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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
__________________________
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: May 27, 1999
CREATIVE COMPUTERS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State or Other Jurisdiction of
Incorporation or Organization)
0-25790 95-4518700
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(Commission File Number) (I.R.S. Employer
Identification No.)
2555 West 190th Street
Torrance, California 90504
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(Address of Principal Executive Offices) (Zip Code)
(310) 354-5600
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(Registrant's telephone number,
including area code)
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Item 5. Other Events.
On May 18, 1999, the board of directors of Creative Computers, Inc. (the
"Company") declared a distribution (the "Distribution") to the holders of the
Company's common stock of all of the 7,329,883 shares of common stock of uBid,
Inc. ("uBid") owned by the Company. The Distribution is payable on June 7, 1999
(the "Distribution Date") to stockholders of record as of May 24, 1999 (the
"Record Date"). Based on the number of shares outstanding on the Record Date,
the Company will distribute approximately .70488 shares of uBid common stock for
each share of the Company's common stock outstanding on the Record Date.
Completion of the Distribution remains subject to certain conditions set forth
in the Separation and Distribution Agreement previously entered into between the
Company and uBid. Additional information about the Distribution is contained in
an information statement (the "Information Statement") dated May 26, 1999, which
is being mailed to stockholders. A copy of the Information Statement is filed as
Exhibit 99.1 to this Form 8-K.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
10.1 Separation and Distribution Agreement, dated as of December 7,
1998, by and between Creative Computers, Inc. and uBid, Inc., as
amended.
99.1 Information Statement dated May 26, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CREATIVE COMPUTERS, INC.
Date: May 26, 1999 By: /s/ TED SANDERS
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Ted Sanders
Chief Financial Officer
(Principal Financial Officer)
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Index to Exhibits
Exhibit Description
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10.1 Separation and Distribution Agreement, dated as of December 7,
1998, by and between Creative Computers, Inc. and uBid, Inc.,
as amended.
99.1 Information Statement dated May 26, 1999.
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EXHIBIT 10.1
SEPARATION AND
DISTRIBUTION AGREEMENT
BY AND BETWEEN
CREATIVE COMPUTERS, INC.
AND
uBID, INC.
(AS AMENDED)
DATED AS OF
DECEMBER 7, 1998
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SEPARATION AND DISTRIBUTION AGREEMENT
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(AS AMENDED)
THIS SEPARATION AND DISTRIBUTION AGREEMENT, dated as of December 7, 1998,
is by and between Creative Computers, Inc. ("CCI") and uBid, Inc. ("uBid").
Capitalized terms used herein and not otherwise defined shall have the
respective meanings assigned to them in Article I hereof.
WHEREAS, the Board of Directors of CCI has determined that it is
appropriate and desirable, on the terms and conditions contemplated hereby, to
cause uBid to offer and sell for its own account in the IPO (as defined below) a
limited number of shares of uBid Common Stock, and subsequently for CCI to
distribute to holders of shares of CCI Common Stock the outstanding shares of
uBid Common Stock owned directly or indirectly by CCI;
WHEREAS, the Distribution (as defined below) is intended to qualify as a
tax-free spin-off under Section 355 of the Code (as defined below);
WHEREAS, CCI has provided various services to uBid on an informal basis and
in connection with the separation of CCI and uBid the parties desire to
formalize certain relationships which will continue on a transitional basis; and
WHEREAS, it is appropriate and desirable to set forth the principal
corporate transactions required to effect the separation, the IPO and the
Distribution and certain other agreements that will govern certain matters
relating to the IPO and the Distribution and the relationship of CCI and uBid
following the IPO and the Distribution.
NOW, THEREFORE, for good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties, intending to be legally bound, agree
as follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms shall have the
following meanings:
1.1. ACTION means any demand, action, suit, countersuit, arbitration,
inquiry, proceeding or investigation by or before any federal, state, local,
foreign or international Governmental Authority or any arbitration or mediation
tribunal.
1.2. AFFILIATE of any Person means a Person that controls, is controlled
by, or is under common control with such Person. As used herein, "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such entity, whether through
ownership of voting securities or other interests, by contract or otherwise.
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1.3. AGENT means the distribution agent to be appointed by CCI to
distribute to the stockholders of CCI pursuant to the Distribution the shares of
uBid Common Stock held by CCI.
1.4. AGREEMENT means this Separation and Distribution Agreement, including
all of the Schedules hereto.
1.5. ANCILLARY AGREEMENTS means the Services Agreement,
Internet/Telecommunications Agreement, the Joint Marketing Agreement and
Assignment and License Agreement each in the form set forth in Schedule 1.5.
1.6. APPLICABLE DEADLINE has the meaning set forth in Section 8.3(b).
1.7. ARBITRATION ACT means the United States Arbitration Act, 9 U.S.C. 1-
14, as the same may be amended from time to time.
1.8. ARBITRATION DEMAND DATE has the meaning set forth in Section 8.3(a).
1.9. ARBITRATION DEMAND NOTICE has the meaning set forth in Section 8.3(a).
1.10. CCI COMMON STOCK means the Common Stock, $.01 par value per share, of
CCI.
1.11. CCI GROUP means CCI and each Person (other than any member of the
uBid Group) that is an Affiliate of CCI immediately after the Closing Date.
1.12. CCI INDEMNITEES has the meaning set forth in Section 5.2.
1.13. CHANGE OF CONTROL of any Person means any of the following: (a) the
consummation of a merger, consolidation, or similar business combination
involving such Person, or a sale or other disposition of all or substantially
all of the assets of such Person; (b) the acquisition by any individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
such Act) of 40% or more of either (i) the then outstanding shares of common
stock of such Person, or (ii) the combined voting power of the then outstanding
voting securities of such Person entitled to vote generally in the election of
directors; or (c) individuals who, as of the Distribution Date, constitute the
Board of Directors of such Person (the "Incumbent Board") cease for any reason
to constitute at least a majority of such Board; provided, however, that any
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individual becoming a director subsequent to the Distribution Date (other than
any such individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by
or on behalf of any Person other than the Board) whose election or nomination
for election by the stockholders of such Person was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board.
1.14. CLOSING means the receipt by uBid of the net proceeds of the IPO in
accordance with the terms of the Underwriting Agreement.
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1.15. CLOSING DATE means the first time at which any shares of uBid Common
Stock are sold to the Underwriters pursuant to the IPO in accordance with the
terms of the Underwriting Agreement.
1.16. CODE means the Internal Revenue Code of 1986, as amended.
1.17. COMMISSION means the United States Securities and Exchange
Commission.
1.18. CONSENTS means any consent, waiver or approval from, or notification
requirements to, any third party.
1.19. CPR means the Center for Public Resources.
1.20. DISTRIBUTION means the distribution by CCI on a pro rata basis to
holders of CCI Common Stock of all of the outstanding shares of uBid Common
Stock owned by CCI on the Distribution Date as set forth in Article IV.
1.21. DISTRIBUTION DATE means the date determined pursuant to Section 3.1
on which the Distribution occurs.
1.22. EFFECTIVE IPO DATE means the date on which the IPO Registration
Statement is declared effective by the Commission.
1.23. EFFECTIVE TIME means 5:00 p.m., Eastern Standard Time or Eastern
Daylight Time (whichever shall be then in effect), on the Distribution Date.
1.24. ENVIRONMENTAL LAW means any federal, state, local, foreign or
international statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, common law (including tort and environmental
nuisance law), legal doctrine, order, judgment, decree, injunction, requirement
or agreement with any Governmental Authority, now or hereafter in effect
relating to health, safety, pollution or the environment (including ambient air,
surface water, groundwater, land surface or subsurface strata) or to emissions,
discharges, releases or threatened releases of any substance currently or at any
time hereafter listed, defined, designated or classified as hazardous, toxic
waste, radioactive or dangerous, or otherwise regulated, under any of the
foregoing, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of any such substances,
including the Comprehensive Environmental Response, Compensation and Liability
Act, the Superfund Amendments and Reauthorization Act and the Resource
Conservation and Recovery Act and comparable provisions in state, local, foreign
or international law.
1.25. ENVIRONMENTAL LIABILITIES means all Liabilities relating to, arising
out of or resulting from any Environmental Law or contract or agreement relating
to environmental, health or safety matters (including all removal, remediation
or cleanup costs, investigatory costs, governmental response costs, natural
resources damages, property damages, personal injury damages, costs of
compliance with any settlement, judgment or other determination of Liability and
indemnity, contribution or similar obligations) and all costs and expenses,
interest, fines, penalties or other monetary sanctions in connection therewith.
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1.26. ESCALATION NOTICE has the meaning set forth in Section 8.2.
1.27. EXCHANGE ACT means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
1.28. GOVERNMENTAL APPROVAL means any notice, report or other filing to be
made, or any consent, registration, approval, permit or authorization to be
obtained from, any Governmental Authority.
1.29. GOVERNMENTAL AUTHORITY shall mean any federal, state, local, foreign
or international court, government, department, commission, board, bureau,
agency, official or other regulatory, administrative or governmental authority.
1.30. INDEMNIFYING PARTY has the meaning set forth in Section 5.4(a).
1.31. INDEMNITEE has the meaning set forth in Section 5.4(a).
1.32. INDEMNITY PAYMENT has the meaning set forth in Section 5.4(a).
1.33. INFORMATION means information, whether or not patentable or
copyrightable, in written, oral, electronic or other tangible or intangible
forms, stored in any medium, including studies, reports, records, books,
contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models,
prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes,
computer programs or other software, marketing plans, customer names,
communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or under their
direction (including attorney work product), and other technical, financial,
employee or business information or data.
1.34. INSURANCE POLICIES means the insurance policies written by insurance
carriers unaffiliated with CCI pursuant to which uBid (or their respective
officers or directors) will be insured parties after the Closing Date.
1.35. INSURANCE PROCEEDS means those monies:
(a) received by an insured from an insurance carrier; or
(b) paid by an insurance carrier on behalf of the insured;
in any such case net of any applicable premium adjustments (including reserves
and retrospectively rated premium adjustments) and net of any costs or expenses
incurred in the collection thereof.
1.36. IPO means the initial public offering by uBid of shares of uBid
Common Stock pursuant to the IPO Registration Statement.
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1.37. IPO REGISTRATION STATEMENT means the registration statement on
Form S-1 (No. 333-58447) filed under the Securities Act, pursuant to which the
uBid Common Stock to be issued in the IPO will be registered, together with all
amendments thereto.
1.38. LIABILITIES means any and all losses, claims, charges, debts,
demands, actions, causes of action, suits, damages, obligations, payments, costs
and expenses, sums of money, accounts, reckonings, bonds, specialties,
indemnities and similar obligations, exonerations, covenants, contracts,
controversies, agreements, promises, doings, omissions, variances, guarantees,
make whole agreements and similar obligations, and other liabilities, including
all contractual obligations, whether absolute or contingent, matured or
unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown,
whenever arising, and including those arising under any law, rule, regulation,
Action, threatened or contemplated Action (including the costs and expenses of
demands, assessments, judgments, settlements and compromises relating thereto
and attorneys' fees and any and all costs and expenses, whatsoever reasonably
incurred in investigating, preparing or defending against any such Actions or
threatened or contemplated Actions), order or consent decree of any Governmental
Authority or any award of any arbitrator or mediator of any kind, and those
arising under any contract, commitment or undertaking, including those arising
under this Agreement or any Ancillary Agreement, in each case, whether or not
recorded or reflected or required to be recorded or reflected on the books and
records or financial statements of any Person.
1.39. PERSON means an individual, a general or limited partnership, a
corporation, a trust, a joint venture, an unincorporated organization, a limited
liability entity, any other entity and any Governmental Authority.
1.40. PRIME RATE means the rate which Chase Manhattan Bank (or any
successor thereto or other major money center commercial bank agreed to by the
parties hereto) announces from time to time as its prime lending rate, as in
effect from time to time.
1.41. PROSPECTUS means each preliminary, final or supplemental prospectus
forming a part of the IPO Registration Statement.
1.42. RECORD DATE means the close of business on the date to be determined
by the CCI Board of Directors as the record date for determining stockholders of
CCI entitled to receive shares of uBid Common Stock in the Distribution.
1.43. REGISTRATION RIGHTS AGREEMENT means the Registration Rights
Agreements, set forth as Exhibits A and B hereto, by and among CCI and uBid, on
the one hand, and Frank Khulusi, Sam Khulusi and uBid on the other.
1.44. SECURITIES ACT means the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
1.45. SECURITY INTEREST means any mortgage, security interest, pledge,
lien, charge, claim, option, right to acquire, voting or other restriction,
right-of-way, covenant, condition, easement, encroachment, restriction on
transfer, or other encumbrance of any nature whatsoever.
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1.46. SUBSIDIARY OF ANY PERSON means any corporation or other organization
whether incorporated or unincorporated of which at least a majority of the
securities or interests having by the terms thereof ordinary voting power to
elect at least a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such Person or by any one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries; provided,
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however, that no Person that is not directly or indirectly wholly owned by any
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other Person shall be a Subsidiary of such other Person unless such other Person
controls, or has the right, power or ability to control, that Person.
1.47. TAX INDEMNIFICATION AND ALLOCATION AGREEMENT means the Tax
Indemnification and Allocation Agreement, dated as of the date hereof, by and
among CCI and uBid.
1.48. TAXES has the meaning set forth in the Tax Indemnification and
Allocation Agreement.
1.49. THIRD PARTY CLAIM has the meaning set forth in Section 5.5(a).
1.50. uBID BUSINESS means the business of uBid as presently conducted.
1.51. uBID COMMON STOCK means Common Stock, $.001 par value per share, of
uBid.
1.52. uBID GROUP means uBid, each Subsidiary of uBid and each other Person
that is either controlled directly or indirectly by uBid immediately after the
Closing Date or that is contemplated to be controlled by uBid.
1.53. uBID INDEMNITEES has the meaning set forth in Section 5.3(a).
1.54. UNDERWRITERS means the managing underwriters for the IPO.
1.55. UNDERWRITING AGREEMENT means the underwriting agreement to be entered
into among uBid and the Underwriters with respect to the IPO.
ARTICLE II
THE IPO AND ACTIONS PENDING THE IPO
2.1. TRANSACTIONS PRIOR TO THE IPO. (a) Subject to the conditions specified
in Section 2.6, CCI and uBid shall use their reasonable best efforts to
consummate the IPO. Such actions shall include, but not necessarily be limited
to, those specified in this Section 2.1.
(b) uBid shall file the IPO Registration Statement, and such
amendments or supplements thereto, as may be necessary in order to cause the
same to become and remain effective as required by law or by the Underwriters,
including, but not limited to, filing such amendments to the IPO Registration
Statement as may be required by the Underwriting Agreement, the Commission or
federal, state or foreign securities laws. CCI and uBid shall also
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cooperate in preparing, filing with the Commission and causing to become
effective a registration statement registering the uBid Common Stock under the
Exchange Act, and any registration statements or amendments thereof which are
required to reflect the establishment of, or amendments to, any employee benefit
and other plans necessary or appropriate in connection with the IPO, the
Distribution or the other transactions contemplated by this Agreement and the
Ancillary Agreements.
(c) uBid and CCI shall enter into the Underwriting Agreement, in form
and substance reasonably satisfactory to uBid and CCI and shall comply with its
respective obligations thereunder.
(d) CCI and uBid shall consult with each other and the Underwriters
regarding the timing, pricing and other material matters with respect to the
IPO.
(e) uBid shall use its reasonable best efforts to take all such action
as may be necessary or appropriate under state securities and blue sky laws of
the United States (and any comparable laws under any foreign jurisdictions) in
connection with the IPO.
(f) uBid shall prepare, file and use reasonable best efforts to seek to
make effective, an application for listing of the uBid Common Stock issued in
the IPO on the NASDAQ Stock Market, subject to official notice of issuance.
(g) uBid shall participate in the preparation of materials and
presentations as the Underwriters shall deem necessary or desirable.
(h) uBid shall pay all third party costs, fees and expenses relating to
the IPO, all of the reimbursable expenses of the Underwriters pursuant to the
Underwriting Agreement, all of the costs of producing, printing, mailing and
otherwise distributing the Prospectus, as well as the Underwriters' discount as
provided in the Underwriting Agreement.
2.2. PROCEEDS OF THE IPO. The IPO will be a primary offering of uBid Common
Stock and the net proceeds of the IPO will be retained by uBid.
2.3. CONDITIONS PRECEDENT TO CONSUMMATION OF THE IPO. As soon as
practicable after the date of this Agreement, the parties hereto shall use their
reasonable best efforts to satisfy the following conditions to the consummation
of the IPO. The obligations of the parties to consummate the IPO shall be
conditioned on the satisfaction, or waiver by CCI, of the following conditions:
(a) The IPO Registration Statement shall have been filed and declared
effective by the Commission, and there shall be no stop order in effect with
respect thereto.
(b) The actions and filings with regard to state securities and blue
sky laws of the United States (and any comparable laws under any foreign
jurisdictions) described in Section 2.1 shall have been taken and, where
applicable, have become effective or been accepted.
(c) The uBid Common Stock to be issued in the IPO shall have been
accepted for listing on the NASDAQ Stock Market, on official notice of issuance.
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(d) uBid shall have entered into the Underwriting Agreement and all
conditions to the obligations of uBid and the Underwriters shall have been
satisfied or waived.
(e) CCI shall be satisfied in its sole discretion that it will own at
least 80.1% of the voting rights attached to the outstanding uBid Common Stock
following the IPO, and all other conditions to permit the Distribution to
qualify as a tax-free distribution to CCI's stockholders and CCI shall, to the
extent applicable as of the time of the IPO, be satisfied and there shall be no
event or condition that is likely to cause any of such conditions not to be
satisfied as of the time of the Distribution or thereafter.
(f) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the IPO or any of the other transactions contemplated by this
Agreement or any Ancillary Agreement shall be in effect.
(g) Such other actions as the parties hereto may, based upon the advice
of counsel, reasonably request to be taken prior to the IPO in order to assure
the successful completion of the IPO and the other transactions contemplated by
this Agreement shall have been taken.
(h) This Agreement shall not have been terminated.
ARTICLE III
THE DISTRIBUTION
3.1. THE DISTRIBUTION. (a) Subject to Section 3.3 hereof, on or prior to
the Distribution Date, CCI will deliver to the Agent for the benefit of holders
of record of CCI Common Stock on the Record Date, a single stock certificate,
endorsed by CCI in blank, representing all of the outstanding shares of uBid
Common Stock then owned by CCI, and shall cause the transfer agent for the
shares of CCI Common Stock to instruct the Agent to distribute on the
Distribution Date the appropriate number of such shares of uBid Common Stock to
each such holder or designated transferee or transferees of such holder.
(b) Subject to Section 3.4, each holder of CCI Common Stock on the
Record Date (or such holder's designated transferee or transferees) will be
entitled to receive in the Distribution a number of shares of uBid Common Stock
equal to the number of shares of CCI Common Stock held by such holder on the
Record Date multiplied by a fraction the numerator of which is the number of
shares of uBid Common Stock beneficially owned by CCI, on the Record Date and
the denominator of which is the number of shares of CCI Common Stock outstanding
on the Record Date.
(c) uBid and CCI, as the case may be, will provide to the Agent all
share certificates and any information required in order to complete the
Distribution on the basis specified above.
3.2. ACTIONS PRIOR TO THE DISTRIBUTION. (a) CCI and uBid shall prepare and
mail, prior to the Distribution Date, to the holders of CCI Common Stock, such
information
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concerning uBid, its business, operations and management, the Distribution and
such other matters as CCI shall reasonably determine and as may be required by
law. CCI and uBid will prepare, and uBid will, to the extent required under
applicable law, file with the Commission any such documentation and any
requisite no action letters which CCI determines are necessary or desirable to
effectuate the Distribution and CCI and uBid shall each use its reasonable best
efforts to obtain all necessary approvals from the Commission with respect
thereto as soon as practicable.
(b) CCI and uBid shall take all such action as may be necessary or
appropriate under the securities or blue sky laws of the United States (and any
comparable laws under any foreign jurisdiction) in connection with the
Distribution.
(c) CCI and uBid shall take all reasonable steps necessary and
appropriate to cause the conditions set forth in Section 3.3 (subject to
Sections 3.3(d)) to be satisfied and to effect the Distribution on the
Distribution Date.
(d) uBid shall prepare and file, and shall use its reasonable best
efforts to have approved, an application for the listing on the NASDAQ Stock
Market, subject to official notice of distribution of the uBid Common Stock to
be distributed in the Distribution, and the shares of uBid Common Stock covered
by uBid Options to be granted under Section 3.6 below.
3.3. CONDITIONS TO DISTRIBUTION. The CCI Board currently intends to effect
the Distribution at any time commencing 180 days after the Closing Date and
ending on or prior to December 31, 1999. Subject to any restrictions contained
in the Underwriting Agreement, the CCI Board shall have the sole discretion to
determine the date of consummation of the Distribution at any time commencing
180 days after the Closing Date and ending on or prior to December 31, 1999. CCI
shall be obligated to consummate the Distribution on or before December 31,
1999, subject to the satisfaction, or waiver by the CCI Board in its sole
discretion, of the conditions set forth below. In the event that any such
condition shall not have been satisfied or waived on or before December 31,
1999, CCI shall consummate the Distribution as promptly as practicable following
the satisfaction or waiver by CCI of all such conditions.
(a) an opinion letter from PricewaterhouseCoopers LLP (the "PWC
Opinion") shall have been obtained in form and substance satisfactory to CCI in
its sole discretion, and shall be confirmed at the Distribution Date, to the
effect that, among other things, the Distribution will qualify as a tax-free
distribution for federal income tax purposes under Section 355 of the Code and
the Distribution by CCI of the uBid Common Stock to stockholders of CCI will not
result in recognition of any income, gain or loss for federal income tax
purposes to CCI or CCI's stockholders;
(b) if CCI, in its sole discretion, decides to seek a private letter
ruling from the Internal Revenue Service to the same effect as the PWC Opinion
(the "Letter Ruling"), the Letter Ruling shall have been obtained in form and
substance satisfactory to CCI, and shall continue in effect, consistent with the
conclusions reached in the PWC Opinion.
(c) any material Governmental Approvals and Consents necessary to
consummate the Distribution shall have been obtained and be in full force and
effect;
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(d) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Distribution shall be in effect and no other event outside
the control of CCI shall have occurred or failed to occur that prevents the
consummation of the Distribution; and
(e) no other events or developments shall have occurred subsequent to
the Closing Date that, in the sole judgment of the Board of Directors of CCI,
would result in the Distribution having a material adverse effect on CCI or on
the stockholders of CCI.
The foregoing conditions are for the sole benefit of CCI and shall not give
rise to or create any duty on the part of CCI or the CCI Board of Directors to
waive or not waive any such condition.
3.4. FRACTIONAL SHARES. As soon as practicable after the Distribution
Date, CCI shall direct the Agent to determine the number of whole shares and
fractional shares of uBid Common Stock allocable to each holder of record or
beneficial owner of CCI Common Stock as of the Record Date, to aggregate all
such fractional shares and sell the whole shares obtained thereby at the
direction of CCI either to CCI, in open market transactions or otherwise, in
each case at then prevailing trading prices, and to cause to be distributed to
each such holder or for the benefit of each such beneficial owner to which a
fractional share shall be allocable such holder's or owner's ratable share of
the proceeds of such sale, after making appropriate deductions of the amount
required to be withheld for federal income tax purposes and after deducting an
amount equal to all brokerage charges, commissions and transfer taxes attributed
to such sale. CCI and the Agent shall use their reasonable best efforts to
aggregate the shares of CCI Common Stock that may be held by any beneficial
owner thereof through more than one account in determining the fractional share
allocable to such beneficial owner.
3.5. THE uBID BOARD OF DIRECTORS. CCI and uBid shall each take all actions
which may be required to elect or otherwise appoint as directors of uBid, on or
prior to the Distribution Date, such individuals as may be designated by uBid's
Board of Directors (which designation shall be approved by the majority of
uBid's directors who are at such time neither officers nor directors of CCI) as
additional or substitute members of the Board of Directors of uBid on the
Distribution Date.
3.6. ADJUSTMENT OF CCI STOCK OPTIONS. As of the Distribution Date, each
outstanding option to purchase CCI Common Stock granted prior to the Closing
Date (each a "CCI Option") shall be adjusted as set forth in this Section 3.6.
Each CCI Option shall be converted (an "Adjusted Option"), as of the
Distribution Date, into two options: an option (the "CCI Adjusted Option") to
purchase the same number of shares of CCI Common Stock covered by the CCI Option
and as to which the CCI Option has not been exercised as of the Distribution
Date ("CCI Option Number") and an option (the "uBid Option") to purchase a
number of shares of uBid Common Stock equal to the CCI Option Number times a
fraction, the numerator of which is the total number of shares of uBid Common
Stock distributed to CCI stockholders in the Distribution and the denominator of
which is the total number of shares of CCI Common Stock outstanding on the
record date for the Distribution (the "Distribution Ratio"). The terms of the
CCI Adjusted Option and the uBid Option (other than the exercise price and the
number of shares) shall be substantially the same as the CCI Option. The
exercise prices per share for each
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CCI Adjusted Option and the uBid Option shall be established in a manner so
that: a) the aggregate "intrinsic value" (i.e. the market value of the stock
underlying the option, less the exercise price of such option, multiplied by the
number of shares then covered by such option) after the Distribution of the CCI
Adjusted Option plus the uBid Option is not greater than the intrinsic value of
the related CCI Option immediately prior to the Distribution; and b) the ratio
of the exercise price per option to the market value per share after the
Distribution is not lower than the ratio of the exercise price of the CCI Option
to the market value per share of CCI Common Stock immediately prior to the
Distribution. The determination of the exercise prices for each CCI Adjusted
Option and uBid Option shall be made by CCI as advised by its professional
advisors. The exercise prices for each CCI Adjusted Option and uBid Option will
be determined as follows:
1. Calculate the aggregate intrinsic value of the CCI Option immediately
prior to the Distribution and determine the ratio of the exercise price
for the CCI Option to the market value of CCI Common Stock immediately
prior to the Distribution (the "Pre-Distribution Exercise Price to Market
Price Ratio").
2. Calculate the preliminary CCI Adjusted Option exercise price by dividing
(x) the market value of CCI Common Stock (without uBid) immediately after
the Distribution by (y) the sum of (i) the market value of CCI Common
Stock immediately after the Distribution and (ii) the market value of
uBid Common Stock immediately after the Distribution multiplied by the
Distribution Ratio, and multiplying the result by the exercise price for
the CCI Option.
3. Divide the preliminary CCI Adjusted Option exercise price by the market
value of CCI Common Stock immediately after the Distribution to determine
the "CCI Adjusted Exercise Price to Market Price Ratio." If the CCI
Adjusted Exercise Price to Market Price Ratio is less than the Pre-
Distribution Exercise Price to Market Price Ratio, increase the
preliminary CCI Adjusted Option exercise price to align the CCI Adjusted
Exercise Price to Market Ratio with the Pre-Distribution Exercise Price
to Market Price Ratio in order to determine the final Adjusted CCI Option
exercise price.
4. Calculate the preliminary uBid Option exercise price by multiplying the
CCI Option Price by the result obtained by dividing (z) one minus the
fraction calculated in paragraph 2 above by (w) the Distribution Ratio.
5. Divide the preliminary uBid Option exercise price by the market value of
uBid Common Stock immediately after the Distribution to determine the
"uBid Adjusted Exercise Price to Market Price Ratio." If the uBid
Adjusted Exercise Price to Market Ratio is less than the Pre-Distribution
Exercise Price to Market Price Ratio, increase the preliminary uBid
Option exercise price to align the uBid Adjusted Exercise Price to Market
Price Ratio with the Pre-Distribution Exercise Price to Market Price
Ratio in order to determine the final uBid Option exercise price.
6. Finally, add the aggregate intrinsic values of the Adjusted CCI Option
and uBid Option and compare the sum to the aggregate intrinsic value
calculated in paragraph 1 above and make final adjustments, if necessary,
so that the aggregate intrinsic values of the
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Adjusted CCI Option and uBid Option do not exceed the original aggregate
intrinsic value of the CCI Option.
The uBid Options to be granted with respect to each Adjusted Option shall
be issued under uBid's 1998 Stock Incentive Plan, and uBid shall take all
corporate action and make all required filings under applicable state Blue Sky
laws and the Securities Act to (i) issue the uBid Options required under this
Section 3.6 and (ii) to register or qualify the uBid Options and/or the
underlying shares of uBid Common Stock so that the shares of uBid Common Stock
acquired upon exercise of each uBid Option are freely tradable under the
Securities Act (except for shares acquired by Affiliates of uBid) and each
applicable state's Blue Sky laws.
ARTICLE IV
ANCILLARY AGREEMENTS, REGISTRATION RIGHTS AGREEMENTS AND
TAX INDEMNIFICATION AND ALLOCATION AGREEMENT
4.1. ANCILLARY AGREEMENTS. Prior to the date hereof, CCI has provided to
uBid the following services: administration (accounting, human resources,
legal), warehousing and distribution, Internet/telecom, and joint marketing.
uBid and CCI will enter into the Ancillary Agreements pursuant to which CCI will
provide certain of such services to uBid on a transitional basis as described in
the Ancillary Agreements. Effective as of the date hereof, each of CCI and uBid
will execute and deliver all of the Ancillary Agreements, the Registration
Rights Agreements and the Tax Indemnification and Allocation Agreement.
ARTICLE V
INDEMNIFICATION
5.1. RELEASE OF PRE-CLOSING CLAIMS. (a) Except as provided in Section
5.1(c), effective as of the Closing Date, uBid does hereby, for itself, its
respective Affiliates (other than any member of the CCI Group), successors and
assigns, and all Persons who at any time prior to the Closing Date have been
stockholders, directors, officers, agents or employees of any member of the uBid
Group (in each case, in their respective capacities as such), remise, release
and forever discharge each of CCI, its respective Affiliates (other than any
member of the uBid Group), successors and assigns, and all Persons who at any
time prior to the Closing Date have been stockholders, directors, officers,
agents or employees of CCI (in each case, in their respective capacities as
such), and their respective heirs, executors, administrators, successors and
assigns, from any and all Liabilities whatsoever, whether at law or in equity
(including any right of contribution), whether arising under any contract or
agreement, by operation of law or otherwise, existing or arising from all acts
and events occurring or failing to occur or alleged to have occurred or to have
failed to occur and all conditions existing or alleged to have existed on or
before the Closing Date, including in connection with the transactions and all
other activities to implement the IPO or the Distribution, between uBid and CCI
(including any contractual arrangements or arrangements existing or alleged to
exist between them on or before the Closing Date).
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(b) Except as provided in Section 5.1(c), effective as of the Closing
Date, CCI does hereby, for itself and its Affiliates (other than any member of
the uBid Group), successors and assigns, and all Persons who at any time prior
to the Closing Date have been stockholders, directors, officers, agents or
employees of any member of the CCI Group (in each case, in their respective
capacities as such), remise, release and forever discharge uBid, the respective
members of the uBid Group, their respective Affiliates (other than any member of
the CCI Group), successors and assigns, and all Persons who at any time prior to
the Closing Date have been stockholders, directors, officers, agents or
employees of any member of the uBid Group (in each case, in their respective
capacities as such), and their respective heirs, executors, administrators,
successors and assigns, from any and all Liabilities whatsoever, whether at law
or in equity (including any right of contribution), whether arising under any
contract or agreement, by operation of law or otherwise, existing or arising
from all acts and events occurring or failing to occur or alleged to have
occurred or to have failed to occur and all conditions existing or alleged to
have existed on or before the Closing Date, including in connection with the
transactions and all other activities to implement the IPO or the Distribution,
between uBid and CCI (including any contractual arrangements or arrangements
existing or alleged to exist between them on or before the Closing Date).
(c) Nothing contained in Section 5.1(a) or (b) shall impair any right
of any Person to enforce this Agreement, any Ancillary Agreement, the
Registration Rights Agreements or the Tax Indemnification and Allocation
Agreement. Nothing contained in Section 5.1(a) or (b) shall release any Person
from:
(i) any Liability, contingent or otherwise, assumed,
transferred, assigned or allocated to the Group of which such Person is a
member in accordance with, or any other Liability of any member of any
Group under, this Agreement or any Ancillary Agreement;
(ii) any Liability for the sale, lease, construction or receipt
of goods, property or services purchased, obtained or used in the ordinary
course of business by a member of one Group from a member of any other
Group prior to the Closing Date;
(iii) any Liability for unpaid amounts for products or services
or refunds owing on products or services due on a value-received basis for
work done by a member of one Group at the request or on behalf of a member
of another Group;
(iv) any Liability that the parties may have with respect to
indemnification or contribution pursuant to this Agreement for claims
brought against the parties by third Persons, which Liability shall be
governed by the provisions of this Article V and Article VI and, if
applicable, the appropriate provisions of the Ancillary Agreements; or
(v) in the case of uBid, outstanding unpaid amounts as of the
Closing Date advanced to uBid for working capital and fixed asset
purchases, which amounts will be repaid in full not later than 18 months
following the Closing Date, with interest thereon payable monthly.
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(vi) any Liability the release of which would result in the
release of any Person other than a Person released pursuant to this Section
5.1; provided that the parties agree not to bring suit or permit any of
their Subsidiaries to bring suit against any Person with respect to any
Liability to the extent that such Person would be released with respect to
such Liability by this Section 5.1 but for the provisions of this clause
(vi).
(d) uBid shall not make, and shall not permit any member of the uBid
Group to make, any claim or demand, or commence any Action asserting any claim
or demand, including any claim of contribution or any indemnification, against
CCI or any member of the CCI Group or any other Person released pursuant to
Section 5.1(a), with respect to any Liabilities released pursuant to Section
5.1(a). CCI shall not, and shall not permit any member of the CCI Group, to make
any claim or demand, or commence any Action asserting any claim or demand,
including any claim of contribution or any indemnification, against uBid or any
member of the uBid Group, or any other Person released pursuant to Section
5.1(b), with respect to any Liabilities released pursuant to Section 5.1(b).
(e) It is the intent of each of CCI and uBid by virtue of the
provisions of this Section 5.1 to provide for a full and complete release and
discharge of all Liabilities existing or arising from all acts and events
occurring or failing to occur or alleged to have occurred or to have failed to
occur and all conditions existing or alleged to have existed on or before the
Closing Date, between or among uBid or any member of the uBid Group, on the one
hand, and CCI or any member of the CCI Group, on the other hand (including any
contractual agreements or arrangements existing or alleged to exist between or
among any such members on or before the Closing Date), except as expressly set
forth in Section 5.1(c). At any time, at the request of any other party, each
party shall cause each member of its respective Group to execute and deliver
releases reflecting the provisions hereof.
5.2. INDEMNIFICATION BY uBID. Except as provided in Section 5.4, uBid
shall indemnify, defend and hold harmless CCI, each member of the CCI Group and
each of their respective directors, officers and employees, and each of the
heirs, executors, successors and assigns of any of the foregoing (collectively,
the "CCI Indemnitees"), from and against any and all Liabilities of the CCI
Indemnitees relating to, arising out of or resulting from any of the following
items (without duplication):
(a) the failure of uBid or any other member of the uBid Group or any
other Person to pay, perform or otherwise promptly discharge any liabilities of
uBid in accordance with their respective terms, whether prior to or after the
Closing Date or the date hereof;
(b) any breach by uBid or any member of the uBid Group of this
Agreement, any of the Ancillary Agreements, the Registration Rights Agreements
or the Tax Indemnification and Allocation Agreement;
(c) any untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, with
respect to all information contained in any IPO Registration Statement or
Prospectus.
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5.3. INDEMNIFICATION BY CCI. (a) Except as otherwise provided in Section
5.4, CCI shall indemnify, defend and hold harmless uBid, each member of the uBid
Group and each of their respective directors, officers and employees, and each
of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "uBid Indemnitees"), from and against any and all Liabilities
of the uBid Indemnitees relating to, arising out of or resulting from any of the
following items (without duplication):
(i) the failure of CCI or any other member of the CCI Group or
any other Person to pay, perform or otherwise promptly discharge any
Liabilities of the CCI Group, whether prior to or after the Closing Date or
the date hereof; and
(ii) any breach by CCI or any member of the CCI Group of this
Agreement, any of the Ancillary Agreements or the Registration Rights
Agreements.
5.4. INDEMNIFICATION OBLIGATIONS NET OF INSURANCE PROCEEDS AND OTHER
AMOUNTS. (a) The parties intend that any Liability subject to indemnification or
reimbursement pursuant to this Article V or Article VI will be net of Insurance
Proceeds that actually reduce the amount of the Liability. Accordingly, the
amount which any party (an "Indemnifying Party") is required to pay to any
Person entitled to indemnification hereunder (an "Indemnitee") will be reduced
by any Insurance Proceeds theretofore actually recovered by or on behalf of the
Indemnitee in reduction of the related Liability. If an Indemnitee receives a
payment (an "Indemnity Payment") required by this Agreement from an Indemnifying
Party in respect of any Liability and subsequently receives Insurance Proceeds,
then the Indemnitee will pay to the Indemnifying Party an amount equal to the
excess of the Indemnity Payment received over the amount of the Indemnity
Payment that would have been due if the Insurance Proceeds had been received,
realized or recovered before the Indemnity Payment was made.
(b) An insurer who would otherwise be obligated to pay any claim
shall not be relieved of the responsibility with respect thereto or, solely by
virtue of the indemnification provisions hereof, have any subrogation rights
with respect thereto, it being expressly understood and agreed that no insurer
or any other third party shall be entitled to a "windfall" (i.e., a benefit they
would not be entitled to receive in the absence of the indemnification
provisions) by virtue of the indemnification provisions hereof. Nothing
contained in this Agreement, any Ancillary Agreement or the Registration Rights
Agreements shall obligate any member of any Group to seek to collect or recover
any Insurance Proceeds.
5.5. PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS. (a) If an
Indemnitee shall receive notice or otherwise learn of the assertion by a Person
(including any Governmental Authority) who is not a member of the CCI Group or
the uBid Group of any claim or of the commencement by any such Person of any
Action (collectively, a "Third Party Claim") with respect to which an
Indemnifying Party may be obligated to provide indemnification to such
Indemnitee pursuant to Section 5.2 or 5.3, or any other Section of this
Agreement, any Ancillary Agreement or the Registration Rights Agreements, such
Indemnitee shall give such Indemnifying Party written notice thereof within 20
days after becoming aware of such Third Party Claim. Any such notice shall
describe the Third Party Claim in reasonable detail. Notwithstanding the
foregoing, the failure of any Indemnitee or other Person to give notice as
provided in this Section 5.5(a) shall not relieve the related Indemnifying Party
of its obligations
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under this Article V, except to the extent that such Indemnifying Party is
actually prejudiced by such failure to give notice.
(b) An Indemnifying Party may elect to defend (and, unless the
Indemnifying Party has specified any reservations or exceptions, to seek to
settle or compromise), at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, any Third Party Claim. Within 30 days after
the receipt of notice from an Indemnitee in accordance with Section 5.5(a) (or
sooner, if the nature of such Third Party Claim so requires), the Indemnifying
Party shall notify the Indemnitee of its election whether the Indemnifying Party
will assume responsibility for defending such Third Party Claim, which election
shall specify any reservations or exceptions. After notice from an Indemnifying
Party to an Indemnitee of its election to assume the defense of a Third Party
Claim, such Indemnitee shall have the right to employ separate counsel and to
participate in (but not control) the defense, compromise, or settlement thereof,
but the fees and expenses of such counsel shall be the expense of such
Indemnitee except as set forth in the next sentence. In the event that the
Indemnifying Party has elected to assume the defense of the Third Party Claim
but has specified, and continues to assert, any reservations or exceptions in
such notice, then, in any such case, the reasonable fees and expenses of one
separate counsel for all Indemnitees shall be borne by the Indemnifying Party.
(c) If an Indemnifying Party elects not to assume responsibility for
defending a Third Party Claim, or fails to notify an Indemnitee of its election
as provided in Section 5.5(d), such Indemnitee may defend such Third Party Claim
at the cost and expense of the Indemnifying Party.
(d) Unless the Indemnifying Party has failed to assume the defense of
the Third Party Claim in accordance with the terms of this Agreement, no
Indemnitee may settle or compromise any Third Party Claim without the consent of
the Indemnifying Party.
(e) No Indemnifying Party shall consent to entry of any judgment or
enter into any settlement of the Third Party Claim without the consent of the
Indemnitee if the effect thereof is to permit any injunction, declaratory
judgment, other order or other nonmonetary relief to be entered, directly or
indirectly, against any Indemnitee.
(f) The provisions of Section 5.5 and Section 5.6 shall not apply to
Taxes (which are covered by the Tax Indemnification and Allocation Agreement).
5.6. ADDITIONAL MATTERS. (a) Any claim on account of a Liability which
does not result from a Third Party Claim shall be asserted by written notice
given by the Indemnitee to the related Indemnifying Party. Such Indemnifying
Party shall have a period of 30 days after the receipt of such notice within
which to respond thereto. If such Indemnifying Party does not respond within
such 30-day period, such Indemnifying Party shall be deemed to have refused to
accept responsibility to make payment. If such Indemnifying Party does not
respond within such 30-day period or rejects such claim in whole or in part,
such Indemnitee shall be free to pursue such remedies as may be available to
such party as contemplated by this Agreement, the Ancillary Agreements and the
Registration Rights Agreements.
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(b) In the event of payment by or on behalf of any Indemnifying Party
to any Indemnitee in connection with any Third Party Claim, such Indemnifying
Party shall be subrogated to and shall stand in the place of such Indemnitee as
to any events or circumstances in respect of which such Indemnitee may have any
right, defense or claim relating to such Third Party Claim against any claimant
or plaintiff asserting such Third Party Claim or against any other person. Such
Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner,
and at the cost and expense of such Indemnifying Party, in prosecuting any
subrogated right, defense or claim.
(c) In the event of an Action in which the Indemnifying Party is not a
named defendant, if the Indemnifying Party shall so request, the parties shall
endeavor to substitute the Indemnifying Party for the named defendant if at all
practicable. If such substitution or addition cannot be achieved for any reason
or is not requested, the named defendant shall allow the Indemnifying Party to
manage the Action as set forth in this Section and the Indemnifying Party shall
fully indemnify the named defendant against all costs of defending the Action
(including court costs, sanctions imposed by a court, attorneys' fees, experts'
fees and all other external expenses), the costs of any judgment or settlement,
and the cost of any interest or penalties relating to any judgment or
settlement.
5.7. REMEDIES CUMULATIVE. The remedies provided in this Article V shall be
cumulative and, subject to the provisions of Article VIII, shall not preclude
assertion by any Indemnitee of any other rights or the seeking of any and all
other remedies against any Indemnifying Party.
5.8. SURVIVAL OF INDEMNITIES. The rights and obligations of each of CCI
and uBid and their respective Indemnitees under this Article V shall survive the
sale or other transfer by any party of any Assets or businesses or the
assignment by it of any Liabilities.
ARTICLE VI
INTERIM OPERATIONS AND CERTAIN OTHER MATTERS
6.1. INSURANCE MATTERS. (a) uBid agrees that it will pay to CCI $8,614.00
per month (prorated on a daily basis for any partial month) in respect of the
period from the date hereof until the Distribution Date, such amount to be
payable in arrears by the 10th day of the next succeeding month, in respect of
Insurance Policies under which uBid will continue to have coverage following the
date hereof. CCI and uBid agree to cooperate in good faith to provide for an
orderly transition of insurance coverage from the date hereof through the
Distribution Date and for the treatment of any Insurance Policies that will
remain in effect following the Closing Date on a mutually agreeable basis. In no
event shall CCI, any other member of the CCI Group or any CCI Indemnitee have
liability or obligation whatsoever to any member of the uBid Group in the event
that any Insurance Policy or other contract or policy of insurance shall be
terminated or otherwise cease to be in effect for any reason, shall be
unavailable or inadequate to cover any Liability of any member of the uBid Group
for any reason whatsoever or shall not be renewed or extended beyond the current
expiration date.
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(b) (i) Except as otherwise provided in any Ancillary Agreement,
the parties intend by this Agreement that uBid and each other member of the uBid
Group be successors-in-interest to all rights that any member of the uBid Group
may have as of the Closing Date as a subsidiary, affiliate, division or
department of CCI prior to the Closing Date under any policy of insurance issued
to CCI by any insurance carrier unaffiliated with CCI or under any agreements
related to such policies executed and delivered prior to the Closing Date,
including any rights such member of the uBid Group may have, as an insured or
additional named insured, subsidiary, affiliate, division or department, to
avail itself of any such policy of insurance or any such agreements related to
such policies as in effect prior to the Closing Date. At the request of uBid,
CCI shall take all reasonable steps, including the execution and delivery of any
instruments, to effect the foregoing; provided however that CCI shall not be
required to pay any amounts, waive any rights or incur any Liabilities in
connection therewith.
(ii) Except as otherwise contemplated by any Ancillary Agreement,
after the Closing Date, none of CCI or uBid or any member of their respective
Groups shall, without the consent of the other, provide any such insurance
carrier with a release, or amend, modify or waive any rights under any such
policy or agreement, if such release, amendment, modification or waiver would
adversely affect any rights or potential rights of any member of the other Group
thereunder; provided however that the foregoing shall not (A) preclude any
member of any Group from presenting any claim or from exhausting any policy
limit, (B) require any member of any Group to pay any premium or other amount or
to incur any Liability, or (C) require any member of any Group to renew, extend
or continue any policy in force. Each of uBid and CCI will share such
information as is reasonably necessary in order to permit the other to manage
and conduct its insurance matters in an orderly fashion.
(c) This Agreement shall not be considered as an attempted assignment
of any policy of insurance or as a contract of insurance and shall not be
construed to waive any right or remedy of any member of the CCI Group in respect
of any Insurance Policy or any other contract or policy of insurance.
(d) uBid does hereby, for itself and each other member of the uBid
Group, agree that no member of the CCI Group or any CCI Indemnitee shall have
any Liability whatsoever as a result of the insurance policies and practices of
CCI and its Affiliates as in effect at any time prior to the Closing Date,
including as a result of the level or scope of any such insurance, the
creditworthiness of any insurance carrier, the terms and conditions of any
policy, the adequacy or timeliness of any notice to any insurance carrier with
respect to any claim or potential claim or otherwise.
(e) Nothing in this Agreement shall be deemed to restrict any member
of the uBid Group from acquiring at its own expense any other insurance policy
in respect of any Liabilities or covering any period.
6.2. CERTAIN BUSINESS MATTERS. (a) Except as may be expressly set forth in
Section 6.3 below or in any Ancillary Agreement, no member of any Group shall
have any duty to refrain from (i) engaging in the same or similar activities or
lines of business as any member of any other Group, (ii) doing business with any
potential or actual supplier or customer of any member of any other Group, or
(iii) engaging in, or refraining from, any other activities
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whatsoever relating to any of the potential or actual suppliers or customers of
any member of any other Group.
(b) Each of CCI and uBid is aware that from time to time certain
business opportunities may arise which more than one Group may be financially
able to undertake, and which are, from their nature, in the line of more than
one Group's business and are of practical advantage to more than one Group. In
connection therewith, the parties agree that if, following the Closing Date and
prior to (but not following) the Distribution Date, any of CCI or uBid acquires
knowledge of an opportunity that meets the foregoing standard with respect to
more than one Group, none of CCI or uBid shall have any duty to communicate or
offer such opportunity to any of the others and may pursue or acquire such
opportunity for itself, or direct such opportunity to any other Person.
6.3. NON-COMPETITION.
(a) CCI acknowledges that as the Parent of uBid it has become privy
to certain confidential information and trade secrets of uBid and further
acknowledges that it will derive substantial benefits from the consummation of
the transactions contemplated by this Agreement and that purchasers of Common
Stock of uBid in the IPO will be making substantial investments in reliance upon
the agreement contained in this Section 6.3 that the knowledge and expertise
developed by uBid and available to CCI will be preserved and will not be used in
competition with uBid. CCI hereby agrees that it is reasonable and necessary for
the protection of uBid that it agree, and accordingly CCI hereby does agree
that, for a period of nine months from the Distribution Date (the
"Noncompetition Period"), CCI will not directly or indirectly engage in the
Internet online auction business in substantially the same manner and format as
conducted by uBid on the date hereof (the "uBid Business") or become a
stockholder, partner or owner of any other person, corporation, firm or business
that is engaged in the uBid Business.
(b) The invalidity or non-enforceability of this Section 6.3 in any
respect shall not affect the validity or enforceability of this Section 6.3 in
any other respect or of any other provisions of this Agreement. In the event
that any provision of this Section 6.3 shall be held invalid or unenforceable by
a court of competent jurisdiction by reason of the geographic or business scope
or the duration thereof, such invalidity or unenforceability shall attach only
to the scope or duration of such provision and shall not affect or render
invalid or unenforceable any other provision of this Agreement, and, to the
fullest extent permitted by law, this Agreement shall be construed as if the
geographic or business scope or the duration of such provision had been more
narrowly drafted so as not to be invalid or unenforceable.
(c) CCI acknowledges that the Company would suffer irreparable harm
if CCI were to breach the provisions of this Section 6.3 and that the Company's
remedy at law for any such breach is and will be insufficient and inadequate and
that the Company shall be entitled to equitable relief, including by way of
temporary and permanent injunction, in addition to any remedies the Company may
have at law.
6.4. LATE PAYMENTS. Except as expressly provided to the contrary in this
Agreement or in any Ancillary Agreement, any amount not paid when due pursuant
to this Agreement or any Ancillary Agreement, the Registration Rights Agreements
or the Tax
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Indemnification and Allocation Agreement (and any amounts billed or otherwise
invoiced or demanded and properly payable that are not paid within 30 days of
such bill, invoice or other demand) shall accrue interest at a rate per annum
equal to the Prime Rate plus 2%.
ARTICLE VII
EXCHANGE OF INFORMATION; CONFIDENTIALITY
7.1. AGREEMENT FOR EXCHANGE OF INFORMATION; ARCHIVES. (a) Each of CCI and
uBid, on behalf of its respective Group, agrees to provide, or cause to be
provided, to the other Group, at any time before or after the Distribution Date,
as soon as reasonably practicable after written request therefor, any
Information in the possession or under the control of such Group which the
requesting party reasonably needs (i) to comply with reporting, disclosure,
filing or other requirements imposed on the requesting party (including under
applicable securities or tax laws) by a Governmental Authority having
jurisdiction over the requesting party, (ii) for use in any other judicial,
regulatory, administrative, tax or other proceeding or in order to satisfy
audit, accounting, claims, regulatory, litigation, tax or other similar
requirements, or (iii) to comply with its obligations under this Agreement or
any Ancillary Agreement; provided, however, that in the event that any party
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determines that any such provision of Information could be commercially
detrimental, violate any law or agreement, or waive any attorney client
privilege, the parties shall take all reasonable measures to permit the
compliance with such obligations in a manner that avoids any such harm or
consequence.
(b) After the Closing Date, uBid shall have access during regular
business hours (as in effect from time to time) to the documents and objects of
historic significance that relate to the business of uBid that are located in
the CCI Records. uBid may obtain copies (but not originals) of documents for
bona fide business purposes and may obtain objects for exhibition purposes for
commercially reasonable periods of time if required for bona fide business
purposes, provided that uBid shall cause any such objects to be returned
promptly in the same condition in which they were delivered to uBid and uBid
shall comply with any rules, procedures or other requirements, and shall be
subject to any restrictions (including prohibitions on removal of specified
objects), that are then applicable to CCI. Nothing herein shall be deemed to
restrict the access of any member of the CCI Group to any such documents or
objects or to impose any liability on any member of the CCI Group if any such
documents or objects are not maintained or preserved by CCI.
(c) After the date hereof, (i) uBid shall maintain in effect at its
own cost and expense adequate systems and controls to the extent necessary to
enable the members of the CCI Group to satisfy their respective reporting,
accounting, audit and other obligations, and (ii) uBid shall provide, or cause
to be provided, to CCI in such form as CCI shall request, at no charge to CCI,
all financial and other data and information as CCI determines necessary or
advisable in order to prepare CCI financial statements and reports or filings
with any Governmental Authority.
7.2. OWNERSHIP OF INFORMATION. Any Information owned by one Group that is
provided to a requesting party pursuant to Section 7.1 shall be deemed to remain
the property of the providing party. Unless specifically set forth herein,
nothing contained in this Agreement
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shall be construed as granting or conferring rights of license or otherwise in
any such Information.
7.3. COMPENSATION FOR PROVIDING INFORMATION. The party requesting such
Information agrees to reimburse the other party for the reasonable costs, if
any, of creating, gathering and copying such Information, to the extent that
such costs are incurred for the benefit of the requesting party. Except as may
be otherwise specifically provided elsewhere in this Agreement or in any other
agreement between the parties, such costs shall be computed in accordance with
the providing party's standard methodology and procedures.
7.4. RECORD RETENTION. To facilitate the possible exchange of Information
pursuant to this Article VII and other provisions of this Agreement after the
Distribution Date, the parties agree to use their reasonable best efforts to
retain all Information in their respective possession or control on the
Distribution Date in accordance with the policies of CCI as in effect on the
Closing Date. No party will destroy, or permit any of its Subsidiaries to
destroy, any Information which the other party may have the right to obtain
pursuant to this Agreement prior to the third anniversary of the date hereof
without first using its reasonable best efforts to notify the other party of the
proposed destruction and giving the other party the opportunity to take
possession of such information prior to such destruction; provided, however,
-------- -------
that in the case of any Information relating to Taxes or to Environmental
Liabilities, such period shall be extended to the expiration of the applicable
statute of limitations (giving effect to any extensions thereof).
7.5. LIMITATION OF LIABILITY. No party shall have any liability to any
other party in the event that any Information exchanged or provided pursuant to
this Agreement which is an estimate or forecast, or which is based on an
estimate or forecast, is found to be inaccurate, in the absence of willful
misconduct by the party providing such Information. No party shall have any
liability to any other party if any Information is destroyed after reasonable
best efforts by such party to comply with the provisions of Section 7.4.
7.6. OTHER AGREEMENTS PROVIDING FOR EXCHANGE OF INFORMATION. The rights and
obligations granted under this Article VI are subject to any specific
limitations, qualifications or additional provisions on the sharing, exchange or
confidential treatment of Information set forth in any Ancillary Agreement.
7.7. PRODUCTION OF WITNESSES; RECORDS; COOPERATION. (a) After the Closing
Date, except in the case of an adversarial Action by one party against another
party, each party hereto shall use its reasonable best efforts to make available
to each other party, upon written request, the former, current and future
directors, officers, employees, other personnel and agents of the members of its
respective Group as witnesses and any books, records or other documents within
its control or which it otherwise has the ability to make available, to the
extent that any such person (giving consideration to business demands of such
directors, officers, employees, other personnel and agents) or books, records or
other documents may reasonably be required in connection with any Action in
which the requesting party may from time to time be involved, regardless of
whether such Action is a matter with respect to which indemnification may be
sought hereunder. The requesting party shall bear all costs and expenses in
connection therewith.
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(b) If an Indemnifying Party chooses to defend or to seek to
compromise or settle any Third Party Claim, the other parties shall make
available to such Indemnifying Party or such other party, as the case may be,
upon written request, the former, current and future directors, officers,
employees, other personnel and agents of the members of its respective Group as
witnesses and any books, records or other documents within its control or which
it otherwise has the ability to make available, to the extent that any such
person (giving consideration to business demands of such directors, officers,
employees, other personnel and agents) or books, records or other documents may
reasonably be required in connection with such defense, settlement or
compromise, or such prosecution, evaluation or pursuit, as the case may be, and
shall otherwise cooperate in such defense, settlement or compromise, or such
prosecution, evaluation or pursuit, as the case may be.
(c) Without limiting the foregoing, the parties shall cooperate and
consult to the extent reasonably necessary with respect to any Actions.
(d) Without limiting any provision of this Section, each of the
parties agrees to cooperate, and to cause each member of its respective Group to
cooperate, with each other in the defense of any infringement or similar claim
with respect to any intellectual property and shall not claim to acknowledge, or
permit any member of its respective Group to claim to acknowledge, the validity
or infringing use of any intellectual property of a third Person in a manner
that would hamper or undermine the defense of such infringement or similar
claim.
(e) The obligation of the parties to provide witnesses pursuant to
this Section 7.7 is intended to be interpreted in a manner so as to facilitate
cooperation and shall include the obligation to provide as witnesses inventors
and other officers without regard to whether the witness or the employer of the
witness could assert a possible business conflict (subject to the exception set
forth in the first sentence of Section 7.7(a)).
(f) In connection with any matter contemplated by this Section 7.7,
the parties will enter into a mutually acceptable joint defense agreement so as
to maintain to the extent practicable any applicable attorney-client privilege
or work product immunity of any member of any Group.
7.8. CONFIDENTIALITY. (a) Subject to Section 7.9, each of CCI and uBid, on
behalf of itself and each member of its respective Group, agrees to hold, and to
cause its respective directors, officers, employees, agents, accountants,
counsel and other advisors and representatives to hold, in strict confidence,
with at least the same degree of care that applies to CCI's confidential and
proprietary information pursuant to policies in effect as of the Closing Date,
all Information concerning each such other Group that is either in its
possession (including Information in its possession prior to any of the date
hereof, the Closing Date or the Distribution Date) or furnished by any such
other Group or its respective directors, officers, employees, agents,
accountants, counsel and other advisors and representatives at any time pursuant
to this Agreement, any Ancillary Agreement, the Registration Rights Agreements,
the Tax Indemnification and Allocation Agreement or otherwise, and shall not use
any such Information other than for such purposes as shall be expressly
permitted hereunder or thereunder, except, in each case, to the extent that such
Information has been (i) in the public domain through no fault of such party or
any member of such Group or any of their respective directors, officers,
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employees, agents, accountants, counsel and other advisors and representatives,
(ii) later lawfully acquired from other sources by such party (or any member of
such party's Group) which sources are not themselves bound by a confidentiality
obligation), or (iii) independently generated without reference to any
proprietary or confidential Information of the other party.
(b) Each party agrees not to release or disclose, or permit to be
released or disclosed, any such Information to any other Person, except its
directors, officers, employees, agents, accountants, counsel and other advisors
and representatives who need to know such Information (who shall be advised of
their obligations hereunder with respect to such Information), except in
compliance with Section 7.9. Without limiting the foregoing, when any
Information is no longer needed for the purposes contemplated by this Agreement,
any Ancillary Agreement, the Registration Rights Agreements or the Tax
Indemnification and Allocation Agreement, each party will promptly after request
of the other party either return to the other party all Information in a
tangible form (including all copies thereof and all notes, extracts or summaries
based thereon) or certify to the other party that it has destroyed such
Information (and such copies thereof and such notes, extracts or summaries based
thereon).
7.9. PROTECTIVE ARRANGEMENTS. In the event that any party or any member of
its Group either determines on the advice of its counsel that it is required to
disclose any Information pursuant to applicable law or receives any demand under
lawful process or from any Governmental Authority to disclose or provide
Information of any other party (or any member of any other party's Group) that
is subject to the confidentiality provisions hereof, such party shall notify the
other party prior to disclosing or providing such Information and shall
cooperate at the expense of the requesting party in seeking any reasonable
protective arrangements requested by such other party. Subject to the foregoing,
the Person that received such request may thereafter disclose or provide
Information to the extent required by such law (as so advised by counsel) or by
lawful process or such Governmental Authority.
ARTICLE VIII
ARBITRATION; DISPUTE RESOLUTION
8.1. AGREEMENT TO ARBITRATE. Except as otherwise specifically provided in
any Ancillary Agreement, the procedures for discussion, negotiation and
arbitration set forth in this Article VIII shall apply to all disputes,
controversies or claims (whether sounding in contract, tort or otherwise) that
may arise out of or relate to, or arise under or in connection with this
Agreement or any Ancillary Agreement, or the transactions contemplated hereby or
thereby (including all actions taken in furtherance of the transactions
contemplated hereby or thereby on or prior to the date hereof), or the
commercial or economic relationship of the parties relating hereto or thereto,
between or among any member of the CCI Group and the uBid Group. Each party
agrees on behalf of itself and each member of its respective Group that the
procedures set forth in this Article IX shall be the sole and exclusive remedy
in connection with any dispute, controversy or claim relating to any of the
foregoing matters and irrevocably waives any right to commence any Action in or
before any Governmental Authority, except as expressly provided in Sections
8.7(b) and 8.8 and except to the extent provided under the Arbitration Act in
the case of judicial review of arbitration results or awards. Each party on
behalf of itself and each member
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of its respective Group irrevocably waives any right to any trial by jury with
respect to any claim, controversy or dispute set forth in the first sentence of
this Section 8.1.
8.2. ESCALATION. (a) It is the intent of the parties to use their
respective reasonable best efforts to resolve expeditiously any dispute,
controversy or claim between or among them with respect to the matters covered
hereby that may arise from time to time on a mutually acceptable negotiated
basis. In furtherance of the foregoing, any party involved in a dispute,
controversy or claim shall deliver a notice (an "Escalation Notice") demanding
an in person meeting involving representatives of the parties at a senior level
of management of the parties (or if the parties agree, of the appropriate
strategic business unit or division within such entity). A copy of any such
Escalation Notice shall be given to the Chief Financial Officer, or like officer
or official, of each party involved in the dispute, controversy or claim (which
copy shall state that it is an Escalation Notice pursuant to this Agreement).
Any agenda, location or procedure for such discussions or negotiations between
the parties may be established by the parties from time to time; provided,
--------
however, that the parties shall use their reasonable best efforts to meet within
- -------
30 days of the Escalation Notice.
(b) The parties may, by mutual consent, retain a mediator to aid the
parties in their discussions and negotiations by informally providing advice to
the parties. Any opinion expressed by the mediator shall be strictly advisory
and shall not be binding on the parties, nor shall any opinion expressed by the
mediator be admissible in any arbitration proceedings. The mediator may be
chosen from a list of mediators previously selected by the parties or by other
agreement of the parties. Costs of the mediation shall be borne equally by the
parties involved in the matter, except that each party shall be responsible for
its own expenses. Mediation is not a prerequisite to a demand for arbitration
under Section 8.3.
8.3. DEMAND FOR ARBITRATION. (a) At any time after the first to occur of
(i) the date of the meeting actually held pursuant to the applicable Escalation
Notice or (ii) 45 days after the delivery of an Escalation Notice (as
applicable, the "Arbitration Demand Date"), any party involved in the dispute,
controversy or claim (regardless of whether such party delivered the Escalation
Notice) may, unless the Applicable Deadline has occurred, make a written demand
(the "Arbitration Demand Notice") that the dispute be resolved by binding
arbitration, which Arbitration Demand Notice shall be given to the parties to
the dispute, controversy or claim in the manner set forth in Section 11.5. In
the event that any party shall deliver an Arbitration Demand Notice to another
party, such other party may itself deliver an Arbitration Demand Notice to such
first party with respect to any related dispute, controversy or claim with
respect to which the Applicable Deadline has not passed without the requirement
of delivering an Escalation Notice. No party may assert that the failure to
resolve any matter during any discussions or negotiations, the course of conduct
during the discussions or negotiations or the failure to agree on a mutually
acceptable time, agenda, location or procedures for the meeting, in each case,
as contemplated by Section 8.2, is a prerequisite to a demand for arbitration
under Section 8.3.
(b) Except as may be expressly provided in any Ancillary Agreement,
any Arbitration Demand Notice may be given until one year and 45 days after the
later of the occurrence of the act or event giving rise to the underlying claim
or the date on which such act or event was, or should have been, in the exercise
of reasonable due diligence, discovered by the
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party asserting the claim (as applicable and as it may in a particular case be
specifically extended by the parties in writing, the "Applicable Deadline"). Any
discussions, negotiations or mediations between the parties pursuant to this
Agreement or otherwise will not toll the Applicable Deadline unless expressly
agreed in writing by the parties. Each of the parties agrees on behalf of itself
and each member of its Group that if an Arbitration Demand Notice with respect
to a dispute, controversy or claim is not given prior to the expiration of the
Applicable Deadline, as between or among the parties and the members of their
Groups, such dispute, controversy or claim will be barred. Subject to Sections
8.7(d) and 8.8, upon delivery of an Arbitration Demand Notice pursuant to
Section 8.3(a) prior to the Applicable Deadline, the dispute, controversy or
claim shall be decided by a sole arbitrator in accordance with the rules set
forth in this Article VIII.
8.4. ARBITRATORS. (a) Within 15 days after a valid Arbitration Demand
Notice is given, the parties involved in the dispute, controversy or claim
referenced therein shall attempt to select a sole arbitrator satisfactory to all
such parties.
(b) In the event that such parties are not able jointly to select a
sole arbitrator within such 15-day period, such parties shall each appoint an
arbitrator within 30 days after delivery of the Arbitration Demand Notice. If
one party appoints an arbitrator within such time period and the other party or
parties fail to appoint an arbitrator within such time period, the arbitrator
appointed by the one party shall be the sole arbitrator of the matter.
(c) In the event that a sole arbitrator is not selected pursuant to
paragraph (a) or (b) above and, instead, two or three arbitrators are selected
pursuant to paragraph (b) above, the two or three arbitrators will, within 30
days after the appointment of the later of them to be appointed, select an
additional arbitrator who shall act as the sole arbitrator of the dispute. After
selection of such sole arbitrator, the initial arbitrators shall have no further
role with respect to the dispute. In the event that the arbitrators so appointed
do not, within 30 days after the appointment of the later of them to be
appointed, agree on the selection of the sole arbitrator, any party involved in
such dispute may apply to CPR, New York, New York to select the sole arbitrator,
which selection shall be made by such organization within 30 days after such
application. Any arbitrator selected pursuant to this paragraph (c) shall be
disinterested with respect to any of the parties and the matter and shall be
reasonably competent in the applicable subject matter.
(d) The sole arbitrator selected pursuant to paragraph (a), (b) or
(c) above will set a time for the hearing of the matter which will commence no
later than 90 days after the date of appointment of the sole arbitrator pursuant
to paragraph (a), (b) or (c) above and which hearing will be no longer than 30
days (unless in the judgment of the arbitrator the matter is unusually complex
and sophisticated and thereby requires a longer time, in which event such
hearing shall be no longer than 90 days). The final decision of such arbitrator
will be rendered in writing to the parties not later than 60 days after the last
hearing date, unless otherwise agreed by the parties in writing.
(e) The place of any arbitration hereunder will be Los Angeles,
California, unless otherwise agreed by the parties.
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8.5. HEARINGS. Within the time period specified in Section 8.4(d), the
matter shall be presented to the arbitrator at a hearing by means of written
submissions of memoranda and verified witness statements, filed simultaneously,
and responses, if necessary in the judgment of the arbitrator or both the
parties. If the arbitrator deems it to be essential to a fair resolution of the
dispute, live cross-examination or direct examination may be permitted, but is
not generally contemplated to be necessary. The arbitrator shall actively manage
the arbitration with a view to achieving a just, speedy and cost-effective
resolution of the dispute, claim or controversy. The arbitrator may, in his or
her discretion, set time and other limits on the presentation of each party's
case, its memoranda or other submissions, and refuse to receive any proffered
evidence, which the arbitrator, in his or her discretion, finds to be
cumulative, unnecessary, irrelevant or of low probative nature. Except as
otherwise set forth herein, any arbitration hereunder will be conducted in
accordance with the CPR Rules for Non-Administered Arbitration of Business
Disputes then prevailing (except that the arbitration will not be conducted
under the auspices of the CPR and the fee schedule of the CPR will not apply).
Except as expressly set forth in Section 8.8(b), the decision of the arbitrator
will be final and binding on the parties, and judgment thereon may be had and
will be enforceable in any court having jurisdiction over the parties.
Arbitration awards will bear interest at an annual rate of the Prime Rate plus
2% per annum. To the extent that the provisions of this Agreement and the
prevailing rules of the CPR conflict, the provisions of this Agreement shall
govern.
8.6. DISCOVERY AND CERTAIN OTHER MATTERS. (a) Any party involved in the
applicable dispute may request limited document production from the other party
or parties of specific and expressly relevant documents, with the reasonable
expenses of the producing party incurred in such production paid by the
requesting party. Any such discovery (which rights to documents shall be
substantially less than document discovery rights prevailing under the Federal
Rules of Civil Procedure) shall be conducted expeditiously and shall not cause
the hearing provided for in Section 8.5 to be adjourned except upon consent of
all parties involved in the applicable dispute or upon an extraordinary showing
of cause demonstrating that such adjournment is necessary to permit discovery
essential to a party to the proceeding. Depositions, interrogatories or other
forms of discovery (other than the document production set forth above) shall
not occur except by consent of the parties involved in the applicable dispute.
Disputes concerning the scope of document production and enforcement of the
document production requests will be determined by written agreement of the
parties involved in the applicable dispute or, failing such agreement, will be
referred to the arbitrator for resolution. All discovery requests will be
subject to the proprietary rights and rights of privilege of the parties, and
the arbitrator will adopt procedures to protect such rights and to maintain the
confidential treatment of the arbitration proceedings (except as may be required
by law). Subject to the foregoing, the arbitrator shall have the power to issue
subpoenas to compel the production of documents relevant to the dispute,
controversy or claim.
(b) The arbitrator shall have full power and authority to determine
issues of arbitrability but shall otherwise be limited to interpreting or
construing the applicable provisions of this Agreement or any Ancillary
Agreement, and will have no authority or power to limit, expand, alter, amend,
modify, revoke or suspend any condition or provision of this Agreement or any
Ancillary Agreement; it being understood, however, that the arbitrator will have
full authority to implement the provisions of this Agreement or any Ancillary
Agreement, and to fashion appropriate remedies for breaches of this Agreement
(including interim or permanent
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injunctive relief); provided that the arbitrator shall not have (i) any
authority in excess of the authority a court having jurisdiction over the
parties and the controversy or dispute would have absent these arbitration
provisions or (ii) any right or power to award punitive or treble damages. It is
the intention of the parties that in rendering a decision the arbitrator give
effect to the applicable provisions of this Agreement and the Ancillary
Agreements and follow applicable law (it being understood and agreed that this
sentence shall not give rise to a right of judicial review of the arbitrator's
award).
(c) If a party fails or refuses to appear at and participate in an
arbitration hearing after due notice, the arbitrator may hear and determine the
controversy upon evidence produced by the appearing party.
(d) Arbitration costs will be borne equally by each party involved in
the matter, except that each party will be responsible for its own attorney's
fees and other costs and expenses, including the costs of witnesses selected by
such party.
8.7. CERTAIN ADDITIONAL MATTERS. (a) Any arbitration award shall be a bare
award limited to a holding for or against a party and shall be without findings
as to facts, issues or conclusions of law (including with respect to any matters
relating to the validity or infringement of patents or patent applications) and
shall be without a statement of the reasoning on which the award rests, but must
be in adequate form so that a judgment of a court may be entered thereupon.
Judgment upon any arbitration award hereunder may be entered in any court having
jurisdiction thereof.
(b) Prior to the time at which an arbitrator is appointed pursuant to
Section 8.4, any party may seek one or more temporary restraining orders in a
court of competent jurisdiction if necessary in order to preserve and protect
the status quo. Neither the request for, or grant or denial of, any such
temporary restraining order shall be deemed a waiver of the obligation to
arbitrate as set forth herein and the arbitrator may dissolve, continue or
modify any such order. Any such temporary restraining order shall remain in
effect until the first to occur of the expiration of the order in accordance
with its terms or the dissolution thereof by the arbitrator.
(c) Except as required by law, the parties shall hold, and shall
cause their respective officers, directors, employees, agents and other
representatives to hold, the existence, content and result of mediation or
arbitration in confidence in accordance with the provisions of Article VIII and
except as may be required in order to enforce any award. Each of the parties
shall request that any mediator or arbitrator comply with such confidentiality
requirement.
(d) In the event that at any time the sole arbitrator shall fail to
serve as an arbitrator for any reason, the parties shall select a new arbitrator
who shall be disinterested as to the parties and the matter in accordance with
the procedures set forth herein for the selection of the initial arbitrator. The
extent, if any, to which testimony previously given shall be repeated or as to
which the replacement arbitrator elects to rely on the stenographic record (if
there is one) of such testimony shall be determined by the replacement
arbitrator.
8.8. LIMITED COURT ACTIONS. (a) Notwithstanding anything herein to the
contrary, in the event that any party reasonably determines the amount in
controversy in any dispute,
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controversy or claim (or any series of related disputes, controversies or
claims) under this Agreement or any Ancillary Agreement is, or is reasonably
likely to be, in excess of $5 million and if such party desires to commence an
Action in lieu of complying with the arbitration provisions of this Article,
such party shall so state in its Arbitration Demand Notice. If the other parties
to the arbitration do not agree that the amount in controversy in such dispute,
controversy or claim (or such series of related disputes, controversies or
claims) is, or is reasonably likely to be, in excess of $5 million, the
arbitrator selected pursuant to Section 8.4 hereof shall decide whether the
amount in controversy in such dispute, controversy or claim (or such series of
related disputes, controversies or claims) is, or is reasonably likely to be, in
excess of $5 million. The arbitrator shall set a date that is no later than ten
days after the date of his or her appointment for submissions by the parties
with respect to such issue. There shall not be any discovery in connection with
such issue. The arbitrator shall render his or her decision on such issue within
five days of such date so set by the arbitrator. In the event that the
arbitrator determines that the amount in controversy in such dispute,
controversy or claim (or such series of related disputes, controversies or
claims) is or is reasonably likely to be in excess of $5 million, the provisions
of Sections 8.4(d) and (e), 8.5, 8.6, 8.7 and 8.10 hereof shall not apply and on
or before (but, except as expressly set forth in Section 8.8(b), not after) the
tenth business day after the date of such decision, any party to the arbitration
may elect, in lieu of arbitration, to commence an Action with respect to such
dispute, controversy or claim (or such series of related disputes, controversies
or claims) in any court of competent jurisdiction. If the arbitrator does not so
determine, the provisions of this Article (including with respect to time
periods) shall apply as if no determinations were sought or made pursuant to
this Section 8.8(a).
(b) In the event that an arbitration award in excess of $5 million
is issued in any arbitration proceeding commenced hereunder, any party may,
within 60 days after the date of such award, submit the dispute, controversy or
claim (or series of related disputes, controversies or claims) giving rise
thereto to a court of competent jurisdiction, regardless of whether such party
or any other party sought to commence an Action in lieu of proceeding with
arbitration in accordance with Section 8.8(a). In such event, the applicable
court may elect to rely on the record developed in the arbitration or, if it
determines that it would be advisable in connection with the matter, allow the
parties to seek additional discovery or to present additional evidence. Each
party shall be entitled to present arguments to the court with respect to
whether any such additional discovery or evidence shall be permitted and with
respect to all other matters relating to the applicable dispute, controversy or
claim (or series of related disputes, controversies or claims).
8.9. CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in
writing, the parties will continue to provide service and honor all other
commitments under this Agreement and each Ancillary Agreement during the course
of dispute resolution pursuant to the provisions of this Article VIII with
respect to all matters not subject to such dispute, controversy or claim.
8.10. LAW GOVERNING ARBITRATION PROCEDURES. The interpretation of the
provisions of this Article VIII, only insofar as they relate to the agreement to
arbitrate and any procedures pursuant thereto, shall be governed by the
Arbitration Act and other applicable federal law. In all other respects, the
interpretation of this Agreement shall be governed as set forth in Section 11.2.
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ARTICLE IX
FURTHER ASSURANCES AND ADDITIONAL COVENANTS
9.1. FURTHER ASSURANCES. (a) In addition to the actions specifically
provided for elsewhere in this Agreement, each of the parties hereto shall use
its reasonable best efforts, prior to, on and after the Closing Date, to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
reasonably necessary, proper or advisable under applicable laws, regulations and
agreements to consummate and make effective the transactions contemplated by
this Agreement, the Ancillary Agreements, the Registration Rights Agreements and
the Tax Indemnification and Allocation Agreement.
(b) Without limiting the foregoing, prior to, on and after the
Closing Date, each party hereto shall cooperate with the other parties, and
without any further consideration, but at the expense of the requesting party,
to execute and deliver, or use its reasonable best efforts to cause to be
executed and delivered, all instruments, including instruments of conveyance,
assignment and transfer, and to make all filings with, and to obtain all
consents, approvals or authorizations of, any Governmental Authority or any
other Person under any permit, license, agreement, indenture or other instrument
and to take all such other actions as such party may reasonably be requested to
take by any other party hereto from time to time, consistent with the terms of
this Agreement and the Ancillary Agreements, in order to effectuate the
provisions and purposes of this Agreement and the Ancillary Agreements and the
other transactions contemplated hereby and thereby. Without limiting the
foregoing, each party will, at the reasonable request, cost and expense of any
other party, take such other actions as may be reasonably necessary to vest in
such other party good and marketable title, free and clear of any Security
Interest, if and to the extent it is practicable to do so.
(c) On or prior to the Closing Date, CCI and uBid in their respective
capacities as direct and indirect stockholders of their respective Subsidiaries,
shall each ratify any actions which are reasonably necessary or desirable to be
taken by CCI, uBid or any other Subsidiary of CCI, as the case may be, to
effectuate the transactions contemplated by this Agreement.
(d) The parties hereto agree to take any reasonable actions necessary
in order for the Distribution to qualify as a tax-free distribution pursuant to
Section 355 of the Code.
(e) CCI and uBid, and each of the members of their respective Groups,
waive (and agree not to assert against any of the others) any claim or demand
that any of them may have against any of the others for any Liabilities or other
claims relating to or arising out of: (i) the failure of uBid or any member of
the uBid Group, on the one hand, or of CCI or any member of the CCI Group, on
the other hand, to provide any notification or disclosure required under any
state Environmental Law in connection with the transactions contemplated by this
Agreement, or (ii) any inadequate, incorrect or incomplete notification or
disclosure under any such state Environmental Law by the applicable transferor.
(f) Prior to the Closing Date, if one or more of the parties
identifies any commercial or other service that is needed to assure a smooth and
orderly transition of the businesses in connection with the consummation of the
transactions contemplated hereby, and that is not otherwise governed by the
provisions of this Agreement or any Ancillary Agreement,
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the parties will cooperate in determining whether there is a mutually acceptable
arm's-length basis on which one or more of the other parties will provide such
service.
9.2. QUALIFICATION AS TAX-FREE DISTRIBUTION. After the Closing Date,
neither CCI nor uBid shall take, or permit any member of its respective Group to
take, any action which could reasonably be expected to prevent the Distribution
from qualifying as a tax-free distribution within the meaning of Section 355 of
the Code or any other transaction contemplated by this Agreement or any
Ancillary Agreement which is intended by the parties to be tax-free from failing
so to qualify. Without limiting the foregoing, after the Closing Date and on or
prior to the Distribution Date, uBid shall not issue or grant, and shall not
permit any member of the uBid Group to issue or grant, directly or indirectly,
any shares of uBid Common Stock or any rights, warrants, options or other
securities to purchase or acquire (whether upon conversion, exchange or
otherwise) any shares of uBid Common Stock (whether or not then exercisable,
convertible or exchangeable) except for grants of stock options to employees and
directors or uBid that by their terms cannot be exercised until after the
earlier of (i) the Distribution Date or (ii) 18 months following the Closing
Date.
ARTICLE X
TERMINATION
10.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at
any time prior to the Distribution Date by the mutual consent of CCI and uBid.
10.2. OTHER TERMINATION. This Agreement may be terminated by CCI at any
time prior to the Closing Date. The obligations of the parties under Article III
(including the obligation to pursue or effect the Distribution) may be
terminated by CCI if the Distribution Date shall not have occurred on or before
December 31, 1999.
10.3. EFFECT OF TERMINATION. (a) In the event of any termination of this
Agreement prior to the Closing Date, no party to this Agreement (or any of its
directors or officers) shall have any Liability or further obligation to any
other party.
(b) In the event of any termination of this Agreement on or after
the Closing Date, only the provisions of Article III will terminate and the
other provisions of this Agreement, each Ancillary Agreement and the
Registration Rights Agreements shall remain in full force and effect.
ARTICLE XI
MISCELLANEOUS
11.1. COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER. (a) This Agreement
may be executed in one or more counterparts, all of which shall be considered
one and the same agreement, and shall become effective when one or more
counterparts have been signed by each of the parties and delivered to the other
party.
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(b) This Agreement, and the Exhibits, Schedules and Appendices
hereto contain the entire agreement between the parties with respect to the
subject matter hereof, supersede all previous agreements, negotiations,
discussions, writings, understandings, commitments and conversations with
respect to such subject matter and there are no agreements or understandings
between the parties other than those set forth or referred to herein or therein.
(c) CCI represents on behalf of itself and each other member of the
CCI Group and uBid represents on behalf of itself and each other member of the
uBid Group as follows:
(i) each such Person has the requisite corporate or other
power and authority and has taken all corporate or other action necessary
in order to execute, deliver and perform each of this Agreement, each of
the Ancillary Agreements, the Registration Rights Agreements and the Tax
Indemnification and Allocation Agreement to which it is a party and to
consummate the transactions contemplated hereby and thereby; and
(ii) this Agreement, each Ancillary Agreement, the
Registration Rights Agreements and the Tax Indemnification and Allocation
Agreement to which it is a party has been duly executed and delivered by it
and constitutes a valid and binding agreement of it enforceable in
accordance with the terms thereof.
11.2. GOVERNING LAW. Except as set forth in Section 8.10, this Agreement
shall be governed by and construed and interpreted in accordance with the laws
of the State of California (other than as to its laws of arbitration which shall
be governed under the Arbitration Act or other applicable federal law pursuant
to Section 8.10), irrespective of the choice of laws principles of the State of
California, as to all matters, including matters of validity, construction,
effect, enforceability, performance and remedies.
11.3. ASSIGNABILITY. Except as set forth in any Ancillary Agreement, the
Registration Rights Agreements or the Tax Indemnification and Allocation
Agreement, this Agreement, each Ancillary Agreement, the Registration Rights
Agreements and the Tax Indemnification and Allocation Agreement shall be binding
upon and inure to the benefit of the parties hereto and thereto, respectively,
and their respective successors and assigns; provided, however, that no party
-------- -------
hereto or thereto may assign its respective rights or delegate its respective
obligations under this Agreement, any Ancillary Agreement, the Registration
Rights Agreements or the Tax Indemnification and Allocation Agreement without
the express prior written consent of the other parties hereto or thereto.
11.4. THIRD PARTY BENEFICIARIES. Except for the indemnification rights
under this Agreement of any CCI Indemnitee or uBid Indemnitee in their
respective capacities as such, (a) the provisions of this Agreement, each
Ancillary Agreement, the Registration Rights Agreements and the Tax
Indemnification and Allocation Agreement are solely for the benefit of the
parties and are not intended to confer upon any Person except the parties any
rights or remedies hereunder, and (b) there are no third party beneficiaries of
this Agreement, any Ancillary Agreement, the Registration Rights Agreements or
the Tax Indemnification and Allocation Agreement and none of this Agreement, any
Ancillary Agreement, the Registration Rights Agreements or the Tax
Indemnification and Allocation Agreement shall provide any third person with any
remedy, claim, liability, reimbursement, claim of action or other right in
excess
31
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of those existing without reference to this Agreement, any Ancillary Agreement,
the Registration Rights Agreements or the Tax Indemnification and Allocation
Agreement. No party hereto shall have any right, remedy or claim with respect to
any provision of this Agreement, any Ancillary Agreement, the Registration
Rights Agreements or the Tax Indemnification and Allocation Agreement to the
extent such provision relates solely to the other two parties hereto or the
members of such other two parties' respective Groups.
11.5. NOTICES. All notices requests, demands, waivers and other
communications under this Agreement, any Ancillary Agreement or the Tax
Indemnification and Allocation Agreement shall be in writing and shall be deemed
to have been duly given if delivered personally or by facsimile transmission or
mailed (certified or registered mail, postage prepaid, return receipt
requested):
If to CCI, to: Creative Computers, Inc.
2555 West 190th Street
Torrance, California 90504
Attention: Chief Financial Officer
Fax No.: (310) 354-5645
If to uBid: uBid, Inc.
2525 Busse Highway
Elk Grove Village, Illinois 60007
Attention: Chief Financial Officer
Fax No.: (847) 616-0318
or to such other person or address as any party shall specify by notice in
writing to the other party. All such notices, requests, demands, waivers and
communications shall be deemed to have been received on the date on which hand
delivered, upon transmission of the facsimile transmission by the sender and
issuance by the transmitting machine of a confirmation slip confirming that the
number of pages constituting the notice have been transmitted without error, or
on the third business day following the date on which so mailed, except for a
notice of change of address, which shall be effective only upon receipt thereof.
In the case of a notice sent by facsimile transmission, the sender shall
contemporaneously mail a copy of the notice to the addressee at the address
provided for above. However, such mailing shall in no way alter the time at
which the facsimile notice is deemed received. In no event shall the provision
of notice pursuant to this Section 11.5 constitute notice for service of
process.
11.6. SEVERABILITY. If any provision of this Agreement, any Ancillary
Agreement, the Registration Rights Agreements or the Tax Indemnification and
Allocation Agreement or the application thereof to any Person or circumstance is
determined by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions hereof or thereof, or the application of
such provision to Persons or circumstances or in jurisdictions other than those
as to which it has been held invalid or unenforceable, shall remain in full
force and effect and shall in no way be affected, impaired or invalidated
thereby, so long as the economic or legal
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<PAGE>
substance of the transactions contemplated hereby or thereby, as the case
may be, is not affected in any manner adverse to any party. Upon such
determination, the parties shall negotiate in good faith in an effort to agree
upon such a suitable and equitable provision to effect the original intent of
the parties.
11.7. FORCE MAJEURE. No party shall be deemed in default of this Agreement,
any Ancillary Agreement, the Registration Rights Agreements or the Tax
Indemnification and Allocation Agreement to the extent that any delay or failure
in the performance of its obligations under this Agreement, any Ancillary
Agreement, the Registration Rights Agreements or the Tax Indemnification and
Allocation Agreement results from any cause beyond its reasonable control and
without its fault or negligence, such as acts of God, acts of civil or military
authority, embargoes, epidemics, war, riots, insurrections, fires, explosions,
earthquakes, floods, unusually severe weather conditions, labor problems or
unavailability of parts, or, in the case of computer systems, any failure in
electrical or air conditioning equipment. In the event of any such excused
delay, the time for performance shall be extended for a period equal to the time
lost by reason of the delay.
11.8. PUBLICITY. Prior to the Distribution, each of uBid and CCI shall
consult with each other prior to issuing any press releases or otherwise making
public statements with respect to the IPO, the Distribution or any of the other
transactions contemplated hereby and prior to making any filings with any
Governmental Authority with respect thereto.
11.9. EXPENSES. uBid shall pay all third-party costs, fees and expenses
relating to the IPO, all of the reimbursable expenses of the Underwriters
pursuant to the Underwriting Agreement, all of the costs of producing, printing,
mailing and otherwise distributing any Prospectus, as well as the Underwriters'
discount provided for in the Underwriting Agreement. Except as expressly set
forth in this Agreement (including Section 3.1(h) hereof) or in any Ancillary
Agreement, the Registration Rights Agreements or in the Tax Indemnification and
Allocation Agreement, whether or not the Distribution is consummated, each party
hereto shall bear its own respective third party fees, costs and expenses paid
or incurred in connection with the Distribution.
11.10. HEADINGS. The article, section and paragraph headings contained in
this Agreement and in the Ancillary Agreements, the Registration Rights
Agreements and the Tax Indemnification and Allocation Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement or any Ancillary Agreement.
11.11. SURVIVAL OF COVENANTS. Except as expressly set forth in any
Ancillary Agreement, the Registration Rights Agreements and the Tax
Indemnification and Allocation Agreement, the covenants, representations and
warranties contained in this Agreement and each Ancillary Agreement, and
liability for the breach of any obligations contained herein, shall survive each
of the IPO and the Distribution.
11.12. WAIVERS OF DEFAULT. Waiver by any party of any default by the other
party of any provision of this Agreement, any Ancillary Agreement, the
Registration Rights Agreements or the Tax Indemnification and Allocation
Agreement shall not be deemed a waiver
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by the waiving party of any subsequent or other default, nor shall it prejudice
the rights of the other party.
11.13. SPECIFIC PERFORMANCE. In the event of any actual or threatened
default in, or breach of, any of the terms, conditions and provisions of this
Agreement, any Ancillary Agreement, the Registration Rights Agreements or the
Tax Indemnification and Allocation Agreement, the party or parties who are or
are to be thereby aggrieved shall have the right to specific performance and
injunctive or other equitable relief of its rights under this Agreement, such
Ancillary Agreement, the Registration Rights Agreements or the Tax
Indemnification and Allocation Agreement, in addition to any and all other
rights and remedies at law or in equity, and all such rights and remedies shall
be cumulative. The parties agree that the remedies at law for any breach or
threatened breach, including monetary damages, are inadequate compensation for
any loss and that any defense in any action for specific performance that a
remedy at law would be adequate is waived. Any requirements for the securing or
posting of any bond with such remedy are waived.
11.14. AMENDMENTS. (a) No provisions of this Agreement, any Ancillary
Agreement, the Registration Rights Agreements or the Tax Indemnification and
Allocation Agreement shall be deemed waived, amended, supplemented or modified
by any party, unless such waiver, amendment, supplement or modification is in
writing and signed by the authorized representative of the party against whom it
is sought to enforce such waiver, amendment, supplement or modification.
(b) Without limiting the foregoing, the parties anticipate that, prior
to the Closing Date, some or all of the Schedules to this Agreement may be
amended or supplemented and, in such event, such amended or supplemented
Schedules shall be attached hereto in lieu of the original Schedules.
11.15. INTERPRETATION. Words in the singular shall be held to include the
plural and vice versa and words of one gender shall be held to include the other
genders as the context requires. The terms "hereof," "herein," and "herewith"
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement (or the applicable Ancillary Agreement, the Registration
Rights Agreements or the Tax Indemnification and Allocation Agreement) as a
whole (including all of the Schedules, Exhibits and Appendices hereto and
thereto) and not to any particular provision of this Agreement (or such
Ancillary Agreement, the Registration Rights Agreements or the Tax
Indemnification and Allocation Agreement). Article, Section, Exhibit, Schedule
and Appendix references are to the Articles, Sections, Exhibits, Schedules and
Appendices to this Agreement (or the applicable Ancillary Agreement) unless
otherwise specified. The word "including" and words of similar import when used
in this Agreement (or the applicable Ancillary Agreement, the Registration
Rights Agreements or the Tax Indemnification and Allocation Agreement) shall
mean "including, without limitation," unless the context otherwise requires or
unless otherwise specified. The word "or" shall not be exclusive.
IN WITNESS WHEREOF, the parties have caused this Separation and
Distribution Agreement to be executed by their duly authorized representatives.
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<PAGE>
CREATIVE COMPUTERS, INC.
By: /s/ THEODORE R. SANDERS
-----------------------
Name: Theodore R. Sanders
Title: Chief Financial Officer
uBID, INC.
By: /s/ THOMAS E. WERNER
--------------------
Name: Thomas E. Werner
Title: Vice President and
Chief Financial Officer
35
<PAGE>
Exhibit A
(Creative Computers Inc. Registration Rights Agreements)
<PAGE>
Exhibit B
(Frank and Sam Khulusi Registration Rights Agreements)
<PAGE>
Schedule 1.5
(Ancillary Agreements)
<PAGE>
EXHIBIT 99.1
CREATIVE COMPUTERS, INC.
May 26, 1999
To the Stockholders of Creative Computers:
Last June we announced our intention to separate the on-line auction
business of our subsidiary uBid, Inc. after uBid conducted an initial public
offering of a portion of its common stock. We also announced that we intended
to distribute the remaining 80% of our ownership of uBid to our stockholders no
sooner than 180 days after uBid's initial public offering. We are now pleased
to announce that we expect to complete the final step of the spin-off of uBid to
our stockholders on June 7, 1999. For each share of Creative Computers you own
on May 24, 1999, the record date for the spin-off, you will receive
approximately .70488 shares of uBid as of the effective date of the distribution
as more fully described in the accompanying Information Statement.
uBid has become one of the leading e-commerce Websites for business-to-
consumer auctions, offering an ever-increasing assortment of products through
live-action bidding. uBid's Internet auctions feature a rotating selection of
brand name computers, consumer electronics, housewares, jewelry, gifts and
sports and recreation products.
Creative continues to be a leading reseller of personal computers and
computer-related equipment, operating five Websites with more than 500,000 page
views and 50,000 visitors per day and publishing its PC Mall and MacMall
catalogs with a total distribution of over 69 million.
You do not need to take any action to participate in the distribution.
Promptly following the Distribution, we will mail stock certificates for the
uBid shares to record stockholders of Creative Computers as of the May 24, 1999
record date for the spin-off. Stockholders who hold their shares of Creative
Computers in brokerage accounts or in "street name" will have their accounts
credited with the distributed uBid shares. After June 7, 1999, you can follow
the value of your original investment in Creative Computers by tracking the
combined values of your Creative shares and the uBid shares you receive in the
spin-off.
We have enclosed an Information Statement and Q&A Summary to describe the
spin-off in more detail and answer questions you may have concerning the
transaction. In the coming weeks, we will provide you with information you can
use to determine the cost basis of your Creative and uBid shares for tax
purposes. If you have further questions about your Creative shares, please call
Creative Computers at (310) 354-5600.
/s/ FRANK F. KHULUSI
--------------------
Frank F. Khulusi
Chairman, President and CEO
<PAGE>
INFORMATION STATEMENT
-------------------
CREATIVE COMPUTERS, INC.
This Information Statement is being furnished to the stockholders of
Creative Computers, Inc. (the "Company"), in connection with the distribution
(the "Distribution") by the Company to its stockholders of approximately .70488
shares of the Common Stock, par value $.001 per share (the "uBid Common Stock"),
of uBid, Inc. ("uBid"), for each share of the Company's Common Stock, par value
$.001 per share (the "CCI Common Stock") owned by a Company stockholder on May
24, 1999 (the "Record Date"). The Distribution will result in approximately
80.1% of the outstanding shares of uBid Common Stock being distributed to
holders of CCI Common Stock.
Certificates for uBid Common Stock will be mailed on or about June 7, 1999
to holders of record of CCI Common Stock on the Record Date. The holders of
shares of CCI Common Stock will not be required to pay any cash or other
consideration for the shares of uBid Common Stock received in the Distribution,
nor will they be required to surrender or exchange shares of CCI Common Stock in
order to receive uBid Common Stock. As a result of the Distribution, uBid will
cease to be a subsidiary of the Company.
All shares of uBid Common Stock received in the Distribution will be fully
paid and nonassessable and the holders thereof will not be entitled to
preemptive rights. The shares of uBid Common Stock to be distributed in the
Distribution have been approved for listing on the Nasdaq National Market under
the symbol "UBID" and will be freely transferable, except for shares received by
persons who may be deemed to be "affiliates" of uBid under the Securities Act of
1933, as amended (the "Securities Act").
The Company has received an opinion of PricewaterhouseCoopers LLP to the
effect that the Distribution generally will not be taxable for U.S. federal
income tax purposes to the Company and its stockholders. See "Federal Income
Tax Consequences."
-------------------
No vote of the Company's stockholders is required in connection with the
Distribution. Therefore, we are not asking you for a proxy, and you are
requested not to send us a proxy.
-------------------
Neither the Securities Exchange Commission nor any state securities commission
has approved or disapproved of these securities or determined if this
Information Statement is truthful or complete. Any representation to the
contrary is a criminal offense.
--------------------
The date of this Information Statement is May 26, 1999.
<PAGE>
THE DISTRIBUTION
General
On May 18, 1999, the Board of Directors of the Company declared a
distribution to the holders of CCI Common Stock of the 7,329,883 shares of uBid
Common Stock owned by the Company. The Distribution will result in
approximately .70488 shares of uBid Common Stock being distributed for each
share of CCI Common Stock outstanding on May 24, 1999, 1998, which is the Record
Date for the Distribution. The fraction of a share of uBid Common Stock that
will be distributed for each share of CCI Common Stock is based upon the
7,329,883 shares of uBid Common Stock owned by the Company divided by the
10,398,736 shares of CCI Common Stock outstanding on the Record Date. The
effective date for the Distribution will be June 7, 1999 (the "Distribution
Date").
The Company and uBid have entered into a Separation and Distribution
Agreement (the "Separation and Distribution Agreement") which contains
provisions regarding the mechanics of the Distribution, conditions to the
obligations of the Company and uBid to carry out the Distribution and the
relationship of the Company and uBid following the Distribution. See
"Transactions Between the Company and uBid."
HOLDERS OF CCI COMMON STOCK WITH INQUIRIES RELATING TO THE DISTRIBUTION
SHOULD CALL THE COMPANY AT (310) 354-5600, MONDAY THROUGH FRIDAY, 9:00 A.M. TO
5:00 P.M., PACIFIC TIME.
Background of and Reasons for the Distribution
As a result of the separation of the business of uBid from that of the
Company (the "Separation") and the Distribution of the uBid Common Stock to the
Company's stockholders, uBid will be a stand-alone entity with objectives
separate from those of the Company. Each of the Company and uBid intends to
focus its resources and management emphasis on the operations and markets it
views as critical to its long-term success. In December 1998, the Company and
uBid entered into the Separation and Distribution Agreement and certain other
agreements providing for the Separation, the Distribution and the provision by
the Company of certain interim services to uBid, and addressing employee benefit
arrangements, and tax and other matters. See "Transactions between the Company
and uBid." Pursuant to the Separation and Distribution Agreement, on December
4, 1998 uBid sold 1,817,000 shares of its common stock in an initial public
offering (the "Offering"), constituting approximately 19.9% of its outstanding
common stock after giving effect to the offering.
Several business purposes underlie the Distribution. The Company and uBid
believe that the raising of funds through the Offering would be the most
effective source of capital for uBid and would serve as part of the initial
capitalization of uBid as a stand-alone entity. The Company and uBid also
believe that the Distribution will provide each entity with the most prudent
capital structures to realize their respective growth strategies as separate,
stand-alone entities, based on the Company's and uBid's prospective
capitalization and financing requirements, acquisition strategies, working
capital requirements, projected cash flows from operations and desired credit
ratings, respectively.
The Company and uBid believe that the Distribution will enhance uBid's
ability to implement its growth and operating strategies. The Company believes
that its own future growth would be enhanced if management of its remaining
business segments were more focused on such segments without also being
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<PAGE>
responsible for the online auction segment. Similarly, the Company believes
that the future growth of uBid would be enhanced if its management were
compensated on a separate basis.
The consummation of the Distribution will also remove current restrictions
on uBid's growth as a result of certain contractual restrictions of the Company
that are applicable to the Company and its subsidiaries. For example, certain
of the Company's contractual relationships with manufacturers prevent the
Company and its subsidiaries, including uBid, from selling such manufacturers'
computers and computer-related products at discounted prices, which prevented
uBid from obtaining such products on a close-out or refurbished basis and
selling them in its auctions. In addition, under the Company's contractual
relationships with certain of its vendors, neither the Company nor its
subsidiaries, including uBid, can sell the vendor's products outside the U.S.
As a result of the Distribution, uBid will no longer be subject to these
restrictions.
Conditions to the Distribution
The Company has received the opinion of PricewaterhouseCoopers LLP (the
"PwC Opinion") to the effect that the Distribution will qualify as a tax-free
distribution for federal income tax purposes under Section 355 of the Code, and
will not result in recognition of any gain or loss for federal income tax
purposes to the Company, uBid or the Company's or uBid's respective
stockholders. See "Federal Income Tax Consequences." In accordance with the
Separation and Distribution Agreement, completion of the Distribution will be
subject to the satisfaction, or waiver by the Company's Board of Directors, of
the following conditions: (i) the PwC Opinion must be confirmed at the time of
the Distribution, in form and substance satisfactory to the Company; (ii) any
material Governmental Approvals and Consents (as such terms are defined in the
Separation and Distribution Agreement) necessary to consummate the Distribution
shall have been obtained and shall be in full force and effect; (iii) no order,
injunction or decree issued by any court or agency of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the
Distribution shall be in effect, and no other event outside the control of the
Company shall have occurred or failed to occur that prevents the consummation of
the Distribution; and (iv) no other events or developments shall have occurred
that, in the judgment of the Company's Board of Directors, would result in the
Distribution having a material adverse effect on the Company or its
stockholders.
Manner of Effecting the Distribution
The Company will effect the Distribution on June 7, 1999 by delivering all
of the shares of uBid Common Stock owned by the Company to LaSalle National
Bank, Chicago, Illinois, as the distribution agent (the "Distribution Agent"),
for distribution to the holders of record of CCI Common Stock on the Record
Date. CCI Common Stock traded "regular way" between the Record Date and the
effective time of the Distribution will trade with due bills attached, which
entitles the buyer to receive and requires the seller to deliver the shares of
uBid Common Stock to be issued in the Distribution as well as the underlying
shares of CCI Common Stock. All of the shares of uBid Common Stock distributed
to the Company's stockholders will be fully paid and nonassessable and the
holders thereof will not be entitled to preemptive rights. Certificates for
uBid Common Stock will be mailed to record stockholders on or about June 8,
1999. Stockholders that hold their shares through brokerage and "street name"
accounts should expect to receive an account statement from their brokerage firm
reflecting the number of shares of uBid Common Stock received by such
stockholder in the Distribution.
3
<PAGE>
The holders of shares of CCI Common Stock will not be required to pay any
cash or other consideration for the shares of uBid Common Stock received in the
Distribution, nor will they be required to surrender or exchange shares of CCI
Common Stock in order to receive uBid Common Stock.
No certificates representing fractional shares of uBid Common Stock will
be issued to the Company's stockholders as part of the Distribution. In lieu of
receiving fractional shares of uBid Common Stock, each record holder of CCI
Common Stock who would otherwise be entitled to receive a fractional share will
receive cash for such fractional interest. The Distribution Agent will, as soon
as practicable after the Distribution Date, aggregate fractional shares of uBid
Common Stock into whole shares of uBid Common Stock, and will sell them in the
open market and distribute the total net sale proceeds pro rata to CCI
stockholders entitled to fractional interests. See "Federal Income Tax
Consequences."
Trading Market for uBid Common Stock
The shares uBid Common Stock are listed for trading on the Nasdaq National
Market under the symbol "UBID." On May 25, 1999, the closing price for the
uBid Common Stock on the Nasdaq National Market was $35.375.
Shares of uBid Common Stock distributed to the Company's stockholders in
the Distribution will be freely transferable, except for shares received by
persons who may be deemed "affiliates" of uBid under the Securities Act, and the
rules and regulations promulgated thereunder. Persons who may be deemed to be
affiliates of uBid after the Distribution generally include individuals or
entities that control, are controlled by, or are under common control with uBid,
and may include certain officers and directors of uBid as well as its principal
stockholders. Persons who are affiliates of uBid will be permitted to sell
their shares of uBid Common Stock only pursuant to an effective registration
statement under the Securities Act or an exemption therefrom, such as the
exemption provided in Rule 144 under the Securities Act.
FEDERAL INCOME TAX CONSEQUENCES
The Company has received the opinion of PricewaterhouseCoopers LLP that,
for U.S. federal income tax purposes, the Distribution will qualify as a tax-
free distribution under Section 355 of the Internal Revenue Code of 1986, as
amended (the "Code") and will not be taxable under Section 355(e) of the Code.
The PwC Opinion is based on the accuracy of factual representations made by the
Company, uBid, and certain major stockholders of the Company, and certain other
assumptions, information, data, documentation and other materials that
PricewaterhouseCoopers LLP deemed necessary.
The PwC Opinion represents PricewaterhouseCoopers LLP's best judgment of
how a court would rule. However, the PwC Opinion is not binding upon either the
Internal Revenue Service (the "IRS") or any court. A ruling has not been, and
will not be, sought from the IRS with respect to the U.S. federal income tax
consequences of the Distribution. In the opinion of PricewaterhouseCoopers LLP,
the principal federal income tax consequences of the Distribution will be as
follows:
1. The Distribution will qualify as a tax-free spin-off under Section 355
of the Code.
2. The contribution by the Company of certain rights in software to uBid,
followed by the distribution by the Company of all of its uBid Common Stock,
will qualify as a reorganization within the
4
<PAGE>
meaning of Section 368(a)(1)(D) of the Code. The Company and uBid will each be a
"party to the reorganization" within the meaning of Section 368(b).
3. No gain or loss will be recognized by the Company upon the
Distribution.
4. No gain or loss will be recognized by holders of CCI Common Stock
solely as a result of their receipt of uBid Common Stock (including any
fractional shares of uBid Common Stock to which a holder may be entitled, but
excluding cash received in lieu of fractional share interests) in the
Distribution.
5. The aggregate tax basis of CCI Common Stock and uBid Common Stock
(including any fractional shares of Common Stock to which a holder may be
entitled) held immediately after the Distribution by any holder will equal, in
each instance, such holder's tax basis in its CCI Common Stock immediately
before the Distribution, allocated in proportion to the relative fair market
values of CCI Common Stock and uBid Common Stock on the Distribution Date.
6. The holding period of the uBid Common Stock received in the
Distribution (including any fractional shares of Common Stock to which a holder
may be entitled) will include the holding period of CCI Common Stock with
respect to which the uBid Common Stock was distributed, provided that such CCI
Common Stock was held as a capital asset on the Distribution Date.
7. Where cash is received by a holder of CCI Common Stock in lieu of
fractional share interests in the uBid Common Stock, such fractional share
interests will be treated as having been issued and then redeemed by such
holder. The difference between the amount of cash received and basis allocable
to such fractional share interest will be a capital gain or loss, as the case
may be, provided that CCI Common Stock is held as a capital asset on the
Distribution Date.
8. Proper allocation of earnings and profits between the Company and uBid
will be required by current Treasury regulations.
The PwC Opinion is subject to certain factual representations and
assumptions. The Company is not aware of any present facts or circumstances
that would cause such representations and assumptions to be untrue. The Company
and uBid have agreed to certain restrictions on their future actions to provide
further assurances that the Distribution will qualify as tax free. See
"Transactions between the Company and uBid--Tax Indemnification and Allocation
Agreement." The Company does not intend to effect the Distribution if, prior to
the Distribution Date, the Company becomes aware of circumstances that would
result in the Distribution being a taxable transaction.
If the Distribution were not to qualify under Section 355 of the Code,
then (i) the Company would recognize capital gain equal to the excess of (x) the
fair market value of the uBid Common Stock on the Distribution Date over (y) its
adjusted tax basis in the uBid Common Stock, and (ii) each holder of CCI Common
Stock who receives shares of uBid Common Stock in the Distribution would be
treated as if such stockholder received a taxable distribution in an amount
equal to the fair market value of such shares of the uBid Common Stock on the
Distribution Date, taxed first as a dividend to the extent of such stockholder's
pro rata share of the Company's current and accumulated earnings and profits,
and then as a nontaxable return of capital to the extent of such stockholder's
basis in CCI Common Stock (with any remaining amount being taxed as capital
gain). Pursuant to the Tax Indemnification and Allocation Agreement (discussed
below), the Company and uBid have agreed that if any one of certain events
occurs, and such event causes the Distribution not to be a tax-free transaction
to the Company under
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Section 355, then uBid will indemnify the Company (but not the holders of CCI
Common Stock) for the income taxes the Company may occur by reason of the
Distribution not so qualifying under the Code. The Company will indemnify uBid
for such taxes for which uBid has no liability to the Company under the Tax
Indemnification and Allocation Agreement. Regardless of such agreement, the
Company and uBid will each be severally liable to the Internal Revenue Service
for the full amount of any such federal corporate level tax that is not paid by
the other. For a description of the Tax Indemnification and Allocation
Agreement, see "Transactions between the Company and uBid--Tax Indemnification
and Allocation Agreement."
The foregoing is only a summary of the material federal income tax
consequences of the Distribution under current law and does not take into
account any special circumstances that may apply to particular stockholders.
Each stockholder should consult their own tax advisor as to the particular
consequences of the Distribution to such stockholder, including the application
of state, local and foreign tax laws, and as to possible changes in tax laws
that may affect the tax consequences described above. This summary may not be
applicable to stockholders who received their CCI Common Stock pursuant to the
exercise of options or otherwise as compensation or who are not citizens or
residents of the United States.
Additional information will be provided to the Company's stockholders
after the Distribution Date concerning the calculation of the new tax basis in
their shares of CCI Common Stock and uBid Common Stock, the tax treatment of
cash received in lieu of fractional shares and certain statements which are
required to be attached to the applicable federal income tax returns of holders
of CCI Common Stock.
TRANSACTIONS BETWEEN THE COMPANY AND uBID
Historical Intercompany Relationships
uBid was a wholly-owned subsidiary of the Company until its December 1998
initial public offering. As a wholly-owned subsidiary, uBid received various
services provided by the Company, including administration (accounting, human
resources, legal), warehousing and distribution (through June 1998),
Internet/telecom and joint marketing. The Company has also provided uBid with
the services of a number of its executives and employees. In consideration for
these services, the Company historically allocated a portion of its overhead
costs related to such services to uBid. None of these services were provided to
uBid pursuant to any written agreement between uBid and the Company.
In December 1998, uBid and the Company entered the Separation and
Distribution Agreement and certain other agreements providing for the
Separation, the Distribution, the provision by the Company of certain interim
services to uBid, and addressing employee benefit arrangements, and tax and
other matters. These agreements (the "Ancillary Agreements") are discussed
below.
Separation and Distribution Agreement
The Separation and Distribution Agreement entered into between uBid and
the Company sets forth certain agreements among uBid and the Company, with
respect to the principal corporate transactions required to effect the
Separation, the Offering and the Distribution, and certain other agreements
governing the relationship among the parties thereafter.
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The Distribution. The Separation and Distribution Agreement provides
that, subject to the terms and conditions thereof, the Company and uBid will
take all reasonable steps necessary and appropriate to cause all conditions to
the Distribution to be satisfied and to effect the Distribution. The agreement
provides the Company's Board of Directors with sole discretion to set the date
of the Distribution (the "Distribution Date") for any date after June 6, 1999
and ending on or prior to December 31, 1999. In accordance with the Separation
and Distribution Agreement, completion of the Distribution is subject to the
satisfaction, or waiver by the Board, of the following conditions: (i) the PwC
Opinion must be confirmed at the time of Distribution, in form and substance
satisfactory to the Company; (ii) any material Governmental Approvals and
Consents (as such terms are defined in the Separation and Distribution
Agreement) necessary to consummate the Distribution shall have been obtained and
shall be in full force and effect; (iii) no order, injunction or decree issued
by any court or agency of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Distribution shall be in effect,
and no other event outside the control of the Company shall have occurred or
failed to occur that prevents the consummation of the Distribution; and (iv) no
other events or developments shall have occurred that, in the judgment of the
Board, would result in the Distribution having a material adverse effect on the
Company or its stockholders. Under the Separation and Distribution Agreement,
the Company agreed to consummate the Distribution, subject to the satisfaction
of the conditions set forth above. The Company may terminate the obligation to
consummate the Distribution if the Distribution has not occurred by December 31,
1999, unless extended by the Company and uBid. In addition, the Separation and
Distribution Agreement may be amended or terminated at any time prior to the
Distribution Date by the mutual consent of uBid and the Company.
The Company and uBid have agreed that none of the parties will take, or
permit any of its affiliates to take, any action which reasonably could be
expected to prevent the Distribution from qualifying as a tax-free distribution
to the Company and its stockholders pursuant to Section 355 of the Code. The
parties have also agreed to take any reasonable actions necessary in order for
the Distribution to qualify as a tax-free distribution to the Company and its
stockholders pursuant to Section 355 of the Code. Without limiting the
foregoing, prior to the Distribution Date, uBid has agreed not to issue or
grant, directly or indirectly, any shares of its capital stock or any rights,
warrants, options or other securities to purchase or acquire (whether upon
conversion, exchange or otherwise) any shares of its capital stock (whether or
not then exercisable, convertible or exchangeable) that would affect the tax-
free nature of the Distribution.
Registration Rights. The Separation and Distribution Agreement provides
that the Company, and Messrs. Frank and Sam Khulusi, who beneficially own
approximately 17.6% and 18.4%, respectively, of the CCI Common Stock, will have
the right in certain circumstances, but in no event prior to June 7, 1999 (in
the case of the Company) and 180 days after the Distribution (in the case of
Messrs. Frank and Sam Khulusi), to require uBid to use its best efforts to
register for resale shares of uBid Common Stock held by them under the
Securities Act, subject to certain conditions, limitations and exceptions
("Demand Registration"). Frank Khulusi is the Chairman of the Board and Chief
Executive Officer of the Company and Sam Khulusi is a director of the Company.
uBid also has agreed with the Company and Messrs. Frank and Sam Khulusi that if
uBid files a registration statement for the sale of securities under the
Securities Act, then such persons may, subject to certain conditions,
limitations and exceptions, include in such registration statement shares of
uBid Common Stock held by them ("Piggyback Registration"). In addition, for an
additional 90 days after the applicable 180-day period, uBid will be entitled to
include its shares in any requested Demand Registration and to reduce the number
of shares to be sold by the Company or Messrs. Frank and Sam Khulusi thereunder
to a minimum of 20%, collectively, of the total offering plus the amount of any
underwriters' over-allotment option. In the case of Messrs. Frank and Sam
Khulusi, uBid will bear up to $100,000 of the cost of the first, and up to
$50,000 of the second,
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requested registrations and will bear the cost of all piggyback registrations.
In addition, the Company's registration rights will terminate upon consummation
of the Distribution.
Releases and Indemnification. The Separation and Distribution Agreement
provides for a full and complete release and discharge as of the December 9,
1998 closing date of the Offering of all liabilities, known or unknown, existing
or arising from all acts and events occurring or failing to occur or alleged to
have occurred or to have failed to occur and all conditions existing or alleged
to have existed on or before that date, between uBid and the Company (including
any contractual agreements or arrangements existing or alleged to exist between
them on or before that date), except as expressly set forth in the Separation
and Distribution Agreement.
Except as provided in the Separation and Distribution Agreement, uBid has
agreed to indemnify, defend and hold harmless the Company and each of the
Company's directors, officers and employees from and against all liabilities
relating to, arising out of or resulting from: (i) the failure of uBid or any
other person to pay, perform or otherwise promptly discharge any liabilities of
uBid in accordance with their respective terms; (ii) any breach by uBid of the
Separation and Distribution Agreement or any of the Ancillary Agreements; and
(iii) any untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, with respect
to all information contained in the Prospectus or the Registration Statement
used in connection with the Offering.
Except as provided in the Separation and Distribution Agreement, the
Company has agreed to indemnify, defend and hold harmless uBid and each of
uBid's directors, officers and employees from and against all liabilities
relating to, arising out of or resulting from: (i) the failure of the Company or
any other person to pay, perform or otherwise promptly discharge any liabilities
of the Company other than the liabilities of uBid; and (ii) any breach by the
Company of the Separation and Distribution Agreement or any of the Ancillary
Agreements. Neither uBid nor the Company is obligated under the Separation and
Distribution Agreement to indemnify the other for: (i) any liability, contingent
or otherwise, assumed, transferred, assigned or allocated to the other under the
Separation and Distribution Agreement or any Ancillary Agreement; (ii) any
liability for the sale, lease, construction or receipt of goods, property or
services purchased, obtained or used in the ordinary course of business between
the parties prior to December 9, 1998; (iii) any liability for unpaid amounts
for products or services or refunds owing on products or services due on a
value-received basis for work done by one party at the request or on behalf of
the other; (iv) any liability that uBid or the Company may have with respect to
indemnification or contribution pursuant to the Separation and Distribution
Agreement for claims brought against other party by third persons; or (v)
generally, any liability the release of which would result in the release of any
person other than a person released pursuant to the Separation and Distribution
Agreement.
The Separation and Distribution Agreement contains provisions that govern,
except as otherwise provided in any Ancillary Agreement, the resolution of
disputes, controversies or claims that may arise between or among the parties.
These provisions contemplate that efforts will be made to resolve disputes,
controversies and claims by escalation of the matter to senior management (or
other mutually agreed) representatives of the parties. If such efforts are not
successful, any party may submit the dispute, controversy or claim to mandatory,
binding arbitration, subject to the provisions of the Separation and
Distribution Agreement. The Separation and Distribution Agreement contains
procedures for the selection of a sole arbitrator of the dispute, controversy or
claim and for the conduct of the arbitration hearing, including certain
limitations on discovery rights of the parties. These procedures are intended
to produce an expeditious resolution of any such dispute, controversy or claim.
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In the event that any dispute, controversy or claim is, or is reasonably
likely to be, in excess of $5 million, or in the event that an arbitration award
in excess of $5 million is issued in any arbitration proceeding commenced under
the Separation and Distribution Agreement, subject to certain conditions, any
party may submit such dispute, controversy or claim to a court of competent
jurisdiction and the arbitration provisions contained in the Separation and
Distribution Agreement will not apply. In the event that the parties do not
agree that the amount in controversy is in excess of $5 million, the Separation
and Distribution Agreement provides for arbitration of such disagreement.
Noncompetition; Certain Business Transactions. The Separation and
Distribution Agreement provides that, for a period of nine months after the
Distribution Date, the Company will not directly or indirectly, including by way
of acquisition of other companies, engage in the Internet online auction
business in substantially the same manner and format as conducted by uBid on the
date of the Separation and Distribution Agreement. The Separation and
Distribution Agreement also provides for the allocation of certain corporate
opportunities during the period prior to the Distribution Date. During this
period, neither uBid nor the Company will have any duty to communicate or offer
such opportunities to the other and may pursue or acquire any such opportunity
for itself or direct such opportunity to any other Person. Except as otherwise
contemplated under the intercompany agreements, it is anticipated that all
contracts between uBid and the Company after consummation of the Offering will
be at arms length.
Expenses. Except as expressly set forth in the Separation and
Distribution Agreement or in any Ancillary Agreement, whether or not the
Distribution is consummated, each party will bear its own respective third-party
fees, costs and expenses paid or incurred in connection with the Distribution.
Company Stock Options. Options to purchase CCI Common Stock that were
granted on or prior to December 9, 1998 and that are outstanding as of the
Distribution Date will, as of the Distribution Date, become options to purchase
shares of both uBid Common Stock and CCI Common Stock ("Adjusted Options"). The
number of shares of uBid Common Stock that will be subject to such Adjusted
Options will be based upon the ratio of the number of shares of uBid Common
Stock distributed to the Company's stockholders in the Distribution divided by
the total number of shares of CCI Common Stock outstanding on the record date
for the Distribution. In addition, the exercise price for each Adjusted Option
will be adjusted pursuant to a formula designed to ensure that: (1) the
aggregate "intrinsic value" (i.e. the difference between the exercise price of
the option and the market price of the common stock underlying the option) of
the Adjusted Options will not exceed the intrinsic value of each option to
purchase CCI Common Stock immediately prior to the Distribution, and (2) the
ratio of the exercise price of each option to the market value of the underlying
stock immediately before and after the Distribution is preserved. The options
to purchase uBid Common Stock covered by the Adjusted Options will be issued
under uBid's 1998 Stock Incentive Plan. As of the Record Date, there were
outstanding options to purchase 750,771 shares of CCI Common Stock eligible for
adjustment. Based on the number of shares of CCI Common Stock and options to
purchase CCI Common Stock outstanding on the Record Date, options to purchase
approximately 529,205 shares of uBid Common Stock will be granted in connection
with Adjusted Options.
As a result of the Distribution, any options to purchase the Company's
Common Stock issued after the closing date of the Offering will not be
convertible into options to purchase uBid Common Stock. Therefore, options to
purchase CCI Common Stock granted between the closing date of the Offering and
the Distribution Date will be adjusted (without creating an option for uBid
Common Stock as described in the preceding paragraph) to preserve the intrinsic
value of such options in accordance with the terms of the Company's stock option
plans and consistent with applicable accounting rules.
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Termination. The Separation and Distribution Agreement may be terminated
at any time prior to the Distribution Date by the mutual consent of the Company
and uBid. In the event of any termination of the Separation and Distribution
Agreement, only the provisions of the Separation and Distribution Agreement that
obligate the parties to pursue the Distribution, or take, or refrain from
taking, actions which would or might prevent the Distribution from qualifying
for tax-free treatment under Section 355 of the Code, will terminate, and the
other provisions of the Separation and Distribution Agreement and each Ancillary
Agreement will remain in full force and effect.
Services Agreement
In December 1998, uBid and the Company entered into a services agreement
(the "Services Agreement") pursuant to which the Company provides to uBid
various administrative services, including general accounting services, credit
services and payroll and benefits administration. Except as noted below, the
following services will be provided by the Company until the Distribution is
consummated.
General Accounting Services. Pursuant to the Services Agreement, the
Company provides uBid with accounts payable services and general ledger
services. The services are provided on a cost-plus 10% basis.
Credit Services. The Services Agreement also provides for the provision
by the Company to uBid of credit services, including full credit checking and
analysis at a cost to uBid of $1.50 per transaction. The Company will undertake
to use its best efforts to process each credit check within 24 hours of receipt
of uBid's request.
Payroll and Benefits Administration. Under the Services Agreement, the
Company administers uBid's payroll and uBid's employees are covered under the
Company's health insurance plan and participate in the Company's 401(k) plan.
uBid reimburses the Company for all payroll and benefits costs, and the Company
receives a monthly servicing fee on a cost-plus 10% basis per covered or
participating employee.
Payments pursuant to the Service Agreement are made monthly in arrears
within 30 days after uBid's receipt of an invoice detailing the services
rendered. uBid believes that the fees for services to be provided under the
Services Agreement are no less favorable to uBid than could have been obtained
by uBid from unaffiliated third parties.
Any services rendered to uBid by the Company beyond the services to be
provided under the terms of the Services Agreement that the Company determines
are not covered by the fees provided for under the terms of the Services
Agreement will be billed to uBid as described in the Services Agreement, or on
such other basis as uBid and the Company may agree, provided that the price
payable by uBid for non-covered services will be established on a negotiated
basis which is no less favorable to uBid than the charges for comparable
services from unaffiliated third parties.
Termination of the Services Agreement at Distribution. uBid and the
Company expect that, as of the Distribution Date, the Services Agreement will be
terminated and the Company will no longer perform the transactional and
administrative services described above and certain other services historically
performed by the Company.
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Tax Indemnification and Allocation Agreement
uBid and the Company have entered into a Tax Indemnification and
Allocation Agreement, which provides that if any one of certain events occurs,
and such event causes the Distribution not to be a tax-free transaction to the
Company under Section 355 of the Code, then uBid will indemnify the Company for
income taxes the Company may incur by reason of the Distribution not so
qualifying under the Code (the "Distribution Taxes"). Such events include any
breach of representations relating to uBid's activities and ownership of its
capital stock made to the Company or in connection with the PwC Opinion. In
connection with the confirmation of the PwC Opinion at the time of the
Distribution, uBid will likely make certain representations regarding its
intentions at the time of the Distribution with respect to its business.
The Tax Indemnification and Allocation Agreement also provides that the
Company will indemnify uBid for Distribution Taxes for which uBid has no
liability to the Company under the circumstances described above.
In addition to the foregoing indemnities, the Tax Indemnification and
Allocation Agreement provides for: (i) the allocation and payment of taxes for
periods during which uBid and the Company are included in the same consolidated
group for federal income tax purposes or the same consolidated, combined or
unitary returns for state tax purposes; (ii) the allocation of responsibility
for the filing of tax returns; (iii) the conduct of tax audits and the handling
of tax controversies; and (iv) various related matters.
For periods during which uBid is included in the Company's consolidated
federal income tax returns or state consolidated, combined, or unitary tax
returns (which will include the periods on or before the Distribution Date),
uBid will be required to pay an amount of income tax equal to the amount it
would have paid had it filed its tax return as a separate entity. uBid will be
responsible for its own separate tax liabilities that are not determined on a
consolidated or combined basis. uBid will also be responsible in the future for
any increase to the consolidated, combined or unitary tax liability of uBid and
the Company that is attributable to uBid, and will be entitled to refunds for
reductions of tax liabilities attributable to uBid for prior periods.
uBid will be included in the Company's consolidated group for federal
income tax purposes so long as the Company beneficially owns at least 80% of the
total voting power and value of the outstanding common stock of uBid. Each
corporation that is a member of a consolidated group during any portion of the
group's tax year is jointly and severally liable for the federal income tax
liability of the group for that year. While the Tax Indemnification and
Allocation Agreement allocates tax liabilities between uBid and the Company
during the period on or prior to the Distribution Date in which uBid is included
in the Company's consolidated group, uBid could be liable in the event federal
tax liability allocated to the Company is incurred, but not paid, by the Company
or any other member of the Company's consolidated group for the Company's tax
years that include such periods. In such event, uBid would be entitled to seek
indemnification from the Company pursuant to the Tax Indemnification and
Allocation Agreement.
As a condition to the Company effecting the Distribution, uBid will be
required to indemnify the Company for any tax liability suffered by the Company
arising out of actions by uBid after the Distribution that cause the
Distribution to lose its qualification as a tax-free distribution or to be
taxable to the Company for federal income tax purposes under Section 355 of the
Code. For example, Section 355 generally provides that a company which
distributes shares of a subsidiary in a spin-off that is otherwise
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tax-free will incur U.S. federal income tax liability if 50% or more, by vote or
value, of the capital stock of either the company making the distribution or the
subsidiary is acquired by one or more persons acting pursuant to a plan or
series of related transactions that includes the spin-off. To ensure that
issuances of equity securities by uBid will not cause the Distribution to be
taxable to the Company, the Tax Indemnification and Allocation Agreement
contains certain restrictions on issuances of equity securities of uBid and its
repurchase of equity securities until three years following the Distribution
Date (the "Restriction Period"). Until the second anniversary of the
Distribution Date, uBid cannot issue its common stock and other equity
securities (including the shares sold in the Offering) that would cause the
number of shares of Common Stock distributed by the Company in the Distribution
to constitute less than 60% of the outstanding shares of Common Stock unless
uBid first obtains either the consent of the Company or a favorable IRS letter
ruling that the issuance will not affect the tax-free status of the
Distribution. After this period until the end of the third year from the
Distribution Date, uBid cannot issue its common stock and other equity
securities that, when combined with equity securities sold in and after the
Offering, would cause the number of shares of uBid Common Stock distributed by
the Company in the Distribution to constitute less than 55% of the outstanding
shares of uBid Common Stock unless uBid first obtains the consent of the Company
or a favorable IRS letter or opinion of tax counsel that the issuance would not
affect the tax-free status of the Distribution. These restrictions on the
issuance of equity securities may impede the ability of uBid to raise necessary
capital or to complete acquisitions, if any, using equity securities. The
foregoing prohibitions do not apply to issuances of debt securities of uBid that
are not convertible into Common Stock or other equity securities. The same
requirements for an IRS ruling, consent of the Company or an opinion of counsel
are applicable to any proposed repurchases of uBid Common Stock during the
Restriction Period.
Joint Marketing Agreement
uBid and the Company have entered into a joint marketing agreement (the
"Marketing Agreement"), pursuant to which the Company and uBid agreed to
continue certain joint marketing efforts presently in place. The Marketing
Agreement provides that uBid will continue to be presented on the home page of
the Company's "PC Mall" Website on at least one quarter of the page as well as
receive a banner advertisement on the home page of the Company's "PC Mall"
Website. The Marketing Agreement provides that uBid will provide to the Company
a button that "clicks through" from the home page of uBid's Website to the
Company's "PC Mall" Website. As consideration for these marketing services,
uBid will either make a payment of $10,000 per month to the Company or the
Company, in its sole discretion, may elect to receive a banner advertisement on
each page of uBid's Website in lieu of the monthly payment. The Marketing
Agreement has a term of one year and is terminable by either party upon 60 days
prior written notice.
Internet/Telecommunications Agreement
uBid and the Company have also entered into an Internet/telecommunications
agreement (the "Internet/Telecommunications Agreement") pursuant to which the
Company will continue to provide uBid with certain Internet and
telecommunications services, including hosting uBid's Website. uBid agreed to
reimburse the Company for all telecommunications charges (other than personnel
charges), as well as pay additional monthly personnel charges on a cost-plus 10%
basis and capital equipment charges based on standard lease rates. The
Internet/Telecommunications Agreement has an initial term of one year and is
cancelable, at the option of either party, upon 90 days prior written notice,
provided that, upon such cancellation, uBid will be required to purchase all
capital equipment from the Company at its depreciated book value.
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Sublease Agreement
In July 1998, uBid and the Company entered into a sublease currently
covering 100,000 square feet of the Company's 325,000 square foot distribution
center in Memphis, Tennessee. The sublease provides for uBid's continued use of
the Company's sophisticated inventory control and shipping systems during the
term of the sublease. The sublease is at a monthly rate equal to the Company's
obligations to the landlord, plus taxes and utilities, and will expire in 2002.
Other Relationships with the Company
Company Credit Agreement. The Company is party to a credit agreement
pursuant to which it has a credit facility of up to $60 million. Under the
credit agreement, each of the Company's subsidiaries, including uBid, is
required to guarantee the Company's obligations and to grant the lender a
security interest in its assets to secure the obligations under the guaranty.
The lender has signed a letter consenting to the Distribution and releasing
uBid's guaranty obligations and the lender's security interest in uBid's assets.
In connection with obtaining the lender's consent thereto, uBid and the Company
have entered into an agreement with the lender that provides that, through the
Distribution Date, neither uBid nor the Company will make certain transfers to
each other of their respective assets which might impair the effectiveness or
enforceability of the lender's security interest in assets of the Company.
Payable to the Company. Since uBid's inception in 1997, the Company has
provided the funds to finance uBid's operations in the form of advances that
bear interest at the prime rate. uBid had amounts due to the Company for
working capital and fixed asset purchases (the "Payable") totaling approximately
$4.6 million as of December 31, 1998, of which $3.3 million is represented by a
note due in June 2000 with interest payable monthly, and the remaining $1.3
million of which was repaid during the first quarter of 1999. Advances made by
the Company after the first quarter of 1999, if any, will be repaid within the
respective quarter in which the advance is made.
ADDITIONAL INFORMATION
uBid's Common Stock is registered under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Company and uBid are each subject to
the reporting requirements of the Exchange Act, and in accordance therewith have
filed registration statements, reports and other information (collectively, "SEC
Reports") with the Securities and Exchange Commission (the "Commission"). For
further information pertaining to uBid (including financial statements and other
financial information), the uBid Common Stock and related matters, the Company's
stockholders are urged to read uBid's SEC Reports, including particularly the
following:
(1) uBid's Annual Report on Form 10-K for the fiscal year ended December
31, 1998;
(2) uBid's Quarterly Report on Form 10-Q for the quarter ended March 31,
1999; and
(3) The description of the uBid Common Stock contained in uBid's
Registration Statement on Form 8-A filed with the Commission on
November 30, 1998, including any amendment or report filed for the
purpose of updating such description.
Stockholders are also urged to review any amendments to the foregoing
reports and all subsequent SEC Reports filed by uBid and the Company under the
Exchange Act. The Company will
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promptly provide without charge to each person to whom an Information Statement
is delivered, a copy of the above-referenced Annual Report on Form 10-K and
Quarterly Report on Form 10-Q (not including exhibits), upon the written or oral
request of such person directed to the Chief Financial Officer of the Company at
its principal offices, 2555 West 190th Street, Torrance, California 90504, (310)
354-5600.
The SEC Reports can be obtained from the Commission at its principal office
in Washington, D.C. upon the payment of the prescribed fees, or may be examined,
without charge, at public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional
offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and Seven World Trade Center, Suite 1300, New York, New York 10048. The
Commission maintains a World Wide Web site on the Internet at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
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CREATIVE COMPUTERS, INC.
SPIN-OFF OF uBID, INC. COMMON STOCK
Question and Answer Summary of the Spin-Off
-------------------------------------------
The following summary answers certain questions you may have with respect
to Creative's distribution of uBid common stock (referred to in this summary as
the "Distribution" or the "spin-off") and highlights certain basic information
from the accompanying Information Statement that may be important for you. This
summary does not contain all of the important information relating to the spin-
off, and we therefore encourage you to read the entire Information Statement.
<TABLE>
<S> <C>
Q. What will happen in the spin-off? A. In the spin-off, Creative will distribute to its
stockholders all of its 80.1% interest in uBid by distributing
approximately .70488 shares of uBid common stock for each share
of Creative common stock owned by its stockholders. After the
spin-off, uBid will be a separate company, and will no longer be
a subsidiary of Creative.
Q. Why is Creative undertaking the A. We believe that the spin-off will allow both Creative and
spin-off? uBid to enhance their ability to implement their own growth and
operating strategies. The spin-off will also remove some of the
restrictions on uBid's growth that existed due to contractual
relationships with some of our vendors.
Q. What will I receive in the A. We are making a pro-rata distribution of the uBid common
spin-off? stock to all of our stockholders. Accordingly, for every one
share of Creative common stock you own as of the Record Date and
continue to own on the Distribution Date, you will receive
approximately .70488 shares of uBid common stock.
Q. What is the Record Date? A. Only holders of Creative common stock as of May 24, 1999
(the "Record Date") are eligible to receive uBid stock in the
Distribution. However, as discussed below,
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if you sell shares of Creative common stock in a "regular way"
transaction after the record date and prior to the effective
time of the distribution, you will also be transferring your
right to receive the Distributed shares of uBid common stock
associated with the Creative shares you sell.
Q. When is the spin-off effective? A. The effective date of the Distribution is June 7, 1999.
Q. What is the Distribution Date? A. The Distribution Date (or the "effective date") is the date
on which shares of uBid common stock are credited on the books
of uBid to Creative's stockholders of record on the Record Date.
The Distribution Date is June 7, 1999.
Q. When will certificates be mailed? A. Certificates will be mailed to record stockholders on or
about June 8, 1999.
Q. How does the spin-off work for me A. For each share of Creative common stock that you owned on
as a stockholder of Creative? May 24, 1999, you will receive approximately .70488 shares of
uBid common stock, except that you will not receive any
fractional share interests that result from the application of
this spin-off ratio. All fractional share interests of uBid
common stock will be aggregated and sold in the open market.
Instead of receiving fractional shares, each record holder of
Creative stock will receive a check representing his or her pro
rata share of the net proceeds received in such sale.
Q. If I sold Creative common stock A. Yes. A buyer of Creative common stock in the "regular way"
between the record date and the between May 24, 1999 and the close of business on June 7, 1999
effective time, does the buyer also receives a "due bill" entitling the buyer to the
receive the uBid common stock distribution of the uBid common stock. This means that by
distribution? transferring your Creative stock in a "regular way" transaction
prior to the close of business on June 7, you are also
transferring your right to receive the uBid shares associated
with the Creative shares you sell. Settlement should be
conducted through the buyer's broker.
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Q. Is the distribution ratio final? A. Yes. The final distribution ratio is approximately .70488,
which was calculated as of the Record Date of May 24, 1999.
Q. How does the Distribution affect A. The Distribution itself has no effect on the number of
the shares of Creative common stock shares of Creative common stock currently held by you. Creative
I currently hold? and uBid are separate companies and, other than the
Distribution, the Creative common stock and the uBid common
stock are not related.
Q. When will Creative common stock A. We expect that the Creative common stock will trade on a
trade at the post-Distribution price? post-Distribution ("ex-dividend") basis on June 8, 1999. The
stock market will determine the price of Creative common stock
following the Distribution.
Q. Will I have to turn in my A. No, you will not have to turn in your Creative stock
Creative stock certificates? certificates.
Q. When will I receive the proceeds A. The sale of fractional share interests will occur in the few
relating to any fractional share days following the Distribution Date, and you should receive a
interests I may be entitled to? check representing your pro rata share of the proceeds shortly
thereafter.
Q. What happens with Creative shares A. Generally, shares held in a brokerage account are listed
held in a brokerage account? under the broker's name. Following the Distribution, the broker
will receive the shares of uBid common stock for the account.
It will be up to the broker to allocate the shares as
appropriate. Your next broker's statement following the
Distribution Date should reflect your shares of uBid common
stock. Be sure to carefully check this statement upon receipt
to make sure all shares were accurately credited. If you have
any questions regarding your statement, contact your broker.
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Q. What are the tax consequences of A. Generally, for federal income tax purposes, based on the
the Distribution to me as a Creative opinion we have received from PricewaterhouseCoopers, we expect
stockholder? that no gain or loss will be recognized to (and no amount will
be included in the income of) holders of Creative common stock
upon the receipt of the uBid common stock distributed to them.
However, you will recognize gain or loss on the receipt of cash
in lieu of fractional shares of uBid common stock. Following
the Distribution Date, additional information will be provided
to you concerning the calculation of the new tax basis in your
shares of Creative common stock and uBid common stock, the tax
treatment of cash received in lieu of fractional shares and
certain statements which are required to be attached to your
applicable federal income tax returns. You should consult your
own tax advisor as to the effects of the spin-off given your
particular circumstances.
Q. Are the shares of uBid common A. Generally yes. uBid common stock is traded on the Nasdaq
stock freely tradable? National Market under the symbol "UBID." Creative's common
stock will continue to be traded on the Nasdaq National Market
under the symbol "MALL." However, any person or entity who is
deemed to an "affiliate" of uBid is subject to certain
restrictions on trading the uBid common stock, including the
requirements of Rule 144 under the Securities Act.
Q. How much uBid common stock will A. Creative will not retain any ownership of uBid common stock.
Creative retain?
Q. What number should I call for A. You may contact Creative Computers at 310-354-5600.
more information on the spin-off?
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