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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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MICROPROSE, INC.
(NAME OF SUBJECT COMPANY)
MICROPROSE, INC.
(NAMES OF PERSON(S) FILING STATEMENT)
COMMON STOCK, $0.001 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
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59513V20 6
(CUSIP NUMBER OF CLASS OF SECURITIES)
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STEPHEN M. RACE
CHIEF EXECUTIVE OFFICER
MICROPROSE, INC.
2490 MARINER SQUARE LOOP, SUITE 100
ALAMEDA, CA 94501
(510) 864-4440
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON
BEHALF OF THE PERSON(S) FILING STATEMENT)
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WITH A COPY TO:
DAVID C. DRUMMOND, ESQ.
PETER S. HEINECKE, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304
(650) 493-9300
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is MicroProse, Inc., a Delaware corporation
(the "Company"). The address of the principal executive offices of the Company
is 2490 Mariner Square Loop, Suite 100, Alameda, California 94501. The title of
the class of equity securities to which this Solicitation/Recommendation
Statement on Schedule 14D-9 (this "Schedule 14D-9" or "Statement") relates is
the common stock, $0.001 par value, of the Company (the "Common Stock"). Unless
the context otherwise requires, as used herein the term "Shares" shall mean
shares of Common Stock including the related preferred stock purchase rights
issued pursuant to the Preferred Share Rights Agreement, dated as of February 6,
1996 by and between the Company and Chemical Mellon Shareholder Services, L.L.C.
ITEM 2. TENDER OFFER OF THE PURCHASER.
This Statement relates to the cash tender offer (the "Offer") described in
the Tender Offer Statement on Schedule 14D-1, dated August 14, 1998 (as amended
or supplemented, the "Schedule 14D-1"), filed by Hasbro, Inc., a Rhode Island
Corporation ("Parent"), and New HIAC Corp., a Delaware corporation and wholly
owned subsidiary of Parent (the "Purchaser"), with the Securities and Exchange
Commission (the "SEC"), relating to an offer to purchase all of the issued and
outstanding Shares at $6.00 per Share (such amount, or any greater amount per
Share pursuant to the Offer, hereinafter referred to as the "Offer Price"), net
to the seller in cash, upon the terms and subject to the conditions set forth in
the Purchaser's Offer to Purchase, dated August 14, 1998 (the "Offer to
Purchase"), and in the related Letter of Transmittal (which together with any
amendments or supplements thereto constitute the "Offer Documents").
The Offer is being made in accordance with an Agreement and Plan of Merger,
dated August 11, 1998 (the "Merger Agreement"), by and among Parent, the
Purchaser and the Company. Pursuant to the Merger Agreement, as soon as
practicable after completion of the Offer and satisfaction or waiver, if
permissible, of certain conditions, the Purchaser will be merged with and into
the Company (the "Merger"), and the Company will become a wholly owned
subsidiary of Parent (the "Surviving Corporation"). At the effective time of the
Merger (the "Effective Time"), each Share issued and outstanding immediately
prior to the Effective Time (other than Shares held by Parent or the Purchaser
and Shares held by stockholders of the Company who, at that time, have properly
perfected their dissenters' rights, if any, under Delaware law) will be
converted into the right to receive the Offer Price without interest. The Merger
Agreement is summarized in Item 3 of this Schedule 14D-9.
The Offer Documents indicate that the principal executive offices of Parent
and the Purchaser are located at 1027 Newport Avenue, Pawtucket, Rhode Island
02861.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above.
(b) Employment Agreements
In August 1995, the Company entered into an employment agreement with
Stephen M. Race, Chief Executive Officer of the Company, which terminates upon
Mr. Race's termination of employment with the Company. The agreement provides
for an initial annual base salary of $275,000 which will be reviewed at least
annually, but which may not be reduced below such level. His current salary is
$341,000. The agreement provides that the Company grant Mr. Race options to
purchase 100,000 shares of Common Stock, which options vest ratably over a
50-month period. The agreement also provides for an annual performance bonus of
up to 100 percent of his base salary if the Company exceeds certain performance
targets established by its Board of Directors. Under the terms of his employment
agreement and subject to certain conditions, Mr. Race will receive a special
bonus of $3,000,000 (less any realizable value from options Mr. Race holds that
are exercisable or gains as a result of a sale of the stock purchased pursuant
to such options) if Mr. Race remains employed with the Company through March 31,
1999. Mr. Race is also entitled to reimbursement of certain
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expenses in connection with his employment with the Company, including
automobile expenses and reimbursement for taxes. He is also entitled to
participate in most Company benefit plans.
In the event that (i) the Company terminates Mr. Race's employment (other
than for cause), or (ii) Mr. Race's title is no longer Chief Executive Officer
and Mr. Race terminates his employment, or (iii) the Company is acquired and Mr.
Race is no longer the Company's Chief Executive Officer, he (or his
beneficiaries in the case of death) will receive a continuation of his base
salary, and Mr. Race will receive certain other benefits for twelve months and
the exercisability of his options will be accelerated as though he had remained
employed for one additional year. In addition, in the event of (i), (ii) and
(iii), Mr. Race is entitled to receive a cash payment from the Company of up to
$3,000,000 (less any realizable value from options Mr. Race holds that are
exercisable or gains as a result of a sale of the stock purchased pursuant to
such options). In the event Mr. Race's employment with the Company terminates
for good cause, the Company is obligated to pay Mr. Race's base salary for a
period of six months following such termination.
Under the employment agreement, the Company has agreed to indemnify Mr.
Race to the fullest extent permitted by law so long as Mr. Race acts in good
faith. Failure by the Company to provide such indemnification is deemed to be a
breach of the employment agreement and may be deemed a termination of Mr. Race's
employment for other than cause.
In fiscal 1998, the Company entered into an employment agreement with Tim
Christian, Managing Director of Europe/Asia Pacific, which terminates upon Mr.
Christian's termination of employment with the Company. The agreement provides
for annual salary increases of no less than 7.5 percent. His current salary is
approximately $195,000. The agreement provides that the Company grant Mr.
Christian an additional option to purchase 20,000 shares of Common Stock, which
options vest ratably over a four-year period. The agreement also provides for an
annual performance bonus of up to 50 percent of his base salary if Mr. Christian
achieves certain performance criteria. Under the terms of the agreement and
subject to certain conditions, Mr. Christian will receive a special bonus of
approximately $822,000 (less any realizable value from the Additional Option
described above) if he remains employed with the Company through July 9, 2001.
Mr. Christian is also entitled to certain pension contributions, reimbursement
of expenses and other employee benefits.
Under the terms of the agreement with Mr. Christian, upon the consummation
of a transaction resulting in a change-of-control, the Additional Option shall
become exercisable on an accelerated basis, and the special bonus shall be
payable on a pro-rata basis, as if Mr. Christian had completed an additional 12
months of service beyond the date of such transaction. If Mr. Christian elects
to remain Managing Director (or similar position) after the change-of-control,
he shall receive a bonus equal to the bonus paid to him pursuant to his
agreement during the past fiscal year. If Mr. Christian's employment is
terminated following a change-of-control, he will also be entitled to
nine-months severance and vesting of options. If Mr. Christian, within three
months of the change-of-control, elects to terminate his employment and gives
six months written notice of this election, he shall be entitled to salary and
certain other benefits for a six-month period.
Director Compensation
Current cash compensation for non-employee members of the Board of
Directors consists of an annual retainer fee of $10,000. Members of the Board
are reimbursed for all out-of-pocket costs incurred in connection with their
attendance at Board and committee meetings. Under a self-administering automatic
option grant program in effect under the Company's 1994 Stock Option Plan, an
individual who first becomes a non-employee member of the Board will receive an
automatic one-time option grant for 5,000 shares of the Company's Common Stock
upon commencement of Board service, and each individual with six or more months
of Board service will receive an automatic option grant for an additional 500
shares at each Annual Stockholders Meeting at which he or she continues to serve
as a non-employee Board member.
The exercise price of such options may not be less than the fair market
value per share of the Company's Common Stock (as determined by the closing
price reported by Nasdaq on the date of grant) and the term of such options may
not exceed ten years.
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Automatic option grants become exercisable for 12 percent of the option
shares upon completion of six months of Board service from the date of grant,
and for the balance of the option shares in a series of 44 equal successive
monthly installments thereafter, provided the director remains a member of the
Board through such date. However, full and immediate vesting will occur upon
certain mergers involving the Company or a sale, transfer or other disposition
of all or substantially all of the Company's assets (a "Corporate Transaction")
and upon certain types of "hostile take-overs." Also, each automatic option
grant will be automatically canceled upon the occurrence of certain Corporate
Transactions not approved by the Board of Directors (a "Hostile Take-Over")
whether or not the option is otherwise at the time exercisable for such shares.
In return, the optionee will be entitled to a cash distribution from the Company
in an amount equal to the excess of (i) the greater of (a) the fair market value
per share on the date of cancellation, as determined in accordance with the
valuation provisions of the Option Plan, or (b) the highest reported price per
share paid by the acquiring entity in effecting the Hostile Take-Over over (ii)
the aggregate exercise price payable for such shares.
Upon cessation of Board service, the options held by the director will
remain exercisable for six months. Should the optionee die while holding one or
more options, then those options may subsequently be exercised by the personal
representative of the optionee's estate or by the persons to whom such options
are transferred by the optionee's will or by the laws of inheritance within
twelve months of the director's death.
In accordance with the provisions of the Option Plan, Messrs. Costine,
Khosla and Schaefer were each granted options for 2,000 shares of the Company's
Common Stock at an exercise price of $48.75 per share on December 16, 1993, and
options for 500 shares of the Company's Common Stock at an exercise price of
$66.25 on September 21, 1994, options for 500 shares of the Company's Common
Stock at an exercise price of $56.25 on October 5, 1995, options for 500 shares
of the Company's Common Stock at an exercise price of $30.625 on September 18,
1996, and options for 500 shares of the Company's Common Stock at an exercise
price of $25.625 on September 18, 1997.
1994 Stock Option Plan
The Company's 1994 Stock Option Plan (the "1994 Plan") was adopted to
assist the Company in attracting, retaining and motivating employees. The 1994
Plan is administered by the Board of Directors of the Company. In the event of a
merger of the Company, options granted under the Plan vest and become
exercisable immediately prior to the consummation of the merger unless they are
assumed by the acquiring company. As of August 14, 1998, and pursuant to the
1994 Plan, Stephen M. Race held options to purchase 155,000 shares of Common
Stock, Gilman P. Louie held options to purchase 60,000 shares of Common Stock,
Tim P. Christian held options to purchase 37,000 shares of Common Stock; Derek
W. McLeish held options to purchase 23,000 shares of Common Stock and Charles E.
Balthaser held options to purchase 20,000 shares of Common Stock.
Merger Agreement
The following is a summary of certain provisions of the Merger Agreement.
This summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the full text
of the Merger Agreement filed with the Commission as an exhibit to this Schedule
14D-9 and is incorporated herein by reference. Capitalized terms not otherwise
defined below shall have the meanings set forth in the Merger Agreement.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Purchaser with
respect to, among other things, corporate organization, subsidiaries, capital
stock, options or other rights to acquire Shares, authority to enter into the
Merger Agreement, required consents, no conflicts between the Merger Agreement
and applicable laws and certain agreements to which the Company or its assets
may be subject, financial statements, filings with the Commission, disclosures
in proxy statement and tender offer documents, absence of certain changes or
events, litigation, absence of changes in benefit plans, employee benefit plans,
tax matters, no excess non-deductible payments, compliance with applicable laws,
environmental matters, intellectual property, owned and leased
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real property, material contracts, labor and employment matters, product
liability, applicability of state takeover statutes, brokers' and finders' fees,
votes required to approve the Merger Agreement, undisclosed liabilities, receipt
of the Financial Advisor Opinion, Year 2000, Company Rights Agreement, absence
of questionable payments and full disclosure.
In the Merger Agreement, each of Parent and Purchaser has made customary
representations and warranties to the Company with respect to, among other
things, corporate organization, authority to enter into the Merger Agreement,
required consents, no conflicts between the Merger Agreement and the certificate
of incorporation and by-laws of Parent and Purchaser or laws applicable to
Parent or Purchaser, disclosures in proxy statement and tender offer documents,
prior activities by Purchaser and brokers' and finders' fees.
Conditions to the Merger. The respective obligations of Parent and
Purchaser, on the one hand, and the Company, on the other hand, to effect the
Merger are subject to the satisfaction of each of the following conditions, any
and all of which may be waived in whole or in part by the Company, Parent or
Purchaser, as the case may be, to the extent permitted by applicable law: (i)
the Merger Agreement shall have been approved and adopted by the requisite vote
of the holders of Shares, if required by applicable law and the Certificate of
Incorporation, in order to consummate the Merger; (ii) any waiting period
applicable to the Merger under the HSR Act shall have expired or been earlier
terminated; (iii) no statute, rule, regulation, order, decree or injunction
shall have been enacted, promulgated or issued by any governmental entity
precluding, restraining, enjoining or prohibiting consummation of the Merger;
and (iv) Parent, Purchaser or their affiliates shall have purchased Shares
pursuant to the Offer; provided, that the condition contained in the preceding
clause (iv) shall be deemed to have been satisfied with respect to the
obligation of Parent and Purchaser to effect the Merger if Purchaser fails to
accept for payment or pay for Shares pursuant to the Offer in violation of the
terms of the Offer or of the Merger Agreement.
The Company Board. Promptly after (i) the purchase of and payment for any
Shares by Purchaser or any of its affiliates as a result of which Purchaser and
its affiliates own beneficially at least a majority of the then outstanding
Shares and (ii) compliance with Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, whichever shall occur later, Parent shall be entitled to
designate such number of directors, rounded up to the next whole number, on the
Company's Board of Directors as is equal to the product of the total number of
directors on such Board (giving effect to any increase in the size of such
Board) multiplied by the percentage that the number of Shares beneficially owned
by Purchaser (including Shares so accepted for payment) bears to the total
number of Shares then outstanding. In furtherance thereof, the Company shall,
upon request of Parent, use its best efforts promptly either to increase the
size of its Board of Directors or to secure the resignations of such number of
its incumbent directors, or both, as is necessary to enable such designees of
Parent to be so elected or appointed to the Company's Board of Directors, and
the Company shall take all actions available to the Company to cause such
designees of Parent to be so elected or appointed. At such time, the Company
shall, if requested by Parent, also take all action necessary to cause Persons
designated by Parent to constitute at least the same percentage (rounded up to
the next whole number) as is on the Company's Board of Directors of (i) each
committee of the Company's Board of Directors, (ii) each board of directors (or
similar body) of each Subsidiary of the Company and (iii) each committee (or
similar body) of each such board.
The Company shall promptly take all actions required pursuant to Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order to
fulfill its obligations under this Section, including mailing to stockholders
the information required by such Section 14(f) and Rule 14f-1 (or, at Parent's
request, furnishing such information to Parent for inclusion in the Offer
Documents initially filed with the SEC and distributed to the stockholders of
the Company) as is necessary to enable Parent's designees to be elected to the
Company's Board of Directors. Parent or Purchaser will supply the Company any
information with respect to either of them and their nominees, officers,
directors and affiliates required by such Section 14(f) and Rule 14f-1. The
provisions of this Section are in addition to and shall not limit any rights
which Purchaser, Parent or any of their affiliates may have as a holder or
beneficial owner of Shares as a matter of applicable Law with respect to the
election of directors or otherwise.
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Notwithstanding the foregoing, the parties to the Merger Agreement shall
use their respective reasonable best efforts to ensure that at least two of the
members of the Board shall, at all times prior to the Effective Time be,
Continuing Directors. From and after the time, if any, that Parent's designees
constitute a majority of the Company's Board of Directors, any amendment or
modification of this Agreement, any amendment to the Company's Certificate of
Incorporation or By-Laws inconsistent with the Merger Agreement, any termination
of the Merger Agreement by the Company, any extension of time for performance of
any of the obligations of Parent or Purchaser under the Merger Agreement, any
waiver of any condition to the Company's obligations under the Merger Agreement
or any of the Company's rights under the Merger Agreement or other action by the
Company under the Merger Agreement may be effected only by the action of a
majority of the Continuing Directors of the Company, which action shall be
deemed to constitute the action of any committee specifically designated by the
Board of Directors of the Company to approve the actions contemplated by the
Merger Agreement and the Transactions and the full Board of Directors of the
Company; provided, that, if there shall be no Continuing Directors, such actions
may be effected by majority vote of the entire Board of Directors of the
Company.
Stockholders' Meeting. If required by applicable Law in order to
consummate the Merger, the Company, acting through the Company Board, shall, in
accordance with applicable Law, its Certificate of Incorporation and By-laws:
(i) as promptly as practicable following the acceptance for payment and purchase
of Shares by Purchaser pursuant to the Offer, duly call, give notice of, convene
and hold a special meeting of its stockholders (the "Special Meeting") for the
purposes of considering and taking action upon the approval of the Merger and
the approval and adoption of the Merger Agreement; (ii) prepare and file with
the Commission a preliminary proxy or information statement relating to the
Merger and the Merger Agreement and (x) obtain and furnish the information
required to be included in the Proxy Statement (as defined below) and, after
consultation with Parent, respond promptly to any comments made by the
Commission with respect to the preliminary proxy or information statement and
cause a definitive proxy or information statement, including any amendment or
supplement thereto (the "Proxy Statement") to be mailed to its stockholders at
the earliest practicable date; provided that no amendment or supplement to the
Proxy Statement will be made by the Company without consultation with Parent and
its counsel and (y) use its reasonable best efforts to obtain the necessary
approvals of the Merger and the Merger Agreement by its stockholders; and (iii)
unless the Merger Agreement has been terminated in accordance with the
provisions of the section titled "Termination" below, subject to its rights
pursuant to the section titled "No Solicitation" below, include in the Proxy
Statement the recommendation of the Company Board that stockholders of the
Company vote in favor of the approval of the Merger and the approval and
adoption of the Merger Agreement. Parent has agreed to vote, or cause to be
voted, all of the Shares then owned by it, Purchaser or any of its other
subsidiaries in favor of the approval of the Merger and the approval and
adoption of the Merger Agreement.
Options. The Merger Agreement provides that immediately prior to the
Effective Time, each then outstanding option to purchase any shares of capital
stock of the Company (in each case, an "Option"), whether or not then
exercisable, shall be cancelled by the Company and in consideration of such
cancellation and except to the extent that Parent or the Purchaser and the
holder of any such Option otherwise agree, the Company (or, at Parent's option,
the Purchaser) shall pay to such holders of Options an amount in respect thereof
equal to the product of (A) the excess, if any, of the Offer Price over the
exercise price of each such Option and (B) the number of Shares previously
subject to the Option immediately prior to its cancellation (such payment to be
net of withholding taxes and without interest). The Company shall use
commercially reasonable efforts to obtain the consent of each holder of an
Option as to whom Parent reasonably requests a consent be obtained to the
transactions above no later than the Effective Time in a form acceptable to
Parent. The Company shall provide to each holder of Options any required notice
(in a form acceptable to Parent) under the applicable Option Plan.
The Company shall take all actions necessary and appropriate so that (i) no
purchase rights are acquired after the date hereof under the Company's Employee
Stock Purchase Plan and (ii) all stock option or other equity based plans
maintained with respect to the Shares, including, without limitation, the
Company's Employee Stock Purchase Plan and those plans listed in the Merger
Agreement hereof ("Option Plans"), shall terminate as of the Effective Time and
the provisions in any other Benefit Plan providing for the issuance,
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transfer or grant of any capital stock of the Company or any interest in respect
of any capital stock of the Company shall be deleted as of the Effective Time,
and the Company shall use its best efforts to ensure that following the
Effective Time no holder of an Option or any participant in any Option Plan
shall have any right thereunder to acquire any capital stock of the Company,
Parent, Purchaser or the Surviving Corporation.
Interim Operations. The Merger Agreement provides that after the date of
the Merger Agreement and prior to the time the designees of Parent have been
elected to or appointed to, and shall constitute a majority of, the Company
Board pursuant to the applicable provisions of the Merger Agreement (the
"Appointment Date"), and except (i) as expressly contemplated by the Merger
Agreement, (ii) as set forth in the applicable section of the disclosure
schedule thereto or (iii) as agreed in writing by Parent:
(a) the Company shall and shall cause its Subsidiaries to carry on
their respective businesses in the ordinary course;
(b) the Company shall and shall cause its Subsidiaries to use all
commercially reasonable efforts consistent with good business judgment to
preserve intact their current business organizations, keep available the
services of their current officers and key employees and preserve their
relationships consistent with past practice with desirable customers,
suppliers, licensors, licensees, distributors and others having business
dealings with them to the end that their goodwill and ongoing businesses
shall be unimpaired in all material respects at the Effective Time;
(c) neither the Company nor any of its Subsidiaries shall, directly or
indirectly, amend its Certificate of Incorporation or By-laws or similar
organizational documents;
(d) officers of the Company and its Subsidiaries shall confer at such
times as Parent may reasonably request with one or more representatives of
Parent to report material operational matters and the general status of
ongoing operations;
(e) neither the Company nor any of its Subsidiaries shall: (i)(A)
declare, set aside or pay any dividend or other distribution payable in
cash, stock or property with respect to the Company's capital stock or that
of its Subsidiaries, except that a wholly-owned Subsidiary of the Company
may declare and pay a dividend or make advances to its parent or the
Company or (B) redeem, purchase or otherwise acquire directly or indirectly
any of the Company's capital stock or that of its Subsidiaries; (ii) issue,
sell, pledge, dispose of or encumber any additional shares of, or
securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of capital
stock of any class of the Company or its Subsidiaries, other than Shares
issued upon the exercise of Options outstanding on the date of the Merger
Agreement in accordance with the Option Plans as in effect on the date of
the Merger Agreement; or (iii) split, combine or reclassify the outstanding
capital stock of the Company or of any of the Subsidiaries of the Company;
(f) except as permitted by the Merger Agreement, neither the Company
nor any of its Subsidiaries shall acquire or agree to acquire (A) by
merging or consolidating with, or by purchasing a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization or
division thereof (including entities which are subsidiaries of the Company)
or (B) any assets, including real estate, except purchases in the ordinary
course of business consistent with past practice;
(g) neither the Company nor any of its Subsidiaries shall make any new
capital expenditure or expenditures, which individually exceed $50,000 and
in the aggregate exceed $150,000;
(h) neither the Company nor any of its Subsidiaries shall, except in
the ordinary course of business and except as otherwise permitted by the
Merger Agreement, amend or terminate any Company material contract where
such amendment or termination would have a Material Adverse Effect on the
Company, or waive, release or assign any material rights or claims;
(i) neither the Company nor any of its Subsidiaries shall transfer,
lease, license, sell, mortgage, pledge, dispose of, or encumber any
property or assets other than in the ordinary course of business and
consistent with past practice;
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(j) neither the Company nor any of its Subsidiaries shall: (i) enter
into any employment or severance agreement with or grant any severance or
termination pay to any officer, director or key employee of the Company or
any its Subsidiaries; or (ii) hire or agree to hire any new or additional
key employees or officers;
(k) neither the Company nor any of its Subsidiaries shall, except as
required to comply with applicable Law or expressly provided in the Merger
Agreement, (A) adopt, enter into, terminate, amend or increase the amount
or accelerate the payment or vesting of any benefit or award or amount
payable under any Benefit Plan or other arrangement for the current or
future benefit or welfare of any director, officer or current or former
employee, except to the extent necessary to coordinate any such Benefit
Plans with the terms of the Merger Agreement, (B) increase in any manner
the compensation or fringe benefits of, or pay any bonus to, any director,
officer or employee, (C) pay any benefit not provided for under any Benefit
Plan, (D) grant any awards under any bonus, incentive, performance or other
compensation plan or arrangement or Benefit Plan (including the grant of
stock options, stock appreciation rights, stock-based or stock-related
awards, performance units or restricted stock, or the removal of existing
restrictions in any Benefit Plans or agreements or awards made thereunder)
or (E) take any action to fund or in any other way secure the payment of
compensation or benefits under any employee plan, agreement, contract or
arrangement or Benefit Plan;
(l) neither the Company nor any of its Subsidiaries shall: (i) incur
or assume any long-term debt or, except in the ordinary course of business,
incur or assume any short-term indebtedness in amounts not consistent with
past practice; (ii) incur or modify any material indebtedness or other
liability except as set forth on the applicable section of the disclosure
schedule to the Merger Agreement; (iii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person, except in the ordinary
course of business and consistent with past practice; (iv) make any loans,
advances or capital contributions to, or investments in, any other person
(other than to wholly owned Subsidiaries of the Company or customary loans
or advances to employees in the ordinary course of business in accordance
with past practice); (v) settle any claims other than in the ordinary
course of business, in accordance with past practice and without admission
of liability; or (vi) enter into any material commitment or transaction;
(m) neither the Company nor any of its Subsidiaries shall change any
of the accounting principles used by it unless required by generally
accepted accounting principles;
(n) neither the Company nor any of its Subsidiaries shall make any tax
election, amend any tax return, make a claim for any tax refund or settle
or compromise any tax liability (whether with respect to amount or timing);
(o) neither the Company nor any of its Subsidiaries shall pay,
discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction of any such claims, liabilities or
obligations in the ordinary course of business and consistent with past
practice, of any such claims, liabilities or obligations which are
reflected or reserved against in, or contemplated by, the consolidated
financial statements (or the notes thereto) of the Company and its
consolidated Subsidiaries; or except in the ordinary course of business
consistent with past practice, waive the benefits of, or agree to modify in
any manner, any confidentiality, standstill or similar agreement to which
the Company or any of its Subsidiaries is a party;
(p) neither the Company nor any of its Subsidiaries shall (by action
or inaction) amend, renew, terminate or cause to be extended any lease,
agreement or arrangement relating to any of the leased properties or enter
into any lease, agreement or arrangement with respect to real property;
(q) neither the Company nor any of its Subsidiaries will enter into an
agreement, contract, commitment or arrangement to do any of the foregoing,
or to authorize, recommend, propose or announce an intention to do any of
the foregoing; and
(r) neither the Company nor any of its Subsidiaries shall take any
action that the Company knows at the time of taking such action would
result in any of the conditions to the Offer, as set forth in the Merger
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Agreement, not being satisfied (subject to the Company's right to take
action specifically permitted by the Merger Agreement).
No Solicitation. Pursuant to the Merger Agreement, the Company has agreed
that it shall not, nor shall it permit any of its Subsidiaries to, nor shall it
authorize (and shall use its best efforts not to permit) any officer, director
or employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any of its subsidiaries to, (i) solicit or
initiate, or encourage, directly or indirectly, any inquires or the submission
of, any Takeover Proposal (as defined below), (ii) participate in any
discussions or negotiations regarding, or furnish to any Person any information
or data with respect to or access to the properties of, or take any other action
to knowingly facilitate the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Takeover Proposal or (iii) enter into any
agreement with respect to any Takeover Proposal or approve or resolve to approve
any Takeover Proposal; provided that nothing contained in the applicable
provisions of the Merger Agreement shall prohibit the Company or the Company
Board from (A) taking and disclosing to the Company's stockholders a position
with respect to a tender or exchange offer by a third party pursuant to Rules
14d-9 and 14e-2 promulgated under the Exchange Act, or (B) making such
disclosure to the Company's stockholders as, in the good faith judgment of the
Company Board, after receiving written advice from outside counsel, is required
under applicable Law, provided that the Company may not, except as permitted by
the following paragraph, withdraw or modify, or propose to withdraw or modify,
its position with respect to the Offer or the Merger or approve or recommend, or
propose to approve or recommend any Takeover Proposal, or enter into any
agreement with respect to any Takeover Proposal. Upon execution of the Merger
Agreement, the Company will immediately cease any existing activities,
discussions or negotiations with any parties conducted prior to the date of the
Merger Agreement with respect to any of the foregoing. Notwithstanding the
foregoing, prior to the time of acceptance of Shares for payment pursuant to the
Offer, the Company may furnish information concerning its business, properties
or assets to any Person or group and may negotiate and participate in
discussions and negotiations with such Person or group concerning a Takeover
Proposal if: (x) such Person or group has submitted a Superior Proposal; and (y)
the Company Board determines, based upon the written opinion of its independent
legal counsel, that the failure to participate in such discussions or
negotiations or to furnish such information would cause a breach of such Board's
fiduciary duties under applicable Law. The Company will promptly (but in no case
later than 24 hours) notify Parent of the existence of any proposal, discussion,
negotiation or inquiry received by the Company regarding any Takeover Proposal,
and the Company will promptly communicate to Parent the terms of any proposal,
discussion, negotiation or inquiry which it may receive regarding any Takeover
Proposal (and will promptly provide to Parent copies of any written materials
received by the Company in connection with such proposal, discussion,
negotiation or inquiry) and the identity of the party making such proposal or
inquiry or engaging in such discussion or negotiation. The Company will promptly
provide to Parent any non-public information concerning the Company provided to
any other Person which was not previously provided to Parent. The Company will
keep Parent fully informed of the status and details of any such Takeover
Proposal and of any amendments or proposed amendments to any Takeover Proposal
and will promptly notify Parent (but in no case later than 24 hours) of any
determination by the Company Board that a Superior Proposal has been made.
Pursuant to the Merger Agreement, except as set forth in this paragraph,
neither the Company Board nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Parent or
Purchaser, the approval or recommendation by the Company Board or any such
committee of the Offer, the Merger Agreement or the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Takeover Proposal or (iii)
enter into any agreement with respect to any Takeover Proposal. Notwithstanding
the foregoing, subject to compliance with this paragraph prior to the time of
acceptance for payment of Shares pursuant to the Offer, the Company Board may
withdraw or modify its approval or recommendation of the Offer, the Merger
Agreement or the Merger, approve or recommend a Superior Proposal (as defined
below), or enter into an agreement with respect to a Superior Proposal, in each
case at any time after the third business day following Parent's receipt of
written notice from the Company advising Parent that the Company Board has
received a Superior Proposal which it intends to accept, specifying the material
terms and conditions of such Superior Proposal, identifying the person making
such Superior Proposal, but only if the Company shall have caused its financial
and legal advisors to negotiate with Parent
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<PAGE> 10
promptly following delivery of such notice and through such three business day
period to make such adjustments to the terms and conditions of the Merger
Agreement as would enable the Company to proceed with the Transactions on such
adjusted terms. The term "Takeover Proposal" means any bona fide proposal or
offer, whether in writing or otherwise, from any Person other than Parent,
Purchaser or any affiliates thereof (a "Third Party") to acquire beneficial
ownership (as defined under Rule 13(d) of the Exchange Act) of all or a material
portion of the assets of the Company and its subsidiaries, taken as whole, or
50% or more of any class of equity securities of the Company pursuant to a
merger, consolidation or other business combination, sale of shares of capital
stock, sale of assets, tender offer, exchange offer or similar transaction with
respect to the Company, including any single or multi-step transaction or series
of related transactions, which is structured to permit such Third Party to
acquire beneficial ownership of any material portion of the assets of the
Company and its subsidiaries, taken as a whole, or 50% or more of the equity
interest in the Company. The term "Superior Proposal" means an unsolicited bona
fide proposal by a Third Party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than a majority of the
Shares then outstanding or all or substantially all of the assets of the
Company, and otherwise on terms which the Company Board determines in good faith
to be more favorable to the Company's stockholders than the Offer and the
Merger, based on advice of the Company's independent financial advisor, for
which financing, to the extent required, is then committed or which, in the good
faith reasonable judgment of the Company Board (based on advice from the
Company's independent financial advisor that the value of the Consideration
provided for in such proposal is superior to the value of the consideration
provided for in the Offer and the Merger), for which financing, to the extent
required, is then committed or which, in the good faith reasonable judgment of
the Company Board, based on advice from the Company's independent financial
advisor, is reasonably capable of being financed by such party.
Termination. The Merger Agreement may be terminated and the Merger
contemplated therein may be abandoned at any time prior to the Effective Time,
whether before or after approval of matters presented in connection with the
Merger by the stockholders of the Company (provided, however, that if Shares are
purchased pursuant to the Offer, neither Parent nor Purchaser may in any event
terminate the Merger Agreement):
(a) By the mutual written consent of Parent and the Company; provided,
however, that if Parent shall have a majority of the directors pursuant to
the applicable provisions of the Merger Agreement, such consent of the
Company may only be given if approved by the Continuing Directors.
(b) By either of Parent or the Company if (i) a statute, rule or
executive order shall have been enacted, entered or promulgated prohibiting
the Transactions on the terms contemplated by the Merger Agreement or (ii)
any governmental entity shall have issued an order, decree or ruling or
taken any other action (which order, decree, ruling or other action the
parties to the Merger Agreement shall use their reasonable efforts to
lift), in each case permanently restraining, enjoining or otherwise
prohibiting the Transactions contemplated by the Merger Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable.
(c) By either of Parent or the Company if at least that number of
Shares required by the Minimum Condition to be tendered shall not have been
purchased in the Offer on or before November 30, 1998; provided, that the
party seeking to terminate the Merger Agreement pursuant to the applicable
section shall not have breached in any material respect its obligations
under the Merger Agreement in any manner that shall have proximately
contributed to the failure to consummate the Offer on or before such date;
(d) By the Company: (i) if the Company has entered into an agreement
with respect to a Superior Proposal or has approved or recommended a
Superior Proposal in accordance with the Merger Agreement, provided the
Company has complied with all provisions thereof, including the notice
provisions therein, and that it simultaneously terminates the Merger
Agreement and makes simultaneous payment to the Parent of the Expenses and
the Termination Fee; or (ii) if Parent or Purchaser shall have terminated
the Offer or the Offer expires without Parent or Purchaser, as the case may
be, purchasing any Shares pursuant thereto; provided that the Company may
not terminate the Merger Agreement pursuant
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<PAGE> 11
to this clause (d)(ii) if the Company is in material breach of the Merger
Agreement or the Stock Option Agreement; or (iii) if Parent, Purchaser or
any of their affiliates shall have failed to commence the Offer on or prior
to five business days following the date of the initial public announcement
of the Offer, provided, that the Company may not terminate the Merger
Agreement pursuant to this clause (d) (iii) if the Company is in material
breach of the Merger Agreement or the Stock Option Agreement; or (iv) if
there shall be a breach by Parent or Purchaser of any of its
representations, warranties, covenants or agreements contained in the
Merger Agreement which breach is incapable of being cured or is not cured
within 10 days of notice from the Company to Parent, except, in each case,
where such breach does not have a material adverse effect on the ability of
Parent or Purchaser to consummate the Offer or the Merger.
(e) By Parent or Purchaser: (i) (A) if prior to the purchase of the
Shares pursuant to the Offer, the Company Board shall have withdrawn, or
modified or changed in a manner adverse to Parent or Purchaser its approval
or recommendation of the Offer, the Merger Agreement or the Merger or shall
have recommended or approved a Takeover Proposal (provided that the Company
merely providing notice to Parent pursuant to the Merger Agreement shall
not in itself constitute a recommendation or approval of a Takeover
Proposal); or (B) there shall have been a material breach of any provision
of the section of the Merger Agreement regarding No Solicitation; or (ii)
if Parent or Purchaser shall have terminated the Offer without Parent or
Purchaser purchasing any Shares thereunder, provided that Parent or
Purchaser may not terminate the Merger Agreement pursuant to this clause
(e) (ii) if Parent or Purchaser is in material breach of the Merger
Agreement; or (iii) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of the
conditions set forth in the Section 14 below, Parent, Purchaser or any of
their affiliates shall have failed to commence the Offer on or prior to
five business days following the date of the initial public announcement of
the Offer; or (iv) if the Company receives a Takeover Proposal from any
Person (other than Parent or Purchaser), and the Company Board takes a
neutral position or makes no recommendation with respect to such Takeover
Proposal after a reasonable amount of time (and in no event more than ten
business days following such receipt) has elapsed for the Company's Board
of Directors to review and make a recommendation with respect to such
Takeover Proposal; or (v) if there shall be a breach by the Company of any
of its representations, warranties, covenants or agreements contained in
the Merger Agreement or the Stock Option Agreement which breach is
incapable of being cured or is not cured within 10 days of notice from
Parent to the Company, except, in each case, where such breach (without
giving effect to any limitation as to "materiality" or "material adverse
effect" set forth therein) does not have a Material Adverse Effect on the
Company or a materially adverse effect on the ability of the Company to
consummate the Offer or the Merger.
Termination Fee. Pursuant to the Merger Agreement, if (x) Parent or
Purchaser terminates the Merger Agreement pursuant to clauses (e)(i) or (e)(iv)
under the heading "Termination" above or (y) the Company terminates this
Agreement pursuant to clause (d)(i) under the heading "Termination" above, then
in each case, the Company shall pay, or cause to be paid to Parent, at the time
of termination, an amount equal to $2,500,000 (the "Termination Fee") and an
amount equal to Parent's and Purchaser's actual and documented reasonable
out-of-pocket expenses incurred by Parent or Purchaser in connection with the
Offer, the Merger, the Merger Agreement and the consummation of the
Transactions, including, without limitation, the reasonable fees and expenses
payable to all attorneys, accountants, banks, investment banking firms, and
other financial institutions and Persons and their respective agents and counsel
incurred in connection with the Transactions or arranging or committing to
provide or providing any financing for, the Transactions (the "Expenses"). In
addition, if the Merger Agreement is terminated by either Parent or the Company
pursuant to clause (c) under the heading "Termination" above, by Parent pursuant
to clause (e)(ii) under the heading "Termination" above (other than if such
termination is a result of the failure to satisfy the conditions set forth in
paragraphs (a)(i), (a)(ii), (a)(v), (a)(vii), (a)(viii), (b) or (c) of the
conditions to the Offer contained in Section 14 below) or clause (e)(v) under
the heading "Termination" above (other than by reason of a breach of the section
in the Merger Agreement regarding No Solicitation) or by the Company pursuant to
clause (d)(ii) under the heading "Termination" above (other than if such
termination is a result of the failure to satisfy the conditions set forth in
paragraphs (a)(i), (a)(ii), (a)(v), (a)(vii), (a)(viii), (b) or (c) of the
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<PAGE> 12
conditions to the Offer contained in Section 14 below) and at the time of such
termination, Parent is not in material breach of the Merger Agreement, then the
Company shall pay to Parent, at the time of termination, the Expenses, and, if
the Company shall thereafter, within 12 months after such termination, enter
into an agreement with respect to a Takeover Proposal, then the Company shall
pay the Termination Fee concurrently with entering into any such agreement. Any
payments required to be made pursuant to this Section shall be made by wire
transfer of same day funds to an account designated by Parent. Pursuant to the
Merger Agreement and security agreements entered into by Parent and Hasbro
Interactive with the Company and certain of its subsidiaries, the Termination
Fee payable under the Merger Agreement if (x) Parent or Purchaser terminates the
Merger Agreement pursuant to paragraphs (e)(i) or (e)(iv) under the heading
"Termination" above or (y) the Company terminates the Merger Agreement pursuant
to paragraph (d)(i) under the heading "Termination" above (the "Immediately
Payable Termination Fee"), shall be secured by the Company's assets.
Indemnification. The Merger Agreement provides that the Company shall, to
the fullest extent permitted under applicable Delaware law or under the
Certificate of Incorporation or By-Laws and regardless of whether the Merger
becomes effective, indemnify and hold harmless, and, after the Effective Time,
the Surviving Corporation shall, to the fullest extent permitted under
applicable Delaware law, indemnify and hold harmless, each present and former
director, officer or employee of the Company or any of its Subsidiaries
(collectively, the "Indemnified Parties") against any costs or expenses
(including reasonable attorneys' fees), judgments, losses, claims, damages and
liabilities incurred in connection with, and amounts paid in settlement of, any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative and wherever asserted, brought or filed, (x)
arising out of or pertaining to the Transactions contemplated by the Merger
Agreement or (y) otherwise with respect to any acts or omissions or alleged acts
or omissions occurring at or prior to the Effective Time, in each case for a
period of six years after the date of the Merger Agreement. In the event of any
such claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (i) any counsel retained by the Indemnified Parties
for any period after the Effective Time must be reasonably satisfactory to the
Surviving Corporation, (ii) after the Effective Time, the Surviving Corporation
shall pay the reasonable fees and expenses of such counsel, promptly after
statements therefor are received, and (iii) the Surviving Corporation will
cooperate in the defense of any such matter; provided, however, that the
Surviving Corporation shall not be liable for any settlement effected without
its written consent (which consent shall not be unreasonably withheld or
delayed); and provided, further, that, in the event any claims for
indemnification are asserted or made within such six year period, all rights to
indemnification in respect of any such claim or claims shall continue until the
disposition of any and all such claims. The Indemnified Parties as a group shall
be reimbursed for the costs of only one law firm to represent them with respect
to any single action unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any two or
more Indemnified Parties. The indemnity agreements of the Surviving Corporation
in this paragraph shall extend, on the same terms to, and shall inure to the
benefit of and shall be enforceable by, each person or entity who controls, or
in the past controlled, any present or former director, officer or employee of
the Company or any of its subsidiaries.
The Merger Agreement provides that for a period of three years after the
Effective Time, Parent shall cause the Surviving Corporation to maintain in
effect, if available, directors' and officers' liability insurance covering
those persons who are currently covered by the Company's directors' and
officers' liability insurance policy (a copy of which has been made available to
Parent) on terms (including the amounts of coverage and the amounts of
deductibles, if any) that are no less favorable to the terms now applicable to
them under the Company's current policies; provided, however, that in no event
shall Parent or the Surviving Corporation be required to expend in excess of
150% of the annual premium currently paid by the Company for such coverage; and
provided further, that if the premium for such coverage exceeds such amount,
Parent or the Surviving Corporation shall purchase a policy with the greatest
coverage available for such 150% of the annual premium. The Merger Agreement
further provides that the foregoing indemnification provisions shall survive the
consummation of the Merger at the Effective Time, is intended to benefit the
Company, the Surviving Corporation and the Indemnified Parties, shall be binding
on all successors and assigns the Surviving Corporation and shall be enforceable
by the Indemnified Parties.
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Stock Option Agreement
The following is a summary of certain provisions of the Stock Option
Agreement. This summary is not a complete description of the terms and
conditions of the Stock Option Agreement and is qualified in its entirety by
reference to the full text of the Stock Option Agreement filed with the
Commission as an exhibit to this Schedule 14D-9 and is incorporated herein by
reference. Capitalized terms not otherwise defined below shall have the meanings
set forth in the Stock Option Agreement.
Grant of Option. The Stock Option Agreement provides for the grant by the
Company to Parent of an irrevocable option (the "Stock Option") to purchase up
to 19.9% of the number of Shares (the "Option Shares") issued at the time of the
grant of the Stock Option, at a price of $6.00 per Share (the "Exercise Price"),
payable in cash in accordance with the terms of the Stock Option Agreement. The
payment obligations of the Issuer, including the Cash-Out Right shall be secured
by the Issuer's assets pursuant to the Security Agreement between Grantee,
Hasbro Interactive Inc. and Issuer.
Exercise of Option. The Stock Option Agreement provides that the Stock
Option may be exercised by Parent, in whole or in part, at any time or from time
to time after the Merger Agreement is terminated pursuant to a Triggering Event
(as defined below). For the purposes of the Stock Option Agreement, "Triggering
Event" means any termination of the Merger Agreement which could entitle Parent
to the Termination Fee under the Merger Agreement.
Cash Payment. If, at any time during the period commencing on the
occurrence of a Triggering Event and ending on the termination of the Option in
accordance with Section 2, Parent sends to the Company a notice indicating
Parent's election to exercise its right (the "Cash-Out Right") pursuant to this
Section, then the Company shall pay to Parent, in exchange for the cancellation
of the Option with respect to such number of Option Shares as Parent specifies
an amount in cash equal to such number of Option Shares multiplied by the
difference between (i) the average closing price for the 5 trading days
commencing on the 12th Nasdaq trading day immediately preceding the date of
notice, per share of Issuer Common Stock as reported on the Nasdaq National
Market (or, if not listed on the Nasdaq, as reported on any other national
securities exchange or national securities quotation system on which the Shares
are listed or quoted, as reported in The Wall Street Journal (Northeast
edition), or, if not reported thereby, any other authoritative source) (the
"Closing Price") and (ii) the Exercise Price. Notwithstanding the termination of
the Option, Parent will be entitled to exercise its rights under this Section if
it has exercised such rights in accordance with the terms hereof prior to the
termination of the Option. Pursuant to the Stock Option Agreement and security
agreements entered into by Parent and Hasbro Interactive with the Company and
certain of its subsidiaries, the Cash-Out Right, when payable in connection with
the Immediately Payable Termination Fee (the "Immediately Payable Cash-Out
Right"), is secured by the Company's assets. If Parent receives in aggregate
from (i) the Termination Fee pursuant to the Merger Agreement, (ii) amounts from
the sale or other disposition of the Option Shares, and (iii) the Cash Out Right
in excess of the sum of (A) $3,500,000 plus (B) the amounts paid by Parent to
purchase any Option Shares, then all such excess amounts shall be remitted by
Parent to the Company. If any payment by the Company pursuant to the Cash Out
Right or payment of the Termination Fee pursuant to the Merger Agreement would
cause Parent to become obligated to remit amounts pursuant to this Provision,
then the Company shall have the right to reduce such payments such that no such
obligation would arise.
Termination of Option. The Stock Option Agreement provides that the Stock
Option will terminate upon the earlier of: (i) the consummation of the Offer;
(ii) six months after the date on which a Triggering Event occurs; or (iii)
termination of the Merger Agreement in accordance with its terms prior to the
occurrence of a Triggering Event, unless, in the case of clauses (ii) and (iii),
the Grantee could be entitled to receive termination fees following such time or
termination upon the occurrence of certain events, in which case the Option will
not terminate until the later of (x) six months following the time such
termination fees become payable and (y) the expiration of the period in which
the Grantee has such right to receive termination fees.
Registration Rights. The Stock Option Agreement provides that Grantee,
within three years, may, by written notice (the "Registration Notice") to the
Issuer, request the Issuer to register under the Securities Act all or any part
of the Shares beneficially owned by Grantee (the Registrable Securities) in
order to permit
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<PAGE> 14
the sale or other disposition of such securities pursuant to (a) a shelf
registration or (b) a bona fide firm commitment underwritten public offering in
which Grantee shall have the right to select the managing underwriter and shall
effect as wide a distribution of such Registrable Securities as is reasonably
practicable and shall use reasonable best efforts to prevent any person or group
from purchasing through such offering shares representing more than 3% of the
outstanding Shares on a fully diluted basis. The Stock Option Agreement provides
that if the Issuer effects a registration under the Securities Act of Shares for
its own account or for any other stockholders of the Issuer (other than on Form
S-4 or Form S-8, or any successor form), it will allow Grantee the right to
participate in such registration, and such participation will not affect the
obligation of the Issuer to effect demand registration statements for Grantee
under the Stock Option Agreement, except that, if the managing underwriters of
such offering advise the Issuer in writing that in their opinion the number of
Shares requested to be included in such registration exceeds the number which
can be sold in such offering, the Issuer will include that portion of the Shares
requested to be included therein equal to the product obtained by multiplying
(i) the number of shares which the underwriter has informed the Issuer can be
included in the offering and (ii) the percentage obtained by dividing (x) the
total number of Shares of Issuer Common Stock held by Parent and (y) the total
number of Shares of the Company outstanding.
Adjustment upon Changes in Capitalization. The Stock Option Agreement
provides that in the event of any change in Shares by reason of stock dividends,
stock splits, mergers (other than the Merger), recapitalizations, combinations,
exchange of shares or the like, the type and number of shares or securities
subject to the Stock Option, and the Exercise Price per share, will be adjusted
appropriately and proper provision will be made so that Grantee will receive
upon exercise of the option the number and class of shares or other securities
or property that Grantee would have received with respect to Issuer Common Stock
if the Option has been exercised immediately prior to such event or the record
date therefor, as applicable.
Software Distribution and Loan Agreement
The following is a summary of certain provisions of the Software
Distribution and Loan Agreement (the "Software Distribution and Loan
Agreement"), dated as of August 11, 1998, by and between Hasbro Interactive,
Inc., a Delaware corporation and a wholly owned subsidiary of Parent, and the
Company. This summary is not a complete description of the terms and conditions
of the Software Distribution and Loan Agreement and is qualified in its entirety
by reference to the full text of the Software Distribution and Loan Agreement
filed with the Commission as an exhibit to this Schedule 14D-9 and is
incorporated herein by reference. Capitalized terms not otherwise defined below
shall have the meanings set forth in the Software Distribution and Loan
Agreement.
Pursuant to the Software Distribution and Loan Agreement, the Company and
Hasbro Interactive have agreed that Hasbro Interactive will be the exclusive
distributor of the Company's computer software products in the United States and
Canada through March 2001 and that the Company will provide manufacturing and
marketing services and promotion for such computer software products. In
consideration of its distribution of the Company's computer software products,
the agreement provides that Hasbro Interactive is entitled to retain a monthly
service fee (the "Service Fee") equal to 17.5% of "Net Receipts," which is
defined as, for any period, monies received by Hasbro Interactive from its
customers in respect of sales of the Company's computer software products, less
customary trade discounts, price protection and monies credited to customers'
accounts for sales returns, in each case during such period.
In addition, pursuant to the Software Distribution and Loan Agreement, as a
financial accommodation to the Company, Hasbro Interactive has agreed to make
available up to $5,500,000 in loans to the Company, subject to the terms and
conditions set forth therein. Such loans are secured by a lien on the Company's
assets, mature on the six month anniversary of the agreement, bear interest at
12% per annum and have a mandatory monthly principal prepayment obligation equal
to 32.5% of Net Receipts in each month. The agreement provides that each
mandatory prepayment of principal shall be deducted from the consideration due
to the Company each month under the agreement, following deduction of the
Service Fee and accrued interest then payable.
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In connection with securing such loans and the Immediately Payable
Termination Fee payable under the Merger Agreement and the Immediately Payable
Cash-Out Right payable under the Stock Option Agreement, the Company and certain
of its subsidiaries have entered into security agreements with Parent and Hasbro
Interactive granting a security interest in the securable assets of the Company
and such subsidiaries.
Confidentiality Agreement
The following is a summary of certain provisions of the Confidentiality
Agreement entered into on June 16, 1998 by Hasbro Interactive and the Company,
as amended on July 27, 1998 (the "Confidentiality Agreement"). This summary is
not a complete description of the terms and conditions of the Confidentiality
Agreement and is qualified in its entirety by reference to the full text of the
Confidentiality Agreement filed with the Commission as an exhibit to this
Schedule 14D-9 and is incorporated herein by reference. Capitalized terms not
otherwise defined below shall have the meanings set forth in the Confidentiality
Agreement.
Pursuant to the terms of the Confidentiality Agreement, the Company and
Hasbro Interactive agreed to provide, among other things, for the confidential
treatment of their discussions regarding the Offer and the Merger and the
exchange of certain confidential information concerning the Company. Parent
further agreed that, for a period of six (6) months from the date the
Confidentiality Agreement was amended, Hasbro Interactive would not entice away
or in any matter encourage or solicit any officer, employee, agent,
representative, customer or supplier of the Company with whom Hasbro Interactive
comes into contact in connection with its consideration of a transaction to
discontinue such person's relationship with the Company, subject to certain
exceptions.
Indemnification
The Company's Certificate of Incorporation provides that a director of the
Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent such
exemption from liability is not permitted by the DGCL.
The Company's Bylaws provide that the Company shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) by reason of the fact that he is or was a director or officer of the
Company, or that such director or officer is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The Company has previously entered into indemnification agreements with
each of its directors and officers. The indemnification agreements generally
provide that the Company will indemnify said indemnity: (i) against any and all
expenses (including attorney's fees), witness fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by the indemnitee in
connection with any threatened, pending or completed action, suit, proceeding,
whether civil, criminal, administrative or investigative (including an action by
or in the right of the Company) to which indemnitee is, was or at any time
becomes a party, or is threatened to be made a party, by reason of the fact the
indemnitee is, was or at any time becomes a director, officer, employee or agent
of the Company, or is or was serving or at any time serves at the request of the
Company as a director, officer, employee, agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise and
(ii) otherwise to the fullest extent as may be provided to indemnitee by the
Company under the non-exclusivity provision of the Company's Certificate of
Incorporation and Bylaws and the Delaware Corporations Code. The agreements also
provide for the advancement of expense to the indemnity.
14
<PAGE> 16
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Company Board.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY
ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
(b) Background of the Offer; Reasons for the Recommendation
On May 19, 1998, the Company released fourth quarter and fiscal 1998
results. In that press release the Company's management indicated that the
Company can best prosper and leverage its assets in combination with another
company or through a strategic investment from a partner. As a result, the
Company Board authorized management to investigate strategic alternatives for
the Company.
On or about June 14, 1998, Ron Parkinson, Vice President of Finance of
Hasbro Interactive, was contacted by a representative of Piper Jaffray. After
signing a confidentiality agreement on June 16, 1998, Hasbro Interactive, a
wholly-owned subsidiary of Parent, was offered the opportunity to evaluate
materials supplied by the Company regarding a potential business transaction.
On June 29, 1998, Tom Dusenberry, President of Hasbro Interactive, Mr.
Parkinson, Tony Parks, Vice President of Research and Development and John
Sutyak, Director of New Business Development for Hasbro Interactive met with
Gilman Louie, Chairman of the Board, Stephen Race, Chief Executive Officer, M.
Kip Welch, Vice President and General Counsel, John Belchers, Chief Financial
Officer and other representatives of the Company. The parties observed the
product line in development and discussed the possibility of a transaction
between the companies and the possible synergy between Hasbro Interactive and
the Company.
On July 2, 1998, Phillip H. Waldoks, Senior Vice President -- Corporate
Legal Affairs and Secretary of Parent, and Mr. Welch discussed arrangements for
access by representatives of Parent and Hasbro Interactive to a data room
prepared by representatives of the Company in Palo Alto.
On July 7, 1998, representatives of Piper Jaffray contacted representatives
of Bear Stearns to discuss, among other things, the negotiations between the
parties and to determine the timing of the process going forward.
On July 10, 1998, Mr. Dusenberry and Mr. Harold P. Gordon, Vice Chairman of
Parent, met with Mr. Race, Mr. Louie, Mr. Belchers and Mr. Timothy Christian,
Managing Director, Europe/Asia Pacific of the Company. They discussed the common
strategic goals and expressed interest to move forward with a possible
acquisition.
From July 13, 1998 through July 15, 1998, Mr. Parks visited the studios of
the Company in the United States to review the technology of the two businesses
and discuss the status of products under development.
On July 16, 1998, Mr. Dusenberry and Mr. Barry Jafrato, Managing Director
of International Operations for Hasbro Interactive, met with Mr. Christian and
the senior team of the Company in Europe to view the operations in Europe and
discuss the potential synergies.
On July 27, 1998, Mr. Race and Mr. Louie traveled to Beverly, Massachusetts
to meet with Messrs. Dusenberry, Parkinson, Sutyak, John Hurlbut, Vice President
of Marketing, Bob Sadacca, Vice President Administration and Jim Adams, Vice
President of Sales of Hasbro Interactive to answer questions on the Company's
operations and current performance. Mr. Dusenberry then accompanied Mr. Race and
Mr. Louie to the corporate offices of Parent for a meeting with Mr. Alan
Hassenfeld, Chairman of the Board and Chief Executive Officer, John T. O'Neill,
Executive Vice President and Chief Financial Officer, and Mr. Gordon for a
strategic discussion of the potential transaction. Both parties agreed, on July
27, 1998 to amend the confidentiality agreement.
On August 4, 1998 and August 5, 1998 Mr. Jafrato visited the Company
operations in the United Kingdom and Germany for to assess strategies for
integrating these operations into Hasbro Interactive.
15
<PAGE> 17
From July 8, 1998 to August 11, 1998, Parent's and Hasbro Interactive's
representatives conducted due diligence in a data room prepared by
representatives of the Company in Palo Alto, remotely on data supplied by the
Company, public information and using industry data, and on site at the
Company's executive offices in California, the United Kingdom and Germany.
On July 31, 1998 the officers of the Company reviewed the status and
progress of the negotiations with Parent with the Company's Board of Directors,
and the Company's legal counsel reviewed the Board's fiduciary duties in the
context of a sale of the Company. The Board of Directors directed the officers
to continue negotiations with Parent.
Negotiations for a potential merger and the related agreements took place
between members of senior management of the Parent, Hasbro Interactive, their
legal advisors, senior management and representatives of the Company and its
legal advisors between July 29, 1998 and August 11, 1998. Such negotiations were
completed on August 11, 1998 when Parent and the Company executed and delivered
the Merger Agreement.
On August 10, the Company's Board of Directors met and reviewed and
discussed the proposed acquisition and distribution and loan transactions with
Parent. At the meeting, the Company's legal counsel gave a presentation to the
Board on the terms of the Merger Agreement and Software Distribution and Loan
Agreement, the structure of the Offer, the Merger and the distribution and loan
transaction, and the Board's fiduciary duties to stockholders. The Company's
financial advisors delivered an oral opinion that as of such date the proposed
acquisition was fair to the holders of the Company's Common Stock. The Company's
Board of Directors discussed the terms of the proposed acquisition and the
distribution and loan transaction with its advisors and amongst themselves.
Following the discussion, the Board of Directors unanimously determined that the
Offer and the Merger were fair to, and in the best interest of, the Company and
its stockholders and unanimously recommended that the stockholders of the
Company accept the Offer and tender their Shares pursuant to the Offer.
On or about August 11, 1998, Hasbro Interactive offered senior positions at
Hasbro Interactive to Mr. Louie and Mr. Christian, contingent on the closing of
the acquisition of the Company. Mr. Christian also agreed to terminate his
Service Agreement with the Company in exchange for the sum of approximately
L275,000 which would have been due thereunder, contingent upon the closing of
the acquisition of the Company.
On August 12, 1998 Parent announced the signing of the Merger Agreement. On
August 14, 1998 pursuant to the terms of the Merger Agreement, Parent and
Purchaser commenced the Offer.
Factors Considered by the Board of Directors. In approving the Merger
Agreement and the transactions contemplated thereby, and recommending that all
stockholders tender their Shares pursuant to the Offer, the Board of Directors
of the Company considered a number of factors including:
(1) the financial and other terms of the Offer, the Merger Agreement
and the related transaction agreements;
(2) the presentation of Piper Jaffray, Inc. ("Piper Jaffray") and
Piper Jaffray's opinion to the effect that, as of the date of its opinion
and based upon and subject to certain matters stated therein, the $6.00 per
share cash consideration to be received by the holders of shares of the
common stock of the Company pursuant to the tender offer and the merger is
fair, from a financial point of view, to the common stockholders of the
Company.
(3) that the $6.00 per share tender offer price represents a premium
of 47.7% over the closing price of the Company's common stock ($4.0625)
(the "Shares") on Nasdaq ("Nasdaq") on August 10, 1998, the last full
trading day prior to the execution of the Merger Agreement;
(4) history of the price of the Shares on Nasdaq over the last twelve
months;
(5) the view of the Board of Directors, based in part upon the
presentation of management and Piper Jaffray to the Board of Directors,
regarding the likelihood of a superior offer arising;
16
<PAGE> 18
(6) the Company's existing competitive and market position, including
the Company's ability to effectively compete with companies having
significantly greater financial resources than the Company;
(7) the Company's long-term and short-term capital needs, especially
in light of the Company's competitive and market position as described
above;
(8) the provisions of the Merger Agreement, including the provision
allowing the Company to respond to certain unsolicited inquiries concerning
an acquisition of the Company, and the provisions which permit the Company
to terminate the Merger Agreement upon payment to Purchaser of a break-up
fee under certain circumstances;
(9) the provisions of the Software Distribution and Loan Agreement,
including the loan of up to $5.5 million to be provided to the Company;
(10) the fact that Parent's and Purchaser's obligations under the
Offer were not subject to any financing condition;
(11) Parent's financial condition and ability to cause Purchaser to
meet its obligations under the Merger Agreement;
(12) the alternatives available to the Company in light of the
consideration proposed to be received for the Shares pursuant to the Offer
and the Merger Agreement, including continuing to maintain the Company as
an independent company and not engaging in any extraordinary transaction or
engaging in an extraordinary transaction, such as a self tender offer or
other transaction designed to increase the trading prices for the Shares;
(13) the prospects of the Company's continued listing on the Nasdaq
Stock Market;
(14) the discussions held by the Company with other companies
regarding potential business combination transactions with the Company and
the failure of any other potential bidder to submit a proposal having terms
more favorable than the terms proposed by Parent;
(15) legal matters relating to the Offer and the Merger Agreement,
including the review provided for under the Hart-Scott-Rodino Anti-Trust
Improvements Act with respect to the antitrust implications of the Offer
and the terms of the Offer and the Merger Agreement related thereto; and
(16) the familiarity of the Board of Directors with the business,
results of operations, properties and financial condition of the Company
and the nature of the industry in which it operates.
The foregoing discussion of the information and factors considered and
given weight by the Board of Directors of the Company is not intended to be
exhaustive. In view of the variety of factors considered in connection with its
evaluation of the Merger Agreement and the Offer, the Board of Directors of the
Company did not find it practicable to, and did not, quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Board of Directors of the
Company may have given different weights to different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained Piper Jaffray, Inc. in connection with the Offer and
the Merger. Pursuant to a letter agreement, dated June 5, 1996, and amended on
May 21, 1998, the Company will pay Piper Jaffray, upon delivery of a Fairness
Opinion (if requested by the Company), a fee, payable in cash, of $300,000,
which is credited against any compensation otherwise payable by the Company to
Piper Jaffray upon the consummation of a sale of the Company. Upon consummation
by the Company of a sale, the Company has agreed to pay Piper Jaffray an
additional fee, payable in cash on closing, of 1.25% of the total sale price if
the sale price is less than $70 million and 1.5% of the total sale price up to
$90 million if the sale price is greater than $70 million, plus 3.0% of the
total sale price in excess of $90 million. The Company will also pay Piper
Jaffray's reasonable out-of-pocket expenses in an amount up to $25,000. In
addition to the foregoing compensation, the Company has agreed to indemnify
Piper Jaffray against certain liabilities and expenses
17
<PAGE> 19
arising out of the engagement and the transactions in connection therewith,
including certain liabilities under the federal securities laws.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the stockholders of the Company on its
behalf with respect to the Offer and the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past 60
days by the Company or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, all of the Company's executive
officers, directors and affiliates who own Shares presently intend to tender
such Shares to Purchaser pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth herein, the Company is not engaged in any
negotiation in response to the Offer which relates to or would result in (i) an
extraordinary transaction such as a merger or reorganization, involving the
Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company; (iii)
a tender offer for or other acquisition of securities by or of the Company; or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as set forth herein, there are no transactions, Company Board
resolutions, agreements in principle or signed contracts in response to the
Offer that relate to or would result in one or more of the events referred to in
Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Short Form Merger. Under the DGCL, if Purchaser acquires, pursuant to the
Offer or otherwise, at least 90% of the outstanding shares of Common Stock, the
Purchaser will be able to effect the Merger after consummation of the Offer
without a vote of the Company's stockholders. However, if the Purchaser does not
acquire at least 90% of the outstanding Shares of Common Stock pursuant to the
Offer or otherwise and a vote of the Company's stockholders is required under
Delaware Law, a significantly longer period of time will be required to effect
the Merger.
18
<PAGE> 20
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1 Agreement and Plan of Merger, dated August 11, 1998, by and
among Hasbro, Inc., New HIAC Corp. and MicroProse, Inc.,
including Annex A, Conditions to the Offer.
2 Stock Option Agreement, dated August 11, 1998, by and among
Hasbro, Inc., and MicroProse, Inc.
3 Software Distribution and Loan Agreement, made as of August
11, 1998, by and between MicroProse, Inc. and Hasbro
Interactive, Inc.
4 Letter to Stockholders of MicroProse, Inc., dated August 14,
1998.
5 Fairness Opinion of Piper Jaffray, Inc., dated August 10,
1998.
6 Confidentiality Agreement, dated June 16, 1998, by and
between Hasbro Interactive, Inc. and MicroProse, Inc.,
including amendment thereto dated July 28, 1998.
7 Form of Indemnification Agreement and provisions regarding
indemnification of directors and officers from the Company's
Certificate of Incorporation and Bylaws(1).
8 Employment Agreement dated August 16, 1995 between
MicroProse, Inc. and Stephen M. Race.
9 Employment Agreement dated July 18, 1997 between MicroProse
Limited, Spectrum Holobyte, Inc. and Timothy Paul Christian.
10 MicroProse, Inc. 1994 Stock Option Plan.(2)
</TABLE>
- ---------------
(1) Incorporated by reference to an exhibit filed with the Company's
Registration Statement on Form S-1 (Registration No. 33-75408), as amended.
(2) Incorporated by reference to Exhibit 99.1 filed with the Company's
Registration Statement on Form S-8 (Registration No. 33-85024).
19
<PAGE> 21
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
By: /s/ STEPHEN M. RACE
------------------------------------
Name: Stephen M. Race
Title: Chief Executive Officer and
Director
Dated: August 14, 1998
20
<PAGE> 22
ANNEX A
LOGO
PIPER JAFFRAY INC.
222 SOUTH NINTH STREET
MINNEAPOLIS, MN 55402-3804
612 342-6000
August 10, 1998
The Board of Directors
c/o MicroProse, Inc.
2490 Mariner Square Loop, Suite 100
Alameda, CA 94501
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of common stock (the "Common Stock") of MicroProse, Inc.
(the "Company") of the consideration to be received by holders of Common Stock,
pursuant to an Agreement and Plan of Merger proposed to be dated as of August
11, 1998 (the "Agreement") among the Company, Hasbro, Inc. (the "Parent") and
New HIAC Corp. (the "Purchaser"), a wholly owned subsidiary of the Parent. The
Agreement provides for (i) the commencement by Purchaser of a tender offer (the
"Offer") to purchase all outstanding shares of Common Stock at a price of $6.00
per share, net to seller in cash (the "Offer Price"), and (ii) the merger (the
"Merger") of the Purchaser into the Company in which shares of Common Stock will
be converted and exchanged for cash equal to the Offer Price. The Offer and the
Merger are collectively referred to as the "Transactions."
Piper Jaffray Inc., as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, underwriting and secondary distributions of
securities, private placements and valuations for estate, corporate and other
purposes. We will receive a fee for providing this opinion. This opinion fee is
not contingent upon the consummation of the Transactions. The Company has also
agreed to indemnify us against certain liabilities in connection with our
services. Piper Jaffray is entitled to additional fees in the event of
consummation of the Transactions. Piper Jaffray makes a market in the Common
Stock and provides research coverage on the Company. In the ordinary course of
our business, we and our affiliates may actively trade securities of the Company
for our own account or the account of our customers and, accordingly, may at any
time hold a long or short position in such securities. We have performed for a
fee various investment banking services for the Company in the past.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed (i) the draft dated August 8, 1998 of the
Agreement, (ii) certain publicly available financial, operating and business
information related to the Company, (iii) certain internal financial information
of the Company prepared for financial planning purposes and furnished by the
management of the Company, (iv) certain publicly available
Since 1895, Member SIPC
New York Stock Exchange,
Inc.
A-1
<PAGE> 23
market and securities data of the Company, (v) to the extent publicly available,
financial terms of certain acquisition transactions involving companies
operating in industries deemed similar to that in which the Company operates and
selected public companies deemed comparable to Company, (vi) certain publicly
available financial, operating and business information relative to the Parent,
and (vii) certain publicly available market and securities data of the Parent.
We had discussions with members of the management of the Company concerning the
financial condition, current operating results and business outlook for the
Company on a stand-alone basis.
We have relied upon and assumed the accuracy, completeness and fairness of the
financial statements and other information provided to us or otherwise made
available to us, and have not assumed responsibility for the independent
verification of such information. The Company does not publicly disclose
internal financial information of the type provided to Piper Jaffray in
connection with Piper Jaffray's review of the Transactions. Such information was
prepared for financial planning purposes and was not prepared with the
expectation of public disclosure. We have relied upon the assurances of the
management of the Company that the information provided to us as set forth above
has been prepared on a reasonable basis and, with respect to financial planning
data and other business outlook information, reflects the best currently
available estimates, and that they are not aware of any information or facts
that would make the information provided to us incomplete or misleading. We
have, at your direction, in reviewing and analyzing internally prepared
financial information, not given effect to the prospective impact of any
proposed software distribution arrangement with Parent.
In arriving at our opinion, we have not performed any appraisals or valuations
of any specific assets or liabilities of the Company, and have not been
furnished with any such appraisals or valuations. We express no opinion
regarding the liquidation value of any entity. The analyses performed by Piper
Jaffray in connection with this opinion were going concern analyses of an
entity. Recent reports by independent accountants to the Company have expressed
qualifications concerning the Company's ability to continue as a going concern.
Other factors could have a material adverse effect on the Company's financial
condition and the marketability of its securities. We were not requested to
opine, and no opinion is hereby rendered, as to whether any analysis of an
entity, other than as a going concern, is appropriate in the circumstance and,
accordingly, we have performed no such analyses.
Our opinion relates solely to the Transactions; we were not requested to opine
as to, and this opinion does not in any manner address, the fairness or any
other aspect of any software distribution arrangement with Parent.
This opinion is necessarily based upon the information available to us and facts
and circumstances as they exist and are subject to evaluation on the date
hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the price at which shares of Common Stock have traded or may trade
at any future time. We have not undertaken to reaffirm or revise this opinion or
otherwise comment upon any events occurring after the date hereof and do not
have any obligation to update, revise or reaffirm this opinion.
This opinion is directed to the Board of Directors of the Company and is not
intended to be and does not constitute a recommendation to any stockholder of
the Company. We were not requested to opine as to, and this opinion does not
address, the basic business decision to proceed with or effect the Transactions.
This opinion shall not be published or otherwise used, nor shall any public
references to us be made without our prior written approval.
Based upon and subject to the foregoing and based upon such other factors as we
consider relevant, it is our opinion that the Offer Price to be received in the
Transactions pursuant to the Agreement for the Common Stock of the Company is
fair, from a financial point of view, to the holders of Common Stock of the
Company as of the date hereof.
Sincerely,
PIPER JAFFRAY INC.
LOGO
A-2
<PAGE> 24
SCHEDULE I
MICROPROSE, INC.
2490 MARINER SQUARE LOOP, SUITE 100
ALAMEDA, CA 94501
------------------------
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934 AND
RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about August 14, 1998 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") to holders of shares (the "Shares") of common stock, $0.001
par value (the "Common Stock") including the associated preferred stock purchase
rights, of MicroProse, Inc., a Delaware corporation (the "Company"). Capitalized
terms used herein and not otherwise defined herein shall have the meanings set
forth in the Schedule 14D-9. You are receiving this Information Statement in
connection with the possible election of persons designated by New HIAC Corp.
(the "Purchaser"), a wholly owned subsidiary of Hasbro, Inc. ("Parent"), to the
board of directors of the Company (the "Company Board"). Such designation is to
be made pursuant to an Agreement and Plan of Merger, dated August 11, 1998 (the
"Merger Agreement"), by and between Parent, Purchaser and the Company.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended, and Rule 14f-1 thereunder. YOU ARE URGED TO
READ THIS INFORMATION STATEMENT CAREFULLY. YOU ARE NOT, HOWEVER, REQUIRED TO
TAKE ANY ACTION.
Pursuant to the Merger Agreement, the Purchaser commenced a cash tender
offer to acquire all of the Shares (the "Offer"). The Offer is scheduled to
expire at 12:00 Midnight (Eastern Time) on September 10, 1998, unless the Offer
is extended. Following the successful completion of the Offer, upon approval by
a stockholder vote, if required, and subject to certain other conditions, the
Purchaser will be merged with and into the Company (the "Merger").
The information contained in this Information Statement concerning the
Purchaser has been furnished to the Company by the Purchaser, and the Company
assumes no responsibility for the accuracy or completeness of such information.
I-1
<PAGE> 25
GENERAL INFORMATION REGARDING THE COMPANY
GENERAL
The Common Stock and the Company's Series A Preferred Stock are the only
classes of voting securities of the Company outstanding. As of August 13, 1998,
there were 5,753,598 shares of Common Stock outstanding. Each share of Common
Stock entitles its record holder to one vote. The 2,000,000 shares of Series A
Preferred Stock outstanding on August 13, 1998 are entitled to an aggregate of
19,608 votes.
THE COMPANY'S BOARD OF DIRECTORS
Promptly after (i) the purchase of and payment for any Shares by Purchaser
or any of its affiliates as a result of which Purchaser and its affiliates own
beneficially at least a majority of the then outstanding Shares and (ii)
compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder, whichever shall occur later, Parent shall be entitled to designate
such number of directors, rounded up to the next whole number, on the Company's
Board of Directors as is equal to the product of the total number of directors
on such Board (giving effect to any increase in the size of such Board)
multiplied by the percentage that the number of Shares beneficially owned by
Purchaser (including Shares so accepted for payment) bears to the total number
of Shares then outstanding. In furtherance thereof, the Company shall, upon
request of Parent, use its best efforts promptly either to increase the size of
its Board of Directors or to secure the resignations of such number of its
incumbent directors, or both, as is necessary to enable such designees of Parent
to be so elected or appointed to the Company's Board of Directors, and the
Company shall take all actions available to the Company to cause such designees
of Parent to be so elected or appointed. At such time, the Company shall, if
requested by Parent, also take all action necessary to cause Persons designated
by Parent to constitute at least the same percentage (rounded up to the next
whole number) as is on the Company's Board of Directors of (i) each committee of
the Company's Board of Directors, (ii) each board of directors (or similar body)
of each Subsidiary of the Company and (iii) each committee (or similar body) of
each such board.
The Parent has informed the Company that the Parent will choose the
Parent's designees from the list of persons set forth in the following table.
With respect to Parent's designees, the following table, prepared from
information furnished to the Company by the Parent, sets forth the name, age,
citizenship (if not a U.S. citizen), present principal occupation or employment
and five-year employment history for each of the persons who may be designated
by Parent as the Parent's designees. If necessary, the Parent may choose
additional or other Parent's designees, subject to the requirements of Rule
14f-1. Unless otherwise indicated below, the business address of each person is
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL
NAME AGE POSITIONS HELD DURING THE PAST FIVE YEARS
---- --- ----------------------------------------------------
<S> <C> <C>
THOMAS R. DUSENBERRY................... 45 Mr. Dusenberry has been President of Hasbro
Interactive, Inc. since 1995. Prior thereto, he was
Vice President of New Product Acquisitions for the
Hasbro Games Group from 1994 to 1995. Prior thereto,
he was Director of New Product Acquisitions for the
Parker Brothers Division.
HAROLD P. GORDON....................... 60 Mr. Gordon has been Vice Chairman of Parent since
1995. Prior thereto, he was a Partner at Stikeman,
Elliott (law firm). He is a director of Alliance
Communications Corporation, Fonorola Inc. and G.T.C.
Transcontinental Group, Ltd. Mr. Gordon is a citizen
of Canada.
PHILLIP H. WALDOKS..................... 45 Mr. Waldoks has been Senior Vice
President -- Corporate Legal Affairs and Secretary of
Parent since 1995. Prior thereto, he was Senior Vice
President -- Corporate Legal Affairs.
</TABLE>
The Parent has advised the Company that to the best knowledge of the Parent,
none of Parent's designees currently is a director of, or holds any position
with, the Company, and except as disclosed in the Offer to Purchase, none of
Parent's designees beneficially owns any securities (or rights to acquire any
securities) of the Company or has been involved in any transactions with the
Company or any of its directors, executive
I-2
<PAGE> 26
officers or affiliates that are required to be disclosed pursuant to the rules
of the Securities and Exchange Commission (the "SEC"), except as may be
disclosed in the Offer to Purchase. None of Parent's designees has any family
relationship with any director or executive officer of the Company.
The Parent has advised the Company that each of the persons listed in the
table above has consented to act as a director, and that none of such persons
has during the last five years been convicted in a criminal proceeding
(excluding traffic violations and similar misdemeanors) or was a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was, or is, subject to a judgment, decree or
final order enjoining future violations of, or prohibiting activities subject
to, federal or state securities laws or finding any violation of such laws or is
involved in any other legal proceeding which is required to be disclosed under
Item 401(f) of Regulation S-K promulgated by the SEC.
It is expected that Parent's designees may assume office at any time
following the purchase by Parent of a majority of outstanding Shares pursuant to
the Offer, which purchase cannot be earlier than September 11, 1998, and that,
upon assuming office, Parent's designees will thereafter constitute at least a
majority of the Company Board.
I-3
<PAGE> 27
DIRECTORS AND EXECUTIVE OFFICERS
THE CURRENT MEMBERS OF THE BOARD
The names of the current directors, their ages as of August 14, 1998 and
certain other information about them are set forth below. Some of the current
directors may resign effective immediately following the purchase of Shares by
Purchaser pursuant to the Offer.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED A POSITION WITH THE COMPANY OR PRINCIPAL OCCUPATION
NAME OF DIRECTOR AGE DIRECTOR DURING THE PAST FIVE YEARS
---------------- --- ---------- -------------------------------------------------
<S> <C> <C> <C>
Gilman G. Louie 37 1993 Mr. Louie has served as Chairman of the Board of
Directors of the Company since December 14, 1993, the
effective date of the merger (the Merger Date) between
Spectrum HoloByte, Inc. and MicroProse, Inc. Mr. Louie
also served as Chief Executive Officer of the Company
from May 1, 1995, to August 15, 1995. Prior to the
merger, Mr. Louie served as Chairman of the Board of
Spectrum HoloByte since its inception in September
1992. Mr. Louie holds a Bachelor's degree in Business
Administration from San Francisco State University
where he graduated magna cum laude.
David C. Costine(1)(2) 57 1990 Mr. Costine has served as a director of the Company
since November 1990. Since 1987, Mr. Costine has been
President of Costine Management Company. Since 1988, he
has been a General Partner of Costine Associates, L.P.,
which is the General Partner of Corporate Venture
Partners, L.P., a venture capital fund that is a
stockholder of the Company. He currently serves on the
Board of Directors of Yes! Entertainment. Mr. Costine
has a Bachelor's degree in Mechanical Engineering from
Cornell University and an MBA from Harvard University.
Vinod Khosla 43 1993 Mr. Khosla has been a director of the Company since the
Merger Date and of Spectrum HoloByte since its
inception in September 1992. He has been a General
Partner at Kleiner Perkins Caufield & Byers, a venture
capital firm, since November 1987. He currently serves
on the Board of Directors of Excite, Inc., Concentric
Network Corp. and Qwest Communication International
Inc. Mr. Khosla holds a Bachelor of Technology in
Electrical Engineering from the Indian Institute of
Technology in New Delhi, a Master's Degree in
Biomedical Engineering from Carnegie Mellon University
and an MBA from the Stanford University Graduate School
of Business.
Keith Schaefer(1)(2) 49 1993 Mr. Schaefer has been a director of the Company since
the Merger Date and of Spectrum HoloByte since March
1993. He is currently a managing partner of USWeb
Corporation. From July 1994 until September 1997, he
was President and Chief Executive Officer of
Cybernautics, Inc. From October 1992 until June 1994,
Mr. Schaefer served as President of Paramount
Communications Technology Group, Inc., a global
entertainment and communications company. He has a B.A.
from the University of Pittsburgh and attended the
University of California, Los Angeles Graduate School
of Business.
Stephen M. Race 48 1995 Mr. Race has been a director and the Chief Executive
officer of the Company since August 1995. From May 1994
until August 1995, Mr. Race served as president of Sony
Computer Entertainment America. Prior to joining Sony
Computer Entertainment America, Mr. Race directed his
own consulting practice and served as a consultant to a
variety of companies from July 1991 until May 1994.
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
I-4
<PAGE> 28
Each of the directors has been engaged in the principal occupation(s)
described above during the past five (5) years. There are no family
relationships among any of the directors or executive officers of the Company.
INFORMATION CONCERNING THE BOARD; DIRECTOR COMPENSATION
During the fiscal year ended March 30, 1998, the Board of Directors of the
Company held a total of eight meetings. During this period, each director
attended or participated in at least 75% of the aggregate of (i) the total
number of meetings of the Board that were held while they were members and (ii)
the total number of meetings held by all committees of the Board of which they
were members.
The Company has an Audit Committee and a Compensation Committee of the
Board of Directors. There is no nominating committee or committee performing the
functions of such committee.
The Audit Committee meets with the Company's financial management and its
independent accountants at various times during each year and reviews internal
control conditions, audit plans and results, and financial reporting procedures.
This Committee, consisting of Messrs. Costine and Schaefer, held two meetings
during fiscal 1998.
The Compensation Committee reviews and makes recommendations with respect
to matters related to the hiring, employment and compensation of the Company's
officers and employees. This Committee, consisting of Messrs. Schaefer and
Costine, held eight meetings during fiscal 1998.
Current cash compensation for non-employee members of the Board of
Directors consists of an annual retainer fee of $10,000. Members of the Board
are reimbursed for all out-of-pocket costs incurred in connection with their
attendance at Board and committee meetings. Under a self-administering automatic
option grant program in effect under the Company's 1994 Stock Option Plan, an
individual who first becomes a non-employee member of the Board will receive an
automatic one-time option grant for 5,000 shares of the Company's Common Stock
upon commencement of Board service, and each individual with six or more months
of Board service will receive an automatic option grant for an additional 500
shares at each Annual Stockholders Meeting at which he or she continues to serve
as a non-employee Board member.
The exercise price of such options may not be less than the fair market
value per share of the Company's Common Stock (as determined by the closing
price reported by Nasdaq on the date of grant) and the term of such options may
not exceed ten years.
Automatic option grants become exercisable for 12 percent of the option
shares upon completion of six months of Board service from the date of grant,
and for the balance of the option shares in a series of 44 equal successive
monthly installments thereafter, provided the director remains a member of the
Board through such date. However, full and immediate vesting will occur upon
certain mergers involving the Company or a sale, transfer or other disposition
of all or substantially all of the Company's assets (a "Corporate Transaction")
and upon certain types of "hostile take-overs." Also, each automatic option
grant will be automatically canceled upon the occurrence of certain Corporate
Transactions not approved by the Board of Directors (a "Hostile Take-Over")
whether or not the option is otherwise at the time exercisable for such shares.
In return, the optionee will be entitled to a cash distribution from the Company
in an amount equal to the excess of (i) the greater of (a) the fair market value
per share on the date of cancellation, as determined in accordance with the
valuation provisions of the Option Plan, or (b) the highest reported price per
share paid by the acquiring entity in effecting the Hostile Take-Over over (ii)
the aggregate exercise price payable for such shares.
Upon cessation of Board service, the options held by the director will
remain exercisable for six months. Should the optionee die while holding one or
more options, then those options may subsequently be exercised by the personal
representative of the optionee's estate or by the persons to whom such options
are transferred by the optionee's will or by the laws of inheritance within
twelve months of the director's death.
In accordance with the provisions of the Option Plan, Messrs. Costine,
Khosla and Schaefer were each granted options for 2,000 shares of the Company's
Common Stock at an exercise price of $48.75 per share on
I-5
<PAGE> 29
December 16, 1993, and options for 500 shares of the Company's Common Stock at
an exercise price of $66.25 on September 21, 1994, options for 500 shares of the
Company's Common Stock at an exercise price of $56.25 on October 5, 1995,
options for 500 shares of the Company's Common Stock at an exercise price of
$30.625 on September 18, 1996, and options for 500 shares of the Company's
Common Stock at an exercise price of $25.625 on September 18, 1997.
EXECUTIVE OFFICERS OF THE COMPANY
The following individuals currently serve as executive officers of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- --- ----------------
<S> <C> <C>
Gilman G. Louie 37 Chairman of the Board
Stephen M. Race 48 Director, Chief Executive Officer
Alden H. Andersen 48 Senior Vice President, Operations
Charles E. Balthaser 58 Senior Vice President, Studios
John M. Belchers 54 Chief Financial Officer
Tim P. Christian 43 Managing Director, Europe/Asia Pacific
Jeffery J. Forestier 41 Senior Vice President, Sales
Robert D. Botch 46 Senior Vice President, Marketing
Derek W. McLeish 51 Senior Vice President, Business Development
</TABLE>
See "The Current Members of the Board" above for background information on
Messrs. Louie and Race.
Mr. Andersen joined the Company in February 1996 as Senior Vice President,
Operations. From 1994 until 1995, he was Vice President of Operations at Sony
Computer Entertainment America. Mr. Andersen served as Associate Director of
Manufacturing Planning at Sega of America in 1993 through 1994. He has a B.S. in
business administration from the University of Santa Clara.
Mr. Balthaser joined the Company in September 1996 as Senior Vice
President, Studios. In July 1992, Mr. Balthaser established Alexandria Digital
Studios, a video game and interactive entertainment company. He served as
President and Chief Executive Officer until the company was sold in 1995.
Mr. Belchers joined the Company in March 1998 as Chief Financial Officer.
From April 1996 until November 1997, Mr. Belchers served as Chief Operating
Officer at Discovery Toys, Inc., and various financial positions at American
President Lines from August 1989 until March 1996. Mr. Belchers is a chartered
accountant and holds a Bachelor of Business Science from the University of
Capetown.
Mr. Christian joined the Company in August 1994 as Managing Director, U.K.
From January 1991 until August 1994, Mr. Christian was managing director at
Accolade Europe Limited. Mr. Christian is a member of the Chartered Institute of
Management Accountants and holds a B.A. in business administration from
Loughborough University.
Mr. Forestier joined the Company in December 1995 as Senior Vice President,
Sales. From January 1993 until November 1995, he was director of sales and
marketing at NAMCO HomeTek, Inc. Mr. Forestier holds a B.S. in economics and
agricultural science from the University of California at Davis.
Mr. Botch joined the Company in March 1998 as Senior Vice President,
Marketing. From May 1996 until March 1998, he served as President of Apt
Productions. From October 1991 until April 1996, Mr. Botch served as President
of U.S. Gold.
Mr. McLeish joined the Company in July 1996 as Senior Vice President,
Marketing. Since January 1998, he has been serving as Senior Vice President,
Business Development. From October 1994 until July 1996, he was President and
Chief Executive Officer of Xatrix Entertainment Inc. From February 1993 until
October 1994, he served as President and Chief Executive Officer at Velocity
Development Corporation. Mr. McLeish has a B.A. from California State University
at Long Beach.
I-6
<PAGE> 30
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation earned for each of the three fiscal years preceding March 31, 1998,
by the Company's Chief Executive Officer and the four most highly compensated
executive officers of the Company earning at least $100,000 for services
rendered in all capacities to the Company and its subsidiaries (the "Named
Executive Officers"). No executive officer that would have otherwise been
includible in such table on the basis of salary and bonus earned for the 1998
fiscal year has resigned or terminated employment during the fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------ ------------
OTHER ANNUAL SECURITIES ALL OTHER
FISCAL SALARY COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) BONUS($) ($)(2) OPTIONS(#) ($)(3)
--------------------------- ------ ------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen M. Race................... 1998 339,689 -- -- -- 2,969
Director and Chief 1997 296,384 289,785 -- --(5) 3,912
Executive Officer(4) 1996 172,404 75,000 -- 100,000 529
Gilman G. Louie................... 1998 233,619 -- -- 20,000 2,445
Chairman of the Board 1997 213,462 223,061 -- --(5) 2,702
1996 203,173 -- -- 40,000 2,282
Tim P. Christian.................. 1998 201,097 -- -- 25,000 33,192
Managing Director, 1997 183,435 82,134 -- --(5) 48,467
Europe/Asia Pacific 1996 131,750 77,520 -- 4,000 16,800
Derek W. McLeish(6)............... 1998 200,822 -- 35,133(7) 5,000 --
Senior Vice President, 1997 123,750 35,000 -- 20,000 --
Business Development 1996 -- -- -- -- --
Charles E. Balthaser(8)........... 1998 200,683 -- -- 6,000 --
Senior Vice President, Studios 1997 100,846 25,000 -- 14,000 --
1996 -- -- -- -- --
</TABLE>
- ---------------
(1) Salary includes salary deferred under the Company's 401(k) Plan.
(2) In accordance with Commission rules, perquisites constituting less than the
lesser of $50,000 or 10% of total salary and bonus are not reported.
(3) "All Other Compensation" reflects matching contributions to the Company's
401(k) Plan or U.K. pension contributions in the case of Mr. Christian.
(4) Mr. Race has served as the Chief Executive Officer of the Company since
August 16, 1995. His salary in the 1996 fiscal year was for a partial year.
(5) On June 26, 1996, as part of an Option Exchange Program, the Company agreed
to enter into Option Exchange Agreements with each of its employee option
holders, including Messrs. Race, Louie and Christian, pursuant to which the
Company issued, in exchange for tendered option agreements with an exercise
price in excess of $26.875 from current option holders, new options, each
with an exercise price of $26.875 which represents the fair market value of
one share of the Company's Common Stock on June 26, 1996, as reported by the
Nasdaq National Market ("Nasdaq"). Mr. Race exchanged options to purchase
100,000 shares, Mr. Louie exchanged options to purchase 30,000 shares, and
Mr. Christian exchanged options to purchase 10,000 shares. The Company's
Board of Directors approved the Option Exchange Program.
(6) Mr. McLeish was hired on July 29, 1996. His salary in the 1997 fiscal year
was for a partial year.
(7) Included in Mr. McLeish's Other Compensation in the 1998 fiscal year were
$14,805 for a housing allowance, $14,328 for storage of household goods and
the remainder for travel expenses.
(8) Mr. Balthaser was hired on September 4, 1996. His salary in the 1997 fiscal
year was for a partial year.
I-7
<PAGE> 31
STOCK OPTIONS
The following table contains information concerning the grant of stock
options made under the Company's 1994 Stock Option Plan for the 1998 fiscal year
to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------- VALUE OF ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(3)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE)(2) DATE 5% 10%
---- ------------- ------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Stephen M. Race --
Gilman G. Louie(4) 20,000 6.1% $ 9.845 2/26/08 $123,872 $313,808
Tim P. Christian(5) 20,000 6.1% $21.875 7/8/07 $275,237 $697,262
5,000 1.5% $10.000 1/15/08 $ 31,456 $ 79,687
Derek W. McLeish (6) 5,000 1.5% $10.000 1/15/08 $ 31,456 $ 79,687
Charles E. Balthaser(6) 6,000 1.8% $10.000 1/15/08 $ 37,747 $ 95,625
</TABLE>
- ---------------
(1) All options were granted under the Company's 1994 Stock Option Plan. The
options granted to Messrs. Louie, Christian and McLeish are incentive and
nonqualified options. The options granted to Mr. Balthaser are incentive
options. Each option will immediately vest in the event the Company is
acquired by a merger, reverse merger or asset sale, unless the options are
either assumed by the successor corporation or replaced with a comparable
option to purchase shares of the capital stock of the successor corporation.
Each option has a maximum term of 10 years, subject to earlier termination
in the event of the optionee's cessation of service with the Company.
(2) The exercise price of these options may be paid in cash, in shares of Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares and the
federal and state tax liability incurred in connection with such exercise.
The optionee may be permitted, subject to the approval of the plan
administrator, to apply a portion of the shares purchased under the option
(or to deliver existing shares of Common Stock) in satisfaction of such tax
liability.
(3) In accordance with Securities and Exchange Commission rules, these columns
reflect hypothetical gains or "option spreads" that would exist for the
respective options. These rules require that the gains be based on assumed
rates of annual compounded stock price appreciation of 5 percent and 10
percent from the date the options were granted over the full ten-year option
term. There can be no assurance that these assumed rates of appreciation or
any appreciation will occur.
(4) The options granted to Mr. Louie become exercisable as to 16.7 percent of
the option shares six (6) months after the vesting commencement date and the
balance of the shares vest in a series of thirty (30) equal monthly
installments.
(5) The 20,000 options granted to Mr. Christian become exercisable as to 12.5
percent of the option shares six (6) months after the vesting commencement
date and the balance of the shares vest in a series of forty-two (42) equal
monthly installments. The 5,000 options granted to Mr. Christian become
exercisable as to 10 percent of the option shares six (6) months after the
vesting commencement date and the balance of the shares vest in a series of
fifty-four (54) equal monthly installments.
(6) The options granted to Messrs. McLeish and Balthaser become exercisable as
to 10 percent of the option shares six (6) months after the vesting
commencement date and the balance of the shares vest in a series of
fifty-four (54) equal monthly installments.
I-8
<PAGE> 32
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the Named
Executive Officers concerning the exercise of options during the 1998 fiscal
year and unexercised options held as of the end of the 1998 fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR-END(1998)(#)(1) FISCAL YEAR-END($)(1)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen M. Race -- -- 64,380 35,620 -- --
Gilman G. Louie -- -- 19,666 40,334 -- $40,600
Tim P. Christian -- -- 11,222 25,778 -- $ 9,375
Derek W. McLeish 2,000 $17,500 6,335 16,665 -- $ 9,375
Charles E. Balthaser -- -- 4,200 15,800 -- $11,250
</TABLE>
- ---------------
(1) Options granted pursuant to the Company's 1994 Stock Option Plan.
(2) Based on the fair market value of the shares on the last day of the 1998
fiscal year ($11.875 per share) less the exercise price payable for such
shares.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
COMMON STOCK -- MANAGEMENT AND DIRECTORS
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
July 15, 1998, by each director, the "Named Executive Officers" as shown in the
Summary Compensation Table above, and all current directors and executive
officers as a group. Unless otherwise indicated, each of the stockholders has
sole voting and investment power with respect to the shares beneficially owned,
subject to community property laws, where applicable. The address for each
Director and Officer is that of the Company.
<TABLE>
<CAPTION>
APPROXIMATE
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME OWNED OWNED(1)
---- ------------ ------------
<S> <C> <C>
David C. Costine(2)......................................... 59,785 1.0%
Vinod Khosla(3)............................................. 49,839 *
Keith Schaefer(4)........................................... 5,160 *
Stephen M. Race(5).......................................... 86,313 1.5%
Gilman G. Louie(6).......................................... 141,963 2.5%
Tim P. Christian(7)......................................... 16,401 *
Derek W. McLeish(8)......................................... 9,162 *
Charles E. Balthaser(9)..................................... 7,248 *
All current directors and executive officers as a group (12
persons)(10).............................................. 403,320 6.8%
</TABLE>
- ---------------
* Less than one percent of the outstanding Common Stock.
(1) Percentage of beneficial ownership is calculated assuming 5,753,598 shares
of Common Stock were outstanding on July 15, 1998. This percentage also
includes Common Stock of which such individual or entity has the right to
acquire beneficial ownership within sixty (60) days of July 15, 1998,
including but not limited to the exercise of an option; however, such
Common Stock shall not be deemed outstanding
I-9
<PAGE> 33
for the purpose of computing the percentage owned by any other individual
or entity. General Rule 13-3(d)(1)(i) under the Securities Exchange Act of
1934 requires such calculation.
(2) Includes 3,160 shares of Common Stock purchasable under stock options that
are currently exercisable or that will become exercisable within sixty (60)
days of July 15, 1998. Also includes 38,570 shares of Common Stock held by
Corporate Venture Partners, L.P. Mr. Costine is a principal of Corporate
Venture Partners, L.P. Mr. Costine disclaims beneficial ownership of the
listed securities not held by him personally, except to the extent of his
pecuniary interest therein.
(3) Includes 3,160 shares of Common Stock purchasable under stock options that
are currently exercisable or that will become exercisable within sixty (60)
days of July 15, 1998. Also includes 40,000 shares of Common Stock held by
Mr. Khosla's wife and 3,443 shares of Common Stock held by an irrevocable
trust for Mr. Khosla and his wife. Mr. Khosla disclaims beneficial
ownership of the securities held directly by his spouse, Neeru Khosla, and
the Vinod and Neeru Khosla 1992 irrevocable trust, except to the extent of
any indirect pecuniary interest therein.
(4) Includes 5,160 shares of Common Stock purchasable under stock options that
are currently exercisable or that will become exercisable within sixty (60)
days of July 15, 1998.
(5) Includes 74,857 shares of Common Stock purchasable under stock options that
are currently exercisable or that will become exercisable within sixty (60)
days of July 15, 1998.
(6) Includes 26,500 shares of Common Stock purchasable under stock options that
are currently exercisable or that will become exercisable within sixty (60)
days of July 15, 1998.
(7) Includes 15,638 shares of Common Stock purchasable under stock options that
are currently exercisable or that will become exercisable within sixty (60)
days of July 15, 1998.
(8) Includes 8,917 shares of Common Stock purchasable under stock options that
are currently exercisable or that will become exercisable within sixty (60)
days of July 15, 1998.
(9) Includes 6,300 shares of Common Stock purchasable under stock options that
are currently exercisable or that will become exercisable within sixty (60)
days of July 15, 1998.
(10) Includes 167,841 shares of Common Stock purchasable under stock options
that are currently exercisable or that will become exercisable within sixty
(60) days of July 15, 1998.
COMMON STOCK -- PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the only
persons, other than those persons shown on the previous table, who beneficially
owned (to the Company's knowledge) more than 5 percent of the Company's Common
Stock as of August 13, 1998.
<TABLE>
<CAPTION>
SHARES APPROXIMATE PERCENT
NAME AND ADDRESS BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
---------------- ------------------ ---------------------
<S> <C> <C>
FMR Corp................................................... 809,000 13.9%
82 Devonshire Street
Boston, MA 02109
Weiss Peck & Greer......................................... 384,100 6.7%
One New York Plaza
30th Floor
New York, NY 10004
SWICO Anstalt(2)........................................... 357,647 6.2%
c/o Rowbotham & Company, Inc.
400 Montgomery Street, Suite 600
San Francisco, CA 94104
Harvest Management, Inc.................................... 300,000 5.2%
767 Fifth Avenue -- 46th Floor
New York, NY 10153
</TABLE>
- ---------------
(1) Percentage of beneficial ownership is calculated assuming 5,753,598 shares
of Common Stock were outstanding on July 15, 1998. This percentage also
includes Common Stock of which such individual or
I-10
<PAGE> 34
entity has the right to acquire beneficial ownership within sixty (60) days
of July 15, 1998, including but not limited to the exercise of an option;
however, such Common Stock shall not be deemed outstanding for the purpose
of computing the percentage owned by any other individual or entity. General
Rule 13(d)(1)(i) under the Securities Exchange Act of 1934 requires such
calculation.
(2) Includes 19,608 shares of Common Stock issuable upon conversion of the
Series A Convertible Preferred Stock held by PH(US), Inc. SWICO Anstalt is
the sole shareholder of PH(US), Inc.
PREFERRED STOCK
The following table sets forth beneficial ownership information for the
Company's Preferred Stock outstanding as of August 13, 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF CLASS
NAME BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
---- ------------------ ---------------------
<S> <C> <C>
PH(US), Inc.(1).......................................... 2,000,000 100%
c/o Rowbotham & Company, Inc.
400 Montgomery Street, Suite 600
San Francisco, CA 94104
</TABLE>
- ---------------
(1) SWICO Anstalt is the sole shareholder of PH(US), Inc., the record owner of
all shares of Series A Preferred Stock of the Company. Accordingly, SWICO
Anstalt may be deemed to be the beneficial owners of all the shares of
Series A Preferred Stock of the Company. These Preferred Shares are
convertible into 19,608 shares of the Company's Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
The following outside Directors served on the Compensation Committee of the
Board of Directors of the Company during fiscal 1998: Mr. Keith Schaefer and Mr.
David Costine. There were no Compensation Committee interlocks or insider
participation during fiscal year 1998.
EMPLOYMENT CONTRACTS; TERMINATION OF EMPLOYMENT;
AND CHANGE-IN-CONTROL ARRANGEMENTS; CERTAIN TRANSACTIONS
EMPLOYMENT CONTRACTS
In August 1995, the Company entered into an employment agreement with
Stephen M. Race, Chief Executive Officer of the Company, which terminates upon
Mr. Race's termination of employment with the Company. The agreement provides
for an initial annual base salary of $275,000 which will be reviewed at least
annually, but which may not be reduced below such level. His current salary is
$341,000. The agreement provides that the Company grant Mr. Race options to
purchase 100,000 shares of Common Stock, which options vest ratably over a
50-month period. See "Stock Options." The agreement also provides for an annual
performance bonus of up to 100 percent of his base salary if the Company exceeds
certain performance targets established by its Board of Directors. Under the
terms of his employment agreement and subject to certain conditions, Mr. Race
will receive a special bonus of $3,000,000 (less any realizable value from
options Mr. Race holds that are exercisable or gains as a result of a sale of
the stock purchased pursuant to such options) if Mr. Race remains employed with
the Company through March 31, 1999. Mr. Race is also entitled to reimbursement
of certain expenses in connection with his employment with the Company,
including automobile expenses and reimbursement for taxes. He is also entitled
to participate in most Company benefit plans.
In the event that (i) the Company terminates Mr. Race's employment (other
than for cause), or (ii) Mr. Race's title is no longer Chief Executive Officer
and Mr. Race terminates his employment, or (iii) the Company is acquired and Mr.
Race is no longer the Company's Chief Executive Officer, he (or his
beneficiaries in the case of death) will receive a continuation of his base
salary, and Mr. Race will receive
I-11
<PAGE> 35
certain other benefits for twelve months and the exercisability of his options
will be accelerated as though he had remained employed for one additional year.
In addition, in the event of one of (i), (ii) and (iii), Mr. Race is entitled to
receive a cash payment from the Company of up to $3,000,000 (less any realizable
value from options Mr. Race holds that are exercisable or gains as a result of a
sale of the stock purchased pursuant to such options). In the event Mr. Race's
employment with the Company terminates for good cause, the Company is obligated
to pay Mr. Race's base salary for a period of six months following such
termination.
Under the employment agreement, the Company has agreed to indemnify Mr.
Race to the fullest extent permitted by law so long as Mr. Race acts in good
faith. Failure by the Company to provide such indemnification is deemed to be a
breach of the employment agreement and may be deemed a termination of Mr. Race's
employment for other than cause.
In fiscal 1998, the Company entered into an employment agreement with Tim
Christian, Managing Director of Europe/Asia Pacific, which terminates upon Mr.
Christian's termination of employment with the Company. The agreement provides
for annual salary increases of no less than 7.5 percent. His current salary is
approximately $195,000. The agreement provides that the Company grant Mr.
Christian an additional option to purchase 20,000 shares of Common Stock, which
options vest ratably over a four-year period ("Additional Option"). See "Stock
Options." The agreement also provides for an annual performance bonus of up to
50 percent of his base salary if Mr. Christian achieves certain performance
criteria. Under the terms of the agreement and subject to certain conditions,
Mr. Christian will receive a special bonus of approximately $822,000 (less any
realizable value from the Additional Option described above) if he remains
employed with the Company through July 9, 2001. Mr. Christian is also entitled
to certain pension contributions, reimbursement of expenses and other employee
benefits.
Under the terms of the agreement with Mr. Christian, upon the consummation
of a transaction resulting in a change-of-control, the Additional Option shall
become exercisable on an accelerated basis, and the special bonus shall be
payable on a pro-rata basis, as if Mr. Christian had completed an additional 12
months of service beyond the date of such transaction. If Mr. Christian elects
to remain Managing Director (or similar position) after the change-of-control,
he shall receive a bonus equal to the bonus paid to him pursuant to his
agreement during the past fiscal year. If Mr. Christian's employment is
terminated following a change-of-control, he will also be entitled to
nine-months severance and vesting of options. If Mr. Christian, within three
months of the change-of-control, elects to terminate his employment and gives
six months written notice of this election, he shall be entitled to salary and
certain other benefits for a six-month period.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than ten percent of a
registered class of the Company's equity securities, to file initial reports of
ownership and reports of changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission and to furnish copies of such reports to the
Company.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that, there was compliance for the fiscal year ended March 31,
1998, with all Section 16(a) filing requirements applicable to the Company's
officers, directors and greater than ten-percent beneficial owners.
I-12
<PAGE> 36
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1 Agreement and Plan of Merger, dated August 11, 1998, by and
among Hasbro, Inc., New HIAC Corp. and MicroProse, Inc.,
including Annex A, Conditions to the Offer.
2 Stock Option Agreement, dated August 11, 1998, by and among
Hasbro, Inc., and MicroProse, Inc.
3 Software Distribution and Loan Agreement, made as of August
11, 1998, by and between MicroProse, Inc. and Hasbro
Interactive, Inc.
4 Letter to Stockholders of MicroProse, Inc., dated August 14,
1998.
5 Fairness Opinion of Piper Jaffray, Inc., dated August 10,
1998.
6 Confidentiality Agreement, dated June 16, 1998, by and
between Hasbro Interactive, Inc. and MicroProse, Inc.,
including amendment thereto dated July 28, 1998.
7 Form of Indemnification Agreement and provisions regarding
indemnification of directors and officers from the Company's
Certificate of Incorporation and Bylaws(1).
8 Employment Agreement dated August 16, 1995 between
MicroProse, Inc. and Stephen M. Race.
9 Employment Agreement dated July 18, 1997 between MicroProse
Limited, Spectrum Holobyte, Inc. and Timothy Paul Christian.
10 MicroProse, Inc. 1994 Stock Option Plan.(2)
</TABLE>
- ---------------
(1) Incorporated by reference to exhibit filed with the Company's Registration
Statement on Form S-1 (Registration No. 33-75408), as amended.
(2) Incorporated by reference to Exhibit 99.1 filed with the Company's
Registration Statement on Form S-8 (Registration No. 33-85024).
<PAGE> 1
================================================================================
AGREEMENT AND PLAN OF MERGER
by and among
HASBRO, INC.,
NEW HIAC CORP.
and
MICROPROSE, INC.
dated as of
August 11, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
THE OFFER AND MERGER..........................2
Section 1.1 The Offer........................................................2
Section 1.2 Company Actions..................................................3
Section 1.3 SEC Documents....................................................4
Section 1.4 Directors........................................................5
Section 1.5 The Merger.......................................................7
Section 1.6 Effective Time...................................................7
Section 1.7 Closing..........................................................8
ARTICLE II
CONVERSION OF SECURITIES........................8
Section 2.1 Conversion of Capital Stock......................................8
Section 2.2 Exchange of Certificates.........................................9
Section 2.3 Withholding Taxes...............................................11
Section 2.5 Appraisal Rights................................................12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............12
Section 3.1 Organization, Standing and Corporate Power......................12
Section 3.2 Subsidiaries....................................................13
Section 3.3 Capital Structure...............................................13
Section 3.4 Authority; Noncontravention; Company Action.....................15
Section 3.5 SEC Documents; Financial Statements..............................16
Section 3.6 Schedule 14D-9; Offer Documents; Proxy Statement................17
Section 3.7 Absence of Certain Changes or Events............................18
Section 3.8 Litigation......................................................18
Section 3.9 Absence of Changes in Benefit Plans; SEC Disclosure.............18
Section 3.10 Employee Benefits; ERISA.......................................19
Section 3.11 Taxes...........................................................21
Section 3.12 No Excess Nondeductible Payments...............................22
Section 3.13 Compliance with Applicable Laws................................23
Section 3.14 Intellectual Property..........................................25
i
<PAGE> 3
Section 3.15 Properties.....................................................28
Section 3.16 Contracts......................................................29
Section 3.17 Labor Relations................................................30
Section 3.18 Products Liability.............................................30
Section 3.19 Applicability of State Takeover Statutes.......................31
Section 3.20 Voting Requirements............................................31
Section 3.21 Brokers........................................................31
Section 3.22 Opinion of Financial Advisor...................................31
Section 3.23 Year 2000......................................................31
Section 3.24 Company Rights Agreement.......................................32
Section 3.25 Absence of Questionable Payments...............................33
Section 3.26 Full Disclosure................................................33
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER.........................33
Section 4.1 Organization, Standing and Corporate Power......................33
Section 4.2 Authority; Noncontravention.....................................34
Section 4.3 Proxy Statement; Offer Documents................................35
Section 4.4 Operations of Purchaser.........................................35
Section 4.5 Brokers.........................................................35
ARTICLE V
COVENANTS................................35
Section 5.1 Interim Operations of the Company...............................35
Section 5.2 Access; Confidentiality.........................................39
Section 5.3 Special Meeting, Proxy Statement................................39
Section 5.4 Reasonable Efforts; Notification................................40
Section 5.5 No Solicitation.................................................41
Section 5.6 Publicity.......................................................43
Section 5.7 Transfer Taxes..................................................43
Section 5.8 State Takeover Laws.............................................44
Section 5.9 Indemnification and Insurance...................................44
ARTICLE VI
CONDITIONS................................45
ii
<PAGE> 4
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger......45
ARTICLE VII
TERMINATION...............................46
Section 7.1 Termination.....................................................46
Section 7.2 Effect of Termination...........................................49
ARTICLE VIII
MISCELLANEOUS..............................49
Section 8.1 Fees and Expenses........................................49
Section 8.2 Amendment and Modification...............................50
Section 8.3 Nonsurvival of Representations and Warranties............50
Section 8.4 Notices..................................................50
Section 8.5 Interpretation...........................................51
Section 8.6 Counterparts.............................................52
Section 8.7 Entire Agreement; No Third Party Beneficiaries;
Rights of Ownership..................................52
Section 8.8 Severability.............................................53
Section 8.9 Governing Law............................................53
Section 8.10 Assignment...............................................53
Section 8.11 Enforcement..............................................53
Section 8.12 Extension; Waiver........................................54
Section 8.13 Procedure for Termination, Amendment, Extension
or Waiver............................................54
Section 8.14 Certain Undertakings of Parent...........................54
Section 8.15 Definitions..............................................54
ANNEX A
CONDITIONS TO THE OFFER................................................A-1
iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 11, 1998, by and
among HASBRO, INC., a Rhode Island corporation ("Parent"), NEW HIAC CORP., a
Delaware corporation and a wholly-owned Subsidiary of Parent ("Purchaser"), and
MICROPROSE, INC., a Delaware corporation (the "Company").
WHEREAS, the Board of Directors of each of Parent, Purchaser and
the Company have approved, and deem it fair to, advisable and in the best
interests of their respective stockholders to consummate, the acquisition of the
Company by Parent and Purchaser upon the terms and subject to the conditions set
forth herein;
WHEREAS, in furtherance thereof, it is proposed that Purchaser
make a cash tender offer to acquire all shares of the issued and outstanding
common stock, $.001 par value, of the Company (the "Shares") (including the
related Preferred Stock Purchase Rights (as herein defined)) for $6.00 per
share, net to the seller in cash, upon the terms and subject to the conditions
set forth herein;
WHEREAS, also in furtherance of such acquisition, the Board of
Directors of each of Parent, Purchaser and the Company and the sole stockholder
of Purchaser have approved this Agreement and the Merger (as herein defined)
following the Offer (as herein defined) pursuant to which Purchaser shall merge
with and into the Company and outstanding Shares shall be converted into the
right to receive the Offer Price (as herein defined) in cash, without interest,
all in accordance with the DGCL (as herein defined) and upon the terms and
subject to the conditions set forth herein;
WHEREAS, the Board of Directors of the Company has determined that
the consideration to be paid for each Share in the Offer and the Merger is fair
to the holders of such Shares and has resolved to recommend that the holders of
such Shares tender their Shares pursuant to the Offer and approve and adopt this
Agreement and the Merger upon the terms and subject to the conditions set forth
herein;
WHEREAS, the Company, Parent and Purchaser desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger; and
1
<PAGE> 6
WHEREAS, as a condition and inducement to Parent's and Purchaser's
entering into this Agreement and incurring the obligations set forth herein,
concurrently with the execution and delivery of this Agreement, Parent is
entering into an Option Agreement (the "Company Option Agreement") with the
Company pursuant to which, among other things, the Company has granted Parent an
option to purchase up to 19.9% of the Shares issued and outstanding as of the
date hereof;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer.
(a) As promptly as practicable (but in no event later than five
business days after the public announcement of the execution hereof), Purchaser
shall commence (within the meaning of Rule 14d-2 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) a tender offer (the "Offer") for
all of the outstanding Shares (including the related Preferred Stock Purchase
Rights) at a price of $6.00 per Share, net to the seller in cash (such price, or
such higher price per Share as may be paid in the Offer, being referred to
herein as the "Offer Price"), subject to the conditions set forth in Annex A
hereto.
(b) The obligations of Purchaser to accept for payment and to pay
for any Shares validly tendered on or prior to the expiration of the Offer and
not withdrawn shall be subject only to the conditions set forth in Annex A
hereto. The Offer shall be made by means of an offer to purchase (the "Offer to
Purchase") containing the terms set forth in this Agreement and the conditions
set forth in Annex A hereto.
(c) Purchaser expressly reserves the right to modify the terms of
the Offer; provided, that, without the Company's prior written consent,
Purchaser shall not decrease the Offer Price, change the form of consideration
to be paid in the Offer, or decrease the number of Shares sought or amend any
other condition of the Offer in any manner adverse to the holders of the Shares
(other than with respect to insignificant changes or amendments and subject to
the third to last sentence of this
2
<PAGE> 7
Section 1.1) or impose additional conditions without the written consent of the
Company; provided further, however, that, if on the initial scheduled expiration
date of the Offer, which shall be 20 business days after the date that the Offer
is commenced, all conditions to the Offer shall not have been satisfied or
waived, Purchaser may, from time to time until such time as all such conditions
are satisfied or waived, in its sole discretion, extend the expiration date
provided, however, that the expiration date of the Offer may not be extended
beyond November 30, 1998. Parent and Purchaser agree that if all of the
conditions set forth on Annex A hereto are not satisfied on any scheduled
expiration date of the Offer then, provided that all such conditions are
reasonably capable of being satisfied, Purchaser shall extend the Offer from
time to time until such conditions are satisfied or waived, provided that
Purchaser shall not be required to extend the Offer beyond October 15, 1998. In
addition, the Offer Price may be increased and the Offer may be extended to the
extent required by applicable Law in connection with such increase, in each case
without the consent of the Company. Purchaser shall, on the terms and subject to
the prior satisfaction or waiver of the conditions of the Offer, accept for
payment and pay for Shares validly tendered as promptly as practicable;
provided, however, that if, immediately prior to the initial expiration date of
the Offer, the Shares validly tendered and not withdrawn pursuant to the Offer
equal less than 90% of the outstanding Shares, Purchaser may extend the Offer
for a period not to exceed 20 business days, notwithstanding that all conditions
to the Offer are satisfied as of such expiration date of the Offer. Parent shall
provide or cause to be provided to Purchaser on a timely basis the funds
necessary to accept for payment and pay for any Shares that Purchaser becomes
obligated to accept for payment, and pay for, pursuant to the Offer.
Section 1.2 Company Actions.
(a) The Company hereby approves of and consents to the Offer and
represents that the Board of Directors of the Company, at a meeting duly called
and held, has (i) unanimously determined that each of the Agreement, the Company
Option Agreement, the Offer and the Merger (as defined in Section 1.5) are fair
to and in the best interests of the stockholders of the Company, (ii)
unanimously approved this Agreement, the Company Option Agreement, the Offer,
the acquisition of Shares pursuant to the Offer and the Merger for purposes of
Section 203 of the DGCL (the "Section 203 Approval"), (iii) received the opinion
of Piper Jaffray, Inc. ("Piper Jaffray"), financial advisor to the Company, to
the effect that the Offer Price to be received by holders of Shares pursuant to
the Offer and the Merger Consideration (as defined in Section 2.1(c)) pursuant
to the Merger is fair to the
3
<PAGE> 8
holders of Shares from a financial point of view as of the date of such opinion,
(iv) approved this Agreement and the Company Option Agreement and the
transactions contemplated hereby and thereby, including the Offer and the Merger
(collectively, the "Transactions") and (v) resolved to recommend that the
stockholders of the Company accept the Offer, tender their Shares thereunder to
Purchaser and approve and adopt this Agreement and the Merger. The Company has
been advised by each of its directors and by each executive officer who as of
the date hereof is actually aware (to the knowledge of the Company) of the
Transactions that each such Person either intends to tender pursuant to the
Offer all Shares owned by such Person or vote all Shares owned by such Person in
favor of the Merger.
(b) In connection with the Offer, the Company will promptly
furnish or cause to be furnished to Purchaser mailing labels, security position
listings and any available listings or computer files containing the names and
addresses of all holders of record of the Shares as of a recent date, and shall
furnish Purchaser with such additional information (including, but not limited
to, updated lists of holders of the Shares and their addresses, mailing labels
and lists of security positions) and such assistance as Purchaser or its agents
may reasonably request in communicating the Offer to the record and beneficial
holders of the Shares. Subject to the requirements of applicable Law, and except
for such steps as are necessary to disseminate the Offer Documents (as defined
in Section 1.3(a)) and any other documents necessary to consummate the Merger,
Purchaser and its affiliates and associates shall hold in confidence the
information contained in any such labels, listings and files and all other
information delivered pursuant to this Section 1.2(b), will use such information
only in connection with the Offer and the Merger and, if this Agreement shall be
terminated, will deliver to the Company all copies, extracts or summaries of
such information in their possession or the possession of their agents.
Section 1.3 SEC Documents.
(a) On the date the Offer is commenced, Parent and Purchaser shall
file with the United States Securities and Exchange Commission (the "SEC") a
Tender Offer Statement on Schedule 14D-1 in accordance with the Exchange Act
with respect to the Offer (together with all amendments and supplements thereto
and including the exhibits thereto, the "Schedule 14D-1"). Purchaser shall
provide the Schedule 14D-1 to the Company prior to filing such that the Company
shall have a reasonable opportunity to comment thereon and the Company shall
provide such comments to Purchaser promptly following receipt thereof. The
Schedule 14D-1 will include, as exhibits, the Offer to Purchase and a form of
letter of transmittal
4
<PAGE> 9
(collectively, together with any amendments and supplements thereto, the "Offer
Documents"). Concurrently with the filing of the Schedule 14D-1 by Parent and
Purchaser, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 in accordance with the Exchange Act (together with
all amendments and supplements thereto and including the exhibits thereto, the
"Schedule 14D-9"), which shall, except as otherwise provided herein, contain the
recommendation referred to in clause (v) of Section 1.2(a) hereof.
(b) Parent and Purchaser will take all steps necessary to ensure
that the Offer Documents, and the Company will take all steps necessary to
ensure that the Schedule 14D-9, will comply in all material respects with the
provisions of applicable Federal and state securities Laws. Each of Parent and
Purchaser will take all steps necessary to cause the Offer Documents, and the
Company will take all steps necessary to cause the Schedule 14D-9, to be filed
with the SEC and to be disseminated to holders of the Shares, in each case as
and to the extent required by applicable Federal and state securities Laws. Each
of Parent and Purchaser, on the one hand, and the Company, on the other hand,
will promptly correct any information provided by it for use in the Offer
Documents and the Schedule 14D-9 if and to the extent that it shall have become
false and misleading in any material respect and Purchaser will take all steps
necessary to cause the Offer Documents, and the Company will take all steps
necessary to cause the Schedule 14D-9, as so corrected to be filed with the SEC
and to be disseminated to holders of the Shares, in each case as and to the
extent required by applicable Federal and state securities Laws. Parent and its
counsel shall be given a reasonable opportunity to review and comment upon the
Schedule 14D-9 and all amendments and supplements thereto prior to their filing
with the SEC or dissemination to stockholders of the Company. The Company agrees
to provide Parent and its counsel with copies of any written comments that the
Company or its counsel may receive from the SEC or its staff with respect to the
Schedule 14D-9 promptly after the receipt of such comments and each of Parent
and Purchaser agrees to provide the Company and its counsel with copies of any
written comments that Parent, Purchaser or their counsel may receive from the
SEC or its staff with respect to the Offer Documents promptly after the receipt
of such comments.
Section 1.4 Directors.
(a) Promptly after (i) the purchase of and payment for any Shares
by Purchaser or any of its affiliates as a result of which Purchaser and its
affiliates own beneficially at least a majority of then outstanding Shares and
(ii)
5
<PAGE> 10
compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder, whichever shall occur later, Parent shall be entitled to designate
such number of directors, rounded up to the next whole number, on the Company's
Board of Directors as is equal to the product of the total number of directors
on such Board (giving effect to any increase in the size of such Board pursuant
to this Section 1.4) multiplied by the percentage that the number of Shares
beneficially owned by Purchaser (including Shares so accepted for payment)
bears to the total number of Shares then outstanding. In furtherance thereof,
the Company shall, upon request of Parent, use its best efforts promptly either
to increase the size of its Board of Directors or to secure the resignations of
such number of its incumbent directors, or both, as is necessary to enable such
designees of Parent to be so elected or appointed to the Company's Board of
Directors, and the Company shall take all actions available to the Company to
cause such designees of Parent to be so elected or appointed. At such time, the
Company shall, if requested by Parent, also take all action necessary to cause
Persons designated by Parent to constitute at least the same percentage (rounded
up to the next whole number) as is on the Company's Board of Directors of (i)
each committee of the Company's Board of Directors, (ii) each board of directors
(or similar body) of each Subsidiary of the Company and (iii) each committee (or
similar body) of each such board.
(b) The Company shall promptly take all actions required pursuant
to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in
order to fulfill its obligations under Section 1.4(a), including mailing to
stock holders the information required by such Section 14(f) and Rule 14f-1 (or,
at Parent's request, furnishing such information to Parent for inclusion in the
Offer Documents initially filed with the SEC and distributed to the stockholders
of the Company) as is necessary to enable Parent's designees to be elected to
the Company's Board of Directors. Parent or Purchaser will supply the Company
any information with respect to either of them and their nominees, officers,
directors and affiliates required by such Section 14(f) and Rule 14f-1. The
provisions of this Section 1.4 are in addition to and shall not limit any rights
which Purchaser, Parent or any of their affiliates may have as a holder or
beneficial owner of Shares as a matter of applicable Law with respect to the
election of directors or otherwise.
(c) Notwithstanding the provisions of this Section 1.4, the
parties hereto shall use their respective reasonable best efforts to ensure that
at least two of the members of the Board shall, at all times prior to the
Effective Time (as defined in Section 1.6 hereof) be, Continuing Directors. From
and after the time, if any, that Parent's designees constitute a majority of the
Company's Board of Direc-
6
<PAGE> 11
tors, any amendment or modification of this Agreement, any amendment to the
Company's Certificate of Incorporation or By-Laws inconsistent with this
Agreement, any termination of this Agreement by the Company, any extension of
time for performance of any of the obligations of Parent or Purchaser hereunder,
any waiver of any condition to the Company's obligations hereunder or any of the
Company's rights hereunder or other action by the Company hereunder may be
effected only by the action of a majority of the Continuing Directors of the
Company, which action shall be deemed to constitute the action of any committee
specifically designated by the Board of Directors of the Company to approve the
actions contemplated hereby and the Transactions and the full Board of Directors
of the Company; provided, that, if there shall be no Continuing Directors, such
actions may be effected by majority vote of the entire Board of Directors of the
Company.
Section 1.5 The Merger. (a) Subject to the terms and conditions of this
Agreement, and in accordance with the DGCL, at the Effective Time (as defined in
Section 1.6 hereof), the Company and Purchaser shall consummate a merger (the
"Merger") pursuant to which (x) Purchaser shall be merged with and into the
Company and the separate corporate existence of Purchaser shall thereupon cease
and (y) the Company shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue to be
governed by the Laws of the State of Delaware.
(b) Pursuant to the Merger, at the Effective Time, (x) the
Certificate of Incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be the certificate of incorporation of the Surviving
Corporation and (y) the By-Laws of the Company, as in effect immediately prior
to the Effective Time, shall be the by-laws of the Surviving Corporation, each
until thereafter changed or amended as provided therein and by the DGCL.
(c) The directors of Purchaser at the Effective Time shall be the
initial directors of the Surviving Corporation until their respective successors
are duly elected and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's certificate of
incorporation and by-laws. The officers of Purchaser at the Effective Time shall
be the initial officers of the Surviving Corporation until their respective
successors are duly elected and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
certificate of incorporation and by-laws.
7
<PAGE> 12
(d) The Merger shall have the effects specified in the applicable
provisions of the DGCL.
Section 1.6 Effective Time. Subject to the terms and conditions of this
Agreement, Parent, Purchaser and the Company will cause a certificate of merger
or, if applicable, a certificate of ownership and merger (as applicable, the
"Certificate of Merger"), to be executed and filed on the date of the Closing
(as defined in Section 1.7) (or on such other date as Parent and the Company may
agree) with the Secretary of State of Delaware (the "Secretary of State") as
provided in the DGCL. The Merger shall become effective on the date on which the
Certificate of Merger has been duly filed with the Secretary of State or such
time as is agreed upon by the parties and specified in the Certificate of
Merger, and such time is hereinafter referred to as the "Effective Time."
Section 1.7 Closing. The closing of the Merger (the "Closing") shall
take place at 10:00 a.m., local time, on a date to be specified by the parties,
which shall be no later than the second business day after satisfaction or
waiver of all of the conditions set forth in Article VI hereof (the "Closing
Date"), at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third
Avenue, New York, New York, 10022, unless another date or place is agreed to in
writing by the parties hereto.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
Shares or any shares of capital stock of Purchaser:
(a) Purchaser Capital Stock. Each issued and outstanding share of
common stock, par value $.01 per share, of Purchaser shall be converted into and
become one fully paid and nonassessable share of common stock, par value $.01
per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Purchaser-Owned Stock. All
Shares that are owned by the Company or any Subsidiary of the Company and any
Shares owned by Parent, Purchaser or any Subsidiary of Parent or Purchaser
8
<PAGE> 13
shall be cancelled and retired and shall cease to exist and no consideration
shall be delivered in exchange therefor.
(c) Exchange of Shares. Each issued and outstanding Share (other
than Shares to be cancelled in accordance with Section 2.1(b) and Dissenting
Shares (as herein defined)) shall be converted into the right to receive the
Offer Price in cash, without interest (the "Merger Consideration"). All such
Shares, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of a certificate representing any such Shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration
therefor upon the surrender of such certificate in accordance with Section 2.2,
without interest.
(d) Redemption of Preferred Stock. Upon the consummation of the
Offer, the Company shall redeem, out of funds provided by Parent or Purchaser,
all issued and outstanding Series A Preferred Shares (as herein defined) at the
Series A Redemption Price (as defined in the Company's Certificate of
Incorporation) in accordance with the applicable provisions of the Company's
Certificate of Incorporation.
Section 2.2 Exchange of Certificates.
(a) Paying Agent. Prior to the Effective Time, Parent shall
designate a bank, trust company or other Person, reasonably acceptable to the
Company, to act as agent for the holders of the Shares in connection with the
Merger (the "Paying Agent") to receive the funds to which holders of the Shares
shall become entitled pursuant to Section 2.1(c). Parent shall, from time to
time, make available to the Paying Agent funds in amounts and at times necessary
for the payment of the Merger Consideration as provided herein. All interest
earned on such funds shall be paid to Parent.
(b) Exchange Procedures. As soon as reasonably practicable after
the Effective Time, Parent shall cause the Paying Agent to mail to each holder
of record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding Shares (the "Certificates") whose Shares
were converted into the right to receive the Merger Consideration pursuant to
Section 2.1, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Paying Agent and shall be in such
form not inconsistent with this Agreement as
9
<PAGE> 14
Parent may specify) and (ii) instructions for use in surrendering the
Certificates in exchange for payment of the Merger Consideration. Upon surrender
of a Certificate for cancellation to the Paying Agent, together with such
letter of transmittal, duly executed, and such other documents as may reasonably
be required by the Paying Agent, Parent shall cause the Paying Agent to pay to
the holder of such Certificate the Merger Consideration, and the Certificate so
surrendered shall forthwith be cancelled. In the event of a surrender of a
Certificate representing Shares which are not registered in the transfer records
of the Company under the name of the Person surrendering such Certificate,
payment may be made to a Person other than the Person in whose name the
Certificate so surrendered is registered if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the Person requesting
such payment shall pay any transfer or other Taxes required by reason of payment
to a Person other than the registered holder of such Certificate or establish to
the satisfaction of the Paying Agent that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration which the
holder thereof has the right to receive in respect of such Certificate pursuant
to the provisions of this Article II. No interest shall be paid or will accrue
on the Merger Consideration payable to holders of Certificates pursuant to the
provisions of this Article II.
(c) Transfer Books; No Further Ownership Rights in Shares. At the
Effective Time, the stock transfer books of the Company shall be closed and
thereafter there shall be no further registration of transfers of the Shares on
the records of the Company. From and after the Effective Time, the holders of
Certificates evidencing ownership of the Shares outstanding immediately prior
to the Effective Time shall cease to have any rights with respect to such
Shares, except as otherwise provided for herein or by applicable Law. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be cancelled and exchanged as provided in this Article
II.
(d) Termination of Fund; No Liability. At any time following six
months after the Effective Time, the Surviving Corporation shall be entitled to
require the Paying Agent to deliver to it any funds (including any interest
received with respect thereto) which had been made available to the Paying Agent
and which have not been disbursed to holders of Certificates, and thereafter
such holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar Laws) only as general creditors
thereof with respect to the Merger Consideration payable upon due surrender of
their Certificates, without any
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interest thereon. Notwithstanding the foregoing, none of Parent, the Surviving
Corporation or the Paying Agent shall be liable to any holder of a Certificate
for Merger Consideration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar Law.
(e) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such Person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Paying Agent shall pay in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration pursuant to this Agreement.
Section 2.3 Withholding Taxes. Parent and Purchaser shall be entitled
to deduct and withhold, or cause the Paying Agent to deduct and withhold, from
the Offer Price or the Merger Consideration payable to a holder of Shares
pursuant to the Offer or the Merger any withholding and stock transfer Taxes and
such amounts as are required under the Code, or any applicable provision of
state, local or foreign Tax law. Parent shall take appropriate steps to minimize
such Taxes. To the extent that amounts are so withheld by Parent or Purchaser,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the Shares in respect of which such deduction
and withholding was made by Parent or Purchaser.
Section 2.4 Stock Options. (a) Immediately prior to the Effective Time,
each then outstanding option to purchase any shares of capital stock of the
Company (in each case, an "Option"), whether or not then exercisable, shall be
cancelled by the Company and in consideration of such cancellation and except to
the extent that Parent or the Purchaser and the holder of any such Option
otherwise agree, the Company (or, at Parent's option, the Purchaser) shall pay
to such holders of Options an amount in respect thereof equal to the product of
(A) the excess, if any, of the Offer Price over the exercise price of each such
Option and (B) the number of Shares previously subject to the Option immediately
prior to its cancellation (such payment to be net of withholding taxes and
without interest). The Company shall use commercially reasonable efforts to
obtain the consent of each holder of an Option as to whom Parent reasonably
requests a consent be obtained to the transactions contemplated by this Section
2.4 no later than the Effective Time in a form acceptable to Parent. The Company
shall provide to each holder of Options any
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required notice (in a form acceptable to Parent) under the applicable Option
Plan (as defined herein).
(b) The Company shall take all actions necessary and appropriate
so that (i) no purchase rights are acquired after the date hereof under the
Company's Employee Stock Purchase Plan and (ii) all stock option or other equity
based plans maintained with respect to the Shares, including, without
limitation, the Company's Employee Stock Purchase Plan and those plans listed in
Section 3.3 hereof ("Option Plans"), shall terminate as of the Effective Time
and the provisions in any other Benefit Plan providing for the issuance,
transfer or grant of any capital stock of the Company or any interest in respect
of any capital stock of the Company shall be deleted as of the Effective Time,
and the Company shall use its best efforts to ensure that following the
Effective Time no holder of an Option or any participant in any Option Plan
shall have any right thereunder to acquire any capital stock of the Company,
Parent, Purchaser or the Surviving Corporation.
Section 2.5 Appraisal Rights. Notwithstanding anything in this
Agreement to the contrary, Shares (the "Dissenting Shares") that are issued and
outstanding immediately prior to the Effective Time and which are held by
stockholders who did not vote in favor of the Merger and who comply with all of
the relevant provisions of Section 262 of the DGCL (the "Dissenting
Stockholders") shall not be converted into or be exchangeable for the right to
receive the Merger Consideration, unless and until such holders shall have
failed to perfect or shall have effectively withdrawn or lost their rights to
appraisal under the DGCL. If any Dissenting Stockholder shall have failed to
perfect or shall have effectively withdrawn or lost such right, such holder's
Shares shall thereupon be converted into and become exchangeable for the right
to receive, as of the Effective Time, the Merger Consideration without any
interest thereon. The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any Shares, attempted withdrawals of such demands and
any other instruments served pursuant to the DGCL and received by the Company
relating to stockholders' rights of appraisal, and (ii) the opportunity to
direct all negotiations and proceedings with respect to demands for appraisal
under the DGCL. Neither the Company nor the Surviving Corporation shall, except
with the prior written consent of Parent, voluntarily make any payment with
respect to, or settle or offer to settle, any such demand for payment. If any
Dissenting Stockholder shall fail to perfect or shall have effectively withdrawn
or lost the right to dissent, the Shares held by such Dissenting Stockholder
shall thereupon be treated as though such Shares had been converted into the
right to receive the Merger Consideration pursuant to Section 2.1(c).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser as follows:
Section 3.1 Organization, Standing and Corporate Power. Each of the
Company and each of its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the Laws of the jurisdiction in which it is
organized and has the requisite corporate power and authority to carry on its
business as is now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so
qualified or licensed (individually or in the aggregate) would not have a
Material Adverse Effect on the Company. The Company has delivered to Parent
complete and correct copies of the Certificate of Incorporation of the Company
and By-Laws of the Company, in each case as amended to the date of this
Agreement, and has made available the certificates of incorporation and by-laws
or other organizational documents of its Subsidiaries, in each case as amended
as of the date of this Agreement. The respective certificates of incorporation
and by-laws or other organizational documents of the Subsidiaries of the Company
do not contain any provision limiting or otherwise restricting the ability of
the Company to control such Subsidiaries.
Section 3.2 Subsidiaries. (a) Exhibit 21.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1998 and Schedule 3.2 of
the disclosure schedule delivered by the Company to Parent at or prior to the
execution of this Agreement (the "Company Disclosure Schedule") together
include the names, jurisdictions of incorporation and capitalization of all of
the Subsidiaries of the Company. All the outstanding shares of capital stock of,
or other equity interests in, each Subsidiary of the Company have been validly
issued and are fully paid and nonassessable and are owned directly or indirectly
by the Company, free and clear of all Liens and free of any other restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests).
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(b) The Company does not directly or indirectly beneficially own
any securities or other beneficial ownership interests in any other entity
(including through joint ventures or partnership arrangements) other than (i)
the Subsidiaries of the Company or (ii) as disclosed on Schedule 3.2 of the
Company Disclosure Schedule.
Section 3.3 Capital Structure. The authorized capital stock of the
Company consists of 40,000,000 Shares and 9,000,000 shares of preferred stock,
par value $.001 per share (the "Preferred Shares") of which 4,000,000 shares
have been designated as Series A Convertible Preferred Stock (the "Series A
Preferred Shares"), 750,000 shares have been designated as Series B Preferred
Stock (the "Series B Preferred Shares"), 1,168,860 shares have been designated
as Series B-1 Preferred Stock (the "Series B-1 Preferred Shares") and 40,000
shares have been designated as Series B Participating Preferred Stock (the
"Series B Participating Preferred Shares"). As of the date hereof, (i) 5,753,598
Shares were issued and outstanding, 2,000,000 Series A Preferred Shares were
issued and outstanding, no Series B Preferred Shares were issued and
outstanding, no Series B-1 Preferred Shares were issued and out standing and no
Series B Participating Preferred Shares were issued and outstanding, (ii) 16,583
Shares were reserved for issuance upon exercise of outstanding Options pursuant
to the Company's 1991 Stock Option Plan with an exercise price range of a
minimum exercise price of $25.00 and a maximum price of $53.75, (iii) 10,193
Shares were reserved for issuance upon exercise of outstanding Options pursuant
to the Company's 1992 Stock Option Plan with an exercise price range of a
minimum exercise price of $1.95 and a maximum price of $26.88, (iv) 64,310
Shares were reserved for issuance upon exercise of outstanding Options pursuant
to the Company's 1994 Stock Option Plan with an exercise price range of a
minimum exercise price of $6.56 and a maximum price of $66.25, (v) 89,228 Shares
were reserved for issuance upon exercise of outstanding Options pursuant to the
1996 Stock Option Plan with an exercise price range of a minimum exercise price
of $10.00 and a maximum price of $26.84, (vi) 59,000 Shares were reserved for
issuance upon exercise of outstanding Options pursuant to the 1998 Non-statutory
Stock Option Plan with an exercise price range of a minimum exercise price of
$9.85 and a maximum price of $10.32, (vii) 120,000 Shares were reserved for
issuance pursuant to the Company's Employee Stock Purchase Plan; (viii) Options
to purchase a total of 754,677 Shares were issued and outstanding at a weighted
average exercise price of $20.30 per Share, of which 308,284 were exercisable;
(ix) 4,080 Shares were reserved for issuance upon exercise of the warrants (the
"Warrants"), expiring July 13, 1999, held by Paragon Software Corporation or
certain noteholders thereof, with an exercise price of $69.40 per Share, (x)
393,245 Shares were reserved for issuance
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upon conversion of the Company's 6.5% Convertible Subordinated Notes due 2002
(the "Convertible Notes") and (xi) 366,715 Shares were issued and are held in
the Company's treasury. Except as set forth above or on Schedule 3.3 of the
Company Disclosure Schedule, as of the date of this Agreement: (i) no shares of
capital stock or other voting securities of the Company are issued, reserved for
issuance or outstanding; (ii) there are no stock appreciation rights, phantom
stock units, restricted stock grants, contingent stock grants or Benefit Plans
(as defined in Section 3.10 hereof) which grant awards of any of the foregoing,
and there are no other outstanding contractual rights to which the Company is a
party the value of which is based on the value of Shares; (iii) all outstanding
shares of capital stock of the Company are, and all Shares which may be issued
will be, when so issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights; and (iv) there are no bonds,
debentures, notes or other indebtedness of the Company having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of the Company may vote. Except for the
Preferred Stock Purchase Rights, and except as set forth above, as of the date
of this Agreement, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which the Company or any of its Subsidiaries is a party or by which any of
them is bound obligating the Company or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of the Company or of any of its
Subsidiaries or obligating the Company or any of its Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. There are no programs in
place, nor any outstanding contractual obligations of the Company or any of its
Subsidiaries, to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company or any of its Subsidiaries. Schedule 3.3 of the Company
Disclosure Schedule accurately sets forth information regarding the current
exercise price, date of grant and number of granted Options for each holder of
Options pursuant to any Company Option Plan. Following the Effective Time, no
holder of Options will have any right to receive shares of common stock of the
Surviving Corporation upon exercise of Options.
Section 3.4 Authority; Noncontravention; Company Action. The Company
has the requisite corporate power and authority to enter into this Agreement
and the Company Option Agreement and, subject to approval of this Agreement by
the holders of a majority of the outstanding Shares, to consummate the Merger
contemplated by this Agreement. The execution, delivery and performance of this
Agreement and the Company Option Agreement by the Company and the
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consummation by the Company of the Transactions have been duly authorized by all
necessary corporate action on the part of the Company, subject, in the case of
the Merger, to approval of this Agreement by the holders of a majority of the
outstanding Shares. This Agreement has been duly executed and delivered by the
Company and, assuming this Agreement constitutes the valid and binding
obligation of Parent and Purchaser, constitutes the valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
except that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar Laws now or hereafter in effect
relating to creditors' rights generally and (ii) the remedy of specific
performance and injunctive relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
Except as set forth on Schedule 3.4 of the Company Disclosure Schedule, the
execution, delivery and performance of this Agreement and the Company Option
Agreement do not, and the consummation of the Transactions (including the
changes in the composition of the Board of Directors of the Company) and
compliance with the provisions of this Agreement will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or result in
the creation of any Lien upon any of the properties or assets of the Company or
any of its Subsidiaries under, or result in the termination of, or require that
any consent be obtained or any notice be given with respect to, (i) the
Certificate of Incorporation or By-laws of the Company or the comparable charter
or organizational documents of any of its Subsidiaries, (ii) any loan or credit
agreement note, bond, mortgage, indenture, lease or other agreement, instrument
or Permit applicable to the Company or any of its Subsidiaries or their
respective properties or assets, (iii) any Law applicable to the Company or any
of its Subsidiaries or their respective properties or assets or (iv) any
licenses to which the Company or any of its Subsidiaries is a party, other than,
in the case of clauses (ii), (iii) and (iv), any such conflicts, violations,
defaults, rights, Liens, losses of a material benefit, consents or notices that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company and its Subsidiaries taken as a whole. No consent, approval, order
or authorization of, or registration, declaration or filing with, any
Governmental Entity or any other Person, is required by the Company or any of
its Subsidiaries in connection with the execution and delivery of this Agreement
by the Company or the consummation by the Company of the Transactions, except
for (i) the filings, permits, authorizations, consents and approvals set forth
in Section 3.4 of the Company Disclosure Schedule, or as may be required under,
and other applicable requirements of, the Securities Act, the Exchange Act, the
HSR Act, any applicable state securities or "blue sky" Laws and the DGCL, and
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(ii) such other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would not,
individually or in the aggregate, (x) impair, in any material respect, the
ability of the Company to perform its obligations under this Agreement, (y)
prevent or significantly delay the consummation of the Transactions or (z) have
a Material Adverse Effect on the Company and its Subsidiaries taken as a whole.
The Board of Directors of the Company has taken all appropriate action so that
neither Parent nor Purchaser will be an "interested stockholder" within the
meaning of Section 203 of the DGCL by virtue of Parent, Purchaser and the
Company entering into this Agreement or the Company Option Agreement or any
other agreement contemplated hereby or thereby and consummating the
Transactions.
Section 3.5 SEC Documents; Financial Statements. The Company has filed
all SEC Documents required to be filed by it since April 1, 1993 (the "Company's
SEC Documents"). As of their respective dates, (i) the Company's SEC Documents
complied in all material respects with the requirements of the Securities Act,
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to such SEC Documents, and (ii) none of
the Company's SEC Documents contained at the time of their filing any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the Company's SEC Documents, as of the
dates of such SEC Documents, are true and complete and complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles ("GAAP") in the United
States applied on a consistent basis during the periods involved (except as may
be indicated in the notes thereto) and fairly presented the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except (i) as set forth on Schedule 3.5 of
the Company Disclosure Schedule, (ii) as set forth in the Company's SEC
Documents filed and publicly available prior to the date of this Agreement,
(iii) for liabilities and obligations incurred in the ordinary course of
business consistent with past practice since the date of the most recent
consolidated balance sheet included in the Company's SEC Documents filed and
publicly available prior to the date of this Agreement and (iv) for performance
obligations under contracts entered into prior to the date hereof or entered
into in compliance with Section 5.1 hereof, neither the
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Company nor any of its Subsidiaries has any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise).
Section 3.6 Schedule 14D-9; Offer Documents; Proxy Statement. Neither
the Schedule 14D-9, any other document required to be filed by the Company with
the SEC in connection with the Transactions, nor any information supplied by the
Company for inclusion in the Offer Documents shall, at the respective times the
Schedule 14D-9, any such other filings by the Company, the Offer Documents or
any amendments or supplements thereto are filed with the SEC or are first
published, sent or given to stockholders of the Company, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will not, on the date the Proxy Statement
(including any amendment or supplement thereto) is first mailed to stockholders
of the Company, contain any untrue statement of a material fact, or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
are made, not misleading or shall, at the time of the Special Meeting (as
hereinafter defined) or at the Effective Time, omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Special Meeting which shall have become
false or misleading in any material respect. The Schedule 14D-9, any other
document required to be filed by the Company with the SEC in connection with the
Transactions and the Proxy Statement will, when filed by the Company with the
SEC, comply as to form in all material respects with the applicable provisions
of the Exchange Act and the rules and regulations thereunder. Notwithstanding
the foregoing, the Company makes no representation or warranty with respect to
the statements made in any of the foregoing documents based on and in conformity
with information supplied by or on behalf of Parent or Purchaser specifically
for inclusion therein.
Section 3.7 Absence of Certain Changes or Events. Except as set forth
in the Company's SEC Documents or on Schedule 3.7 of the Company Disclosure
Schedule, since March 31, 1998, the Company and its Subsidiaries have con ducted
their respective businesses in the ordinary course in all material respects, and
there has not been any Material Adverse Change in the Company and its
Subsidiaries, taken as a whole.
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Section 3.8 Litigation. Except as set forth in the Company's SEC
Documents or on Schedule 3.8 of the Company Disclosure Schedule or to the extent
reserved for as reflected on the Company's financial statements for the year
ended March 31, 1998, there are (i) no suits, actions or proceedings pending or,
to the knowledge of the Company, threatened against the Company or any of its
Subsidiaries that, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on the Company, (ii) no complaints,
lawsuits, charges or other proceedings pending or, to the knowledge of the
Company, threatened in any forum by or on behalf of any present or former
employee of the Company or any of its Subsidiaries, any applicant for employment
or classes of the foregoing alleging breach of any express or implied contract
of employment, any applicable Law governing employment or the termination
thereof or other discriminatory, wrongful or tortious conduct in connection with
the employment relationship that, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on the Company, (iii)
no judgments, decrees, injunctions or orders of any Governmental Entity or
arbitrator outstanding against the Company that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on the
Company and (iv) no orders, writs, judgments, injunctions, decrees,
determinations or awards applicable to the Trademarks or the Other Intellectual
Property.
Section 3.9 Absence of Changes in Benefit Plans; SEC Disclosure. Except
as disclosed on Schedule 3.9 of the Company Disclosure Schedule, there has not
been any adoption or amendment by the Company or any of its Subsidiaries or any
ERISA Affiliate (as defined in Section 3.10 hereof) of any Benefit Plan since
March 31, 1998. Except as disclosed on Schedule 3.9 of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries has any formal plan or
commitment to create any additional Benefit Plan or make any material
modification or changes to any existing Benefit Plan that would affect any
employee or terminated employee of the Company or a Subsidiary of the Company.
All employment, consulting, severance, termination, change in control or
indemnification agreements, arrangements or understandings between the Company
or any of its Subsidiaries and any current or former officer or director of the
Company or any of its Subsidiaries which are required to be disclosed in the
Company's SEC Documents have been disclosed therein.
Section 3.10 Employee Benefits; ERISA. (a) Schedule 3.10 of the Company
Disclosure Schedule contains a true and complete list of each material bonus,
deferred compensation, incentive compensation, stock purchase, stock option,
severance or termination pay, health insurance, supplemental unemployment
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benefits, profit-sharing, pension, or retirement plan, program, agreement or
arrangement, and each other employee benefit plan, program, agreement or
arrangement, other than a non-material fringe benefit plan, sponsored,
maintained or contributed to or required to be contributed to by the Company or
any of its Subsidiaries or by any trade or business, whether or not incorporated
(an "ERISA Affiliate"), that is a member of a "controlled group" within the
meaning of section 4001 of the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations promulgated thereunder ("ERISA") of
which the Company or a Subsidiary is a member or which is under "common control"
within the meaning of Section 4001 of ERISA, with the Company or a Subsidiary,
for the benefit of any employee or terminated employee of the Company, its
Subsidiaries or any ERISA Affiliate, whether formal or informal (the "Benefit
Plans").
(b) With respect to each Benefit Plan, the Company has made
available a true and complete copy thereof (including all amendments thereto),
as well as true and complete copies of the two most recent annual reports, if
required under ERISA, with respect thereto; the two most recent actuarial
reports, if required under ERISA, with respect thereto; the two most recent
reports prepared with respect thereto in accordance with Statement of Financial
Accounting Standards No. 87, Employer's Accounting for Pensions; the most recent
Summary Plan Description, together with each Summary of Material Modifications,
if required under ERISA with respect thereto; if the Benefit Plan is funded
through a trust or any third party funding vehicle, the trust or other funding
agreement (including all amendments thereto) and the latest financial statements
thereof; and the most recent determination letter received from the Internal
Revenue Service with respect to each Benefit Plan that is intended to be
qualified under section 401 of the Code.
(c) Each Benefit Plan has been operated and administered in all
material respects in accordance with its terms and applicable Law, including but
not limited to ERISA and the Code.
(d) No Benefit Plan is subject to Section 302 of the Code or Title
IV of ERISA nor has the Company or any ERISA Affiliate maintained a plan which
is subject to Section 302 of the Code or Title IV of ERISA.
(e) With respect to any Benefit Plan, neither the Company, nor any
Subsidiary of the Company, nor any trust created thereunder, nor, to the
knowledge of the Company, any trustee or administrator thereof has engaged in a
transaction in connection with which the Company or any Subsidiary of the Com-
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pany, any such trust, or any trustee or administrator thereof, or any party
dealing with any Benefit Plan or any such trust could be subject to either a
civil penalty assessed pursuant to section 409 or 502(i) of ERISA or a tax
imposed pursuant to section 4975 or 4976 of the Code.
(f) All Benefit Plans that are subject to the laws of any
jurisdiction outside the United States are in material compliance with such
applicable laws, including relevant tax laws, and the requirements of any trust
deed under which they are established.
(g) With respect to each Benefit Plan which is a pension plan
(within the meaning of Section 3(2) of ERISA) the Company (A) has either
obtained a favorable determination letter from the Internal Revenue Service or
intends to request such a determination letter prior to the Effective Time and
(B) has no reason to believe that (i) any such determination letter should be
revoked, or (ii) any application for a favorable determination letter with
respect to a Benefit Plan which has not yet received a determination letter will
be denied.
(h) No Benefit Plan provides health, death or medical benefits
(whether or not insured) with respect to current or former employees of the
Company or its Subsidiaries beyond their retirement or other termination of
service (other than (a) coverage mandated by applicable Law, (b) benefits the
full cost of which is borne by the current or former employee (or his
beneficiary), (c) death or disability benefits under any of the Benefit Plans,
(d) life insurance benefits for any employee of the Company who dies while in
service with the Company) (e) benefits arising in connection with the severance
plans set forth in Schedule 3.10 (a) (3) of the Company Disclosure Schedule or
the employment agreements set forth on Schedule 3.16(b) of the Company
Disclosure Schedule.
(i) Except as set forth on Schedule 3.10(i) of the Company
Disclosure Schedule, the consummation of the Transactions, alone, will not (a)
entitle any current or former employee or officer of the Company or any
Subsidiary to severance pay, unemployment compensation or any other payment, (b)
accelerate the time of payment or vesting for, or increase the amount of
compensation due to any such employee or officer, (c) result in any prohibited
transaction described in section 406 of ERISA or section 4975 of the Code for
which an exemption is not available, or (d) require the Company or any ERISA
Affiliate to fund or make any payments to any trust or other funding vehicle in
respect of any Benefit Plan.
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(j) Except as set forth on Schedule 3.10(j) of the Company
Disclosure Schedule, there are no pending, anticipated or, to the knowledge of
the Company, threatened claims, by any employee or beneficiary covered under any
such Benefit Plan, or otherwise involving any such Benefit Plan (other than
routine claims for benefits).
Section 3.11 Taxes.
(a) Each of the Company and each of its Subsidiaries has duly and
timely filed (or has had duly and timely filed on its behalf) all Tax Returns
required to be filed by it, and all such Tax Returns are true, complete and
correct in all material respects. Except to the extent adequately reserved for
in accordance with generally accepted accounting principles and reflected on the
Company's March 31, 1998 balance sheet, all Taxes due and payable by the Company
or any of its Subsidiaries have been timely paid in full. The consolidated
financial statements contained in the most recent Company SEC Documents reflect
an adequate accrual or reserve for all Taxes payable by the Company and its
Subsidiaries for all taxable periods and portions thereof through the date of
such financial statements.
(b) Each of the Company and each of its Subsidiaries has complied
in all material respects with all applicable Laws relating to the payment and
withholding of Taxes (including, without limitation, the withholding of Taxes
pursuant to Sections 1441 and 1442 of the Code or similar provisions under any
applicable foreign Laws) and have, within the time and in the manner prescribed
by applicable Laws, withheld from employee wages all amounts required to be so
withheld under all applicable Laws other than those amounts that are not
material, and have, within the time and manner prescribed by applicable Laws,
paid over to the proper Governmental Entity all amounts so withheld.
(c) Except as set forth on Schedule 3.11 of the Company Disclosure
Schedule, (i) no deficiencies for any Taxes have been proposed, asserted or
assessed (either in writing or orally) against the Company or any of its
Subsidiaries, (ii) no Governmental Entity is conducting or proposing to conduct
an audit with respect to Taxes or any Tax Returns of the Company or any of its
Subsidiaries, (iii) no extension or waiver of the statute of limitations with
respect to Taxes or any Tax Return has been granted by the Company or any of its
Subsidiaries, which remains in effect, other than an extension resulting from
the filing of a Tax Return after its original due date in the ordinary course of
business, (iv) neither the Company nor any of its Subsidiaries is a party to any
agreement or arrangement to allocate, share or
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indemnify another party for Taxes that includes any party other than the Company
or any Subsidiary thereof other than those agreements entered into in the
ordinary course of business, (v) there are no Liens for material Taxes upon the
assets of the Company or any of its Subsidiaries, except for Liens for Taxes
not yet due , (vi) no jurisdiction where either the Company or any of its
Subsidiaries does not file a Tax Return has asserted or other wise made a claim
that the Company or any of its Subsidiaries is required to file a Tax Return for
such jurisdiction, (vii) neither the Company nor any of its Subsidiaries has
agreed to make, or is required to make, any adjustment under Section 481(a) of
the Code (or comparable provision under state, local or foreign Tax laws) by
reason of a change in accounting method or otherwise, (viii) neither the Company
nor any of its Subsidiaries could have any liability for Taxes to another party
(not the Company or any of its Subsidiaries) under Section 1.1502-6 of the
Treasury regulations promulgated under the Code or any comparable state, local
or foreign Tax laws or by contract or otherwise and (ix) no power of attorney
has been granted by or with respect to the Company or any of its Subsidiaries
with respect to any matter relating to Taxes.
(d) As of March 31, 1998, the Company's net operating losses
(without regard to any limitations that may apply) were (i) not less than $95.0
million for federal income tax purposes and (ii) not less than $15.0 million for
state income tax purposes.
(e) Schedule 3.11 of the Company Disclosure Schedule sets forth
the taxable years of the Company or any of its Subsidiaries as to which the
respective statutes of limitations with respect to Taxes have not expired and,
with respect to such taxable years, those years for which examinations have been
completed, those years for which examinations are presently being conducted,
those years for which examinations have not been initiated and those years for
which required Returns have not yet been filed.
Section 3.12 No Excess Nondeductible Payments.
(a) Except as set forth on Schedule 3.12 of the Company Disclosure
Schedule, no amounts payable as a result of the Transactions under the Benefit
Plans or any other plans or arrangements will constitute a "parachute payment"
to a "disqualified individual" as those terms are defined in Section 280G of the
Code, without regard to whether such payment is reasonable compensation for
personal services performed or to be performed in the future.
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(b) Neither the Company nor any of its Subsidiaries is a party to
any contract, agreement or other arrangement which could result in the payment
of amounts that could be nondeductible by reason of Section 162(m) of the Code.
Section 3.13 Compliance with Applicable Laws.
Except as set forth on Schedule 3.13 of the Company Disclosure
Schedule:
(a) The Company and each of its Subsidiaries have complied and are
presently complying in all material respects with all applicable Laws, and
neither the Company nor any of its Subsidiaries has received notification of any
asserted present or past failure to so comply, except such non-compliance that
(i) has not and will not prevent the Company from carrying on its business
substantially as now conducted, or (ii) would not be reasonably expected to (x)
result in a Material Adverse Effect on the Company or (y) materially impair the
ability of the parties hereto to consummate the Transactions.
(b) Each of the Company and its Subsidiaries has in effect, or has
timely filed applications for, all Permits necessary for it to own, lease or
operate its properties and assets and to carry on its business substantially as
now conducted, except such Permits the failure of which to obtain would not have
a Material Adverse Effect on the Company and its Subsidiaries taken as a whole,
and there are no appeals nor any other actions pending to revoke any such
Permits, and there has occurred no material default or violation under any such
Permits.
(c) Each of the Company and its Subsidiaries is, and has been, and
each of the Company's former Subsidiaries, while a Subsidiary of the Company,
was in compliance in all respects with all applicable Environmental Laws, and
there are no circumstances or conditions that would be reasonably likely to
prevent or interfere with compliance by the Company or its Subsidiaries in the
future with Environmental Laws (or Permits issued thereunder), except where
non-compliance is not reasonably likely to result in a Material Adverse Effect
on the Company and its Subsidiaries taken as a whole.
(d) Neither the Company nor any Subsidiary of the Company has
received any written claim, demand, notice, complaint, court order,
administrative order or request for information from any Governmental Entity or
private party, alleging violation of, or asserting any noncompliance with or
liability under or
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potential liability under, any Environmental Laws, except for matters which are
no longer threatened or pending or for which the Company or its Subsidiaries are
not subject to further requirements pursuant to an administrative or court
order, judgment or settlement agreement.
(e) During the period of ownership or operation by the Company and
its Subsidiaries of any of their respective current or previously owned or
leased properties, there have been no Releases of Hazardous Material in, on,
under or affecting such properties and none of the Company or its Subsidiaries
have disposed of any Hazardous Material or any other substance either on said
owned or leased properties or at other properties, in a manner that has led, or
could reasonably be anticipated to lead, to a Release. Prior to the period of
ownership or operation by the Company and its Subsidiaries of any of their
respective current or previously owned or leased properties, to the knowledge of
the Company, no Hazardous Material was disposed of at such current or previously
owned or leased properties, and there were no Releases of Hazardous Material in,
on, under or affecting any such property.
(f) Except for leases entered into in the ordinary course of
business, as to which no notice of a claim for indemnity or reimbursement has
been received by the Company, neither the Company nor any of its Subsidiaries
has entered into any agreement that may require it to pay to, reimburse,
guarantee, pledge, defend, indemnify, or hold harmless any Person for or against
any Environmental Liabilities and Costs.
(g) Neither the Company nor any of its Subsidiaries has treated,
stored or disposed of "hazardous waste", as that term is defined in the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., analogous state
Laws, or the regulations promulgated thereunder, such that the Company or any of
its Subsidiaries would be required to obtain a permit under said Laws for such
treatment, storage or disposal.
(h) The Company has provided to Parent true and correct copies of
all environmental studies and reports in its possession or in the possession of
its representative, agents or consultants, prepared within the last five years,
relating to (i) the Company's and its Subsidiaries' compliance with
Environmental Laws; (ii) the environmental condition of the Company's and its
Subsidiaries' currently owned or leased properties, including, but not limited
to, the extent of any on-site contamination at any of such properties, results
of investigations at such properties, remedial action plans for such properties,
and asbestos surveys; and (iii) the environmental
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condition of any properties formerly owned or operated by the Company or any of
its Subsidiaries, or of any other location at which the Company or any of its
Subsidiaries is subject to an environmental claim, including, but not limited
to, the extent of any on-site contamination at any such properties, results of
investigations at such properties and remedial action plans at such properties.
Section 3.14 Intellectual Property.
(a) (i) Except as set forth on Schedule 3.14(a)(i) of the Company
Disclosure Schedule, the Company is the sole and exclusive owner of, or has the
valid and transferable right to use, the Trademarks, free and clear of all
Liens. Schedule 3.14(a)(i) of the Company Disclosure Schedule sets forth a
complete and accurate list of all U.S., state and foreign (i) Trademark
registrations and applications, and (ii) material unregistered Trademarks, each
as owned by the Company or its Subsidiaries. The Company or one of its
Subsidiaries currently is listed in the records of the appropriate United
States, state or foreign agency as the sole owner of record for each application
and registration listed on Schedule 3.14(a)(i) of the Company Disclosure
Schedule.
(ii) Except as set forth on Schedule 3.14(a)(ii) of the
Company Disclosure Schedule, the Company is the sole and exclusive owner of, or
has the valid and transferable right to use the Other Intellectual Property,
free and clear of all Liens. Schedule 3.14(a)(ii) of the Company Disclosure
Schedule sets forth a complete and accurate list of all U.S. and foreign:
(1) patents and patent applications,
(2) copyright registrations and applications, and
(3) material unregistered copyrights.
The Company currently is listed in the records of the appropriate
United States, state or foreign agency as the sole owner of record for each
application, patent and registration listed on Schedule 3.14(a)(ii) of the
Company Disclosure Schedule that is currently owned by the Company or one of its
Subsidiaries.
(b) The registrations listed on Schedules 3.14(a)(i) and
3.14(a)(ii) of the Company Disclosure Schedule are valid and subsisting, in full
force and effect in all material respects, and have not been cancelled, expired
or abandoned.
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There is no pending, existing or, to the Company's knowledge, threatened,
opposition, interference, cancellation proceeding or other legal or governmental
proceeding before any court or registration authority in any jurisdiction
against the applications, patents and registrations listed on Schedules
3.14(a)(i) and 3.14(a)(ii) of the Company Disclosure Schedule. To the Company's
knowledge, there is no pending, existing or threatened, opposition,
interference, cancellation proceeding or other legal or govern mental proceeding
before any court or registration authority in any jurisdiction against any of
the Trademarks or any of the Other Intellectual Property owned by the Company
or its Subsidiaries.
(c) Schedule 3.14(c)(i) of the Company Disclosure Schedule sets
forth a complete and accurate list of all agreements granting to third parties
any material right to use or practice any material rights under any of the
Trademarks or any of the Other Intellectual Property owned by the Company;
Schedule 3.14(c)(ii) of the Company Disclosure Schedule sets forth a complete
and accurate list of all material agreements permitting the Company or its
Subsidiaries to use any Trademarks or Other Intellectual Property (such
agreements, together with the agreements referenced on Schedule 3.14(c)(i) of
the Company Disclosure Schedule are collectively referred to herein as the
"Licenses"). The Licenses are valid and binding agreements of the Company or one
or more of its Subsidiaries, as applicable, fully transferable to Parent and
Purchaser, enforceable in accordance with their terms, and the Company and the
Subsidiaries, and to the Company's knowledge, the other parties thereto, as
applicable, are not in material breach or default thereunder.
(d) Each Product is either:
(i) owned by the Company, or one or more of its Subsidiaries, or
otherwise available to the Company or its Subsidiaries
without the license, lease or consent of any third party, or
(ii) used under rights granted to the Company or one or more of
its Subsidiaries pursuant to a written agreement, license or
lease from a third party, which written agreement, license
or lease is set forth on Schedule 3.14(c)(ii) of the Company
Disclosure Schedule.
The Company and each of its Subsidiaries uses the Computer
Programs in connection with the operation of its business as conducted on the
date
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hereof and, to the Company's knowledge, such use does not violate the rights of
any third party. All Computer Programs which are owned by the Company or its
Subsidiaries were either developed by:
(i) employees of the Company or its Subsidiaries within the
scope of their employment,
(ii) third parties as "works-made-for-hire", as that term is
defined under Section 101 of the United States copy right
laws, pursuant to written agreements, or
(iii) independent contractors who have assigned their rights to
the Company or one or more of its Subsidiaries pursuant to
written agreements, or were assigned to the Company or its
Subsidiaries.
(e) The Company has taken reasonable measures to protect the
confidentiality of its material trade secrets, including requiring employees
having access thereto to execute written non-disclosure agreements. No trade
secret or confidential know-how material to the business of the Company or any
of its Subsidiaries as currently operated has been disclosed or authorized to
be disclosed to any third party, other than pursuant to a non-disclosure
agreement that protects the Company's or such Subsidiary's proprietary interests
in and to such trade secrets and confidential know-how.
(f) To the Company's knowledge, the conduct of the business of
the Company and each of its Subsidiaries does not infringe upon any intellectual
property right owned or controlled by any third party. There are no claims or
suits pending or, to the Company's knowledge, threatened, and neither the
Company nor any of its Subsidiaries has received any written notice of a third
party claim or suit:
(i) alleging that the Company's or such Subsidiary's activities
or the conduct of its business infringes upon or constitutes
the unauthorized use of the proprietary rights of any third
party, or
(ii) challenging the ownership, use, validity or enforceability
of the Trademarks or the Other Intellec-
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tual Property owned or used by the Company or its
Subsidiaries.
(g) To the Company's knowledge, except as set forth on Schedule
3.14(g) of the Company Disclosure Schedule, no third party is infringing upon
any of the Trademarks or the Other Intellectual Property owned by the Company or
any of its Subsidiaries and, except as set forth on Schedule 3.14(g) of the
Company Disclosure Schedule, no such claims have been made against a third party
by the Company or any of its Subsidiaries.
(h) Except as set forth on Schedule 3.14(h) of the Company
Disclosure Schedule, there are no settlements, consents, judgments or orders
which restrict the Company's or any of its Subsidiaries' rights to use any of
the Trademarks or the Other Intellectual Property, and no concurrent use or
other agreements (aside from license and other like agreements) which restrict
the Company's or any of its Subsidiaries' rights to use any of the Trademarks
or the Other Intellectual Property owned by the Company or any of its
Subsidiaries.
(i) The consummation of the Transactions will not result in the
loss or impairment of the Company's or any of its Subsidiaries' rights to own or
use any of the Trademarks or the Other Intellectual Property owned by or
licensed to the Company or its Subsidiaries nor will it require the consent of
any Governmental Entity or third party in respect of any such Trademarks or the
Other Intellectual Property.
(j) No present or former employee, officer or director of the
Company or any of its Subsidiaries has any right, title or interest, directly or
indirectly, in whole or in part, in any of the Trademarks or Other Intellectual
Property owned by or licensed to the Company or its Subsidiaries.
Section 3.15 Properties. Each of the Company and each of its
Subsidiaries has sufficiently good and valid title to, or an adequate leasehold
interest in, its properties and assets (including the Real Property) in order to
allow it to conduct, and continue to conduct, its business as currently
conducted, except for such properties and assets the loss or forfeiture of which
is not reasonably likely to have a Material Adverse Effect on the Company and
its Subsidiaries, taken as a
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whole. Except as set forth on Schedule 3.15 of the Company Disclosure Schedule,
and except for such properties and assets the loss or forfeiture of which is not
reasonably likely to have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole, such material tangible properties and assets
(including the Real Property) are sufficiently free of Liens to allow the
Company and each of its Subsidiaries to conduct, and continue to conduct, its
business as currently conducted in all material respects and the consummation of
the Transactions will not alter or impair such ability in any material respect.
Except as set forth on Schedule 3.15 of the Company Disclosure Schedule, the
Company and/or its Subsidiaries have good, valid, marketable and fee simple
title to all the Fee Property, free and clear of all Liens other than Liens the
enforcement of which is not reasonably likely to have a material impact on the
continued use or value of such properties.
Section 3.16 Contracts. (a) Except as set forth in the Company's SEC
Documents or Schedule 3.16 of the Company Disclosure Schedule, neither the
Company nor any of its Subsidiaries is a party to or bound by (i) any "material
contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the
SEC), (ii) any non-competition agreement or any other agreement or obligation
which purports to limit in any material respect the manner in which, or the
localities in which, all or any material portion of the business of the Company
and its Subsidiaries, taken as a whole, may be conducted, (iii) any transaction,
agreement, arrangement or understanding with any Affiliate that would be
required to be disclosed under Item 404 of regulation S-K under the Securities
Act, (iv) any voting or other agreement governing how any Shares shall be voted,
(v) any material agreement with any stockholders of the Company, (vi) any
acquisition, merger, asset purchase or sale agreement or (vii) any contract or
other agreement which would prohibit or materially delay the consummation of the
Merger or any of the Transactions (all contracts of the type described in
clauses (i) - (vii) being referred to herein as "Company Material Contracts").
Each Company Material Contract is valid and binding on the Company (or, to the
extent a Subsidiary of the Company is a party, such Subsidiary) and is in full
force and effect, and the Company and each Subsidiary of the Company have, in
all material respects, performed all obligations required to be performed by
them to date under each Company Material Contract, except where such
noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect on the Company. Neither the Company nor any Subsidiary of the
Company knows of, or has received notice of, any violation or default under
(nor, to the knowledge of the Company, does there exist any condition which with
the passage of time or the giving of notice or both would result in such a
violation or default under) any Company Material Contract, except where such
occurrence or default would not have a Material Adverse Effect on the Company
and its Subsidiaries taken as a whole.
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(b) Except as disclosed in the Company's SEC Documents or on
Schedule 3.16 of the Company Disclosure Schedule or as provided for in this
Agreement, neither the Company nor any of its Subsidiaries is a party to any
oral or written (i) employment or consulting agreements not terminable on thirty
(30) days' or less notice, (ii) union or collective bargaining agreement, (iii)
agreement with any executive officer or other key employee of the Company or any
of its Subsidiaries the benefits of which are contingent or vest, or the terms
of which are materially altered, upon the occurrence of a transaction involving
the Company or any of its Subsidiaries of the nature contemplated by this
Agreement, (iv) agreement with respect to any executive officer or other key
employee of the Company or any of its Subsidiaries providing any term of
employment or compensation guarantee or (v) agreement or plan, including any
stock option, stock appreciation right, restricted stock or stock purchase plan,
any of the benefits of which will be increased, or the vesting of the benefits
of which will be accelerated, by the occurrence of any of the Transactions or
the value of any of the benefits of which will be calculated on the basis of any
of the Transactions.
Section 3.17 Labor Relations. Except to the extent set forth in the
Company's SEC Documents or Schedule 3.17 of the Company Disclosure Schedule, (i)
the Company and each of its Subsidiaries is, and has at all times been, in
material compliance with all applicable Laws respecting employment and
employment practices, terms and conditions of employment, wages, hours of work
and occupational safety and health, and is not engaged in any unfair labor
practices as defined in the National Labor Relations Act or other applicable
Law, except where the failure to comply would not be reasonably likely to cause
a Material Adverse Effect on the Company; (ii) there is no labor strike,
slowdown, stoppage or lockout actually pending, or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries;
and (iii) neither the Company nor any of its Subsidiaries is a party to or bound
by any collective bargaining or similar agreement with any labor organization.
Section 3.18 Products Liability; Recalls. (a) Except as set forth in
Schedule 3.18 of the Company Disclosure Schedule, (i) there is no claim, action,
suit or proceeding pending before any Governmental Entity in which a Product is
alleged to have a Defect; (ii) to the knowledge of the Company and its
Subsidiaries, no such claim, action, suit or proceeding is threatened; (iii) no
valid basis exists for any such claim, action, suit or inquiry, proceeding; and
(iv) no claim, action, suit or proceeding referred to in clause (i) or (ii) of
this Section 3.18 would, if adversely determined, have, individually or in the
aggregate, a Material Adverse Effect on the Company.
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(b) Except as disclosed in Schedule 3.18 of the Company Disclosure
Schedule, there is no pending, or to the knowledge of the Company, threatened
recall or investigation of any Product, which recall or investigation would
reasonably be expected to have a material Adverse Effect on the Company.
Section 3.19 Applicability of State Takeover Statutes. The Section 203
Approval is valid and in full force and effect. Section 203 of the DGCL will not
apply to the Company Option Agreement, the Offer, the acquisition of Shares
pursuant to the Offer or the Merger. No other state takeover statute or similar
statute or regulation applies or purports to apply to the Offer, the Merger or
the other Transactions.
Section 3.20 Voting Requirements. The affirmative vote of the holders
of a majority of all the Shares entitled to vote approving this Agreement is the
only vote of the holders of any class or series of the Company's capital stock
necessary to approve this Agreement and the Transactions.
Section 3.21 Brokers. No broker, investment banker, financial advisor
or other Person, other than Piper Jaffray, the fees and expenses of which will
be paid by the Company, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the Transactions
based upon arrangements made by or on behalf of the Company. The Company has
provided Parent true and correct copies of all agreements between the Company
and Piper Jaffray, including, without limitations, any fee arrangements.
Section 3.22 Opinion of Financial Advisor. The Company has received the
opinion of Piper Jaffray, to the effect that, as of the date of this Agreement,
the consideration to be received in the Offer and the Merger by the holders of
Shares is fair to such holders from a financial point of view, as of the date of
such opinion, and a complete and correct signed copy of such opinion has been,
or promptly upon receipt thereof will be, delivered to Parent. The Company has
been authorized by Piper Jaffray to permit the inclusion of such opinion in its
entirety in the Offer Documents and the Schedule 14D-9 and the Proxy Statement,
so long as such inclusion is in form and substance reasonably satisfactory to
Piper Jaffray and its counsel.
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Section 3.23 Year 2000.
Except as set forth on Schedule 3.23 of the Company Disclosure
Schedule:
(a) all of the Computer Programs, computer firmware, computer
hardware (whether general or special purpose) and other similar or related items
of automated, computerized and/or software system(s) that are used or relied on
by the Company or by any of its Subsidiaries in the conduct of their respective
businesses will not malfunction, will not cease to function, will not generate
incorrect data, and will not provide incorrect results when processing,
providing, and/or receiving (i) date-related data into and between the twentieth
and twenty-first centuries and (ii) date-related data in connection with any
valid date in the twentieth and twenty- first centuries; and
(b) all of the products and services sold, licensed, rendered or
otherwise provided by the Company or by any of its Subsidiaries in the conduct
of their respective businesses will not malfunction, will not cease to function,
will not generate incorrect data and will not produce incorrect results when
processing, providing and/or receiving (i) date-related data into and between
the twentieth and twenty-first centuries and (ii) date-related data in
connection with any valid date in the twentieth and twenty-first centuries; and
neither the Company nor any of its Subsidiaries is or shall be subject to
claims or liabilities arising from their failure to do so; and
(c) neither the Company nor any of its Subsidiaries has made other
representations or warranties regarding the ability of any product or service
sold, licensed, rendered or otherwise provided by the Company or by any of its
Subsidiaries in the conduct of their respective businesses to operate without
malfunction, to operate without ceasing to function, to generate correct data
and to produce correct results when processing, providing and/or receiving (i)
date-related data into and between the twentieth and twenty-first centuries and
(ii) date-related data in connection with any valid date in the twentieth and
twenty-first centuries.
Section 3.24 Company Rights Agreement. The Company and its Board of
Directors have taken all action which may be necessary under the Company Rights
Agreement so that the Offer is deemed to be a "Permitted Offer" (as defined in
the Company Rights Agreement) and the execution and delivery of this Agreement
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and the Company Option Agreement (and any amendments thereto by the parties
hereto), and the consummation of the Merger and the Transactions, will not cause
(i) Parent or Purchaser to constitute an "Acquiring Person" (as defined in the
Company Rights Agreement), (ii) a "Distribution Date," "Section 13 Event,"
"Triggering Event," or "Share Acquisition Date" (each as defined in the Company
Rights Agreement) to occur or (iii) the Rights (as defined in the Company Rights
Agreement) to become exercisable pursuant to Section 11(a)(ii) thereof or
otherwise. The Company shall cause the Company Rights Agreement to be amended
such that the "Final Expiration Date" (as such term is defined in the Company
Rights Agreement) and the expiration of the Rights shall occur upon the
acceptance for payment of Shares pursuant to the Offer.
Section 3.25 Absence of Questionable Payments. Neither the Company nor
any of its Subsidiaries nor any director, officer, agent, employee or other
person acting on behalf of the Company or any of its Subsidiaries, has used any
corporate or other funds for unlawful contributions, payments, gifts, or
entertainment, or made any unlawful expenditures relating to political activity
to government officials or others or established or maintained any unlawful or
unrecorded funds in violation of Section 30A of the Exchange Act. Neither the
Company nor any of its Subsidiaries nor any current director, officer, agent,
employee or other person acting on behalf of the Company or any of its
Subsidiaries, has accepted or received any unlawful contributions, payments,
gifts, or expenditures. The Company and each of its Subsidiaries which is
required to file reports pursuant to Section 12 or 15(d) of the Exchange Act is
in compliance with the provisions of Section 13(b) of the Exchange Act.
Section 3.26 Full Disclosure. The Company has not failed to disclose to
Parent any fact material to the business, results of operations, assets,
liabilities or condition (financial or otherwise) of the Company necessary to
make the information which the Company has disclosed to Parent or Purchaser not
misleading. No representation or warranty by the Company in this Agreement and
no statement contained in any exhibit, disclosure schedule, or certificate
contemplated by this Agreement contains or will contain any untrue statement of
material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
Parent and Purchaser represent and warrant to the Company as follows:
Section 4.1 Organization, Standing and Corporate Power. Each of Parent
and Purchaser is a corporation duly organized, validly existing and in good
standing under the Laws of the jurisdiction in which each is incorporated and
has the requisite corporate power and authority to carry on its business as now
being con ducted. Each of Parent and Purchaser is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed (individually or in the aggregate) would
not have a Material Adverse Effect on Parent.
Section 4.2 Authority; Noncontravention. Parent and Purchaser have the
requisite corporate power and authority to enter into this Agreement and to
consummate the Transactions. The execution and delivery of this Agreement by
Parent and Purchaser and the consummation by Parent and Purchaser of the
Transactions have been duly authorized by all necessary corporate action on the
part of Parent and Purchaser, as applicable. This Agreement has been duly
executed and delivered by Parent and Purchaser and, assuming this Agreement
constitutes the valid and binding obligation of the Company, constitutes a valid
and binding obligation of each such party, enforceable against each such party
in accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or
hereafter in effect relating to creditors' rights generally and (ii) the remedy
of specific performance and injunctive relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. The execution and delivery of this Agreement do not, and the
consummation of the Transactions will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the creation
of any lien upon any of the properties or assets of Parent under, (i) the
certificate of incorporation or by-laws of Parent or Purchaser, (ii) any Law
applicable to Parent or Purchaser or their respective properties or assets,
other than, in the case of clause (ii), any such conflicts, viola-
35
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tions, defaults, rights or Liens that individually or in the aggregate would not
(x) impair in any material respect the ability of Parent and Purchaser to
perform their respective obligations under this Agreement or (y) prevent or
impede the consummation of any of the Transactions. No consent, approval, order
or authorization of, or registration, declaration or filing with, any
Governmental Entity or any other Person is required by Parent or Purchaser in
connection with the execution and delivery of this Agreement or the consummation
by Parent or Purchaser, as the case may be, of any of the Transactions, except
for (i) the filings, permits, authorizations, consents and approvals set forth
in Schedule 4.2 of the disclosure schedule delivered by Parent to the Company
at or prior to the execution of this Agreement (the "Parent Disclosure
Schedule"), or as may be required under, and other applicable requirements of,
the Securities Act, the Exchange Act, the HSR Act, any applicable state
securities or "blue sky" Laws and the DGCL, and (ii) such other consents,
approvals, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made would not, individually or in the
aggregate, prevent the consummation of or materially impair the ability of
Parent or Purchaser to consummate the Transactions.
Section 4.3 Proxy Statement; Offer Documents. The Offer Documents and
any other documents to be filed by Parent with the SEC or any other Government
Entity in connection with the Merger and the other Transactions will (in the
case of the Offer Documents and any such other documents filed with the SEC
under the Securities Act or the Exchange Act) comply as to form in all material
respects with the requirements of the Exchange Act and the Securities Act,
respectively, and will not, on the date of filing with the SEC or, in the case
of the Proxy Statement, on the date the Proxy Statement is first mailed to
stockholders of the Company, contain any untrue statement of a material fact, or
omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading or shall, at the time of the Special
Meeting (as defined in Section 5.3) or at the Effective Time, omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Special Meeting which shall
have become false or misleading in any material respect. Notwithstanding the
foregoing, neither Parent nor Purchaser makes any representation or warranty
with respect to the statements made in any of the foregoing documents based on
and in conformity with information supplied by or on behalf of the Company
specifically for inclusion therein.
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Section 4.4 Operations of Purchaser. Purchaser was formed solely for
the purpose of engaging in the Transactions and has not engaged in any business
activities or conducted any operations other than in connection with the
Transactions.
Section 4.5 Brokers. No broker, investment banker, financial advisor or
other Person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the Transactions based upon
arrangements made by or on behalf of Parent or Purchaser.
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company. After the date hereof
and prior to the time the designees of Parent have been elected or appointed to,
and shall constitute a majority of, the Board of Directors of the Company
pursuant to Section 1.4 or the date, if any, on which this Agreement is earlier
terminated pursuant to Section 7.1, and except (i) as expressly contemplated by
this Agreement, (ii) as set forth on Schedule 5.1 of the Company Disclosure
Schedule or (iii) as agreed in writing by Parent:
(a) the Company shall and shall cause its Subsidiaries to carry on
their respective businesses in the ordinary course;
(b) the Company shall and shall cause its Subsidiaries to use all
commercially reasonable efforts consistent with good business judgment to
preserve intact their current business organizations, keep available the
services of their current officers and key employees and preserve their
relationships consistent with past practice with desirable customers, suppliers,
licensors, licensees, distributors and others having business dealings with them
to the end that their goodwill and ongoing businesses shall be unimpaired in all
material respects at the Effective Time;
(c) neither the Company nor any of its Subsidiaries shall,
directly or indirectly, amend its certificate of incorporation or by-laws or
similar organizational documents;
(d) Officers of the Company and its Subsidiaries shall confer at
such times as Parent may reasonably request with one or more Representatives of
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Parent to report material operational matters and the general status of ongoing
operations;
(e) neither the Company nor any of its Subsidiaries shall: (i)(A)
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to the Company's capital stock or that of its
Subsidiaries, except that a wholly-owned Subsidiary of the Company may declare
and pay a dividend or make advances to its parent or the Company or (B) redeem,
purchase or otherwise acquire directly or indirectly any of the Company's
capital stock or that of its Subsidiaries; (ii) issue, sell, pledge, dispose of
or encumber any additional shares of, or securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any
kind to acquire, any shares of capital stock of any class of the Company or its
Subsidiaries, other than Shares issued upon the exercise of Options outstanding
on the date hereof in accordance with the Option Plans as in effect on the date
hereof; or (iii) split, combine or reclassify the outstanding capital stock of
the Company or of any of the Subsidiaries of the Company;
(f) except as permitted by this Agreement, neither the Company nor
any of its Subsidiaries shall acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, joint
venture, association or other business organization or division thereof
(including entities which are Subsidiaries of the Company or any of the
Company's Subsidiaries) or (B) any assets, including real estate, except
purchases in the ordinary course of business consistent with past practice;
(g) neither the Company nor any of its Subsidiaries shall make any
new capital expenditure or expenditures which individually exceed $50,000 and in
the aggregate exceed $150,000;
(h) neither the Company nor any of its Subsidiaries shall, except
in the ordinary course of business and except as otherwise permitted by this
Agreement, amend or terminate any Company Material Contract where such
amendment or termination would have a Material Adverse Affect on the Company, or
waive, release or assign any material rights or claims;
(i) neither the Company nor any of its Subsidiaries shall
transfer, lease, license, sell, mortgage, pledge, dispose of or encumber any
property or assets other than in the ordinary course of business and consistent
with past practice;
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(j) neither the Company nor any of its Subsidiaries shall: (i)
enter into any employment or severance agreement with or grant any severance or
termination pay to any officer, director or key employee of the Company or any
its Subsidiaries; or (ii) hire or agree to hire any new or additional key
employees or officers;
(k) neither the Company nor any of its Subsidiaries shall, except
as required to comply with applicable Law or expressly provided in this
Agreement, (A) adopt, enter into, terminate, amend or increase the amount or
accelerate the payment or vesting of any benefit or award or amount payable
under any Benefit Plan or other arrangement for the current or future benefit or
welfare of any director, officer or current or former employee, except to the
extent necessary to coordinate any such Benefit Plans with the terms of this
Agreement, (B) increase in any manner the compensation or fringe benefits of, or
pay any bonus to, any director, officer or employee, (C) pay any benefit not
provided for under any Benefit Plan, (D) grant any awards under any bonus,
incentive, performance or other compensation plan or arrangement or Benefit Plan
(including the grant of stock options, stock appreciation rights, stock based or
stock related awards, performance units or restricted stock, or the removal of
existing restrictions in any Benefit Plans or agreements or awards made
thereunder) or (E) take any action to fund or in any other way secure the
payment of compensation or benefits under any employee plan, agreement, contract
or arrangement or Benefit Plan;
(l) neither the Company nor any of its Subsidiaries shall: (i)
incur or assume any long-term debt, or except in the ordinary course of
business, incur or assume any short-term indebtedness in amounts not consistent
with past practice; (ii) incur or modify any material indebtedness or other
liability except as set forth on Schedule 5.1 of the Company Disclosure
Schedule; (iii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other Person, except in the ordinary course of business and consistent with
past practice; (iv) make any loans, advances or capital contributions to, or
investments in, any other Person (other than to wholly owned Subsidiaries of the
Company or customary loans or advances to employees in the ordinary course of
business and consistent with past practice); (v) settle any claims other than in
the ordinary course of business, in accordance with past practice and without
admission of liability; or (vi) enter into any material commitment or
transaction;
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(m) neither the Company nor any of its Subsidiaries shall change
any of the accounting methods used by it unless required by GAAP;
(n) neither the Company nor any of its Subsidiaries shall make any
Tax election, amend any Tax Return, make a claim for any Tax Refund or settle or
compromise any Tax liability (whether with respect to amount or timing);
(o) neither the Company nor any of its Subsidiaries shall pay,
discharge or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction of any such claims, liabilities or obligations, in the
ordinary course of business and consistent with past practice, of claims,
liabilities or obligations reflected or reserved against in, or contemplated by,
the consolidated financial statements (or the notes thereto) of the Company and
its consolidated Subsidiaries; or, except in the ordinary course of business
consistent with past practice, waive the benefits of, or agree to modify in any
manner, any confidentiality, standstill or similar agreement to which the
Company or any of its Subsidiaries is a party;
(p) neither the Company nor any of its Subsidiaries shall (by
action or inaction) amend, renew, terminate or cause to be extended any lease,
agreement or arrangement relating to any of the Leased Properties or enter into
any lease, agreement or arrangement with respect to any real property.
(q) neither the Company nor any of its Subsidiaries will enter
into an agreement, contract, commitment or arrangement to do any of the
foregoing, or to authorize, recommend, propose or announce an intention to do
any of the foregoing; and
(r) neither the Company nor any of its Subsidiaries shall take any
action that the Company knows at the time of taking such action would result in
any of the conditions to the Offer set forth in Annex A not being satisfied
(subject to the Company's right to take action specifically permitted by Section
5.5).
Section 5.2 Access; Confidentiality. The Company shall (and shall cause
each of its Subsidiaries to) afford to the Representatives of Parent reasonable
access on reasonable prior notice during normal business hours, throughout the
period prior to the earlier of the Effective Time or the termination of this
Agreement, to all of its properties, offices, executive employees, contracts,
commitments, books and
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records (including but not limited to Tax Returns) and any report, schedule or
other document filed or received by it pursuant to the requirements of federal
or state securities laws and shall (and shall cause each of its Subsidiaries to)
furnish promptly to Parent such additional financial and operating data and
other information as to its and its Subsidiaries' respective businesses and
properties as Parent may from time to time reasonably request. Parent and
Purchaser will make all reasonable efforts to minimize any disruption to the
businesses of the Company and its Subsidiaries which may result from the
requests for data and information hereunder and pursuant to Section 5.1(d)
hereof. Except as otherwise agreed to by the Company, unless and until Parent
and Purchaser shall have purchased Shares pursuant to the Offer, Parent will be
bound by the terms of a confidentiality agreement (the "Confidentiality
Agreement"), dated as of June 16, 1998 and amended as of July 27, 1998, by and
between Parent and the Company.
Section 5.3 Special Meeting, Proxy Statement.
(a) If required by applicable Law in order to consummate the
Merger, the Company, acting through its Board of Directors, shall, in accordance
with applicable Law, its Certificate of Incorporation and By-laws:
(i) as promptly as practicable following the acceptance for
payment and purchase of Shares by Purchaser pursuant to the Offer duly
call, give notice of, convene and hold a special meeting of its
stockholders (the "Special Meeting") for the purposes of considering and
taking action upon the approval of the Merger and the approval and adoption
of this Agreement;
(ii) prepare and file with the SEC a preliminary proxy or
information statement relating to the Merger and this Agreement and (x)
obtain and furnish the information required to be included by the SEC in
the Proxy Statement (as hereinafter defined) and, after consultation with
Parent, respond promptly to any comments made by the SEC with respect to
the preliminary proxy or information statement and cause a definitive proxy
or information statement, including any amendment or supplement thereto
(the "Proxy Statement") to be mailed to its stockholders at the earliest
practicable date; provided that no amendment or supplement to the Proxy
Statement will be made by the Company without consultation with Parent and
its counsel and (y) use its reasonable best efforts to obtain the necessary
approvals of the Merger and this Agreement by its stockholders; and
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(iii) unless this Agreement has been terminated in accordance
with Article VII, subject to its rights pursuant to Section 5.5, include in
the Proxy Statement the recommendation of its Board of Directors that
stockholders of the Company vote in favor of the approval of the Merger and
the approval and adoption of this Agreement.
(b) Parent shall vote, or cause to be voted, all of the Shares
then owned by it, Purchaser or any of its other Subsidiaries in favor of
approval of the Merger and the approval and adoption of this Agreement.
(c) Notwithstanding anything else herein or in this Section 5.3,
in the event that Parent, Purchaser and any other Subsidiaries of Parent shall
acquire in the aggregate a number of the outstanding shares of each class of
capital stock of the Company, pursuant to the Offer or otherwise, sufficient to
enable Purchaser or the Company to cause the Merger to become effective under
applicable Law without a meeting of stockholders of the Company, the parties
hereto shall, at the request of Parent and subject to Article VI, take all
necessary and appropriate action to cause the Merger to become effective as soon
as practicable after the consummation of such acquisition, without a meeting of
stockholders of the Company, in accordance with Section 253 of the DGCL.
Section 5.4 Reasonable Efforts; Notification. (a) Upon the terms and
subject to the conditions set forth in this Agreement, including without
limitation Section 5.5 hereto, each of the parties agrees to use all reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Offer and the Merger, and the other
Transactions, including (i) the preparation and filing with the SEC of the Offer
Documents, the Schedule 14D-9, the preliminary Proxy Statement and the Proxy
Statement and all necessary amendments or supplements thereto; (ii) the
obtaining of all necessary actions or nonactions, waivers, consents and
approvals from any Governmental Entity and the making of all necessary
registrations and filings (including filings with any Governmental Entity, if
any) and the taking of all reasonable steps as may be necessary to obtain an
approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (iii) the obtaining of all necessary consents, approvals
or waivers from third parties, (iv) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of any of the Transactions, including seeking to have any stay
or temporary restraining order entered by any court
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or other Governmental Entity vacated or reversed, and (v) the execution and
delivery of any additional instruments necessary to consummate the Transactions
and to fully carry out the purposes of this Agreement.
(b) Each of the Company, Parent and Purchaser shall give prompt
notice to the other of (i) any of their representations or warranties contained
in this Agreement becoming untrue or inaccurate in any material respect
(including in the case of representations or warranties receiving knowledge of
any fact, event or circumstance which is reasonably likely to cause any
representation qualified as to the knowledge to be or become untrue or
inaccurate in any material respect) or (ii) the failure by them to comply with
or satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by them under this Agreement; provided, however, that
no such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
Section 5.5 No Solicitation. (a) The Company shall not, nor shall it
permit any of its Subsidiaries to, nor shall it authorize (and shall use its
best efforts not to permit) any officer, director or employee of, or any
investment banker, attorney or other advisor or representative of, the Company
or any of its Subsidiaries to, (i) solicit or initiate, or encourage, directly
or indirectly, any inquiries or the submission of, any Takeover Proposal, (ii)
participate in any discussions or negotiations regarding, or furnish to any
Person any information or data with respect to or access to the proper ties of,
or take any other action to knowingly facilitate the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Takeover Proposal or
(iii) enter into any agreement with respect to any Takeover Proposal or approve
or resolve to approve any Takeover Proposal; provided, that nothing contained in
this Section 5.5 or any other provision hereof shall prohibit the Company or the
Company's Board of Directors from (A) taking and disclosing to the Company's
stockholders a position with respect to a tender or exchange offer by a third
party pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act, or
(B) making such disclosure to the Company's stockholders as, in the good faith
judgment of the Company's Board of Directors, after receiving written advice
from outside counsel, is required under applicable Law, provided that the
Company may not, except as permitted by Section 5.5(b), withdraw or modify, or
propose to withdraw or modify, its position with respect to the Offer or the
Merger or approve or recommend, or propose to approve or recommend any Takeover
Proposal, or enter into any agreement with respect to any Takeover Proposal.
Upon execution of this Agreement, the Company will immediately cease any
existing activities, discussions or negotia-
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tions with any parties conducted heretofore with respect to any of the
foregoing. Notwithstanding the foregoing, prior to the time of acceptance of
Shares for payment pursuant to the Offer, the Company may furnish information
concerning its business, properties or assets to any Person or group and may
negotiate and participate in discussions and negotiations with such Person or
group concerning a Takeover Proposal if:
(x) such Person or group has submitted a Superior Proposal; and
(y) in the opinion of the Company's Board of Directors such action
is required to discharge the Board's fiduciary duties to the Company's
stockholders under applicable Law, determined only after receipt of a
written opinion from independent legal counsel to the Company that the
failure to provide such information or access or to engage in such
discussions or negotiations would cause the Company's Board of Directors
to violate its fiduciary duties to the Company's stockholders under
applicable Law.
The Company will promptly (but in no case later than 24 hours) notify Parent of
the existence of any proposal, discussion, negotiation or inquiry received by
the Company regarding any Takeover Proposal, and the Company will promptly
communicate to Parent the terms of any proposal, discussion, negotiation or
inquiry which it may receive regarding any Takeover Proposal (and will promptly
provide to Parent copies of any written materials received by the Company in
connection with such proposal, discussion, negotiation or inquiry) and the
identity of the party making such proposal or inquiry or engaging in such
discussion or negotiation. The Company will promptly provide to Parent any
non-public information concerning the Company provided to any other Person in
connection with any Takeover Proposal which was not previously provided to
Parent. The Company will keep Parent informed of the status and details of any
such Takeover Proposal and of any amendments or proposed amendments to any
Takeover Proposal and will promptly (but in no case later than 24 hours) notify
Parent of any determination by the Company's Board of Directors that a Superior
Proposal has been made.
(b) Except as set forth in this Section 5.5(b), neither the Board
of Directors of the Company nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Parent or
Purchaser, the approval or recommendation by the Board of Directors of the
Company or any such committee of the Offer, this Agreement or the Merger, (ii)
approve or recommend, or
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propose to approve or recommend, any Takeover Proposal or (iii) enter into any
agreement with respect to any Takeover Proposal. Notwithstanding the foregoing,
subject to compliance with the provisions of this Section 5.5, prior to the time
of acceptance for payment of Shares pursuant to the Offer, the Company's Board
of Directors may withdraw or modify its approval or recommendation of the Offer,
this Agreement or the Merger, approve or recommend a Superior Proposal, or enter
into an agreement with respect to a Superior Proposal, in each case at any time
after the third business day following Parent's receipt of written notice
(including by facsimile) from the Company advising Parent that the Board of
Directors of the Company has received a Superior Proposal which it intends to
accept, specifying the material terms and conditions of such Superior Proposal
and identifying the Person making such Superior Proposal, but only if the
Company shall have caused its financial and legal advisors to negotiate with
Parent promptly following delivery of such notice and through such three
business day period to make such adjustments to the terms and conditions of this
Agreement as would enable the Company to proceed with the Transactions on such
adjusted terms.
Section 5.6 Publicity. Except as required by Law or as permitted by
Section 5.5, so long as this Agreement is in effect, neither the Company, Parent
nor any of their respective affiliates shall issue or cause the publication of
any press release or other announcement with respect to the Merger, this
Agreement or the other Transactions without the prior consultation of the other
party.
Section 5.7 Transfer Taxes. All liability for transfer or other similar
Taxes arising out of or related to the Offer and the Merger or the consummation
of any other Transaction, and due to the property owned by the Company or any of
its Subsidiaries or affiliates ("Transfer Taxes") shall be borne by the Company,
and the Company shall file or cause to be filed all Tax Returns relating to such
Transfer Taxes which are due.
Section 5.8 State Takeover Laws. Notwithstanding any other provision
in this Agreement, in no event shall the Section 203 Approval be withdrawn,
revoked or modified by the Board of Directors of the Company. If any state
takeover statute other than Section 203 of the DGCL becomes or is deemed to
become applicable to the Company Stockholder Agreement, the Offer, the
acquisition of Shares pursuant to the Offer or the Merger, the Company shall
take all action necessary to render such statute inapplicable to all of the
foregoing.
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Section 5.9 Indemnification and Insurance.
(a) The Company shall, to the fullest extent permitted under
applicable Delaware Law, the terms of the Company's Certificate of Incorporation
or By-Laws and regardless of whether the Merger becomes effective, indemnify and
hold harmless, and, after the Effective Time, the Surviving Corporation shall,
to the fullest extent permitted under applicable Delaware Law, indemnify and
hold harmless, each present and former director, officer or employee of the
Company or any of its Subsidiaries (collectively, the "Indemnified Parties")
against any costs or expenses (including reasonable attorneys' fees), judgments,
losses, claims, damages and liabilities incurred in connection with, and amounts
paid in settlement of, any claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative and wherever asserted,
brought or filed, (x) arising out of or pertaining to the Transactions or (y)
otherwise with respect to any acts or omissions or alleged acts or omissions
occurring at or prior to the Effective Time, in each case for a period of six
years after the date hereof. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) any counsel retained by the Indemnified Parties for any period after
the Effective Time must be reasonably satisfactory to the Surviving Corporation,
(ii) after the Effective Time, the Surviving Corporation shall pay the
reasonable fees and expenses of such counsel, promptly after statements therefor
are received, and (iii) the Surviving Corporation will cooperate in the defense
of any such matter; provided, however, that the Surviving Corporation shall not
be liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld or delayed); and provided, further, that, in
the event that any claim or claims for indemnification are asserted or made
within such six year period, all rights to indemnification in respect of any
such claim or claims shall continue until the disposition of any and all such
claims. The Indemnified Parties as a group shall be reimbursed for the costs of
only one law firm to represent them with respect to any single action unless
there is, under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Parties.
The indemnity agreements of the Surviving Corporation in this Section 5.9(b)
shall extend, on the same terms to, and shall inure to the benefit of and shall
be enforceable by, each Person or entity who controls, or in the past
controlled, any present or former director, officer or employee of the Company
or any of its Subsidiaries.
(b) For a period of three years after the Effective Time, Parent
shall cause the Surviving Corporation to maintain in effect, if available,
directors' and
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officers' liability insurance covering those Persons who are currently covered
by the Company's directors' and officers' liability insurance policy (a copy of
which has been made available to Parent) on terms (including the amounts of
coverage and the amounts of deductibles, if any) that are no less favorable to
the terms now applicable to them under the Company's current policies; provided,
however, that in no event shall Parent or the Surviving Corporation be required
to expend in excess of 150% of the annual premium currently paid by the Company
for such coverage; and provided further, that, if the premium for such coverage
exceeds such amount, Parent or the Surviving Corporation shall purchase a policy
with the greatest coverage available for such 150% of the annual premium.
(c) This Section 5.9 shall survive the consummation of the Merger
at the Effective Time, is intended to benefit the Company, the Surviving
Corporation and the Indemnified Parties, shall be binding on all successors and
assigns of the Surviving Corporation and shall be enforceable by the Indemnified
Parties.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject to
the satisfaction on or prior to the Effective Time of each of the following
conditions, any and all of which may be waived in whole or in part by the
Company, Parent or Purchaser, as the case may be, to the extent permitted by
applicable Law:
(a) this Agreement shall have been approved and adopted by the
requisite vote of the holders of Shares, if required by applicable Law and the
Certificate of Incorporation, in order to consummate the Merger;
(b) any waiting period applicable to the Merger under the HSR Act
shall have expired or been terminated;
(c) no statute, rule, regulation, order, decree or injunction
shall have been enacted, promulgated or issued by any Governmental Entity
precluding, restraining, enjoining or prohibiting consummation of the Merger;
and
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(d) Parent, Purchaser or their affiliates shall have purchased all
Shares duly tendered and not withdrawn pursuant to the Offer; provided, however,
that the obligation of Parent and Purchaser to effect the Merger shall not be
conditioned on the fulfillment of the condition set forth in this subsection
(d) if the failure of Purchaser to purchase the Shares pursuant to the Offer
shall have constituted a breach of this Agreement.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated and the
Merger contemplated herein may be abandoned at any time prior to the Effective
Time, whether before or after approval of matters presented in connection with
the Merger by the stockholders of the Company (provided, however, that if Shares
are purchased pursuant to the Offer, neither Parent nor Purchaser may in any
event terminate this Agreement):
(a) By the mutual written consent of Parent and the Company;
provided, however, that if Parent shall have a majority of the directors
pursuant to Section 1.4, such consent of the Company may only be given if
approved by the Continuing Directors.
(b) By either of Parent or the Company if (i) a statute, rule or
executive order shall have been enacted, entered or promulgated prohibiting the
Transactions on the terms contemplated by this Agreement or (ii) any
Governmental Entity shall have issued an order, decree or ruling or taken any
other action (which order, decree, ruling or other action the parties hereto
shall use their reasonable efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the Transactions and such order,
decree, ruling or other action shall have become final and non-appealable.
(c) By either of Parent or the Company if at least that number of
Shares required by the Minimum Condition to be tendered shall not have been
purchased in the Offer on or before November 30, 1998; provided, that the party
seeking to terminate this Agreement pursuant to this Section 7.1(c) shall not
have breached in any material respect its obligations under this Agreement in
any manner that shall have proximately contributed to the failure to consummate
the Offer on or before such date;
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(d) By the Company:
(i) if the Company has entered into an agreement with respect
to a Superior Proposal or has approved or recommended a Superior Proposal
in accordance with Section 5.5(b), provided the Company has complied with
all provisions thereof, including the notice provisions therein, and that
it simultaneously terminates this Agreement and makes simultaneous payment
to the Parent of the Expenses and the Termination Fee; or
(ii) if Parent or Purchaser shall have terminated the Offer
or the Offer expires without Parent or Purchaser, as the case may be,
purchasing any Shares pursuant thereto; provided that the Company may not
terminate this Agreement pursuant to this Section 7.1(d)(ii) if the Company
is in material breach of this Agreement or the Company Option Agreement;
(iii) if Parent, Purchaser or any of their affiliates shall
have failed to commence the Offer on or prior to five business days
following the date of the initial public announcement of the Offer;
provided, that the Company may not terminate this Agreement pursuant to
this Section 7.1(d)(iii) if the Company is in material breach of this
Agreement or the Company Option Agreement; or
(iv) if there shall be a breach by Parent or Purchaser of any
of their representations, warranties, covenants or agreements contained in
this Agreement which breach is incapable of being cured or is not cured
within 10 days of notice from the Company to Parent, except, in each case,
where such breach does not have a material adverse effect on the ability of
Parent or Purchaser to consummate the Offer or the Merger.
(e) By Parent or Purchaser:
(i) (A) if prior to the purchase of the Shares pursuant to
the Offer, the Board of Directors of the Company shall have withdrawn, or
modified or changed in a manner adverse to Parent or Purchaser its approval
or recommendation of the Offer, this Agreement or the Merger or shall have
recommended or approved a Takeover Proposal (provided that the Company
merely providing notice to Parent pursuant to the last sentence of Section
5.5(b) shall not in itself constitute a recommendation or approval of a
Takeover Proposal); or
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(B) there shall have been a material breach of any
provision of Section 5.5; or
(ii) if Parent or Purchaser shall have terminated the
Offer without Parent or Purchaser purchasing any Shares thereunder,
provided that Parent or Purchaser may not terminate this Agreement
pursuant to this Section 7.1(e)(ii) if Parent or Purchaser is in
material breach of this Agreement; or
(iii) if, due to an occurrence that if occurring
after the commencement of the Offer would result in a failure to
satisfy any of the conditions set forth in Annex A hereto, Parent,
Purchaser or any of their affiliates shall have failed to commence the
Offer on or prior to five business days following the date of the
initial public announcement of the Offer; or
(iv) if the Company receives a Takeover Proposal from
any Person (other than Parent or Purchaser), and the Company's Board of
Directors takes a neutral position or makes no recommendation with
respect to such Takeover Proposal after a reasonable amount of time
(and in no event more than ten business days following such receipt)
has elapsed for the Company's Board of Directors to review and make a
recommendation with respect to such Takeover Proposal; or
(v) if there shall be a breach by the Company of any
of its representations, warranties, covenants or agreements contained
in this Agreement or the Company Option Agreement which breach is
incapable of being cured or is not cured within 10 days of notice from
Parent to the Company, except, in each case, where such breach
(without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein) does not have a Material
Adverse Effect on the Company or a materially adverse effect on the
ability of the Company to consummate the Offer or the Merger.
Section 7.2 Effect of Termination. In the event of termination
of this Agreement by either the Company or Parent or Purchaser as provided in
Section 7.1, this Agreement shall forthwith become void and have no effect,
without any liability or obligation on the part of Parent, Purchaser or the
Company, other than the provisions of Section 3.21, 4.6, 5.2, this Section 7.2
and Article VIII and except to the extent that such termination results from the
wilful and material breach by a party of
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any of its representations, warranties, covenants or agreements set forth in
this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses. (a) Except as provided below,
all fees and expenses incurred in connection with the Offer, the Merger, this
Agreement and the Transactions shall be paid by the party incurring such fees or
expenses, whether or not the Offer or the Merger is consummated.
(b) If (x) Parent or Purchaser terminates this
Agreement pursuant to Section 7.1(e)(i) or 7.1(e)(iv) or (y) the Company
terminates this Agreement pursuant to Section 7.1(d)(i), then in each case, the
Company shall pay, or cause to be paid to Parent, at the time of termination, an
amount equal to $2,500,000 (the "Termination Fee") and an amount equal to
Parent's and Purchaser's actual and documented reasonable out-of-pocket expenses
incurred by Parent or Purchaser in connection with the Offer, the Merger, this
Agreement and the consummation of the Transactions, including, without
limitation, the reasonable fees and expenses payable to all attorneys,
accountants, banks, investment banking firms, and other financial institutions
and Persons and their respective agents and counsel incurred in connection with
the Transactions or arranging or committing to provide or providing any financ-
ing for, the Transactions (the "Expenses"). In addition, if this Agreement is
'[]terminated by either Parent or the Company pursuant to Section 7.1(c), by
Parent pursuant to Section 7.1(e)(ii) (other than if such termination is a
result of the failure to satisfy the conditions set forth in paragraphs (a)(i),
(a)(ii), (a)(v), (a)(vii), (a)(viii), (b) or (c) of Annex A hereto) or 7.1(e)(v)
(other than by reason of a breach of Section 5.5) or by the Company pursuant to
Section 7.1(d)(ii) (other than if such termination is a result of the failure to
satisfy the conditions set forth in paragraphs (a)(i), (a)(ii), (a)(v),
(a)(vii), (a)(viii), (b) or (c) of Annex A hereto) and at the time of such
termination, Parent is not in material breach of this Agreement, then the
Company shall pay to Parent, at the time of termination, the Expenses, and, if
the Company shall thereafter, within 12 months after such termination, enter
into an agreement with respect to a Takeover Proposal, then the Company shall
pay the Termination Fee concurrently with entering into any such agreement. Any
payments required to be made pursuant to this Section 8.1 shall be made by wire
transfer of same day funds to an account designated by Parent. The Termination
Fee payable hereunder if (x) Parent or
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Purchaser terminates this Agreement pursuant to Section 7.1(e)(i) or 7.1(e)(iv)
or (y) the Company terminates this Agreement pursuant to Section 7.1(d)(i) (the
"Immediately Payable Termination Fee"), shall be secured by the Company's
assets pursuant to the Security Agreement, dated as of the date hereof by and
among Parent, Hasbro Interactive Inc., a Delaware corporation and a wholly owned
subsidiary of Parent and the Company.
Section 8.2 Amendment and Modification. Subject to applicable
Law, this Agreement may be amended, modified and supplemented in any and all
respects, whether before or after any vote of the stockholders of the Company
contemplated hereby, by written agreement of the parties hereto (which in the
case of the Company shall include approvals as contemplated in Section 1.4(c)),
at any time prior to the Closing Date with respect to any of the terms contained
herein; provided, however, that after the approval of this Agreement by the
stockholders of the Company, no such amendment, modification or supplement shall
reduce the amount or change the form of the Merger Consideration or otherwise
adversely affect the rights of stockholders.
Section 8.3 Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement or in any schedule,
instrument or other document delivered pursuant to this Agreement shall survive
the Effective Time or in the case of the Company shall survive the acceptance
for payment of and payment for Shares purchased pursuant to the Offer. This
Section 8.3 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
Section 8.4 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given upon receipt, and shall
be given to the parties at the following addresses or telecopy numbers (or at
such other address or telecopy number for a party as shall be specified by like
notice):
(a) if to Parent or Purchaser, to:
Hasbro, Inc.
1027 Newport Avenue
Pawtucket, Rhode Island 02861
Attention: Harold P. Gordon, Vice Chairman
Telecopy: (401) 727-5121
with a copy to:
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Hasbro, Inc.
32 W. 23rd Street
New York, New York 10010
Attention: Phillip H. Waldoks
Senior Vice President-Corporate
Legal Affairs and Secretary
Telecopy: (212) 741-0663
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-3897
Attention: Howard L. Ellin, Esq.
Telecopy: 212-735-2000
(b) if to the Company, to:
MicroProse, Inc.
2490 Mariner Loop
Suite 100
Alameda, California 94501
Attention: Stephen M. Race
Chief Executive Officer
Telecopy: (510) 864-4607
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: David Drummond, Esq.
Telecopy: (650) 493-6811
Section 8.5 Interpretation. (a) The words "hereof," "herein"
and "herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole and not to any particular
provision of this Agreement, and article, section, paragraph, exhibit and
schedule references are to the articles, sections, paragraphs, exhibits and
schedules of this Agreement unless
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other wise specified. Whenever the words "include," "includes" or "including"
are used in this Agreement they shall be deemed to be followed by the words
"without limitation." All terms defined in this Agreement shall have the defined
meanings contained herein when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such term. Any agreement, instrument or statute defined or referred
to herein or in any agreement or instrument that is referred to herein means
such agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements and instruments) by waiver
or consent and (in the case of statutes) by succession of comparable successor
statutes and all attachments thereto and instruments incorporated therein.
References to a Person are also to its permitted successors and assigns.
(b) The phrases "the date of this Agreement," "the
date hereof" and terms of similar import, unless the context otherwise requires,
shall be deemed to refer to August 11, 1998. The phrase "to the knowledge of"
the Company and/or any Subsidiary thereof or any similar phrase shall mean such
facts and other information which as of the date of this Agreement are known to
any vice president, chief financial officer, controller, and any officer
superior to any of the foregoing, of the referenced party after the conduct of a
reasonable investigation by such officers.
(c) The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
Section 8.6 Counterparts. This Agreement may be executed in
two or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when two or more counterparts have been
signed by each of the parties and delivered to the other parties.
Section 8.7 Entire Agreement; No Third Party Beneficiaries;
Rights of Ownership. This Agreement, the Confidentiality Agreement and the
Company Option Agreement (including the documents and the instruments referred
to herein and therein): (a) constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the
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subject matter hereof, and (b) except as provided in Sections 5.9 and 1.4(c)
(which is for the benefit of the Company's stockholders other than Parent and
Purchaser) are not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
Section 8.8 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated unless the economic or legal substance of the
Transactions is affected in an adverse way to any party.
Section 8.9 Governing Law. This Agreement shall be governed by
and construed in accordance with the Laws of the State of Delaware without
giving effect to the principles of conflicts or choice of law thereof or of any
other jurisdiction.
Section 8.10 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of Law or otherwise) without the prior
written consent of the other parties, except that Purchaser may assign, in its
sole discretion, any or all of its rights, interests and obligations hereunder
to Parent or to any direct or indirect wholly owned Subsidiary of Parent.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective successors
and assigns.
Section 8.11 Enforcement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of Delaware or in Delaware state court, this
being in addition to any other remedy to which they are entitled at law or in
equity. In addition, each of the parties hereto (a) consents to submit itself to
the personal jurisdiction of any Federal court located in the State of Delaware
or any Delaware state court in the event any dispute arises out of this
Agreement or any of the Transactions, (b) agrees that it will not attempt to
deny or defeat such personal jurisdiction by motion or other request for leave
from
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any such court and (c) agrees that it will not bring any action relating to this
Agreement or any of the Transactions in any court other than a Federal or state
court sitting in the State of Delaware.
Section 8.12 Extension; Waiver. At any time prior to the
Effective Time, the parties may (a) extend the time for the performance of any
of the obligations or other acts of the other parties, (b) waive any
inaccuracies in the representations and warranties of the other parties
contained in this Agreement or in any document delivered pursuant to this
Agreement or (c) subject to the proviso of Section 8.2, waive compliance by the
other parties with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of those
rights.
Section 8.13 Procedure for Termination, Amendment, Extension
or Waiver. A termination of this Agreement pursuant to Section 7.1, an amendment
of this Agreement pursuant to Section 8.2 or an extension or waiver pursuant to
Section 8.12 shall, in order to be effective, require in the case of Parent,
Purchaser or the Company, action by its Board of Directors or the duly
authorized designee of its Board of Directors; provided, however, that in the
event that Parent's designees are appointed or elected to the Board of Directors
of the Company as provided in Section 1.4, after the acceptance for payment of
Shares pursuant to the Offer and prior to the Effective Time, except as
otherwise contemplated by this Agreement the affirmative vote of a majority of
the Continuing Directors of the Company shall be required by the Company to
amend this Agreement by the Company.
Section 8.14 Certain Undertakings of Parent. Parent shall
perform, or cause to be performed and shall be liable for any obligation of
Purchaser under this Agreement which shall have been breached by Purchaser.
Section 8.15 Definitions. For purposes of this Agreement:
"Affiliate" has the meaning set forth in Rule 12b-2 of the Exchange
Act.
"Benefit Plans" has the meaning assigned thereto in Section 3.10.
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"By-laws" means the by-laws of the Company as in effect on the date of
this Agreement.
"Certificate of Incorporation" means the certificate of incorporation
of the Company as in effect on the date of this Agreement.
"Certificate of Merger" has the meaning assigned thereto in Section
1.6.
"Certificates" has the meaning assigned thereto in Section 2.2.
"Closing" has the meaning assigned thereto in Section 1.7.
"Closing Date" has the meaning assigned thereto in Section 1.7.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means MicroProse, Inc., a Delaware corporation.
"Company Disclosure Schedule" has the meaning assigned thereto in
Section 3.2.
"Company Material Contract" has the meaning assigned thereto in Section
3.16.
"Company Option Agreement" has the meaning assigned thereto in the
recitals.
"Company's SEC Documents" has the meaning assigned thereto in Section
3.5.
"Computer Programs" means:
(i) any and all computer software programs, including all
source and object code,
(ii) databases and compilations, including any and all
data and collections of data, whether machine
readable or otherwise,
(iii) billing, reporting, and other management information
systems,
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(iv) all descriptions, flow-charts and other work product
used to design, plan, organize and develop any of the
foregoing,
(v) all content contained on any Internet site(s), and
(vi) all documentation, including user manuals and
training materials, relating to any of the
foregoing.
"Company Rights Agreement" means the Preferred Shares Rights Agreement,
dated as of February 6, 1996, by and between the Company and Chemical Mellon
Shareholder Services, L.L.C.
"Confidentiality Agreement" has the meaning assigned thereto in Section
5.2.
"Continuing Director" means (i) any member of the Board of Directors of
the Company as of the date hereof, or (ii) any successor of a Continuing
Director who is (A) unaffiliated with, and not a designee or nominee, of Parent
or Purchaser, and (B) recommended to succeed a Continuing Director by a majority
of the Continuing Directors then on the Board of Directors of the Company, and
in each case under clauses (i) and (ii), who is not an employee of the Company.
"Convertible Notes" has the meaning assigned thereto in Section 3.3.
"Defect" means a defect or impurity of any kind, whether in design,
manufacture, processing, or otherwise, including, without limitation, any
dangerous propensity associated with any reasonably foreseeable use of a
Product, or the failure to warn of the existence of any defect, impurity, or
dangerous propensity.
"DGCL" means the Delaware General Corporation Law, as amended.
"Dissenting Shares" has the meaning assigned thereto in Section 2.5.
"Dissenting Stockholders" has the meaning assigned thereto in Section
2.5.
"Effective Time" has the meaning assigned thereto in Section 1.6.
"Environmental Laws" means all foreign, Federal, state and local Laws
relating to pollution or protection of human health, safety or the environment,
including, without limitation, Laws relating to Releases or threatened Releases
of
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Hazardous Materials into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater, land, surface and
subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, Release, transport or handling of
Hazardous Materials, and all Laws and regulations with regard to record keeping,
notification, disclosure and reporting requirements respecting Hazardous
Materials, and all Laws relating to endangered or threatened species of fish,
wildlife and plants and the management or use of natural resources.
"Environmental Liabilities and Costs" means all liabilities,
obligations, responsibilities, obligations to conduct cleanup, losses, damages,
deficiencies, punitive dam ages, consequential damages, treble damages, costs
and expenses (including, without limitation, all reasonable fees, disbursements
and expenses of counsel, expert and consulting fees and costs of investigations
and feasibility studies and responding to government requests for information or
documents), fines, penalties, restitution and monetary sanctions, interest,
direct or indirect, known or unknown, absolute or contingent, past, present or
future, resulting from any claim or demand, by any Person or entity, whether
based in contract, tort, implied or express warranty, strict liability, joint
and several liability, criminal or civil statute, including any Environmental
Law, or arising from environmental, health or safety conditions, or the Release
or threatened Release of Hazardous Materials into the environment.
"ERISA" has the meaning assigned thereto in Section 3.10.
"ERISA Affiliate" has the meaning assigned thereto in Section 3.10.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expenses" has the meaning assigned thereto in Section 8.1.
"Fee Properties"means all real property and interests in real property
owned in fee by the Company or one of its Subsidiaries.
"GAAP" has the meaning assigned thereto in Section 3.5.
"Governmental Entity" means any (i) nation, state county, city, town,
village, district, or other jurisdiction of any nature; (ii) federal, state,
local, municipal, foreign or other government; (iii) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any
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court or other tribunal); or (iv) body exercising, or entitled to exercise any
administrative, executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
"Hazardous Materials" means all substances defined as hazardous
substances in the National Oil and Hazardous Substances Pollution Contingency
Plan, 40 C.F.R. Section 300.5, or substances defined as hazardous substances,
hazardous materials, toxic substances, hazardous wastes, pollutants or
contaminants, under any Environmental Law, or substances regulated under any
Environmental Law, including, but not limited to, petroleum (including crude oil
or any fraction thereof), asbestos, and polychlorinated biphenyls.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnified Parties" has the meaning assigned thereto in Section 5.9.
"Laws" means any administrative order, constitution, law, ordinance,
principle of common law, rule, regulation, statute, treaty, judgment, decree,
license or permit enacted, promulgated, issued, enforced or entered by any
Governmental Entity.
"Leased Properties" means all real property and interests in real
property leased by the Company or one of its Subsidiaries.
"Licenses" has the meaning assigned thereto in Section 3.14(c) hereof.
"Lien" means any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, lien, mortgage, pledge,
reservation, restriction, security interest, title retention or other security
arrangement, or any \adverse right or interest, charge or claim of any nature
whatsoever of, on, or with respect to any asset, property or property interest.
"Material Adverse Change" or "Material Adverse Effect" means, when used
in connection with the Company or Parent, any change or effect (or any
development that, insofar as can reasonably be foreseen, is likely to result in
any change or effect) that is materially adverse to the business, assets,
financial condition or results of operations of such party and its Subsidiaries
taken as a whole (except for any such change or effect that (i) is caused by
conditions affecting the United States or world
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economy as a whole, (ii) affects the industry in which the Company competes as a
whole or (iii) arises as a result of the announcement or pendency of the Offer).
"Merger" has the meaning assigned thereto in Section 1.5.
"Merger Consideration" has the meaning assigned thereto in Section 2.1.
"Minimum Condition" has the meaning assigned thereto in Annex A.
"Offer" has the meaning assigned thereto in Section 1.1.
"Offer Documents" has the meaning assigned thereto in Section 1.3.
"Offer Price" has the meaning assigned thereto in Section 1.1.
"Offer to Purchase" has the meaning assigned thereto in Section 1.1.
"Option Plans" has the meaning assigned thereto in Section 2.4.
"Option" has the meaning assigned thereto in Section 2.4.
"Other Intellectual Property" shall mean all intellectual property
rights used in the business of the Company or any of its Subsidiaries as
currently conducted, including but not limited to all patents and patent
applications; copyrights, copyright registrations and applications (including
copyrights in Computer Programs); Computer Programs; technology, trade secrets,
know-how, confidential information, proprietary processes and formulae;
"semiconductor chip product" and "mask works" (as such terms are defined in 17
U.S.C. 901); and rights of publicity and privacy relating to the use of the
names, signatures, likenesses, voices and biographical information of real
persons; together with any and all rights of renewal thereof and the right to
sue for past, present or future infringements or misappropriations thereof.
"Paying Agent" has the meaning assigned thereto in Section 2.2.
"Parent" means Hasbro, Inc.
"PBGC" means the Pension Benefit Guaranty Corporation.
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"Permit" means any Federal, state, local and foreign governmental
approval, authorization, certificate, filing, franchise, license, notice, permit
or right.
"Person" means an individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, labor union,
estate, trust, unincorporated organization or other entity, including any
Governmental Entity.
"Piper Jaffray" has the meaning assigned thereto in Section 1.2.
"Preferred Shares" has the meaning assigned thereto in Section 3.3.
"Preferred Stock Purchase Rights" shall mean the preferred stock
purchase rights issued pursuant to the Company Rights Agreement.
"Product" means any product designed, manufactured, shipped, sold, mar-
keted, distributed and/or otherwise introduced into the stream of commerce by or
on behalf of the Company or any of its Subsidiaries.
"Proxy Statement" has the meaning assigned thereto in Section 5.3.
"Purchaser" means New HIAC Corp.
"Real Property" means the Leased Properties and the Fee Properties.
"Release" means any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment (including, without limitation,
ambient air, surface water, groundwater, and surface or subsurface strata) or
into or out of any property of any Hazardous Material, including the movement of
Hazardous Materials through or in the air, soil, surface water, groundwater or
property.
"Representative" means, with respect to any Person, such Person's
officers, directors, employees, agents and representatives (including any
investment banker, financial advisor, accountant, legal counsel, agent,
representative or expert retained by or acting on behalf of such Person or its
Subsidiaries).
"Schedule 14D-1" has the meaning assigned thereto in Section 1.3.
"Schedule 14D-9" has the meaning assigned thereto in Section 1.3.
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"SEC" means the United States Securities and Exchange Commission or any
successor agency.
"SEC Documents" means reports, proxy statements, forms, and other docu-
ments required filed with the SEC under the Securities Act and the Exchange Act.
"Secretary of State" has the meaning assigned thereto in Section 1.6.
"Section 203 Approval" has the meaning assigned thereto in Section 1.2.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred Shares" has the meaning assigned thereto in Section
3.3.
"Series B Preferred Shares" has the meaning assigned thereto in Section
3.3.
"Series B-1 Preferred Shares" has the meaning assigned thereto in
Section 3.3.
"Series B Participating Preferred Shares" has the meaning assigned
thereto in Section 3.3.
"Shares" has the meaning assigned thereto in the recitals.
"Significant Subsidiaries" has the meaning assigned thereto in Rule
1-02 of Regulation S-X of the SEC.
"Special Meeting" has the meaning assigned thereto in Section 5.3.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, joint venture or other entity, whether incorporated or
unincorporated, of which such Person or any other Subsidiary of such Person (i)
owns, directly or indirectly, 50% or more of the outstanding voting securities
or equity interests, (ii) is entitled to elect at least a majority of the Board
of Directors or similar governing body, or (iii) is a general partner (excluding
such partnerships where such Person or any Subsidiary of such Person do not have
a majority of the voting interests in such partnership).
"Superior Proposal" means an unsolicited bona fide proposal by a Third
Party to acquire, directly or indirectly, for consideration consisting of cash
and/or securities, more than a majority of the Shares then outstanding or all or
substantially all of the
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assets of the Company or to acquire, directly or indirectly, the Company by
merger or consolidation, and otherwise on terms which the Board of Directors of
the Company determines in good faith to be more favorable to the Company's
stockholders than the Offer and the Merger (based on advice of the Company's
independent financial advisor that the value of the consideration provided for
in such proposal is superior to the value of the consideration provided for in
the Offer and the Merger), for which financing, to the extent required, is then
committed or which, in the good faith reasonable judgment of the Board of
Directors of the Company, based on advice from the Company's independent
financial advisor, is reasonably capable of being financed by such Third Party.
"Surviving Corporation" has the meaning assigned thereto in Section
1.5.
"Takeover Proposal" means any bona fide proposal or offer, whether in
writing or otherwise, from any Person other than Parent, Purchaser or any
affiliates thereof (a "Third Party") to acquire beneficial ownership (as defined
under Rule 13(d) of the Exchange Act) of all or a material portion of the assets
of the Company and its Subsidiaries taken as a whole or 50% or more of any class
of equity securities of the Company pursuant to a merger, consolidation or other
business combination, sale of shares of capital stock, sale of assets, tender
offer, exchange offer or similar transaction with respect to either the Company
or any of its Subsidiaries, including any single or multi-step transaction or
series of related transactions, which is structured to permit such Third Party
to acquire beneficial ownership of any material portion of the assets of the
Company and its Subsidiaries taken as a whole or 50% or more of such equity
interest in the Company.
"Taxes" mean any federal, state, local or foreign net income, gross
income, receipts, windfall profit, severance, property, production, sales, use,
license, excise, franchise, employment, payroll, withholding, alternative or
add-on minimum, ad valorem, transfer, stamp or environmental tax, or any other
tax, custom, duty, govern mental fee or other like assessment or charge of any
kind whatsoever, together with any interest or penalty, addition to tax or
additional amount imposed by any govern mental authority.
"Tax Returns" mean all returns, reports, or statements required to be
filed with any Governmental Entity with respect to any Tax (including any
attachments thereto), including, without limitation, any consolidated, unitary
or similar return, information return, claim for refund, amended return or
declaration of estimated Tax.
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"Termination Fee" has the meaning assigned thereto in Section 8.1(b).
"Third Party" has the meaning assigned thereto in this Section 8.15
under "Takeover Proposal."
"Trademarks" shall mean all United States and foreign trademarks
(including service marks and trade names, whether registered or at common law),
registrations and applications therefor, owned or licensed by the Company or its
Subsidiaries, and the goodwill of the Company's and each of its Subsidiaries'
respective businesses associated therewith, together with any and all (i) rights
of renewal thereof and (ii) rights to sue for past, present and future
infringements or misappropriation thereof.
"Transactions" has the meaning assigned thereto in Section 1.2(a).
"Transfer Taxes" has the meaning assigned thereto in Section 5.7.
"Warrants" has the meaning assigned thereto in Section 3.3.
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IN WITNESS WHEREOF, Parent, Purchaser and the Company have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
HASBRO, INC.
By: /s/ Harold P. Gordon
-----------------------------------
Name: Harold P. Gordon
Title: Vice Chairman
NEW HIAC CORP.
By: /s/ Harold P. Gordon
-----------------------------------
Name: Harold P. Gordon
Title: President
MICROPROSE, INC.
By: /s/ Stephen M. Race
-----------------------------------
Name: Stephen M. Race
Title: Chief Executive Officer
<PAGE> 71
ANNEX A
CONDITIONS TO THE OFFER
Capitalized terms used but not defined herein shall have the meanings
set forth in the Agreement and Plan of Merger of which this Annex A is a part.
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating
to Purchaser's obligation to pay for or return tendered Shares promptly after
termination or withdrawal of the Offer), pay for, and may extend or amend the
Offer consistent with the terms of the Merger Agreement if (i) there shall not
have been validly tendered and not withdrawn prior to the expiration of the
Offer such number of Shares which, when added to the Shares, if any,
beneficially owned by Parent or Purchaser, would constitute at least 50.1% of
the Shares outstanding on a fully diluted basis (the "Minimum Condition"), (ii)
any applicable waiting period under the HSR Act has not expired or been
terminated, or (iii) at any time on or after the date of the Merger Agreement
and prior to the Expiration Date, any of the following events shall occur and
shall not result from the material breach by Parent or Purchaser of any of their
obligations under the Merger Agreement:
(a) there shall be threatened in writing or pending
any suit, action or proceeding (i) seeking to prohibit or impose any material
limitations on Parent's or Purchaser's ownership or operation (or that of any of
their respective Subsidiaries or Affiliates) of all or a material portion of
their or the Company's businesses or assets, (ii) seeking to compel Parent or
Purchaser or their respective Subsidiaries and Affiliates to dispose of or hold
separate any material portion of the business or assets of the Company or Parent
and their respective Subsidiaries, in each case taken as a whole, (iii)
challenging the acquisition by Parent or Purchaser of any Shares pursuant to the
Offer or the Company Option Agreement, (iv) seeking to restrain or prohibit the
making or consummation of the Offer or the Merger or the performance of any of
the other Transactions, (v) seeking to obtain from the Company any damages that
would be reasonably likely to have a Material Adverse Effect on the Company,
(vi) seeking to impose material limitations on the ability of Purchaser, or
rendering Purchaser unable, to accept for payment, pay for or purchase some or
all of the Shares pursuant to the Offer and the Merger, (vii) seeking to impose
material limitations on the ability of Purchaser or Parent effectively to
exercise full rights of ownership of the Shares, including, without limitation,
the right to vote the Shares
A-1
<PAGE> 72
purchased by it on all matters properly presented to the Company's stockholders,
or (viii) which otherwise is reasonably likely to have a Material Adverse Effect
on the Company or, as a result of the Transactions, Parent and its Subsidiaries,
which, in the case of any of the foregoing, is reasonably likely to succeed on
the merits; or
(b) there shall be any statute, rule, regulation,
judgment, order or injunction enacted, entered, enforced, promulgated or deemed
applicable to the Offer or the Merger, or any other action shall be taken by any
Governmental Entity, other than the application to the Offer or the Merger of
applicable waiting periods under the HSR Act, that is reasonably likely to
result, directly or indirectly, in any of the consequences referred to in
clauses (i) through (viii) of paragraph (a) above; or
(c) there shall have occurred (1) any general
suspension of trading in, or limitation on prices for, securities on the New
York Stock Exchange, the American Stock Exchange or in the Nasdaq National
Market System, for a period in excess of three hours (excluding suspensions or
limitations resulting solely from physical damage or interference with such
exchanges not related to market conditions), (2) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States (whether or not mandatory), (3) any limitation or proposed limitation
(whether or not mandatory) by any United States governmental authority or agency
that has a material adverse effect generally on the extension of credit by banks
or other financial institutions, (4) any change in general financial bank or
capital market conditions which has a material adverse effect the ability of
financial institutions in the United States to extend credit or syndicate
loans, (5) any decline in either the Dow Jones Industrial Average or the
Standard & Poor's Index of 500 Industrial Companies by an amount in excess of
15% measured from the close of business on the date of this Agreement or (6) in
the case of any of the situations in clauses (1) through (5) inclusive, existing
at the time of the commencement of the Offer, a material acceleration or
worsening thereof; or
(d) the representations and warranties of the Company
set forth in the Merger Agreement shall not be true and accurate as of the date
of consummation of the Offer as though made on or as of such date (except for
those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time which need
only be true and accurate as of such date or with respect to such period) or the
Company shall have breached or failed to perform or comply with any obligation,
agreement or covenant required by the Merger Agreement to be performed or
complied with by it except, in each case where the failure of such
representations and warranties to be true and accurate (without
A-2
<PAGE> 73
giving effect to any limitation as to "materiality" or "material adverse effect"
set forth therein), or the failure to perform or comply with such obligations,
agreements or covenants, do not, individually or in the aggregate, have a
Material Adverse Effect on the Company or a materially adverse effect on the
ability to consummate the Offer or the Merger; or
(e) there shall have occurred a Material Adverse
Effect on the Company; or
(f) the Company's Board of Directors (i) shall have
withdrawn, or modified or changed in a manner adverse to Parent or Purchaser
(including by amendment of the Schedule 14D-9) its recommendation of the Offer,
the Merger Agreement, or the Merger, (ii) shall have recommended a Takeover
Proposal, (iii) shall have adopted any resolution to effect any of the
foregoing, or (iv) shall have taken a neutral position or made no recommendation
with respect to a Takeover Proposal received from any Person (other than Parent
or Purchaser) after a reasonable amount of time (and in no event more than ten
business days following such receipt) has elapsed for the Company's Board of
Directors to review and make a recommendation with respect to such Takeover
Proposal; or
(g) any party to the Company Option Agreement other
than Purchaser and Parent shall have breached or failed to perform any of its
agreements under such agreement or breached any of its representations and
warranties in such agreements or any such agreement shall not be valid, binding
and enforceable, except for such breaches or failures or failures to be valid,
binding and enforceable that do not materially and adversely affect the benefits
expected to be received by Parent and Purchaser under the Merger Agreement or
the Company Option Agreement;
(h) the Merger Agreement shall have been terminated
in accordance with its terms; or
(i) the Company pursuant to or within the meaning of
Title 11, U.S. Code or any similar Federal or state law for the relief of
debtors ("Bankruptcy Law"): (1) commences a voluntary case, (2) consents to the
entry of an order for relief against it in an involuntary case, (3) consents to
the appointment of a receiver, trustee, assignee, liquidator or similar official
under any Bankruptcy Law ( a "Custodian") of it or for all or substantially all
of its property, (4) makes a general assignment for the benefit of its
creditors, or (5) generally is not paying its debts as they become due; or (6) a
court of competent jurisdiction enters an order or decree under
A-3
<PAGE> 74
any Bankruptcy Law that: (x) is for relief against the Company in an involuntary
case, (y) appoints a Custodian of the Company or for all or substantially all of
the property of the Company, or (z) orders the liquidation of the Company, and
the order or decree remains unstayed and in effect for 60 days;
which in the reasonable good faith judgment of Parent or Purchaser, in any such
case, and regardless of the circumstances (including any action or inaction by
Parent or Purchaser) giving rise to such condition makes it inadvisable to
proceed with the Offer and/or with such acceptance for payment of or payments
for Shares.
The foregoing conditions are for the sole benefit of Parent
and Purchaser and may be waived by Parent or Purchaser, in whole or in part, at
any time and from time to time, in the sole discretion of Parent or Purchaser
(except for the Minimum Condition). The failure by Parent or Purchaser at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
A-4
<PAGE> 1
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of August 11, 1998 (the "Agreement"),
between MICROPROSE, INC., a Delaware corporation ("Issuer"), and HASBRO, INC., a
Rhode Island corporation ("Grantee").
RECITALS
A. Issuer and Grantee have entered into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"), providing for,
among other things, upon the terms and subject to the conditions thereof, the
merger of Purchaser with and into Issuer (the "Merger"); and
B. As a condition and inducement to Grantee's willingness to enter into
the Merger Agreement, Grantee has requested that Issuer agree, and Issuer has
agreed, to grant Grantee the Option (as defined below).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, Issuer
and Grantee agree as follows:
Capitalized terms used but not defined herein have the meanings set
forth in the Merger Agreement.
1. Grant of Option. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase up to 19.9% of the number of shares (the "Option
Shares") of common stock, par value $0.001 per share ("Issuer Common Stock"), of
Issuer issued and outstanding immediately prior to the grant of the Option
(provided that the Option Shares shall not, upon timely issuance, constitute
more than 19.9% of the then issued and outstanding shares of Issuer) at a
purchase price of $6.00 (as adjusted as set forth herein) per Option Share (the
"Purchase Price"). The Cash-Out Right (as defined herein) when payable in
connection with the Immediately Payable Termination Fee (the "Immediately
Payable Cash-Out Right"), shall be secured by the Issuer's assets pursuant to
the Security Agreement, dated as of the date hereof, by and among Grantee,
Hasbro Interactive Inc., a Delaware corporation and a wholly owned subsidiary of
Grantee, and the Issuer.
<PAGE> 2
2. Exercise of Option. (a) Grantee may exercise the Option, with
respect to any or all of the Option Shares at any time and from time to time,
subject to the provisions of Section 2(c), after the Merger Agreement becomes
terminable under circumstances which could entitle Grantee to the Termination
Fee under Section 8.1 of the Merger Agreement (a "Triggering Event") except that
(i) subject to the last sentence of this Section 2(a), the Option will terminate
and be of no further force and effect upon the earliest to occur of (A) the
consummation of the Offer, (B) six months after the date on which a Triggering
Event occurs, and (C) termination of the Merger Agreement in accordance with its
terms prior to the occurrence of a Triggering Event, unless, in the case of
clauses (B) and (C), the Grantee could be entitled to receive termination fees
following such time or termination upon the occurrence of certain events, in
which case the Option will not terminate until the later of (x) six months
following the time such termination fees become payable and (y) the expiration
of the period in which the Grantee has such right to receive termination fees,
and (ii) any purchase of Option Shares upon exercise of the Option will be
subject to compliance with the HSR Act and the obtaining or making of any
consents, approvals, orders, notifications or authorizations, the failure of
which to have obtained or made would have the effect of making the issuance of
Option Shares illegal (the "Regulatory Approvals") and no preliminary or
permanent injunction or other order by any court of competent jurisdiction
prohibiting or otherwise restraining such issuance shall be in effect.
Notwithstanding the termination of the Option, Grantee will be entitled to
purchase the Option Shares if it has exercised the Option in accordance with the
terms hereof prior to the termination of the Option, and the termination of the
Option will not affect any rights hereunder which by their terms do not
terminate or expire prior to or as of such termination.
(b) In the event that Grantee wishes to exercise the Option, it will
send to Issuer a written notice (an "Exercise Notice"; the date of which being
herein referred to as the "Notice Date") to that effect which Exercise Notice
also specifies the number of Option Shares, if any, Grantee wishes to purchase
pursuant to this Section 2(b), the number of Option Shares, if any, with respect
to which Grantee wishes to exercise its Cash-Out Right (as defined herein)
pursuant to Section 7(c), the denominations of the certificate or certificates
evidencing the Option Shares which Grantee wishes to purchase pursuant to this
Section 2(b) and a date not earlier than 20 business days nor later than 30
business days from the Notice Date for the closing (an "Option Closing") of such
purchase (an "Option Closing Date"). Any Option Closing will be at an agreed
location and time in New York, New York on the applicable Option Closing Date or
at such later date as may be necessary so as to comply with clause (ii) of
Section 2(a).
2
<PAGE> 3
(c) Notwithstanding anything to the contrary contained herein, any
exercise of the Option and purchase of Option Shares shall be subject to
compliance with applicable laws and regulations, which may prohibit the purchase
of all the Option Shares specified in the Exercise Notice without first
obtaining or making certain Regulatory Approvals. In such event, if the Option
is otherwise exercisable and Grantee wishes to exercise the Option, the Option
may be exercised in accordance with Section 2(b) and Grantee shall acquire the
maximum number of Option Shares specified in the Exercise Notice that Grantee is
then permitted to acquire under the applicable laws and regulations, and if
Grantee thereafter obtains the Regulatory Approvals to acquire the remaining
balance of the Option Shares specified in the Exercise Notice, then Grantee
shall be entitled to acquire such remaining balance. Issuer agrees to use its
reasonable best efforts to assist Grantee in seeking the Regulatory Approvals.
In the event (i) Grantee receives official notice that a Regulatory
Approval required for the purchase of any Option Shares will not be issued or
granted or (ii) such Regulatory Approval has not been issued or granted within
six months of the date of the Exercise Notice, Grantee shall have the right to
exercise its Cash-Out Right (as defined herein) pursuant to Section 7(c) with
respect to the Option Shares for which such Regulatory Approval will not be
issued or granted or has not been issued or granted.
(d) if Grantee receives in aggregate (i) the Termination Fee pursuant
to Section 8.1(b) of the Merger Agreement, (ii) amounts from the sale or other
disposition of the Option Shares, and (iii) pursuant to Section 7(c) hereof in
excess of the sum of (A) $3,500,000 plus (B) the amounts paid by Grantee to
purchase any Option Shares, then all such excess amounts shall be remitted by
Grantee to Issuer. If any payment by Issuer pursuant to Section 7(c) hereof or
payment of the Termination Fee pursuant to Section 8.1(b) of the Merger
Agreement would cause Grantee to become obligated to remit amounts pursuant to
this Section, then Issuer shall have the right to reduce such payments such that
no such obligation would arise.
3. Payment and Delivery of Certificates. (a) At any Option Closing,
Grantee will pay to Issuer in same day funds by wire transfer to a bank account
designated in writing by Issuer an amount equal to the Purchase Price multiplied
by the number of Option Shares to be purchased at such Option Closing.
(b) At any Option Closing, simultaneously with the delivery of same day
funds as provided in Section 3(a), Issuer will deliver to Grantee a certificate
or certificates representing the Option Shares to be purchased at such Option
Closing, which Option Shares will be free and clear of all liens, claims,
charges and encumbrances of any kind
3
<PAGE> 4
whatsoever. If at the time of issuance of Option Shares pursuant to an exercise
of the Option hereunder, Issuer shall have issued any securities similar to
rights under a shareholder rights plan, then each Option Share issued pursuant
to such exercise will also represent such a corresponding right with terms
substantially the same as and at least as favorable to Grantee as are provided
under any Issuer shareholder rights agreement or any similar agreement then in
effect.
(c) Certificates for the Option Shares delivered at an Option Closing
will have typed or printed thereon a restrictive legend which will read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1993, AND MAY BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY IF SO REGISTERED OR IF ANY
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE
ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE
STOCK OPTION AGREEMENT, DATED AS OF AUGUST 11, 1998, A COPY OF WHICH
MAY BE OBTAINED FROM THE SECRETARY OF MICROPROSE, INC. AT ITS PRINCIPAL
EXECUTIVE OFFICES."
It is understood and agreed that (i) the reference to restrictions arising under
the Securities Act in the above legend will be removed by delivery of substitute
certificate(s) without such reference if such Option Shares have been sold in
compliance with the registration and prospectus delivery requirements of the
Securities Act, such Option Shares have been sold in reliance on and in
accordance with Rule 144 under the Securities Act or Grantee has delivered to
Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel in
form and substance reasonably satisfactory to Issuer and its counsel, to the
effect that such legend is not required for purposes of the Securities Act and
(ii) the reference to restrictions pursuant to this Agreement in the above
legend will be removed by delivery of substitute certificate(s) without such
reference if the Option Shares evidenced by certificate(s) containing such
reference have been sold or transferred in compliance with the provisions of
this Agreement under circumstances that do not require the retention of such
reference.
4. Incorporation of Representations and Warranties of Issuer. The
representations and warranties of Issuer contained in Article III of the Merger
Agreement are hereby incorporated by reference herein with the same force and
effect as though made pursuant to this Agreement.
4
<PAGE> 5
5. Representations and Warranties of Issuer. Issuer hereby represents
and warrants to Grantee as follows:
(a) Corporate Authorization. Issuer has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Issuer, and no other
corporate proceedings on the part of Issuer are necessary to authorize
this Agreement and the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Issuer,
and assuming this Agreement constitutes a valid and binding agreement
of Grantee, this Agreement constitutes a valid and binding agreement of
Issuer, enforceable against Issuer in accordance with its terms (except
insofar as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally, or by principles governing the
availability of equitable remedies).
(b) Authorized Stock. Issuer has taken all necessary corporate
and other action to authorize and reserve and, subject to the
expiration or termination of any required waiting period under the HSR
Act, to permit it to issue, and, at all times from the date hereof
until the obligation to deliver Option Shares upon the exercise of the
Option terminates, shall have reserved for issuance, upon exercise of
the Option, shares of Issuer Common Stock necessary for Grantee to
exercise the Option, and Issuer will take all necessary corporate
action to authorize and reserve (and shall at all times maintain, free
from pre-emptive rights, sufficient authorized and reserved shares) for
issuance all additional shares of Issuer Common Stock or other
securities which may be issued pursuant to Section 7 upon exercise of
the Option. The shares of Issuer Common Stock to be issued upon due
exercise of the Option, including all additional shares of Issuer
Common Stock or other securities which may be issuable upon exercise of
the Option or any other securities which may be issued pursuant to
Section 7, upon issuance pursuant hereto, will be duly and validly
issued, fully paid and nonassessable, and will be delivered free and
clear of all liens, claims, charges and encumbrances of any kind or
nature whatsoever, including without limitation any preemptive rights
of any stockholder of Issuer.
6. Representations and Warranties of Grantee. Grantee hereby represents
and warrants to Issuer that:
5
<PAGE> 6
(a) Corporate Authorization. Grantee has the corporate power
and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
and validly authorized by the Board of Directors of Grantee, and no
other corporate proceedings on the part of Grantee are necessary to
authorize this Agreement and the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Grantee,
and assuming this Agreement constitutes a valid and binding agreement
of Issuer, this Agreement constitutes a valid and binding agreement of
Grantee, enforceable against Grantee in accordance with its terms
(except insofar as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, or by principles governing the
availability of equitable remedies).
(b) Purchase Not For Distribution. Any Option Shares or other
securities acquired by Grantee upon exercise of the Option will not be,
and the Option is not being, acquired by Grantee with a view to the
public distribution thereof. Neither the Option nor any of the Option
Shares will be offered, sold, pledged or otherwise transferred except
in compliance with, or pursuant to an exemption from, the registration
requirements of the Securities Act.
7. Adjustment upon Changes in Capitalization, Etc. (a) In the event of
any changes in Issuer Common Stock by reason of a stock dividend, reverse stock
split, merger, recapitalization, combination, exchange of shares, or similar
transaction, the type and number of shares or securities subject to the Option,
and the Purchase Price therefor, will be adjusted appropriately, and proper
provision will be made in the agreements governing such transaction, so that
Grantee will receive upon exercise of the Option the number and class of shares
or other securities or property that Grantee would have received with respect to
Issuer Common Stock if the Option had been exercised immediately prior to such
event or the record date therefor, as applicable.
(b) Without limiting the parties' relative rights and obligations under
the Merger Agreement, in the event that the Issuer enters into an agreement (i)
to consolidate with or merge into any person, other than Grantee or one of its
subsidiaries, and Issuer will not be the continuing or surviving corporation in
such consolidation or merger, (ii) to permit any person, other than Grantee or
one of its subsidiaries, to merge into Issuer and Issuer will be the continuing
or surviving corporation, but in connection with such merger, the shares of
Issuer Common Stock outstanding immediately prior to the consummation of such
merger will be changed into or exchanged for stock or other
6
<PAGE> 7
securities of Issuer or any other person or cash or any other property, or the
shares of Issuer Common Stock outstanding immediately prior to the consummation
of such merger will, after such merger represent less than 50% of the
outstanding voting securities of the merged company, or (iii) to sell or
otherwise transfer all or substantially all of its assets to any person, other
than Grantee or one of its subsidiaries, then, and in each such case, the
agreement governing such transaction will make proper provision so that the
Option will, upon the consummation of any such transaction and upon the terms
and condition set forth herein, be converted into, or exchanged for, an option
with identical terms appropriately adjusted to acquire the number and class of
shares or other securities or property that Grantee would have received in
respect of Issuer Common Stock if the Option had been exercised immediately
prior to such consolidation, merger, sale, or transfer, or the record date
therefor, as applicable and make any other necessary adjustments.
(c) If, at any time during the period commencing on the occurrence of a
Triggering Event and ending on the termination of the Option in accordance with
Section 2, Grantee sends to Issuer an Exercise Notice indicating Grantee's
election to exercise its right (the "Cash-Out-Right") pursuant to this Section
7(c), then Issuer shall pay to Grantee, on the Option Closing Date, in exchange
for the cancellation of the Option with respect to such number of Option Shares
as Grantee specifies in the Exercise Notice, an amount in cash equal to such
number of Option Shares multiplied by the difference between (i) the average
closing price for the 5 trading days commencing on the 12th Nasdaq trading day
immediately preceding the Notice Date, per share of Issuer Common Stock as
reported on the Nasdaq National Market (or, if not listed on the Nasdaq, as
reported on any other national securities exchange or national securities
quotation system on which the Issuer Common Stock is listed or quoted, as
reported in The Wall Street Journal (Northeast edition), or, if not reported
thereby, any other authoritative source) (the "Closing Price") and (ii) the
Purchase Price. Notwithstanding the termination of the Option, Grantee will be
entitled to exercise its rights under this Section 7(c) if it has exercised such
rights in accordance with the terms hereof prior to the termination of the
Option.
8. Registration Rights.
(a) At any time and from time to time within three years of the
date hereof, Grantee may by written notice (a "Registration Notice") to Issuer
request Issuer to register under the Securities Act all or part of any Issuer
Common Stock beneficially owned by Grantee (collectively, the "Registrable
Securities") in order to permit the sale or other disposition of such securities
pursuant to, at the option of Grantee (i) a shelf
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<PAGE> 8
registration or (ii) a bona fide, firm commitment underwritten public offering
in which Grantee shall have the right, including with respect to any takedown
off the shelf, to select the managing underwriter, which shall be reasonably
acceptable to the Issuer, and shall effect as wide a distribution of such
Registrable Securities as is reasonably practicable and shall use reasonable
efforts to prevent any person or group from purchasing through such offering
shares representing more than 3% of the shares of Issuer Common Stock then
outstanding on a fully-diluted basis; provided, however, that any such
Registration Notice must relate to a number of shares equal to at least 2% of
the shares of Issuer Common Stock then outstanding on a fully-diluted basis.
(b) Issuer shall use reasonable best efforts to effect, as
promptly as practicable, the registration under the Securities Act of the
Registrable Securities requested to be registered in the Registration Notice;
provided, however, that (i) Grantee shall not be entitled to more than an
aggregate of three effective registration statements hereunder and (ii) Issuer
will not be required to file any such registration statement during any period
of time (not to exceed 40 days after a Registration Notice in the case of clause
(A) below or 90 days after a Registration Notice in the case of clauses (B) and
(C) below) when (A) Issuer is in possession of material non-public information
which it reasonably believes would be detrimental to be disclosed at such time
and, based upon the advice of outside securities counsel to Issuer, such
information would have to be disclosed if a registration statement were filed at
that time; (B) Issuer would be required under the Securities Act to include
audited financial statements for any period in such registration statement and
such financial statements are not yet available for inclusion in such
registration statement; or (C) Issuer determines, in its reasonable judgment,
that such registration would interfere with any financing, acquisition or other
material transaction involving Issuer. If the consummation of the sale of any
Registrable Securities pursuant to a registration hereunder does not occur
within 90 days after the filing with the SEC of the initial registration
statement therefor, the provisions of this Section shall again be applicable to
any proposed registration, it being understood that Grantee shall not be
entitled to more than an aggregate of three effective registration statements
hereunder. Issuer will use reasonable best efforts to cause each such
registration statement to become effective, to obtain all consents or waivers of
other parties which are required therefor, and to keep such registration
statement effective for such period not in excess of 180 calendar days from the
day such registration statement first becomes effective as may be reasonably
necessary to effect such sale or other disposition. Issuer shall use reasonable
best efforts to cause any Registrable Securities registered pursuant to this
Section to be qualified for sale under the securities or blue sky laws of such
jurisdictions as Grantee may reasonably request and shall continue such
registration or qualification in effect in such jurisdictions; provided,
however, that Issuer
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<PAGE> 9
shall not be required to qualify to do business in, or consent to general
service of process in, any jurisdiction.
(c) If Issuer effects a registration under the Securities Act of
Issuer Common Stock for its own account or for any other stockholders of Issuer
(other than on Form S-4 or Form S-8, or any successor form), it will allow
Grantee the right to participate in such registration, and such participation
will not affect the obligation of Issuer to effect demand registration
statements for Grantee under this Section 8, except that, if the managing
underwriters of such offering advise Issuer in writing that in their opinion the
number of shares of Issuer Common Stock requested to be included in such
registration exceeds the number which can be sold in such offering, Issuer will
include that portion of the shares requested to be included therein equal to the
product obtained by multiplying (i) the number of shares which the underwriter
has informed the Issuer can be included in the offering and (ii) the percentage
obtained by dividing (x) the total number of shares of Issuer Common Stock held
by Grantee and (y) the total number of shares of Issuer outstanding.
(d) The registration rights set forth in this Section are subject
to the condition that Grantee shall provide Issuer with such information with
respect to Grantee Registrable Securities, the plan for distribution thereof,
and such other information with respect to Grantee as, in the reasonable
judgment of counsel for Issuer, is necessary to enable Issuer to include in a
registration statement all material facts required to be disclosed with respect
to a registration hereunder.
(e) A registration effected under this Section shall be effected
at Issuer's expense, except for underwriting discounts and commissions and the
fees and expenses of Grantee's counsel, and Issuer shall provide to the
underwriters such documentation (including certificates, opinions of counsel and
"comfort" letters from auditors) as are customary in connection with
underwritten public offerings and as such underwriters may reasonably require.
In connection with any registration, Grantee and Issuer agree to enter into an
underwriting agreement reasonably acceptable to each such party, in form and
substance customary for transactions of this type.
9. Listing. If Issuer Common Stock or any other securities to be
acquired upon exercise of the Option are then listed on the Nasdaq (or any other
national securities exchange or national securities quotation system), Issuer,
upon the request of Grantee, will promptly file an application to list the
shares of Issuer Common Stock or other securities to be acquired upon exercise
of the Option on the Nasdaq (and any such other
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<PAGE> 10
national securities exchange or national securities quotation system) and will
use reasonable efforts to obtain approval of such listing as promptly as
practicable.
10. Miscellaneous. (a) Expenses. Except as otherwise provided in the
Merger Agreement, each of the parties hereto will pay all costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
(b) Amendment. This Agreement may not be amended, except by an
instrument in writing signed on behalf of each of the parties.
(c) Extension; Waiver. Any agreement on the part of a party to waive
any provision of this Agreement, or to extend the time for performance, will be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise will not constitute a waiver of such rights.
(d) Entire Agreement; No Third-Party Beneficiaries. This Agreement and
the Merger Agreement (including the documents and instruments attached thereto
as exhibits or schedules or delivered in connection therewith) (i) constitute
the entire agreement, and supersede all prior agreements and understandings,
both written and oral, between the parties with respect to the subject matter of
this Agreement, and (ii) are not intended to confer upon any person other than
the parties any rights or remedies.
(e) Governing Law. This Agreement will be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflict of laws thereof.
(f) Notices. All notices, requests, claims, demands, and other
communications under this Agreement must be in writing and will be deemed given
if delivered personally, telecopied (which is confirmed), or sent by overnight
courier (providing proof of delivery) to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
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If to Issuer to:
MicroProse, Inc.
2490 Mariner Loop
Suite 100
Alameda, California 94501
Attention: Stephen M. Race, Chief Executive Officer
Telecopy: (510) 864-4607
with a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: David Drummond
Telecopy: (650) 493-6811
If to Grantee to:
Hasbro, Inc.
1027 Newport Avenue
Pawtucket, Rhode Island 02861
Attention: Harold P. Gordon, Vice Chairman
Telecopy: (401) 727-5121
with a copy to:
Hasbro, Inc.
32 West 23rd Street
New York, New York 10010
Attention: Phillip H. Waldoks, Senior Vice President -
Corporate Legal Affairs and Secretary
Telecopy: (212) 741-0663
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with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Howard L. Ellin, Esq.
Telecopy: (212) 735-2000
(g) Assignment. Neither this Agreement, the Option nor any of the
rights, interests, or obligations under this Agreement may be assigned,
transferred or delegated, in whole or in part, by operation of law or otherwise,
by Issuer or Grantee without the prior written consent of the other. Any
assignment, transfer or delegation in violation of the preceding sentence will
be void. Subject to the first and second sentences of this Section 11(g), this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
(h) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee will execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(i) Enforcement. The parties agree that irreparable damage would occur
and that the parties would not have any adequate remedy at law in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties will be entitled to an injunction or injunctions to prevent breaches
of this Agreement and to enforce specifically the terms and provisions of this
Agreement in any Federal court located in the State of Delaware or in Delaware
state court, the foregoing being in addition to any other remedy to which they
are entitled at law or in equity. In addition, each of the parties hereto (i)
consents to submit itself to the personal jurisdiction of any Federal court
located in the State of Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement, (ii) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
and (iii) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any court other than a
Federal court sitting in the State of Delaware or a Delaware state court.
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IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first written above.
MICROPROSE, INC.
By: /s/ Stephen M. Race
-----------------------------------
Name: Stephen M. Race
Title: Chief Executive Officer
HASBRO, INC.
By: /s/ Harold P. Gordon
-----------------------------------
Name: Harold P. Gordon
Title: Vice Chairman
<PAGE> 1
SOFTWARE DISTRIBUTION AND LOAN AGREEMENT
SOFTWARE DISTRIBUTION AND LOAN AGREEMENT, dated as of August 11, 1998, by
and between HASBRO INTERACTIVE, INC., a Delaware corporation ("Distributor"),
and MICROPROSE, INC., a Delaware corporation ("Publisher").
WHEREAS, Publisher designs, develops, manufactures and markets computer
software products in various formats and for various platforms;
WHEREAS, Distributor has various distribution and marketing channels which
Publisher desires to be used in the sale and distribution of its computer
software products;
WHEREAS, the parties hereto desire that Distributor be the exclusive
distributor of Publisher's computer software products in the United States and
Canada, and that Publisher provide manufacturing and marketing services and
promotion for such computer software products, subject to the terms and
conditions set forth in this Agreement; and
WHEREAS, as a financial accommodation to Publisher, Distributor has agreed
to make available certain loans to Publisher, subject to the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, terms, covenants and conditions set forth herein, the parties
hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
For purposes of this Agreement:
"Bankruptcy Code" shall mean Title 11 of the United States Code entitled
"Bankruptcy", as amended from time to time, and any successor statute or
statutes.
"Bundling" means combining the Products with any hardware equipment,
including, without limitation, any computer system or any multimedia upgrade
kit.
<PAGE> 2
"Business Day" shall mean any day excluding Saturday, Sunday and any day
which shall be in New York a legal holiday or a day on which banking
institutions in New York are authorized or required by law or other government
actions to close.
"Change of Control" means (i) any sale, transfer or other conveyance,
whether direct or indirect, of a more than 35% of the fair market value of the
assets of Publisher, on a consolidated basis, in one transaction or a series of
related transactions, (ii) any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) is or becomes the "beneficial owner" (as such term is used in Rule
13d-3 promulgated pursuant to the Exchange Act), directly or indirectly, of more
than 35% of the equity of Publisher then outstanding normally entitled to vote
in elections of directors, or (iii) Publisher enters into, or Publisher's Board
of Directors approves, any agreement, arrangement or letter of intent with
respect to the foregoing, other than as provided by written notice from
Publisher to Distributor prior to the execution hereof on the date hereof.
"Collateral Account" shall have the meaning set forth in Article I of the
Security Agreement.
"Dealer-Reseller" shall mean any dealer, reseller or other third party
intermediary which purchases Software Copies from Distributor for resale solely
to End-Users and retailers hereunder, and not for further resale.
"Default" shall mean any event, act or condition which would become an
Event of Default with the giving of notice, the lapse of time, or both.
"Documentation" shall mean any instruction manuals or documentation
provided by Publisher with the Products.
"End-User" shall mean an end-user customer located within the Licensed
Territory who is licensed to use a Software Copy for its internal purposes, and
not for resale, redistribution, or any other purpose.
"End-User License Agreement" shall mean an End-User license agreement
pursuant to which the Distributor licenses End-Users to use a Software Copy,
which shall be in a form approved by Publisher that is at least as protective of
the Software Copy under applicable local law as Publisher's then-current
standard End-User license agreement.
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<PAGE> 3
"Event of Default" shall have the meaning set forth in Section 6.7 hereof.
"Indebtedness" of any Person shall mean, without duplication, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than trade payables incurred in the
ordinary course of business of such Person), (ii) all indebtedness of such
Person evidenced by a note, bond, debenture or similar instrument, (iii) the
face amount of all letters of credit issued for the account of such Person and,
without duplication, all unreimbursed amounts drawn thereunder and (iv) all
indebtedness of any other Person secured by any Lien on any property owned by
such Person, whether or not such indebtedness has been assumed.
"Intellectual Property Security Agreement" shall have the meaning set
forth in Section 6.5(a)(ii) of this Agreement.
"Lien" shall mean, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
"Loan Documents" shall mean this Agreement, the Note, the Security
Agreement, the Intellectual Property Security Agreement, and any other
agreement, instrument or document executed and delivered by Publisher or any of
its subsidiaries in connection herewith, including, without limitation, those
executed and delivered after the Effective Date under Article VI.
"Notice of Borrowing" shall have the meaning set forth in Section 6.5(f).
"OEM" means original equipment manufacturer.
"Obligations" shall mean all obligations, liabilities and indebtedness of
every nature of Publisher from time to time owing to Distributor under or in
connection with this Agreement.
"Permitted Lien" shall have the meaning set forth in Section 6.6(c) of
this Agreement.
"Person" shall mean and include any individual, partnership, joint
venture, firm, corporation, limited liability company or partnership,
association, trust or other enterprise or any government or political
subdivision or agency, department or instrumentality thereof.
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<PAGE> 4
"Products" shall have the meaning set forth in Section 2.2 hereof.
"Publisher Trademarks" means trademarks, trade names, service marks,
service names, logos and other similar proprietary rights owned, controlled or
licensed by Publisher from time to time with respect to the Products.
"Sale" or "selling" of the Products or Software Copies shall mean the sale
of a license to use such Products or Software Copies. All references in this
Agreement to the purchase, sale or distribution of Software or Software Copies
shall mean the purchase, sale or distribution of a license to use such Software
or Software Copy.
"Software Copy" or "Software Copies" shall mean an object code
(machine-readable) copy or copies of the Products, together with a copy or
copies of any accompanying Documentation redistributing thereto that is
designated by Publisher for distribution to End-Users. All such copies shall be
fixed on CD-ROM, diskette or other tangible media.
"Territory" means the United States, Canada and any and all United States
possessions, territories and military bases.
ARTICLE II
APPOINTMENT OF DISTRIBUTOR
Section 2.1. Appointment and Authority of Distributor.
(a) Appointment of Distributor. Subject to the terms and
conditions set forth herein, Publisher hereby appoints Distributor to advertise,
promote, resell and distribute ("Distribute") Software Copies of the Products in
the Territory, and Distributor hereby accepts such appointment. Such appointment
shall be on an exclusive basis during the Term. Distributor's sole remuneration
for the Distribution of the Products shall be the fee set forth in Section 5.1
hereof. As a Distributor, Distributor shall have the right to obtain Software
Copies from Publisher and to market and resell such Software Copies to End-Users
both directly and indirectly.
(b) Territorial and Other Resale Restrictions. All Dealer-
Resellers shall have a ship-to address within the Territory and the End-User
License Agreement shall limit use of the Products to within the Licensed
Territory. The Distributor's marketing rights are expressly limited to the
marketing of the Products
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<PAGE> 5
under approved Publisher Trademarks pursuant to Article 7 below. The foregoing
license is further limited to distribution of Software Copies in tangible
packaged goods media, in the format provided by Publisher, which may include
CD-ROM or diskette, and no right or license is granted to distribute copies via
the Internet or any wide area network (WAN) or otherwise in electronic media. In
addition, the Distributor may not distribute the Products on an OEM, Bundled or
value-added basis, or through original equipment manufacturers, and may not
bundle the Products with the software of a third party, without the prior
written consent of Publisher. The Distributor shall use all commercially
reasonable efforts to realize the maximum sales potential for the Software
Copies in the Territory. The Distributor shall not advertise, market,
distribute, sell, or ship the Software Copies outside the Territory, or sell to
any party reasonably expected to engage in any of the foregoing acts outside the
Territory. The Distributor shall not sell or distribute, or permit the sale or
distribution by any party, of the Products in any scheme being a lottery, as
premiums, give-aways, discounts, as Bundled merchandise, or in conjunction with
any co-branded or other marketing arrangement not approved by Publisher, or for
any other purposes not expressly contemplated and permitted by this Agreement.
(c) Additional Restrictions on the Products. The Software
Copies may not be reproduced, duplicated, copied, modified, translated or
otherwise altered by the Distributor. The Distributor agrees that it will not
itself, or through any Subsidiary, affiliate or other third party: (i) lease,
timeshare, or encumber the Products; (ii) attempt to decompile, disassemble or
reverse engineer the Products in whole or in part, or otherwise attempt to
derive the source code of the Publisher Product, or take any other action in
derogation of Publisher's or its suppliers' intellectual property rights; or
(iii) market, distribute, sell, develop or cause to be developed any derivative
software or any other software program based upon Publisher trade secrets or
Confidential Information of Publisher.
(d) Reservation of Rights. All rights not expressly granted
hereunder are reserved by Publisher. This Agreement does not authorize or imply
any rights other than as expressly set forth herein. Without limiting the
foregoing, Publisher reserves the right under all of its intellectual property
rights to make, have made, develop, market, license, sell and distribute within
the Territory any software products other than the Products licensed for resale
hereunder, to distribute the Products in the Territory on a Bundled or original
equipment manufacturer basis, and to distribute the Products in the Territory
via the Internet or any wide area network (WAN) or otherwise in electronic
media.
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<PAGE> 6
(e) Ownership. Publisher retains ownership of the Products and
all right, title and interest therein, provided, however, that nothing contained
herein shall be construed to limit, restrict or abrogate any grant of a security
interest under the Security Agreement or the Intellectual Property Security
Agreement of the Publisher. The Distributor acknowledges and agrees that it is
acquiring a limited right to resell certain Software Copies of the Products and
a license to use the Publisher Trademarks as specified hereunder. All patents,
copyrights, trade secrets and other intellectual property rights in and to the
Products shall remain the exclusive property of Publisher or its suppliers.
Distributor agrees that, as between Distributor and Publisher, Publisher owns
all right, title, and interest in the Products and in all of Publisher's
patents, trademarks, trade names, inventions, copyrights, know-how, and trade
secrets relating to the design, manufacture, operation or service of the
Products. The use by Distributor of any of these property rights is authorized
only for the purposes herein set forth or in the Other Loan Documents, and,
except as otherwise provided herein or in the Other Loan Documents, upon
termination of this Agreement for any reason such authorization shall cease. The
Software Copies are offered for sale and are sold by Publisher subject in every
case to the condition that such sale does not convey any license, expressly or
by implication, to manufacture, duplicate or otherwise copy or reproduce any of
the Software Copies, except as expressly set forth herein.
(f) Notification of Unauthorized Use. The Distributor shall
promptly notify Publisher in writing upon its discovery of any unauthorized use
or infringement of the Products or Publisher's patent, copyright, trademark or
other intellectual property rights with respect thereto. Publisher shall have
the sole and exclusive right in its sole discretion to bring an infringement
action or proceeding for its own account against a third party, and, in the
event that Publisher brings such an action or proceeding, the Distributor shall
cooperate and provide reasonable information and assistance to Publisher and its
counsel in connection with any such action or proceeding.
Section 2.2. Products. For purposes of this Agreement, "Products" includes
all computer software and hardware and related products manufactured or marketed
by Publisher prior to and during the term of this Agreement. The term "Products"
does not include, however, those computer software and hardware and related
products for which Publisher does not have the right, pursuant to agreements
that are in force on the date hereof and listed on Exhibit A hereto ("Excluded
Products"), to grant to Distributor the rights described herein, except that,
with respect to such Excluded Products, Distributor shall have the rights
described herein
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<PAGE> 7
to the extent permissible under such existing agreements. In addition, Publisher
shall use commercially reasonable efforts to (i) obtain for Distributor the full
rights hereunder to the Excluded Products and (ii) make available to Distributor
any comparable distribution rights which become available during the term of
this Agreement in the Territory, as such rights become available. Upon such
termination, such computer software and hardware and related products shall be
deemed "Products" for purposes of this Agreement.
Section 2.3. Consents. Publisher has secured or will use all commercially
reasonable efforts to secure for the Products and the Publisher Trademarks all
necessary licenses and consents required pursuant to all applicable copyright
and other intellectual property laws and waivers of any and all moral rights
free of royalty and fees to the relevant parties for Distributor to exercise its
rights under this Agreement with respect to the Publisher Trademarks and the
Products. Any and all expenses incurred by Publisher to obtain such licenses and
consents from third parties shall be borne by Publisher.
Section 2.4. Right of First Offer. If Publisher desires to grant a third
party license to develop, manufacture or market conversions of any Products in
formats or on platforms other than as manufactured or marketed by Publisher,
Publisher and Distributor shall enter into good faith negotiations to reach an
agreement with respect to such other formats or platforms. In the event that
Publisher and Distributor are unable to reach an agreement within 60 days after
commencing such negotiations, and at such time or thereafter Publisher is
considering entering into an agreement or arrangement with a third party,
Publisher shall first give written notice of its intention to enter into such
agreement or arrangement to Distributor, specifying the material terms thereof,
and Distributor shall have 20 days from the receipt of such notice to enter into
such agreement or arrangement with Publisher on the same terms as specified in
such notice. If Distributor does not exercise such right by the end of such 20
day term, Publisher may enter into such agreement or arrangement with such third
party on terms identical to those specified in its notice to Distributor.
Notwithstanding the foregoing, nothing herein shall be deemed to restrict
Publisher's right to manufacture or market any Products in formats or on
platforms other than those existing on the date hereof if such manufacturing or
marketing activities are carried out by Publisher, and not by a third party.
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ARTICLE III
TERM
Section 3.1. Initial Term. This Agreement is effective as of the date
hereof (the "Effective Date") and, subject to extension or earlier termination
as provided for herein, shall terminate on March 31, 2001 (the "Initial Term").
Distributor's right to Distribute the Products is effective as soon as is
reasonably practicable after the date hereof, in Distributor's sole discretion.
Section 3.2. Renewal. Distributor and Publisher, in their sole discretion,
may mutually agree to renew this Agreement at the end of the Initial Term or any
subsequent renewal thereof for a period of one (1) year from such date (a
"Renewal Term"). Prior to the end of the Initial Term or any Renewal Term the
parties shall conduct good faith discussions regarding the renewal of such term,
provided, however, that neither party shall be obligated to renew such term.
Unless otherwise provided, the Initial Term and all Renewal Terms shall be
referred to as the "Term."
ARTICLE IV
DISTRIBUTION, MARKETING AND SUPPORT OF THE PRODUCTS
Section 4.1. Creation and Delivery of Products. Publisher shall be
responsible for, and shall bear the costs associated with, creating the
Products, including, without limitation, research and development and preparing,
producing, manufacturing, developing and packaging the Products and the
associated documentation and inserts. Publisher shall manufacture the Products
to be final Products, containing, at a minimum, final software and instruction
manuals consistent with Publisher's existing practices. Publisher shall use
commercially reasonable efforts to meet the reasonable delivery dates and
reasonable quantities set forth on Distributor's orders. At the request of
either party, the parties shall consult in good faith with respect to inventory
held by Publisher and/or Distributor and forecasts of future orders. Products
ordered by Distributor hereunder shall be shipped to such location as designated
by Distributor, freight prepaid by Publisher, on a consignment basis, for sale
and shipment by Distributor to its customers. Distributor may request from time
to time for Publisher to ship products directly to Distributor's customers, and
such shipments shall be treated under this Agreement as a sale and shipment by
Distributor, as if such Products had been shipped to Distributor by Publisher
and then sold and shipped by Distributor to Distributor's customers. Any
shipments by
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<PAGE> 9
Distributor to its customers, or by Publisher to Distributor's customers at
Distributor's request, shall be at Distributor's sole expense.
Section 4.2. Quality and Support. Publisher agrees that the Products shall
conform to the standards of quality consistent with Publisher's prior products
in the same price classification. Publisher shall maintain reasonable and
adequate quality assurance for the Products as is customary in the industry.
Publisher shall be also responsible for, and provide, consumer technical support
for the Products consistent with its current practice, and in no event less than
a level of support that is customary in the industry.
Section 4.3. Risk of Loss. Distributor shall bear the risk of loss for all
Products after such Products are received by Distributor in accordance with
orders placed by Distributor pursuant to Section 4.1 above. Risk of loss shall
pass to Publisher upon receipt by Publisher of any Products returned by
Distributor pursuant to Section 4.6.
Section 4.4. Sales Literature. Publisher agrees to provide at Publisher's
cost to Distributor such quantities of specification sheets, catalogs and other
printed sales materials relating to the Products that Publisher prepares for the
marketing and promotion of the Products as may be reasonably requested by
Distributor in sufficient time before the release of the Products and continuing
for the life of the Products.
Section 4.5. Marketing Support. Publisher agrees to use commercially
reasonable efforts to provide at its expense advertising and public relations
support in order to facilitate the marketing of the Products by Distributor in
the Territory. Prior to and throughout the Term of this Agreement, Publisher
agrees to consult with Distributor on the nature and extent of its market
support activities. Publisher agrees to provide Distributor with a reasonable
number of free trade and press samples of the Products as requested from time to
time by Distributor. A representative of Publisher reasonably satisfactory to
Distributor shall, at Publisher's or Distributor's reasonable request, accompany
Distributor on sales calls and at meetings with Distributor's customers, at
Publisher's expense. Distributor shall manage co-op marketing and advertising
with respect to Products Distributed by Distributor and Publisher shall bear the
expense thereof up to an amount equal to 5.5% of Distributor's gross sales in
each fiscal year of Distributor or a greater amount that is mutually agreed upon
by the parties. Credits or refunds for co-op marketing granted by Distributor
may be deducted by Distributor from payments due Publisher hereunder.
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Section 4.6. Consignment and Return. All Products ordered by Distributor
and delivered by Publisher shall be held for the benefit of Publisher until
shipped to Distributor's customers and at no time shall title of Products
ordered by or delivered to Distributor pass to Distributor. Products shall be
shipped by Distributor to its customers F.O.B. point of shipment. Costs of
freight shall be the responsibility of such customer or Distributor, as agreed
upon by Distributor and its customers in accordance with current trade
practices. Distributor's return policy shall provide that customers may return
Products as defective or for stock balancing with approval of Distributor and an
authorized return merchandise authorization number ("RMA"). Distributor shall
have the right to return to Publisher any and all Products (i) not manufactured
to the quality standards of products customarily distributed by Distributor;
(ii) not delivered in accordance with the order placed by Distributor or the
terms and conditions of this Agreement; (iii) that are defective in operation or
packaging; (iv) returned by Distributor's customers or end-users; or (v) which
Distributor does not Distribute. Distributor shall request from Publisher a RMA
for returns by a Distributor customer in excess of one thousand (1,000) units,
and Publisher shall issue such RMA number to Distributor unless such customer
does not return such units. Distributor and Publisher shall consult with respect
to the actions to be taken with respect to requests by Distributor customers to
return units of the Products in excess of one thousand (1,000) units.
Distributor shall be responsible for costs of freight and insurance for all
Products returned to Publisher, except for returns pursuant to items (i), (ii)
or (iii) of this Section or in the event that Distributor terminates this
Agreement pursuant to Sections 11.2(a) or 11.2(b). Following the termination of
this Agreement, Publisher shall be responsible for all requests for returns of
Products from Distributor's customers, including credits or refunds with respect
thereto, and Distributor shall have no responsibility or liability of any kind
with respect thereto, except as set forth in this paragraph below. For each unit
of a Product returned to Publisher following the termination of this Agreement,
by a customer who acquired such Product from Distributor, in excess of the
aggregate units of such Product Distributed to such customer following such
termination, Distributor shall pay to Publisher the lesser of fifteen percent
(15%) of the amount Publisher actually refunds or credits such customer for such
returned unit or the amount received by Distributor pursuant to Section 5.1 for
the Distribution of such returned unit. Distributor shall pay such amount to
Publisher within sixty (60) days of receipt of an invoice detailing the customer
returning the Products, the number of units of the Products returned, the number
of units of the Products Distributed to such customer following termination of
this Agreement and the amount of the refund or credit with respect to such
returns actually granted by Publisher. Notwithstanding
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the foregoing, except for returns pursuant to items (i), (ii), and (iii) of this
Section, Distributor may not return more than 18% of all Products Distributed
during any year or 25% of a single identified Product.
Section 4.7. General. Subject to Section 4.8 below and the other terms of
this Agreement, all aspects of Distributor's exercise of any and/or all of the
rights herein granted by Publisher with respect to the Distribution of the
Products during the Term shall be undertaken in Distributor's sole discretion,
including without limitation, returns policies, terms and conditions of sale,
compilation of customer names and use of warranty and end-user registration
information. Distributor agrees that it shall disclose to Publisher and
Publisher agrees that it shall disclose to Distributor, following the other
party's written request, any warranty or end-user registration information with
respect to the Products previously Distributed by Distributor. Publisher shall
be solely liable and responsible for any uses it makes of such information.
Section 4.8. Pricing. Publisher shall, after consultation with
Distributor, develop a price list with respect to the Products, which may
include different prices for Products Distributed in Canada. Such price list
shall set forth the price Distributor shall charge its customers for the
Products, prior to any customary trade discounts, rebates, promotional
allowances or fees, and commission splits Distributor may offer customers for
the Products. Such price list may also set forth the guidelines for co-op
advertising, price protection, allowances for defective Products, shipping
charges and promotional incentives as such policies are set forth in this
Agreement. Distributor may Distribute Products without consulting Publisher as
long as prices are consistent with the price list. Distributor shall consult
with Publisher regarding any price protections or price reductions.
Section 4.9. Warranty Obligation. Publisher shall be fully responsible for
providing a warranty to End-Users, to the extent determined by Publisher, for
the Products. Distributor shall pass on to End-Users Publisher's standard
limited warranty and other terms contained in the End-User License Agreement
included with each Software Copy but Distributor shall have no warranty
obligation to End-Users.
Section 4.10. Consumer Adviser Rating Compliance. Publisher agrees that,
if so required by Distributor and/or any governmental entity, it shall submit
each Product or materials associated with such Product to such third party as is
designated by Distributor and/or the governmental entity for the purpose of
obtaining consumer
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advisory rating code(s) for each Product. Any and all costs and expenses
incurred in connection with the procurement of such consumer advisory rating
code(s) shall be borne solely by Publisher.
ARTICLE V
TERMS OF PAYMENT WITH RESPECT TO DISTRIBUTION
Section 5.1. Service Fees. Distributor shall be entitled to receive
payment of, and to deduct and retain a monthly service fee (the "Service Fee")
equal to, 17.5% of Net Receipts for each fiscal month of Distributor or, in the
case of the first month, the number of days in which this Agreement is in
effect, in consideration of Distributor's Distribution of the Products. Payment
of the Service Fee shall have priority over all payments to Publisher and other
deductions by Distributor under this Agreement. For the purposes of this
Agreement, "Net Receipts" shall mean, for any period, monies received by
Distributor from customers in respect of sales of the Products less customary
trade discounts, price protection and monies credited to customers' accounts for
sales returns, in each case during such period.
Section 5.2. Uncollectible Accounts. Distributor shall manage the
invoicing and collection of amounts due Distributor for its Distribution of
Products. Distributor shall take such steps as it deems reasonable and
appropriate to collect any such amount which is overdue. Distributor shall
determine in its sole discretion exercised in good faith (but in any event no
later than six (6) months after such amount was due) when an amount may be
deemed uncollectible. In the event that all or any portion of an amount deemed
uncollectible is later collected, Distributor shall remit such amount in
conjunction with the statements and payments to be made pursuant to Paragraph
5.3(a) below.
Section 5.3. Statements and Payment Terms.
(a) Within ten (10) days following the end of each fiscal
month of Distributor (each, a "Payment Date") during the Term, Distributor shall
provide Publisher with a written statement specifying for each Product: (i) the
total number of Products Distributed during such month; (ii) the Net Receipts
collected during such month for the Distribution of the Products; (iii) the
deductions pursuant to Sections 4.5, 5.1, 6.3 and 6.4 for such month; (iv) any
required tax deductions; (v) any other deductions for money owed Distributor
hereunder, including, without limitation, pursuant to Article VI hereof; and
(vi) the balance of the Net Receipts due Publisher in respect of such month.
With such statement and subject to the
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provisions of this Agreement, including the foregoing deductions, Distributor
shall pay Publisher the consideration due Publisher in respect of that month.
Until the Loans (as defined in Section 6.1 hereof) shall be paid in full, the
set-offs permitted by Sections 6.3(b) and 6.4(b) shall remain in effect.
Distributor's payment terms with its customers shall not exceed 60 days from the
date of shipment by Distributor without the prior written consent of Publisher.
Section 5.4. Books and Records. Distributor shall maintain, at its
offices, books of account and records concerning the calculation of Net
Receipts. An independent certified public accountant or representative of
Publisher (who shall have signed a confidentiality agreement with Distributor in
customary form) appointed by Publisher may examine Distributor's books and
records solely for the purpose of verifying the accuracy thereof and of the
invoice payment statements and royalties provided hereunder, only during
Distributor's normal business hours and upon not less than fourteen (14) days
prior written notice and not more than once in any calender year; provided
however, that Distributor's books and records shall be deemed conclusive and no
examination shall be permitted with respect to such books and records that
Publisher has not examined pursuant to this Section 5.4 within two years after
the date of such books and records. Any such audit shall be at Publisher's sole
expense unless such inspection uncovers a shortfall of at least 10% of the
amounts due to Publisher for such period, in which case Distributor shall
reimburse Publisher for the reasonable cost of such audit. The rights
hereinabove granted to Publisher party constitute Publisher's sole and exclusive
rights to examine the Distributor's books and records.
Section 5.5. Minimum Biannual Payment Obligations. (a) Distributor and
Publisher shall jointly determine and agree upon the expected minimum amounts
payable pursuant to the terms of this Agreement (after giving effect to
deductions for the Service Fee, satisfaction of principal on and interest on the
Loans and other appropriate set-offs or deductions) during each six-month period
commencing April 1, 1999 (the "Minimum Obligations") as determined in meetings
to be held between Publisher and Distributor prior to the beginning of each
Six-Month Period at which Publisher and Distributor shall use reasonable good
faith efforts to determine such Minimum Obligations. As used herein, "Six-Month
Period" means the six (6) month period following April 1, 1999, and each
subsequent six-month period thereafter and continuing until the expiration of
the Term. In the event that Distributor fails to pay the Publisher the Minimum
Obligation for any Six-Month Period, Publisher, by providing written notice
(setting forth payments received and any claimed shortfall) to Distributor
within thirty (30) days of the last Payment Date of such Six-Month
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Period, may terminate this Agreement upon the expiration of next Six-Month
Period, which termination shall be Publisher's sole and exclusive remedy for
Distributor's failure to meet the Minimum Obligation. If Publisher provides
Distributor with such notice, Distributor shall have thirty (30) days in which
to cure such breach by payment of the amount by which Distributor's payments to
Publisher for such Six-Month Period fell below 75% of the Minimum Obligation for
such period.
(b) In the event that Publisher and Distributor are unable to
agree on the Minimum Obligations by the commencement of any Six-Month Period
pursuant to the first sentence of Section 5.5(a), after using reasonable good
faith efforts to do so, such disagreement shall be finally settled by
arbitration conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association (the "AAA") in effect as of the date of the
arbitration, except as they may be modified herein or by mutual agreement of
Parent and Publisher. The parties shall use reasonable best efforts to complete
the arbitration within 90 days after such disagreement is submitted to
arbitration. The arbitration shall be conducted by three arbitrators, each
having substantial experience in, or knowledge of, the interactive computer
software industry, selected within thirty days following the submission of a
dispute to arbitration as follows: (i) one arbitrator shall be selected by
Distributor; (ii) one arbitrator shall be selected by Publisher; and (iii) one
arbitrator shall be selected from a list of five names submitted by the AAA as
follows: starting with Distributor, Distributor and Publisher shall alternately
have four days beginning with the transmittal date of the list in which to
strike one name from the list until only one name, that of the third arbitrator,
remains. If either Distributor or Publisher does not strike a name from the list
within the four day period, the other shall have the right to select the third
arbitrator from the names remaining on the list. Any arbitration conducted
pursuant to this Section 5.5(b) shall be decided by the vote of at least two of
the three arbitrators, and the final decision shall be in the form of a
reasoned, written statement of the amount of the Minimum Obligation for the
Six-Month Period for which the parties are unable to agree. Each of Distributor
and Publisher stipulates that the provisions hereof, and the decision of the
arbitrators with respect to disagreement with respect to the amount of the
Minimum Obligation, shall be final and binding upon the parties and shall be the
sole and exclusive remedy for such disagreement. Each Distributor and Publisher
hereby acknowledges that since arbitration is the exclusive remedy, neither
Distributor nor Publisher has the right to resort to any federal, state or local
court or administrative agency concerning any dispute, controversy or claim
with respect to the parties inability to agree on the amount of the Minimum
Obligation and that the decision of the arbitrators shall be a complete defense
to any suit, action or proceed-
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ing instituted in any federal, state or local court or before any administrative
agency with respect to the parties inability to agree on the amount of the
Minimum Obligation; provided that the decision of the arbitrators is subject to
vacation by a court of competent jurisdiction pursuant to the terms of the
Federal Arbitration Act. It is the intention of the parties that the arbitration
decision will be final and binding. The arbitration shall be held in the City,
County and State of New York.
ARTICLE VI
LOANS BY DISTRIBUTOR
Section 6.1. Loans. (a) Subject to and upon the terms and conditions
hereof, Distributor agrees at any time and from time to time after the date
hereof and prior to October 15, 1998 (the "Borrowing Expiration Date") to make
loans (collectively, the "Loans") to Publisher, in an amount not to exceed
$5,500,000 in the aggregate (the "Maximum Loan Commitment") and, in any event,
not to exceed, in the aggregate, the lesser of $1,500,000 or the Maximum Loan
Commitment as reduced pursuant to clause (b) of this Section 6.1, as of August
21, 1998; the lesser of $3,500,000 or the Maximum Loan Commitment as reduced
pursuant to clause (b) of this Section 6.1, as of September 4, 1998; the lesser
of 5,000,000 or the Maximum Loan Commitment as reduced pursuant to clause (b) of
this Section 6.1, as of September 18, 1998; and the lesser of $5,500,000 or the
Maximum Loan Commitment as reduced pursuant to clause (b) of this Section 6.1,
as of October 14, 1998; and at all times thereafter. Publisher agrees,
covenants, represents and warrants that such Loans shall be used only for
operating working capital needs of the Publisher consistent with past practice.
(b) Once prepaid or repaid, the Loans may not be reborrowed.
Each prepayment of the Loans shall, to the extent of the principal amount so
prepaid, permanently reduce the Maximum Loan Commitment by such amount. The
Loans shall, to the extent not prepaid in full, mature and be due and payable on
the six-month anniversary of the Effective Date (the "Maturity Date"), without
further action on the part of Distributor.
Section 6.2. Notes; Recordation. (a) Publisher's obligation to pay the
principal of and interest on the Loans shall be evidenced by a promissory note
duly executed and delivered by Publisher, substantially in the form of Exhibit B
hereto (the "Note"). Publisher shall be obligated from time to time to pay, on
the terms set forth herein and in the Note, the lesser of the face amount of the
Note and the actual aggregate principal amount outstanding.
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(b) Distributor is hereby authorized to record the date and
amount of each Loan and each principal and interest payment in respect thereof
in its books and records or on the Note. Such books and records or Note shall
constitute prima facie evidence of the accuracy of the information contained
therein.
Section 6.3. Interest. (a) Publisher agrees to pay interest in respect of
the unpaid principal amount of the Loans from the Drawdown Date (as defined in
the relevant Notice of Borrowing) until the Loans shall be paid in full at a per
annum rate of 12%, or such lesser amount as will not violate applicable law.
Such interest shall be computed on the basis of a 365-day year, and paid for the
number of days elapsed.
(b) Interest on the Loans shall accrue from and including the
relevant Drawdown Date to but excluding the date of any repayment thereof and
shall be payable in arrears on each Payment Date, the date of any principal
repayment or prepayment (whether mandatory or voluntary), at maturity (whether
by acceleration or on the Maturity Date) and, after such maturity, on demand.
Each payment of interest required to be made in connection with a mandatory
prepayment on each Payment Date shall be deducted, pursuant to Section 5.3(a)(v)
hereof, from the amount otherwise payable to the Publisher pursuant to Section
5.3 and may, in the Distributor's sole discretion, be set off against amounts
otherwise payable to Publisher under Section 5.3(a). Each such deduction and
application shall be made second in order of priority, following deduction of
the Service Fee then payable, provided, however, that nothing contained herein
shall limit, extinguish or reduce the Publisher's unconditional, general
obligation to repay all amounts owing from time to time hereunder or under the
other Loan Documents, and provided further, that in the event that Net Receipts
for the months of August and September, 1998 are insufficient to pay all
interest then accrued and owing on the Loans, any such shortfall shall not be
payable until the first Payment Date occurring after October 15, 1998.
(c) In the event that, and for so long as, an Event of Default
under Section 6.7 shall have occurred and be continuing, the outstanding
principal amount of the Loans and, to the extent permitted by law, overdue
interest in respect of the Loans, shall bear interest at a rate per annum equal
to 2% per annum in excess of the highest legal amount applicable under clause
(a) above, such interest to be computed on the basis of a 365-day year, and paid
for the number of days elapsed.
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Section 6.4. Prepayments, Payments. (a) Publisher shall have the right
voluntarily to prepay the Loans in whole or in part from time to time without
premium or penalty, but together with all interest owing on the amount being
prepaid, in principal amounts not less than $250,000, provided that Publisher
shall give Distributor written notice (or telephonic notice promptly confirmed
in writing), of its intent to prepay all or part of the Loans, at least one
Business Day prior to such prepayment, which notice shall specify the amount of
such prepayment.
(b) On each Payment Date, Publisher shall be required to make
a principal prepayment on the Loans in an amount equal to 32.5% of Net Receipts
for the previous fiscal month of Distributor. Each mandatory prepayment of
principal required to be made on each Payment Date shall be deducted, pursuant
to Section 5.3(a)(v) hereof, from the amount otherwise payable to the Publisher
pursuant to Section 5.3, and may, in the Distributor's sole discretion, be set
off against amounts otherwise payable to Publisher under Section 5.3(a). Each
such deduction and application shall be made third in order of priority,
following deduction of the Service Fee and accrued interest then payable;
provided, however, that nothing contained herein shall limit, extinguish or
reduce the Publisher's unconditional, general obligation to repay all amounts
owing from time to time hereunder or under the other Loan Documents.
(c) All payments to be made to Distributor by Publisher under
this Agreement (including, without limitation, under this Article VI), shall be
made by Publisher without set-off, counterclaim or any other deduction by
Publisher. Notwithstanding any other provision of this Agreement, all amounts
payable by customers or any other Person in connection with Distribution of the
Products shall be payable directly to Distributor for deposit to the Collateral
Account (as defined in the Security Agreement of Publisher), for distribution in
accordance with the terms hereof and thereof, and to the extent of any
inconsistency between any Security Agreement and this Agreement, the terms of
the relevant Security Agreement shall govern and control. All payments shall be
made in lawful money of the United States of America in immediately available
funds to such account as may be specified from time to time in writing to
Publisher.
Section 6.5. Conditions Precedent to Loans. The obligation of Distributor
to make each Loan is subject to the satisfaction of the following conditions
precedent:
(a) Loan Documents.
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(i) Note. Publisher shall have executed and delivered to
Distributor the Note in the amount and as otherwise provided herein.
(ii) Collateral Security Agreements. Each of Publisher
and each of its subsidiaries (other than non-U.S. subsidiaries) shall
have executed and delivered to Distributor a security agreement
substantially in the form set forth as Exhibit C-1 hereto (collectively,
as amended, modified or supplemented from time to time, the "Security
Agreement") and intellectual property security agreements substantially in
the forms set forth as Exhibits C-2-A and C-2-B hereto (collectively, as
amended, modified or supplemented from time to time, the "Intellectual
Property Security Agreement").
(b) UCC-1 Financing Statements. Distributor shall have
received UCC-1 financing statements signed by Publisher and each of its active
subsidiaries (other than non-U.S. subsidiaries) as debtor, naming Distributor as
secured party with respect to all assets and properties of Publisher and its
subsidiaries (other than non-U.S. subsidiaries) and that are otherwise in
appropriate form for filing in the filing offices set forth in Schedule I of the
Security Agreement and Distributor shall have filed such UCC-1 financing
statements in the applicable jurisdictions, which Distributor shall do promptly
after receipt thereof.
(c) Trademark and Copyright Assignments. Each of Publisher and
its subsidiaries requested by Distributor to do so shall file such trademark and
copyright assignment agreements and such other documents as are reasonably
requested by Distributor.
(d) Additional Matters. Distributor shall have received such
other certificates, opinions, documents and instruments relating to the
transactions contemplated hereby as may have been reasonably requested by
Distributor, and all corporate and other proceedings and all other documents
(including, without limitation, all documents referred to herein and not
appearing as exhibits hereto) and all legal matters in connection with such
transactions shall be satisfactory in form and substance to Distributor.
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(e) Use of Proceeds. The proceeds of such Loans shall be used
to fund Publisher's operating working capital needs consistent with past
practice.
(f) Notice of Borrowing. Distributor shall have received a
duly executed and completed a notice of borrowing in respect of such Loan, in
substantially the form of Exhibit D (a "Notice of Borrowing"), at least three
Business Days prior to the desired date for the making of such Loan.
(g) Representations and Warranties. The representations and
warranties contained herein and in the other Loan Documents shall be true and
correct in all material respects on such date.
(h) No Default or Event of Default. No Default or Event of
Default shall have occurred and be continuing on such date.
(i) No Injunction. No law or regulation shall have been
adopted, no order, judgment or decree of any governmental authority shall have
been issued, and no litigation shall be pending or threatened, which in the
judgment of Distributor would enjoin, prohibit or restrain, or impose or result
in the imposition of any material adverse condition upon, the making or
repayment of such Loan.
Section 6.6. Covenants. The Publisher covenants that from the date of this
Agreement and thereafter so long as the Note is outstanding:
(a) Accounting; Financial Statements and Other Information.
The Publisher will maintain a system of accounting established and administered
in accordance with GAAP. The Publisher will deliver to Distributor: (i) within
45 days after the end of each of the first three quarterly fiscal periods in
each fiscal year of the Publisher, consolidated and consolidating balance sheets
of the Publisher and its subsidiaries as at the end of such period and the
related consolidated and consolidating statements of income, stockholders'
equity and changes in financial position of the Publisher and its subsidiaries
for such period, certified by the principal financial officer of the Publisher
as presenting fairly the information contained therein, subject to normal
year-end audit adjustments; (ii) within 90 days after the end of each fiscal
year of the Publisher, consolidated and consolidating balance sheets of the
Publisher and its subsidiaries as at the end of such year and the related
consolidated and consolidating statements of income, stockholders' equity and
changes in financial position of the Publisher and its subsidiaries for such
fiscal year,
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setting forth in each case in comparative form the consolidated and
consolidating figures for the previous fiscal year, certified by independent
public accountants of recognized national standing selected by the Publisher,
which shall state that such consolidated financial statements present fairly the
financial position of the Publisher and its subsidiaries as at the dates
indicated and the results of their operations and changes in their financial
position for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years and that the audit by such accountants in connection
with such consolidated financial statements has been made in accordance with
GAAP; (3) together with each delivery of financial statements pursuant to clause
(1) or (2) hereof, an officer's certificate as to no Event of Default or
Default; and (4) immediately upon any officer of the Publisher obtaining
knowledge of any condition or event which constitutes an Event of Default, an
officer's certificate describing the same and the period of existence thereof
and what action the Publisher has taken, is taking and proposes to take with
respect thereto;
(b) Inspection. The Publisher will permit any authorized
representatives of Distributor to visit and inspect any of the properties of the
Publisher or any of its subsidiaries, including its and their books of account,
and to make copies and take extracts therefrom, and to discuss its and their
affairs, finances and accounts with its and their officers and independent
public accountants (and by this provision the Publisher authorizes such
accountants to discuss with such representatives the affairs, finances and
accounts of the Publisher and its subsidiaries, provided, that the Publisher is
present), all at such reasonable times and as often as may be reasonably
requested, at Publisher's expense.
(c) Liens, etc. The Publisher will not, and will not permit
any subsidiary of the Publisher to, directly or indirectly create, incur, assume
or permit to exist any Lien on or with respect to any property or asset of the
Publisher or any subsidiary of the Publisher, whether now owned or held or
hereafter acquired, or any income or profits therefrom (whether or not provision
is made for the equal and ratable securing of the Notes in accordance with the
last sentence of this Section), except for the following (collectively,
"Permitted Liens"):
(i) Liens for taxes, assessments or other governmental charges the
payment of which is not at the time required;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics and materialmen incurred in the ordinary course of
business for sums not yet due or the payment of which is not at the time
required;
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(iii) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, or to secure (or to obtain letters of credit or surety, appeal
or performance bonds which secure) the performance of bids, tenders,
statutory obligations, leases, purchase, construction or sales contracts
and other similar obligations, in each case not incurred in connection
with the borrowing of money, the obtaining of advances or the payment of
the deferred purchase price of property;
(iv) leases or subleases granted to others, easements,
rights-of-way, restrictions and other similar charges or encumbrances, in
each case incidental to, and not interfering with, the ordinary conduct of
the business of the Publisher or any of its subsidiaries;
(v) Liens granted in connection with that certain facility
agreement, dated as of July 28, 1998, between Barclays Bank PLC, as
secured party and MicroProse Limited, as debtor;
(vi) a Lien in favor of Sony Signatures, as agent for Tristar
Pictures, on the "Starship Troopers" trademark, copyrights and related
assets;
(vii) Liens granted under that certain mortgage on certain German
real property of the Company, dated March 19, 1994 in favor of WestLB
Bank, as secured party;
(viii) Liens granted in connection with that certain factoring
agreement, dated as of July 13, 1998, between Aerofund Financial Inc., as
secured party and MicroProse, Inc., as debtor (the "Aerofund Agreement");
(ix) Liens in favor of Oracle Credit Corporation under an Agreement
dated May 30, 1997, on certain accounting software equipment;
(x) equipment Liens on office equipment, arising in the ordinary
course and consistent with past practices; and
(xi) those Liens existing on the Effective Date, as to which the
representation and warranty set forth in Section 9.1(h) is true
(collectively, the "Scheduled Liens"), provided that the Publisher
covenants and agrees
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within 45 days following the Effective Date, to use reasonable best
efforts to obtain releases and UCC termination statements of all Scheduled
Liens from the relevant secured parties, and to use reasonable best
efforts to obtain releases and UCC termination statements in connection
with Aerofund Agreement, and to deliver same to Distributor for filing or
recordation wherever appropriate.
(d) Investments, Borrowings, Guaranties, etc. The Publisher
will not, and will not permit any of its subsidiaries to, directly or indirectly
(i) make or own any investment other than those existing on the date hereof, or
(ii) to make any borrowings under the Aerofund Agreement, and will use its
reasonable best efforts to terminate such factoring arrangement, or (iii) create
or become or be liable with respect to any guaranty.
(e) Restricted Payments. The Publisher will not directly or
indirectly declare, order, pay, make or set apart any sum for any payment of
dividends.
(f) Transactions with Affiliates. The Publisher will not, and
will not permit any of its subsidiaries to, directly or indirectly, engage in
any transaction, including, without limitation, the purchase, sale or exchange
of assets or the rendering of any service, with any affiliate of the Publisher,
except in the ordinary course of and pursuant to the reasonable requirements of
the Publisher's or such Subsidiary's business and upon fair and reasonable
terms.
(g) Consolidation, Merger, Sale of Assets, etc. The Publisher
will not, and will not permit any of its subsidiaries to, directly or
indirectly, consolidate with or merge into any other Person or permit any other
Person to consolidate with or merge into it, or sell, lease, abandon or
otherwise dispose of all or substantially all or any substantial part its
assets in one or a series of transactions.
(h) Corporate Existence, etc. The Publisher will at all times
preserve and keep in full force and effect its corporate existence, and rights
and franchises deemed material to its business, and those of each of its
subsidiaries.
(i) Payment of Taxes and Claims. The Publisher will, and will
cause each of its subsidiaries to, pay all taxes, assessments and other
governmental charges imposed upon it or any of its properties or assets or in
respect of any of its franchises, business, income or profits before any penalty
or interest accrues
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thereon, and all claims (including, without limitation, claims for labor,
services, materials and supplies) for sums which have become due and payable and
which by law have or might become a Lien upon any of its properties or assets.
(j) Insurance, etc. The Publisher will maintain or cause to be
maintained in good repair, working order and condition all properties used or
useful in the business of the Publisher and its subsidiaries and from time to
time will make or cause to be made all appropriate repairs, renewals and
replacements thereof. The Publisher will maintain or cause to be maintained,
with financially sound and reputable insurers, insurance with respect to its and
its subsidiaries' properties and businesses against loss or damage of the kinds
customarily insured against by corporations of established reputation engaged in
the same or similar business and similarly situated, of such types and in such
amounts as are customarily carried under similar circumstances by such other
corporations.
(k) Conditions Subsequent to Initial Loan. Publisher covenants
and agrees, forthwith upon demand by Distributor, (i) to cause each of its
non-U.S. subsidiaries, to execute, deliver and perform a Security Agreement, and
in the case of each such subsidiary owning or having any rights in or to any
intellectual property, each relevant Intellectual Property Security Agreement
(to the extent, in the case of non-U.S. subsidiaries, permitted by applicable
foreign law), (ii) to execute and deliver stock pledge agreements covering the
capital stock of each of its subsidiaries (to the extent, in the case of
non-U.S. subsidiaries, permitted by applicable foreign law), and in connection
therewith to deliver all certificates evidencing any capital stock of its
subsidiaries, (iii) to remove the Scheduled Liens in accordance with Section
6.6(c)(xi) hereof, and (iv) to take all other reasonable actions requested by
Distributor in connection with the foregoing to create, preserve and protect the
security interest intended to be granted to Distributor hereunder.
Without prejudice to any other provision of any Loan Document,
Publisher covenants and agrees that it will not permit any subsidiary to create
or suffer to exist any Lien upon any of such Subsidiary's properties or assets,
other than Permitted Liens and the Liens in favor of the Secured Parties under
the Loan Documents.
Section 6.7. Events of Default. Each of the following events, acts,
occurrences or conditions shall constitute an "Event of Default" under this
Agreement, regardless of whether such event, act, occurrence or condition is
voluntary or involuntary or results from the operation of law or pursuant to or
as a result of
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compliance by any Person with any judgment, decree, order, rule or regulation of
any court or administrative or governmental body:
(a) Failure to Make Payments. Publisher shall default for 10
days in the payment when due of any principal of or interest on any Loan or any
other Obligations.
(b) Breach of Representation or Warranty. Any representation
or warranty made by Publisher herein or in any other Loan Document or any
certificate or statement delivered pursuant hereto or thereto shall prove to be
false or misleading in any material respect on the date as of which made or
deemed made.
(c) Breach of Covenants. Publisher shall fail to perform or
observe any agreement, covenant or obligation under this Agreement or any other
Loan Document not otherwise specifically covered by this Section 6.7 and such
failure shall continue unremedied for 30 or more days after Publisher has
received notice thereof.
(d) Termination of Agreement. This Agreement shall have been
terminated.
(e) Change of Control. There shall have occurred a Change in
Control.
(f) Bankruptcy, etc. (i) Publisher or any subsidiary shall
commence a voluntary case concerning itself under the Bankruptcy Code; or (ii)
an involuntary case is commenced against Publisher or any subsidiary and the
petition is not dismissed within sixty (60) days after commencement of the case;
or (iii) a custodian (as defined in the Bankruptcy Code) is appointed for, or
takes charge of, all or substantially all of the property of Publisher or any
subsidiary or Publisher or any subsidiary commences any other proceedings under
any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to Publisher or any subsidiary or
there is commenced against Publisher or any subsidiary any such proceeding which
remains undismissed for a period of sixty (60) days; or (iv) any order of relief
or other order approving any such case or proceeding is entered; or (v)
Publisher or any subsidiary is adjudicated insolvent or bankrupt; or (vi)
Publisher or any subsidiary allows any appointment of any custodian or the like
for it or any substantial part of its property to continue undischarged or
unstayed for
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a period of sixty (60) days; or (vii) Publisher or any subsidiary makes a
general assignment for the benefit of creditors; or (viii) Publisher or any
subsidiary shall fail to pay, or shall state that it is unable to pay, its debts
generally as they become due; or (ix) Publisher or any subsidiary shall call a
meeting of its creditors with a view to arranging a composition or adjustment of
its debts; or (x) Publisher or any subsidiary shall by any act or failure to act
consent to, approve of or acquiesce in any of the foregoing; or (xi) any action
is taken by Publisher or any subsidiary for the purpose of effecting any of the
foregoing.
(g) Default Under Other Agreements. Publisher shall default in
the payment when due (whether by scheduled maturity, required prepayment,
acceleration, or otherwise) of any amount owing in respect of any Indebtedness
(other than the Obligations) in excess of $50,000 in the aggregate; or Publisher
shall default in the performance or observance of any obligation or condition
with respect to any such Indebtedness or any other event shall occur or
condition shall exist, if the effect of such default, event or condition is to
accelerate the maturity of any such Indebtedness or to permit the holder or
holders thereof, or any trustee or agent for such holders, to accelerate the
maturity of any such Indebtedness, or any such Indebtedness shall become or be
declared to be due and payable prior to its stated maturity other than as a
result of a regularly scheduled payment.
Section 6.8. Rights and Remedies. Upon the occurrence of any Event of
Default described in Section 6.7(f) hereof, the then unpaid principal amount of,
and any and all accrued interest on, the Loans shall automatically become
immediately due and payable, with all additional interest from time to time
accrued thereon and without presentation, demand, or protest or other
requirements of any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or accelerate
and notice of acceleration), all of which are hereby expressly waived by
Publisher; and upon the occurrence and during the continuance of any other Event
of Default, Distributor may in its sole discretion declare the unpaid principal
amount of, and any and all accrued and unpaid interest on, the Loans to be, and
the same shall thereupon be, immediately due and payable with all additional
interest from time to time accrued thereon and without presentation, demand, or
protest or other requirements of any kind (including, without limitation,
valuation and appraisement, diligence, presentment, notice of intent to demand
or accelerate and notice of acceleration), all of which are hereby expressly
waived by Publisher.
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Section 6.9. Set-off, etc. Distributor shall have the right, without prior
notice to Publisher, any such notice being expressly waived by Publisher to the
fullest extent permitted by applicable law, to set-off or recoup and apply
against any Obligation hereunder any and all credits, obligations or claims,
whether direct or indirect, absolute or contingent, matured or unmatured, at any
time held or owing by Distributor to or for the credit or the account of
Publisher, howsoever arising, in addition to all other rights and remedies of
Distributor at law, in equity or under any Loan Document.
ARTICLE VII
TRADEMARKS
Section 7.1. Right to Use. During the term of this Agreement, the
Distributor shall have the right and shall be required to indicate to the public
within the Licensed Territory that it is an authorized Distributor of the
Products and shall be required to market and advertise the Products under the
Publisher Trademarks. Notwithstanding the foregoing, any use of Publisher's
Trademarks on Web sites or other postings on the Internet or in other electronic
transmissions via computer networks shall be subject to the prior written
approval of Publisher (which shall not be unreasonably withheld). The
Distributor shall not use Publisher's Trademarks, or any other copyright,
trademark, logo or other right of Publisher in any manner contrary to public
morals, in any manner which is deceptive or misleading, which is derogatory to
Publisher's Trademarks, or which compromises or reflects unfavorably upon the
goodwill, good name, reputation or image of Publisher or Publisher's Trademarks,
or which might jeopardize or limit Publisher's proprietary interest in
Publisher's Trademarks. Nothing herein shall grant to the Distributor any right,
title or interest in Publisher's Trademarks. All uses of Publisher's Trademarks
hereunder by the Distributor shall inure solely to the benefit of Publisher. At
no time during or after the term of this Agreement shall the Distributor
challenge or assist other to challenge Publisher's Trademarks or the
registration thereof or attempt to register any trademarks, marks or trade names
confusingly similar to those of Publisher.
Section 7.2. Approval of Representations. All representations of
Publisher's Trademarks that the Distributor intends to use shall first be
submitted to Publisher for approval in writing (which shall not be unreasonably
withheld). The Distributor shall not use any of Publisher's Trademarks in
conjunction with another trademark on or in relation to any other software
without Publisher's prior written approval. All uses shall be subject to
approval by Publisher to ensure that the Publisher's Trademarks are not used by
the Distributor in a manner that is unautho-
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rized by Publisher. In the event Publisher does not approve a use by
Distributor, it shall promptly provide Distributor with a written report
detailing the reasons for rejection of such use. In the event Publisher shall
fail to object to a use provided for its review within fourteen (14) business
days after delivery, Publisher shall be deemed to have approved such use.
ARTICLE VIII
CONFIDENTIALITY
Section 8.1. Proprietary Information. Each party acknowledges and agrees
that certain information which it may receive from the other party will be
Proprietary Information to the disclosing party. Proprietary Information shall
mean: (i) the fact that the disclosing party intends to develop or have
developed any particular software or other product; (ii) any confidential
information concerning or related to the Products; (iii) any non-public
information concerning the terms and conditions of this Agreement, except that
Distributor may disclose such terms and conditions as it reasonably deems
appropriate for the Distribution of the Products; (iv) nonpublic information
concerning the business or finances of the disclosing party, including, but not
limited to, trade secrets of the disclosing party; and (v) any other information
which if disclosed to a third party could adversely affect a competitive
advantage of the disclosing party.
Section 8.2. Protection. Each party agrees, both during and after the Term
of this Agreement, to use the Proprietary Information of the other party only in
connection with its rights and obligations under this Agreement, and not to,
directly or indirectly, reproduce such Proprietary Information or distribute or
disclose such Proprietary Information, except to employees who have a need to
know such Proprietary Information in connection with the performance of the
obligations and the exercise of the rights under this Agreement, and to hold in
confidence all Proprietary Information of the other party and to use its best
efforts to prevent the unauthorized copying, use and/or disclosure of the other
party's Proprietary Information.
Section 8.3. No Nondisclosure Obligation. Each party's respective
obligation to hold the other party's Proprietary Information in strict
confidence shall not apply to any information that: (i) becomes known to the
general public without a breach of the nondisclosure obligations of this
Agreement; (ii) is disclosed by the owner of the Proprietary Information to
others without restriction on disclosure; (iii) is obtained from a third party
without breach of a non-disclosure obligation; (iv) was
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in the possession of the nondisclosing party prior to disclosure by the
disclosing party; or (v) was independently developed by the nondisclosing party
without use of or reference to the other party's Proprietary Information. A
party may disclose Proprietary Information if so required in connection with
any suit, action or required to be disclosed by law, provided that such party
provide the disclosing party with advance notice to allow the disclosing party
to seek a protective order, and provided further that such party takes any
available, reasonable steps to protect the Proprietary Information.
Section 8.4. Irreparable Harm. Each party agrees that the unauthorized use
or disclosure of the disclosing party's Proprietary Information may cause
irreparable injury to the disclosing party. Accordingly, both parties agree that
the remedy at law for any breach of this Section may be inadequate and, in
recognition thereof, agree that the party suffering from the unauthorized use or
disclosure shall be entitled to seek injunctive relief to prevent any such
breach or the threat of such a breach.
ARTICLE IX
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 9.1. Publisher Representations, Warranties and Covenants.
Publisher represents, warrants and covenants that:
(a) Publisher has the requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by Publisher and the
consummation by Publisher of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Publisher. This
Agreement has been duly executed and delivered by Publisher and, assuming this
Agreement constitutes the valid and binding obligation of the Distributor,
constitutes a valid and binding obligation of each such party, enforceable
against each such party in accordance with its terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) the remedy of specific performance and injunctive relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
(b) Exhibit A hereto sets forth a true, complete and accurate
list of any and all agreements or arrangements that in any way would limit or
restrict the ability of Distributor to exclusively Distribute the Products in
the Territory.
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(c) Publisher has and shall have all requisite ownership,
licenses and consents to grant to Distributor all the rights with respect to the
Products and Publisher Trademarks. The Publisher Trademarks and the grant of the
right to Distribute the Products do not violate or infringe any rights
(including without limitation intellectual property or other proprietary rights)
of any third party.
(d) There are no restrictions which would or could prevent
Distributor from Distributing the Products by any media or by means for which
rights are granted to Distributor hereunder and there are not and will not be
any payments (out of any part of any revenues from the Distribution or
exploitation of the Products or otherwise) which must be made by Distributor to
any actors, musicians, directors, writers or to other persons who participated
in the Products, or to any union, guild or other labor organization, for any
right to Distribute the Products or as compensation for any other use of the
Products as contemplated hereunder.
(e) The Products manufactured by Publisher are and shall be of
high quality customary in the industry, and the media upon which the Product is
recorded shall be free from defects in materials and workmanship for a period of
one hundred eighty (180) days from the date of sale to the End-User.
(f) Neither the execution, delivery or performance by
Publisher of this Agreement, nor compliance by it with the terms and provisions
hereof, nor the consummation of the transactions contemplated hereby, (i) will
contravene any applicable provision of any law, statute, rule, regulation, order
or injunction of any court or governmental instrumentality, or (ii) will
conflict or be inconsistent with or result in any breach of, any of the terms,
covenants, conditions or provisions of, or constitute a default under, or result
in the creation or imposition of (or the obligation to create or impose) any
Lien upon any of the property or assets of Publisher pursuant to the terms of
any indenture, mortgage, deed of trust, agreement or other instrument to which
Publisher is a party or by which it or any of its property or assets is bound or
to which it may be subject.
(g) Publisher shall use the proceeds of the Loans in
accordance with Section 6.1(a). Neither the making of the Loan nor the use of
the proceeds thereof will violate or be inconsistent with the provisions of
Regulations T, U or X of the Federal Reserve Board.
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(h) There are no obligations outstanding to any Person in
whose favor a Scheduled Lien exists, and there are no commitments to lend money
or otherwise incur any obligation in favor of any such Person.
Section 9.2. Distributor Representations, Warranties and Covenants.
Distributor represents, warrants and covenants that:
(a) Distributor has the requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Distributor
and the consummation by Distributor of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Distributor. This Agreement has been duly executed and delivered by Distributor
and, assuming this Agreement constitutes the valid and binding obligation of
Publisher, constitutes a valid and binding obligation of each such party,
enforceable against each such party in accordance with its terms, except that
(i) such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) the remedy of specific performance and
injunctive relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
(b) Standard of Business Practices. Distributor shall comply
in all material respects with all laws and regulations relating or pertaining to
the distribution, sale, advertising or use of the Products in the Licensed
Territory, and shall comply in all material respects with the regulations and
directives of any regulatory agencies which shall have jurisdiction over the
Products.
Section 9.3. No Representation Regarding Revenues. Distributor neither
makes nor has made any express or implied representation or warranty as to the
amount of receipts which shall be derived from the Distribution of the Products,
or that there will be any receipts or other sums payable to Publisher.
Section 9.4. Limitation of Liability. EXCEPT AS OTHERWISE PROVIDED
HEREIN, THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES AND
CONDITIONS BY EITHER PARTY. ANY IMPLIED WARRANTIES BY EITHER PARTY, INCLUDING
WARRANTIES OR CONDITIONS OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, ARE EXPRESSLY EXCLUDED. EXCEPT WITH RESPECT TO THE INDEMNIFICATION
OBLIGATIONS SET FORTH IN ARTICLE X OF
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THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR
ANY OTHER ENTITY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, INDIRECT OR
RELIANCE DAMAGES, HOW EVER CAUSED, WHETHER FOR BREACH OF CONTRACT, NEGLIGENCE OR
UNDER ANY OTHER LEGAL THEORY, WHETHER FORESEEABLE OR NOT AND WHETHER OR NOT
PUBLISHER OR DISTRIBUTOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
Section 9.5. Survival. The representations, warranties, limitations on
liability and indemnification rights set forth in Articles IX and X of this
Agreement shall survive the termination of this Agreement.
ARTICLE X
INDEMNIFICATION
Section 10.1. Indemnification of Distributor. Publisher agrees to
indemnify and hold Distributor, its parent, affiliates, officers, directors,
representatives, employees, contractors, agents, subcontractors, customers,
licensees and assigns harmless against any and all actions, claims, losses,
liabilities, costs, damages and expenses (including any legal costs or expenses
incurred, expert witness' fees and any compensation, costs or disbursements
paid to compromise or settle any action or claim) (collectively, "Claims")
suffered or incurred by Distributor or such other persons or entities and
arising from a breach of any representation, warranty, term or provision of this
Agreement by Publisher and its consequences, including, without limitation, any
claim that the exercise of any of Distributor's rights under this Agreement
infringes the copyright, trademark or any other intellectual property or other
rights of any third party, any negligence by Publisher or its agents or
representatives, any claim of defect or error in the manufactured units of the
Products, and any gross negligence or willful misconduct resulting in a virus,
worm, time bomb, booby trap or other programming designed to interfere with the
normal functioning of the Products or the End-User's equipment, programs or data
(collectively, a "Virus").
Section 10.2. Indemnification by the Distributor. Except for Publisher's
indemnification obligations set forth above, the Distributor will indemnify,
defend and hold harmless Publisher, its parents, subsidiaries, affiliates, and
each of their respective successors and permitted assigns, directors, officers,
employees, represen-
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tatives, agents, consultants, and contractors in respect of any and all losses,
claims, suits, proceedings, liabilities, causes of action, damages, costs,
expenses (including reason able attorneys' fees and expenses) arising out of or
relating to the breach or inaccuracy of, or failure to comply with, any of the
representations, warranties, covenants, agreements, terms or conditions made by
the Distributor hereunder, the actions or omissions, including negligence, of
the Distributor's employees or officers.
Section 10.3. Procedure. Any party entitled to indemnification hereunder
(the "Indemnified Party") shall give prompt written notice of the assertion of
any such Claim to the indemnifying party (the "Indemnifying Party") and the
Indemnified Party shall have the right to select counsel (as reasonably approved
by the Indemnifying Party) and control the defense and settlement thereof,
subject to the right of the Indemnifying Party to participate in any such action
or to proceed at its own expense with counsel of its own choosing. The
Indemnified Party shall have the right to withhold payment of sums due to the
Indemnifying Party pursuant to this Agreement if, and to the extent that, and
for the period during which the Indemnified Party reasonably believes that such
withholding is necessary to maintain a reasonable reserve against any Claims
actually asserted, and also the right to offset against payments due to the
Indemnifying Party for indemnification obligations due the Indemnified Party by
the Indemnifying Party hereunder. If the Indemnifying Party shall fail to
promptly act, the Indemnified Party shall have the right and is hereby
authorized and empowered by the Indemnifying Party to appear by its attorneys in
any such action, to adjust, settle, compromise, litigate, contest, satisfy
judgments and take any other action necessary or desirable for the disposition
of such claim, demand or action; in any such case the Indemnifying Party within
fifteen (15) days after demand therefor by the Indemnified Party, shall fully
reimburse the Indemnified Party for all such payments and expenses, including
attorneys' fees; if the Indemnifying Party shall fail so to reimburse the
Indemnified Party then, without waiving its right otherwise to enforce such
reimbursement, the Indemnified Party shall have the right to deduct the said
amount of such payments and expenses, or any part thereof, from any sums
accruing, to or for the account of the Indemnifying Party under this or any
agreement.
ARTICLE XI
TERMINATION AND REMEDIES
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Section 11.1. Term and Termination. Unless sooner terminated in accordance
with the procedures specified in this Article XI, this Agreement shall terminate
according to the procedures set out in Article III of this Agreement.
Section 11.2. Termination Upon Event of Default. Distributor shall have
the right, at its option, to terminate this Agreement by giving written notice
to Publisher in the manner provided in Section 13.4 below, effective immediately
upon the receipt of such notice, upon the occurrence of any Event of Default.
Publisher shall have the right, at its option, to terminate this Agreement by
giving written notice to Distributor in the manner provided in Section 12.4
below, effective immediately upon the receipt of such notice, upon the
occurrence of any of the following events:
(a) In the event that Distributor shall be adjudicated
bankrupt or shall petition for or consent to any relief under any bankruptcy,
reorganization, receivership, liquidation, compromise, or any moratorium
statute, whether now or hereafter in effect, or shall make an assignment for the
benefit of its creditors, or shall petition for the appointment of a receiver,
liquidator, trustee, or custodian of all or a substantial part of its assets, or
if a receiver, liquidator, trustee or custodian is appointed for all or a
substantial part of its assets and is not discharged within thirty (30) days
after the date of such appointment.
(b) Upon any default in the performance of or breach of any
material agreement, covenant, obligation or undertaking of Distributor made
hereunder, if such default or breach shall not be remedied within thirty (30)
days of delivery of notice of such default or breach. Any such notice shall
state the grounds upon which such claim of default or breach is based, and the
steps required to remedy such default or breach. Notwithstanding anything in
this Agreement to the contrary, neither party shall be deemed to be in breach of
this Agreement if a failure to comply with its terms is directly caused by Force
Majeure or the action or inaction of the other party.
ARTICLE XII
EFFECT OF TERMINATION
Section 12.1. Outstanding Orders. Upon termination of this Agreement,
Publisher shall remain obligated to deliver Products to Distributor or to
Distributor's customers, to fill all outstanding orders placed by Distributor
with Publisher and accepted by Publisher, unless expressly canceled by both
parties, and both parties
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shall remain obligated to perform any other acts which are necessary or
appropriate to the orderly winding up of the dealings between the parties
hereunder.
Section 12.2. No Sell-Off. (a) Upon termination of this Agreement,
Distributor shall timely return to Publisher, pursuant to Section 4.6 above, all
finished units of the Products in Distributor's possession or control which have
not been Distributed.
(b) All trademarks, trade names, patents, copyrights, designs,
drawings, or other data, photographs, samples, and literature relating to the
Products shall be and remain the property of Publisher. Within thirty (30) days
after the expiration or termination of this Agreement, Distributor shall prepare
all such items in its possession for shipment, as Publisher may direct, at
Publisher's expense. Distributor shall not make or retain any copies of any
confidential items or information which may have been entrusted to it. Effective
upon the termination of this Agreement, Distributor shall cease to use all
trademarks, marks, and trade names of Publisher. Notwithstanding the foregoing,
Distributor shall continue to have such rights in all trademarks, trade names,
patents, copyrights, designs, drawings or other data, photographs, samples and
literature relating to the Products as are necessary to fulfill its outstanding
orders as of the date of the expiration or termination of this Agreement.
Section 12.3. Remaining Payments. Upon termination of this Agreement,
Distributor shall, subject to the provisions of this Agreement, be liable to
Publisher for any consideration due and unpaid, if any, up to the date of such
termination and for any further consideration that may become due and payable to
Publisher pursuant to Section 12.1.
Section 12.4. Remedies. Notwithstanding anything herein to the contrary,
in addition to and not in lieu of its rights to terminate this Agreement upon a
material breach by a party, the non-breaching party shall have the right to
pursue any remedies available to it at law or in equity, including without
limitation the repayment of such sums as have been previously provided by one
party to the other.
Section 12.5. Survival. Any termination of this Agreement (however
occasioned) shall not affect 4.6 and Articles V, VI, VII, VIII, IX, X, XI, XII
and XIII, which shall continue in full force and effect.
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Section 12.6. Limitation on Termination Liability. Neither party shall
incur any liability whatsoever for any damage, loss or expenses of any kind
suffered or incurred by the other, arising from or incident to any termination
of this Agreement by such party which complies with the terms of this Agreement,
whether or not the terminating party is aware of any such damage, loss or
expense, provided, however, that Publisher shall be and remain liable for all
principal of and interest on the Loans.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. Entire Agreement. This Agreement, including the Exhibits
hereto, (i) sets forth the entire agreement between the parties with respect to
the subject matter hereof and supersedes all prior negotiations, understandings
and agreements between the parties hereto concerning the subject matter hereof,
whether express or implied, written or oral and no addition to or modification
of any provision of this Agreement shall be binding upon the parties unless made
by written instrument signed by a duly authorized representative of each of
Publisher and Distributor and (ii) is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
Section 13.2. No Assignment. No assignment or transfer of this Agreement
or any right or privilege granted hereunder, including any assignment by
operation of law pursuant to a merger, liquidation, foreclosure, or involuntary
sale in bankruptcy, shall be permitted by either party without the other party's
prior written consent; provided, however, that either party may transfer, assign
or sublicense all or any part of this Agreement without the other party's
consent provided such parties are contractually obligated to comply with this
Agreement if the transferring, assigning or sublicensing party remains primarily
liable and such transfer, assignment or sublicense is (i) to a direct or
indirect parent or subsidiary of such party or a direct or indirect parent or
subsidiary of such parent or subsidiary, or (ii) to a purchaser of all or
substantially all of such party's assets or outstanding capital stock, whether
by merger, consolidation or otherwise. Any attempted assignment or transfer
contrary to the terms of this Section 13.2 shall be null and void. The
appointment by Distributor of any nonexclusive sub-representative, agent,
sub-distributor, reseller or dealer shall not constitute an assignment or
transfer of any part of, or any right or privilege under, this Agreement.
Subject to the foregoing limitations, this Agreement shall inure to the benefit
of and be binding upon the parties hereto, their successors, and assigns.
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Section 13.3. Execution of Documents. Each party shall cooperate with the
other party to execute all such documents and do all such acts as may be
reasonably required to enable each party to effectively exercise the rights
granted to it under this Agreement.
Section 13.4. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon receipt, and shall be given
to the parties at the following addresses or telecopy numbers (or at such other
address or telecopy number for a party as shall be specified by like notice):
(a) if to Distributor, to:
Hasbro Interactive, Inc.
50 Dunham Road
Beverly, MA 01915
Attention: Thomas Dusenberry, President
Telecopy: (978) 921-3710
with a copy to:
Hasbro, Inc.
32 W. 23rd Street
New York, New York 10010
Attention: Phillip H. Waldoks
Senior Vice President-Corporate
Legal Affairs and Secretary
Telecopy: (212) 741-0663
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-3897
Attention: Howard L. Ellin, Esq.
Telecopy: 212-735-2000
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(b) if to Publisher, to:
MicroProse, Inc.
2490 Mariner Loop
Suite 100
Alameda, California 94501
Attention: Stephen M. Race
Chief Executive Officer
Telecopy: (510) 864-4607
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: David Drummond, Esq.
Telecopy: (650) 493-6811
Section 13.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York. Any action or
proceeding brought to enforce the terms of this Agreement shall be brought in
the State of New York and each agrees to waive any objections to personal
jurisdiction, service of process and venue in any court of the United States
located in the State of New York or in New York state court.
Section 13.6. Independent Contractors. The relationship of Publisher and
the Distributor established by this Agreement is that of independent
contractors, and nothing contained in this Agreement shall be construed to (i)
give either party the power to direct and control the day-to-day activities of
the other, (ii) constitute the parties as partners, co-owners or otherwise as
participants in a joint or common undertaking, or (iii) allow the Distributor to
create or assume any obligation on behalf of Publisher for any purpose
whatsoever. All financial obligations associated with the Distributor's business
are the sole responsibility of the Distributor. Distributor shall have no
responsibility or liability of any kind to any subcontractors or third parties
providing services to or for the benefit of Publisher. Distributor shall be free
to manage and control its business as it sees fit, without the management,
control or assistance of Publisher, except as otherwise prescribed herein.
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Section 13.7. Severability; Headings. Should any provision of this
Agreement be held to be void, invalid, or inoperative, the remaining provisions
shall not be affected and shall continue in effect as though such unenforceable
provision had been deleted herefrom. The name of this Agreement and the headings
of the Articles and Sections of this Agreement are inserted merely for
convenience of reference and shall not be used or relied upon in connection with
the construction or interpretation of this Agreement.
Section 13.8. No Waiver. No failure or delay by either party in exercising
any right, power, or remedy hereunder shall operate as a waiver of any
subsequent exercise of such right, power, or remedy. It is agreed that any
remedies provided in this Agreement shall be cumulative and shall not be
exclusive of any other remedies available hereunder, or at law or in equity. No
amendment, waiver or modification of any provision of this Agreement shall be
effective unless in writing and signed by the party against whom such amendment,
waiver or modification is sought to been forced.
Section 13.9. Force Majeure. If the performance of this Agreement or any
obligations hereunder is prevented, restricted or interfered with by reason of
fire or other casualty or accident, strike or labor dispute, war or other
violence, any law, order, proclamation, regulation, ordinance, demand or
requirement of any government agency, or any other act or condition beyond the
reasonable control of the parties hereto ("Force Majeure"), the party so
affected upon giving prompt notice to the other parties will be excused from
such performance during such prevention, restriction or interference.
Section 13.10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same instrument, but this Agreement
shall not be binding upon the parties until it has been signed by both parties.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
HASBRO INTERACTIVE, INC. MICROPROSE, INC.
/s/ Thomas R. Dusenberry /s/ Stephen M. Race
- ----------------------------- ------------------------------
Authorized signature Authorized signature
Thomas R. Dusenberry Stephen M. Race
- ----------------------------- ------------------------------
Printed name Printed name
President Chief Executive Officer
- ----------------------------- ------------------------------
Title Title
<PAGE> 40
Exhibit A
EXCLUDED PRODUCTS
<PAGE> 41
EXHIBIT A
EXISTING PRODUCT RESTRICTIONS
1. Restrictions under Agreement with Activision for North American
distribution of Sony PSX version of CIVILIZATION II.
2. Restrictions under Agreement with GT Interactive for budget deal on
back-catalog products.
3. Restrictions under Agreement with GT Interactive (WizardWorks) for
publishing of Macintosh versions of products.
4. Restrictions under Agreements with Imagineer for worldwide distribution of
Sega Saturn versions of TRANSPORT TYCOON and CIVILIZATION II.
5. Restrictions under Agreement with Majesco for budget deal on back-catalog
products to Kaybee Toys channel only.
6. Restrictions under License-In Agreements (see list previously provided)
relating to terms of licenses governing individual products or
intellectual properties licensed from third parties. Distributor will be
required to familiarize itself with such requirements and abide by
approval procedures, etc.
7. The parties should consult regarding expeditious transfer of existing
distribution account to Distributor, in light of Publisher's current
accounts receivable and field inventory.
A-1
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Exhibit B
NOTE
$5,500,000 New York, New York
August 11, 1998
FOR VALUE RECEIVED, the undersigned, MICROPROSE, INC., a Delaware
corporation (the "Borrower"), hereby promises to pay on the Maturity Date (as
defined in the hereinafter described Software Distribution and Loan Agreement)
to the order of Hasbro Interactive, Inc., a Delaware corporation (the "Lender"),
in lawful money of the United States of America in immediately available funds,
to such account as may be specified from time to time in writing to the Borrower
by the Lender, the principal amount of FIVE MILLION FIVE HUNDRED THOUSAND UNITED
STATES DOLLARS ($5,500,000) or, if less, the then aggregate unpaid principal
amount of Loans (as defined in the hereinafter described Software Distribution
and Loan Agreement) made by the Lender under such Software Distribution and Loan
Agreement.
The Borrower also promises to pay interest on the unpaid principal
amount of each Loan in like money to said account from the date of the making of
such Loan until the principal amount thereof is paid in full, at the rates and
times, and computed in the manner, provided in the Agreement.
This Note (as amended, supplemented or otherwise modified from time
to time, this "Note") is the Note referred to in the Software Distribution and
Loan Agreement dated as of August 11, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Agreement") between the Borrower and
the Lender, and is entitled to the benefits thereof and shall be subject to the
provisions thereof. This Note is secured pursuant to various agreements (as
described in the Agreement).
As provided in the Agreement, this Note is subject to mandatory and
voluntary prepayments, in whole or in part.
In case an Event of Default (as defined in the Agreement) shall
occur and be continuing, the then unpaid principal amount of, and accrued
interest on, this
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Note shall become, or may be declared to be, as applicable, immediately due and
payable in the manner and with the effect provided in the Agreement.
The Borrower hereby waives to the extent permitted by applicable law
presentment, demand, protest or notice of any kind in connection with this Note.
No failure or delay on the part of the Lender in exercising any right, power or
privilege hereunder or under the other Loan Documents (as defined in the
Agreement) and no course of dealing between the Borrower and the Lender shall
operate as a waiver of any such right, power or privilege; nor shall any single
or partial exercise of any such right, power or privilege preclude any other or
further exercise thereof or the exercise of any other such right, power or
privilege. The rights and remedies provided herein and in the other Loan
Documents are cumulative and not exclusive of any rights or remedies which the
Lender would otherwise have.
This Note may not be assigned or otherwise transferred by the Lender
without the prior written consent of the Borrower. The Borrower may not assign
or otherwise transfer any of its rights or obligations under this Note without
the prior written consent of the Lender.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE BORROWER AND THE
LENDER HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK.
MICROPROSE, INC.
By:_____________________
Name:
Title:
B-2
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Exhibit C-1
SECURITY AGREEMENT
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Exhibit C-1
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of August 11, 1998 (as the same may
from time to time be amended, supplemented or otherwise modified, this "Security
Agreement"), among Hasbro, Inc., a Rhode Island corporation ("Parent"), Hasbro
Interactive, Inc., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Distributor" and, together with Parent, the "Secured Parties" and as
agent under certain provisions of this Agreement for the ratable benefit of
itself and Parent, the "Agent"), a Delaware corporation, and [Company], a
__________ corporation (the "Debtor").
W I T N E S S E T H:
WHEREAS, the Borrower and Distributor have entered into the Software
Distribution and Loan Agreement dated as of the date hereof (as amended,
supplemented or otherwise modified from time to time, the "Loan Agreement")
pursuant to which Distributor has agreed (i) to distribute software products of
Borrower and (ii) to make certain loans to the Borrower, in each case subject to
and upon the terms and conditions set forth therein;
WHEREAS, the Borrower, Parent and New HIAC Corp., a Delaware
corporation and a wholly-owned subsidiary of Parent, have entered into an
Agreement and Plan of Merger (the "Merger Agreement") and the Borrower and
Parent have entered into a Stock Option Agreement (the "Option Agreement," and
together with the Merger Agreement, the "Merger Documents"), each dated as of
the date hereof; and
WHEREAS, it is required by the Merger Documents and it is a
condition precedent to the obligation of the Secured Party to make the loans
contemplated by the Loan Agreement, that the Debtor enter into this Security
Agreement and grant the Secured Parties the security interests set forth herein;
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NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. As used herein, the following terms shall
have the meanings set forth below:
"Account Debtor" shall mean the person who is obligated on a
Receivable.
"Accounts" shall mean "accounts" as such term is defined in Section
9-106 of the UCC.
"Bankruptcy Code" shall mean Title 11 of the United States Code
entitled "Bankruptcy", as amended from time to time, and any successor statute
or statutes.
"Borrower" means MicroProse, Inc., a Delaware corporation.
"Business Day" shall mean any day excluding Saturday, Sunday and any
day which shall be in New York City a legal holiday or a day on which banking
institutions are authorized or required by law or other government actions to
close.
"Chattel Paper" shall mean "chattel paper" as such term is defined
in Section 9-105(b) of the UCC.
"Collateral" shall have the meaning assigned to it in Section 2
hereof.
"Collateral Account" shall mean the account (which may be a
securities account) maintained pursuant to this Security Agreement by the
Secured Parties, entitled "MicroProse, Inc. Collateral Account, Hasbro
Interactive, Inc. and Hasbro, Inc., secured parties", and all funds and
instruments or other items from time to time credited to such account and all
interest thereon.
"Collateral Records" shall mean books, records, computer software,
computer printouts, customer lists, blueprints, technical specifications,
manuals, and similar items which relate to any Collateral.
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"Contracts" shall mean all contracts, agreements, licenses, and
other writings to which the Debtor is a party as any of the same may from time
to time be amended, supplemented or otherwise modified.
"Default" shall mean any event, act or condition which with notice
or lapse of time, or both, would constitute an Event of Default.
"Deposit Accounts" shall mean the Collateral Account and any deposit
account, including without limitation, "deposit accounts" as such term is
defined in Section 9-105(e) of the UCC and any other deposit or securities
account (general or special), together with any funds, instruments or other
items credited to any such account from time to time, and all interest thereon.
"Documents" shall mean "documents" as such term is defined in
Section 9-105(f) of the UCC.
"Equipment" shall mean "equipment" as such term is defined in
Section 9-109(2) of the UCC, including, without limitation, machinery,
manufacturing equipment, data processing equipment, computers, office equipment,
furniture, appliances and tools.
"Event of Acceleration" shall mean an Event of Default or any
failure by the Borrower to pay any amount then due and owing under the Merger
Documents.
"Event of Default" shall have the meaning set forth in the Loan
Agreement.
"Fixtures" shall mean "fixtures" as such term is defined in Section
9-313 of the UCC.
"General Intangibles" shall mean "general intangibles" as such term
is defined in Section 9-106 of the UCC, including, without limitation, rights to
the payment of money (other than Receivables), trademarks, copyrights, patents,
and contracts, licenses and franchises, limited and general partnership
interests and joint venture interests, federal income tax refunds, trade names,
to the extent classified as a "general intangible" under the UCC under any
applicable law, distributions on certificated securities (as defined in ss.
8-102(1)(a) of the UCC and uncertificated securities (as defined in ss.
8-102(1)(b) of the UCC, computer programs and other
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computer software, inventions, designs, trade secrets, goodwill, proprietary
rights, customer lists, supplier contracts, sale orders, correspondence,
advertising materials, payments due in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of any property, reversionary
interests in pension and profit-sharing plans and reversionary, beneficial and
residual interests in trusts, credits with and other claims against any Person,
together with any collateral for any of the foregoing and the rights under any
security agreement granting a security interest in such collateral.
"Hedging Agreements" shall mean interest rate or currency protection
or hedging arrangements, including without limitation, caps, collars, floors,
forwards and any other similar or dissimilar interest rate or currency exchange
agreements or other interest rate or currency hedging arrangements.
"Instruments" shall mean "instruments" as such term is defined in
Section 9-105(1)(i) of the UCC.
"Insurance Policies" shall mean all insurance policies as in effect
from time to time covering the Debtor or any Collateral.
"Inventory" shall mean "inventory" as such term is defined in ss.
9-109(4) of the UCC, including without limitation, all goods (whether such goods
are in the possession of the Debtor or of a bailee or other Person for sale,
lease, storage, transit, processing, use or otherwise and whether consisting of
whole goods, spare parts, components, supplies, materials or consigned or
returned or repossessed goods), including without limitation, all such goods
which are held for sale or lease or are to be furnished (or which have been
furnished) under any contract of service or which are raw materials or work in
progress or materials used or consumed in the Debtor's business.
"Lien" shall mean with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset.
"Loan Agreement" shall mean that certain Software Distribution and
Loan Agreement, dated as of the date hereof, between Interactive and the
Borrower, as amended or modified from time to time in accordance with its terms.
Money" shall mean "money" as such term is defined in Section
1-201(24) of the UCC.
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"Motor Vehicles" shall mean motor vehicles, tractors, trailers and
other like property, if title thereto is governed by a certificate of title
ownership.
"Permitted Liens" shall have the meaning set forth in the Loan Agree
ment.
"Person" shall mean and include any individual, partnership, joint
venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or agency, department or instrumentality
thereof.
"Proceeds" shall mean "proceeds" as such term is defined in Section
9-306(1) of the UCC.
"Receivables" shall mean all rights to payment for goods sold or
leased or services rendered, whether or not earned by performance and all rights
in respect of an Account Debtor, including without limitation, all such rights
in which the Debtor has any right, title or interest by reason of the purchase
thereof by the Debtor, and including without limitation all such rights
constituting or evidenced by any Account, Chattel Paper, Instrument, General
Intangible, note, contract, invoice, purchase order, draft, acceptance,
intercompany account, security agreement, or other evidence of indebtedness or
security, together with (a) any collateral assigned, hypothecated or held to
secure any of the foregoing and the rights under any security agreement granting
a security interest in such collateral, (b) all goods, the sale of which gave
rise to any of the foregoing, including, without limitation, all rights in any
returned or repossessed goods and unpaid seller's rights, (c) all guarantees,
endorsements and indemnifications on, or of, any of the foregoing, and (d) all
powers of attorney for the execution of any evidence of indebtedness or security
or other writing in connection therewith.
"Receivables Records" shall mean (a) all original copies of all
documents, instruments or other writings evidencing the Receivables, (b) all
books, correspondence, credit or other files, records, ledger sheets or cards,
invoices, and other papers relating to Receivables, including without limitation
all tapes, cards, computer tapes, computer discs, computer runs, record keeping
systems and other papers and documents relating to the Receivables, whether in
the possession or under the control of the Debtor or any computer bureau or
agent from time to time acting for the Debtor or otherwise, (c) all evidences of
the filing of financing statements and the registration of other instruments in
connection therewith and amendments, supplements or other modifications
thereto, notices to other creditors or secured
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parties, and certificates, acknowledgments, or other writings, including without
limitation lien search reports, from filing or other registration officers, (d)
all credit information, reports and memoranda relating thereto, and (e) all
other written or non-written forms of information related in any way to the
foregoing or any Receivable.
"Security Agreement" shall mean this Security Agreement, as the same
may from time to time be amended, supplemented or otherwise modified.
"Secured Obligations" shall mean all "Obligations" as such term is
defined in Article I of the Loan Agreement, together with all other obligations
from time to time owing by the Borrower, the Debtor or any affiliate of either
of them under or in connection with the Loan Documents and the Immediately
Payable Termination Fee and the Immediately Payable Cash-Out Right (each as
defined in the applicable Merger Document) payable under the Merger Documents.
"UCC" shall mean the Uniform Commercial Code as in effect from time
to time in the State of New York or in any other applicable jurisdiction.
ARTICLE II
GRANT OF SECURITY INTERESTS
As security for the prompt and complete payment and performance in
full of all of the Secured Obligations, the Debtor hereby assigns, pledges and
transfers to the Secured Parties and grants to the Secured Parties a security
interest in and continuing Lien on all of the Debtor's right, title and interest
in, to and under the following, in each case, whether now owned or existing or
hereafter acquired or arising, and wherever located (all of which being
hereinafter collectively called the "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) the Collateral Account;
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(v) all Collateral Records;
(vi) all Deposit Accounts;
(vii) all Documents;
(viii) all Equipment;
(ix) all Fixtures;
(x) all General Intangibles;
(xi) all Hedging Agreements;
(xii) all Instruments;
(xiii) all Insurance Policies;
(xiv) all Inventory;
(xv) all Money;
(xvi) all Motor Vehicles;
(xvii) all Receivables;
(xviii) all Receivables Records;
(xix) all other tangible and intangible personal
property;
(xx) all accessions and additions to any or all of the
foregoing, all substitutions and replacements for any or all of the
foregoing and all Proceeds or products of any or all of the foregoing;
provided, however, that there is expressly excluded from the grant of a
security interest contained in this Article II each and every property or asset
which,
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by its terms may not be assigned or encumbered, or as to which disclosure
of same is not permitted.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Debtor hereby represents and warrants to the Secured Parties,
which representations and warranties shall survive execution and delivery of
this Security Agreement, as follows:
3.1 Validity, Perfection and Priority. (a) The security interests in
the Collateral granted to the Secured Parties hereunder constitute valid and
continuing security interests in the Collateral; and
(b) (i) upon filing of financing statements naming the Debtor
as "debtor" and each Secured Party as "secured party" in the filing offices set
forth on Schedule I hereto, the security interests in the Collateral (other than
Instruments and Chattel Paper) granted to the Secured Parties hereunder will
constitute perfected security interests therein superior and prior to all Liens,
rights or claims of all other Persons (other than Permitted Liens); and (ii)
upon the delivery to the Agent of such items of the Collateral that constitute
Instruments or Chattel Paper, the security interests in such items of collateral
granted to the Secured Parties hereunder will constitute perfected security
interests therein superior and prior to all Liens, rights or claims of all other
Persons (other than Permitted Liens).
3.2 No Liens; Other Financing Statements. (a) Except for the Lien
granted to the Secured Parties hereunder, the Debtor owns and, as to all
Collateral whether now existing or hereafter acquired, will continue to own,
each item of the Collateral free and clear of any and all Liens, rights or
claims of all other Persons other than Permitted Liens, and the Debtor shall
defend the Collateral against all claims and demands of all Persons at any time
claiming the same or any interest therein adverse to the Secured Parties.
(b) No financing statement or other evidence of any Lien
covering or purporting to cover any of the Collateral is on file in any public
office other than (i) financing statements filed or to be filed in connection
with the security interests granted to the Secured Parties hereunder, and (ii)
financing statements filed in connection with Permitted Liens.
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3.3 Chief Executive Office. The chief executive office of the Debtor
is located at ________________________________________.
3.4 Location of Inventory and Equipment. All inventory and equipment
now or from time to time included in the Collateral will be located at the
respective addresses set forth in Schedule II hereto.
ARTICLE IV
COVENANTS
The Debtor covenants and agrees with the Secured Parties that from
and after the date of this Security Agreement:
4.1 Further Assurances.
(a) The Debtor will from time to time at the expense of the
Debtor, promptly execute, deliver, file and record all further instruments,
indorsements and other documents, and take such further action as either Secured
Party may deem reasonably necessary or desirable in obtaining the full benefits
of this Security Agreement and of the rights, remedies and powers herein
granted, including, without limitation, the following:
(i) the filing of any financing statements, in form
acceptable to the Secured Parties under the UCC in effect in any
jurisdiction with respect to the liens and security interests granted
hereby;
(ii) the delivery to the Agent of all items of
Collateral constituting Instruments (including, without limitation,
certificated securities) or Chattel Paper, together with undated
instruments of transfer executed by the Debtor in blank that are in form
and substance acceptable to the Agent and such certificates and other
documents as the Agent may reasonably request with respect thereto; and
(iii) furnish to the Secured Parties from time to time
statements and schedules further identifying and describing
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the Collateral and such other reports in connection with the Collateral as
either Secured Party may reasonably request, all in reasonable detail and
in form satisfactory to such Secured Party.
(b) The Debtor hereby authorizes each Secured Party to file
any financing statement without the signature of the Debtor to the extent
permitted by applicable law. A photocopy or other reproduction of this Security
Agreement shall be sufficient as a financing statement and may be filed in lieu
of the original to the extent permitted by applicable law. The Debtor will pay
or reimburse the Secured Parties for all filing fees and related expenses
incurred by either Secured Party in connection therewith.
4.2 Change of Name; Identity; Corporate Structure; or Chief
Executive Office Location of Inventory and Equipment. The Debtor will not change
its name, identity, corporate structure or the location of its chief executive
office or locations of its inventory or equipment specified in Schedule II
without (i) giving the Secured Parties at least ten (10) days' prior written
notice clearly describing such new name, identity, corporate structure or new
location and providing such other information in connection therewith as the
Secured Parties may reasonably request, and (ii) taking all action satisfactory
to the Secured Parties as either Secured Party may reasonably request to
maintain the security interest of the Secured Parties in the Collateral intended
to be granted hereby at all times fully perfected with the same or better
priority and in full force and effect.
4.3 Maintain Records. The Debtor will keep and maintain at its own
cost and expense satisfactory and complete records of the Collateral.
4.4 Right of Inspection. Upon reasonable prior notice, the Secured
Parties shall at all times have full and free access during normal business
hours to all the books, correspondence and records of the Debtor, and the
Secured Parties and their representatives may examine the same, take extracts
therefrom and make photo copies thereof, and the Debtor agrees to render the
Secured Parties at the Debtor's cost and expense, such clerical and other
assistance as may be reasonable requested with regard thereto. Upon reasonable
prior notice, the Secured Parties and their representatives shall at all times
also have the right to enter into and upon any premises where any of the
inventory or equipment is located for the purpose of inspecting the same,
observing its use or otherwise protecting its interests therein.
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4.5 Insurance. The Debtor will maintain, with financially sound and
reputable insurers acceptable to the Secured Parties and licensed to do business
in each state in which any of the Collateral covered by any policy is located,
insurance with respect to the Collateral and its use, against loss or damage of
the kinds customarily insured against by reputable companies in the same or
similar businesses, similarly situated, such insurance to be of such types and
in such amounts (with such deductible amounts) as is customary for such
companies under the same or similar circumstances, similarly situated.
4.6 Payment of Obligations. The Debtor will pay promptly when due
all taxes, assessments and governmental charges or levies imposed upon the
Collateral, as well as all claims of any kind (including, without limitation,
claims for labor, materials, supplies and services) against or with respect to
the Collateral.
4.7 Negative Pledge. The Debtor will not create, incur or permit to
exist, will defend the Collateral against, and will take such other action as is
necessary to remove, any Lien or claim on or to the Collateral, other than the
Liens created hereby and Permitted Liens.
4.8 Limitations on Dispositions of Collateral. The Debtor will not
sell, transfer, lease or otherwise dispose of any of the Collateral, or attempt,
offer or contract to do so except in the ordinary course of its business.
4.9 Performance by the Secured Parties of the Debtor's Obligations;
Reimbursement. If the Debtor fails to perform or comply with any of its
agreements contained herein, either Secured Party may, without notice to or
consent by the Debtor, perform or comply or cause performance or compliance
therewith and the expenses of such Secured Party incurred in connection with
such performance or compliance, together with interest thereon at the rate of
interest then applicable to the Loans, shall be payable by the Debtor to such
Secured Party on demand and such reimbursement obligation shall be secured
hereby.
4.10 Maintaining the Collateral Account. So long as any of the
Secured Obligations shall remain unpaid: it shall be a term and condition of the
Collateral Account that the Secured Parties, and each of them acting alone,
shall have the sole right to withdraw funds or hold any funds in the Collateral
Account, and the Debtor hereby agrees and acknowledges that the Secured Parties
and each of them shall have exclusive dominion and control of the Collateral
Account, and that the Secured Parties, or either of them shall be the sole
Person entitled to give
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instructions to release, withdraw or transfer funds in the Collateral Account.
Neither Secured Party shall have any obligation to invest any funds from time to
time in the Collateral Account in any interest-bearing investment.
ARTICLE V
POWER OF ATTORNEY
The Debtor hereby irrevocably constitutes and appoints each Secured
Party and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of the Debtor and in the name of the Debtor or in its own
name, from time to time in each Secured Party's discretion, for the purpose of
carrying out the terms of this Security Agreement, to, at any time that an
Event of Acceleration has occurred and is continuing, take any and all
appropriate action and execute any and all documents and instruments which in
any such case may be necessary or desirable in the reasonable judgment of either
Secured Party to accomplish the purposes of this Security Agreement.
The Debtor hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.
ARTICLE VI
REMEDIES; RIGHTS UPON DEFAULT
6.1 Rights and Remedies Generally. If an Event of Acceleration shall
occur and be continuing, then and in every such case, the Secured Parties shall
have all the rights of a secured party under the UCC, shall have all rights now
or hereafter existing under all other applicable laws, and, subject to any
mandatory requirements of applicable law then in effect, shall have all the
rights set forth in this Security Agreement and all the rights set forth with
respect to the Collateral or this Security Agreement in any other security
agreement between the parties.
6.2 Assembly of Collateral. If an Event of Acceleration shall occur
and be continuing, upon five days notice to the Debtor, the Debtor shall, at its
own expense, assemble the Collateral (or from time to time any portion thereof)
and
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make it available to the Secured Parties at any place or places designated by
the Secured Parties which is reasonably convenient to the parties.
6.3 Disposition of Collateral. The Secured Parties will give the
Debtor reasonable notice of the time and place of any public sale of the
Collateral or any part thereof or of the time after which any private sale or
any other intended disposition thereof is to be made. The Debtor agrees that the
requirements of reasonable notice to it shall be met if such notice is mailed,
postage prepaid to its address specified in Section 3.3 of this Security
Agreement (or such other address that the Debtor may provide to the Secured
Parties in writing) at least five (5) days before the time of any public sale or
after which any private sale may be made.
6.4 Recourse. The Debtor shall remain liable for any deficiency if
the proceeds of any sale or other disposition of the Collateral are insufficient
to satisfy the Secured Obligations. The Debtor shall also be liable for all
expenses of the Secured Parties incurred in connection with collecting such
deficiency, including, without limitation, the reasonable fees and disbursements
of any attorneys employed by the Secured Parties to collect such deficiency.
6.5 Expenses; Attorneys Fees. The Debtor shall reimburse the Secured
Parties for all of their expenses in connection with the exercise of their
rights hereunder, including, without limitation, all reasonable attorneys' fees
and legal expenses incurred by either Secured Party. Expenses of retaking,
holding, preparing for sale, selling or the like shall include the reasonable
attorneys' fees and legal expenses of the Secured Parties. All such expenses
shall be secured hereby.
6.6 Limitation on Duties Regarding Preservation of Collateral. Each
Secured Party's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the UCC
or otherwise, shall be to deal with it in the same manner as such Secured Party
deals with similar property for its own account.
(a) The Secured Parties shall have no obligation to take any
steps to preserve rights against prior parties to any Collateral.
(b) Neither the Secured Parties nor any of their directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon all or any part of the Collateral or for any delay in doing so or
shall be under
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any obligation to sell or otherwise dispose of any Collateral upon the request
of the Debtor or otherwise.
6.7 Application of Proceeds. The Secured Parties hereby agree that
all proceeds received on account of any sale or other disposition of any
Collateral, and all Collateral applied directly in satisfaction of any Secured
Obligations, shall be applied as follows: first, to the payment of all expenses
incurred under section 6.5 hereof, second, to the payment of all interest
accrued and owing on the Loans under the Loan Agreement until paid in full,
third, to the payment of all principal due and owing on the Loans under the Loan
Agreement, until paid in full, fourth, to the payment of any expenses relating
to or other amounts arising under the Loan Agreement not covered by clause the
"first" hereof, and fifth, to the payment of Secured Obligations due and owing
under the Merger Documents until paid in full.
ARTICLE VII
MISCELLANEOUS
7.1 Indemnity. The Debtor agrees to indemnify, reimburse and hold
the Secured Parties and their officers, directors, employees, representatives
and agents ("Indemnitees") harmless from any and all liabilities, obligations,
losses, damages, penalties, claims, actions, judgments, suits, costs or expenses
or disbursements (including reasonable attorneys' fees and expenses) for
whatsoever kind or nature which may be imposed on, asserted against or incurred
by any of the Indemnitees in any way relating to or arising out of this Security
Agreement or the transactions contemplated hereby. The obligations of the Debtor
under this Section shall be secured hereby and shall survive payment and
performance or discharge of the Obligations and the termination of this Security
Agreement.
7.2 Governing Law. THIS SECURITY AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
7.3 Notices. Except as otherwise expressly provided herein, all
notices, requests and demands to or upon the respective parties hereto to be
effective shall be in writing (including by telecopy, telex, or cable
communication), and shall be deemed to have been duly given or made when
delivered by hand, or five days after being deposited in the United States mail,
postage prepaid, or, in the case of
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telex notice, when sent, answer-back received, or in the case of telecopy
notice, when sent, or in the case of a nationally recognized overnight courier
service, one Business Day after delivery to such courier service, addressed, in
the case of each party hereto, at its address specified on the signature pages
hereof or to such other address as may be designated by any party in a written
notice to the other party hereto.
7.4 Successors and Assigns. This Security Agreement shall be binding
upon and inure to the benefit of the Debtor, the Secured Parties, all future
holders of the Secured Obligations and their respective successors and assigns,
except that neither party may assign or transfer any of its rights or
obligations under this Security Agreement without the prior written consent of
the other party.
7.5 Waivers and Amendments. None of the terms or provisions of this
Security Agreement may be waived, amended, supplemented or otherwise modified
except by a written instrument executed by the party against whom enforcement is
sought. In the case of any waiver, the Debtor and the Secured Parties shall be
restored to their former position and rights hereunder and under the outstanding
Secured Obligations, and any Event of Acceleration waived shall be deemed to be
cured and not continuing, but no such waiver shall extend to any subsequent or
other Event of Acceleration, or impair any right consequent thereon.
7.6 No Waiver; Remedies Cumulative. No failure or delay on the part
of either Secured Party in exercising any right, power or privilege hereunder
and no course of dealing between the Debtor and the Secured Parties shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by a
Secured Party of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which such Secured Party would
otherwise have on any future occasion. The rights and remedies expressly
provided herein and in the other Loan Documents and Merger Documents are
cumulative and may be exercised singly or concurrently and as often and in such
order as the Secured Parties deem expedient and are not exclusive of any rights
or remedies which the Secured Parties would otherwise have whether by security
agreement or now or hereafter existing under applicable law. No notice to or
demand on the Debtor in any case shall entitle the Debtor to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Secured Parties to any other or future action in any
circumstances without notice or demand.
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7.7 Termination; Release. When the Secured Obligations have been
paid in full this Security Agreement shall terminate, and the Secured Parties,
at the request and sole expense of the Debtor, will execute and deliver to the
Debtor the proper instruments (including UCC termination statements)
acknowledging the termination of this Security Agreement, and will duly assign,
transfer and deliver to the Debtor, without recourse, representation or warranty
of any kind whatsoever, such of the Collateral as may be in possession of the
Secured Parties and has not theretofore been disposed of, applied or released.
7.8 Headings Descriptive. The headings of the several Sections and
subsections of this Security Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Security Agreement.
7.9 Severability. In case any provision in or obligation under this
Security Agreement or the Secured Obligations shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.
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IN WITNESS WHEREOF, the Debtor and the Secured Parties have caused
this Security Agreement to be duly executed and delivered as of the date first
above written.
HASBRO, INC.
By:
------------------------------
Name:
Title:
HASBRO INTERACTIVE, INC.
By:
------------------------------
Name:
Title:
[DEBTOR]
By:
------------------------------
Name:
Title:
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<PAGE> 62
Schedule I
Filing Offices
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Schedule II
Location of Inventory and Equipment
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<PAGE> 64
Exhibit C-2-A
INTELLECTUAL PROPERTY SECURITY AGREEMENT
<PAGE> 65
TRADEMARK SECURITY AGREEMENT
TRADEMARK SECURITY AGREEMENT (the "Trademark Agreement") dated as of
August __, 1998, between ____________, a ___________ corporation (the "Debtor"),
Hasbro, Inc., a Rhode Island corporation ("Hasbro"), and Hasbro Interactive,
Inc., a Delaware corporation (together with Hasbro, the "Secured Parties")
WHEREAS, the Debtor and Hasbro are parties to a Loan and Distribution
Agreement, dated as of August __, 1998, (as amended and in effect from time to
time, the "Agreement"), between the Debtor and Hasbro,
WHEREAS, the Debtor has executed and delivered to the Secured Parties a
Security Agreement, dated August __, 1998 (the "Security Agreement"), pursuant
to which the Debtor has granted to the Secured Parties a security interest in
certain of the Debtor's property, including without limitation all trademarks,
service marks, trademark and service mark registrations, and trademark and
service mark registration applications listed on Schedule A attached hereto, all
to secure the payment and performance of the Secured Obligations (as defined in
the Security Agreement);
WHEREAS, this Trademark Agreement is supplemental to the provisions
contained in the Security Agreement;
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ss.1. Definitions. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings provided therefor in the Security
Agreement.
ss.2. Grant of Security Interest.
(1) As security for the prompt and complete payment and performance in
full of all of the Secured Obligations, the Debtor hereby assigns, pledges and
transfers to the Secured Parties and grants to the Secured Parties a security
interest in and continuing lien on all of the Debtor's right, title and interest
in, to and under the following, in each case, whether now owned or existing or
hereafter acquired or arising, and wherever located: (a) any and all trademarks,
trade names, corporate names, business names, trade styles, service marks,
logos, other source or business identifiers, designs and general intangibles of
like nature, and all registrations, applications, and recordings thereof,
including, without limitation, registrations, recordings, and applications in
the United States Patent and Trademark Office (the "PTO") or any similar office
or agency of the United States, any State thereof or any other country or any
political subdivision thereof including, but not limited to those U.S. and
foreign registered trademarks and applications on Schedule A hereto (the
"Trademarks") and (b) any reissues, extensions or renewals thereof and (c) all
goodwill of the Debtor and its business, products and services appurtenant to,
associated with or symbolized by the Trademarks and (d) the proceeds thereof
including (i) any and all accounts, chattel paper, instruments, other forms of
money or currency or other proceeds payable to Debtor from time to time in
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respect of the Trademarks, (ii) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Debtor from time to time with respect
to any of the Trademarks, (iii) any and all payments (in any form whatsoever)
made or due and payable to Debtor from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Trademarks any governmental authority (or any person or entity
acting under color of governmental authority), (iv) any claim of Debtor against
third parties for past, present, or future infringement or dilution of any
Trademark or any injury to the goodwill associated with any Trademark, and (v)
any and all other amounts from time to time paid or payable under or in
connection with any of the Trademarks
(2) The Debtor has executed in blank and delivered to the Secured Parties
an assignment of registered trademarks in substantially the form of Exhibit 1
hereto (the "Assignment of Marks"). The Debtor hereby authorizes each Secured
Party to complete as Secured Party and record with the PTO the Assignment of
Marks attached hereto as Exhibit 1 solely upon the occurrence and during the
continuance of an Event of Default and the exercise of the Secured Parties'
remedies under this Trademark Agreement and the Security Agreement.
(3) Pursuant to the Security Agreement, the Debtor has granted to the
Secured Parties a security interest in the Collateral (including the
Trademarks). The Security Agreement, and all rights and interests of the Secured
Parties in and to the Collateral (including the Trademarks) thereunder are
hereby ratified and confirmed in all respects. In no event shall this Trademark
Agreement, the grant, assignment, conveyance, mortgage, pledge, hypothecation,
and transfer of a security interest in the Trademarks hereunder, or the
recordation of this Trademark Agreement (or any document hereunder) with the PTO
or any state or foreign trademark registry adversely affect or impair the
Security Agreement, the security interest of the Secured Parties in the
Collateral (including the Trademarks) pursuant to the Security Agreement, the
attachment and perfection of such security interest in the Collateral (including
the security interest in the Trademarks), under the Uniform Commercial Code, or
any present or future rights and interests of the Secured Parties in and to the
Collateral under or in connection with the Security Agreement, this Trademark
Agreement, or the Uniform Commercial Code. Any and all rights and interests of
the Secured Parties in and to the Trademarks (and any and all obligations of the
Debtor with respect to the Trademarks) provided herein, or arising hereunder or
in connection herewith, shall only supplement and be cumulative and in addition
to the rights and interests of the Secured Parties (and the obligations of the
Debtor) in, to or with respect to the Collateral (including the Trademarks)
provided in or arising under or in connection with the Security Agreement and
shall not be in derogation thereof. In the event of any irreconcilable conflict
between the provisions of this Trademark Agreement and the Agreement, or between
this Trademark Agreement and the Security Agreement, the provisions of the
Agreement or the Security Agreement, as the case may be, shall control.
ss.3. Representations, Warranties and Covenants. The Debtor represents,
warrants and covenants that, except as previously or concurrently disclosed in
writing by Debtor to Secured Parties:
(a) Schedule A hereto sets forth a true and complete list of all
registered Trademarks and Trademark applications owned by Debtor;
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(b) The Trademarks are subsisting and have not been adjudged invalid or
unenforceable, in whole or in part, and there is no litigation or proceeding
pending concerning the validity or enforceability of the Trademarks;
(c) To the best of the Debtor's knowledge, each of the Trademarks is valid
and enforceable;
(d) To the best of the Debtor's knowledge, there is no infringement by
others of the Trademarks;
(e) No claim has been made that the use of any of the Trademarks violates
the rights of any third person and, to the best of the Debtor's knowledge, there
is no infringement by the Debtor of the trademark rights of others;
(f) The Debtor is the sole and exclusive owner of the entire and
unencumbered right, title, and interest in and to each of the Trademarks, free
and clear of any liens, charges, encumbrances, and adverse claims, and other
than the security interest and assignment created by the Security Agreement and
this Trademark Agreement, and free and clear of all licenses and registered user
agreements and covenants by Debtor not to sue third persons, except as
previously disclosed to the Secured Parties in writing by the Debtor;
(g) The Debtor has the unqualified right to enter into this Trademark
Agreement and to perform its terms and has entered and will enter into written
agreements with each of its present and future employees, agents, consultants,
licensors and licensees that will enable them to comply with the covenants
herein contained;
(h) The Debtor has used, and will continue to use, proper statutory and
other appropriate proprietary notices in connection with its use of the
Trademarks;
(i) The Debtor has used, and will continue to use, consistent standards of
quality in its manufacture and provision of products and services sold or
provided under the Trademarks;
(j) This Trademark Agreement, together with the Security Agreement, will
create in favor of the Secured Parties perfected security interests in the
Trademarks protected under the laws of the United States or any State thereof
superior and prior to all liens, rights or claims of all other persons, (other
than Permitted Liens, as described in the Security Agreement), upon making the
filings and recordations referred to in clause (k) of this ss.3; and
(k) Except for the filing of financing statements with the Secretary of
State of the State of California under the Uniform Commercial Code and the
recording of this Trademark Agreement with the PTO, no authorization, approval
or other action by, and no notice to or filing with, any governmental or
regulatory authority, agency or office is required either (i) for the grant by
the Debtor or the effectiveness of the security interest and assignment granted
hereby or for the execution, delivery and performance of this Trademark
Agreement by the Debtor, or (ii) for the perfection of or the exercise by the
Secured Parties of any of their rights and remedies hereunder.
ss.4. Inspection Rights. The Debtor hereby grants to the Secured Parties
and their employees and agents the right to visit the Debtor's plants and
facilities that manufacture, inspect, or store
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products sold under any of the Trademarks, and to inspect the products and
quality control records relating thereto at reasonable times during regular
business hours and upon reasonable notice.
ss.5. No Transfer or Inconsistent Agreements. Without the Secured Parties'
prior written consent and except for licenses of the Trademarks in the ordinary
course of the Debtor's business consistent with its past practices, the Debtor
will not (a) transfer, license, or otherwise dispose or alienate any of its
rights in the Trademarks, or (b) enter into any agreement that is inconsistent
with the Debtor's obligations under this Trademark Agreement or the Security
Agreement.
ss.6. After-acquired Trademarks.
(a) If, before the Secured Obligations shall have been finally paid and
satisfied in full, the Debtor shall obtain any right, title or interest in or to
any other or new Trademarks, then the provisions of this Trademark Agreement
shall automatically apply thereto and, upon the acquisition of any rights in any
Trademark registration or application not identified on Schedule A hereto,
Debtor shall promptly (and in no event longer than 30 days following the
acquisition of rights in such Trademark registration or application) provide to
the Secured Parties notice thereof in writing and execute and deliver to the
Secured Parties such documents or instruments as the Secured Parties may
reasonably request further to implement, preserve or evidence the Secured
Parties' interest therein.
(b) The Debtor authorizes the Secured Parties to modify this Trademark
Agreement and the Assignment of Marks, without the necessity of the Debtor's
further approval or signature, by amending Schedule A hereto and the Annex to
the Assignment of Marks to include any other or new Trademarks.
ss.7. Trademark Prosecution.
(a) The Debtor shall assume full and complete responsibility for the
prosecution, defense, enforcement or any other necessary or desirable actions in
connection with the Trademarks and shall hold the Secured Parties harmless from
any and all costs, damages, liabilities and expenses that may be incurred by the
Secured Parties in connection with the Secured Parties' interest in the
Trademarks or any action or failure to act by Debtor in connection with this
Trademark Agreement or the transactions contemplated hereby.
(b) With respect to all Trademarks which are material to the Debtor's
business, the Debtor shall have the right and the duty, through trademark
counsel acceptable to the Secured Parties, to (i) prosecute diligently any
applications to register such Trademarks pending as of the date of this
Trademark Agreement or thereafter, (ii) to preserve and maintain all rights in
such Trademarks including the filing of appropriate renewal applications and
other instruments to maintain in effect such Trademarks and (iii) pay when due
all registration renewal fees and other fees, taxes and other expenses that
shall be incurred or that shall accrue. Any expenses incurred in connection with
such actions shall be borne by the Debtor. Further, the Debtor shall not abandon
any Trademark (or registration or application therefore) which is material to
the Debtor's business, without the consent of the Secured Parties.
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(c) The Debtor shall have the right and the duty to bring suit or other
action in the Debtor's own name to maintain and enforce the Trademarks which are
material to its business. The Debtor may require the Secured Parties to join in
such suit or action as necessary to assure the Debtor's ability to bring and
maintain any such suit or action in any proper forum if (but only if) the Debtor
is completely satisfied that such joinder will not subject the Secured Parties
to any risk of liability. The Debtor shall promptly, upon demand, reimburse and
indemnify the Secured Parties for all damages, costs and expenses, including
legal fees, incurred by the Secured Parties pursuant to this ss.7(c).
(d) In general, the Debtor shall take any and all such actions (including
institution and maintenance of suits, proceedings, or actions) as may be
necessary or appropriate to properly maintain, protect, preserve, and enforce
the Trademarks which are material to Debtor's business. The Debtor shall not
take or fail to take any action, nor permit any action to be taken or not taken
by others under its control, that would adversely affect the validity, grant or
enforcement of such Trademarks.
(e) Promptly upon obtaining knowledge thereof, the Debtor will notify the
Secured Parties in writing of the institution of, or any final adverse
determination in, any proceeding in the PTO or any similar office or agency of
the United States or any foreign country, or any court, regarding the validity
of any of the Trademarks or the Debtor's rights, title, or interests in and to
the Trademarks, and of any event that does or reasonably could materially
adversely affect the value of any of the Trademarks, the ability of the Debtor
or the Secured Parties to dispose of any of the Trademarks, or the rights and
remedies of the Secured Parties in relation thereto.
ss.8. Remedies.
(a) Upon the occurrence and during the continuance of an Event of Default,
the Secured Parties shall have, in addition to all other rights and remedies
given it by this Trademark Agreement, the Security Agreement, those allowed by
law and the rights and remedies of a secured party under the UCC, the right to,
immediately, without demand of performance and without other notice (except as
set forth next below) or demand whatsoever to the Debtor, all of which are
hereby expressly waived, sell or license at public or private sale or otherwise
realize upon the whole or from time to time any part of the Trademarks, or any
interest that the Debtor may have therein, and, after deducting from the
proceeds of sale or other disposition of the Trademarks all expenses incurred by
the Secured Parties in attempting to enforce this Trademark Agreement (including
all reasonable expenses for broker's fees and legal services), shall apply the
residue of such proceeds toward the payment of the Secured Obligations as set
forth in or by reference in the Security Agreement. Notice of any sale, license,
or other disposition of the Trademarks shall be given to the Debtor at least
five (5) days before the time that any intended public sale or other public
disposition of the Trademarks is to be made or after which any private sale or
other private disposition of the Trademarks may be made, which the Debtor hereby
agrees shall be reasonable notice of such public or private sale or other
disposition. At any such sale or other disposition, the Secured Parties may, to
the extent permitted under applicable law, purchase or license the whole or any
part of the Trademarks or interests therein sold, licensed or otherwise disposed
of.
(b) The Debtor hereby grants to the Secured Parties, effective upon the
occurrence and during the continuance of an Event of Default, in order to
exercise its rights and remedies as
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<PAGE> 70
contemplated in Section 8(a) herein with respect to the Trademarks or any other
Collateral, a non-exclusive right and license to use the Trademarks, provided
that: (i) the goods sold or services offered under the Trademarks shall be of a
quality substantially consistent with those heretofore offered under such
Trademarks by the Debtor; (ii) the Debtor shall have the right to inspect, at
reasonable intervals and upon reasonable notice, representative samples of goods
sold under the Trademarks and the premises where such goods are manufactured;
and (iii) the Trademark shall be used only in conjunction with goods and
services of the nature previously offered by the Debtor under such Trademarks.
ss.9. Collateral Protection. If the Debtor shall fail to do any act that
it has covenanted to do hereunder, or if any representation or warranty of the
Debtor shall be breached, the Secured Parties, in their own names or that of the
Debtor (in the sole discretion of the Secured Parties), may (but shall not be
obligated to) do such act or remedy such breach (or cause such act to be done or
such breach to be remedied), and the Debtor agrees promptly to reimburse the
Secured Parties for any reasonable cost or expense incurred by the Secured
Parties in so doing.
ss.10. Power of Attorney. If any Event of Default shall have occurred and
be continuing, the Debtor does hereby make, constitute and appoint the Secured
Parties (and any officer or agent of the Secured Parties as the Secured Parties
may select in their exclusive discretion) as the Debtor's true and lawful
attorney-in-fact, with full power of substitution and with the power to endorse
the Debtor's name on all applications, documents, papers, and instruments
necessary for the Secured Parties to use the Trademarks, or to grant or issue
any exclusive or nonexclusive license of any of the Trademarks to any third
person, or to take any and all actions necessary for the Secured Parties to
assign, pledge, convey or otherwise transfer title in or dispose of the
Trademarks or any interest of the Debtor therein to any third person, and, in
general, to execute and deliver any instruments or documents and do all other
acts that the Debtor is obligated to execute and do hereunder. The Debtor hereby
ratifies all that such attorney shall lawfully do or cause to be done by virtue
hereof, and releases the Secured Parties from any claims, liabilities, causes of
action or demands arising out of or in connection with any action taken or
omitted to be taken by the Secured Parties under this power of attorney (except
for the Secured Parties' gross negligence or willful misconduct). This power of
attorney is coupled with an interest and shall be irrevocable for the duration
of this Trademark Agreement.
ss.11. Further Assurances. The Debtor shall, at any time and from time to
time, and at its expense, make, execute, acknowledge and deliver, and file and
record as necessary or appropriate with governmental or regulatory authorities,
agencies or offices, such agreements, assignments, documents and instruments,
and do such other and further acts and things (including, without limitation,
obtaining consents of third parties), as the Secured Parties may request or as
may be necessary or appropriate in order to implement and effect fully the
intentions, purposes and provisions of this Trademark Agreement, or to assure
and confirm to the Secured Parties the grant, perfection, and priority of the
Secured Parties' security interest in any of the Trademarks.
ss.12. Termination. At such time as all of the Secured Obligations have
been indefeasibly paid and satisfied in full, this Trademark Agreement shall
terminate and the Secured Parties shall, upon the written request and at the
expense of the Debtor, execute and deliver to the Debtor all deeds, assignments
and other instruments as may be necessary or proper to reassign, reconvey, and
re-vest in and to the Debtor the entire right, title and interest to the
Trademarks previously granted,
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<PAGE> 71
assigned, transferred and conveyed to the Secured Parties by the Debtor pursuant
to this Trademark Agreement, as fully as if this Trademark Agreement had not
been made, subject to any disposition of all or any part thereof that may have
been made by the Secured Parties pursuant hereto or the Security Agreement.
ss.13. Course of Dealing. No course of dealing between the Debtor and the
Secured Parties, nor any failure to exercise, nor any delay in exercising, on
the part of the Secured Parties, any right, power or privilege hereunder or
under the Security Agreement or any other agreement shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.
ss.14. Expenses. Any and all fees, costs and expenses, of whatever kind or
nature, including the reasonable attorneys' fees and legal expenses incurred by
the Secured Parties in connection with the preparation of this Trademark
Agreement and all other documents relating hereto, the consummation of the
transactions contemplated hereby or the enforcement hereof, the filing or
recording of any documents (including all taxes in connection therewith) in
public offices, the payment or discharge of any taxes, counsel fees, maintenance
or renewal fees, encumbrances or otherwise protecting, maintaining or preserving
the Trademarks, or in defending or prosecuting any actions or proceedings
arising out of or related to the Trademarks, shall be borne and paid by the
Debtor.
ss.15. No Assumption of Liability; Indemnification. NOTWITHSTANDING
ANYTHING TO THE CONTRARY CONTAINED HEREIN, THE SECURED PARTIES ASSUME NO
LIABILITIES OF THE DEBTOR WITH RESPECT TO ANY CLAIM OR CLAIMS REGARDING THE
DEBTOR'S OWNERSHIP OR PURPORTED OWNERSHIP OF, OR RIGHTS OR PURPORTED RIGHTS
ARISING FROM, ANY OF THE TRADEMARKS OR ANY USE, LICENSE, OR SUBLICENSE THEREOF,
WHETHER ARISING OUT OF ANY PAST, CURRENT OR FUTURE EVENT, CIRCUMSTANCE, ACT OR
OMISSION OR OTHERWISE. ALL OF SUCH LIABILITIES SHALL BE EXCLUSIVELY THE
RESPONSIBILITY OF THE DEBTOR, AND THE DEBTOR SHALL INDEMNIFY THE SECURED PARTIES
FOR ANY AND ALL COSTS, EXPENSES, DAMAGES AND CLAIMS, INCLUDING LEGAL FEES,
INCURRED BY THE SECURED PARTIES WITH RESPECT TO SUCH LIABILITIES.
ss.16. Notices. All notices and other communications made or required to
be given pursuant to this Trademark Agreement shall be in writing and shall be
delivered in hand, mailed by United States registered or certified first-class
mail, postage prepaid, or sent by telecopy and confirmed by delivery via courier
or postal service, to the addresses provided in the Agreement.
Any such notice or demand shall be deemed to have been duly given or made
and to have become effective (i) if delivered by hand to a responsible officer
of the party to which it is directed, at the time of the receipt thereof by such
officer, (ii) if sent by registered or certified first-class mail, postage
prepaid, three (3) business days after the posting thereof, and (iii) if sent by
telecopy or telex, at the time of the dispatch thereof, if in normal business
hours in the country of receipt, or otherwise at the opening of business on the
following business day.
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ss.17. Amendment and Waiver. This Trademark Agreement is subject to
modification only by a writing signed by the Secured Parties and the Debtor,
except as provided in Section 6(b). The Secured Parties shall not be deemed to
have waived any right hereunder unless such waiver shall be in writing and
signed by the Secured Parties. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right on any future occasion.
ss.18. Governing Law; Consent to Jurisdiction. THIS TRADEMARK AGREEMENT IS
INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE. The Debtor
agrees that any suit for the enforcement of this Trademark Agreement may be
brought in the courts of the State of Delaware or any federal court sitting
therein and consents to the exclusive jurisdiction of such court and to service
of process in any such suit being made upon the Debtor by mail at the address
specified in Section 16. The Debtor hereby waives any objection that it may now
or hereafter have to the venue of any such suit or any such court or that such
suit is brought in an inconvenient court.
ss.19. Waiver of Jury Trial. THE DEBTOR WAIVES ITS RIGHT TO A JURY TRIAL
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS TRADEMARK AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE
PERFORMANCE OF ANY SUCH RIGHTS OR SECURED OBLIGATIONS. Except as prohibited by
law, the Debtor waives any right which it may have to claim or recover in any
litigation referred to in the preceding sentence any special, exemplary,
punitive or consequential damages or any damages other than, or in addition to,
actual damages. The Debtor (a) certifies that neither the Secured Parties nor
any representatives, agents or attorneys of the Secured Parties have
represented, expressly or otherwise, that the Secured Parties would not, in the
event of litigation, seek to enforce the foregoing waivers, and (b) acknowledges
that, in entering into the Agreement, the Secured Parties are relying upon,
among other things, the waivers and certifications contained in this Section 19.
ss.20. Miscellaneous.
(a) The headings of each section of this Trademark Agreement are for
convenience only and shall not define or limit the provisions thereof.
(b) This Trademark Agreement and all rights and obligations hereunder
shall be binding upon the Debtor and its respective successors and assigns, and
shall inure to the benefit of the Secured Parties and its successors and
assigns.
(c) If any term of this Trademark Agreement shall be held to be invalid,
illegal or unenforceable, the validity of all other terms hereof shall in no way
be affected thereby, and this Trademark Agreement shall be construed and be
enforceable as if such invalid, illegal or unenforceable term had not been
included herein.
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IN WITNESS WHEREOF, this Trademark Agreement has been executed as of the
day and year first above written.
[DEBTOR]
By:
-----------------------
Name:
Title:
Agreed and Acknowledged:
HASBRO INTERACTIVE, INC.
By:
-----------------------
Name:
Title:
HASBRO, INC.
By:
-----------------------
Name:
Title:
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<PAGE> 74
COMMONWEALTH OR STATE OF _______________)
) ss.
COUNTY OF ______________________________)
Before me, the undersigned, a Notary Public in and for the county
aforesaid, on this ___ day of _____, 19__, personally appeared __________ to me
known personally, and who, being by me duly sworn, deposes and says that he is
the _____ of __________, and that said instrument was signed and sealed on
behalf of said corporation by authority of its Board of Directors, and said
__________ acknowledged said instrument to be the free act and deed of said
corporation.
---------------------------
Notary Public
My commission expires:
C-2-A-10
<PAGE> 75
Schedule A
Trademarks
C-2-A-11
<PAGE> 76
Exhibit 1
ASSIGNMENT OF TRADEMARKS
WHEREAS, _____________, a _____________ corporation (the "Debtor"), has
adopted and used and is using the trademarks and service marks (the "Marks")
identified on the Annex hereto, and is the owner of the registrations of and
pending registration applications for such Marks in the Patent and Trademark
Office identified on such Annex; and
WHEREAS, ______________, a corporation organized and existing under the
laws of the State of ________ (the "Secured Party"), is desirous of acquiring
the Marks and the registrations and applications therefor;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the Debtor does hereby assign, sell and transfer unto the
Secured Party all right, title and interest in and to the Marks, together with
(a) the registrations applications for the Marks, including, but not limited to
those registrations and applications on the Annex hereto and all reissues,
extensions, and renewals thereof, (b) the goodwill of the business, products,
and services appurtenant to, associated with, and symbolized by the Marks and
(c) the proceeds thereof including (i) any and all accounts, chattel paper,
instruments, other forms of money or currency or other proceeds payable to
Debtor from time to time in respect of the Marks, (ii) any and all proceeds of
any insurance, indemnity, warranty or guaranty payable to Debtor from time to
time with respect to any of the Marks, (iii) any and all payments (in any form
whatsoever) made or due and payable to Debtor from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Marks any governmental authority (or any Person acting under
color of governmental authority), (iv) any claim of Debtor against third parties
for past, present, or future infringement or dilution of any Mark or any injury
to the goodwill associated with any Mark, and (v) any and all other amounts from
time to time paid or payable under or in connection with any of the Marks.
This Assignment of Trademarks is intended to and shall take effect at such
time as the Secured Party shall complete this instrument by inserting its name
in the second paragraph above and signing its acceptance of this Assignment of
Trademarks below.
C-2-A-12
<PAGE> 77
IN WITNESS WHEREOF, the Debtor, by its duly authorized officer, has
executed this assignment, as an instrument under seal, on this _____ day of
_________, 199_.
[DEBTOR]
By:
-------------
Title:
-------------
The foregoing Assignment of Trademarks by the Debtor to the Secured
Parties is hereby accepted as of the _____ day of __________, __.
By:
-------------
Title:
-------------
C-2-A-13
<PAGE> 78
COMMONWEALTH OR STATE OF _______________)
) ss.
COUNTY OF ______________________________)
On this the ___ day of _____, 199_, before me appeared __________, the
person who signed this instrument, who acknowledged that (s)he is the _____ of
__________ and that being duly authorized (s)he signed such instrument as a free
act on behalf of __________.
-------------------------
Notary Public
My commission expires:
COMMONWEALTH OR STATE OF _______________)
) ss.
COUNTY OF ______________________________)
On this the ___ day of _____, 199_, before me appeared __________, the
person who signed this instrument, who acknowledged that (s)he is the _____ of
__________ and that being duly authorized (s)he signed such instrument as a free
act on behalf of __________.
-------------------------
Notary Public
My commission expires:
C-2-A-14
<PAGE> 79
Annex
Schedule of Trademarks
C-2-A-15
<PAGE> 80
Exhibit C-2-B
INTELLECTUAL PROPERTY SECURITY AGREEMENT
<PAGE> 81
COPYRIGHT SECURITY AGREEMENT
COPYRIGHT SECURITY AGREEMENT (the" Copyright Agreement") dated as of
August __, 1998, between ______________, a __________ corporation (the
"Debtor"), Hasbro, Inc., a Rhode Island corporation ("Hasbro"), and Hasbro
Interactive, Inc., a Delaware corporation (together with Hasbro, the "Secured
Parties")
WHEREAS, the Debtor and Hasbro are parties to a Loan and Distribution
Agreement, dated as of August __, 1998, (as amended and in effect from time to
time, the "Agreement"), between the Debtor and Hasbro,
WHEREAS, the Debtor has executed and delivered to the Secured Parties a
Security Agreement, dated August __, 1998 (the "Security Agreement"), pursuant
to which the Debtor has granted to the Secured Parties a security interest in
certain of the Debtor's property, including without limitation all copyrights,
copyright registrations, and copyright applications listed on Schedules A and B
attached hereto, all to secure the payment and performance of the Secured
Obligations (as defined in the Security Agreement);
WHEREAS, this Copyright Agreement is supplemental to the provisions
contained in the Security Agreement;
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ss.1. Definitions. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings provided therefor in the Security
Agreement.
ss.2. Grant of Security Interest.
(a) As security for the prompt and complete payment and performance in
full of all of the Secured Obligations, the Debtor hereby assigns, pledges and
transfers to the Secured Parties and grants to the Secured Parties a security
interest in and continuing lien on all of the Debtor's right, title and interest
in, to and under the following, in each case, whether now owned or existing or
hereafter acquired or arising, and wherever located: (a) any and all copyrights
and all registrations, applications, and recordings, thereof, including, without
limitation, registrations, recordings, and applications in the United States
Copyright Office (the "Copyright Office") or any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof including, but not limited to those U.S. and foreign
registered Copyrights and applications on Schedules A and B hereto and (b)
derivative works thereof (together with subsection (a), the "Copyrights") and
(c) any reissues, extensions or renewals thereof and (d) the proceeds thereof
including (i) any and all accounts, chattel paper, instruments, other forms of
money or currency or other proceeds payable to Debtor from time to time in
respect of the Copyrights, (ii) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Debtor from time to time with respect
to any of the Copyrights, (iii) any and all payments (in any form whatsoever)
made or due and payable to Debtor from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Copyrights any governmental authority (or any person or entity
acting under color of governmental authority), (iv) any claim of Debtor against
third parties for past, present, or future infringement of any Copyright, and
(v) any and all other amounts from time to time paid or payable under or in
connection with any of the Copyrights
C-2-B-1
<PAGE> 82
(b) The Debtor has executed in blank and delivered to the Secured Parties
an assignment of registered Copyrights in substantially the form of Exhibit 1
hereto (the "Assignment of Copyrights"). The Debtor hereby authorizes each
Secured Party to complete as Secured Party and record with the Copyright Office
the Assignment of Copyrights attached hereto as Exhibit 1 solely upon the
occurrence and during the continuance of an Event of Default and the exercise of
the Secured Parties' remedies under this Copyright Agreement and the Security
Agreement.
(c) Pursuant to the Security Agreement, the Debtor has granted to the
Secured Parties a security interest in the Collateral (including the
Copyrights). The Security Agreement, and all rights and interests of the Secured
Parties in and to the Collateral (including the Copyrights) thereunder are
hereby ratified and confirmed in all respects. In no event shall this Copyright
Agreement, the grant, assignment, conveyance, mortgage, pledge, hypothecation,
and transfer of a security interest in the Copyrights hereunder, or the
recordation of this Copyright Agreement (or any document hereunder) with the
Copyright Office or any state or foreign copyright registry adversely affect or
impair the Security Agreement, the security interest of the Secured Parties in
the Collateral (including the Copyrights) pursuant to the Security Agreement,
the attachment and perfection of such security interest in the Collateral
(including the security interest in the Copyrights), under the Uniform
Commercial Code, or any present or future rights and interests of the Secured
Parties in and to the Collateral under or in connection with the Security
Agreement, this Copyright Agreement, or the Uniform Commercial Code. Any and all
rights and interests of the Secured Parties in and to the Copyrights (and any
and all obligations of the Debtor with respect to the Copyrights) provided
herein, or arising hereunder or in connection herewith, shall only supplement
and be cumulative and in addition to the rights and interests of the Secured
Parties (and the obligations of the Debtor) in, to or with respect to the
Collateral (including the Copyrights) provided in or arising under or in
connection with the Security Agreement and shall not be in derogation thereof.
In the event of any irreconcilable conflict between the provisions of this
Copyright Agreement and the Agreement, or between this Copyright Agreement and
the Security Agreement, the provisions of the Agreement or the Security
Agreement, as the case may be, shall control.
ss.3. Representations, Warranties and Covenants. The Debtor represents,
warrants and covenants that, except as previously or concurrently disclosed in
writing by Debtor to the Secured Parties:
(a) Schedules A and B hereto set forth a true and complete list of all
registered Copyrights and Copyright applications owned by Debtor;
(b) With respect to the copyright registrations and applications set forth
in Schedule A:
(i) The Copyrights are subsisting and have not been adjudged
invalid or unenforceable, in whole or in part, and there is no litigation or
proceeding pending concerning the validity or enforceability of the Copyrights;
(ii) To the best of the Debtor's knowledge, each of the
Copyrights is valid and enforceable;
(iii) To the best of the Debtor's knowledge, there is no
infringement by others of the Copyrights;
(iv) No claim has been made that the use of any of the
Copyrights violates the rights of any third person and, to the best of the
Debtor's knowledge, there is no infringement by the Debtor of the Copyright
rights of others;
C-2-B-2
<PAGE> 83
(v) The Debtor is the sole and exclusive owner of the entire
and unencumbered right, title, and interest in and to each of the Copyrights,
free and clear of any liens, charges, encumbrances, and adverse claims, and
other than the security interest and assignment created by the Security
Agreement and this Copyright Agreement, and free and clear of all licenses and
registered user agreements and covenants by Debtor not to sue third persons,
except as previously disclosed to the Secured Parties in writing by the Debtor;
(vi) The Debtor has the unqualified right to enter into this
Copyright Agreement and to perform its terms and has entered and will enter into
written agreements with each of its present and future employees, agents,
consultants, licensors and licensees that will enable them to comply with the
covenants herein contained;
(vii) The Debtor has used, and will continue to use, proper
statutory and other appropriate proprietary notices in connection with its use
of the Copyrights;
(viii) This Copyright Agreement, together with the Security
Agreement, will create in favor of the Secured Parties perfected security
interests in the Copyrights protected under the laws of the United States or any
State thereof superior and prior to all liens, rights or claims of all other
persons, (other than Permitted Liens, as described in the Security Agreement),
upon making the filings and recordations referred to in Section 3(b)(ix); and
(ix) Except for the filing of financing statements with the
Secretary of State of the State of California under the Uniform Commercial Code
and the recording of this Copyright Agreement with the Copyright Office, no
authorization, approval or other action by, and no notice to or filing with, any
governmental or regulatory authority, agency or office is required either (i)
for the grant by the Debtor or the effectiveness of the security interest and
assignment granted hereby or for the execution, delivery and performance of this
Copyright Agreement by the Debtor, or (ii) for the perfection of or the exercise
by the Secured Parties of any of their rights and remedies hereunder.
(c) With respect to the copyright registrations and applications set forth
in Schedule B:
(i) The Copyrights have not been adjudged invalid or
unenforceable, in whole or in part, and there is no litigation or proceeding
pending concerning the validity or enforceability of the Copyrights; and
(ii) The Copyrights have not been cancelled.
ss.4. No Transfer or Inconsistent Agreements. Without the Secured Parties'
prior written consent and except for licenses of the Copyrights in the ordinary
course of the Debtor's business consistent with its past practices, the Debtor
will not (a) transfer, license, or otherwise dispose or alienate any of its
rights in the Copyrights, or (b) enter into any agreement that is inconsistent
with the Debtor's obligations under this Copyright Agreement or the Security
Agreement.
ss.5. After-acquired Copyrights.
(a) If, before the Secured Obligations shall have been finally paid and
satisfied in full, the Debtor shall obtain any right, title or interest in or to
any other or new copyrights, then the provisions of this Copyright Agreement
shall automatically apply thereto and, upon the acquisition of any rights in any
Copyright registration or application not identified on Schedules A or B hereto,
Debtor shall promptly (and in no event longer than 30 days following the
acquisition of rights in such copyright registration or application) provide to
the Secured
C-2-B-3
<PAGE> 84
Parties notice thereof in writing and execute and deliver to the Secured Parties
such documents or instruments as the Secured Parties may reasonably request
further to implement, preserve or evidence the Secured Parties' interest
therein.
(b) The Debtor authorizes the Secured Parties to modify this Copyright
Agreement and the Assignment of Copyrights, without the necessity of the
Debtor's further approval or signature, by amending Exhibit A hereto and the
Annex to the Assignment of Copyrights to include any other or new Copyrights.
ss.6. Copyright Prosecution.
(a) The Debtor shall assume full and complete responsibility for the
prosecution, defense, enforcement or any other necessary or desirable actions
in connection with the Copyrights and shall hold the Secured Parties harmless
from any and all costs, damages, liabilities and expenses that may be incurred
by the Secured Parties in connection with the Secured Parties' interest in the
Copyrights or any action or failure to act by Debtor in connection with this
Copyright Agreement or the transactions contemplated hereby.
(b) With respect to all Copyrights which are material to the Debtor's
business, the Debtor shall have the right and the duty, through copyright
counsel acceptable to the Secured Parties, to (i) prosecute diligently any
applications to register such Copyrights pending as of the date of this
Copyright Agreement or thereafter, (ii) to preserve and maintain all rights in
such Copyrights including the filing of appropriate renewal applications and
other instruments to maintain in effect such Copyrights and (iii) pay when due
all registration renewal fees and other fees, taxes and other expenses that
shall be incurred or that shall accrue. Any expenses incurred in connection with
such actions shall be borne by the Debtor. Further, the Debtor shall not abandon
any Copyright (or registration or application therefore) which is material to
the Debtor's business, without the consent of the Secured Parties.
(c) The Debtor shall have the right and the duty to bring suit or other
action in the Debtor's own name to maintain and enforce the Copyrights which are
material to its business. The Debtor may require the Secured Parties to join in
such suit or action as necessary to assure the Debtor's ability to bring and
maintain any such suit or action in any proper forum if (but only if) the Debtor
is completely satisfied that such joinder will not subject the Secured Parties
to any risk of liability. The Debtor shall promptly, upon demand, reimburse and
indemnify the Secured Parties for all damages, costs and expenses, including
legal fees, incurred by the Secured Parties pursuant to this Section 6(c).
(d) In general, the Debtor shall take any and all such actions (including
institution and maintenance of suits, proceedings, or actions) as may be
necessary or appropriate to properly maintain, protect, preserve, and enforce
the Copyrights which are material to Debtor's business. The Debtor shall not
take or fail to take any action, nor permit any action to be taken or not taken
by others under its control, that would adversely affect the validity, grant or
enforcement of such Copyrights.
(e) Promptly upon obtaining knowledge thereof, the Debtor will notify the
Secured Parties in writing of the institution of, or any final adverse
determination in, any proceeding in the Copyright Office or any similar office
or agency of the United States or any foreign country, or any court, regarding
the validity of any of the Copyrights or the Debtor's rights, title, or
interests in and to the Copyrights, and of any event that does or reasonably
could materially adversely affect the value of any of the Copyrights, the
ability of the Debtor or the Secured Parties to dispose of any of the
Copyrights, or the rights and remedies of the Secured Parties in relation
thereto.
C-2-B-4
<PAGE> 85
ss.7. Remedies.
(a) Upon the occurrence and during the continuance of an Event of Default,
the Secured Parties shall have, in addition to all other rights and remedies
given it by this Copyright Agreement, the Security Agreement, those allowed by
law and the rights and remedies of a secured party under the UCC, the right to,
immediately, without demand of performance and without other notice (except as
set forth next below) or demand whatsoever to the Debtor, all of which are
hereby expressly waived, sell or license at public or private sale or otherwise
realize upon the whole or from time to time any part of the Copyrights, or any
interest that the Debtor may have therein, and, after deducting from the
proceeds of sale or other disposition of the Copyrights all expenses incurred by
the Secured Parties in attempting to enforce this Copyright Agreement (including
all reasonable expenses for broker's fees and legal services), shall apply the
residue of such proceeds toward the payment of the Secured Obligations as set
forth in or by reference in the Security Agreement. Notice of any sale, license,
or other disposition of the Copyrights shall be given to the Debtor at least
five (5) days before the time that any intended public sale or other public
disposition of the Copyrights is to be made or after which any private sale or
other private disposition of the Copyrights may be made, which the Debtor hereby
agrees shall be reasonable notice of such public or private sale or other
disposition. At any such sale or other disposition, the Secured Parties may, to
the extent permitted under applicable law, purchase or license the whole or any
part of the Copyrights or interests therein sold, licensed or otherwise disposed
of.
(b) The Debtor hereby grants to the Secured Parties, effective upon the
occurrence and during the continuance of an Event of Default, in order to
exercise its rights and remedies as contemplated in Section 7(a) herein with
respect to the Copyrights or any other Collateral, a non-exclusive right and
license to use the Copyrights.
ss.8. Collateral Protection. If the Debtor shall fail to do any act that
it has covenanted to do hereunder, or if any representation or warranty of the
Debtor shall be breached, the Secured Parties, in their own names or that of the
Debtor (in the sole discretion of the Secured Parties), may (but shall not be
obligated to) do such act or remedy such breach (or cause such act to be done or
such breach to be remedied), and the Debtor agrees promptly to reimburse the
Secured Parties for any reasonable cost or expense incurred by the Secured
Parties in so doing.
ss.9. Power of Attorney. If any Event of Default shall have occurred and
be continuing, the Debtor does hereby make, constitute and appoint the Secured
Parties (and any officer or agent of the Secured Parties as the Secured Parties
may select in their exclusive discretion) as the Debtor's true and lawful
attorney-in-fact, with full power of substitution and with the power to endorse
the Debtor's name on all applications, documents, papers, and instruments
necessary for the Secured Parties to use the Copyrights, or to grant or issue
any exclusive or nonexclusive license of any of the Copyrights to any third
person, or to take any and all actions necessary for the Secured Parties to
assign, pledge, convey or otherwise transfer title in or dispose of the
Copyrights or any interest of the Debtor therein to any third person, and, in
general, to execute and deliver any instruments or documents and do all other
acts that the Debtor is obligated to execute and do hereunder. The Debtor hereby
ratifies all that such attorney shall lawfully do or cause to be done by virtue
hereof, and releases the Secured Parties from any claims, liabilities, causes of
action or demands arising out of or in connection with any action taken or
omitted to be taken by the Secured Parties under this power of attorney (except
for the Secured Parties' gross negligence or willful misconduct). This power of
attorney is coupled with an interest and shall be irrevocable for the duration
of this Copyright Agreement.
ss.10. Further Assurances. The Debtor shall, at any time and from time to
time, and at its expense, make, execute, acknowledge and deliver, and file and
record as necessary or appropriate with governmental or regulatory authorities,
agencies or offices, such agreements, assignments, documents and instruments,
and do
C-2-B-5
<PAGE> 86
such other and further acts and things (including, without limitation, obtaining
consents of third parties), as the Secured Parties may request or as may be
necessary or appropriate in order to implement and effect fully the intentions,
purposes and provisions of this Copyright Agreement, or to assure and confirm to
the Secured Parties the grant, perfection, and priority of the Secured Parties'
security interest in any of the Copyrights.
ss.11. Termination. At such time as all of the Secured Obligations have
been indefeasibly paid and satisfied in full, this Copyright Agreement shall
terminate and the Secured Parties shall, upon the written request and at the
expense of the Debtor, execute and deliver to the Debtor all deeds, assignments
and other instruments as may be necessary or proper to reassign, reconvey, and
re-vest in and to the Debtor the entire right, title and interest to the
Copyrights previously granted, assigned, transferred and conveyed to the Secured
Parties by the Debtor pursuant to this Copyright Agreement, as fully as if this
Copyright Agreement had not been made, subject to any disposition of all or any
part thereof that may have been made by the Secured Parties pursuant hereto or
the Security Agreement.
ss.12. Course of Dealing. No course of dealing between the Debtor and the
Secured Parties, nor any failure to exercise, nor any delay in exercising, on
the part of the Secured Parties, any right, power or privilege hereunder or
under the Security Agreement or any other agreement shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.
ss.13. Expenses. Any and all fees, costs and expenses, of whatever kind or
nature, including the reasonable attorneys' fees and legal expenses incurred by
the Secured Parties in connection with the preparation of this Copyright
Agreement and all other documents relating hereto, the consummation of the
transactions contemplated hereby or the enforcement hereof, the filing or
recording of any documents (including all taxes in connection therewith) in
public offices, the payment or discharge of any taxes, counsel fees, maintenance
or renewal fees, encumbrances or otherwise protecting, maintaining or preserving
the Copyrights, or in defending or prosecuting any actions or proceedings
arising out of or related to the Copyrights, shall be borne and paid by the
Debtor.
ss.14. No Assumption of Liability; Indemnification. NOTWITHSTANDING
ANYTHING TO THE CONTRARY CONTAINED HEREIN, THE SECURED PARTIES ASSUME NO
LIABILITIES OF THE DEBTOR WITH RESPECT TO ANY CLAIM OR CLAIMS REGARDING THE
DEBTOR'S OWNERSHIP OR PURPORTED OWNERSHIP OF, OR RIGHTS OR PURPORTED RIGHTS
ARISING FROM, ANY OF THE COPYRIGHTS OR ANY USE, LICENSE, OR SUBLICENSE THEREOF,
WHETHER ARISING OUT OF ANY PAST, CURRENT OR FUTURE EVENT, CIRCUMSTANCE, ACT OR
OMISSION OR OTHERWISE. ALL OF SUCH LIABILITIES SHALL BE EXCLUSIVELY THE
RESPONSIBILITY OF THE DEBTOR, AND THE DEBTOR SHALL INDEMNIFY THE SECURED PARTIES
FOR ANY AND ALL COSTS, EXPENSES, DAMAGES AND CLAIMS, INCLUDING LEGAL FEES,
INCURRED BY THE SECURED PARTIES WITH RESPECT TO SUCH LIABILITIES.
ss.15. Notices. All notices and other communications made or required to
be given pursuant to this Copyright Agreement shall be in writing and shall be
delivered in hand, mailed by United States registered or certified first-class
mail, postage prepaid, or sent by telecopy and confirmed by delivery via courier
or postal service, to the addresses provided in the Agreement.
Any such notice or demand shall be deemed to have been duly given or made
and to have become effective (i) if delivered by hand to a responsible officer
of the party to which it is directed, at the time of the receipt thereof by such
officer, (ii) if sent by registered or certified first-class mail, postage
prepaid, three (3)
C-2-B-6
<PAGE> 87
business days after the posting thereof, and (iii) if sent by telecopy or telex,
at the time of the dispatch thereof, if in normal business hours in the country
of receipt, or otherwise at the opening of business on the following business
day.
ss.16. Amendment and Waiver. This Copyright Agreement is subject to
modification only by a writing signed by the Secured Parties and the Debtor,
except as provided in Section 5(b). The Secured Parties shall not be deemed to
have waived any right hereunder unless such waiver shall be in writing and
signed by the Secured Parties. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right on any future occasion.
ss.17. Governing Law; Consent to Jurisdiction. THIS COPYRIGHT AGREEMENT IS
INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE. The Debtor
agrees that any suit for the enforcement of this Copyright Agreement may be
brought in the courts of the State of Delaware or any federal court sitting
therein and consents to the exclusive jurisdiction of such court and to service
of process in any such suit being made upon the Debtor by mail at the address
specified in Section 15. The Debtor hereby waives any objection that it may now
or hereafter have to the venue of any such suit or any such court or that such
suit is brought in an inconvenient court.
ss.18. Waiver of Jury Trial. THE DEBTOR WAIVES ITS RIGHT TO A JURY TRIAL
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS COPYRIGHT AGREEMENT, ANY RIGHTS OR SECURED OBLIGATIONS HEREUNDER OR
THE PERFORMANCE OF ANY SUCH RIGHTS OR SECURED OBLIGATIONS. Except as prohibited
by law, the Debtor waives any right which it may have to claim or recover in any
litigation referred to in the preceding sentence any special, exemplary,
punitive or consequential damages or any damages other than, or in addition to,
actual damages. The Debtor (a) certifies that neither the Secured Parties nor
any representatives, agents or attorneys of the Secured Parties have
represented, expressly or otherwise, that the Secured Parties would not, in the
event of litigation, seek to enforce the foregoing waivers, and (b) acknowledges
that, in entering into the Agreement, the Secured Parties are relying upon,
among other things, the waivers and certifications contained in this Section 18.
ss.19. Miscellaneous.
(a) The headings of each section of this Copyright Agreement are for
convenience only and shall not define or limit the provisions thereof.
(b) This Copyright Agreement and all rights and obligations hereunder
shall be binding upon the Debtor and its respective successors and assigns, and
shall inure to the benefit of the Secured Parties and its successors and
assigns.
(c) If any term of this Copyright Agreement shall be held to be invalid,
illegal or unenforceable, the validity of all other terms hereof shall in no way
be affected thereby, and this Copyright Agreement shall be construed and be
enforceable as if such invalid, illegal or unenforceable term had not been
included herein.
C-2-B-7
<PAGE> 88
IN WITNESS WHEREOF, this Copyright Agreement has been executed as of the
day and year first above written.
[DEBTOR]
By:
-------------------
Name:
Title:
Agreed and Acknowledged:
HASBRO INTERACTIVE, INC.
By:
-------------------
Name:
Title:
HASBRO, INC.
By:
-------------------
Name:
Title:
C-2-B-8
<PAGE> 89
COMMONWEALTH OR STATE OF _____________)
) ss.
COUNTY OF ____________________________)
Before me, the undersigned, a Notary Public in and for the county
aforesaid, on this ___ day of _____, 19__, personally appeared to me known
personally, and who, being by me duly sworn, deposes and says that he is the
_____ of __________, and that said instrument was signed and sealed on behalf of
said corporation by authority of its Board of Directors, and said __________
acknowledged said instrument to be the free act and deed of said corporation.
-------------------------
Notary Public
My commission expires:
C-2-B-9
<PAGE> 90
Copyrights
Schedule A
C-2-B-10
<PAGE> 91
Schedule B
C-2-B-11
<PAGE> 92
Exhibit 1
ASSIGNMENT OF COPYRIGHTS
WHEREAS, ____________, a ______________ corporation (the "Debtor"), is the
owner of the copyrights (the "Copyrights") identified on the Annex hereto, and
is the owner of the registrations of and pending registration applications for
such Copyrights in the United States Copyright Office identified on such Annex;
and
WHEREAS, _______________, a corporation organized and existing under the
laws of the State of _________ (the "Secured Party"), is desirous of acquiring
the Copyrights and the registrations and applications therefor;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the Debtor does hereby assign, sell and transfer unto the
Secured Party all right, title and interest in and to the Copyrights, together
with (a) the registrations applications for the Copyrights, including, but not
limited to those registrations and applications on the Annex hereto and all
reissues, extensions, and renewals thereof, (b) any derivative works thereof (c)
the proceeds thereof including (i) any and all accounts, chattel paper,
instruments, other forms of money or currency or other proceeds payable to
Debtor from time to time in respect of the Copyrights, (ii) any and all proceeds
of any insurance, indemnity, warranty or guaranty payable to Debtor from time to
time with respect to any of the Copyrights, (iii) any and all payments (in any
form whatsoever) made or due and payable to Debtor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Copyrights any governmental authority (or
any Person acting under color of governmental authority), (iv) any claim of
Debtor against third parties for past, present, or future infringement of any
Copyright or any injury to the goodwill associated with any Copyright, and (v)
any and all other amounts from time to time paid or payable under or in
connection with any of the Copyrights.
C-2-B-12
<PAGE> 93
This Assignment of Copyrights is intended to and shall take effect at such
time as the Secured Party shall complete this instrument by inserting its name
in the second paragraph above and signing its acceptance of this Assignment of
Copyrights below.
IN WITNESS WHEREOF, the Debtor, by its duly authorized officer, has
executed this assignment, as an instrument under seal, on this ___ day of
______, 199_.
[DEBTOR]
By:
-----------------
Title:
--------------
The foregoing Assignment of Copyrights by the Debtor to the Secured
Parties is hereby accepted as of the _____ day of _______, __.
By:
-----------------
Title:
--------------
C-2-B-13
<PAGE> 94
COMMONWEALTH OR STATE OF _______________)
) ss.
COUNTY OF ______________________________)
On this the ___ day of _____, 199_, before me appeared __________, the
person who signed this instrument, who acknowledged that (s)he is the _____ of
__________ and that being duly authorized (s)he signed such instrument as a free
act on behalf of __________.
-----------------------
Notary Public
My commission expires:
COMMONWEALTH OR STATE OF _______________)
) ss.
COUNTY OF ______________________________)
On this the ___ day of _____, 199_, before me appeared __________, the
person who signed this instrument, who acknowledged that (s)he is the _____ of
__________ and that being duly authorized (s)he signed such instrument as a free
act on behalf of __________.
-----------------------
Notary Public
My commission expires:
C-2-B-14
<PAGE> 95
Annex
Schedule of Copyrights
C-2-B-15
<PAGE> 96
Exhibit D
NOTICE OF BORROWING
[__________], 1998
Hasbro Interactive, Inc.
50 Dunham Road
Beverly, MA 01915
Attention: Thomas Dusenberry, President
Gentlemen:
Reference is made to the Software Distribution and Loan Agreement
dated as of August 11, 1998 (as amended, supplemented or otherwise modified,
(the "Agreement") between MICROPROSE, INC., a Delaware corporation (the
"Borrower"), and Hasbro Interactive, Inc., a Delaware corporation (the
"Lender"). Capitalized terms used herein and not otherwise defined herein have
the meanings given such terms in the Agreement.
The Borrower hereby gives you notice, irrevocably, pursuant to
Section 6.5(f) of the Agreement that the Borrower is requesting that a Loan in
an original principal amount of $[ ] be made under the Agreement on [ ],
1998 (the "Drawdown Date"), which day is a Business Day. After giving effect to
the making of such Loan, the aggregate original principal amount of Loans made
under the Agreement will be $[ ].
The Borrower hereby represents and warrants for the benefit of the
Lender on and as of each of the date hereof and the Drawdown Date that:
(a) this Notice of Borrowing has been duly authorized by all
necessary action on the part of the Borrower and its members, has been duly
executed and delivered by the Borrower and constitutes the legal, valid and
binding obligation of the Borrower;
(b) the representations and warranties of the Borrower set
forth in the Agreement and the other Loan Documents are true and correct in all
material respects as though made on and as of the date hereof and the Drawdown
Date, except to the extent such representations and warranties specifically
relate to a different date;
D-1
<PAGE> 97
(c) no event or circumstance has occurred and is continuing,
or would result from the making of the Loans requested hereby or the use of the
proceeds thereof, which constitutes a Default or an Event of Default; and
(d) the proceeds of the Loan will be used to fund Publisher's
operating working capital needs for the period [ ], 1998 to [ ], 1998 and
such uses are itemized on Schedule I hereto consistent with past practice.
Very truly yours,
MICROPROSE, INC.
By:
----------------------
Name:
Title:
D-2
<PAGE> 1
Exhibit 4
MICROPROSE LOGO
August 14, 1998
To Our Stockholders:
On behalf of the Board of Directors of MicroProse, Inc. (the "Company"), we
are pleased to inform you that on August 11, 1998, the Company entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Hasbro, Inc. and New
HIAC Corp., its wholly owned subsidiary, pursuant to which New HIAC Corp. today
has commenced a cash tender offer (the "Offer") to purchase all of the
outstanding shares (the "Shares") of the Common Stock of the Company at $6.00
per share. Pursuant to the Merger Agreement, the Offer will be followed by a
merger (the "Merger") of New HIAC Corp. with and into the Company in which any
remaining shares of Common Stock of the Company will be cancelled and converted
into the right to receive $6.00 per share in cash, without interest thereon
(except any Shares as to which the holder has properly exercised dissenter's
rights of appraisal).
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY
ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the attached
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
that is being filed today with the Securities and Exchange Commission. Among
other things, the Board of Directors considered the opinion of its financial
advisor, Piper Jaffray, Inc., that the consideration to be received by the
holders of Shares in the Offer and Merger is fair to such holders from a
financial point of view.
In addition to the attached Schedule 14D-9, enclosed is the Offer to
Purchase dated August 14, 1998 1998, together with related materials, including
a Letter of Transmittal, to be used for tendering your Shares in the Offer.
These documents state the terms and conditions of the Offer and the Merger and
provide instructions as to how to tender your Shares. We urge you to read these
documents carefully in making your decision with respect to tendering your
shares pursuant to the Offer.
On behalf of the Board of Directors,
/s/ Stephen M. Race
Stephen M. Race
Chief Executive Officer and Director
MicroProse, Inc. - 2490 Mariner Square Loop - Alameda, CA 94501 - 510 864
4440 - 510 864 4600
<PAGE> 1
EXHIBIT 5
ANNEX A
[PIPER JAFFRAY LOGO]
PIPER JAFFRAY INC.
222 SOUTH NINTH STREET
MINNEAPOLIS, MN 55402-3804
612 342-6000
August 10, 1998
The Board of Directors
c/o MicroProse, Inc.
2490 Mariner Square Loop, Suite 100
Alameda, CA 94501
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of common stock (the "Common Stock") of MicroProse, Inc.
(the "Company") of the consideration to be received by holders of Common Stock,
pursuant to an Agreement and Plan of Merger proposed to be dated as of August
11, 1998 (the "Agreement") among the Company, Hasbro, Inc. (the "Parent") and
New HIAC Corp. (the "Purchaser"), a wholly owned subsidiary of the Parent. The
Agreement provides for (i) the commencement by Purchaser of a tender offer (the
"Offer") to purchase all outstanding shares of Common Stock at a price of $6.00
per share, net to seller in cash (the "Offer Price"), and (ii) the merger (the
"Merger") of the Purchaser into the Company in which shares of Common Stock will
be converted and exchanged for cash equal to the Offer Price. The Offer and the
Merger are collectively referred to as the "Transactions."
Piper Jaffray Inc., as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, underwriting and secondary distributions of
securities, private placements and valuations for estate, corporate and other
purposes. We will receive a fee for providing this opinion. This opinion fee is
not contingent upon the consummation of the Transactions. The Company has also
agreed to indemnify us against certain liabilities in connection with our
services. Piper Jaffray is entitled to additional fees in the event of
consummation of the Transactions. Piper Jaffray makes a market in the Common
Stock and provides research coverage on the Company. In the ordinary course of
our business, we and our affiliates may actively trade securities of the Company
for our own account or the account of our customers and, accordingly, may at any
time hold a long or short position in such securities. We have performed for a
fee various investment banking services for the Company in the past.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed (i) the draft dated August 8, 1998 of the
Agreement, (ii) certain publicly available financial, operating and business
information related to the Company, (iii) certain internal financial information
of the Company prepared for financial planning purposes and furnished by the
management of the Company, (iv) certain publicly available
Since 1895, Member SIPC
New York Stock Exchange,
Inc.
A-1
<PAGE> 2
market and securities data of the Company, (v) to the extent publicly available,
financial terms of certain acquisition transactions involving companies
operating in industries deemed similar to that in which the Company operates and
selected public companies deemed comparable to Company, (vi) certain publicly
available financial, operating and business information relative to the Parent,
and (vii) certain publicly available market and securities data of the Parent.
We had discussions with members of the management of the Company concerning the
financial condition, current operating results and business outlook for the
Company on a stand-alone basis.
We have relied upon and assumed the accuracy, completeness and fairness of the
financial statements and other information provided to us or otherwise made
available to us, and have not assumed responsibility for the independent
verification of such information. The Company does not publicly disclose
internal financial information of the type provided to Piper Jaffray in
connection with Piper Jaffray's review of the Transactions. Such information was
prepared for financial planning purposes and was not prepared with the
expectation of public disclosure. We have relied upon the assurances of the
management of the Company that the information provided to us as set forth above
has been prepared on a reasonable basis and, with respect to financial planning
data and other business outlook information, reflects the best currently
available estimates, and that they are not aware of any information or facts
that would make the information provided to us incomplete or misleading. We
have, at your direction, in reviewing and analyzing internally prepared
financial information, not given effect to the prospective impact of any
proposed software distribution arrangement with Parent.
In arriving at our opinion, we have not performed any appraisals or valuations
of any specific assets or liabilities of the Company, and have not been
furnished with any such appraisals or valuations. We express no opinion
regarding the liquidation value of any entity. The analyses performed by Piper
Jaffray in connection with this opinion were going concern analyses of an
entity. Recent reports by independent accountants to the Company have expressed
qualifications concerning the Company's ability to continue as a going concern.
Other factors could have a material adverse effect on the Company's financial
condition and the marketability of its securities. We were not requested to
opine, and no opinion is hereby rendered, as to whether any analysis of an
entity, other than as a going concern, is appropriate in the circumstance and,
accordingly, we have performed no such analyses.
Our opinion relates solely to the Transactions; we were not requested to opine
as to, and this opinion does not in any manner address, the fairness or any
other aspect of any software distribution arrangement with Parent.
This opinion is necessarily based upon the information available to us and facts
and circumstances as they exist and are subject to evaluation on the date
hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the price at which shares of Common Stock have traded or may trade
at any future time. We have not undertaken to reaffirm or revise this opinion or
otherwise comment upon any events occurring after the date hereof and do not
have any obligation to update, revise or reaffirm this opinion.
This opinion is directed to the Board of Directors of the Company and is not
intended to be and does not constitute a recommendation to any stockholder of
the Company. We were not requested to opine as to, and this opinion does not
address, the basic business decision to proceed with or effect the Transactions.
This opinion shall not be published or otherwise used, nor shall any public
references to us be made without our prior written approval.
Based upon and subject to the foregoing and based upon such other factors as we
consider relevant, it is our opinion that the Offer Price to be received in the
Transactions pursuant to the Agreement for the Common Stock of the Company is
fair, from a financial point of view, to the holders of Common Stock of the
Company as of the date hereof.
Sincerely,
PIPER JAFFRAY INC.
/s/ PIPER JAFFRAY INC.
A-2
<PAGE> 1
[MICROPROSE LETTERHEAD]
June 16, 1998
Hasbro
50 Dunham Road
Beverly, MA 01915
Attention: Mr. Ron Parkinson
Ladies and Gentlemen:
In connection with your consideration of a possible business transaction (a
"Transaction") with MicroProse, Inc. (the "Company"), the Company and you expect
to make available to one another certain nonpublic information concerning their
respective business, financial condition, operations, assets and liabilities. As
a condition to such information being furnished to each party and its directors,
officers, employees, agents or advisors (including, without limitation,
attorneys, accountants, consultants, bankers and financial advisors)
(collectively, "Representatives"), each party agrees to treat any nonpublic
information concerning the other party (whether prepared by the disclosing
party, its advisors or otherwise and irrespective of the form of communication)
which is furnished hereunder to a party or to its Representatives now or in the
future by or on behalf of the disclosing party (herein collectively referred to
as the "Evaluation Material") in accordance with the provisions of this letter
agreement, and to take or abstain from taking certain other actions hereinafter
set forth.
(1) EVALUATION MATERIAL. The term "Evaluation Material" also shall be
deemed to include all notes, analyses, compilations, studies, interpretations or
other documents prepared by each party or its Representatives which contain,
reflect or are based upon, in whole or in part, the information furnished to
such party or its Representatives pursuant hereto which is not available to the
general public. The term "Evaluation Material" does not include information
which (i) is or becomes generally available to the public other than as a result
of a breach of this Agreement by the receiving party or its Representatives,
(ii) was within the receiving party's possession prior to its being furnished to
the receiving party by or on behalf of the disclosing party, provided that the
source of such information was not known by the receiving party to be bound by a
confidentiality agreement with or other contractual, legal or fiduciary
obligation of confidentiality to the disclosing party, (iii) is or becomes
available to the receiving party on a non-confidential basis from a source other
than the disclosing party or any of its Representatives, provided that such
source was not known by the receiving party to be bound by a confidentiality
agreement with or other contractual, legal or fiduciary obligation of
confidentiality to the disclosing party or any other party with respect to such
information, (iv) is disclosed by the disclosing party to a third party without
a duty of confidentiality, (v) is independently developed by the recipient
without use of Evaluation Material, (vi) is disclosed under operation of law, or
(vii) is disclosed by the recipient or its Representatives with the discloser's
prior written approval.
(2) PURPOSE OF DISCLOSURE OF EVALUATION MATERIAL. It is understood and
agreed to by each party that any exchange of information under this agreement
shall be solely for the purpose of evaluating a Transaction between the parties
and not to affect, in any way, each party's relative competitive position to
each party or to other entities. It is further agreed, that the information to
be disclosed to each other shall only be that information which is reasonably
necessary to a Transaction and that information which is not reasonably
necessary for such purposes shall not be disclosed or
<PAGE> 2
exchanged. For purposes of determining when information is reasonably necessary
for such purpose, legal counsel to each party shall agree, in advance, to
review information requests so as to comply with such standard. In addition,
competitively sensitive information such as information concerning product
development or marketing plans, product prices or pricing plans, cost data,
customers or similar information which has been determined to be reasonably
necessary to a Transaction, shall be limited only to those senior executives
and Representatives who are involved in evaluating or negotiating a Transaction
or approving the value of a Transaction.
(3) USE OF EVALUATION MATERIAL. Each party hereby agrees that it and its
Representatives shall use the other's Evaluation Material solely for the
purpose of evaluating a possible Transaction between the parties, and that the
disclosing party's Evaluation Material will be kept confidential and each party
and its Representatives will not disclose or use for purposes other than the
evaluation of a Transaction any of the other's Evaluation Material in any
manner whatsoever, provided, however, that (i) the receiving party may make any
disclosure of such information to which the disclosing party gives its prior
written consent and (ii) any of such information may be disclosed to the
receiving party's Representatives who need to know such information for the
sole purpose of evaluating a possible Transaction between the parties, who are
provided with a copy of this letter agreement, and who are directed by the
receiving party to treat such information confidentially.
(4) NON-DISCLOSURE. In addition, each party agrees that, without the
prior written consent of the other party, its Representatives will not disclose
to any other person the fact that any Evaluation Material has been made
available hereunder, that discussions or negotiations are taking place
concerning a Transaction involving the parties or any of the terms, conditions
or other facts with respect thereto (including the status thereof) PROVIDED,
that a party may make such disclosure if in the written opinion of a party's
outside counsel, such disclosure is necessary to avoid committing a violation
of law. In such event, the disclosing party shall use its best efforts to give
advance notice to the other party.
(5) REQUIRED DISCLOSURE. In the event that a party or its
Representatives are requested or required (by oral questions, interrogatories,
requests for information or documents in legal proceedings, subpoena, civil
investigative demand or similar process) to disclose any of the other party's
Evaluation Material, the party requested or required to make the disclosure
shall provide the other party with prompt notice of any such request or
requirement so that the other party may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this letter
agreement. If, in the absence of a protective order or other remedy or the
receipt of a waiver by such other party, the party requested or required to
make the disclosure or any of its Representatives are nonetheless, in the
opinion of counsel, legally compelled to disclose the other party's Evaluation
Material to any tribunal, the party requested or required to make the
disclosure or its Representative may, without liability hereunder, disclose to
such tribunal only that portion of the other party's Evaluation Material which
such counsel advises is legally required to be disclosed, provided that the
party requested or required to make the disclosure exercises its reasonable
efforts to preserve the confidentiality of the other party's Evaluation
Material, including, without limitation, by cooperating with the other party to
obtain an appropriate protective order or other reliable assurance that
confidential treatment will be accorded the other party's Evaluation Material
by such tribunal.
-2-
<PAGE> 3
(6) TERMINATION OF DISCUSSIONS. If either party decides that it does not
wish to proceed with a Transaction with the other party, the party so deciding
will promptly inform the other party of that decision by giving a written notice
of termination. In that case, or at any time upon the request of either
disclosing party for any reason, each receiving party will promptly deliver to
the disclosing party or destroy all written Evaluation Material (and all copies
thereof and extracts therefrom) furnished to the receiving party or its
Representatives by or on behalf of the disclosing party pursuant hereto. In the
event of such a decision or request, all other Evaluation Material prepared by
the requesting party shall be destroyed and no copy thereof shall be retained,
and in no event shall either party be obligated to disclose or provide the
Evaluation Material prepared by it or its Representatives to the other party.
Notwithstanding the return or destruction of the Evaluation Material, each party
and its Representatives will continue to be bound by its obligations of
confidentiality and other obligations hereunder.
(7) NO REPRESENTATION OF ACCURACY. Each party understands and
acknowledges that neither party nor any of its Representatives makes any
representation or warranty, express or implied, as to the accuracy or
completeness of the Evaluation Material made available by it or to it. Each
party agrees that neither party nor any of its Representatives shall have any
liability to the other party or to any of its Representatives relating to or
resulting from the use of or reliance upon such other party's Evaluation
Material or any errors therein or omissions therefrom. Only those
representations or warranties which are made in a final definitive agreement
regarding the Transaction, when, as and if executed, and subject to such
limitations and restrictions as may be specified therein, will have any legal
effect.
(8) DEFINITIVE AGREEMENTS. Each party understands and agrees that no
contract or agreement providing for any Transaction involving the parties shall
be deemed to exist between the parties unless and until a final definitive
agreement has been executed and delivered. Each party also agrees that unless
and until a final definitive agreement regarding a Transaction between the
parties has been executed and delivered, neither party will be under any legal
obligation of any kind whatsoever with respect to such a Transaction by virtue
of this letter agreement except for the matters specifically agreed to herein.
For purposes of this paragraph, the term "definitive agreement" does not
include an executed letter of intent or any other preliminary written
agreement. Both parties further acknowledge and agree that each party reserves
the right, in its sole discretion, to provide or not provide Evaluation
Material to the receiving party under this Agreement, to reject any and all
proposals made by the other party or any of its Representatives with regard to
a Transaction between the parties, and to terminate discussions and
negotiations at any time.
(9) WAIVER. It is understood and agreed that no failure or delay by
either party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or future exercise thereof or the exercise of any other
right, power or privilege hereunder.
(10) MISCELLANEOUS. Each party agrees to be responsible for any breach of
this agreement by any of its Representatives. No failure or delay by the
Company or any of its Representatives in exercising any right, power or
privileges under this agreement shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
of any right, power or privilege hereunder. In case any provision of this
agreement shall be invalid, illegal or
-3-
<PAGE> 4
unenforceable, the validity, legality and enforceability of the remaining
provisions of the agreement shall not in any way be affected or impaired
thereby.
(11) INJUNCTIVE RELIEF. It is further understood and agreed that money
damages would not be a sufficient remedy for any breach of this letter agreement
by either party or any of its Representatives and that the non-breaching party
shall be entitled to equitable relief, including injunction and specific
performance, as a remedy for any such breach. Such remedies shall not be deemed
to be the exclusive remedies for a breach of this letter agreement but shall be
in addition to all other remedies available at law or equity. In the event of
litigation relating to this letter agreement, if a court of competent
jurisdiction determines that either party or any of its Representatives have
breached this letter agreement, then the breaching party shall be liable and pay
to the non-breaching party the reasonable legal fees incurred in connection with
such litigation, including an appeal therefrom.
(12) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to agreements
made and to be performed within such State.
(13) SUBSEQUENT CONFIDENTIALITY AGREEMENTS. If the Company enters into a
confidentiality agreement similar to this agreement after the date hereof with
any entity and such agreement contains provisions on the whole less restrictive
than those set forth in this agreement, then the less restrictive provisions
shall apply to you in lieu of such other provisions.
(14) Terms for this agreement are to stay in effect for a maximum of 1
year.
-4-
<PAGE> 5
Please confirm your agreement with the foregoing by signing and returning
one copy of this letter to the undersigned, whereupon this letter agreement
shall become a binding agreement between you and the Company.
Very truly yours,
MICROPROSE, INC.
By: /s/ M. Kip Welch
---------------------------
M. Kip Welch
Vice President & General Counsel
Accepted and Agreed as of
the date first written above:
HASBRO
By: /s/ Ron Parkinson
----------------------
Name: Ron Parkinson
Title: V.P. Finance
Subject to term limitation to one year.
-5-
<PAGE> 1
Exhibit 8
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into effective as of August 16,
1995 by Spectrum HoloByte, Inc. a Delaware corporation, referred to as Company,
and Stephen M. Race, referred to as Executive.
WHEREAS, the Company desires to employ Executive and Executive desires
to be employed by the Company upon the terms and conditions set forth below.
NOW, THEREFORE, Company and Executive agree as follows:
1. EMPLOYMENT AND ELECTION AS A DIRECTOR. The Company employs Executive
within the San Francisco Bay Area as its Chief Executive Officer and Executive
accepts employment by the Company upon the terms and conditions herein set
forth. During the term of his employment, Executive shall devote his full time
and attention to the business and affairs of the Company. The Company agrees to
take all action necessary to nominate and elect Executive as a director of the
Company as soon as possible following his commencement of employment and to
continue his directorship during the term of his employment. Should Executive
not be elected a director and choose to resign as a result, then his resignation
shall be treated as an Involuntary Termination (within the meaning of Paragraph
4(e)) for all purposes of this Agreement.
2. COMPENSATION AND BENEFITS.
(a) Base Salary. The Company shall pay to Executive for all services to
be performed by Executive during the term of this Agreement a minimum base
salary at the rate of $275,000 per annum. The Board of Directors may in its
discretion increase Executive's base salary periodically either in connection
with Executive's annual review or otherwise, but in no event shall Executive's
base salary be reduced below such minimum amount without the written consent of
Executive. Amounts paid to Executive pursuant to this Paragraph 2(a) are
hereinafter referred to as "Base Salary."
(b) Performance Incentive. As additional compensation for performance of
the services rendered by Executive during the term of his employment, the
Company will pay a performance incentive amount based upon the achievement of
sales and performance goals and objectives which shall be agreed upon, in
advance, by the Board of Directors and Executive and which will permit Executive
to earn up to an additional 60% of Base Salary (up to 100% of Base Salary to the
Extent the performance goals or objectives are exceeded). Amounts paid to
Executive pursuant to this Paragraph 2(b) are hereinafter referred to as
"Incentive Compensation." For fiscal year 1996, Incentive Compensation shall be
paid at the rate of two thirds to reflect proration for the number of months
during the fiscal year in which Executive is employed. Incentive Compensation
shall be paid to Executive within
<PAGE> 2
90 days after the end of the applicable fiscal year or, if later, at the time
or times bonuses are paid to other members of senior management of the Company.
(c) Benefits. During the term of his employment or for such time as
otherwise provided in this Agreement, Executive shall be entitled to
participate in such vacation, expense reimbursement, auto allowance, life
insurance, medical and dental plans, retirement plans and other programs as are
offered from time to time by the Company to its executive employees and are
described in the Company's employee benefit handbooks; provided that, as a
minimum, Executive shall be entitled to:
(i) vacation with pay of three (3) weeks during each year of
his employment hereunder, to be taken at such times and in such periods as
Executive elects and which will not unreasonably interfere with his duties
and obligations to the Company; and
(ii) a car allowances of $700 per month.
(d) Life Insurance. The Company will maintain, at its expense,
during the term of Executive's employment, in addition to the normal group life
insurance provided for employees, life insurance insuring Executive's life in
the amount of $1,000,000, payable to the beneficiary or beneficiaries named by
Executive. The Company shall have no obligation to provide life insurance under
this subparagraph (d) if Executive is not insurable at rates less than three
times the best insurance rate available for an individual of the Executive's
age, sex, employment and place of residence.
(e) Options. The Company shall grant to Executive on the date
Executive commences employment with the Company an option to purchase up to
500,000 shares of the Company's common stock (the "Option"). The Option shall
be an incentive stock option to the greatest extent permissible under the
Federal tax laws. Except as otherwise provided herein, the Option shall become
exercisable for 12% of the shares upon Executive's completion of six months of
service measured from Executive's employment commencement date and for the
balance of the shares in a series of 42 equal monthly installments upon
Executive's completion of each month of service thereafter. The Option shall be
granted pursuant to and conform to the terms and conditions of options granted
pursuant to the Company's 1994 Stock Option Plan. The Option granted pursuant
to this subparagraph (e) shall be exercisable at a per share price equal to
100% of the fair market value of the Company common stock on the close of
business on the date Executive becomes employed by the Company ("Executive
Price").
(f) Withholding Taxes. The Company shall deduct and withhold from
the compensation payable to Executive hereunder any and all applicable Federal,
State and local income and employment withholding taxes and any other amounts
required to be deducted or withheld by the Company under applicable statutes,
regulations, ordinances or
2
<PAGE> 3
orders governing or requiring the withholding or deduction of amounts otherwise
payable as compensation or wages to employees.
(g) Indemnification. The Company shall indemnify Executive to the
fullest extent permitted by the Delaware General Corporation Law from claims
against him in his capacity as an officer and employee of the Company and, to
the extent he is serving as such, as a Director of the Company. Such
indemnification shall include, among other terms, the advancement, as incurred,
of costs and legal fees of defending against any such claims.
3. Special Bonus. Should Executive remain employed through March
31, 1999, then Executive shall be entitled to receive a Special Bonus from the
Company equal to $3,000,000. The Company shall be deemed to have satisfied its
obligation to Executive pursuant to this Paragraph 3 to the extent that
Executive has any realizable value from the then exercisable Option Shares he
has the right to acquire pursuant to Paragraph 2(e). Should Executive sell any
of such Option shares, then the Company shall be deemed to have satisfied its
obligation to Executive pursuant to this Paragraph 3 to the extent of the
amount of gain (i.e., amount realized over $16.375) from any such stock sales.
If at any time prior to March 31, 1999 the amount of realizable value
recognizable by Executive pursuant to the preceding two sentences exceeds
$3,000,000 for a consecutive six-month period, the Company shall no longer be
obligated to pay the Special Bonus on March 31, 1999.
4. Termination.
(a) This Agreement shall terminate by reason of Executive's death or
Disability.
(b) Should there occur an Involuntary Termination of Executive's
employment for Good Cause, then the Company shall continue to pay Executive's
Base Salary on a monthly basis after such termination for a six-month period
but shall not be obligated to pay Executive any other amount after the date of
termination.
(c) Should there occur an Involuntary Termination of Executive's
employment, other than a termination for Good Cause, then the Company will pay
Executive the following amounts ("Severance Payments"):
(i) the exercisability of the Option shall be accelerated as
though Executive had remained employed for one additional year,
(ii) continue to pay Executive's Base Salary on a monthly basis
after such termination for a twelve-month period,
(iii) pay Executive a pro-rated Incentive Compensation for the
fiscal year ending on or after Executive's last day of employment in an amount
equal to the greater of the Incentive Compensation earned for the current
fiscal year or the Incentive
3.
<PAGE> 4
Compensation earned for the previous fiscal year. The Incentive Compensation
payable pursuant to this clause (iii) shall be pro-rated by annualizing (if
applicable) the Incentive Compensation earned for the previous fiscal year, and
then dividing the figures for each of the current and previous fiscal years by
twelve then multiplying by the number of whole months that Executive was
employed in the most recent fiscal year. In any event, such Incentive
Compensation shall be paid at the end of the fiscal year in accordance with the
provisions of Paragraph 2(b),
(iv) continued health coverage pursuant to COBRA, at its own
expense, under the health benefit plan maintained or contributed to by the
Company and covering Executive and Executive's dependents on the date of
termination of his employment, such coverage being for Executive and
Executive's dependents and extending from his last day of employment through
the earlier of (i) the date Executive obtains group health insurance covering
Executive and Executive's dependents and (ii) the date that is twelve months
after Executive's termination of employment, and
(v) a cash payment from the Company in accordance with the attached
Schedule A.
(d) TAX INDEMNITY. To the extent any amount payable to Executive as the
Special Bonus or Severance Payments pursuant to this Agreement is classified as
a "Parachute Payment" under Section 280G of the Internal Revenue Code (the
"Code"), resulting in the imposition of excise taxes to Executive under Code
Section 4999 (the "Excise Taxes"), then the Company shall pay to Executive an
additional amount (a "Gross-Up Payment") in an amount equal to one-half of the
Excise Tax, "grossed-up" to the extent necessary to assure that after payment
by Executive of all taxes including any excise tax imposed on any Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment equal to one-half
of the Excise Tax imposed upon the Parachute Payments.
For purposes of the foregoing Gross-Up Payment, the following provisions
shall be in effect:
(i) In the event there is any disagreement between Executive and the
Company as to whether one or more payments to which Executive becomes entitled
constitute Parachute Payments or as to the determination of the Excise Tax,
such dispute shall be resolved as follows:
(A) In the event temporary, proposed or final Treasury
Regulations in effect at the time under Code Section 280G (or applicable
judicial decisions) specifically address the status of any such payment or the
method of valuation therefor, the characterization afforded to such payment by
the Regulations (or such decisions) shall, together with the applicable
valuation methodology, be controlling.
4.
<PAGE> 5
(B) In the event the Regulations (or applicable judicial
decisions) do not address the status of any payment in dispute, the
matter shall be submitted for resolution to independent counsel
mutually acceptable to Executive and the Company ("Independent
Counsel"). The resolution reached by Independent Counsel shall be
final and controlling; provided, however, that if in the judgment of
Independent Counsel the status of the payment in dispute can be
resolved though the obtainment of a private letter ruling from the
Internal Revenue Service, a formal and proper request for such ruling
shall be prepared and submitted by Independent Counsel, and the
determination made by the Internal Revenue Service in the issued
ruling shall be controlling. All expenses incurred in connection with
the retention of Independent Counsel and (if applicable) the
preparation and submission of the ruling request shall be shared
equally by Executive and the Company.
(ii) The Company shall pay the Gross-Up Payment within ten (10)
days after Executive pays the Excise Tax, whether through the payment or
withholding taxes or otherwise. However, the Company may withhold payment
of any Gross-Up Payment under this subparagraph (d) if it in good faith
disputes the determination of Executive's tax counsel, in which case the
dispute mechanism set forth above shall be implemented. Executive hereby
agrees to reimburse the Company for 50% of any Excise Tax paid to the
extent Executive receives a refund from the Internal Revenue Service of
such Excise Tax.
(e) Definitions.
Disability shall mean illness or other physical or mental disability
or incapacity which, in the Company's judgment and in the judgment of a
qualified physician, has substantially prevented Executive from performing his
duties during any period of ninety (90) consecutive days or for ninety (90)
days during any period of 180 consecutive days. The Company will have the right
to terminate Executive's employment as a result of Executive's Disability by
giving written notice to him not later than thirty (30) days after the
expiration of any such ninety-day period.
Good Cause shall mean (i) Executive's engaging in willful misconduct,
or fraud, (ii) Executive's continued refusal to carry out the reasonable
instructions of the Company's Board of Directors, which (if correctable)
remains uncorrected for seven (7) days following written notice to Executive
from the Board, (iii) Executive's conviction of a felony or his embezzlement of
Company funds, (iv) any intentional misconduct by Executive which has an
adverse and material effect upon the Company's business or reputation, or (v) a
material breach by Executive of any of Executive's fiduciary obligations as an
officer of the Company.
Involuntary Termination means the termination of Executive's
employment with the Company involuntarily upon his discharge or dismissal, or
voluntarily or
5.
<PAGE> 6
involuntarily following a change in his title from Chief Executive Officer to
another title. In addition, following a Corporate Transaction, if Executive is
not the chief executive officer of the successor corporation, then Executive
may resign his position within ninety (90) days following the Corporate
Transaction and treat his resignation as an Involuntary Termination (within the
meaning of Paragraph 4(c)).
5. PROPRIETARY INFORMATION. Executive will enter into the
Company's standard Proprietary Information and Inventions Agreement. This
agreement exists to assure the investors and other shareholders that the
Company's valuable intellectual property is not removed from the Company's
exclusive control and access.
6. NON-COMPETITION.
(a) The parties hereto recognize that Executive's services are
special and unique and that his level of compensation and the provision herein
for compensation upon Involuntary Termination are partly in consideration of
and conditioned upon Executive's not competing with the Company, and that the
covenant on his part not to compete or solicit as set forth in this Paragraph 6
during and after his employment is essential to protect the business and
goodwill of the Company.
(b) Executive agrees that during the employment term and for the
period ending twelve (12) months following the last day on which he receives
salary continuation payments under Paragraph 4 following termination of his
employment (the "Severance Period"), Executive will not either directly or
indirectly, whether as a director, officer, consultant, employee or adviser or
in any other capacity (i) render any planning, marketing or other services
respecting the creation, design, manufacture, sale or licensing of
entertainment software ("Services") to any business, agency, partnership or
entity ("Restricted Business") other than the Company, or (ii) make or hold any
investment in any Restricted Business in the United States or England other than
the Company, whether such investment be by way of loan, purchase of stock or
otherwise, provided that there shall be excluded from the foregoing the
ownership of not more than 5% of the listed or traded stock of any
publicly-held corporation. For purposes of this Paragraph 6, the term "Company"
shall mean and include the Company, any subsidiary or affiliate of the Company,
any successor to the business of the Company (by merger, consolidation, sale of
assets or stock or otherwise) and any other corporation or entity of which
Executive may serve as a director, officer or employee at the request of the
Company or any successor of the Company.
(c) During the term of this Agreement and for a period of twelve
(12) months following cessation of his employment with the Company, Executive
will not, directly or indirectly, induce or attempt to influence any employee
of the Company to leave its employ and Executive will not, directly or
indirectly, involve himself in decisions to hire any employee who has left the
Company's employ within the three month period preceding Executive's cessation
of employment or the three month period following his cessation of employment.
This provision shall not apply to individuals who were employed by
6
<PAGE> 7
Executive's present employer during the three-month period ending on the date
of this Agreement and, in addition, shall not be construed to affect any
responsibility Executive has with respect to the bona fide hiring and firing
of Company personnel.
(d) Executive agrees that the Company would suffer an irreparable injury
if he were to breach the covenants contained in subparagraphs (b) or (c) and
that the Company would by reason of such breach or threatened breach be
entitled to injunctive relief in a court of appropriate jurisdiction and
Executive hereby stipulates to the entering of such injunctive relief
prohibiting him from escaping in such breach.
(c) If any of the restrictions contained in this Paragraph 6 shall be
deemed to be unenforceable by reason of the extent, duration or geographical
scope or other provisions thereof, then the parties hereto contemplate that the
court shall reduce such extent, duration, geographical scope or other provision
hereof and enforce this Paragraph 6 in its reduced form for all purposes in the
manner contemplated hereby.
7. No Waiver. The failure of the Company to terminate this Agreement for
the breach of any condition or covenant herein by Executive shall not affect
the Company's right to terminate for subsequent breaches of the same or other
conditions or covenants. The failure of either party to enforce at any time or
for any period of time any of the provisions of this Agreement shall not be
construed as a waiver of such provisions or of the right to the party
thereafter to enforce each and every such provision.
8. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason by
final judgment of a court of competent jurisdiction, the remaining provisions
or portions of this Agreement shall be unaffected thereby and shall remain in
full force and effect to the fullest extent permitted by law.
9. Relevant Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of California. Any action in law or
equity regarding this Agreement or Executive's rights hereunder may only be
brought in the State of California or in any state in which Executive resides
at the time of the commencement of such action.
10. Employment at Will. Employment with the Company is not for a
specific term and can be terminated by Executive or by the Company at any time
for any reason, with or without cause or prior notice. Any contrary
representations that may have been made or that may be made are superseded by
this offer.
11. Entire Agreement. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements, arrangements, and
communications, whether oral or written, between the parties, including all
prior employment agreements.
7.
<PAGE> 8
No amendment to this Agreement may be made except by a writing signed by the
Company and Executive.
12. Successors and Assigns. The provisions of this Agreement shall inure
to the benefit of, and shall be binding upon, the Company, its successors and
assigns, and Executive, the personal representative of his estate and his heirs
and legatees. Without in any manner limiting the foregoing, should the Company
be acquired by merger or stock or asset sale, the acquiring entity shall be
bound by the terms and provisions of this agreement and shall succeed to all of
the Company's obligations and liabilities hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
SPECTRUM HOLOBYTE, INC.
By: /s/ [SIG]
------------------------------------
Title: Chairman of the Board
---------------------------------
Address: 2490 Mariner Square Loop
Alameda, CA 94501
STEPHEN M. RACE
By: /s/ STEPHEN M. RACE
------------------------------------
Address: 2490 Mariner Square Loop
Alameda, CA 94501
8.
<PAGE> 9
Schedule A
TERMINATION PAYMENT
Executive shall receive a cash payment from the Company in accordance with the
following schedule of events if Involuntarily Terminated without Good Cause.
(a) Should Executive's employment be Involuntarily Terminated without
Good Cause on or before March 31, 1996, then Executive shall receive a
Termination Payment of $1,000,000.
(b) Should Executive's employment be Involuntarily Terminated without
Good Cause after March 31, 1996 but before April 1, 1997, then Executive shall
receive, as the Termination Payment, $2,000,000 if the Company was profitable
for the period beginning on October 1, 1995 and ending on March 31, 1996 (such
period referred to as the "1996 Year") or, if not profitable for such period,
$1,000,000. For purposes of this subparagraph (b), if both a Corporate
Transaction occurs and Executive's employment is Involuntarily Terminated
without Good Cause after March 31, 1996 but before April 1, 1997, then provided
the Company has been profitable from April 1, 1996 through the end of the most
recent fiscal quarter, Executive's Termination Payment shall be calculated as
set forth above but Executive shall receive an additional $250,000 for each
quarter completed since April 1, 1996. Corporate Transaction shall have the
meaning assigned to such term in the Company's 1994 Stock Option Plan.
(c) Should Executive's employment be Involuntarily Terminated without
Good Cause after March 31, 1997 but before April 1, 1998, then Executive shall
receive, as the Termination Payment, $3,000,000 if the Company was profitable
for both the 1996 Year and the fiscal year ending March 31, 1997 ("1997 Year")
or, if not profitable both such periods, then $2,000,000 if the Company was
profitable for either the 1996 Year or the 1997 Year or, if not profitable
either of those periods, then $1,000,000. For purposes of this subparagraph
(c), if both a Corporate Transaction occurs and Executive's employment is
Involuntarily Terminated without Good Cause after March 31, 1997 but before
April 1, 1998, then provided the Company has been profitable from April 1, 1997
through the end of the most recent quarter, Executive's Termination Payment
shall be calculated as set forth above but Executive shall receive an
additional $250,000 for each quarter completed since April 1, 1997.
(d) Should Executive's employment be Involuntarily Terminated without
Good Cause after March 31, 1998 but before April 1, 1999, then Executive shall
receive a Termination Payment of $3,000,000.
(e) The Termination Payment calculated as set forth in this Schedule A
shall be paid in twelve equal monthly installments beginning thirty (30) days
after the date such payments became due. In determining whether the Company has
been profitable for
A-1.
<PAGE> 10
a fiscal year (or portion of a fiscal year, if applicable), the Company's
financial results shall be adjusted to exclude the effect of any compensation
expense attributable to the Company's obligation to make the Termination
Payment described in this Schedule A incurred other than as the result of a
direct payment pursuant to the terms of this Agreement and, in addition, the
Company and Executive agree to negotiate in good faith regarding the effect to
give any extraordinary transactions reflected in the financial results for any
such fiscal year. The Company shall be deemed to have satisfied its obligation
to Executive pursuant to this Schedule A to the extent that Executive has any
realizable value from the then exercisable Option Shares he has the right to
acquire pursuant to Paragraph 2(e). Should Executive sell any of the Option
shares which he has the right to acquire pursuant to Paragraph 2(e), then the
Company shall be deemed to have satisfied its obligation to Executive pursuant
to this Schedule A to the extent of the amount of gain (i.e., amount realized
over $16,375) from any such stock sales.
A-2.
<PAGE> 1
Exhibit 9
================================================================================
DATED 18TH JULY 1997
MICROPROSE LIMITED(1)
SPECTRUM HOLOBYTE INC.(2)
TIMOTHY PAUL CHRISTIAN(3)
SERVICE AGREEMENT
BRETHERTON PRICE ELGOODS BRETHERTON PRICE ELGOODS
123 Promenade 11 Gulford Street
Cheltenham London
Gloucestershire WC1N 1DT
GL50 1NW
Tel: (01242) 224433 Tel: (0171) 404 0456
Fax: (01242) 574285 Fax: (0171) 430 2300
================================================================================
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Clause No. Heading Page No.
- ---------- ------- --------
<S> <C> <C>
1. DEFINITION AND INTERPRETATION............................ 1
2. APPOINTMENT.............................................. 6
3. TERM OF EMPLOYMENT...................................... 6
4. DUTIES.................................................. 6
5. OFFICE OF DIRECTOR...................................... 7
6. REMUNERATION........................................... 8
7. BONUSES................................................ 8
8. STOCK OPTIONS.......................................... 9
9. PENSION SCHEME......................................... 11
10. MEDICAL EXPENSES....................................... 11
11. COMPANY CAR............................................ 12
12. EXPENSES............................................... 12
13. HOLIDAYS............................................... 12
14. ILLNESS................................................ 13
15. MEDICAL EXAMINATION.................................... 14
16. TIME AND ATTENTION..................................... 14
17. CONFIDENTIALITY........................................ 15
18. CHANGE OF CONTROL..................................... 16
19. SUMMARY OF TERMINATION OF EMPLOYMENT.................. 18
20. RESIGNATION FROM OFFICE............................... 19
21. PAYMENTS ON TERMINATION............................... 20
22. SOLICITATION......................................... 20
23. NON-DEALING.......................................... 21
24. PROVISIONS APPLICABLE TO CLAUSES 22 AND 23........... 22
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Clause No. Heading Page No.
- ---------- ------- --------
<S> <C> <C>
25. INTELLECTUAL PROPERTY..................................... 23
26. DISCIPLINARY/GRIEVANCE PROCEDURE.......................... 24
27. SEVERABILITY.............................................. 24
28. PARTICULARS OF EMPLOYMENT................................. 25
29. NOTICES................................................... 25
30. MISCELLANEOUS............................................. 25
SCHEDULE 1............................................................... 27
SCHEDULE 2............................................................... 28
SCHEDULE 3............................................................... 29
</TABLE>
<PAGE> 4
THIS AGREEMENT is made the 18th day of July 1997
BETWEEN:
(1) MICROPROSE LIMITED (registered number 2285264) whose registered office is
at The Ridge Chipping Sodbury Bristol BS17 6AY ("the Company")
(2) SPECTRUM HOLOBYTE INC (a Delaware Corporation) whose principal office is at
2490 Mariner Square Loop Alameda California 94501 ("the Corporation")
(2) TIMOTHY PAUL CHRISTIAN of 33 Ormond Avenue Hampton Middlesex TW12 2RY
("the Managing Director")
1. DEFINITION AND INTERPRETATION
1.1 In this Agreement where the context so admits the following words and
expressions shall have the following meaning:
"the Board" means the board of directors from time to
time of the Corporation
"Change of Control" a change in ownership or control of the
Corporation or the Company effected through
either of the following transactions:
(a) the acquisition directly or indirectly
by any person or related group of
persons (other than the Corporation or
the Company or a person that directly or
indirectly controls is controlled by or
is under common control with the
Corporation or
1
<PAGE> 5
the Company) of beneficial ownership of
securities possessing more than fifty
per cent (50%) of the total combined
voting power of the outstanding
securities of the Corporation or the
Company pursuant to a tender or exchange
offer made directly to the shareholders
of the Corporation or the Company which
the Board does not recommend such
shareholders to accept or;
(b) a change in the composition of the Board
over a period of thirty six (36)
consecutive months or less such that a
majority of the Board members (rounded
up to the next whole number) ceases by
reason of one or more proxy contests for
the election of Board members to be
comprised of individuals who either (A)
have been Board members continuously
since the beginning of such period of
(B) have been
2
<PAGE> 6
elected or nominated for election as
Board members during such period by at
least a majority of the Board members
described clause (A) who were still in
office at the time such election or
nomination was approved by the Board.
"Corporate Transaction" any of the following shareholder approved
transactions to which the Corporation or the
Company is a party:
(a) a merger or consolidation in which
securities possessing more than fifty
percent (50%) of the total combined
voting power of the outstanding
securities of the Corporation or the
Company are transferred to a person or
persons different from the persons who
held those securities immediately prior
to such transaction or
(b) the sale transfer or other disposition
of all or substantially all of the
assets of the Corporation or the
Company whether in complete liquidation
3
<PAGE> 7
or dissolution or otherwise of the
Corporation its Parent or Subsidiary
"Financial Year" any year in respect of which the Company's
accounts are made up and audited
"Group Chief Executive" the Group Chief Executive of the Corporation
from time to time (the present Group Chief
Executive being Stephen M Race)
"Incapacity" means any illness or other like cause
incapacitating the Managing Director from
attending to his duties
"Intellectual Property" includes letters patents trade marks whether
registered or unregistered registered or
unregistered designs utility models
copyrights including design copyrights
applications for any of the foregoing and
the right to apply for them in any part of
the world discoveries creations inventions
or improvements upon or additions to an
invention confidential information know-how
and any research effort relating to any of
the above mentioned business names whether
4
<PAGE> 8
registrable or not moral rights and
any similar rights in any country
"Policy" the Corporation Insider Trading Policy in
force from time to time and all notices
given pursuant to such policy
"Relevant Date" July 9th 2001 or if that date is not a date
on which the Managing Director is permitted
to deal in his shares in the Corporation
under the Policy the first open trading date
in accordance with the Policy following that
date
"Stock Option Agreement" the current Stock Option Agreement between
the Corporation and the Managing Director
together with all Notices of Grant issued to
the Managing Director pursuant thereto
"Subsidiary" means a subsidiary (as defined by the
Companies Act 1985 Section 736) for the time
being of the Company
1.2 Words importing one gender include the other gender and words importing
the singular include the plural and vice versa
1.3 Any reference to a statutory provision shall be deemed to include a
reference to any statutory modification or re-enactment of it
1.4 The clause headings do not form part of this Agreement and shall not be
taken into account in its construction or interpretation
5
<PAGE> 9
1.5 Any reference to the Managing Director shall if appropriate
include his personal representatives
1.6 References in this Agreement to any clause sub-clause schedule
or paragraph without further designation shall be construed as
references to the clause sub-clause schedule or paragraph of
this Agreement so numbered
2. APPOINTMENT
The Company will employ the Managing Director and the Managing Director
will serve the Company as Managing Director of the Company on the
following terms and conditions
3. TERM OF EMPLOYMENT
3.1 The employment of the Managing Director with the Company
pursuant to this Agreement shall be deemed to have commenced on
1st July 1997 and (subject to termination as provided below)
shall continue until terminated by either party giving to the
other not less than 6 months notice in writing to expire no
earlier than 31st December 1997
3.2 The Managing Director's period of consecutive employment with
the Company began on 1st September 1994
4. DUTIES
4.1 The Managing Director shall during his employment under
this Agreement
4.1.1 perform the duties and exercise the powers which
the Board may from time to time properly assign
to him in his capacity as Managing Director or
in connection with the business of the Company
or the business of any one or more of its
Subsidiaries
6
<PAGE> 10
(including at the request of the Board serving on the
board of such Subsidiaries);
4.1.2 do all in his power to promote develop and extend the
business of the Company and of the Subsidiaries in
accordance with the business plan of the Company as
determined by the Board from time to time and at all
times and in all respects conform to and comply with
the proper and reasonable directions and regulations of
the Board;
4.1.3 manage the Company in accordance with its business plan
from time to time;
4.1.4 work such hours as shall be necessary for the proper
performance of his duties
4.2 The Managing Director shall carry out his duties and exercise
his powers jointly with any other director(s) appointed by the
Board to act jointly with him and the Board may at any time
require the Managing Director to cease performing or exercising
the said or any duties or powers
4.3 The Managing Director shall be based in Chipping Sodbury but
shall be required to travel on Company business extensively
within the United Kingdom and may be required to travel on the
business of the Company or the Subsidiaries anywhere within the
world
5. OFFICE OF DIRECTOR
5.1 During his employment under this Agreement the Managing
Director shall not:
5.1.1 voluntarily resign as a Director of the Company;
7
<PAGE> 11
5.1.2 voluntarily do or refrain from doing any act whereby his
office as a Director of the Company is or becomes liable
to be vacated.
5.1.3 do anything that would cause him to be disqualified from
continuing to act as a Director
6. REMUNERATION
6.1 The Remuneration of the Managing Director shall be a fixed
salary (which shall accrue from day to day) at the rate of
L.32,480 (One hundred and thirty two thousand four hundred
and eighty pounds) per year (or such higher rate as may be
determined from time to time in accordance with clause 6.2)
inclusive of any directors' fees payable to him under the
articles of association of the Company and the Subsidiaries
payable in arrear by equal monthly installments on the last day
of every month ("the Salary")
6.2 The Salary shall be reviewed annually on 1st April and shall be
increased each year by not less than 7.5%
7. BONUSES
7.1 In addition to the Salary the Company shall pay to the Managing
Director a performance bonus of up to 50% of the Salary if the
criteria set out in Schedule 1 to this Agreement are achieved
by the Managing Director
7.2 The performance criteria set out in the Appendix shall be
reviewed annually during the month of April and set by the
Group Chief Executive with input from the Managing Director and
any modification thereto during the year shall be agreed
between the Group Chief Executive and the Managing Director
8
<PAGE> 12
7.3 In the event that in any Financial Year the Managing Director
exceeds substantially the performance criteria set out in
Schedule 1 (or any agreed modification thereof) the bonus
payable under Clause 7.1 for that year shall be increased
accordingly in an amount determined in the discretion of the
Group Chief Executive
7.4 All sums due under this Clause 7 will be paid by the Company to
the Managing Director within 90 days of the end of the relevant
Financial Year
8. STOCK OPTIONS
8.1 The Corporation shall immediately following the signing of this
Agreement grant a further Option in respect of 100,000 shares
in the Corporation to the Managing Director by a Notice of
Grant in the terms of the draft Notice set out in Schedule 2
and otherwise on the terms of the Stock Option Agreement
8.2 In the event that on the Relevant Date the Managing Director is
still employed by the Company the Managing Director shall be
entitled on that date to receive a bonus payment from the
Company of L.500,000 (five hundred thousand pounds) subject
to the provisions of this Clause ("the Special Bonus")
8.3 If on the Relevant Date the published market value of the New
Option shares then exercisable is such that were the Managing
Director to sell such shares at that date he would realise a
net profit (taking into account the New Option price to be paid
on exercise) the Special Bonus shall be deemed to have been
satisfied to the extent of such potential realisable net profit
and the balance (if any) of the Special Bonus shall be payable
to the Managing Director by bank transfer
9
<PAGE> 13
8.4 If prior to the Relevant Date the Managing Director sells all or
any of the New Option shares the Special Bonus shall be deemed
to have been satisfied to the extent of the greater of the
actual net profit realised from such sale and the net profit
potentially realisable on the shares sold had they been sold on
the Relevant Date (as outlined in Clause 8.3)
8.5 If at any time prior to the Relevant Date the market value of
the New Option Shares remains throughout two consecutive trading
windows (as defined by the Policy) as a level which would on the
basis of the number of New Option Shares then vested in the
Managing Director provide a net realisable profit of at least
L.500,000 the Special Bonus shall be deemed to have been
satisfied in full
8.6 For the avoidance of doubt:
8.6.1 nothing in this Clause 8 creates any obligation on the
Managing Director to exercise the New Option in whole or
in part or to sell any of the New Option Shares;
8.6.2 notwithstanding any of the provisions of this Clause 8
the New Option shall continue to the extent that it has
not actually been exercised by the Managing Director;
and
8.6.3 if prior to the Relevant Date the Managing Director has
given the Company written notice of his election to
terminate his employment voluntarily he shall not be
entitled to the Special Bonus
8.7 To the extent that this Agreement represents a variation to any
terms contained in the Stock Option Agreement or any agreement
relating to the New Option it is acknowledged that (to the
extent permitted by law) the terms of this
10
<PAGE> 14
Agreement shall prevail and this Agreement shall as
between the Corporation and the Managing Director
constitute a legal variation of the terms thereof
9. PENSION SCHEME
9.1 The Company shall continue in each year during the term of this
Agreement to pay a sum equivalent to 7% (seven per cent) of the
Salary into the Managing Director's current private pension
scheme (details of which he shall notify to the Company) and
such payments shall be made in equal monthly installments in
arrear
9.2 A contracting out certificate is in force for the Managing
Director's employment under this Agreement
10. MEDICAL EXPENSES
10.1 The Company shall continue to pay the cost of membership of the
Managing Director and the Managing Director's wife and children
under the age of 18 years of an appropriate private patients
medical plan with PPP or such other reputable medical expenses
insurance scheme as the Company shall decide from time to time
10.2 The Company shall continue to effect and maintain with a
reputable insurer:
10.2.1 a policy in respect of permanent health insurance in
favour of the Managing Director on the terms of the
existing permanent health insurance scheme of the
Company
10.2.2 a death in service benefit policy in favour of the
Managing Director on the terms of the existing death in
service provision of the Company
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<PAGE> 15
11. COMPANY CAR
11.1 A fully expanded Company car ("the Car") will be provided to the
Managing Director as detailed in Schedule 3 which shall be used
for all Company business
11.2 The Company shall be responsible for all running costs in
respect to the Car (including for the avoidance of doubt in
respect of the Managing Director's private mileage)
12. EXPENSES
12.1 The Company shall by way of reimbursement pay or procure to be
paid to the Managing Director-
12.1.1 all reasonable travelling hotel and other expenses
wholly exclusively and necessarily incurred by him in or
about the performance of his duties under this
Agreement; and
12.1.2 the cost of subscription to all professional bodies to
which be is obliged to belong in order to maintain his
professional qualifications
provided that the Managing Director if so required by the
Company provides reasonable evidence of the expenditure in
respect of which he claims reimbursement
13. HOLIDAYS
13.1 The Company's holiday year runs from 1st January to 31st
December and the Managing Director shall (in addition to the
usual public holidays) be entitled to 25 days paid holiday per
holiday year
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13.2 The Managing Director shall not be entitled to carry forward any
annual holiday entitlement voluntarily foregone by him for any
reason during the holiday year in which it accrued without the
prior written consent of the Board
13.3 Upon the termination of his employment the Managing Director's
entitlement to accrued holiday pay shall be calculated on a pro
rata basis in respect of each completed month of service in the
holiday year in which his employment terminates and the
appropriate amount shall be paid to the Managing Director
provided that if he shall have taken more days' holiday than his
accrued entitlement the Company is hereby authorized to make an
appropriate deduction from the Managing Director's final salary
payment
14. ILLNESS
14.1 The Managing Director shall continue to be paid during absence
due to Incapacity (such payment to be inclusive of any
statutory sick pay or social security benefits to which he may
be entitled) for 13 weeks in any one calendar year
14.2 Thereafter the Managing Director shall continue to be paid
salary only at the discretion of the Board. If such absence
shall aggregate in all 26 weeks in any 52 consecutive weeks the
Company may terminate the employment of the Managing Director
by 30 days written notice given on any date after the end of
the 26th week and in that event the Company shall pay to the
Managing Director (in addition to any Permanent Health
Insurance benefit) a sum equal to 9 months' Salary and shall
continue to provide to the Managing Director all benefits as
outlined on Clauses 9, 10 and 11 of this Agreement for a period
of 9 months following such termination
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<PAGE> 17
14.3 If the Incapacity shall be or appear to be occasioned by
actionable negligence of a third party in respect of which
damages are or may be recoverable the Managing Director shall
immediately notify the Board of that fact and of any claim
compromise settlement or judgment made or awarded in
connection with it and shall give to the Board all particulars
the Board may reasonably require and shall if required by the
Board refund to the Company that part of any damages recovered
relating to loss of earnings for the period of the Incapacity
as the Board may reasonably determine provided that the amount
to be refunded shall not exceed the amount of damages or
compensation recovered by him less any costs borne by the
Managing Director in connection with the recovery of such
damages or compensation and shall not exceed the total
remuneration paid to him by way of salary in respect of the
period of the Incapacity
15. MEDICAL EXAMINATION
The Company shall be entitled at any stage during a period of
Incapacity to require the Managing Director to undergo examinations by
a medical adviser to be appointed or approved by the Company and the
Managing Director authorises any such medical adviser to disclose to
the Board the results of the examination and discuss with it any
matters arising from the examination as might impair him in properly
discharging his duties
16. TIME AND ATTENTION
16.1 During the continuance of his employment under this Agreement
the Managing Director shall unless prevented by Incapacity
devote his whole time
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<PAGE> 18
and attention to the business of the Company and shall not without prior
written consent of the Board:
16.1.1 engage in any other business or
16.1.2 be concerned or interested in any other business of a similar
nature to or competitive with that carried on by the Company
or any of its Subsidiaries or which is a supplier or customer
of the Company or of its Subsidiaries in relation to its goods
or services provided that nothing in this Clause shall
preclude the Managing Director from holding or being otherwise
interested in any shares or other securities of any company
which are for the time being quoted on any recognised stock
exchange (or in respect of which dealing takes place on the
Alternative Investment Market of the London Stock Exchange) so
long as the interest of the Managing Director in such shares
or other securities does not extend to more than 1% (one
percent) of the total amount of such shares or securities.
17. CONFIDENTIALITY
17.1 The Managing Director is aware that in the course of his employment
under this Agreement he will have access to and be entrusted with
information in respect of the business and financing of the Company
and its dealings transactions and affairs and likewise in relation
to its Subsidiaries all of which information is or may be
confidential.
17.2 The Managing Director shall not (except in the proper course of his
duties) during or after the period of his employment under this
Agreement divulge to any person whatever or otherwise make use of
(and shall use his best
15
<PAGE> 19
endeavours to prevent the publication or disclosure of) any trade
secret or any such confidential information concerning the Company
or any of the Subsidiaries or any of its or their financial
transactions suppliers agents distributors or customers which is
identified or treated by the Company or Subsidiary as confidential
or which by reason of its disclosure is evidently of such nature
("Confidential Information").
17.3 All notes and memoranda of any trade secrets or Confidential
Information concerning the business of the Company and the
Subsidiaries or any of its or their suppliers agents distributors or
customers which shall be acquired received or made by the Managing
Director during the course of his employment shall be the property
of the Company and shall be surrendered by the Managing Director to
someone duly authorised in that behalf at the termination of his
employment or at the request of the Board at any time during the
course of his employment.
18. CHANGE OF CONTROL
18.1 On any Change of Control or Corporate Transaction during the term of
this Agreement notwithstanding any other provision of this Agreement
the New Option shall become exercisable on an accelerated basis as
if the Managing Director had completed an additional 12 months of
service beyond the date of Change of Control or Corporate
Transaction and the provisions of Clause 8 shall apply on a pro rata
basis.
18.2 For the avoidance of doubt the provisions of Clause 18.1 shall not
apply where the Managing Director has prior to the relevant Change
of Control or Corporate Transaction given written notice to the
Company of his intention to terminate his employment but otherwise
Clause 18.1 shall apply regardless
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<PAGE> 20
of the continuance or otherwise of the Managing Director's
employment with the Company
18.3 In addition to the provisions of Clause 18.1 in the event that
there is a Change of Control or Corporate Transaction of the
Company or of the Corporation during the term of this Agreement as
a result of which or within 6 months of which the Managing
Director is either dismissed by the Company or treats himself as
having been dismissed as a result of any repudiation by the
Company of this Agreement:
18.3.1 the Company shall (notwithstanding any other provisions of
this Agreement) pay the Managing Director a sum equal to 9
months Salary plus any bonus then due and payable under
Clause 7.1 and shall continue to provide to the Managing
Director for a period of 9 months from the date of
termination all benefits as outlined in Clause 9, 10 and
11 of this Agreement;
18.3.2 the options granted to the Managing Director pursuant to
the Stock Option Agreement shall to the extent that they
have not already been exercised in part) become
exercisable on an accelerated basis as if the Managing
Director had completed an additional 9 months of service
beyond the date of Change of Control or Corporate
Transaction
For the avoidance of doubt in the event of any termination as
outlined in this Clause the Managing Director shall not be
required to work out any period of notice and any failure to do so
shall not prejudice his entitlement to payments and benefits as
outlined
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<PAGE> 21
18.4 In the event that on any Change of Control or Corporate Transaction
no event of termination as described in Clause 18.2 occurs and the
Managing Director elects to remain Managing Director of the Company
the Company shall pay the Managing Director by way of loyalty bonus
a sum equal to the bonus paid under Clause 7 in respect of the
previous Financial Year which sum shall be paid within 30 days of
the Managing Director notifying his intention to the Company
18.5 In the event that on or within 3 months of any Change in Control or
Corporate Transaction the Managing Director elects to terminate
his employment with the Company he shall give six months written
notice to the Company to this effect and the provisions of Clause
21 shall apply
19. SUMMARY TERMINATION OF EMPLOYMENT
19.1 The employment of the Managing Director may be terminated by the
Company without notice or payment in lieu of notice:
19.1.1 if the Managing Director is guilty of any gross default or
misconduct in connection with or affecting the business of
the Company or any Subsidiary to which he is required by
this Agreement to render services; or
19.1.2 in the event of any serious or repeated breach or
non-observance by the Managing Director of any of the
stipulations contained in this Agreement; or
19.1.3 if the Managing Director becomes bankrupt or makes any
arrangement or composition with his creditors or has an
interim order made against him pursuant to Section 252 of
the Insolvency Act 1986 or otherwise takes advantage of any
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<PAGE> 22
statute from time to time in force offering relief for
insolvent debtors; or
19.1.4 if the Managing Director is convicted of any arrestable
criminal offence (other than an offence under road traffic
legislation in the United Kingdom or elsewhere for which a
fine or non-custodial penalty is imposed); or
19.1.5 if the Managing Director is disqualified from holding
office in another company in which he is concerned or
interested because of wrongful trading (Section 214) or
fraudulent trading (Section 213) under the Insolvency Act
1986 or under the provisions of the Company Directors'
Disqualification Act 1986; or
19.1.6 if the Managing Director shall become of unsound mind or
become a patient under the Mental Health Act 1983; or
19.1.7 if the Managing Director is convicted of an offence under
the Companies Securities (Insider Dealing) Act 1985 or
under any other present or future statutory enactment or
regulations relating to insider dealings; or
19.1.8 if the Managing Director resigns as a director of the
Company otherwise than at the request of the Company
20. RESIGNATION FROM OFFICE
20.1 Upon the termination by whatever means of this Agreement:
20.1.1 the Managing Director shall at the request of the Company
immediately resign from office as a director of the Company
and from such offices held by him in Subsidiaries as may be
so
19
<PAGE> 23
requested without claim for compensation and in the
event of his failure so to do the Company is hereby
irrevocably authorised to appoint some person in his
name and on his behalf to sign and deliver such
resignation or resignations to the Company and to each
of the Subsidiaries of which the Managing Director is at
the material time a director or other officer
20.1.2 the Managing Director shall not without the consent of
the Company at any time thereafter represent himself
still to be connected with the Company or any of the
Subsidiaries
21. PAYMENTS ON TERMINATION
For the avoidance of doubt in the event that either party serves notice on
the other to terminate this Agreement for any reason other than as set out
in Clause 14.2 or Clause 18 the Company shall be entitled (but not
obliged) to pay to the Managing Director in lieu of notice a sum equal to
6 months Salary and in that event the Company shall be obliged to continue
to provide to the Managing Director for a period of 6 months from the date
of termination all benefits as outlined in Clauses 9, 10 and 11 of this
Agreement.
22. SOLICITATION
22.1 The Managing Director agrees with the Company that he will not
without the prior written consent of the Board in competition with
the Company during the period of 6 months from the date on which his
employment under this Agreement is terminated (if by the Managing
Director whether lawful or not but if by the Company only if lawful)
("Termination Date") directly or
20
<PAGE> 24
indirectly whether on his own account or jointly or as an employee agent
consultant manager shareholder (save as the holder of any class of
securities dealt in or a recognized Stock Exchange or traded on the
Alternative Investment Market or other recognized investment exchange
and not exceeding 1% in nominal value of the issued securities that
class):
22.1.1 canvass or solicit the custom of any person who he knows or
ought reasonably to have known was at any time during the six
months period ending on the Termination Date a customer of the
Company;
22.1.2 solicit or entice away or offer employment to or employ or
conclude any contract for services with any person who was
employed or engaged by the Company at any time during the period
of six months prior to the Termination Date
23. NON-DEALING
The Managing Director agrees with the Company that he will not without
the prior written consent of the Board in competition with the Company
during the period of 6 months from the date on which his employment
under this Agreement is terminated (if by the Managing Director whether
lawful or not but if by the Company only if lawful) ("Termination Date")
directly or indirectly whether on his own account or jointly or as an
employee agent consultant manager shareholder (save as the holder of any
class of securities dealt in or a recognized Stock Exchange or traded on
the Alternative Investment Market or other recognized investment
exchange and not exceeding 1% in nominal value of the issued securities
that class) have any material dealings with any person who has or he
ought reasonably to have known was at any time during the six months
period ending on the Termination Date a customer of the
21
<PAGE> 25
Company with whom he had any material dealings or with whom persons
reporting to the Managing Director had any such material dealings
24. PROVISIONS APPLICABLE TO CLAUSES 22 AND 23
24.1 The Managing Director shall observe and be bound by the prohibitions
contained in Clause 22 and 23 on the basis that they apply not only
to the Company but also to each Subsidiary as if in the case of any
particular such company, the name of that company had been
substituted for the expression "the Company" in Clauses 22 and 23.
At the request of the Board and at the cost of the Company the
Managing Director will execute a separate agreement under hand or
as a deed with any such other specified company in the terms of
such clause and with such substitution of names. This Clause 24
shall be severable so as to have effect as a separate and distinct
obligation in relation to each Subsidiary
24.2 The restrictions imposed on the Managing Director by Clauses 22 and
23 shall be in addition to and not derogate from or be in
substitution for any duty or obligation which the Managing Director
may at any time have by virtue of any statute or rule of common law
or equity
24.3 For the purposes of Clauses 22 and 23 of this Clause 24:
24.3.1 "customer" means any Person, to whom or to which the
Company supplied or supplies any services as at the
Termination Date or in the period referred to in the
said clauses;
24.3.2 "person" means a person firm partnership company or
corporation
22
<PAGE> 26
25. INTELLECTUAL PROPERTY
25.1 If at any time during his employment (whether before or after the
date of this Agreement) the Managing Director shall (either alone or
with others) make devise or discover any Intellectual Property
which shall relate to any of the commercial activities of the
Company or any Subsidiary or may conveniently be used in relation
thereto or which shall result from or be suggested by anything done
in the course of his employment from or be suggested by anything
done in the course of his employment such Intellectual Property and
the benefit thereof shall be the sole and absolute property of the
Company and the Managing Director shall without delay before
publishing the same communicate all available information relating
thereto (with all necessary plans and models) to the Company.
25.2 The Managing Director if and whenever required so to do (whether
during or after the termination of his employment) shall without
charge to but at the expense of the Company (or its nominee):-
25.2.1 apply or join in applying for letters patent or trade mark
or other equivalent protection in the United Kingdom or any
other part of the world for any such Intellectual Property
and execute and do all instruments and things necessary for
vesting the said letters patent or trade mark or other
equivalent protection when obtained and all right title and
interest to and in the same in the Company (or its nominee)
absolutely and as sole beneficial owner or in such other
person as may be required;
25.2.2 defend any opposition proceedings in respect of such
application and any petitions or applications or revocations
of such letters patent or other protection.
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<PAGE> 27
25.3 The Managing Director hereby irrevocably appoints the Company
to be his attorney in his name and on his behalf to sign
execute do and deliver any such instrument or thing and
generally to use his name for the purpose of giving to the
Company (or its nominee) the full benefit of the provisions of
this clause and in favour of any third party a certificate in
writing signed by any Director or the Secretary of the Company
that any instrument or act falls within the authority hereby
conferred shall be conclusive evidence that such is the case
25.4 For the purposes of Section 77 of the Copyright Designs and
Patents Act 1988 the Managing Director hereby waives such Moral
Rights (as defined in the said section) in any Intellectual
Property as he may have now or during the term of this Agreement
26. DISCIPLINARY/GRIEVANCE PROCEDURE
26.1 Given the seniority of the Managing Director there is no formal
disciplinary procedure applicable to his employment under this
Agreement
26.2 If the Managing Director has any grievance relating to this
employment he should apply to the Group Chief Executive and
such application may be in writing or by personal interview. The
subject matter of such application may at the discretion of the
Group Chief Executive be placed before the Board
27. SEVERABILITY
The various provisions of this Agreement are severable and if any
provision is held to be invalid or unenforceable by any court or body of
competent jurisdiction then
24
<PAGE> 28
such invalidity or unenforceability shall not affect the remaining
provisions of this Agreement.
28. PARTICULARS OF EMPLOYMENT
It is hereby declared that the notification of the terms and conditions
of the Managing Director's employment with the Company required to be
given to him in accordance with the requirements of Part 1 of the
Employment Rights Act 1996 shall be deemed to be incorporated herein
29. NOTICES
Notices may be given by either party by letter addressed to the other
party at (in the case of the Company or Corporation) its registered
office for the time being and (in the case of the Managing Director) his
last known address and any notice given by letter shall be deemed to
have been given at the time at which the letter would be delivered in
the ordinary course of post or if delivered by hand upon delivery and in
proving service by post it shall be sufficient to prove that the notice
was properly addressed and posted. Any notice sent to the Company shall
also be sent to the Corporation
30. MISCELLANEOUS
30.1 This Agreement is governed by and shall be construed in
accordance with the laws of England
30.2 The parties to this Agreement submit to the exclusive
jurisdiction of the English Courts
30.3 This Agreement contains the entire understanding between the
parties and supersedes all previous agreements and arrangements
other than those
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<PAGE> 29
affecting previous option grants including any previous Notices of
Grant and Stock Option Agreements relating to the employment of the
Managing Director by the Company or any Subsidiary (which shall be
deemed to have been terminated by mutual consent)
30.4 The expiration or determination of the Managing Director's employment
under this Agreement shall not affect any provision of this Agreement
which is expressed to operate or have effect thereafter and shall
without prejudice to any right of action already accrued by either
party in respect of any antecedent breach of this Agreement
30.5 The Corporation is entering into this Agreement in consideration of
the services provided to the Company by the Managing Director under
this Agreement but for the avoidance of doubt nothing in this
Agreement shall be deemed to create any employment relationship
between the Corporation and the Managing Director
IN WITNESS WHEREOF the parties hereto or their duly authorised representatives
have hereunto set their hands the day and year first before written.
26
<PAGE> 30
MICROPROSE EMPLOYEE
INDIVIDUAL PERFORMANCE OBJECTIVES
1997-1998 MAJOR PERIOD
To: Tim Christian
CC: Human Resources
From: Steve Race
Date: September 24, 1997
Re: Performance Objectives
_______________________________________________________________________________
The following performance objectives were established for you for the period of
9/1/97-3/31/98. Your performance, for this review period, will be evaluated
based upon your standard job requirements as well as your accomplishments
toward meeting your performance objectives. Both combined will determine your
overall performance rating.
Your performance objectives are:
_______________________________________________________________________________
OBJECTIVES: ESTIMATED DUE DATE:
_______________________________________________________________________________
Achievement of FY98 net income plan 3/31/98
_______________________________________________________________________________
Achievement of FY98 revenue plan-subject to 3/31/98
best efforts to overcome shortfalls caused by
slippage.
_______________________________________________________________________________
Agreement of Geoff Crammond contract 3/31/98
_______________________________________________________________________________
Successful extension/renegotiation of FDA license 3/31/98
_______________________________________________________________________________
Transition of Leisuresoft Germany into profitable full 3/31/98
distribution organization and sale of at least 33%
equity to outside parties
_______________________________________________________________________________
Successful resolution of Civilization rights acquisition 3/31/98
_______________________________________________________________________________
Attend at least one U.S. Board meeting 3/31/98
_______________________________________________________________________________
Continue professional development by attending further 3/31/98
senior level courses at Cranfield University
_______________________________________________________________________________
Development of at least one new outside software 3/31/98
development group
_______________________________________________________________________________
Purchase of at least 2 new products beyond Team 17/DID 3/31/98
_______________________________________________________________________________
Continue involvement in successful development of GT97 3/31/98
_______________________________________________________________________________
The above objectives have been discussed with me. I agree to them and
understand the effect they have on my overall performance evaluation. I also
understand that new objectives, based on changing business circumstances, may
be established during my review period.
/s/ T. P. CHRISTIAN 24/9/97
- --------------------------------- ------------------
T. P. Christian Date
Employee Signature
/s/ STEPHEN M. RACE 24/9/97
- --------------------------------- ------------------
Stephen M. Race Date
Manager's Signature
<PAGE> 31
SCHEDULE 1
PERFORMANCE BONUS CRITERIA
T. P. Christian
<PAGE> 32
SCHEDULE 2
DRAFT NOTICE OF GRANT OF STOCK OPTION
Optionee: Timothy Paul Christian
Grant Date: 9 July 1997
Option Price: $4,375 per share
Vesting Commencement Date: 9 July 1997
Vesting Period: Four (4) Years
First Date Exercisable: 9 August 1997
Number of Option Shares: 100,000
Expiration Date: 8 July 2004
Type of Option: Non-Statutory Stock Option
Date Exercisable: The Option shall become exercisable in a series
of successive equal monthly installments upon the
Optionee's completion of each month of service
following the Vesting Commencement Date
28
<PAGE> 33
SCHEDULE 3
COMPANY CAR DETAILS
A Lexus GS300 Sport or any similar specification model of motor car as the
Managing Director may determine
29
<PAGE> 34
SIGNED by )
for and on behalf of THE COMPANY )
in the presence of:- )
SIGNED by )
for and on behalf of THE CORPORATION )
in the presence of:- )
SIGNED by the said TIMOTHY PAUL )
CHRISTIAN in the presence of:- )
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<PAGE> 35
SIGNED by ) Stephen M. Race
for and on behalf of THE COMPANY )
in the presence of - ) [sig]
SIGNED by ) Stephen M. Race
for and on behalf of THE COMPANY )
in the presence of - ) [sig]
SIGNED by the said TIMOTHY PAUL )
CHRISTIAN in the presence of - )
30
