage, respectively, that would have a CMGI Material Adverse Effect or Engage
Material Adverse Effect, respectively.
4.11 Tax Matters.
-----------
(a) Neither CMGI nor Engage, nor a person related to CMGI or Engage
(within the meaning of Treas. Reg. (S)1.368-1(e)(3)) has any plan or intent to
redeem or acquire any of the shares of CMGI or Engage stock issued in the Merger
or the Contribution, other than (i) the possible repurchases of unvested stock
of employees, directors or consultants in connection with termination of the
employment of such employees, directors or consultants, or (ii) in accordance
with the Escrow Agreement.
(b) Following the Merger and the Contribution, CMGI and Engage intend
to cause the Company (as the Surviving Corporation) to hold at least 90 percent
of the fair market value of its net assets and at least 70 percent of the fair
market value of its gross assets held immediately prior to the Merger. For the
purposes of this representation, the following assets will be treated as
property held by the Company immediately prior to but not following the Merger
and Contribution: (i) assets disposed of by the Company prior or subsequent to
the Merger and in contemplation thereof (including without limitation any asset
disposed of by the Company, other than in the ordinary course of business,
pursuant to a plan or intent existing during the period ending on the
Contribution Closing Date and beginning with the commencement of negotiations
(whether formal or informal) with CMGI and Engage regarding the Merger and the
Contribution (the "Pre-Merger Period")), (ii) assets used by the Company to pay
dissenting shareholders or paid in lieu of fractional shares of stock, to pay
any other shareholders who receive cash or other property in the Merger, or to
pay other expenses or
39
<PAGE>
liabilities incurred in connection with the Merger, and (iii) assets used to
make distribution, redemption or other payments in respect of Company stock or
rights to acquire such stock (including payments treated as such for tax
purposes) that are made in contemplation of the Merger and Contribution or
related thereto. Notwithstanding the foregoing, no representations are made
regarding actions or circumstances of Company arising prior to the Contribution
Closing Date to which CMGI and Engage were not a party and of which CMGI and
Engage have no knowledge.
(c) Prior to the Merger, CMGI will own all of the issued and
outstanding stock of Transitory Subsidiary. Transitory Subsidiary was formed
solely for the purposes of effecting the Merger and has conducted no business or
other activities, and has incurred no liabilities, except in connection with the
Merger.
(d) Immediately following the Contribution, CMGI will be in control of
Engage. As used herein, "Control" shall mean ownership of stock possessing at
least 80 percent of the total combined voting power of all classes of stock
entitled to vote and at least 80 percent of the total number of shares of all
other classes of stock of the Company. For purposes of determining Control, a
person shall not be considered to own voting stock if rights to vote such stock
(or to restrict or otherwise control the voting of such stock) are held by a
third party (including a voting trust) other than an agent of such person.
(e) Engage does not have any plan or intention, and CMGI does not have
any plan or intention to cause Engage, to issue additional Engage stock or to
repurchase any Engage stock from CMGI which would result in CMGI no longer
having Control of Engage, nor do Engage or CMGI have any plan or intention to
take any other action that would result in CMGI losing Control of the Engage.
(f) Neither Engage nor CMGI have any plan or intention to cause the
Company to issue additional shares of stock after the Contribution, to sell any
shares of the Company held by Engage, or to take any other action that would
result in Engage losing Control of the Company.
(g) Except as contemplated by this Agreement, neither CMGI nor Engage
has any plan or intention to liquidate the Company, to merge the Company with or
into another corporation (other than Transitory Subsidiary), or, except for
dispositions made in the ordinary course of business, to cause the Company to
sell or otherwise dispose of any of its assets or any of the assets acquired
from Transitory Subsidiary.
(h) CMGI and Engage intend to cause the Company to either continue the
historic business of the Company or use a significant portion of its historic
business assets in a business.
(i) There is no intercorporate indebtedness existing between the
Company and CMGI or Engage that was issued, acquired or will be settled at a
discount as a result of the Merger or the Contribution.
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(j) Neither CMGI nor Engage, nor any subsidiary of CMGI or Engage, or
any person related to CMGI or Engage within the meaning of Treas. Reg. (S)1.368-
1(e)(3), owns or has owned during the past five years, directly or indirectly,
any shares of the stock of the Company or rights to acquire such stock.
4.12 Information Statement or Form S-4. The Information Statement to be
---------------------------------
reviewed by the California Department of Corporations in reliance on Section
3(a)(10) of the Securities Act and sent to the Company Shareholders or the
prospectus prepared as part of the Form S-4(s) and sent to the Company
Shareholders shall not, at the time that the Information Statement (including
any amendments or supplements thereto) is approved by the California Department
of Corporations, or the Form S-4(s) (including any amendments or supplements
thereto) is declared effective by the SEC, contain any untrue statement of
material fact or omit to state any material fact necessary in order to make the
statements included therein, in light of the circumstances under which they were
made, not misleading. The information concerning CMGI, Engage and Transitory
Subsidiary supplied by each such Party for inclusion in the Information
Statement or prospectus shall not, on the date that the Information Statement or
prospectus is first mailed to the Company Shareholders, at the time of the
Company Shareholders Meeting and at the Merger Effective Time and the
Contribution Closing Date, contain any statement which, at such time and in
light of the circumstances under which it shall be made, is false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements included therein, in light of the circumstances
under which they were made, not misleading, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Company Shareholders Meeting which has
become false or misleading. If at any time prior to the Merger Effective Time
any event relating to CMGI, Engage or Transitory Subsidiary or any of their
respective affiliates, officers or directors should be discovered by CMGI,
Engage or Transitory Subsidiary which should be set forth in an amendment to the
Information Statement or a supplement to the prospectus, CMGI or Engage shall
promptly inform the Company and file and distribute such amendment or
supplement. Notwithstanding the foregoing, CMGI and Engage make no
representation or warranty with respect to any information concerning the
Company contained in any of the foregoing documents which is supplied by the
Company.
ARTICLE V
COVENANTS
5.1 Closing Efforts. Each of the Parties shall use its best efforts, to
---------------
the extent commercially reasonable ("Reasonable Best Efforts"), to take all
actions and to do all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, including without limitation using
its Reasonable Best Efforts to ensure that (i) its representations and
warranties remain true and correct in all material respects through the Merger
Closing Date and (ii) the conditions to the obligations of the other Parties to
consummate the Merger and Contribution are satisfied. In its capacity as a
stockholder of Engage, CMGI hereby
41
<PAGE>
agrees to vote its shares of Engage Common Stock to approve the terms of this
Agreement and the Contribution as required by Section 7.1(b) hereof.
5.2 Governmental and Third-Party Notices and Consents.
-------------------------------------------------
(a) Each Party shall use its Reasonable Best Efforts to obtain, at its
expense, all waivers, permits, consents, approvals or other authorizations from
Governmental Entities, and to effect all registrations, filings and notices with
or to Governmental Entities, as may be required for such Party to consummate the
transactions contemplated by this Agreement and to otherwise comply with all
applicable laws and regulations in connection with the consummation of the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, each of the Parties shall promptly file any Notification and
Report Forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the HSR Act, shall use its Reasonable Best Efforts
to obtain an early termination of the applicable waiting period, and shall make
any further filings or information submissions pursuant thereto that may be
necessary, proper or advisable; provided, however, that, notwithstanding
anything to the contrary in this Agreement, CMGI and Engage shall not be
obligated (A) to respond to formal requests for additional information or
documentary material pursuant to 16 C.F.R. 803.20 under the HSR Act except to
the extent it elects to do so in their sole discretion or (B) to sell or dispose
of or hold separately (through a trust or otherwise) any assets or businesses of
CMGI, Engage or their Affiliates. Filing fees relating to any required filings
under the HSR Act shall be paid by CMGI and Engage.
(b) The Company shall use its Reasonable Best Efforts to obtain, at
its expense, all such waivers, consents or approvals from third parties, and to
give all such notices to third parties, as are required to be listed in Section
3.4 of the Disclosure Schedule.
5.3 Shareholder Approval.
--------------------
(a) The Company shall use its Reasonable Best Efforts to obtain, as
promptly as practicable, the Requisite Shareholder Approval, either at a special
meeting of shareholders or pursuant to a written shareholder consent, all in
accordance with the applicable requirements of the California Law. In
connection with such special meeting of shareholders or written shareholder
consent, the Company shall provide to its shareholders a written proxy or
information statement (the "Disclosure Statement") which includes (A) a summary
of the Merger, the Contribution and this Agreement (which summary shall include
a summary of the terms relating to the indemnification obligations of the
Indemnifying Shareholders, the escrow arrangements and the authority of the
Shareholder Representative, and a statement that the adoption of this Agreement
by the shareholders of the Company shall constitute approval of such terms), (B)
all of the information required by Section 3(a)(10) of the Securities Act and
(C) a statement that appraisal rights are available for the Company Shares
pursuant to Chapter 13 of the California Law and a copy of Sections 1300, 1302,
1303 and 1304 of the California Law. CMGI agrees to cooperate with the Company
in the preparation of the Disclosure Statement. The Company agrees not to
distribute the Disclosure Statement until CMGI has had a reasonable opportunity
to review and comment on the Disclosure Statement and the Disclosure Statement
has been approved by CMGI (which approval may not be unreasonably withheld or
delayed). If
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<PAGE>
the Requisite Shareholder Approval is obtained without the solicitation of all
shareholders entitled to vote, the Company shall send, pursuant to Section
603(b) of the California Law, a written notice to all shareholders of the
Company at least ten (10) days prior to the Merger Effective Time informing them
that this Agreement and the Merger and the Contribution were adopted and
approved by the shareholders of the Company and that appraisal rights are
available for their Company Shares pursuant to Chapter 13 of the California Law
(which notice shall include a copy of Sections 1300, 1302, 1303 and 1304 of the
California Law), and shall promptly inform CMGI of the date on which such notice
was sent.
(b) The Company, acting through its Board of Directors, shall include
in the Disclosure Statement the unanimous recommendation of its Board of
Directors that the shareholders of the Company vote in favor of the adoption of
this Agreement and the approval of the Merger and the Contribution.
(c) The Company shall ensure that the Disclosure Statement does not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading (provided that the Company shall not
be responsible for the accuracy or completeness of any information furnished by
CMGI, Engage or Transitory Subsidiary for inclusion in the Disclosure
Statement).
(d) The adoption of this Agreement and the approval of the Merger and
the Contribution by the Company Shareholders shall constitute approval of this
Agreement, including the provisions of Article VIII hereof) and the Escrow
Agreement and of all of the arrangements relating thereto, including without
limitation the placement of the Initial Merger Shares into Escrow and the
appointment of the Shareholder Representative.
(e) CMGI, Engage and Transitory Subsidiary shall ensure that any
information furnished by such party to the Company for inclusion in the
Disclosure Statement does not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading.
(f) The Company shall use its Reasonable Best Efforts to obtain from
the Company Shareholders listed on Schedule 5.3(f) a Shareholder Support
---------------
Agreement in the form attached as Exhibit C (a "Shareholder Support Agreement"),
---------
providing that each such Company Shareholder agrees (i) to vote all Company
Shares that are beneficially owned by him, her or it in favor of the adoption of
this Agreement and the approval of the Merger and the Contribution, (ii) not to
vote any Company Shares in favor of any other acquisition (whether by way of
merger, consolidation, share exchange, stock purchase or asset purchase) of all
or a majority of the outstanding capital stock or assets of the Company and
(iii) otherwise to use his, her or its Reasonable Best Efforts to obtain the
Requisite Shareholder Approval.
(g) The Company shall use its Reasonable Best Efforts to obtain from
the Company Shareholders a Lock-Up Agreement in the form attached as Exhibit D
---------
(a "Lock-Up Agreement").
43
<PAGE>
5.4 Operation of Business. Except as contemplated by this Agreement,
---------------------
during the period from the date of this Agreement to the Merger Effective Time,
the Company shall (and shall cause each Subsidiary to) conduct its operations in
the Ordinary Course of Business and in compliance with all applicable laws and
regulations and, to the extent consistent therewith, use its Reasonable Best
Efforts to preserve intact its current business organization, keep its physical
assets in good working condition, keep available the services of its current
officers and employees and preserve its relationships with customers, suppliers
and others having business dealings with it to the end that its goodwill and
ongoing business shall not be impaired in any material respect. Without limiting
the generality of the foregoing, prior to the Merger Effective Time, the Company
shall not (and shall cause each Subsidiary not to), without the written consent
of CMGI:
(a) other than the possible repurchase of unvested stock of employees,
directors or consultants in connection with the termination of employment of
such persons, issue or sell, or redeem or repurchase, any stock or other
securities of the Company or any rights, warrants or options to acquire any such
stock or other securities (except pursuant to the conversion or exercise of
convertible securities or Company Options or Warrants outstanding on the date
hereof), or amend any of the terms of (including without limitation the vesting
of) any such convertible securities or Company Options or Warrants; provided,
however, that the Company may allow the voluntary exchange of any fully-vested
Shares of Company Common Stock for shares of the Company's Series F Convertible
Preferred Stock;
(b) split, combine or reclassify any shares of its capital stock;
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
(c) create, incur or assume any indebtedness (including obligations in
respect of capital leases); assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person or entity; or make any loans, advances or
capital contributions to, or investments in, any other person or entity;
(d) enter into, adopt or amend any Employee Benefit Plan or any
employment or severance agreement or arrangement of the type described in
Section 3.21(k) or (except for normal increases in the Ordinary Course of
Business for employees who are not Affiliates) increase in any manner the
compensation or fringe benefits of, or materially modify the employment terms
of, its directors, officers or employees, generally or individually, or pay any
bonus or other benefit to its directors, officers or employees, other than those
arrangements to which the Company is obligated as of the date hereof;
(e) acquire, sell, lease, license or dispose of any assets or property
(including without limitation any shares or other equity interests in or
securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than purchases and sales
of assets in the Ordinary Course of Business;
(f) mortgage or pledge any of its property or assets or subject any
such property or assets to any Security Interest;
44
<PAGE>
(g) discharge or satisfy any Security Interest or pay any obligation
or liability other than in the Ordinary Course of Business;
(h) amend its charter, by-laws or other organizational documents;
provided, however, the Company may amend its charter, by-laws or other
organizational documents as required to authorize shares of the Company's Series
F Convertible Preferred Stock to be exchanged for shares of fully-vested shares
of Company Common Stock as contemplated herein;
(i) change in any material respect its accounting methods, principles
or practices, except insofar as may be required by a generally applicable change
in GAAP;
(j) enter into, amend, terminate, take or omit to take any action that
would constitute a violation of or default under, or waive any rights under, any
material contract or agreement;
(k) make or commit to make any capital expenditure in excess of
$75,000 per item or $250,000 in the aggregate, or such additional amounts which
may be approved by CMGI, such approval not to be unreasonably withheld or
delayed, other than those purchase orders to which the Company is obligated to
pay as of the date hereof;
(l) institute or settle any Legal Proceeding;
(m) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of the Company set forth
in this Agreement becoming untrue or (ii) any of the conditions to the Merger
set forth in Article VI not being satisfied; or
(n) agree in writing or otherwise to take any of the foregoing
actions.
5.5 Access to Information.
---------------------
(a) The Company shall (and shall cause each Subsidiary to) permit
representatives of CMGI and Engage to have full access (at all reasonable times,
and in a manner so as not to interfere with the normal business operations of
the Company and the Subsidiaries), at CMGI's or Engage's sole expense, to all
premises, properties, financial and accounting records, contracts, other records
and documents, and personnel, of or pertaining to the Company and each
Subsidiary.
(b) As soon as available but not later than thirty (30) days after the
end of each month ending prior to the Merger Closing Date, beginning with the
end of September 1999, the Company shall furnish to CMGI and Engage an unaudited
income statement for such month and a balance sheet as of the end of such month,
prepared on a basis consistent with the Financial Statements. Such financial
statements shall present fairly the financial condition and results of
operations of the Company and the Subsidiaries on a consolidated basis as of the
dates thereof and for the periods covered thereby, and shall be consistent with
the books and records of the Company and the Subsidiaries.
45
<PAGE>
5.6 Exclusivity.
-----------
(a) The Company shall not, and the Company shall require each of its
officers, directors, employees, representatives and agents not to, directly or
indirectly, (i) initiate, solicit, encourage or otherwise facilitate any
inquiry, proposal, offer or discussion with any party (other than CMGI and
Engage) concerning any merger, reorganization, consolidation, recapitalization,
business combination, liquidation, dissolution, share exchange, sale of stock,
sale of material assets or similar business transaction involving the Company,
any Subsidiary or any division of the Company or any Subsidiary, (ii) furnish
any non-public information concerning the business, properties or assets of the
Company, any Subsidiary or any division of the Company to any party (other than
CMGI and Engage) or (iii) engage in discussions or negotiations with any party
(other than CMGI and Engage) concerning any such transaction.
(b) The Company shall immediately notify any party with which
discussions or negotiations of the nature described in paragraph (a) above were
pending that the Company is terminating such discussions or negotiations. If
the Company receives any inquiry, proposal or offer of the nature described in
paragraph (a) above, the Company shall, within one business day after such
receipt, notify CMGI and Engage of such inquiry, proposal or offer, including
the identity of the other party and the terms of such inquiry, proposal or
offer.
5.7 Expenses. Except as set forth in Article VIII and the Escrow
--------
Agreement, each of the Parties shall bear its own costs and expenses (including
legal, accounting and broker fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby; provided, however, that if
the Merger is consummated, the Company and the Subsidiaries shall not incur more
than an aggregate of $3,900,000 of legal, accounting and broker fees and
expenses in connection with the transactions contemplated herein and the
Company's planned initial public offering and any bonuses to the Company's
employees payable upon the consummation of the transactions described in this
Agreement.
5.8 Qualification of Merger Shares and Contribution Shares. Each of CMGI
------------------------------------------------------
and Engage shall use its best efforts to file with the California Department of
Corporations an Application for Fairness Hearing and Qualification by Permit to
issue the Merger Shares and Contribution Shares, respectively, pursuant to the
exemption from registration under the Securities Act contained in Section
3(a)(10) thereof and pursuant to a permit issued under Section 25113 of the
California Corporate Securities Law of 1968 (the "Section 3(a)(10)
Applications"). In the event that CMGI and/or Engage determines that it is
unable to file the Section 3(a)(10) Applications, such party may prepare and
file with the SEC a Registration Statement on Form S-4 (or similar form)
covering the Merger Shares and/or the Contribution Shares (the "Form S-4(s)") to
register the Merger Shares and/or the Contribution Shares under the Securities
Act. The Company agrees to cooperate with CMGI and/or Engage in the preparation
of the Section 3(a)(10) Applications and/or the Form S-4(s).
5.9 Listing of Merger and Contribution Shares. Each of CMGI and Engage
-----------------------------------------
shall use its Reasonable Best Efforts to list the Merger Shares and the
Contribution Shares, respectively, on the Nasdaq National Market.
46
<PAGE>
5.10 Withdrawal of Form S-1. Within five (5) business days after the date
----------------------
hereof, the Company shall file an application with the SEC pursuant to Rule 477
of the Securities Act for the withdrawal of its previously-filed Registration
Statement on Form S-1, and shall use its Reasonable Best Efforts to obtain the
SEC's approval of such application for withdrawal.
5.11 Exchange of Common Stock; Agreement of Company Preferred
--------------------------------------------------------
Stockholders; Exercise of Warrants. The Company shall use its Reasonable Best
- ----------------------------------
Efforts to: (a) take all steps necessary to effect an exchange resulting in
shares of Company Common Stock which are not subject to a repurchase right in
favor of the Company being converted into shares of Series F Convertible
Preferred Stock; (b) obtain the written agreement of the required number of
holders of each class of the Company Preferred Stock waiving of the right of
each such class to a liquidation preference as provided for in the Company's
articles of incorporation, or the Company shall amend its articles of
incorporation to remove the liquidation preference of each such class of Company
Preferred Stock; and (c) cause all of the Warrants to be validly exercised by
the holders of the Warrants prior to the Merger Closing Date. Notwithstanding
the foregoing, prior to the Merger Effective Time, the Company shall ensure that
an aggregate of 1,500,000 shares of Company Preferred Stock shall have been
issued to either holders of Warrants upon the exercise thereof and/or holders of
Company Options upon the exercise thereof and the conversion of shares of
Company Common Stock issuable upon such exercise into shares of Series F
Preferred Stock.
5.12 Tax Matters. Each of the Parties shall use its Reasonable Best
-----------
Efforts to cause the Merger to qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Code and to cause the Contribution to qualify
as a transaction within the meaning of Section 351 of the Code.
5.13 Treatment of the Merger and the Contribution for Income Tax
-----------------------------------------------------------
Purposes. Each of the Parties expect and intend that the Merger will qualify as
- --------
a "reorganization" within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E)
of the Code, and that the Contribution will have no effect on such qualification
because of the express statutory approval of transfers contained in Section
368(a)(2)(C) of the Code. In addition, each of the Parties expect and intend
that the Contribution will also constitute an exchange described in Section 351
of the Code. Each of the Parties hereby covenants and agrees (i) to file all
Tax Returns in a manner consistent in all respects with such expectations and
intentions, (ii) not to voluntarily undertake any action outside of the ordinary
course of business which would cause the Merger not to be treated as a
reorganization or the Contribution not to be treated as an exchange described in
Section 351.
5.14 Loan. In the event that the Merger Effective Time has not taken place
----
by November 19, 1999, and the Company is not in default under the terms of this
Agreement and is not insolvent or subject to any bankruptcy or insolvency
proceedings under federal or state law, CMGI shall make a loan in the amount of
$5,000,000 to the Company (the "Loan"), evidenced by the promissory note in the
Form attached as Exhibit E hereto. The Loan shall mature one year from the date
---------
thereof and shall bear interest at 14% per annum. As a condition to CMGI's
obligation to make the Loan, the Company shall have either (a) granted CMGI a
perfected first priority security interest in favor of CMGI in all of the
Company Intellectual Property, or (b)
47
<PAGE>
issued to CMGI warrants to purchase a total of four percent (4%) of the Total
Outstanding Company Common Stock at an exercise price of $.01 per share, which
warrants shall be exercisable by CMGI upon the occurrence of any default, or
event that with the giving of notice or the passage of time would constitute a
default, under the Loan. In the event that the Company terminates this Agreement
pursuant to Section 10.1(c), 10.1(e) or 10.1(g) (only insofar as it relates to a
failure of a condition precedent contained in Section 6.1 (c) and/or (e), or
Section 6.3 (but not Section 6.3(c) insofar as it relates to Sections 4.6, 4.7
or 4.10)), the Company's obligation to repay the Loan shall be forgiven as
liquidated damages.
5.15 Dilution of Shareholder Support Agreements. If, at any time after
------------------------------------------
the date of this Agreement, a sufficient number of Company Options are exercised
(or the Company learns that such Company Options will be exercised by the
optionees) which results or would result in the Company Shareholders who have
signed a Shareholder Support Agreement pursuant to Section 5.3(f) above (the
"Signing Shareholders") holding an aggregate of less than a majority of the
Total Outstanding Company Common Stock, the Company shall ensure that some or
all of the Signing Shareholders exercise Company Options in an amount sufficient
to result in the Signing Shareholders holding an aggregate of not less than a
majority of the Total Outstanding Company Common Stock.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF MERGER
6.1 Conditions to Each Party's Obligations. The respective obligations of
--------------------------------------
each Party to consummate the Merger are subject to the satisfaction of the
following conditions:
(a) this Agreement, the Merger and the Contribution shall have
received the Requisite Shareholder Approval;
(b) all applicable waiting periods (and any extensions thereof) under
the HSR Act relating to the Merger and/or the Contribution shall have expired or
otherwise been terminated;
(c) (i) Engage shall either have obtained a written opinion from
Delaware counsel reasonably acceptable to the Company that shares of Engage
Common Stock held by CMGI will not be disqualified from voting in favor of this
Agreement and the terms of the Contribution at a meeting of the stockholders of
Engage, or (ii) such approval of the Engage stockholders shall have taken place.
(d) the California Department of Corporations shall have approved the
Section 3(a)(10) Applications and issued a permit qualifying the Merger Shares
and the Contribution Shares pursuant to Section 25113 of the California
Corporate Securities Law of 1968, as amended, or the Form S-4(s) of CMGI and
Engage shall have been declared effective by the SEC
48
<PAGE>
and there shall not be in effect any stop order suspending the effectiveness of
the permits or the Form S-4(s) or any proceedings seeking such a stop order;
(e) Except as provided in subsection (c) above, Engage shall have
obtained all of the waivers, permits, consents, approvals or other
authorizations, and effected all of the registrations, filings and notices,
which are required on the part of Engage; and
(f) no temporary restraining order, preliminary or permanent
injunction, or other order issued by any court of competent jurisdiction or
other legal or regulatory restraints or prohibition preventing the consummation
of the Merger or the Contribution or materially limiting or restricting CMGI's
or Engage's conduct or operation of the business of CMGI, Engage or the Company
after the Merger Closing Date shall have been issued, nor shall any proceedings
brought by any Governmental Entity 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 or the
Contribution which would affect the effectiveness of the Merger or the
Contribution.
6.2 Conditions to Obligations of CMGI and Transitory Subsidiary. The
-----------------------------------------------------------
obligation of each of CMGI and Transitory Subsidiary to consummate the Merger
is subject to the satisfaction (or waiver by CMGI) of the following additional
conditions:
(a) the number of Merger Dissenting Shares shall not exceed two
percent (2%) of the number of outstanding shares of Company Common Stock as of
the Merger Effective Time (calculated after giving effect to the conversion into
Company Common Stock of all outstanding Company Preferred Stock);
(b) the Company and the Subsidiaries shall have obtained (and shall
have provided copies thereof to CMGI and Engage) all of the waivers, permits,
consents, approvals or other authorizations, and effected all of the
registrations, filings and notices, referred to in Section 5.2 which are
required on the part of the Company or the Subsidiaries;
(c) the representations and warranties of the Company set forth in the
first sentence of Section 3.1 and in Section 3.3 and any representations and
warranties of the Company set forth in this Agreement that are qualified as to
materiality shall be true and correct in all respects, and all other
representations and warranties of the Company set forth in this Agreement shall
be true and correct in all material respects, in each case as of the date of
this Agreement and as of the Merger Effective Time as though made as of the
Merger Effective Time, except to the extent such representations and warranties
are specifically made as of a particular date or as of the date of this
Agreement (in which case such representations and warranties shall be true and
correct as of such date), and except that any inaccuracy in the representations
and warranties set forth in Section 3.2 due solely to the conversion of shares
of Company Common Stock which are not subject to a repurchase right in favor of
the Company into shares of Series F Convertible Preferred Stock shall be
disregarded;
49
<PAGE>
(d) the Company shall have performed or complied in all material
respects with its agreements and covenants required to be performed or complied
with under this Agreement as of or prior to the Merger Effective Time;
(e) the Company shall have delivered to CMGI and Transitory Subsidiary
a certificate (the "Company Certificate") to the effect that each of the
conditions specified in clause (a) of Section 6.1 and clauses (a) through (d) of
this Section 6.2 is satisfied in all respects;
(f) CMGI and Engage shall have received from counsel to the Company an
opinion with respect to the matters set forth in Exhibit F attached hereto,
---------
addressed to CMGI and Engage and dated as of the Merger Closing Date;
(g) CMGI shall have received copies of the resignations, effective as
of the Merger Effective Time, of each director of the Company and the
Subsidiaries (other than any such resignations which CMGI designates, by written
notice to the Company, as unnecessary);
(h) CMGI shall have received such other certificates and instruments
(including without limitation certificates of good standing of the Company and
the Subsidiaries in their jurisdiction of organization and the various foreign
jurisdictions in which they are qualified, certified charter documents,
certificates as to the incumbency of officers and the adoption of authorizing
resolutions) as it shall reasonably request in connection with the Merger
Closing;
(i) Engage shall have received non-competition agreements satisfactory
to CMGI executed by the individuals listed on Schedule 6.2(i) attached hereto;
---------------
(j) None of the Key Employees shall have resigned from the Company or
indicated their intent to resign from the Company;
(k) CMGI shall have received a Shareholder Support Agreement executed
by each of the Company Shareholders listed on Schedule 5.3(f);
---------------
(l) The Escrow Agreement shall have been executed and delivered by the
parties thereto;
(m) An aggregate of 1,500,000 shares of Company Preferred Stock shall
have been issued to either holders of Warrants upon the exercise thereof and/or
holders of Company Options upon the exercise thereof and the conversion of
shares of Company Common Stock issuable upon such exercise into shares of Series
F Preferred Stock;
(n) CMGI shall have received Lock-Up Agreements executed by Company
Shareholders holding an aggregate of ninety-seven percent (97%) of the Total
Outstanding Company Common Stock; provided, however, that CMGI shall release up
to an additional three percent (3%) of the Total Outstanding Company Common
Stock from the restrictive provisions contained in the Lock-Up Agreement to the
extent that it is reasonably necessary to do so to facilitate the ability of the
Company to satisfy the conditions set forth in this Section 6.2; and
50
<PAGE>
(o) CMGI shall have received written evidence reasonably satisfactory
to CMGI that each of the AdKnowledge Amended and Restated Investor Rights
Agreement dated as of February 10, 1999 between the Company and the Investors
named therein, and the Amended and Restated Co-Sale Agreement dated as of
February 10, 1999 between the Company and the Investors and Shareholders named
therein, shall have been terminated and have no further force and effect.
6.3 Conditions to Obligations of the Company. The obligation of the
----------------------------------------
Company to consummate the Merger is subject to the satisfaction of the following
additional conditions:
(a) the Merger Shares shall have been authorized for listing on the
Nasdaq National Market upon official notice of issuance;
(b) CMGI and Engage shall have effected all of the registrations,
filings and notices referred to in Section 5.2 which are required on the part of
CMGI and Engage, respectively;
(c) the representations and warranties of CMGI, Engage and Transitory
Subsidiary set forth in the first sentence of Section 4.1 and Section 4.3 and
any representations and warranties of CMGI, Engage and Transitory Subsidiary set
forth in this Agreement that are qualified as to materiality shall be true and
correct, and all other representations and warranties of CMGI, Engage and
Transitory Subsidiary set forth in this Agreement shall be true and correct in
all material respects, in each case as of the date of this Agreement and as of
the Merger Effective Time as though made as of the Merger Effective Time, except
to the extent such representations and warranties are specifically made as of a
particular date or as of the date of this Agreement (in which case such
representations and warranties shall be true and correct as of such date);
(d) each of CMGI, Engage and Transitory Subsidiary shall have
performed or complied in all material respects with its agreements and covenants
required to be performed or complied with under this Agreement as of or prior to
the Merger Effective Time;
(e) CMGI and Engage shall have delivered to the Company a certificate
(the "CMGI Certificate") to the effect that each of the conditions specified in
clauses (a) through (d) of this Section 6.3 is satisfied in all respects;
(f) the Company shall have received from counsel to CMGI, Engage and
Transitory Subsidiary an opinion with respect to the matters set forth in
Exhibit G attached hereto, addressed to the Company and dated as of the Merger
- ---------
Closing Date; and
(g) the Company shall have received such other certificates and
instruments (including without limitation certificates of good standing of CMGI,
Engage and Transitory Subsidiary in their jurisdiction of organization,
certified charter documents, certificates as to the incumbency of officers and
the adoption of authorizing resolutions) as it shall reasonably request in
connection with the Merger Closing.
51
<PAGE>
ARTICLE VII
CONDITIONS TO CONSUMMATION OF CONTRIBUTION
7.1 Conditions to Each Party's Obligations. The respective obligations of
--------------------------------------
each Party to consummate the Contribution are subject to the satisfaction of the
following conditions:
(a) all applicable waiting periods (and any extensions thereof) under
the HSR Act shall have expired or otherwise been terminated;
(b) this Agreement and the terms of the Contribution and all other
transactions contemplated by this Agreement shall have been approved by the
required vote of the stockholders of Engage;
(c) the Merger shall have been consummated;
(d) the California Department of Corporations shall have approved the
Section 3(a)(10) Applications and issued a permit qualifying the Contribution
Shares pursuant to Section 25113 of the California Corporate Securities Law of
1968, as amended, or the Form S-4(s) shall have been declared effective by the
SEC and there shall not be in effect any stop order suspending the effectiveness
of the permit or the Form S-4(s) or any proceedings seeking such a stop order;
and
(e) the Contribution Shares shall have been authorized for listing on
the Nasdaq National Market upon official notice of issuance.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by the Company Shareholders.
-------------------------------------------
Subject to Section 8.4 below, the Company Shareholders receiving the Merger
Shares pursuant to Section 1.5 (the "Indemnifying Shareholders") shall severally
indemnify each of CMGI, Engage and their respective directors, officers,
employees and Affiliates (collectively, the "CMGI Indemnified Parties") in
respect of, and hold it harmless against, any and all debts, obligations and
other liabilities (whether absolute, accrued, contingent, fixed or otherwise, or
whether known or unknown, or due or to become due or otherwise), monetary
damages, fines, fees, penalties, interest obligations, deficiencies, losses and
expenses (including without limitation amounts paid in settlement, interest,
court costs, reasonable costs of third-party investigators, reasonable fees and
expenses of attorneys, accountants, financial advisors and other experts, and
other reasonable expenses of litigation) ("Damages") incurred or suffered by the
Surviving Corporation, CMGI, Engage or any Affiliate thereof resulting from,
relating to or constituting:
52
<PAGE>
(a) any misrepresentation, breach of warranty or failure to perform
any covenant or agreement of the Company contained in this Agreement or the
Company Certificate;
(b) any failure of any Company Shareholder to have good, valid and
marketable title to the issued and outstanding Company Shares issued in the name
of such Company Shareholder, free and clear of all Security Interests that would
prohibit the exchange of Company Shares in the Merger or the contribution of the
Surviving Corporation Common Stock in the Contribution, or would prevent CMGI or
Engage from having good, valid and marketable title to the issued and
outstanding Company Shares;
(c) any claim by a shareholder or former shareholder of the Company,
or any other person or entity, seeking to assert, or based upon, the following
causes of action that accrued prior to the Merger Effective Time: (i) ownership
or rights to ownership of, or other adverse claim against, any shares of stock
of the Company; (ii) any rights of a shareholder (other than the right to
receive the Merger Shares and the Contribution Shares pursuant to this Agreement
or appraisal rights under the applicable provisions of the California Law),
including any option, preemptive rights or rights to notice or to vote; (iii)
any rights under the Articles of Incorporation or By-laws of the Company; or
(iv) any claim that his, her or its shares were wrongfully repurchased by the
Company;
(d) any termination fee imposed upon the Company pursuant to the
Master Lease dated November 30, 1998 between the Company and Comdisco, Inc.; or
(e) any obligation of the Company relating to the failure to pay use
taxes.
8.2 Indemnification Claims.
----------------------
(a) A party entitled, or seeking to assert rights, to indemnification
under this Article VIII (an "Indemnified Party") shall give written notification
to the party from whom indemnification is sought (an "Indemnifying Party") of
the commencement of any suit or proceeding relating to a third party claim for
which indemnification pursuant to this Article VIII may be sought. Such
notification shall be given within twenty (20) business days after receipt by
the Indemnified Party of notice of such suit or proceeding, and shall describe
in reasonable detail (to the extent known by the Indemnified Party) the facts
constituting the basis for such suit or proceeding and the amount of the claimed
damages; provided, however, that no delay on the part of the Indemnified Party
in notifying the Indemnifying Party shall relieve the Indemnifying Party of any
liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnifying Party may, upon written notice
thereof to the Indemnified Party, assume control of the defense of such suit or
proceeding with counsel reasonably satisfactory to the Indemnified Party;
provided that (i) the Indemnifying Party may only assume control of such defense
if (A) it acknowledges in writing to the Indemnified Party that any damages,
fines, costs or other liabilities that may be assessed against the Indemnified
Party in connection with such suit or proceeding constitute Damages for which
the Indemnified Party shall be indemnified pursuant to this Article VIII and (B)
the ad damnum is less than or equal to the amount of Damages for which the
Indemnifying Party is liable under this Article VIII and (ii) the Indemnifying
Party may
53
<PAGE>
not assume control of the defense of a suit or proceeding, or any portion of a
suit or proceeding, involving criminal liability or in which equitable relief is
sought against the Indemnified Party. If the Indemnifying Party does not so
assume control of such defense, the Indemnified Party shall control such
defense. The party not controlling such defense (the "Non-controlling Party")
may participate therein at its own expense; provided that if the Indemnifying
Party assumes control of such defense and the Indemnified Party reasonably
concludes that the Indemnifying Party and the Indemnified Party have conflicting
interests or different defenses available with respect to such suit or
proceeding, the reasonable fees and expenses of counsel to the Indemnified Party
shall be considered "Damages" for purposes of this Agreement. The party
controlling such defense (the "Controlling Party") shall keep the Non-
controlling Party advised of the status of such suit or proceeding and the
defense thereof and shall consider in good faith recommendations made by the
Non-controlling Party with respect thereto. The Non-controlling Party shall
furnish the Controlling Party with such information as it may have with
respect to such suit or proceeding (including copies of any summons, complaint
or other pleading which may have been served on such party and any written
claim, demand, invoice, billing or other document evidencing or asserting the
same) and shall otherwise reasonably cooperate with and assist the Controlling
Party in the defense of such suit or proceeding. The Indemnifying Party shall
not agree to any settlement of, or the entry of any judgment arising from, any
such suit or proceeding without the prior written consent of the Indemnified
Party, which shall not be unreasonably withheld or delayed; provided that the
consent of the Indemnified Party shall not be required if the Indemnifying Party
agrees in writing to pay any amounts payable pursuant to such settlement or
judgment and such settlement or judgment includes a complete release of the
Indemnified Party from further liability and has no other adverse effect on the
Indemnified Party. The Indemnified Party shall not agree to any settlement of,
or the entry of any judgment arising from, any such suit or proceeding without
the prior written consent of the Indemnifying Party, which shall not be
unreasonably withheld or delayed.
(b) In order to seek indemnification under this Article VIII, an
Indemnified Party shall give written notification (a "Claim Notice") to the
Indemnifying Party which contains (i) a description and the amount (the "Claimed
Amount") of any Damages incurred or reasonably expected to be incurred by the
Indemnified Party, (ii) a statement that the Indemnified Party is entitled to
indemnification under this Article VIII for such Damages and a reasonable
explanation of the basis therefor, and (iii) a demand for payment (in the manner
provided in paragraph (c) below) in the amount of such Damages. If the
Indemnified Party is seeking to enforce such claim pursuant to the Escrow
Agreement, the Indemnifying Party shall deliver a copy of the Claim Notice to
the Escrow Agent.
(c) Within 20 days after delivery of a Claim Notice, the Indemnifying
Party shall deliver to the Indemnified Party a written response (the "Response")
in which the Indemnifying Party shall: (i) agree that the Indemnified Party is
entitled to receive all of the Claimed Amount (in which case the Response shall
be accompanied by a payment by the Indemnifying Party to the Indemnified Party
of the Claimed Amount, by check or by wire transfer; provided that if the
Indemnified Party is seeking to enforce such claim pursuant to the Escrow
Agreement, the Indemnifying Party and the Indemnified Party shall deliver to the
Escrow Agent, within three days following the delivery of the Response, a
written notice executed by
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both parties instructing the Escrow Agent to distribute to CMGI such number of
Escrow Shares as have an aggregate Value (as defined below) equal to the Claimed
Amount), (ii) agree that the Indemnified Party is entitled to receive part, but
not all, of the Claimed Amount (the "Agreed Amount") (in which case the Response
shall be accompanied by a payment by the Indemnifying Party to the Indemnified
Party of the Agreed Amount, by check or by wire transfer; provided that if the
Indemnified Party is seeking to enforce such claim pursuant to the Escrow
Agreement, the Indemnifying Party and the Indemnified Party shall deliver to the
Escrow Agent, within three days following the delivery of the Response, a
written notice executed by both parties instructing the Escrow Agent to
distribute to CMGI such number of Escrow Shares as have an aggregate Value equal
to the Agreed Amount) or (iii) dispute that the Indemnified Party is entitled to
receive any of the Claimed Amount. If the Indemnifying Party in the Response
disputes its liability for all or part of the Claimed Amount, the Indemnifying
Party and the Indemnified Party shall follow the procedures set forth in Section
8.2(d) for the resolution of such dispute (a "Dispute"). For purposes of this
Article VIII, the "Value" of any Escrow Shares delivered in satisfaction of an
indemnity claim shall be the CMGI Lock-In Value and the Engage Lock-In Value,
respectively (subject to equitable adjustment in the event of any stock split,
stock dividend, reverse stock split or similar event affecting the CMGI Common
Stock or the Engage Common Stock, respectively, since the last trading day in
the period in which the CMGI Lock-In Value and the Engage Lock-In Value,
respectively, were determined), multiplied by the number of such Escrow Shares.
(d) During the 60-day period following the delivery of a Response that
reflects a Dispute, the Indemnifying Party and the Indemnified Party shall use
good faith efforts to resolve the Dispute. If the Dispute is not resolved
within such 60-day period, the Indemnifying Party and the Indemnified Party
shall submit the Dispute to arbitration as provided below. Except with respect
to an action seeking specific performance or another equitable remedy, any
dispute shall be settled by arbitration in accordance with the commercial
arbitration rules of the American Arbitration Association ("AAA"). The
arbitration proceeding, including the rendering of an award, shall take place in
Boston, Massachusetts and be administered by the AAA. The Parties agree to act
in good faith to mutually select an arbitrator. The decision of the arbitrator
shall be binding on the Parties or their successors and any judgment rendered by
such arbitrator may be enforced by any court of competent jurisdiction. Each
Party shall bear its own expenses in connection with such arbitration unless
otherwise ordered by the arbitrator. If the Indemnified Party is seeking to
enforce the claim that is the subject of the Dispute pursuant to the Escrow
Agreement, the Indemnifying Party and the Indemnified Party shall deliver to the
Escrow Agent, promptly following the resolution of the Dispute (whether by
mutual agreement, pursuant to arbitration, as a result of a judicial decision or
otherwise), a written notice executed by both parties instructing the Escrow
Agent as to what (if any) portion of the Escrow Shares shall be distributed to
CMGI and/or the Indemnifying Shareholders (which notice shall be consistent with
the terms of the resolution of the Dispute).
(e) Notwithstanding the other provisions of this Section 8.2, if a
third party asserts (other than by means of a lawsuit) that an Indemnified Party
is liable to such third party for a monetary or other obligation which may
constitute or result in Damages for which such Indemnified Party may be entitled
to indemnification pursuant to this Article VIII, and such
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Indemnified Party reasonably determines that it has a valid business reason to
fulfill such obligation, then (i) such Indemnified Party shall be entitled to
satisfy such obligation, without prior notice to or consent from the
Indemnifying Party, (ii) such Indemnified Party may subsequently make a claim
for indemnification in accordance with the provisions of this Article VIII, and
(iii) such Indemnified Party shall be reimbursed, in accordance with the
provisions of this Article VIII, for any such Damages for which it is entitled
to indemnification pursuant to this Article VIII (subject to the right of the
Indemnifying Party to dispute the Indemnified Party's entitlement to
indemnification, or the amount for which it is entitled to indemnification,
under the terms of this Article VIII); provided, however, that except with the
consent of the Shareholder Representative, no settlement of any such claim with
third party claimants shall be determinative of the amount of any claim against
the Escrow Shares.
(f) The Shareholder Representative shall have full power and authority
on behalf of each Indemnifying Shareholder to take any and all actions on behalf
of, execute any and all instruments on behalf of, and execute or waive any and
all rights of, the Indemnifying Shareholders under this Article VIII. The
Shareholder Representative shall have no liability to any Indemnifying
Shareholder for any action taken or omitted on behalf of the Indemnifying
Shareholders pursuant to this Article VIII.
8.3 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties contained in this Agreement and the Company Certificate shall (a)
survive the Merger Closing and any investigation at any time made by or on
behalf of an Indemnified Party and (b) shall expire on the date one (1) year
following the Merger Closing Date, except that (i) the representations and
warranties set forth in Sections 3.1, 3.2 and 3.3 (and the portion of the
Company Certificate relating thereto) shall survive the Merger Closing
indefinitely and (ii) the representations and warranties set forth in Sections
3.9, 3.22 and 3.23 (and the portion of the Company Certificate relating thereto)
shall survive until the expiration of all statutes of limitation applicable to
the matters referred to therein. If an Indemnified Party delivers to an
Indemnifying Party, before expiration of a representation or warranty, either a
Claim Notice based upon a breach of such representation or warranty, or a notice
that, as a result a legal proceeding instituted by or written claim made by a
third party, the Indemnified Party reasonably expects to incur Damages as a
result of a breach of such representation or warranty (an "Expected Claim
Notice"), then such representation or warranty shall survive until, but only for
purposes of, the resolution of the matter covered by such notice. If the legal
proceeding or written claim with respect to which an Expected Claim Notice has
been given is definitively withdrawn or resolved in favor of the Indemnified
Party, the Indemnified Party shall promptly so notify the Indemnifying Party;
and if the Indemnified Party has delivered a copy of the Expected Claim Notice
to the Escrow Agent and Escrow Shares have been retained in Escrow after the
Termination Date (as defined in the Escrow Agreement) with respect to such
Expected Claim Notice, the Indemnifying Party and the Indemnified Party shall
promptly deliver to the Escrow Agent a written notice executed by both parties
instructing the Escrow Agent to distribute such retained Escrow Shares to the
Indemnifying Shareholders in accordance with the terms of the Escrow Agreement.
8.4 Limitations.
-----------
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(a) Notwithstanding anything to the contrary herein, (i) the aggregate
liability of the Indemnifying Shareholders for Damages under this Article VIII
shall not exceed the aggregate value of the Escrow Shares, (ii) the Indemnifying
Shareholders shall not be liable under Section 8.1(a) unless and until the
aggregate Damages for which they or it would otherwise be liable exceed $750,000
(at which point the Indemnifying Shareholders shall become liable for the
aggregate Damages, and not just amounts in excess of $750,000, and (iii) each
Indemnifying Shareholder shall only be liable for his, her or its pro rata share
(based on the number of Merger Shares received by such Indemnifying Shareholder
as a percentage of the total number of Merger Shares issued).
(b) In no event will the Indemnifying Shareholders be liable for any
claims alleging incidental, consequential, special or indirect damages
(including, without limitation, any damages arising from the loss of business,
data, profits or goodwill) incurred or suffered by an Indemnified Party with
respect to this Agreement or the transactions contemplated hereby, even if the
Indemnifying Shareholders have been informed of the likelihood of such claim;
provided, however, that incidental, consequential, special or indirect damages
(including, without limitation, any damages arising from the loss of business,
data, profits or goodwill) incurred or suffered by any third-party which such
third-party is awarded from any Indemnified Party shall be considered as
"Damages" for which the Indemnified Party is liable pursuant to this Agreement.
(c) The Escrow Agreement, among other things, is intended to secure
the indemnification obligations of the Indemnifying Shareholders under this
Agreement.
(d) Except with respect to claims based on fraud, after the Merger
Closing, the rights of the Indemnified Parties under this Article VIII and the
Escrow Agreement shall be the exclusive remedy of the Indemnified Parties with
respect to claims resulting from or relating to any misrepresentation, breach of
warranty or failure to perform any covenant or agreement contained in this
Agreement.
(e) No Indemnifying Shareholder shall have any right of contribution
against the Company or the Surviving Corporation with respect to any breach by
the Company of any of its representations, warranties, covenants or agreements.
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8.5 Shareholder Representative.
--------------------------
(a) The Shareholder Representative is hereby constituted and appointed
as agent for and on behalf of the Company Shareholders with respect to this
Article VIII. The Shareholder Representative shall incur no liability to the
Indemnifying Shareholders with respect to any action taken or suffered by he,
she or it in reliance upon any note, direction, instruction, consent, statement
or other documents believed by he, she or it to be genuinely and duly
authorized, nor for other action or inaction except his, her or its own willful
misconduct or gross negligence. The Shareholder Representative may, in all
questions arising under this Agreement, rely on the advice of counsel and the
Shareholder Representative shall not be liable to the Indemnifying Shareholders
for anything done, omitted or suffered in good faith by the Shareholder
Representative based on such advice.
(b) In the event of the death or permanent disability of the
Shareholder Representative, or his, her or its resignation as an Shareholder
Representative, a successor Shareholder Representative shall be elected by a
majority vote of the Indemnifying Shareholders, with each such Indemnifying
Shareholder (or his, her or its successors or assigns) to be given a vote equal
to the number of votes represented by the shares of stock of the Company held by
such Indemnifying Shareholder immediately prior to the Merger Effective Time.
Each successor Shareholder Representative shall have all of the power,
authority, rights and privileges conferred by this Agreement upon the original
Shareholder Representative, and the term "Shareholder Representative" as used
herein shall be deemed to include successor Shareholder Representative.
(c) The Shareholder Representative shall have full power and authority
to represent the Indemnifying Shareholders, and their successors, with respect
to all matters arising under this Article VIII and all actions taken by any
Shareholder Representative hereunder shall be binding upon the Indemnifying
Shareholders, and their successors, as if expressly confirmed and ratified in
writing by each of them. Without limiting the generality of the foregoing, the
Shareholder Representative shall have full power and authority to interpret all
of the terms and provisions of this Article VIII, to compromise any claims
asserted hereunder and to authorize any release of the Escrow Shares to be made
with respect thereto, on behalf of the Indemnifying Shareholders and their
successors. All actions to be taken by the Shareholder Representative hereunder
shall be evidenced by, and taken upon, the written direction of a majority
thereof.
ARTICLE IX
LOCK-UP
9.1 Lock-Up. By accepting the Merger Shares, Contribution Shares and/or
-------
Engage Merger Shares, each Company Shareholder hereby agrees as follows:
(a) Except as otherwise provided herein, he, she or it shall not,
except with the prior written approval of CMGI, directly or indirectly offer to
sell, contract to sell or otherwise sell or dispose of any of the Merger Shares
for a period of thirty (30) days following the Merger
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Effective Time. After such period, the restriction on each Company Shareholder
to not offer to sell, contract to sell or otherwise sell or dispose the Merger
Shares (other than the Escrow Shares) shall lapse at the rate of one-twelfth
(1/12) of his, her or its Merger Shares (other than the Escrow Shares) per
month, commencing at the beginning of each month.
(b) He, she or it shall not, except with the prior written approval of
Engage, directly or indirectly offer to sell, contract to sell or otherwise sell
or dispose of any of the Contribution Shares for a period of six (6) months
following the Contribution Closing Date. He, she or it shall not, except with
the prior written approval of Engage, directly or indirectly offer to sell,
contract to sell or otherwise sell or dispose of any of the Engage Merger Shares
for a period of six (6) months following the Engage Merger Closing Date.
(c) Subject to any other restrictions, including but not limited to,
the vesting of such shares, (i) following that date which is six (6) months
after the Contribution Closing Date, a Company Shareholder may offer to sell,
contract to sell or otherwise sell or dispose of all the Contribution Shares
held by such Company Shareholder, and (ii) following that date which is six (6)
months after the Engage Merger Closing Date, a Company Shareholder may offer to
sell, contract to sell or otherwise sell or dispose of all the Engage Merger
Shares held by such Company Shareholder.
(d) He, she or it agrees and consents to the entry of stop transfer
instructions with CMGI's or Engage's transfer agent against the transfer of
Merger Shares, Contribution Shares or Engage Merger Shares held by the Company
Shareholder except in compliance with the foregoing restrictions.
9.2 Exempt Transactions. Notwithstanding the foregoing, the following
-------------------
transactions shall be exempt from the restrictions contained in Section 9.1:
(a) the Company Shareholder may sell, assign or transfer all or any portion of
the Merger Shares, Contribution Shares or Engage Merger Shares to his or her
spouse or children, or to a trust established for the benefit of the Company
Shareholder or his or her spouse or children, or an entity owned, directly or
indirectly, by such a trust (each a "Permitted Transferee") or dispose of them
under his or her will, without compliance with this Article IX, if the
transferee agrees in writing to be subject to the terms of this Article IX to
the same extent as if such transferee were a holder of the Merger Shares,
Contribution Shares or Engage Merger Shares hereunder; and (b) any Company
Shareholder that is a partnership may sell, assign or transfer Merger Shares,
Contribution Shares or Engage Merger Shares to a partner (or a partner of a
partner) of such partnership or a retired partner (or a retired partner of a
partner) of such partnership who retires after the date of this Agreement, or to
the estate of any such partner or retired partner, without compliance with this
Article IX, if the transferee agrees in writing to be subject to the terms of
this Article IX to the same extent as if such transferee were a holder of Merger
Shares, Contribution Shares or Engage Merger Shares hereunder. Upon the release
of any of the Escrow Shares as contemplated by this Agreement and the Escrow
Agreement, such Escrow Shares shall not be subject to the restrictions contained
in Section 9.1.
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ARTICLE X
TERMINATION
10.1 Termination of Agreement. The Parties may terminate this Agreement
------------------------
prior to the Merger Effective Time (whether before or after Requisite
Shareholder Approval), as provided below:
(a) the Parties may terminate this Agreement by mutual written
consent;
(b) CMGI may terminate this Agreement by giving written notice to the
Company in the event the Company is in material breach of any representation,
warranty or covenant contained in this Agreement, and such breach, individually
or in combination with any other such breach, (i) would cause the conditions set
forth in clauses (c) or (d) of Section 6.2 not to be satisfied and (ii) is not
cured within 20 days following delivery by CMGI to the Company of written notice
of such breach;
(c) the Company may terminate this Agreement by giving written notice
to CMGI and Engage in the event CMGI, Engage or Transitory Subsidiary is in
material breach of any representation, warranty or covenant contained in this
Agreement, and such breach, individually or in combination with any other such
breach, (i) would cause the conditions set forth in clauses (c) or (d) of
Section 6.3 not to be satisfied and (ii) is not cured within 20 days following
delivery by the Company to CMGI of written notice of such breach;
(d) any Party may terminate this Agreement by giving written notice to
the other Parties at any time after the Company Shareholders have voted on
whether to approve this Agreement and the Merger in the event this Agreement and
the Merger failed to receive the Requisite Shareholder Approval;
(e) any Party may terminate this Agreement by giving written notice to
the other Parties at any time after the stockholders of Engage have voted on
whether to approve the Contribution in the event that the Contribution failed to
receive the required approval of the stockholders of Engage;
(f) CMGI or Engage may terminate this Agreement by giving written
notice to the Company if the Merger Closing shall not have occurred on or before
December 31, 1999 in the event that the Section 3(a)(10) Applications have been
approved or February 15, 2000 if CMGI and Engage were unable to receive approval
of the Section 3(a)(10) Applications and filed Form S-4(s) thereafter, by reason
of the failure of any condition precedent under Section 6.1 or 6.2 hereof
(unless the failure results primarily from a breach by CMGI or Transitory
Subsidiary of any representation, warranty or covenant contained in this
Agreement); or
(g) the Company may terminate this Agreement by giving written notice
to CMGI and Transitory Subsidiary if the Merger Closing shall not have occurred
on or before December 31, 1999 in the event that the Section 3(a)(10)
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Applications have been approved or February 15, 2000 if CMGI and Engage were
unable to receive approval of the Section 3(a)(10) Applications and filed Form
S-4(s) thereafter, by reason of the failure of any condition precedent under
Section 6.1, 6.3 or 7 hereof (unless the failure results primarily from a breach
by the Company of any representation, warranty or covenant contained in this
Agreement).
10.2 Effect of Termination. Except as otherwise provided for in this
---------------------
Agreement, if any Party terminates this Agreement pursuant to Section 10.1, all
obligations of the Parties hereunder shall terminate without any liability of
any Party to any other Party (except for any liability of any Party for breaches
of this Agreement).
ARTICLE XI
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is defined
in the Section of this Agreement indicated below.
Defined Term Section
- ------------ -------
AAA 8.2(d)
Affiliate 3.15(a)
Affiliated Group 3.9(a)
Agreed Amount 8.2(c)
Agreement Introduction
California Law 1.1
Cause 1.10(e)
CERCLA 3.22(a)
Change of Control 1.10(e)
Claim Notice 8.2(b)
Claimed Amount 8.2(b)
CMGI Introduction
CMGI Certificate 6.3(e)
CMGI Common Stock Introduction
CMGI Conversion Ratio 1.5(a)
CMGI Final Value 1.5(a)
CMGI Indemnified Parties 8.1
CMGI Initial Value 1.5(a)
CMGI Lock-In Value 1.5(a)
CMGI Material Adverse Effect 4.1
CMGI Reports 4.5
Code Introduction
Company Introduction
Company Certificate 6.2(e)
Company Common Stock Introduction
Company Intellectual Property 3.13(a)
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Company Material Adverse Effect 3.5(b)
Company Option 1.9(a)
Company Preferred Stock 1.5(a)
Company Shareholders 1.7(d)
Company Shareholders Meeting 3.29
Company Shares 1.6(a)
Contribution 2.1
Contribution Closing 2.2
Contribution Closing Date 2.2
Contribution Dissenting Shares 2.6(a)
Contribution Shares 2.5(a)
Control 4.11(d)
Controlling Party 8.2(a)
Customer Deliverables 3.13(a)
Damages 8.1
Disclosure Schedule Article III
Disclosure Statement 5.3(a)
Dispute 8.2(c)
Employee Benefit Plan 3.21(a)
Engage Introduction
Engage Common Stock Introduction
Engage Conversion Ratio 2.5(a)
Engage Final Value 2.5(a)
Engage Initial Value 2.5(a)
Engage Lock-In Value 2.5(a)
Engage Material Adverse Effect 4.1
Engage Merger 2A.1
Engage Merger Closing 2A.2
Engage Merger Closing Date 2A.2
Engage Merger Dissenting Shares 2A.6
Engage Merger Effective Time 2A.1
Engage Merger Filings 2A.1
Engage Merger Shares 2A.5
Engage Option 2.5(a)
Engage Reports 4.5
Engage Sub Introduction
Environmental Law 3.22(a)
ERISA 3.21(a)
ERISA Affiliate 3.21(a)
Escrow 1.10
Escrow Agent 1.3(f)
Escrow Agreement 1.3(f)
Escrow Shares 1.10
Exchange Act 3.15(a)
Exchange Agent 1.3(d)
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Expected Claim Notice 8.3
Financial Statements 3.6
Form S-4(s) 5.8
GAAP 3.6
Good Reason 1.10(e)
Governmental Entity 3.4
Gross Revenues 1.10(a)
HSR Act 3.4
Indemnified Party 8.2(a)
Indemnifying Party 8.2(a)
Indemnifying Shareholders 8.1
Information Statement 3.29
Initial Merger Shares 1.10
Intellectual Property 3.13(a)
Internal Systems 3.13(a)
Key Employees 1.10(e)
Legal Proceeding 3.19
Loan 5.14
Lock-Up Agreement 5.3(g)
Materials of Environmental Concern 3.22(b)
Merger 1.1
Merger Closing 1.2
Merger Closing Date 1.2
Merger Dissenting Shares 1.6(a)
Merger Effective Time 1.1
Merger Filings 1.1
Merger Shares 1.10
Most Recent Balance Sheet 3.6
Most Recent Balance Sheet Date 3.6
Non-controlling Party 8.2(a)
Objection Period 1.10(b)
Ordinary Course of Business 3.4
Parties Introduction
Permits 3.25
Permitted Transferee 9.2
Pre-Merger Period 4.11(b)
Reasonable Best Efforts 5.1
Requisite Shareholder Approval 3.3
Response 8.2(c)
SEC 4.5
Section 3(a)(10) Applications 5.8
Securities Act 3.2
Security Interest 3.4
Selected Accountants 1.10(b)
Shareholder Representative Introduction
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Shareholder Support Agreement 5.3(f)
Signing Shareholders 5.15
Software 3.13(e)
Subsidiary and Subsidiaries 3.5(a)
Surviving Corporation 1.1
Surviving Corporation Common Stock Introduction
Surviving Corporation Option 1.9(a)
Surviving Corporation Shareholders 2A.7(d)
Tax Returns 3.9(a)
Taxes 3.9(a)
to the knowledge of the Company Article III
Total Outstanding Company Common Stock 1.5(a)
Transitory Subsidiary Introduction
Transitory Subsidiary Stock Introduction
Value 8.2(c)
Warrants 1.9(b)
Year 2000 Compliant 3.14(c)
ARTICLE XII
MISCELLANEOUS
12.1 Press Releases and Announcements. No Party shall issue any press
release or public announcement relating to the subject matter of this Agreement
without the prior written approval of the other Parties; provided, however, that
any Party may make any public disclosure it believes in good faith is required
by applicable law, regulation or stock market rule (in which case the disclosing
Party shall use reasonable efforts to advise the other Parties and provide them
with a copy of the proposed disclosure prior to making the disclosure).
12.2 No Third Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
12.3 Entire Agreement. This Agreement (including the documents referred to
----------------
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements or representations by or among the Parties,
written or oral, with respect to the subject matter hereof; provided that the
Confidentiality Agreement dated on or about July 27, 1999 between CMGI and the
Company shall remain in effect in accordance with its terms.
12.4 Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests or obligations hereunder without the prior written approval of
the other Parties; provided that Transitory Subsidiary may assign its rights,
interests and obligations hereunder to an Affiliate of CMGI and CMGI may assign
its rights, interests and obligations hereunder to Engage.
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12.5 Counterparts and Facsimile Signature This Agreement may be executed in
------------------------------------
two or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument. This Agreement may
be executed by facsimile signature.
12.6 Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.7 Notices. All notices, requests, demands, claims, and other
-------
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered four business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent for next business day
delivery via a reputable nationwide overnight courier service, in each case to
the intended recipient as set forth below:
If to the Company: Copy to:
- ----------------- -------
AdKnowledge Inc. Brobeck, Phleger & Harrison LLP
1808 Embarcadero Road 550 West C Street, Suite 1200
Palo Alto, CA 94303 San Diego, CA 92101
Attention: President Attention: Faye H. Russell, Esq.
Telephone: (650) 842-6500 Telephone: (619) 234-1966
Telecopy: (650) 842-0665 Telecopy: (619) 234-3848
If to CMGI or Copy to:
- ------------- -------
Transitory Subsidiary:
- ---------------------
CMGI, Inc. Hale and Dorr LLP
100 Brickstone Square 60 State Street
1st Floor Boston, MA 02109
Andover, MA 01810 Attention: Mark G. Borden, Esq.
Attention: General Counsel Telephone: (617) 526-6000
Telephone: (978) 684-3600 Telecopy: (617) 526-5000
Telecopy: (978) 684-3601
If to Engage: Copy to:
- ------------ -------
Engage Technologies, Inc.. Hale and Dorr LLP
100 Brickstone Square 60 State Street
Andover, MA01810 Boston, MA 02109
Attention: General Counsel Attention: Mark G. Borden, Esq.
Telephone: (978) 684-3600 Telephone: (617) 526-6000
Telecopy: (978) 684-3636 Telecopy: (617) 526-5000
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Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail or electronic mail), but no
such notice, request, demand, claim or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
12.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of laws of
any jurisdictions other than those of the State of Delaware.
12.9 Amendments and Waivers. The Parties may mutually amend any provision
----------------------
of this Agreement at any time prior to the Contribution Closing Date; provided,
however, that any amendment effected subsequent to the Requisite Shareholder
Approval shall be subject to any restrictions contained in the California Law.
No amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by all of the Parties. No waiver of any right or
remedy hereunder shall be valid unless the same shall be in writing and signed
by the Party giving such waiver. No waiver by any Party with respect to any
default, misrepresentation or breach of warranty or covenant hereunder shall be
deemed to extend to any prior or subsequent default, misrepresentation or breach
of warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.
12.10 Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
12.11 Construction.
------------
(a) The language used in this Agreement shall be deemed to be the
language chosen by the Parties to express their mutual intent, and no rule of
strict construction shall be applied against any Party.
(b) Any reference to any federal, state, local or foreign statute or
law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
66
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
"CMGI"
CMGI, INC.
By: /s/ David S. Wetherell
---------------------------
Title: President
"Engage"
ENGAGE TECHNOLOGIES, INC.
By: /s/ Paul L. Schaut
---------------------------
Title: President
"Transitory Subsidiary"
AK ACQUISITION CORP.
By: /s/ William Williams
---------------------------
Title: Secretary
the "Company"
ADKNOWLEDGE INC.
By: /s/ Scott L. Kauffman
---------------------------
Title: President
67
<PAGE>
the "Shareholder Representative"
/s/ Steve Findley
----------------------------------
Steve Findley
/s/ John Mracek
----------------------------------
John Mracek
/s/ Kevin Wandryk
---------------------------------
Kevin Wandryk
68
<PAGE>
Exhibit 10.2
INTER-COMPANY AGREEMENT
THIS INTER-COMPANY AGREEMENT (the "Agreement") is made and entered into as
of September 23, 1999 between CMGI Inc., a Delaware corporation ("CMGI"), and
Engage Technologies, Inc., a Delaware corporation and a majority-owned
subsidiary of CMGI ("Engage").
WHEREAS, pursuant to that Agreement and Plan of Merger and Contribution
(the "Merger Agreement") entered into as of September 23, 1999 by and among
CMGI, Engage, AK Acquisition Corp., a California corporation and a wholly-owned
subsidiary of CMGI ("Transitory Subsidiary"), AdKnowledge Inc., a California
corporation (the "Company"), and Steve Findley, John Mracek and Kevin Wandryk
(collectively, the "Shareholder Representative"), CMGI and Engage contemplate:
First, a merger of Transitory Subsidiary with and into the Company
(the "Merger"), with the Company being the surviving corporation (the
"Surviving Corporation"). In the Merger, (i) all the shareholders of the
Company holding shares of Company Preferred Stock (as defined in the Merger
Agreement) will receive (A) an aggregate of approximately $170,000,000 of
shares of the common stock, $.01 par value par share, of CMGI ("CMGI Common
Stock") and (B) shares of a new class of common stock of Surviving
Corporation, $.01 par value per share ("Surviving Corporation Common
Stock"), in exchange therefor, (ii) all the shareholders of the Company
holding shares of the Company's common stock ("Company Common Stock") will
receive shares of Surviving Corporation Common Stock in exchange therefor
(the Surviving Corporation Common Stock issued under (i) and (ii) shall
aggregate approximately 12% of the issued and outstanding Surviving
Corporation Common Stock), and (iii) CMGI will receive Surviving
Corporation Common Stock in exchange for the common stock, $.01 par value
per share, of Transitory Subsidiary ("Transitory Subsidiary Stock"), in an
aggregate amount equal to approximately 88% of the issued and outstanding
Surviving Corporation Common Stock. The Merger is intended to qualify as a
tax-free reorganization under Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
Second, all the shareholders of the Surviving Corporation (including
CMGI) will contribute their Surviving Corporation Common Stock to Engage in
exchange for an aggregate of approximately $193,000,000 of Engage's common
stock, $.01 par value per share ("Engage Common Stock"), in a transaction
intended to qualify as a transaction under Section 351 of the Code (the
"Contribution").
Third, Engage will consummate a California short-form merger between
the Surviving Corporation and a wholly-owned subsidiary of Engage ("Engage
Sub"), pursuant to which Engage Sub will merge with and into the Surviving
Corporation, with the Surviving Corporation being the surviving corporation
in such merger and the remaining holders of Surviving Corporation Common
Stock will receive Engage Common Stock in exchange therefor;
<PAGE>
WHEREAS, CMGI will hold over 80% of the capital stock of Engage after
consummation of the transactions contemplated by the Merger Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth and other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Merger Agreement Transactions.
-----------------------------
(a) Contribution. CMGI hereby agrees, at the Contribution Closing,
------------
to contribute to Engage, and Engage hereby agrees to accept from CMGI, all
shares of Surviving Corporation Common Stock held by CMGI on the terms and
conditions outlined in the Merger Agreement.
(b) Merger Dissenting Shares. In the event CMGI is required to pay
------------------------
any cash payments or other property to Company Shareholders arising from the
exercise of their dissenters' rights in connection with the Merger ("Appraisal
Payments"), Engage shall immediately reimburse CMGI in cash or other property,
as the case may be, for any and all such Appraisal Payments.
(c) Returned Escrow Shares. In the event that Escrow Shares are
----------------------
released from the Escrow and delivered to CMGI pursuant to the terms of the
Merger Agreement and the Escrow Agreement (the "Returned Escrow Shares"), CMGI
shall pay to Engage in cash or other property as mutually agreed upon by the
parties a sum equal to the value of the Returned Escrow Shares, valued as
provided in Section 5 of the Escrow Agreement.
(d) Loan.
----
(i) In the event that CMGI makes the Loan to the Company
pursuant to the terms of Section 5.14 of the Merger Agreement, Engage shall
immediately upon the request of CMGI reimburse CMGI for the amount of the Loan.
Thereupon, (A) CMGI shall assign all of its rights under the promissory note
evidencing the Loan to Engage, and (B) CMGI shall assign to Engage all of CMGI's
rights under any agreements or documents evidencing its perfected first priority
security interest in the Company Intellectual Property or the warrants granted
to CMGI to purchase a total of four percent (4%) of the Total Outstanding
Company Common Stock at an exercise price of $.01 per share granted pursuant to
such Section 5.14.
(ii) In the event that CMGI makes the Loan to the Company
pursuant to the terms of Section 5.14 of the Merger Agreement and Engage
reimburses CMGI for the amount of the Loan pursuant to subsection (i) above and
the Company terminates the Merger Agreement as provided in such Section 5.14
pursuant to Section 10.1(c) (insofar as it relates to CMGI or the Transitory
Subsidiary), 10.1(e) or 10.1(g) (insofar as it relates to CMGI or the Transitory
Subsidiary), and the Company's obligation to repay the Loan is forgiven as
liquidated damages as provided for therein, promptly following such termination,
CMGI shall reimburse Engage for the amount of the Loan.
2
<PAGE>
(e) Reimbursement of Advances. In the event that CMGI advances
-------------------------
funds or other property to the Company prior to the Contribution Closing Date,
Engage shall reimburse CMGI for the amount of such advances immediately
following the Contribution Closing.
(f) No Remedy. Engage agrees and acknowledges that it shall have
---------
no remedies under Article VIII of the Merger Agreement against CMGI or the
Transitory Subsidiary for any indemnification claim which it may have under such
Article VIII and that it shall not seek to assert any right to indemnification
under such Article VIII against CMGI or the Transitory Subsidiary.
(g) Responsibility for Representations. As between CMGI and
----------------------------------
Engage, any liability arising from a breach of any representation in Article IV
of the Merger Agreement relating to CMGI shall be the responsibility of CMGI and
any liability arising from a breach of any representation in Article IV relating
to Engage shall be the responsibility of Engage.
(h) Responsibility for Covenants. As between CMGI and Engage, any
----------------------------
liability arising from a breach of any covenant in Article V of the Merger
Agreement relating to CMGI shall be the responsibility of CMGI and any liability
arising from a breach of any covenant in Article V relating to Engage shall be
the responsibility of Engage.
2. Miscellaneous.
-------------
(a) No Third Party Beneficiaries. The purpose of this Agreement is
----------------------------
to provide for the equitable adjustment of amounts due Engage and CMGI with
respect to the acquisition of the Company by Engage as set forth above and shall
not under any circumstances be deemed to create any rights in, or confer any
benefits upon, any third party or parties (including, without limitation, the
former Company Shareholders) in any respect. Nothing herein shall be construed
as waiving or affecting any respective rights of the parties hereto with respect
to any amounts held in the Escrow or with respect to any indemnification
obligations or otherwise.
(b) Entire Agreement. This Agreement and the Merger Agreement and
----------------
the documents referred to herein and therein constitute the entire agreement
among CMGI and Engage and supersedes any prior understandings, agreements or
representations by or among the parties, written or oral, with respect to the
subject matter hereof.
(c) Succession and Assignment. This Agreement shall be binding
-------------------------
upon and inure to the benefit of the parties named herein and their respective
successors and permitted assigns. No party may assign either this Agreement or
any of its rights, interests or obligations hereunder without the prior written
approval of the other party.
(d) Counterparts and Facsimile Signature. This Agreement may be
------------------------------------
executed in two or more counterparts, each of which shall be deemed an original
but all of
3
<PAGE>
which together shall constitute one and the same instrument. This Agreement may
be executed by facsimile signature.
(e) Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices, requests, demands, claims, and other
-------
communications hereunder shall be in writing and shall be delivered as provided
in the Merger Agreement.
(g) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the Commonwealth of
Massachusetts without giving effect to any choice or conflict of law provision
or rule (whether of the Commonwealth of Massachusetts or any other jurisdiction)
that would cause the application of laws of any jurisdictions other than those
of the Commonwealth of Massachusetts.
(h) Amendments and Waivers. The parties may mutually amend any
----------------------
provision of this Agreement at any time. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by both
of the parties. No waiver of any right or remedy hereunder shall be valid unless
the same shall be in writing and signed by the party giving such waiver. No
waiver by any party with respect to any default, misrepresentation or breach of
warranty or covenant hereunder shall be deemed to extend to any prior or
subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(i) Severability. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
(j) Construction. The language used in this Agreement shall be
------------
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction shall be applied against any party. Any
reference to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise.
4
<PAGE>
(k) Capitalized terms. Capitalized terms used herein which are
-----------------
defined in the Merger Agreement have the same meanings herein as therein, except
to the extent that such meanings are amended hereby.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CMGI, INC.
By: /s/ Andrew J. Hajducky III
----------------------------------
Name: Andrew J. Hajducky III
Title: Chief Financial Officer
ENGAGE TECHNOLOGIES, INC.
By: /s/ Stephen Royal
----------------------------------
Name: Stephen Royal
Title: Chief Financial Officer
6
<PAGE>
LEASE AGREEMENT BY AND BETWEEN
Carolina Blackhawk, LLC, as Landlord
AND
Engage Technologies, Inc., as Tenant
<PAGE>
TABLE OF CONTENTS
-----------------
1. PREMISES AND TERM.
-----------------
2. BASE RENT, CAM EXPENSE, JANITORIAL EXPENSE AND SECURITY DEPOSIT.
---------------------------------------------------------------
3. UTILITIES.
---------
4. COMPLIANCE WITH LAWS AND USE.
---------------------------
5. REPAIR AND MAINTENANCE.
-----------------------
6. ALTERATIONS.
-----------
7. SIGNS.
-----
8. INSPECTION.
----------
9. ASSIGNMENT AND SUBLETTING.
-------------------------
10. FIRE AND CASUALTY DAMAGE.
------------------------
11. LIABILITY AND INSURANCE.
-----------------------
12. CONDEMNATION.
------------
13. HOLDING OVER AND TERMINATION.
----------------------------
14. QUIET ENJOYMENT.
---------------
15. EVENTS OF DEFAULT.
-----------------
16. REMEDIES.
--------
17. LANDLORD'S LIEN.
---------------
18. MORTGAGES.
---------
19. MECHANIC'S LIENS.
----------------
20. NOTICES.
-------
21. BROKER'S CLAUSE.
---------------
22. LANDLORD'S LIABILITY.
--------------------
23. RULES AND REGULATIONS.
---------------------
24. HAZARDOUS MATERIALS.
-------------------
25. MISCELLANEOUS.
-------------
EXHIBIT A- THE LAND
---------
EXHIBIT B- FLOOR PLAN
---------
EXHIBIT C- PLANS AND SPECIFICATIONS [IF ANY]
---------
EXHIBIT D - LANDLORD UPFIT
---------
EXHIBIT E- RULES AND REGULATIONS
---------
EXHIBIT F- COMPLIANCE REPORTS
---------
i
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease"), is made and entered into as of the day
-----
of October, 1999, by and between Carolina Blackhawk, LLC (the "Landlord"), and
--------
Engage Technologies, Inc., a Delaware, corporation (the "Tenant").
------
W I T N E S S E T H:
-------------------
1. PREMISES AND TERM.
-----------------
(a) PREMISES. In consideration of the obligation of Tenant to pay
--------
rent as herein provided, and in consideration of the other terms,
provisions and covenants hereof, Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord, certain premises comprised of 24,600
rentable square feet (the "Premises") in a building known as 3020 Highwoods
Boulevard (the "Building") situated on certain land (the "Land") in the
-------- ----
County of Wake, State of North Carolina, more particularly described on
Exhibit A, attached hereto and incorporated herein by reference, together
---------
with all rights, privileges, easements, appurtenances and immunities
belonging to or in any way pertaining to the Premises.
A floor plan of the Premises is attached hereto and made a part hereof
as Exhibit B. Except as provided herein, the Premises are leased by Tenant
---------
"as is". Except as Tenant may specify in writing to Landlord, the taking of
possession by Tenant shall be deemed conclusively to establish that the
Premises and any improvements thereto are in good and satisfactory
condition as of when possession was taken. Tenant further acknowledges that
no representations as to the repair of the Premises, nor promises to alter,
remodel or improve the Premises have been made by Landlord unless such
representations or promises are expressly set forth in this Lease. Within
five days of the Commencement Date, Tenant shall, upon demand of Landlord,
execute and deliver to Landlord a letter of acceptance of delivery of the
Premises, acknowledging the Commencement and Termination Dates of this
Lease.
Before the Commencement Date (as hereinafter defined), certain upfit
of the Premises shall be performed by Landlord and Tenant. Landlord agrees
to perform the limited upfit set forth on Exhibit D and incorporated herein
---------
by reference. Landlord shall also obtain at its cost the certificate of
occupancy necessary for Tenant to occupy the Premises and conduct its
business therein. Tenant shall be responsible for reimbursing Landlord up
to Five Thousand Dollars ($5,000.00) for additional upfit provided Landlord
delivers reasonable evidence that the upfit to the Premises will exceed
$70,000.00. Tenant's reimbursement to Landlord shall be one half of any
amount exceeding $70,000.00 but Tenant's contribution shall not exceed
$5,000.00, which at Tenant's option shall amortize over the initial Term of
this Lease at the rate of 8.5% per annum.
(b) In the event that Landlord has not substantially completed the
Premises on or before December 31, 1999 ("Outside Date") so that Tenant can
lawfully occupy and fully operate its business in the Premises, then Tenant
shall have the right to terminate this Lease by written notice to Landlord
at any time after the Outside Date but before the date that Landlord
actually substantially completes the Premises. Notwithstanding the
foregoing, if Landlord is delayed in performing its obligations herein, by
reason of strike or other labor problems, acts of God, riot, weather,
insurrection, governmental actions or requirements, activities of or
construction by Tenant, or any other cause beyond the reasonable control of
Landlord, the time for Landlord's performance shall be extended for the
period of any such delay.
Provided that Tenant and its employees, agents and contractors do not
unreasonably interfere with Landlord's work in the Premises, Landlord shall
allow Tenant access to the Premises to install cabling, furniture and
equipment. Before Tenant's entry into the Premises as permitted hereunder,
Tenant shall submit a schedule to Landlord (and Landlord's contractor, if
so requested by Landlord), for their reasonable approval, which schedule
shall detail the timing and purpose of Tenant's entry. Tenant shall hold
Landlord harmless from and indemnify and protect and defend Landlord
against any loss or damage
1
<PAGE>
to the Premises and against injury to any person caused by Tenant's actions
as a result of such entry, to the extent such loss or damage is not covered
by insurance carried or required to be carried under this Lease.
Tenant acknowledges and agrees that the upfit by Landlord shall be
performed before the Commencement Date in accordance with the plans and
specifications for the Premises (the "Plans") (defined below) and in a good
and workmanlike manner using standard building materials, provided such
work is completed on or before December 31, 1999. The Plans are subject to
the mutual and reasonable approval of Landlord and Tenant, and upon such
approval, a copy of the Plans shall be attached hereto and made a part
hereof as Exhibit C. Each party shall act in good faith and respond
---------
promptly to any request of the other party hereto for approval of any
portion of the Plans.
Tenant shall have the right under this Lease, subject to any
applicable laws, regulations or rules, including but not limited to
Highwoods Office Park's restrictive covenants, to install satellite
dish(es), antennas, and telecommunications equipment on the rooftop of the
Premises at Tenant's sole cost and expense. All work by Tenant shall be
performed in a good and workmanlike manner and in compliance with
applicable laws and ordinances. The equipment installed by Tenant shall
remain the exclusive property of Tenant, and Tenant shall have the right to
remove all or any portion of said equipment at any time during the term of
this Lease. Following any such removal, Tenant shall repair any damage
caused by the same and restore the rooftop to its existing condition,
reasonable wear and tear excepted. Following any termination of this Lease,
any property which is not removed by Tenant within sixty (60) days after
the expiration or earlier termination of this Lease shall, upon the
expiration of said sixty (60) day period, become the property of Landlord,
and Tenant shall thereafter have no rights, obligations or liabilities
whatsoever with respect thereto.
Tenant agrees to indemnify, defend and hold Landlord harmless from and
against injury, loss, damage or liability (or any claims in respect of the
foregoing), costs or expenses (including reasonable attorneys' fees and
court costs) arising from the installation, use, maintenance, repair or
removal of the equipment located on the rooftop except to the extent caused
by Landlord's negligence or willful misconduct.
(c) TERM.
----
TO HAVE AND TO HOLD the same for a term of thirty six (36) months
commencing on November 1, 1999 (the "Commencement Date"), and ending on
-----------------
October 31, 2002, unless sooner terminated pursuant to the provisions
hereof (the "Termination Date") provided, however, such Commencement Date
----------------
shall be extended for each day that the Landlord has not completed its
upfit of the Premises in accordance with the terms hereof. The Commencement
Date and Termination Date shall also be extended due to delays beyond the
control of Landlord, including, but not limited to, permitting, acts of
God, delays caused by Tenant, and/or inclement weather.
(d) OPTION TO RENEW.
---------------
Tenant shall have the option to renew the term of the Lease for two
renewal periods (each, a "Renewal Term") of three (3) years in duration,
------------
provided that Tenant shall not be in Default (as defined in Section 15
hereof) under the Lease on the date such rights are exercised, or on the
date a Renewal Term shall commence. The date of the commencement of a
Renewal Term shall be the day after the expiration of the then current term
of the Lease (unless sooner terminated as provided herein).
All terms and conditions of this Lease shall be in effect during any
Renewal Term, except that the base rent paid by Tenant during the Renewal
Term shall be three percent (3%) above the base rent for the previous Lease
term. Tenant shall deliver to Landlord written notice of its election to
exercise its option to renew no less than six (6) months prior to the
expiration of the then current Lease term or Tenant's right to renew for a
Renewal Term shall be null and void.
2
<PAGE>
2. BASE RENT, CAM EXPENSE, JANITORIAL EXPENSE, AND SECURITY
--------------------------------------------------------
DEPOSIT.
-------
(a) BASE RENT.
---------
Tenant agrees to make monthly payments of base rent to Landlord for
the Premises ("base rent"), in advance, without demand, deduction or
---------
offset, in lawful money of the United States, at the annual rate of
fourteen dollars and 64/100 ($14.64) per rentable square foot of the
Premises, commencing on the Commencement Date as extended pursuant to
paragraph 1(c), and continuing on the first day of each and every month
thereafter until the Termination Date. Such monthly installments of base
rent shall be in the amount of $30,012.00. Rent payments for any fractional
calendar month at the end, or the beginning of the term of the Lease, shall
be prorated.
(b) CAM EXPENSE.
-----------
Beginning on the Commencement Date and continuing for the entire term
hereof, Tenant shall pay to Landlord, as additional rental, the annual cost
to Landlord in excess of $2.80 per square foot of all the costs and
expenses of the operation, repair and maintenance of the Premises, the
Building, its interior and exterior common areas, and driveways and parking
areas, including, but not limited to, the costs of lawn maintenance,
driveway and parking area maintenance for the Premises and for the streets
and roadways providing access to the Building and the Land, management and
supervisory fees, exterior lighting maintenance, snow removal, repair and
maintenance of paved areas, cleaning supplies, miscellaneous building
supplies, sweeper brushes, supplies for materials used by Tenant, external
paint for the Building, exterior and interior common area maintenance,
elevator repair and maintenance, external plumbing for the Building,
utility costs for exterior lighting and lighting in common areas, insect
and pest extermination, security guards for the complex in which the
Premises are located, signs for the complex in which the Premises are
located, fuel for vehicles and street sweepers used by Landlord in the
complex in which the Premises are located and miscellaneous maintenance
expenses, heat, air conditioning, labor, materials, supplies, equipment and
tools, permits, licenses, inspection fees, window glass replacement and
repair, compensation (including employment taxes and fringe benefits) of
all persons who perform duties in connection with the operation and/or
maintenance of the Building, costs for maintenance, repair, and replacement
of HVAC systems and other Building systems, trash removal at the Premises,
all taxes, assessments and governmental charges of any kind or nature
whatsoever levied or assessed against the Land and the Building by any
municipality, county, or other governmental agency, and the cost of all
insurance relating to the Building and the Land for which Landlord
considers reasonably necessary for the operation of the Premises, which may
include, without limitation, commercial general liability, rent loss, fire,
and extended coverage insurance (hereinafter collectively, the "CAM
---
Expense").
-------
Notwithstanding anything to the contrary set forth herein, CAM
Expense shall not include the following:
(i) Inheritance, estate, succession, transfer, gift, franchise, or
capital stock tax, or any income taxes arising out of or related to
ownership and operation of income-producing real estate, or any excise
taxes imposed upon Landlord based upon gross or net rentals or other
income received by it.
(ii) Any ground or underlying lease rental;
(iii) Bad debt expenses and interest, principal, points and fees on
debts or amortization on any mortgage or other debt instrument
encumbering the Building or the Lot;
(iv) Costs which may be considered capital improvements, capital
repairs, capital changes or any other capital costs as determined
under generally accepted accounting principles except for capital
improvements required by any laws not in existence and not in effect
as of the Commencement Date, in which case such costs
3
<PAGE>
shall be capitalized and amortized over their useful life determined
in accordance with generally accepted accounting principles;
(v) Rentals for items which if purchased, rather than rented, would
constitute a capital cost;
(vi) Costs incurred by Landlord to the extent that Landlord is
reimbursed by insurance proceeds or is otherwise reimbursed;
(vii) Depreciation, amortization and interest payments, except on
equipment, materials, tools, supplies and vendor-type equipment
purchased by Landlord to enable Landlord to supply services Landlord
might otherwise contract for with a third party where such
depreciation, amortization and interest payments would otherwise have
been included in the charge for such third party's services, all as
determined in accordance with generally accepted accounting
principles, consistently applied, and when depreciation or
amortization is permitted or required, the item shall be amortized
over its reasonably anticipated useful life;
(viii) Advertising and promotional expenditures, and costs of
acquisition and maintenance of signs in or on the Building identifying
the owner of the Building or other tenants;
(ix) Marketing costs, including leasing commissions, attorneys' fees
(in connection with the negotiation and preparation of letters, deal
memos, letters of intent, leases, subleases and/or assignments), and
other costs and expenses incurred in connection with lease, sublease
and/or assignment negotiations and transactions with present or
prospective tenants or other occupants of the Building;
(x) Costs, including permit, license and inspection costs, incurred
with respect to the installation of tenants' or other occupants'
improvements or incurred in renovating or otherwise improving,
decorating, painting or redecorating vacant space for tenants or other
occupants of the Building;
(xi) Expenses in connection with services or other benefits which
are not offered to Tenant or for which Tenant is charged for directly;
(xii) Costs incurred by Landlord due to the violation by Landlord or
any tenant of the terms and conditions of any lease of space in the
Building;
(xiii) Management fees paid or charged by Landlord in connection
with the management of the Building to the extent such management fee
is in excess of the management fee customarily paid or charged by
landlords of the comparable buildings in the vicinity of the Building;
(xiv) Salaries and other benefits paid to the employees of Landlord
to the extent customarily included in or covered by a management fee,
provided that in no event shall CAM Expenses include salaries and/or
benefits attributable to personnel above the level of Building
manager;
(xv) Rent for any office space occupied by Building management
personnel to the extent the size or rental rate for such office space
exceeds the size or fair market rental value of office space occupied
by management personnel of comparable buildings in the vicinity of the
Building;
(xvi) Amounts paid to Landlord or to subsidiaries or affiliates of
Landlord for goods and/or services in the Building to the extent the
same exceeds the costs of such goods and/or services rendered by
unaffiliated third parties on a competitive basis;
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(xvii) Landlord's general corporate overhead and general and
administrative expenses;
(xviii) Any compensation paid to clerks, attendants or other persons
in commercial concessions operated by Landlord;
(xix) Services provided, taxes, attributable to, and costs incurred
in connection with the operation of any retail, restaurant and garage
operations for the Building, and any replacement garages or parking
facilities and any shuttle services;
(xx) Costs incurred in connection with upgrading the Building to
comply with laws, rules, regulations and codes in effect before the
Commencement Date;
(xxi) Costs arising from the gross negligence or willful misconduct
of Landlord or other tenants or occupants of the Building or their
respective agents, employees, licensees, vendors, contractors or
providers of materials or services;
(xxii) Costs arising from Landlord's charitable or political
contributions;
(xxiii) Costs arising from latent defects or repair thereof;
(xxiv) Costs for sculpture, paintings or other objects of art;
(xxv) Costs associated with the operation of the business of the
entity which constitutes Landlord as the same are distinguished from
the costs of operation of the Building, including accounting and legal
matters, costs of defending any lawsuits with any mortgagee (except as
the actions of Tenant may be in issue), costs of selling, syndicating,
financing, mortgaging or hypothecating any of Landlord's interest in
the Building, costs incurred in connection with any disputes between
Landlord and its employees, between Landlord and Building management,
or between Landlord and other tenants or occupants; and
(xxvi) Any costs incurred by Landlord in order to prepare for,
correct, repair or test for any problems in the Building relating to
the year 2000 computer problem.
Since one of the purposes of CAM Expenses is to allow Landlord to
require Tenant to pay for the costs attributable to its Premises, Landlord
agrees that (i) Landlord will not collect or be entitled to collect CAM
Expenses from all of its tenants in an amount that is in excess of one
hundred percent (100%) of the CAM Expenses actually paid by Landlord in
connection with the operation of the Premises, and (ii) Landlord shall make
no profit from Landlords' collections of CAM Expenses. All assessments and
premiums which are not specifically charged to Tenant because of what
Tenant has done, which can be paid by Landlord in installments, shall be
paid by Landlord in the maximum number of installments permitted by law and
not included as CAM Expenses except in the year in which the assessment or
premium installment is due actually paid; provided, however, that if the
prevailing practice in other comparable office buildings in the vicinity of
the Building is to pay such assessments or premiums on an earlier basis,
and Landlord pays on such basis, such assessments or premiums shall be
included in CAM Expenses as paid by Landlord; in no event, however, shall
Landlord include any accrued interest (resulting form such assessments or
premiums) in its computation of CAM Expenses.
(c) Landlord shall keep, in the Building manager's office,
complete books and records regarding CAM Expenses (which includes Taxes)
(collectively, "Charges"). All records shall be retained for at least one
(1) year. Tenant shall have the right to audit the applicable records of
Landlord to confirm that the Charges billed to Tenant are proper and
conform to the provisions of this Lease. Such right shall be exercisable by
Tenant within six (6) months after Tenant's receipt of Landlord's annual
statement of such charges. Landlord shall cooperate with Tenant in
providing Tenant reasonable access to Landlord's books and records during
normal business hours to enable Tenant to audit Landlord's books and
records as they relate to any costs or expenses passed through to Tenant
pursuant to any provisions of this Lease. If the audit discloses any
overpayment on the
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part of Tenant, then Tenant shall be entitled to a credit on the next
succeeding installment of rent for an amount equal to the overcharge plus
interest on the amount of such overcharge from the date on which same was
paid by Tenant until the date refunded by Landlord at the prime rate then
published in The Wall Street Journal, and such credit shall be extended to
succeeding installments of rent in the event such overcharge exceeds the
amount of the next succeeding such installment and, in the event the term
of this Lease has expired or been earlier terminated, then Tenant shall be
entitled to a refund of such excess from Landlord within thirty (30) days
after such date or expiration or earlier termination. In addition, in the
event such audit by Tenant discloses such an overcharge in excess of five
percent (5%) of the amount actually due from Tenant for Charges, then
Landlord shall pay to Tenant the reasonable costs and expenses of such
audit.
(d) JANITORIAL EXPENSES.
-------------------
Beginning on the Commencement Date and continuing for the entire term
hereof, Tenant shall be responsible for the retention and payment of all
janitorial services to the Premises.
(e) RECONCILIATION OF EXPENSES.
--------------------------
Within ninety (90) days of the close of each calendar year of the
Term, Landlord shall promptly notify Tenant of the total actual CAM
Expense, attaching a copy of the tax or special assessment bill, the
insurance invoice, and the calculation of CAM Expense, and shall specify
Tenant's share of the costs thereof. Tenant shall pay the amount so
specified to Landlord within thirty (30) days following receipt by Tenant
of Landlord's notice. Failure by Tenant to pay Landlord such amount within
the period designated shall constitute a non-payment of rent by Tenant and
a Default of Tenant's obligation under the Lease, and Landlord shall be
entitled to all remedies provided for in this Lease upon Default in payment
of rent. If the first year for which the CAM Expense is due or the final
year of the term hereof do not coincide with the calendar year, Tenant's
CAM Expense for the portion of that year shall be prorated according to the
number of months during which Tenant was in possession of the Premises.
(f) SECURITY DEPOSIT.
----------------
Tenant shall pay to Landlord on or before the execution date hereof
the sum of twenty eight thousand nine hundred five and NO/100 dollars
($28,905.00) to be held by Landlord as security for the performance by
Tenant of all obligations imposed on Tenant pursuant to this Lease
(hereinafter the "security deposit"). Landlord shall not be required to
----------------
apply all or any portion of the security deposit with respect to any
particular violation or Default by Tenant but Landlord may apply all or any
portion of the security deposit to any violation, breach, or Default by
Tenant hereunder. LANDLORD SHALL DEPOSIT THE SECURITY DEPOSIT IN AN
INTEREST BEARING ESCROW ACCOUNT, WITH ALL INTEREST ACCRUED THEREON TO BE
FOR THE BENEFIT OF LANDLORD. Tenant shall reimburse Landlord for such
portions of the security deposit as Landlord shall from time to time apply
with respect to any violation, breach, or Default by Tenant hereunder
promptly upon written notice of such application by Landlord. Any portion
of the security deposit which has not been appropriated by Landlord in
accordance with the provisions hereof shall be returned to Tenant upon the
termination of this Lease.
If Landlord conveys Landlord's interest under this Lease, the
security deposit, or any part thereof not previously applied, may be
transferred by Landlord to Landlord's grantee, and if so transferred,
Tenant agrees to look solely to such grantee for the proper application and
return thereof in accordance with the terms of this Section 2. Tenant
agrees that Tenant will not assign, and that neither Landlord, nor its
successors and assigns, shall be bound by any such assignment, encumbrance
or pledge, attempted assignment, attempted pledge, or attempted encumbrance
of the security deposit.
Any mortgagee or ground lessor shall not be responsible to Tenant
for the return or application of the security deposit, whether or not it
succeeds to the position of
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Landlord hereunder, unless the security deposit shall have been received in
fact by such mortgagee or ground lessor.
(g) PROVISIONS TO SURVIVE LEASE TERMINATION.
---------------------------------------
Any unperformed obligations of Tenant or Landlord under this Section 2
shall survive the termination of the Lease, for whatever reason, or any
extension or renewal hereof.
3. UTILITIES.
---------
(a) Tenant shall pay all charges for all water, electrical,
telephone, sewer, and other utilities or services used on or from the
Premises, together with any taxes, penalties, surcharges or the like
pertaining thereto. Tenant shall also pay for any utility maintenance
charges and shall furnish all electric light bulbs and tubes required for
the Premises provided the Premises will be delivered with working electric
light bulbs and tubes. If any such services are not separately metered to
Tenant, Tenant shall pay a reasonable proportion as determined by Landlord
of all charges jointly metered with other tenants of the Building.
(b) Landlord shall in no event be liable for any interruption or
failure of utility services on the Premises. Landlord agrees to provide at
its cost, all utility line connections into the Premises.
4. COMPLIANCE WITH LAWS AND USE.
----------------------------
(a) The Premises shall be used only for the following purposes:
general office use including without limitation computer and data centers
and training rooms. Tenant shall conduct no activity that will result in
the discharge of harmful gases, affluents or other wastes or toxic
substances. Outside storage, including, without limitation, trucks and
other vehicles, is prohibited without Landlord's prior written consent.
Tenant shall at its sole cost and expense obtain any and all licenses and
permits necessary for its particular use of the Premises as opposed to
office use generally. Tenant shall comply with all governmental laws,
ordinances and regulations relating to the use of the Premises, and shall
promptly comply with all governmental orders and directives for the
correction, prevention and abatement of nuisances in or upon, or connected
with, the Premises, all at Tenant's sole expense to the extent related to
Tenant's particular use of the Premises as opposed to office use generally.
Tenant shall not permit any objectionable or unpleasant odors, smoke, dust,
gas, noise or vibrations to permeate in or emanate from the Premises, nor
take any other action which would constitute a nuisance or would disturb or
endanger any other tenants of the Building or unreasonably interfere with
their respective premises. Without Landlord's prior written consent,
Tenant shall not receive, store or otherwise handle any product, material
or merchandise which is explosive, inflammable, combustible, corrosive,
caustic or poisonous. Tenant will not permit the Premises to be used for
any purpose or in any manner (including, without limitation, any method of
storage) which would render the insurance thereon void or the insurance
risk more hazardous or cause the State Board of Insurance or other
insurance authority to disallow any sprinkler credits. Tenant shall give
notice to Landlord as soon as Tenant becomes aware of the occurrence of any
accident in the Premises or upon Tenant's discovery of any defects thereon
or in any fixtures or equipment located therein or upon the occurrence of
any emergency in the Premises or the Building.
(b) Tenant, at its expense, in making any alterations, renovations,
upfit or modifications of the Premises shall comply with all laws,
ordinances, orders, rules and regulations of state, federal, municipal or
other agencies or bodies having jurisdiction relating to the use, condition
and occupancy of the Premises, including, but not limited to, the
provisions of the Americans with Disabilities Act of 1990, as amended, and
with recorded covenants, conditions and restrictions applicable for the
Land and Building.
(c) Notwithstanding the foregoing or any other provision of this
Lease, however, Tenant shall not be responsible for compliance with any
such laws, regulations,
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or the like requiring (i) structural repairs or modifications or (ii)
repairs or modifications to the utility or building service equipment or
(iii) installation of new building service equipment, such as fire
detection or suppression equipment, unless such repairs, modifications, or
installations shall (a) be due to Tenant's particular manner of use of the
Premises (as opposed to office use generally), or (b) be due to the
negligence or willful misconduct of Tenant or any agent, employee, or
contractor of Tenant.
(d) Landlord represents and warrants to Tenant that the reports
attached hereto as Exhibit F include all due diligence reports received by
Landlord in its acquisition of the Building and Land.
(e) Landlord represents and warrants to Tenant to the best of its
knowledge based solely upon those reports listed on Exhibit F attached
hereto that the Building and the Premises are in compliance with all
applicable building code, zoning, land use and environmental laws
including, without limitation, the Americans with Disabilities Act and
agreements and the requirements of all easement and encumbrance documents
and Landlord covenants to keep the same in compliance throughout the Term.
5. REPAIRS AND MAINTENANCE.
-----------------------
(a) Except as provided herein, Landlord shall at its expense
maintain, repair and replace only the roof, downspouts, gutters,
foundation, all utility lines located outside the Building and the exterior
walls, windows, glass, and plate glass of the Building in good repair,
reasonable wear and tear excepted. Tenant shall repair, replace and pay
for, any damage to the foregoing caused by the construction activities of
Tenant, the negligence or willful misconduct of Tenant or Tenant's
employees, agents or invitees, or caused by Tenant's Default hereunder.
Tenant shall promptly give Landlord written notice of defect or need for
repairs, after which Landlord shall have reasonable opportunity to repair
same or cure such defect. Except to the extent caused by the willful
misconduct or negligence of Landlord, Landlord's liability with respect to
any defects, repairs or maintenance for which Landlord is responsible under
any of the provisions of this Lease shall be limited to the cost of such
repairs or maintenance or the curing of such defect.
(b) Tenant shall at its own cost and expense maintain and repair all
parts of the interior of the Premises (except those for which Landlord is
expressly responsible under the terms of this Lease) in good condition,
promptly making all necessary repairs including, but not limited to, any
special office entry, interior walls, finish work, floors and floor
covering, plumbing work and fixtures, to the extent the foregoing are
within the Building and regular removal of trash and debris. Tenant shall
not be obligated to repair any casualty covered by the insurance to be
maintained by Landlord pursuant to subparagraph 10(a) below or any systems
or equipment under manufacturer or vendor warranty. Landlord represents and
covenants that it will install a new heating and air conditioning system
before December 31, 1999, at Landlord's sole cost. As such system will be
new and under warranty, Tenant shall not be responsible for maintaining or
repairing the same except to the extent any damage thereto is caused by the
willful misconduct or negligence of Tenant.
(c) If either party hereto shall fail to fulfill its obligations
under this paragraph 5 after written notice to the other and the passage of
applicable cure periods, the other party hereto may enter upon the area of
the Building or the Premises as required to conduct the obligations of the
defaulting party, and shall be entitled to reimbursement from the
defaulting party for its actual costs and expenses in conducting such
obligations. The defaulting party shall reimburse the other party hereto
for its actual costs and expense promptly upon demand made by the other
party hereto. The provisions of this subparagraph shall not be interpreted
to obligate either party hereto to conduct obligations of the other party
hereto.
(d) Tenant shall enter into a maintenance contract providing for
the periodic maintenance of all heating and air conditioning systems and
units in the Premises, and removal and replacement of filters, and shall
enter into a janitorial contract providing for the cleaning of the Premises
and the removal of all trash and debris. These contracts shall
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be with parties and upon such terms and conditions as shall be reasonably
approved by Landlord. Tenant shall provide Landlord a copy of such
contracts on or before the Commencement Date.
(e) Tenant shall not damage any demising wall of the Building, or
disturb the integrity and support provided by any demising wall and shall,
at its sole cost and expense, promptly repair any damage or injury to any
demising wall caused by Tenant or its employees, agents or invitees.
6. ALTERATIONS.
-----------
(a) Tenant shall not make any alterations, additions or improvements
to the Premises except for minor decorative changes (including, but not
limited to, roof and wall penetrations) without the prior written consent
of Landlord, which may be withheld in Landlord's reasonable discretion.
Tenant may, without the consent of Landlord, but at its own cost and
expense and in a good workmanlike manner, make non-structural changes
including erect such shelves, bins, machinery and trade fixtures as it may
deem advisable, without altering the basic character or structure of the
Premises or improvements and without overloading or damaging the Premises
or improvements, and in each case complying with all applicable
governmental laws, ordinances, regulations and other requirements. Tenant
shall not make any alterations, additions or improvements to the Premises
which will contravene Landlord's policies insuring against loss or damage
by fire or other hazards, including but not limited to commercial general
liability, or which will prevent Landlord from securing such policies in
companies acceptable to Landlord. If any such alterations, additions or
improvements cause the rate of fire or other insurance on the Premises by
companies acceptable to Landlord to be increased beyond the minimum rate
from time to time applicable to the Premises for permitted uses thereof,
Tenant shall pay as additional rent the amount of any such increase
promptly upon demand by Landlord.
(b) Any and all alterations, additions, improvements, partitions and
fixtures erected by Tenant shall be the property of Landlord and shall
remain at the Premises upon termination of the Lease or upon earlier
vacating of the Premises. All shelves, bins, machinery and trade fixtures
installed by Tenant may be removed by Tenant prior to the termination of
this Lease provided such removal may be accomplished without damage to the
Premises or to the primary structure or structural qualities of the
Building and other improvements situated on the Premises. Tenant shall
repair any damage to the Premises, or to the Building as a result of any
alteration, addition, improvement, or repair to the Premises, or the
removal of personal property or trade fixtures by Tenant, its employees,
agents, invitees, or contractors to the Premises. Should Tenant fail to
conduct any such repair within ten days of written notice from Landlord,
Landlord may, at its option, perform same, and Tenant shall remit payment
to Landlord for the actual cost and expense incurred by Landlord in
effecting such repair immediately upon demand.
7. SIGNS. Upon reasonable approval in writing by Landlord and
------
subject to any applicable governmental laws, ordinances, regulations and
other requirements (including but not limited to Highwoods Office Park's
restrictive covenants and the City of Raleigh Code of Ordinances), Tenant
shall have the exclusive right to install, at its sole expense, a panel
within the monument sign located on the Premises. The Tenant shall be
solely responsible for the installation and maintenance of the panel within
the monument sign. Tenant shall remove the panel upon the termination of
this Lease. Such installations and removals shall be made in such manner
as to avoid injury or defacement of the Premises, and Tenant shall repair
any injury or defacement, including, without limitation, discoloration of
the sign box or any other related equipment regarding same caused by such
installation and/or removal.
8. INSPECTION.
-----------
(a) Landlord and Landlord's agents and representatives shall have
the right to enter and inspect the Premises at any reasonable time during
business hours, for the purpose of ascertaining the condition of the
Premises or in order to make such repairs as may be required or permitted
to be made by Landlord under the terms of this Lease or in
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order to show the Premises to any prospective purchaser or lender. Except
for emergencies, Landlord shall provide 24 hours advance notice of any such
inspection. During the period that is six (6) months prior to the end of
the term hereof, Landlord and Landlord's agents and representatives shall
have the right to enter the Premises at any reasonable time during business
hours for the purpose of showing the Premises to any prospective tenant and
shall have the right to erect on the Premises a suitable sign indicating
the Premises are available. In all events, Landlord's entry to and
inspection of the Premises shall be conducted so as not to interfere with
the operation of Tenant's business in the Premises. Tenant shall schedule
with Landlord at least thirty (30) days prior to vacating the Premises a
time mutually agreeable to the parties hereto for a joint inspection of the
Premises prior to vacating. In the event of Tenant's failure to give notice
or arrange such joint inspection, Landlord's inspection made in good faith
at or after Tenant's vacating the Premises shall be presumptively deemed
correct for purposes of determining Tenant's responsibilities for repairs
and restoration.
(b) Landlord acknowledges that Tenant's business at the Premises
involves sensitive information and operations and the Tenant has security
requirements to protect such information and operations. Landlord and any
person entering the Premises with, at the direction of or under the
authority of, Landlord shall follow Tenant's security requirements, which
include the requirement that all persons entering the Premises be attended
by a representative of Tenant. Tenant shall make a representative
available upon 24-hours prior notice by Landlord. In the event of an
emergency that could cause damage to health, safety or property Landlord
shall use good faith efforts to follow Tenant's security requirements and
in such event Landlord will be required to give only such notice that it in
good faith believes is feasible under the circumstances and need not wait
to be accompanied by Tenant or its employees or representatives (although
these parties may still accompany Landlord if they are available and wish
to do so).
9. ASSIGNMENT AND SUBLETTING. Tenant may sublet or assign the
-------------------------- ------ ------
Premises or the interest of Tenant therein in whole or in part without the
consent of Landlord upon thirty (30) days written notice to Landlord to (i)
an Affiliate (an "affiliate" shall be deemed to be any entity which is
controlled by or under common control with Tenant or which controls
Tenant); (ii) a Subsidiary (a "subsidiary" shall be deemed to be any entity
controlled, directly or indirectly, by Tenant); (iii) a successor entity to
Tenant resulting from merger, consolidation, non-bankruptcy reorganization,
or government action; or (iv) a purchaser of all or a majority of Tenant's
stock or assets, provided that the Building is used for general office
purposes and/or the same or similar purpose as used by Tenant. If such
assignee or sublessee shall possess a net worth less than that of Tenant,
Tenant shall continue to remain obligated under this Lease notwithstanding
such assignment of sublease. For the purposes of this Section 9, the net
worth of Tenant shall be measured as of the Commencement Date.
Tenant may otherwise sublet or assign the Premises or the interest of
------ ------
Tenant therein in whole or in part, subject to the prior written consent of
Landlord, which shall not be unreasonably withheld, so long as the Building
is used for general office purposes and/or the same or similar purpose as
used by Tenant. Further, except as provided herein, Tenant may not sell,
lien, or encumber its interest in this Lease, or assign or delegate the
management or permit the use or occupancy of the Premises in whole or in
part by anyone other than Tenant without the prior written consent of
Landlord, which consent Landlord may withhold in its sole discretion.
Landlord and Tenant acknowledge and agree that the foregoing provisions
have been freely negotiated by the parties hereto and that Landlord would
not have entered into this Lease without Tenant's consent to the terms of
this Paragraph 9.
In no event shall this Lease be assignable by operation of any law,
and Tenant's rights hereunder (to the extent permitted by law) may not
become, and shall not be listed by Tenant as an asset under any bankruptcy,
insolvency, or reorganization proceedings. No assignment, transfer,
mortgage, sublease or other encumbrance, whether or not approved, and no
indulgence granted by Landlord to any assignee or subtenant, shall in any
way impair the continuing primary liability (which after an assignment
shall be joint and several with the assignee) of Tenant hereunder, and no
approval in a particular
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instance shall be deemed to be a waiver of the obligation to obtain
Landlord's approval in any other case. If for any approved assignment or
sublease Tenant receives rent or other consideration, either initially or
over the term of the assignment or sublease, in excess of the base rent
hereunder, or in case of a sublease of part of the Premises, in excess of
the portion of such rent fairly allocable to such part, after appropriate
adjustments to assure that all other payments called for hereunder are
appropriately taken into account, Tenant shall pay to Landlord as
additional rent fifty percent (50%) of the excess of each such payment of
rent or other consideration received by Tenant promptly after its receipt.
Notwithstanding any provision of this Lease to the contrary,
should Tenant receive consent from Landlord to sublease or assign its
interest in the Premises and seek to sublease or assign its interest in the
Premises in accordance with this paragraph, Tenant shall not use the name
of Landlord, any insignia of Landlord, or any likeness of the Building in
any of its advertising for such sublease or assignment.
10. FIRE AND CASUALTY DAMAGE.
------------------------
(a) Landlord shall obtain and keep in force a policy of general
liability insurance with coverage against such risks and in such amounts as
Landlord deems reasonably commercially advisable insuring Landlord against
liability arising out of the ownership, operation and management of the
Building. Landlord agrees to maintain standard fire and extended coverage
insurance for the Building in an amount not less than 80% (or such greater
percentage as may be necessary to comply with the provisions of any co-
insurance clauses of the policy) of the "replacement cost" thereof as such
term is defined in the Replacement Cost Endorsement to be attached thereto,
insuring against special causes of loss, including, the perils of fire, and
lightning, such coverages and endorsements to be as defined, provided and
limited in the standard bureau forms prescribed by the insurance regulatory
authority for the State of North Carolina. Subject to the provisions of
subparagraphs 10(c), 10(d), 10(e) and Section 11 below, such insurance
shall be for the sole benefit of Landlord and under its sole control.
(b) If the Premises should be damaged or destroyed by any peril
covered by the insurance to be provided by Landlord under subparagraph
10(a) above, Tenant shall give immediate written notice thereof to
Landlord.
(c) If the Premises should be totally destroyed by any peril
covered by the insurance to be provided by Landlord under subparagraph
10(a) above, or if they should be so damaged thereby that rebuilding or
repairs cannot in Landlord's estimation be completed within one hundred
eighty (180) days after the date upon which Landlord is notified by Tenant
of such damage, this Lease shall terminate and the rent shall be abated
during the unexpired portion of this Lease, effective upon the date of the
occurrence of such damage.
(d) If the Premises should be damaged by any peril covered by
the insurance to be provided by Landlord under subparagraph 10(a) above,
but only to such extent that rebuilding or repairs can, in Landlord's
estimation, be completed within one hundred eighty (180) days after the
date upon which Landlord is notified by Tenant of such damage, this Lease
shall not terminate, and Landlord shall, at its sole cost and expense,
thereupon proceed with reasonable diligence to rebuild and repair the
Premises and the Building to substantially the condition in which they
existed prior to such damage, except that Landlord shall not be required to
rebuild, repair or replace any part of the partitions, fixtures, additions
and other improvements which may have been placed in, on or about the
Premises by Tenant. If the Premises are untenantable in whole or in part
following such damage, the rent payable hereunder during the period in
which they are untenantable shall be reduced in proportion to the amount of
the Premises that is unusable or inaccessible to Tenant in the ordinary
conduct of its business or to the extent of the interference with Tenant's
use of the common areas of the Building.
(e) Notwithstanding anything herein to the contrary, in the
event the holder of any indebtedness secured by a mortgage or deed of trust
covering the Premises requires that the insurance proceeds be applied to
such indebtedness, then Landlord shall have the
11
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right to terminate this Lease by delivering written notice of termination
to Tenant within fifteen (15) days after such requirement is made by any
such holder, whereupon all rights and obligations hereunder thereafter
accruing shall cease and terminate.
(f) Each of Landlord and Tenant hereby waives all rights to
recover against each other or against any other tenant or occupant of the
Building, or against the officers, directors, shareholders, partners, joint
venturers, employees, agents, customers, invitees, or business visitors of
each other or of any other tenant or occupant of the Building, for any loss
or damage arising from any cause covered by any insurance required to be
carried by each of them pursuant to this Lease, or any other insurance
actually carried by either of them. Landlord and Tenant shall cause their
respective insurers to issue waiver of subrogation rights endorsements to
all policies of insurance carried in connection with the Building or the
Premises or the contents of either of them, and any cost for the issuance
of such endorsements shall be borne by the original insured under such
policies.
(g) The obligation of Landlord in this paragraph 10 to repair
and restore the Premises and the Building as provided herein, does not
include an obligation of Landlord to repair the fixtures, equipment, or
personal property of Tenant, which Tenant shall insure for its benefit, and
Tenant shall have the obligation to repair and restore in the event of a
casualty or other loss.
(h) The period of time within which repair and restoration of
the Premises must be completed shall be extended due to delays occasioned
by force majeure.
11. LIABILITY AND INSURANCE.
-----------------------
(a) Subject to waiver of subrogation in 10(f) above, each party
shall indemnify, defend, protect and hold the other party harmless from and
against any and all claims, suits, judgments, losses, costs, obligations,
damages, expenses, interests and liabilities, including, without
limitation, reasonable attorneys' fees, for any injury or damage to any
person or property whatsoever arising out of or in connection with the
matters described below, when such injury or damage has been caused in
whole or in part by the negligence or willful act of that party or its
employees, agents or contractors. The indemnifying party shall reimburse
the other party for any injury or damage which has been caused in whole or
in part by the other party by reason of any breach, violation or non-
performance by the indemnifying party, its employees, or independent
contractors of any covenant of this Lease, or by reason of the negligence
or willful acts of the indemnifying party, its employees or independent
contractors. Nothing contained in this Lease shall obligate the
indemnifying party to indemnify the other party against the other party's
negligence or willful acts or that of its employees, agents or independent
contractors. The provisions of this Section 11 shall survive the expiration
or termination of this Lease and shall terminate upon the expiration of any
applicable statute of limitations. Subject to provisions of Section 10(f),
Tenant shall indemnify Landlord from and against any claim or loss arising
out of any injury, loss or damage to any person or property while on or in
the Premises, if not due to negligence or willful misconduct of Landlord or
its employees, agents or contractors, and from damage, loss, or injury to
any person or property anywhere occasioned by the negligence or willful
misconduct of Tenant or of the employees, agent, independent contractors or
invitees of Tenant. Subject to provisions of Section 20(f), Landlord shall
indemnify Tenant from damage, loss, or injury to any person or property on
the Premises occasioned by the negligence or willful misconduct of Landlord
or of its employees, agents or independent contractors.
(b) Tenant shall not be required to indemnify and hold Landlord
harmless from any loss, cost, liability, damage or expense, including, but
not limited to, penalties, fines, liens, judgments, settlement costs,
investigation costs, attorneys fees, court costs, insurance policy
deductibles (collectively "Claims"), to any person, property or entity
resulting from the negligence or willful misconduct of Landlord or its
agents, contractors, servants, employees or licensees, in connection with
the Landlord's activities on the Premises. Landlord shall not be required
to indemnify and hold Tenant harmless from any Claims to any person,
property or entity resulting from the negligence or willful
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misconduct of Tenant or its agents, contractors, servants, employees or
licensees, in connection with the Tenant's activities on the Premises.
(c) Tenant's agreement to indemnify and hold Landlord harmless,
the exclusion from Tenant's indemnity, Landlord's agreement to indemnify
and hold Tenant harmless pursuant to the provisions of this Lease are not
intended to and shall not relieve any insurance carrier of its obligations
under policies required to be carried by Landlord or Tenant, respectively,
pursuant to the Lease to the extent that such policies cover the results of
such acts, omissions or willful misconduct.
(d) Tenant shall procure and maintain throughout the term of
this Lease a policy or policies of insurance, at its sole cost and expense,
naming Landlord as an additional insured, and insuring both Landlord and
Tenant against all claims, demands or actions arising out of or in
connection with: (i) the Premises; (ii) the condition of the Premises;
(iii) Tenant's operations in and maintenance and use of the Premises; (iv)
the equipment, personal property and fixtures of Tenant located on the
Premises; (v) any interruption in the conduct of the business of Tenant on
the Premises; (v) Tenant's liability assumed under this Lease, and such
other kinds of insurance as Landlord shall reasonably request. The limits
of coverage maintained by Tenant for (i) commercial general liability shall
be not less than $5,000,000.00 with respect to each occurrence, not less
than $5,000,000.00 with respect to personal injury or death of a single
person, not less than $5,000,000 general aggregate, and not less than
$5,000,000.00 with respect to products completed operations aggregate, (ii)
for business interruption insurance shall be not less than coverage for
actual loss, and (iii) for replacement of the equipment, personal property
and fixtures of Tenant shall be not less than full replacement value.
(e) All such policies shall be procured by Tenant from
responsible insurance companies satisfactory to Landlord. Certificates of
insurance, together with receipt evidencing payments of premiums thereof,
shall be delivered to Landlord prior to the Commencement Date. Not less
than fifteen (15) days prior to the expiration date of any such policies,
certificates of insurance (bearing notations evidencing the payment of
renewal premiums) shall be delivered to Landlord. Such policies shall
further provide that not less than thirty (30) days prior written notice
shall be given to Landlord before such policy may be canceled or changed to
reduce insurance provided thereby.
12. CONDEMNATION.
------------
(a) If the whole or any substantial portion of the Premises, the
Building or the Land should be taken for any public or quasi-public use
under governmental law, ordinance, or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, and the taking would
prevent or materially interfere with the use of the Premises by Tenant for
the purposes provided herein, this Lease shall terminate and the rent shall
be abated during the unexpired portion of this Lease, effective when the
physical taking of the Premises shall occur.
(b) If a portion of the Premises, the Building or the Land shall
be taken for any public or quasi-public use under any governmental law,
ordinance or regulation, or by right of eminent domain, or by private
purchase in lieu thereof, and the use by Tenant of the Premises is not
materially interfered with, this Lease shall not terminate but the rent
payable hereunder during the unexpired portion of this Lease shall be
reduced in an amount that shall be reasonable under all of the
circumstances but no less than that amount of rent relating to the portion
of the Premises, if any, taken.
(c) In the event of any such taking or private purchase in lieu
thereof, Landlord shall be entitled to receive and retain all awards as may
be awarded in any condemnation proceedings other than those specifically
awarded Tenant for a taking of Tenant's personal property, loss of business
and moving expenses.
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13. HOLDING OVER AND TERMINATION.
----------------------------
(a) Tenant shall upon the termination of this Lease by lapse of
time or otherwise, yield up immediate possession to Landlord without the
requirement of notice by Landlord to Tenant of the termination of this
Lease, nor any grace or cure period should Tenant fail to yield up
immediate possession to Landlord. Unless the parties hereto shall otherwise
agree in writing, if Landlord agrees in writing that Tenant may hold over
after the expiration or termination of this Lease, the hold over tenancy
shall be subject to termination by Landlord at any time upon not less than
ten (10) days advance written notice, or by Tenant at any time upon not
less than thirty (30) days advance written notice, and all of the other
terms and provisions of this Lease shall be applicable during that period,
except that Tenant shall pay Landlord from time to time upon demand, as
rental for the period of any hold over, an amount equal to one and one-half
(1-1/2) the rent in effect on the termination date, computed on a daily
basis for each day of the hold over period. No holding over by Tenant,
whether with or without consent of Landlord, shall operate to extend this
Lease except as otherwise expressly provided. The preceding provisions of
this Paragraph 13 shall not be construed as Landlord's consent for Tenant
to hold over.
(b) Upon the termination of this Lease for whatever reason,
Tenant shall quit and immediately surrender the Premises to Landlord, broom
clean, in good order and condition with all repairs and maintenance
required by Tenant hereunder having been performed, ordinary wear and tear
and casualty excepted, and Tenant shall remove its personal property from
the Premises in accordance with this Lease. Should any of the personal
property or trade fixtures of Tenant remain upon the Premises after the
Termination Date, all such property shall be deemed abandoned by Tenant,
and Landlord may remove same at the cost and expense of Tenant with no
liability to Tenant therefore, and Tenant hereby releases Landlord from all
liability therefor.
14. QUIET ENJOYMENT. Landlord represents and warrants that it
----------------
has full right and authority to enter into this Lease and that Tenant, upon
paying the rental herein set forth and performing its other covenants and
agreements herein set forth, shall peaceably and quietly have, hold and
enjoy the Premises for the term hereof without hindrance or molestation
from Landlord, subject to the terms and provisions of this Lease.
15. EVENTS OF DEFAULT. The following events shall be deemed to
-----------------
be events of Default by Tenant under this Lease:
(a) Tenant shall fail to pay any installment of the rent herein
reserved, or payment with respect to taxes hereunder, or any other payment
or reimbursement to Landlord required herein, within five (5) days after
notice; provided, however, Tenant shall not be in default under this
subparagraph (a) for any failure to comply with the provisions of this
subparagraph (a) two times in any twelve month period.
(b) Tenant shall become insolvent, or shall make a transfer in
fraud of creditors, or shall make an assignment for the benefit of
creditors.
(c) Tenant shall file a petition under any section or chapter of
the Bankruptcy Reform Act, as amended or under any similar law or statute
of the United States or any state thereof; or Tenant shall be adjudged
bankrupt or insolvent in proceedings filed against Tenant thereunder.
(d) A receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant.
(e) Tenant shall fail to yield up immediate possession of the
Premises to Landlord upon termination of this Lease.
(f) Tenant shall fail to comply with any term, provision or
covenant of this Lease (other than the provisions of subparagraphs (a),
(b), (c), (d), and (e) of this
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Paragraph 15), and shall not cure such failure within twenty (20) days
after written notice thereof to Tenant.
(g) Notwithstanding the foregoing, except for Tenant's payment
obligations hereunder, if Tenant is delayed in performing its obligations
hereunder, by reason of strike or other labor problems, acts of God, riot,
insurrection, governmental actions or requirements, or any other cause
beyond the reasonable control of Tenant, the time for Tenant's performance
shall be extended for the period of any such delay or such longer period if
Tenant is diligently pursuing such cure and such cure is not capable of
being completed within twenty (20) days, provided in no event shall cure
period be extended longer than sixty (60) days.
16. REMEDIES. Upon the occurrence of any Default in Paragraph
---------
15 hereof, Landlord shall have the option to pursue any remedy at law or in
equity, including, but not limited to, one or more of the following
remedies without any notice or demand whatsoever:
(a) Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do
so, Landlord may, without prejudice to any other remedy which it may have
for possession or arrearage in rent, enter upon and take possession of the
Premises and expel and remove Tenant and any other person who may be
occupying the Premises or any part thereof, with or without judicial
approval, by any legal means necessary, without being liable for
prosecution or any claim of damages therefor; and Tenant agrees to pay to
Landlord on demand the amount of all loss and damage which Landlord may
suffer by reason of such termination, whether through inability to relet
the Premises on satisfactory terms or otherwise.
(b) With or without terminating this Lease, enter upon and take
possession of the Premises and expel or remove Tenant and any other person
who may be occupying such Premises or any part thereof, with or without
judicial approval, by any legal means necessary, without being liable for
prosecution and receive the rent thereof; store any property located on the
Premises at the expense of the owner thereof and Tenant agrees to pay to
Landlord on demand any deficiency that may arise by reason of such
reletting. In the event Landlord is successful in reletting the Premises at
a rental in excess of that agreed to be paid by Tenant pursuant to the
terms of this Lease, Landlord and Tenant each mutually agree that Tenant
shall not be entitled, under any circumstances, to such excess rental, and
Tenant does hereby specifically waive any claim to such excess rental
except all such rental collected shall be used to offset any damages caused
by Tenant.
(c) Enter upon the Premises, with or without judicial approval,
by any legal means necessary, without being liable for prosecution or any
claim for damages therefor, secure the Premises against unauthorized entry,
remove all property of Tenant from the Premises and store it at the cost
and expense of Tenant, and do whatever Tenant is obligated to do under the
terms of this Lease; and Tenant agrees to reimburse Landlord on demand for
any expenses which Landlord may incur in thus effecting compliance with
Tenant's obligations under this Lease, and Tenant further agrees that
Landlord shall not be liable for any damages resulting to Tenant from such
action, whether caused by the negligence of Landlord or otherwise.
(d) Whether or not the lease is terminated, accelerate and
demand the payment of the present value of all base rent and other charges
due and payable hereunder over the term of this Lease less the reasonably
expected rent Landlord would be anticipated to collect over the remaining
term from another tenant.
In the event Tenant fails to pay any installment of base rent or
additional rent hereunder within fifteen days of the due date of such
installment, Tenant shall pay to Landlord on demand a late charge in an
amount equal to four percent (4%) of such installment to help defray the
additional cost to Landlord for processing such late payment. The
provision for such late charge shall be in addition to all of Landlord's
other rights and remedies hereunder or at law and shall not be construed as
liquidated damages or as limiting Landlord's remedies in any manner. If,
on account of any breach or default
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by Tenant in Tenant's obligations under the terms and conditions of this
Lease, it shall become necessary or appropriate for Landlord to employ or
consult with an attorney concerning or to enforce or defend any of
Landlord's rights or remedies hereunder, Tenant agrees to pay any and all
reasonable attorneys' fees so incurred.
Pursuit of any of the foregoing remedies shall not preclude
pursuit of any of the other remedies herein provided or any other remedies
provided by law or equity, nor shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any rent due to Landlord hereunder or
of any damages accruing to Landlord by reason of the violation of any of
the terms, provisions and covenants herein contained. No act or thing done
by Landlord or its agents during the term hereby granted shall be deemed a
termination of this Lease or an acceptance of the surrender of the
Premises, and no agreement to terminate this Lease or accept a surrender of
the Premises shall be valid unless in writing signed by Landlord. No waiver
by either party of any violation or breach by the other party of any of the
terms, provisions and covenants herein contained shall be deemed or
construed to constitute a waiver of any other violation or breach of any of
the terms, provisions and covenants herein contained. Landlord's acceptance
of the payment of rental or other payments hereunder after the occurrence
of an event of Default shall not be construed as a waiver of such Default,
unless Landlord so notifies Tenant in writing, and no receipt of money by
Landlord from Tenant after the termination of this Lease or after service
of any notice or after the commencement of any suit or after final judgment
for possession of the Premises shall reinstate, continue or extend the term
of this Lease or affect any such termination, notice, suit or judgment,
unless Landlord so notifies Tenant in writing. Forbearance by either party
to enforce one or more of the remedies herein provided or available at law
or in equity upon an event of default shall not be deemed or construed to
constitute waiver of such default by the defaulting party or of the
enforcing party's right to enforce any such remedies with respect to such
default or any subsequent default.
17. LANDLORD'S LIEN. Landlord hereby waives any statutory or
----------------
contractual lien for rent in Landlord's favor, upon any and all goods,
wares, equipment, fixtures, furniture, inventory, accounts, contract
rights, chattel paper and other personal property of Tenant, and the
proceeds and products thereof situated on the Premises. Landlord hereby
agrees to execute such certifications or statements and other instruments
requested by Tenant evidencing the waiver of all such liens by Landlord.
18. MORTGAGES. Tenant accepts this Lease subject and subordinate
---------
to any mortgage(s) and/or deed(s) of trust now or at any time hereafter
constituting a lien or charge upon the Premises or the improvements
situated thereon; provided, however, that if the mortgagee, trustee, or
holder of any such mortgage or deed of trust elects to have Tenant's
interest in this Lease superior to any such instrument, then by notice to
Tenant from such mortgagee, trustee or holder, this Lease shall be deemed
superior to such lien, whether this Lease was executed before or after said
mortgage or deed of trust. Tenant shall at any time hereafter on demand
execute and provide to Landlord within ten (10) business days of a request
therefor, any instruments, releases or other documents which may be
required by any mortgagee or trustee for the purpose of further subjecting
and subordinating this Lease to the lien of any such mortgage or deed to
trust.
Landlord shall endeavor to obtain from any existing mortgagee,
groundlessor or other existing lien holder of the Building a so-called non-
disturbance and attornment agreement under which Tenant's right to quiet
possession of the Premises shall not be disturbed so long as Tenant is not
in Default and Tenant shall pay the rent and observe and perform all of the
provisions of this Lease, unless this Lease is otherwise terminated
pursuant to its terms. Tenant shall not be required to subordinate this
Lease to any future mortgagee, groundlessor or other lien holder of the
Property unless such party agrees to enter into such a non-disturbance and
attornment agreement with Tenant.
19. MECHANIC'S LIENS. Tenant shall have no authority, express
-----------------
or implied, to create or place any lien or encumbrance of any kind or
nature whatsoever upon, or in any manner to bind, the interest of Landlord
in the Premises or to charge the rentals payable hereunder for any claim in
favor of any person dealing with Tenant, including
16
<PAGE>
those who may furnish materials or perform labor for any construction or
repairs, and each such claim shall affect and each such lien shall attach
to, if at all, only the leasehold interest granted to Tenant by this
instrument. Tenant covenants and agrees that it will pay or cause to be
paid all sums legally due and payable by it on account of any labor
performed or materials furnished in connection with any work performed on
the Premises on which any lien is or can be validly and legally asserted
against its leasehold interest in the Premises or the improvements thereon
and that it will save and hold Landlord harmless from any and all loss,
cost or expense based on or arising out of asserted claims or liens against
the leasehold estate or against the right, title and interest of Landlord
in the Premises or under the terms of this Lease.
20. NOTICES. Each provision of this instrument or of any
-------
applicable governmental laws, ordinances, regulations, or other
requirements with reference to the sending, mailing, or delivery of any
notice by Landlord to Tenant or with reference to the sending, mailing, or
delivery of any notice or the making of any payment by Tenant to Landlord
shall be deemed to be complied with when and if the following steps are
taken:
(a) All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at the address hereinbelow
set forth or at such other address as either party may specify from time to
time by written notice delivered in accordance herewith. Tenant's
obligations to pay rent and any other amounts to Landlord under the terms
of this Lease shall not be deemed satisfied until such rent and other
amounts have been actually received by Landlord.
(b) Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered whether actually received or not
when:
(i) sent by federal express or other nationally recognized
overnight courier, charges prepaid; or
(ii) sent by Certified or Registered Mail, return receipt
requested, postage prepaid,
and addressed to the parties hereto at the respective addresses set out
below, or at other such addresses as they have heretofore specified by
written notice delivered in accordance therewith.
LANDLORD:
Carolina Blackhawk, LLC
c/o Hartwell Smith
York Properties
801 Oberlin Road
Raleigh, North Carolina 27605
COPY TO:
Michael G. Winters
Smith Helms Mulliss & Moore, LLP
Post Office Box 27525
Raleigh, North Carolina 27611
TENANT:
Engage Technologies, Inc.
100 Brickstone Square
Andover, Massachusetts 01810
Attention: General Counsel
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COPY TO:
Pamela Coravos
Hale and Dorr, LLP
60 State Street
Boston, Massachusetts 02109-1803
If and when included within the term "Landlord", as used in this
instrument, there is more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such a notice
specifying some individual at some specific address for the receipt of
notices and payments to Landlord; if and when included within the term
"Tenant, as used in this instrument, there is more than one person, firm or
corporation, all shall jointly arrange among themselves for their joint
execution of such a notice specifying some individual at some specific
address within the continental United States for the receipt of notices to
Tenant. All parties included within the terms "Landlord" and "Tenant",
respectively, shall be deemed to have received notices in accordance with
the provisions of this paragraph with the same effect as if each had
received such notice.
21. BROKER'S CLAUSE. Tenant warrants and represents to
----------------
Landlord that it has had no dealings with any real estate broker or agent
in connection with this Lease other than CRF Partners, Inc. with York
Properties, Inc. as its local representative receiving any and all
commissions due, and Tenant covenants to pay, hold harmless, and indemnify
Landlord from and against any and all costs, expenses, liabilities
(including reasonable attorneys' fees), causes of action, claims or suits
in connection with any compensation, commission, fee, or charges claimed by
any real estate broker or agent other than CRF Partners, Inc. with York
Properties, Inc. acting as its local representative with respect to this
Lease or the negotiation thereof, arising out of any act of Tenant.
Landlord warrants and represents to Tenant that it has had no dealings with
any real estate broker or agent in connection with this Lease other than
York Properties, Inc., and CRF Partners, Inc., and Landlord covenants to
pay, hold harmless, and indemnify Tenant from and against any and all
costs, expenses, liabilities (including reasonable attorneys' fees), causes
of action, claims or suits in connection with any compensation, commission,
fee, or charges claimed by any other real estate broker or agent with
respect to this Lease or the negotiation thereof, arising out of any act of
Landlord. Landlord shall pay all commissions and compensation due to CRF
Partners, Inc. and York Properties, Inc. pursuant to a separate agreement.
22. LANDLORD'S LIABILITY. Notwithstanding anything to contrary
---------------------
contained in this Lease, Tenant agrees and understands that Tenant shall
look solely to the estate and property of Landlord in the Building for the
enforcement of a judgment (or other judicial decree) requiring the payment
of money by Landlord to Tenant by reason of Default or breach of Landlord
in performance of its obligations under this Lease, it being intended that
there will be absolutely no personal liability on the part of Landlord, its
successors and assigns with respect to any of the terms, covenants, and
conditions of this Lease, and no other assets of Landlord or of Landlord's
partners, if any, shall be subject to levy, execution, attachment or any
other legal process for the enforcement or satisfaction of the remedies
pursued by Tenant in the event of such Default or breach, this exculpation
of liability to be absolute and without exception whatsoever.
23. RULES AND REGULATIONS. Tenant shall fully comply with the
----------------------
Rules and Regulations attached hereto as Exhibit E and made a part hereof
---------
and any and all commercially reasonable modifications thereof, or
amendments thereto with respect to which Landlord notifies Tenant.
24. HAZARDOUS MATERIALS.
-------------------
(a) For purposes of this Lease, "Hazardous Material" means and
includes any hazardous or toxic substance, pollutant, contaminant, gas, or
petroleum product defined as such in (or for purposes of) the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended, any
so-called "Superfund" or "Superlien", law, the Toxic Substances Control
Act, as amended, or any other Federal, state or local
18
<PAGE>
statute, law, ordinance, code, rule, regulation, order or decree
regulating, relating to, or imposing liability or standards of conduct
concerning, any hazardous, or toxic waste, substance or material, as now or
at any time hereafter in effect, or any other hazardous, toxic or
dangerous, waste, substance or material, gas or petroleum product, and
"Applicable Laws" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, any so-called "Superfund" or
"Superlien", law, the Toxic Substances Control Act, as amended, or any
other Federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing liability
or standards of conduct concerning, any hazardous or toxic waste, substance
or material, as now or at any time hereafter in effect, or any other
hazardous, toxic or dangerous, waste, substance or material, gas or
petroleum product.
(b) Except for small quantities of ordinary office supplies such
as copier toner, liquid paper, glue, ink and common household cleaning
materials or materials arising in connection with the permitted uses of the
Premises ("Excepted Materials"), Tenant shall not cause or permit any
Hazardous Material to be brought, kept, used, discharged, treated, stored,
or disposed of in or about the Premises or the Building or Land by Tenant,
its agents, employees, contractors or invitees.
(c) If Tenant knows, or has reasonable cause to believe, that it
has caused Hazardous Material (other than Excepted Materials) or a
condition involving or resulting from same, has come to be located in, on
or under or about the Premises or the Building, Tenant shall promptly give
written notice of such fact to Landlord. Tenant shall also promptly give
Landlord (without demand by Landlord) a copy of any statement, report,
notice, registration, application, permit, license, given to or received
from, any governmental authority or private party, or persons entering or
occupying Premises, concerning the presence, spill, release, discharge of
or exposure to any Hazardous Material or contamination in, on or about the
Premises or the Building.
(d) Landlord and Landlord's employees, agents, contractors and
lenders shall have the right to enter the Premises at any time in the case
of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by
Tenant with this Section 24. Tenant and Landlord shall have the right to
employ experts and/or consultants in connection with its examination of the
Premises and with respect to the installation, operation, use, monitoring,
maintenance, or removal of any Hazardous Materials on or from the Premises.
The costs and expenses of any such inspections shall be paid by the party
requesting the same.
(e) Tenant shall indemnify, defend, and hold Landlord, any
parent, subsidiary and affiliate of Landlord, its officers, directors,
beneficiaries, shareholders, partners, agents, and employees, harmless from
all fines, suits, procedures, claims, and actions of every kind, and all
reasonable costs associated therewith (including reasonable attorneys' and
consultants' fees) caused by or in any way connected with any deposit,
spill, discharge, or other release (or the threat of release) of any
Hazardous Material or oil, or caused by the act or negligence of Tenant or
any of Tenant's agents, employees, licensees, sublessees, concessionaires,
contractors or invitees, (collectively, "Tenant's Acts"), or from Tenant's
failure to provide all information, make all submissions, and take all
actions as required by all governmental authorities under all applicable
laws, ordinances and regulations related thereto except to the extent the
fine, suit, procedure, claim, etc. arose due to the conduct of any third
party or the Landlord, its officers, directors, beneficiaries,
shareholders, partners, agents, and employees. Tenant shall not be liable,
however, with respect to any Hazardous Materials located in the Premises
and/or the Building as of the date hereof or introduced to the Premises
and/or the Building other than by Tenant's acts. In addition, in connection
with Tenant's indemnifications pursuant to this Section 24, Tenant shall be
responsible for the reasonable cost of any remediation required to be
performed under law in, on or to the Premises and/or the Building as a
result of any deposit, spill, discharge, or other release (or the threat of
release) of any Hazardous Material or oil that occurs as a result of
Tenant's Acts. Conditions existing as of the date of this Lease are
excluded.
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(f) Landlord shall indemnify, defend, and hold Tenant, any
parent, subsidiary and affiliate of Tenant, and their respective officers,
directors, beneficiaries, shareholders, partners, agents, and employees
harmless from all fines, suits, procedures, claims, and actions of every
kind, and all costs associated therewith (including attorneys' and
consultants' fees) arising out of the presence of any deposit, spill,
discharge, or other release (or the threat of release) of any Hazardous
Material or oil at the Premises not caused solely by Tenant's Acts or
arising out of the presence or the act or negligence of Landlord, its
agents, employees, or contractors (collectively, "Landlord's Acts"), or
from Landlord's failure to provide all information, make all submissions,
and take all actions required by all governmental authorities under all
applicable laws, ordinances and regulations related thereto. In addition,
in connection with Landlord's indemnifications pursuant to this Section
24(i), Landlord shall be responsible for the cost of any remediation
required to be performed in, on or to the Premises and/or the Building as a
result of the matters described in this Section (f).
(g) Within 60 days of the commencement of this Lease, Landlord,
at its sole cost and expense, shall cause such UPS to be removed from the
Building in accordance with all applicable laws. The cost of such removal
shall be excluded from CAM Expenses. There shall also be excluded from CAM
Expenses any costs arising from management, abatement, removal or
remediating any lead paint, asbestos or PCBs and costs arising from the
presence of Hazardous Materials in the air, soil, surface waters or
groundwater of the Premises except to the extent caused by Tenant Acts.
(h) Except as set forth in Exhibit F, Landlord has not received
and has no knowledge of any notice, correspondence or communication from
any third party or governmental entity regarding the environmental status
of the Building or the Premises, including but not limited to
communications concerning the presence of Hazardous Materials in the
Building or at, on, or about the Premises or on the property abutting the
Premises.
25. MISCELLANEOUS.
-------------
(a) Words of either gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number
shall be held to include the plural, unless the context otherwise requires.
(b) The terms, provisions and covenants and conditions contained
in this Lease shall apply to, inure to the benefit of, and be binding upon
the parties hereto and upon their respective heirs, legal representatives,
successors and permitted assigns, except as otherwise herein expressly
provided. Landlord shall have the right to assign any of its rights and
obligations under this Lease. Each party agrees to furnish to the other,
promptly upon demand, a resolution, or other appropriate documentation
evidencing the due authorization of such party to enter into this Lease.
(c) The captions inserted in this Lease are for convenience only
and in no way define, limit or otherwise describe the scope or intent of
this Lease, or any provision hereof, or in any way affect the
interpretation of this Lease.
(d) Tenant agrees from time to time, within ten (10) business
days after request of Landlord, to deliver to Landlord, or Landlord's
designee, an estoppel certificate stating that this Lease is in full force
and effect, the date to which rent has been paid, the unexpired term of
this Lease and such other matters pertaining to this Lease as may be
requested by Landlord. Landlord agrees from time to time, within ten (10)
business days after request of Tenant, to deliver to Tenant, or Tenant's
designee, an estoppel certificate stating that this Lease is in full force
and effect, the date to which rent has been paid, the unexpired term of
this Lease and such other matters pertaining to this Lease as may be
requested by Tenant. It is understood and agreed that Tenant's and
Landlord's obligation to furnish such estoppel certificates in a timely
fashion is a material inducement for each party's execution of this Lease.
20
<PAGE>
(e) This Lease may not be altered, changed or amended except by
an instrument in writing signed by both parties hereto.
(f) All obligations of Tenant hereunder not fully performed as
of the expiration or earlier termination of the term of this Lease shall
survive the expiration or earlier termination of the term hereof,
including, without limitation, all payment obligations concerning the
condition of the Premises. Subject to casualty and normal wear and tear,
upon the expiration or earlier termination of the term hereof, and prior to
Tenant's vacating the Premises, Tenant shall pay to Landlord any amount
reasonably estimated in good faith by Landlord as necessary to put the
Premises, including, without limitation, all heating and air conditioning
systems and equipment therein, in good condition and repair. Tenant shall
also, prior to vacating the Premises, pay to Landlord the amount, as
estimated by Landlord, of Tenant's pro rated obligation hereunder for real
estate taxes and insurance premiums for the year in which the Lease expires
or terminates. All such amounts shall be used and held by Landlord for
payment of such obligations of Tenant hereunder, with Tenant being liable
for any additional costs therefor upon demand by Landlord, or with any
excess to be returned to Tenant within thirty (30) days after all such
obligations have been determined and satisfied, as the case may be. Any
security deposit held by Landlord shall be credited against the amount
payable by Tenant under this Paragraph 27(f).
(g) In the event of a transfer by Landlord of its interest in
the Premises, Landlord shall be released from all obligations and
liabilities under the terms of this Lease subsequent to the date of such
transfer. In the event a transferee shall agree to assume the obligations
and liabilities of Landlord under the Lease prior to the date of the
transfer, Landlord's shall be released from all obligations and liabilities
under the Lease.
(h) If any clause or provision of this Lease is illegal, invalid
or unenforceable under present or future laws effective during the term of
this Lease, then and in that event, it is the intention of the parties
hereto that the remainder of this Lease shall not be affected thereby, and
it is also the intention of the parties to this Lease that in lieu of each
clause or provision of this Lease that is illegal, invalid or
unenforceable, there be added as a part of this Lease contract a clause or
provision as similar in terms to such illegal, invalid or unenforceable
clause or provision as may be possible and be legal, valid and enforceable.
(i) Because the Premises are on the open market and are
presently being shown, this Lease shall be treated as an offer with the
Premises being subject to prior lease and such offer subject to the
withdrawal or non-acceptance by Landlord or to other use of the Premises
without notice, and this Lease shall not be valid or binding unless and
until both Landlord and Tenant have fully executed this Lease in writing
and a fully executed copy delivered to both parties hereto.
(j) All references in this Lease to "the date hereof" or similar
references shall be deemed to refer to the date set forth in the first
paragraph on the first page hereof.
(k) Time is of the essence of this Lease.
(l) Landlord shall not be in Default in the performance of any
of Landlord's obligations hereunder unless and until Landlord shall have
failed to perform such duties or obligations within thirty (30) days (or
such additional time as is reasonably required to correct any such Default)
after written notice by Tenant to Landlord, and to any mortgagee with a
lien on the Land or the Building of which Tenant has received written
notice, properly specifying wherein Landlord has failed to perform any such
duty or obligation. Landlord shall have no liability for any incidental or
consequential damages of Tenant, or anyone claiming by, through or under
Tenant, for any reason whatsoever.
(m) In the event that Landlord shall Default in the performance
of Landlord's obligations hereunder, the holder of a mortgage or the
beneficiary of a deed of trust which includes the Premises shall have the
right, but not the obligation, to perform or comply with any covenants,
agreements and provisions violated in connection with such Default.
Further, if such holder or beneficiary notifies Tenant that such holder or
beneficiary has taken over Landlord's right under this Lease, Tenant shall
not assert any right to deduct
21
<PAGE>
the cost of repairs or any monetary claims against Landlord theretofore
accrued from rent thereafter due and payable, but shall look solely to
Landlord and not such holder or beneficiary for satisfaction of such claim.
(n) This Lease does not create the relationship of partner or
joint venturer between Landlord and Tenant.
(o) The laws of the State of North Carolina shall govern the
interpretation, the validity, performance and enforcement of this Lease.
(p) The undersigned officer of Tenant does hereby warrant and
certify to Landlord that Tenant is a corporation in good standing and duly
organized under the laws of the State of Delaware and is authorized to do
business in the State of North Carolina. The undersigned officer of Tenant
hereby further warrants and certifies to Landlord that such officers are
authorized and empowered to bind the corporation to the terms of this Lease
by such officer's signature hereto.
(q) The undersigned officer of Landlord does hereby warrant and
certify to Tenant that Landlord is a limited liability company organized
under the laws of the State of Georgia and is in good standing under the
laws of the State of North Carolina. The undersigned officer of Landlord
hereby further warrants and certifies to Tenant that such officers are
authorized and empowered to bind the company to the terms of this Lease by
such officer's signature hereto.
(r) This Lease shall be executed in duplicate, each of which
shall be deemed an original and complete of itself and may be introduced
into evidence or used for any purpose without the production of any other
copy. Duly authorized representatives of each party must execute this
Lease in their appropriate capacity for such party and Tenant shall affix
its corporate seal.
(s) The provisions contained in the Exhibits attached hereto, if
any, are incorporated herein by reference and made a part of this Lease.
In the event of any conflict between the this portion of this Lease and the
Exhibits, the provisions of the Lease shall govern and control.
(t) Although the provisions of this Lease were drafted by
Landlord, such fact shall not cause this Lease to be construed either for
or against Landlord or Tenant.
(u) This Lease may not be recorded. Upon the request and at the
expense of Tenant, Landlord shall execute a memorandum of this Lease
suitable for recording which shall omit the financial terms herein but
which shall identify the Premises and the term of this Lease. Upon the
expiration of this Lease, a recorded memorandum of this Lease may be
canceled of record by a document executed by Landlord, or its successor in
interest for such purpose.
(v) If Tenant is not a publicly traded company, Tenant shall
provide to Landlord within ninety (90) days of the close of its fiscal
year, and thereafter within ten days of the reasonable request of Landlord,
financial statements of Tenant certified by the chief financial officer of
Tenant, and Tenant shall act to ensure that any guarantor (if it is not a
publicly traded company) hereof provides Landlord with copies of its
financial statements within ninety days of the close of its fiscal year.
(w) No remedy conferred herein is intended to be exclusive of
any other remedy and each and every remedy shall be cumulative and shall be
in addition to every other remedy given hereunder or thereunder or now or
hereafter existing at law or in equity or by statute or otherwise.
(x) No provision of this Lease shall be deemed to waive any
statutory or common law rights of Landlord to assert a lien upon property
of Tenant.
22
<PAGE>
(y) An "Abatement Event" shall be defined as an event or
circumstance that prevents Tenant from using the Premises or any portion
thereof, as a result of any failure to provide services or access to the
Premises. Tenant shall give Landlord notice ("Abatement Notice") of any
such Abatement Event, and if such Abatement Event continues beyond the
"Eligibility Period" (as that term is defined below), then the Base Rent
and Tenant's other monetary obligations to Landlord shall be abated
entirely or reduced, as the case may be, after expiration of the
Eligibility Period for such time that Tenant continues to be so prevented
from using, and does not use, the Premises or a portion thereof, in the
proportion that the rentable area of the portion of the Premises that
Tenant is prevented from using, and does not use, bears to the total
rentable area of the Premises; provided, however, in the event that Tenant
is prevented from using, and does not use, a portion of the Premises for a
period of time in excess of the Eligibility Period and the remaining
portion of the Premises is not sufficient to allow Tenant to effectively
conduct its business therein, and if Tenant does not conduct its business
from such remaining portion, then for such time after expiration of the
Eligibility Period during which Tenant is so prevented from effectively
conducting its business therein, Base Rent and Tenant's other monetary
obligations to Landlord shall be abated entirely for such time as Tenant
continues to be so prevented from using, and does not use, the Premises.
The term "Eligibility Period" shall mean a period of fifteen (15)
consecutive days after Landlord's receipt of any Abatement Notice(s). In
addition, if an Abatement Event continues for ninety (90) consecutive days
after an Abatement Notice, Tenant may terminate this Lease by written
notice to Landlord at any time before the date such Abatement Event is
cured by Landlord.
(z) Regardless of any reference to the words "sole" or
"absolute" (but except for matters which will have an adverse effect on the
(a) structural integrity of the Building (b) the Building's plumbing,
heating, life safety, ventilating, air conditioning, mechanical or
electrical systems, or (c) the exterior appearance of the Building,
whereupon in each such case Landlord's duty is to act in good faith and in
compliance with the Lease), any time the consent of Landlord or Tenant is
required, such consent shall not be unreasonably withheld, conditioned or
delayed. Whenever the Lease grants Landlord or Tenant the right to take
action, exercise discretion, establish rules and regulations or make
allocations or other determinations, Landlord and Tenant shall act
reasonably and in good faith.
(aa) Tenant shall have exclusive use of all parking spaces
surrounding the Building. Landlord shall maintain all such parking areas.
(bb) Expansion Option. Tenant will have the right to exercise an
option (the "Expansion Option") pursuant to which Tenant and Landlord will
exercise good faith and commercially reasonable efforts to agree on and
accomplish an expansion of the Building by approximately 10,000 square feet
(but in no event will this expansion cause the size of the Building to
exceed the maximum permitted area or size of the Building as currently
entitled under existing applicable laws unless otherwise specifically
agreed in writing by Tenant and Landlord). The Expansion Option can be
exercised only by Tenant delivering to Landlord written notice of exercise
during the first two (2) years of the Lease term.
If Tenant validly exercises the Expansion Option, the following
issues (and any other necessary issues) will need to be agreed on in order
to accomplish the expansion: the initial general form of (and, if
agreement is reached on the other terms, the final plans and specifications
for) the expansion and a schedule therefor; the contractors and
professionals that will perform the work; all costs in connection with the
expansion, including, without limitation, costs of surveys, testing,
design, space planning, drafting, architecture engineering, other
professional fees, labor, material, services, utilities, and other costs of
construction, permits and approvals (and associated legal and other fees
and costs); a mutually agreeable rental rate for the expansion space,
taking into account all of the associated costs and a mutually agreeable
rate of return to Landlord and its lenders; other mutually agreeable
modifications to the Lease to accommodate the expansion, and an extension
of the initial Lease term so that the initial Lease term for all of the
Premises expires at least five (5) years after the rent commencement date
of the expansion space.
23
<PAGE>
In view of the foregoing agreements that must be reached in order
to accomplish the expansion, and because neither the necessary permits and
approvals nor acceptable financing for the expansion and associated costs
have been offered or obtained at this time, and because of the other
conditions that must first be satisfied so as to permit the expansion, the
parties agree that, notwithstanding anything to the contrary, if for any
reason the parties do not reach terms or if any of the conditions in this
Section are not satisfied, neither party will be deemed to be in default in
any manner and will not incur liabilities to the other, and unless
otherwise agreed in writing by both parties, the Expansion Option will
lapse and become null and void, the Lease will continue in full force and
effect in accordance with its terms without an expansion, and Tenant's
obligations under the Lease will not be reduced, excused, waived or
otherwise affected in any way.
In addition to any other conditions to the Expansion Option,
Landlord's lenders, if any, must consent in writing to the expansion.
(cc) Landlord has performed a Y2K assessment of the Building and
has no actual knowledge of any Y2K problems that could materially interfere
with the functioning of the Building or Building Systems.
IN WITNESS WHEREOF, the parties hereto have executed this Lease under seal
as of the day and year first above written.
LANDLORD:
Carolina Blackhawk, LLC (SEAL)
By: /s/ Hatwellk Smith (SEAL)
---------------------------
Print Name:Hatwellk Smith
-------------------
Title: Vice President
------------------------
TENANT:
Engage Technologies, Inc. (SEAL)
By: /s/Michael K. Baker (SEAL)
---------------------------
Print Name: Michael K. Baker
-------------------
Title: VP & General Counsel
------------------------
Attest:
/s / Chris McMann
- ------------------------------
Print Name: Chris McMann
-------------------
Title: Controller
------------------------
[CORPORATE SEAL]
24
<PAGE>
EXHIBIT A
THE LAND
25
<PAGE>
EXHIBIT A - THE LAND
BEING all of Lot 5, containing 4.150 acres, more or less, as shown on plot of
the property of Highwoods Company of Raleigh, Inc. dated July 12, 1979, and
recorded in Book of Maps 1979, at Page 563, of the Wake County Registry,
reference to said map being made in aid of description and being more
particularly described as follows:
BEGINNING on a new iron pipe located in the northern line of the right of way of
Highwoods Boulevard, said point being the southwestern corner of Lot 4 of
Highwoods Realty Ltd. Partnership as described in Deed Book 6168, Page 542 Wake
County Registry and being the southeastern corner of Lot 5 as shown in Book of
Maps 1979, Page 563 Wake County Registry, and said Beginning point also being
located North 49 degrees 00' 08" East 141.74 feet from the centerline
intersection of Highwoods Boulevard and Poplarwood Court; and runs thence from
said established Beginning Point and along the northern line of Highwoods
Boulevard along a curve having a radius of 813.24 feet, an arc length of 184.65
feet and a chord bearing and distance of North 56 degrees 51' 58" West 184.25
feet to a new iron pipe; runs thence North 50 degrees 21' 42" West 99.03 to a
new iron pipe; runs thence leaving said right of way North 39 degrees 37' 57"
East 645.37 feet to an existing iron pipe; runs thence South 50 degrees 20' 05"
East 282.10 feet to an existing iron pipe; runs thence South 39 degrees 37' 57"
West 624.37 feet to a point and place of BEGINNING and being all of Lot 5 as
shown on that survey prepared by Al Prince & Associates entitled "Survey for
Blackhawk Financial, LLC of Lot 5 Highwoods" dated January 18, 1999.
<PAGE>
EXHIBIT B
FLOOR PLAN
26
<PAGE>
EXHIBIT B
[DIAGRAM APPEARS HERE]
<PAGE>
EXHIBIT C
PLANS AND SPECIFICATIONS
[TO BE ATTACHED UPON THE MUTUAL APPROVAL OF LANDLORD AND TENANT.]
<PAGE>
EXHIBIT C
[DIAGRAM APPEARS HERE]
<PAGE>
EXHIBIT D
All space planning, architectural and engineering drawings necessary
to complete Tenant's premises shall be provided by Landlord at Landlord's
expense. Landlord shall also install a new heating and air conditioning system
as provided in Section 5(b).
Landlord, at its expense, shall shampoo the carpet, remove the
"control desk" (if requested by Tenant), thoroughly clean the ceramic tile in
the lobby and break areas, make one men's room sink and one women's room sink
wheelchair accessible, and install eight approximately 10x12 square foot offices
as per the Plans. Any new construction performed by Landlord must be approved
by Tenant and match existing standards for the Building. Any new offices will
contain the proper telecommunications, electrical and mechanical infrastructure
that are standard in Class A offices. All new construction must meet all
necessary code requirements and the Tenant shall receive a Certificate of
Occupancy at their completion. Landlord shall deliver the Building with all
mechanical, electrical, and plumbing systems in good working order. Landlord's
contractor has determined that the existing computer room fire suppression
system is not a chemical system but a dry system, and thus will remain. All
work must be performed by North Carolina licensed and insured contractors and
professionals and approved by Landlord prior to the beginning of any work.
<PAGE>
Exhibit D (continued)
Tenant Work Letter
Landlord agrees to provide the following improvements based on floor plans
attached as exhibit "B" of the Lease.
. 13 offices (constructed of 5/8" sheetrock walls, painted, and metal
studs)
. 13 3'x7' Solid Core wooden doors (includes hollow metal frames and
lever hardware in accordance with ADA requirements)
. Soiled and/or damaged 2'x2' ceiling tiles will be replaced
. Each office will have 2 new 2'x4' lay-in florescent lights with
parabolic lenses
. Mechanical system duct work to be reworked to accommodate new offices.
New duct work added where necessary
. Each office will have one telephone and one data outlet. Wiring to be
provided by tenant.
. Each office will have two duplex electrical outlets
. "Q&A" room to have 16 duplex electrical outlets installed.
. Existing sprinkler heads to be relocated to comply with fire code.
<PAGE>
EXHIBIT E
RULES AND REGULATIONS
1. The sidewalks, common areas, and public portions of the Building,
such as entrances, passages, courts, elevators, vestibules, stairways, corridors
or halls, and the streets, alleys or ways surrounding or in the vicinity of the
Building shall not be obstructed by Tenant, even temporarily, or encumbered by
Tenant or used for any purpose other than ingress to and egress from the
Premises.
2. No awnings or other projections shall be attached to the outside
walls of the Building.
3. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by Tenant on any part of the outside of
the Premises or Building unless approved by Landlord. Signs on entrance doors
shall, at Tenant's expense, be inscribed, painted or affixed for each tenant by
sign makers approved by Landlord. In the event of the violation of the foregoing
by Tenant, Landlord may remove same without notice to Tenant or any liability
therefor, and may charge the expense incurred by such removal to Tenant.
4. The sashes, sash doors, skylights, windows, heating, ventilating
and air conditioning vents and doors that reflect or admit light and air into
the halls, passageways or other public places in the Building shall not be
covered or obstructed by Tenant.
5. No show cases or other articles shall be put in front of or
affixed to any part of the exterior of the Building, nor placed in the public
halls, corridors, or vestibules without the prior written consent of Landlord.
6. The bathrooms and plumbing fixtures shall not be used for any
purposes other than those for which they were designed, and no sweepings,
rubbish, rags, or other substances shall be thrown therein. All damages
resulting from any misuse of the bathrooms or fixtures shall be the
responsibility of Tenant.
7. Tenant shall not in any way deface any part of the Premises or
the Building.
8. No vehicles or animals of any kind shall be brought into or kept
in or about the Premises, or in the Building. No cooking shall be done or
permitted by Tenant on the Premises except in conformity with all applicable
laws, statutes, regulations and ordinances and then only in the area designated
as a kitchen, if any, on the Premises of Tenant, which is to be primarily used
by Tenant's employees for heating beverages and light snacks. Tenant shall not
cause or permit any unusual or objectionable odors to be produced upon or
permeate from the Premises.
9. All desks shall be serviced by chairs that are equipped with
floor mats underneath each chair.
10. No space in the Building shall be used for the sale of
merchandise, goods, or property of any kind at auction excluding any e-commerce.
11. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of the Building or
neighboring buildings or premises or those having business with them, whether by
the use of any musical instrument, radio, talking machine, unmusical noise,
whistling, singing, or in any other way. Tenant shall not throw anything out of
the doors, windows or skylights or down the passageways.
12. Neither Tenant, nor any of Tenant's servants, employees, agents,
visitors, or licensees, shall at any time bring or keep upon the Premises any
inflammable, combustible or explosive fluid, or chemical substance, other than
reasonable amounts of cleaning fluids or solvents required in the normal
operation of Tenant's business offices.
29
<PAGE>
13. No additional locks or bolts of any kind shall be placed upon any
of the doors, walls, accessways, or windows by Tenant, nor shall any changes be
made in existing locks or the mechanism thereof, without the prior written
approval of Landlord and unless and until a duplicate key or access card, as
applicable, is delivered to Landlord. Tenant shall, upon the termination of its
tenancy (i) return to Landlord all keys for the Premises and for any area of the
Building, or common areas, either furnished to, or otherwise procured by Tenant,
(ii) restore the locks, walls, accessways, windows, and doors to their original
condition on the date of this Lease by removing any security measures installed
by Tenant, repairing any damage to the Premises or to the Building as a result
of the restoration and removal, and (iii) in the event of the loss of any keys
furnished to Tenant by Landlord, Tenant shall pay to Landlord the cost thereof.
14. Tenant shall not overload any floor.
15. Tenant shall not occupy or permit any portion of the Premises to
be used for the manufacture or sale of liquor or narcotics in any form.
16. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
17. Canvassing, soliciting, and peddling in the Building are
prohibited and Tenant shall cooperate to prevent the same.
18. No smoking is permitted in the Premises, or in the Building.
Smoking is permitted outside the Building in designated smoking areas. All
cigarette butts and other refuse should be placed in designated containers.
19. No weapons concealed or visible are permitted in the Premises, in
the Building, or on the Land.
20. In the event the Premises constitute an outdoor patio, exterior
generator area, or any open area adjacent to the Premises or on the Land
designated under the Lease for the exclusive use of Tenant, Tenant shall use
furniture and other equipment in any such areas in form, coloring, substance,
design and quality subject to the prior approval of Landlord. In addition, any
outdoor patio, exterior generator area, or other open area must be screened on
all sides using materials in form, substance, coloring, design, and quality are
subject to the prior approval of Landlord, and must be designed and constructed
in accordance with plans and specifications that are subject to the prior
approval of Landlord.
Whenever the above rules conflict with any of the rights or
obligations of Landlord or Tenant pursuant to the provisions of the Lease, the
provisions of the Lease shall govern. Landlord shall not be responsible to
Tenant or liable for the non-observance or violation of any of these Rules and
Regulations by any other tenant
30
<PAGE>
EXHIBIT F
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CURRENCY> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 1
<CASH> 46,134
<SECURITIES> 55,066
<RECEIVABLES> 8,153
<ALLOWANCES> 1,226
<INVENTORY> 0
<CURRENT-ASSETS> 109,256
<PP&E> 3,736
<DEPRECIATION> 1,586
<TOTAL-ASSETS> 153,473
<CURRENT-LIABILITIES> 15,961
<BONDS> 0
0
0
<COMMON> 487
<OTHER-SE> 135,501
<TOTAL-LIABILITY-AND-EQUITY> 153,473
<SALES> 6,816
<TOTAL-REVENUES> 8,302
<CGS> 3,188
<TOTAL-COSTS> 4,350
<OTHER-EXPENSES> 15,524
<LOSS-PROVISION> (11,572)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,546)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,546)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,546)
<EPS-BASIC> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
