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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FEBRUARY 24, 2000
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
THEGLOBE.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-25053 14-1782422
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification Number)
incorporation
or organization)
120 BROADWAY
NEW YORK, NEW YORK 10271
(Address of principal executive offices)
(212) 894-3600
(Registrant's telephone number, including area code)
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<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 24, 2000, CB Acquisition Corp. ("CB Merger Sub"), a
Vermont corporation and a wholly-owned subsidiary of theglobe.com, inc., a
Delaware corporation ("theglobe"), was merged with and into Chips & Bits,
Inc., a Vermont corporation ("Chips & Bits"), with Chips & Bits as the
surviving corporation (the "CB Merger"). Also on February 24, 2000, SP
Acquisition Corp. ("SP Merger Sub"), a Vermont corporation and a
wholly-owned subsidiary of theglobe, was merged with and into Strategy
Plus, Inc., a Vermont corporation ("Strategy Plus"), with Strategy Plus as
the surviving corporation (together with the CB Merger, the "Mergers"). The
Mergers were effected pursuant to an Agreement and Plan of Merger dated as
of January 13, 2000 by and among theglobe, CB Merger Sub, SP Merger Sub,
Chips & Bits, Strategy Plus, Yale Brozen and Christina Brozen (the "Merger
Agreement"). As a result of the Mergers, both Chips & Bits and Strategy
Plus became wholly-owned subsidiaries of theglobe.
The consideration paid by theglobe in connection with the Mergers
consisted of:
o the issuance by theglobe of 1,885,125 newly issued shares of its
common stock, par value $.001 per share (the "Common Stock"),
based upon a $16.0 million purchase price divided by the average
closing price of the Common Stock as reported on the Nasdaq
National Market for a period preceding the execution of the
Merger Agreement;
o $250,000 in cash; and
o an additional $1.25 million payable in newly issued shares of
Common Stock, contingent upon the attainment of certain
performance targets by Chips & Bits and Strategy Plus during the
2000 fiscal year.
The assets of Chips & Bits and Strategy Plus acquired as a result of
the Mergers consisted of data, intellectual property and other physical
property used in connection with the operation of Chips & Bits online game
retailing business and Strategy Plus's magazine publishing business sites
and magazine publishing operations. theglobe intends to use the assets
acquired to expand its own gaming related operations; provided that
changing business conditions or strategic plans may lead to changes in such
operations in the future.
The Merger Agreement is filed as an exhibit to this Current Report on
Form 8-K and is incorporated herein by reference. theglobe issued a press
release on January 14, 2000 relating to the Mergers. The press release is
filed as an exhibit to this Current Report on Form 8-K and is incorporated
herein by reference.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(a) The financial statements of the businesses acquired as required
by Item 7(a) will be filed by amendment within sixty days of this
filing.
(b) The pro forma financial information as required by Item 7(b) will
be filed by amendment within sixty days of this filing
(c) Exhibits
2.1 Agreement and Plan of Merger dated as of January 13, 2000 by and among
theglobe.com, inc., Chips & Bits, Inc., Strategy Plus, Inc., CB
Acquisition Corp., SP Acquisition Corp., Yale Brozen and Christina
Brozen.
99.1 Text of Press Release, dated January 14, 2000, issued by theglobe.com,
inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on behalf of the
undersigned hereunto duly authorized.
Dated: March 8, 2000.
theglobe.com, inc.
By: /s/ Francis T. Joyce
--------------------
Name: Francis T. Joyce
Title: Vice President and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Description
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2.1 Agreement and Plan of Merger dated
as of January 13, 2000 by and among
theglobe.com, inc., Chips & Bits,
Inc., Strategy Plus, Inc., CB
Acquisition Corp., SP Acquisition
Corp., Yale Brozen and Christina
Brozen.
99.1 Text of Press Release, dated
January 14, 2000, issued by
theglobe.com, inc.
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
DATED AS OF
JANUARY 13, 2000
BY AND AMONG
THEGLOBE.COM, INC.,
CHIPS & BITS, INC.,
STRATEGY PLUS, INC.,
CB ACQUISITION CORP.,
SP ACQUISITION CORP.,
MR. YALE BROZEN
AND
MS. CHRISTINA BROZEN
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGERS......................................................2
Section 1.1 The Company C Merger..............................2
Section 1.2 The Company S Merger..............................2
Section 1.3 The Closing; Effective Time.......................2
Section 1.4 Subsequent Actions................................3
Section 1.5 Articles of Incorporation; Bylaws; Directors and
Officers of the Surviving Corporations.........3
ARTICLE II CONSIDERATION...................................................4
Section 2.1 Conversion of Common Stock........................4
Section 2.2 Cancellation of Excluded Shares...................4
Section 2.3 Conversion of Common Stock of Merger Sub..........4
Section 2.4 Certain Definitions...............................5
Section 2.5 Earn-Out Shares...................................5
Section 2.6 Deliveries at the Effective Time..................6
Section 2.7 Cash in Lieu of Fractional Shares.................7
Section 2.8 Restricted Securities.............................7
Section 2.9 Registration Rights...............................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLERS...................8
Section 3.1 Organization.......................................8
Section 3.2 Authority..........................................8
Section 3.3 Capitalization; Title to Shares....................9
Section 3.4 Financial Statements...............................9
Section 3.5 Compliance with Laws; Permits.....................11
Section 3.6 Consents; No Violations...........................13
Section 3.8 Absence of Undisclosed Liabilities................16
Section 3.9 Absence of Certain Changes........................16
Section 3.10 Brokers and Finders; Fees........................17
Section 3.11 Real Estate......................................17
Section 3.12 Sufficiency of Assets............................18
Section 3.13 Tangible Property................................19
Section 3.14 Litigation and Orders............................19
Section 3.15 Company Proprietary Assets.......................19
Section 3.16 Year 2000 Compliance.............................21
Section 3.17 Taxes............................................21
Section 3.18 Insurance........................................24
Section 3.19 Employee Benefits................................25
Section 3.20 Personnel Information............................28
Section 3.21 Affiliate Relationships..........................28
Section 3.22 No Termination of Business Relationship..........28
Section 3.23 Operating Data...................................29
Section 3.24 Investment Matters...............................29
Section 3.25 Necessary Information............................29
Section 3.26 Disclosure.......................................29
Section 3.27 Domain Names.....................................30
Section 3.28 User Agreements..................................30
Section 3.29 Privacy Policies.................................30
Section 3.30 Liability for User Content.......................30
Section 3.31 Affiliates.......................................31
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER.........................31
Section 4.1 Organization......................................31
Section 4.2 Merger Subs' Operations...........................31
Section 4.3 Authority.........................................31
Section 4.4 Capitalization; Title to Shares...................32
Section 4.5 Securities of Buyer...............................32
Section 4.6 Consents; No Violations...........................32
Section 4.7 SEC Reports; Financial Statements.................33
Section 4.8 Absence of Certain Changes........................33
Section 4.9 Litigation........................................33
Section 4.10 Board Action.....................................33
Section 4.11 Brokers and Finders..............................34
Section 4.12 Certain Tax Matters..............................34
ARTICLE V COVENANTS........................................................34
Section 5.1 No Solicitation...................................34
Section 5.2 Interim Operations................................35
Section 5.3 Tax Provisions....................................37
Section 5.4 Access and Information............................37
Section 5.5 Consents..........................................38
Section 5.6 Reasonable Efforts................................38
Section 5.7 Notice............................................38
Section 5.8 Non-Competition Agreement.........................39
Section 5.9 Further Assurances................................40
Section 5.10 Obligations of the Sellers.......................40
Section 5.11 Confidentiality..................................40
Section 5.12 Affiliates.......................................40
Section 5.13 Consulting Agreements............................40
Section 5.14 Proprietary Assets...............................41
Section 5.15 Indebtedness.....................................41
Section 5.16 December Balance Sheet...........................41
Section 5.17 401(k) Plan......................................41
Section 5.18 Assignment of Proprietary Assets.................41
Section 5.19 Employment Arrangements..........................41
ARTICLE VI CONDITIONS......................................................42
Section 6.1 Conditions to Obligations of Buyer and
Merger Subs...................................42
Section 6.2 Conditions to Obligations of the Sellers..........43
ARTICLE VII TERMINATION....................................................44
Section 7.1 Termination.......................................44
ARTICLE VIII INDEMNIFICATION...............................................45
Section 8.1 Survival..........................................45
Section 8.2 Indemnification by Buyer..........................45
Section 8.3 Indemnification by the Sellers....................46
Section 8.4 Escrow............................................47
Section 8.5 Indemnification Procedure.........................47
ARTICLE IX MISCELLANEOUS...................................................49
Section 9.1 Public Announcements..............................49
Section 9.2 Notices...........................................49
Section 9.3 Certain Definitions; Certain Interpretations......50
Section 9.4 Headings..........................................51
Section 9.5 Severability......................................51
Section 9.6 Entire Agreement; No Third-Party Beneficiaries....52
Section 9.7 Assignment........................................52
Section 9.8 Governing Law.....................................52
Section 9.9 Transaction Costs.................................52
Section 9.10 Amendments.......................................53
Section 9.11 Counterparts.....................................53
Section 9.12 Schedules........................................53
<PAGE>
EXHIBITS
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Exhibit A Form of Accredited Investor Questionnaire
Exhibit B Form of Amended and Restated Articles of Incorporation of
Surviving Corporations
Exhibit C Form of Registration Rights Agreement
Exhibit D Required Consents
Exhibit E Form of Affiliates Letter
Exhibit F Form of Consulting Agreement
Exhibit G Form of Assignment of Trademarks, Trade Names and
Service Marks
Exhibit H Form of Assignment of Copyrights
Exhibit I Form of Assignment of Proprietary Assets
Exhibit J Form of Escrow Agreement
<PAGE>
INDEX OF DEFINED TERMS
DEFINED TERM SECTION
Affiliate................................................................9.3(a)
Affiliates Letter..........................................................5.15
Aggregate Company C Stock Consideration.....................................2.4
Aggregate Company S Stock Consideration.....................................2.4
Agreement..............................................................preamble
Ancillary Documents......................................................9.3(a)
Bonus Payments..............................................................2.4
Buyer..................................................................preamble
Buyer Common Stock..........................................................2.4
Buyer Indemnified Group..................................................8.3(a)
Buyer SEC Reports........................................................4.7(a)
C Merger Sub...........................................................preamble
Certificates.............................................................2.6(b)
Closing..................................................................1.3(a)
Closing Certificate......................................................2.6(d)
Closing Date.............................................................1.3(a)
Code...................................................................recitals
Commitments..............................................................3.7(a)
Companies..............................................................preamble
Companies Common Stock......................................................2.1
Company................................................................preamble
Company C..............................................................preamble
Company C Certificates...................................................2.6(a)
Company C Common Stock...................................................2.1(a)
Company Employee Plan................................................3.19(k)(l)
Company Proprietary Asset...............................................3.15(g)
Company S Certificates...................................................2.6(b)
Company S Common Stock...................................................2.1(b)
Company C Merger.......................................................recitals
Company S..............................................................preamble
Company S Merger.......................................................recitals
Competitive Activity........................................................5.8
Competitor..................................................................5.8
Confidential Information...................................................5.11
Consent.....................................................................5.5
Control..................................................................9.3(a)
December Balance Sheets..................................................3.4(a)
Earn-Out Share Price........................................................2.5
Earn-Out Shares.............................................................2.5
Effective Time...........................................................1.3(b)
Election.................................................................8.5(a)
Employee............................................................3.19(l)(ii)
Employee Agreement.................................................3.19(l)(iii)
Employee Plan.......................................................3.19(l)(iv)
Encumbrance.................................................................3.3
Environmental Laws...................................................3.5(b)(ii)
Environmental Matters................................................3.5(b)(ii)
ERISA................................................................3.19(l)(v)
ERISA Affiliate.....................................................3.19(l)(vi)
Escrow Agent.............................................................8.4(a)
Escrow Agreement.........................................................8.4(a)
Escrowed Shares..........................................................8.4(a)
Excess Bonus Payments.......................................................2.4
Exchange Act..........................................................4.7(a)(i)
Excluded Share..............................................................2.2
Financial Statements.....................................................3.4(a)
GAAP.....................................................................4.7(b)
Governmental Entity....................................................3.6(iii)
Hazardous Materials..................................................3.5(b)(ii)
HMO.................................................................3.19(h)(ii)
H-S-R Act..............................................................3.6(iii)
Income Tax.........................................................3.17(c)(iii)
Income Taxes.......................................................3.17(c)(iii)
Indebtedness.............................................................3.4(d)
Indemnified Party........................................................8.5(a)
Indemnifying Party.......................................................8.5(a)
Inventory................................................................3.4(b)
IRS.................................................................3.17(a)(vi)
Laws.....................................................................3.5(a)
Leased Real Property....................................................3.11(b)
Liabilities.................................................................3.8
Litigation.................................................................3.14
Losses...................................................................8.2(a)
material.................................................................9.3(a)
Material Adverse Effect..................................................9.3(a)
Merger.................................................................recitals
Merger Consideration Per C Share............................................2.4
Merger Consideration Per S Share............................................2.4
Merger Sub.............................................................preamble
Merger Subs............................................................preamble
Mergers................................................................recitals
Most Recent Balance Sheets...............................................3.4(a)
Most Recent Financial Statements.........................................3.4(a)
Multiemployer Plan.................................................3.19(l)(vii)
Notices..................................................................8.5(a)
Order...................................................................3.6(ii)
Outstanding C Shares.....................................................2.1(a)
Outstanding S Shares.....................................................2.1(b)
Owned Real Property.....................................................3.11(a)
Parties................................................................preamble
Party..................................................................preamble
PBGC..............................................................3.19(l)(viii)
PCBs.................................................................3.5(b)(ii)
Pension Plan........................................................3.19(l)(ix)
Performance Data...........................................................3.23
Permit...................................................................3.5(a)
Permitted Company C Indebtedness Amount..................................3.4(d)
Permitted Company S Indebtedness Amount..................................3.4(d)
Permitted Indebtedness Amount............................................3.4(d)
Person...................................................................9.3(a)
Proprietary Asset.......................................................3.15(g)
Receivables..............................................................3.4(c)
Reference Share Price.......................................................2.4
Registration Rights Agreement..............................................2.10
Requesting Party............................................................5.9
S Merger Sub...........................................................preamble
SEC......................................................................4.7(a)
Securities Act.............................................................3.24
Seller Indemnified Group.................................................8.2(a)
Sellers................................................................preamble
Surviving C Corporation.....................................................1.1
Surviving Corporation.......................................................1.2
Surviving Corporations......................................................1.2
Surviving S Corporation.....................................................1.2
Tangible Property..........................................................3.13
Tax..................................................................3.17(c)(i)
Tax Return..........................................................3.17(c)(ii)
Taxes................................................................3.17(c)(i)
Termination Date.........................................................7.1(b)
Transaction Costs...........................................................9.9
VBCA........................................................................1.1
Welfare Plan........................................................3.19(l)(ix)
Working Capital..........................................................9.3(a)
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 13, 2000 (this
"Agreement"), by and among theglobe.com, inc., a Delaware corporation
("Buyer"), CB Acquisition Corp., a Vermont corporation and wholly-owned
subsidiary of Buyer ("C Merger Sub"), SP Acquisition Corp., a Vermont
corporation and a wholly-owned subsidiary of Buyer ("S Merger Sub" and
together with C Merger Sub, each a "Merger Sub" and together the "Merger
Subs"), Chips & Bits, Inc., a Vermont corporation ("Company C"), Strategy
Plus, Inc., a Vermont corporation ("Company S," together with Company C,
the "Companies," and each a "Company") and each of Mr. Yale Brozen and Ms.
Christina Brozen (together, the "Sellers"). Buyer, C Merger Sub, S Merger
Sub, Company C, Company S and the Sellers are sometimes referred to herein,
individually, as a "Party," and collectively, as the "Parties."
W I T N E S S E T H:
WHEREAS, the Sellers are the sole record and beneficial owners of
all of the outstanding shares of capital stock of each of Company C and
Company S;
WHEREAS, the Sellers have approved a merger (the "Company C
Merger") of C Merger Sub with and into Company C, in accordance with the
terms hereof;
WHEREAS, the Sellers have approved a merger (the "Company S
Merger" and together with the Company C Merger, the "Mergers" and each a
"Merger") of S Merger Sub with and into Company S, in accordance with the
terms hereof;
WHEREAS, Buyer has received from each Seller an Accredited
Investor Questionnaire in the form attached hereto as Exhibit A; and
WHEREAS, it is intended that, for federal income tax purposes,
the Mergers contemplated hereby will qualify as reorganizations under
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"),
and the rules and regulations promulgated thereunder.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained in this Agreement, and intending to be
legally bound hereby, the Parties agree as follows:
ARTICLE I
THE MERGERS
Section 1.1 The Company C Merger. At the Effective Time (as defined in
Section 1.3(b)) and subject to and upon the terms and conditions of this
Agreement and in accordance with the Vermont Business Corporation Act (the
"VBCA"), C Merger Sub shall be merged with and into Company C and the
separate corporate existence of C Merger Sub shall cease. Company C shall
continue as the surviving corporation (sometimes referred to herein as the
"Surviving C Corporation") in the Company C Merger, and as of the Effective
Time shall be a wholly-owned subsidiary of Buyer and shall continue to be
governed by the laws of the State of Vermont. The Merger shall have the
effects specified in the VBCA.
Section 1.2 The Company S Merger. At the Effective Time and subject to
and upon the terms and conditions of this Agreement and in accordance with
the VBCA, S Merger Sub shall be merged with and into Company S and the
separate corporate existence of S Merger Sub shall cease. Company S shall
continue as the surviving corporation (sometimes referred to herein as the
"Surviving S Corporation" and, together with the Surviving C Corporation,
the "Surviving Corporations" and each a "Surviving Corporation") in the
Company S Merger, and as of the Effective Time shall be a wholly-owned
subsidiary of Buyer and shall continue to be governed by the laws of the
State of Vermont. The Company S Merger shall have the effects specified in
the VBCA.
Section 1.3 The Closing; Effective Time. (a) The closing of the
Mergers (the "Closing") shall take place (i) at the offices of Fried,
Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York,
10004, at 10:00 A.M. local time, on the second business day following the
date on which the last to be satisfied or waived of the conditions set
forth in Article VI (other than those conditions that by their nature are
to be satisfied at the Closing, but subject to the satisfaction or, where
permitted, waiver of those conditions) shall be satisfied or waived in
accordance with this Agreement or (ii) at such other place, time and/or
date as Buyer and Sellers shall agree (the date of the Closing, the
"Closing Date"); provided, however, that the Parties shall use their
reasonable best efforts to cause the Closing Date to occur on or before
January 31, 2000.
(b) Subject to the provisions of this Agreement, at the
Closing: (i) with respect to the Company C Merger, the parties shall cause
the articles of merger with respect to the Company C Merger to be properly
executed and delivered for filing with the Secretary of State of the State
of Vermont in accordance with the VBCA; and (ii) with respect to Company S,
the parties shall cause the articles of merger with respect of the Company
S Merger to be properly executed and delivered for filing with the
Secretary of State of the State of Vermont in accordance with the VBCA.
Each Merger shall become effective at the actual time of the filing of both
such articles of merger or at such other later time as is reasonably
specified in the articles of merger as mutually agreed to by Buyer and
Sellers (the time at which both Mergers have become fully effective being
hereinafter referred to as the "Effective Time").
Section 1.4 Subsequent Actions. If, at any time after the Effective
Time, either Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments, assurances or any other actions or
things are necessary or desirable to continue, vest, perfect or confirm of
record such Surviving Corporation's right, title or interest in, to or
under any of the rights, properties, privileges, franchises or assets of
either of the constituent corporations of either Merger, or otherwise to
carry out the intent of this Agreement, the officers and directors of such
Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of either of the constituent corporations of either
Merger, all such deeds, bills of sale, assignments and assurances and to
take and do, in the name and on behalf of each such constituent corporation
or otherwise, all such other actions and things as may be necessary or
desirable to continue, vest, perfect or confirm of record any and all
right, title and interest in, to and under such rights, properties,
privileges, franchises or assets in such Surviving Corporation or otherwise
to carry out the intent of this Agreement.
Section 1.5 Articles of Incorporation; Bylaws; Directors and Officers
of the Surviving Corporations. Unless otherwise agreed by Buyer and Sellers
prior to the Closing, at the Effective Time:
(a) The articles of incorporation of each of Company C and
Company S shall be amended at the Effective Time so as to read in their
entirety as set forth in Exhibit B, respectively, until thereafter amended
in accordance with applicable Law (as defined in Section 3.5(a));
(b) The bylaws of each of C Merger Sub and S Merger Sub as
in effect immediately prior to the Effective Time shall be the bylaws of
the Surviving C Corporation and the Surviving S Corporation, respectively,
until thereafter amended in accordance with applicable Law and the articles
of incorporation of the Surviving C Corporation and the Surviving S
Corporation, respectively;
(c) The officers of each of C Merger Sub and S Merger Sub
immediately prior to the Effective Time shall be the officers of the
Surviving C Corporation and the Surviving S Corporation, respectively,
until their successors are duly elected or appointed and qualified or until
their resignation or removal; and
(d) The directors of each of C Merger Sub and S Merger Sub
immediately prior to the Effective Time shall be the directors of the
Surviving C Corporation and the Surviving S Corporation, respectively,
until their successors are duly elected or appointed and qualified or until
their resignation or removal.
ARTICLE II
CONSIDERATION
Section 2.1 Conversion of Common Stock. (a) At the Effective Time, by
virtue of the Company C Merger and without any action on the part of any
Person (defined in Section 9.3(a)), each share of common stock, par value
$1.00 per share, of Company C ("Company C Common Stock") issued and
outstanding immediately prior to the Effective Time (such shares,
collectively, the "Outstanding C Shares"), and all rights in respect
thereof, shall forthwith cease to exist and each such share shall be
converted into the right to receive the Merger Consideration Per C Share
(as defined in Section 2.4 below), in accordance with, and subject to, the
terms of this Agreement.
(b) At the Effective Time, by virtue of the Merger and
without any action on the part of any Person, each share of common stock,
par value $1.00 per share, of Company S ("Company S Common Stock" and,
together with the Company C Common Stock, the "Companies Common Stock")
issued and outstanding immediately prior to the Effective Time (such
shares, collectively, the "Outstanding S Shares"), and all rights in
respect thereof, shall forthwith cease to exist and each such share shall
be converted into the right to receive the Merger Consideration Per S Share
(as defined in Section 2.4 below), in accordance with, and subject to, the
terms of this Agreement.
Section 2.2 Cancellation of Excluded Shares. At the Effective Time,
each share of Company C Common Stock or Company S Common Stock held in
treasury (each, an "Excluded Share"), by virtue of the applicable Merger
and without any action on the part of any Person, shall be canceled and
retired, and no shares of stock or other securities of Buyer or either
Surviving Corporation shall be issuable, and no payment or other
consideration shall be made or paid in respect of any such Excluded Shares.
Section 2.3 Conversion of Common Stock of Merger Sub. At the Effective
Time, by virtue of the Mergers and without any action on the part of any
Person, each share of common stock of each of C Merger Sub and S Merger Sub
issued and outstanding immediately prior to the Effective Time, and all
rights in respect thereof, shall forthwith cease to exist and be converted
into one validly issued, fully paid and nonassessable share of common stock
of the Surviving C Corporation and the Surviving S Corporation,
respectively.
Section 2.4 Certain Definitions. The following terms shall have the
meanings set forth below:
"Aggregate Company C Stock Consideration" shall mean such
number of shares of Common Stock, par value $.001 per share, of Buyer
(including any associated preferred stock purchase rights) (the shares,
together with the associated rights, "Buyer Common Stock") equal to the
quotient of (A) 8,000,000 minus any Excess Bonus Payments payable to
Employees of Company C divided by (B) the Reference Share Price.
"Aggregate Company S Stock Consideration" shall mean such
number of shares of Buyer Common Stock equal to the quotient of (A)
8,000,000 minus any Excess Bonus Payments payable to Employees of Company S
divided by (B) the Reference Share Price.
"Excess Bonus Payments" shall mean any bonus payments
payable to any Employee (as defined in Section 3.19(l)) of either Company C
or Company S as a result of the transactions (such payments, "Bonus
Payments") contemplated by this Agreement that exceed $172,500 in aggregate
value. For any Bonus Payments payable in shares of Buyer Common Stock, such
shares shall be valued at the Reference Share Price.
"Merger Consideration Per C Share" shall mean (x) divided by
(y) where (x) consists of the sum of (1) the number of shares of Buyer
Common Stock constituting the Aggregate Company C Stock Consideration, and
(2) the right to receive a portion of the Earn-Out Shares (as defined in
Section 2.5) as provided in Section 2.5; and (y) equals the number of
Outstanding C Shares.
"Merger Consideration Per S Share" shall mean (x) divided by
(y) where (x) consists of the sum of (1) the number of shares of Buyer
Common Stock constituting the Aggregate Company S Stock Consideration and
(2) the right to receive a portion of the Earn-Out Shares as provided in
Section 2.5; and (y) equals the number of Outstanding S Shares.
"Reference Share Price" shall mean $8.4875.
Section 2.5 Earn-Out Shares. In the event that the combined revenues
of the Companies for the twelve month period ending on December 31, 2000,
meet or exceed the performance targets set forth on Schedule 2.5, Buyer
shall, within thirty days of determining that the performance targets have
been met, but in any event within one year from the Closing, subject to the
provisions of Section 8.4, issue to Sellers, as tenants in the entirety,
Earn-Out Shares. The "Earn-Out Shares" shall consist of such number of
validly issued, fully paid and non-assessable shares of Buyer Common Stock
as are equivalent to the quotient of one million two hundred fifty thousand
dollars ($1,250,000) divided by the average of the last quoted sales prices
of a share of Buyer Common Stock on the Nasdaq National Market over the
five trading days immediately preceding the date of delivery of such shares
pursuant to this Section 2.5 (the "Earn-Out Share Price").
Section 2.6 Deliveries at the Effective Time. Subject to and upon the
terms and conditions of this Agreement:
(a) at the Effective Time Sellers shall deliver to Buyer
certificates ("Company C Certificates") representing all the
Outstanding C Shares, duly endorsed in blank for transfer or
accompanied by duly executed stock powers assigning such shares in
blank;
(b) at the Effective Time Sellers shall deliver to Buyer
certificates ("Company S Certificates" and together with the Company C
Certificates, the "Certificates") representing all the Outstanding S
Shares, duly endorsed in blank for transfer or accompanied by duly
executed stock powers assigning such shares in blank;
(c) (1) at the Effective Time, Buyer shall, subject to the
provisions of Section 8.4, issue and deliver to Sellers, as tenants by
the entireties, certificates representing a number of shares of Buyer
Common Stock equal to the Aggregate Company C Stock Consideration.
(2) at the Effective Time, Buyer shall, subject to the
provisions of Section 8.4, issue and deliver to Sellers, as tenants by
the entireties, certificates representing a number of shares of Buyer
Common Stock equal to the Aggregate Company S Stock Consideration;
(3) at the Effective Time, Buyer shall deliver the
Escrowed Shares (as defined in Section 8.4(a)) to the Escrow Agent (as
defined in Section 8.4(a));
(d) no later than the close of business on the business day
immediately preceding the Closing Date, the Sellers shall deliver to
Buyer a jointly executed certificate (the "Closing Certificate")
setting forth (i) the aggregate amount of Indebtedness of Company C as
of the close of business on the day immediately preceding the Closing
Date, (ii) the aggregate amount of the Indebtedness (as defined in
Section 3.4) of Company S as of the close of business on the day
immediately preceding the Closing Date, (iii) the aggregate amount of
all Transaction Costs, (iv) a schedule of all Bonus Payments and (v) a
statement of each Company's Working Capital (as defined in Section
9.3). Sellers shall also deliver to Buyer such supporting
documentation in respect of the foregoing as shall be reasonably
requested by Buyer including but not limited to invoices for all
Transaction Costs;
(e) at the Effective Time, Buyer shall reimburse Sellers for
any Transaction Costs, such reimbursement not to exceed the difference
between $250,000 and any fees and expenses of Loeb & Loeb LLP incurred
in connection with this Agreement and the transactions contemplated
hereby; and
(f) at the Effective Time, Sellers shall deliver to Buyer
the minutes and stock transfer books of each Company.
Section 2.7 Cash in Lieu of Fractional Shares. Notwithstanding
anything in this Agreement to the contrary, no certificates or scrip
evidencing fractional shares of Buyer Common Stock shall be issued
hereunder, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a shareholder of Buyer. In lieu of any
such fractional shares, each Seller shall be paid an amount in cash
(without interest), rounded to the nearest cent, determined by multiplying
(x) the Reference Share Price (in the case of fractional shares otherwise
issuable at the Closing) or the Earn-Out Share Price (in the case of
fractional shares included in the Earn-Out Shares) by (y) the fractional
interest to which such Seller would otherwise be entitled.
Section 2.8 Restricted Securities. The shares of Buyer Common Stock
issued in connection with the Mergers will be "restricted securities" under
the Securities Act and Rule 144 promulgated thereunder and may only be sold
or otherwise transferred pursuant to an effective registration statement
under the Securities Act or an exemption from the registration requirements
of the Securities Act. It is understood that the certificates evidencing
the shares of Buyer Common Stock issued in connection with the Mergers will
bear the following legend and any other legend required by applicable state
law.
"These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered
for sale, pledged or hypothecated in the absence of a
registration statement in effect with respect to the securities
under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required."
Section 2.9 Registration Rights. The Sellers shall, as of the
Effective Time, be entitled to the registration rights with respect to the
shares of Buyer Common Stock issued pursuant to this Agreement as provided
in the Registration Rights Agreement to be executed and delivered by Buyer
at the Closing (the "Registration Rights Agreement") substantially in the
form set forth as Exhibit C hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers hereby jointly and severally represent and warrant to
Buyer as of the date of this Agreement and as of the Closing Date as
follows:
Section 3.1 Organization. (a) Each Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Vermont and has the requisite corporate power and authority to
carry on its business as it is now being conducted. Each Company is duly
qualified and licensed as a foreign corporation to do business, and is in
good standing (and has paid all relevant franchise or analogous taxes), in
each jurisdiction where the character of its assets owned or held under
lease or the nature of its business makes such qualification necessary. The
minute books of each Company (containing the records of meetings of its
shareholders, Board of Directors, and any committees of its Board of
Directors), the stock record and certificate books of each Company contain
true, complete and accurate records of all corporate actions taken at all
meetings of such Company's shareholders, Board of Directors or committees
thereof, as applicable, and other corporate governance matters of such
Company, the stock ownership of such Company and all transfers of the
shares of such Company's capital stock since the date of such Company's
incorporation. Schedule 3.1(a) lists each of the directors and officers of
the Companies.
(b) Neither Company owns, or has in the past owned, directly
or indirectly, any interest in any corporation, partnership, joint venture
or other business association, or any other Person.
Section 3.2 Authority. Each of the Sellers has the legal capacity, and
each Company has the requisite corporate right, power and authority to
enter into this Agreement and any Ancillary Documents to which he, she or
it is a party and to carry out his, her or its obligations hereunder and
thereunder, as applicable. This Agreement has been, and each of the
Ancillary Documents to which he, she or it is a party has been or will be,
duly and validly executed and delivered by each of the Sellers and each
Company and constitutes, and each of the Ancillary Documents to which he,
she or it is a party constitutes, or will upon execution and delivery
constitute, a valid and binding obligation of such Person, enforceable
against such Person in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws affecting creditors rights generally or by
general principles of equity. All proceedings or other actions on the part
of each Company and the Sellers necessary to authorize this Agreement or
any of the Ancillary Documents to which such Person is a party and the
transactions contemplated hereby or thereby have been taken. All required
shareholder approvals in favor of this Agreement and the Mergers have been
obtained and each of the Sellers has taken all other shareholder actions
necessary under the VBCA to consummate the Mergers.
Section 3.3 Capitalization; Title to Shares. The authorized capital
stock of Company C consists solely of 1,000 shares of Company C Common
Stock, of which 500 shares are issued and outstanding, and the authorized
capital stock of Company S consists solely of 1,000 shares of Company S
Common Stock of which 400 shares are outstanding. The Companies have no
other classes of capital stock authorized, issued or outstanding. The full
name and address of each Seller, and the number of shares of Company C
Common Stock and Company S Common Stock owned by each Seller, are set forth
on Schedule 3.3. All the issued and outstanding shares of Company C Common
Stock and Company S Common Stock are validly issued, fully paid and
nonassessable and are owned by the Sellers as set forth on Schedule 3.3
free and clear of any lien, pledge, charge, assessment, security interest,
mortgage, claim, option, easement, imperfection of title, tenancy or other
legal or equitable right of others, or other encumbrance of any character
whatsoever (including, without limitation, any right of first refusal upon
sale) (each an "Encumbrance"). Except as set forth on Schedule 3.3, there
are no shares of capital stock of either Company authorized, issued or
outstanding, and there are no outstanding options, warrants, or other
securities convertible into or exchangeable for shares of Company C Common
Stock, Company S Common Stock or other capital stock of either Company,
subscriptions, rights (including, without limitation, preemptive rights),
stock-based or stock-related awards or other contracts, agreements or
arrangements (or Commitments (as defined in Section 3.7(a)) with respect to
issuance or grant of any of the foregoing) to which either Company or
Seller is a party or by which either Company or Seller may be bound of any
character relating to, or obligating either Company or Seller to issue,
grant, award, transfer or sell, or based on the value of, any issued or
unissued shares of either Company's capital stock or other securities of
either Company. There are no voting trusts, proxies or other agreements or
understandings to which either Company or Seller is a party with respect to
the voting of capital stock of either Company.
Section 3.4 Financial Statements. (a) Schedule 3.4 sets forth (1) the
statements of assets, liabilities and shareholders' deficit or equity (as
applicable), prepared on the income tax basis, of each Company, reviewed
(in the case of Company S) or audited (in the case of Company C) by the
Companies' independent certified public accountants, as of June 30, 1998
and the related income statements (as applicable), prepared on the income
tax basis, of each Company and the related statements of cash flows,
prepared on the income tax basis, of each Company, in each case, for the
12-month period then ended, including the notes thereto, (2) the balance
sheet of each Company as of June 30, 1999 and the related income statement
of each Company for the 12-month period then ended, and (3) the balance
sheet of each Company as of November 30, 1999 (together, the "Most Recent
Balance Sheets") and the related income statement of each Company for the
period beginning July 1, 1999 and ending November 30, 1999 (together, with
the Most Recent Balance Sheets, the "Most Recent Financial Statements")
(the financial statements referred to in clauses (1), (2) and (3),
collectively, the "Financial Statements"). The Financial Statements (i)
were prepared in accordance with the books and records of the applicable
Company, (ii) fairly present the financial position, results of operations
and the cash flows of the applicable Company in all material respects as of
their respective dates and for their respective periods and (iii) were
prepared in accordance with the income tax basis of accounting as in effect
on the date hereof, applied on a basis consistent with that of prior years
or periods, as applicable. The books of account and other financial and
corporate records of the Companies are complete and correct in all material
respects. The balance sheet of each Company dated December 31, 1999
(together, the "December Balance Sheet") and the related statements of
income and cash flow of each Company, for the six month period then ended,
when delivered to Buyer, will (i) have been prepared in accordance with the
books and records of the applicable Company, (ii) fairly present the
financial position, results of operations and cash flows of the applicable
Company in all the material respects as of December 31, 1999 and for the
six month period then ended, except for normal, recurring fiscal year-end
adjustments in each case, and (iii) have been prepared in accordance with
the income tax basis of accounting as in effect on the date of delivery,
applied on a basis consistent with that of prior periods.
(b) All of the inventory of each Company reflected on the
Most Recent Balance Sheets and the December Balance Sheets relating thereto
(the "Inventory") is (or was prior to the sale thereof), or will be,
substantially suitable, usable, or (in the case of work in process and
finished goods) salable at market prices in the ordinary course of business
consistent with past practice and has been valued on average cost, in
accordance with the income tax basis of accounting. The quantity of the
Inventory of each Company on order or on hand at the Closing Date will be
at levels substantially consistent with the requirements of then
outstanding sales Commitments or current sales projections of such Company.
(c) All accounts and notes receivable of each Company
reflected on the Most Recent Balance Sheets and the December Balance Sheets
relating thereto and those accounts and notes receivable of each Company
acquired or created after the date of the Most Recent Balance Sheets or
December Balance Sheets relating thereto (collectively, the "Receivables"),
(i) were, are and shall be bona fide accounts receivable created in the
ordinary course of business in connection with bona fide transactions and
consistent with past practice (ii) have been collected in full or will be
collectible at their face amounts, except, in each case, to the extent of
the allowance for doubtful accounts reflected on the Most Recent Balance
Sheet or the December Balance Sheet as the case may be relating thereto and
(iii) correctly and accurately reflect the effect of any transactions
undertaken pursuant to that certain Master Agreement dated January 29, 1999
by and between Company S and Howard Bank, N.A.
(d) Neither Company will have any Indebtedness other than
the Permitted Indebtedness as of the day immediately preceding the Closing
Date.
(e) As of the date hereof and as of the Closing Date, the
combined Companies' Working Capital deficit does not and shall not exceed
$202,626.00.
"Indebtedness" shall mean with respect to any Person,
without duplication, the outstanding principal amount of, and all interest,
penalties, premiums and other amounts accrued in respect of, (i) all
indebtedness for borrowed money of such Person, whether or not recourse to
such Person, (ii) every obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person,
(iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services of any type, (v) every capital lease
obligation of such Person, (vi) all obligations of such Person upon which
interest charges are customarily paid (but excluding (x) advances payable
against accounts receivable from Howard Bank and (y) trade accounts
payable, each as arising in the ordinary course of business consistent with
past practice) and (vii) every obligation of the type referred to in
clauses (i) through (vi) of another Person and all dividends of another
Person the payment of which, in any such case, such Person has guaranteed
or for which such Person is responsible or liable, directly or indirectly,
jointly or severally, as obligor, guarantor or otherwise; provided, that
Indebtedness shall not include any amounts owed by one Company to the other
Company.
"Permitted Company C Indebtedness Amount" shall mean all
amounts owing with respect to the Indebtedness listed on the attached
Permitted Company Indebtedness Schedule.
"Permitted Company S Indebtedness Amount," (together with
Permitted Company C Indebtedness Amount, the "Permitted Indebtedness")
shall mean all amounts owing with respect to the Indebtedness listed on the
attached Permitted Company S Indebtedness Schedule.
Section 3.5 Compliance with Laws; Permits. (a) Except as set forth on
Schedule 3.5(a), each Company has complied at all times since inception and
presently is in compliance in all material respects with all foreign and
domestic (federal, state and local) laws, statutes, ordinances, rules,
regulations and bodies of law, including, without limitation, Environmental
Laws (as defined in Section 3.5(b)(ii)) (collectively, "Laws") and Orders
(as defined in Section 3.6(ii)). Except as set forth on Schedule 3.5(a),
neither Company nor either Seller is aware of, nor has any of them
received, any notice of any alleged failure of any Company to comply with
any Law. A complete and correct list of each material license, permit,
consent, registration, certificate, franchise, approval, order or other
authorization of any Governmental Entity (as defined in Section 3.6(iii))
(each, a "Permit") held by either Company is set forth on Schedule 3.5(a).
Except as set forth on Schedule 3.5(a), each Company has all Permits
required for the conduct of its business as presently conducted. All of the
Permits of the Companies are valid and in full force and effect, and each
Company has in all material respects duly performed and is in compliance
with all of its obligations under such Permits. No event has occurred with
respect to such Permits which allows, or after notice or lapse of time or
both would allow, and none of the execution, delivery or performance of
this Agreement or any Ancillary Documents or the consummation of the
transactions contemplated hereby or thereby will allow, or after notice or
lapse of time or both would allow, the suspension, limitation, revocation,
non-renewal or termination thereof or would result in any other impairment
of the rights of either Company in and under any of such Permits, and no
terminations thereof or proceedings to suspend, limit, revoke or terminate
any Permit have been threatened, except as for such suspensions,
limitations, revocations or terminations thereof which would not
individually or in the aggregate have a Material Adverse Effect (as defined
in Section 9.3) on either Company.
(b) (i) Neither Company nor any Seller has received any
notices, directives, violation reports, actions or claims or other
communications from or by any foreign, federal, state or local governmental
agency or any other Person concerning either Company or any of its
predecessors with respect to any Environmental Laws, including, without
limitation, requests to perform any investigatory or remedial activity, or
alleging that, in connection with Hazardous Materials (as defined in
Section 3.5(b)(ii)), conditions at any real properties owned or leased by
either Company or its predecessors have resulted in or caused or threatened
to result in or cause injury or death to any Person or damage to any
property, including, without limitation, damage to natural resources, and
no such notices, directives, violation reports, actions, claims,
assessments or allegations exist; (ii) neither Company currently leases,
operates or owns any real properties that are listed or, to the knowledge
of any Seller, are threatened to be listed on a "Superfund" list or with
respect to which there is any pending proceeding or investigation under any
Environmental Law and, to the knowledge of any Seller, no such proceeding
or investigation is threatened; (iii) each Company has operated and
continues to operate its real properties in all material respects in
compliance with all Environmental Laws; (iv) except as set forth on
Schedule 3.5(b)(iv), no underground or above-ground storage tanks either
are, or, to the knowledge of any Seller, have been, located at, on, under,
about, or within any of such real properties; (v) there has been no spill,
discharge, release, contamination or cleanup by either Company of any
Hazardous Materials used, generated, treated, stored, disposed of or
handled by either Company at such real properties and, to the knowledge of
any Seller, no spill, discharge or release or contamination or cleanup by
either Company of any Hazardous Materials has occurred on or to such real
properties by any third party; (vi) neither Company has used, generated,
treated, stored, disposed of, handled, transported or released any
Hazardous Material in a manner which would give rise to any Liability (as
defined in Section 3.8) under any Environmental Laws; (vii) to the
knowledge of either Seller, there are no facts, events, or conditions
(including, without limitation, the generation, treatment, transport,
storage, emission, disposal, release or other placement, deposit or
location of any substance) which interfere with or prevent continued
compliance by either Company with, or give rise to any present or potential
Liability (including with respect to past activities) under, any
Environmental Laws; and (viii) each Company has obtained, is in compliance
with, and has made all appropriate filings for issuance or renewal of, all
applicable Permits which are required to be obtained under all applicable
Environmental Laws, including, without limitation, those regulating
emissions, discharges, or releases of Hazardous Materials, and all such
Permits are in full force and effect.
(ii) For the purposes of this Agreement, the term
"Environmental Laws" shall mean, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss.ss.
9601 et seq., the Emergency Planning and Community Right-to-Know Act of
1986, 42 U.S.C. ss.ss. 11001 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. ss.ss. 6901 et seq., the Toxic Substances Control
Act, 15 U.S.C. ss.ss. 2601 et seq., the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. ss.ss. 136 et seq., the Clean Air Act, 42 U.S.C.
ss.ss. 7401 et seq., the Clean Water Act (Federal Water Pollution Control
Act), 33 U.S.C. ss.ss. 1251 et seq., the Safe Drinking Water Act, 42 U.S.C.
ss.ss. 300f et seq., the Occupational Safety and Health Act, 29 U.S.C.
ss.ss. 641, et seq., the Hazardous Materials Transportation Act, 49 U.S.C.
ss.ss. 1801, et seq., as any of the above statutes have been or may be
amended from time to time, all rules and regulations promulgated pursuant
to any of the above statutes, and any other foreign, federal, state or
local law, statute, ordinance, rule or regulation governing Environmental
Matters, as the same have been or may be amended from time to time,
including any common law cause of action (including, without limitation,
nuisance and trespass causes of action) providing any right or remedy
relating to Environmental Matters, all indemnity agreements and other
contractual obligations (including without limitation leases, asset
purchase agreements and merger agreements) relating to Environmental
Matters, and all applicable judicial and administrative decisions and
Orders relating to Environmental Matters; the term "Hazardous Materials"
shall mean any pollutants, contaminants, substances, materials, wastes,
constituents, compounds, chemicals, natural or man-made elements or forces
(including, without limitation, petroleum or any by-products or fractions
thereof, any form of natural gas, lead, asbestos or asbestos-containing
materials, building construction materials and debris, polychlorinated
biphenyls ("PCBs") or PCB-containing equipment, radon and other radioactive
elements, electromagnetic field and other types of radiation, sonic forces,
infectious, carcinogenic, mutagenic, or etiologic agents, pesticides,
defoliants, explosives, flammables, corrosives and urea formaldehyde foam
insulation) that are regulated by, or may now form the basis of Liability
under, any Environmental Laws; and the term "Environmental Matters" shall
mean any matter arising out of, relating to, or resulting from pollution,
contamination, protection of the environment, human health or safety, or
health or safety of employees, and any matter relating to emissions,
discharges, disseminations, releases or threatened releases of Hazardous
Materials into the air (indoor or outdoor), surface water, groundwater,
soil, buildings, facilities, real or personal property or fixtures, or
otherwise arising out of, relating to, or resulting from the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
handling, release or threatened release of Hazardous Materials.
Section 3.6 Consents; No Violations. Except as set forth on Schedule
3.6, neither the execution, delivery or performance of this Agreement or
the Ancillary Documents by the Sellers or either Company, nor the
consummation of the transactions contemplated hereby or thereby, will (i)
conflict with, or result in a breach or a violation of, any provision of
the articles of incorporation or the by laws or the other organizational
documents of either Company; (ii) constitute, with or without notice or the
passage of time or both, a breach, violation or default, create an
Encumbrance, or give rise to any right of termination, modification,
cancellation, prepayment, suspension, limitation, revocation or
acceleration, under (x) any Law, (y) any judgment, order, injunction,
ruling, decree, stipulation or award of any Governmental Entity or private
arbitration panel (each, an "Order") to which either Company or Seller is
subject or by which either Company or Seller or any of their respective
properties is bound or (z) any Permit or Commitment of either Company or
Seller, or to which they or any of them or any of their, his, her or its
properties (including, with respect to each Seller, such Seller's shares of
Companies Common Stock) is subject except for such breaches, violations,
defaults, Encumbrances, terminations, modifications, cancellations,
prepayments, suspensions, limitations, revocations or accelerations which
would not, individually or in the aggregate, (1) have a Material Adverse
Effect on either Company or (2) prohibit Sellers from consummating the
transactions contemplated hereby or performing their obligations hereunder,
(iii) other than under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "H-S-R Act") and the filing of articles of merger in
connection with the Merger, require any consent, approval or authorization
of, notification to, filing with, or exemption or waiver by, any
governmental or regulatory authority, agency, court, commission, body or
other governmental entity (each, a "Governmental Entity") or third party,
except for where the failure to obtain such consents, approvals or
authorizations would not, individually or in the aggregate, (1) have a
Material Adverse Effect on either Company or (2) prohibit Sellers from
consummating the transactions contemplated hereby or performing their
obligations hereunder; or (iv) create any Encumbrance upon any of the
assets or properties of either Company other than such Encumbrances which
would not, individually or in the aggregate, have a Material Adverse Effect
on such Company.
Section 3.7 Commitments. (a) Schedule 3.7(a) sets forth a true and
complete list, by Company, of contracts, agreements, understandings,
arrangements or commitments of any nature whatsoever, whether written or
oral, including all amendments thereof and supplements thereto
("Commitments") of the following types to which (i) either Company is a
party, (ii) any Seller is a party in connection with the business or
operations of either Company, or (iii) either Company or its properties, or
either Sellers' Company Common Stock may be bound or subject:
(i) Commitments for the sale of any real or personal
(tangible or intangible) properties other than in the ordinary course
of business consistent with past practice, or for the grant of any
option or preferential rights to purchase any such properties;
(ii) Commitments for the construction, modification or
repair of any building, structure or facility or for the incurrence of
any capital expenditures or for the acquisition of fixed assets,
providing for payments in excess of $10,000 in the aggregate;
(iii) Commitments relating to the acquisition by either
Company of any operating business or the capital stock of any other
Person that has not been consummated or that has been consummated but
contains representations, covenants, guaranties, indemnities or other
obligations that remain in effect;
(iv) Commitments relating to any Litigation (as defined
in Section 3.14);
(v) Commitments relating to the lending or borrowing of
money, including loan agreements, guarantees of any debt, obligation
or other Liability of any Person, performance bonds, letters of
credit, bankers acceptances and similar instruments or arrangements,
and Commitments otherwise relating to Indebtedness;
(vi) Commitments under which either Company agrees to
indemnify any Person;
(vii) Commitments containing covenants of either
Company or any Employee or either Seller not to compete in any line of
business or in any geographical area or with any Person, or to
disclose certain information, or covenants of any other Person not to
compete with either Company in any line of business or in any
geographical area or disclose information concerning either Company;
(viii) Commitments pursuant to which either Company
leases, subleases, licenses or otherwise has the right to use any real
or personal property;
(ix) Commitments in respect of licenses or other
Commitments relating to Proprietary Assets (as defined in Section
3.15(g)) and Commitments relating to retailer relationships,
e-commerce relationships and advertising arrangements;
(x) Commitments in respect of any joint venture,
partnership or other similar arrangement (including, without
limitation, any joint development agreement);
(xi) Commitments with any Governmental Entity, other
than those arising in the ordinary course of business;
(xii) Commitments relating to general or special powers
of attorney (whether as grantor or grantee);
(xiii) Commitments with any Employee, Seller,
consultant or other Person relating to (A) non-disclosure,
confidentiality, assignment of inventions, proprietary rights or
non-competition agreements and (B) severance, bonus or similar
arrangements that become operative in connection with or following the
transactions contemplated hereby or otherwise;
(xiv) Commitments (other than those specified in any of
clauses (i) through (xiii) of this clause (a)) which relate to or
affect the business, operations or any of the assets or properties of
either Company in any way, except those (A) which are specifically not
required to be scheduled pursuant to the provisions of any of clauses
(i) through (xiii) of this paragraph (a), (B) which are cancelable by
the applicable Company on 90 days' or less notice without any penalty
or other financial obligation and which involve payments of less than
$10,000 in such 90-day period, or (C) which involve annual aggregate
payments of $10,000 or less and whose term is one year or less; and,
in the case of each of clauses (A), (B) and (C) above, are not
material to such Company; and
(xv) Commitments currently in negotiation by either
Company of a type which if entered into would be required to be listed
on Schedule 3.7(a) or to be disclosed on any other Schedule hereto.
(b) Except as set forth on Schedule 3.7(b), all of the
Commitments referred to in the preceding paragraph (a) are valid, binding,
in full force and effect and enforceable in accordance with their terms
against the applicable Company or the applicable Seller (as the case may
be), and, to the knowledge of any Seller, against the respective
counterparties to such Commitments. Complete copies (or, if oral, full
written descriptions) of all Commitments listed on Schedule 3.7(a) or
required to be so listed, including all amendments thereto, and complete
copies of all standard form Commitments used by either Company in the
conduct of its businesses, have been delivered to Buyer. Except as set
forth on Schedule 3.7(b), (i) there is no material breach, violation or
default and no event which, with notice or lapse of time or both, would
constitute a breach, violation or default by either Company or Sellers, or
give rise to any Encumbrance or right of termination, modification,
cancellation, prepayment, suspension, limitation, revocation or
acceleration, under any Commitment listed or required to be listed on
Schedule 3.7(a) and (ii) neither Company nor any Seller nor, to the
knowledge of either Seller, any other party to any of the Commitments
listed or required to be listed on Schedule 3.7(a) is in material arrears
or breach in respect of the performance or satisfaction of the terms and
conditions on its part to be performed or satisfied under any of such
Commitments and no waiver or indulgence has been granted by any of the
parties thereto.
Section 3.8 Absence of Undisclosed Liabilities. Except as set forth on
Schedule 3.8, neither Company has any debts, liabilities or obligations
(absolute, accrued, contingent or otherwise) matured or unmatured
("Liabilities") other than (a) Liabilities which are adequately reflected,
or fully accrued or provided for on the Most Recent Balance Sheet of such
Company (b) Liabilities arising under the Commitments listed on Schedule
3.7(a) relating to the performance of such Company's obligations thereunder
(but in no case any Liabilities arising from the non-performance or breach
thereof) or (c) Liabilities arising since the date of the Most Recent
Balance Sheet of such Company in the ordinary course of business consistent
(in amount and kind) with past practice which are not, individually or in
the aggregate, material to such Company.
Section 3.9 Absence of Certain Changes. Except as set forth on
Schedule 3.9, since the date of the Most Recent Balance Sheets: (i) the
businesses of each Company have been conducted in the ordinary course
consistent with past practice, and (ii) neither Company has (a) suffered
any change, event or development or series of changes, events or
developments which individually or in the aggregate has had, or could
reasonably be expected to have, a Material Adverse Effect (as defined in
Section 9.3) on such Company; (b) suffered any damage, destruction or
casualty loss to its physical properties (whether or not covered by
insurance) which individually or in the aggregate has been or could
reasonably be expected to be material to such Company; (c) been the subject
of any threatened or commenced investigation by a Governmental Entity or
Litigation; (d) except for fair consideration, in the ordinary course of
business and consistent with past practice, canceled or compromised any
debts or waived or permitted to lapse any claims or rights or sold,
transferred or otherwise disposed of any of its properties or assets; (e)
made or committed to make any capital expenditure or commitment
individually or in the aggregate in excess of $10,000; (f) made any change
in any method of accounting or accounting practice; (g) increased any
salaries, wages or employee benefits, paid any bonuses, or otherwise
increased the compensation of any of its Employees, other than in the
ordinary course of business and consistent with past practice; (h)
declared, set aside or paid any dividends or made other distributions to
any holder of its capital stock or other securities or redeemed or
otherwise acquired any shares of its capital stock or other equity
securities or issued or sold any additional shares of the capital stock of,
or any other equity interests in, such Company, or securities convertible
into or exchangeable for such shares or equity interests; (i) made any loan
to or engaged in any other transaction with any officer, director,
Employee, consultant or shareholder, other than advances to such persons in
the ordinary course of business in connection with travel and other
business-related expenses; or (j) agreed to take any action referred to in
this Section 3.9(ii).
Section 3.10 Brokers and Finders; Fees. Except for fees payable to
Gerard Klauer Mattison & Co., Inc., which fees shall be paid solely by the
Sellers, neither Company nor any Seller has employed any broker or finder
or incurred any Liability for any brokerage fees, commissions or finders'
fees in connection with the transactions contemplated hereby. Sellers have
previously delivered to Buyer a full, accurate and unredacted copy of the
Companies' engagement letter with Gerard Klauer Mattison & Co., Inc.
Section 3.11 Real Estate. (a) "Owned Real Property" shall mean the
real property owned by either Company, together with all buildings and
other structures, facilities or improvements currently or hereafter located
thereon, all fixtures, systems, equipment and items of personal property of
either Company attached or appurtenant thereto and all easements, licenses,
rights and appurtenances relating to the foregoing. Schedule 3.11(a) sets
forth a list by Company of all Owned Real Property. With respect to each
Company's Owned Real Property, (i) the applicable Company has good, valid
and marketable title in fee simple to such Owned Real Property, free and
clear of all Encumbrances except for (A) Encumbrances disclosed in Schedule
3.11(a), (B) liens for taxes not yet due and payable, and (C) Encumbrances
that are not individually, or in the aggregate, material to such Company
and are consistent with the use and intended use of the Owned Real
Property, (ii) there are no outstanding options or rights of first refusal
in favor of any other party to purchase the Owned Real Property or any
portion thereof or interest therein, (iii) there are no leases, subleases,
licenses, options, rights, concessions or other agreements affecting any
portion of the Owned Real Property, (iv) all existing water, sewer, gas,
electricity, telephone and other utilities required for the construction,
use, occupancy, operation and maintenance of the Owned Real Property are
adequate in all material respects for the use, occupancy, operation and
maintenance thereof, as currently conducted or currently exists, and (v)
each Company has all rights of access necessary for ingress to and egress
from its Owned Real Property from or to public streets.
(b) "Leased Real Property" shall mean the real property
leased or subleased by either Company, as tenant, together with, to the
extent leased or subleased by either Company, all buildings and other
structures, facilities or improvements currently or hereafter located
thereon, all fixtures, systems, equipment and items of personal property of
either Company attached or appurtenant thereto, and all easements,
licenses, rights and appurtenances relating to the foregoing. Schedule
3.11(b) sets forth, by Company, a list of all Leased Real Property. With
respect to each Company's Leased Real Property, (i) the applicable Company
has good and valid leasehold estates in the Leased Real Property, free and
clear of all Encumbrances, (ii) all existing water, sewer, gas,
electricity, telephone and other utilities required for the construction,
use, occupancy, operation and maintenance of the Leased Real Property are
adequate in all material respects for the use, occupancy, operation and
maintenance thereof, as currently conducted or currently exists, and (iii)
such Company has all rights of access necessary for ingress to and egress
from its Leased Real Property from or to public streets. Except as set
forth on Schedule 3.11(b), (A) each such lease or sublease is legal, valid,
binding and enforceable and in full force and effect and (B) the execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement will not cause a breach or require any third
party consent under any such lease or sublease.
(c) Except as set forth on Schedule 3.11(c), (i) there are
no pending or, to the knowledge of either Seller, threatened condemnation
or eminent domain proceedings or their local equivalent with respect to the
Owned Real Property or the Leased Real Property of either Company, (ii) the
Owned Real Property, the use and occupancy thereof by the applicable
Company and the conduct of its business thereon and therein do not violate
in any material respect any deed restrictions, applicable Law consisting of
building codes, zoning, subdivision or other land use or similar Laws the
violation of which would adversely affect the use, value or occupancy of
any such property or the conduct of such business thereon, (iii) there are
not now nor have there ever been any material violations by either Company
or Seller of any of the restrictions or Laws described in the foregoing
clause (ii), and (iv) none of the structures or improvements on any of the
Owned Real Property of either Company encroaches upon real property of
another Person, and no structure or improvement of another Person
encroaches upon any of the Owned Real Property or Leased Real Property,
which would materially interfere with the use thereof in the ordinary
course of business.
Section 3.12 Sufficiency of Assets. The assets, rights, and properties
owned, leased or licensed by each Company constitute all assets, rights,
and properties used or held for use in, and necessary to, the conduct of
each such business as presently conducted or proposed to be conducted.
Section 3.13 Tangible Property. Except as set forth on Schedule 3.13,
the buildings, facilities, machinery, equipment, furniture, leasehold and
other improvements, fixtures, vehicles, structures, any related items and
other tangible property that are required to properly operate the business
of each Company or are individually or in the aggregate material to the
business, financial condition, operations, results of operations or
prospects of each such Company (the "Tangible Property") are in good
operating condition and repair (normal wear and tear excepted), free of any
material structural or engineering defects, are being maintained and
replaced in accordance with past practice, and are suitable for their
current uses. Each Company has good and marketable title to, or a valid
leasehold interest in or contractual right to use, all of its Tangible
Property, free and clear of all Encumbrances, except as disclosed in
Schedule 3.13.
Section 3.14 Litigation and Orders. Except as set forth in Schedule
3.14, there is no claim, demand, notice, action, suit, proceeding,
arbitration, investigation, audit, inquiry or hearing by or before any
Governmental Entity or private arbitration tribunal ("Litigation") pending
or, to the knowledge of either Seller, threatened against, affecting or
involving either Company, or any of the respective rights or properties of
either Company, or which seek to prevent or challenge the transactions
contemplated hereby. There are no unsatisfied judgments against either
Company or any consent decrees or other Orders to which either Company is
subject or by which its assets or properties are bound.
Section 3.15 Company Proprietary Assets. (a) Schedule 3.15(a)(i) sets
forth, with respect to each Company Proprietary Asset registered with any
Governmental Entity or for which an application has been filed with any
Governmental Entity, (i) a statement identifying such Company Proprietary
Asset, and (ii) the names of the jurisdictions covered by the applicable
registration or application. Schedule 3.15(a)(ii) identifies other Company
Proprietary Assets owned by either Company, either Seller or any third
party. Sellers do not reserve any Company Proprietary Assets for
themselves. Schedule 3.15(a)(iii) identifies each Company Proprietary Asset
licensed to either Company, either Seller or any third party by any Person
(except for any Company Proprietary Asset that is licensed to either
Company under any third party software license generally available to the
public at a cost of less than $10,000), and identifies the license
agreement under which such Company Proprietary Asset is being licensed to
such Company, Seller or third party. Except as set forth on Schedule
3.15(a)(iv), each Company has good, valid and marketable title to all
Company Proprietary Assets owned by such Company and identified on
Schedules 3.15(a)(i) and 3.15(a)(ii), free and clear of all liens and other
Encumbrances, and has a valid right to use all Company Proprietary Assets
identified in Schedule 3.15(a)(iii). Except as set forth on Schedule
3.15(a)(v), neither Company, any Seller, nor any third party is obligated
to make any payment to any Person for the use of any Company Proprietary
Asset. Except as set forth on Schedule 3.15(a)(vi), neither Company, any
Seller, nor any third party has developed jointly with any other Person any
Company Proprietary Asset with respect to which such other Person has any
rights.
(b) Each Company and each Seller has taken all measures and
precautions necessary to protect and maintain the confidentiality and
secrecy of all Company Proprietary Assets (except Company Proprietary
Assets whose value would be unimpaired by public disclosure) and otherwise
to maintain and protect the value of all Company Proprietary Assets. Except
as set forth on Schedule 3.15(b), neither Company nor any Seller, nor any
third party has (other than pursuant to license agreements identified in
Schedule 3.7(a)) disclosed or delivered to any Person, or permitted the
disclosure or delivery to any Person of, (i) the source code, or any
portion or aspect of the source code, of any Company Proprietary Asset, or
(ii) the object code, or any portion or aspect of the object code, of any
Company Proprietary Asset.
(c) None of the Company Proprietary Assets infringes any
Proprietary Asset (as defined in Section 3.15(g)) owned or used by any
other Person. Neither Company nor any Seller is infringing,
misappropriating or making any unlawful use of, and neither of such parties
has at any time infringed, misappropriated or made any unlawful use of, or
received any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any Proprietary Asset owned or used by any other Person.
No other Person is infringing, misappropriating or making any unlawful use
of, and no Proprietary Asset owned or used by any other Person infringes or
conflicts with, any Company Proprietary Asset. No Proprietary Asset owned
or used by any other Person infringes or conflicts with any Company
Proprietary Asset.
(d) Except as set forth in Schedule 3.15(d), (i) each
Company Proprietary Asset conforms in all material respects with any
written specification, documentation, performance standard, representation
or statement made or provided with respect thereto by either Company or
either Seller; and (ii) there has not been any claim by any customer or
other Person alleging that any Company Proprietary Asset (including each
version thereof that has ever been licensed or otherwise made available by
either Company or any third party to any Person) does not conform in all
material respects with any written specification, documentation,
performance standard, representation or statement made or provided by
either Company, by either Seller or such third party, and there is no valid
legal basis for any such claim.
(e) Except as set forth in Schedule 3.15(e), neither Company
nor either Seller nor any third party has licensed any Company Proprietary
Assets to any Person on an exclusive basis.
(f) Except as set forth in Schedule 3.15(f), all current and
former "freelancers" retained by each Company has executed and delivered to
such Company an agreement (containing no exceptions to or exclusions from
the scope of its coverage) that is substantially identical to one of the
forms appended to Schedule 3.15.
(g) For the purposes of this Agreement, the term "Company
Proprietary Asset" shall mean any Proprietary Asset owned, licensed or
otherwise held by either Company or either Seller or any third party and
used in connection with the conduct of either Company's business; and the
term "Proprietary Asset" shall mean any: (a) patent, patent application,
trademark (whether registered or unregistered), trademark application,
trade name, fictitious business name, service mark (whether registered or
unregistered), service mark application, domain name, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, policy manuals and
handbooks, franchise, system, computer software, computer program,
invention, discovery, and idea (whether patentable or not), design,
blueprint, engineering drawing, proprietary product, technology proprietary
right or other intellectual property right or intangible asset; or (b) the
right to use or exploit any of the foregoing.
(h) Except as set forth on Schedule 3.15(h), each Company
owns or has the right to use all Proprietary Assets necessary for the
conduct of its business as currently conducted.
Section 3.16 Year 2000 Compliance. (a) The Company Proprietary Assets
are Year 2000 Compliant.
(b) To Sellers' knowledge, the principal vendors of hardware
and software and other Persons with whom either Company has material
business relationships are Year 2000 Compliant to the extent affecting such
Company and the hardware and software of such vendors or other Persons
supplied to such Company are Year 2000 Compliant except in ways that will
not adversely affect such Company.
(c) For purposes of this Agreement, "Year 2000 Compliant"
means that the Company Proprietary Assets, and the hardware used in
connection with the Company Proprietary Assets will: (i) accurately process
date information before, during and after January 1, 2000, including, but
not limited to, accepting date input, providing date output and performing
calculations on dates or portions of dates; (ii) function accurately and
without interruption before, during and after January 1, 2000 without any
change in operations associated with the advent of the new century; (iii)
respond to two-digit year date input in a way that resolves the ambiguity
as to century in a disclosed, defined and predetermined manner; and (iv)
store and provide output of date information in ways that are unambiguous
as to century.
Section 3.17 Taxes. (a) Except as set forth in Schedule 3.17:
(i) Each Company has duly filed all Tax Returns (as
defined in Section 3.17(c)(ii)) required to have been filed by them in
a timely manner (taking into account all lawful extensions of due
dates), all of which Tax Returns are true and complete in all material
respects;
(ii) all Taxes (as defined in Section 3.17(c)) required
to have been paid by the Companies have been paid. Adequate reserves
have been established in the Most Recent Balance Sheet of each Company
for the payment of all Taxes of such Company that are attributable to
the period ending on the date of the Most Recent Balance Sheet that
are not yet due and payable; and adequate reserves have been or will
be established in the books and records of each Company for the
payment of all Taxes of such Company that are attributable to the
period beginning after the date of the Most Recent Balance Sheet and
ending on the Closing Date that are not yet due and payable;
(iii) each Company has complied with all applicable
Laws relating to the withholding of Taxes (including withholding of
Taxes pursuant to Sections 1441 and 1442 of the Code or similar
provisions under any foreign Laws), and has, within the time and
within the manner prescribed by Law, withheld and paid over to the
proper Governmental Entities all amounts required to be withheld and
paid over under all applicable Laws in connection with amounts paid or
owing to any employee, independent contractor, creditor, shareholder
or other third party;
(iv) no outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect
to any Taxes or Tax Returns of either Company have been given by or on
behalf of either Company;
(v) neither Company has requested an extension of time
within which to file any Tax Return in respect of any fiscal year
which has not since been filed;
(vi) for taxable years for which the applicable statute
of limitations has not expired (A) there is no Litigation pending or,
to the knowledge of either Seller, threatened, with respect to any
Liability for Taxes for which either Company could be liable, (B) no
taxing authority in a jurisdiction where either Company does not file
Tax Returns has made a claim, assertion or threat that such non-filing
entity is or may be subject to taxation by such jurisdiction, (C)
there are no Tax rulings, requests for rulings, or closing agreements
relating to either Company which could affect the Liability for Taxes
of either Company for any period (or portion of a period) after the
date hereof, (D) any adjustment of Taxes of either Company made by the
Internal Revenue Service (the "IRS") in any examination which is
required to be reported to the appropriate state, local or foreign
taxing authorities has been reported, and any additional Taxes due
with respect thereto have been paid, and (E) neither Company has
agreed or is required to include in income any adjustment pursuant to
Section 481 or 482 of the Code (or analogous provisions of foreign,
state or local Law) which could affect the Liability for Taxes of such
Company for any period (or portion of a period) after the date hereof,
and the IRS (or other taxing authority) has not proposed, and, to the
knowledge of either Seller, is not considering, any such adjustment
which could have such an effect;
(vii) the states, territories and jurisdictions
(whether foreign or domestic) in which either Company has filed
income, franchise, sales and use Tax Returns are set forth in Schedule
3.17;
(viii) none of the assets of the Companies (A) is
property that is required to be treated as being owned by any other
Person pursuant to the "safe harbor lease" provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, (B) is "tax-exempt use
property" within the meaning of Section 168(h) of the Code, or (C)
directly or indirectly secures any debt the interest of which is tax
exempt under Section 103(a) of the Code;
(ix) except as reflected as a liability for deferred
Income Taxes on the applicable Most Recent Balance Sheet, as of the
date thereof no item of income or gain reported by either Company for
financial accounting purposes in any pre-Closing period is required to
be included in taxable income for a post-Closing period;
(x) no power of attorney has been granted by or with
respect to either Company with respect to any matter relating to
Taxes;
(xi) all Tax deficiencies which have been claimed,
proposed or assessed against either Company have been fully paid or
finally settled;
(xii) neither Company has filed a consent pursuant to
Section 341(f) of Code (or any predecessor provision);
(xiii) neither Company is obligated by any Commitment
to indemnify any other Person with respect to Taxes; neither of the
Companies is now or has ever been a party to or bound by any
Commitment (including, without limitation, any arrangement required or
permitted by applicable Law (including pursuant to Treasury Regulation
Section 1.1502-6 or any analogous provision of state, local or foreign
Law) and including any Tax sharing agreement) which (1) requires
either Company to make any Tax payment to or for the account of any
other Person, (2) affords any other Person the benefit of any net
operating loss, net capital loss, investment Tax credit, foreign Tax
credit, charitable deduction or any other credit or Tax attribute
which could reduce Taxes (including, without limitation, deductions
and credits related to alternative minimum Taxes) of either Company or
(3) requires or permits the transfer or assignment of income,
revenues, receipts or gains to either Company from any other Person;
(xiv) there are no Encumbrances with respect to Taxes
upon any of the properties or assets, real or personal, tangible or
intangible, of either Company (other than Encumbrances for Taxes not
yet due);
(b) The Sellers have previously delivered to Buyer complete
and accurate copies of each of: (i) all audit reports, revenue agent's
reports and other written assertions of deficiencies or other Liabilities
for Taxes of either Company with respect to past periods for which the
limitations period has not run, letter rulings and Technical Advice
Memoranda relating to federal, state, local and foreign Taxes due from or
with respect to either Company, (ii) all income Tax Returns filed by either
Company since January 1, 1995 and (iii) any closing agreements entered into
by either of the Companies with any taxing authority. Sellers will promptly
deliver to Buyer all materials with respect to the foregoing for all
matters arising after the date hereof.
(c) For purposes of this Agreement, (i) "Tax" (and, with
correlative meaning, "Taxes") means any federal, state, local or foreign
income, gross receipts, property, sales, use, license, excise, franchise,
employment, payroll, premium, withholding, alternative or added minimum, ad
valorem, inventory, transfer or excise tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalty or addition to tax, imposed by any
Governmental Entity, and includes, without limitation, any taxes of another
Person, including taxes owing under a contract, as transferee or successor,
under Treas. Reg. ss. 1.1502-6 or analogous provision of state, foreign or
local law or otherwise, (ii) "Tax Return" means any return, report or
similar statement required to be filed with respect to any Tax (including
any attached schedules), including, without limitation, any information
return, claim for refund, amended return or declaration of estimated Tax,
and (iii) "Income Tax" or "Income Taxes" means any federal, state, local or
foreign income, franchise or similar Tax and in each instance any interest,
penalties or additions to tax attributable to such Tax.
Section 3.18 Insurance. Schedule 3.18 sets forth a list of all
policies or binders of fire, liability, product liability, workers
compensation, vehicular and other insurance held by or on behalf of each
Company, including the amounts of such insurance and annual premiums with
respect thereto. Such policies and binders are in full force and effect.
Each Company has obtained and maintained in full force and effect insurance
with responsible and reputable insurance companies or associations in such
amounts, on such terms, with such deductibles, and covering such risks, as
is customarily carried by reasonably prudent Persons conducting businesses
or owning assets similar to those of such Company, and has maintained in
full force and effect liability insurance against claims for personal
injury or death or property damage occurring in connection with the
activities of such Company, or any properties owned, occupied or controlled
by it in such amount as is customarily carried by reasonably prudent
Persons conducting businesses or owning assets similar to those of such
Company. There is no default with respect to any provision contained in any
such policy or binder, nor has either Company failed to give any notice or
present any claim under any such policy or binders in due and timely
fashion. Except as set forth on Schedule 3.18, there are no outstanding
claims by either Company in excess of normal retentions that are not
covered under any such policies or binders and there has not occurred any
event that might reasonably form the basis of any claim in excess of normal
retentions that is not covered against or relating to either Company that
is not covered by any of such policies or binders. No notice of
cancellation or non-renewal of any such policies or binders has been
received by either Company.
Section 3.19 Employee Benefits. (a) Schedule 3.19(a) contains a true
and complete list of each Company Employee Plan (as defined in Section
3.19(l)(i)) and each Employee Agreement (as defined in Section
3.19(l)(iii)). Neither Company has any plan or commitment to establish any
new Company Employee Plan, to enter into any Employee Agreement or to
modify or to terminate any Company Employee Plan or Employee Agreement.
(b) Sellers have provided, or have caused to be provided, to
Buyer current, accurate and complete copies of all documents embodying or
relating to each Company Employee Plan and each Employee Agreement,
including, but not limited to (i) the two (2) most recent annual reports
(Series 5500 and all schedules thereto), if any, required under ERISA in
connection with each Company Employee Plan or related trust; (ii) the most
recent determination letter received from the IRS, if any, for each Company
Employee Plan and related trust which is intended to satisfy the
requirements of Section 401(a) of the Code; (iii) the most recent summary
plan description together with the most recent summary of material
modifications, if any, required under ERISA with respect to each of the
Companies Benefit Plans; and (iv) all material communications to any
Employee or Employees relating to each Company Employee Plan.
(c) Each Company has performed all obligations required to
be performed by it under each Company Employee Plan and Employee Agreement.
Each Company Employee Plan has been established and maintained in
accordance with its terms and all applicable Laws and Orders. No Company
Employee Plan is a Pension Plan which is subject to Title IV of ERISA (as
defined in Section 3.19(l)(v)), or a Multiemployer Plan (as defined in
Section 3.19(l)(vii)). There is no claim, demand, notice, action or suit
pending or, to the knowledge of either Seller, threatened or anticipated
(other than routine claims for benefits) with respect to any Company
Employee Plan, Employee Agreement or any Employee (as defined in Section
3.19(l)(ii)) with respect to either Company or with respect to any such
Employee's employment or engagement or former employment or engagement by
either Company. Each Company Employee Plan can be amended, terminated or
otherwise discontinued without Liability to either of the Companies. No
Company Employee Plan is under audit, inquiry or investigation by the IRS,
the Department of Labor, the PBGC (as defined in Section 3.19(l)(viii)) or
other Governmental Entity, and to the knowledge of any Seller, no such
audit, inquiry or investigation is threatened. No Liability under any
Company Employee Plan has been funded nor has any such obligation been
satisfied with the purchase of a contract from an insurance company as to
which either Company has received notice that such insurance company is
insolvent or is in rehabilitation or any similar proceeding.
(d) Each Company Employee Plan intended to qualify under
Section 401 of the Code has been determined by the IRS to be so qualified
and no circumstances exist which could adversely affect this qualification
or exemption. No "prohibited transaction," within the meaning of Section
4975 of the Code or Section 406 of ERISA has occurred with respect to any
Company Employee Plan. No action or failure to act and no transaction or
holding of any asset by, or with respect to, any Company Employee Plan has
or may subject either Company or any fiduciary to any tax, penalty or other
liability, whether by way of indemnity or otherwise.
(e) Except as set forth on Schedule 3.19(e), neither Company
maintains or contributes to any Company Employee Plan which provides, or
has any Liability to provide, life insurance, medical, severance or other
employee welfare benefits to any Employee upon his retirement or
termination of employment, except as may be required by Section 4980B of
the Code and Sections 601 through 609 of ERISA.
(f) The execution of, and performance of the transactions
contemplated by, this Agreement will not (either individually, in the
aggregate or upon the occurrence of any additional or subsequent events)
(i) constitute an event that will or may result in any payment (whether of
severance pay or otherwise), acceleration of benefits, forgiveness of
indebtedness, vesting or distribution of benefits, increase in benefits or
obligation to fund benefits with respect to any Employee, or (ii) result in
the triggering or imposition of any restrictions or limitations on the
right of either of the Companies or Buyer to amend or terminate any Company
Employee Plan. No payment or benefit which will or may be made by either of
the Companies, Buyer, the Sellers or any of their respective Affiliates
with respect to any Employee may be characterized as an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code. Except as
expressly set forth in Schedule 3.19(f), no officer, director or Employee
of either Company, nor any of the Sellers, is entitled to any "sale bonus
payment," "retention payment," or any other payment or benefit in
connection with, or as a result of, the transactions contemplated by this
Agreement, and except as set forth on Schedule 3.19(f) and as shall be set
forth on the Closing Certificate, such payments do not and will not exceed
$172,500.
(g) Each Company is in compliance with all applicable Laws
(domestic and foreign) respecting employment, employment practices, labor,
terms and conditions of employment, wages and hours, withholding taxes,
unemployment compensation and Social Security.
(h) No work stoppage or labor strike against either Company
by any Employee is pending or, to the knowledge of either Seller,
threatened. Neither Company (i) is involved in or, to the knowledge of any
Seller, threatened with any labor dispute, grievance, or Litigation
relating to labor matters and (ii) is presently or has been in the past a
party to, or bound by, any collective bargaining, union or similar
Commitment, nor is any such Commitment currently being negotiated by either
Company. No Employees are currently or while employed by either Company
have ever been represented by any labor union with respect to their
employment by either Company and to the knowledge of any Seller, no
activities the purpose of which is to achieve such representation of all or
some of such Employees are threatened or ongoing.
(i) With respect to each Welfare Plan (as defined in Section
3.19(k)(ix)), all benefit claims incurred (including claims incurred but
not reported) by Employees thereunder for which either Company is, or will
become, liable are (i) insured pursuant to a contract of insurance whereby
the insurance company bears all risk of loss with respect to such claims;
(ii) covered under a contract with a health maintenance or similar
organization (an "HMO") pursuant to which the HMO bears all Liability for
such claims, or (iii) reflected as a Liability or accrued for on the
applicable Most Recent Balance Sheet.
(j) Neither Company has or has ever had an ERISA Affiliate
(other than the other Company).
(k) Except as set forth on Schedule 3.19(k), to the
knowledge of any Seller, no key Employee has, or group of Employees have,
any plans to terminate employment with either Company.
(l) For purposes of this Agreement,
(i) "Company Employee Plan" shall mean each Employee
Plan (other than an Employee Agreement) to which one or both of the
Companies has or may have any Liability, contingent or otherwise.
(ii) "Employee" shall mean each current, former, or
retired employee, officer, consultant, advisor, independent
contractor, agent or director of either Company.
(iii) "Employee Agreement" shall mean each management,
employment, severance, change of control, consulting, non-compete,
confidentiality, or similar Commitment between either Company and any
Employee pursuant to which either Company has or may have any
Liability.
(iv) "Employee Plan" shall mean each plan, trust,
program, policy, payroll practice, contract, agreement or other
arrangement providing for compensation, severance, termination pay,
retirement benefits, performance awards, stock or stock-related
awards, fringe benefits or other employee benefits of any kind,
whether formal or informal, funded or unfunded, written or oral and
whether or not legally binding.
(v) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time, and all applicable
rules and regulations thereunder.
(vi) "ERISA Affiliate" shall mean each business or
entity which is a member of a "controlled group of corporations,"
under "common control" or a member of an "affiliated service group"
with either Company within the meaning of Sections 414(b), (c) or (m)
of the Code, or required to be aggregated with either Company under
Section 414(o) of the Code, or is under "common control" with either
Company, within the meaning of Section 4001(a)(14) of ERISA.
(vii) "Multiemployer Plan" shall mean any Employee Plan
which is a "multiemployer plan," as defined in Section 3(37) or
4001(a)(3) of ERISA.
(viii) "PBGC" shall mean the Pension Benefit Guaranty
Corporation.
(ix) "Pension Plan" shall mean any of the Companies
Benefit Plans (other than a Multi-Employer Plan) which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA.
"Welfare Plan" shall mean each Company Employee Plan that is an
"employee welfare benefit plan" within the meaning of Section 3(1) of
ERISA.
Section 3.20 Personnel Information. Schedule 3.20 contains a list, by
Company, of all Employees and independent contractors providing material
services to either Company in connection with the operation of the business
thereof and their current salaries.
Section 3.21 Affiliate Relationships. Except as set forth on Schedule
3.21 and except for transactions solely between the Companies, no (i)
officer, director or shareholder of either Company, (ii) spouse, former
spouse, child, parent, parent of a spouse, sibling or grandchild of any of
the Persons described in clause (i), or (iii) trust, partnership or
corporation in which any of the Persons described in clause (i) or (ii) has
or has had a direct or indirect interest, (A) has or has had an interest in
any entity which furnishes or sells or proposes to furnish or sell services
or products to either Company, (B) has or has had any interest in any
entity that purchases from or sells or furnishes to either Company any
products or services, or (C) has or has had an interest in (including,
without limitation, as a party to) any Commitment to which either Company
is a party or which otherwise is required to be disclosed in Schedule
3.7(a); provided, that ownership of less than five percent of the
outstanding voting stock of a publicly traded corporation shall not be
deemed an "interest in any entity" for purposes of this Section 3.21.
Section 3.22 No Termination of Business Relationship. Except as set
forth on Schedule 3.22, none of the Persons with which either Company has a
material business relationship has given notice or other indication of any
intention to cancel or otherwise terminate a business relationship with
such Company and, to the knowledge of any Seller, no event has occurred or
failed to occur (including, without limitation, the transactions
contemplated hereby) which would precipitate the cancellation or
termination of, or entitle any such entity or customer to terminate, such a
business relationship.
Section 3.23 Operating Data. On or prior to the date hereof, the
Companies have delivered to the Buyer certain reports prepared with respect
to the Companies' World Wide Web sites and computer gaming magazine, each
as set forth on Schedule 3.23 (the "Performance Data"). The Performance
Data consists of a report by Nielsen/Ipro relating to the Company's World
Wide Web sites and a report by BPA. Neither Company nor any Seller has any
financial or other interest in such entities. To the knowledge of the
Companies or any Seller, the Performance Data accurately and fairly
presents in all material respects the user traffic level and commerce
activity on the Companies' World Wide Web sites and does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not misleading.
The Companies and Sellers specifically acknowledge that the accuracy of
this representation is material to the Buyer's decision to enter into the
transactions contemplated by this Agreement.
Section 3.24 Investment Matters. The shares of Buyer Common Stock
being acquired by each Seller pursuant to this Agreement are being acquired
for such Seller's own account and for investment purposes only and not with
a view to distribution thereof within the meaning of the Securities Act of
1933, as amended (the "Securities Act") or any state securities or "blue
sky" law and such shares will not be sold or otherwise disposed of except
in compliance with the Securities Act, or in reliance upon an exemption
therefrom. Each Seller is an "accredited investor" within the meaning of
Rule 501 of Regulation D under the Securities Act and is able to bear the
economic consequences of the investment in such shares.
Section 3.25 Necessary Information. Each Seller believes he or she has
received all the information he or she considers necessary or appropriate
for deciding whether to purchase Buyer Common Stock. Each Seller further
represents that he or she has had an opportunity to ask questions and
receive answers from Buyer regarding the terms and conditions of the
offering of the Buyer Common Stock and the business, properties, prospects
and financial condition of Buyer.
Section 3.26 Disclosure. No statement (including the representations,
warranties and covenants) made by any Seller or Company contained in this
Agreement, the Schedules and Exhibits to this Agreement, the Ancillary
Documents, or certificates furnished or to be furnished to Buyer or a
Merger Sub or representatives pursuant hereto constitutes an untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading.
The projections contained in the Confidential Information Memorandum, dated
August 1999, prepared on the Company's behalf by Gerard Klauer Mattison &
Co., Inc. and any subsequent projections prepared by the Company provided
to Buyer were prepared in good faith and at the time prepared there was a
reasonable basis for such projections and the assumptions made in
connection therewith. Except as set forth on Schedule 3.26, to the
knowledge of any Seller, there has been no event or occurrence, with
respect to either Company or the industries in which the Companies operate,
since the date such projections were prepared that would cause either
Company or Seller to believe that there is not a reasonable basis for such
projections and the assumptions made in connection therewith.
Section 3.27 Domain Names. No Internet Protocol ("IP") addresses or
domain names owned or controlled by either Company have been blocked or are
currently blocked by any third party or is ranked by a third party in such
a manner that a user of such third party's website, software tool or
Internet access account will be blocked from access, nor is either Seller
aware of any threats to block or rank such IP addresses or domain names in
such manner. The Companies (or any domain names or any IP address owned,
controlled or used by either Company) are not currently and have not been
on the Realtime Blackhole List or, to the knowledge of Sellers, any other
similar list of rogue or blacklisted websites, nor is either Seller aware
of any threats to place either Company (or any domain name or any IP
address owned, controlled or used by either Company) on such lists.
Section 3.28 User Agreements. Schedule 3.28 contains a list of
agreements entered into with users of any of either Company's websites, the
time periods they were deployed on such websites, the pages on which the
user agreements were displayed, and the manner by which the agreement was
formed (e.g., clickthrough). Neither Company or Seller is aware of any
reason why any agreement (or any portion thereof) formed with users of such
websites will not be fully enforced in all respects. Neither Company or
Seller has provided any information to third parties in violation of such
agreements.
Section 3.29 Privacy Policies. Schedule 3.29 contains a list of
privacy policies promised to users of either Company's websites, the time
period they were deployed on either Company's website, the pages on which
the policies were displayed, and the manner by which the policies were
formed as agreements (e.g., clickthrough). Each Company and each Seller has
complied in every respect with such privacy policies, and neither Company
or Seller is aware of any circumstance by which users or third parties
could assert with a valid legal basis that either Company has not complied
with its privacy policies.
Section 3.30 Liability for User Content. Schedule 3.30 contains a list
and brief description of all written communications each Company and each
Seller has received from any third party indicating that the third party
had a valid legal basis to believe that such Company or Seller may be
liable for user postings hosted in connection with the Company's website.
There is no user generated content hosted in connection with either
Company's website other than user postings.
Section 3.31 Affiliates. Sellers are the only "affiliates" of either
Company within the meaning of Rule 145 under the Securities Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Sellers as of the date of
this Agreement and as of the Closing Date as follows:
Section 4.1 Organization. Buyer and each Merger Sub is duly organized,
validly existing and in good standing under the laws of the State of
Delaware, in the case of Buyer, and the State of Vermont, in the case of
Merger Subs, and has the requisite corporate power and authority to carry
on its business as it is now being conducted. Buyer and each Merger Sub is
duly qualified and licensed as a foreign corporation to do business, and is
in good standing (and has paid all relevant franchise or analogous taxes),
in each jurisdiction where the character of its assets owned or held under
lease or the nature of its business makes such qualification necessary,
except where the failure to be so qualified and in good standing would not,
individually or in the aggregate, have a material adverse effect on the
ability of Buyer or either Merger Sub to perform its obligations under this
Agreement.
Section 4.2 Merger Subs' Operations. Each Merger Sub was formed solely
for the purpose of engaging in the transactions contemplated hereby and has
not (i) engaged in any business activities, (ii) conducted any operations
other than in connection with the transactions contemplated hereby or (iii)
incurred any Liabilities other than in connection with the transactions
contemplated hereby.
Section 4.3 Authority. Buyer and each Merger Sub has the requisite
right, power and authority to enter into this Agreement and any Ancillary
Documents to which it is a party and to carry out its obligations hereunder
and thereunder. This Agreement has been, and each Ancillary Document to
which Buyer or any Merger Sub is a party will be, duly and validly executed
and delivered by Buyer and such Merger Sub and constitute or will
constitute, as the case may be, a valid and binding obligation of Buyer and
such Merger Sub enforceable against it in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws affecting creditors' rights generally or
by general principles of equity. All corporate proceedings or other actions
on the part of Buyer and each Merger Sub necessary to authorize this
Agreement or any of the Ancillary Documents to which it is a party and the
transactions contemplated hereby and thereby have been taken.
Section 4.4 Capitalization; Title to Shares. The authorized capital
stock of Buyer consists of 100,000,000 shares of Buyer Common Stock and
3,000,000 shares of preferred stock, $0.001 per share, of which 27,758,787
shares of Buyer Common Stock and no shares of preferred stock were issued
and outstanding as of December 20, 1999. All the issued and outstanding
shares of Buyer Common Stock are validly issued, fully paid and
nonassessable. Except pursuant to this Agreement and except as set forth in
the Buyer SEC Reports (as defined in Section 4.7), there are no shares of
capital stock of Buyer authorized and there are no outstanding
subscriptions, options, warrants, rights, stock-based or stock-related
awards or convertible or exchangeable securities or other agreements to
which Buyer is a party of any character relating to, or obligating Buyer to
issue, grant, award, transfer or sell, any issued or unissued shares of
Buyer's capital stock or other securities of Buyer. Except as set forth in
the Buyer SEC Reports, there are no voting trusts, proxies or other
agreements or understandings to which Buyer is a party with respect to the
voting of capital stock of Buyer. Buyer has full corporate power and
authority to deliver shares of Buyer Common Stock to the Sellers pursuant
to the Mergers and to transfer to the Sellers good and valid title to such
shares.
Section 4.5 Securities of Buyer. The shares of Buyer Common Stock to
be issued pursuant to this Agreement have been duly authorized for
issuance, and such securities, when issued and delivered to the Sellers,
will be validly issued, fully paid and nonassessable.
Section 4.6 Consents; No Violations. Except as set forth on Schedule
4.6, neither the execution, delivery or performance of this Agreement or
the Ancillary Documents by Buyer nor the consummation of the transactions
contemplated hereby or thereby will (a) conflict with, or result in a
breach or a violation of, any provision of the certificate of incorporation
or bylaws of Buyer; (b) constitute, with or without notice or the passage
of time or both, a breach, violation or default, create an Encumbrance, or
give rise to any right of termination, modification, cancellation,
prepayment, suspension, limitation, revocation or acceleration, under (i)
any Law, (ii) any Order to which Buyer is subject or by which Buyer or any
of its properties is bound or (iii) any Permit or Commitment of Buyer or to
which Buyer or any of its properties is subject; (c) other than (i) under
the H-S-R Act, (ii) pursuant to stock exchange rules, (iii) pursuant to
Regulation D of the Securities Act, and (iv) the filing of articles of
merger in connection with the Mergers, require any consent, approval or
authorization of, notification to, filing with, or exemption or waiver by,
any Governmental Entity or third party; or (d) create any Encumbrance upon
any of the assets or properties of Buyer; except any such conflict, breach,
violation, default, creation or requirement described in any of clause (a),
(b), (c) or (d) that would not have a material adverse effect on Buyer's
ability to consummate the transactions contemplated by this Agreement or
the Ancillary Documents.
Section 4.7 SEC Reports; Financial Statements. (a) Except as set forth
on Schedule 4.7(a), Buyer has filed all forms, reports and documents
(including all Exhibits, Schedules and Annexes thereto) required to be
filed by it with the Securities and Exchange Commission (the "SEC") since
November 12, 1998, including any amendments or supplements thereto
(collectively as of the date hereof, "Buyer SEC Reports"). Except as set
forth on Schedule 4.7(a), Buyer SEC Reports as of their respective filing
dates (i) were in all material respects in accordance with the requirements
of the Securities Act or the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as the case may be, and the rules and regulations
promulgated thereunder, and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(b) The financial statements, including all related notes
and schedules, contained in Buyer SEC Reports (or incorporated therein by
reference) fairly present in all material respects, the consolidated
financial position of Buyer and its consolidated subsidiaries as at the
respective dates thereof and the consolidated results of operations and
cash flows of Buyer and its consolidated subsidiaries for the respective
periods indicated, in each case in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved (except for changes in accounting principles disclosed in
the notes thereto) and the rules and regulations of the SEC, except that
interim financial statements are subject to normal year-end adjustments
which are not expected to be, individually or in the aggregate, material in
amount and do not include certain notes which may be required by GAAP but
which are not required by Form 10-Q of the Exchange Act.
Section 4.8 Absence of Certain Changes. Since September 30, 1999, and
except as set forth in the Buyer SEC Reports, there has not occurred any
event which would have a material adverse effect on the ability of Buyer to
perform its obligations under this Agreement.
Section 4.9 Litigation. There is no Litigation pending or, to the
knowledge of Buyer, threatened, against Buyer or any of its properties or
assets, except for Litigation which would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
ability of Buyer to perform its obligations under this Agreement.
Section 4.10 Board Action. The Boards of Directors of Buyer and of
each Merger Sub have approved this Agreement, the Ancillary Documents and
the transactions contemplated hereby and thereby, including the Mergers.
Section 4.11 Brokers and Finders. Buyer has not employed any broker or
finder or incurred any Liability for any brokerage fees, commissions or
finders' fees in connection with the transactions contemplated hereby.
Section 4.12 Certain Tax Matters. Prior to the transaction, Buyer will
be in "control" of each Merger Sub within the meaning of Section 368(c) of
the Code. For such period of time and to such extent as is necessary in
order for the Mergers to qualify as reorganizations under Section 368 of
the Code, neither Company will issue additional Companies Common Stock that
would result in Buyer losing control of either Company within the meaning
of Section 368(c) of the Code. Buyer has no plan or intention to reacquire
any of Buyer Common Stock issued in the Mergers. Buyer has no plan or
intention to (i) liquidate either Company; (ii) merge either Company with
and into another corporation; (iii) sell or otherwise dispose of the
Companies Common Stock except for transfers of stock to corporations
controlled by Buyer; or (iv) cause either Company to sell or otherwise
dispose of any of its assets or of any assets acquired from Merger Subs in
the Mergers, except for dispositions made in the ordinary course of
business or transfers described in Section 368(a)(2)(C) of the Code. For
such period of time and to such extent as is necessary in order for the
Mergers to qualify as reorganizations under Section 368 of the Code, each
Company will continue its "historic business" or use a "significant portion
of its historic business assets" in a business within the meaning of
Treasury Regulation Section 1.368-1(d). Neither Buyer nor either Merger Sub
is an "investment company" as such term is defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
ARTICLE V
COVENANTS
Section 5.1 No Solicitation. From the date of this Agreement until the
Closing, neither Seller shall solicit, propose or facilitate (including by
way of providing information regarding either Company or its businesses to
any Person), directly or indirectly, any inquiries, offers or proposals
for, continue or enter into negotiations looking toward, or enter into or
consummate any agreement or understanding in connection with any offer or
proposal regarding, any purchase or other acquisition of all or any portion
of either Company, the business or assets of either Company (other than the
ordinary course of business sale of inventory or replacement of assets), or
any of the equity securities (whether newly issued or currently
outstanding) of either Company, or any merger, business combination or
recapitalization involving either Company or its business; and Sellers
shall cause the Companies and their respective Employees to refrain from
engaging in any of the above activities that the Sellers are restricted
from engaging in. The Sellers shall promptly notify Buyer orally and in
writing of any such inquiries, offers or proposals (including, without
limitation, the terms and conditions of any such inquiries, offers or
proposals, any amendments or revisions, and the identity of the Person
making any of the foregoing), and shall keep Buyer promptly and fully
informed of the status and terms thereof.
Section 5.2 Interim Operations. (a) Unless Buyer otherwise agrees in
writing and except as otherwise expressly contemplated by this Agreement,
between the date of this Agreement and the Closing, the Sellers shall cause
each Company to, (i) conduct its business only in the ordinary course and
consistent with past practice; (ii) use reasonable best efforts to preserve
and maintain its assets and properties and the current relationships of
such Company with its respective customers, suppliers, advertisers,
distributors and Employees and other Persons with which such Company has
significant business relationships; (iii) use reasonable best efforts to
maintain all of the material assets owned or used by such Company in the
ordinary course of business consistent with past practice; (iv) continue
capital expenditures substantially in accordance with the timing and
amounts forecast for capital expenditures as set forth in the schedule of
capital expenditures previously provided by Sellers to Buyer and attached
hereto as Schedule 5.2; (v) maintain insurance in full force and effect
substantially comparable in amount, scope and coverage to that in effect on
the date of this Agreement; (vi) use reasonable best efforts to preserve
the goodwill and ongoing operations of the business of such Company; (vii)
maintain the books and records of such Company in the usual, regular and
ordinary manner, on a basis consistent with past practice; (viii) perform
and comply in all material respects with its Commitments; (ix) comply in
all material respects with applicable Laws; and (x) regularly create
electronic data back-ups of all electronically stored files.
(b) Except as expressly contemplated by this Agreement,
between the date of this Agreement and the Closing, the Sellers will cause
each Company not to do any of the following without the prior written
consent of Buyer:
(i) create any Encumbrance on any material properties
or assets (whether tangible or intangible) of either Company;
(ii) (A) other than sales of inventory in the ordinary
course of business consistent with past practice, sell, assign,
transfer, lease or otherwise dispose of or agree to sell, assign,
transfer, lease or otherwise dispose of any assets of either Company
or (B) cancel any Indebtedness owed to either Company;
(iii) merge, consolidate or enter into any similar
transaction with any Person;
(iv) other than in the ordinary course of business
consistent with past practice, acquire any properties or assets
(whether tangible or intangible) of any Person or acquire capital
stock of or other equity interests in any Person;
(v) (A) issue, incur, create, assume or otherwise
become liable for, or amend or modify the terms of, any Indebtedness,
(B) assume, grant, guarantee or endorse, or make any other
accommodation or arrangement making either Company responsible for,
any Liabilities of any other Person, (C) make any loans, advances or
capital contributions to, or investments in, any Person or (D) repay
any amounts owing under any Indebtedness (except in accordance with
the terms thereof as in effect as of the date of this Agreement);
(vi) change any method of accounting or accounting
practice used by either Company;
(vii) (A) enter into or adopt or amend any existing
Commitment relating to severance, (B) enter into or adopt or amend any
existing severance plan, (C) enter into or adopt or amend any
Commitment with any Employee or with respect to any Company Employee
Plan (including, without limitation, the plans, programs, agreements
and arrangements referred to in Section 3.19), (D) grant any options
or awards, or (E) grant any increases in compensation (except
compensation increases associated with promotions and annual reviews
in the ordinary course of business, which compensation increases shall
be subject to the prior written approval of Buyer, which approval
shall not be unreasonably withheld);
(viii) make any change in either Company's Tax
accounting methods, any new election with respect to Taxes or any
modification or revocation of any existing election with respect to
Taxes or settle or otherwise dispose of any Tax audit, dispute, or
other Tax proceeding, in each case without Buyer's express written
consent thereto;
(ix) accelerate or delay the purchase of supplies or
inventory, the shipment or sale of inventory, the collection of
accounts or notes receivable or the payment of accounts or notes
payable or accrued liabilities or expenses or otherwise operate the
business of either Company, in each case, in a manner that would be
inconsistent with such Company's ordinary course of business and
consistent with past practice;
(x) except as would not be required to be disclosed
under Section 3.21, engage in any transaction with any Seller or such
Seller's spouse, former spouse, child, parent, parent of a spouse,
sibling or grandchild of such Seller or any of the foregoing Persons,
any trust, partnership, corporation or other Person in which such
Seller or any of the foregoing Persons has or has had a direct or
indirect material interest;
(xi) enter into, modify, terminate, amend, or waive,
release or assign any rights or claims with respect to any Commitment
other than in the ordinary course of business consistent with past
practice;
(xii) allow the lapse of any rights of ownership or use
by either Company of any Company Proprietary Asset;
(xiii) repurchase, redeem or otherwise acquire or
exchange any shares of Company C Common Stock or Company S Common
Stock, issue or sell any additional shares of the capital stock of, or
other equity interests in, either Company, or issue or sell any
securities convertible into or exchangeable for such shares or equity
interests, or issue or grant any options, warrants, calls,
subscription rights or other rights of any kind to acquire additional
shares of such capital stock, such other equity interests or such
securities;
(xiv) amend either Company's articles of incorporation
or by-laws or equivalent organizational documents of such Company;
(xv) declare, set aside, make or pay any dividend or
other distribution (whether in cash, stock or property or any
combination thereof) on the Companies Common Stock;
(xvi) take any action that is reasonably likely to
result in the representations and warranties set forth in Article III
becoming false or inaccurate in any material respect as of the Closing
Date; or
(xvii) agree to take any of the actions referred to in
this Section 5.2(b).
(c) Between the date of this Agreement and the Closing,
neither Seller shall sell, assign, pledge, encumber or otherwise transfer
in any manner, or grant any options or other rights with respect to, shares
of any Company C Common Stock or Company S Common Stock. Sellers hereby
waive any dissenters' rights they may have under the VBCA in connection
with the Mergers and agree not to dissent or demand payment with respect to
their shares of Company C Common Stock or Company S Common Stock under the
VBCA in connection with the Mergers.
Section 5.3 Tax Provisions. All transfer, transfer gains, documentary,
sales, use, stamp, registration and other similar Taxes and fees (including
any penalties, interest, additions to tax, and costs and expenses relating
to such Taxes) incurred in connection with the Mergers shall be borne by
the Sellers. The Sellers, at their own expense, shall file all necessary
Tax Returns and other documentation with respect to all such transfer,
transfer gains, documentary, sales, use, stamp, registration and other
Taxes and fees. The Surviving Corporations shall cooperate with the Sellers
in the preparation of such Tax Returns. The Buyer shall report, and shall
cause its affiliates to report each Merger as a reorganization under
Section 368(a)(1)(A) and (a)(2)(E) of the Code, including filing the
information and retaining the records required under Treasury Regulation
Section 1.368-3.
Section 5.4 Access and Information. (a) From the date hereof until the
Closing, the Sellers shall, and shall cause the Companies and their
respective Employees to, afford to Buyer and its officers, directors,
employees, counsel, accountants, advisors, representatives and agents
access to the officers, Employees, agents, customers, suppliers, properties
and offices and other facilities of the Companies, and to the Companies'
books and records (including, without limitation, Tax Returns and work
papers of the Companies' accountants) and Commitments, and shall furnish
Buyer and such others all financial, operating, technical and other data
and information which Buyer, through its officers, directors, employees,
counsel, accountants, advisors, representatives or agents, may from time to
time reasonably request.
(b) In connection with the continuing operation of the
businesses of the Companies between the date of this Agreement and the
Closing, the Sellers shall, and Sellers shall cause the Companies to,
consult in good faith on a regular and frequent basis with representatives
of Buyer to report material operational developments and the general status
of ongoing operations. The Sellers acknowledge that any such consultation
shall not constitute a waiver by Buyer of any rights it may have under this
Agreement and that Buyer shall not have any Liability or responsibility for
any actions of the Companies or any of their respective officers,
directors, Employees, agents or Affiliates with respect to matters which
are the subject of such consultations.
Section 5.5 Consents. The Parties agree to cooperate in obtaining, as
promptly as practicable, any consents of any third parties necessary or
desirable from any Party in connection with the transactions contemplated
hereunder (each, a "Consent"), including, but not limited to, consents for
the items listed on Exhibit D. The Parties agree that in the event such a
Consent is not obtained prior to the Closing and the Closing occurs, the
Sellers will, subsequent to the Closing, cooperate with Buyer and the
Companies in attempting to obtain the Consent.
Section 5.6 Reasonable Efforts. Subject to the terms and conditions in
this Agreement, each of the Parties shall use reasonable efforts to take
promptly, or cause to be taken, all actions and to do promptly, or cause to
be done, all things necessary, proper or advisable under applicable Laws to
consummate and make effective the transactions contemplated hereby and to
cause the conditions to the transactions contemplated hereby to be
satisfied including but not limited to promptly providing all relevant
information and signatures needed for all filings pursuant to the H-S-R
Act; provided, however, that nothing herein shall be interpreted to require
Buyer to agree to divest, hold separate or otherwise restrict the operation
of any of its or its Affiliates' assets or businesses.
Section 5.7 Notice. During the period from the date hereof to the
Closing, each Party shall give prompt written notice to the other Parties
of (a) the occurrence, or failure to occur, of any event which occurrence
or failure would cause or be likely to cause any representation or warranty
of the Party giving notice contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Closing, or (b) any failure of the Party giving notice to comply with or
satisfy any covenant, condition or agreement to be complied with or
satisfied by such Party hereunder; provided, however, that the delivery of
any notice pursuant to this Section 5.7 shall not limit or otherwise affect
the remedies available hereunder to the Parties receiving notice, or modify
in any way any disclosure made in this Agreement or the Schedules or
Exhibits hereto.
Section 5.8 Non-Competition Agreement. Each of the Sellers agrees that
(a) for a period of three years immediately following the Closing, such
Seller shall not, without the prior written consent of Buyer, directly or
indirectly, engage in any Competitive Activity (as defined below) anywhere
in the world (including, without limitation, anywhere in the United States
of America and Canada), and (b) for a period of three years following the
Closing it shall not, without the prior written consent of Buyer, directly
or indirectly solicit for employment, including, without limitation,
recommending to any subsequent employer the solicitation for employment of,
or hire, any Employee of either Company. The Parties acknowledge and agree
that (w) the Sellers will receive substantial and valuable benefits under
this Agreement in consideration of the covenants and agreements of the
Sellers set forth in this Section 5.8, (x) Buyer would not have executed
and delivered this Agreement, or agreed to consummate the transactions
contemplated hereby upon the terms and conditions set forth in this
Agreement, if the Sellers had not entered into the covenants and agreements
set forth in this Section 5.8, (y) the Parties intend that such agreements
and covenants be enforceable and that it would be grossly inequitable if a
court or judicial tribunal were to not enforce such covenants and
agreements to the fullest extent provided herein, and (z) the geographical
scope of this Section 5.8 is necessary because Competitive Activities can
be conducted from virtually any location in the world due to the fact that
the businesses of the Companies are conducted on and through the Internet
and because the Companies operate on the Internet, the goodwill associated
with the Companies has spread throughout the world. "Competitive Activity"
shall mean engaging in any of the following activities: (i) serving as a
director of any Competitor; (ii) directly or indirectly (x) controlling any
Competitor or (y) owning any equity or debt interests in any Competitor
(other than equity or debt interests which are publicly traded and do not
exceed 5% of the particular class of interests then outstanding or 5% of
the voting power for the election of directors) (it being understood that,
if any such interests in any Competitor are owned by an investment vehicle
or other entity in which a Seller owns an equity interest, a portion of the
interests in such Competitor owned by such entity shall be attributed to
such Seller, such portion determined by applying the percentage of the
equity interest in such entity owned by such Seller to the interests in
such Competitor owned by such entity); (iii) directly or indirectly
soliciting, diverting, taking away, appropriating or otherwise interfering
with any of the customers or suppliers of either Company; or (iv)
employment by (including serving as an officer of), or providing consulting
services to, any Competitor, where such Seller is directly or indirectly
engaged in the sale of computer games or the publishing of video game news,
reviews, previews and tips. "Competitor" shall mean any Person that is
engaged in the retail sale of video and/or computer games over the Internet
and/or by catalogue, and/or the writing, distribution and/or publication of
computer or video game news, reviews, previews and tips, whether in print
or online, without regard to size, or is engaged in owning, operating or
acquiring directly or indirectly (through a corporation, trust, partnership
or other Person) one or more entities engaged in a business similar to the
Companies' businesses, without regard to size. If any restriction set forth
in this Section 5.8 is found by any court of competent jurisdiction to be
unenforceable because it extends for too long a period of time or over too
great a range of activities or in too broad a geographic area, it shall be
interpreted to extend only over the maximum period of time, range of
activities or geographic area as to which it may be enforceable.
Section 5.9 Further Assurances. After the Closing, each of the Parties
will, at the request of any other Party (a "Requesting Party"), execute,
acknowledge and deliver to such Requesting Party all such further
assignments, conveyances, endorsements, deeds, powers of attorney, consents
and other documents and take such other action as a Requesting Party may
reasonably request to consummate the transactions contemplated hereby.
Section 5.10 Obligations of the Sellers. Each of the Sellers agrees to
cause the Companies to perform each of their covenants and agreements
contained in this Agreement and the Ancillary Documents to be performed
prior to or at the Effective Time, and to be responsible for any breach by
the Companies thereof. The Sellers agree that all of the obligations of the
Sellers hereunder shall be joint and several.
Section 5.11 Confidentiality. Each of the Sellers agrees that no
Seller will disclose any Confidential Information after the date hereof to
any third party. "Confidential Information" shall mean any information
relating to the Companies or Buyer which is in the possession of either
Seller on the date hereof or on the Closing Date, other than information
which is or becomes available to the public (other than as a result of the
disclosure by such Sellers of such information in contravention of the
covenants set forth in this Section 5.11). The covenants and agreements
contained in this Section 5.11 shall expire on the fifth anniversary of the
Closing Date.
Section 5.12 Affiliates. To the extent not already delivered to Buyer,
each Company shall exercise its reasonable best efforts to deliver or cause
to be delivered to Buyer, as promptly as practicable after the date hereof
but in no event later than the Closing, from each Seller a letter
substantially in the form attached as Exhibit E (the "Affiliates Letter").
Section 5.13 Consulting Agreements. Sellers shall enter into
Consulting Agreements with the Companies in the form attached as Exhibit F.
Section 5.14 Proprietary Assets. Prior to Closing, each Seller shall
convey, or cause to be conveyed, any Proprietary Assets owned by him or her
or his or her Affiliates, or any third party, and listed or required to be
listed on Schedule 3.15(h) to one of the Companies. To the extent necessary
or desirable, and as may be requested by Buyer, each of the Sellers shall
execute an Assignment of Trademarks, Trade Names and Service Marks in the
form attached hereto as Exhibit G and an Assignment of Copyrights in the
form attached hereto as Exhibit H.
Section 5.15 Indebtedness. Prior to Closing, Sellers shall cause each
Company to discharge fully all Indebtedness, other than the Permitted
Indebtedness.
Section 5.16 December Balance Sheet. Sellers shall deliver the
December Balance Sheet and the related statements of income to Buyer no
later than thirty days after the Closing Date.
Section 5.17 401(k) Plan. Buyer and Sellers agree to use their
reasonable best efforts to terminate the Chips & Bits, Inc. Incentive
Savings Plan as soon as reasonably possible but in any event during the
term of either Sellers' employment with either Company.
Section 5.18 Assignment of Proprietary Assets. Sellers shall use
reasonable efforts to cause each of the persons listed on Schedule 5.18, as
the case may be supplemented prior to Closing by agreement of the Parties,
to execute and deliver to Buyer at Closing an assignment of Proprietary
Assets in the form attached as Exhibit I hereto with respect to those
Proprietary Assets listed or required to be listed on Schedule 3.15(h).
Section 5.19 Employment Arrangements. Sellers shall use reasonable
efforts to cause the Employees listed on Schedule 5.19, as may be
supplemented prior to Closing by agreement of the Parties, to enter into
employment arrangements with the Surviving Corporation on terms reasonably
satisfactory to Buyer.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Obligations of Buyer and Merger Subs. The
obligations of Buyer and Merger Subs to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction or
waiver at or prior to the Closing of each of the following conditions:
(a) Representations and Warranties. Each representation and
warranty of the Sellers contained in this Agreement shall be true and
correct in all material respects (without giving effect to any materiality
or knowledge qualifications included in such representations and
warranties), when made and on and as of the Closing Date (except to the
extent such representations and warranties shall have been expressly made
as of an earlier date, in which case such representations and warranties
shall have been true and correct as of such earlier date) with the same
force and effect as if made on and as at the Closing Date.
(b) Agreements and Covenants; Deliveries. Each Seller shall
have performed in all material respects each agreement and covenant
required by this Agreement to be performed by them as of or before the
Closing Date and shall have made each of the deliveries to Buyer and Merger
Subs contemplated by Section 2.6.
(c) Certificates. Buyer shall have received a certificate
jointly executed by the Sellers certifying that the conditions set forth in
paragraphs (a) and (b) above have been satisfied.
(d) Consents. The waiting period applicable to the
consummation of the Mergers under the H-S-R Act shall have expired or been
terminated and all Consents for the items listed on Exhibit D shall have
been received. Additionally, all other Consents necessary or desirable in
connection with any item disclosed or required to be disclosed pursuant to
clauses (ii)(z), (iii) or (iv) of Section 3.6 shall have been obtained or
given.
(e) No Prohibitions. No statute, rule or regulation or order
of any court or administrative agency shall be in effect which prohibits
Buyer or either Merger Sub from consummating the transactions contemplated
hereby.
(f) No Material Adverse Change. Neither Company shall have
suffered any change which has had or would reasonably be expected to have a
Material Adverse Effect on such Company or would impose any restrictions on
such Company that would materially interfere with the ability of Buyer to
operate such Company as is currently contemplated.
(g) Blue Sky Approvals. Buyer shall have obtained all
necessary blue sky approvals for the issuance of the Buyer Common Stock
pursuant to the transactions contemplated hereby.
(h) Escrow Agreement. Each of the Sellers and the Escrow
Agent shall have duly executed and delivered the Escrow Agreement (as
defined in Section 8.4.)
(i) Trademarks and Copyrights. If required by Buyer, each of
the Sellers shall have executed and delivered an Assignment of Trademarks,
Trade Names and Service Marks in the form attached hereto as Exhibit G and
an Assignment of Copyrights in the form attached hereto as Exhibit H.
(j) Proprietary Assets. Each Seller shall have executed and
delivered an assignment of Proprietary Assets in the form attached as
Exhibit I hereto with respect to those Proprietary Assets listed or
required to be listed on Schedule 3.15(h).
(k) Affiliates Letters. Buyer shall have received an
Affiliates Letter from each Person identified as an affiliate of either
Company pursuant to Section 5.15.
(l) FIRPTA Certificate. Each Seller shall furnish to Buyer,
on or before the Closing Date, a statement in the form required by Section
1445 of the Code and the regulations thereunder that such Seller is not a
"foreign person" within the meaning of those provisions.
(m) Working Capital Certificate. Buyer shall have received a
certificate executed by Sellers and the chief executive officer and the
chief financial officer of each Company certifying that the combined
Working Capital deficit of Company C and Company S does not exceed
$202,626.
(n) Bonus Payments. James D. McDowell and Russ Hoefer shall
have each agreed, by instrument reasonably satisfactory to Buyer, that any
Bonus Payments owed or payable to him shall be paid in Buyer Common Stock.
(o) Consulting Agreements. Each Seller shall have entered
into a Consulting Agreement with the Companies in the form attached as
Exhibit F.
(p) Broker's Fees. Sellers shall have paid all broker or
finders fees, including, but not limited to, fees payable to Gerald Klauer
Mattison & Co., Inc., and shall have delivered to Buyer such supporting
documentation in respect of the foregoing as may reasonably be requested by
Buyer.
Section 6.2 Conditions to Obligations of the Sellers. The obligations
of the Sellers to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction or waiver as of or prior to
the Closing Date of each of the following conditions:
(a) Representations and Warranties. Each representation and
warranty of Buyer and each Merger Sub contained in this Agreement shall be
true and correct in all material respects (without giving effect to any
materiality or knowledge qualifications included in such representations
and warranties) when made and on and as of the Closing Date (except to the
extent such representations and warranties shall have been expressly made
as of an earlier date, in which case such representations and warranties
shall have been true and correct as of such earlier date) with the same
force and effect as if made on and as of the Closing Date.
(b) Agreements and Covenants; Deliveries. Buyer and each
Merger Sub shall have performed in all material respects each of its
agreements and covenants required by this Agreement to be performed by them
as of or before the Closing Date and shall have made each of the deliveries
to the Sellers contemplated by Section 2.6.
(c) Certificates. The Sellers shall have received a
certificate of Buyer certifying that the conditions set forth in paragraphs
(a) and (b) above have been satisfied.
(d) Consents. The waiting period applicable to the
consummation of the Mergers under the H-S-R Act shall have expired or been
terminated.
(e) No Prohibition. No statute, rule or regulation or order
of any court or administrative agency shall be in effect which prohibits
either Company or either Seller from consummating the transactions
contemplated hereby.
(f) Escrow Agreement. Buyer and the Escrow Agent shall have
duly executed and delivered the Escrow Agreement.
(g) Registration Rights Agreement. Buyer shall have duly
executed and delivered the Registration Rights Agreement.
(h) Release. Sellers shall have been released from those
certain guarantees made by Sellers in favor of Howard Bank, N.A.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated at any time
before the Closing (except as otherwise provided) as follows:
(a) by mutual written consent of each of Buyer, the
Companies and the Sellers;
(b) by either the Sellers or Buyer, if the Closing Date
shall not have occurred on or before February 15, 2000 (the "Termination
Date");
(c) by either Sellers, on the one hand, or Buyer, on the
other hand, if there shall have been a breach by the other (or in the case
of Buyer, a breach by either Company) of any of its (x) representations or
warranties contained in this Agreement, which breach would or is likely to
result in the failure to satisfy one or more of the conditions set forth in
Section 6.1(a) (in the case of a breach by the Sellers) or Section 6.2(a)
(in the case of a breach by Buyer), or (y) covenants or agreements
contained in this Agreement, which breach would or is likely to result in
the failure to satisfy one or more of the conditions set forth in Section
6.1(b) (in the case of a breach by the Sellers) or Section 6.2(b) (in the
case of a breach by Buyer), and in any such case such breach shall be
incapable of being cured or, if capable of being cured, shall not have been
cured after notice thereof and a ten (10) day opportunity to cure shall
have been given to the Party alleged to be in breach; or
(d) without limiting the generality of clause (c), by Buyer,
if either Company suffers any Material Adverse Effect as a result of the
change in calendar year from 1999 to 2000.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Survival. The representations and warranties of the
Parties contained herein or in any Ancillary Document shall survive,
together with any associated right of indemnification, for eighteen months
following the Closing Date, except that the representations and warranties
set forth in Sections 3.5(b) (environmental), 3.17 (taxes) and 3.19
(employee benefits) shall survive until 30 days following the expiration of
the applicable statute of limitations (including any extensions thereof)
and the representations and warranties set forth in Section 3.3
(capitalization; title to shares) shall not expire. After the expiration of
such periods, any claim by a Party based upon any such representation or
warranty shall be of no further force and effect, except to the extent a
Party has asserted a claim in accordance with this Article VIII for breach
of any such representation or warranty prior to the expiration of such
period, in which event any representation or warranty to which such claim,
together with any associated right of indemnification, relates, shall
survive with respect to such claim until such claim is resolved as provided
in this Article VIII. All covenants and agreements of the Parties shall
survive the Closing until performed in accordance with their terms.
Section 8.2 Indemnification by Buyer. (a) From and after the Closing
Date, Buyer shall indemnify, defend and hold harmless the Sellers and their
Affiliates (collectively, the "Seller Indemnified Group") from and against
any and all Liabilities, losses, damages, penalties, claims (including
third-party claims, whether or not meritorious), costs, interest,
judgments, fines, amounts paid in settlement and expenses (including,
without limitation, reasonable attorney's fees, whether incurred in
connection with a claim for indemnification hereunder or in connection with
any third party claim) (collectively, "Losses") incurred or suffered by any
member of the Seller Indemnified Group based upon, resulting from or
arising out of (i) the breach of any representation or warranty of Buyer
contained in this Agreement or any of the Ancillary Documents or (ii) the
breach of any covenant or agreement of Buyer contained in this Agreement or
any of the Ancillary Documents.
(b) Buyer's indemnification obligations pursuant to Section
8.2(a)(i) shall be effective only after the amount of Losses, in the
aggregate, incurred by the Seller Indemnified Group exceeds $100,000 and if
such aggregate liabilities exceed $100,000, Buyer shall be liable for all
such Losses, subject to the following sentence. The maximum amount
recoverable by the Seller Indemnified Group, in the aggregate, under
Section 8.2(a)(i) shall be the aggregate number of shares of Buyer Common
Stock to be issued in connection with the Mergers. Buyer shall make
indemnification payments pursuant to this Section 8.2 in the form of Buyer
Common Stock, and any such shares shall be valued at the average of the
last quoted sales price of a share of Buyer Common Stock on the Nasdaq
National Market over the five trading days immediately preceding the date
of such indemnification payments.
Section 8.3 Indemnification by the Sellers. (a) From and after the
Closing Date, the Sellers, jointly and severally, shall indemnify, defend
and hold harmless Buyer, Merger Subs and the Surviving Corporations and
each of their respective Affiliates, officers, directors, employees,
members, agents, successors, transferees and assigns (other than Sellers)
(collectively, "Buyer Indemnified Group") from and against any and all
Losses incurred or suffered by any member of Buyer Indemnified Group based
upon, resulting from or arising out of (i) the breach of any representation
or warranty of any of the Sellers or any Company contained in this
Agreement or any of the Ancillary Documents, (ii) the breach of any
covenant or agreement of any of the Sellers or any Company contained in
this Agreement or any of the Ancillary Documents, (iii) any inaccuracies in
the Closing Certificate, and (iv) any claims relating to shares of capital
stock issued, and warrants, options or other equity awards granted, by
either Company.
(b) The Sellers' indemnification obligations pursuant to
Section 8.3(a)(i) shall be effective only after the amount of Losses, in
the aggregate, incurred by Buyer Indemnified Group exceeds $100,000 (the
"Basket") and if such aggregate liabilities exceed the Basket, the Sellers
shall be liable for the dollar value of all of such Losses. The Basket
shall not be applicable to any breach of the representations and warranties
in Section 3.3 (capitalization; title to shares), 3.4(d) (Indebtedness),
3.4(e) (Working Capital), 3.5(b) (environmental), 3.10 (brokers), 3.17
(taxes) and 3.19 (employee benefits). The maximum amount recoverable under
Section 8.3(a)(i) from the Sellers, in the aggregate, shall be an amount
equal to the product of (1) the aggregate number of shares of Buyer Common
Stock issued or issuable in connection with the Merger, multiplied by (2)
the Reference Share Price; provided, however, Losses arising as a result of
breaches of the representations and warranties in Section 3.3
(capitalization; title to shares), 3.4(d) (Indebtedness), 3.4(e) (Working
Capital), 3.5(b) (environmental), 3.15 (Company Proprietary Assets), 3.17
(taxes) and 3.19 (employee benefits) shall not be limited by this sentence
and shall not be included in the calculation of amounts recoverable for
purposes of calculating whether such maximum has been reached. Sellers
shall make indemnification payments for any breach of the representations
and warranties in Section 3.4(e) and 3.10 in cash; provided, however, that
any payments made in connection with a breach of the representations and
warranties in Section 3.4(e) shall be reduced by the amount actually offset
against fees payable pursuant to the Consulting Agreements entered into by
and between Sellers and Merger Subs pursuant to Section 6.1(q).
(c) The materiality qualifications included in the
representations and warranties set forth in Article III shall have no
effect on any provisions in this Section 8.3 concerning the indemnities of
the Sellers with respect to such representations and warranties, each of
which is given as though there were no materiality qualification for
purposes of such indemnities.
Section 8.4 Escrow. (a) The number of shares of Buyer Common Stock to
be delivered to the Sellers any time at or following the Closing pursuant
to Sections 2.1, 2.5 and 2.6(c) shall be reduced by that percentage
specified in the third Whereas clause of the Escrow Agreement and the
shares representing such reduction (the "Escrowed Shares") shall be
deposited with the escrow agent (the "Escrow Agent") and held in escrow
pursuant to an Escrow Agreement in the form attached as Exhibit J hereto
(the "Escrow Agreement"). For such period of time that the Escrowed Shares
are held in escrow, the Sellers shall have all rights with respect to the
voting of such shares in connection with all matters coming before a vote
of the holders of Buyer Common Stock.
(b) Any claim by a member of Buyer Indemnified Group for
indemnification against the Sellers shall be satisfied by recourse to the
Escrowed Shares until such time as the aggregate amount of Losses exceed
the aggregate value of the remaining Escrowed Shares, and thereafter by
recourse directly to Sellers. Any claim by a member of Buyer Indemnified
Group for indemnification shall be made by giving written notice in
accordance with the terms of Section 8.5. In the event that the Escrow
Agent releases Escrowed Shares in satisfaction of a claim pursuant to the
terms of the Escrow Agreement, the Escrow Agent shall release to the member
of Buyer Indemnified Group Escrowed Shares, as applicable, having an
aggregate value (based on the average of the last quoted sales prices of
the shares of Buyer Common Stock on the Nasdaq National Market over the
five trading days immediately preceding the date such Escrow Shares are so
released) equal to the Losses under such claim, subject, in the case of
Escrowed Shares to be released to Buyer, to applicable laws, stock exchange
regulations and contractual constraints. Buyer shall thereupon hold in
treasury such released shares and, if the member of Buyer Indemnified Group
with respect to such Losses is not Buyer, pay or cause to be paid such
Losses to such member of Buyer Indemnified Group.
Section 8.5 Indemnification Procedure. (a) The party seeking
indemnification under this Agreement (the "Indemnified Party") shall
promptly notify the Party from whom indemnification is being sought (the
"Indemnifying Party") (or, if indemnification is sought pursuant to the
Escrow Agreement, the Sellers and the Escrow Agent) of the facts and
circumstances upon which the Indemnified Party intends to base a claim for
indemnification hereunder ("Notices"). Notice shall in all events be
considered prompt if given (1) no later than 15 days after the Indemnified
Party learns of the facts upon which it will claim such indemnification or
(2) if earlier, in sufficient time to allow the Indemnifying Party to
exercise its rights pursuant to this Article VIII; provided, however, that
the failure to provide such Notice of claims promptly (so long as a notice
of claims is given before the date on which the applicable representation
or warranty has ceased to survive) shall not affect the obligations of the
Indemnifying Party hereunder except to the extent the Indemnifying Party is
prejudiced thereby. The Indemnifying Party shall have the right, at its own
cost, to participate jointly in the defense of any third-party claim,
demand, lawsuit or other proceeding in connection with which the
Indemnified Party has claimed indemnification hereunder, and may elect (the
"Election") to take over the defense of such claim within 10 business days
following Notice thereof upon its written unconditional acknowledgment of
its obligation to indemnify the Indemnified Party with respect to such
claim. Notwithstanding the foregoing, Buyer shall be permitted, at its
option, to require that the Sellers shall not take over the defense of any
claim brought against any member of Buyer Indemnified Group by any Person
with which Buyer has a material business relationship, which material
business relationship predates this Agreement, and upon exercise of such
option such member of Buyer Indemnified Group shall defend such claim,
subject to the following conditions: (i) the Sellers shall be entitled, in
their discretion and at their expense, to engage counsel and to participate
in any discussions, meetings, negotiations and other communications which
may be held or conducted between such member of Buyer Indemnified Group and
such customer or supplier, or their respective counsels, with respect to
such claim; (ii) such member of Buyer Indemnified Group shall consult with
the Sellers before making or communicating to such customer or supplier, or
its counsel, any decisions concerning such member's strategy or position
with respect to the defense of such claim; and (iii) such member of Buyer
Indemnified Group shall not settle or otherwise dispose of such claim
without the consent of the Sellers (which consent shall not be unreasonably
withheld or delayed). If the Indemnifying Party makes an Election, (x) it
shall keep the Indemnified Party informed as to the status of the
applicable matter and shall send promptly copies of all pleadings to the
Indemnified Party, (y) shall not settle or otherwise dispose of any claim
without the consent of the Indemnified Party (which consent shall not be
unreasonably withheld or delayed), and (z) the Indemnified Party shall have
the right to participate jointly in the defense of such claim, but shall do
so at its own cost not subject to reimbursement. If the Indemnifying Party
does not elect to take over the defense of a third-party claim, the
Indemnified Party shall have the right to contest, compromise or settle
such claim in the exercise of its reasonable judgment.
(b) Notwithstanding any provision of this Article VIII to
the contrary, with respect to any third-party claim or demand that the
Indemnifying Party is defending, the Indemnified Party shall have the right
to retain separate counsel to represent it and the Indemnifying Party shall
pay the fees and expenses of such separate counsel if the Indemnified Party
receives and certifies to the Indemnified Party that it has received advice
of counsel to the effect that there exist sufficient conflicts that make it
reasonably necessary or appropriate for separate counsel to represent the
Indemnified Party and the Indemnifying Party.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Public Announcements. No Party shall make any public
statements, including, without limitation, any press releases, with respect
to this Agreement and the transactions contemplated hereby without the
prior written consent of the Sellers and Buyer, except as may be required
by Laws or the rules of the Nasdaq National Market or any exchange on which
securities of Buyer are listed or traded.
Section 9.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given (a) on the
date of delivery if delivered personally, or by telecopy or telefacsimile,
upon confirmations of receipt, (b) on the first business day following the
date of dispatch if delivered by a recognized next-day courier service, or
(c) on the third business day following the date of mailing if delivered by
registered or certified mail, return receipt requested, postage prepaid.
All notices hereunder shall be delivered as set forth below, or pursuant to
such other instructions as may be designated in writing by the party to
receive such notice:
(a) if to any Sellers:
Yale Brozen
P.O. Box 171
Rochester, VT 05767
and
Christine Brozen
P.O. Box 171
Rochester, VT 05767
with a copy to:
Loeb & Loeb LLP
345 Park Avenue
New York, NY 10154
Attention: David C. Fischer, Esq.
Telecopy No.: (212) 407-4990
(b) if to Buyer:
theglobe.com, inc.
120 Broadway, 22nd floor
New York, N.Y. 10271
Attention: Richard Mass, Esq., General Counsel
Telecopy No.: (212) 962-6050
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Valerie Ford Jacob, Esq.
Jeffrey Bagner, Esq.
Telecopy No.: (212) 859-4000
Section 9.3 Certain Definitions; Certain Interpretations. (a) For
purposes of this Agreement, the following terms shall have the following
meanings:
"Affiliate" of a Person means a Person that directly or
indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the first mentioned
Person. Each Company shall be deemed to be an Affiliate of the Sellers
before the Effective Time and an Affiliate of Buyer after the
Effective Time.
"Ancillary Documents" shall mean all Commitments,
certificates and other documents delivered simultaneously with this
Agreement or to be delivered at the Closing in connection with the
transactions contemplated hereby including, without limitation, the
Registration Rights Agreement and the Escrow Agreement.
"Control" (including the terms "controlled by" and
"under common control with") means the possession, direct or indirect,
of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of stock, as
trustee or executor, by contract or credit arrangement or otherwise.
"material" with respect to a Person shall mean any
event, change or effect that is or would be material to the condition
(financial or otherwise), assets, liabilities, operations, results of
operations, prospects or properties of such Person.
"Material Adverse Effect" with respect to a Person
shall mean any event, change or effect that is or would be materially
adverse to the condition (financial or otherwise), assets,
liabilities, business, operations, results of operations, prospects or
properties of such Person.
"Person" shall mean an individual, a corporation, a
limited liability company, a partnership, an association, a trust or
any other entity or organization, including a Governmental Entity.
"Working Capital" with respect to either Company shall
mean (i) all current assets of such Company as of the Closing Date
determined in accordance with GAAP minus (ii) all current liabilities
(excluding the current portion of Permitted Indebtedness with respect
to such Company) of such Company as of the Closing Date determined in
accordance with GAAP.
(b) Whenever the words "include," "includes" or "including"
are used in this Agreement, they shall be understood to be followed by the
words "without limitation" if such words are not already present. The words
"to the knowledge of the Companies" and words of similar import shall mean
the knowledge of Sellers.
(c) All pronouns used herein shall be deemed to refer to the
masculine, feminine or neuter gender as the context requires.
(d) All accounting terms used herein that are not expressly
defined in this Agreement shall have the respective meanings given them in
accordance with generally accepted accounting principals, as in effect from
time to time.
Section 9.4 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 9.5 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic
or legal substance of the transactions contemplated hereby is not affected
in any manner materially adverse to any Party. Upon a determination that
any term or other provision is invalid, illegal or incapable of being
enforced, the Parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the Parties as closely as
possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the maximum extent possible.
Section 9.6 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, constitutes the entire agreement and supersedes any and all
other prior agreements and undertakings, both written and oral, among the
Parties, or any of them, with respect to the subject matter hereof and does
not and is not intended to confer upon any Person other than the Parties
any rights or remedies hereunder.
Section 9.7 Assignment. Except as otherwise set forth herein, this
Agreement shall not be assigned by any Party by operation of law or
otherwise without the express written consent of each of the other Parties;
provided, Buyer may assign its rights hereunder to one or more of its
Affiliates.
Section 9.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without
regard to the conflicts of laws provisions thereof, provided that the
provisions hereof governed by provisions of the VBCA shall be governed by
the applicable provisions thereof. Each of the Parties irrevocably and
unconditionally consents and submits to the exclusive jurisdiction of the
courts of the State of New York and the courts of the United States of
America each located in the Borough of Manhattan in the City of New York
for any Litigation arising out of or relating to this Agreement or the
Mergers or any of the other transactions contemplated hereby (and agrees
not to commence any Litigation relating hereto except in these courts), and
further agrees that service of any process, summons, notice or document by
U.S. registered mail to its respective address set forth in Section 9.2
shall be effective service of process for any Litigation brought against it
in any such court. Each of the Parties hereby irrevocably and
unconditionally waives any objection to the laying of venue of any
Litigation arising out of this Agreement or the Mergers or any of the other
transactions contemplated hereby in the courts of the State of New York or
the courts of the United States of America located in the Borough of
Manhattan in the City of New York and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court
that any such Litigation brought in any such court has been brought in an
inconvenient forum. Each of the Parties hereby irrevocably and
unconditionally waives any right it may have to trial by jury in connection
with any Litigation arising out of or relating to this Agreement, the
Mergers or any of the other transactions contemplated hereby or thereby.
Section 9.9 Transaction Costs. All Transaction Costs, other than the
fees and expenses of Loeb & Loeb LLP incurred in connection with this
Agreement and the transactions contemplated hereby, shall be paid by the
Sellers. "Transaction Costs" shall mean all fees and expenses of financial,
legal, accounting and other advisors retained by the Companies and Sellers
and all other out-of-pocket costs of the Companies and Sellers incurred
directly in connection with this Agreement and the transactions
contemplated hereby.
Section 9.10 Amendments. This Agreement may be amended at any time
before the Effective Time but only pursuant to a writing executed and
delivered by Buyer, Sellers and each Company and only in accordance with
the provisions of applicable Law.
Section 9.11 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different Parties in separate counterparts,
each of which when executed shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 9.12 Schedules. The inclusion of any matter in any schedule to
this Agreement shall be deemed to be an inclusion for all purposes of this
Agreement, but only to the extent that such disclosure is sufficient to
identify the section to which such disclosure is responsive.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement
to be executed as of the date first written above by their respective
officers thereunto duly authorized.
THEGLOBE.COM, INC.
By:
---------------------------
Name:
Title:
CHIPS & BITS, INC.
By:
---------------------------
Name:
Title:
STRATEGY PLUS, INC.
By:
---------------------------
Name:
Title:
CB ACQUISITION CORP.
By:
---------------------------
Name:
Title:
SP ACQUISITION CORP.
By:
---------------------------
Name:
Title:
YALE BROZEN
------------------------------
CHRISTINA BROZEN
------------------------------
<PAGE>
SCHEDULE 2.5
------------
Performance: 2000 Revenues equal 100% or greater of 1999 Revenues
- ------------
"1999 Revenues" means the combined revenues for the Companies for the 1999
calendar year based upon each Company's audited statement of income for the
twelve months ended December 31, 1999.
"2000 Revenues" means the combined revenues for the Companies for the 2000
calendar year based upon each Company's audited statement of income for the
twelve months ended December 31, 2000.
In the event a Business Disposition is consummated prior to December 31,
2000, the Companies shall be credited (towards 2000 Revenues) with the
revenue earned in the 1999 calendar year during the period from the date in
calendar year 1999 corresponding to the date of such Business Disposition
through the end of the 1999 calendar year.
"Business Disposition" means the transfer, in a transaction or series of
related transactions, of all or substantially all of the assets of either
Company or 50% or more of the voting power or equity of either Company by
merger, stock sale, recapitalization, reorganization, foreclosure on a
pledge, or other transfer from Buyer to any other person that is not an
Affiliate of Buyer.
<PAGE>
EXHIBIT D
---------
Lease Renewal Agreement dated October 8, 1999 by and between Arthur Goldner
& Associates, Inc., as agent for Northfield Associates Limited Partnership
and Strategy Plus, Inc.
Letter Agreement dated January 29,1999 by and among Yale Brozen, Christine
Brozen, Chips & Bits, Inc., Strategy Plus, Inc. and Howard Bank, N.A.
<PAGE>
PERMITTED COMPANY C INDEBTEDNESS SCHEDULE
-----------------------------------------
Obligation Balance as of 11/30/99
- ---------- ----------------------
PCME Debt $2,007.58
Mortgage on Rt. 100 Property 115,593.79
Ford Expedition Lease 23,599.40
Advanta Lease 20,725.00
------------
$161,925.77
<PAGE>
PERMITTED COMPANY S INDEBTEDNESS SCHEDULE
-----------------------------------------
Obligation Balance as of 11/30/99
- ---------- ----------------------
OGR Note $142,677.00
EXHIBIT 99.1
THEGLOBE.COM STRENGTHENS GAME NETWORK WITH ACQUISITION OF
CHIPS & BITS, INC., LEADING ONLINE GAME RETAILER,
AND STRATEGY PLUS, INC., PUBLISHER OF PREMIER GAME MAGAZINES
NEW YORK, January 14, 2000 -- theglobe.com (Nasdaq: TGLO), the global
community network that specializes in bringing people together around
shared interests, today announced that it has acquired Chips & Bits, Inc.
("CBI") http://www.chipsbits.com, a leading online game retailer and
Strategy Plus, Inc., a publisher of magazines targeted at game enthusiasts.
The all-stock transaction was valued at approximately $16 million.
Additionally, the Company announced that all of its game properties will be
consolidated into one stand-alone division.
"This acquisition allows us to better grow our strategy, service the
members of our game community and position this division as a world leader
in games," said Dean Daniels, Chief Operating Officer, theglobe.com. "The
games community is one of the most loyal and vibrant on the Web today. They
are the early adopters and are the audience that will lead the charge into
the broadband era."
According to The NPD Group, the U.S. video game market derived $7 billion
in revenues in 1999. The acquisition provides theglobe.com with a valuable,
highly targeted offline audience and thriving e-commerce division.
The acquisition of Chips & Bits and Strategy Plus strengthens
theglobe.com's game network, the world's second largest online information
game network*, comprised of leading online game sites HappyPuppy.com,
GamesDomain.com, KidsDomain.com and ConsoleDomain.com. The acquisition
bolsters theglobe.com's existing game strategy by offering compelling core
services: game news and reviews, online demos and downloads and cheats and
tips; over 10,000 products to millions of gamers, and the powerful offline
marketing presence of Computer Games Magazine.
Added Will Margiloff, Director of Sales, theglobe.com, "The combination of
Chips & Bits' large and loyal offline game audience and e-commerce
opportunities provides theglobe.com with a unique `closed-loop marketing'
solution for game advertisers. theglobe.com can now provide a one-stop
media outlet for game companies to market and sell their products via
banner ads, online sponsorships, opt-in programs, print advertising and
magazine inserts, furnishing a powerful marketing solution within the game
market."
OFFLINE GAMING PUBLICATIONS
CBI builds customer loyalty and drives repeat visits to its online
properties via its leading offline gaming publications, notably, Computer
Games Magazine with a qualified paid circulation of 220,000 copies,
according to BPA International. The Company also publishes various other
well-known guides for PC gamers, including Computer Games Buyers Guide,
Computer Games Fall Preview Guide, Computer Games Getting Started Guide,
Computer Games Tips & Cheats and Computer Games Design Guide.
ECOMMERCE
Through its Chips & Bits online store, a leading shopping destination for
PC and console interactive entertainment software, the Company offers over
10,000 products for both retail and wholesale purchase.
PORTAL
CBI's portal, a top interactive entertainment site, is a unique online
destination for gamers, offering a wide variety of content, community and
commerce services, including online shopping, editorial content,
community-building features, and demo downloads, among other features,
focused on interactive entertainment products.
* According to a November 1999 custom report from Media Metrix,
theglobe.com's gaming property is the second largest gaming portal on the
Web with a reach of 2.5%. This ranking is second only to IGN.com (2.6%) and
ahead of ZDnet's GameSpot (2.2%) and CNET's GameCenter (1.5%)
ABOUT THEGLOBE.COM
theglobe.com aggregates users into a global community network around common
themes of interest. The Company offers state-of-the-art website building
tools and a network of email clubs. theglobe.com is one of the world's
largest independent community sites and has been a leader in the industry
for nearly five years. theglobe.com Network is comprised of theglobe.com
community, leading online game sites HappyPuppy.com, GamesDomain.com,
KidsDomain.com and ConsoleDomain.com and business web hosting property
WebJump.com. theglobe.com's distribution partners include Time Warner's
Road Runner, AOL UK, One Main, Alloy, Direct Hit and Chaitime.
Safe Harbor -- this press release contains financial information and
includes forward-looking statements related to theglobe.com, Inc. that
involve risks and uncertainties, including, but not limited to, product
delivery, the management of growth, market acceptance of certain products
and other risks. These forward-looking statements are made in reliance on
the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. For further information about these factors that could affect
theglobe.com's future results, please see the Company's filings with the
Securities and Exchange Commission. Prospective investors are cautioned
that forward-looking statements are not guarantees of performance. Actual
results may differ materially from management expectations. Copies of these
filings are available upon request from theglobe.com's investor relations
department. theglobe.com, theglobe.com (logo), globeclubs, Happy Puppy,
Kids Domain, Games Domain, and WebJump are service marks of theglobe.com,
inc.
