EXHIBIT 2
AGREEMENT OF MERGER
DATED AS OF DECEMBER 21, 2001
AMONG
THQ INC.,
RAINBOW ACQUISITION COMPANY,
STOCKHOLDERS' REPRESENTATIVE,
THE EFFECTIVE TIME STOCKHOLDERS
AND
RAINBOW MULTIMEDIA GROUP, INC.
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, dated as of December 21, 2001, among THQ
INC., a Delaware corporation ("Parent"), RAINBOW ACQUISITION COMPANY, an Arizona
corporation and a wholly owned subsidiary of Parent ("Mergerco"), and RAINBOW
MULTIMEDIA GROUP, INC., an Arizona corporation (the "Company"), Xxxx Xxxxxx and
Xxxx Xxxxxx, as Stockholders' Representative, and the Effective Time
Stockholders (as defined herein).
W I T N E S S E T H:
WHEREAS, the Company is an Arizona corporation having an authorized
capital that consists of 50,000,000 shares of common stock, no-par value (the
"Company Common Stock"), of which, as of the date hereof, 22,889,189 shares are
issued and outstanding; and
WHEREAS, Parent is a Delaware corporation having an authorized
capital of (i) 75,000,000 shares of common stock, par value $0.01 per share (the
"THQ Stock"), of which, as of November 1, 2001, 21,925,238 shares were issued
and outstanding, and (ii) 1,000,000 shares of preferred stock, par value $0.01
per share, none of which, as of the date hereof, is issued and outstanding; and
WHEREAS, Mergerco is an Arizona corporation having an authorized
capital of 1,000 shares of common stock, no-par value, all of which are issued
and outstanding and owned of record and beneficially by Parent; and
WHEREAS, the Board of Directors and the shareholders of the Company
have approved the merger of Mergerco with and into the Company pursuant to the
terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, it is hereby agreed among the parties as
follows:
1. DEFINITIONS.
In this Agreement, the following terms have the meanings specified
or referred to in this Section 1.1 and shall be equally applicable to both the
singular and plural forms. Any agreement referred to below shall mean such
agreement as amended, supplemented and modified from time to time to the extent
permitted by the applicable provisions thereof and by this Agreement.
"AAA" has the meaning set forth in Section 10.6.
"ABCA" means the Arizona Business Corporation Act, as amended.
"ACQUISITION PROPOSAL" has the meaning set forth in Section 7.9.
"ACTION" means any governmental investigation; any suit or action at
law or in equity; any arbitration, audit, assessment, grievance or other
proceeding, whether actual, proposed or threatened; and any other claim.
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"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by or is under common control
with such Person.
"AGREED ACCOUNTING PRINCIPLES" means generally accepted accounting
principles consistently applied, provided that, with respect to any matter as to
which there is more than one generally accepted accounting principle, Agreed
Accounting Principles means the generally accepted accounting principles applied
in the preparation of the Balance Sheet; and provided further that, for purposes
of the Agreed Accounting Principles, no adjustments known by the Company for
items or matters, regardless of the amount thereof, shall be deemed to be
immaterial.
"ANCILLARY AGREEMENTS" means all agreements, instruments and
documents being or to be executed and delivered under this Agreement or in
connection herewith.
"ANGSTROM NOTE" means that certain promissory Note issued as
consideration for the Transferred Assets by Angstrom Group, LLC in favor of the
Company, dated December 11, 2001, in an amount of $450,100, accruing interest at
6% per annum, due and payable on April 15, 2002 and personally guaranteed by
Xxxx and Xxxxx Xxxxxx.
"ARBITRATOR" has the meaning set forth in Section 10.6.
"ARTICLES OF MERGER" has the meaning set forth in Section 4.1.
"ASSOCIATE" of any Person means (i) a corporation or organization of
which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity and (iii) any relative or spouse of such Person, or any relative of
such spouse, who has the same home as such Person or who is a director or
officer of the Person or any of its parents or subsidiaries.
"AWARD" has the meaning set forth in Section 10.6.
"BALANCE SHEET" means the balance sheet of the Company included in
the Financial Statements.
"BALANCE SHEET DATE" means October 31, 2001.
"BASE MERGER SHARES" means (a) if the Stock Price is less than $45,
then the number of shares of THQ Stock equal to the quotient of (x) $45,000,000
divided by (y) the Stock Price; (b) if the Stock Price is equal to or greater
than $45 but less than or equal to $51, then 1,000,000 shares of THQ Stock; or
(c) if the Stock Price is greater than $51, then the number of shares of THQ
Stock equal to the quotient of (x) $51,000,000 divided by (y) the Stock Price.
"BUSINESS DAY" means any day that is not a Saturday, Sunday or a day
on which banks are required by law or banking regulation to be closed in
California.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act, as amended from time to time, and the rules and
regulations promulgated thereunder.
"CLAIM NOTICE" has the meaning set forth in Section 10.3.1.
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"CLOSING DATE" has the meaning set forth in Section 4.1.
"CLOSING NET BOOK VALUE" means the net book value of the tangible,
realizable assets of the Company (excluding the Angstrom Note, if all payments
and obligations under such Note have not been satisfied in full by April 15,
2002 and Parent has elected to forgive payment thereof), less Company Aggregate
Obligations as determined in accordance with Agreed Accounting Principles as of
the Closing Date.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations promulgated thereunder.
"COMERICA" means Comerica Bank.
"COMERICA WARRANT" means that certain Warrant dated as of June 30,
1999, issued by the Company to Comerica (successor to Imperial Bank).
"COMERICA WARRANT SHARES" means that number of shares of THQ stock
equal to the product of (i) the Merger Ratio, times (ii) 159,000, that are
issuable to Comerica at the Effective Time in consideration for the cancellation
of the Comerica Warrant.
"COMPANY" has the meaning specified in the first paragraph of this
Agreement.
"COMPANY AGGREGATE OBLIGATIONS" means the Company's liabilities
including the Company Bonuses (to the extent that they are not otherwise
included in its liabilities).
"COMPANY AGREEMENTS" has the meaning set forth in Section 5.17.
"COMPANY BONUSES" means outstanding bonus obligations to employees
of the Company, as certified on a certificate executed by the Company's Chief
Financial Officer delivered to Parent.
"COMPANY COMMON STOCK" has the meaning set forth in the recitals to
this Agreement.
"COMPANY GROUP" shall mean any "affiliated group" (as defined in
Section 1504(a) of the Code without regard to the limitations contained in
Section 1504(b) of the Code) that, at any time on or before the Closing Date,
includes or has included the Company (or another such predecessor or successor),
or any other group of corporations that, at any time on or before the Closing
Date, files or has filed Tax Returns on a combined, consolidated or unitary
basis with the Company or any predecessor of or successor to the Company (or
another such predecessor or successor).
"COMPANY INTELLECTUAL PROPERTY" has the meaning set forth in Section
5.18.
"COMPANY PROPERTY" means any real or personal property, plant,
building, facility, structure, underground storage tank, equipment or unit, or
other asset owned, leased or operated by the Company (including any surface
water thereon or adjacent thereto and any soil or ground water thereunder),
whether currently or at any previous time.
"CONSENT OF OPTIONHOLDER" means a Consent of Optionholder, in the
form of Exhibit G.
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"CONSENT OF PERFORMANCE SHAREHOLDER" means a Consent of Performance
Shareholder, in the form of Exhibit M.
"CONTEMPLATED TRANSACTION" has the meaning set forth in Section
5.2.3.
"COURT ORDER" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"DEVELOPMENT TOOLS" has the meaning set forth in Section 5.20.
"DISCLAIMER OF RELIANCE" means the Disclaimer of Reliance, Investor
Representation and Questionnaire in the form of Exhibit E.
"EFFECTIVE TIME" has the meaning set forth in Section 4.1.
"EFFECTIVE TIME STOCKHOLDERS" means those Persons who are identified
as such on Schedule 5.3.3 hereto (which Persons as of the Effective Time will be
the record holders of all of the outstanding shares of Company Common Stock) and
each such Person's successors and assigns with respect to such shares.
"EMPLOYEE PLANS" has the meaning set forth in Section 5.23.3.
"EMPLOYEE EQUITY PARTICIPATION PLAN" means the Company's Employee
Equity Participation Plan dated April 18, 1996.
"EMPLOYMENT AGREEMENTS" means those certain Employment Agreements to
be dated the Closing Date between Parent and each of Xxxx XxXxxxxx and Xxxx
Xxxxxxxxxxx, respectively, each substantially in the form of Exhibit A.
"ENCUMBRANCE" means any security interest, pledge, mortgage, lien
(including a mechanics' lien), encumbrance, lease, conditional sales agreement,
option, covenant, easement, restriction, charge, claim or other defect in title
of any nature on any property or asset or property interest, whether voluntarily
incurred or arising by operation of law or otherwise; and includes any agreement
or commitment to grant, make or enter into any of the foregoing, the filing of
any financing statement under the Uniform Commercial Code or any agreement to
file any such financing statement or to record any lien in the real property
records maintained by a Governmental Body.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, including the rules and regulations promulgated
thereunder.
"ERISA AFFILIATE" means (i) any corporation which at any time on or
before the Effective Time is or was a member of the same controlled group of
corporations (within the meaning of Section 414(b) of the Code) as the Company;
(ii) any partnership, trade or business (whether or not incorporated) which at
any time on or before the Effective Time is or was under common control (within
the meaning of Section 414(c) of the Code) with the Company; (iii) any entity
which at any time on or before the Effective Time is or was a member of the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
either the Company, any corporation described in clause (i) of this definition
or any partnership, trade or business described in clause (ii) of this
definition; and (iv) any other entity which at any time on or before the
Effective Time was required to be aggregated with the Company pursuant to
regulations promulgated under section 414(o) of the Code.
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"ESCROW" has the meaning set forth in Section 4.4.
"ESCROW AGENT" means X.X. Xxxxxx Trust Company, National
Association, in its capacity as escrow agent; or if such entity is unable or
unwilling to so act, another escrow agent mutually agreed upon by Parent and the
Company.
"ESCROW AGREEMENT" has the meaning set forth in Section 7.16.
"ESCROW CONTRIBUTOR" means each of Xxxx Xxxxxx, Xxxx XxXxxxxx, Xxxx
Xxxxxx, Xxxx Xxxxxx and Digital Dream Studios Co., Ltd. (collectively, the
"Escrow Contributors").
"ESCROW SHARES" means that number of shares of THQ Stock equal to
five percent (5%) of the number of Merger Shares and contributed to Escrow by
each Escrow Contributor pro rata in accordance with such Escrow Contributor's
percentage ownership of the aggregate amount of Per Share Stock issued to the
Escrow Contributors pursuant to Section 4.3.1 hereof.
"EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as
amended.
"EXPENSES" means any and all expenses incurred in connection with
investigating, defending or asserting any Action indemnified against hereunder
(including, but not limited to, court filing fees, court costs, arbitration fees
or costs, witness fees and reasonable fees and disbursements of legal counsel,
investigators, expert witnesses, consultants, accountants and other
professionals).
"FINANCIAL STATEMENTS" has the meaning set forth in Section 5.7.1.
"GENERAL RELEASE AND COVENANT NOT TO XXX" means the General Release
and Covenant Not to Xxx in the form of Exhibit D.
"GOVERNMENTAL BODY" means any foreign, federal, state, local or
other governmental authority or regulatory body.
"GOVERNMENTAL CONSENTS AND FILINGS" has the meaning set forth in
Section 5.2.3.
"GOVERNMENTAL PERMITS" has the meaning set forth in Section 5.9.1.
"GROSS STOCKHOLDER MERGER SHARES" means the number of shares of THQ
Stock equal to the number of Merger Shares, less (i) the number of Optionholder
Merger Shares, less (ii) the number of Comerica Warrant Shares.
"HAZARDOUS MATERIALS" has the meaning set forth in Section 5.27.1.
"HEARING" has the meaning set forth in Section 10.6.
"INDEMNIFIED PERSON" and "INDEMNITOR" each has the meaning set forth
in Section 10.3.1.
"IRS" means the Internal Revenue Service.
"INVENTIONS" has the meaning set forth in Section 5.18.1.
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"KNOWLEDGE" means, with reference to a party hereto, only the actual
knowledge of any of the directors and officers of such party, after reasonable
inquiry of such party's employees, agents and consultants and information set
forth in documents in the possession of such party.
"KNOWLEDGE QUALIFICATION" means a qualification to any
representation or warranty made by a party expressed as "to the knowledge" of
such party, that such party "has not received any notice that" or similar
language intended to limit the scope of such representation and warranty.
"LEASED REAL PROPERTY" has the meaning set forth in Section 5.13.
"LETTER OF TRANSMITTAL" means the Letter of Transmittal in the form
of Exhibit K.
"LOCK-UP AGREEMENTS" means those certain Lock-Up Agreements to be
dated the Closing Date between Parent and each of Xxxx Xxxxxx, Xxxx XxXxxxxx,
Xxxx Xxxxxx, Xxxx Xxxxxx, Xxxx Xxxxxxxxxxx and Digital Dream Studios,
respectively, each substantially in the form of Exhibit I.
"LOSSES" means any and all losses, costs, obligations, liabilities,
diminution in value, settlement payments, awards, judgments, damage to the
environment, natural resources or public health, fines, penalties, damages,
expenses, deficiencies or other charges, whether foreseeable or unforeseeable
and including interest at the Reference Rate on such Losses.
"MATERIAL ADVERSE EFFECT" means, with respect to any party hereto,
any change or effect (or any development that, insofar as can be reasonably
foreseen, would result in any change or effect) that is materially adverse to
the assets, business, financial condition, results of operations or prospects of
such party.
"MAXIMUM THQ STOCK" has the meaning set forth in Section 4.5.7.
"MERGER" has the meaning set forth in Section 2.1.
"MERGER FILING" has the meaning set forth in Section 4.2
"MERGERCO" has the meaning specified in the first paragraph of this
Agreement.
"MERGER RATIO" means the number of Merger Shares divided by the sum
of (i) the number of shares of Company Common Stock outstanding at the Effective
Time, plus (ii) the number of shares of Company Common Stock issuable upon the
exercise of Options outstanding as of the Effective Time, plus (iii) 159,000.
"MERGER SHARES" has the meaning set forth in Section 3.2.
"MORAL RIGHTS" has the meaning set forth in Section 5.18.1.
"NON-COMPETITION AGREEMENTS" means those certain Non-Competition
Agreements to be dated the Closing Date between Parent and each of Xxxx XxXxxxxx
and Xxxx Xxxxxxxxxxx, respectively, each substantially in the form of Exhibit B.
"OPTION ADJUSTMENT MERGER SHARES" means the number of shares of THQ
Stock equal to the quotient of (x) the dollar value of the aggregate
consideration (less $150,000) that would be paid to
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the Company if all outstanding Options were exercised immediately prior to the
Effective Time, divided by (y) the Stock Price.
"OPTIONHOLDERS" means those Persons who as of the date of this
Agreement are the holders of Options.
"OPTIONHOLDER MERGER SHARES" means the number of shares of THQ Stock
equal to the product of (i) the Merger Ratio, times (ii) the number of shares of
Company Common Stock issuable upon the exercise of Options outstanding as of the
Effective Time.
"OPTIONS" means options granted by the Company and assumed by Parent
pursuant to Section 7.12.
"OWNED REAL PROPERTY" has the meaning set forth in Section 5.10.
"PARENT" has the meaning specified in the first paragraph of this
Agreement.
"PARENT ANCILLARY AGREEMENTS" means all agreements, instruments and
documents being or to be executed and delivered by Parent under this Agreement
or in connection herewith.
"PARENT GROUP MEMBER" means Parent and its Affiliates and their
respective successors and assigns, including, after the Effective Time, the
Surviving Corporation; and the stockholders, directors, officers, employees and
agents of each of such Persons.
"PARENT SEC DOCUMENTS" has the meaning set forth in Section 6.4.
"PERFORMANCE SHARES" means 82,500 "performance shares" outstanding
under the Employee Equity Participation Plan.
"PERFORMANCE SHAREHOLDER" means each holder of Performance Shares as
of the Effective Time.
"PERMANENT PANEL" has the meaning set forth in Section 10.6.
"PERMITTED ENCUMBRANCES" means (i) liens for taxes and other
governmental charges and assessments which are not yet due and payable, (ii)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable, (iii) other liens or imperfections on property
which are not material in amount, do not interfere with, and are not violated by
the consummation of the transactions contemplated by, this Agreement and do not
materially detract from the value or marketability of, or materially impair the
existing use of, the property affected by such lien or imperfection, and (iv)
the mortgage with respect to the Owned Real Property.
"PER SHARE ADDITIONAL STOCK" means that number of shares of THQ
Common Stock equal to (i) the number of Escrow Shares, if any, remaining in the
Escrow upon termination of the Escrow, divided by (ii) the aggregate number of
shares of Company Common Stock held by the Escrow Contributors at the Effective
Time.
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"PER SHARE STOCK" means that number of shares of THQ Common Stock
equal to (i) the Gross Stockholder Merger Shares, divided by (ii) the number of
shares of Company Common Stock outstanding at the Effective Time.
"PERSON" means any individual, corporation, partnership, joint
venture, association, company, trust, estate, unincorporated organization or
other entity, or any Governmental Body.
"PRODUCTS" has the meaning set forth in Section 5.19.
"PRODUCTS UNDER DEVELOPMENT" has the meaning set forth in Section
5.19.
"PRINCIPALS' CONFIDENTIALITY AND NON-COMPETITION AGREEMENTS" means
those certain Confidentiality and Non-Competition Agreements to be dated the
Closing Date between Parent and each of Xxxx Xxxxxx, Xxxx Xxxxxx and Xxxx
Xxxxxx, respectively, each substantially in the form of Exhibit F.
"PUBLISHED PRODUCTS" has the meaning set forth in Section 5.19.
"RIGHT OF FIRST REFUSAL" means the Right of First Refusal in the
form of Exhibit L.
"RCRA" means the Resource Conservation and Recovery Act, as amended
from time to time, and the rules and regulations promulgated thereunder.
"REFERENCE RATE" means the "prime," "base" or "reference" rate of
interest announced from time to time by Union Bank of California, plus 2% per
annum.
"REPRESENTATIVE" has the meaning set forth in Section 10.6.
"REQUIREMENTS OF LAWS" means any foreign, federal, state and local
laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued
or promulgated by any Governmental Body (including those pertaining to
electrical, building, zoning, environmental and occupational safety and health
requirements) or common law.
"ROYALTY PARTICIPATION AGREEMENT" means that certain Royalty
Participation Agreement to be dated the Closing Date between Parent and the
Effective Time Stockholders substantially in the form of Exhibit H.
"SEC" means the U. S. Securities and Exchange Commission.
"SECURITIES ACT" means the U.S. Securities Act of 1933, as amended.
"SHAREHOLDERS VOTING AGREEMENT" means the Shareholders Voting
Agreement, dated July 1, 1999 by and among the Company and the Effective Time
Stockholders.
"STOCK CERTIFICATE" has the meaning set forth in Section 3.1.1.
"STOCKHOLDER GROUP MEMBER" means (i) in the event the Merger is not
consummated, the Company, and (ii) from and after the Merger Filing, each of the
Effective Time Stockholders, their Affiliates, and their respective successors
and assigns.
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"STOCKHOLDERS" means those Persons who from time to time are the
holders of shares of Company Common Stock.
"STOCKHOLDERS' REPRESENTATIVE" means Xxxx Xxxxxx and Xxxx Xxxxxx
acting from and after the Effective Time on behalf of the Effective Time
Stockholders in accordance with Section 7.2.
"STOCK PRICE" means $55.00.
"SUBSIDIARY" shall mean any corporation, partnership, limited
liability company, joint venture or other entity in which the Company (a) owns,
directly or indirectly, 50% or more of the outstanding voting securities or
equity interests or (b) is a general partner.
"SURVIVING CORPORATION" has the meaning set forth in Section 2.1.
"TANGIBLE ASSETS" means the equipment, hardware, furniture,
supplies, inventory and similar assets and properties of the Company, whether
owned or leased, excluding, without limitation, accounts, Company Intellectual
Property, and contract rights.
"TAX" (and, with correlative meaning, "Taxes") shall mean: (i) any
federal, state, local or foreign net income, gross income, gross receipts,
windfall profit, severance, property, production, sales, use, license, excise,
franchise, employment, payroll, withholding, alternative or add-on minimum, ad
valorem, value-added, transfer, stamp, or environmental (including taxes under
Code Section 59A) tax, or any other tax, custom, duty, governmental fee or other
like assessment or charge of any kind whatsoever, together with any interest or
penalty, addition to tax or additional amount imposed by any governmental
authority; and (ii) any liability of the Company or any Subsidiary for the
payment of amounts with respect to payments of a type described in clause (i) as
a result of being a member of an affiliated, consolidated, combined or unitary
group, or as a result of any obligation of the Company or any Subsidiary under
any Tax Sharing Arrangement or Tax indemnity arrangement.
"TAX RETURN" shall mean any return, report or similar statement
required to be filed with respect to any Tax (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax.
"TAX SHARING ARRANGEMENT" shall mean any written or unwritten
agreement or arrangement for the allocation or payment of Tax liabilities or
payment for Tax benefits with respect to a consolidated, combined or unitary Tax
Return which Tax Return includes or has included the Company or any Subsidiary.
"THQ STOCK" has the meaning set forth in the recitals to this
Agreement.
"TREASURY REGULATIONS" has the meaning set forth in Section 5.15.3.
"TRANSFERRED ASSETS" shall mean all right, title and interest in and
to the assets and all liabilities and obligations related thereto of the
Company's interest in: (i) Digital Rim, Inc., (ii) DT Pictures, LLC and the
movie "Blue Planet," (iii) that certain promissory note and accrued interest
from Digital Rim, Inc. in the principal amount of $4,670,000 and (iv) Digital
Dream Studios Co., Ltd. to the extent there is any remaining interest.
"XXXXXXX XXXXXX" means Xxxxxxx Xxxxxx Agency, Inc.
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"XXXXXXX XXXXXX SHARES" means that number of shares of THQ Stock
equal to three percent (3%) of the sum of (i) the number of Base Merger Shares,
plus (ii) the number of Option Adjustment Merger Shares, that shall be issuable
to Xxxxxxx Xxxxxx at the Effective Time in accordance with Section 4.3 hereof in
complete satisfaction of that certain Finders Fee Agreement between Xxxxxxx
Xxxxxx and the Company dated as of October 22, 2001.
2. THE MERGER.
2.1 The Merger; the Surviving Corporation. On the terms and subject
to the conditions set forth herein, and in accordance with the provisions of the
ABCA, at the Effective Time Mergerco shall be merged with and into the Company
(the "Merger"). Upon the effectiveness of the Merger, the separate existence of
Mergerco shall cease except to the extent provided by law in the case of a
corporation after its merger into another corporation, and the Company shall be
the surviving corporation (the "Surviving Corporation") and shall continue its
existence under the laws of the State of Arizona.
2.2 Effects of the Merger. The Merger shall have the effects set
forth in Section 10-1106 of the ABCA.
2.3 Articles of Incorporation, Bylaws, Directors and Officers. The
Articles of Incorporation and the Bylaws of the Company as in effect immediately
prior to the Effective Time, shall continue in full force and effect as the
Articles of Incorporation and the Bylaws of the Surviving Corporation. The
directors and officers of Mergerco immediately prior to the Effective Time shall
be the initial directors and officers of the Surviving Corporation until their
respective successors are duly elected and qualified.
3. CONVERSION OF SHARES; DETERMINATION OF PURCHASE PRICE.
3.1 Conversion Terms. As of the Effective Time, by virtue of the
Merger and without any action on the part of any Stockholder or any stockholder
of Mergerco:
3.1.1 Each share of Company Common Stock that is issued and
outstanding immediately prior to the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof, shall
be converted into and become the right to receive the Per Share Stock,
and subject to Section 4.4 the Per Share Additional Stock; and each
share of Company Common Stock that is so converted shall, by virtue of
the Merger and without any action on the part of the holder thereof,
cease to be outstanding and shall be canceled and retired and shall
cease to exist; and each holder of a stock certificate which prior to
the Effective Time evidenced any such share of Company Common Stock (a
"Stock Certificate") shall thereafter cease to have any rights with
respect to such share except, upon the surrender of such Stock
Certificate in accordance with Section 4.3, the right to receive an
amount of Merger Shares as determined in accordance with the terms
hereof.
3.1.2 Each share of Company Common Stock that, immediately
prior to the Effective Time, is held in the treasury of the Company,
shall, by virtue of the Merger and without any action on the part of the
Company, cease to be outstanding and shall be canceled and retired
without payment of any consideration therefor, and shall cease to exist;
and
3.1.3 Each share of common stock of Mergerco that is issued
and outstanding immediately prior to the Effective Time, by virtue of
the Merger and without any action on the
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part of the holder thereof, shall be converted into and become the right
to receive one share of Company Common Stock.
3.2 Determination of Merger Shares. "Merger Shares" is equal to the
sum of (i) the number of Base Merger Shares, plus (ii) the number of Option
Adjustment Merger Shares, less (iii) the number of Xxxxxxx Xxxxxx Shares.
3.3 Closing of Company Transfer Records. At the Effective Time, the
stock transfer records of the Company shall be closed and no transfer of shares
of Company Common Stock shall thereafter be made.
4. CONSUMMATION OF THE MERGER.
4.1 Closing Date. On the Closing Date, the Company, Parent and
Mergerco shall cause to be filed with the Corporation Commission of the State of
Arizona a properly executed articles of merger consistent with the terms of this
Agreement and the ABCA and in form and substance reasonably satisfactory to the
parties hereto (the "Articles of Merger"). The Articles of Merger shall state
that the effective time of the Merger (the "Effective Time") shall be upon the
filing of the Articles of Merger with the Corporation Commission of State of the
State of Arizona, and the Merger shall be effective at that time. The date on
which the Articles of Merger is so filed (the "Closing Date") shall be a date
occurring within five Business Days after the conditions set forth in Sections 8
and 9 are satisfied or waived or such other date as may be agreed upon by Parent
and the Company. In the event that one or more of the conditions set forth in
Sections 8 or 9 has not been satisfied or waived on any date scheduled to be the
Closing Date, this Agreement shall not terminate (unless pursuant to the
exercise by one of the parties of its rights under Section 11) and the Closing
Date shall be rescheduled to such date as may be mutually agreed by Parent and
the Company or, if no such date is mutually agreed upon within two Business Days
after the previously scheduled Closing Date, the earliest date specified in the
first written notice given by Parent or the Company to the other that is at
least three Business Days after the giving of such notice.
4.2 The Merger Filing. The "Merger Filing" shall mean the filing of
the Articles of Merger with the Corporation Commission of State of the State of
Arizona. To facilitate the Merger Filing, the parties shall execute and
acknowledge the Articles of Merger in accordance with the laws of the State of
Arizona prior to the Closing Date and the Company shall deliver the executed
Articles of Merger to counsel for Parent. Subject to the satisfaction or waiver
of each of the conditions set forth in Sections 8 and 9, counsel for Parent
shall file the Articles of Merger on the Closing Date upon the delivery by each
party of all items required to be delivered by this Agreement and immediately
upon receipt of telephonic authorization from representatives of Parent and the
Company.
4.3 Payment of the Per Share Stock, the Comerica Warrant Shares and
the Xxxxxxx Xxxxxx Shares.
4.3.1 Within five Business Days after the Effective Time,
Parent shall deliver to the Stockholder Representative (i) a stock
certificate representing the appropriate amount of Per Share Stock (less
each Escrow Contributor's portion of the Escrow Shares for each Escrow
Contributor) in the name of each Effective Time Stockholder who
surrenders to Parent at the Closing a duly endorsed Stock Certificate(s)
together with a properly completed and duly executed Letter of
Transmittal, (ii) a stock certificate representing the Comerica Warrant
Shares in the name of Comerica that shall be delivered to Comerica only
upon Parent's receipt of the cancelled Comerica Warrant, and (iii) a
stock certificate representing the Xxxxxxx Xxxxxx Shares in the name of
Xxxxxxx Xxxxxx. At Closing the Parent shall deliver to the Escrow Agent
a stock
11
certificate representing the remaining Per Share Stock that constitutes
the Escrow Shares and for which a stock certificate was not delivered by
Parent in accordance with the preceding sentence and the Per Share Stock
represented by such stock certificate shall be distributed in accordance
with the terms of the Escrow Agreement.
4.3.2 No certificate or scrip representing fractional shares
of THQ Stock shall be issued upon the surrender for exchange of Stock
Certificates pursuant to this Agreement. In each instance where a
calculation made pursuant to this Agreement would result in the issuance
of a fraction of a share of THQ Stock, such fraction shall be rounded to
the nearest whole number.
4.3.3 No dividends or other distributions that are declared
on or after the Effective Time on THQ Stock, or are payable to the
holders of record thereof on or after the Effective Time, will be paid
to any Person entitled by reason of the Merger to receive a certificate
evidencing Merger Shares until such Person surrenders the related Stock
Certificate as provided in this Section 4.3.
4.3.4 The Merger Shares issued or paid upon the surrender of
a Stock Certificate shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to the shares of Company Common
Stock evidenced by such Stock Certificates.
4.4 The Escrow. As a condition to the Merger Filing, Parent shall
deliver certificates evidencing the Escrow Shares to the Escrow Agent, to be
held by the Escrow Agent in an escrow account (the "Escrow") in accordance with
the provisions of the Escrow Agreement. Within five business days after
termination of the Escrow in accordance with the Escrow Agreement, the Escrow
Agent shall deliver the Escrow Shares remaining in the Escrow, after all
deductions have been made therefrom pursuant to Section 10.1, to each Escrow
Contributor pro rata in accordance with such Escrow Contributor's percentage
ownership of the aggregate amount of Per Share Stock issued to the Escrow
Contributors pursuant to Section 4.3.1 hereof. Thereafter the Escrow Agent shall
not be liable to any Persons claiming any amount of such Escrow Shares; and any
subsequent distribution of the balance of such Escrow Shares shall be effected
directly with Parent.
4.5 Purchase Price Adjustment for Closing Net Book Value.
4.5.1 As promptly as practicable following ninety (90) days
after the Effective Time, Parent shall deliver to Stockholders'
Representative a certificate (the "Closing Certificate") executed on
behalf of Parent by the Parent's Chief Financial Officer or Chief
Accounting Officer, dated the date of its delivery, stating that there
has been conducted under the supervision of such officer a review of all
relevant information and data then available and setting forth the
Company's Closing Net Book Value and the calculation of the Company's
Net Book Value.
4.5.2 Promptly following receipt of the Closing Certificate,
Stockholders' Representative may review the same and, within fifteen
(15) days after the date of such receipt, may deliver to Parent a
certificate setting forth its objections to the calculation of the
Closing Net Book Value as set forth in the Closing Certificate, together
with a summary of the reasons therefor and calculations which, in its
view, are necessary to eliminate such objections provided, that
Stockholders' Representative may extend the period in which
Stockholders' Representative may deliver such certificate to thirty (30)
days after the date of such receipt by written notice to Parent within
fifteen (15) days after the date of such receipt. In the event
Stockholders' Representative does not so object within the relevant
period set forth in the preceding sentence,
12
the Closing Net Book Value set forth in the Closing Certificate shall be
final and binding as the Closing Net Book Value for purposes of this
Agreement but shall not limit the representations, warranties, covenants
and agreements of the parties set forth elsewhere in this Agreement.
4.5.3 In the event Stockholders' Representative so objects
within the period allowed in Section 4.5.2 hereof, Parent and
Stockholders' Representative shall use their reasonable efforts to
resolve by written agreement (the "Agreed Adjustments") any difference
as to the Closing Net Book Value and, in the event Parent and
Stockholders' Representative so resolve any such differences, the
Closing Net Book Value set forth in the Closing Certificate as adjusted
by the Agreed Adjustments shall be final and binding as the Closing Net
Book Value for purposes of this Agreement but shall not limit the
representations, warranties, covenants and agreements of the parties set
forth elsewhere in this Agreement.
4.5.4 In the event that Stockholders' Representative so
objects and Parent and Stockholders' Representative cannot resolve any
such objections by Agreed Adjustments within fifteen (15) days after
Parent's receipt of Stockholders' Representative's objection, then
Parent and Stockholders' Representative shall submit the objections that
are then unresolved to the Phoenix office of Ernst & Young LLP and such
firm (the "Accounting Firm") shall be directed by Parent and
Stockholders' Representative to resolve the unresolved objections (based
solely on the presentations by Parent and by Stockholders'
Representative as to whether any disputed matter had been determined in
a manner consistent with Agreed Accounting Principles) as promptly as
reasonably practicable and to deliver written notice to each of Parent
and Stockholders' Representative setting forth its resolution of the
disputed matters. The Closing Net Book Value, after giving effect to any
Agreed Adjustments and to the resolution of the disputed matters by the
Accounting Firm, shall be final and binding as the Closing Net Book
Value for purposes of this Agreement but shall not limit the
representations and warranties, covenants and agreements of the parties
set forth elsewhere in this Agreement.
4.5.5 The parties hereto shall make available to Parent,
Stockholders' Representative, and, if applicable, the Accounting Firm,
such books, records and other information (including work papers) as any
of the foregoing may reasonably request to prepare or review the Closing
Net Book Value or any matters submitted to the Accounting Firm. The fees
and expenses of the Accounting Firm hereunder shall be paid 50% by
Parent and 50% by the Effective Time Stockholders; provided, however,
that if the adjustments to Closing Net Book Value proposed by Parent are
greater than $25,000 in the aggregate than the adjustments determined to
be appropriate by the Accounting Firm, Parent should bear the full costs
and expenses of the Accounting Firm; and, provided, further, that if the
adjustments to Closing Net Book Value proposed by the Stockholders'
Representatives' are less than $25,000 in the aggregate than the
adjustments determined to be appropriate by the Accounting Firm, the
Effective Time Stockholders, Comerica and Xxxxxxx Xxxxxx' should,
jointly and severally, bear the full costs and expenses of the
Accounting Firm.
4.5.6 If the Closing Net Book Value as determined in
accordance with this Section 4.5 is less than $0, then the number of
shares of THQ Stock equal to the dollar amount that the Closing Net Book
Value is less than $0 divided by the Stock Price will be deducted from
the Escrow Shares and released to the Parent in accordance with the
Escrow Agreement.
4.5.7 If the Closing Net Book Value as determined in
accordance with this Section 4.5 is greater than $0, then the number of
shares of THQ Stock equal to the dollar amount that the Closing Net Book
Value is greater than $0 divided by the Stock Price shall be distributed
13
within ten (10) Business Days to each Effective Time Stockholder,
Comerica and Xxxxxxx Xxxxxx, pro rata in accordance with each such
party's percentage ownership of the aggregate amount of Per Share Stock
issued to such parties pursuant to Section 4.3.1 hereof; provided,
however, that any shares of THQ Stock to be distributed to an Escrow
Contributor pursuant to this Section 4.5.7 shall be placed in Escrow and
shall become "Escrow Shares" and distributed in accordance with the
Escrow Agreement. The parties hereby acknowledge and agree that the
aggregate amount of shares of THQ Stock issuable pursuant to this
Section shall be limited to 13,500 shares (the "Maximum THQ Stock").
Notwithstanding anything to the contrary set forth in this Section
4.5.7, any amounts payable hereunder in excess of the Maximum THQ Stock
shall be paid in either (i) cash or (ii) additional shares of THQ Stock;
provided, however, that the recipients thereof shall receive
substantially the same registration rights with respect to such
additional shares of THQ Stock as they received for the Maximum THQ
Stock.
4.6 Parent's Deliveries. Subject to fulfillment or waiver of the
conditions set forth in Section 8, concurrently with the Merger Filing Parent
shall deliver, if and to the extent not previously delivered, all of the
following to the Company:
4.6.1 a copy of the Certificate of Incorporation of Parent,
certified as of a recent date by the Secretary of State of the State of
Delaware;
4.6.2 a certificate of good standing of Parent, issued as of
a recent date by the Secretary of State of the State of Delaware;
4.6.3 a certificate of the Secretary or an Assistant
Secretary of Parent, dated the Closing Date, in form and substance
reasonably satisfactory to the Company, to the effect that (i) the
Certificate of Incorporation of Parent has not been amended or modified
since the date of certification of the Delaware Secretary of State
referred to in Section 4.6.1; (ii) the Bylaws of Parent, as attached
thereto, have not been amended or modified as of the Closing Date; (iii)
the resolutions of the Board of Directors of Parent authorizing the
execution, delivery and performance of this Agreement and the
transactions contemplated herein by Parent, as attached thereto, are in
full force and effect and have not been superseded, amended or modified
as of the Closing Date; and (iv) the incumbency and signatures of the
officers of Parent executing this Agreement and any Parent Ancillary
Agreement are as set forth on the certificate;
4.6.4 an opinion of counsel to Parent, dated the Closing Date
and substantially in the form of Exhibit J-1;
4.6.5 a certificate certifying satisfaction of the conditions
in Section 9.1, duly executed by the President or any Vice President of
Parent;
4.6.6 the Employment Agreements, the Non-Competition
Agreements and the Principals' Confidentiality and Non-Competition
Agreements duly executed by Parent;
4.6.7 notice of completion of Parent's due diligence
investigation of the Company;
4.6.8 the Escrow Agreement duly executed by Parent; and
4.6.9 the Royalty Participation Agreement duly executed by
the Parent.
14
4.7 Mergerco's Deliveries. Subject to the fulfillment or waiver of
the conditions set forth in Section 8, concurrently with the Merger Filing
Mergerco shall deliver, if and to the extent not previously delivered, all of
the following to the Company:
4.7.1 a copy of the Articles of Incorporation of Mergerco,
certified as of a recent date by the Corporation Commission of the State
of Arizona;
4.7.2 a certificate of good standing of Mergerco, issued as
of a recent date by the Corporation Commission of the State of Arizona;
and
4.7.3 a certificate of the Secretary or an Assistant
Secretary of Mergerco, dated the Closing Date, in form and substance
reasonably satisfactory to the Company to the effect that (i) the
Articles of Incorporation of Mergerco has not been amended or modified
since the date of certification of the Arizona Corporation Commission
referred to in Section 4.7.1; (ii) the Bylaws of Mergerco, as attached
thereto, have not been amended or modified as of the Closing Date; (iii)
the resolutions of the Board of Directors of Mergerco authorizing the
execution, delivery and performance of this Agreement and the
transactions contemplated herein by Mergerco and the written consent of
Parent in its capacity as the sole shareholder of Mergerco adopting this
Agreement in accordance with the ABCA, as attached thereto, are in full
force and effect and have not been superseded, amended or modified as of
the Closing Date; and (iv) the incumbency and signatures of the officers
of Mergerco executing this Agreement are as set forth on the
certificate.
4.8 The Company's and the Effective Time Stockholders' Deliveries.
Subject to fulfillment or waiver of the conditions set forth in Section 9,
concurrently with the Merger Filing the Company and the Effective Time
Stockholders shall deliver (or cause to be delivered), if and to the extent not
previously delivered, all of the following to Parent:
4.8.1 a copy of the Articles of Incorporation of the Company,
certified as of a recent date by the Corporation Commission of the State
of Arizona;
4.8.2 a certificate of good standing of the Company, issued
as of a recent date by the Corporation Commission of the State of
Arizona;
4.8.3 a certificate of the Secretary or an Assistant
Secretary of the Company, dated the Closing Date, in form and substance
reasonably satisfactory to Parent, to the effect that (i) the Articles
of Incorporation of the Company have not been amended or modified since
the date of certification of the Arizona Corporation Commission referred
to in Section 4.8.1; (ii) the Bylaws, as attached thereto, have not been
amended or modified as of the Closing Date; (iii) the resolutions of the
Board of Directors of the Company authorizing the execution and
performance of this Agreement and the transactions contemplated herein,
including the transfer of the Transferred Assets, and the resolutions of
the Stockholders adopting this Agreement and authorizing the
transactions contemplated herein, including the transfer of the
Transferred Assets, as attached thereto, are in full force and effect
and have not been superseded, amended or modified as of the Closing
Date; and (iv) the incumbency and signatures of the officers of the
Company executing this Agreement and any Ancillary Agreement are as set
forth on the certificate;
4.8.4 an opinion of counsel to the Company, dated the Closing
Date and substantially in the form of Exhibit J-2;
15
4.8.5 all consents, waivers or approvals, if any, obtained by
the Company with respect to the consummation of the Contemplated
Transaction;
4.8.6 a certificate certifying the satisfaction of the
conditions in Sections 8.1, 8.2, 8.6, 8.7 and 8.8, duly executed by the
Chief Executive Officer, President or any Vice President of the Company;
4.8.7 the Employment Agreements, the Non-Competition
Agreements and the Right of First Refusal duly executed by the
respective counterparties thereto;
4.8.8 the General Release and Covenant Not to Xxx, dated the
Closing Date and duly executed by each of the Effective Time
Stockholders, Comerica and Xxxxxxx Xxxxxx;
4.8.9 a fully completed Disclaimer of Reliance, dated the
Closing Date and duly executed by each of the Effective Time
Stockholders, Comerica and Xxxxxxx Xxxxxx;
4.8.10 the resignations of each of Xxxx Xxxxxx, Xxxx Xxxxxx
and Xxxx Xxxxxx from all of their positions with the Company;
4.8.11 the Principals' Confidentiality and Non-Competition
Agreements, the Lock-Up Agreements and the Royalty Participation
Agreement duly executed by the respective counterparties thereto;
4.8.12 a Consent of Optionholder duly executed by each
Optionholder other than Xxxxx Xxxx;
4.8.13 the Escrow Agreement duly executed by the
Stockholders' Representative;
4.8.14 evidence of full payment, satisfaction and release of
those outstanding debts, liabilities and obligations identified for
payment and release set forth on Schedule 4.8.14;
4.8.15 the Angstrom Note duly executed by the issuer thereof;
4.8.16 a stock power bearing a medallion guarantee duly
executed in blank by each Escrow Contributor;
4.8.17 evidence, satisfactory to Parent, of complete
performance and fulfillment of Sections 8.7, 8.15, 8.16 and 8.17;
4.8.18 a Letter of Transmittal duly executed by each
Effective Time Stockholder;
4.8.19 a certificate certifying the amount of the Company
Bonuses, duly executed by the Chief Financial Officer of the Company;
and
4.8.20 a Consent of Performance Shareholder duly executed by
each Performance Shareholder other than Xxxxx Xxxxxxx and Xxxxx Xxxxxxx.
00
0. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As an inducement to Parent and Mergerco to enter into this Agreement
and to consummate the transactions contemplated hereby, the Company and the
Effective Time Stockholders jointly and severally represent and warrant to
Parent and Mergerco as follows:
5.1 Organization and Good Standing. The Company is a corporation
duly organized and validly existing and in good standing under the laws of
Arizona and any applicable provincial or local authority, has the power and
authority to own, operate and lease its properties and to carry on its business
as now conducted and as presently proposed to be conducted and is registered or
qualified to conduct its business in each country and subdivision thereof
(including each state) where it owns or rents property, has employees or
conducts business. Schedule 5.1 contains a correct and complete list of the
countries and the subdivisions thereof in which the Company is qualified or
registered to conduct business. True and complete copies of the Company's
Articles of Incorporation and all amendments thereto through the date hereof,
and the Company's Bylaws as amended through the date hereof, have been delivered
to Parent.
5.2 Power, Authorization and Validity.
5.2.1 The Company and each Effective Time Stockholder has the
right, power, legal capacity and authority to enter into and perform its
obligations under this Agreement and any Ancillary Agreement that he or
it is a party to.
5.2.2 The Company and each Effective Time Stockholder has
full power and authority to execute, deliver and perform this Agreement
and any Ancillary Agreement that he or it is a party to. The execution,
delivery and performance by the Company and each Effective Time
Stockholder of this Agreement, and the Ancillary Agreements that he or
it is party to, have been duly authorized and approved as necessary,
including the Company's board of directors and the Stockholders and,
except for the Merger Filing, no other corporate proceedings on the part
of the Company or any Effective Time Stockholder are necessary to
authorize this Agreement or the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the
Company and each Effective Time Stockholder and is the legal, valid and
binding obligation of the Company and each Effective Time Stockholder
enforceable in accordance with its terms, and each of the Ancillary
Agreements that the Company and each Effective Time Stockholder is a
party to has been duly authorized and upon execution and delivery will
be a legal, valid and binding obligation of the Company and/or each
Effective Time Stockholder as the case may be enforceable in accordance
with its terms, except as such enforceability may be limited by
applicable bankruptcy or insolvency laws and general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
5.2.3 Other than the Merger Filing, no consent, approval,
order or authorization of, or registration, qualification, designation,
declaration or filing with, any federal, state or local governmental
authority on the part of the Company (the "Governmental Consents and
Filings") is required in connection with the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements
(the "Contemplated Transaction").
5.3 Capitalization.
17
5.3.1 The authorized capital of the Company consists of
50,000,000 shares of Company Common Stock, of which 22,889,189 have been
duly and validly issued and are currently issued and outstanding and
none are held as treasury shares. The number of shares reserved for
issuance and the purpose of such reservation are set forth on Schedule
5.3.
5.3.2 Except for the outstanding Options to purchase
2,953,294 shares of Company Common Stock, the Comerica Warrant and the
Performance Shares:
5.3.2.1 There are not outstanding any options,
warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from the Company of
any shares of its capital stock or any securities convertible
into or ultimately exchangeable or exercisable for any shares of
the Company's capital stock; and
5.3.2.2 No shares of the Company's outstanding
capital stock, or capital stock issuable upon exercise or
exchange of any outstanding options, warrants or rights, or other
stock issuable by the Company, are subject to any rights of first
refusal or other rights to purchase such stock (whether in favor
of the Company or any other person), pursuant to any agreement or
commitment of the Company.
5.3.3 Attached to this Agreement as Schedule 5.3 is a
complete list of all Stockholders and the number of shares of Company
Common Stock held by each.
5.3.4 At the Effective Time, Options to purchase not more
than 2,953,294 shares of Company Common Stock will be outstanding.
Attached to this Agreement as Schedule 5.3 is a complete list of the
holders of outstanding Options as of the Effective Time and the number
of shares of Company Common Stock issuable to each upon the exercise of
such Optionholder's Options.
5.3.5 Except as set forth on Schedule 5.3 and the
Shareholders Voting Agreement, all of the issued and outstanding shares
of Company Common Stock are held beneficially and of record by the
Persons identified as the holder of such shares in Schedule 5.3, free
and clear of any Encumbrance (other than normal restrictions on transfer
under applicable securities laws), and no voting, dividend or other
rights with respect to any of such shares have been granted to any party
other than the indicated beneficial and record owner. All issued and
outstanding securities of the Company have been duly authorized and
validly issued, are fully paid and non-assessable, are not subject to
any right of rescission, and have been offered, issued, sold and
delivered by the Company in full compliance with all registration or
qualification requirements (or applicable exemptions therefrom) and all
other applicable provisions, including, without limitation, anti-fraud
provisions of the securities and corporate laws of the United States,
Arizona and all other applicable jurisdictions. There is no liability to
any beneficial or record holder of the Company securities for dividends
accrued or declared but unpaid. The Company has no liability to any
former Stockholders or partners except for the liability to Xxxx Xxxxxxx
described in the certificate certifying the amount of the Company
Bonuses, duly executed by the Chief Financial Officer of the Company and
delivered to Parent pursuant to the terms hereof. The Company has not
issued any certificate evidencing any shares of Company Common Stock in
replacement for any certificate that has been lost, destroyed or stolen,
except upon receipt from the issue thereof of written indemnification
agreements in favor of the Company. True and complete copies of such
indemnification agreements have been delivered to Parent.
18
5.3.6 The Company has not granted or agreed to grant to any
person or entity any rights to have any securities of the Company
registered or listed with any governmental authority or stock exchange
in order to facilitate the sale of such securities.
5.4 Subsidiaries. The Company does not have any subsidiaries or any
controlling or minority interest, direct or indirect, in any Person.
5.5 No Violations or Required Consents. Except as set forth on
Schedule 5.5, neither the execution and delivery of this Agreement nor any of
the Ancillary Agreements, nor the consummation of the Contemplated Transaction,
(a) will conflict with or (with or without notice or lapse of time, or both)
result in a breach of the terms, conditions or provisions of, or constitute a
default, an event of default or an event creating rights of acceleration,
termination or cancellation or a loss of rights under, or result in the creation
or imposition of any Encumbrance upon, any of the Company's assets, under (i)
the Articles of Incorporation or Bylaws of the Company, (ii) any Company
Agreement, (iii) any other material note, instrument, agreement, mortgage,
lease, license, franchise, permit or other authorization, right, restriction or
obligation to which the Company is a party or by which any of its assets or
business is subject or by which the Company is bound, (iv) any Court Order to
which either the Company or to Company's knowledge, any Effective Time
Stockholder is a party or by which the Company's assets or business is subject
or by which the Company is bound, or (v) any Requirements of Laws affecting the
Company or its respective assets or business; or (b) requires the consent,
approval or notification of any third party (other than the Governmental
Consents and Filings).
5.6 Litigation. Except as set forth on Schedule 5.6, there is not
(i) any Action pending against the Company, or any officer, director or employee
of the Company, (ii) to the knowledge of the Company any threat of any Action,
or (iii) to the knowledge of Company any factual basis for any Action, which
Action, if determined adversely to the Company, has an amount at issue that is
greater than $3,000 individually and $10,000 in the aggregate. The Company is
not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality and
there is no Action initiated by the Company currently pending or any Action
which the Company intends to initiate.
5.7 Financial Statements; Books and Records.
5.7.1 The Company has delivered to Parent the Company's
unaudited balance sheet as of the Balance Sheet Date and income
statement for the period commencing on January 1, 2001 and ending on the
Balance Sheet Date, which are attached hereto as Schedule 5.7 (the
"Financial Statements"). The Financial Statements: (i) were prepared in
accordance with the books and records of the Company; (ii) are true,
correct, complete and fairly present the financial condition of the
Company at the respective dates therein indicated and the results of
operations for the respective periods therein specified; (iii) have been
prepared in accordance with Agreed Accounting Principles applied on a
consistent basis; and (iv) are certified by the Chief Financial Officer
of the Company as fairly presenting, in all material respects, the
financial position of the Company, subject to the limitations inherent
in using Agreed Accounting Principles.
5.7.2 Without limiting the foregoing, the Company has no
debt, liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise (other than as set forth on the Schedules
attached hereto), and whether due or to become due, that is not
reflected, reserved against or disclosed in the Financial Statements
except for Company Bonuses and payments to retire the Performance
Shares.
19
5.8 Availability of Assets and Legality of Use. Except as set forth
on Schedule 5.8, the assets owned, leased or licensed by the Company constitute
all the assets used in its business (including all books, records, computers and
computer programs and data processing systems). All Tangible Assets reflected on
the Financial Statements are in good condition (subject to normal wear and tear
and immaterial impairments of value and damage) and serviceable condition and
are generally suitable for the uses for which intended. The Company does not
employ any assets that are owned by any Person other than the Company or a
lessor of such assets to the Company pursuant to a lease that is either set
forth on Schedule 5.17 or is not required to be set forth thereon.
5.9 Governmental Permits.
5.9.1 To the knowledge of the Company, the Company owns,
holds or possesses all material licenses, franchises, permits,
privileges, immunities, approvals and other authorizations from
Governmental Bodies which are necessary to entitle it to own or lease,
operate and use its assets and to carry on and conduct its business as
currently conducted (herein collectively called "Governmental Permits").
Schedule 5.9 sets forth a list and brief description of each
Governmental Permit owned, held or possessed by the Company. Complete
and correct copies of all such Governmental Permits have been delivered
to Parent.
5.9.2 Except as set forth in Schedule 5.9, to the knowledge
of the Company (i) the Company has fulfilled and performed its
obligations under each of the Governmental Permits, and no event has
occurred or condition or state of facts exists which constitutes or,
after notice or lapse of time or both, would constitute a breach or
default under any such Governmental Permit or which permits or, after
notice or lapse of time or both, would permit revocation or termination
of any such Governmental Permit, or which might adversely affect in any
material respect the rights of the Company under any such Governmental
Permit; (ii) no notice of cancellation, of default or of any material
dispute concerning any Governmental Permit, or of any event, condition
or state of facts described in the preceding clause, has been received
by, or is known to, the Company; and (iii) each of the Governmental
Permits is valid, subsisting and in full force and effect and will
continue in full force and effect after the Effective Time, in each case
without (x) the occurrence of any breach, default or forfeiture of
rights thereunder, or (y) the consent, approval, or act of, or the
making of any filing with, any Governmental Body.
5.10 Real Property. Schedule 5.10 contains a brief description of
(i) each parcel of real property owned by the Company (the "Owned Real
Property") (showing the record title holder, legal description, permanent index
number, location, improvements, the uses being made thereof and any indebtedness
secured by a mortgage or other Encumbrance thereon) and (ii) each option held by
the Company to acquire any real property. Complete and correct copies of any
title opinions, surveys and appraisals in the Company's possession or any
policies of title insurance currently in force and in the possession of the
Company with respect to each such parcel have heretofore been delivered by the
Company to Buyer.
5.11 Personal Property. The Company's fixed asset register attached
hereto as Schedule 5.11 sets forth a true and complete listing as of the Balance
Sheet Date of all machinery, equipment, vehicles, furniture and other personal
property owned by the Company, other than such items that have been expended in
the fiscal year in which acquired or which are immaterial to the operation and
conduct of the Company's business.
20
5.12 Personal Property Leases. The Company has delivered to Parent
true and correct copies of each lease or other agreement under which the Company
is lessee of, or holds or operates, any Tangible Assets.
5.13 Title to Properties. Except as listed on Schedule 5.17.1 or
5.17.2, the Company owns title to all assets set forth on the balance sheet
included in the Financial Statements, including the Owned Real Property and all
of the assets thereafter acquired by it (except for the Transferred Assets or
such assets as have been spent, sold or transferred in the ordinary course of
business since the Balance Sheet Date), free and clear of all Encumbrances,
except Permitted Encumbrances and Encumbrances that would not have a material
adverse effect on the Company's business. All leases of real property (the
"Leased Real Property") or personal property to which the Company is a party (i)
are in good standing in all material respects, (ii) afford the Company peaceful
and undisturbed possession of the subject matter of the lease, and (iii) to the
knowledge of the Company provide the Company with valid leasehold interests in
such assets free of any Encumbrances except Permitted Encumbrances. Neither the
Company nor any Effective Time Stockholder has any knowledge of any violation,
nor has the Company nor any Effective Time Stockholder received any notice of
any violation of any zoning, building, safety or environmental ordinance,
regulation or requirement or other law, bylaw or regulation applicable to the
operations of owned or leased properties or assets, the violation of which could
have a Material Adverse Effect on the Company's business. To the knowledge of
the Company or any Effective Time Stockholder there are no defects in the
operating condition of the Owned Real Property or any of its systems; provided,
however, the Owned Real Property and its systems are subject to ordinary wear
and tear in the context of its age. To the knowledge of the Company, neither the
whole nor any part of any Leased Real Property is subject to any pending suit
for condemnation or other taking by any public authority or other Person, and,
to the knowledge of the Company, no such condemnation or other taking is
threatened or contemplated. Neither the Company nor any Effective Time
Stockholder makes any representation or warranty with respect to whether the
Owned Real Property complies with current regulatory requirements; provided,
however, each of the Company and the Effective Time Stockholders represents and
warrants that it has no knowledge, and it has not received any notice that, the
Owned Real Property is not in compliance with current regulatory requirements.
5.14 Accounts Receivable. All accounts receivable of the Company
have arisen from bona fide transactions by the Company in the ordinary course of
its business.
5.15 Taxes.
5.15.1 Except as set forth on Schedule 5.15, (i) the Company
has filed on or before the date due all Tax Returns required to be filed
(after giving effect to any extensions); (ii) all such Tax Returns are
complete and accurate and disclose all Taxes required to be paid by the
Company for the periods covered thereby and all taxes shown to be due on
such Tax Returns have been timely paid; (iii) all Taxes (whether or not
shown on any Tax Return) owed by the Company and required to be paid on
or before the Closing Date have been (or will be) timely paid; (iv) the
Company has not waived or been requested to waive any statute of
limitations in respect of Taxes; (v) the Tax Returns referred to in
clause (i) have not been examined by the Internal Revenue Service or any
state, local or foreign taxing authority; (vi) there is no Action
pending or proposed or threatened with respect to Taxes of the Company
and no basis exists therefor; (vii) the Company is not a party to any
Tax Sharing Arrangement or any Tax indemnity arrangement and the Company
will not have any liability under any Tax Sharing Arrangement or Tax
indemnity arrangement on or after the Closing Date; (viii) the Company
has filed returns as a separate entity and has not been a member of any
Company Group; (ix) there are no liens for Taxes upon any of the Company
Property except liens relating to current Taxes not yet due; (x)
21
all Taxes which the Company is required by law to withhold or to collect
for payment have been duly withheld and collected, and have been paid or
accrued, reserved against and entered on the books of the Company; (xi)
no claim has ever been made by a Taxing authority in a jurisdiction
where the Company has never paid Taxes or filed Tax Returns asserting
that the Company is or may be subject to Taxes assessed by such
jurisdiction; (xii) the Company has no knowledge of any facts that, if
known to any taxing authority, would likely result in the issuance of a
notice of proposed deficiency or similar notice of intention to assess
Taxes against the Company; (xiii) there are no Tax rulings, requests for
rulings, or closing agreements relating to the Company which could
affect the Company's liability for Taxes for any period after the
Closing Date; (xiv) as a result of a change in accounting method for a
Tax period beginning on or before the Closing Date, the Company will not
be required to include any adjustment under Section 481(c) of the Code
(or any corresponding provision of state or local Tax law) in taxable
income for any Tax period beginning on or after the Closing Date; (xv)
as a result of any "closing agreement" (as described in Section 7121 of
the Code or any corresponding provision of state or local Tax law), the
Company will not be required to include any item of income in, or
exclude any item of deduction from, any taxable period beginning on or
after the Closing Date; (xvi) the Company has not disposed of property
in a transaction being accounted for under the installment method
pursuant to Section 453 or 453A of the Code; (xvii) the Company has not
filed a consent under Section 341(f) of the Code or any comparable
provision of state or local Tax law; (xviii) all deficiencies asserted
or assessments made as a result of any examination of the Tax Returns
referred to in clause (i) have been paid in full; (xix) no power of
attorney has been granted with respect to any matter relating to Taxes
of the Company which is currently in force; (xx) the Company does not
have corporate acquisition indebtedness, as described in Section 279(b)
of the Code; (xxi) the Company has not participated in or cooperated
with an international boycott, within the meaning of Section 999 of the
Code, nor has any such corporation had operations which are or may
hereafter become reportable under Section 999 of the Code; and (xxii)
the aggregate adjusted basis for federal and relevant state income tax
purposes of each asset comprising the Transferred Assets exceeds the
fair market value of such asset (without regard to any liability to
which such asset is subject).
5.15.2 No transaction contemplated by this Agreement is
subject to withholding under Section 1445 of the Code and no stock
transfer taxes, sales taxes, use taxes, real estate transfer taxes, or
other similar taxes will be imposed on the transactions contemplated by
this Agreement.
5.15.3 As a direct or indirect result of the transactions
contemplated by this Agreement, there will be no payment or other
benefit, nor will there be any acceleration of the vesting of any
options, payments or other benefits, in each case that will be (or under
Section 280G of the Code and the Treasury Regulations thereunder (the
"Treasury Regulations") will be presumed to be) a "parachute payment" to
a "disqualified individual" as those terms are defined in Section 280G
of the Code and the Treasury Regulations thereunder, without regard to
whether such payment or acceleration is reasonable compensation for
personal services performed or to be performed in the future.
5.16 Absence of Certain Changes. Except as set forth on Schedule
5.16 or as contemplated by this Agreement, since the Balance Sheet Date, the
Company has carried on its business in the ordinary course substantially in
accordance with the procedures and practices in effect on the Balance Sheet
Date, and except as set forth on Schedule 5.16 or as contemplated by this
Agreement, since the Balance Sheet Date there has not been:
22
5.16.1 any change in the financial condition, properties,
assets, liabilities, business or operations of the Company which change
by itself or in conjunction with all other such changes, whether or not
arising in the ordinary course of business, has had or can reasonably be
expected to have a Material Adverse Effect on the Company;
5.16.2 any contingent liability incurred by the Company as
guarantor or surety with respect to the obligations of others;
5.16.3 any Encumbrance filed against any of the properties of
the Company;
5.16.4 any obligation or liability in excess of $20,000,
individually or in the aggregate, incurred by the Company other than in
the ordinary course of business;
5.16.5 any purchase, sale or other disposition, or any
agreement or other arrangement for the purchase, sale or other
disposition, of any of the properties or assets of the Company other
than in the ordinary course of business or in amounts less than $20,000;
5.16.6 any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the properties,
assets or business of the Company (as presently conducted or presently
proposed to be conducted);
5.16.7 any declaration, setting aside or payment of any
dividend on, or the making of any other distribution in respect of, the
shares of the Company, any split, combination or recapitalization of the
capital stock of the Company or any direct or indirect redemption,
purchase or other acquisition of the capital stock of the Company;
5.16.8 any material change with respect to the management,
supervisory, development or other key personnel of the Company;
5.16.9 any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except such a
satisfaction, discharge or payment made in the ordinary course of
business that is not material to the assets, properties, financial
condition, operating results or business of the Company;
5.16.10 any obligation or liability incurred by the Company
to any of its officers, directors or employees or any loans or advances
made to any of its officers, directors or employees except normal
compensation and expense allowances payable consistent with past
practices;
5.16.11 any waiver by the Company of a valuable right or of a
material debt;
5.16.12 any material change or amendment to a material
contract or arrangement by which the Company or any of its assets or
properties is bound or subject, except for changes or amendments which
are expressly provided for or disclosed in this Agreement or the
Ancillary Agreements;
5.16.13 any capital expenditure or commitments therefor by
the Company in excess of $20,000, individually or in the aggregate; or
23
5.16.14 any Tax Return prepared or filed by the Company that
is inconsistent with past practice, or in which the Company has taken
any position, made any election, or adopted any method that is
inconsistent with positions taken, elections made or methods used in
preparing or filing similar Tax Returns in prior periods;
5.16.15 to the knowledge of the Company, any other event or
condition of any character which would materially and adversely affect
the assets, properties, financial condition, operating results or,
business of the Company; or
5.16.16 any new license or other development agreement with
respect to or in furtherance of the licensing or other transfer any of
the Company's proprietary rights or intellectual property, or any rights
therein, or with respect to the development of any games by the Company
without Parent's prior written consent.
5.17 Agreements and Commitments.
5.17.1 Attached to this Agreement as Schedule 5.17.1 is a
complete list of every oral or written executory agreement, obligation
or commitment which is material to the Company, its financial condition,
business or prospects, together with the amounts owed or owing under
each such agreement (in those cases where it is practicable to determine
such amounts owed or owing), obligation or commitment as of the Closing
Date (including but not limited to):
5.17.1.1 Any contract, commitment, letter contract,
quotation, purchase order, bid or proposal providing for payments
by or to the Company in an aggregate amount of $20,000 or more in
any calendar year;
5.17.1.2 Any license agreement as licensor or
licensee or any agreement to encumber, transfer or sell rights in
or with respect to any of the Company's Intellectual Property (as
defined in Section 5.18 below), except for standard non-exclusive
software licenses for products that are available through general
retail or mail-order channels that are granted to end-user
customers in the ordinary course of business, the form of which
has been provided or made available to Parent's counsel;
5.17.1.3 Any agreement for the purchase, sale or
lease of real or personal Property or intangible assets involving
total payments of more than $20,000 in any calendar year or in
the aggregate;
5.17.1.4 Any agreement for the purchase or sale of
any business unit, business entity or franchise;
5.17.1.5 Any publishing, dealer, distributor, sales
representative, original equipment manufacturer or value added
remarketer agreement and any other agreement accounting for more
than $20,000 of the Company's revenue in any consecutive
twelve-month period;
5.17.1.6 Any purchase or sale agreement relating to
any equity or debt security;
5.17.1.7 Any joint venture contract or arrangement
or any other agreement that involves a sharing of profits with
other persons or entities;
24
5.17.1.8 Any instrument evidencing indebtedness for
borrowed money by way of direct loan, sale of debt securities,
purchase money obligation, conditional sale, guarantee or
otherwise (except for trade indebtedness and advances to
employees incurred in the ordinary course of business), and any
instrument, contract, indenture or financing statement evidencing
any lien, encumbrance or security interest in any of the
Company's assets;
5.17.1.9 Any contract containing covenants
purporting to limit the Company's freedom to compete in any line
of business in any geographic area;
5.17.1.10 Any lease of real or personal property;
5.17.1.11 Any other agreement not listed above that
is material to the assets, properties, financial condition,
operating results or business of the Company; and
5.17.1.12 Any license or other development
agreement with respect to or in furtherance of the licensing or
other transfer any of the Company's proprietary rights or
intellectual property, or any rights therein, or with respect to
the development of any games by the Company.
5.17.2 All agreements, obligations and commitments listed or
required to be listed according to Sections 5.17.1, 5.18 and 5.23
(collectively the "Company Agreements") are valid and in full force and
effect in all material respects, and a true and complete copy of each
has been delivered to, or made available for inspection by, Parent's
counsel. Except as set forth in Schedule 5.17.2, neither the Company nor
any other party is in breach or default in any material respect under
the terms of any Company Agreement, nor does the Company have any
knowledge of any claim or threat by any other party that the Company has
breached any Company Agreement.
5.17.3 To the extent any Company Agreement with a third party
provides for development or other performance by the Company: (i) such
development or other performance has been timely and properly completed
in accordance with the terms of such Company Agreement and the Company
has no liability arising out of any prior deliverables; (ii) the Company
has not failed to meet any milestone or other delivery specified in such
Company Agreement, except where any such failure has been waived or has
not resulted in termination or notice of default in accordance with the
terms of such Company Agreement; and (iii) the Company does not have
knowledge of any matter which might cause the Company not to materially
fail to meet any such milestone or other delivery date in accordance
with any material Company Agreement. The Company has no knowledge of any
material breach or failure to comply with any material maintenance and
enhancement obligations contained in any Company Agreements, nor has the
Company received any notice from any party to the contrary. No other
party to a Company Agreement has ever exercised a "right to complete" or
similar provision in a Company Agreement that allowed such party to
correct or complete any deliverable item from the Company. Except as set
forth on Schedule 5.17.3, all other parties to any Company Agreement
regarding the publishing or distribution of products have been
substantially timely, and none is currently in arrears, with respect to
the payment of any royalty or similar payments to the Company, the
Company does not have knowledge that any prior royalty or similar
payment is incorrect by more than 5% and the Company has never exercised
an audit or other formal remedy under any Company Agreement with respect
to any such payment. In the event any Company Agreement is terminated by
the other party thereto, the Company will have no liability for a
25
refund or other repayment of any advance, minimum guarantee or other
amounts previously paid to the Company under such Company Agreement.
5.18 Intellectual Property.
5.18.1 Except for matters disclosed on Schedule 5.18.1(a),
the Company owns or has the right to use all right, title and interest
in all patents, patent applications, trademarks, service marks, trade
names, copyrights, trade secrets, know-how, technology, Moral Rights (as
defined below) and other intellectual property and proprietary rights
reasonably necessary to the conduct of its business as presently
conducted and as presently proposed to be conducted (the "Company
Intellectual Property"). "Moral Rights" means any rights of paternity or
integrity, any right to claim authorship of an invention, improvement,
original work of authorship, formula, process, computer program,
database or trade secret ("Inventions"), to object to any distortion,
mutilation or other modification of, or other derogatory action in
relation to, any Invention, whether or not such would be prejudicial to
any developer's honor or reputation. Set forth on Schedule 5.18.1(b)
hereto is a true and complete list of all patents, copyright and
trademark registrations and all applications therefor regarding the
Company Intellectual Property that are owned or licensed by the Company,
and no loss, cancellation, termination, expiration or denial of any such
registration or application is foreseeable by the Company except as set
forth in Schedule 5.18.1(c). Copies of all forms of non-disclosure or
confidentiality agreements utilized to protect the Company Intellectual
Property have been provided to Parent's counsel.
5.18.2 To the knowledge of the Company, except as set forth
on Schedule 5.18.2(a), no employee, Stockholder or other security holder
of the Company or any other Person has any ownership right, title,
interest, claim in or lien on any of the Company Intellectual Property,
nor is any Person currently infringing or using any misappropriated
Company Intellectual Property. Except as set forth on Schedule
5.18.2(b), the Company has taken and will take all steps reasonably
necessary to preserve its legal rights in, and the secrecy of, the
Company Intellectual Property, except that for which disclosure is
required for legitimate business or legal reasons. Except as set forth
in any Company Agreement or otherwise disclosed on Schedule 5.18.2(c),
the Company has not granted, and there are not outstanding, any options,
licenses or agreements of any kind relating to any Company Intellectual
Property, nor is the Company bound by or a party to any option, license
or agreement of any kind with respect to any of the Company Intellectual
Property. Except as set forth in any Company Agreement, the Company is
not obligated to pay any royalties or other payments to third parties
with respect to the marketing, sale, distribution, manufacture, license
or use of any Company Intellectual Property.
5.18.3 The business of the Company as presently conducted and
as proposed to be conducted by the Company with respect to product
produced or in production prior to the Closing does not and will not
cause the Company to infringe or violate any of the patents, trademarks,
service marks, trade names, copyrights, trade secrets, proprietary
rights or other intellectual property rights of any other person or
entity, and the Company has not received any claim or notice of
infringement or potential infringement of the intellectual property of
any other person. The Company is not using any confidential information
or trade secrets of any former employer of any of its past or present
employees. The Company does not have knowledge that it will be necessary
to utilize any inventions of any employees of the Company (or persons
the Company currently intends to hire) made prior to their employment by
the Company. To the knowledge of Company, at no time during the
conception or reduction to practice of any Invention that is a part of
the Company Intellectual Property was any developer, inventor or other
contributor to such Invention operating under any grants from any
governmental entity or agency
26
or private source, performing research sponsored by any governmental
entity or agency or private source or subject to any employment
agreement or invention assignment or nondisclosure agreement or other
obligation with any third party that could adversely affect the
Company's rights in the Company Intellectual Property.
5.19 Products and Distribution. Schedule 5.19 contains a complete
list of all of the software products (by SKU) developed, published and/or
distributed by the Company which products have been commercially released (the
"Published Products") and all products (by SKU) currently under development by
the Company, or which the Company is contractually obligated to develop (the
"Products Under Development" and collectively with the Published Products
referred to as the "Products").
5.19.1 Schedule 5.19 sets forth, for each Product, a list of
all contracts and agreements (including without limitation all
development, trademark license, technology license, distribution or
other agreements) relating to the Product.
5.19.2 Schedule 5.19 also sets forth, for each Product Under
Development and as of the date of this Agreement, the following: (a) the
currently scheduled final software delivery date, and (b) an estimate of
percentage of completion.
5.20 Development Tools. Schedule 5.20 contains a complete list of
all software development tools used or intended to be used by the Company in the
development of any of the Products, except for any such tools that are generally
available and are used in their generally available form (such as standard
compilers) (the "Development Tools"). Schedule 5.20 also sets forth, for each
Development Tool: (i) for any Development Tool not entirely developed internally
by the Company employees, the identity of the independent contractors and
consultants involved in such development and a list of the agreements with such
independent contractors and consultants; (ii) a list of any third parties with
any rights to receive royalties or other payments with respect to such
Development Tool, and a schedule of all such royalties payable; (iii) a list of
any restrictions on the Company's right to use and distribute such Development
Tool; and (iv) a list of all agreements between the Company and third parties
for the use by such third party of such Development Tool. The Company has
sufficient right, title and interest in and to the Development Tools for the
conduct of its business as currently conducted and as proposed to be conducted.
5.21 Compliance with Law and Charter Documents. The Company is not
in violation or default of any provisions of its Articles of Incorporation or
Bylaws, both as amended; to the knowledge of the Company, except for any
violations that individually or in the aggregate would not have a Material
Adverse Effect on the Company's business, the Company is in compliance with all
applicable statutes, laws, regulations and executive orders of the United States
and all states, provinces and local authorities and all foreign countries or
other governmental bodies and agencies having jurisdiction over the Company's
business or properties. The Company has not received any notice of any violation
of such statutes, laws, regulations or orders which has not been remedied prior
to the date hereof.
5.22 Xxxx-Xxxxx-Xxxxxx.
5.22.1 The Company is its own "ultimate parent entity" (as
defined in 16 C.F.R. Section 801.1(a)(3) (1998)).
5.22.2 The Company does not have "annual net sales" (as
defined in 16 C.F.R. Section 801.11) or "total assets" (as defined in 16
C.F.R. Section 801.11) of $10 million or more.
27
5.23 Employees and Employee Relations.
5.23.1 The Company has no employment contract or material
consulting agreement currently in effect that is not terminable on
notice or whose lawful termination would result in any payment to the
terminated employee greater than the minimum amounts required by Arizona
law upon termination of an employee (other than agreements with the sole
purpose of providing for the confidentiality of proprietary information
or assignment of inventions). All officers, employees and consultants of
the Company have executed and delivered to the Company an agreement
regarding the protection of such proprietary information and the
assignment of inventions to the Company substantially in the forms
attached hereto as Schedule 5.23.1. The Company Intellectual Property
does not incorporate or include any "Prior Inventions" of any officer,
employee or consultant (as such term is defined in such forms).
5.23.2 The Company (i) has never been and is not now subject
to a union organizing effort, (ii) is not subject to any collective
bargaining agreement with respect to any of its employees, (iii) is not
subject to any other contract, written or oral, with any trade or labor
union, employees' association or similar organization, and (iv) is not a
party to any current strike or labor dispute. To the knowledge of the
Company, (I) no labor union has requested, sought or attempted to
represent any employees, representatives or agents of the Company, (II)
there is no labor organization activity involving the Company's
employees, (III) the consummation of the Contemplated Transaction will
not have a Material Adverse Effect on the Company's labor relations and
(IV) none of the Company's key employees intend to leave their employ.
5.23.3 Schedule 5.23.3 contains a true and complete list of
all pension, retirement, disability, medical, dental or other health
plans, life insurance or other death benefit plans, fringe benefit
plans, profit sharing plans, deferred compensation agreements, stock,
option, equity-based, bonus or other incentive plans, vacation, sick,
holiday or other paid leave plans, severance plans or other employee
benefit plans, programs or arrangements maintained by the Company or to
which the Company or any ERISA Affiliate contributes or has ever been
obligated to contribute, including any "pension plan," as defined in
Section 3(2) of ERISA (applied without regard to the exceptions from
coverage contained in Section 4(b)(4) or 4(b)(5) thereof) and any
"welfare plan," as defined in Section 3(1) of ERISA (applied without
regard to the exceptions from coverage contained in Section 4(b)(4) or
4(b)(5) thereof) (the "Employee Plans"). Except as set forth in Schedule
5.23.3, each of the Employee Plans, and their administration, is, in all
material respects, in compliance with all applicable federal, state,
provincial, municipal, local and other governmental laws and ordinances,
orders, rules and regulations, the Company is in full compliance with
the terms of all the Employee Plans and there has been no inquiry or
notice issued by a governmental authority questioning or challenging
such compliance. Each Employee Plan which is intended to qualify under
Section 401(a) of the Code has received a favorable opinion letter from
the IRS that such plan is so qualified under the Code and no
circumstances exist which might cause such plan to cease being so
qualified. There are no Actions (other than routine claims for benefits)
pending or, to the knowledge of the Company, threatened involving the
Employee Plans or assets of such plans. The Company does not have any
obligations under any of the Employee Plans or otherwise to provide
health or death benefits to or in respect of former employees of the
Company, except as specifically required by the continuation
requirements of Part 6 of Title I of ERISA. Neither the Company nor any
ERISA Affiliate has been required to contribute to a "multiemployer
plan" as defined in Section 3(37) of ERISA or has maintained or been
required to contribute to a plan subject to Section 302 of ERISA or
Section 412 of the Code or subject to Title IV of ERISA. Neither the
Company nor
28
any ERISA Affiliate has liability of any kind whatsoever, whether
direct, indirect, contingent or otherwise, on account of (i) any
violation of the health care requirements of Part 6 of Title I of ERISA
or Section 4980B of the Code or (ii) under Section 502(i) or Section
502(1) of ERISA or Section 4975 of the Code.
5.23.4 All contributions or other payments due with respect
to any Employee Plan have been made or accrued on the Financial
Statements except those contributions or payments accruing after the
Balance Sheet Date in the ordinary course.
5.23.5 The Company has delivered to Parent, with respect to
each Employee Plan, correct and complete copies, where applicable, of:
(i) all plan documents and amendments, (ii) the most recent IRS opinion
letter, (iii) the Annual Report (Form 5500 Series) and accompanying
schedules, as filed, for the most recently completed two plan years,
(iv) any discrimination tests performed for the last plan year and (v)
the most recent summary plan description.
5.23.6 To the knowledge of the Company or the Effective Time
Stockholders, no employee of the Company is in violation of (i) any
material term of any employment contract, invention disclosure or
assignment agreement or noncompetition agreement or (ii) any material
term of any other contract or agreement, or any restrictive covenant,
relating to the right of any such employee to be employed by the Company
or to use trade secrets or proprietary information of others. To the
knowledge of the Company or the Effective Time Stockholders, the mere
fact of employment of any employee of the Company does not subject the
Company to any liability to any third party. There are no Actions
pending or, to the knowledge of the Company, threatened (or any basis
therefor), relating to the employment or prior employment of any of the
Company's employees or consultants, their use in connection with the
Company's business of any information, technology or techniques
allegedly proprietary to any of their former employers, clients or other
parties, or their obligations under any agreements with prior employers,
clients or other parties.
5.23.7 Except as set forth on Schedule 5.23.7, other than the
Employment Agreements and except as required by law, the Company is not
a party to any (i) agreement with any executive officer or other key
employee of the Company (a) the benefits of which are contingent, or the
terms of which are materially altered, upon the execution of this
Agreement or the Ancillary Agreements (other than the modification of
such benefits or terms of employment by the Employment Agreement) or the
occurrence of the Contemplated Transaction, (b) providing any term of
employment or compensation guarantee or (c) providing severance benefits
or other benefits after the termination of employment of such employee
regardless of the reason for such termination of employment, or (ii)
agreement or plan, including, without limitation, any stock option plan,
stock appreciation rights plan or stock purchase plan, any of the
benefits of which will be materially increased, or the vesting or
payment of benefits of which will be materially accelerated, by the
occurrence of any of the Contemplated Transaction or the execution of
this Agreement or the Ancillary Agreements or the value of any of the
benefits of which will be calculated on the basis of any of the
Contemplated Transaction or the provisions of this Agreement or the
Ancillary Agreements.
5.23.8 A list of all employees, officers and consultants of
the Company as of the date of this Agreement and their compensation
(salary and bonuses), their last annual review date and their latest
change in compensation and the amount thereof (salary or bonus) is set
forth in Schedule 5.23.8 attached to this Agreement.
29
5.23.9 The Company is not aware that any employee or
consultant of the Company is obligated under any agreement (including
licenses, covenants or commitments of any nature) or subject to any
judgment, decree or order of any court or administrative agency, or any
other restriction, that would interfere with the use of his or her best
efforts to carry out his or her duties for the Company or to promote the
interests of the Company or that would conflict with the Company's
business as presently conducted or proposed to be conducted. The
carrying on of the Company's business by the employees and consultants
of the Company and the conduct of the Company's business as presently
proposed, will not, to the Company's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any of
such employees or consultants or the Company is now obligated.
5.24 Employee Equity Participation Plan. Schedule 5.24 lists all the
Performance Shareholders and the number of Performance Shares held by each such
holder and contains an accrual of amounts to retire each holders outstanding
Performance Shares as determined and set by the Board of Directors of the
Company in accordance with the Employee Equity Participation Plan and agreed to
by the Performance Shareholders in the Consents of Performance Shareholders.
5.25 Corporate Documents. The Company has made available to Parent
for examination complete copies or originals of all documents and information
listed in the Exhibits and Schedules to this Agreement, including, without
limitation, the following: (i) copies of the Company's Articles of Incorporation
as currently in effect; (ii) the Company's corporate minute books containing all
records of all proceedings, consents, actions and meetings of the Stockholders
and the Company's Board of Directors or any committees thereof, (iii) the
Company's stock ledgers and journals reflecting all stock issuances and
transfers, and agreements and documents relating thereto; and (iv) all permits,
orders and consents now in effect and issued by any regulatory agency expressly
to the Company and all applications for such permits, orders and consents. The
minute books and stock records of the Company provided to Parent contain a
complete summary of all meetings, consents and actions of the Board of Directors
of the Company and the Stockholders, and all issuances and transfers of the
Company's securities, since the time of its incorporation, accurately reflecting
all transactions referred to in such minutes and records in all material
respects.
5.26 No Brokers. Except as set forth on Schedule 5.26, the Company
is not obligated for the payment of fees or expenses of any investment banker,
broker or finder in connection with the origin, negotiation or execution of this
Agreement or the Ancillary Agreements or in connection with the Contemplated
Transaction.
5.27 Environmental Matters.
5.27.1 To the knowledge of the Company, during the period
that the Company has leased or owned its properties or owned or operated
any facilities, there have been no disposals, releases or threatened
releases of Hazardous Materials (as defined below) on, from or under
such properties or facilities. The Company has no knowledge of any
presence, disposals, releases or threatened releases of Hazardous
Materials on, from or under any of such properties or facilities, which
may have occurred prior to the Company having taken possession of any of
such properties or facilities. For purposes of this Agreement, the terms
"disposal," "release," and "threatened release" shall have the
definitions assigned thereto by CERCLA. For the purposes of this Section
"Hazardous Materials" shall mean any hazardous or toxic substance,
material or waste which is or becomes prior to the Closing regulated
under, or defined as a "hazardous substance," "pollutant,"
"contaminant," "toxic chemical," "hazardous material," "toxic
30
substance," or "hazardous chemical" under (1) CERCLA; (2) the Emergency
Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001 et
seq.; (5) the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801 et seq.; (4) the Toxic Substances Control Act, 15 U.S.C. Section
2601 et seq.; (5) the Occupational Safety and Health Act of 1970, 29
U.S.C. Section 651 et seq.; (6) regulations promulgated under any of the
above statutes; or (7) any applicable state or local statute, ordinance,
rule, or regulation that has a scope or purpose similar to those
statutes identified above;
5.27.2 To the knowledge of the Company, none of the Company's
properties or facilities is in violation of any federal, state, or local
law, ordinance, regulation, or order relating to industrial hygiene or
to the environmental conditions on, under or about such properties or
facilities, including, but not limited to, soil and ground water
condition. During the time that the Company has owned or leased its
properties and facilities, neither the Company nor, to the Company's
knowledge, any third party, has used, generated, manufactured or stored
on, under or about such properties or facilities or transported to or
from such properties or facilities any Hazardous Materials.
5.27.3 During the time that the Company has owned or leased
its properties and facilities, there has been no litigation brought or
threatened against the Company, or any settlement reached by the Company
with, any party or parties alleging the presence, disposal, release or
threatened release of any Hazardous Materials on, from or under any of
such properties or facilities.
5.28 Insurance. The Company maintains those fire and casualty,
general liability, business interruption, and product insurance policies set
forth on Schedule 5.28.
5.29 Disclosure. This Agreement, the Ancillary Agreements, the
Exhibits hereto and thereto, the certificates and documents delivered by, or to
be delivered by, the Company to Parent under this Agreement or the Ancillary
Agreements, taken together, do not contain any untrue statement of a material
fact and do not omit to state any material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which such statements were made, not misleading. There is no fact known by the
Company which has not been disclosed herein or in the Schedules hereto or in
written materials delivered by the Company to Parent or its counsel pursuant to
Parent's due diligence of the Company and which materially adversely affects the
business of the Company, other than facts known generally (either to the public
generally or participants in the Company's industry) that apply to the Company's
industry as a whole with respect to customers, suppliers, business or economic
conditions.
5.30 Closing Net Book Value. The Closing Net Book Value is not less
than negative $1,500,000.
5.31 Microsoft. The letter agreement between the Company and
Microsoft, dated as of August 6, 2001, reflects all oral or written agreements,
obligations or commitments between the Company and Microsoft.
6. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGERCO.
As an inducement to the Company to enter into this Agreement and to
consummate the transactions contemplated hereby, Parent and Mergerco hereby
jointly and severally represent and warrant to the Company and agree as follows:
31
6.1 Organization and Capital Structure.
6.1.1 Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to own or lease and to
operate and use its properties and assets and to carry on its business
as now conducted. The authorized capital of Parent consists of (i)
75,000,000 shares of THQ Stock, of which 21,925,238 shares were issued
and outstanding as of November 1, 2001, and (ii) 1,000,000 shares of
preferred stock, par value $0.01 per share, none of which is issued and
outstanding. Except for (i) options and warrants described in the Parent
SEC Documents, (ii) the issuance and sale in a registered public
offering of 2,750,000 shares of THQ Stock (including an underwriters'
over-allotment option of 412,500 shares of THQ Stock) pursuant to
Parent's Registration Statement on Form S-3 filed with the Securities
Exchange Commission on August 20, 2001, as amended, and (iii) as
contemplated hereby, there are no options, warrants or other rights to
acquire from Parent, or agreements or commitments by Parent to issue or
sell, any shares of capital stock of Parent, whether on conversion of
other securities or otherwise. All of the Merger Shares, when issued and
delivered in accordance with this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable.
6.1.2 Mergerco is a corporation duly organized, validly
existing and in good standing under the laws of the State of Arizona.
The authorized capital of Mergerco consists of 1,000 shares of common
stock, no-par value per share, all of which have been issued and are
outstanding and none are held as treasury shares. All of the outstanding
shares of capital stock of Mergerco are validly issued, fully paid and
nonassessable and owned of record and beneficially by Parent, free from
all Encumbrances except for those imposed by applicable securities laws.
6.2 Authority.
6.2.1 Parent has full corporate power and authority to
execute, deliver and perform this Agreement and all of the Parent
Ancillary Agreements. The execution, delivery and performance of this
Agreement and the Parent Ancillary Agreements by Parent have been duly
authorized, except for the adoption of this Agreement by Parent as the
sole stockholder of Mergerco in accordance with Section 7.3 no other
corporate proceedings on the part of Parent are necessary to authorize
this Agreement, the Parent Ancillary Agreements and the transactions
contemplated hereby and thereby. This Agreement has been duly
authorized, executed and delivered by Parent and is the legal, valid and
binding obligation of Parent enforceable in accordance with its terms
and each of the Parent Ancillary Agreements has been duly authorized by
Parent and upon execution and delivery by Parent will be a legal, valid
and binding obligation of Parent enforceable in accordance with its
terms.
6.2.2 Mergerco has full corporate power and authority to
execute, deliver and perform this Agreement. The execution, delivery and
performance of this Agreement by Mergerco have been duly authorized and
approved by Mergerco's board of directors and except for the Merger
Filing, no other corporate proceedings on the part of Mergerco are
necessary to authorize this Agreement and the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered
by Mergerco and is the legal, valid and binding agreement of Mergerco
enforceable in accordance with its terms.
6.2.3 Neither the execution or delivery of this Agreement or
any of the Parent Ancillary Agreements, the consummation of any of the
transactions contemplated hereby or
32
thereby nor compliance with or fulfillment of the terms, conditions and
provisions hereof or thereof will:
6.2.3.1 conflict with, result in a breach of the terms,
conditions or provisions of, or constitute a default, an event of
default or an event creating rights of acceleration, termination or
cancellation or a loss of rights under, or result in the creation or
imposition of any Encumbrance upon any of Parent's or Mergerco's assets
under, (i) the Certificate of Incorporation or Bylaws of Parent or the
Articles of Incorporation or Bylaws of Mergerco, (ii) any material note,
instrument, agreement, mortgage, lease, license, franchise, permit or
other authorization, right, restriction or obligation to which either
Parent or Mergerco is a party or any of their respective assets or
business is subject or by which either Parent or Mergerco is bound,
(iii) any Court Order to which either Parent or Mergerco is a party or
by which either Parent or Mergerco is bound or (iv) any Requirements of
Laws affecting Parent or Mergerco, except for, in the case of clauses
(ii) or (iii) of this Section 6.2.3.1, any such conflicts, breaches,
defaults, rights or Encumbrances that, individually or in the aggregate,
would not have a Material Adverse Effect on Parent or materially impair
the ability of Parent to perform its obligations hereunder or prevent
the consummation of any of the transactions contemplated hereby; or
6.2.3.2 require the approval, consent, authorization or act
of, or the making by either Parent or Mergerco of any declaration,
filing or registration with, any Person, except for the Merger Filing
and such other consents, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made
would not, individually or in the aggregate, have a Material Adverse
Effect on Parent or materially impair the ability of Parent to perform
its obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby.
6.3 No Investment Banker Fees Payable by Stockholders. No
Stockholder will have any liability for any fees or commissions payable by
either Mergerco or Parent (or any Person acting on behalf of Mergerco or Parent)
to any investment banker, broker, finder or intermediary for or on account of
the transactions contemplated by this Agreement.
6.4 Parent SEC Documents. Parent has previously delivered to the
Company and each of the Stockholders of the Company complete and correct copies
of all reports (including annual reports on Form 10-K, quarterly reports on Form
10-Q and current reports on Form 8-K) filed by it with the SEC since January 1,
2001 (the "Parent SEC Documents"). As of their respective dates, the Parent SEC
Documents complied in all material respects with the requirements of the
Exchange Act and none of the Parent SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
6.5 Disclosure. This Agreement, Parent Ancillary Agreements, and
certificates and documents delivered by, or to be delivered by Parent under this
Agreement or the Parent Ancillary Agreements, taken together, do not contain any
untrue statement of a material fact and do not omit to state any material fact
necessary in order to make the statements contained herein and therein, in light
of the circumstances under which such statements were made, not misleading.
33
7. ACTION PRIOR TO THE MERGER FILING.
The parties hereto covenant and agree to take the following actions
between the date hereof and the Merger Filing:
7.1 Action by Stockholders. The Company shall circulate for
signature any required documents, certificates or instruments required to
consummate the Merger Filing.
7.2 Stockholders' Representative. For purposes of this Agreement and
the transactions contemplated hereby, the Effective Time Stockholders, without
any further action on the part of any such party, shall be deemed to have
consented to the appointment of Xxxx Xxxxxx and Xxxx Xxxxxx as the
representative of such party (the "Stockholders' Representative"), as the
attorney-in-fact for and on behalf of each such party, and the taking by the
Stockholders' Representative of any and all actions and the making of any
decisions required or permitted to be taken by him under this Agreement,
including the exercise of the power to (i) execute the Escrow Agreement, (ii)
authorize delivery to Parent of the Escrow Shares, or any portion thereof, in
satisfaction of Losses and Expenses or amounts owed under this Agreement, the
Escrow Agreement or the Royalty Participation Agreement, (iii) agree to,
negotiate, enter into settlements and compromises of and comply with orders of
courts and awards of arbitrators with respect to such Losses and Expenses and
amounts owed, (iv) resolve any Parent indemnification claims, and (v) take all
actions necessary in the judgment of the Stockholders' Representative for the
accomplishment of the foregoing and all of the other terms, conditions and
limitations of this Agreement, the Escrow Agreement and the Royalty
Participation Agreement. Accordingly, the Stockholders' Representative has
unlimited authority and power to act on behalf of each Stockholder with respect
to this Agreement, the Escrow Agreement and the Royalty Participation Agreement
and the disposition, settlement or other handling of all Losses and Expenses,
rights or obligations arising from and taken pursuant to any such agreement. The
Effective Time Stockholders will be bound by all actions taken by the
Stockholders' Representative in connection with this Agreement, the Escrow
Agreement or the Royalty Participation Agreement, and Parent, the Company and
Mergerco shall be entitled to rely, and will incur no liability with respect to
such reliance, on any action, consent, instruction or decision of either Xxxx
Xxxxxx or Xxxx Xxxxxx as the action, consent, instruction or decision of the
Stockholders' Representative (and shall have no responsibility or obligation to
determine the authority, authenticity, accuracy or truth thereof). The
Stockholders' Representative will incur no liability with respect to any action
taken or suffered by him in reliance upon any notice, direction, instruction,
consent, statement or other document believed by him to be genuine and to have
been signed by the proper person (and shall have no responsibility to determine
the authenticity thereof), nor for any other action or inaction, except his own
willful misconduct or gross negligence. In all questions arising under this
Agreement, the Escrow Agreement or the Royalty Participation Agreement, the
Stockholders' Representative may rely on the advice of counsel, and the
Stockholders' Representative will not be liable to any Effective Time
Stockholder for anything done, omitted or suffered in good faith by the
Stockholder' Representative based on such advice. The Stockholders'
Representative will not be required to take any action involving any expense
unless the payment of such expense is made or provided for by the Stockholders
in a manner satisfactory to him. At any time during the term of the Escrow
Agreement and the Royalty Participation Agreement, those parties who are then
the holders of a majority in interest of the Escrow Shares or the shares of THQ
Stock issued to such parties in accordance with this agreement, as applicable,
can appoint a new Stockholders' Representative by written consent by sending
notice and a copy of the written consent appointing such new Stockholders'
Representative signed by such holders to Parent and the Escrow Agent, in the
case of the Escrow Agreement. Such appointment will be effective upon the later
of the date indicated in the consent or the date such consent is received by
Parent and the Escrow Agent. The parties hereto shall make available to
Stockholders' Representative (the parties hereby acknowledge
34
and agree that this right of examination is not an individual right) such books,
records and other information (including workpapers) as Stockholders'
Representative may reasonably request for the taking of any and all actions and
the making of any decisions required or permitted to be taken under this
Agreement; provided, however, with respect to audit rights under the Royalty
Participation Agreement, Section 5 thereof will control.
7.3 Action by Parent. Parent shall take such actions, as the sole
stockholder of Mergerco, as may be necessary to approve the Merger and adopt
this Agreement under the ABCA.
7.4 Investigation of the Company by Parent. The Company shall afford
to the officers, employees and authorized representatives of Parent (including
its accountants, attorneys and financial advisors) reasonable access during
normal business hours to the offices, properties, employees and business and
financial records (including computer files, retrieval programs and similar
documentation) of the Company to the extent Parent shall deem necessary or
desirable, and shall furnish to Parent or its authorized representatives such
additional information concerning the operations, properties and business of the
Company as may be reasonably requested to enable Parent or its representatives
to verify the accuracy of the representations and warranties contained in this
Agreement, to verify that the covenants of the Company contained in this
Agreement have been complied with, to determine whether the conditions set forth
in Section 8 have been satisfied, and to make the determinations provided for in
this Agreement. Parent agrees that such investigation shall be conducted in such
a manner as not to interfere unreasonably with the operations of the Company. No
investigation made by Parent or its representatives hereunder shall affect the
efficacy of any of the representations and warranties of the Company hereunder
or the rights of Parent under Section 10.
7.5 Preserve Accuracy of Representations and Warranties. Each of the
parties hereto shall refrain from taking any action which would render any
representation or warranty set forth in Sections 5 or 6 of this Agreement
inaccurate as of the Effective Time. Each party shall promptly notify the other
parties of any Action that shall be instituted or threatened against such party
to restrain, prohibit or otherwise challenge the legality of any transaction
contemplated by this Agreement. The Company shall promptly notify Parent of any
Action that may be instituted or threatened against the Company which would have
been listed in Schedule 5.6 if such Action had arisen prior to the date hereof.
7.6 Conduct of Business Prior to the Effective Time. Except as
expressly contemplated by this Agreement, including the Schedules hereto, the
Company shall carry on its business in, and not enter into any material
transaction other than in accordance with, the ordinary course consistent with
past practice and, to the extent consistent therewith, use its reasonable best
efforts to preserve intact its current business organization, keep available the
services of its current employees and preserve its relationships with Persons
having dealings with it. In connection therewith, the Company shall not (i)
transfer or cause to be transferred any employee or agent of the Company to any
Affiliates of the Company or any Stockholder, (ii) permit any Affiliate of the
Company or of any Stockholder to offer employment to any such employee or agent,
or (iii) otherwise attempt to persuade any such employee or agent to terminate
his or her relationship with the Company other than for reasons that are in the
best interests of the Company. Without limiting the generality of the foregoing,
and except as expressly contemplated by this Agreement, the Company shall not,
without the prior written consent of Parent:
7.6.1 take any action of the nature described in Section
5.16;
7.6.2 grant any additional options, issue, deliver, sell,
pledge, dispose of or otherwise encumber any shares of its capital stock
or other securities (including any rights, warrants or options to
acquire any shares of its capital stock or other securities); or issue
any
35
certificate evidencing any shares of Company Common Stock in replacement
for any certificate that has been lost, destroyed or stolen, except upon
receipt from the issuee thereof of indemnification of the Company in
form and substance satisfactory to Parent;
7.6.3 amend its Articles of Incorporation or Bylaws;
7.6.4 acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of or equity
in, or by any other manner, any business or any Person or division
thereof;
7.6.5 make or incur any new capital expenditure or
expenditures which, individually, is in excess of $20,000 or, in the
aggregate, are in excess of $50,000;
7.6.6 pay, discharge or satisfy any claim by or liability or
obligation owing to, any present, former or purported holder of any
securities of the Company;
7.6.7 alter through merger, liquidation, reorganization,
restructuring or in any other fashion its corporate structure;
7.6.8 except for payments set forth on Schedule 5.23, enter
into or adopt, or amend, any bonus, incentive, deferred compensation,
insurance, medical, hospital, disability or severance plan, agreement or
arrangement or enter into or adopt, or amend, any employee benefit plan
or employment, consulting or management agreement, other than any such
amendment to an employee benefit plan that is made to maintain the
qualified status of such plan or its continued compliance with
applicable law; or pay or commit to pay any bonus to any officer or
employee of the Company, or make any other material change in the
compensation of its employees;
7.6.9 modify in any material respect any of the Company
Agreements; or enter into any agreement, understanding, obligation or
commitment; or incur any indebtedness or obligation, of the type that
would have been required to be listed in Schedule 5.17 if in existence
on the date hereof; or enter into any contract that provides for any
approval or consent by any Person to the transactions contemplated by
this Agreement, including but not limited to, any license or other
development agreement with respect to or in furtherance of the licensing
or other transfer any of the Company's proprietary rights or
intellectual property, or any rights therein, or with respect to the
development of any games by the Company;
7.6.10 enter into any other transaction affecting the
business of the Company, other than in the ordinary course of business
consistent with past practice or as expressly contemplated by this
Agreement;
7.6.11 file any Tax Return in respect of its Federal income
Taxes or state income or franchise Taxes; or
7.6.12 with respect to Taxes other than Federal income Taxes
or state income or franchise Taxes, prepare or file any Tax Return
inconsistent with prior practice, or on any such Tax Return, take any
position, make any election, or adopt any method that is inconsistent
with positions taken, elections made or methods used in preparing or
filing similar Tax Returns in prior periods.
36
7.7 Notification by the Company of Certain Matters. During the
period prior to the Effective Time, the Company shall promptly advise Parent in
writing of (i) any change or event of which the Company has knowledge that could
have a Material Adverse Effect on the Company, (ii) any notice or other
communication from any third Person alleging that the consent of such third
Person is or may be required in connection with the transactions contemplated by
this Agreement, and (iii) any material default under any Company Agreement or
event which, with notice or lapse of time or both, would become such a default
on or prior to the Effective Time and of which the Company has knowledge.
7.8 Mutual Cooperation; Reasonable Best Efforts. The parties hereto
shall cooperate with each other, and shall use their respective reasonable best
efforts to cause as promptly as possible the fulfillment of the conditions to
each other party's obligations hereunder and to obtain as promptly as possible
all consents, authorizations, orders or approvals from each and every Person
required in connection with the transactions contemplated by this Agreement.
Each of the parties hereto shall take all such actions as may reasonably be
requested by another party hereto in order to further the consummation of the
transactions contemplated hereby and the acquisition of the control of the
Company by Parent on the terms and subject to the conditions set forth herein
and to permit such party to verify that the covenants of the other parties
contained in this Agreement have been complied with.
7.9 No Solicitation. The Company acknowledges that Parent has
incurred and will incur substantial third party fees and internal costs in
performing its due diligence investigation and performing its other covenants
and agreements hereunder. In consideration of the efforts Parent has undertaken
and proposes to undertake and in order to facilitate the transactions
contemplated hereby, the Company agrees that prior to the termination pursuant
to Section 11 of the obligations of the parties to consummate the Merger, it
will not, nor shall it authorize or permit any of its Affiliates or any officer,
director, employee, investment banker, attorney or other adviser or
representative of the Company or any of its Affiliates to, (i) solicit,
initiate, or encourage the submission of, any Acquisition Proposal, (ii) enter
into any agreement with respect to any Acquisition Proposal, or (iii)
participate in any discussions or negotiations regarding, or furnish to any
person any information for the purpose of facilitating the making of, or take
any other action to facilitate any inquiries or the making of, any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal.
The Company promptly shall advise Parent of any Acquisition Proposal and any
inquiries with respect to any Acquisition Proposal. "Acquisition Proposal" means
any proposal for a merger or other business combination involving the Company or
any of its Affiliates or any proposal or offer to acquire in any manner,
directly or indirectly, an equity interest in the Company or any of its
Affiliates, any voting securities of the Company or any of its Affiliates or a
substantial portion of the assets of the Company.
7.10 Removal of Assets. The Company shall not knowingly permit the
removal from the Company's premises of any of the assets, except for the
Transferred Assets, books or records of the Company by any of the Stockholders
or any of the Company's directors, officers or employees.
7.11 Company Bonuses. The Company shall prepare a certificate
executed by the Company's Chief Financial Officer setting forth the amount of
outstanding Company Bonuses as of the Effective Time.
7.12 Assumption of Stock Options. At the Effective Time, Parent
shall agree to assume the obligations of the Company with respect to the
outstanding Options, with the effect that each of the Options shall remain
outstanding in accordance with the terms of the agreements reflecting the terms
and conditions of each of the Options, except that upon each exercise of an
Option after the Effective Time the holder of such Option shall receive, in lieu
of shares of Company Common Stock, that number of shares of THQ Stock equal to
(i) the number of shares of Company Common Stock that would
37
have been issuable upon exercise of such Option, multiplied by (ii) the Merger
Ratio (adjusted to take into account any stock split, stock dividend or similar
change in capitalization of THQ Stock after the Effective Time). Parent agrees
to file with the SEC a registration statement on Form S-8 covering the THQ
Shares that will be issuable upon the exercise of the Options not later than 15
Business Days after the Effective Time.
7.13 Consents of Third Parties and Governmental Approvals.
7.13.1 The Stockholders and the Company will act diligently
and reasonably to secure, before the Effective Time, the consent,
approval or waiver, in form and substance reasonably satisfactory to
Parent, from any party to any Company Agreement required to satisfy the
condition set forth in Section 8.5, including, without limitation, the
release of any guaranties that the Company or any of the Shareholders,
on behalf of the Company, have given; provided, however, that the
Company shall not make any agreement or understanding affecting the
Company or its assets or business as a condition for obtaining any such
consents or waivers except with the prior written consent of Parent.
7.13.2 During the period prior to the Effective Time, the
parties hereto shall act diligently and reasonably, and shall cooperate
with each other, to secure any consents and approvals of any
Governmental Body required to be obtained by them in order to permit the
consummation of the transactions contemplated by this Agreement or to
otherwise satisfy the conditions set forth in Section 8.4; provided,
however, that the Company shall not make any agreement or understanding
affecting the Company or its assets or business as a condition for
obtaining any such consents or approvals except with the prior written
consent of Parent.
7.14 Fees and Expenses. Except as may otherwise be expressly
provided in this Agreement, and subject to the limit of $50,000 in the
aggregate, Parent shall, upon receipt of appropriate documentation, reimburse or
pay on behalf of the Company for its legal costs and expenses incurred by it in
connection with the preparation, negotiation, execution, delivery and
performance of this Agreement and each of the other documents and instruments
executed in connection with or contemplated by this Agreement and the
consummation of the transactions contemplated hereby and thereby; provided,
however, that the payment of any fees and disbursements of counsel, accountants
and other financial, legal, accounting and other advisors retained by the
Company or any Stockholder incurred for services rendered after the Effective
Time in connection with the Merger or this Agreement or any Ancillary Agreement,
including, but not limited to, services for the purposes of instituting legal
action to construe or enforce this Agreement or any Ancillary Agreement or any
provision hereof or thereof, shall be borne and paid by the Effective Time
Stockholders. Any payment by Parent of fees or expenses in excess of the limit
described in this Section 7.14 shall be recovered by Parent pursuant to Section
10.1 hereof ("Excess Expenses"). Notwithstanding anything herein to the
contrary, Parent shall, upon receipt of appropriate documentation, reimburse the
Company for, or pay on behalf of the Company, its cost incurred in connection
with the audit of its financial statements as of and for the year ended December
31, 2000 and (ii) the review of its financial statements for the nine (9) month
period ended September 30, 2001.
7.15 Payment of Debts, Liabilities and Obligations. The Company
shall fully pay, discharge and satisfy all of the outstanding debts, liabilities
and obligations set forth on Schedule 4.8.14, prior to the Closing Date.
7.16 Preparation of Escrow Agreement. The parties shall prepare and
cause to be executed, prior to or concurrently with the Merger Filing, an escrow
agreement among the Company, Parent, the Stockholders' Representative and the
Escrow Agent (the "Escrow Agreement"). The Escrow
38
Agreement shall, among other matters, (i) appoint the Escrow Agent as the escrow
agent thereunder; (ii) provide for the deposit by Parent of the Escrow Shares
into the Escrow at or before the Merger Filing; (iii) provide for the release of
Escrow Shares to Parent in accordance with the terms thereof, (iv) provide for
the procedures by which the Parent Group Members may submit Claims Notices and
by which the Stockholders' Representative may challenge such Claims Notices; (v)
provide for the release of all Escrow Shares then in escrow to the Stockholders
on the nine month anniversary of the Closing Date (except to extent any such
amounts are required to cover Losses or Expenses for which a right to
indemnification is asserted in Claim Notices submitted on or prior to such
date); and (vi) include such other provisions as are customary for such
agreements or which the Escrow Agent requires be included for its benefit.
7.17 Registration Rights. Parent agrees to provide to each of the
Effective Time Stockholders, Xxxxxxx Xxxxxx and Comerica registration rights
with respect to the THQ Shares issued to them in accordance with this Agreement
and the Royalty Participation Agreement, on the terms and subject to the
conditions set forth in Exhibit C hereto and to undertake all actions required
by Exhibit C in order to secure an effective Registration Statement with respect
to such shares.
7.18 Cancellation of Comerica Warrant. The Company shall cause
Comerica to agree to the cancellation of the Comerica Warrant in consideration
for the receipt of the Comerica Warrant Shares.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGERCO
The obligations of Parent and Mergerco to cause the Merger Filing
shall, except to the extent waived by Parent, be subject to the satisfaction, on
or prior to the Merger Filing, of the following conditions:
8.1 No Misrepresentation or Breach of Covenants and Warranties.
There shall have been no material breach by the Company or the Effective Time
Stockholders in the performance of its or their covenants and agreements herein
or in any of the Ancillary Agreements. None of the representations and
warranties of the Company or the Effective Time Stockholders contained or
referred to herein shall be untrue or incorrect in any respect (in the case of
any representation or warranty containing any materiality qualification) or in
any material respects (in the case of any representation and warranty without
any materiality qualification) either when made or as of the Effective Time (in
each case, without regard to any Knowledge Qualification that may be included in
such representation and warranty), except for changes therein specifically
permitted by this Agreement or resulting from any transaction expressly
consented to in writing by Parent. There shall have been delivered to Parent and
Mergerco a certificate or certificates to such effect, dated the Closing Date
and signed on behalf of the Company by the President or any Vice President of
the Company.
8.2 No Changes to or Destruction of Property. Between the date
hereof and the Effective Time, there shall have been (i) no change or event
having a Material Adverse Effect on the Company; and (ii) no material adverse
federal or state legislative or regulatory change affecting the Company's
business; and there shall have been delivered to Parent and Mergerco a
certificate or certificates to such effect, dated the Closing Date and signed on
behalf of the Company by the President or any Vice President of the Company.
39
8.3 No Restraint or Litigation. (i) No order shall have been entered
in any Action before any Governmental Body, and no preliminary or permanent
injunction by a court of competent jurisdiction shall have been issued and
remain in effect, that would have the effect of (a) making the purchase of, or
payment for, any shares of Company Common Stock pursuant to this Agreement
illegal, or (b) otherwise making the consummation of the Merger illegal; and
(ii) no Action shall be pending before any Governmental Body or any such court
against the Company, the Effective Time Stockholders, Parent or Mergerco that
challenges the legality or validity of this Agreement, the Merger or any of the
transactions contemplated hereby or seek damages or any other remedy in
connection therewith.
8.4 Necessary Governmental Approvals. The parties shall have
received all approvals and actions of or by all Governmental Bodies which are
necessary to consummate the transactions contemplated hereby, which are either
specified in Schedule 5.5 or otherwise required to be obtained prior to the
Effective Time by applicable Requirements of Laws or which are necessary to
prevent a Material Adverse Effect on the Company.
8.5 Necessary Consents. The Company shall have received consents, in
form and substance reasonably satisfactory to Mergerco and Parent, to the
transactions contemplated hereby from the other parties to all contracts,
leases, agreements and permits to which the Company is a party or by which the
Company or any of its assets is affected and which are specified in Schedule 5.5
or are otherwise necessary to prevent a Material Adverse Effect on the Company.
8.6 Stockholder Approval and Execution. This Agreement shall have
been unanimously adopted and executed by all of the Effective Time Stockholders.
8.7 Transferred Assets. The Company shall have transferred all of
its right, title and interest in and to the Transferred Assets and any
liabilities related thereto prior to the Closing Date.
8.8 Certification of Shares and Options Outstanding. On the Closing
Date, the Company shall deliver a certification of its Chief Financial Officer
to the effect that the number of shares of Company Common Stock and the number
of Options outstanding as of the Closing Date is consistent with the
representations made in Section 5.3.2.
8.9 [Reserved].
8.10 Estimated Net Book Value. The net book value of the tangible,
realizable assets of the Company less Company Aggregate Obligations as estimated
by Parent in its good faith five days prior to the Closing Date shall not be
less than negative $1,500,000.
8.11 Consent of Optionholders; No Exercise of Stock Options. Each
Optionholder shall have executed and delivered to Company a Consent of
Optionholder other than Xxxxx Xxxx. No Optionholder shall have exercised its
Options prior to the Effective Time.
8.12 Standard Parent Employee Agreements. Each of the Company's
employees who are offered employment by the Parent and are not entering into the
Employment Agreements (other than Xxxxx Xxxx) shall have executed and delivered
to Parent its standard confidentiality, non-competition and non-solicitation
agreement.
8.13 Stock Price. The Stock Price shall not be lower than $39.
40
8.14 Company Bonuses. The Parent shall have received from the
Company a certification of its Chief Financial Officer setting forth the amount
of outstanding Company Bonuses that upon the approval of Parent, the Parent
shall assume as of the Effective Time.
8.15 Right of First Refusal. Parent shall have received the Right of
First Refusal duly executed by the parties thereto.
8.16 Cancellation of Comerica Warrant. Comerica shall have agreed to
the cancellation of the Comerica Warrant in consideration for the receipt of the
Comerica Warrant Shares.
8.17 Consent of holders of Performance Shares. Each holder of
Performance Shares (other than Xxxxx Xxxxxxx and Xxxxx Xxxxxxx) shall have
executed and delivered to the Company a Consent of Performance Shareholder.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.
The obligations of the Company to cause the Merger Filing shall,
except to the extent waived by the Company, be subject to the satisfaction, on
or prior to the Merger Filing, of the following conditions:
9.1 No Misrepresentation or Breach of Covenants and Warranties.
There shall have been no material breach by Parent or Mergerco in the
performance of any of their respective covenants and agreements herein. None of
the representations and warranties of Parent or Mergerco contained or referred
to herein shall be untrue and incorrect in any respect (in the case of any
representation or warranty containing any materiality qualification) or in any
material respects (in the case of any representation and warranty without any
materiality qualification), either when made or as of the Effective Time (in
each case, without regard to any Knowledge Qualification that may be included in
such representation and warranty), except for changes therein specifically
permitted by this Agreement or resulting from any transaction expressly
consented to in writing by the Company. There shall have been delivered to the
Company a certificate or certificates to such effect, dated the Closing Date and
signed on behalf of Parent by the President or any Vice President of Parent and
on behalf of Mergerco by the President or any Vice President of Mergerco.
9.2 No Restraint or Litigation. (i) No order shall have been entered
in any Action before any Governmental Body, and no preliminary or permanent
injunction by a court of competent jurisdiction shall have been issued and
remain in effect, that would have the effect of (a) making the purchase of, or
payment for, any shares of Company Common Stock pursuant to this Agreement
illegal, or (b) otherwise making the consummation of the Merger illegal; and
(ii) no Action shall be pending before any Governmental Body or any such court
against the Company that challenges the legality or validity of this Agreement,
the Merger or any of the transactions contemplated hereby or seek damages or any
other remedy in connection therewith.
9.3 Necessary Governmental Approvals. The Company shall have
received all approvals and actions of or by all Governmental Bodies necessary to
consummate the transactions contemplated hereby, which are required to be
obtained prior to the Effective Time by applicable Requirements of Laws.
9.4 Stock Price. The Stock Price shall not be higher than $57.
41
10. INDEMNIFICATION.
10.1 Indemnification of Parent Group Members.
10.1.1 The Stockholder Group Members shall each jointly and
severally indemnify and hold harmless each Parent Group Member from and
against any and all Losses and Expenses incurred by such Parent Group
Member in connection with or arising from:
10.1.1.1 any breach or failure to perform, or any
third party claim that if successful would constitute a breach or
failure to perform, by the Company of any of its agreements,
covenants or obligations in this Agreement or in any Ancillary
Agreement to be performed prior to the Effective Time;
10.1.1.2 any breach of any representation or
warranty of Company, contained or referred to in this Agreement
(including any misrepresentation or warranty in, or omission
from, any Schedule, Exhibit, statement, certificate, report or
other document furnished or to be furnished by or on behalf of
the Company or any Stockholder pursuant hereto or thereto);
10.1.1.3 any liability or obligation of the Company
in respect of the assets, operations or business of the Company
arising from events occurring on or prior to the Effective Time,
excepting only (a) such liabilities and obligations as are
disclosed in the Schedules to this Agreement, or (b) are assumed
pursuant to this Agreement; provided that, notwithstanding
anything to the contrary in this Agreement, the Stockholder Group
Members shall not indemnify, or be liable to, any Parent Group
Member for any Losses arising from a violation of any electrical,
building, zoning, environmental or occupational safety and health
ordinance, regulation or similar requirement or other law, bylaw
or regulation applicable to the Owned Real Property unless such
Loss results from a breach of Section 5.13.
10.1.1.4 any Tax liability or Loss attributable to
the ownership, operation or business of any of the Transferred
Assets before or after the Closing or attributable to the
disposition of any of the Transferred Assets pursuant to Section
8.7 or otherwise; provided that no representation, warranty or
indemnity is, or shall be made, with respect to any Tax Loss
relating to the Transferred Assets.
10.1.1.5 any Tax liability or Loss attributable to
any and all (i) income tax periods ending on or prior to the
Closing Date, and (ii) income tax periods that begin before the
Closing Date and end after the Closing Date; provided, however,
that Parent Group Members shall only be entitled to
indemnification under clause (ii) of this Section 10.1.1.5 for
any Tax liability or Loss which relates to the portion of such
taxable period ending on the Closing Date; ; provided that no
representation, warranty or indemnity is, or shall be made, with
respect to any Tax Loss relating to the Transferred Assets.
10.1.1.6 attributable to any and all Actions which
now exist or may hereafter arise based on any fact or
circumstance arising out of or occurring in connection with (i)
the services provided by Xxxx Xxxxx and Xxxx Xxxxxxx to DT
Pictures LLC, (ii) the Development Agreement between the Company
and LucasArts Entertainment Company LLC, dated as of September 1,
2000, as amended, (iii) any and all agreements between the
Company and Sony Computer Entertainment America Inc., if such
Action
42
arises as a result of the Contemplated Transaction; provided,
however that the Stockholder Group Members shall have no
obligation to indemnify and hold harmless the Parent Group
Members from any Losses or Expenses attributable to termination
of such agreements pursuant to any "termination for convenience"
clause thereunder, and (iv) any and all agreements, whether
written or oral between the Company and Microsoft Corporation;
provided, however, that the Stockholder Group Members shall have
no obligation to indemnify and hold harmless the Parent Group
Members from any Losses or Expenses attributable to any payments
owed to Microsoft Corporation in accordance with the terms and
conditions of that certain letter agreement between the Company
and Microsoft Corporation dated as of August 6, 2001; and
10.1.1.7 any Excess Expense arising under Section
7.14 hereto or any amounts owed under Section 4.5.6 hereto that
is not recovered pursuant to the Escrow Agreement.
10.1.2 Indemnification Limit. The Stockholder Group Members'
obligation to indemnify and hold harmless the Parent Group Members under
this Section 10 with respect to all Losses and Expenses incurred by
Parent Group Members shall commence at such time that the aggregate
amount of such Losses and Expenses equals or exceeds $125,000 (the
"Indemnification Threshold") (it being understood that at such time, the
Parent Group Members shall be entitled to indemnification from the
Stockholder Group Members for all Losses and Expenses in excess of $0);
provided, that no Loss or Expense shall be included in the calculation
of such Indemnification Threshold unless such Loss or Expense exceeds
$5,000 (each such Loss or Expense that is less than or equal to $5,000
shall be hereafter called a "De Minimis Expense"); provided, further,
that at such time the aggregate amount of De Minimis Expenses exceeds
$25,000, any and all subsequent Losses or Expenses in any amount shall
be included in the calculation of the Indemnification Threshold. In
addition, the parties hereby agree that the aggregate amount of Losses
or Expenses that the Stockholder Group Members' shall be required to
indemnify and hold harmless the Parent Group Members from and against
shall be limited to:
10.1.2.1 $50,000,000 for Losses or Expenses in
connection with or arising from the fraud, willful deceit or
intentional misrepresentation of the Company or any of the
Effective Time Stockholders;
10.1.2.2 $25,000,000 for Losses or Expenses in
connection with or arising from any situation described in
Sections 10.1.1.1, 10.1.1.2, 10.1.1.3. 10.1.1.6 or 10.1.1.7;
provided, however, that there shall be no limit on the Stockholder Group
Members' obligation to indemnify and hold harmless the Parent Group Members
under Sections 10.1.1.4 or 10.1.1.5 or from and against any and all Tax
liability or Loss in connection with or arising from any situation described in
Sections 10.1.1.1, 10.1.1.2, 10.1.1.3.
10.1.3 After a final determination of a Loss or Expense in
accordance with this Section 10, each Parent Group Member shall have the
right (but not the obligation), without limitation of its other rights
and remedies available at law or in equity, to set off or recover any
Losses or Expenses to which such Parent Group Member is entitled to
indemnification under this Section 10 against any payments otherwise
payable to the Escrow Contributors from the Escrow in accordance with
the Escrow Agreement; provided, however, that in no event shall it be
43
construed that the Stockholder Group Members' requirement to indemnify
the Parent Group Members is limited to the Escrow Shares.
10.2 Indemnification by Parent and the Surviving Corporation. Parent
and the Surviving Corporation shall jointly and severally indemnify and hold
harmless each Stockholder Group Member from and against any and all Losses and
Expenses incurred by such Stockholder Group Member in connection with or arising
from:
10.2.1 any breach or failure to perform, or any third party
claim that if successful would constitute a breach or failure to
perform, by Parent or the Mergerco of any of their respective
agreements, covenants or obligations in this Agreement or in any Parent
Ancillary Agreement; or
10.2.2 any breach, or any third party claim that if
successful would constitute a breach, of any warranty or the inaccuracy,
or any third party claim that if successful would constitute an
inaccuracy, of any representation or warranty of Parent or Mergerco
contained or referred to in this Agreement (including any
misrepresentation or warranty in, or omission from, any Schedule,
Exhibit, statement, certificate, report or other document furnished or
to be furnished by or on behalf of Parent or Mergerco pursuant hereto).
10.3 Notice of Claims.
10.3.1 If any Parent Group Member (with respect to Section
10.1) or any Stockholder Group Member (with respect to Section 10.2)
believes that it has suffered or incurred any Loss or incurred any
Expense, such Parent Group Member or Stockholder Group Member, as the
case may be (the "Indemnified Person"), shall so notify the parties
obligated to provide indemnification to such Indemnified Person (the
"Indemnitor") (which, in the event such notice is given by a Parent
Group Member, shall be given to the Stockholders' Representative)
promptly in writing describing such Loss or Expense, the amount thereof,
if known, and the method of computation of such Loss or Expense, all
with reasonable particularity and containing a reference to the
provisions of this Agreement, any certificate delivered pursuant hereto,
any Ancillary Agreement or any Parent Ancillary Agreement in respect of
which such Loss or Expense shall have occurred (such written
notification being sometimes hereinafter referred to as the "Claim
Notice"); provided, however, that an omission by the Indemnified Person
to give notice as provided herein shall not relieve the Indemnitor of
its indemnification obligation under this Section 10 except to the
extent that the Indemnitor is actually prejudiced by such action. If any
Action is instituted by or against a third party with respect to which
any Indemnified Person intends to claim any liability or expense as Loss
or Expense under this Section 10, such Indemnified Person shall promptly
notify the Indemnitor (which, in the event such notice is given by a
Parent Group Member, shall be given to the Stockholders' Representative)
of such Action as specified in this Section 10.3.
10.3.2 The Indemnitor shall have the right, at its own cost,
to elect to assume the defense of any third-party claim, demand, lawsuit
or other proceeding in connection with which the Indemnified Person has
claimed indemnification hereunder (the "Election"), within fifteen (15)
Business Days following notice thereof (which, in the event such notice
is given by a Parent Group Member, shall be given to the Stockholders'
Representative), upon its written unconditional acknowledgment of its
obligation to indemnify the Indemnified Person with respect to such
claim, provided, however, the choice of legal counsel to defend such
claim shall require the consent of the Indemnified Person, which consent
shall not be unreasonably withheld or
44
delayed, provided further that, in the event there exists (a) a conflict
or potential conflict between the interests of the Indemnitor and the
Indemnified Person, or (b) additional defenses available to the
Indemnified Person, the Indemnified Person shall be entitled to separate
counsel, paid for by the Indemnitor. If the Indemnitor makes the
Election, (i) it shall keep the Indemnified Person informed as to the
status of such matter and shall promptly send copies of all pleadings to
the Indemnified Person (which, in the event such notice or copies are
given by a Parent Group Member, shall be given to the Stockholders'
Representative), and (ii) with respect to any issue involved in such
claim, it shall have the sole right, with respect to claims or portions
of claims seeking monetary damages only, to settle or otherwise dispose
of such claim on such terms as it, in its sole discretion, shall deem
appropriate; provided, however, that the consent of the Indemnified
Person to the settlement or disposition shall be required if such
settlement or disposition shall result in any liability to, equitable
relief against, as admission of liability by, or adverse business effect
on the Indemnified Person, which consent shall not be unreasonably
withheld or delayed. If the Indemnitor does not make the Election, the
Indemnitor shall have the right to participate, at it own cost, in the
defense of such claim, and the Indemnified Party shall have the right to
contest, compromise or settle such claim in the exercise of its
reasonable judgment; provided, however, that the consent of the
Indemnitor to any compromise or settlement of such claim shall be
required if such compromise or settlement shall require any payment by
the Indemnitor or otherwise result in any liability to the Indemnitor.
10.3.3 In calculating any Loss or Expense there shall be
deducted (i) any insurance recovery in respect thereof (and no right of
subrogation shall accrue hereunder to any insurer), and (ii) the amount
of any tax benefit to the Indemnified Person with respect to such Loss
or Expense (after giving effect to the tax effect of receipt of the
indemnification payments).
10.3.4 After the giving of any Claim Notice, the amount of
indemnification to which an Indemnified Person shall be entitled under
this Section 10 shall be paid within fifteen (15) days of receipt of the
Claim Notice unless the Indemnitor has given written notice of a dispute
in which case the claim for indemnification shall be made in accordance
with the dispute resolution procedures of Section 10.6.
10.4 Expiration of Indemnification.
10.4.1 In the event the Merger is consummated, the Parent
Group Members' right to indemnification pursuant to Section 10.1 shall
expire on the date that is the eighteen month anniversary of the Closing
Date; provided, however, that if any Claim Notice is given by a Parent
Group Member prior to the expiration of such eighteen month period, such
Parent Group Member's right to indemnification in respect of the matters
giving rise to such Claim Notice shall (i) continue until such matters
are finally terminated or otherwise resolved between such Parent Group
Member and the Stockholders' Representative in accordance with Section
10.6 or by a court of competent jurisdiction, as the case may be, and
all amounts, if any, payable hereunder in respect of those matters are
finally determined and paid, and (ii) extend to all Losses and Expenses
that are the subject of that indemnification obligation, whether
incurred before or after such Claim Notice is given. Notwithstanding
anything to the contrary in the foregoing or in this Agreement, the
Parent Group Members' right to indemnification under Sections 10.1.4,
10.1.5 or 10.1.6 or for any an all Tax liability or loss shall not
terminate until the applicable statute of limitations (if any) for any
Tax liabilities, Losses or Expenses thereunder shall have expired.
10.4.2 In the event the Merger is consummated, the
Stockholder Group Members' right to indemnification pursuant to Section
10.2 shall expire on the date that is the two
45
year anniversary of the Closing Date; provided, however, that if any
Claim Notice is given by a Stockholder Group Member prior to the
expiration of such two year period, such Stockholder Group Member's
right to indemnification in respect of the matters giving rise to such
Claim Notice (i) shall continue until such matters are finally
terminated or otherwise resolved between such Stockholder Group Member,
Parent and the Surviving Corporation in accordance with Section 10.6 or
by a court of competent jurisdiction, as the case may be, and all
amounts, if any, payable hereunder in respect of those matters are
finally determined and paid by Parent and/or the Surviving Corporation,
and (ii) shall extend to all Losses and Expenses that are the subject of
that indemnification obligation, whether incurred before or after such
Claim Notice is given.
10.5 Exclusive Remedy Following the Merger. In the event that the
Merger is consummated, except for claims under applicable securities laws, any
claim against any party hereto for any breach of this Agreement, the Ancillary
Agreements or the Parent Ancillary Agreements or in connection with any of the
transactions contemplated hereby or thereby shall be made solely pursuant to
this Section 10; provided, however, that if any of the Ancillary Agreements or
the Parent Ancillary Agreements, by their terms provide for remedies other than
those provided in this Section 10 ("Ancillary Remedies"), such Ancillary
Remedies shall be also available to the parties thereto; and provided further
that the parties hereto agree that the circumstances in which disputes between
them will not be subject to the provisions of this Section 10.5 is where (i) any
such alleged breach relates to confidentiality or nondisclosure, (ii) a party
makes a good faith determination that such breach may result in irreparable harm
to such party such that equitable or other relief in the form of a temporary
restraining order or other immediate injunctive relief is the only adequate
remedy, or (iii) the determination of the satisfaction of the conditions set
forth in Sections 8 and 9 hereof.
10.6 Dispute Resolution.
10.6.1 Representatives. Except as otherwise provided herein,
if any dispute arises under or relates to this Agreement, at the written
request of either party, each party will appoint a designated
representative (the "Representative", which in the case of the Effective
Time Stockholder shall be designated by the Stockholders'
Representative) to meet for the purpose of resolving the dispute. The
Representatives will meet at a mutually agreeable place within 10 days
after either party makes a written request to the other for such a
meeting. The Representatives will honor reasonable requests to exchange
information related to the dispute and will make an effort to negotiate
a resolution to the dispute. Negotiations shall continue until the
dispute is resolved or until either party informs the other in writing
that negotiations will not result in a mutually acceptable resolution
and an arbitrator should be appointed.
10.6.2 Arbitration.
10.6.2.1 In the event the dispute is not resolved
under Section 10.6.1, the parties agree that the dispute shall be
resolved by a private arbitration conducted by one arbitrator.
Within 10 days after the termination of negotiations pursuant to
Section 10.6.1, the parties shall agree upon one arbitrator (the
"Arbitrator"), selected from a permanent panel of no fewer than
15 names agreed upon by the parties (the "Permanent Panel"). If
the parties are unable to agree on the 15 names for the Permanent
Panel, either party may refer the matter to the office of the
American Arbitration Association ("AAA") for the limited purpose
of having AAA provide such number of names as are not agreed upon
by the parties. The parties shall select the arbitrator from the
Permanent Panel by alternately striking names until only one name
remains on the Permanent Panel. A toss of a coin will determine
which party is to strike the first name. Neither party may
46
choose as its arbitrator the person who was its Representative
under Section 10.6.1 of this Agreement or any person who is an
officer, director or employee of either party or any affiliated
entity of either party, or a person who has a direct or indirect
personal or financial interest in the outcome of the arbitration.
10.6.2.2 The Arbitrator shall set a hearing date
for an arbitration (the "Hearing") within 90 days from the date
the Arbitrator is selected, unless otherwise agreed by the
parties, or unless otherwise ordered by the Arbitrator at the
request of either party.
10.6.2.3 Unless otherwise agreed, within 15 days
before the Hearing, each party shall submit to the Arbitrator
with a copy to the other party a list of all witnesses and
exhibits which it intends to present at the Hearing. At the
request of any party the Arbitrator, consistent with the
expedited nature of arbitration, shall have the authority to
order such discovery, by way of deposition, interrogatory,
document production, or otherwise, as the Arbitrator considers
necessary to a full and fair exploration of the issues in
dispute.
10.6.2.4 No later than 10 days before the scheduled
Hearing, each party shall provide to the Arbitrator a short (not
to exceed five single-spaced pages or such other page limit as
the Arbitrator permits) statement of its position with regard to
the dispute.
10.6.2.5 At the Hearing, each party shall, unless
it waives the opportunity, make an oral opening statement, and an
oral closing statement.
10.6.2.6 When testimony is complete and each party
has introduced its exhibits, subject to the provisions of this
Agreement, and each party has made a closing statement pursuant
to the provisions of this Agreement or waived the opportunity to
do so, the Arbitrator shall declare the Hearing closed; provided,
however, the parties may submit post-hearing briefs pursuant to
an agreed upon schedule or one formulated by the Arbitrator.
10.6.2.7 The Hearing shall be held at a location
agreed upon by the parties and convenient for the Arbitrator, or
if the parties cannot agree upon a location, at a location
designated by the Arbitrator.
10.6.2.8 The Hearing shall be conducted in private.
Attendance at the Hearing shall be limited to the following: (i)
the Arbitrator; (ii) representatives of each party; (iii) each
party's attorneys and attorneys' assistants or advisors, if any,
including expert witnesses, if any; (iv) a court reporter if
requested by either party; and (v) any witnesses. The Arbitrator
may sequester witnesses upon the motion of a party.
10.6.2.9 Within 30 days of the close of the Hearing
or submission of the post-hearing briefs, the Arbitrator shall
issue a written opinion and award (the "Award"), based on
evidence, arguments and post-hearing briefs, if any. The Award
shall be a decision of the Arbitrator, shall resolve the parties'
dispute, and shall be final and binding on the parties. The fact
that an opinion is issued does not enlarge or restrict the
authority of a court provided in the AAA's Commercial Arbitration
Rules to review the arbitration
47
proceedings or the Award. The Arbitrator shall have the Award
delivered to each party in accordance with Section 10.
10.6.2.10 Except as otherwise provided in this
Agreement, there shall be no ex parte communication regarding the
subject matter of the Hearing between a party or its attorneys
and any Arbitrator from the time the Arbitrator is appointed
until after the parties receive the Award.
10.6.2.11 The parties may agree to submit the
dispute to the Arbitrator without a Hearing, in which event the
Arbitrator will render and deliver to the parties a written
opinion and Award within 30 days of being notified that the
parties waive the Hearing.
10.6.2.12 Notwithstanding any other provision of
this Agreement, the Arbitrator shall have no power to delete
from, add to, nor modify the terms of this Agreement, and may not
award any remedy which effectively conflicts directly or
indirectly with any provision of this Agreement.
10.6.2.13 The arbitration shall be governed by
AAA's Commercial Rules of Arbitration, except as otherwise
provided in this Agreement.
10.6.2.14 All expenses, costs and attorneys fees of
the arbitration shall be paid by the nonprevailing party. The
arbitrator shall award such expenses in the arbitration award.
11. TERMINATION.
11.1 Termination Rights. Notwithstanding anything contained in this
Agreement to the contrary, the obligations of the parties to consummate the
Merger may be terminated at any time prior to the Effective Time:
11.1.1 By the mutual consent of all of the parties hereto;
11.1.2 By Parent or the Company if the Merger Filing shall
not have occurred on or before December 31, 2001 (or such later date as
may be mutually agreed to by Parent and the Company);
11.1.3 By Parent in the event of any material breach by the
Company or any of the Stockholders of any of their respective
agreements, representations or warranties contained herein and, with
respect to any such breach that is curable, the failure of Company or
such Stockholder to cure such breach within fifteen (15) days after
receipt of notice from Parent requesting that such breach be cured; or
11.1.4 By the Company in the event of any material breach by
Parent or Mergerco of any of their respective agreements,
representations or warranties contained herein and, with respect to any
breach that is curable, the failure of Parent to cure such breach, or
cause Mergerco to cure such breach, within fifteen (15) days after
receipt of notice from the Company requesting that such breach be cured.
48
11.2 Notice of Termination. Any party desiring to terminate the
obligation of the parties to consummate the Merger this Agreement pursuant to
Section 11.1 (other than Section 11.1.1) shall give notice of such termination
to each of the other parties to this Agreement, identifying in such notice the
provision under which such termination is being effected.
11.3 Effect of Termination. In the event that the obligation of the
parties to consummate the Merger shall be terminated pursuant to this Section
11, all further obligations of the parties under this Agreement shall be
terminated without further liability of any party to the others; provided,
however, that such termination shall not relieve any party from liability for
its breach of this Agreement, or from such party's obligations under Section 10.
12. GENERAL PROVISIONS.
12.1 Survival of Obligations. All representations, warranties,
covenants and obligations contained in this Agreement shall survive the
consummation of the transactions contemplated by this Agreement for the periods
set forth herein.
12.2 Notices. All notices, requests, demands, consents, approvals,
designations and other communications called for or contemplated by this
Agreement shall be in writing and shall be deemed given to the party to whom
addressed (i) when delivered to such party by hand or by facsimile transmission,
(ii) one Business Day after being sent to such party by overnight courier, or
(iii) three Business Days after being sent to such party by registered or
certified mail (return receipt requested, postage prepaid), in each case at the
following address, or at such other address as such party may designate by
notice in the manner aforesaid:
If to the Company (after the Effective Time), Parent or Mergerco, to:
THQ Inc.
00000 Xxxxxx Xxxx
Xxxxx 000
Xxxxxxxxx Xxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx
Chairman of the Board, President and Chief
Executive Officer
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with a copy to:
Sidley Xxxxxx Xxxxx & Xxxx
000 Xxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
If to the Company (prior to the Effective Time) or the Stockholder's
Representative to:
49
Rainbow Studios
0000 X. 0xx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxx Xxxxxx
Chief Executive Officer
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
and
Xxxx Xxxxxx
0000 X. Xxxxxxx Xxxx
Xxxxxxx, Xxxxxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with a copy to:
Xxxxx, Price & Xxxxxx
0000 Xxxx Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with a copy to:
Xxxxx Xxxx, LLP
Xxx Xxxxx Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000-0000
Attention: Xxxxx X. Xxxxxxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
or to such other address as such party may indicate by a notice delivered to the
other parties hereto.
12.3 Successors and Assigns; No Third-Party Beneficiaries.
12.3.1 The rights of each party under this Agreement shall
not be assignable by such party prior to the Effective Time without the
written consent of each of the other parties. Following the Effective
Time, any party may assign any of its rights hereunder, but no such
assignment shall relieve it of its obligations hereunder.
12.3.2 This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors and permitted
assigns. The successors and permitted assigns hereunder shall include
without limitation, in the case of Parent, any permitted assignee as
well as the successors in interest to such permitted assignee (whether
by merger, liquidation (including successive mergers or liquidations) or
otherwise). Except as provided in Section 10 in the event of the
consummation of the Merger with respect to the rights and remedies of
the Stockholders, nothing in this Agreement, expressed or implied, is
intended or shall be construed to confer upon
50
any Stockholder or other Person other than (i) the parties hereto and
their successors and permitted assigns, and (ii) the Stockholders'
Representative, in his capacity as such, any right, remedy or claim
under or by reason of this Agreement or the transactions contemplated
hereby.
12.4 Entire Agreement; Amendments. This Agreement and the Exhibits
and Schedules referred to herein and the documents delivered pursuant hereto
contain the entire understanding of the parties hereto with regard to the
subject matter contained herein or therein; and such agreements and other
documents supersede all prior agreements and understandings between or among any
of the parties hereto. This Agreement shall not be amended, modified or
supplemented except by a written instrument signed by an authorized
representative of each of the parties hereto.
12.5 Rules of Construction. Whenever in this Agreement the context
so suggests, references to the masculine shall be deemed to include the feminine
and the neuter, references to the singular shall be deemed to include the
plural, and references to "or" shall be deemed to be disjunctive but not
necessarily exclusive. No provision of this Agreement shall be construed in
favor of or against any party hereto by reason of the extent to which any such
party or its counsel participated in the drafting thereof, nor shall the
interpretation of this Agreement be affected by reason that this Agreement or
any provision hereof is inconsistent with any prior draft hereof. Except where
expressly provided to the contrary, each reference herein to a "Section" is to a
Section of this Agreement; each reference herein to a Section includes all
Sections subsidiary to the Section referred to. The words "herein," "hereof,"
and "hereunder," and other words of similar import, refer to this Agreement as a
whole and not to any particular Article, Section or subsection, and the word
"including" means "including but not limited to." Titles and headings to
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement. The Schedules and Exhibits referred to herein shall be construed with
and as an integral part of this Agreement to the same extent as if they were set
forth verbatim herein. Except as expressly stated to the contrary herein, all
dollar amounts in this Agreement refer to lawful money of the United States of
America.
12.6 Waivers. Any term or provision of this Agreement may be waived,
or the time for its performance may be extended, by the party or parties
entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently authorized for the purposes of this Agreement if, as to any party,
it is authorized in writing by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.
12.7 Equitable Relief. Each of the parties hereto agrees that a
monetary remedy for a breach of this Agreement would be inadequate and would be
impracticable and extremely difficult to prove, and further agrees that such a
breach would cause the other party irrevocable harm, and that either party shall
be entitled to temporary and permanent injunctive relief without the necessity
of proving actual damages and without the necessity of posting a bond or making
any undertaking in connection therewith. Any such requirement of a bond or
undertaking is hereby waived by the parties.
12.8 Partial Invalidity. Wherever possible, each provision hereof
shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal or unenforceable provision or provisions
or any other provisions hereof, unless such a construction would be
unreasonable.
51
12.9 Business Day. Whenever this Agreement requires that an action
be taken or a notice be given on a date that would otherwise not be a Business
Day, the time period for taking such action or giving such notice shall be
extended to the first day thereafter that is a Business Day.
12.10 Execution in Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be considered an original
instrument, but all of which shall be considered one and the same agreement, and
shall become binding when one or more counterparts have been signed by each of
the parties hereto and delivered to each of the other parties.
12.11 Further Assurances. From time to time after the Effective
Time, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of Mergerco, the
Company or otherwise, such deeds and other instruments and to take or cause to
be taken such further or other action as shall be necessary or desirable in
order to vest or perfect in or to confirm, of record or otherwise, in the
Surviving Corporation title to, and possession of, all of the property, rights,
privileges, powers, immunities and franchises of Mergerco and the Company to
which it is entitled under this Agreement and otherwise carry out the purposes
of this Agreement.
12.12 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws (as opposed to the conflicts of
law provisions) of the State of Delaware.
12.13 Attorneys' Fees. In the event any legal action is instituted
to construe or enforce this Agreement or any provision hereof, the prevailing
party shall be entitled to recover reasonable attorneys' fees.
12.14 Consent to Counsel. Parent and Company each hereby consent to
the representation of the Effective Time Stockholders and/or the Stockholders'
Representative by either, or both, of Xxxxx Xxxx LLP and Xxxxx, Price & Xxxxxx.
52
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed the day and year first above written.
RAINBOW MULTIMEDIA GROUP, INC.,
an Arizona corporation
By: /s/ Xxxx Xxxxxx
------------------------------------------
Xxxx Xxxxxx
Chairman
RAINBOW ACQUISITION COMPANY,
an Arizona corporation
By: /s/ Xxxxx X. Xxxxxxx
------------------------------------------
Xxxxx X. Xxxxxxx,
President
THQ INC.,
a Delaware corporation
By: /s/ Xxxxx X. Xxxxxxx
------------------------------------------
Xxxxx X. Xxxxxxx,
Chairman of the Board, President and Chief
Executive Officer
SIGNATURE PAGE 1 OF 3
EFFECTIVE TIME STOCKHOLDERS:
/s/ Xxxx Xxxxxx
-------------------------------------
Xxxx Xxxxxx
/s/ Xxxx XxXxxxxx
-------------------------------------
Xxxx XxXxxxxx
/s/ Xxxx Xxxxxx
-------------------------------------
Xxxx Xxxxxx
/s/ Xxxx Xxxxxx
-------------------------------------
Xxxx Xxxxxx
/s/ Xxxx Xxxxxxxxxxx
-------------------------------------
Xxxx Xxxxxxxxxxx
/s/ Xxxxx Xxxx
-------------------------------------
Xxxxx Xxxx
/s/ Xxxx Xxxxxxx
-------------------------------------
Xxxx Xxxxxxx
DIGITAL DREAM STUDIOS CO., LTD.
a Korean company
By: /s/ Jung Xxxx Xxx
-------------------------------
Jung Xxxx Xxx
Chief Executive Officer
SIGNATURE PAGE 2 OF 3
CONSENT OF SPOUSE
The undersigned hereby consents to and authorizes the execution of
this Agreement by the undersigned's spouse and hereby agrees and acknowledges
that such execution shall cause the undersigned's community property to be
encumbered and exposed to judgment and/or attachment in connection with the
obligations arising against the undersigned's spouse by virtue of his execution
hereof, including without limitation the covenants, representations, warranties
and indemnification provisions, including but not limited to the provisions of
Section 10 hereof, contained herein or in any Ancillary Agreement.
/s/ Xxxxx Xxxxxx
---------------------------------
Xxxxx Xxxxxx
/s/ Xxxxxx Xxxxxx
---------------------------------
Xxxxxx Xxxxxx
/s/ Xxxxxxx XxXxxxxx
---------------------------------
Xxxxxxx XxXxxxxx
/s/ Xxxxxxx Xxxxxx
---------------------------------
Xxxxxxx Xxxxxx
/s/ Xxxxxx Xxxxxxxxxxx
---------------------------------
Xxxxxx Xxxxxxxxxxx
/s/ Xxxxxx Xxxx
---------------------------------
Xxxxxx Xxxx
/s/ Xxxx Xxxxxxx
---------------------------------
Xxxx Xxxxxxx
SIGNATURE PAGE 3 OF 3
1. DEFINITIONS..........................................................................1
2. THE MERGER..........................................................................10
2.1 The Merger; the Surviving Corporation........................................10
2.2 Effects of the Merger........................................................10
2.3 Articles of Incorporation, Bylaws, Directors and Officers....................10
3. CONVERSION OF SHARES; DETERMINATION OF PURCHASE PRICE...............................10
3.1 Conversion Terms.............................................................10
3.2 Determination of Merger Shares. .............................................11
3.3 Closing of Company Transfer Records..........................................11
4. CONSUMMATION OF THE MERGER..........................................................11
4.1 Closing Date.................................................................11
4.2 The Merger Filing............................................................11
4.3 Payment of the Per Share Stock, the Comerica Warrant Shares and
the Xxxxxxx Xxxxxx Shares....................................................11
4.4 The Escrow...................................................................12
4.5 Purchase Price Adjustment for Closing Net Book Value.........................12
4.6 Parent's Deliveries..........................................................14
4.7 Mergerco's Deliveries........................................................15
4.8 The Company's and the Effective Time Stockholders' Deliveries................15
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................17
5.1 Organization and Good Standing...............................................17
5.2 Power, Authorization and Validity............................................17
5.3 Capitalization...............................................................17
5.4 Subsidiaries.................................................................19
5.5 No Violations or Required Consents...........................................19
5.6 Litigation...................................................................19
5.7 Financial Statements; Books and Records......................................19
5.8 Availability of Assets and Legality of Use...................................20
5.9 Governmental Permits.........................................................20
5.10 Real Property................................................................20
5.11 Personal Property............................................................20
5.12 Personal Property Leases.....................................................21
5.13 Title to Properties..........................................................21
5.14 Accounts Receivable..........................................................21
5.15 Taxes........................................................................21
5.16 Absence of Certain Changes...................................................22
5.17 Agreements and Commitments...................................................24
5.18 Intellectual Property........................................................26
5.19 Products and Distribution....................................................27
5.20 Development Tools............................................................27
5.21 Compliance with Law and Charter Documents....................................27
5.22 Xxxx-Xxxxx-Xxxxxx............................................................27
5.23 Employees and Employee Relations.............................................28
5.24 Employee Equity Participation Plan...........................................30
5.25 Corporate Documents..........................................................30
5.26 No Brokers...................................................................30
5.27 Environmental Matters........................................................30
5.28 Insurance....................................................................31
5.29 Disclosure...................................................................31
5.30 Closing Net Book Value.......................................................31
5.31 Microsoft....................................................................31
6. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGERCO...............................31
6.1 Organization and Capital Structure...........................................32
6.2 Authority....................................................................32
6.3 No Investment Banker Fees Payable by Stockholders............................33
6.4 Parent SEC Documents.........................................................33
6.5 Disclosure...................................................................33
7. ACTION PRIOR TO THE MERGER FILING...................................................34
7.1 Action by Stockholders.......................................................34
7.2 Stockholders' Representative.................................................34
7.3 Action by Parent.............................................................35
7.4 Investigation of the Company by Parent.......................................35
7.5 Preserve Accuracy of Representations and Warranties..........................35
7.6 Conduct of Business Prior to the Effective Time..............................35
7.7 Notification by the Company of Certain Matters...............................37
7.8 Mutual Cooperation; Reasonable Best Efforts..................................37
7.9 No Solicitation..............................................................37
7.10 Removal of Assets............................................................37
7.11 Company Bonuses..............................................................37
7.12 Assumption of Stock Options..................................................37
7.13 Consents of Third Parties and Governmental Approvals.........................38
7.14 Fees and Expenses............................................................38
7.15 Payment of Debts, Liabilities and Obligations................................38
7.16 Preparation of Escrow Agreement..............................................38
7.17 Registration Rights..........................................................39
7.18 Cancellation of Comerica Warrant.............................................39
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGERCO..........................39
8.1 No Misrepresentation or Breach of Covenants and Warranties...................39
8.2 No Changes to or Destruction of Property.....................................39
8.3 No Restraint or Litigation...................................................40
8.4 Necessary Governmental Approvals.............................................40
8.5 Necessary Consents...........................................................40
8.6 Stockholder Approval and Execution...........................................40
8.7 Transferred Assets...........................................................40
8.8 Certification of Shares and Options Outstanding..............................40
8.9 [Reserved]...................................................................40
8.10 Estimated Net Book Value.....................................................40
8.11 Consent of Optionholders; No Exercise of Stock Options.......................40
8.12 Standard Parent Employee Agreements..........................................40
8.13 Stock Price..................................................................40
8.14 Company Bonuses..............................................................41
8.15 Right of First Refusal.......................................................41
8.16 Cancellation of Comerica Warrant.............................................41
8.17 Consent of holders of Performance Shares.....................................41
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY..................................41
9.1 No Misrepresentation or Breach of Covenants and Warranties...................41
9.2 No Restraint or Litigation...................................................41
9.3 Necessary Governmental Approvals.............................................41
9.4 Stock Price..................................................................41
10. INDEMNIFICATION.....................................................................42
10.1 Indemnification of Parent Group Members......................................42
10.2 Indemnification by Parent and the Surviving Corporation......................44
10.3 Notice of Claims.............................................................44
10.4 Expiration of Indemnification................................................45
10.5 Exclusive Remedy Following the Merger........................................46
10.6 Dispute Resolution...........................................................46
11. TERMINATION.........................................................................48
11.1 Termination Rights...........................................................48
11.2 Notice of Termination........................................................49
11.3 Effect of Termination........................................................49
12. GENERAL PROVISIONS..................................................................49
12.1 Survival of Obligations......................................................49
12.2 Notices......................................................................49
12.3 Successors and Assigns; No Third-Party Beneficiaries.........................50
12.4 Entire Agreement; Amendments.................................................51
12.5 Rules of Construction........................................................51
12.6 Waivers......................................................................51
12.7 Equitable Relief.............................................................51
12.8 Partial Invalidity...........................................................51
12.9 Business Day.................................................................52
12.10 Execution in Counterparts....................................................52
12.11 Further Assurances...........................................................52
12.12 Governing Law................................................................52
12.13 Attorneys' Fees..............................................................52
12.14 Consent to Counsel ..........................................................52
EXHIBITS*
---------
Form of Employment Agreements A
Form of Non-Competition Agreements B
Registration Rights C
Form of General Release and Covenant Not to Xxx D
Form of Disclaimer of Reliance, Investor Representation and Questionnaire E
Form of Principals' Confidentiality and Non-Competition Agreements F
Form of Consent of Optionholder G
Form of Royalty Participation Agreement H
Lock-Up Agreements I
Form of Legal Opinion of counsel to Parent J-1
Form of Legal Opinion of counsel to the Company J-2
Form of Letter of Transmittal K
Form of Right of First Refusal L
Form of Performance Shareholder Consent M
SCHEDULES* DESCRIPTION
---------- -----------
4.8.14 Debts, Liabilities and Obligations to be Satisfied
5.1 Jurisdictions
5.3 Capitalization, Shareholders and Optionholders
5.5 Required Consents
5.6 Litigation
5.7 Financial Statements
5.8 Availability of Assets and Legality of Use
5.9 Governmental Permits
5.10 Real Property
5.11 Personal Property
5.15 Taxes (Power of Attorney)
5.16 Absence of Certain Changes
5.17.1 Material Agreements, Obligations and Commitments
5.17.2 Material Defaults
5.17.3 Third-Party Performance of Material Contracts
5.18.1(a) Right to Use Intellectual Property
5.18.1(b) Intellectual Property Registrations and Applications
5.18.1(c) Matters Affecting Intellectual Property Registrations and Applications
5.18.2(a) Third Party Rights in Intellectual Property
5.18.2(b) Preservation of Rights in Intellectual Property
5.18.2(c) Intellectual Property Options, Licenses and Agreements
5.19 Software Products and Distribution
5.20 Software Development Tools
5.23.1 Form of Company Proprietary Information and Inventions Agreement
5.23.3 Employee Plans
5.23.7 Company Employment Agreements
5.23.8 Employees, Officer and Consultant Information
5.24 Employee Equity Participation Plan
5.26 Brokers
5.28 Insurance
* The Schedules and Exhibits are omitted from this filing. The Company agrees to
furnish supplementally a copy of any Schedule or Exhibit to the Commission upon
request.
