AGREEMENT AND PLAN OF MERGER BY AND AMONG LYCOS, INC. WHAT ACQUISITION CORP. WHOWHERE? INC. AND CERTAIN SHAREHOLDERS OF WHOWHERE? INC. DATED AUGUST 7, 1998 - 1 - TABLE OF CONTENTS Page ARTICLE I THE MERGER.....................................................- 1 - 1.1 The Merger............................................- 1 - 1.2 Effective Time........................................- 2 - 1.3 Effect of the Merger..................................- 2 - 1.4 Articles of Incorporation; By-Laws....................- 2 - 1.5 Directors and Officers................................- 2 - 1.6 Additional Actions....................................- 3 - ARTICLE II CONSIDERATION; CONVERSION OF SHARES............................- 3 - 2.1 Merger Consideration..................................- 3 - 2.2 Conversion of Shares..................................- 3 - 2.3 Exchange of Certificates..............................- 6 - 2.4 No Fractional Securities..............................- 7 - 2.5 Stock Transfer Books..................................- 7 - 2.6 No Further Ownership Rights in Company Stock..........- 7 - 2.7 Adjustment Event......................................- 7 - 2.8 Escrow................................................- 8 - 2.9 Tax Consequences......................................- 8 - ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS .............................................................- 8 - 3.1 Corporate Organization...............................- 8 - 3.2 Authorization........................................- 9 - 3.3 Consents and Approvals; No Violations................- 9 - 3.4 Capitalization......................................- 10 - 3.5 Financial Statements................................- 11 - 3.6 Absence of Undisclosed Liabilities..................- 11 - 3.7 Absence of Certain Changes or Events................- 11 - 3.8 Legal Proceedings, etc..............................- 12 - 3.9 Taxes...............................................- 12 - 3.10 Title to Properties and Related Matters.............- 14 - (i) 3.11 Intellectual Property; Proprietary Rights; Employee Restrictions........................................- 15 - 3.12 Contracts...........................................- 16 - 3.13 Employees; Employee Benefits........................- 18 - 3.14 Compliance with Applicable Law......................- 21 - 3.15 Ability to Conduct the Business.....................- 21 - 3.16 Major Customers.....................................- 22 - 3.17 Consultants, Sales Representatives and Other Agents.- 22 - 3.18 Accounts Receivable.................................- 22 - 3.19 Insurance...........................................- 23 - 3.20 Bank Accounts; Powers of Attorney...................- 23 - 3.21 Minute Books, etc...................................- 23 - 3.22 Related Person Indebtedness and Contracts...........- 23 - 3.23 Brokers; Payments...................................- 23 - 3.24 Company Action......................................- 24 - 3.25 Disclosure..........................................- 24 - ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL SHAREHOLDERS...............................- 24 - ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PARENT AND ACQUISITION...............................- 25 - 5.1 Corporate Organization.............................- 25 - 5.2 Authorization......................................- 26 - 5.3 Consents and Approvals; No Violations..............- 26 - 5.4 Capitalization.....................................- 27 - 5.5 SEC Reports and Financial Statements...............- 27 - 5.6 Absence of Certain Changes.........................- 28 - 5.7 Litigation.........................................- 28 - 5.8 Tax Treatment of Merger............................- 28 - 5.9 Disclosure.........................................- 28 - ARTICLE VI CONDUCT OF BUSINESS OF THE COMPANY AND THE PARENT PRIOR TO THE EFFECTIVE TIME......................- 29 - 6.1 Conduct of Business of the Company.................- 29 - 6.2 Conduct of Business of the Parent..................- 30 - 6.3 Conduct of Business of Acquisition.................- 31 - 6.4 Other Negotiations.................................- 31 - (ii) ARTICLE VII ADDITIONAL AGREEMENTS.......................................- 31 - 7.1 Access to Properties and Records...................- 31 - 7.2 Shareholder Approval...............................- 32 - 7.3 Reasonable Efforts; etc............................- 32 - 7.4 Material Events....................................- 33 - 7.5 Registration Statement on Form S-8.................- 33 - 7.6. Fees and Expenses..................................- 33 - 7.7 Employees..........................................- 33 - 7.8 Nasdaq National Market Listing.....................- 34 - 7.9 Tax Treatment......................................- 34 - 7.10 Indemnification....................................- 34 - 7.11 Shares of Parent Common Stock......................- 34 - ARTICLE VIII CONDITIONS TO THE OBLIGATIONS OF THE PARENT AND ACQUISITION..................................- 35 - 8.1 Representations and Warranties True................- 35 - 8.2 Performance........................................- 35 - 8.3 Absence of Litigation..............................- 35 - 8.4 Consents...........................................- 36 - 8.5 Additional Agreements..............................- 36 - 8.6 Opinion of Venture Law Group.......................- 36 - 8.7 Appraisal Rights...................................- 36 - 8.8 Termination of Agreements..........................- 36 - 8.9 Certificate of Merger..............................- 37 - 8.10 Completion of Due Diligence........................- 37 - 8.11 Conversion of Company Preferred Stock..............- 37 - ARTICLE IX CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS.....................- 37 - 9.1 Representations and Warranties True...............- 37 - 9.2 Performance.......................................- 37 - 9.3 Absence of Litigation.............................- 38 - 9.4 Consents..........................................- 38 - 9.5 Additional Agreements.............................- 38 - 9.6 Opinion of Hutchins, Wheeler & Dittmar............- 38 - 9.7 Certificate of Merger.............................- 38 - 9.8 Tax Opinion.......................................- 38 - (iii) ARTICLE X TERMINATION...............................................- 39 - 10.1 Termination......................................- 39 - 10.2 Effect of Termination............................- 39 - ARTICLE XI INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES............................- 39 - 11.1 Indemnity Obligations of the Holders.............- 39 - 11.2 Appointment of Representative....................- 40 - 11.3 Notification of Claims...........................- 40 - 11.4 Duration.........................................- 41 - 11.5 Escrow...........................................- 41 - 11.6 No Contribution..................................- 42 - 11.7. Liability of Principal Shareholders..............- 42 - ARTICLE XII REGISTRATION RIGHTS.......................................- 42 - 12.1 Registration Rights..............................- 42 - 12.2 Indemnification..................................- 45 - 12.3 Current Public Information.......................- 46 - 12.4 Termination of Registration Rights...............- 46 - 12.5 Transferability of Registration Rights...........- 46 - ARTICLE XIII MISCELLANEOUS PROVISIONS..................................- 46 - 13.1 Amendment........................................- 46 - 13.2 Waiver of Compliance.............................- 47 - 13.3 Notices..........................................- 47 - 13.4 Assignment.......................................- 48 - 13.5 No Third Party Beneficiaries.....................- 48 - 13.6 Public Announcements.............................- 48 - 13.7 Brokers and Finders..............................- 48 - 13.8 Counterparts.....................................- 49 - 13.9 Headings.........................................- 49 - 13.10 Entire Agreement.................................- 49 - 13.11 Governing Law....................................- 49 - 13.12 Survival.........................................- 49 - (iv) EXHIBITS Exhibit A Voting Agreement Exhibit B-1 Certificate of Merger (Delaware Exhibit B-2 Agreement of Merger (California) Exhibit C Form of Letter of Transmittal Exhibit D Escrow Agreement Exhibit E Forms of Offer Letters Exhibit F Form of Nondisclosure and Inventions Agreement Exhibit G Opinion of Venture Law Group, A Professional Corporation Exhibit H Opinion of Hutchins, Wheeler & Dittmar Exhibit I Form of Stock Option Assumption Agreement Exhibit J Form of Warrant Assumption Agreement Exhbit K Tax Opinion of Venture Law Group, A Professional Corporation (v) AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER dated August 7, 1998 by and among Lycos, Inc., a corporation organized under the laws of the State of Delaware (the "Parent"), What Acquisition Corp., a corporation organized under the laws of the State of Delaware and a wholly-owned subsidiary of the Parent ("Acquisition"), WhoWhere? Inc., a corporation organized under the laws of the State of California (the "Company"), and certain shareholders of the Company, each of whom is listed on the signature page hereto (each a "Principal Shareholder " and, collectively, the "Principal Shareholders"). WHEREAS, the respective Boards of Directors of the Parent, Acquisition and the Company have approved the merger of Acquisition with and into the Company (the "Merger"), pursuant to which the Company will be the surviving corporation and the shareholders of the Company and all holders of options and warrants to purchase capital stock of the Company (collectively, the "Holders") will be entitled to receive the consideration provided for in this Agreement, all upon the terms and subject to the conditions set forth herein; WHEREAS, it is intended that the Merger qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, as a condition and inducement to Parent's willingness to enter into this Agreement, the Principal Shareholders and certain other shareholders of the Company have, concurrently with the execution of this Agreement, executed and delivered a Voting Agreement in the form attached hereto as Exhibit A, pursuant to which the Principal Shareholders and such other shareholders have agreed to vote their shares of the Company's capital stock in favor of the Merger and to grant Parent irrevocable proxies to vote such shares. NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements set forth herein, and intending to be legally bound hereby, the parties hereby agree as follows: ARTICLE I THE MERGER 1.1 The Merger. (a) At the Effective Time (as defined in Section 1.2), and subject to and upon the terms and conditions of this Agreement, the California General Corporation Law (the "CGCL") and the Delaware General Corporation Law (the "DGCL"), Acquisition shall be merged with and into the Company, the separate corporate existence of Acquisition shall cease, and the Company shall continue as the surviving corporation. The Company as the surviving corporation after the Merger is hereinafter sometimes referred to as the "Surviving Corporation." (b) Closing. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Article X and subject to the satisfaction or waiver of the conditions set forth in Articles VIII and IX, the consummation of - 1 - the Merger (the "Closing") will take place as promptly as practicable (and in any event within two business days) after satisfaction or waiver of the conditions set forth in Articles VIII and IX, at the offices of Hutchins, Wheeler & Dittmar, A Professional Corporation, 101 Federal Street, Boston, Massachusetts, unless another date, time or place is agreed to in writing by the Company and the Parent. The date of such Closing is referred to herein as the "Closing Date". 1.2 Effective Time. As promptly as practicable after the satisfaction or waiver of the conditions set forth in Articles VIII and IX, the parties hereto shall cause the Merger to be consummated by filing agreements or certificates of merger as contemplated by the CGCL and the DGCL in the forms of Exhibit B-1 and Exhibit B-2 hereto (collectively, the "Certificate of Merger"), together with any required related certificates, with the Secretary of State of the State of California and the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of, the CGCL and the DGCL (the time of such filing being the "Effective Time"). 1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Certificate of Merger and the applicable provisions of the CGCL and the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of the Company and Acquisition shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Acquisition shall become the debts, liabilities and duties of the Surviving Corporation. 1.4 Articles of Incorporation; By-Laws. (a) Articles of Incorporation. Unless otherwise determined by the Parent prior to the Effective Time, at the Effective Time, the Articles of Incorporation of the Company, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation until thereafter amended in accordance with the CGCL and such Articles of Incorporation. (b) By-Laws. Unless otherwise determined by the Parent prior to the Effective Time, the By-Laws of the Company, as in effect immediately prior to the Effective Time, shall be the By-Laws of the Surviving Corporation until thereafter amended in accordance with the CGCL, the Articles of Incorporation of the Surviving Corporation and such By-Laws. 1.5 Directors and Officers. The directors of Acquisition immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and By-Laws of the Surviving Corporation, and the officers of Acquisition immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified. - 2 - 1.6 Additional Actions. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other acts or things are necessary or desirable to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation, its right, title or interest in or to any of the rights, properties or assets of Acquisition or the Company acquired or to be acquired by reason of, or as a result of, the Merger, or otherwise to carry out the purposes of this Agreement, the Surviving Corporation and its proper officers and directors shall be authorized to execute and deliver, in the name and on behalf of Acquisition or the Company, all such deeds, bills of sale, assignments and assurances and to do, in the name and on behalf of Acquisition or the Company, all such other acts and things necessary or desirable to vest, perfect or confirm any and all right, title or interest in, to or under such rights, properties or assets in the Surviving Corporation or otherwise to carry out the purposes of this Agreement. ARTICLE II CONSIDERATION; CONVERSION OF SHARES 2.1 Merger Consideration. Except as set forth in Section 2.2(f) hereof, the consideration payable in the Merger to holders of shares of the Company's Common Stock, par value $.001 per share ("Company Common Stock"), and shares of each series of the Company's Preferred Stock, par value $.001 per share (the "Company Preferred Stock" and, together with the Company Common Stock, the "Company Stock"), shall consist solely of shares of the Common Stock, par value $.01 per share, of the Parent ("Parent Common Stock"), such shares of Parent Common Stock to be issuable at the Closing in accordance with the terms of this Agreement. 2.2 Conversion of Shares. (a) Conversion of Shares. Each share of Company Stock (treating all shares of Company Preferred Stock as having been converted, as of the Effective Time, into shares of Company Common Stock at the respective conversion ratios therefor) issued and outstanding as of the Effective Time (other than shares owned by holders who have properly exercised their rights of appraisal within the meaning of Chapter 13 of the CGCL ("Dissenting Shares")) shall, by virtue of the Merger and without any action on the part of the holder thereof, automatically be converted into that number of shares of Parent Common Stock as shall be obtained by dividing (A) 2,419,006 (the "Merger Consideration") minus any Expense Shares (as defined in Section 7.6) by (B) the number of Fully Diluted Shares (as hereinafter defined), with the resulting quotient (carried to four decimal places) being referred to herein as the "Exchange Ratio." "Fully Diluted Shares" shall be equal to the total number of outstanding shares of Company Common Stock calculated on a fully diluted, fully converted basis as though all convertible debt and equity securities (including the Company Preferred Stock and Company Preferred Stock issuable upon the exercise of any outstanding warrants) and outstanding options (whether vested or unvested) and outstanding warrants had been converted or exercised into Common Stock, - 3 - provided that the term "Fully Diluted Shares" shall exclude forty percent (40%) of the sum of (x) the number of shares of Company Common Stock issuable upon the exercise of outstanding stock options which are unvested as of the Closing Date after giving effect to the Merger and (y) the number of shares of Company Common Stock outstanding on the Closing Date which are unvested and subject to the right of repurchase as of the Closing Date after giving effect to the Merger. Schedule 2.2(a) sets forth the number of outstanding unvested stock options and unvested shares after giving effect to the Merger and the holders thereof. The Exchange Ratio shall not change as a result of fluctuations in the market price of Parent Common Stock between the date of this Agreement and the Effective Time. The aggregate number of shares of Parent Common Stock issued pursuant to this Section 2.2(a) shall be referred to in this Agreement as the "Merger Shares." (b) Treasury Shares. Each share of Company Common Stock held in the Company's treasury as of the Effective Time, if any, shall, by virtue of the Merger, be canceled without payment of any consideration therefor. (c) Stock Options. At the Effective Time, the outstanding options to purchase an aggregate of up to 3,545,662 shares of Company Common Stock (each a "Stock Option") granted under the Company's 1995 Stock Plan (the "Company Stock Plan"), whether vested or unvested, shall be deemed assumed by the Parent and deemed to constitute an option to acquire, on the same terms and conditions as were applicable under such Stock Option prior to the Effective Time (including terms and conditions relating to such Stock Option's term, exercisability, vesting schedule and status as an "incentive stock option" under Section 422 of the Code), the number (rounded down to the nearest whole number) of shares of Parent Common Stock equal to the aggregate of that number of shares of Parent Common Stock (based on the Exchange Ratio) as the holder of such Stock Option would have been entitled to receive pursuant to the Merger had such holder exercised such Option in full immediately prior to the Effective Time (not taking into account whether or not such Option was in fact exercisable). The exercise price for such Stock Options shall be the price per share equal to (x) the aggregate exercise price for Company Common Stock otherwise purchasable pursuant to such Stock Option divided by (y) the number of shares of Parent Common Stock deemed purchasable pursuant to such Stock Option (the exercise price per share, so determined, being rounded up to the nearest full cent). No payment shall be made for fractional shares. The aggregate number of shares of Parent Common Stock issuable upon the exercise of Options assumed by Parent pursuant to this Section 2.2(c) shall be referred to in this Agreement as the "Option Shares." Any adjustment to an incentive stock option made under this Section 2.2(c) shall comply with Section 424(a) of the Code. The Parent's assumption of each Stock Option pursuant to this Section 2.2(c) shall be subject to the holder of such Stock Option executing and delivering to the Parent the Stock Option Assumption Agreement in the form of Exhibit I hereto providing that ten percent (10%) of the Option Shares subject to such Stock Option will be deposited in escrow as security for the indemnification obligations of the Holders under Article XI hereof. - 4 - (d) Warrants. At the Effective Time, each outstanding warrant to purchase Company Stock (each, a "Warrant" and collectively the "Warrants") shall, by virtue of the Merger and without any further action on the part of the Company or the holder of any of Warrants (unless further action may be required by the terms of any of the Warrants), be assumed by Parent and each Warrant assumed by Parent shall be exercisable upon the same terms and conditions as under the applicable warrant agreements with respect to such Warrants, except that (A) each such Warrant shall be exercisable for that whole number of shares of Parent Common Stock (rounded down to the nearest whole share) into which the number of shares of Company Stock subject to such Warrant would be converted under Section 2.2(a) and (B) the exercise price per share of Parent Common Stock shall be equal to (x) the aggregate exercise price for the Company Stock subject to such Warrant in effect immediately prior to the Effective Time divided by (y) the number of shares of Parent Common Stock deemed purchasable pursuant to such Warrant (the exercise price per share, so determined, being rounded down to the nearest full cent). From and after the Effective Time, all references to the Company in the warrant agreement underlying the Warrants shall be deemed to refer to Parent. Parent further agrees that if required under the terms of the Warrants it will execute a supplemental agreement with the holders of the Warrants to effectuate the foregoing. No payment shall be made for fractional shares. The aggregate number of shares of Parent Common Stock issuable upon the exercise of Warrants assumed by Parent pursuant to this Section 2.2(d) shall be referred to in this Agreement as the "Warrant Shares." The Parent's assumption of each Warrant pursuant to this Section 2.2(d) shall be subject to the holder of such Warrant executing and delivering to the Parent the Warrant Assumption Agreement in the form of Exhibit J hereto providing that ten percent (10%) of the Warrant Shares subject to such Warrant will be deposited in escrow as security for the indemnification obligations of the Holders under Article XI hereof. (e) Acquisition Shares. Each share of common stock, par value $0.01 per share, of Acquisition issued and outstanding at the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, automatically be converted into one fully paid and nonassessable share of common stock of the Surviving Corporation, as such shares of common stock are constituted immediately following the Effective Time. (f) Dissenting Shares. Any Dissenting Shares shall be converted into the right to receive from the Surviving Corporation such consideration as may be determined to be due with respect to each such Dissenting Share pursuant to Chapter 13 of the CGCL; provided, however, Shares that are Dissenting Shares at the Effective Time of the Merger and are held by a holder who shall, after the Effective Time of the Merger, withdraw his demand for appraisal or lose his right of appraisal as provided in the Chapter 13 of the CGCL, shall be deemed to be converted, as of the Effective Time of the Merger, into the right to receive the Merger Shares in accordance with the procedures specified in Section 2.3. The Company shall give Parent (i) prompt notice of any written demands for appraisal, withdrawals of demands for appraisal and any other instruments served pursuant to Chapter 13 of the CGCL received by the Company and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under Chapter 13 of the CGCL. The Company will not voluntarily make any payment - 5 - with respect to any demands for appraisal and will not, except with the prior written consent of Parent, settle or offer to settle any such demands. It is understood and agreed that the obligation to make any payment under Chapter 13 of the CGCL shall be exclusively that of the Surviving Corporation and that Parent shall be under no obligation to perform and discharge any such obligation or to reimburse or make any contribution to the capital of the Surviving Corporation to enable it to perform and discharge any such obligation. 2.3 Exchange of Certificates. (a) From and after the Effective Time, each holder of an outstanding certificate or certificates (the "Certificates") which represented shares of Company Common Stock or Company Preferred Stock immediately prior to the Effective Time shall have the right to surrender each Certificate to Parent, and receive in exchange for all Certificates held by such holder a certificate representing the number of whole shares of Parent Common Stock (other than the Escrow Shares (as defined below)) into which the Company Common Stock or Company Preferred Stock evidenced by the Certificates so surrendered shall have been converted pursuant to Section 2.2(a) of this Agreement. The surrender of Certificates shall be accompanied by duly completed and executed Letters of Transmittal in the form of Exhibit C attached hereto. Until surrendered, each outstanding Certificate which prior to the Effective Time represented shares of Company Common Stock or Company Preferred Stock shall be deemed for all corporate purposes to evidence ownership of the number of whole shares of Parent Common Stock into which the shares of Company Common Stock or Company Preferred Stock have been converted but shall, subject to applicable appraisal rights under the CGCL and Section 2.2(f), have no other rights. Subject to appraisal rights under the CGCL and Section 2.2(f), from and after the Effective Time, the holders of shares of Company Common Stock or Company Preferred Stock shall cease to have any rights in respect of such shares and their rights shall be solely in respect of the Parent Common Stock into which such shares of Company Common Stock or Company Preferred Stock have been converted. (b) If any shares of Parent Common Stock are to be issued in the name of a person other than the person in whose name the Certificate(s) surrendered in exchange therefor is registered, it shall be a condition to the issuance of such shares that (i) the Certificate(s) so surrendered shall be properly assigned, endorsed or accompanied by appropriate stock powers, and (ii) the person requesting such transfer shall pay Parent, or its exchange agent, any transfer or other taxes payable by reason of the foregoing or establish to the satisfaction of Parent that such taxes have been paid or are not required to be paid. Notwithstanding the foregoing, neither Parent or the Company shall be liable to a holder of shares of Company Common Stock or Company Preferred Stock for shares of Parent or the Company issuable to such holder pursuant to the provisions of Section 2.2(a) of this Agreement that are delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. (c) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or - 6 - destroyed, Parent shall issue in exchange for such lost, stolen or destroyed Certificate the shares of Parent Common Stock issuable in exchange therefor pursuant to the provisions of Section 2.2(a) of this Agreement. The Board of Directors of Parent may in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificate to provide to Parent an indemnity agreement, reasonable in form and substance, against any claim that may be made against Parent with respect to the Certificate alleged to have been lost, stolen or destroyed. 2.4 No Fractional Securities. No fractional shares of Parent Common Stock shall be issuable by the Parent upon the conversion of shares of Company Common Stock or the Company Preferred Stock in the Merger pursuant to Section 2.2(a) hereof. In lieu of any such fractional shares, each holder of Company Common Stock or Company Preferred Stock who would otherwise have been entitled to receive a fraction of a share of Parent Common Stock shall be entitled to receive instead an amount in cash equal to such fraction multiplied by the Closing Market Price (as defined below). For purposes of this Agreement, the term "Closing Market Price" shall mean the average of the last quoted sale price for shares of Parent Common Stock on The Nasdaq National Market for each of the twenty trading days preceding the third trading day prior to the Effective Time. 2.5 Stock Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers of Company Stock or Company Preferred Stock thereafter on the records of the Company. 2.6 No Further Ownership Rights in Company Stock. The Merger Shares delivered upon the surrender for exchange of shares of Company Stock in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Company Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article II. 2.7 Adjustment Event. If, between the date hereof and the Effective Time, the issued and outstanding shares of Parent Common Stock shall have been combined, split, reclassified or otherwise changed into a different number of shares or a different class of shares, an appropriate adjustment to the Exchange Ratio shall be made to fully reflect such change in such manner as is reasonably acceptable to the Parent and the Company. Specifically, if the Parent's proposed two-for-one stock split is effected prior to the Effective Time, the Exchange Ratio shall be adjusted to give effect to such split. In addition, during the period beginning on the date of this Agreement and ending on the earlier of the termination of this Agreement and the Effective Time, Parent shall not, without the prior written consent of the Company, declare or pay any dividend or distribution on Parent Common Stock unless prior thereto either (i) Parent shall have provided that holders of Company Stock, upon the Effective Time, shall receive such dividend or distribution to the same extent they would have had their shares of Company Stock been - 7 - converted into shares of Parent Common Stock immediately prior to the record date of any such dividend or distribution, or (ii) Parent and the Company shall have mutually agreed upon an adjustment of the Exchange Ratio to fully reflect the effect of any such dividend or distribution. 2.8 Escrow. At the Effective Time, Parent will deposit in escrow certificates representing ten percent (10%) of the Merger Shares (which shall reduce on a pro rata basis the Merger Shares otherwise issuable to the Holders of Company Stock under Section 2.2(a)) registered in the name of State Street Bank and Trust Company, as Escrow Agent, and instruments or other documentation representing Stock Options to purchase ten percent (10%) of the Option Shares and Warrants to purchase ten percent (10%) of the Warrant Shares issuable to each Holder under Section 2.2(c) or 2.2(d), as the case may be (collectively, the "Escrow Shares"). The Escrow Shares shall be held as security for the indemnification obligations under Article XI pursuant to the provisions of an Escrow Agreement (the "Escrow Agreement ") in the form of Exhibit D attached hereto. 2.9 Tax Consequences. For Federal income tax purposes, the Merger is intended to constitute a reorganization within the meaning of Section 368(a) of the Code, and that this Agreement shall constitute a "plan of reorganization" within the meaning of Section 368(a) of the Code. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS The Company and each of the Principal Shareholders represent and warrant to the Parent and Acquisition as set forth below, subject to the exceptions set forth in the disclosure schedules attached hereto (the "Disclosure Schedules"), the section numbers and letters of which correspond to the section and subsection numbers and letters of this Agreement. Notwithstanding anything to the contrary contained in this Agreement, any information disclosed in one section of the Disclosure Schedules shall, should the existence of the information be relevant to any other section of the Disclosure Schedules, be deemed to be disclosed in all sections of the Disclosure Schedules, but only to the extent that the relevance of such information to such other section is apparent. The disclosure of any information shall not be deemed to constitute an acknowledgment that such information is required to be disclosed in connection with the representations and warranties made by the Company in this Agreement or that it is material, nor shall such information be deemed to establish a standard of materiality 3.1 Corporate Organization. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California. The Company has no Subsidiaries (as that term is hereinafter defined). The Company has all requisite corporate power and authority to own, operate and lease the properties and assets it now owns, operates and leases and to carry on its business as presently conducted. The Company is duly qualified to - 8 - transact business as a foreign corporation and in good standing in the jurisdictions set forth in Schedule 3.1, which are the only jurisdictions where such qualification is required by reason of the nature of the properties and assets currently owned, operated or leased by the Company or the business currently conducted by it, except for such jurisdictions where the failure to be so qualified would not have a Company Material Adverse Effect (as defined below). The Company has previously delivered to the Parent complete and correct copies of its Articles of Incorporation (certified by the secretary of state of the jurisdiction in which it was formed as of a recent date) and its By-Laws (certified by the Secretary of the Company as of a recent date). Except as set forth in Schedule 3.1, neither the Articles of Incorporation nor the By-Laws of the Company have been amended since the respective dates of certification thereof, nor has any action been taken for the purpose of effecting any amendment of such instruments. The term "Company Material Adverse Effect" means, for purposes of this Agreement, any change, event or effect that is, or that would be, materially adverse to the business, operations, assets, liabilities, financial condition or results of operations of the Company; provided, however, that a Company Material Adverse Effect shall not include any adverse effect that is attributable to the Merger or the announcement of the Merger or that is due to any downturn in the Internet industry or any national economic downturn. 3.2 Authorization. The Company has full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly approved by the Board of Directors of the Company, and no other corporate action on the part of the Company is necessary to approve and authorize the execution and delivery of this Agreement or (subject to the approval of this Agreement and the transactions contemplated hereby by the Holders which will be obtained in the manner set forth in Section 7.2 hereof and the filing of the Certificate of Merger pursuant to the CGCL and the DGCL) the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding agreement of the Company, enforceable in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors, rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in law or in equity. 3.3 Consents and Approvals; No Violations. Subject to the filing of the Certificate of Merger with the Secretary of State of the State of California and the Secretary of State of the State of Delaware and compliance with applicable federal and state securities laws, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not: (i) violate or conflict with any provision of the Articles of Incorporation or By-Laws of the Company, (ii) breach, violate or constitute an event of default (or an event which with the lapse of time or the giving of notice or both would constitute an event of default) under, give rise to any right of termination, cancellation, modification or acceleration under, or require any consent or the giving of any notice under, any note, bond, indenture, mortgage, security agreement, lease, license, franchise, permit, agreement or other instrument or obligation to which - 9 - the Company is a party, or by which the Company or any of its properties or assets may be bound, or result in the creation of any lien, claim or encumbrance or other right of any third party of any kind whatsoever upon the properties or assets of the Company pursuant to the terms of any such instrument or obligation, other than any breach, violation, default, termination, cancellation, modification or acceleration which would not have a Company Material Adverse Effect, (iii) violate or conflict with any law, statute, ordinance, code, rule, regulation, judgment, order, writ, injunction, decree or other instrument of any Federal, state, local or foreign court or governmental or regulatory body, agency or authority applicable to the Company or by which any of its properties or assets may be bound, except for such violations and conflicts which would not have a Company Material Adverse Effect or result in a fine or penalty in excess of $10,000 individually or in the aggregate, or (iv) require, on the part of the Company, any filing or registration with, or permit, license, exemption, consent, authorization or approval of, or the giving of any notice to, any governmental or regulatory body, agency or authority other than any filing, registration, permit, license, exemption, consent, authorization, approval or notice which if not obtained or made would not have a Company Material Adverse Effect or result in a fine or penalty in excess of $10,000 individually or in the aggregate. Without limiting the generality of clause (ii) above, except for the finder's agreements described in Section 13.7 hereof, neither the Company nor any of the Holders is a party to any agreement, arrangement or understanding which contemplates the sale of the business of the Company, in whole or in part, whether by means of a sale of shares, sale of assets, merger, consolidation or otherwise. 3.4 Capitalization. (a) The authorized capital stock of the Company consists of 40,000,000 shares of Company Common Stock, of which 5,650,047 shares are issued and outstanding and 10,000,000 shares of Company Preferred Stock, of which 1,444,162 shares of Series A Convertible Preferred Stock, and 5,231,577 shares of Series B Convertible Preferred Stock, are issued and outstanding. Schedule 3.4(a) sets forth a complete and correct list of the record ownership of the issued and outstanding shares of Company Stock. All of the issued and outstanding shares of Company Stock were duly authorized and validly issued and are fully paid and nonassessable, and were not issued in violation of any preemptive rights or Federal or state securities laws. Except as disclosed in Schedule 3.4(a) hereto, the Company has never repurchased or redeemed any shares of its capital stock, and there are no amounts owed or which may be owed to any person by the Company as a result of any repurchase or redemption of shares of its capital stock. Except as disclosed in Schedule 3.4(a) hereto, there are no agreements, arrangements or understandings to which the Company is a party or by which it is bound to redeem or repurchase any shares of its capital stock. Except as set forth in Schedule 3.4(a), there are no outstanding options, warrants or other rights to purchase, or any securities convertible into or exchangeable for, shares of the capital stock of the Company, and there are no agreements, arrangements or understandings to which the Company is a party or by which it is bound pursuant to which the Company is or may be required to issue additional shares of its capital stock. - 10 - (b) Schedule 3.4(b) sets forth a complete and correct list of all indebtedness for borrowed money of the Company outstanding as of the date hereof, including, the name of the lender, the principal amount of such indebtedness, together with all accrued and unpaid interest thereon, and any prepayment penalties or premiums payable if such indebtedness is repaid prior to its stated maturity date. (c) The Company does not own, directly or indirectly, any equity securities, or options, warrants or other rights to acquire equity securities, or securities convertible into or exchangeable for equity securities, of any other corporation, or any partnership interest in any general or limited partnership or unincorporated joint venture (a "Subsidiary"). 3.5 Financial Statements. Attached hereto as Schedule 3.5 are the balance sheets of the Company as of June 28, 1998, December 31, 1997, and December 31, 1996 and the statements of income and statements of cash flows of the Company for the fiscal years or periods then ended, including the notes thereto (hereinafter collectively referred to as the "Financial Statements"). The Financial Statements (i) have been prepared from the books and records of the Company, (ii) have been prepared in accordance with generally accepted accounting principles consistently applied (except as may be expressly indicated therein or on the face of the schedules or notes to such Financial Statements) during the periods covered thereby and (iii) present fairly in all material respects the financial condition, results of operations and cash flows of the Company as at the dates, and for the periods, stated therein, except that the Financial Statements are subject to normal year-end adjustments which will not be individually or in the aggregate material in amount or effect and do not include footnotes. At July 31, 1998, the Company's total assets (as computed in accordance with generally accepted accounting principles) did not equal or exceed $10 million. 3.6 Absence of Undisclosed Liabilities. Except (i) as set forth or reserved against in the balance sheet of the Company dated as of June 28, 1998, included in the Financial Statements (the "Balance Sheet"), (ii) for obligations incurred since June 28, 1998 in the ordinary course of business, which are not individually or in the aggregate, material in amount, and (iii) as set forth in Schedule 3.6, the Company does not have any liabilities or obligations of the nature that would be reasonably required, in accordance with generally accepted accounting principles applied on a consistent basis, to be reflected on the face of a balance sheet or, in the case of the financial statements for the years ended December 31, 1996 and December 31, 1997, the notes thereto. 3.7 Absence of Certain Changes or Events. Except as set forth in Schedule 3.7, since June 28, 1998, the Company has carried on its business in the ordinary course and consistent with past practice. Except as set forth on Schedule 3.7 hereto, since June 28, 1998, the Company has not: (i) incurred any material obligation or liability (whether absolute, accrued, contingent or otherwise) except in the ordinary course of business and consistent with past practice; (ii) experienced any Company Material Adverse Effect; (iii) accelerated receivables or delayed payables or made any change in any accounting principle or practice or in its methods of - 11 - applying any such principle or practice; (iv) suffered any material damage, destruction or loss, whether or not covered by insurance, affecting its properties, assets or business; (v) mortgaged, pledged or subjected to any lien, charge or other encumbrance, or granted to third parties any rights in, any of its assets, tangible or intangible; (vi) sold or transferred any of its assets, except in the ordinary course of business and consistent with past practice, or canceled or compromised any debts or waived any claims or rights of a material nature; (vii) issued any additional shares of capital stock or any rights, options or warrants to purchase, or securities convertible into or exchangeable for, shares of its capital stock other than shares of Company Common Stock issued upon exercise of employee stock options; (viii) declared or paid any dividends on or made any distributions (however characterized) in respect of shares of its capital stock; (ix) repurchased or redeemed any shares of its capital stock; (x) granted any general or specific increase in the compensation payable or to become payable to any of their Employees (as that term is hereinafter defined) or any bonus or service award or other like benefit, or instituted, increased, augmented or improved any Benefit Plan (as that term is hereinafter defined); or (xi) entered into any agreement to do any of the foregoing. 3.8 Legal Proceedings, etc. Except as set forth in Schedule 3.8 hereto, there are no suits, actions, claims, proceedings (including, without limitation, arbitral or administrative proceedings) or investigations pending or, to the best knowledge of the Company or any Principal Shareholder, threatened against the Company or its properties, assets or business or, to the best knowledge of the Company or any Principal Shareholder, pending or threatened against any of the officers, directors, employees, agents or consultants of the Company in connection with the business of the Company. There are no such suits, actions, claims, proceedings or investigations pending, or, to the best knowledge of the Company or any Principal Shareholder, threatened challenging the validity or propriety of the transactions contemplated by this Agreement. There is no judgment, order, injunction, decree or award (whether issued by a court, an arbitrator or an administrative agency) to which the Company is a party, or involving the Company's properties, assets or business, which is unsatisfied or which requires continuing compliance therewith by the Company. 3.9 Taxes. (a) Except as set forth in Schedule 3.9, the Company has duly and timely filed, or will duly and in a timely manner file, all material Tax returns and other filings in respect of Taxes (as that term is hereinafter defined) required to be filed by it or which are required to be filed by it on or prior to the Effective Time, and has in a timely manner paid (or will in a timely manner pay) all material Taxes which are (or will be) due for all periods ending on or before the Effective Time, whether or not shown on such returns. All such Tax returns have been, or will be when filed, accurately and completely prepared in all material respects in compliance with all laws, rules and regulations. The provisions for Taxes payable reflected in the Financial Statements are adequate under generally accepted accounting principles. - 12 - (b) Except as set forth in Schedule 3.9 hereto, there are no actions or proceedings currently pending or, to the best knowledge of the Company or any Principal Shareholder, threatened against the Company by any governmental authority for the assessment or collection of Taxes, no claim for the assessment or collection of Taxes has been asserted against the Company, and there are no matters under discussion with any governmental authority regarding claims for the assessment or collection of Taxes. Any Taxes that have been claimed or imposed as a result of any examinations of any tax return of the Company by any governmental authority are being contested in good faith and have been disclosed in writing to the Parent. Except as set forth in Schedule 3.9, there are no agreements or applications by the Company for an extension of time for the assessment or payment of any Taxes nor any outstanding waiver of the statute of limitations in respect of Taxes. There are no Tax liens on any of the assets of the Company, except for liens for Taxes not yet due or payable or that are being contested in good faith in appropriate proceedings. (c) For purposes of this Agreement, the terms "Tax" and "Taxes" shall mean and include any and all United States, state, local, foreign or other income, sales, use, withholding, employment, payroll, social security, property taxes and all other taxes of any kind, deficiencies, fees or other governmental charges in the nature of taxes, including, without limitation, any installment payment for taxes and contributions or other amounts determined with respect to compensation paid to directors, officers, employees or independent contractors from time to time imposed by or required to be paid to any governmental authority (including penalties and additions to tax thereon, penalties for failure to file a return or report, and interest on any of the foregoing). (d) The Company has not, with regard to any assets or property held, acquired or to be acquired by the Company, filed a consent to the application of Section 341(f) of the Code. (e) The Company has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(2)(i) of the Code. (f) There is no agreement, plan or arrangement covering any employee or independent contractor or former employee or independent contractor of the Company that, considered individually or considered collectively with any other such agreement, plan or arrangement, will, or could reasonably be expected to, give rise directly or indirectly to the payment of any amount that would not be deductible pursuant to Section 280G of the Code or that would be subject to an excise tax under Section 4999 of the Code. (g) The Company is not and has never been a party to or bound by any tax indemnity agreement, tax sharing agreement, tax allocation agreement or similar agreement or arrangement and does not have any liability for Taxes of any person (other than the Company) under Treasury Regulation 1.1502-6 (or any similar provision of state, local or foreign law). - 13 - (h) The Company has withheld amounts from its employees and other persons required to be withheld under the tax, social security, unemployment and other withholding provisions of all federal, state, local and foreign laws. 3.10 Title to Properties and Related Matters. (a) Except as set forth on Schedule 3.10(a), the Company has good and valid title to all personal property, tangible or intangible, which the Company purports to own, including the properties reflected on the Balance Sheet or acquired after the date thereof (other than properties and assets sold or otherwise disposed of in the ordinary course of business and consistent with past practice since June 28, 1998), free and clear of any claims, liens, pledges, security interests or encumbrances of any kind whatsoever (other than (i) purchase money security interests and common law vendor's liens, in each case for goods purchased on open account in the ordinary course of business and having a fair market value of less than $10,000 in each individual case), (ii) liens for Taxes not yet due and payable, and (iii) such imperfections of title and encumbrances, if any, that are not material in character, amount or extent and that do not materially detract from the value, or materially interfere with the use of, the property subject thereto or affected thereby. (b) The Company does not own any real property or any interest in real property, except for the leasehold created under the leases referred to in Schedule 3.10(d). (c) Schedule 3.10(c) sets forth a complete and correct list of all equipment, machinery, instruments, vehicles, furniture, fixtures and other items of personal property currently owned, leased or used by the Company with a book value as of June 28, 1998, in each case of $10,000 or more. All such personal property is in satisfactory operating condition (ordinary and reasonable wear and tear excepted), is physically located in or about one of the Company's places of business and is owned by the Company or is leased by the Company under one of the leases set forth in Schedule 3.10(d). None of such personal property is subject to any agreement or commitment for its use by any person other than the Company. The maintenance and operation of such personal property is appropriate for personal property of such nature and is and has been in material conformance with all applicable laws and regulations, except as would not have a Company Material Adverse Effect or result in a fine or penalty in excess of $10,000 individually or in the aggregate. There are no assets leased by the Company or used in the business of the Company that are owned, directly or indirectly, by any Related Person (as that term is hereinafter defined). (d) Schedule 3.10(d) sets forth a complete and correct list of all real property and personal property leases to which the Company is a party. The Company has previously delivered to the Parent complete and correct copies of each lease (and any amendments or supplements thereto) listed in Schedule 3.10(d). With respect to such leases, (i) each such lease is valid and binding and in full force and effect; (ii) neither the Company nor (to the best knowledge of the Company or any Principal Shareholder) any other party is in default under any such lease, and no event has occurred which constitutes, or with the lapse of time or the giving of notice or both would constitute, a default by the Company or (to the best knowledge of the - 14 - Company or any Principal Shareholder) a default by any other party under such lease, other than any default which would not have a Company Material Adverse Effect; (iii) to the best knowledge of the Company or any Principal Shareholder, there are no disputes or disagreements between the Company and any other party with respect to any such lease; and (iv) the lessor under each such lease has consented or been given notice (or prior to the Closing shall have consented or been given notice), where such consent or the giving of such notice is necessary, sufficient that such lease shall remain in full force and effect following the consummation of the transactions contemplated by this Agreement without requiring modification in the rights or obligations of the lessee under any such lease. 3.11 Intellectual Property; Proprietary Rights; Employee Restrictions. (a) The Company has disclosed in Schedule 3.11 all registered copyrights, copyright registrations and copyright applications, trademark registrations and applications for registration, patents and patent applications, trademarks, service marks, trade names, or Internet domain names (collectively, "Intellectual Property Rights") used by the Company in the Company's business as presently conducted, including all other registered Intellectual Property Rights used in connection with or contained in all versions of the Company's World Wide Web sites (including www.whowhere.com and www.angelfire.com) and all licenses, assignments and releases of Intellectual Property Rights of others without which the Company could not offer the services it currently offers. All Intellectual Property Rights used by the Company in the Company's business held by any employee, officer or consultant are owned by the Company by operation of law or have been validly assigned to the Company. The Company believes that the Intellectual Property Rights are sufficient to carry on the business of the Company as presently conducted. The Company has exclusive ownership of or license to use all Intellectual Property Rights identified in Schedule 3.11 or has obtained any licenses, releases or assignments reasonably necessary to use all third parties' Intellectual Property Rights in works embodied in its services. The present business activities or products of the Company do not infringe any Intellectual Property Rights of others, except as would not have a Company Material Adverse Effect or result in a liability, fine or penalty in excess of $10,000 individually or in the aggregate. The Company has not received any notice or other claim from any person asserting that any of the Company's present activities infringe or may infringe any Intellectual Property Rights of such person. The Company has the right to use all trade secrets, customer lists, hardware designs, programming processes, software and other information required for its services or its business as presently conducted or contemplated. The Company has taken all reasonable measures to protect and preserve the security and confidentiality of its trade secrets and other confidential information. All employees and consultants of the Company involved in the design, review, evaluation or development of products or Intellectual Property Rights have executed nondisclosure and assignment of inventions agreements to protect the confidentiality of the Company's trade secrets and other confidential information and to vest in the Company exclusive ownership of such Intellectual Property Rights. To the knowledge of the Company and the Principal Shareholders, all trade secrets and other confidential information of the Company are not part of the public domain or knowledge, nor, to the knowledge of the Company and the - 15 - Principal Shareholders, have they been misappropriated by any person having an obligation to maintain such trade secrets or other confidential information in confidence for the Company. To the knowledge of the Company and the Principal Shareholders, no employee or consultant of the Company has used any trade secrets or other confidential information of any other person in the course of their work for the Company. The Company is the exclusive owner of all right, title and interest in its Intellectual Property Rights as purported to be owned by the Company, and to the Company's and the Principal Shareholders' knowledge, such Intellectual Property Rights are valid and in full force and effect. No university, government agency (whether federal or state) or other organization sponsored research and development conducted by the Company or has any claim of right to or ownership of or other encumbrance upon the Intellectual Property Rights of the Company. The Company is not aware of any infringement by others of its copyrights or other Intellectual Proprietary Rights in any of its technology or services, or any violation of the confidentiality of any of its proprietary information. To the Company's and the Principal Shareholders' knowledge, the Company is not making unlawful use of any confidential information or trade secrets of any past or present employees of the Company. Neither the Company nor, to the knowledge of the Company and the Principal Shareholders, any of the Company's employees, have any agreements or arrangements with former employers of such employees relating to confidential information or trade secrets of such employers or are bound by any consulting agreement relating to confidential information or trade secrets of another entity that are being violated by such persons. The activities of the Company's employees on behalf of the
Agreement and Plan of Merger - Lycos Inc. and WhoWhere? Inc.
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