<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
=============================================================
FORM 10-Q/A
AMENDMENT NO. 1 TO THE QUARTERLY REPORT
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended SEPTEMBER 30, 1999.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from _______to _______.
Commission File Number 0-16611
-------
GLOBAL SPORTS, INC.
-------------------
(Exact name of registrant as specified in its charter)
10
DELAWARE 04-2958132
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1075 FIRST AVENUE, KING OF PRUSSIA, PA 19406
-------------------------------------- -----
(Address of principal executive offices) (Zip Code)
610-265-3229
------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 12, 1999:
Common Stock, $.01 par value 18,445,813
---------------------------- ------------------
(Title of each class) (Number of Shares)
<PAGE>
GLOBAL SPORTS, INC.
FORM 10-Q/A
AMENDMENT NO. 1 TO THE QUARTERLY REPORT
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements:
<S> <C> <C>
Condensed Consolidated Balance Sheets
as of September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations
for the three- and nine-month periods ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
for the nine-month periods ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6 - 13
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 14 - 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
</TABLE>
-2-
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
GLOBAL SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
(AS RESTATED - DECEMBER 31,
SEE NOTE 11) 1998
-------------------------------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 39,467,680 $ 83,169
Inventory 4,669,217 --
Prepaid expenses and other current assets 621,442 599,224
Refundable income taxes 2,220,878 --
Net assets of discontinued operations 43,012,442 41,127,839
-------------------------------
Total current assets 89,991,659 41,810,232
Property and equipment, net of accumulated depreciation
and amortization 16,219,279 2,988,714
Other assets 219,511 253,626
-------------------------------
Total assets $106,430,449 $45,052,572
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion - notes payable, bank $ 3,699,207 $ --
Current portion - capital lease obligation, related party 136,524 127,966
Accounts payable and accrued expenses 15,487,521 3,652,024
Income taxes payable -- 1,378,820
Subordinated notes payable, related party -- 1,805,841
-------------------------------
Total current liabilities 19,323,252 6,964,651
Notes payable, bank -- 18,812,156
Capital lease obligation, related party 2,077,906 2,181,265
Mandatorily redeemable preferred stock 100 100
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized; 10,000 shares issued as mandatorily redeemable
preferred stock -- --
Common stock, $0.01 par value, 60,000,000 and 20,000,000 shares
authorized in 1999 and 1998, 19,476,265 and 12,994,464 shares
issued in 1999 and 1998; 18,407,179 and 11,925,378 shares
outstanding in 1999 and 1998 194,766 129,947
Additional paid in capital 101,019,029 17,111,166
Accumulated other comprehensive loss -- (47,431)
Retained earnings (accumulated deficit) (15,970,787) 114,535
-------------------------------
85,243,008 17,308,217
Less: Treasury stock, at cost 213,817 213,817
-------------------------------
Total stockholders' equity 85,029,191 17,094,400
-------------------------------
Total liabilities and stockholders' equity $106,430,449 $45,052,572
===============================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
-3-
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------ ----------------------------------
1999 1998 1999 1998
(AS RESTATED - (AS RESTATED - (AS RESTATED - (AS RESTATED -
SEE NOTE 11) SEE NOTE 11) SEE NOTE 11) SEE NOTE 11)
---------------- ---------------- -------------- ----------------
Costs and expenses:
<S> <C> <C> <C> <C>
General and administrative $ 1,800,699 $ 1,134,169 $ 2,923,252 $ 2,502,532
Stock-based compensation 257,799 -- 2,564,656 --
Product development 5,360,956 -- 7,979,889 --
Interest expense (income), net (302,809) 57,938 (145,966) 176,349
---------------- ---------------- -------------- ----------------
Total costs and expenses 7,116,645 1,192,107 13,321,831 2,678,881
---------------- ---------------- -------------- ----------------
Loss from continuing operations
before income taxes (7,116,645) (1,192,107) (13,321,831) (2,678,881)
Benefit from income taxes -- (316,109) (2,220,878) (910,819)
---------------- ---------------- -------------- ----------------
Loss from continuing operations (7,116,645) (875,998) (11,100,953) (1,768,062)
Discontinued operations (Note 3):
Income from discontinued
operations (less income taxes in
1999: $ -- 1998: $1,156,127
1999: $(582,804) 1998: $2,793,763
for the three- and nine-month
periods, respectively) -- 3,314,628 549,838 6,544,642
Gain (loss) on disposition of
discontinued operations (less income
taxes of $1,390,289 and $830,775
for the three- and nine-month
periods, respectively) 97,951 -- (5,534,207) --
---------------- ---------------- -------------- ----------------
Net income (loss) $(7,018,694) $ 2,438,630 $(16,085,322) $ 4,776,580
================ ================ ============== ================
Earnings (losses) per share--
basic and diluted:
Loss from continuing operations $ (.42) $ (.07) $ (.92) $ (.16)
Income from discontinued
operations -- .27 .05 .59
Gain (loss) on disposition of
discontinued operations -- -- (.46) --
---------------- ---------------- -------------- ----------------
Net income (loss) $ (.42) $ .20 $ (1.33) $ .43
================ ================ ============== ================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
-4-
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------
(AS RESTATED- (AS RESTATED-
SEE NOTE 11) SEE NOTE 11)
1999 1998
--------------- --------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(16,085,322) $ 4,776,580
Deduct:
Income from discontinued operations 549,838 6,544,642
Loss on disposal of discontinued operations (5,534,207) --
--------------- --------------
Net loss from continuing operations (11,100,953) (1,768,062)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 530,533 444,800
Equity compensation 2,630,806 --
Changes in operating assets and liabilities:
Inventory (4,669,217) --
Prepaid expenses and other current assets (22,218) (179,114)
Deferred income taxes (2,220,878) --
Other assets 64,115 256,333
Accounts payable and accrued expenses 11,880,929 1,326,178
Income taxes payable (1,378,820) 1,636,068
--------------- --------------
Net cash provided by (used in) continuing operations (4,285,703) 1,716,203
Net cash used in discontinued operations (6,868,972) (3,971,287)
--------------- --------------
Net cash used in operating activities (11,154,675) (2,255,084)
--------------- --------------
Cash flows from investing activities:
Capital expenditures (13,761,098) (443,922)
--------------- --------------
Cash flows from financing activities:
Net borrowings (repayments) under lines of credit (15,112,949) 3,260,711
Repayments of capital lease obligation (94,801) (86,027)
Repayments of subordinated note payable (1,805,841) (250,000)
Proceeds from SOFTBANK transaction 80,000,050 --
Proceeds from exercise of common stock options and warrants 1,341,826 23,253
Sale of minority interest in subsidiary 1,999 --
Costs of debt issuance (30,000) --
--------------- --------------
Net cash provided by financing activities 64,300,284 2,947,937
--------------- --------------
Effect of exchange rate changes on cash and cash equivalents -- (11,910)
--------------- --------------
Net increase in cash and cash equivalents 39,384,511 237,021
Cash and cash equivalents, beginning of period 83,169 98,881
--------------- --------------
Cash and cash equivalents, end of period $ 39,467,680 $ 335,902
=============== ==============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
-5-
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
Global Sports, Inc. ("Global" or the "Company"), a Delaware corporation, is
an e-Commerce company that is in the process of developing the internet
businesses of several sporting goods retailers through its Global Sports
Interactive subsidiary. On April 20, 1999, the Company formalized a plan to
sell its other two businesses, the Branded division and the Off-Price and Action
Sports division, in order to focus exclusively on its e-Commerce business. See
Note 3.
The accompanying condensed consolidated financial statements of Global have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the instructions for Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements.
The accompanying financial information is unaudited; however, in the opinion
of the Company's management, all adjustments (consisting solely of normal
recurring accruals) necessary for a fair presentation of the operating results
of the periods reported have been included. The results of operations for the
periods reported are not necessarily indicative of those that may be expected
for a full year.
This quarterly report should be read in conjunction with the financial
statements and notes thereto included in the Company's audited financial
statements as of December 31, 1998 as presented in the Company's Annual Report
on Form 10-K/A.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents: The Company considers all highly liquid investments
with maturities at date of purchase of three months or less to be cash
equivalents. At September 30, 1999, the Company had $39,455,852 of excess cash
invested in a money market fund with a major financial institution, which is
included in cash and cash equivalents. Interest income for the three-and
nine-month periods ended September 30, 1999 includes $403,938 related to this
investment.
New Accounting Pronouncements
Derivative Instruments: SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement is effective for fiscal years
beginning after June 15, 2000, although early adoption is encouraged. The
Company has not yet assessed what the impact of this statement will be on the
Company's future earnings or financial position.
Computer Costs: In March 1998, the AICPA Accounting Standards Executive
Committee issued Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use ("SOP 98-1"). This
statement provides guidance on accounting for the costs of computer software
developed or obtained for internal use and identifies the characteristics of
internal-use software. The statement was adopted on January 1, 1999 and did not
have a material effect on the Company's results of operations, cash flows or
financial position.
Start-Up Costs: In April 1998, the AICPA Accounting Standards Executive
Committee issued Statement of Position 98-5, Reporting on the Costs of the
Start-Up Activities, ("SOP 98-5"). The statement requires that costs of start-up
activities, including organization costs, be expensed as incurred. This
statement was adopted on January 1, 1999 and did not have a material effect on
the Company's results of operations, cash flows or financial position.
NOTE 3 - DISCONTINUED OPERATIONS
On April 20, 1999, the Company formalized a plan to sell two of its
businesses, the Branded division and the Off-Price and Action Sports division,
in order to focus exclusively on its e-Commerce business. The Branded division
designs and markets the RYKA and Yukon footwear brands. The Off-Price and
Action Sports division is a third-party distributor and make-to-order marketer
of off-price footwear, apparel and sporting goods. Accordingly, for financial
statement purposes, the assets, liabilities, results of operations and cash
flows of these divisions have been segregated from those of continuing
operations and are presented in the Company's consolidated financial statements
as discontinued operations. The accompanying financial statements have been
-6-
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
reclassified to reflect this presentation. Net interest expense related to the
lines of credit and debt to be assumed by the successor businesses of $933,365
for the nine-month period ended September 30, 1999 has been allocated to the
pre-measurement date loss from discontinued operations. Net interest expense of
$101,129 and $257,972 for the three- and nine-month periods ended September 30,
1999, respectively, has been allocated to the post-measurement date gain (loss)
from the disposition of discontinued operations.
On September 24, 1999, the Company and a management group led by James J.
Salter and Kenneth J. Finkelstein entered into an acquisition agreement for the
sale of all of the issued and outstanding capital stock of the Company's wholly-
owned subsidiaries Gen-X Holdings Inc. and Gen-X Equipment Inc. and the
Company's Off-Price and Action Sports Division. The aggregate purchase price for
the sale is approximately $20,000,000, of which approximately $6,000,000 is to
be paid at closing, approximately $4,000,000 is the assumption of contingent
notes payable, and $10,000,000 is to be paid over a seven and one half year
period pursuant to the terms of two notes to be delivered at closing. In
connection with the sale, the Company has agreed to accelerate the vesting of
options to acquire an aggregate of 281,930 shares of the Company's common stock,
of which options to acquire 80,000 shares are held by each of Messrs Salter and
Finkelstein. The closing of this sale is subject to customary closing
conditions, including approval by the Company's shareholders and expiration or
termination of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. Upon closing, the gain on this
sale, if any, will be deferred and recognized on an installment-sale basis over
the term of the two notes.
The discontinued operations components of amounts reflected in the income
statements and balance sheets are as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $38,411,650 $43,626,641 $92,461,398 $100,095,476
==============================================================
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------------------
BALANCE SHEET DATA:
<S> <C> <C>
Cash $ 231,328 $ 772,916
Accounts receivable 37,763,325 36,782,732
Inventory 15,227,482 20,954,168
Property and equipment 1,304,772 1,397,189
Goodwill and intangibles 16,611,090 16,507,073
Other assets 1,703,543 936,293
Accounts payable and accrued expenses (14,897,144) (16,192,954)
Subordinated notes payable -- (1,999,065)
Notes payable, banks (12,402,733) (14,823,955)
Notes payable, other (2,529,221) (3,206,558)
------------------------------
Net assets of discontinued operations/(1)/ $ 43,012,442 $ 41,127,839
==============================
/(1)/ Included in current assets.
</TABLE>
-7-
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Notes Payable of Discontinued Operations
Included in Notes Payable, Banks of discontinued operations are amounts
outstanding under a line of credit of approximately $20,000,000 for use by the
Gen-X Companies, which is available for either direct borrowing or for import
letters of credit. The loan bears interest at prime plus one half percent and
is secured by a general security agreement covering substantially all of the
Gen-X Companies' assets. At September 30, 1999, draws of $12,100,000 were
committed under this line and, based on a net cash position and available
collateral and outstanding import letters of credit commitments, an additional
$3,200,000 was available for borrowing. For the three- and nine-month periods
ended September 30, 1999, interest expense of discontinued operations included
$148,338 and $556,736, respectively, related to this line of credit.
Notes Payable, Banks also includes a mortgage note secured by land and
building in Ontario, Canada of $302,733, of which $24,878 is classified as
current. The mortgage note bears interest at the bank's cost of funds plus 2.5%
and matures on August 15, 2009. For the three- and nine-month periods ended
September 30, 1999, interest expense of discontinued operations included $2,652
and $16,645, respectively, related to this mortgage.
Notes Payable, Other includes an outstanding loan payable for
$1,300,000, of which $400,000 is classified as current. The original loan of
$2,000,000 is payable in equal quarterly installments of $100,000, which
commenced on March 31, 1998, and bears interest at the prime lending rate. For
the three- and nine-month periods ended September 30, 1999, interest expense of
discontinued operations included $28,518 and $87,967, respectively, related to
this loan.
Notes payable, other also includes $1,000,000 of promissory notes
payable to the former shareholders of Lamar. The notes are payable in five
equal annual installments and bear interest at 6% per annum, the first payment
of which was made in July 1999. At September 30, 1999, $726,500 remains
outstanding related to these notes, of which $270,680 is classified as current.
For the three- and nine-month periods ended September 30, 1999, interest
expense of discontinued operations included $14,020 and $97,558, respectively,
related to these notes. At the time of the acquisition, Lamar also executed a
note payable in the principal amount of $553,447, plus $74,954 in accrued
interest, for amounts owed to a shareholder. This note, which was assumed by
the Company in the acquisition of Lamar, is payable in five equal annual
installments and bears interest at 6% per annum. The amount currently
outstanding on this note is $502,721, of which $111,933 is classified as
current. For the three- and nine-month periods ended September 30, 1999,
interest expense of discontinued operations included $8,426 and $27,278,
respectively, related to this note.
Upon closing the acquisition of the Gen-X Companies, the Company
executed several subordinated notes payable with the former shareholders of the
Gen-X Companies for an aggregate principal amount of $1,999,065 which is
payable in four equal consecutive quarterly payments beginning March 31, 1999 or
earlier. This amount has been repaid in full as of September 30, 1999. These
notes bear interest at 7% until December 31, 1998 and the prime lending rate
thereafter. For the nine-month period ended September 30, 1999, interest
expense of discontinued operations included $68,257 related to these notes.
Employment Agreements of Discontinued Operations
The Company has employment agreements with several of its officers of
discontinued operations for an aggregate annual base salary of $925,000 plus
bonuses and increases in accordance with the terms of the agreements. Terms of
the agreements range from three to five years and are subject to automatic
annual extensions.
Purchase Commitments of Discontinued Operations
As of September 30, 1999, outstanding purchase commitments of
discontinued operations existed totaling $8,775,760, for which commercial import
letters of credit have been issued.
NOTE 4 - SOFTBANK TRANSACTION
On June 10, 1999, the Company and SOFTBANK America Inc. ("SOFTBANK") entered
into a stock purchase agreement and related agreements for the sale of 6,153,850
shares of the Company's common stock to SOFTBANK at a price of $13.00 per share
(the closing price on May 26, 1999, the day prior to the day the Company and
SOFTBANK agreed in principle to the transaction) for an aggregate purchase price
of $80,000,050. In order to provide capital to the Company until closing, which
occurred on July 23, 1999, the Company and SOFTBANK entered into an interim
subordinated loan agreement on June 10, 1999
-8-
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
pursuant to which SOFTBANK loaned the Company $15,000,000. The note bore
interest at 4.98% per annum. At the July 23, 1999 closing, this loan amount was
converted into shares of the Company's common stock. Accrued and unpaid interest
as of July 23, 1999 of $89,225 was offset against the cash proceeds of the sale
at closing. For the three- and nine-month periods ended September 30, 1999,
interest expense included $45,650 and $89,225, respectively, related to this
interim loan.
NOTE 5 - DEBT
Notes Payable, Bank
Under its primary loan agreement, as subsequently amended (the "Loan
Agreement"), the Company has access to a combined credit facility of
$40,000,000, which is comprised of KPR Sports International, Inc.'s ("KPR")
credit facility of $35,000,000 and RYKA Inc.'s credit facility of $5,000,000.
The term of the Loan Agreement is five years expiring on November 19, 2002. The
KPR and RYKA facilities have an interest rate choice of prime plus 1/4% or LIBOR
(Adjusted Eurodollar Rate) plus two hundred seventy-five basis points. Under
the Loan Agreement, both KPR and RYKA may borrow up to the amount of their
revolving line based upon 85% of their eligible accounts receivable and 65% of
their eligible inventory, as those terms are defined in the Loan Agreement. The
Loan Agreement also includes 50% of outstanding import letters of credit as
collateral for borrowing.
Among other things, the Loan Agreement, as amended, requires KPR and RYKA
to achieve annual earnings before interest, taxes, depreciation and amortization
("EBITDA") of $5,000,000 and it limits the Company's ability to incur additional
indebtedness, make payments on subordinated indebtedness, make capital
expenditures, sell assets, and pay dividends. At September 30, 1999, the
Company was not in compliance with the EBITDA covenant. The Company obtained a
waiver from the bank with respect to this covenant. Because there can be no
assurance that the Company will be in compliance with this covenant for any
period subsequent to September 30, 1999, the Company has classified the amounts
outstanding under this line as a current liability. The Company is currently in
negotiations with its lender to modify the terms of the Loan Agreement to return
itself to compliance and more closely reflect its new e-commerce business
structure.
At September 30, 1999, the aggregate amount outstanding under this line
was $3,699,207. At September 30, 1999, based on available collateral and
outstanding import letters of credit commitments, an additional $1,671,828 was
available on this line for borrowing. For the three- and nine-month periods
ended September 30, 1999, interest expense included $124,583 and $958,841,
respectively, related to this line of credit.
Subordinated Notes Payable
Prior to July 27, 1999, the Company had $1,805,841 in outstanding
subordinated notes payable held by its Chairman and Chief Executive Officer.
This debt consisted primarily of a note representing undistributed Subchapter S
corporation retained earnings previously taxed to him as the sole shareholder of
KPR Sports International, Inc., Apex Sports International, Inc. and MR
Management, Inc. (collectively the "KPR Companies") prior to the Company's
reorganization in December 1997. Interest accrues on such notes at the Company's
choice of prime plus 1/4% or LIBOR (Adjusted Eurodollar Rate) plus two hundred
seventy-five basis points.
Based on its Loan Agreement, the Company is permitted to make continued
regular payments of interest on the subordinated debt and to further reduce
principal on a quarterly basis, commencing subsequent to the first quarter of
1998, in an amount up to 50% of the cumulative consolidated net income of the
Company. During 1998, aggregate principal payments of $250,000 were made. On
July 27, 1999, the principal balance of $1,805,841 plus interest accrued to date
of $58,987 was repaid in full to the Chairman and Chief Executive Officer, for
which a waiver was obtained from the Company's primary lender. For the three-
and nine-month periods ended September 30, 1999, interest expense included
$11,020 and $82,661, respectively, related to these notes.
NOTE 6 - EARNINGS (LOSSES) PER SHARE
Earnings (losses) per share for all periods have been computed in
accordance with SFAS No. 128, Earnings Per Share. Basic earnings (losses) per
share is computed by dividing net income by the weighted average number of
shares of common stock outstanding during the year. Diluted earnings (losses)
per share is computed by dividing the net income by the weighted average
-9-
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Outstanding common stock options and warrants have been excluded from the
calculation of diluted earnings (losses) per share because their effect would be
antidilutive.
The amounts used in calculating earnings (losses) per share data are as
follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loss from continuing operations $(7,116,645) $ (875,998) $(11,100,953) $(1,768,062)
Income from discontinued operations -- 3,314,628 526,581 6,544,642
Gain (loss) on disposition of
discontinued operations 97,951 -- (5,534,207) --
--------------------------------------------------------------------
Net income (loss) $(7,018,694) $ 2,438,630 $(16,085,322) $ 4,776,580
====================================================================
Weighted average shares
outstanding - basic and diluted 16,824,139 11,922,515 12,118,980 11,194,549
====================================================================
Weighted average common stock
options and warrants outstanding
having no dilutive effect 2,183,588 595,504 1,625,188 540,164
====================================================================
</TABLE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company has employment agreements with several of its officers for an
aggregate annual base salary of $1,187,500 plus bonuses and increases in
accordance with the terms of the agreements. Terms of the agreements range from
three to five years and are subject to automatic annual extensions.
E-Commerce
As of September 30, 1999, the Company had contractually committed to
developing the internet businesses of several sporting goods retailers. The
Company's failure to meet these commitments could result in a forfeiture of the
contracts and the exclusive rights to certain future internet business and could
have a material adverse affect on the future results of operations and financial
condition of the Company.
Yahoo! Advertising and Promotion Agreement
On October 4, 1999, the Company announced the execution of an advertising and
promotion agreement with Yahoo! Inc., a global Internet media company (the
"Yahoo! Agreement"). Under the Yahoo! Agreement, the web-sites operated by the
Company will be featured in certain sections of Yahoo!'s network of Internet
properties and will allow Yahoo! users to easily access these web-sites. The
Yahoo! Agreement requires the Company to pay various fees, which are substantial
in the aggregate, to Yahoo! over the twelve-month period following execution of
the Agreement. These fees are payable at various intervals and certain are
contingent upon certain performance criteria of Yahoo!.
-10-
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the three- and nine-month periods ended
September 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $(7,018,694) $2,438,630 $(16,085,322) $4,776,580
Foreign currency translation adjustment -- (13,626) 47,431 (11,910)
--------------------------------------------------------------------
Comprehensive income (loss) $(7,018,694) $2,425,004 $(16,037,891) $4,764,670
====================================================================
</TABLE>
NOTE 9 - BUSINESS SEGMENTS
As a result of the discontinued operations described in Note 3 to the
financial statements, the Company considers itself to have one operating segment
which is the development of the internet businesses of several sporting goods
retailers.
NOTE 10 - EQUITY TRANSACTIONS
The Company granted options and warrants to purchase 447,300 and 1,152,782
shares of the Company's common stock to employees and consultants of the Company
during the three- and nine-month periods ended September 30, 1999, respectively.
The Company also issued warrants to purchase 293,320 shares of the Company's
common stock during June 1999 to several retailers in connection with the
Company's developing e-Commerce business. The range of exercise prices for all
options and warrants granted was from $15.00 to $24.69 for the three-month
period ended September 30, 1999 and $0.01 to $24.69 for the nine-month period
ended September 30, 1999. Upon granting these options and warrants, the Company
recorded stock-based compensation expense of $275,592 and $2,671,856 for the
three- and nine-month periods ended September 30, 1999, respectively, primarily
as a result of non-employee grants. For the three- and nine-month periods ended
September 30,1999, $17,793 and $107,200, respectively, of this stock-based
compensation expense was included in the net loss from discontinued operations.
Options and warrants to purchase 73,804 and 331,037 shares of the Company's
common stock were exercised during the three- and nine-month periods ended
September 30, 1999, respectively. The range of exercise prices was from $3.20
to $13.00 for the three-month period ended September 30, 1999 and $0.01 to
$13.20 for the nine-month period ended September 30, 1999. These exercises
resulted in cash proceeds to the Company of $93,343 and $1,341,826 for the
three- and nine-month periods ended September 30, 1999, respectively.
On June 10, 1999, the Company and SOFTBANK America Inc. ("SOFTBANK") entered
into a stock purchase agreement and related agreements for the sale of 6,153,850
shares of the Company's common stock to SOFTBANK at a price of $13.00 per share
for an aggregate purchase price of $80,000,050. See Note 4.
On July 13, 1999, the shareholders approved an amendment to the Company's
Certificate of Incorporation that increased the maximum number of authorized
shares of common stock by 40,000,000 to 60,000,000.
NOTE 11 - RESTATEMENTS
Subsequent to the issuance of the Company's consolidated financial
statements for the three- and nine-month periods ended September 30, 1999, the
Company's management determined that the discount applied to the fair value of
the Company's common stock issued as consideration for the Gen-X Companies in
May 1998 should be decreased from 35% to 10%. As a result, the consolidated
financial statements for the three- and nine-month periods ended September 30,
1998 were restated to reflect an additional $2,486,625 of consideration paid for
the Gen-X Companies and additional amortization of goodwill of $46,624 for the
period from May 12, 1998 through September 30, 1998 (the "1998 Restatement"). As
a result of the 1998 Restatement, the consolidated financial statements for the
three- and nine-month periods ended September 30, 1999 have been restated from
amounts previously reported to reflect the cumulative effect of the 1998
Restatement through December 31, 1998 and additional amortization of goodwill of
$-- and $36,263 for the three- and nine-month periods ended September 30, 1999,
respectively. The effect of these restatements on management's assessment of the
anticipated gain or loss on the ultimate disposition of the Off-Price and Action
Sports Division result in the accrual of an additional loss on disposition of
discontinued operations of $2,372,655 and a corresponding decrease in net assets
of discontinued operations.
-11-
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Additionally, the Company's management determined that the number of
warrants issuable to retailers in June 1999 should be reduced, additional
warrants were issuable to a consultant of the Company, the discount applied in
the valuation of certain stock-based awards to non-employees should be decreased
from 25% to 10% and that certain equity compensation charges previously recorded
should be deferred over the future service term of the award. See Note 9 --
Equity Transactions. The net effect of these restatements result in a net
decrease to stock-based compensation expense of continuing operations of
$813,821 and $160,830 for the three- and nine-month periods ended September 30,
1999.
A summary of the significant effects of these restatements is as follows:
<TABLE>
<CAPTION>
AS PREVIOUSLY
REPORTED AS RESTATED
-------------------------------
AT SEPTEMBER 30, 1999:
- ----------------------
<S> <C> <C>
Additional paid in capital $ 98,693,234 $101,019,029
Retained earnings (13,644,992) (15,970,787)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999:
- -------------------------------------------------------
Stock-based compensation $ 1,071,620 $ 257,799
Income on disposition of discontinued operations 97,951 97,951
Net loss (7,832,515) (7,018,694)
Earnings (losses) per share - basic and diluted:
Loss from continuing operations $ (.47) $ (.42)
Loss on disposition of discontinued operations .01 --
-------------------------------
Net loss $ (.46) $ (.42)
===============================
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999:
- -------------------------------------------------------
Stock-based compensation $ 2,725,486 $ 2,564,656
Income from discontinued operations 586,101 549,838
Loss on disposition of discontinued operations (3,161,552) (5,534,207)
Net loss (13,837,234) (16,085,322)
Earnings (losses) per share - basic and diluted:
Loss from continuing operations $ (.93) $ (.92)
Income from discontinued operations .05 .05
Loss on disposition of discontinued operations (.26) (.46)
-------------------------------
Net loss $ (1.14) $ (1.33)
===============================
</TABLE>
-12-
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998: AS PREVIOUSLY AS RESTATED
- ------------------------------------------------------- REPORTED
-----------------------------
<S> <C> <C>
Income from discontinued operations $3,345,711 $3,314,628
Net income 2,469,713 2,438,630
Earnings (losses) per share - basic and diluted:
Loss from continuing operations $ (.07) $ (.07)
Income from discontinued operations .28 .27
-----------------------------
Net income $ .21 $ .20
=============================
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998:
- -------------------------------------------------------
<S> <C> <C>
Income from discontinued operations $6,591,266 $6,544,642
Net income 4,823,204 4,776,580
Earnings (losses) per share - basic and diluted:
Loss from continuing operations $ (.16) $ (.16)
Income from discontinued operations .59 .59
---------------------------
Net income $ .43 $ .43
===========================
</TABLE>
-13-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
FORWARD LOOKING STATEMENTS
Certain information contained in this quarterly report on Form 10-Q/A
contains forward looking statements (as such term is defined in the Securities
Exchange Act of 1934, as amended, and the regulations promulgated thereunder),
including without limitation, statements as to the Company's financial
condition, results of operations and liquidity and capital resources and
statements as to management's beliefs, expectations or options. Such forward
looking statements are subject to risks and uncertainties and may be affected by
various factors which may cause actual results to differ materially from those
in the forward looking statements. Certain of these risks, uncertainties and
other factors, as and when applicable, are discussed in the Company's filings
with the Securities and Exchange Commission, including its most recent Form
10-K/A, a copy of which may be obtained from the Company upon request and
without charge (except for the exhibits thereto).
STRATEGIC BUSINESS DEVELOPMENTS
This discussion summarizes the significant factors that affected Global's
consolidated operating results and financial condition during the nine months
ended September 30, 1999. Over this period, the Company has undergone a
significant transformation.
Acquisition of the Gen-X Companies
Effective May 12, 1998, the Company acquired all of the outstanding and
issued common stock of the Gen-X Companies in a purchase transaction. The
Company's reported results of operations for 1998 include those of the Gen-X
Companies only from the date of acquisition through the end of the year.
Discontinued Operations
On April 20, 1999, the Company formalized a plan to sell two of its
businesses, the Branded division and the Off-Price and Action Sports division,
in order to focus exclusively on the development of new businesses. The Branded
division designs and markets the RYKA and Yukon footwear brands. The Off-Price
and Action Sports division is a third-party distributor and make-to-order
marketer of off-price footwear, apparel and sporting goods. Accordingly, for
financial statement purposes, the assets, liabilities, results of operations and
cash flows of these divisions have been segregated from those of continuing
operations and are presented in the Company's consolidated financial statements
as discontinued operations. The accompanying financial statements have been
reclassified to reflect this presentation.
Global Sports Interactive
On May 10, 1999, the Company announced the formation of a new subsidiary,
Global Sports Interactive. Global Sports Interactive is an e-Commerce company
that has entered into exclusive agreements to operate the internet businesses of
multiple sporting goods retailers. The Company's failure to meet these
commitments could result in a forfeiture of the contracts and the exclusive
rights to certain future internet business and have a material adverse affect on
the future results of operations and financial condition of the Company.
Due to the fact that the Company had not, as of September 30, 1999, launched
its initial five e-tailing web sites, results from continuing operations for the
three- and nine-month periods ended September 30, 1999 consist only of the
operating expenses incurred during the period related to the e-commerce
business.
Restatements
Subsequent to the issuance of the Company's consolidated financial
statements for the three- and nine-month periods ended September 30, 1999, the
Company's management determined that the discount applied to the fair value of
the Company's common stock issued as consideration for the Gen-X Companies in
May 1998 should be decreased from 35% to 10%. As a result, the consolidated
financial statements for the three- and nine-month periods ended September 30,
1998 were restated to reflect an additional $2,486,625 of consideration paid for
the Gen-X Companies and additional amortization of goodwill of $46,624 for the
period from May 12, 1998 through September 30, 1998 (the "1998 Restatement"). As
a result of the 1998 Restatement, the consolidated financial statements for the
three- and nine-month periods ended September 30, 1999 have been restated from
amounts previously reported to reflect the cumulative effect of the 1998
Restatement through December 31, 1998 and additional amortization of goodwill of
$-- and $36,263 for the three- and nine-month periods ended September 30, 1999,
respectively. The effect of these restatements on management's assessment of the
anticipated gain or loss on the ultimate disposition of the Off-Price and Action
Sports Division result in the accrual of an additional loss on disposition of
discontinued operations of $2,372,655 and a corresponding decrease in net assets
of discontinued operations.
<PAGE>
Additionally, the Company's management determined that the number of
warrants issuable to retailers in June 1999 should be reduced, additional
warrants were issuable to a consultant of the Company, the discount applied in
the valuation of certain stock-based awards to non-employees should be decreased
from 25% to 10% and that certain equity compensation charges previously recorded
should be deferred over the future service term of the award. See Note 9 --
Equity Transactions. The net effect of these restatements result in a net
decrease to stock-based compensation expense of continuing operations of
$813,821 and $160,830 for the three- and nine-month periods ended September 30,
1999. See Note 11 to the financial statements.
-14-
<PAGE>
RESULTS OF CONTINUING OPERATIONS
The Three- and Nine-Month Periods Ended September 30, 1999 Compared to The
Three- and Nine-Month Periods Ended September 30, 1998
The following table sets forth, for the periods indicated, the results of
continuing operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------------------------------
1999 1998 1999 1998
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Costs and expenses:
General and administrative $ 1,800,699 $ 1,134,169 $ 2,923,252 $ 2,502,532
Equity compensation 257,799 -- 2,564,656 --
Web-site development 5,360,956 -- 7,979,889 --
Interest expense (income), net (302,809) 57,938 (145,966) 176,349
---------------------------------------------------------------
Total costs and expenses 7,116,645 1,192,107 13,321,831 2,678,881
---------------------------------------------------------------
Loss from continuing operations (7,116,645) (1,192,107) (13,321,831) (2,678,881)
before income taxes
Benefit from income taxes -- (316,109) (2,220,878) (910,819)
---------------------------------------------------------------
Loss from continuing operations (7,116,645) (875,998) (11,100,953) (1,768,062)
Income from discontinued operations -- 3,314,628 549,838 6,544,642
Gain (loss) on disposition of
discontinued operations 97,951 -- (5,534,207) --
---------------------------------------------------------------
Net income (loss) $(7,018,694) $ 2,438,630 $(16,085,322) $ 4,776,580
===============================================================
</TABLE>
Costs and Expenses
Costs and expenses of continuing operations for the three- and nine-
month periods ended September 30, 1999 were $7,116,645 and $13,321,831,
respectively. Operating expenses from continuing operations consisted of
expenditures associated with the production of the Company's initial five e-
Commerce web-sites and general and administrative expenses related to the day-
to-day development and operating activities of the Company. Costs and expenses
of continuing operations also includes charges for equity compensation of
$257,799 and $2,564,656 for the three- and nine-month periods ended September
30, 1999, respectively, primarily as a result of non-employee stock option
grants.
FINANCIAL CONDITION
Cash Flows
Historically, the operations of the Company have been financed by a
combination of internally generated resources, equity transactions, subordinated
borrowings, annual increases in the size of its bank credit facility and
seasonal over-advances. Increases in the bank credit facilities were required to
fund the Company's increased investment in accounts receivable and inventory
necessary to support the increases in revenue.
On June 10, 1999, the Company and SOFTBANK America Inc. ("SOFTBANK") entered
into a stock purchase agreement and related agreements for the sale of 6,153,850
shares of the Company's common stock to SOFTBANK at a price of $13.00 per share
(the closing price on May 26, 1999, the day prior to the day the Company and
SOFTBANK agreed in principle to the transaction) for an aggregate purchase price
of $80,000,050. In order to provide capital to the Company until closing, which
occurred on July 23, 1999, the Company and SOFTBANK entered into an interim
convertible subordinated loan agreement on June 10, 1999 pursuant to which
SOFTBANK loaned the Company $15,000,000. This loan amount was converted into
shares of the Company's common stock at closing. On July 23, 1999, the Company
received the remaining $65,000,050. The Company intends to use the proceeds to
repay the balance on one of its lines of credit, to reduce trade payables and to
provide working capital for the new e-Commerce business.
As of September 30, 1999, the Company had net working capital of $70,668,407,
which includes $43,012,442 of net assets of discontinued operations. The Company
used $11,154,675 in cash flows from operating activities of continuing
operations for the nine months ended September 30, 1999, whereas in the same
period of the prior year the Company used $2,255,084 in cash flows from
operating activities of continuing operations.
-15-
<PAGE>
Liquidity
On June 10, 1999, the Company and SOFTBANK entered into a stock purchase
agreement and related agreements for the sale of 6,153,850 shares of the
Company's common stock to SOFTBANK at a price of $13.00 per share for an
aggregate purchase price of $80,000,050. In order to provide capital to the
Company until closing, which occurred on July 23, 1999, the Company and SOFTBANK
entered into an interim loan agreement on June 10, 1999 pursuant to which
SOFTBANK loaned the Company $15,000,000. This loan amount was converted into
shares of the Company's common stock at closing.
On April 20, 1999, the Company formalized a plan to sell two of its
businesses, the Branded division and the Off-Price and Action Sports division,
in order to focus exclusively on its e-Commerce business. Management expects
that these sales will result in substantial proceeds to the Company.
Under its current loan agreement, as subsequently amended (the "Loan
Agreement"), the Company has access to a combined credit facility of
$40,000,000. The term of the Loan Agreement is five years. The loans have an
interest rate choice of prime plus 1/4% or LIBOR (Adjusted Eurodollar Rate)
plus two hundred seventy-five basis points. Under this credit facility, both
KPR Sports International, Inc. ("KPR") and RYKA may borrow up to the amount of
their revolving line based upon 85% of their eligible accounts receivable and
65% of their eligible inventory, as those terms are defined in the Loan
Agreement. The Loan Agreement also includes 50% of outstanding import letters
of credit as collateral for borrowing.
Among other things, the Loan Agreement, as amended, requires KPR and RYKA to
achieve annual earnings before interest, taxes, depreciation and amortization
("EBITDA") of $5,000,000 and it limits the Company's ability to incur additional
indebtedness, make payments on subordinated indebtedness, make capital
expenditures, sell assets, and pay dividends. At September 30, 1999, the
Company was not in compliance with the EBITDA covenant. The Company obtained a
waiver from the bank with respect to this covenant. Because there can be no
assurance that the Company will be in compliance with this covenant for any
period subsequent to September 30, 1999, the Company has classified the amounts
outstanding under this line as a current liability. The Company is currently in
negotiations with its lender to modify the terms of the Loan Agreement to return
itself to compliance.
At September 30, 1999, the aggregate amount outstanding under this line was
$3,699,207. At September 30, 1999, based on available collateral and
outstanding import letters of credit commitments, an additional $1,671,828 was
available on this line for borrowing.
As of the closing of the Loan Agreement, KPR Sports International, Inc., Apex
Sports International, Inc. and MR Management, Inc. (collectively the "KPR
Companies") owed Michael Rubin, its Chairman and CEO, subordinated debt of
$3,055,841 which is comprised of (i) a loan from Mr. Rubin to the KPR Companies
in the principal amount of $851,440, plus accrued and unpaid interest on such
loan of $180,517 through October 31, 1997 and (ii) a note in the principal
amount of $2,204,401 representing undistributed Subchapter S corporation
retained earnings previously taxed to him as the sole shareholder of the KPR
Companies. No interest accrued on the note representing Subchapter S
corporation earnings until December 15, 1997 at which time the interest began
to accrue on such note at a choice of prime plus 1/4% or LIBOR (Adjusted
Eurodollar Rate) plus two hundred seventy-five basis points. The Loan Agreement
and the related Subordination Agreement allowed the Company to repay Mr. Rubin
$1,000,000 of the subordinated debt principal and the accrued interest of
$180,517 at the time of the closing of the Loan Agreement or within five days
thereafter, subject to there being $2,000,000 of availability under the KPR
Companies' credit line after taking into account such payments. Such payments
were made to Mr. Rubin on November 26, 1997. In addition, the Loan Agreement
and the Subordination Agreement permit the KPR Companies to make continued
regular payments of interest on the subordinated debt and to further reduce
principal on a quarterly basis, commencing with the first quarter of 1998, in an
amount up to 50% of the cumulative consolidated net income of both borrowers,
reduced by net losses of the borrowers during such period. During 1998,
aggregate principal payments of $250,000 were made. On July 27, 1999, the
principal balance of $1,805,841 plus interest accrued to date of $58,987 was
repaid in full to Mr. Rubin.
The Company has made certain commitments with respect to developing the
internet businesses of several sporting goods retailers and the execution of a
substantial advertising and promotion agreement with Yahoo! Inc. Management
expects that the proceeds from the SOFTBANK transactions and the sale of the
Branded division and the Off-Price and Action Sports division will result in
adequate financing to allow the Company to continue the development of its e-
Commerce business and meet its obligations as they mature during the foreseeable
future.
-16-
<PAGE>
YEAR 2000
The Company recognizes the importance of advanced computerization in
maintaining and improving its level of service, internal and external
communication and overall competitive position. The Company maintains a
management information system that provides, among other things, comprehensive
customer order processing, inventory, production, accounting and management
information for the marketing, selling, manufacturing and distribution functions
of the Company's business. The Company has created a Year 2000 project team
which is coordinating efforts to evaluate, identify, correct or reprogram, and
test the Company's existing systems Year 2000 compliance. The Company enhanced
its key information systems to improve their functionality and increase
performance during the first quarter of 1999. These upgrades also made these
applications Year 2000 compliant. The final step of the Company's Year 2000 plan
is to update its office networking system software which it expects to finish
shortly after the end of the third quarter of 1999. The Company does not expect
the costs of this step to have a material impact on the Company's results of
operations, financial position, liquidity or capital resources. The Company is
in the process of developing a contingency plan in the event that the above
modifications do not result in Year 2000 compliance. In addition to making its
own systems Year 2000 compliant, the Company is in the process of contacting its
key suppliers and customers to determine the extent to which the systems of such
suppliers and customers are Year 2000 compliant and the extent to which the
Company could be affected by the failure of such third parties to become Year
2000 compliant. The Company cannot presently estimate the impact of the failure
of such third parties to become Year 2000 Compliant. See "Risk Factors - Risks
Relating to Year 2000 Compliance" in the Company's most recent Form 10-K/A.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in market risk for the nine months
ended September 30, 1999. See the information set forth in Item 7A of the
Company's Annual Report on Form 10-K/A for the year ended December 31, 1998.
-17-
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Effective July 23, 1999, the Company issued 6,153,850 shares of common
stock (par value $.01 per share) to SOFTBANK America Inc. ("SOFTBANK")
for an aggregate purchase price of $80,000,050. The issuance of the
common stock was exempt from registration pursuant to section 4(2) of
the Securities Act. The Company granted SOFTBANK certain "demand" and
"piggy-back" registration rights with respect to these shares. The
Company intends to use the proceeds to repay the balance on one of its
lines of credit, to reduce trade payables and to provide working
capital for its new e-Commerce business.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(i) Michael G. Rubin, Kenneth J. Adelberg, Harvey Lamm and Jeffrey F.
Rayport were elected to serve on the Board of Directors of the
Company for one-year terms and until their respective successors
are duly elected and qualified. Michael G. Rubin and Kenneth J.
Adelberg received 8,040,459 votes for their election with 311
votes withheld. Harvey Lamm and Jeffrey F. Rayport received
8,040,449 votes for their election with 321 votes withheld.
(ii) An amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock by
40,000,000 shares from 20,000,000 shares to 60,000,000 shares was
approved by a vote of 8,038,886 for the amendment and 1,550 votes
against the amendment (with 334 broker non-votes and abstentions).
(iii) An amendment to the Company's 1996 Equity Incentive Plan (the
"Plan") to increase the number of shares of Common Stock issuable
pursuant to the Plan from 1,000,000 shares to 3,000,000 was
approved by a vote of 8,038,017 for the amendment and 2,466 votes
against the amendment (with 287 broker non-votes and abstentions).
(iv) The issuance of approximately 30% of the Company's issued and
outstanding shares of Common Stock to SOFTBANK America Inc., a
Delaware corporation ("SOFTBANK"), in a private placement was
approved by a vote of 8,039,091 for the issuance and 657 votes
against the issuance (with 1,022 broker non-votes and
abstentions).
ITEM 5. OTHER INFORMATION
Not Applicable.
-18-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1*/(1)/ Employment Agreement dated August 9, 1999 by and
between the Registrant and Arthur Miller.
10.2+/(1)/ Omnibus Services Agreement dated April 1, 1999 by
and between the Registrant and Organic, Inc.
10.3+/(1)/ Amendment No. 1 to the Omnibus Services Agreement
dated April 1, 1999 by and between the Registrant
and Organic, Inc.
10.4 /(1)/ Independent Contractor Services Agreement dated
June 29, 1999 by and between the Registrant and
Foundry, Inc.
10.5 /(1)/ Addendum No. 1 to the Independent Contractor
Services Agreement dated June 29, 1999 by and
between the Registrant and Foundry, Inc.
10.6 /(1)/ Agreement of Sale dated July 27, 1999 by and
between the Registrant and IL First Avenue
Associates L.P. for acquisition of property at
1075 First Avenue, King of Prussia, PA.
10.7+/(1)/ Advertising and Promotion Agreement dated October
3, 1999 by and between the Registrant and Yahoo!
Inc.
10.8 /(1)/ Transaction Management Services Agreement dated
June 10, 1999 by and between the Registrant and
Priority Fulfillment Services, Inc.
10.9 Acquisition Agreement, dated September 24, 1999,
as amended, among Global, Gen-X Acquisition
(U.S.), Inc., Gen-X Acquisition (Canada) Inc.,
DMJ Financial, Inc., James J. Salter and Kenneth
J. Finkelstein
27.1 Financial data schedule for the nine-month period
ended September 30, 1999 (electronic filing only).
* Management contract or compensatory plan or arrangement.
+ Confidential treatment has been requested as to certain
portions of this exhibit. The omitted portions have been
separately filed with the Securities and Exchange
Commission.
/(1)/ Previously filed.
(b) REPORTS ON FORM 8-K
None.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, hereunto duly authorized.
GLOBAL SPORTS, INC.
DATE: March 21, 2000 BY: /s/ Michael G. Rubin
________________________________
Michael G. Rubin
Chairman of the Board &
Chief Executive Officer
DATE: March 21, 2000 BY: /s/ Jordan M. Copland
________________________________
Jordan M. Copland
Executive Vice President &
Chief Financial Officer
-20-
<PAGE>
ACQUISITION AGREEMENT
Parties: GLOBAL SPORTS, INC.,
a Delaware corporation ("Global")
1075 First Avenue
King of Prussia, PA 19406
GEN-X ACQUISITION (U.S.), INC.,
a Washington corporation ("U.S. Co.")
701 5th Avenue
Suite 3300
Seattle, Washington
98104-7082
GEN-X ACQUISITION (CANADA) INC.,
an Ontario corporation ("Canadian Co.")
25 Vanley Crescent
North York, Ontario
M3J 2B7
DMJ FINANCIAL, INC.,
a Barbados limited company ("DMJ")
Royal Bank of Canada (Caribbean) Corporation
2nd Floor, Building #2
Chelston Park, Collymore
St. Michael, Barbados
JAMES J. SALTER,
an individual ("Salter")
277 Glencairn Avenue
Toronto, Ontario M5N1T8
KENNETH J. FINKELSTEIN,
an individual ("Finkelstein")
25 Brandy Court
Toronto, Ontario M3B3L3
Date: September 24, 1999, as amended March 13, 2000
Background: Global owns beneficially and of record all of the issued and
outstanding shares of capital stock of Gen-X Equipment Inc., an Ontario
corporation ("Gen-X Equipment") and Gen-X Holdings Inc., a Washington
corporation ("Gen-X Holdings"). Gen-X Holdings is a Washington corporation
also in the business of distributing excess inventories of sports equipment
and accessories. Gen-X Equipment and Gen-X Holdings (along with each of their
direct or indirect Subsidiaries (as defined herein)) are collectively referred
to herein as the "Gen-X Companies". Salter and Finkelstein own beneficially
and of record all of the issued and outstanding shares of capital stock of
DMJ. DMJ and the individuals set forth on Schedule A own beneficially and of
record all of the issued and outstanding shares of capital stock of U.S. Co.
U.S. Co. owns beneficially and of record all of the issued and outstanding
shares of Canadian Co. (U.S. Co. and Canadian Co. shall be referred to
individually as "Buyer" and collectively as "Buyers"). The parties desire that
Global sell and Buyers purchase all of the issued and outstanding shares of
capital stock of the Gen-X Holdings and Gen-X Equipment, all on and subject to
the terms and conditions of this Agreement.
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INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual agreements
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. DEFINED TERMS
Certain defined terms used in this Agreement and not specifically defined in
context are defined in this Section 1, as follows:
1.1. "Acquisition Agreements" means this Agreement and the Ancillary
Agreements (as defined in Section 1.3).
1.2. "Affiliate" means any Person (as defined in Section 1.17) which
controls, is controlled by or is under common control with, the designated
party, either directly or indirectly through one or more intermediaries.
1.3. "Ancillary Agreements" means: (a) the Purchase Price Escrow Agreement,
(b) the Termination Agreements, (c) the Right of First Offer Agreement, (d)
the Non-Competition Agreement, (e) the Termination of Non-Competition
Agreement, (f) the Assignment and Assumption Agreement and (g) the Escrow
Agreement, each as hereinafter defined.
1.4. "Asset" means any real, personal, mixed, tangible or intangible
property of any nature.
1.5. "Consent" means any consent, approval, order or authorization of, or
any declaration, filing or registration with, or any application or report to,
or any waiver by, or any other action (whether similar or dissimilar to any of
the foregoing) of, by or with, any Person, which is legally necessary in order
to take a specified action or actions in a specified manner and/or to achieve
a specified result.
1.6. "Contract" means any written or oral contract, agreement, instrument,
order, arrangement, commitment or understanding of a legally binding nature,
including, but not limited to, sales orders, purchase orders, leases,
subleases, data processing agreements, maintenance agreements, license
agreements, sublicense agreements, loan agreements, promissory notes, security
agreements, pledge agreements, deeds, mortgages, guaranties, indemnities,
warranties, employment agreements, consulting agreements, sales representative
agreements, joint venture agreements, buy-sell agreements, options or
warrants.
1.7. "Encumbrance" means any lien, security interest, pledge, mortgage,
easement, covenant, restriction, reservation, conditional sale, prior
assignment, or other encumbrance, claim, burden or charge of any nature.
1.8. "GAAP" means, in respect of a United States entity, generally accepted
accounting principles under United States accounting rules and regulations, as
in effect from time to time, consistently applied and, in respect of a
Canadian entity, accounting principles generally accepted in Canada, including
those set out in the Handbook of the Canadian Institute of Chartered
Accountants, at the relevant time, applied on a consistent basis.
1.9. "Gen-X Material Adverse Effect" means a material adverse effect on the
business, results of operations or financial condition of the Gen-X Companies
taken as a whole; provided, however, that the term "Gen-X Material Adverse
Effect" shall not include any effect attributable to changes in the economy
(of the United States or any other country) generally, changes in the
industries in which the Gen-X Companies operate, or seasonality of the
businesses of the Gen-X Companies.
1.10. "Global Management" means the officers and directors of Global other
than Salter, Finkelstein or any employee reporting to Salter or Finkelstein.
1.11. "Inventory" means, with respect to a Person, all inventory,
merchandise, goods, packaging, supplies, boxes and other personal property
held for sale or rental in the business conducted by the Person and its
Subsidiaries, wherever such property is located, and any prepaid deposits for
any of the same.
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1.12. "Judgment" means any order, writ, injunction, citation, award, decree
or other judgment of any nature of any foreign, federal, state, provincial or
local court, governmental body, administrative agency, regulatory authority or
arbitration tribunal.
1.13. "Law" means any provision of any foreign, federal, state, provincial
or local law, statute, ordinance, charter, constitution, treaty, rule or
regulation.
1.14. "Obligation" means any debt, liability or obligation of any nature,
whether secured, unsecured, recourse, nonrecourse, liquidated, unliquidated,
accrued, absolute, fixed, contingent, ascertained, unascertained, known,
unknown or otherwise.
1.15. "Original Investor Group" means DMJ and the individuals set forth on
Schedule A.
1.16. "Permitted Encumbrance" means (a) any lien for Taxes which are not yet
due or which are being contested in good faith by appropriate proceedings
diligently prosecuted, in either case provided that adequate reserves therefor
have been established in accordance with GAAP; (b) any carrier's,
warehouseman's, mechanic's, materialman's, repairman's, landlord's or similar
statutory or inchoate lien incidental to the ordinary conduct of business
which involves an obligation that is not more than sixty (60) days past due or
which is being contested in good faith by appropriate proceedings diligently
prosecuted, in either case provided that adequate reserves therefor have been
established in accordance with GAAP; or (c) any interest of a governmental
agency in any lawfully made pledge or deposit under workers' compensation,
unemployment insurance or other social security statutes. Notwithstanding the
foregoing, Permitted Encumbrances shall not include any Encumbrance that was
incurred or arose in connection with any Obligation to pay or guarantee the
payment of borrowed funds including, but not limited to, funds obtained as a
result of bank debt, capitalized lease, installment purchase or other
financing activity.
1.17. "Person" means any individual, sole proprietorship, joint venture,
partnership, corporation, association, cooperative, trust, estate,
governmental body, administrative agency, regulatory authority or other entity
of any nature.
1.18. "Prime Rate" means the prime rate of general application as set forth
in the "Money Rates" section (or such future section as shall replace it) of
The Wall Street Journal (Eastern Edition), as published on a specified date or
dates, or, if no date(s) are specified, as the same shall be published from
time to time.
1.19. "Proceeding" means any suit, action, litigation, governmental
investigation, arbitration, administrative hearing or other legal proceeding
of any nature.
1.20. "Restructuring Plan" means the restructuring plan set forth on
Schedule 1.20.
1.21. "Subsidiary" means, with respect to any Person, any other Person as to
which such person directly or indirectly owns or has the power to vote, or to
exercise a controlling influence with respect to, 50% or more of the
securities or interests of any class of such other person which are entitled
to vote for the election of directors or others performing similar functions.
1.22. "Tax" means (a) any foreign, federal, provincial, state or local
income, earnings, profits, gross receipts, franchise, capital stock, net
worth, sales, use, occupancy, general property, real property, personal
property, intangible property, transfer, fuel, excise, payroll, withholding,
unemployment compensation, social security or other tax of any nature, (b) any
foreign, federal, state, provincial or local organization fee, qualification
fee, annual report fee, filing fee, occupation fee, assessment, sewer rent or
other fee or charge of any nature, or (c) any deficiency, interest or penalty
imposed with respect to any of the foregoing.
1.23 "Amendment Date" means the date on which Amendment No. 1 to this
Agreement is made and entered into.
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2. THE TRANSACTION
2.1. Sale of Gen-X Equipment and Gen-X Holdings. On the Closing Date (as
defined in Section 10.1), (i) Global shall sell, transfer, assign and convey
to U.S. Co., and U.S. Co. shall purchase, all right, title and interest in and
to all of the issued and outstanding shares of capital stock of Gen-X
Holdings, and (ii) Global shall sell, transfer, assign and convey to Canadian
Co, and Canadian Co. shall purchase, all right, title and interest in and to
all of the issued and outstanding shares of capital stock of Gen-X Equipment
(the issued and outstanding shares of capital stock of Gen-X Holdings and Gen-
X Equipment are collectively referred to herein as the "Gen-X Stock").
3. PURCHASE PRICE AND CLOSING FINANCIAL STATEMENTS
3.1. Purchase Price. Subject to the adjustments and provisions of Sections
3.2 and 3.3, the total purchase price (the "Purchase Price") for the Gen-X
Stock shall consist of the following:
(a) Gen-X Holdings Stock. On the Amendment Date, U.S. Co. shall, and DMJ,
Salter and Finkelstein shall cause U.S. Co. to, deliver to Borden Ladner
Gervais LLP as escrow agent, to be held by such escrow agent pursuant to
the escrow agreement (the "Purchase Price Escrow Agreement") attached
hereto as Exhibit "T", a cash payment in the amount of Six Million Dollars
($6,000,000) and on the Closing Date, U.S. Co. shall, and DMJ, Salter and
Finkelstein shall cause U.S. Co. to (i) deliver to Global a cash payment in
the amount of Three Million Six Hundred Thousand Dollars ($3,600,000) (the
"Gen-X Holdings Closing Payment"), and (ii) assume Global's non-negotiable
subordinated notes in the original aggregate principal amount of Three
Million Nine Hundred Sixty Thousand Dollars ($3,960,000) payable to Gen-X
Holdings, dated as of the Closing Date (the "Replacement Notes"), together
with all accrued and unpaid interest thereon; and
(b) Gen-X Equipment Stock. On the Closing Date, Canadian Co. shall, and
U.S. Co., DMJ, Salter and Finkelstein shall cause Canadian Co. to, deliver
to Global a cash payment (together with the Gen-X Holdings Closing Payment,
the "Closing Payment") in the amount of Three Million Six Hundred Thousand
Dollars ($3,600,000).
3.2 Purchase Price Adjustment.
(a) If, during the two hundred seventy-three (273) day period following
the Closing Date, either Buyer or any of the Gen-X Companies enter into an
agreement, option or understanding or executes a letter of intent,
agreement in principle or definitive agreement with any of the parties set
forth on Schedule 3.2(a) (a "Sale Transaction Agreement") with respect to
or that is likely to result in a Sale Transaction (as defined below), then
the Purchase Price shall be increased by an amount (the "Purchase Price
Adjustment") determined as follows:
(1) If the Company enters into or executes a Sale Transaction
Agreement within ninety-one (91) days following the Closing Date, the
Purchase Price Adjustment shall be equal to seventy-five percent (75%)
of the amount, if any, by which (i) the Sale Transaction Consideration
(as defined below) exceeds (ii) Thirteen Million Two Hundred Thousand
Dollars ($13,200,000);
(2) If the Company enters into or executes a Sale Transaction
Agreement on or after ninety-two (92) days and prior to one hundred
eighty-two (182) days following the Closing Date, the Purchase Price
Adjustment shall be equal to fifty percent (50%) of the amount, if any,
by which (i) the Sale Transaction Consideration exceeds (ii) Thirteen
Million Two Hundred Thousand Dollars ($13,200,000); and
(3) If the Company enters into or executes a Sale Transaction
Agreement on or after one hundred eighty three (183) days and prior to
two hundred seventy-three (273) days following the Closing Date, the
Purchase Price Adjustment shall be equal to fifteen percent (15%) of
the amount, if any, by which (i) the Sale Transaction Consideration
exceeds (ii) Thirteen Million Two Hundred Thousand Dollars
($13,200,000).
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(b) For the purposes of this Agreement, a Sale Transaction shall mean (i)
any transaction or series of related transactions in which either Buyer or
any of the Gen-X Companies sells, assigns, transfers, leases or licenses
all or a substantial portion of its Assets, (ii) any transaction or series
of related transactions (including any reorganization, merger,
consolidation or other business combination) in which either Buyer or any
of its Subsidiaries sells, assigns or transfers 50% or more of the
outstanding capital stock (or other outstanding ownership interests) of any
of the Gen-X Companies, (iii) any transaction or series of related
transactions (including any reorganization, merger, consolidation or other
business combination, but not including public offerings of equity
securities) in which DMJ, Salter and/or Finkelstein sells, assigns or
transfers 50% or more of the outstanding capital stock (or other
outstanding ownership interests) of either Buyer, (iv) any transaction or
series of related transactions (other than public offerings of equity
securities) in which any Person or group of Persons acquires "beneficial
ownership" within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), of 50% or more of the capital
stock of either Buyer or any of the Gen-X Companies, (v) any liquidation,
dissolution or winding up of either Buyer or any of the Gen-X Companies, or
(vi) any other transaction or series of related transactions the purpose or
effect of which is to sell, assign or transfer control or a majority of the
ownership of either Buyer or any of the Gen-X Companies or to sell, assign
or transfer the business or goodwill of either Buyer or any of the Gen-X
Companies; provided, however, that the implementation of the Restructuring
Plan shall not in and of itself constitute a Sale Transaction.
(c) For purposes of this Agreement, Sale Transaction Consideration shall
mean the total amount of cash and the fair market value (on the date of the
closing of the Sale Transaction) of all other securities and/or property
paid or payable directly or indirectly to either Buyer and/or any of the
Gen-X Companies or any of its securityholders (or holders of ownership
interests) in connection with the Sale Transaction (including (i) amounts
paid to holders of any warrants or convertible securities of either Buyer
and/or any of the Gen-X Companies or to holders of any options or stock
appreciation rights issued by either Buyer and/or any of the Gen-X
Companies, whether or not vested; (ii) the fair market value of any assets
of either Buyer and/or any of the Gen-X Companies which are retained by or
otherwise distributed to their securityholders (or holders of ownership
interests) or Affiliates in anticipation of or in connection with the Sale
Transaction; (iii) amounts characterized as deferred compensation,
consulting fees, non-competition payments and private pension benefits
unless the payments are for actual bona fide services and are commercially
reasonable in amount for such services); and (iv) assumption of the
outstanding amounts due under the U.S. Co. Promissory Note and/or the
Canadian Co. Promissory Note.
(d) No adjustment under this Section 3.2 shall result in a decrease to
the Purchase Price. Any amount paid under this Section 3.2 is intended by
all parties to be, and shall be treated by the parties as, an adjustment to
the Purchase Price.
(e) The Purchase Price Adjustment shall be paid in full in cash by Buyers
to Global contemporaneously with the closing of the Sale Transaction;
provided, however, that if the Sale Transaction Consideration is payable in
installments and/or consists of non-cash consideration Global shall have
the right, but not the obligation, to receive the Purchase Price Adjustment
as and when each installment of the Sale Transaction Consideration is
payable and/or in the form of such non-cash consideration.
(f) Buyers, DMJ, Salter and Finkelstein shall notify Global in writing
within three (3) business days after either Buyer, DMJ, Salter, Finkelstein
or any of the Gen-X Companies enter into or execute a Sale Transaction
Agreement. Notwithstanding the immediately preceding sentence, Buyers, DMJ,
Salter and Finkelstein shall notify Global in writing at least thirty (30)
days prior to the consummation of a Sale Transaction.
(g) If the Sale Transaction Consideration shall consist in whole or in
part of non-cash consideration, the fair market value of such consideration
shall be determined by agreement between Global and Buyers. If Global and
Buyers cannot agree upon the fair market value of such consideration within
ten (10) days after the consummation of the Sale Transaction, Global and
Buyers shall each select an appraiser who shall determine within thirty
(30) days after the closing date of the sale the fair market value of such
consideration as of the closing date of the Sale Transaction. If the two
appraisers agree upon the fair market value of such
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consideration, the agreed upon value shall be the fair market value of such
consideration. If the appraisers do not agree upon the fair market value of
such consideration, the higher of the two appraisals is not more than 110%
of the lower of the appraisals, the fair market value of such consideration
shall be the mean of the two appraisals. If the higher of the two
appraisals is greater than 110% of the lower appraisal, the two appraisers
shall jointly select a third appraiser who independently shall determine
within sixty (60) days after the closing date of the Sale Transaction the
fair market value of such consideration as of the closing date of the Sale
Transaction. The fair market value of such consideration as determined by
the third appraiser will be arithmetically averaged with the two appraisals
determined by the prior two appraisers, and the appraisal farthest from the
average of the three appraisals will be disregarded. The fair market value
of such consideration shall be the average of the two remaining appraisals.
3.3. Currency and Method of Payment. All dollar amounts stated in this
Agreement are stated in United States currency, and all payments required
under this Agreement shall be paid in United States currency. All payments
required under this Agreement shall be made as follows unless otherwise agreed
by both the payor and the payee: (a) any payment may be made by wire transfer
of immediately available United States federal funds; (b) any payment
exceeding $100,000 shall be made by wire transfer of immediately available
United States federal funds; (c) any payment not exceeding $100,000 may be
made by ordinary check.
4. REPRESENTATIONS OF GLOBAL
Knowing that Buyers are relying thereon, Global, represents and warrants to
Buyer as follows:
4.1. Organization and Authority. Gen-X Equipment is a corporation duly
organized and validly existing under the Laws of Ontario. Gen-X Holdings is a
corporation duly organized, validly existing and in good standing under the
Laws of the state of Washington. Gen-X Equipment and Gen-X Holdings each
possess the full corporate power and authority to own their Assets, conduct
their business as presently conducted and enter into and perform this
Agreement and the transactions contemplated hereby and the Ancillary
Agreements to which they are a party or by which they are bound and the
transactions contemplated thereby.
4.2. The Gen-X Equipment Stock. The authorized capital stock of Gen-X
Equipment consists of an unlimited number of common shares and an unlimited
number of preference shares, of which 10,000 common shares are issued and
outstanding (the "Gen-X Equipment Stock") and owned beneficially and of record
by Global, free and clear of all Encumbrances, except as set forth on Schedule
4.2. Subject to obtaining the required consents set forth on Schedule 4.4,
Global has the full right to sell and transfer all right, title and interest
in and to the Gen-X Equipment Stock, and upon delivery and payment for the
Gen-X Equipment Stock as provided herein, Buyers will acquire good title
thereto, free and clear of all Encumbrances. Except for this Agreement, none
of the Global Management has entered into any outstanding Contract relating to
the issuance, sale, redemption, ownership or disposition of any of the Gen-X
Equipment Stock or other securities of Gen-X Equipment. None of the Global
Management has entered into any contract relating to any stock appreciation
rights, phantom shares, cash performance units or other similar rights issued
by Gen-X Equipment.
4.3. The Gen-X Holdings Stock. The authorized capital stock of Gen-X
Holdings consists of (i) 1,000,000 shares of Class A common shares, no par
value, and 1,000,000 shares of Class V common shares, no par value, of which
9,650 shares and 350 shares, respectively, are issued and outstanding (the
"Gen-X Holdings Common Stock") and owned beneficially and of record by Global,
free and clear of all Encumbrances, except as set forth on Schedule 4.3, and
(ii) 1,000,000 preferred shares, of which 49,975 shares are issued and
outstanding (the "Gen-X Holdings Preferred Stock") and owned beneficially and
of record by Global, free and clear of all Encumbrances (the Gen-X Holdings
Common Stock and the Gen-X Holdings Preferred Stock being collectively
referred to as the "Gen-X Holdings Stock"). Global has the full right to sell
and transfer all right, title and interest in and to the Gen-X Holdings Stock,
and upon delivery and payment for the Gen-X Holdings Stock as provided herein,
Buyers will acquire good title thereto, free and clear of all Encumbrances.
Except for this Agreement, none of the Global Management has entered into any
outstanding Contract relating to the issuance, sale, redemption, ownership or
disposition of any of the Gen-X Holdings Stock or other securities of
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Gen-X Holdings. None of the Global Management has entered into any contract
relating to any stock appreciation rights, phantom shares, cash performance
units or other similar rights issued by Gen-X Holdings.
4.4. Effect of Agreement. The execution, delivery and performance of the
Acquisition Agreements by Global (to the extent it is a party thereto or bound
thereby), and the consummation by it of the transactions contemplated hereby
and thereby, (a) have been duly authorized by all necessary corporate actions
by its board of directors and shareholders, except that Global is required to
obtain the approval of this Agreement and the transactions contemplated hereto
by its shareholders (the "Global Shareholder Approval"), (b) do not constitute
a breach or violation of, or a default under, the certificate of
incorporation, bylaws or other organizational document of Global, (c) do not
constitute a breach or violation of, or a default under, any Contract to which
Global is a party or by which Global is bound or its assets or business, (d)
do not constitute a violation of any Law or Judgment applicable to Global or
its assets or business, (e) do not result in the creation of any Encumbrance
upon, or give to any other Person any interest in, the Gen-X Equipment Stock
or the Gen-X Holdings Stock, and (f) except as may be required under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Bylaws of the National Association of Securities Dealers, Inc. (the "NASD")
and for the Global Shareholder Approval and the Consents set forth on Schedule
4.4 (the "Global Required Consents"), do not require the Consent of any
Person; except in the case of clauses (c), (d), and (f) for breaches,
violations, defaults, interests or Consents which would not have a material
adverse effect on the ability of Global to consummate the transactions
contemplated by this Agreement. This Agreement constitutes, and the Ancillary
Agreements when executed and delivered will constitute, the valid and legally
binding agreements of Global enforceable against it (to the extent it is a
party thereto or bound thereby) in accordance with their respective terms.
4.5. Proceedings and Judgments. Except as described on Schedule 4.5, to the
knowledge of Global, (a) no Proceeding is currently pending or threatened, to
which any of the Gen-X Companies are a party, except any such Proceeding that
would not have a Gen-X Material Adverse Effect, or by which the Gen-X Holdings
Stock or the Gen-X Equipment Stock is affected, and (b) no Judgment is
currently outstanding against any of the Gen-X Companies, except any such
Judgment that would not have a Gen-X Material Adverse Effect, or by which the
Gen-X Holdings Stock or the Gen-X Equipment Common Shares is affected.
4.6. Brokerage Fees. Except for Deutsche Bank Alex. Brown, the fees of which
will be paid by Global, no Person acting on behalf of Global is entitled to
any brokerage, finder=s or other similar fee or commission in connection with
the transactions contemplated by this Agreement.
4.7. Full Disclosure. No representation or warranty made by Global in this
Agreement or the Ancillary Agreements or pursuant hereto or thereto contains
any untrue statement of any material fact or omits to state any material fact
that is necessary to make the statements made, in the context in which made,
not false or misleading.
5. REPRESENTATIONS OF BUYERS, DMJ, SALTER AND FINKELSTEIN
Knowing that Global is relying thereon, Buyers, DMJ, Salter and Finkelstein,
jointly and severally, represent and warrant to Global as follows:
5.1. Organization and Authority. Each Buyer is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. DMJ is a limited liability company duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Buyers and DMJ each possess the full corporate power and
authority to own their respective Assets, conduct their respective businesses
as presently conducted, and enter into and perform this Agreement and the
transactions contemplated hereby and the Ancillary Agreements to which they
are a party or by which they are bound and the transactions contemplated
thereby. Salter and Finkelstein each have the full capacity, power and
authority to enter into and perform this Agreement and the transactions
contemplated hereby and the Ancillary Agreements to which they are a party and
by which they are bound and the transactions contemplated thereby.
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5.2. Effect of Agreement. The execution, delivery and performance of the
Acquisition Agreements by Buyers, DMJ, Salter and Finkelstein (to the extent
they are parties thereto or bound thereby), and the consummation by them of
the transactions contemplated hereby and thereby, (a) in the case of Buyers
and DMJ, have been duly authorized by all necessary corporate actions by their
boards of directors and shareholders, (b) in the case of Buyers and DMJ, do
not constitute a breach or violation of, or a default under, the certificate
of incorporation or bylaws (or other organization documents) of Buyers, (c) do
not constitute a breach or violation of, or a default under, any Contract to
which Buyers, DMJ, Salter or Finkelstein are parties or by which Buyers are
bound, (d) do not constitute a violation of any Law or Judgment applicable to
Buyers, DMJ, Salter or Finkelstein (e) do not result in the creation of any
Encumbrance upon, or give to any other Person any interest in, Buyers' capital
stock or in the business or Assets of Buyers, and (f) except as may be
required under the HSR Act, the Exchange Act, and the Bylaws of the NASD and
for the Consents set forth on Schedule 5.2 (the "Buyer Required Consents"), do
not require the Consent of any Person; except in the case of clauses (c), (d)
and (f) for breaches, violations, defaults, Encumbrances, interests or
Consents which would not have a material adverse effect on the ability of
Buyers, DMJ, Salter or Finkelstein to consummate the transactions contemplated
by this Agreement. This Agreement constitutes, and the Ancillary Agreements
when executed and delivered will constitute, the valid and legally binding
agreements of Buyers, DMJ, Salter and Finkelstein enforceable against them (to
the extent they are parties thereto or bound thereby) in accordance with their
respective terms.
5.3. Global Preferred Stock and Contingent Notes. DMJ owns, free and clear
of all Encumbrances and has the full right to sell and transfer all right,
title and interest in and to Seven Thousand Two Hundred (7,200) shares of
Global preferred stock, par value $.01 per share (the "Global Preferred
Stock") Global's non-negotiable subordinated contingent notes in the aggregate
original principal amount of Four Million Five Hundred Thousand Dollars
($4,500,000), dated May 12, 1998 (the "Contingent Notes"), and upon delivery
of the Global Preferred Stock and the Contingent Notes as provided in the
Restructuring Plan, Global will acquire good title thereto, free and clear of
all Encumbrances.
5.4. Operations and Obligations of Buyer. Except as set forth on Schedule
5.4, Buyers were formed solely for the purpose of engaging in the transactions
contemplated by this Agreement and the Ancillary Agreements, and neither Buyer
has other than the transactions, engaged in any business activities, conducted
any operations or incurred or agreed to incur any obligation.
5.5. Proceedings and Judgments. Except as described on Schedule 5.5, (a) no
Proceeding is currently pending, or to the knowledge of DMJ, Salter and
Finkelstein, threatened, to which Buyers DMJ, Salter or Finkelstein are
parties, or by which Buyers' capital stock or the business or Assets of Buyers
are affected, and (b) no Judgment is currently outstanding against Buyers,
DMJ, Salter or Finkelstein or by which Buyers' capital stock or the business
or Assets of Buyers are affected other than the transactions.
5.6. Brokerage Fees.No Person acting on behalf of Buyers DMJ, Salter or
Finkelstein is entitled to any brokerage or finder's fee in connection with
the transactions contemplated by this Agreement.
5.7. Investment Matters. The Gen-X Stock to be received by Buyers hereunder
is being acquired for investment purposes only and not with a view to, or for
sale in connection with, any resale or distribution in violation of the
Securities Act of 1933, as amended (the "1933 Act"). Buyers have had access to
or been furnished with all information about the Gen-X Companies which they
believe is necessary to evaluate the purchase of the Gen-X Stock. Buyers
believe that they are fully knowledgeable or have been fully apprised of all
facts and circumstances necessary to permit them to make an informed decision
about the Gen-X Stock to be received by Buyers hereunder, that they has
sufficient knowledge and experience in business and financial matters, that
they are capable of evaluating the merits and risks of an investment in such
securities, and that they have the capacity to protect their own interests in
connection with the transactions contemplated hereby. Buyers are "accredited
investors" as defined in Regulation D under the 1933 Act. Buyers have been
advised by Global and understand that (a) the Gen-X Stock to be received by
Buyers hereunder will not be registered under the 1933 Act or any securities
Law of any Governmental Authority, and (b) such securities must be held
indefinitely
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unless and until they are subsequently registered under the 1933 Act and all
other applicable securities Laws or an exemption from registration becomes
available.
5.8. Obligations. Neither of DMJ, Salter or Finkelstein has incurred any
Obligation on behalf of Global or any of its Subsidiaries other than the Gen-X
Companies.
5.9. Negotiations. Neither Salter, Finkelstein nor any of their Affiliates
or representatives have engaged in the past six (6) months in any discussion
with any Person or any Subsidiary, Affiliate, representative or advisor of any
Person listed on Schedule 5.9 regarding (i) the sale, conveyance or
disposition of all or substantially all of the assets of the Gen-X Companies
or any transaction in which more than fifty percent (50%) of the voting power
of the Gen-X Companies is disposed of, or (iii) regarding any other form of
acquisition, liquidation, dissolution or winding up of the Gen-X Companies.
5.10. Global Representations. To the knowledge of DMJ, Salter and
Finkelstein, no representation or warranty made by Global in any of the
Acquisition Agreements or pursuant thereto contains any untrue statement of
any material fact or omits to state any material fact that is necessary to
make the statements made, in the context in which made, not false or
misleading.
5.11. Competition Act. There is no requirement to make any filing, give any
notice, or obtain any authorization, in connection with the Competition Act
(Canada) as a condition to the lawful completion of the transactions
contemplated by this Agreement.
5.12. Full Disclosure. No representation or warranty made by Buyers, DMJ,
Salter or Finkelstein in this Agreement or the Ancillary Agreements or
pursuant hereto or thereto contains any untrue statement of any material fact
or omits to state any material fact that is necessary to make the statements
made, in the context in which made, not false or misleading.
5.13. Hart-Scott-Rodino. Buyers are their own "ultimate parent entity" as
such term is defined pursuant to the HSR Act. Except for Buyers, no other
person or entity is an ultimate parent entity of Buyers. Buyers and all
entities controlled by them, on a consolidated basis, do not (i) hold
$10,000,000 in total assets (as shown on Buyers' most recent regularly
prepared balance sheet) or (ii) have $10,000,000 in annual net sales (as shown
on Buyers' most recent regularly prepared annual statement of income and
expense), as such amounts are determined under HSR. For purposes of this
Section 5.7, the terms "controlled", "annual net sales", "regularly prepared
annual statement of income and expense", "total assets" and "regularly
prepared balance sheet" shall have the meanings ascribed to them pursuant to
the HSR Act.
6. CERTAIN OBLIGATIONS OF GLOBAL PENDING CLOSING
6.1. Global Shareholders' Meeting. Promptly after the date of this
Agreement, Global shall prepare and cause to be filed with the SEC a proxy
statement (the "Proxy Statement") to be sent to the shareholders of Global in
connection with the Global Shareholders' Meeting (as defined below). Subject
to the exercise by the board of directors of Global of its fiduciary duties
under applicable Law, Global shall take all action reasonably necessary under
all applicable Law to call, give notice of, convene and hold a meeting of
Global's shareholders (the "Global Shareholders' Meeting") to consider, act
upon and vote upon the approval of this Agreement and the transactions
contemplated hereby.
6.2. Conduct Pending Closing. During the period from the date of this
Agreement to the Closing Date, except with the express prior written consent
of Buyers, Global shall cause the Gen-X Companies to conduct their respective
businesses in the ordinary course and shall cause the Gen-X Companies not make
any changes in the business of the Gen-X Companies that would have a Gen-X
Material Adverse Effect or to pay any dividend or distribution to Global.
6.3. Consents. Between the date of this Agreement and the Closing Date,
Global shall, and Global shall cause the Gen-X Companies to, in good faith,
use all reasonable efforts to obtain as promptly as practicable the
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Global Required Consents, including all required filings under the HSR Act,
and cooperate with Buyers in obtaining the Buyer Required Consents.
6.4. Advice of Changes. Between the date of this Agreement and the Closing
Date, Global shall promptly advise Buyers in writing of any fact of which any
of them obtains knowledge and which, if existing or known as of the date of
this Agreement, would have been required to be set forth or disclosed in or
pursuant to any of the Acquisition Agreements (it being understood that any
such advice shall not be deemed to modify the representations, warranties or
covenants of Global contained in the Acquisition Agreements or any written
statement, document or certificate delivered by Global under or in connection
with the Acquisition Agreements).
6.5. Reasonable Efforts. Global shall, and Global shall cause the Gen-X
Companies to, use all reasonable efforts to consummate the transactions
contemplated by the Acquisition Agreements as promptly as practicable.
6.6. Investment Canada Notice. Global, within thirty (30) days after the
Closing Date, will make, or cause to be made, together with Buyers, DMJ,
Salter and Finkelstein, the filing of any requisite notice under the
Investment Canada Act.
7. CERTAIN OBLIGATIONS OF BUYERS, DMJ, SALTER AND FINKELSTEIN PENDING CLOSING
7.1. Consents. Between the date of this Agreement and the Closing Date,
Buyers, DMJ, Salter and Finkelstein shall, in good faith, use all reasonable
efforts to obtain as promptly as practicable, the Buyer Required Consents,
including all required filings under the HSR Act, and shall cooperate with
Global in obtaining the Global Required Consents.
7.2. Advice of Changes. Between the date of this Agreement and the Closing
Date, Buyers, DMJ, Salter and Finkelstein shall promptly advise Global in
writing of any fact of which it obtains knowledge and which, if existing or
known as of the date of this Agreement, would have been required to be set
forth or disclosed in or pursuant to any of the Acquisition Agreements (it
being understood that any such advice shall not be deemed to modify the
representations, warranties or covenants of Buyers contained in any of the
Acquisition Agreements or any written statement, document or certificate
delivered by Buyers under or in connection with any of the Acquisition
Agreements).
7.3. Reasonable Efforts. Buyers, DMJ, Salter and Finkelstein shall use all
reasonable efforts to consummate the transactions contemplated by the
Acquisition Agreements.
7.4. Conduct Pending Closing. During the period from the date of this
Agreement to the Closing Date, except with the express prior written consent
of Global, Salter and Finkelstein shall cause the Gen-X Companies to conduct
their respective businesses in the ordinary course and shall not make any
changes in the business of the Gen-X Companies that would have a Gen-X
Material Adverse Effect.
7.5. Investment Canada Notice. Each of Buyers, DMJ, Salter and Finkelstein,
within thirty (30) days after the Closing Date, will make, or cause to be
made, together with Global, the filing of any requisite notice under the
Investment Canada Act.
7.6. This Section Intentionally Left Blank.
7.7. Certain Obligations. Buyers, DMJ, Salter and Finkelstein shall cause
Global and all of its subsidiaries other than the Gen-X Companies to be
released from any and all obligations that Global has to Ride, Inc., RoyNat
and their Affiliates.
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8. CONDITIONS PRECEDENT TO CLOSING BY GLOBAL
Each obligation of Global to be performed on the Closing Date shall be
subject to the satisfaction of each of the following conditions, except to the
extent that such satisfaction is waived by Global in writing:
8.1. Representations of Buyers, DMJ, Salter and Finkelstein.
8.1.1 Subject to Section 8.1.2, the representations and warranties of
Buyers, DMJ, Salter and Finkelstein contained in this Agreement shall have
been true in all material respects on and as of the date made and shall be
true in all material respects on and as of the Closing Date, with the same
force and effect as though made on and as of the Closing Date, except that
any representation or warranty made as of a specified date shall be true in
all material respects on and as of such date, in each case without giving
effect to any advice given by Buyers under Section 7.2.
8.1.2 The representations and warranties of Buyers, DMJ, Salter and
Finkelstein contained in this Agreement that are qualified by materiality
shall have been true in all respects on the date of this Agreement and
shall be true in all respects on and as of the Closing Date, except that
any such representation or warranty made as of a specified date shall be
true in all respects on and as of such date, in each case without giving
effect to any advice given by Buyers under Section 7.2.
8.2. Performance by Buyers, DMJ, Salter and Finkelstein. All of the
covenants, terms, obligations and conditions of this Agreement to be satisfied
or performed by Buyers, DMJ, Salter and Finkelstein on or before the Closing
Date shall have been substantially satisfied or performed.
8.3. This Section Intentionally Left Blank.
8.4. Global Shareholder Approval. The Global Shareholder Approval shall have
been obtained.
8.5. Restructuring. The Restructuring shall be in form and substance
reasonably satisfactory to Global.
8.6. Removal from Obligations. Global and all of its Subsidiaries other than
the Gen-X Companies shall have been released from any and all obligations to
Ride, Inc., RoyNat and their Affiliates.
8.7. Absence of Proceedings. No Proceeding shall have been instituted on or
before the Closing Date by any Person (other than Global and/or any of the
Gen-X Companies), no Judgment shall have been issued, and no new Law shall
have been enacted, that seeks to or does prohibit or restrain, or that seeks
material damages as a result of, the consummation of the transactions
contemplated by the Acquisition Agreements.
8.8. Fairness Opinion. Global shall have received the written opinion of its
financial advisor to the effect that, as of the date of approval by the board
of directors of Global of the Acquisition Agreements, the consideration to be
received by Global for the Gen-X Stock in connection with the transactions
contemplated by the Acquisition Agreements is fair, from a financial point of
view, to Global, which written opinion shall not have been withdrawn, modified
or changed.
9. CONDITIONS PRECEDENT TO CLOSING BY BUYERS
Each obligation of Buyers to be performed on the Closing Date shall be
subject to the satisfaction of each of the following conditions, except to the
extent that such satisfaction is waived by Buyers in writing:
9.1. Representations of Global.
9.1.1 Subject to Section 9.1.2, the representations and warranties of
Global contained in this Agreement shall have been true in all material
respects on and as of the date made and shall be true in all material
respects on and as of the Closing Date, with the same force and effect as
though made on and as of the Closing Date, except that any representation
or warranty made as of a specified date shall be true in all material
respects on and as of such date, in each case without giving effect to any
advice given by Global under Section 6.4.
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9.1.2 The representations and warranties of Global contained in this
Agreement that are qualified by materiality shall have been true in all
respects on the date of this Agreement and shall be true in all respects on
and as of the Closing Date, except that any such representation or warranty
made as of a specified date shall be true in all respects on and as of such
date, in each case without giving effect to any advice given by Global
under Section 6.4.
9.2. Performance by Global. All of the covenants, terms, obligations and
conditions of this Agreement to be satisfied or performed by Global on or
before the Closing Date shall have been substantially satisfied or performed.
9.3. Absence of Proceedings. No Proceeding shall have been instituted on or
before the Closing Date by any Person (other than Buyers, DMJ, Salter or
Finkelstein), no Judgment shall have been issued, and no new Law shall have
been enacted, that seeks to or does prohibit or restrain, or that seeks
material damages as a result of, the consummation of the transactions
contemplated by the Acquisition Agreements.
9.4. Acceleration of Vesting of Options. Global shall have accelerated (a)
the vesting of all of the options to purchase shares of Global common stock,
par value $.01 per share ("Global Common Stock"), held as of the date hereof
by Salter and Finkelstein, so that such options shall become exercisable as of
the Amendment Date; and (b) the vesting of the options granted to the
employees set forth on Schedule 9.4 in the aggregate amount of 281,930 shares
of Global Common Stock, so that such options shall become exercisable as of
the Amendment Date.
10. CLOSING
10.1. Closing. Unless this Agreement is terminated in accordance with
Section 13, the closing of the transactions contemplated by this Agreement
("Closing") shall be held at 10:00 A.M. Philadelphia, Pennsylvania time on
such date and at such time as is agreed upon by Global and Buyers which shall
be no later than the second business day after the satisfaction or waiver of
all conditions set forth in Sections 8 and 9 hereof, unless another date and
time is agreed upon by Global and Buyers ("Closing Date"). The Closing shall
be held at the offices of Blank Rome Comisky & McCauley LLP, One Logan Square,
Philadelphia, PA 19103 or such other location as is agreed upon by Global and
Buyers.
10.2. Obligations of Global. At the Closing, Global shall deliver or cause
to be delivered the following to Buyers:
10.2.1 Gen-X Equipment Stock. Stock certificates representing all of the
Gen-X Equipment Stock, together with assignments separate from certificate
in blank, dated the Closing Date and duly executed by Global, and stamps or
other proper evidence of the payment of any stock transfer or similar Taxes
due as a result of the transfer of such stock, to transfer all of the Gen-X
Equipment Stock.
10.2.2 Gen-X Holdings Stock. Stock certificates representing all of the
Gen-X Holdings Stock, together with assignments separate from certificate
in blank, dated the Closing Date and duly executed by Global, and stamps or
other proper evidence of the payment of any stock transfer or similar Taxes
due as a result of the transfer of such stock, to transfer all of the Gen-X
Holdings Stock.
10.2.3 This Section Intentionally Left Blank.
10.2.4 Corporate Records and Minute Books. All of the original minute
books and stock books of the Gen-X Companies.
10.2.5 Certified Resolutions. Copies of the resolutions duly adopted by
the board of directors, and if necessary the shareholders, of Global,
authorizing Global to execute, deliver and perform this Agreement and to
consummate the transactions contemplated by this Agreement, certified by an
officer of Global as in full force and effect, without modification or
rescission, on and as of the Closing Date.
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10.2.6 Termination of Employment Agreements. Termination Agreements in
the forms attached hereto as Exhibit "C" and Exhibit "D", relating to the
Employment Agreements of Salter and Finkelstein, duly executed by Global as
of the Closing Date.
10.2.7 This Section Intentionally Left Blank.
10.2.8 Right of First Offer Agreement. Right of First Offer Agreement in
the form attached hereto as Exhibit "F", duly executed by Global as of the
Closing Date.
10.2.9 Non-Competition Agreement. Non-Competition Agreement in the form
attached hereto as Exhibit "G", dated the Closing Date, duly executed by
Global and Michael G. Rubin.
10.2.10 Termination of Non-Competition Agreement. Termination of Non-
Competition Agreement in the form attached hereto as Exhibit "H", relating
to the Non-Competition Agreement of DMJ, Salter and Finkelstein duly
executed by Global as of the Closing Date.
10.2.11 Closing Certificate. A certificate dated the Closing Date and
duly executed by Global, in which Global represents and warrants to Buyers
that the conditions set forth in Sections 9.1, 9.2, 9.3 and 9.4 have been
satisfied.
10.2.12 Legal Opinion. Legal Opinion of Blank Rome Comisky & McCauley
LLP, counsel to Global in the form attached hereto as Exhibit AI A.
10.2.13 This Section Intentionally Left Blank.
10.2.14 Consents. The Global Required Consents.
10.2.15 Other Documents. All other agreements, certificates, instruments,
opinions and documents reasonably requested by Buyers in order to fully
consummate the transactions contemplated by the Acquisition Agreements.
10.3. Obligations of Buyers at Closing. At the Closing, Buyers, DMJ, Salter
and Finkelstein shall deliver or cause to be delivered the following to
Global:
10.3.1 Closing Payment. The Closing Payment in the amount set forth in
Section 3.1, paid in the manner set forth in Section 3.3.
10.3.2 This Section Intentionally Left Blank.
10.3.3 Proxy of DMJ. A voting proxy in favor of Global in connection with
the 800 shares of Global Preferred Stock registered in the name of DMJ.
10.3.4 Preferred Stock. Stock certificates representing 7,200 shares of
Global Preferred Stock, together with assignments separate from certificate
duly executed by DMJ to transfer such shares to Global.
10.3.5 Assignment and Assumption of Replacement Notes. Assignment and
Assumption Agreement in the form attached hereto as Exhibit "K", relating
to the Replacement Notes, duly executed by DMJ as of the Closing Date.
10.3.6 Termination of Employment Agreements. Termination Agreements in
the forms attached hereto as Exhibit "C" and Exhibit "D", relating to the
Employment Agreements of Salter and Finkelstein, duly executed by Salter
and Finkelstein, respectively, as of the Closing Date.
10.3.7 This Section Intentionally Left Blank.
10.3.8 This Section Intentionally Left Blank.
10.3.9 This Section Intentionally Left Blank.
10.3.10 This Section Intentionally Left Blank.
10.3.11 This Section Intentionally Left Blank.
10.3.12 This Section Intentionally Left Blank.
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10.3.13 Preferred Stock Purchase Agreement. Preferred Stock Purchase
Agreement in the form attached hereto as Exhibit "Q", duly executed by DMJ,
Gen-X Holdings and Gen-X Equipment as of the Closing Date.
10.3.14 Gen-X Holdings Stock. Stock certificates representing all of the
Gen-X Holdings Stock, together with assignments separate from certificate
in blank, dated the Closing Date and duly executed by U.S. Co., to be held
by the pledgeholder under the Pledge and Security Agreement to be executed
by U.S. Co.
10.3.15 This Section Intentionally Left Blank.
10.3.16 This Section Intentionally Left Blank.
10.3.17 This Section Intentionally Left Blank.
10.3.18 Certified Resolutions. Copies of the resolutions duly adopted by
the boards of directors of Buyers, authorizing such companies to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated by this Agreement, certified by an officer of such company as
in full force and effect, without modification or rescission, on and as of
the Closing Date.
10.3.19 Closing Certificate. A certificate dated the Closing Date and
duly executed by Buyers, DMJ, Salter and Finkelstein, in which they
represent and warrant to Global that the conditions set forth in Sections
8.1, 8.2, 8.3, 8.4, 8.5, 8.6 and 8.7 have been satisfied.
10.3.20 Legal Opinion. Legal Opinion of Borden & Elliot, counsel to
Buyers, DMJ, Salter and Finkelstein, in the form attached hereto as Exhibit
"R".
10.3.21 Consents. The Buyers Required Consents.
10.3.22 Other Documents. All other agreements, certificates, instruments,
opinions and documents reasonably requested by Global in order to fully
consummate the transactions contemplated by the Acquisition Agreements.
11. CERTAIN POST-CLOSING OBLIGATIONS
11.1. Further Assurances. At any time and from time to time after the
Closing Date, at Buyers' request, and without further consideration, Global
shall promptly execute and deliver all such further agreements, certificates,
instruments and documents, and perform such further actions, as Buyers may
reasonably request in order to fully consummate the transactions contemplated
by the Acquisition Agreements and carry out the purposes and intent of the
Acquisition Agreements. At any time and from time to time after the Closing
Date, at Global's request, and without further consideration, Buyers, DMJ,
Salter and/or Finkelstein shall promptly execute and deliver all such further
agreements, certificates, instruments and documents, and perform such further
actions, as Global may reasonably request in order to fully consummate the
transactions contemplated by the Acquisition Agreements and carry out the
purposes and intent of the Acquisition Agreements.
11.2. Nondisclosure
11.2.1 At all times after the Closing Date, except with Buyers' express
prior written consent, Global shall not, directly or indirectly, in any
capacity, communicate, disclose or divulge to any Person, or use for the
benefit of any Person, any confidential or proprietary knowledge or
information of the Gen-X Companies. For purposes of this Section 11.2.1,
confidential information shall not include any information that (i) is now
available to the public or which becomes available to the public other than
as a result of disclosure by Global, (ii) is or becomes available to Global
on a non-confidential basis from a source other than the Gen-X Companies,
or (iii) has been independently acquired or developed by Global without
violating any of its obligations under this Agreement.
11.2.2 At all times after the Closing Date, except with Global=s express
prior written consent, neither Buyers, DMJ, Salter nor Finkelstein shall,
directly or indirectly, in any capacity, communicate, disclose or divulge
to any Person, or use for the benefit of any Person, any confidential or
proprietary knowledge or information of Global. For purposes of this
Section 11.2.2, confidential information shall not include any
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information that (i) is now available to the public or which becomes
available to the public other than as a result of disclosure by Buyers,
DMJ, Salter or Finkelstein, (ii) is or becomes available to Buyers, DMJ,
Salter or Finkelstein on a non-confidential basis from a source other than
the Global, or (iii) has been independently acquired or developed by
Buyers, DMJ, Salter or Finkelstein without violating any of its obligations
under this Agreement.
11.2.3 Global, on the one hand, and Buyers, DMJ, Salter nor Finkelstein
on the other, expressly acknowledge that any breach by it of the covenant
contained in Section 11.2.1 or 11.2.2, as the case may be (the "Covenant"),
may result in irreparable injury to the other party for which money damages
could not adequately compensate. If there is such a breach, the aggrieved
party shall be entitled, in addition to all other rights and remedies it
may have at law or in equity, to have an injunction issued by any competent
court enjoining and restraining the breaching party and all other Persons
involved therein, from continuing such breach.
11.2.4 If any portion of the Covenant or its application is construed to
be invalid, illegal or unenforceable, then the other portions and their
application shall not be affected thereby and shall be enforceable without
regard thereto. If any portion of the Covenant is determined to be
unenforceable due to its scope, duration, geographical area or similar
factor, then the court making such determination shall have the power to
reduce or limit such scope, duration, area or other factor, and such
Covenant shall then be enforceable in its reduced or limited form.
11.3. Noncompetition
11.3.1 During the period beginning on the date hereof and ending on the
date when Buyers' obligations under the U.S. Co. Promissory Note and the
Canadian Co. Promissory Note have been completely and indefeasibly
satisfied (the "Restrictive Period"), except with Global's prior written
consent, none of Buyers, DMJ, Salter or Finkelstein shall, directly or
indirectly, in any capacity, at any location where any of the Gen-X
Companies currently conducts or proposes to conduct business as of the date
hereof (the "Territory"):
(A) Communicate with or solicit any Person who is or during the one-
year period prior to the Closing Date was, or during the Restrictive
Period becomes, a customer, supplier, employee, salesman, agent or
representative of, or a consultant to, any of the Gen-X Companies, in
any manner which interferes or might interfere with such Person's
relationship with any of the Gen-X Companies, or in an effort to obtain
any such Person as a customer, employee, salesman, agent or
representative of, or a consultant to, any other Person that conducts a
business competitive with or similar to all or any part of the business
of any of the Gen-X Companies as currently conducted, or
(B) Establish, own, manage, operate, finance or control, or
participate in the establishment, ownership, management, operation,
financing or control of, or be a director, officer, employee, salesman,
agent or representative of, or be a consultant to, any Person that
conducts a business competitive with or similar to all or any part of
the business of any of the Gen-X Companies as currently conducted.
11.3.2 Buyers, DMJ, Salter and Finkelstein expressly acknowledge that (a)
the restrictive covenants of this Section 11.3 (the "Covenants") are a
material part of the consideration bargained for by Global, and (b) without
the agreement of Buyers, DMJ, Salter and Finkelstein to be bound by the
Covenants, Global would not have agreed to enter into this Agreement and
consummate the transactions contemplated hereby.
11.3.3 Buyers, DMJ, Salter and Finkelstein expressly acknowledge that any
breach by any of them of any of the Covenants will result in irreparable
injury to Global for which money damages could not adequately compensate.
If there is such a breach, Global shall be entitled, in addition to all
other rights and remedies it may have at law or equity, to have an
injunction issued by any competent court enjoining and restraining Buyers,
DMJ, Salter, Finkelstein and all other Persons involved therein from
continuing such breach. The existence of any claim or cause of action which
any of Buyers, DMJ, Salter, Finkelstein or any such other Person may have
against Global shall not constitute a defense or bar to the enforcement of
any
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of the Covenants. If Global must resort to litigation to enforce any of the
Covenants that has a fixed term, then such term shall be extended for a
period of time equal to the period during which a breach of such Covenant
was occurring, beginning on the date of a final court order (without
further right of appeal) holding that such a breach occurred or, if later,
the last day of the original fixed term of such Covenant.
11.3.4 If any portion of any Covenant or its application is construed to
be invalid, illegal or unenforceable, then the other portions and their
application shall not be affected thereby and shall be enforceable without
regard thereto. If any of the Covenants is determined to be unenforceable
due to its scope, duration, geographical area or similar factor, then the
court making such determination shall have the power to reduce or limit
such scope, duration, are or other factor, and such Covenant shall then be
enforceable in its reduced or limited form.
11.3.5 Buyers, DMJ, Salter and Finkelstein expressly acknowledge that the
provisions of this Section 11.3 of the Agreement are reasonable and valid
in all respects and irrevocably waive (and irrevocably agree not to raise)
as a defense any issue of reasonableness (including the reasonableness of
the noncompetition covenant insofar as it relates to the business of the
Gen-X Companies, the Territory or the duration or scope of the Covenants)
in any proceeding to enforce any provision of this Section 11.3 of the
Agreement, the intention of the parties being to provide for the legitimate
and reasonable protection of the interests of Global and by providing,
without limitation, for the broadest scope, the longest duration and the
widest territory allowable by law.
11.4. Removal of Assets. Buyers shall, at their expense, within ninety (90)
days after the Closing Date, remove all of the Assets owned by Gen-X Holdings
and Gen-X Equipment (including any Inventory and warehouse and racking
equipment sold by KPR Sports International, Inc. to Gen-X Holdings, or its
Affiliates, prior to the date hereof) from Global's premises, FOB King of
Prussia, without any disruption of Global's operation, and at such times as
shall be reasonably satisfactory to Global. If not so removed during such time
period, Global may, at its option, have such items shipped to Buyers at
Buyers' expense, or agree to store such items for Buyers, in which case Buyers
shall pay to Global a reasonable storage charge for such period of time that
Global stores such items. In the event Global stores such items for Buyers,
Buyers agree that Global shall have no liability with respect to such items
and hereby releases and holds harmless Global from any such liability.
11.5. Investigation
11.5.1 During the period beginning on the date hereof and ending on the
date when Buyers= obligations under the U.S. Co. Promissory Note and the
Canadian Co. Promissory Note shall have been completely and indefeasibly
satisfied:
(A) Buyers shall permit Global and its authorized representatives to
have full access to the Gen-X Companies' facilities during normal
business hours, to observe the Gen-X Companies' business operations, to
meet with the Gen-X Companies' officers and employees engaged in the
Gen-X Companies' business, and to audit, examine and copy all of the
Gen-X Companies' files, books and records, and other documents and
papers relating to the Gen-X Companies' business, and
(B) Buyers shall provide to Global and its authorized representatives
all information concerning the Gen-X Companies and the Gen-X Companies'
business and Assets, and all information concerning the financial
condition of the Gen-X Companies and the Gen-X Companies' business,
that is reasonably requested by Global.
11.5.2 The expense of any investigation by Global pursuant to this
Section 11.5 shall be borne solely by Global; provided, however, that if
there has been: (a) a misrepresentation, breach or failure of any
representation or warranty made by Buyers, DMJ, Salter or Finkelstein in
any of the Acquisition Agreements or (b) a failure or refusal by Buyers,
DMJ, Salter or Finkelstein to satisfy or perform any covenant, term,
obligation or condition of any of the Acquisition Agreements required to be
satisfied or
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performed by Buyers, DMJ, Salter or Finkelstein, then Buyers shall
reimburse Global for all reasonable fees and expenses incurred by or on
behalf of Global in connection with such investigation.
11.6. Accounting Matters, Books and Records. Commencing on the Closing Date
and continuing for a period of one year thereafter, the Gen-X Companies shall,
and DMJ, Salter, Finkelstein and U.S. Co shall cause the Gen-X Companies to,
(a) give Global, its counsel, accountants and other representatives access to
the accounting books, records and accounts of the Gen-X Companies during
regular business hours.
12. INDEMNIFICATION, SETOFF AND PAYMENT OF ADJUSTMENTS
12.1. Indemnification Obligations of Global. From and after the Closing,
Global shall indemnify and hold harmless Buyers and their directors, officers,
employees, Affiliates, successors and assigns, from and against any and all
Proceedings, Judgments, Obligations, losses, damages, deficiencies,
settlements, assessments, charges, costs and expenses (including, but not
limited to, reasonable attorneys' fees, investigation expenses, court costs,
interest and penalties) arising out of or in connection with, or caused by,
directly or indirectly, any or all of the following:
12.1.1 Any misrepresentation, breach or failure of any representation or
warranty made by Global in any of the Acquisition Agreements or any written
statement, document or certificate delivered to Buyers by Global under or
in connection with the Acquisition Agreements.
12.1.2 Any failure or refusal by Global to satisfy or perform any
covenant, term, obligation or condition of this Agreement required to be
satisfied or performed by any of them.
12.1.3 Amounts due to Just for Feet, Inc. resulting from purchases by
Global from Just for Feet, Inc. prior to August 1, 1999.
12.2.Indemnification Obligations of Buyers, DMJ, Salter and
Finkelstein. From and after the Closing, Buyers, DMJ, Salter and Finkelstein,
jointly and severally, shall indemnify and hold harmless Global and its
respective directors, officers, employees, Affiliates, successors and assigns,
from and against any and all Proceedings, Judgments, Obligations, losses,
damages, deficiencies, settlements, assessments, charges, costs and expenses
(including, but not limited to, reasonable attorneys' fees, investigation
expenses, court costs, interest and penalties) arising out of or in connection
with, or caused by, directly or indirectly, any or all of the following:
12.2.1 Any misrepresentation, breach or failure of any representation or
warranty made by Buyers, DMJ, Salter or Finkelstein in any of the
Acquisition Agreements or any written statement, document or certificate
delivered to Global by Buyers, DMJ, Salter or Finkelstein under or in
connection with any of the Acquisition Agreements.
12.2.2 Any failure or refusal by Buyers, DMJ, Salter or Finkelstein to
satisfy or perform any covenant, term, obligation or condition of any of
the Acquisition Agreements required to be satisfied or performed by Buyers,
DMJ, Salter or Finkelstein.
12.2.3 Any action, suit or claim arising out of, caused by or based in
whole or in part upon any act or omission of Gen-X Holdings or Gen-X
Equipment, or any of their respective shareholders, partners, directors,
executives, officers, employees, agents or representatives at any time
after the Closing or any event which occurs after the Closing.
12.2.4 Any liability of or claim against Global in connection with any
Customs Canada detailed adjustment statement issued against any of the Gen-
X Companies, including, but not limited to the Customs Canada detailed
adjustment statements issued against Gen-X Equipment: (a) dated January 27,
1999, assessing duties in the amount of Cdn$303,548, GST in the amount of
Cdn$233,650 together with interest in the amount of Cdn$72,416; and (b)
dated March 1, 1999, assessing duties in the amount of Cdn$625,985, GST in
the amount of Cdn$526,240 together with interest in the amount of
Cdn$60,232.
12.2.5 Any action, suit or claim by any of the Minority Shareholders (as
defined in the Stock Purchase Agreement, dated May 12, 1998, by and among
Global, DMJ, Salter, Finkelstein and certain other individuals and
entities) or any of their respective shareholders, partners, directors,
executives, officers,
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employees, agents, representatives, heirs, executors, administrators,
personal representatives or assigns arising out of, caused by or based in
whole or in part upon any act or omission of DMJ, Salter, Finkelstein, Gen-
X Holdings or Gen-X Equipment, or any of their respective shareholders,
partners, directors, executives, officers, employees, agents,
representatives, heirs, executors, administrators, personal representatives
or assigns.
12.2.6 Amounts due to Just for Feet, Inc. resulting from purchases by any
of the Gen-X Companies from Just for Feet, Inc. on or after August 1, 1999.
12.2.7 Any action, suit or claim related to, arising out of or resulting
from Gen-X Holdings' indebtedness to Ride, Inc. and its successors or
assigns, pursuant to promissory notes in the original principal amounts of
$977,624 and $1,022,376.
12.2.8 Any action, suit or claim related to, arising out of or resulting
from Gen-Holdings' indebtedness to Bert LaMar, Jerome F. Sheldon, Eric J.
Sheldon and Jeffrey M. Sheldon and their respective heirs or assigns,
pursuant to promissory notes in the original principal amounts of $113,889,
$381,705, 293,094 and $211,302, respectively.
12.2.9 Any action, suit or claim related to, arising out of or resulting
from Gen-X Equipment's alleged infringement of HYI's EVEREST trademark.
12.3. Indemnification Notice. With respect to each event, occurrence or
matter ("Indemnification Matter") and with respect as to which Buyers, DMJ,
Salter or Finkelstein on the one hand, or Global on the other hand (referred
to as the "Indemnitee"), is entitled to indemnification from another party
(referred to as the "Indemnitor") under this Section 12, within ten days after
the Indemnitee receives any written documents underlying the Indemnification
Matter, or, if the Indemnification Matter does not involve a third party
action, suit, claim or demand, promptly after the Indemnitee first has actual
knowledge of the Indemnification Matter, the Indemnitee shall give notice to
the Indemnitor of the nature of the Indemnification Matter and the amount
demanded or claimed in connection therewith ("Indemnification Notice").
12.4. Defense of Indemnification Matters. If an Indemnification Matter
involves a third party action, suit, claim or demand, then, upon receipt of
the Indemnification Notice, the Indemnitor shall, at its expense and through
counsel of its choice, promptly assume and have sole control of the
litigation, defense or settlement of the Indemnification Matter (referred to
as the "Defense"), except that:
12.4.1 The Indemnitee may, at its option and expense and through counsel
of its choice, participate in (but not control) the Defense.
12.4.2 If the Indemnitee reasonably believes that the handling of the
Defense by the Indemnitor may have a material adverse effect on the
Indemnitee's business or its relationship with any customer, supplier,
employee, contractor, salesman, agent or representative, then the
Indemnitee may, at its option and expense and through counsel of its
choice, assume control of the Defense; provided that the Indemnitor shall
continue to be obligated to indemnify the Indemnitee with respect thereto
and shall be entitled to participate in the Defense at its expense and
through counsel of its choice, provided further that Indemnitee shall not
consent to any Judgment or agree to any settlement without Indemnitor's
prior written consent.
12.4.3 The Indemnitor shall not consent to any Judgment or agree to any
settlement without the Indemnitee's prior written consent; provided that if
the Indemnitee withholds its consent to any monetary Judgment or settlement
that is acceptable to the Indemnitor, then (a) the Indemnitor's liability
with respect to such Indemnification Matter shall be limited to such
monetary amount, and (b) the Indemnitee shall be responsible for any
additional costs reasonably incurred by the Indemnitor in connection
therewith.
12.4.4 If the Indemnitor does not promptly assume control over the
Defense diligently and in good faith or, after doing so, does not continue
to prosecute the Defense in good faith, the Indemnitee may, at its option
and through counsel of its choice, but at the Indemnitor's expense, assume
control over the Defense; provided that the Indemnitor shall continue to be
obligated to indemnify the Indemnitee with respect thereto, provided
further that Indemnitee shall not consent to any Judgment or agree to any
settlement without Indemnitor's prior written consent.
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12.4.5 In any event, the Indemnitor and the Indemnitee shall fully
cooperate with each other in connection with the Defense, including, but
not limited to, furnishing all available documentary or other evidence as
is reasonably requested by the other.
12.5. Limits on Indemnification Matters and Global's Payment.
12.5.1 Limits on Global's Payment. The amounts, if any, owed by Global to
Buyers as Indemnitor pursuant to Section 12.1 ("Global's Payment"), shall
be subject to the following:
(A) Deductible. No amount shall be payable by Global to Buyers for
Global's Payment, unless and until the aggregate amount of Global's
Payment exceeds Fifty Thousand Dollars ($50,000), in which event Global
shall pay such aggregate amount and all future amounts payable by
Global under this Section 12.
(B) Exceptions. The limitation in Sections 12.5.1(A) shall not apply
in case of any Indemnification Matter or other adjustment involving
fraud, willful misconduct or criminal matters.
(C) Duration. With respect to any Indemnification Matter, Global
shall have no liability unless Buyers give an Indemnification Notice in
accordance with Section 12.3 within 12 months after the Closing Date,
provided, however, that the limitation contained in this Section
12.5.1(C) shall not apply to any Indemnification Matter that arises
from any failure or refusal by Global to satisfy or perform any
covenant, term, obligation or condition of any of the Acquisition
Agreements required to be satisfied or performed by Global after the
Closing Date.
12.5.2 Limits on Buyers' Indemnification. The amount, if any, owed by
Buyers, DMJ, Salter and Finkelstein to Global as Indemnitor pursuant to
Section 12.2 shall be subject to the following:
(A) Deductible. No amount shall be payable by Buyers, DMJ, Salter and
Finkelstein to Global under this Section 12, unless and until the
aggregate amount otherwise payable by Buyers, DMJ, Salter and
Finkelstein under this Section 12 exceeds Fifty Thousand Dollars
($50,000), in which event Buyers, DMJ, Salter and Finkelstein shall pay
such aggregate amount and all future amounts payable by Buyers, DMJ,
Salter and Finkelstein under this Section 12.
(B) Exceptions. The limitation in Sections 12.5.2(A) shall not apply
in case of any Indemnification Matter involving fraud, willful
misconduct or criminal matters.
(C) Duration. With respect to any Indemnification Matter, Buyers
shall have no liability unless Global gives an Indemnification Notice
in accordance with Section 12.3 within 12 months after the Closing
Date, provided, however, that the limitation contained in this Section
12.5.2(C) shall not apply to any Indemnification Matter that arises
from any failure or refusal by Buyers, DMJ, Salter or Finkelstein to
satisfy or perform any covenant, term, obligation or condition of any
of the Acquisition Agreements that is required to be satisfied or
performed after the Closing Date or that arises under Section 12.2.3.
12.5.3 If Global is obligated to pay Buyers any amounts under Section
12.1 after taking into account the application of the limitations contained
in Section 12.5.1(A), then any such amount payable by Global to Buyers
shall be reduced by any amounts Buyers would have been required to pay to
Global under Section 12.5.2 but for the application of the limitations
contained in Section 12.5.2(A). If Buyers, DMJ, Salter or Finkelstein is
obligated to pay Global any amounts under Section 12.2 after taking into
account the limitations contained in Section 12.5.2(A), then any such
amounts payable by Buyers to Global shall be reduced by any amounts Global
would have been required to pay to Buyers under Sections 12.1 but for the
application of the limitations contained in Section 12.5.1(A).
12.6. Indemnification Payment and Buyers' Payment. All amounts owed by the
Indemnitor to the Indemnitee (if any) shall be paid in full within twenty (20)
days after a final settlement or agreement as to the amount owed is reached,
or after a final Judgment (without further right of appeal) determining the
amount owed is rendered. Any amount paid under this Section 12 is intended by
all parties and shall be considered to be and treated as an adjustment to the
Purchase Price.
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12.7. Setoff and Holdback. In addition to all other rights and remedies that
the Indemnitee may have, the Indemnitee shall have the right to setoff,
against any monies due to the Indemnitor (whether under this Agreement or
otherwise), any sums for which the Indemnitee is entitled to indemnification
under this Section 12 or any other sums which the Indemnitor may owe to the
Indemnitee (whether under this Agreement or otherwise). The Indemnitee's
rights to indemnification under this Section 12 shall under no circumstances
be in any manner limited by this right of setoff. If any Indemnification
Matters are pending at the time the Indemnitee is required to make any payment
to the Indemnitor (whether under this Agreement or otherwise), then the
Indemnitee shall pay the total amount for which the Indemnitor may become
liable as a result thereof, determined by the Indemnitee reasonably and in
good faith, to Borden & Elliot, as escrow agent, to be held by such escrow
agent pursuant to the escrow agreement (the "Escrow Agreement") attached
hereto as Exhibit "S", until final determination of such Indemnification
Matter, and shall pay the balance, if any, of such payment to the Indemnitor.
13. TERMINATION
13.1. Termination. This Agreement, and the transactions contemplated hereby,
may be terminated at any time before Closing in accordance with any of the
following methods:
13.1.1 By the mutual written consent of Global and Buyers.
13.1.2 By written notice from Global to Buyers, or from Buyers to Global,
if the Closing does not occur on or before May 31, 2000 for any reason
other than a breach of this Agreement by the party giving such notice.
13.1.3 By written notice from Buyers to Global, if it becomes certain,
for all practical purposes, that any of the conditions to the Closing
Obligations of Buyers, DMJ, Salter or Finkelstein cannot be satisfied for a
reason other than Buyers', Salter's or Finkelstein's breach of this
Agreement, and Buyers are not willing to waive the satisfaction of such
condition.
13.1.4 By written notice from Global to Buyers if it becomes certain, for
all practical purposes, that any of the conditions to the Closing
Obligations of Global cannot be satisfied for a reason other than Global=s
breach of this Agreement, and Global is not willing to waive the
satisfaction of such condition.
13.1.5 By written notice from Buyers to Global if Global breaches any of
its representations, warranties, covenants or agreements contained in this
Agreement.
13.1.6 By written notice from Global to Buyers if Buyers, DMJ, Salter or
Finkelstein breaches any of its representations, warranties, covenants or
agreements contained in this Agreement.
13.1.7 By written notice from Global to Buyers if Global receives an
offer from a third party to acquire Gen-X Holdings and Gen-X Equipment and
the board of directors of Global determines, in good faith, that its
fiduciary duties under applicable Law require Global to accept such offer.
13.2. Effect of Termination. Upon termination of this Agreement pursuant to
Section 13.1, this Agreement shall forthwith have no further force or effect,
and there shall be no liability on the part of any party hereto; provided,
however, that (i) this Section 13.2 and Section 14 (other than Section 14.7),
shall survive the termination of this Agreement and shall remain in full force
and effect, and (ii) the termination of this Agreement shall not relieve any
party from any breach of this Agreement prior to such termination; further
provided, however, that if Global terminates this Agreement pursuant to
Section 13.1.7, and neither Buyers, DMJ, Salter nor Finkelstein is in breach
of the Agreement, then Global shall pay to DMJ, within five business days
after the termination of this Agreement, a nonrefundable fee in the amount of
$1.5 million.
14. OTHER PROVISIONS
14.1. Confidentiality. During the period from the date of this Agreement to
the Closing Date, (a) each of the parties shall maintain the confidentiality
of all confidential information which is disclosed to them in connection with
this Agreement, and (b) none of the parties will discuss the existence or
nature of this Agreement
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or the transaction contemplated hereby with any of the other parties=
customers, prospects, suppliers, employees, contractors, salesmen, agents or
representatives. If this Agreement is terminated in accordance with Section
13, then each party shall promptly return all confidential information and
materials of the other parties, and the provisions of the foregoing sentence
shall survive such termination indefinitely.
14.2. Publicity. All voluntary public announcements concerning the
transactions contemplated by this Agreement shall be mutually acceptable to
both Global and Buyers. Unless required by Law, neither Global, on the one
hand, nor Buyers, DMJ, Salter or Finkelstein, on the other hand, shall make
any public announcement or issue any press release concerning the transactions
contemplated by this Agreement without the prior written consent of Global or
Buyers, respectively. With respect to any announcement that any of the parties
is required by Law to issue, such party shall, to the extent possible under
the circumstances, review the necessity for and the contents of the
announcement with the other parties before issuing the announcement.
14.3. Expenses. Global shall pay all of the fees and expenses incurred by it
in negotiating and preparing the Acquisition Agreements and in consummating
the transactions contemplated by the Acquisition Agreements. The Gen-X
Companies shall pay all of the fees and expenses incurred by Buyers, DMJ,
Salter and Finkelstein in negotiating and preparing the Acquisition Agreements
and in consummating the transactions contemplated by the Acquisition
Agreements. Notwithstanding the foregoing, Buyers, DMJ, Salter and Finkelstein
(and not the Gen-X Companies) shall pay all of the fees and expenses incurred
by Buyers, DMJ, Salter and Finkelstein in negotiating and preparing the
Acquisition Agreements and in consummating the transactions contemplated by
the Acquisition Agreements if this Agreement, and the transactions
contemplated hereby, are terminated pursuant to Section 13.1.6 of this
Agreement.
14.4. Notices. All notices, consents or other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered personally, (b) three
business days after being mailed by first class certified mail, return receipt
requested, postage prepaid, or (c) one business day after being sent by a
reputable overnight delivery service, postage or delivery charges prepaid, to
the parties at their respective addresses stated on the first page or the
signature pages of this Agreement. Notices may also be given by prepaid
telegram or facsimile and shall be effective on the date transmitted if
confirmed within 24 hours thereafter by a signed original sent in the manner
provided in the preceding sentence. A copy of each notice to Buyers, DMJ,
Salter or Finkelstein shall be simultaneously sent to Borden & Elliot, Scotia
Plaza, 40 King Street West, Toronto, Ontario M5H 3Y4, Canada, Attn: Daniel F.
Hirsh. A copy of each notice to Global shall be simultaneously sent to: Blank
Rome Comisky & McCauley LLP, One Logan Square, Philadelphia, Pennsylvania
19103, Attn: Francis E. Dehel, Esquire. Any party may change its address for
notice and the address to which copies must be sent by giving notice of the
new addresses to the other parties in accordance with this Section 14.4,
except that any such change of address notice shall not be effective unless
and until received.
14.5. Amendment. This Agreement may be amended, modified or supplemented by
the parties hereto, provided that any such amendment, modification or
supplement shall be in writing and signed by Global, and Buyers, DMJ, Salter
and Finkelstein.
14.6. Waivers. No waiver with respect to this Agreement shall be enforceable
against Global unless in writing and signed by Global. No waiver with respect
to this Agreement shall be enforceable against Buyers, DMJ, Salter and/or
Finkelstein unless in writing and signed by Buyers, DMJ, Salter and/or
Finkelstein, as the case will be. Except as otherwise expressly provided
herein, no failure to exercise, delay in exercising, or single or partial
exercise of any right, power or remedy by any party, and no course of dealing
between or among any of the parties, shall constitute a waiver of, or shall
preclude any other or further exercise of the same or any other right, power
or remedy.
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14.7. Survival of Representations. Survival of Representations. All
representations, warranties and covenants made in or pursuant to this
Agreement shall survive the date hereof, the Closing Date and the consummation
of the transactions contemplated hereby and thereby.
14.8. Entire Understanding. Entire Understanding. The Acquisition
Agreements, together with the Exhibits and Schedules hereto and thereto, state
the entire understanding among the parties with respect to the subject matter
hereof and thereof, and supersede all prior oral and written communications
and agreements, and all contemporaneous oral communications and agreements,
with respect to the subject matter hereof and thereof.
14.9. Parties in Interest. Parties in Interest. This Agreement shall bind,
benefit, and be enforceable by and against each party hereto and its
successors and assigns. Global shall not in any manner assign any of its
rights or obligations under this Agreement without the express prior written
consent of Buyers, and neither Buyers, DMJ, Salter nor Finkelstein shall in
any manner assign any of its rights or obligations under this Agreement
without the express prior written consent of Global.
14.10. Severability. I Severability. If any provision of this Agreement is
construed to be invalid, illegal or unenforceable, then the remaining
provisions hereof shall not be affected thereby and shall be enforceable
without regard thereto.
14.11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one original counterpart hereof;
provided, however, that if acceptable to Global, Buyers, DMJ, Salter and
Finkelstein, the Closing may be effected by facsimile transmission of executed
copies of the signature pages to this Agreement delivered at the Closing and
by sending original copies of signature pages to this Agreement delivered at
the Closing by reputable overnight delivery service, postage or delivery
charges prepaid, for delivery to the parties at their addresses stated on the
first page or signature pages of this Agreement by the third business day
following the Closing Date.
14.12. Section Headings. The section and subsection headings in this
Agreement are for convenience of reference only, do not constitute a part of
this Agreement, and shall not affect its interpretation.
14.13. References. All words used in this Agreement shall be construed to be
of such number and gender as the context requires or permits. Unless a
particular context clearly provides otherwise, (i) the words "hereof" and
"hereunder" and similar references refer to this Agreement in its entirety and
not to any specific section or subsection hereof, and (ii) the word
"including" shall mean including but not limited to.
14.14. CONTROLLING LAW. THIS AGREEMENT IS MADE UNDER, AND SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
14.15. Jurisdiction and Process. Each of the parties (a) irrevocably
consents to the exclusive jurisdiction of the Courts of Common Pleas of
Montgomery County, Pennsylvania, or the United States District Court for the
Eastern District of Pennsylvania, in any and all actions between or among any
of the parties, whether arising hereunder or otherwise, (b) irrevocably waives
its right to trial by jury in any such action, and (c) irrevocably consents to
service of process by first class certified mail, return receipt requested,
postage prepaid, to the address at which such party is to receive notice in
accordance with Section 14.4. In any and all actions between or among any of
the parties, whether arising hereunder or otherwise, the prevailing party or
parties shall be entitled to recover their reasonable attorneys= fees and
legal expenses from the other party or parties.
14.16. No Third Party Beneficiaries. No provision of this Agreement is
intended to or shall be construed to grant or confer any right to enforce this
Agreement, or any remedy for breach of this Agreement, to or upon any Person
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other than the parties hereto, including, but not limited to, any customer,
prospect, supplier, employee, contractor, salesman, agent or representative of
any of the parties hereto.
14.17. Construction. The parties agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of the Acquisition
Agreements or any other agreements or documents delivered in connection with
the transactions contemplated by the Acquisition Agreements.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed, or have caused this Agreement
to be executed on their behalf by their duly authorized officers, as of the
date first stated above.
GLOBAL SPORTS, INC. DMJ FINANCIAL, INC.
By: /s/ Michael G. Rubin By: /s/ Kenneth J. Finkelstein
-------------------------------- --------------------------------
Name: Michael G. Rubin Name:
Title: Chairman and CEO Title:
GEN-X ACQUISITION (U.S.), INC. GEN-X ACQUISITION (CANADA) INC.
By: /s/ James J. Salter By: /s/ James J. Salter
-------------------------------- --------------------------------
Name: Name:
Title: Title:
/s/ Kenneth J. Finkelstein /s/ James J. Salter
- ------------------------------------ ------------------------------------
KENNETH J. FINKELSTEIN JAMES J. SALTER
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EXHIBIT (C)
September 23, 1999
TERMINATION AGREEMENT
Parties: GLOBAL SPORTS, INC.,
- -------
a Delaware corporation ("Global")
555 S. Henderson Road
King of Prussia, PA 19406 U.S.A.
JAMES J. SALTER,
an individual ("Salter")
277 Glencairn Avenue
Toronto, Ontario M5N 1T8
Canada
Date: ______________________
- ----
Background. Global, U.S. Acquisition Co. ("U.S. Co."), Canadian Acquisition Co.
- ----------
("Canadian Co."), DMJ Financial Inc. ("DMJ"), Salter and Kenneth J. Finkelstein
are parties to an Acquisition Agreement, dated as of September 24, 1999 (the
"Acquisition Agreement"), pursuant to which (i) U.S. Co. acquired all of the
issued and outstanding shares of capital stock of Gen-X Holdings Inc., a
Washington corporation, in exchange for, among other things: (a) a cash payment
in the amount of Six Million Forty Thousand Dollars ($6,040,000); (b) a
promissory note in the principal amount of Five Million Dollars ($5,000,000);
and (c) the assumption of Global's non-negotiable subordinated notes in the
original aggregate principal amount of Three Million Nine Hundred Sixty Thousand
Dollars ($3,960,000) payable to Gen-X Holdings, dated as of the Closing Date,
together with all accrued and unpaid interest thereon, and (ii) Canadian Co.
acquired all of the issued and outstanding shares of capital stock of Gen-X
Equipment Inc., an Ontario corporation, in exchange for, among other things, a
promissory note in the principal amount of Five Million Dollars ($5,000,000).
As a condition to the consummation of the transactions contemplated by the
Acquisition Agreement, Global and Finkelstein have agreed to terminate the Key
Employee Agreement dated May 12, 1998 ("Key Employee Agreement") between Global
and Finkelstein. Any capitalized terms not defined herein shall have the
meaning ascribed to such terms in the Acquisition Agreement.
INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual
agreements stated below and in the Acquisition Agreement, the parties hereby
agree as follows:
1. Termination of Key Employee Agreement. Notwithstanding anything to
-------------------------------------
the contrary contained in the Key Employee Agreement, including without
limitation Section 2 thereof, the Key Employee Agreement is terminated effective
as of the date hereof, and is of no further force or effect.
2. Acknowledgment. Salter hereby acknowledges that all amounts earned
--------------
and/or payable to Salter by Global under the Key Employee Agreement as of the
date hereof have been paid
<PAGE>
by Global to Salter, including, but not limited to, all Compensation (as defined
in the Key Employee Agreement) and reimbursement of all expenses incurred by
Salter.
3. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one original counterpart hereof.
4. Controlling Law. THIS AGREEMENT IS MADE UNDER, AND SHALL BE CONSTRUED
---------------
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
5. Jurisdiction and Process. Each of the parties (i) irrevocably
------------------------
consents to the exclusive jurisdiction of the Courts of Common Pleas of
Montgomery County, Pennsylvania, or the United States District Court for the
Eastern District of Pennsylvania, in any and all actions between or among any of
the parties, whether arising hereunder or otherwise, (ii) irrevocably waives its
right to trial by jury in any such action, and (iii) irrevocably consents to
service of process by first class certified mail, return receipt requested,
postage prepaid, to the address set forth on the first page of this Agreement.
In any and all actions between or among any of the parties, whether arising
hereunder or otherwise, the prevailing party or parties shall be entitled to
recover their reasonable attorneys' fees and legal expenses from the other party
or parties.
IN WITNESS WHEREOF, the parties have executed this Termination Agreement as
of the date first above written.
GLOBAL SPORTS, INC.
By: _________________________________ ________________________________
Name: JAMES J. SALTER
Title:
-2-
<PAGE>
EXHIBIT (D)
September 23, 1999
TERMINATION AGREEMENT
Parties: GLOBAL SPORTS, INC.,
- -------
a Delaware corporation ("Global")
555 S. Henderson Road
King of Prussia, PA 19406 U.S.A.
KENNETH J. FINKELSTEIN,
an individual ("Finkelstein")
25 Brandy Court
Toronto, Ontario M3B 3L3
Canada
Date: ______________________
- ----
Background. Global, U.S. Acquisition Co. ("U.S. Co."), Canadian Acquisition Co.
- ----------
("Canadian Co."), DMJ Financial Inc. ("DMJ"), Salter and Kenneth J. Finkelstein
are parties to an Acquisition Agreement, dated as of September 24, 1999 (the
"Acquisition Agreement"), pursuant to which (i) U.S. Co. acquired all of the
issued and outstanding shares of capital stock of Gen-X Holdings Inc., a
Washington corporation, in exchange for, among other things: (a) a cash payment
in the amount of Six Million Forty Thousand Dollars ($6,040,000); (b) a
promissory note in the principal amount of Five Million Dollars ($5,000,000);
and (c) the assumption of Global's non-negotiable subordinated notes in the
original aggregate principal amount of Three Million Nine Hundred Sixty Thousand
Dollars ($3,960,000) payable to Gen-X Holdings, dated as of the Closing Date,
together with all accrued and unpaid interest thereon, and (ii) Canadian Co.
acquired all of the issued and outstanding shares of capital stock of Gen-X
Equipment Inc., an Ontario corporation, in exchange for, among other things, a
promissory note in the principal amount of Five Million Dollars ($5,000,000). As
a condition to the consummation of the transactions contemplated by the
Acquisition Agreement, Global and Finkelstein have agreed to terminate the Key
Employee Agreement dated May 12, 1998 ("Key Employee Agreement") between Global
and Finkelstein. Any capitalized terms not defined herein shall have the meaning
ascribed to such terms in the Acquisition Agreement.
INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual
agreements stated below and in the Acquisition Agreement, the parties hereby
agree as follows:
1. Termination of Key Employee Agreement. Notwithstanding anything to
-------------------------------------
the contrary contained in the Key Employee Agreement, including without
limitation Section 2 thereof, the Key Employee Agreement is terminated effective
as of the date hereof, and is of no further force or effect.
2. Acknowledgment. Salter hereby acknowledges that all amounts earned
--------------
and/or payable to Salter by Global under the Key Employee Agreement as of the
date hereof have
<PAGE>
been paid by Global to Salter, including, but not limited to, all Compensation
(as defined in the Key Employee Agreement) and reimbursement of all expenses
incurred by Salter.
3. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one original counterpart hereof.
4. Controlling Law. THIS AGREEMENT IS MADE UNDER, AND SHALL BE CONSTRUED
---------------
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
5. Jurisdiction and Process. Each of the parties (i) irrevocably
------------------------
consents to the exclusive jurisdiction of the Courts of Common Pleas of
Montgomery County, Pennsylvania, or the United States District Court for the
Eastern District of Pennsylvania, in any and all actions between or among any of
the parties, whether arising hereunder or otherwise, (ii) irrevocably waives its
right to trial by jury in any such action, and (iii) irrevocably consents to
service of process by first class certified mail, return receipt requested,
postage prepaid, to the address set forth on the first page of this Agreement.
In any and all actions between or among any of the parties, whether arising
hereunder or otherwise, the prevailing party or parties shall be entitled to
recover their reasonable attorneys' fees and legal expenses from the other party
or parties.
IN WITNESS WHEREOF, the parties have executed this Termination Agreement as
of the date first above written.
GLOBAL SPORTS, INC.
By: _________________________________ ________________________________
Name: KENNETH J. FINKELSTEIN
Title:
<PAGE>
EXHIBIT (F)
September 30, 1999
RIGHT OF FIRST OFFER AGREEMENT
Parties: GLOBAL SPORTS, INC.,
- ------- a Delaware Corporation ("Global")
555 S. Henderson Road
King of Prussia, PA 19406
GEN-X EQUIPMENT INC.,
an Ontario corporation ("Gen-X Equipment")
25 Vanley Crescent
North York, Ontario
Canada, M3J2B7
Date: _____________, _____
- ----
Background: Global, U.S. Acquisition Co. ("U.S. Co."), Canadian Acquisition Co.
- ----------
("Canadian Co."), DMJ Financial, Inc., James J. Salter and Kenneth J.
Finkelstein are parties to an Acquisition Agreement, dated as of September 24,
1999 (the "Acquisition Agreement"), pursuant to which (i) U.S. Co. acquired all
of the issued and outstanding shares of capital stock of Gen-X Holdings Inc., a
Washington corporation, in exchange for, among other things: (a) a cash payment
in the amount of Six Million Forty Thousand Dollars ($6,040,000); (b) a
promissory note in the principal amount of Five Million Dollars ($5,000,000);
and (c) the assumption of Global's non-negotiable subordinated notes in the
original aggregate principal amount of Three Million Nine Hundred Sixty Thousand
Dollars ($3,960,000) payable to Gen-X Holdings, dated as of the Closing Date,
together with all accrued and unpaid interest thereon, and (ii) Canadian Co.
acquired all of the issued and outstanding shares of capital stock of Gen-X
Equipment in exchange for, among other things, a promissory note (the in the
principal amount of Five Million Dollars ($5,000,000). As a condition to the
consummation of the transactions contemplated by the Acquisition Agreement,
Global has agreed to cause its subsidiary to use commercially reasonable efforts
to grant a right of first offer to Gen-X Equipment in certain of such
subsidiary's inventory. Any capitalized terms not defined herein shall have the
meaning ascribed to such terms in the Acquisition Agreement.
NOW, THEREFORE, intending to be legally bound hereby, and in consideration
of the mutual agreements contained herein, Global and Gen-X Equipment agree as
follows:
1. Right of First Offer. Subject to the terms and conditions hereof,
--------------------
Global hereby agrees to cause its wholly-owned subsidiary, Global Sports
Interactive, Inc. ("GSI"), to use commercially reasonable efforts to first offer
to Gen-X Equipment future sales by GSI of closeout athletic footwear, apparel
and sporting goods inventory ("GSI Closeout Inventory"). Each time GSI proposes
to offer any GSI Closeout Inventory for sale to a third party, Global shall
cause GSI to use commercially reasonable efforts to offer such GSI Closeout
Inventory to Gen-X Equipment in accordance with the following provisions:
<PAGE>
(a) GSI shall notify (the "First Offer Notice") Gen-X Equipment
orally or in writing of (i) its intention to offer such GSI Closeout Inventory
for sale, (ii) the type and quantity of such GSI Closeout Inventory to be
offered, and (iii) the price and terms, if any, upon which it proposes to offer
such GSI Closeout Inventory.
(b) Within forty-eight (48) hours after receipt of the First Offer
Notice, Gen-X Equipment may elect to purchase, at the price and on the terms
specified in the First Offer Notice, all, but not less than all, of such GSI
Closeout Inventory described in the First Offer Notice.
(c) If Gen-X Equipment elects not to purchase such GSI Closeout
Inventory, or if Gen-X Equipment does not make any election within such forty-
eight (48) hour period with respect to such GSI Closeout Inventory, GSI may sell
such GSI Closeout Inventory to any third party at any price which is not less
than ninety percent (90%) of the price specified in the First Offer Notice and
neither Global nor GSI shall have any further obligations hereunder with respect
to such GSI Closeout Inventory.
(d) If GSI desires to sell such GSI Closeout Inventory at a price
which is less than ninety percent (90%) of the price specified in the First
Offer Notice, GSI shall notify Gen-X Equipment orally or in writing of the price
at which it proposes to offer such GSI Closeout Inventory and Gen-X Equipment
may elect, within twenty-four (24) hours after such notice, to purchase, at such
price and on the terms specified in the First Offer Notice, all, but not less
than all, of such GSI Closeout Inventory. If Gen-X Equipment elects not to
purchase such GSI Closeout Inventory, or if Gen-X Equipment does not make any
election within such twenty-four (24) hour period with respect to such GSI
Closeout Inventory, neither Global nor GSI shall have any further obligations
hereunder with respect to such GSI Closeout Inventory.
2. Consent. Notwithstanding the foregoing, neither Global nor GSI shall
-------
have any obligations with respect to the sale of GSI Closeout Inventory if,
during the forty-eight (48) hour period following receipt by Gen-X Equipment of
the First Offer Notice relating to such GSI Closeout Inventory, Global is unable
to obtain the consent of the manufacturer, vendor or retailer of such GSI
Closeout Inventory to the sale of such GSI Closeout Inventory to Gen-X Equipment
or if such manufacturer, vendor or retailer otherwise objects to the sale of
such GSI Closeout Inventory to Gen-X Equipment.
3. Miscellaneous.
-------------
(a) Notices. All notices, consents or other communications required
-------
or permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (i) when delivered personally or when sent via
facsimile, (ii) three business days after being mailed by first class certified
mail, return receipt requested, postage prepaid, or (iii) one business day after
being sent by a reputable overnight delivery service, postage or delivery
charges prepaid, to the
2
<PAGE>
parties at their respective addresses stated on the first page of this
Agreement. Notices may also be given by prepaid telegram and shall be effective
on the date transmitted if confirmed within 24 hours thereafter by a signed
original sent in the manner provided in the preceding sentence. A copy of each
notice to Gen-X Equipment, other than First Offer Notices, shall be
simultaneously sent to Borden & Elliot, Scotia Plaza, 40 King Street West,
Toronto, Ontario M5H 3Y4, Canada, Attn: Daniel F. Hirsh. A copy of each notice
to Global shall be simultaneously sent to: Blank Rome Comisky & McCauley LLP,
One Logan Square, Philadelphia, Pennsylvania 19103, Attn: Francis E. Dehel,
Esquire. Any party may change its address for notice and the address to which
copies must be sent by giving notice of the new addresses to the other parties
in accordance with this Section 3(a), except that any such change of address
notice shall not be effective unless and until received.
(b) Amendment. This Agreement may be amended, modified or
---------
supplemented by the parties hereto, provided that any such amendment,
modification or supplement shall be in writing and signed by the each of the
parties hereto.
(c) Waivers. No waiver with respect to this Agreement shall be
-------
enforceable against Gen-X Equipment unless in writing and signed by Gen-X
Equipment. No waiver with respect to this Agreement shall be enforceable against
Global unless in writing and signed by Global. Except as otherwise expressly
provided herein, no failure to exercise, delay in exercising, or single or
partial exercise of any right, power or remedy by any party, and no course of
dealing between or among any of the parties, shall constitute a waiver of, or
shall preclude any other or further exercise or further exercise of the same or
any other right, power or remedy.
(d) Entire Understanding. This Agreement states the entire
--------------------
understanding among the parties with respect to the subject matter hereof, and
supersede all prior oral and written communications and agreements, and all
contemporaneous oral communications and agreements, with respect to the subject
matter hereof.
(e) Parties in Interest. This Agreement shall bind, benefit, and be
-------------------
enforceable by and against each party hereto and its successors and assigns.
None of the parties shall in any manner assign any of their rights or
obligations under this Agreement except with the express prior written consent
of the other parties.
(f) Severability. If any provision of this Agreement is construed to
------------
be invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one original counterpart hereof.
3
<PAGE>
(h) Section Headings. The section and subsection headings in this
----------------
Agreement are for convenience of reference only, do not constitute a part of
this Agreement, and shall not affect its interpretation.
(i) References. All words used in this Agreement shall be construed
----------
to be of such number and gender as the context requires or permits. Unless a
particular context clearly provides otherwise, the words "hereof" and
"hereunder" and similar references refer to this Agreement in its entirety and
not to any specific section or subsection hereof.
(j) Controlling Law. THIS AGREEMENT IS MADE UNDER, AND SHALL BE
---------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
(k) Jurisdiction and Process. Each of the parties (i) irrevocably
------------------------
consents to the exclusive jurisdiction of the Courts of Common Pleas of
Montgomery County, Pennsylvania, or the United States District Court for the
Eastern District of Pennsylvania, in any and all actions between or among any of
the parties, whether arising hereunder or otherwise, (ii) irrevocably waives its
right to trial by jury in any such action, and (iii) irrevocably consents to
service of process by first class certified mail, return receipt requested,
postage prepaid, to the address at which such party is to receive notice in
accordance with Section 3(a). In any and all actions between or among any of the
parties, whether arising hereunder or otherwise, the prevailing party or parties
shall be entitled to recover their reasonable attorneys' fees and legal expenses
from the other party or parties.
(l) No Third Party Beneficiaries. No provision of this Agreement is
----------------------------
intended to or shall be construed to grant or confer any right to enforce this
Agreement, or any remedy for breach of this Agreement, to or upon any Person
other than the parties hereto, including, but not limited to, any customer,
prospect, supplier, employee, contractor, salesman, agent or representative of
any of the parties hereto.
(m) Term. This Agreement shall commence on the date hereof and
----
terminate on the fifth anniversary date hereof, unless extended or sooner
terminated in writing by the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Right of First
Offer Agreement to be executed as of the day and year first written above.
GLOBAL SPORTS, INC. GEN-X EQUIPMENT INC.
By: ____________________________ By: _______________________________
Name: Name:
Title: Title:
4
<PAGE>
EXHIBIT (G)
September 23, 1999
NON-COMPETITION AGREEMENT
Parties: MICHAEL G. RUBIN
- -------
an individual ("Rubin")
c/o GLOBAL SPORTS, INC.,
a Delaware corporation
555 S. Henderson Road
King of Prussia, PA 19406 U.S.A.
GLOBAL SPORTS, INC.,
a Delaware corporation ("Global")
555 S. Henderson Road
King of Prussia, PA 19406 U.S.A.
GEN-X HOLDINGS INC.,
a Washington corporation ("Gen-X Holdings")
25 Vanley Crescent
North York, Ontario
Canada, M3J2B7
GEN-X EQUIPMENT INC.,
an Ontario corporation ("Gen-X Equipment")
25 Vanley Crescent
North York, Ontario
Canada, M3J2B7
Date: _____________, _____
- ----
Background: Global, U.S. Acquisition Co. ("U.S. Co."), Canadian Acquisition Co.
- ----------
("Canadian Co."), DMJ Financial Inc. ("DMJ"), James J. Salter ("Salter") and
Kenneth J. Finkelstein ("Finkelstein") are parties to an Acquisition Agreement,
dated as of September 24, 1999 (the "Acquisition Agreement"), pursuant to which
(i) U.S. Co. acquired all of the issued and outstanding shares of capital stock
of Gen-X Holdings in exchange for, among other things: (a) a cash payment in the
amount of Six Million Forty Thousand Dollars ($6,040,000); (b) a promissory note
in the principal amount of Five Million Dollars ($5,000,000); and (c) the
assumption of Global's non-negotiable subordinated notes in the original
aggregate principal amount of Three Million Nine Hundred Sixty Thousand Dollars
($3,960,000) payable to Gen-X Holdings, dated as of the Closing Date, together
with all accrued and unpaid interest thereon, and (ii) Canadian Co. acquired all
of the issued and outstanding shares of capital stock of Gen-X Equipment in
exchange for, among other things, a promissory note in the principal amount of
Five Million Dollars ($5,000,000). Gen-X Holdings and Gen-X Equipment are
referred to herein collectively as the "Gen-X Companies". As a condition to the
consummation of the transactions contemplated by the Acquisition Agreement,
<PAGE>
Rubin, as the chief executive officer of Global, and Global (each, individually,
a "Covenantor") have agreed to become bound by certain restrictive covenants for
purposes of protecting U.S. Co.'s and Canadian Co.'s purchase under the
Acquisition Agreement. Any capitalized terms not defined herein shall have the
meaning ascribed to such terms in the Acquisition Agreement.
INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual
agreements stated below and in the Acquisition Agreement, the parties hereby
agree as follows:
1. Noncompetition. During the Term (as hereafter defined) except with
--------------
the Gen-X Companies' prior written consent, neither Covenantor shall, directly
or indirectly, in any capacity, at any location where either of the Gen-X
Companies currently conducts or proposes to conduct business (so long as such
Covenantor is aware of such proposal) as of the date hereof (the "Territory"):
(a) communicate with or solicit any Person who is or during the
one-year period prior to the date hereof was or during the Term becomes, a
customer, employee, salesman, agent or representative of, or a consultant to,
either of the Gen-X Companies in any manner which interferes or might interfere
with such Person's relationship with either of the Gen-X Companies, or in an
effort to obtain any such Person as a customer, employee, salesman, agent or
representative of, or a consultant to, any other Person that conducts a business
competitive with or similar to the action sports and off-price sporting goods
business currently conducted by the Gen-X Companies (which off-price sporting
goods business consists of the buying of closeout sporting goods and apparel
inventory from retailers and manufacturers and the reselling of such inventory
to other retailers); or
(b) establish, own, manage, operate, finance or control, or directly
or indirectly participate in the establishment, ownership, management,
operation, financing or control of, or be a director, officer, employee,
salesman, agent or representative of, or be a consultant to, any Person that
conducts a business competitive with the action sports and off-price sporting
goods business currently conducted by the Gen-X Companies.
Notwithstanding anything to the contrary contained herein, neither Covenantor
shall be prohibited or restricted from (i) designing, developing and/or
operating web sites for, (ii) providing fulfillment or other services or goods
in connection with, (iii) procuring goods in connection with, or (iv) offering
for sale and/or selling off-price sporting goods over the internet either on
behalf of itself or any of its customers or others with which such Covenantor
has a contractual relationship.
2. Term and Termination. The term of this Agreement (the "Term") shall
--------------------
begin on the date hereof and shall end on the fifth (5th) anniversary of the
date hereof, unless terminated earlier as provided herein. Notwithstanding the
foregoing, either Covenantor may terminate this Agreement at any time, upon the
occurrence of either of the following:
(a) the material default, breach or violation of U.S. Co., Canadian
Co., DMJ, the Gen-X Companies, Salter or Finkelstein in the performance or
observance of any of their respective covenants, agreements, representations,
warranties or conditions contained in the Acquisition
-2-
<PAGE>
Agreement or the Ancillary Agreements; provided that this Agreement shall not
terminate if U.S. Co., Canadian Co., DMJ, the Gen-X Companies, Salter or
Finkelstein, as the case may be, cures such default, breach or violation within
sixty (60) days after the occurrence of such default, breach or violation; or
(b) an Event of Default under the Subordinated Note Agreement, dated
as of the date hereof, among Global, U.S. Co., Canadian Co., Gen-X Holdings
Inc., a Washington Corporation, Gen-X Equipment Inc., an Ontario corporation,
Gen-X Holdings Ltd., a Washington corporation and Gen-X Equipment A.G., a
_____________ corporation, as defined therein.
3. Consideration. Each Covenantor expressly acknowledges that (a) the
-------------
restrictive covenants of this Agreement (the "Covenants") are a material part of
the consideration bargained for by U.S. Co., Canadian Co. and DMJ, (b) without
the agreement of such Covenantor to be bound by the Covenants, U.S. Co.,
Canadian Co. and DMJ would not have agreed to enter into the Acquisition
Agreement and consummate the transactions contemplated thereby.
4. Enforcement. Each Covenantor expressly acknowledges that any breach
-----------
of any of the Covenants will result in irreparable injury to the Gen-X Companies
for which money damages could not adequately compensate. If there is such a
breach, the Gen-X Companies shall be entitled, in addition to all other rights
and remedies they may have at law or equity, to have an injunction issued by any
competent court enjoining and restraining such breaching Covenantor and all
other Persons involved therein from continuing such breach. The existence of
any claim or cause of action which either Covenantor or any such other Person
may have against the Gen-X Companies shall not constitute a defense or bar to
the enforcement of any of the Covenants. If the Gen-X Companies must resort to
litigation to enforce any of the Covenants that has a fixed term, then such term
shall be extended for a period of time equal to the period during which a breach
of such Covenant was occurring, beginning on the date of a final court order
(without further right of appeal) holding that such a breach occurred or, if
later, the last day of the original fixed term of such Covenant.
5. Scope. If any portion of any Covenant or its application is construed
-----
to be invalid, illegal or unenforceable, then the other portions and their
application shall not be affected thereby and shall be enforceable without
regard thereto. If any of the Covenants is determined to be unenforceable due
to its scope, duration, geographical area or similar factor, then the court
making such determination shall have the power to reduce or limit such scope,
duration, are or other factor, and such Covenant shall then be enforceable in
its reduced or limited form.
6. Reasonableness. Each Covenantor expressly acknowledges that this
--------------
Agreement is reasonable and valid in all respects and irrevocably waives (and
irrevocably agrees not to raise) as a defense any issue of reasonableness
(including the reasonableness of the noncompetition covenant insofar as it
relates to the business of the Gen-X Companies, the Territory or the duration or
scope of this Agreement) in any proceeding to enforce any provision of this
Agreement, the intention of the parties being to provide for the legitimate and
reasonable protection of the interests of the Gen-X Companies and by providing,
without limitation, for the broadest scope, the longest duration and the widest
territory allowable by law.
-3-
<PAGE>
7. Miscellaneous.
-------------
(a) Notices. All notices, consents or other communications required
-------
or permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (i) when delivered personally, (ii) three
business days after being mailed by first class certified mail, return receipt
requested, postage prepaid, or (iii) one business day after being sent by a
reputable overnight delivery service, postage or delivery charges prepaid, to
the parties at their respective addresses stated on the first page or the
signature pages of this Agreement. Notices may also be given by prepaid
telegram or facsimile and shall be effective on the date transmitted if
confirmed within 24 hours thereafter by a signed original sent in the manner
provided in the preceding sentence. A copy of each notice to Pledgor, shall be
simultaneously sent to Borden & Elliot, Scotia Plaza, 40 King Street West,
Toronto, Ontario M5H 3Y4, Canada, Attn: Daniel F. Hirsh. A copy of each notice
to the Secured Party shall be simultaneously sent to: Blank Rome Comisky &
McCauley LLP, One Logan Square, Philadelphia, Pennsylvania 19103, Attn: Francis
E. Dehel, Esquire. Any party may change its address for notice and the address
to which copies must be sent by giving notice of the new addresses to the other
parties in accordance with this Section 7(a), except that any such change of
address notice shall not be effective unless and until received.
(b) Amendment. This Agreement may be amended, modified or
---------
supplemented by the parties hereto, provided that any such amendment,
modification or supplement shall be in writing and signed by the each of the
parties hereto.
(c) Waivers. No waiver with respect to this Agreement shall be
-------
enforceable against the Gen-X Companies unless in writing and signed by the Gen-
X Companies. No waiver with respect to this Agreement shall be enforceable
against either Covenantor unless in writing and signed by such Covenantor.
Except as otherwise expressly provided herein, no failure to exercise, delay in
exercising, or single or partial exercise of any right, power or remedy by any
party, and no course of dealing between or among any of the parties, shall
constitute a waiver of, or shall preclude any other or further exercise or
further exercise of the same or any other right, power or remedy.
(d) Entire Understanding. This Agreement states the entire
--------------------
understanding among the parties with respect to the subject matter hereof, and
supersede all prior oral and written communications and agreements, and all
contemporaneous oral communications and agreements, with respect to the subject
matter hereof.
(e) Parties in Interest. This Agreement shall bind, benefit, and be
-------------------
enforceable by and against each party hereto and its successors and assigns.
None of the parties shall in any manner assign any of their rights or
obligations under this Agreement except with the express prior written consent
of the other parties.
(f) Severability. If any provision of this Agreement is construed to
------------
be invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
-4-
<PAGE>
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one original counterpart hereof.
(h) Section Headings. The section and subsection headings in this
----------------
Agreement are for convenience of reference only, do not constitute a part of
this Agreement, and shall not affect its interpretation.
(i) References. All words used in this Agreement shall be construed
----------
to be of such number and gender as the context requires or permits. Unless a
particular context clearly provides otherwise, the words "hereof" and
"hereunder" and similar references refer to this Agreement in its entirety and
not to any specific section or subsection hereof.
(j) Controlling Law. THIS AGREEMENT IS MADE UNDER, AND SHALL BE
---------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
(k) Jurisdiction and Process. Each of the parties (i) irrevocably
------------------------
consents to the exclusive jurisdiction of the Courts of Common Pleas of
Montgomery County, Pennsylvania, or the United States District Court for the
Eastern District of Pennsylvania, in any and all actions between or among any of
the parties, whether arising hereunder or otherwise, (ii) irrevocably waives its
right to trial by jury in any such action, and (iii) irrevocably consents to
service of process by first class certified mail, return receipt requested,
postage prepaid, to the address at which such party is to receive notice in
accordance with Section 7(a). In any and all actions between or among any of
the parties, whether arising hereunder or otherwise, the prevailing party or
parties shall be entitled to recover their reasonable attorneys' fees and legal
expenses from the other party or parties.
(l) No Third Party Beneficiaries. No provision of this Agreement is
----------------------------
intended to or shall be construed to grant or confer any right to enforce this
Agreement, or any remedy for breach of this Agreement, to or upon any Person
other than the parties hereto, including, but not limited to, any customer,
prospect, supplier, employee, contractor, salesman, agent or representative of
any of the parties hereto.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Non-Competition
Agreement as of the date first above written.
GEN-X HOLDINGS INC. GEN-X EQUIPMENT INC.
By: _______________________________ By: _______________________________
Name: Name:
Title: Title:
___________________________________
MICHAEL G. RUBIN
-6-
<PAGE>
EXHIBIT (H)
September 23, 1999
TERMINATION OF NON-COMPETITION AGREEMENT
Parties: GLOBAL SPORTS, INC.,
- -------
a Delaware corporation (the "Company")
555 S. Henderson Road
King of Prussia, PA 19406 U.S.A.
DMJ FINANCIAL, INC.,
a Barbados limited company ("DMJ")
Royal Bank of Canada (Caribbean) Corporation
2/nd/ Floor, Building #2
Chelston Park
Collymore, St. Michael, Barbados
JAMES J. SALTER,
an individual ("Salter")
277 Glencairn Avenue
Toronto, Ontario M5N 1T8
Canada
KENNETH J. FINKELSTEIN,
an individual ("Finkelstein")
25 Brandy Court
Toronto, Ontario M3B 3L3
Canada
Date: ______________________, __________
- ----
Background: Global, U.S. Acquisition Co. ("U.S. Co."), Canadian Acquisition Co.
- ----------
("Canadian Co."), DMJ, Salter and Finkelstein are parties to an Acquisition
Agreement, dated as of September 24, 1999 (the "Acquisition Agreement"),
pursuant to which (i) U.S. Co. acquired all of the issued and outstanding shares
of capital stock of Gen-X Holdings Inc., a Washington corporation, in exchange
for, among other things: (a) a cash payment in the amount of Six Million Forty
Thousand Dollars ($6,040,000); (b) a promissory note in the principal amount of
Five Million Dollars ($5,000,000); and (c) the assumption of Global's non-
negotiable subordinated notes in the original aggregate principal amount of
Three Million Nine Hundred Sixty Thousand Dollars ($3,960,000) payable to Gen-X
Holdings, dated as of the Closing Date, together with all accrued and unpaid
interest thereon, and (ii) Canadian Co. acquired all of the issued and
outstanding shares of capital stock of Gen-X Equipment Inc., an Ontario
corporation, in exchange for, among other things, a promissory note (the in the
principal amount of Five Million Dollars ($5,000,000). As a condition to the
consummation of the transactions contemplated by the Acquisition Agreement, the
Company has agreed to waive DMJ, Salter and Finkelstein's compliance, subject to
the terms and conditions contained herein, with certain of the provisions of
the Non-Competition Agreement, dated May 12, 1998, among the Company, DMJ,
Salter and Finkelstein (the "Non-Competition Agreement"). Any
<PAGE>
capitalized terms not defined herein shall have the meaning ascribed to such
terms in the Acquisition Agreement.
INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual
agreements stated below and in the Acquisition Agreement, the parties hereby
agree as follows:
1. Termination of Non-Competition Agreement. Effective as of the date
----------------------------------------
hereof, the Non-Competition Agreement is hereby terminated and of no further
force or effect.
2. Miscellaneous.
-------------
(a) Notices. All notices, consents or other communications required
-------
or permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (i) when delivered personally, (ii) three
business days after being mailed by first class certified mail, return receipt
requested, postage prepaid, or (iii) one business day after being sent by a
reputable overnight delivery service, postage or delivery charges prepaid, to
the parties at their respective addresses stated on the first page of this
Agreement. Notices may also be given by prepaid telegram or facsimile and shall
be effective on the date transmitted if confirmed within 24 hours thereafter by
a signed original sent in the manner provided in the preceding sentence. A copy
of each notice to DMJ, Salter or Finkelstein shall be simultaneously sent to
Borden & Elliot, Scotia Plaza, 40 King Street West, Toronto, Ontario M5H 3Y4,
Canada, Attn: Daniel F. Hirsh. A copy of each notice to the Company shall be
simultaneously sent to: Blank Rome Comisky & McCauley LLP, One Logan Square,
Philadelphia, Pennsylvania 19103, Attn: Francis E. Dehel, Esquire. Any party
may change its address for notice and the address to which copies must be sent
by giving notice of the new addresses to the other parties in accordance with
this Section 2(a), except that any such change of address notice shall not be
effective unless and until received.
(b) Amendment. This Agreement may be amended, modified or
---------
supplemented by the parties hereto, provided that any such amendment,
modification or supplement shall be in writing and signed by the each of the
parties hereto.
(c) Waivers. No waiver with respect to this Agreement shall be
-------
enforceable against DMJ, Salter or Finkelstein unless in writing and signed by
DMJ, Salter or Finkelstein, as the case may be. No waiver with respect to this
Agreement shall be enforceable against the Company unless in writing and signed
by the Company. Except as otherwise expressly provided herein, no failure to
exercise, delay in exercising, or single or partial exercise of any right, power
or remedy by any party, and no course of dealing between or among any of the
parties, shall constitute a waiver of, or shall preclude any other or further
exercise or further exercise of the same or any other right, power or remedy.
(d) Entire Understanding. This Agreement states the entire
--------------------
understanding among the parties with respect to the subject matter hereof, and
supersede all prior oral and written communications and agreements, and all
contemporaneous oral communications and agreements, with respect to the subject
matter hereof.
-2-
<PAGE>
(e) Parties in Interest. This Agreement shall bind, benefit, and be
-------------------
enforceable by and against each party hereto and its successors and assigns.
None of the parties shall in any manner assign any of their rights or
obligations under this Agreement except with the express prior written consent
of the other parties.
(f) Severability. If any provision of this Agreement is construed to
------------
be invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one original counterpart hereof.
(h) Section Headings. The section and subsection headings in this
----------------
Agreement are for convenience of reference only, do not constitute a part of
this Agreement, and shall not affect its interpretation.
(i) References. All words used in this Agreement shall be construed
----------
to be of such number and gender as the context requires or permits. Unless a
particular context clearly provides otherwise, the words "hereof" and
"hereunder" and similar references refer to this Agreement in its entirety and
not to any specific section or subsection hereof.
(j) Controlling Law. THIS AGREEMENT IS MADE UNDER, AND SHALL BE
---------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
(k) Jurisdiction and Process. Each of the parties (i) irrevocably
------------------------
consents to the exclusive jurisdiction of the Courts of Common Pleas of
Montgomery County, Pennsylvania, or the United States District Court for the
Eastern District of Pennsylvania, in any and all actions between or among any of
the parties, whether arising hereunder or otherwise, (ii) irrevocably waives its
right to trial by jury in any such action, and (iii) irrevocably consents to
service of process by first class certified mail, return receipt requested,
postage prepaid, to the address at which such party is to receive notice in
accordance with Section 2(a). In any and all actions between or among any of
the parties, whether arising hereunder or otherwise, the prevailing party or
parties shall be entitled to recover their reasonable attorneys' fees and legal
expenses from the other party or parties.
(l) No Third Party Beneficiaries. No provision of this Agreement is
----------------------------
intended to or shall be construed to grant or confer any right to enforce this
Agreement, or any remedy for breach of this Agreement, to or upon any Person
other than the parties hereto, including, but not limited to, any customer,
prospect, supplier, employee, contractor, salesman, agent or representative of
any of the parties hereto.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Termination of Non-
Competition Agreement as of the date first above written.
GLOBAL SPORTS, INC. DMJ FINANCIAL, INC.
By: _______________________________ By: _______________________________
Name: Name:
Title: Title:
___________________________________ ___________________________________
KENNETH J. FINKELSTEIN JAMES J. SALTER
-4-
<PAGE>
EXHIBIT (I)
1. Global is a corporation duly organized, validly existing and in good
standing under te Laws of the State of Delaware. Global possesses the full
corporate power and authority to own its Assets, conduct its business as
and where presently conducted.
2. Global possesses the full corporate power and authority to enter and
perform the Acquisition Agreements (to the extent it is a party thereto) in
accordance with their respective terms, and the Acquisition Agreements (to
the extent it is a party thereto) have been duly authorized and approved by
all necessary corporate action.
3. The Acquisition Agreements have been duly and validly executed and
delivered by Global and constitute valid and legally binding obligations of
the Global, enforceable against it in accordance with their respective
terms.
<PAGE>
Exhibit (K)
September 23, 1999
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
AGREEMENT dated ______________, ____, by and between Global Sports, Inc.
("Assignor"), a Delaware corporation, and Gen-X Acquisition (U.S.), Inc.
("Assignee"), a Washington corporation.
BACKGROUND
----------
A. Assignor, Assignee, Gen-X Acquisition (Canada) Inc. ("Canadian Co."),
DMJ Financial Inc., James J. Salter and Kenneth J. Finkelstein are parties to an
Acquisition Agreement, dated as of September 24, 1999 (the "Acquisition
Agreement"), pursuant to which (i) Assignee acquired all of the issued and
outstanding shares of capital stock of Gen-X Holdings Inc. ("Gen-X Holdings") in
exchange for, among other things: (a) a cash payment in the amount of Six
Million Forty Thousand Dollars ($6,040,000); (b) a promissory note in the
principal amount of Five Million Dollars ($5,000,000); and (c) the assumption of
Global's non-negotiable subordinated notes (the "Global-Holdings Note") in the
original aggregate principal amount of Three Million Nine Hundred Sixty Thousand
Dollars ($3,960,000) payable to Gen-X Holdings, dated as of the Closing Date,
together with all accrued and unpaid interest thereon, and (ii) Canadian Co.
acquired all of the issued and outstanding shares of capital stock of Gen-X
Equipment in exchange for, among other things, a promissory note in the
principal amount of Five Million Dollars ($5,000,000).
Assignor and Assignee are entering into this Assignment and Assumption
Agreement (the "Agreement") pursuant to the terms of the Asset Acquisition
Agreement and in order to effect the assumption by Assignee of Assignor's
obligations under the Global-Holdings Note.
IN CONSIDERATION of the mutual agreements contained herein and in the
Acquisition Agreement, and intending to be legally bound, the parties agree as
follows:
1. Definitions. Capitalized terms used in this Agreement, and not
-----------
specifically defined in this Agreement, shall have the meanings and definitions
ascribed to them in the Acquisition Agreement.
2. Assignment by Assignor. Effective as of the date hereof, Assignor
----------------------
hereby assigns and transfers to Assignee all of Assignor's legal and equitable
right, title, and interest in and to the Global-Holdings Note.
3. Acceptance and Assumption by Assignee. Effective as of the date
-------------------------------------
hereof, Assignee hereby accepts this assignment and transfer of the Global-
Holdings Note, and assumes and agrees to pay, perform, fully satisfy, and
discharge, as and when due, all of Assignor's obligations, duties, and
liabilities under the Global-Holdings Note (collectively the "Assumed
Obligations").
4. Consent and Release. In consideration of the Assumption by Assignee
-------------------
of the Assumed Obligations, Gen-X Holdings hereby accepts the assignment of the
Global-Holdings Note
<PAGE>
and releases Assignor form all obligations, duties, and liabilities under the
Global-Holdings Note and consents to the assumption of the Assumed Obligations
by Assignee.
5. Cancellation of Note. Effective as of the date hereof, the Global-
--------------------
Holdings Note is hereby cancelled and Assignee shall issue a note in favor of
Gen-X Holdings in the principal amount of $3,960,000 on terms and conditions
substantially similar to the Global-Holdings Note mutatis mutandis.
6. Indemnification. Assignee shall indemnify, defend, protect and hold
---------------
Assignor harmless of and from any and all claims, demands, causes of action or
liabilities arising out of or resulting in any way from the Global-Holdings
Note.
7. Additional Provisions.
---------------------
7.1 Binding Effect. This Agreement and all of the terms and
--------------
conditions contained in this Agreement shall apply to, be binding upon, inure to
the benefit of, and be enforceable by, the parties and their respective
successors and permitted assigns.
7.2 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one original counterpart hereof.
7.3 CONTROLLING LAW. THIS AGREEMENT IS MADE UNDER, AND SHALL BE
---------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Executed as of the date first written above.
GLOBAL SPORTS, INC. GEN-X ACQUISITION (U.S.), INC.
By: __________________________ By: ____________________________
Name: Name:
Title: Title:
GEN-X HOLDINGS INC.
By: ____________________________
Name:
Title:
2
<PAGE>
EXHIBIT (Q)
Draft #2
Borden & Elliot
23-09-99
PURCHASE AGREEMENT
THIS AGREEMENT made as of September ___, 1999
AMONG:
DMJ FINANCIAL, INC., a Barbados limited company, with its head office
located c/o Royal Bank of Canada (Caribbean) Corporation, 2nd Floor,
Building #2, Chelston Park, Collymore, St. Michael, Barbados
("DMJ")
OF THE FIRST PART
- and -
GEN-X HOLDINGS INC., a Washington corporation, with its head office at
[25 Vanley Crescent, North York, Ontario, Canada, M3J 2B7]
("Gen-X Holdings")
OF THE SECOND PART
- and -
GEN-X EQUIPMENT INC., an Ontario corporation, with its head office
located at 25 Vanley Crescent, North York, Ontario, Canada, M3J 2B7
("Gen-X Equipment")
OF THE THIRD PART
Whereas DMJ is the registered legal and beneficial owner of 3,960,000 class
A Preference Shares (the "Class A Preference Shares") in the capital stock of
Gen-X Acquisition (U.S.), Inc. ("Acquisition US") with an aggregate redemption
price of, as of the date of this Agreement,
<PAGE>
-2-
approximately three million nine hundred sixty thousand (U.S.$3,960,000) dollars
in the lawful currency of the United States of America;
And whereas the terms and conditions of the Class A Preference Shares
provides, among other things, that DMJ may require Acquisition US to redeem the
Class A Preference Shares in exchange for cash in accordance with the following
schedule:
Redemption Date Number of Class A Preference Shares Consideration
- --------------- ----------------------------------- -------------
May 31, 2000 990,000 Class A Preference Shares U.S.$990,000
May 31, 2001 990,000 Class A Preference Shares U.S.$990,000
May 31, 2002 990,000 Class A Preference Shares U.S.$990,000
May 31, 2003 990,000 Class A Preference Shares U.S.$990,000
And whereas each of Gen-X Holdings and Gen-X Equipment has agreed that, in
the event of an occurrence of a Liquidation Event (as hereinafter defined), it
will purchase from DMJ the unredeemed portion of the Class A Preference Shares
for an amount equal to the unredeemed portion of the Class A Preference Shares
as determined pursuant to the terms of this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants herein contained and other good and valuable consideration (the
receipt and sufficiency of which is hereby acknowledged), the parties covenant
and agree as follows:
ARTICLE I - DEFINITIONS AND INTERPRETATION
I.1 Definitions. In this Agreement, unless the context otherwise requires, the
following words and terms with the initial letters thereof capitalized
shall have the meanings set forth below:
(a) "Agreement" means this agreement, including the recitals and schedules
attached hereto;
(b) "Assets" means all assets, both present and future, of the Obligors;
(c) "Business Day" means a day on which a chartered bank in Canada is open for
money market dealings in Toronto, Ontario, but excludes Saturday, Sunday
and any other day which is a statutory holiday in Toronto, Ontario;
(d) "Exercise Notice" means a notice delivered by DMJ requiring Gen-X Holdings
and Gen-X Equipment or either one of them, as the case may be, to fulfil
the Purchase Obligation in
<PAGE>
-3-
accordance with Article 2 and in the form of Schedule "A" attached to this
Agreement;
(e) "Global" means Global Sports, Inc.;
(f) "Global Security" means the collateral security granted at any time and
from time to time to Global with respect to the indebtedness and liability
of the Obligors to Global;
(g) "HSBC" means HSBC Bank Canada;
(h) "HSBC Security" means the collateral security granted at any time and from
time to time to HSBC with respect to the indebtedness and liability of the
Obligors to HSBC;
(i) "Intercreditor Agreement" means the intercreditor agreement dated September
___, 1999 entered into between HSBC, Ride, DMJ, Global, Acquisition US,
Gen-X Acquisition (Canada) Inc., an Ontario corporation, Gen-X Holdings,
Gen-X Equipment and Gen-X Equipment Ltd., a Washington corporation;
(j) "Liquidation Event" means, in respect of an Obligor:
(i) any proceedings seeking, or action taken, to realize upon any HSBC
Security or Global Security;
(ii) any insolvency or bankruptcy proceedings;
(iii) any receivership, liquidation, reorganization or other similar
proceedings;
(iv) any proceedings for voluntary liquidation, dissolution, or other
winding-up, whether or not involving insolvency or bankruptcy,
relative to any of the Obligors or to any of the Assets of any of the
Obligors;
(k) "Obligor" means the following corporations:
(i) Acquisition US, a Washington corporation;
(ii) Gen-X Acquisition (Canada) Inc., an Ontario corporation;
(iii) Gen-X Holdings;
(iv) Gen-X Equipment; and
(v) Gen-X Equipment Ltd., a Washington corporation;
<PAGE>
-4-
(l) "Ride" means Ride, Inc.;
(m) "U.S." means the United States of America and AU.S.$@ means the lawful
currency of the U.S.
1.02 References. Unless otherwise specified, all references to Articles and
Schedules are to Articles of, and Schedules to, this Agreement. The words
"hereto", "herein", "hereof", "hereunder" and similar expressions refer to this
Agreement and not to any particular Article or other provision of this
Agreement.
1.03 Headings. The division of this Agreement into articles, sections,
subsections, paragraphs and subparagraphs and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
1.04 Number and Gender. Words importing the singular shall include the
plural and vice-versa and words importing a gender shall include all genders.
1.05 Currency. All amounts expressed in this Agreement in terms of money refer
to lawful money of the U.S.
1.06 Schedules. The following schedules are attached to and incorporated into
this Agreement:
Schedule Title
-------- -----
A Exercise Notice
B Form of General Security Agreement
ARTICLE II - PURCHASE OBLIGATION
2.01 Purchase Obligation. At any time following the occurrence of a
Liquidation Event, DMJ shall be entitled, but not obligated, to require each or
any of Gen-X Holdings and Gen-X Equipment to purchase (the "Purchase
Obligation") such portion of the outstanding and unredeemed portion of the Class
A Preference Shares then held by DMJ for a purchase price equal to the
redemption price of each Class A Preference Share outstanding on the date of the
Liquidation Event.
<PAGE>
-5-
2.02 Mechanics of Purchase Obligation.
(a) Subject to Article 2.01, DMJ shall be entitled to require Gen-X
Holdings and Gen-X Equipment to fulfil, either jointly or severally,
in whole or in part, the Purchase Obligation by delivering an Exercise
Notice to Gen-X Holdings or Gen-X Equipment or either one of them, as
the case may be, in accordance with Article 5.07.
(b) The Exercise Notice shall set out the number of unredeemed Class A
Preference Shares (the "Exercise Notice Shares") and the purchase
price (the "Exercise Notice Price") to be paid by Gen-X Holdings and
Gen-X Equipment or either one of them, as the case may be, for such
Exercise Notice Shares;
(c) Gen-X Holdings and Gen-X Equipment or either one of them, as the case
may be, shall promptly deliver to DMJ, and in any event no later than
three (3) Business Days after the date of receipt or deemed receipt of
the Exercise Notice (the "Delivery Period") in accordance with Article
5.07, a certified cheque or money order made payable to DMJ in the
amount of the Exercise Notice Price;
(d) Interest shall accrue daily on the outstanding Exercise Notice Price
after the expiration of the Delivery Period at the five (5%) percent
and shall be calculated monthly and payable by Gen-X Holdings and Gen-
X Equipment or either one of them, as the case may be, with payment of
the Exercise Notice Price; and
(e) Upon receipt of payment by DMJ of the Exercise Notice Price, DMJ shall
deliver the Exercise Notice Shares to Gen-X Holdings and Gen-X
Equipment or either one of them, as the case may be.
2.03 Partial exercise of Purchase Obligation. In the event that DMJ does not
require the purchase of all of the unredeemed Class A Preference Shares, DMJ
shall be entitled, but not obligated, to require that Gen-X Holdings or Gen-X
Equipment, or either one of them, as the case may be, purchase its remaining
unredeemed Class A Preference Shares at any time and from time to time after the
occurrence of a Liquidation Event by delivering a further Exercise Notice in
accordance with Article 2.
ARTICLE III - SECURITY FOR PURCHASE OBLIGATION
3.01 Security for Purchase Obligation. In order to secure the Purchase
Obligation, each of Gen-X Holdings and Gen-X Equipment agree to execute and
deliver a general security agreement (the "General Security Agreement") in
favour of DMJ substantially similar to the form attached hereto as Schedule "B".
Each such general security agreement shall, among other things, provide a first
fixed and floating charge over all of the undertaking, business and assets of
each of Gen-X
<PAGE>
-6-
Holdings and Gen-X Equipment, subject to the Intercreditor Agreement.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
4.01 Each of Gen-X Holdings and Gen-X Equipment represents and warrants, as
applicable, that:
(a) Gen-X Holdings has been validly incorporated under the laws of the
State of Washington and has been duly organized and is validly
subsisting and registered under the laws of the State of Washington
and all other provinces and jurisdictions in which it carries on
business or has assets;
(b) Gen-X Equipment has been validly incorporated under the laws of the
Province of Ontario and has been duly organized and is validly
subsisting and registered under the laws of the Province of Ontario
and all other provinces and jurisdictions in which it carries on
business or has assets;
(c) it has full power, authority and legal right to enter into this
Agreement and the General Security Agreement and comply with the
Purchase Obligation and to perform all other obligations provided for
in this Agreement, and the execution and delivery of this Agreement
and the General Security Agreement have been duly authorized by all
necessary action on its part;
(d) the execution and delivery of this Agreement and the General Security
Agreement and the granting of the Purchase Obligation does not and
will not conflict with or result in any violation of or constitute a
default under any provisions of its articles of incorporation or any
of its articles of amendment or any of its by-laws or resolutions or
its shareholder(s) or directors or any trust deed or indenture,
debenture, credit agreement or other borrowing, guarantee or other
instrument to which it is a party or by which it is otherwise bound or
any law or governmental rule or regulation;
(e) it has done all things necessary to make the Purchase Obligation, upon
execution of this Agreement, legal, valid and binding upon it, subject
to bankruptcy and insolvency laws of general application and the
discretion of the courts in granting equitable remedies, with the
benefits and subject to the terms of this Agreement and that it shall
cause the Exercise Notice Price to be duly paid in accordance with the
terms of this Agreement; and
(f) in the case of consolidation, amalgamation, merger or transfer of its
undertaking and assets with or to another corporation (the "Successor
Corporation"), the Successor Corporation resulting from such
consolidation, amalgamation, merger
<PAGE>
-7-
or transfer (if not Gen-X Holdings or Gen-X Equipment, as applicable)
shall expressly assume the due and punctual performance and observance
of each and every covenant and condition to be performed pursuant to
this Agreement.
ARTICLE IV - MISCELLANEOUS
5.01 Governing Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the Province of Ontario and the laws
of Canada applicable therein.
5.02 Time of the Essence. Time shall be of the essence in this Agreement.
5.03 Amendment. No amendment of this Agreement shall be binding unless in
writing and signed by each of the parties hereto.
5.04 Waiver. No waiver by a party of any breach of this Agreement by the
other party hereto shall take effect or be binding upon the party granting such
waiver unless in writing and signed by such party or shall limit or affect the
rights of such party with respect to any other breach.
5.05 Severability. If any provision of this Agreement is held to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not be affected thereby.
5.06 Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their respective successors and assigns and shall enure to
the benefit of the parties hereto and their respective successors and permitted
assigns. No assignment of this Agreement shall be effected without the prior
written consent of the other parties hereto, such consent not to be unreasonably
withheld.
5.07 Notice. All notices, consents or other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (i) when delivered personally, (ii) three (3)
Business Days after being mailed by first class certified mail, return receipt
requested, postage prepaid, or (iii) one (1) Business Day after being sent by a
reputable overnight delivery service, postage or delivery charges prepaid, to
the parties at their respective addresses stated on the first page of this
Agreement. Notices may also be given by prepaid telegram or facsimile and shall
be effective on the date transmitted if confirmed within 24 hours thereafter by
a signed original sent in the manner provided in the preceding sentence. A copy
of each notice to DMJ, Gen-X Holdings and Gen-X Equipment shall be
simultaneously sent to Borden & Elliot, Scotia Plaza, 40 King Street West,
Toronto, Ontario M5H 3Y4, Canada, Attn: Daniel F. Hirsh. Any party may change
its address for notice and the address to which copies must be sent by giving
notice of the new addresses to the other parties in accordance with this Article
5.0, except that any such change of address notice shall not be effective unless
and until received.
<PAGE>
-8-
5.08 Further Assurances. Each party hereto shall, from time to time,
promptly take such action and execute and deliver such further documents as may
be reasonably necessary or appropriate to give effect to the provisions and
intent of this Agreement.
5.09 Entire Understanding. This Agreement states the entire understanding
among the parties with respect to the subject matter hereof, and supersede all
prior oral and written communications and agreements, and all contemporaneous
oral communications and agreements, with respect to the subject matter hereof.
5.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original and such counterparts together shall constitute one and the same
agreement. For the purposes of this paragraph, a facsimile copy of an executed
counterpart of this Agreement shall be deemed to be an original.
<PAGE>
-9-
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day
and year first written above.
DMJ FINANCIAL, INC.
By: _______________________________
Name:
Title:
GEN-X HOLDINGS INC.
By: _______________________________
Name:
Title:
GEN-X EQUIPMENT INC.
By: _______________________________
Name:
Title:
<PAGE>
EXHIBIT (R)
September ., 1999
Global Sports, Inc.
555 South Henderson Road
King of Prussia, Pennsylvania
USA 19406
Attention: Michael Rubin
- - and to -
Blank Rome Comisky & McCauley
One Logan Square
Philadelphia, PA
19103
Attention: Frances Dehel
Dear Sirs/Mesdames:
Re: Gen-X Acquisition (U.S.), Inc. and Gen-X Acquisition (Canada) Inc.
acquisition of all of the issued and outstanding shares in the capital
stock of Gen-X Holdings Inc. and Gen-X Equipment Inc., respectively
This opinion is delivered to you pursuant to Section 10.3.21 of the
Acquisition Agreement (as hereinafter defined).
Capitalized terms used but not defined herein have the meanings ascribed
thereto in the Acquisition Agreement.
We are solicitors for each of Gen-X Acquisition (Canada) Inc. ("Acquisition
Canada") and Gen-X Equipment Inc. ("Equipment") and have acted on its behalf in
connection with the sale by Global Sports, Inc. ("Global") to Acquisition Canada
of all of the issued and outstanding shares in the capital stock of Equipment.
<PAGE>
1. Scope of Enquiry
----------------
For the purposes of the opinions expressed below, we have examined executed
originals or copies of or participated in the preparation and settlement of,
each of the following documents:
General
(a) the Acquisition Agreement dated as of September 24, 1999 (the
"Acquisition Agreement") among Global, DMJ Financial, Inc. ("DMJ"),
Acquisition Canada, Gen-X Acquisition (U.S.), Inc. ("Acquisition US"),
James J. Salter ("Salter") and Kenneth J. Finkelstein ("Finkelstein")
pursuant to which (i) Global shall sell to Acquisition US, and
Acquisition US shall purchase, all of the issued and outstanding
shares in the capital stock of Gen-X Holdings Inc. and (ii) Global
shall sell to Acquisition Canada, and Acquisition Canada shall
purchase, all of the issued and outstanding shares in the capital
stock of Equipment;
(b) the Ancillary Agreements listed in Schedule "A" hereto;
(collectively, the "Documents");
Gen-X Acquisition (Canada) Inc.
(c) articles of incorporation issued September ., 1999 (the "Acquisition
Articles") whereby Acquisition Canada was incorporated under the
Business Corporations Act (Ontario) (the "OBCA");
(d) the by-laws of Acquisition Canada (the "Acquisition By-laws");
(e) a certificate of status issued by the Ministry of Consumer and
Commercial Relations in respect of Acquisition Canada dated September
., 1999 (the "Acquisition Certificate of Status");
(f) a certificate dated as of September ., 1999 given by Finkelstein, an
officer of Acquisition Canada, respecting non-restriction on
borrowing, certificate of incumbency, place of business, litigation,
ownership of assets, shares and authorizing resolution, a copy of
which is attached as Schedule "B" hereto (the "Acquisition Officer's
Certificate");
Gen-X Equipment Inc.
(g) articles of incorporation issued January 12, 1998 whereby Equipment
was incorporated under the OBCA, Articles of Amendment of Equipment
issued October 10, 1997 providing for a change in the name of
Equipment from "C.A.S.
Page 2
<PAGE>
International Sports Inc." to "Gen-X Equipment Inc." (collectively,
the "Equipment Articles");
(h) the by-laws of Equipment (the "Equipment By-laws");
(i) a certificate of status issued by the Ministry of Consumer and
Commercial Relations in respect of Equipment dated September ., 1999
(the "Equipment Certificate of Status"); and
(j) a certificate dated as of September ., 1999 given by Finkelstein, an
officer of the Corporation, respecting non-restriction on borrowing,
certificate of incumbency, place of business, litigation, ownership of
assets, shares and authorizing resolution, a copy of which is attached
as Schedule "C" hereto (the "Equipment Officer's Certificate").
We have also considered such statutes and regulations of the Province of
Ontario and of Canada applicable in the Province of Ontario as at the date of
this opinion ("Ontario Law"), and have conducted such examinations and
investigations, as we have considered necessary as a basis for the opinions
expressed below.
As to certain questions of fact material to the opinions expressed below,
we have also examined and relied on the Acquisition Officer's Certificate and
the Equipment Officer's Certificate.
Whenever our opinion with respect to the existence of absence of facts or
circumstances is qualified by the expression "to our knowledge" or words to like
effect, it is based solely on (i) the actual knowledge of current partners and
employees of the Toronto office of the firm of Borden & Elliot directly involved
in this transaction learned during the course of representing each of
Acquisition Canada and Equipment (ii) a review of the Acquisition Officer's
Certificate and the Equipment Officer's Certificate. We have not undertaken any
other investigation.
2. Assumptions
-----------
For the purposes of the opinions expressed below, we have assumed:
(a) that all signatures are genuine, that all facts set forth in the
Acquisition Officer's Certificate and the Equipment Officer's
Certificate are true, accurate and complete with respect to material
factual matters, that all documents submitted to us as originals are
authentic, and that all documents submitted to us as copies conform to
authentic original documents;
(b) all individuals had the requisite legal capacity;
Page 3
<PAGE>
(c) that all facts set forth in official public records and certificates
and other documents supplied by public officials or otherwise conveyed
to us by public officials are complete, true and accurate;
(d) that the Acquisition Certificate of Status and the Equipment
Certificate of Status is conclusive evidence that each of Acquisition
Canada and Equipment, respectively, are incorporated under the OBCA
and have not discontinued under the OBCA or been dissolved, and that a
similar certificate bearing today's date could be obtained if
requested;
(e) that, notwithstanding that the Documents state that they are to be
governed by laws other Ontario Law, each of the Documents is governed
in all instances by the internal laws (and not the conflicts of law
provisions) of Ontario Law.
3. Registrations
-------------
We have not effected any registrations, filings or recordings in respect of
the Documents which may be necessary or appropriate with respect to the
transactions contemplated thereby.
4. Applicable Law
--------------
We are solicitors qualified to practice law only in the Province of Ontario
and accordingly do not express any opinion with respect to laws other than
Ontario Law.
5. Opinions
--------
Based and relying upon the foregoing and subject to the limitations,
qualifications and assumptions hereinafter expressed, we are of the opinion
that:
(a) each of Acquisition Canada and Equipment is a corporation incorporated
under the OBCA has not been discontinued or dissolved under the OBCA;
(b) each of Acquisition Canada and Equipment has the corporate power and
authority to execute, deliver and perform its obligations under each
of the Documents;
(c) the execution, delivery and performance by each of Acquisition Canada
and Equipment of the Documents have been authorized by all necessary
corporate action on the part of Acquisition Canada and Equipment;
Page 4
<PAGE>
(d) each of Acquisition Canada and Equipment has duly executed and
delivered each of the Documents;
(e) each of the Documents constitutes a legal, valid and binding
obligation of each of Acquisition Canada and Equipment, enforceable
against it in accordance with its terms;
(f) the execution, delivery and performance by Acquisition Canada of the
Documents to which it is a party do not constitute or result in a
violation or a breach of, or a default under:
(i) the Acquisition Articles or the Acquisition By-laws; or
(ii) any Ontario Law to which Acquisition Canada is subject;
(g) the execution, delivery and performance by Equipment of the Documents
to which it is a party do not constitute or result in a violation or a
breach of, or a default under:
(i) the Equipment Articles or the Equipment By-laws; or
(ii) any Ontario Law to which Equipment is subject;
(h) the execution, delivery and performance by DMJ of the Documents to
which it is a party do not constitute or result in a violation or a
breach of, or a default under, any Ontario Law to which DMJ is
subject;
(i) no Consents of any Governmental Authority on the part of either
Acquisition Canada and Equipment are required in connection with the
execution and delivery of the Documents and consummation of the
transactions contemplated thereby;
(j) except as is described on Schedule . to the Acquisition Agreement, to
our knowledge, there is no Proceeding currently pending or threatened
against either Acquisition Canada or Equipment, except any such
Proceeding that would not be Material to either Acquisition Canada or
Equipment; and
6. Qualifications
--------------
Subject as hereinabove provided, our opinions expressed above are subject
to the following qualifications:
(a) the enforceability of the Documents or any judgment arising out of or
in connection with any Document may be limited by applicable
bankruptcy,
Page 5
<PAGE>
insolvency, winding-up, reorganization, arrangement, moratorium or
other laws of general application;
(b) the enforceability of the Documents may be limited by general
principles of equity, and equitable remedies, such as specific
performance and injunction, are subject to the discretion of the
court;
(c) the enforceability of the Documents may be limited by general
principles of law relating to the conduct of Global prior to execution
of or in the administration or performance of the Documents,
including, without limitation (i) undue influence, unconscionability,
duress, misrepresentation and deceit, (ii) estoppel and waiver, (iii)
laches, and (iv) reasonableness and good faith in the exercise of
discretionary powers;
(d) any action on any of the Documents may, with the affluxion of time, be
prescribed by the Limitations Act (Ontario);
(e) no opinion is given as to the title to or the legal or beneficial
interest of any person in any property;
(f) provisions in the Documents to the effect that enforcement may take
place without notice may be ineffective;
(g) Global may be precluded from enforcing the Documents until after each
of Acquisition Canada and Equipment has been given a reasonable time
to make payment of any amount demanded under the Documents;
(h) a court will require that discretionary powers afforded to a party be
exercised reasonably and in good faith;
(i) a court may decline to hear an action if it determines, in its
discretion, that it is not the proper forum or if concurrent
proceedings are brought elsewhere;
(j) a court may decline to accept the factual and legal determinations of
a party notwithstanding that a contract or instrument provides that
the determinations of the party shall be conclusive;
(k) provisions in the Documents purporting to sever invalid and
unenforceable provisions may not be enforceable, as an Ontario court
may reserve to itself the decision as to whether any provision is
severable or otherwise of no force and effect;
Page 6
<PAGE>
(l) counsel fees and disbursements are subject to taxation; in addition,
the costs of and incidental to all proceedings taken in court are in
the discretion of a court and a court has full power to determine by
whom and to what extent the costs shall be paid;
(m) the provisions of any of the Documents permitting service of legal
process by the posting or transmission of copies thereof in accordance
with the provisions thereof may not be recognized as good service on
each of Acquisition Canada and Equipment by an Ontario court;
(n) a money judgment by an Ontario court may be awarded only in Canadian
currency;
(o) assuming the choice of law of one of the United States of America as
the governing law of the Documents is valid under such law, the choice
of the law of such State as the governing law of the Documents would,
to the extent specifically pleaded, be recognized and applied in an
action brought before a court of competent jurisdiction in the
Province of Ontario, except for those laws of such State which (i)
such court considers procedural in nature, (ii) are revenue or penal
laws, (iii) such court considers to be political in nature, or (iv)
are inconsistent with "public policy" as such term is understood under
the Ontario Law;
(p) rights of indemnification may be limited under applicable law;
(q) the provisions for the payment of interest under the Documents may not
be enforceable if those provisions provide for the receipt of interest
by Global at a "criminal" rate within the meaning of Section 347 of
the Criminal Code (Canada);
(r) we express no opinion as to the enforceability of any provision of the
Documents:
(i) which purports to waive all defences which might be available to
each of Acquisition Canada and Equipment;
(ii) to the extent it purports to exculpate Global from liability in
respect of acts or omissions which may be illegal, fraudulent or
involve wilful misconduct; and
(iii) which states that modifications, amendments or waivers are not
binding unless in writing.
7. Reliance
--------
Page 7
<PAGE>
The opinions expressed in this opinion letter are for the sole benefit of
the addressees of this opinion letter and with respect only to the transactions
referred to herein and may not be relied upon by any other person or in respect
of any other transaction.
Yours truly,
Page 8
<PAGE>
Schedule "A"
(List of Documents)
Each of the following documents (as defined in the Acquisition Agreement) dated
as of September ___, 1999 unless otherwise noted:
Documents Applicable to Acquisition Canada:
1. Canadian Co. Promissory Note
2. Intercreditor Agreement
3. Subordinated Note Agreement
4. Pledge Agreement
5. Restructuring Plan Agreement dated as of September 24, 1999
Documents Applicable to Equipment:
1. Shared Facilities Agreement
2. Intercreditor Agreement
3. Subordinated Note Agreement
4. Guaranty Agreement
5. Security Agreement
6. Trademark Security Agreement
7. Preferred Stock Purchase Agreement
8. Restructuring Plan Agreement dated as of September 24, 1999
Documents Applicable to DMJ:
1. Intercreditor Agreement
2. Preferred Stock Purchase Agreement
3. Restructuring Plan Agreement
Documents Applicable to Salter:
1. Termination Agreement
2. Termination of Non-Competition Agreement
3. Restructuring Plan Agreement dated as of September 24, 1999
Documents Applicable to Finkelstein:
1. Termination Agreement
2. Termination of Non-Competition Agreement
3. Restructuring Plan Agreement dated as of September 24, 1999
Page 9
<PAGE>
Schedule "B"
Certificate of Officers
and Resolution of Directors
<PAGE>
Schedule "C"
Certificate of Officers
and Resolution of Directors
<PAGE>
EXHIBIT (S)
September 23, 1999
ESCROW AGREEMENT
Parties: GLOBAL SPORTS, INC.,
a Delaware corporation ("Global")
555 S. Henderson Road
King of Prussia, PA 19406
GEN-X ACQUISITION (U.S.), INC.,
a Washington corporation ("U.S. Co.")
701 5th Avenue
Suite 3300
Seattle, Washington
98104-7082
GEN-X ACQUISITION (CANADA) INC.,
an Ontario corporation ("Canadian Co.")
25 Vanley Crescent
North York, Ontario
M3J 2B7
DMJ FINANCIAL, INC.,
a Barbados limited company ("DMJ")
Royal Bank of Canada (Caribbean) Corporation
2/nd/ Floor, Building #2
Chelston Park, Collymore
St. Michael, Barbados
JAMES J. SALTER,
an individual ("Salter")
277 Glencairn Avenue
Toronto, Ontario M5N1T8
KENNETH J. FINKELSTEIN,
an individual ("Finkelstein")
25 Brandy Court
Toronto, Ontario M3B3L3
BORDEN & ELLIOT ("Escrow Agent")
Scotia Plaza
40 King Street West
Toronto, Ontario M5H 3Y4
Canada
Attn: Daniel F. Hirsh.
<PAGE>
Date: __________________, _____
Background: Global, U.S. Co., Canadian Co., DMJ, Salter and Finkelstein are
parties to an Acquisition Agreement, dated as of September 24, 1999 (the
"Acquisition Agreement"), pursuant to which (i) U.S. Co. acquired all of the
issued and outstanding shares of capital stock of Gen-X Holdings Inc. ("Gen-X
Holdings") in exchange for, among other things: (a) a cash payment in the amount
of Six Million Forty Thousand Dollars ($6,040,000); (b) a promissory note in the
principal amount of Five Million Dollars ($5,000,000); and (c) the assumption of
Global's non-negotiable subordinated notes in the original aggregate principal
amount of Three Million Nine Hundred Sixty Thousand Dollars ($3,960,000) payable
to Gen-X Holdings, dated as of the Closing Date, together with all accrued and
unpaid interest thereon, and (ii) Canadian Co. acquired all of the issued and
outstanding shares of capital stock of Gen-X Equipment Inc. ("Gen-X Equipment")
in exchange for, among other things, a promissory note in the principal amount
of Five Million Dollars ($5,000,000).
This is the Escrow Agreement referred to in the Acquisition Agreement.
Capitalized terms used in this Agreement without definition shall have the
respective meanings given to them in the Acquisition Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Establishment of Escrow.
-----------------------
(a) Pursuant to the terms of the Acquisition Agreement, if any
Indemnification Matters are pending at the time an Indemnitee is required to
make any payment to an Indemnitor (whether under the Acquisition Agreement or
otherwise), then such Indemnitee shall pay the total amount for which such
Indemnitor may become liable as a result thereof, determined by such Indemnitee
reasonably and in good faith, to Escrow Agent (which amount, as increased by any
earnings thereon and as reduced by any disbursements or losses on investments,
shall be referred to herein as the "Escrow Fund"), to be held by Escrow Agent
pursuant to the terms hereof until final determination of such Indemnification
Matter.
(b) Upon Indemnitee's payment to Escrow Agent of the Escrow Fund,
Escrow Agent shall issue a receipt to Indemnitee in the form of Exhibit "A"
-----------
attached hereto to acknowledge receipt of the Escrow Fund.
(c) Escrow Agent hereby agrees to act as escrow agent and to hold,
safeguard and disburse the Escrow Fund pursuant to the terms and conditions
hereof.
2. Investment of Funds. Except as Indemnitee and Indemnitor may from
-------------------
time to time jointly instruct Escrow Agent in writing, the Escrow Fund shall be
invested from time to time, to the extent possible, in United States Treasury
bills having a remaining maturity of 90 days or less and repurchase obligations
secured by such United States Treasury Bills, with any remainder being deposited
and maintained in a money market deposit account with Escrow Agent, until
disbursement of the entire Escrow Fund. Escrow Agent is authorized to liquidate
in accordance with its customary procedures any portion of the Escrow Fund
consisting of investments to provide for payments
2
<PAGE>
required to be made under this Agreement.
3. Claims. Upon final settlement, agreement by Indemnitee and Indemnitor
------
or rendering of a final Judgment (without further right of appeal) determining
the amount owed with respect to an Indemnification Matter relating to the Escrow
Fund, Escrow Agent shall make payment with respect thereto only in accordance
with (i) the joint written instructions of Indemnitee and Indemnitor or (ii) a
final non-appealable order of the court entering such final Judgment. Any court
order shall be accompanied by a legal opinion by counsel for the presenting
party satisfactory to Escrow Agent to the effect that the order is final and
non-appealable. Escrow Agent shall act on such court order and legal opinion
without further question.
4. Termination of Escrow. This escrow shall terminate on the later of
---------------------
(i) the date which is twelve (12) months from the Closing Date and (ii) the date
upon which all Escrow Funds have been paid by the Escrow Agent pursuant to
Section 3 hereof.
5. Duties of Escrow Agent.
----------------------
(a) Escrow Agent shall not be under any duty to give the Escrow Fund
held by it hereunder any greater degree of care than it gives its own similar
property and shall not be required to invest any funds held hereunder except as
directed in this Agreement. Uninvested funds held hereunder shall not earn or
accrue interest.
(b) Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to claims based upon
such gross negligence or willful misconduct that are successfully asserted
against Escrow Agent, the other parties hereto shall jointly and severally
indemnify and hold harmless Escrow Agent (and any successor Escrow Agent) from
and against any and all losses, liabilities, claims, actions, damages and
expenses, including reasonable attorneys' fees and disbursements, arising out of
and in connection with this Agreement. Without limiting the foregoing, Escrow
Agent shall in no event be liable in connection with its investment or
reinvestment of any cash held by it hereunder in good faith, in accordance with
the terms hereof, including, without limitation, any liability for any delays
(not resulting from its gross negligence or willful misconduct) in the
investment or reinvestment of the Escrow Fund, or any loss of interest incident
to any such delays.
(c) Escrow Agent shall be entitled to rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of the
service thereof. Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume that the person purporting
to give receipt or advice or make any statement or execute any document in
connection with the provisions hereof has been duly authorized to do so. Escrow
Agent may conclusively presume that the undersigned representative of any party
hereto which is an entity other than a natural person has full power and
authority to instruct Escrow Agent on behalf of that party unless written notice
to the contrary is delivered to Escrow Agent.
3
<PAGE>
(d) Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Agreement and shall not be liable for any
action taken or omitted by it in good faith in accordance with such advice.
(e) Escrow Agent does not have any interest in the Escrow Fund
deposited hereunder but is serving as escrow holder only and having only
possession thereof. Any payments of income from this Escrow Fund shall be
subject to withholding regulations then in force with respect to United States
taxes. The parties hereto will provide Escrow Agent with appropriate Internal
Revenue Service Forms W-9 for tax identification number certification, or non-
resident alien certifications. This Section 5(e) and Section 5(b) hereof shall
survive notwithstanding any termination of this Agreement or the resignation of
Escrow Agent.
(f) Escrow Agent makes no representation as to the validity, value,
genuineness or the collectability of any security or other document or
instrument held by or delivered to it.
(g) Escrow Agent shall not be called upon to advise any party as to
the wisdom in selling or retaining or taking or refraining from any action with
respect to any securities or other property deposited hereunder.
(h) Escrow Agent (and any successor Escrow Agent) may at any time
resign as such by delivering the Escrow Fund to any successor Escrow Agent
jointly designated by the other parties hereto in writing, or to any court of
competent jurisdiction, whereupon Escrow Agent shall be discharged of and from
any and all further obligations arising in connection with this Agreement. The
resignation of Escrow Agent will take effect on the earlier of (a) the
appointment of a successor (including a court of competent jurisdiction) or (b)
the day which is 30 days after the date of delivery of its written notice of
resignation to the other parties hereto. If at that time Escrow Agent has not
received a designation of a successor Escrow Agent, Escrow Agent's sole
responsibility after that time shall be to retain and safeguard the Escrow Fund
until receipt of a designation of successor Escrow Agent or a joint written
disposition instruction by the other parties hereto or a final non-appealable
order of a court of competent jurisdiction.
6. Limited Responsibility. This Agreement expressly sets forth all the
----------------------
duties of Escrow Agent with respect to any and all matters pertinent hereto. No
implied duties or obligations shall be read into this agreement against Escrow
Agent. Escrow Agent shall not be bound by the provisions of any agreement among
the other parties hereto except this Agreement.
7. Ownership for Tax Purposes. Indemnitor agrees that, for purposes of
--------------------------
federal and other taxes based on income, Indemnitor will be treated as the owner
of the Escrow Fund, and that Indemnitor will report all income, if any, that is
earned on, or derived from, the Escrow Fund as its income in the taxable year or
years in which such income is properly includible and pay any taxes attributable
thereto.
8. Notices. All notices, consents or other communications required or
-------
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered personally, (b) three business
days after being mailed by first class certified mail,
4
<PAGE>
return receipt requested, postage prepaid, or (c) one business day after being
sent by a reputable overnight delivery service, postage or delivery charges
prepaid, to the parties at their respective addresses stated on the first page
or the signature pages of this Agreement. Notices may also be given by prepaid
telegram or facsimile and shall be effective on the date transmitted if
confirmed within 24 hours thereafter by a signed original sent in the manner
provided in the preceding sentence. A copy of each notice to U.S. Co., Canadian
Co., DMJ, Salter or Finkelstein shall be simultaneously sent to Borden & Elliot,
Scotia Plaza, 40 King Street West, Toronto, Ontario M5H 3Y4, Canada, Attn:
Daniel F. Hirsh. A copy of each notice to Global shall be simultaneously sent
to: Blank Rome Comisky & McCauley LLP, One Logan Square, Philadelphia,
Pennsylvania 19103, Attn: Francis E. Dehel, Esquire. Any party may change its
address for notice and the address to which copies must be sent by giving notice
of the new addresses to the other parties in accordance with this Section 8,
except that any such change of address notice shall not be effective unless and
until received.
9. Entire Understanding. This Agreement states the entire
---------------------
understanding among the parties with respect to the subject matter hereof, and
supersedes all prior oral and written communications and agreements, and all
contemporaneous oral communications and agreements, with respect to the subject
matter hereof.
10. Parties in Interest. This Agreement shall bind, benefit, and be
-------------------
enforceable by and against each party hereto and its successors and assigns.
Global shall not in any manner assign any of its rights or obligations under
this Agreement without the express prior written consent of U.S. Co. and
Canadian Co., and none of U.S. Co., Canadian Co., DMJ, Salter nor Finkelstein
shall in any manner assign any of its rights or obligations under this Agreement
without the express prior written consent of Global.
11. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one original counterpart hereof.
12. CONTROLLING LAW. THIS AGREEMENT IS MADE UNDER, AND SHALL BE CONSTRUED
---------------
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
13. Jurisdiction and Process. Each of the parties (a) irrevocably
------------------------
consents to the exclusive jurisdiction of the Courts of Common Pleas of
Montgomery County, Pennsylvania, or the United States District Court for the
Eastern District of Pennsylvania, in any and all actions between or among any of
the parties, whether arising hereunder or otherwise, (b) irrevocably waives its
right to trial by jury in any such action, and (c) irrevocably consents to
service of process by first class certified mail, return receipt requested,
postage prepaid, to the address at which such party is to receive notice in
accordance with Section 8 hereof. In any and all actions between or among any
of the parties, whether arising hereunder or otherwise, the prevailing party or
parties shall be entitled
5
<PAGE>
to recover their reasonable attorneys' fees and legal expenses from the other
party or parties.
IN WITNESS WHEREOF, the parties have executed, or have caused this Escrow
Agreement to be executed on their behalf by their duly authorized officers, as
of the date first stated above.
GLOBAL SPORTS, INC. DMJ FINANCIAL, INC.
By:_______________________________ By:_______________________________
Name: Michael G. Rubin Name:
Title: Chairman and CEO Title:
GEN-X ACQUISITION (U.S.), INC. GEN-X ACQUISITION (CANADA) INC.
By:_______________________________ By:_______________________________
Name: Name:
Title: Title:
__________________________________ _______________________________
KENNETH J. FINKELSTEIN JAMES J. SALTER
BORDEN & ELLIOT
By:_______________________________
Name:
Title:
6
<PAGE>
Exhibit "A"
-----------
RECEIPT OF ESCROW FUNDS
The undersigned, as escrow agent under a certain Escrow Agreement (the
"Escrow Agreement"), dated as of ____________, ____, among Global Sports, Inc.,
Gen-X Acquisition (U.S.), Inc., Gen-X Acquisition (Canada) Inc., DMJ Financial,
Inc., James J. Salter, Kenneth J. Finkelstein and the undersigned, hereby
acknowledges receipt from _________________ ____on the date set forth below of
$__________ in accordance with the terms of the Escrow Agreement.
Date: ________________
BORDEN & ELLIOT
By:_______________________________
Name:
Title:
7
<PAGE>
Exhibit "T"
Purchase Price Escrow Agreement
Parties: GLOBAL SPORTS, INC.,
a Delaware corporation ("Global")
1075 First Avenue
King of Prussia, PA 19406
GEN-X ACQUISITION (U.S.), INC.,
a Washington corporation ("U.S. Co.")
701 5th Avenue
Suite 3300
Seattle, Washington 98104-7082
BORDEN LADNER GERVAIS LLP ("Escrow Agent")
Scotia Plaza, 40 King Street West,
Toronto, Ontario M5H 3Y4, Canada
Date: March 13, 2000
Background: Global, U.S. Co. Canadian Acquisition Co. ("Canadian Co."), DMJ
Financial Inc. ("DMJ"), James J. Salter ("Salter") and Kenneth J. Finkelstein
("Finkelstein") are parties to an Acquisition Agreement (the "Acquisition
Agreement"), dated as of September 24, 1999, as amended by that certain
Amendment No. 1 to Acquisition Agreement (the "Amendment"), dated as of the date
hereof, pursuant to which (i) U.S. Co. shall acquire all of the issued and
outstanding shares of capital stock of Gen-X Holdings Inc. ("Gen-X Holdings") in
exchange for, among other things: (a) a cash payment on the date hereof in the
amount of Six Million Dollars ($6,000,000); (b) a cash payment at Closing in the
amount of Three Million Six Hundred Thousand Dollars ($3,600,000); and (c) the
assumption of Global's non-negotiable subordinated notes in the original
aggregate principal amount of Three Million Nine Hundred Sixty Thousand Dollars
($3,960,000) payable to Gen-X Holdings, dated as of the Closing Date, together
with all accrued and unpaid interest thereon, and (ii) Canadian Co. shall
acquire all of the issued and outstanding shares of capital stock of Gen-X
Equipment Inc. ("Gen-X Equipment") in exchange for, among other things, a cash
payment at Closing in the amount of Three Million Six Hundred Thousand Dollars
($3,600,000).
This is the Purchase Price Escrow Agreement referred to in the Amendment.
Capitalized terms used in this Agreement without definition shall have the
respective meanings given to them in the Amendment or the Acquisition Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
1. Establishment of Escrow.
(a) Pursuant to the terms of the Acquisition Agreement, as amended by
the Amendment, U.S. Co. hereby delivers to Escrow Agent a cash payment in the
amount of SIX MILLION DOLLARS ($6,000,000) (which amount, as increased by any
earnings thereon and as reduced by any disbursements or losses on investments,
shall be referred to herein as the "Escrow Fund"), to be held by Escrow Agent
pursuant to the terms hereof until the Closing Date
(b) Escrow Agent hereby agrees to act as escrow agent and to hold,
safeguard and disburse the Escrow Fund pursuant to the terms and conditions
hereof.
2. Investment of Funds. Except as Global and U.S. Co. may from time to time
jointly instruct Escrow Agent in writing, the Escrow Fund shall be invested from
time to time, to the extent possible, at the direction of U.S. Co. in a money
market deposit account with Escrow Agent, until disbursement of the entire
Escrow Fund. Escrow Agent is authorized to liquidate in accordance with its
customary procedures any portion of the Escrow Fund consisting of investments to
provide for payments required to be made under this Agreement.
3. Payment of Escrow Funds. On the Closing Date, Escrow Agent shall pay to
Global an amount equal to $6,000,000 and Escrow Agent shall pay to U.S. Co. the
remainder, if any, of the Escrow Funds. Notwithstanding the foregoing, if the
Closing has not yet occurred, Escrow Agent shall make payment with respect to
the Escrow Funds as follows: (i) in accordance with the joint written
instructions of Global and U.S. Co; (ii) in accordance with a final
non-appealable order of the court entering such final Judgment (any court order
shall be accompanied by a legal opinion by counsel for the presenting party
satisfactory to Escrow Agent to the effect that the order is final and
non-appealable); or (iii) to U.S. Co. upon termination of the Agreement, only if
(a) the Agreement is terminated because the Closing has not occurred on or
before May 31, 2000, and (b) none of Buyers, DMJ, Salter or Finkelstein is then
in breach of the Agreement.
4. Termination of Escrow. This escrow shall terminate upon the final
payment of the Escrow Funds by Escrow Agent in accordance with Section 3.
5. Duties of Escrow Agent.
(a) Escrow Agent shall not be under any duty to give the Escrow Fund
held by it hereunder any greater degree of care than it gives its own similar
property and shall not be required to invest any funds held hereunder except as
directed in this Agreement. Uninvested funds held hereunder shall not earn or
accrue interest.
(b) Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to claims based upon
such gross negligence or willful misconduct that are successfully asserted
against Escrow Agent, the other parties hereto shall jointly and severally
indemnify and hold harmless Escrow Agent (and any successor Escrow Agent) from
and against any and all losses, liabilities, claims, actions, damages and
expenses,
<PAGE>
including reasonable attorneys' fees and disbursements, arising out of and in
connection with this Agreement. Without limiting the foregoing, Escrow Agent
shall in no event be liable in connection with its investment or reinvestment of
any cash held by it hereunder in good faith, in accordance with the terms
hereof, including, without limitation, any liability for any delays (not
resulting from its gross negligence or willful misconduct) in the investment or
reinvestment of the Escrow Fund, or any loss of interest incident to any such
delays.
(c) Escrow Agent shall be entitled to rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of the
service thereof. Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume that the person purporting
to give receipt or advice or make any statement or execute any document in
connection with the provisions hereof has been duly authorized to do so. Escrow
Agent may conclusively presume that the undersigned representative of any party
hereto which is an entity other than a natural person has full power and
authority to instruct Escrow Agent on behalf of that party unless written notice
to the contrary is delivered to Escrow Agent.
(d) Escrow Agent may act pursuant to the advice of counsel with respect
to any matter relating to this Agreement and shall not be liable for any action
taken or omitted by it in good faith in accordance with such advice.
(e) Escrow Agent does not have any interest in the Escrow Fund deposited
hereunder but is serving as escrow holder only and having only possession
thereof. Any payments of income from this Escrow Fund shall be subject to
withholding regulations then in force with respect to United States taxes. The
parties hereto will provide Escrow Agent with appropriate Internal Revenue
Service Forms W-9 for tax identification number certification, or non-resident
alien certifications. This Section 5(e) and Section 5(b) hereof shall survive
notwithstanding any termination of this Agreement or the resignation of Escrow
Agent.
(f) Escrow Agent makes no representation as to the validity, value,
genuineness or the collectability of any security or other document or
instrument held by or delivered to it.
(g) Escrow Agent shall not be called upon to advise any party as to the
wisdom in selling or retaining or taking or refraining from any action with
respect to any securities or other property deposited hereunder.
(h) Escrow Agent (and any successor Escrow Agent) may at any time resign
as such by delivering the Escrow Fund to any successor Escrow Agent jointly
designated by the other parties hereto in writing, or to any court of competent
jurisdiction, whereupon Escrow Agent shall be discharged of and from any and all
further obligations arising in connection with this Agreement. The resignation
of Escrow Agent will take effect on the earlier of (a) the appointment of a
successor (including a court of competent jurisdiction) or (b) the day which is
30 days after the date of delivery of its written notice of resignation to the
other parties hereto. If
<PAGE>
at that time Escrow Agent has not received a designation of a successor Escrow
Agent, Escrow Agent's sole responsibility after that time shall be to retain and
safeguard the Escrow Fund until receipt of a designation of successor Escrow
Agent or a joint written disposition instruction by the other parties hereto or
a final non-appealable order of a court of competent jurisdiction.
6. Limited Responsibility. This Agreement expressly sets forth all the
duties of Escrow Agent with respect to any and all matters pertinent hereto. No
implied duties or obligations shall be read into this agreement against Escrow
Agent. Escrow Agent shall not be bound by the provisions of any agreement among
the other parties hereto except this Agreement.
7. Ownership for Tax Purposes. Global and U.S. Co. agree that, for purposes
of federal and other taxes based on income, U.S. Co. will be treated as the
owner of the Escrow Fund, and that U.S. Co. will report all income, if any, that
is earned on, or derived from, the Escrow Fund as its income in the taxable year
or years in which such income is properly includible and pay any taxes
attributable thereto.
8. Notices. All notices, consents or other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered personally, (b) three business
days after being mailed by first class certified mail, return receipt requested,
postage prepaid, or (c) one business day after being sent by a reputable
overnight delivery service, postage or delivery charges prepaid, to the parties
at their respective addresses stated on the first page or the signature pages of
this Agreement. Notices may also be given by prepaid telegram or facsimile and
shall be effective on the date transmitted if confirmed within 24 hours
thereafter by a signed original sent in the manner provided in the preceding
sentence. A copy of each notice to U.S. Co. shall be simultaneously sent to
Borden Ladner Gervais LLP, Scotia Plaza, 40 King Street West, Toronto, Ontario
M5H 3Y4, Canada, Attn: Daniel F. Hirsh. A copy of each notice to Global shall be
simultaneously sent to: Blank Rome Comisky & McCauley LLP, One Logan Square,
Philadelphia, Pennsylvania 19103, Attn: Francis E. Dehel, Esquire. Any party may
change its address for notice and the address to which copies must be sent by
giving notice of the new addresses to the other parties in accordance with this
Section 8, except that any such change of address notice shall not be effective
unless and until received.
9. Entire Understanding. This Agreement states the entire understanding
among the parties with respect to the subject matter hereof, and supersedes all
prior oral and written communications and agreements, and all contemporaneous
oral communications and agreements, with respect to the subject matter hereof.
10. Parties in Interest. This Agreement shall bind, benefit, and be
enforceable by and against each party hereto and its successors and assigns.
Global shall not in any manner assign any of its rights or obligations under
this Agreement without the express prior written consent of U.S. Co. and U.S.
Co. shall not in any manner assign any of its rights or obligations under this
Agreement without the express prior written consent of Global.
11. Counterparts. This Agreement may be executed in any number of
counterparts,
<PAGE>
each of which when so executed and delivered shall constitute an original
hereof, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one original counterpart hereof.
12. CONTROLLING LAW. THIS AGREEMENT IS MADE UNDER, AND SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
13. Jurisdiction and Process. Each of the parties (a) irrevocably consents
to the exclusive jurisdiction of the Courts of Common Pleas of Montgomery
County, Pennsylvania, or the United States District Court for the Eastern
District of Pennsylvania, in any and all actions between or among any of the
parties, whether arising hereunder or otherwise, (b) irrevocably waives its
right to trial by jury in any such action, and (c) irrevocably consents to
service of process by first class certified mail, return receipt requested,
postage prepaid, to the address at which such party is to receive notice in
accordance with Section 8 hereof. In any and all actions between or among any of
the parties, whether arising hereunder or otherwise, the prevailing party or
parties shall be entitled to recover their reasonable attorneys' fees and legal
expenses from the other party or parties.
IN WITNESS WHEREOF, the parties have executed, or have caused this Escrow
Agreement to be executed on their behalf by their duly authorized officers, as
of the date first stated above.
GLOBAL SPORTS, INC. GEN-X ACQUISITION (U.S.), INC.
By: By:
------------------------------ -------------------------------
Name: Michael G. Rubin Name:
Title: Chairman and CEO Title:
BORDEN LADNER GERVAIS LLP
By:
------------------------------
Name:
Title:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1999, AS RESTATED, AND THE RELATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999, AS RESTATED, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 39,467,680
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 4,669,217
<CURRENT-ASSETS> 89,991,659<F1>
<PP&E> 17,921,113
<DEPRECIATION> 1,701,834
<TOTAL-ASSETS> 106,430,449
<CURRENT-LIABILITIES> 19,323,252
<BONDS> 0
100
0
<COMMON> 194,766
<OTHER-SE> 84,834,425
<TOTAL-LIABILITY-AND-EQUITY> 106,430,449
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 13,467,797
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (145,966)
<INCOME-PRETAX> (13,321,831)
<INCOME-TAX> (2,220,878)
<INCOME-CONTINUING> (11,100,953)
<DISCONTINUED> (4,984,369)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,085,322)
<EPS-BASIC> (1.33)
<EPS-DILUTED> (1.33)
<FN>
<F1>INCLUDES NET ASSETS OF DISCONTINUED OPERATIONS OF $43,012,442.
</FN>
</TABLE>
