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AGREEMENT AND PLAN OF MERGER
by and among
CYBERSHOP INTERNATIONAL, INC.,
MG ACQUISITION CORP.,
THE MAGELLAN GROUP, INC.,
XXX X. XXXXXXXX
and
XXXXXX X. XXXXX III
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Dated as of June 1, 1999
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of June 1, 1999
by and among CYBERSHOP INTERNATIONAL, INC., a Delaware corporation
("Cybershop"); MG ACQUISITION CORP., a Delaware corporation and wholly-owned
subsidiary of Cybershop ("MergerSub"); THE MAGELLAN GROUP, INC., a Connecticut
corporation (the "Company"); XXX X. XXXXXXXX ("Xxxxxxxx") and XXXXXX X. XXXXX
III ("Xxxxx" and together with Xxxxxxxx, the "Stockholders" and individually a
"Stockholder").
W I T N E S S E T H :
WHEREAS, the respective Boards of Directors of Cybershop, MergerSub and
the Company have determined that it is advisable and in the best interests of
their respective corporations and, in the case of the Company, the Stockholders,
to consummate, and have approved, the business combination transaction provided
for herein in which the Company would merge with and into MergerSub (the
"Merger") upon the terms and subject to the conditions of this Agreement;
WHEREAS, Xxxxxxxx owns 102 shares of common stock, par value $.01 per
share, of the Company ("Company Stock") and Xxxxx owns 98 shares of Company
Stock, representing in the aggregate 100% of the issued and outstanding shares
of the capital stock of the Company.
WHEREAS, Cybershop, MergerSub, the Stockholders and the Company desire to
make certain covenants and agreements in connection with the Merger, and to
prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, Cybershop, MergerSub, the
Stockholders and the Company hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.2), the Company shall
be merged with and into MergerSub (the "Surviving Corporation") and the separate
corporate existence of the Company shall thereupon cease. MergerSub (i) shall be
the successor or surviving corporation in the
Merger (sometimes herein referred to as the "Surviving Corporation"), (ii) shall
continue to be governed by the laws of the State of Delaware, and (iii) the
separate corporate existence of MergerSub with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger. The
Merger shall have the effects specified in Section 33-820 of the Connecticut
Business Corporation Act and Section 259 of the Delaware General Corporation
Law.
Section 1.2 Effective Time. Cybershop, MergerSub, the Stockholders and the
Company will cause an executed original of a Certificate of Merger (a
"Certificate of Merger") to be filed with the Secretary of State of the State of
Delaware, and upon receipt of a Certificate of Merger issued by the Secretary of
State of Delaware, Cybershop and the Surviving Corporation shall file such
Certificate of Merger with the Secretary of State of the State of Connecticut
together with duplicate executed originals of the Certificate of Merger as
required by the laws of the state to consummate the Merger. The Merger shall
become effective on the date on which the respective Certificates of Merger have
been duly filed with the Secretary of State of Delaware and Connecticut and such
time is hereinafter referred to as the "Effective Time."
Section 1.3 Certificate of Incorporation and By-Laws of the Surviving
Corporation.
1.3.1 Certificate of Incorporation. The Certificate of Incorporation of
the Surviving Corporation in the form of Exhibit A hereto shall be at and as of
the Effective Time the Certificate of Incorporation of MergerSub immediately
prior to the Effective Time.
1.3.2 By-Laws. The By-Laws of the Surviving Corporation in the form of
Exhibit B hereto shall be at and as of the Effective Time the By-Laws of
MergerSub immediately prior to the Effective Time.
Section 1.4 Directors and Officers of the Surviving Corporation.
1.4.1 Directors of the Surviving Corporation. The directors of the
Surviving Corporation at the Effective Time shall, from and after the Effective
Time, be the Persons (as defined in Section 9.3 below) listed on Schedule 1.4.1
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and By-Laws.
1.4.2 Officers of the Surviving Corporation. The officers of the Surviving
Corporation shall, from and after the Effective Time, be the Persons listed on
Schedule 1.4.2 until their successors have been duly elected or appointed and
qualified or until their death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and By-Laws.
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ARTICLE II
CANCELLATION OF STOCK IN THE MERGER;
PURCHASE PRICE AND CLOSING
Section 2.1 Cancellation of Stock in the Merger. The manner of canceling
the shares of the Company in the Merger shall be as follows: At the Effective
Time, each share of Company Stock issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be canceled and converted into and represent the
right to receive the Purchase Price (as defined in Section 2.3). All of such
shares of Company Stock shall no longer be outstanding and shall automatically
be retired and cease to exist, and the Stockholders shall cease to have any
rights with respect thereto, except the right to receive the Purchase Price.
Each issued and outstanding share of the common stock, par value $0.01 per
share, of MergerSub ("MergerSub Common Stock") shall be unchanged and remain as
one fully paid and non-assessable share of common stock, $0.01 par value per
share, of the Surviving Corporation ("Surviving Corporation Common Stock"). Each
certificate representing outstanding shares of MergerSub Common Stock shall at
the Effective Time represent an equal number of shares of the Surviving
Corporation Common Stock.
Section 2.2 Surrender of Stock Certificates. At the Closing (as defined in
Section 2.5 below), the Stockholders shall surrender the certificate(s)
representing its shares of Company Stock, and in exchange therefor it shall be
entitled to receive the Purchase Price.
Section 2.3 Purchase Price.
2.3.1 Purchase Price. In full consideration for the conversion and
cancellation of the Company Stock in connection with the Merger, the purchase
price (the "Purchase Price") shall be calculated and paid as follows by
Cybershop to the Stockholders:
(i) Closing Payments. At the Closing, an aggregate amount (the "CP") equal
to (x) $5,000,000 in cash and (y) 1,000,000 shares of the common stock,
par value $0.001 per share, of Cybershop ("Cybershop Stock") . In the
event that, based upon the closing sale price of Cybershop Stock on the
last trading day preceding the Closing Date on the Nasdaq National Market,
the value of the Cybershop Stock is less than the aggregate of $5,000,000
plus the estimated value of the payments under Section 2.3.1(ii), the
amount of the $5,000,000 cash payment shall be reduced and the number of
shares of Cybershop Stock increased so that the value of the Cybershop
Stock is greater than 50% of the CP. If such reduction would be greater
than $300,000, the Stockholders may elect to terminate the Agreement at
such time. The additional shares of Cybershop Stock issued shall be added
to the 150,000 shares to be registered pursuant to Section 7.1(b) of this
Agreement.
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(ii) Periodic Payment. Within 10 days after the end of each Periodic
Determination Period (as defined herein) the Periodic Payment shall be
calculated and paid as follows:
Periodic Payment = Estimated Earnout Profit for the Periodic Determination
Period x 75%
2.3.2 Earnout Profit. Earnout Profit shall mean profits from products
manufactured by Crystal Care International, LLC, which are calculated on a basis
consistent with "contributions to Fixed Expense" on the Comparative Income
Statement of the Company for the period ended May 1, 1999. Such method shall be
consistent with Schedule 2.3.2 hereof.
2.3.3 Periodic Determination Period The Periodic Determination Period
shall be each quarterly period ended as follows (except for the shorter periods
noted):
(i) June 30, 1999 (one month period)
(ii) September 30, 1999
(iii) December 31, 1999
(iv) March 31, 2000
(v) June 30, 2000
(vi) September 30, 2000
(vii) December 31, 2000
(viii) March 31, 2001
(ix) May 31, 2001 (two month period)
2.3.4 Accounting Procedures.
(i) Within 10 days after the end of each Periodic Determination Period,
the Chief Financial Officer of Cybershop shall prepare a report calculating
Earnout Profit using the same method as that used in the Comparative Income
Statement of the Company for the period ended May 1, 1999. The report shall set
forth for such Measuring Period the calculation of the Periodic Payment (the
"Periodic Determination"). A copy of each Periodic Determination shall be
delivered within 10 days after each of the dates set forth in Section 2.3.3
above to the Stockholders. At the end of the next Periodic Termination Period a
final statement for the prior period shall be made and any credit or debit shall
be made for the account of the Stockholders or Cybershop, as the case may be.
(ii) If the Stockholders do not agree that any final statement for a
Periodic Determination Period correctly states the calculation of the Periodic
Payment for the period under examination, the Stockholders shall within 10 days
after their receipt of the calculation give written notice to Cybershop of any
exceptions thereto (in reasonable detail describing the nature of the
disagreement asserted). If the Stockholders and Cybershop reconcile their
differences, the Periodic Determination shall be adjusted accordingly and shall
thereupon become binding final and conclusive upon all of the parties hereto and
enforceable in a court of
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law. If the Stockholders and Cybershop are unable to reconcile their differences
in writing within 20 days after written notice of exceptions is delivered to
Cybershop (the "Reconciliation Period")., the items in dispute shall be
submitted to independent auditors selected by Cybershop and the Stockholders or
if they cannot agree by a third independent auditor selected by such respective
designees (the "Independent Auditors"), for final determination, and the
Periodic Determination shall be deemed adjusted in accordance with the
determination of the Independent Auditors and shall become binding, final and
conclusive upon all of the parties hereto and enforceable in a court of law. The
Independent Auditors shall consider only the items in dispute and shall be
instructed to act within 10 days (or such longer period as the Stockholders and
Cybershop may agree) to resolve all items in dispute. All amounts not in dispute
shall be paid when due. If the Stockholders do not give notice of any exception
promptly after the delivery of a Periodic Determination or if the Stockholders
give written notification of their acceptance of a Periodic Determination, such
Periodic Determination shall thereupon become binding, final and conclusive upon
all the parties hereto and enforceable in a court of law.
(iii) The Independent Auditors shall determine the party (i.e., Cybershop
or the Stockholders, as the case may be) whose asserted position as to the
amount of Periodic Payment, for the Periodic Determination Period under
examination before the Independent Auditors is furthest from the determination
of such Periodic Payment by the Independent Auditors, which non-prevailing party
shall pay the fees and expenses of the Independent Auditors as well as all other
expenses, such as legal costs, related thereto.
2.3.5 Examination of Books and Records. The books and records of the
Surviving Corporation and its subsidiaries (if any) shall be made available
during normal business hours upon reasonable advance notice at the principal
office of the Surviving Corporation, to the parties and the Independent Auditors
to the extent required to determine the calculations required under this Section
2.3. The parties hereto shall cause the Surviving Corporation to make
arrangements to make available to Cybershop, the Stockholders and their
representatives (including auditors) any back-up materials generated by the
Surviving Corporation with respect to any adjustments made by them to the
financial statements in the process of preparing any Periodic Payment. In
addition, the Stockholders, on the one hand, and Cybershop, on the other hand,
shall make available to the other party and their representatives (including
auditors) any back-up materials generated by them to support a position which is
contrary to the position taken by the other party.
Section 2.4 Payment of the Purchase Price.
2.4.1 Purchase Price. Payment of each component of the Purchase Price
under Section 2.3.1(i) and 2.3.1(ii) above shall be paid to the Stockholders and
shall be made by the Surviving Corporation as follows: (i) 51% of each payment
to Xxxxxxxx and (ii) 49% of each payment to Xxxxx. Cash payments shall be made
by wire transfer to the account(s) designated by each Stockholder in writing to
the Surviving Corporation. Payments of Cybershop Stock
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shall be registered in the name of the respective Stockholder and, except as set
forth in Section 7.1(b), shall not be registered for sale to the public pursuant
to the Securities Act of 1933, as amended (the "Act"). Such unregistered shares
shall only be salable pursuant to future registration under the Act or the
availability of an exemption from registration under the Act such as Rule 144.
2.4.2 Imputed Interest. The Periodic Payments shall be deemed to include
imputed interest, to the extent required by the Internal Revenue Code of 1986,
as amended.
Section 2.5 Closing. The Closing under this Agreement (the "Closing") is
taking place simultaneously with the execution and delivery of this Agreement at
2:00 P.M. on June 4, 1999, at the offices of Xxxxx & Xxxxxxx LLP, 0000 Xxxxxxxx,
Xxx Xxxx, Xxx Xxxx 00000, or such other date and place as agreed to the parties
hereto. Such date is herein referred to as the "Closing Date".
ARTICLE III
REPRESENTATIONS OF THE STOCKHOLDERS
A. Each of the Stockholders, severally, represents and warrants with
Cybershop and MergerSub, as follows:
Section 3.1 Execution and Validity of Agreements.
3.1.1 Execution and Validity. Such Stockholder has the full legal right
and capacity to enter into this Agreement and to perform his obligations
hereunder. This Agreement has been duly and validly executed and delivered by
such Stockholder and, assuming due authorization, execution and delivery by
Cybershop and MergerSub, constitutes a legal, valid and binding obligation of
such Stockholder, enforceable against such Stockholder in accordance with its
terms.
3.1.2 Stock Ownership. Such Stockholder is the true and lawful owner of
the shares of Company Stock set forth opposite his name on Schedule 3.1.2 and
all of such shares of Company Stock have been duly and validly authorized and
issued and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof, except as such liability
may be imposed pursuant to applicable laws, and such ownership is free and clear
of all mortgages, liens, security interests, encumbrances, claims, charges and
restrictions of any kind or character (collectively, "Liens").
3.1.3 No Options. There are no outstanding subscriptions, options, rights
(including "phantom stock rights"), warrants, calls, commitments,
understandings, arrangements, plans or other agreements of any kind to acquire
any shares of Company Stock from such Stockholder
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and there are no agreements or understandings with respect to the sale or
transfer of any shares of Company Stock by such Stockholder.
3.1.4 No Restrictions. There is no suit, action, claim, investigation or
inquiry by any Governmental or Regulatory Authority (as defined in Section 3.1.5
below), and no legal, administrative or arbitration proceeding pending or, to
such Stockholder's knowledge, threatened against such Stockholder or any of such
Stockholder's shares of Company Stock, with respect to the execution, delivery
and performance of this Agreement and the employment agreements of the
Stockholder.
3.1.5 Non-Contravention. The execution, delivery and performance by such
Stockholder of his obligations hereunder and the consummation of the
transactions contemplated hereby, will not (a) result in the violation by such
Stockholder of any statute, law, rule, regulation or ordinance (collectively,
"Laws"), or any judgment, decree, order, writ, permit or license (collectively,
"Orders"), of any court, tribunal, arbitrator, authority, agency, commission,
official or other instrumentality of the United States, any foreign country or
any domestic or foreign state, county, city or other political subdivision (a
"Governmental or Regulatory Authority"), applicable to such Stockholder or any
of his shares of Company Stock, or (b) if the consents and notices set forth in
Schedule 3.1.6 are obtained, given or waived, conflict with, result in a
violation or breach of, constitute (with or without notice or lapse of time or
both) a default under, or (except as set forth in Schedule 3.1.6) require such
Stockholder to obtain any consent, approval or action of, make any filing with
or give any notice to, or result in or give to any Person (as defined in Section
9.3 below) any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the creation or imposition of any
Lien upon any of the shares of Company Stock of such Stockholder, under any of
the terms, conditions or provisions of any agreement, commitment, lease,
license, evidence of indebtedness, mortgage, indenture, security agreement,
instrument, note, bond, franchise, permit, concession, or other instrument,
obligation or agreement of any kind to which such Stockholder is a party or by
which such Stockholder or any of his assets or properties are bound.
3.1.6 Approvals and Consents. Except as disclosed on Schedule 3.1.6, no
consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority or Person is necessary or required under any of the terms,
conditions or provisions of any Law or Order of any Governmental or Regulatory
Authority or any Contract to which such Stockholder is a party or his shares of
Company Stock are bound for the execution and delivery of this Agreement by such
Stockholder, the performance by such Stockholder of his obligations hereunder or
the consummation by such Stockholder of the transactions contemplated hereby.
Section 3.2 Capital Stock; Existence and Good Standing.
3.2.1 Capital Stock. The Company has an authorized capitalization
consisting of 200 shares of common stock, $.01 par value, of which 200 shares
are issued and outstanding, and no
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shares are held in the treasury of the Company. No other class of capital stock
of the Company is authorized or outstanding. There are no outstanding
subscriptions, options, warrants, rights (including "phantom stock rights"),
calls, commitments, understandings, conversion rights, rights of exchange, plans
or other agreements of any kind providing for the purchase, issuance or sale of
any shares of the capital stock of the Company by the Company.
3.2.2 Existence and Good Standing. The Company is duly organized and
validly existing and in corporate and tax good standing under the laws of
Connecticut, with the full corporate power and authority to own its property and
to carry on its business all as and in the places where such properties are now
owned or operated or such business is now being conducted. The Company is duly
qualified, licensed or admitted to do business and is in good standing in those
jurisdictions set forth on Schedule 3.2, which are the only jurisdictions in
which the ownership, use or leasing of its assets and properties, or to the best
of the knowledge of Stockholders the conduct or nature of its business, makes
such qualification, licensing or admission necessary.
Section 3.3 No Subsidiaries. The term "Subsidiary" as used in this
Agreement in the case of the Company, shall mean any Person in which the
Company, directly or indirectly through subsidiaries or otherwise, beneficially
owns or controls fifty percent or more of either the equity interests in, or the
voting control of, such Person. The Company has no Subsidiary.
Section 3.4 Financial Statements and No Material Changes. Schedule 3.4
sets forth the following: (a) audited balance sheets of the Company as at
December 31, 1998 and the related audited statements of income, retained
earnings and cash flow for the years then ended, and (b) unaudited balance sheet
of the Company as at May 1, 1999 (the "Balance Sheet") and the related unaudited
statement of income, retained earnings and cash flow for the four months then
ended. Such financial statements have been prepared in accordance with GAAP
throughout the periods indicated except as set forth on Schedule 3.4.1. Each
balance sheet fairly presents the financial condition of the Company at the
respective date thereof and reflects all material claims against and all
material debts and material liabilities of the Company , fixed or contingent, as
at the date thereof, required to be shown thereon under GAAP. Each statement of
income, retained earnings and cash flow fairly presents the results of
operations of the Company for the periods indicated. Since May 1, 1999 (the
"Balance Sheet Date"), there has been no material adverse change in the assets
or liabilities, or in the business or condition, financial or otherwise, or in
the consolidated results of operations of the Company taken as a whole.
Subsequent to the Closing the Stockholders will cause the delivery to Cybershop
of audited financial statements as at December 27, 1997.
Section 3.5 Books and Records. All accounts, books, ledgers and other
records material to the Company of whatsoever kind have been properly and
accurately kept and are complete in all material respects, and there are no
material inaccuracies or discrepancies of any kind contained or reflected
therein. Except as set forth on Schedule 3.5, the Company has no records,
systems, controls, data or information recorded, stored, maintained, operated or
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otherwise wholly or partly dependent on or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and possession of the Company. The Stockholders have
delivered to the Purchaser complete and correct copies of the Articles of
Incorporation and By-Laws of the Company, with all amendments thereto, currently
in effect, and its minute books and stock transfer records.
Section 3.6 Title to Properties; Encumbrances. The Company has good and
valid title to, or enforceable leasehold interests in or valid rights under
contract to use all the properties and assets owned or used by it (real and
personal, tangible and intangible), including, without limitation (a) all the
properties and assets reflected in the Balance Sheet, and (b) all the properties
and assets purchased or otherwise contracted for by the Company since the
Balance Sheet Date (except for properties and assets reflected in the Balance
Sheet or acquired or otherwise contracted for since the Balance Sheet Date that
have been sold or otherwise disposed of in the ordinary course of business), in
each case free and clear of all Liens, except for Liens set forth on Schedule
3.6. The property, plant and equipment owned or otherwise contracted for by the
Company is in a state of good maintenance and repair (ordinary wear and tear
excepted) and is adequate and suitable for the purposes for which they are
presently being used.
Section 3.7 Real Property.
3.7.1 Owned Real Property. The Company does not own any real property or
hold any option or right of first refusal or first offer to acquire any real
property. The Company is not obligated by Contract or otherwise to purchase any
real property.
3.7.2 Leased Real Property. Schedule 3.7.2 contains an accurate and
complete list of all real property leases, subleases, licenses and other
occupancy agreements, including without limitation, any modification, amendment
or supplement thereto and any other related document or agreement executed or
entered into by the Company (each individually, a "Real Property Lease" and
collectively, the "Real Property Leases") to which the Company is a party
(including, without limitation, Real Property Leases which the Company has
subleased or assigned to another Person and as to which the Company remains
liable). Each Real Property Lease set forth on Schedule 3.7.2 (or required to be
set forth on Schedule 3.7.2): (a) is valid, binding and in full force and
effect; (b) all rents and additional rents and other sums, expenses and charges
due to date have been paid; (c) the lessee has been in peaceable possession
since the commencement of the original term thereof; (d) no waiver, indulgence
or postponement of the lessee's obligations thereunder has been granted by the
lessor; (e) there exists no default or event of default by the Company or, to
the knowledge of the Stockholders, by any other party thereto; (f) to the best
of Stockholders' knowledge there exists no occurrence, condition or act which,
with the giving of notice, the lapse of time or the happening of any further
event or condition, would become a default or event of default by the Company
thereunder; and (g) there are no outstanding claims of breach or indemnification
or notice of default or termination
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thereunder. The Company holds the leasehold estate on all Real Property Leases,
free and clear of all Liens, except as set forth on Schedule 3.6 and the liens
of mortgagees of the real property in which such leasehold estate is located.
The real property leased by the Company is in a state of good maintenance and
repair and is adequate and suitable for the purposes for which it is presently
being used, and to the best of Stockholder's knowledge there are no material
repair or restoration works likely to be required in connection with any of the
leased real properties. The Company is in physical possession and actual and
exclusive occupation of its leased properties. The Company does not owe any
brokerage commission with respect to any Real Property Lease.
Section 3.8 Contracts. Schedule 3.8 hereto contains an accurate and
complete list of the following material written agreements, commitments, leases,
licenses, evidences of indebtedness, mortgages, indentures, security agreements,
instruments, notes, bonds, franchise, permits, concessions, or other material
instruments, obligations or agreements of any kind to which the Company is a
party (collectively, "Contracts") : (a) all Plans (as such term is defined in
Section 3.19); (b) any personal property lease with a fixed annual rental of
$10,000 or more; (c) any Contract relating to capital expenditures which involve
payments of $25,000 or more in any single transaction or series of related
transactions; (d) any Contract relating to the making of a loan or advance to or
investment in, any other Person; (e) any Contract evidencing or relating in any
way to indebtedness for money borrowed or to be borrowed, whether directly or
indirectly, by way of loan, purchase money obligation, guarantee (other than the
endorsement of negotiable instruments for collection in the ordinary course of
business), conditional sale, purchase or otherwise; (f) any management service,
employment, consulting or similar type of Contract which is not cancelable by
the Company without penalty or other financial obligation within 30 days; (g)
any Contract limiting the Company's freedom to engage in any line of business or
to compete with any other Person, including agreements limiting the ability of
the Company to service competitive accounts during or after the term thereof;
(h) any collective bargaining or union agreement; (i) any Contract with any of
its officers or directors or any Stockholder not covered by subsection (f) above
(including indemnification agreements); (j) any secrecy or confidentiality
agreement (other than standard confidentiality agreements in computer software
license agreements or agreements with clients, service companies and product
services entered into in the ordinary course of business); (k) any Contract or
license with respect to any Intellectual Property (as defined in Section 3.14
below), other than "shrink-wrap" and similar end-user licenses; (l) any
agreement with a client required to be listed on Schedule 3.16; (m) any Contract
with a media buying service; provided, however, commitments to purchase media in
the ordinary course of business do not have to be set forth on Schedule 3.8; (n)
any joint venture agreement involving a sharing of profits not covered by
clauses (a) through (m) above; and (o) any Contract (not covered by another
subsection of this Section 3.8) which involves $25,000 or more over the
unexpired term thereof and is not cancelable by the Company without penalty or
other financial obligation within 30 days. Each Contract to which the Company is
a party, including, but not limited to those set forth on Schedule 3.8, is in
full force and effect, and there exists no material default or event of default
by the Company or to the knowledge of the Stockholders, by any other Person, or
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occurrence, condition, or act which, with the giving of notice, the lapse of
time or the happening of any other event or condition, would become a default or
event of default thereunder by the Company, and there are no outstanding claims
of breach or indemnification or notice of default or termination of any such
Contract.
Section 3.9 Non-Contravention; Approvals and Consents.
3.9.1 Non-Contravention. The execution, delivery and performance by the
Stockholders of their obligations hereunder and the consummation of the
transactions contemplated hereby, will not (a) violate, conflict with or result
in the breach of any provision of the Articles of Incorporation or By-Laws (or
other comparable charter documents) of the Company, or (b) to the best knowledge
of Stockholder, result in the violation by the Company of any Laws or Orders of
any Governmental or Regulatory Authority, applicable to the Company or any of
its assets or properties, or (c) if the consents and notices set forth on
Schedule 3.9.2 are obtained, given or waived, conflict with, result in a
violation or breach of, constitute (with or without notice or lapse of time or
both) a default under, or (except as set forth on Schedule 3.9.2) require the
Company to obtain any consent, approval or action of, make any filing with or
give any notice to, or result in or give to any Person any right of payment or
reimbursement, termination, cancellation, modification or acceleration of, or
result in the creation or imposition of any Lien upon any of the Company's
assets, under any of the terms, conditions or provisions of any Contract to
which the Company is a party or by which the Company or any of its assets or
properties are bound.
3.9.2 Approvals and Consents. Except as disclosed on Schedule 3.9.2, no
consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other Person is necessary or required under any of the
terms, conditions or provisions of any Law or Order of any Governmental or
Regulatory Authority or any Contract to which the Company is a party or by which
their respective assets or properties bound for the execution and delivery of
this Agreement by the Stockholders, the performance by the Stockholders of their
obligations hereunder or the consummation of the transactions contemplated
hereby.
Section 3.10 Litigation. Except as set forth on Schedule 3.10, there is no
action, suit, proceeding at law or in equity by any Person, or any arbitration
or any administrative or other proceeding by or before (or to the knowledge of
the Stockholders, any investigation by) any Governmental or Regulatory
Authority, pending or, to the knowledge of the Stockholders, threatened, against
the Company with respect to this Agreement or the transactions contemplated
hereby, or against or affecting the Company or its assets, including without
limitation product liability claims or claims for false advertising; and no
acts, facts, circumstances, events or conditions occurred or exist which are a
basis for any such action, proceeding or investigation, which relates to the
Company and which have or could reasonably be expected to have a material
adverse effect on the Company or its assets taken as a whole. Schedule 3.10 also
sets forth with respect to each pending or threatened action, suit or proceeding
listed thereon, the amount of costs, expenses or damages the Company has
incurred
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to date and reasonably expects to incur through conclusion thereof. The Company
is not subject to any Order entered in any lawsuit or proceeding. The
Stockholders will indemnify the Cybershop Indemnified Party, subject to the
limits provided in Section 8.6 for any liabilities for the matters listed in
Schedule 3.10 arising with respect to claims based on the period prior to the
Closing Date.
Section 3.11 Taxes. The Company has timely filed, or caused to be filed,
taking into account any valid extensions of due dates, completely and
accurately, all required federal, state, local and foreign tax or information
returns (including estimated tax returns) under the statutes, rules or
regulations of all applicable jurisdictions. The term "Taxes" means taxes,
duties, charges or levies of any nature imposed by any taxing or other
Governmental or Regulatory Authority, including without limitation income,
gains, capital gains, surtax, capital, franchise, capital stock, value-added
taxes, taxes required to be deducted from payments made by the payor and
accounted for to any tax authority, employees' income withholding, back-up
withholding, withholding on payments to foreign Persons, social security,
national insurance, unemployment, worker's compensation, payroll, disability,
real property, personal property, sales, use, goods and services or other
commodity taxes, business, occupancy, excise, customs and import duties,
transfer, stamp, and other taxes (including interest, penalties or additions to
tax in respect of the foregoing), and includes all taxes payable by the Company
pursuant to Treasury Regulations ss.1.1502-6 or any similar provision of state,
local or foreign law. All Taxes shown on said returns to be due and all
additional assessments received prior to the date hereof have been paid or are
being contested in good faith, in which case, such contested assessments are set
forth on Schedule 3.11. The Company has collected all sales, use, goods and
services or other commodity Taxes required to be collected and remitted or will
remit the same to the appropriate taxing authority within the prescribed time
periods. The Company has withheld all amounts required to be withheld on account
of Taxes from amounts paid to employees, former employees, directors, officers,
residents and non-residents and remitted or will remit the same to the
appropriate taxing authorities within the prescribed time periods. The amount
set up as an accrual for Taxes on the Balance Sheet is sufficient for the
payment of all unpaid Taxes of the Company, whether or not disputed, for all
periods ended on and prior to the date thereof. Since the Balance Sheet Date,
the Company has not incurred any liabilities for Taxes other than in the
ordinary course of business. The Stockholders have delivered to the Cybershop
correct and complete copies of all federal income tax returns filed with respect
to the Company for all taxable periods. None of the Federal, state or local
income tax returns of the Company have ever been audited by the Internal Revenue
Service (the "IRS") or any other Governmental or Regulatory Authority. No
examination of any return of the Company is currently in progress, and the
Company has not received notice of any proposed audit or examination. No
deficiency in the payment of Taxes by the Company for any period has been
asserted in writing by any taxing authority and remains unsettled at the date of
this Agreement. The Company has not made any agreement, waiver or other
arrangement providing for an extension of time with respect to the assessment or
collection of any Taxes against it. The Company has not been a member of an
affiliated group filing consolidated Federal income tax returns nor has it been
included in any combined,
12
consolidated or unitary state or local income tax return. The Company is not a
party to any tax allocation or tax sharing agreement nor does it have any
contractual obligation to indemnify any other Person with respect to Taxes. The
Company has not been a United States real property holding corporation within
the meaning of Section 897(c)(2) of the Code within the period specified in
Section 897(c)(1)(A)(ii) of the Code. The Company will not be required as a
result of a change in accounting method for any period ending on or before the
Closing Date to include any adjustment under Section 481 of the Code (or any
similar provision of state, local or foreign income tax law) in income for any
period ending after the Closing Date, except for a change which may be required
by law in connection with this transaction. The Company is not obligated to make
any payments and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Section 280G of the Code. Since its inception, the Company has effectively
elected to be taxed as an "S" corporation within the meaning of Section 1361 of
the Code, for federal and state purposes and such elections remain in full force
and effect until the date preceding the Closing Date.
Section 3.12 Liabilities. Except as set forth in the Balance Sheet, the
Company does not have any outstanding material claims, liabilities or
indebtedness of any nature whatsoever (collectively in this Section 3.12,
"Liabilities"), whether accrued, absolute or contingent, determined or
undetermined, asserted or unasserted, and whether due or to become due, other
than (i) Liabilities specifically disclosed in any Schedule hereto; (ii)
Liabilities under Contracts of the type required to be disclosed by the
Stockholders on any Schedule and so disclosed or which because of the dollar
amount or other qualifications are not required to be listed on such Schedule;
and (iii) Liabilities incurred in the ordinary course of business and consistent
with past practice since the Balance Sheet Date not involving borrowings by the
Company.
Section 3.13 Insurance. Schedule 3.13 is a schedule of all insurance
policies (including life insurance) or binders maintained by the Company. All
such policies are in full force and effect and all premiums that have become due
have been currently paid. None of such policies shall lapse or terminate by
reason of the transactions contemplated hereby. The Company has not received any
notice of cancellation or non-renewal of any such policy or binder. The Company
has not failed to give notice or present any claim under any such policy in a
due and timely fashion. In the Stockholders' opinion, there are no facts upon
which an insurer might be justified in reducing coverage or increasing premiums
on existing policies. There are no outstanding unpaid claims under any such
policies. Except as set forth on Schedule 3.13, within the last two years the
Company has not filed for any claims exceeding $25,000 against any of its
insurance policies, exclusive of automobile policies. In the reasonable opinion
of the Stockholders, such policies provide sufficient coverage, in accordance
with industry standards for the Company's industry, for the risks insured
against (including, without limitation, product liability and false
advertising).
Section 3.14 Intellectual Properties.
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3.14.1 Definitions. For purposes of this Agreement, the following terms
have the following definitions:
"Intellectual Property" shall include, without limitation, any or
all of the following and all rights associated therewith: (a) all domestic and
foreign patents and applications therefor and all reissues, divisions, renewals,
extensions, continuations and continuations-in-part thereof; (b) all inventions
(whether patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and customer
lists, rights of privacy and publicity, and all documentation relating to any of
the foregoing; (c) all copyrights, copyright registrations and applications
therefor, and all other rights corresponding thereto throughout the world; (d)
all mask works, mask work registrations and applications therefor; (e) all
industrial designs and any registrations and applications therefor; (f) all
trade names, logos, common law trademarks and service marks; trademark and
service xxxx registrations and applications therefor and all goodwill associated
therewith; and (g) all computer software including all source code, object code,
firmware, development tools, files, records and data, all media on which any of
the foregoing is recorded, and all documentation related to any of the
foregoing.
"Intellectual Property of the Company" shall mean any Intellectual
Property that: (a) is owned by or licensed to the Company, or (b) which is
necessary to the operation of the Company, including the design, manufacture and
use of the products of the Company as it currently is operated or is reasonably
anticipated to be operated in the future, including without limitation, the
Crystal Ear product.
3.14.2 Representations. The registrations of the Intellectual Property
listed on Schedule 3.14 are valid and subsisting, all necessary registration and
renewal fees in connection with such registrations have been made and all
necessary documents and certificates in connection with such registrations have
been filed with the relevant patent, copyright and trademark authorities in the
United States or other jurisdiction for the purposes of maintaining such
Intellectual Property registrations in order to conduct the business of the
Company as such business is presently conducted. Except as set forth in Schedule
3.14 (a) no Person has any rights to use any of the Intellectual Property of the
Company; and (b) the Company has not granted to any Person, nor authorized any
Person to retain, any rights in the Intellectual Property of the Company. Except
as set forth on Schedule 3.14 and for "shrink wrap" and similar commercial
end-user licenses, the Company owns and has good and exclusive title to each
item of Intellectual Property of the Company, free and clear of any Lien; and
the Company owns or has the right, pursuant to a valid Contract to use or
operate under, all other Intellectual Property of the Company. To the knowledge
of the Stockholders, the operation of the business of the Company as it
currently is conducted does not infringe in any way material to the Company's
business the Intellectual Property of any other Person except as set forth in
Schedule 3.14 and the Company has not received notice from any Person that the
operation of its business infringes the Intellectual Property of any Person.
There are no Contracts between the Company and any other Person with respect to
the Intellectual Property of the Company in
14
respect of which there is any dispute known to the Stockholders regarding the
scope of such agreement, or performance under such Contract, including with
respect to any payments to be made or received by the Company. To the knowledge
of the Stockholders, no Person is infringing or misappropriating any of the
Intellectual Property of the Company.
Section 3.15 Compliance with Laws; Licenses and Permits.
3.15.1 Compliance. The Company and its business have been conducted to the
best knowledge of the Stockholders, in compliance with all applicable Laws and
Orders, except in each case (other than with respect to compliance with
environmental Laws and Orders relating to the regulation or protection of the
environment; "Environmental Laws and Orders") where the failure to so comply
would not reasonably be expected to have a material and adverse effect on the
financial condition, results of operations, assets, properties, prospects or
business of the Company taken as a whole, including without limitation: (a) all
Laws and Orders promulgated by the Federal Trade Commission or any other
Governmental or Regulatory Authority; (b) all Environmental Laws and Orders; and
(c) all Laws and Orders relating to labor, civil rights, and occupational safety
and health laws, worker's compensation, employment and wages, hours and
vacations, or pay equity. The Company has not been charged with, or, to the
knowledge of the Stockholders threatened with or under any investigation with
respect to, any charge concerning any violation of any Laws or Orders.
3.15.2 Licenses. The Company has all Licenses required by any Governmental
or Regulatory Authority for the operation of its businesses and the use of its
assets as presently operated or used, except where the failure to have such
Licenses would not reasonably be expected to have a material and adverse effect
on the financial condition, results of operations, assets, properties, prospects
or business of the Company taken as a whole. All of the Licenses are in full
force and effect and no action or claim is pending, nor to the knowledge of the
Stockholders is threatened, to revoke or terminate any of such Licenses or
declare any such License invalid in any material respect.
Section 3.16 Supplier Relations. Schedule 3.16 lists the 20 largest
suppliers of products for sale by the Company. The Company is not engaged in a
dispute with any of said suppliers and its relationship with each such supplier
has not been threatened either in writing or orally with termination except
where the failure to have such Licenses would not reasonably be expected to have
a material and adverse effect on the financial condition, results of operations,
assets, properties, prospects or business of the Company taken as a whole.
Copies of all current contracts with said suppliers have been delivered to
Cybershop.
Section 3.17 Accounts Receivable; Work-in-Process; Accounts Payable. The
amount of all accounts receivable, unbilled invoices (including without
limitation unbilled invoices for services and out-of-pocket expenses) and other
debts due or recorded in the records and books of account of the Company as
being due to the Company and reflected on the Closing Balance Sheet or the
Balance Sheet represent or will represent valid obligations arising
15
from sales actually made or services actually performed in the ordinary course
of business and, to the knowledge of the Stockholders, will be good and
collectible in full (less the amount of any provision, reserve or similar
adjustment therefor reflected on the Closing Balance Sheet or the Balance Sheet)
in the ordinary course of business, and, to the knowledge of the Stockholders,
none of the accounts receivable or other debts (or accounts receivable arising
from any such unbilled invoices) is or will be subject to any counterclaim or
set-off except to the extent of any such provision, reserve or adjustment. There
has been no material adverse change since the Balance Sheet Date in the amount
or aging of the accounts receivable, unbilled invoices, or other debts due to
the Company, or the reserves with respect thereto, or accounts payable of the
Company.
Section 3.18 Employment Relations. (a) The Company is not engaged in any
unfair labor practice; (b) to the best knowledge of Stockholders, no unfair
labor practice complaint against the Company is pending before any Governmental
or Regulatory Authority; (c) there is no organized labor strike, dispute,
slowdown or stoppage actually pending or to the knowledge of the Stockholders
threatened against or involving the Company (d) there are no labor unions
representing or, to the knowledge of the Stockholders, attempting to represent
the employees of the Company; (e) no claim or grievance or any arbitration
proceeding arising out of or under any collective bargaining agreement is
pending and to the knowledge of the Stockholders, no such claim or grievance has
been threatened; (f) no collective bargaining agreement is currently being
negotiated by the Company; and (g) the Company has not experienced any work
stoppage or similar organized labor dispute during the last three years. There
is no legal action, suit, proceeding or claim pending or, to the knowledge of
the Stockholders, threatened between the Company and any of its employees,
former employees, agents, former agents, job applicants or any association or
group of any of its employees, except as set forth on Schedule 3.10.
Section 3.19 Employee Benefit Matters.
3.19.1 List of Plans. Schedule 3.8 to this Agreement lists all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all bonus, incentive, stock
option, restricted stock, stock appreciation rights, phantom stock, deferred
compensation, retiree medical or life insurance, supplemental retirement,
severance or other benefit plans, programs or arrangements, and all termination,
severance or other Contracts, whether covering one Person or more than one
Person, and whether or not subject to any of the provisions of ERISA, which are
or have been maintained, contributed to or sponsored by the Company or any ERISA
Affiliate (as defined in Section 3.19.3 below) for the benefit of any employee
(each item listed on Schedule 3.8 being referred to herein individually, as a
"Plan" and collectively, as the "Plans"). The Stockholders have delivered to the
Purchaser, to the extent applicable, a complete and accurate copy of: (a) each
written Plan and descriptions of any unwritten Plan (including all amendments
thereto whether or not such amendments are currently effective); (b) each
summary plan description and all summaries of material modifications relating to
a Plan; (c) each trust agreement or other
16
funding arrangement with respect to each Plan, including insurance contracts;
(d) the most recently filed IRS Form 5500 relating to each Plan; (e) the most
recently received IRS determination letter for each Plan; and (f) the three most
recently prepared actuarial reports and financial statements in connection with
each Plan. Except as set forth on Schedule 3.19.1, none of the Stockholders nor
the Company has made any commitment, (i) to create or cause to exist any Plan
not set forth on Schedule 3.8 or (ii) to modify, change or terminate any Plan.
3.19.2 Severance. Except as set forth on Schedule 3.19.2, none of the
Plans, or any employment agreement or other Contract to which the Company is a
party or bound, (a) provides for the payment of or obligates the Company to pay
separation, severance, termination or similar-type benefits to any Person; or
(b) obligates the Company to pay separation, severance, termination or
similar-type benefits as a result of any transaction contemplated by this
Agreement or as a result of a "change in control," within the meaning of such
term under Section 280G of the Code, either alone or in conjunction with any
subsequent occurrence.
3.19.3 Multi-Employer Plans. Neither the Company nor any ERISA Affiliate
(as hereinafter defined) has maintained, contributed to or participated in a
multi-employer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA)
or a multiple employer plan subject to Sections 4063 and 4064 of ERISA, nor has
any obligations or liabilities, including withdrawal, reorganization or
successor liabilities, regarding any such plan. As used herein, the term "ERISA
Affiliate" means any Person or organization that, is or has been a member of a
controlled group or organization (within the meaning of Sections 414(b), (c),
(m) or (o) of the Code) of which the Company is a member.
3.19.4 Welfare Benefit Plans. The Company has expressly reserved the
right, in all Plan documents relating to welfare benefits provided to employees,
former employees, officers, directors and other participants and beneficiaries,
to amend, modify or terminate at any time the Plans which provide for welfare
benefits and the Stockholders are not aware of any fact, event or condition that
could reasonably be expected to restrict or impair such right. Neither the
Company nor any ERISA Affiliate has made any promises or commitments to provide,
and is under no obligation to provide, (i) medical or other health or welfare
benefits (through insurance or otherwise) to retirees or former employees (other
than as is required by the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended) of the Company or any ERISA Affiliate, or their respective
dependants or beneficiaries, or (ii) life insurance or other death benefits to
retired or former employees of the Company or any ERISA Affiliate, or their
respective dependants or beneficiaries.
3.19.5 Administrative Compliance. Each Plan is now and has been operated
in all material respects in accordance with the requirements of all applicable
Laws, including, without limitation, ERISA, the Health Insurance Portability and
Accountability Act of 1996 and the Code, the Age Discrimination in Employment
Act, the Equal Pay Act, and Title VII of the Civil Rights Act of 1964 and the
regulations and authorities published thereunder. The Company performed all
material obligations required to be performed by it under, is not in
17
any respect in default under or in violation of, and the Stockholders have no
knowledge of any default or violation by any party to, any Plan. Except as set
forth on Schedule 3.10, no legal action, suit, audit, investigation or claim is
pending or to the knowledge of the Stockholders is threatened, with respect to
any Plan (other than claims for benefits in the ordinary course), and no fact,
event or condition exists that would be reasonably likely to provide a legal
basis for any such action, suit, audit, investigation or claim. All reports,
disclosures, notices and filings with respect to such Plans required to be made
to employees, participants, beneficiaries, alternate payees and any Governmental
or Regulatory Authority have been timely made or an extension has been timely
obtained.
3.19.6 Tax-Qualification. Each Plan which is intended to be qualified
under Section 401(a) of the Code is qualified under Section 401(a) of the Code
(and, if applicable, complies with the requirements of Section 401(k) of the
Code), and has received a favorable determination letter from the IRS that it is
so qualified. Each trust established in connection with any Plan which is
intended to be exempt from federal income taxation under Section 501(a) of the
Code is exempt under Section 501(a) of the Code and has received a determination
letter from the IRS that it is so exempt, no fact or event has occurred or
condition exists since the date of such determination letter from the IRS which
would be reasonably likely to adversely affect the qualified status of any such
Plan or the exempt status of any such trust. With respect to any insurance
policy providing funding for benefits or an investment alternative under any
Plan, (i) no liability or loss shall be incurred by Purchaser or any such Plan
in the nature of a retroactive rate adjustment, loss sharing arrangement or
other liability or loss, and (ii) no insurance company issuing any such policy
is in receivership, conservatorship, liquidation or similar proceeding and, to
the knowledge of the Company or the Shareholders, no such proceedings with
respect to any insurer are imminent.
3.19.7 Funding; Excise Taxes. There has been no prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the Code) with
respect to any Plan subject to ERISA. The Company has not incurred any liability
for any excise tax arising under Sections 4971, 4972, 4975, 4976, 4977, 4978,
4978B, 4979, 4979A, 4980, 4980B, 4980D or 4980E of the Code or any civil penalty
arising under Sections 409, 502(i) or 502(l) of ERISA, and no fact, event or
condition exists which could give rise to any such liability. Neither the
Company nor any ERISA Affiliate has incurred any liability under, arising out of
or by operation of Section 302(c)(11) or Title IV of ERISA (other than liability
for premiums to the Pension Benefit Guaranty Corporation ("PBGC") arising in the
ordinary course), including, without limitation, any liability in connection
with the termination of any employee benefit plan subject to Title IV of ERISA
(a "Title IV Plan"); and, no fact, event or condition exists which could give
rise to any such liability. No complete or partial termination has occurred
within the five years preceding the date hereof with respect to any Plan
maintained by the Company or any ERISA Affiliate, and no reportable event
(within the meaning of Section 4043 of ERISA), notice of which has not been
waived by the PBGC, has occurred or is expected to occur with respect to any
Plan maintained by the Company or any ERISA Affiliate. The transactions
contemplated by this Agreement will not result in liability to the Company,
18
MergerSub or Cybershop under Section 4069 of ERISA. No Title IV Plan or Plan
subject to Section 302 of ERISA maintained by the Company or any ERISA Affiliate
had an accumulated funding deficiency (within the meaning of Section 302 of
ERISA or Section 412 of the Code), whether or not waived, as of the most
recently ended plan year of such Plan. None of the assets of the Company or any
ERISA Affiliate is the subject of any Lien arising under Section 302(f) of ERISA
or Section 412(n) of the Code; neither the Company nor any ERISA Affiliate has
been required to post any security under Section 307 of ERISA or Section 401(a)
(29) of the Code relating to any Plan; and no fact or event exists which could
give rise to any such Lien or requirement to post any such security. As of the
Closing Date, no Plan which is a Title IV Plan will have an "unfunded benefit
liability" (within the meaning of Section 4001(a)(18) of ERISA) and no Plan
which is subject to Section 302 of ERISA will have an "accumulated funding
deficiency" (within the meaning of Section 302(a)(2) of ERISA.
3.19.8 Tax Deductions. All contributions, premiums or payments required to
be made, paid or accrued with respect to any Plan have been made, paid or
accrued on or before their due dates, including extensions thereof. All such
contributions have been fully deducted for income tax purposes and no such
deduction has been challenged or disallowed by any Governmental or Regulatory
Authority and no fact or event exists which could give rise to any such
challenge or disallowance.
Section 3.20 Interests in Customers, Suppliers, Etc. Except as set forth
on Schedule 3.20, (x) no Stockholder nor any Person controlled by any
Stockholder nor (y) to the knowledge of the Stockholders (without making any
inquiry of any member of the Related Group, as hereinafter defined), any
officer, director, or employee of the Company, any parent, brother, sister,
child or spouse of any such officer, director or employee or of any Stockholder
(collectively, the "Related Group"), or any entity controlled by anyone in the
Related Group:
(i) owns, directly or indirectly, any interest in (excepting for
ownership, directly or indirectly, of less than 1% of the issued and
outstanding shares of any class of securities of a publicly held and
traded company) or received or has any right to receive payments from, or
is an officer, director, employee or consultant of, any Person which is,
or is engaged in business as, a competitor, lessor, lessee, supplier,
distributor, sales agent, customer or client of the Company;
(ii) owns, directly or indirectly, in whole or in part, any tangible or
intangible property (including, but not limited to Intellectual Property),
that the Company uses in the conduct of the business of the Company ,
other than immaterial personal items owned and used by employees at their
work stations; or
(iii) has any cause of action or other claim whatsoever against, or owes
any amount to, the Company , except for claims in the ordinary course of
business such as for accrued vacation pay, accrued benefits under employee
benefit plans, and similar matters and agreements existing on the date
hereof.
19
Section 3.21 Bank Accounts and Powers of Attorney. Set forth in Schedule
3.21 is an accurate and complete list showing (a) the name of each bank in which
the Company has an account, credit line or safe deposit box and the names of all
Persons authorized to draw thereon or to have access thereto, and (b) the names
of all Persons, if any, holding powers of attorney from the Company and a
summary statement of the terms thereof.
Section 3.22 Compensation of Employees. Schedule 3.22 is an accurate and
complete list showing (a) the names and positions of all employees and exclusive
consultants who are currently being compensated by the Company at an annualized
rate of $50,000 or more, together with a statement of the current annual salary,
and the annual salary, bonus and incentive compensation paid or payable with
respect to calendar years 1998 and 1999, and the material fringe benefits of
such employees and exclusive consultants not generally available to all
employees of the Company; (b) [intentionally omitted]; (c) the names of all
retired employees, if any, of the Company who are receiving or entitled to
receive any healthcare or life insurance benefits or any payments from the
Company not covered by any pension plan to which the Company is a party, their
ages and current unfunded pension rate, if any; and (d) a description of the
current severance and vacation policies of the Company. To the best knowledge of
Stockholders, the Company has not, because of past practices or previous
commitments with respect to its employees, established any rights on the part of
any of its employees to additional compensation with respect to any period after
the Closing Date (other than wage increases in the ordinary course of business).
Section 3.23 No Changes Since the Balance Sheet Date. Since the Balance
Sheet Date except as specifically stated on Schedule 3.23, the Company has not
(a) incurred any material liability or obligation of any nature (whether
accrued, absolute, contingent or otherwise), except in the ordinary course of
business; (b) permitted any asset to be subjected to any Lien; (c) sold,
transferred or otherwise disposed of any assets except in the ordinary course of
business; (d) made any capital expenditure or commitment therefor which
individually or in the aggregate exceeded $25,000; (e) declared or paid any
dividends or made any distributions on any shares of its capital stock, or
redeemed, purchased or otherwise acquired any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such shares; (f) made
any bonus or profit sharing distribution; (g) increased or prepaid its
indebtedness for borrowed money, except current borrowings under credit lines
listed on Schedule 3.8 or made any loan to any Person other than to any employee
for normal travel and expense advances; (h) written down the value of any
work-in-process, or written off as uncollectible any notes or accounts
receivable, except write-downs and write-offs in the ordinary course of
business, none of which individually or in the aggregate, is material to the
Company taken as a whole; (i) granted any increase in the rate of wages,
salaries, bonuses or other remuneration of any employee; (j) entered into an
employment or exclusive consultant agreement which is not cancelable without
penalty or other financial obligation within 30 days; (k) canceled or waived any
claims or rights of material value; (l) made any change in any method of
accounting procedures; (m) otherwise conducted its business or entered into any
transaction, except in the
20
usual and ordinary manner and in the ordinary course of its business; (n)
amended or terminated any agreement which is material to its business; (o)
renewed, extended or modified any Real Property Lease or except in the ordinary
course of business, any lease of personal property Lease; (p) adopted, amended
or terminated any Plan; or (q) agreed, whether or not in writing, to do any of
the actions set forth in any of the above clauses.
Section 3.24 Corporate Controls. None of the Stockholders, nor, to the
knowledge of the Stockholders, any officer, authorized agent, employee or any
other Person while acting on behalf of the Company, has, directly or indirectly:
used any corporate fund for unlawful contributions, gifts, or other unlawful
expenses relating to political activity; made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns from corporate funds; established or maintained any
unlawful or unrecorded fund of corporate monies or other assets; made any false
or fictitious entry on its books or records; made any bribe, rebate, payoff,
influence payment, kickback, or other unlawful payment, or other payment of a
similar or comparable nature, to any Person, whether in money, property, or
services, to obtain favorable treatment in securing business or to obtain
special concessions, or to pay for favorable treatment for business secured or
for special concessions already obtained, and the Company has not participated
in any illegal boycott or other similar illegal practices affecting any of its
actual or potential customers.
Section 3.25 [Intentionally Omitted].
Section 3.26 Brokers. Except as set forth on Schedule 3.26, no broker,
finder, agent or similar intermediary has acted on behalf of the Company or the
Stockholders in connection with this Agreement or the transactions contemplated
hereby, and no brokerage commissions, finder's fees or similar fees or
commissions are payable by the Company or any Stockholder in connection
therewith based on any agreement, arrangement or understanding with any of them.
Section 3.27 Year 2000 Compliant.
3.27.1 Definition. The term "Year 2000 Compliant" shall mean:
(i) the functions, calculations and other computer processes of all
computer hardware, software and systems, including but not limited to
internal and outsourced MIS systems and embedded computer features within
other systems of the Company (collectively, "Processes"), perform properly
in a consistent manner regardless of the date in time on which the
Processes are actually performed and regardless of the date of input to
the software, whether before, on or after January 1, 2000 and whether or
not the dates are affected by leap years;
(ii) the computer hardware, software and systems accept, calculate,
compare, sort, extract, sequence and otherwise process data inputs and
date values,
21
and return and display date values, in a consistent manner regardless of
the dates used, whether before, on or after January 1, 2000;
(iii) the computer hardware, software and systems will function
properly without interruptions or extraordinary manual intervention caused
by the date in time on which the Processes are actually performed or by
the date of input to the software, whether before, on or after January 1,
2000;
(iv) the computer hardware, software and systems accept and respond
to two-digit year data input in the Processes in a manner that resolves
any ambiguities as to the century in a defined, predetermined and
appropriate manner; and
(v) the computer hardware, software and systems store and display
data information in the Processes in ways that are unambiguous as to the
determination of the century.
3.27.2 Computer Systems. The Company has used its reasonable commercial
efforts so that, to the knowledge of the Stockholders, current computer
hardware, software and systems, and accompanying documentation, of the Company
will be Year 2000 Compliant in a full production version, with accompanying
documentation, in all material respects, on or before June 30, 1999. The Company
has used its reasonable commercial efforts so that, to the knowledge of the
Stockholders, receipt of Year 2000 Compliant computer hardware, software and
systems will be provided to the Company in a timely manner under current
supplier contracts or standard maintenance and support plans without additional
fee or charge of any kind (including any installation, freight, or other costs
or fees) to the Company.
3.27.3 Other Products and Services. The Company has used its reasonable
commercial efforts so that, to the knowledge of the Stockholders, the Company's
products will be delivered and its services will be scheduled and performed in a
timely manner without interruptions caused by the date in time on which the
product is ordered or is actually delivered or the services are scheduled or
actually performed under normal procedures in the ordinary course, whether
before, on or after January 1, 2000. The Company has used its reasonable
commercial efforts so that, to the knowledge of the Stockholders, the Company's
essential suppliers of products and services, including the suppliers of its
infrastructure systems, have Year 2000 Compliant programs in place to avoid
interruptions in the supplier-customer trading relationship which could have a
material and adverse effect on the financial condition, results of operations,
assets, properties, prospects or business of the Company taken as a whole,
whether before, on or after January 1, 2000.
Section 3.28 Copies of Documents. The Stockholders have caused to be made
available for inspection and copying by the CYSP and its advisers, true,
complete and correct copies of all documents referred to in this Article III or
in any Schedule. Summaries of all oral contracts contained in Schedule 3.8 are
complete and accurate in all material respects.
22
Section 3.29 Disclosure. No representation or warranty of the Stockholders
contained in this Agreement, and no statement contained in any Schedule or in
any certificate, list or other writing furnished to CYSP by the Stockholders
pursuant to any provision of this Agreement (including without limitation any
financial statements), contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements herein or
therein, in the light of the circumstances under which they were made, not
misleading.
ARTICLE IV
REPRESENTATIONS OF MERGERSUB AND CYBERSHOP
Cybershop and MergerSub, jointly and severally, represent and warrant to
and with the Stockholders as follows:
Section 4.1 Existence and Good Standing. Cybershop is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. MergerSub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Cybershop and
MergerSub has all requisite corporate power and authority to own its assets and
to carry on its business as presently conducted. Cybershop is current with all
filings required by the Securities and Exchange Commission. As of the respective
dates filed, none of the filings contained any misstatement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
Section 4.2 Execution and Validity of Agreements. Each of Cybershop and
MergerSub has the full corporate power and authority to enter into this
Agreement, to perform its respective obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by Cybershop and MergerSub and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
required corporate action on behalf of Cybershop and MergerSub. This Agreement
has been duly and validly executed and delivered by Cybershop and MergerSub and,
assuming due authorization, execution and delivery by the Company and the
Stockholders, constitutes the legal, valid and binding obligation of Cybershop
and MergerSub, enforceable against each of them in accordance with its terms.
23
Section 4.3 Non-Contravention; Approvals and Consents.
4.3.1 Non-Contravention. The execution, delivery and performance by
Cybershop and MergerSub of their obligations hereunder and the consummation of
the transactions contemplated hereby will not result in a violation or breach
of, constitute (with or without notice or lapse of time or both) a default
under, or require Cybershop or MergerSub to obtain any consent, approval or
action of, make any filing with or give any notice to, or result in or give to
any Person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the creation or imposition of any
Lien upon any of the assets or properties of Cybershop or MergerSub, under any
of the terms, conditions or provisions of (a) the Certificate of Incorporation
or By-laws of Cybershop or MergerSub, or (b) subject to the taking of the
actions described in Section 4.3.2, (i) any Laws or Orders of any Governmental
or Regulatory Authority applicable to Cybershop or MergerSub or any of their
assets or properties, or (ii) any Contract to which Cybershop or MergerSub is a
party or by which Cybershop or MergerSub or any of its assets or properties are
bound.
4.3.2 Approvals and Consents. Except for (a) the filing of the Articles of
Merger and other appropriate merger documents required by Connecticut law with
the Secretary of State of the State of Connecticut, the filing of the
Certificates of Merger with the Secretary of State of Delaware and any other
appropriate documents with the relevant authorities of other states in which the
Company and/or MergerSub is qualified to do business, and (b) as described on
Schedule 4.3.2, no consent, approval or action of, filing with or notice to any
Governmental or Regulatory Authority or other Person is necessary or required
under any of the terms, conditions or provisions of any Law or Order of any
Governmental or Regulatory Authority or any Contract to which Cybershop or
MergerSub is a party or by which Cybershop or MergerSub or any of their
respective assets or properties are bound for the execution and delivery of this
Agreement by Cybershop or MergerSub, the performance by Cybershop and MergerSub
of their respective obligations hereunder or the consummation of the
transactions contemplated hereby.
Section 4.4 Cybershop Stock. The shares of Cybershop Stock to be delivered
to the Stockholders pursuant to this Agreement have been duly authorized for
issuance by all requisite corporate action by Cybershop, and when delivered as
provided herein, will be validly issued and outstanding shares of voting common
stock of Cybershop, fully paid and non-assessable, and will not be subject to
preemptive rights of any Person.
Section 4.5 MergerSub. MergerSub was formed solely for the purpose of the
Merger and engaging in the transactions contemplated hereby. As of the date
hereof and the Effective Time, the capital stock of MergerSub is and will be
directly owned 100% by Cybershop. Further, there are not as of the date hereof
and there will not be at the Effective Time any outstanding or authorized
options, warrants, calls, rights, commitments or any other Contracts requiring
MergerSub to issue, transfer, sell, purchase, redeem or acquire any shares of
capital stock. As of the date hereof and the Effective Time, MergerSub has not
and
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will not have incurred any obligations or liabilities or engaged in any business
or activities of any type of kind whatsoever or entered into any Contract with
any Person.
Section 4.6 Brokers. No broker, finder, agent or similar intermediary has
acted on behalf of Cybershop or MergerSub or their affiliates in connection with
this Agreement or the transactions contemplated thereby, and no brokerage
commissions, finders' fees or similar fees or commissions are payable by
Cybershop or MergerSub or their affiliates in connection therewith based on any
Contract or understanding with either of them.
ARTICLE V
ACTIONS AT CLOSING BY THE COMPANY AND THE STOCKHOLDERS
Simultaneously herewith:
Section 5.1 Required Approvals and Consents. The Stockholders and the
Company shall have obtained or given, at no expense to Cybershop or MergerSub,
and there shall not have been withdrawn or modified, any consents or approvals
or other actions listed on Schedule 3.9.2 hereof (including without limitation,
all consents, approvals and/or waivers required under the Contracts listed on
Schedule 3.8 in order to permit the consummation of the transactions
contemplated by this Agreement without causing or resulting in a default, event
of default, acceleration event or termination event under any of such documents
and without entitling any party to any of such documents to exercise any other
right or remedy adverse to the interests of Cybershop or MergerSub or any of the
Companies thereunder). Each such consent or approval shall be in form reasonably
satisfactory to counsel for Cybershop and MergerSub.
Section 5.2 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit the Company and the Stockholders to perform their respective
obligations under this Agreement and to consummate the transactions contemplated
thereby shall have been duly obtained, made or given and shall be in full force
and effect, and all waiting periods imposed by any Governmental or Regulatory
Authority necessary for the consummation of the transactions contemplated by
this Agreement, shall have terminated or expired.
Section 5.3 Good Standing Certificates. The Stockholders shall have
delivered to Cybershop and MergerSub: (a) a copy of the Company's Articles of
Incorporation (or other comparable corporate charter documents), including all
amendments, certified by the Secretary of State of the State of Connecticut; (b)
a certificate from the Secretary of State of the State of Connecticut, and a
certificate from the Secretary of State in each state in which the Company is
qualified as a foreign corporation to do business to the effect that such
Company is in good standing in such state (in each case together with the
applicable tax status certificate).
25
Section 5.4 Certified Resolutions. The Stockholders shall have delivered
to Cybershop and MergerSub a copy of resolutions of the Board of Directors and
the stockholders of the Company authorizing the execution, delivery and
performance of this Agreement and the transactions contemplated hereby,
certified by an officer of the Company as of the Closing Date.
Section 5.5 Employment Agreements. Xxxxxxxx shall have entered into an
Employment Agreement with the Surviving Corporation in the form of Exhibit C-1
hereto and Xxxxx shall have entered into an Employment Agreement with the
Surviving Corporation in the form of Exhibit C-2 hereto.
Section 5.6 Opinion of Counsel. MergerSub and Cybershop shall have
received the opinion of Xxxxxxx Xxxxxx Major & Xxxxxxx, counsel to the Company
and the Stockholders, dated the Closing Date, substantially in the form and to
the effect of Exhibit D hereto.
Section 5.7 Investment Representation Certificates. The Stockholders shall
have executed and delivered an Investment Representation Certificate in the form
of Exhibit E hereto.
Section 5.8 [Intentionally Omitted.]
Section 5.9 Proceedings. All proceedings to be taken in connection with
the transactions contemplated by this Agreement and all documents incident
thereto must be reasonably satisfactory in form and substance to Cybershop and
MergerSub and their counsel, and Cybershop and MergerSub shall have received
copies of all such documents and other evidences as it or its counsel reasonably
requested in order to establish the consummation of such transactions and the
taking of all proceedings in connection therewith.
ARTICLE VI
ACTIONS AT CLOSING BY CYBERSHOP AND MERGERSUB
Simultaneously herewith:
Section 6.1 Required Approvals, Notices and Consents. Cybershop and
MergerSub shall have obtained or given, at no expense to the Company and the
Stockholders, and there shall not have been withdrawn or modified any notices,
consents, approvals or other actions listed on Schedules 4.3.2 hereof. Each such
consent or approval shall be in form reasonably satisfactory to counsel for the
Company and the Stockholders.
Section 6.2 Regulatory Consents and Approvals. All consents, approvals and
26
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit Cybershop and MergerSub to perform their respective
obligations under this Agreement and to consummate the transactions contemplated
thereby shall have been duly obtained, made or given and shall be in full force
and effect, and all waiting periods imposed by any Governmental or Regulatory
Authority necessary for the consummation of the transactions contemplated by
each of the Transaction Documents, shall have terminated or expired.
Section 6.3 Certified Resolutions. Each of Cybershop and MergerSub shall
have delivered to the Stockholders a copy of the resolutions of their respective
Boards of Directors authorizing the execution, delivery and performance this
Agreement and the transactions and other agreements contemplated thereby,
certified to by an officer of Cybershop or MergerSub, as the case may be.
Section 6.4 Opinions of Counsel. The Company and the Stockholders shall
have received the opinion of Xxxxx & Xxxxxxx LLP, counsel to Cybershop and
MergerSub, dated the Closing Date, dated the Closing Date, substantially in the
form and to the effect of Exhibit F hereto.
Section 6.5 Employment Agreements. The Surviving Corporation shall have
entered into an Employment Agreement with Xxxxxxxx in the form of Exhibit C-1
hereto and shall have entered into an Employment Agreement with Xxxxx in the
form of Exhibit C-2 hereto. Each Employment Agreement shall have been guaranteed
by Cybershop.
Section 6.6 Proceedings. All proceedings to be taken in connection with
the transactions contemplated by this Agreement, and all documents incident
thereto must be reasonably satisfactory in form and substance to the
Stockholders, the Company and their counsel and the Stockholders shall have
received copies of all such documents and other evidences as they or their
counsel may reasonably request in order to establish the consummation of such
transaction and the taking of all proceedings in connection therewith.
ARTICLE VII
OTHER AGREEMENTS
Section 7.1 Private Placement and Registration and Listing.
(a) The Cybershop Stock to be issued to the Stockholders will not be
registered under the Securities and Exchange Act of 1933, as amended, (the "1933
Act") based upon the "private offering exemption" under the 1933 Act, in
reliance on the Letters of Investment Intent to be delivered by Stockholders at
the Closing.
27
(b) As soon as practicable after the Closing but no later than July 1,
1999, Cybershop hereby agrees to commence the registration under the 1933 Act on
Form S-3 (or successor form) 150,000 of the shares of Cybershop Stock plus any
additional shares issued pursuant to Section 2.3.1(i) hereof (the "Registrable
Securities")) issued by Cybershop as part of the Purchase Price payment. Such
registration shall be at the expense of Cybershop; provided, however, that any
expenses incurred by Stockholder in connection with the sale of the Registrable
Securities (including without limitation underwriting commissions and discounts)
shall be at the expense of the Stockholders. Notwithstanding the foregoing, in
the event that Cybershop consummates an underwritten public offering of
Cybershop Stock before December 31, 1999, the Stockholders shall be able to
include any portion of the Registrable Securities then owned by the Stockholders
in such offering (subject to the applicable underwriters' determination to limit
such inclusion in whole or in part if the underwriters determine that the
inclusion of such securities, in whole or in part, would adversely affect the
offering) at the expense of Cybershop (other than underwriting commissions and
discounts). Any limitation shall be pro rata with respect to all prospective
selling stockholders.
Section 7.2 Tax Cooperation. After the Closing, the Stockholders and
Cybershop shall, and Cybershop shall cause the Surviving Corporation to,
cooperate fully with each other in the preparation and filing of all Tax returns
and Tax investigations, audits or other proceedings respecting the Company and
its business (a "Tax Proceeding") and shall provide, or cause to be provided,
any records and other information in their possession or control or in the
control of their agents reasonably requested by such other party in connection
therewith as well as access to, and the cooperation of, their respective
auditors. Provided that the Tax Proceeding does not involve a Third Party Claim
(as defined in Section 8.4 below) as to which a Cybershop Indemnified Party may
be indemnified, the Stockholders shall have the right to control the handling
and disposition of such Tax Proceeding and to employ counsel of their choice and
at their expense. The Stockholders shall not agree to any settlement concerning
Taxes of the Company for any taxable period which would result in an increase in
Taxes of the Surviving Corporation for any taxable period ending after the
Closing Date, without the prior written consent of Cybershop, which consent
shall not be unreasonably withheld.
Section 7.3 Lien Prohibition. After the Closing, for so long as the
Stockholders shall be entitled to payment of the Earnout and until they shall
have received payment thereof in full, Cybershop shall not, and Cybershop shall
prevent the Surviving Corporation from, pledging, hypothecating, assigning
(outright or for security), transferring (whether by operation of law or
otherwise), granting or suffering a lien on or security interest in or other
encumbrance of the same or similar nature on the Contracts and agreements
between CCI, LC, a Florida limited liability company, ("CCI, LC"), and the
Company, except any general lien or security interest in favor of Cybershop's or
Surviving Corporation's institutional lender or bondholders.
Section 7.4 Allocation of Proceeds of Company Sales. Anything elsewhere in
this Agreement to the contrary notwithstanding, the Stockholders shall receive
and retain the proceeds from all sales of all products by the Company prior to
12:00 p.m. on Monday, May
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31, 1999 (the "Cut-Off Date"). Such sales shall include (i) all Internet,
facsimile and telephone orders received by the Company's agents, and (ii) mail
orders and returns from customers (picked up Tuesday, June 1 for the period
covering Friday, May 28) through the Cut-Off Date received by the Company's
agents, irrespective of when the proceeds of such sales are received. The
Surviving Corporation agrees to remit promptly to the Stockholders all sums due
pursuant to this Section 7.4 collectively referred to as the "May 1999 Magellan
Orders."
Section 7.5 Cross-Default of Agreements. Subject to the applicable cure
periods, if any with respect to specific acts or omissions of the Surviving
Corporation or Cybershop set forth in (i) the Employment Agreements between the
Surviving Corporation and Messrs. Xxx X. Xxxxxxxx and Xxxxxx X. Xxxxx,
respectively, and (ii) in this Agreement, it shall be deemed a default under the
Employment Agreements if a material breach hereunder is caused by the Surviving
Corporation or Cybershop which continues and remains uncured and it shall be
deemed a default hereunder if a material breach under either of the Employment
Agreements is caused by the Surviving Corporation or Cybershop which continues
and remains uncured. Upon the occurrence and continuance of any such default
which continues and remains uncured, the Stockholder or Stockholders, as the
case may be, shall have all rights and remedies afforded them hereunder and
pursuant to the Employment Agreements, together with such further rights and
remedies as are available under applicable law, save and excepting the rights to
xxx for recession of this Agreement or demand reversion to them, of any Contract
between the Company and CCI, LC, or any rights thereunder.
ARTICLE VIII
SURVIVAL; INDEMNITY
Section 8.1 Survival. Notwithstanding any right of any party hereto to
fully investigate the affairs of any other party, and notwithstanding any
knowledge of facts determined or determinable pursuant to such investigation or
right of investigation, each party hereto shall have the right to rely fully
upon the representations, warranties, covenants and agreements of the other
parties contained in this Agreement and the Schedules, if any, furnished by any
other party pursuant to this Agreement, or in any certificate delivered at the
Closing by any other party. Subject to the limitations set forth in Sections
8.6.1, 8.6.2 and 8.6.3, the respective representations, warranties, covenants
and agreements of the Stockholders, Cybershop and MergerSub contained in this
Agreement shall survive the Closing.
Section 8.2 Obligation of the Stockholders to Indemnify
8.2.1 Indemnity Subject to the limitations contained in Sections 8.6.1 and
8.6.2, the Stockholders hereby severally agree to indemnify Cybershop, the
Surviving Corporation and their respective affiliates, shareholders, officers,
directors, employees, agents, successors and permitted assignees (individually a
"Cybershop Indemnified Party" and collectively, the
29
"Cybershop Indemnified Parties") against, and to protect, save and keep harmless
Cybershop Indemnified Parties from, and to pay on behalf of or reimburse
Cybershop Indemnified Parties as and when incurred for, any and all liabilities
(including liabilities for Taxes), obligations, losses, damages, penalties,
demands, claims, actions, suits, judgments, settlements, penalties, interest,
reasonable out-of-pocket costs, expenses and disbursements (including reasonable
costs of investigation, and reasonable attorneys', accountants' and expert
witnesses' fees) of whatever kind and nature (collectively, "Losses"), that may
be imposed on or incurred by any Cybershop Indemnified Party as a consequence of
or arising out of: (a) any material breach of any representation or warranty
contained in Article III hereof or in any certificate delivered by the Company
or either Stockholder at the Closing; (b) any action, demand, proceeding,
investigation or claim by any third party (including any Governmental or
Regulatory Authority) against or affecting any Cybershop Indemnified Party which
is reasonably expected to give rise to or evidence the existence of or relate to
a material breach of any of the representations and warranties of the
Stockholders contained in Article III hereof or in any certificate delivered by
the Company or either Stockholder at the Closing; provided that Stockholders
shall have no obligation to indemnify a Cybershop Indemnified Party hereunder in
the event of any such demand or investigation or threat of any action or
proceeding unless and until the commencement of an actual action, suit,
arbitration or official proceeding of a Governmental or Regulatory Authority at
any time during or up to six months after the period described in Section 8.6.2,
in which case the Stockholders shall indemnify the Cybershop Indemnified Party
for all Losses including the Losses incurred in connection with any such demand
or investigation or threat of such action or proceeding from inception; (c) any
material breach or failure by the Stockholders to comply with, perform or
discharge any obligation, agreement or covenant by either Stockholder contained
in this Agreement; (d) any action, demand, proceeding, or investigation
described on Schedules 3.10 or 3.14; or (e) any action or claim (i) made or
brought against any Cybershop Indemnified Party by any Person other than a
Stockholder asserting an equity interest in the Company or any right to share in
the Purchase Price or (ii) arising out of a claim that such Person was offered
an opportunity to acquire an equity ownership in the Company prior to the
Closing.
8.2.2 Clarification of the term "Losses". The term "Losses" as used in
this Agreement is not limited to matters asserted by third parties against
either a Stockholder Indemnified Party or a Cybershop Indemnified Party, but
includes Losses incurred or sustained by either a Stockholder Indemnified Party
or a Cybershop Indemnified Party in the absence of third party claims. For
purposes of clarification only, and not for the purpose of increasing any
indemnification obligations of the Stockholders under Section 8.2.1 above, any
Losses suffered by the Surviving Corporation shall be deemed to have been
suffered by Cybershop and, accordingly, Cybershop shall have the right, but not
the obligation, to make indemnification claims that may be made by the Surviving
Corporation in respect of such Losses, in its own name and for its own benefit.
There shall be excluded from Losses any insurance amounts recovered.
30
Section 8.3 Obligation of Cybershop to Indemnify. Subject to the
limitations set forth in Section 8.6.1 and 8.6.3 hereof, Cybershop hereby agrees
to indemnify the Company and the Stockholders and their respective employees,
agents and successors and permitted assignees (individually, a "Stockholder
Indemnified Party" and collectively, the "Stockholder Indemnified Parties")
against, and to protect, save and keep harmless the Stockholder Indemnified
Parties from, and to pay on behalf of or reimburse the Stockholder Indemnified
Parties as and when incurred for, any and all Losses that may be imposed on or
incurred by a Stockholder Indemnified Party as a consequence of or arising out
of: (a) any material breach of any warranty or representation contained in
Article IV hereof or in any certificate delivered by MergerSub or Cybershop at
the Closing; (b) any action, demand, proceeding, investigation or claim by any
third party (including any Governmental or Regulatory Authority) against or
affecting any Stockholder Indemnified Party which is reasonably expected to give
rise to or evidence the existence of or relate to a breach of any of the
representations and warranties contained in Article IV hereof or in any
certificate delivered by MergerSub or Cybershop at the Closing; or (c) any
material breach or failure by MergerSub or Cybershop to comply with, perform or
discharge any obligation, agreement or covenant by MergerSub or Cybershop
contained in this Agreement.
Section 8.4 Indemnification Procedure for Third Party Claims. In the event
that any Person entitled to indemnification under this Agreement (an
"Indemnified Party") asserts a claim for indemnification or receives notice of
the assertion of any claim or of the commencement of any action or proceeding by
any Person who is not a party to this Agreement or an affiliate of a party to
this Agreement (a "Third Party Claim") against such Indemnified Party, against
which a party to this Agreement is required to provide indemnification under
this Agreement (an "Indemnifying Party"), the Indemnified Party shall give
written notice together with a statement of any available information regarding
such claim to the Indemnifying Party within 5 business days after learning of
such claim (or within such shorter time as may be necessary to give the
Indemnifying Party a reasonable opportunity to respond to such claim). The
Indemnifying Party shall have the right, upon written notice to the Indemnified
Party (the "Defense Notice") within 5 business days after receipt from the
Indemnified Party of notice of such claim, which notice by the Indemnifying
Party shall specify the counsel it will appoint to defend such claim ("Defense
Counsel"), to conduct at its expense the defense against such claim in its own
name, or if necessary in the name of the Indemnified Party; provided, however,
that the Indemnified Party shall have the right to approve the Defense Counsel,
which approval shall not be unreasonably withheld or delayed, and in the event
the Indemnifying Party and the Indemnified Party cannot agree upon such counsel
within 10 days after the Defense Notice is provided, then the Indemnifying Party
shall propose an alternate Defense Counsel, which shall be subject again to the
Indemnified Party's approval which approval shall not be unreasonably withheld
or delayed. If the parties still fail to agree on the Defense Counsel, then, at
such time, the Indemnifying Party shall determine the Defense Counsel.
31
(a) In the event that the Indemnifying Party shall fail to give the
Defense Notice within a thirty day period, it shall be deemed to have
elected not to conduct the defense of the subject claim, and in such event
the Indemnified Party shall have the right to conduct the defense and to
compromise and settle the claim without prior consent of the Indemnifying
Party.
(b) In the event that the Indemnifying Party does deliver a Defense
Notice and thereby elects to conduct the defense of the subject claim, the
Indemnifying Party shall be entitled to have the exclusive control over
the defense and settlement of the subject claim and the Indemnified Party
will cooperate with and make available to the Indemnifying Party such
assistance and materials as it may reasonably request, all at the expense
of the Indemnifying Party; the Indemnified Party shall have the right at
its expense to participate in the defense assisted by counsel of its own
choosing and at its sole expense. In such an event, the Indemnifying Party
will not settle the subject claim without the prior written consent of the
Indemnified Party, which consent will not be unreasonably withheld or
delayed.
(c) Without the prior written consent of the Indemnified Party, the
Indemnifying Party will not enter into any settlement of any Third Party
Claim or cease to defend against such claim, if pursuant to or as a result
of such settlement or cessation, (i) injunctive relief or specific
performance would be imposed against the Indemnified Party, or (ii) such
settlement or cessation would lead to liability or create any financial or
other obligation on the part of the Indemnified Party for which the
Indemnified Party is not entitled to indemnification hereunder.
(d) If an Indemnified Party refuses to consent to a bona fide offer
of settlement which provides for a full release of the Indemnified Party
and its affiliates, if parties, and solely for a monetary payment which
the Indemnifying Party wishes to accept, the Indemnified Party may
continue to pursue such matter, free of any participation by the
Indemnifying Party, at the sole expense of the Indemnified Party. In such
an event, the obligation of the Indemnifying Party shall be limited to the
amount of the offer of settlement which the Indemnified Party refused to
accept plus the costs and expenses of the Indemnified Party incurred prior
to the date the Indemnifying Party notified the Indemnified Party of the
offer of settlement.
(e) Notwithstanding clause (b) above, the Indemnifying Party shall
not be entitled to control, but may participate in, and the Indemnified
Party shall be entitled to have sole control over, the defense or
settlement of any claim (i) that seeks a temporary restraining order, a
preliminary or permanent injunction or specific performance against the
Indemnified Party, (ii) to the extent such claim involves criminal
allegations against the Indemnified Party, (iii) that if unsuccessful,
would set a precedent that would materially interfere with, or have a
material adverse effect on, the business or financial condition of the
Indemnified Party or (iv) if such claim
32
would impose liability on the part of the Indemnified Party for which the
Indemnified Party is not entitled to indemnification hereunder. In such an
event, the Indemnifying Party will still have all of its obligations
hereunder provided that the Indemnified Party will not settle the subject
claim without the prior written consent of the Indemnifying Party, which
consent will not be unreasonably withheld or delayed.
(f) Any final judgment entered or settlement agreed upon in the
manner provided herein shall be binding upon all parties and, if the
dispute in question would impose liability on the part of the Indemnifying
Party under this Article VIII, shall conclusively be deemed to be an
obligation with respect to which the Indemnified Party is entitled to
prompt indemnification hereunder.
(g) A failure by an Indemnified Party to give timely, complete or
accurate notice as provided in this Section 8.4 will not affect the rights
or obligations of any party hereunder except and only to the extent that,
as a result of such failure, any party entitled to receive such notice was
deprived of its right to recover any payment under its applicable
insurance coverage or was otherwise directly and materially damaged as a
result of such failure to give timely notice.
Section 8.5 Right of Offset. Without limiting any other rights or remedies
available to it, Cybershop shall be entitled, subject to the limitations set
forth in Section 8.6, to offset any claim for indemnity made pursuant to Section
8.2 and in accordance with Section 8.4, against any payment of the Purchase
Price due under Section 2.3; provided, however, Cybershop may only exercise such
right of offset in respect of claims relating to Losses actually incurred by an
Cybershop Indemnified Party (in which case the amount of such offset shall be
the amount of such actual Loss) or claims asserted by a third party as to which
a final judgment has been entered or a final settlement executed. If any such
claims for indemnity are resolved in favor of the Stockholder by mutual
agreement or otherwise, or if the amount withheld exceeds the amount ultimately
payable to an Cybershop Indemnified Party in respect of such claim, the
Surviving Corporation shall pay to the Stockholder the excess amount withheld
with respect to such claim, together with interest thereon for the period such
amount has been withheld at a rate equal to the published prime rate of interest
of The Chase Manhattan Bank, in effect from time to time during the relevant
period.
Section 8.6 Limitations on and Other Matters Regarding Indemnification.
8.6.1 Indemnity Cushion. Subject to Section 8.6.5 below, neither the
Stockholders nor Cybershop shall have any liability to any Cybershop Indemnified
Party or any Stockholder Indemnified Party, respectively, with respect to Losses
arising out of any of the matters referred to in Section 8.2 and 8.3
respectively, until such time as the amount of such liability shall exceed
$100,000 in the aggregate (in which case such party shall be liable for all
Losses in excess of $100,000).
33
8.6.2 Termination of Indemnification Obligations of the Stockholders. The
obligation of the Stockholders to indemnify under Section 8.2 hereof shall
terminate on June 1, 2001, except (a) as to matters as to which Cybershop
Indemnified Party has made a claim for indemnification on or prior to such date;
(b) with respect to any claim for Losses pertaining to a misrepresentation or a
breach of representation or warranty under Sections 3.11 or 3.19 or any other
Section of Article III of this Agreement relating to Taxes; (c) with respect to
matters described on Sections 3.10 or 3.14; or (d) regarding the time period
described in the proviso of Section 8.2.1(b). The obligation to indemnify
referred to in:
(i) the preceding clause (a) shall survive the expiration of such
period until such claim for indemnification is finally resolved and
any obligations with respect thereto are fully satisfied; and
(ii) the preceding clause (b) shall terminate 120 days after the
expiration of the relevant Federal, state or local statute of
limitations (taking into account any extensions or waivers thereof),
except as to matters as to which any Cybershop Indemnified Party has
made a claim for indemnification on or prior to such date, in which
case the right to indemnification with respect thereto shall survive
the expiration of any such period until such claim for
indemnification is finally resolved and any obligations with respect
thereto are fully satisfied. All losses shall be reduced by the
amount of insurance payments, if any, received with respect thereto.
8.6.3 Termination of Indemnification Obligations of Cybershop. The
obligations of Cybershop to indemnify under Section 8.2 hereof shall terminate
on June 1, 2001, except as to matters as to which either Stockholder has made a
claim for indemnification on or prior to such date, in which case the right to
indemnification with respect thereto shall survive such period until such claim
for indemnification is resolved and any obligations with respect thereto are
fully satisfied.
8.6.4 Treatment. Any indemnity payments by an Indemnifying Party to an
Indemnified Party under this Article VIII shall be treated by the parties as an
adjustment to the Purchase Price.
8.6.5 Exceptions. Each of the limitations set forth above in this Section
8.6 shall in no event (a) apply to any Losses incurred by a Cybershop
Indemnified Party which relate, directly or indirectly, to (i) any fraudulent
acts committed by any Stockholder in connection with the transaction
contemplated by this Agreement, (ii) any indemnification obligation under
Section 8.2.1(d)(i) and (ii), or (iii) the Company's and the Stockholders'
obligations set forth in Section 9.1 to pay certain expenses; or (b) apply to
any Losses incurred by a Stockholder Indemnified Party which relate, directly or
indirectly, to Cybershop's and MergerSub's obligations set forth in Section 9.1
to pay certain expenses.
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ARTICLE IX
MISCELLANEOUS
Section 9.1 Expenses. Except as otherwise provided in this Agreement, each
of the parties hereto shall pay its or his own expenses, as the case may be,
relating to the transactions contemplated by this Agreement, including, without
limitation, the fees and expenses of their respective counsel and financial
advisors.
Section 9.2 Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto (including, without limitation, the
validity or enforcement of this Agreement), shall be governed by the laws of the
State of New York without reference to its conflict of laws provisions.
Section 9.3 "Person" Defined. "Person" shall mean and include an
individual, a company, a joint venture, a corporation (including any non-profit
corporation), an estate, an association, a trust, a general or limited
partnership, a limited liability company, a limited liability partnership, an
unincorporated organization and a government or other department or agency
thereof.
Section 9.4 "Knowledge" Defined. Where any representation and warranty
contained in this Agreement is expressly qualified by reference to the knowledge
of the Stockholders, such term shall be limited to the actual knowledge of the
Stockholders and of the Company and unless otherwise stated such knowledge that
would have been discovered by the Stockholders or an executive officer of the
Company after reasonable inquiry. Where any representation and warranty
contained in this Agreement is expressly specified by reference to the knowledge
of Cybershop or MergerSub, as the case may be, such term shall be limited to the
actual knowledge of the executive officers of such entity and unless otherwise
stated, such knowledge that would have been discovered by such executive
officers after reasonable inquiry.
Section 9.5 "Affiliate" Defined. As used in this Agreement, an "affiliate"
of any Person, shall mean any Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with such Person.
Section 9.6 Captions. The Article and Section captions used herein are for
reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 9.7 Publicity. Subject to the provisions of the next sentence, no
party to this Agreement shall, and the Stockholders shall insure that no
representative of the Company shall, issue any press release or other public
document or make any public statement relating to this Agreement or the matters
contained herein without obtaining the prior approval of Cybershop
35
the Stockholders. Notwithstanding the foregoing, the foregoing provision shall
not apply to the extent that Cybershop is required to make any announcement
relating to or arising out of this Agreement by virtue of the federal securities
laws of the United States or the rules and regulations promulgated thereunder or
other rules of the Nasdaq National Market, or any announcement by any party or
the Company pursuant to applicable law or regulations.
Section 9.8 Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to any
other party shall be in writing and shall be deemed to have been given (a) upon
personal delivery, if delivered by hand or courier, (b) three days after the
date of deposit in the mails, postage prepaid, if mailed by certified or
registered mail, or (c) the next business day if sent by facsimile transmission
(if receipt is electronically confirmed) or by a prepaid overnight courier
service, and in each case at the respective addresses or numbers set forth below
or such other address or number as such party may have fixed by notice:
If to Cybershop or MergerSub, addressed to:
Cybershop International, Inc.
000 Xxxxxx Xxxxxx
Xxxxxx Xxxx, Xxx Xxxxxx 00000
Attention: Chief Financial Officer
Fax: (000) 000-0000
with a copy to:
Xxxxx & Xxxxxxx LLP
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Fax: (000) 000-0000
If to the Stockholders or to the Company, addressed to:
Xxx X. Xxxxxxxx
c/o The Magellan Group
000 Xxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Fax: 000-000-0000
Xxxxxx X. Xxxxx III
c/o The Magellan Group
000 Xxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
36
Fax: 000-000-0000
with a copy to:
Xxxxxxx Xxxxxx Major & Xxxxxxx LLP
Carnegie Towers
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Fax: 000-000-0000
Section 9.9 Parties in Interest. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. Any purported such transfer, assignment, pledge, or hypothecation (other
than by operation of law) shall be void and ineffective. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors and permitted assigns.
Section 9.10 Severability. In the event any provision of this Agreement is
found to be void and unenforceable by a court of competent jurisdiction, the
remaining provisions of this Agreement shall nevertheless be binding upon the
parties with the same effect as though the void or unenforceable part had been
severed and deleted.
Section 9.11 Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
Section 9.12 Entire Agreement. This Agreement, including the other
documents referred to herein and the Exhibits and Schedules hereto which form a
part hereof, contains the entire understanding of the parties hereto with
respect to the subject matter contained herein and therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
Section 9.13 Amendments. This Agreement may not be amended, supplemented
or modified orally, but only by an agreement in writing signed by each of the
parties hereto.
Section 9.14 Third Party Beneficiaries. Each party hereto intends that
this Agreement shall not benefit or create any right or cause of action in or on
behalf of any Person other than the parties hereto and their respective
successors and assigns as permitted under Section 9.9.
Section 9.15 Use of Terms. Whenever the context so requires or permits,
all references to the masculine herein shall include the feminine and neuter,
all references to the
37
neuter herein shall include the masculine and feminine, all references to the
plural shall include the singular and all references to the singular shall
include the plural.
38
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal, on the day and year first above written.
CYBERSHOP INTERNATIONAL, INC.
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chairman
MG ACQUISITION CORP.
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chairman
THE MAGELLAN GROUP, INC.
By: /s/ Xxx X. Xxxxxxxx
------------------------------------------
Name: Xxx X. Xxxxxxxx
Title: Chief Executive Officer
39
THE STOCKHOLDERS:
/s/ Xxx X. Xxxxxxxx
----------------------------------------
Xxx X. Xxxxxxxx
/s/ Xxxxxx X. Xxxxx III
----------------------------------------
Xxxxxx X. Xxxxx III
