Exhibit 4.1
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), is
made and entered into as of September 30, 1999, among Activision, Inc., a
Delaware corporation ("Activision"), Neversoft Entertainment, Inc., a
Delaware corporation and a wholly owned subsidiary of Activision ("Merger
Subsidiary"), JCM Productions, Inc. dba Neversoft Entertainment, a California
corporation ("Neversoft"), Xxxx Xxxxxx ("Xxxxxx"), Xxxxxxx Xxxx ("West") and
Xxxxxxxxxxx Xxxx ("Xxxx"). For purposes of this Agreement, Messrs. Xxxxxx,
West and Xxxx hereinafter are individually referred to as a "Shareholder" and
collectively referred to as the "Shareholders". Neversoft and Merger
Subsidiary are sometimes referred to herein as the "Constituent
Corporations."
W I T N E S S E T H:
WHEREAS, the Shareholders own all of the issued and outstanding shares
of capital stock of Neversoft;
WHEREAS, the respective Boards of Directors of Neversoft, Activision and
Merger Subsidiary each have determined that a business combination between
Neversoft, Activision and Merger Subsidiary is fair to and in the best
interests of their respective companies and stockholders and accordingly have
approved this Agreement and agreed to effect the merger provided for herein
upon the terms and subject to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. On the terms and subject to the conditions
contained in this Agreement, at the Effective Time (as defined in Section 1.3
hereof), Merger Subsidiary shall be merged with and into Neversoft in
accordance with this Agreement and the separate corporate existence of Merger
Subsidiary shall thereupon cease (the "Merger"). Merger Subsidiary shall be
the disappearing corporation in the Merger. Neversoft shall be the surviving
corporation in the Merger (Neversoft, after the Effective Time, is sometimes
hereinafter referred to as the "Surviving Corporation"). From and after the
Effective Time, all the rights and property of each of the Constituent
Corporations shall vest in the Surviving Corporation and the Surviving
Corporation shall be subject to all the debts and liabilities of the
Constituent Corporations. The Merger shall have the effects provided in this
Agreement, the applicable provisions of the California General Corporation
Law ("CGCL") and the applicable provisions of the Delaware General
Corporation Law ("DGCL").
1.2. The Closing. On the terms and subject to the conditions of
this Agreement, the closing of the Merger (the "Closing") shall be held (a)
at the offices of Activision, 0000 Xxxxx Xxxx Xxxxxxxxx, Xxxxx Xxxxxx,
Xxxxxxxxxx, at 10:00 a.m., local time, on the date hereof; or (b) at such
other time and place and on such other date as the parties may mutually
agree, but in no event later than September 30, 1999. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date." All
transactions required to occur at the Closing shall be deemed to have
occurred simultaneously, and no such transaction shall be deemed to have
occurred until all have occurred.
1.3. Effective Time. If all the conditions to the Merger set
forth in Article 5 shall have been fulfilled or waived in accordance
herewith, the parties hereto shall cause (i) an Agreement of Merger and
officers' certificates satisfying the requirements of Sections 1101, 1102 and
1103 of the CGCL to be properly executed, verified and delivered for filing
in accordance with the CGCL on the Closing Date, and (ii) a Certificate of
Merger satisfying the requirements of Section 252 of the DGCL to be properly
executed, verified and delivered for filing in accordance with the DGCL on
the Closing Date. The Merger shall become effective upon the acceptance for
record of the Agreement of Merger by the Secretary of State of the State of
California in accordance with the CGCL and the acceptance for record of the
Certificate of Merger by the Secretary of State of the State of Delaware in
accordance with the DGCL (but not earlier than the Closing Date) or at such
later time which the parties hereto shall have agreed upon and designated in
such filings in accordance with applicable law as the effective time of the
Merger (the "Effective Time").
1.4. Articles of Incorporation; By-Laws.
(a) Articles of Incorporation. The Articles of Incorporation
of Neversoft in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation (except that the name
of the Surviving Corporation shall be "Neversoft Entertainment, Inc."), until
duly amended in accordance with applicable law.
(b) By-Laws. The By-laws of Neversoft in effect
immediately prior to the Effective Time shall be the By-laws of the Surviving
Corporation (except that the name of the Surviving Corporation shall be
"Neversoft Entertainment, Inc."), until duly amended in accordance with its
terms or the Articles of Incorporation of the Surviving Corporation and as
provided by applicable law.
1.5. Directors and Officers.
(a) Directors. The directors of Merger Subsidiary immediately
prior to the Effective Time, shall automatically become the directors of the
Surviving Corporation as of the Effective Time.
(b) Officers. The officers of Merger Subsidiary immediately prior
to the Effective Time shall automatically become the officers of the
Surviving Corporation as of the Effective Time.
1.6. Dissenting Shares. The Shareholders hereby waive all dissenters'
rights of appraisal set forth in Section 1300 of the CGCL (the "Appraisal
Rights").
1.7. Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the parties
intend to report the Merger consistent therewith. The parties hereto hereby
adopt this Agreement as a "plan of reorganization" within the meaning of
Section 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
(b) It is intended by the parties hereto that the Merger will
qualify for accounting treatment as a pooling of interests under the
requirements of Opinion No. 16 of the Accounting Principles Board and the
related interpretations of the American Institute of Certified Public
Accountants, as amended by statement of the Financial Accounting Standards
Board.
ARTICLE II
CONVERSION OF SHARES
2.1. Conversion of Merger Subsidiary Shares. At the Effective Time,
each share of common stock, $.01 par value per share, of Merger Subsidiary
that is issued and outstanding immediately prior to the Effective Time will
remain one share of common stock, $.01 par value per share, of the Surviving
Corporation that is issued and outstanding immediately after the Effective
Time, and such shares will be the only shares of capital stock of the
Surviving Corporation that are issued and outstanding immediately after the
Effective Time.
2.2. Conversion of Neversoft Shares.
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of Activision, Merger Subsidiary, Neversoft or the
Shareholders, each issued and outstanding share of common stock, no par
value, of Neversoft (each a "Neversoft Share" and collectively, the
"Neversoft Shares") shall be converted into the right to receive 2,329.45
shares of common stock, par value $.000001 per share, of Activision (the
"Activision Common Stock"). The shares of Activision Common Stock to be
issued in connection with the Merger are sometimes referred to as the
"Activision Shares."
(b) Each Neversoft Share held in Neversoft's treasury, if any,
immediately prior to the Effective Time (collectively, the "Cancelled
Neversoft Shares") shall, at the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, be canceled and retired
and cease to exist and no payment shall be made with respect thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NEVERSOFT AND THE SHAREHOLDERS
Neversoft and the Shareholders hereby represent and warrant to
Activision and the Merger Subsidiary as follows:
3.1 Organization. Neversoft is a corporation duly organized, validly
existing and in good standing under the laws of the State of California.
Neversoft has all requisite corporate power and authority to carry on its
business as it is now being conducted and to own or lease and to operate its
properties. Neversoft is not qualified to transact business as a foreign
corporation in any jurisdiction, and neither the nature of the property owned
or leased by it nor the nature of the business conducted by it makes any such
qualification necessary, other than such failures which do not and would not
individually or in the aggregate have a Material Adverse Effect on Neversoft.
True and complete copies of the Articles of Incorporation and Bylaws of
Neversoft have previously been delivered or made available to Activision.
For purposes of this Agreement, "Material Adverse Effect" with respect to a
person or entity shall mean a material adverse effect on the business,
assets, properties, financial condition or results of operations of such
person or entity (in the case of Activision, Activision and its Subsidiaries
taken as a whole), or on the ability of any person or entity timely to
consummate the transactions contemplated hereby.
3.2. Authorization, Validity and Effect of Agreement. Each of
Neversoft and the Shareholders has all requisite power and authority to
execute, deliver and perform this Agreement and to consummate their
respective obligations and the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by Neversoft and the
Shareholders and the consummation of the transactions contemplated hereby
have been duly authorized by any and all necessary corporate action of
Neversoft and by the Shareholders and no other action on the part of
Neversoft or the Shareholders is necessary to authorize the execution,
delivery and performance of this Agreement by Neversoft or the Shareholders
and the consummation of the transactions contemplated hereby. On the Closing
Date, each of the Shareholders shall possess full authority and power to
transfer to Activision all Neversoft Shares beneficially owned by him, free
and clear of all Encumbrances (as defined in Section 3.3(b)) in exchange for
Activision Common Stock. This Agreement has been duly and validly executed
and delivered by Neversoft and the Shareholders and constitutes the valid and
binding obligation of Neversoft and the Shareholders, enforceable against
Neversoft and the Shareholders in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws affecting
creditors' rights generally and general principles of equity.
3.3. Capitalization. (a) The authorized capital stock of Neversoft
consists of 1,000 shares of the same class and series, no par value, 300
shares of which are issued and outstanding. All of the Neversoft Shares are
duly authorized, validly issued, fully paid and nonassessable and are owned
of record and beneficially by the Shareholders. Schedule 3.3 hereto sets
forth the ownership of Neversoft Shares by each of the Shareholders. There
are outstanding no securities convertible into, exchangeable for, or carrying
the right to acquire, equity securities of Neversoft, and no subscriptions,
warrants, options, calls, rights (pre-emptive or other) or other arrangements
or commitments obligating Neversoft to issue or dispose of any of its equity
securities or any ownership interest therein.
(b) The Shareholders have good and valid title to the Neversoft
Shares, free and clear of all liens, security interests, pledges, mortgages,
rights of first refusal, options, proxies, voting trusts or other
encumbrances ("Encumbrances").
3.4. No Subsidiaries. Neversoft does not have any direct or indirect
Subsidiaries. For purposes of this Agreement, "Subsidiary" when used with
respect to any party shall mean any corporation, partnership, joint venture,
business trust or other entity, of which such party or a Subsidiary of such
party, directly or indirectly, owns or controls at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization.
3.5. Other Interests. Neversoft does not own, directly or indirectly,
any interest or investment (whether equity or debt) in any corporation,
partnership, joint venture, business trust or other entity (other than
investments in short-term investment securities).
3.6. No Violation. The execution, delivery and performance by
Neversoft and the Shareholders of this Agreement do not, and the consummation
by Neversoft and the Shareholders of the transactions contemplated hereby
will not, with or without the giving of notice or the lapse of time, or both,
conflict with or violate (i) any provision of law, rule or regulation to
which the Shareholders or Neversoft are subject, (ii) any order, judgment,
injunction or decree binding upon or applicable to the Shareholders or
Neversoft or binding upon the assets or properties of the Shareholders or
Neversoft, (iii) any provision of the By-laws or Articles of Incorporation of
Neversoft, or (iv) other than the consents and filings provided for in this
Agreement, require any consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory authority which
has not been obtained or made, except where the failure to obtain any such
consent, approval or authorization of, or declaration, filing or registration
with, any governmental or regulatory authority would not individually or in
the aggregate have a Material Adverse Effect on Neversoft.
3.7. Investment Intent. The Activision Common Stock to be issued to
the Shareholders in connection with this Agreement is being acquired by each
Shareholder for his own account, for investment purposes only and not with a
view to the distribution of such shares or with any present intention of
distributing any of such shares within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), or reselling in violation of any
other applicable securities laws, it being understood that the shares of
Activision Common Stock to be issued to the Shareholders under this Agreement
have not been registered under the Securities Act, and therefore cannot be
sold unless registered under the Securities Act or unless an exemption from
registration is available, and also subject to further restrictions under the
provisions of Sections 6.1 and 6.2 hereof and the Warranty Escrow Agreement
(as defined in Section 6.2). Each of the Shareholders will execute and
deliver to Activision at or prior to the Closing an investment letter to that
effect, the form of which is attached as Exhibit A to this Agreement.
3.8. Financial Statements; Undisclosed Liabilities. (a) The
Shareholders have delivered to Activision an unaudited balance sheet of
Neversoft as of June 30, 1999 and as of June 30, 1998, and the related
statements of income and expense for the years then ended (collectively, the
"Financial Statements"; the Financial Statements as of and for the year ended
June 30, 1999, the "1999 Financial Statements").
(b) The Financial Statements have been prepared in accordance with
sound accounting principles consistently followed throughout the periods
indicated. The Financial Statements are correct and complete in all material
respects and fairly present the financial position and the results of
operations of Neversoft as of the respective dates thereof and for the
respective periods indicated. Except as set forth in Schedule 3.8(b) or as
disclosed, reflected or reserved against in the 1999 Financial Statements,
Neversoft does not have any liabilities, commitments or obligations (secured
or unsecured and whether accrued, absolute, contingent or otherwise and
whether due or to become due) which are not reflected on the 1999 Financial
Statements, other than any liabilities, commitments or obligations incurred
after the date of the 1999 Financial Statements in the ordinary course of
business and which do not have a Material Adverse Effect on Neversoft. The
assets of Neversoft are fairly valued on the Financial Statements.
3.9. Litigation. Except as set forth in Schedule 3.9 hereto, there are
(i) no continuing orders, injunctions or decrees of any court, arbitrator or
governmental authority to which Neversoft or the Shareholders is a party or
by which any of their respective properties or assets are bound or likely to
be affected and (ii) no actions, suits or proceedings pending against
Neversoft or the Shareholders or to which any of their respective properties
or assets are subject or, to the knowledge of the Shareholders, threatened
against Neversoft or the Shareholders or to which any of their respective
properties or assets are subject, at law or in equity, that in each such case
could, individually or in the aggregate, have a Material Adverse Effect on
Neversoft.
3.10. Absence of Certain Changes. Except as set forth in Schedule
3.10 hereto, since June 30, 1999, Neversoft has conducted its business only
in the ordinary course of such business and consistent with past practices
and there has not been any:
(a) material adverse change in the financial condition,
properties, assets (including intangible assets), businesses, operations or
results of operations of Neversoft;
(b) amendment or change in the Articles of Incorporation or Bylaws
of Neversoft;
(c) incurrence, creation or assumption by Neversoft of (i) any
mortgage, deed of trust, security interest, pledge, lien, title retention
device, collateral assignment, claim, charge, restriction or other
encumbrance of any kind on any of the assets or properties of Neversoft; or
(ii) any obligation or liability of any indebtedness for borrowed money;
(d) issuance or sale of any debt or equity securities of
Neversoft, or the issuance or grant of any options, warrants or other rights
to acquire from Neversoft, directly or indirectly, any debt or equity
securities of Neversoft;
(e) payment or discharge by Neversoft of any security interest,
lien, claim, or encumbrance of any kind on any asset or property of
Neversoft, or the payment or discharge of any liability that was not either
shown or reflected on the 1999 Financial Statements or incurred in the
ordinary course of Neversoft's business after June 30, 1999 in an amount in
excess of $10,000 for any single liability to a particular creditor;
(f) purchase, license, sale, assignment or other disposition or
transfer, or any agreement or other arrangement for the purchase, license,
sale, assignment or other disposition or transfer, of any of the assets,
properties or goodwill of Neversoft other than a license or sale of any
product or products of Neversoft made in the ordinary course of Neversoft's
business;
(g) damage, destruction or loss of any property or asset, whether
or not covered by insurance, having (or likely with the passage of time to
have) a Material Adverse Effect on Neversoft;
(h) declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, the capital stock of
Neversoft, any split, combination or recapitalization of the capital stock of
Neversoft or any direct or indirect redemption, purchase or other acquisition
of the capital stock of Neversoft or any change in any rights, preferences,
privileges or restrictions of any outstanding security of Neversoft;
(i) increase in the compensation payable or to become payable to
any of the officers, directors, or employees of Neversoft, or any bonus or
pension, insurance or other benefit payment or arrangement (including without
limitation stock awards, stock option grants, stock appreciation rights or
stock option grants) made to or with any of such officers, employees or
agents;
(j) obligation or liability incurred by Neversoft to any of its
officers, directors or stockholders except for normal and customary
compensation and expense allowances payable to officers in the ordinary
course of Neversoft's business consistent with past practice;
(k) making by Neversoft of any loan, advance or capital
contribution to, or any investment in, any officer, director or stockholder
of Neversoft or any firm or business enterprise in which any such person had
a direct or indirect material interest at the time of such loan, advance,
capital contribution or investment;
(l) entering into, amendment of, relinquishment, termination or
non-renewal by Neversoft of any contract, lease, transaction, commitment or
other right or obligation other than in the ordinary course of its business
or any written or oral indication or assertion by the other party thereto of
any material problems with Neversoft's services or performance under such
contract, lease, transaction, commitment or other right or obligation or of
such other party's demand to amend, terminate or not renew any such contract,
lease, transaction, commitment or other right or obligation;
(m) material change in the manner in which Neversoft extends
discounts, credits or warranties to customers or otherwise deals with its
customers;
(n) entering into by Neversoft of any transaction, contract or
agreement that by its terms requires or contemplates a required minimum
current and/or future financial commitment, expenses (inclusive of overhead
expenses) or obligation on the part of Neversoft involving in excess of
$10,000 (provided that the amount of such financial commitments and expenses
for all such transactions, contracts or agreements does not exceed $50,000 in
the aggregate) or that is not entered into in the ordinary course of
Neversoft's business, or the conduct of any business or operations by
Neversoft that is other than in the ordinary course of Neversoft's business;
or
(o) license, transfer or grant of a right under any Neversoft
Intellectual Property (as defined in Section 3.19 below), other than those
licensed, transferred or granted in the ordinary course of business
consistent with its past practices.
3.11. Taxes. Except as set forth in Schedule 3.11 hereto or where such
failure would not, individually or in the aggregate, have a Material Adverse
Effect on Neversoft:
(a) Neversoft has paid or caused to be paid all federal, state,
local, foreign, and other taxes, and all deficiencies, or other additions to
tax, interest, fines and penalties (collectively, "Taxes"), owed or accrued
by it and due and payable through the date hereof (including any Taxes
payable pursuant to Treasury Regulation 1.1502-6 (and any similar state,
local or foreign provision)).
(b) Neversoft has timely filed all federal, state, local and
foreign tax returns (collectively "Tax Returns") required to be filed by it
through the date hereof, and all such returns accurately set forth the amount
of any Taxes relating to the applicable period.
(c) Neversoft has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder or other party.
(d) The 1999 Financial Statements reflect adequate reserves for
Taxes payable by Neversoft for all taxable periods and portions thereof
through the date of such financial statements.
(e) Since the date of the 1999 Financial Statements, Neversoft has
made sufficient accrual for Taxes in accordance with sound accounting
principles with respect to periods for which Tax Returns have not been filed
and has paid sufficient estimated Taxes in respect thereof.
(f) There are no outstanding agreements, waivers or arrangements
extending the statutory period of limitations applicable to any claim for, or
the period for the collection or assessment of, Taxes due from Neversoft for
any taxable period and there have been no deficiencies proposed, assessed or
asserted for such Taxes.
(g) There are no closing agreements that could affect Taxes of
Neversoft for periods after the Effective Time pursuant to Section 7121 of
the Code or any similar provision under state, local or foreign tax laws.
(h) No audit or other proceedings by any court, governmental or
regulatory authority or similar authority has occurred, been asserted or is
pending and Neversoft has not received notice that any such audit or
proceeding may be commenced.
(i) No election has been made or filed by or with respect to, and
no consent to the application of, Section 341(f)(2) of the Code has been made
by or with respect to, Neversoft or any of its properties or assets.
(j) Neversoft has not agreed to, or filed application for, or is
required, to make any changes or adjustment to its accounting methods.
(k) There are no liens for Taxes (other than for current Taxes not
yet due and payable) upon the assets of Neversoft.
3.12. Books and Records.
(a) The books of account and other financial records of Neversoft
are true, complete and correct in all material respects, have been maintained
in accordance with good business practices, and are accurately reflected in
all material respects in the financial statements included in the 1999
Financial Statements.
(b) The minute books and other records of Neversoft that have
been, or will be prior to the Closing, made available to Activision, contain
accurate records of all meetings and accurately reflect all other action of
the shareholders and Board of Directors and any committees of the Board of
Directors of Neversoft.
3.13. Properties.
(a) Neversoft does not own any real property, nor has it ever
owned any real property. Schedule 3.13(a) hereto sets forth a list of all
real property currently, or at any time in the past five (5) years, leased by
Neversoft, and, with respect to all real property currently leased by
Neversoft, a copy of each lease and each amendment thereto has been made
available to Activision prior to the Closing Date. All such current leases
are in full force and effect, are valid and effective in accordance with
their respective terms, and there is not any existing material default or
event of default under any such lease (or event which with notice or lapse of
time, or both, would constitute such a material default) by Neversoft or, to
the Shareholders' knowledge, the landlord.
(b) Neversoft has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal and mixed, used or held for
use in its business, free and clear of any liens, except as reflected in the
1999 Financial Statements or in Schedule 3.13(b) hereto and except for liens
for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent,
and which do not materially detract from the value, or materially interfere
with the present use, of the property subject thereto or affected thereby.
3.14. Environmental Matters. Except as set forth in Schedule 3.14
hereto, Neversoft is not in violation of any laws, regulations, judgments or
consent decrees relating to hazardous substances or hazardous waste
(collectively, "Environmental Laws") which violation could reasonably be
expected to result, individually or in the aggregate, in a Material Adverse
Effect. Except as set forth in Schedule 3.14 hereto, neither Neversoft, nor,
to the knowledge of the Shareholders, any third party, has used, released,
discharged, generated, manufactured, produced, stored, or disposed of in, on,
or under or about its owned or leased property or other assets, or
transported thereto or therefrom, any hazardous substances or hazardous
wastes, including asbestos, lead and petroleum, during the period of
Neversoft's ownership or lease of such property in a manner that could
reasonably be expected to subject Neversoft to a material liability under the
Environmental Laws. Neversoft has not received written notice from any
governmental authority that any property owned or leased by Neversoft is in
violation of any Environmental Laws. There is no pending civil, criminal or
administrative suit or other legal proceeding against Neversoft with respect
to any Environmental Laws. Neversoft has provided Activision complete copies
of all environmental reports, assessments and studies in Neversoft's
possession and control with respect to properties owned or leased by
Neversoft. As used in this Agreement, the terms "hazardous substances" and
"hazardous wastes" shall have the meanings set forth in the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, and the
regulations thereunder; the Resource Conservation and Recovery Act, as
amended, and the regulations thereunder; the Federal Clean Water Act, as
amended, and the regulations thereunder; the Clean Air Act, 42 U.S.C.
Sections 7401 et seq.; the Federal Insecticide, Fungicide and Rodenticide
Act, 7 U.S.C. Sections 136 et seq.; the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. Sections 11001 et seq.; the Occupational Safety
and Health Act of 1970; the Hazardous Materials Transportation Act, as
amended by the Hazardous Materials Transportation Authorization Act of 1994,
49 U.S.C. Sections 5101 et seq.; the Toxic Substances Control Act, 15 U.S.C.
Sections 2601 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Sections 2701
et seq.; as each of these may be amended from time to time; and any and state
or local analogues to any of these statutes.
3.15. No Brokers. Neither Neversoft nor the Shareholders has entered
into any contract, arrangement or understanding with any person or firm that
may result in the obligation of such entity or Activision to pay any finder's
fees, brokerage or agent's commissions or other like payments in connection
with the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby. Neither Neversoft nor the Shareholders is
aware of any claim for payment of any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions
contemplated hereby.
3.16. Related Party Transactions. Except for the employment
arrangements described in Schedule 3.16 hereto, Neversoft is not a party to
any transactions, loans or other arrangements or understandings with its
shareholders, directors and/or officers (or any member of their respective
immediate families) that are in effect as of the date of this Agreement
and/or are currently proposed to be carried out in the future. Schedule 3.16
hereto identifies and describes the interest or interests, if any, in any
property, real or personal, tangible or intangible, used in or pertaining to
the business of Neversoft, now held by any shareholder, director and/or
officer of Neversoft.
3.17 Contracts and Commitments. (a) Except as set forth in Schedule
3.17(a) hereto, Neversoft does not have, nor is Neversoft party to or bound
by:
(i) any consulting or sales agreement, contract or commitment
under which any firm or other organization provides services to Neversoft;
(ii) any fidelity or surety bond or completion bond;
(iii) any agreement of indemnification or guaranty;
(iv) any agreement, contract, commitment, transaction or series of
transactions for any purpose other than in the ordinary course of Neversoft's
business relating to capital expenditures or commitments or long-term
obligations in excess of $10,000;
(v) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business
enterprise outside the ordinary course of Neversoft's business;
(vi) any mortgages, indentures, loans or credit agreements,
security agreements or other arrangements or instruments relating to the
borrowing of money or extension of credit, including guaranties referred to
in clause (iii) hereof;
(vii) any purchase order or contract for the purchase of inventory
or other materials involving $10,000 or more;
(viii) any distribution, joint marketing or development agreement;
(ix) any assignment, license or other agreement with respect to
any form of intangible property; or
(x) any other agreement, contract or commitment that involves
$10,000 or more or is not cancelable without penalty in excess of $10,000
within thirty (30) days (collectively, any of (i) through (x) above shall be
known as "Contracts").
(b) Except as would not individually or in the aggregate have a
Material Adverse Effect, all such Contracts are valid and binding on
Neversoft and are in full force and effect and enforceable against Neversoft
in accordance with their respective terms. Except as disclosed in Schedule
3.17(b) hereto, no approval or consent of, or notice to any Person the
failure of which to obtain would have individually or in the aggregate a
Material Adverse Effect is needed in order that such Contracts shall continue
in full force and effect in accordance with its terms without penalty,
acceleration or rights of early termination following the consummation of the
Merger. Except to the extent any of the following would not individually or
in the aggregate have a Material Adverse Effect, Neversoft is not in
violation of, breach of or default under any such Contract nor, to the
Shareholders' knowledge, is any other party to any such Contract. Except as
set forth in Schedule 3.17(b) hereto, Neversoft is not in violation or breach
of or default under any such Contract (including leases of real property)
relating to non-competition, indebtedness, guarantees of indebtedness of any
other person, employment, or collective bargaining.
3.18. Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 3.18(a)(i) below (which definition shall
apply only to this Section 3.18), for purposes of this Agreement, the
following terms shall have the meanings set forth below:
(i) "Affiliate" shall mean any other Person under common
control with or otherwise required to be aggregated with Neversoft as set
forth in Section 414(b), (c), (m) or (o) of the Code and the regulations
thereunder;
(ii) "Employee" shall mean any current, former or retired
employee, officer, or director of Neversoft or any Affiliate:
(iii) "Employee Agreement" shall refer to any material
management, employment, severance, consulting, relocation, repatriation,
expiration, visas, work permit or similar agreement or contract between
Neversoft or any Affiliate and any Employee or consultant that is not an
Employee Plan;
(iv) "Employee Plan" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded and
whether or not legally binding, including without limitation, each "employee
benefit plan" within the meaning of Section 3(3) of ERISA (as defined below),
which is or has been maintained, contributed to, or required to be
contributed to, by Neversoft or any Affiliate for the benefit of any
"Employee" (as defined above), and pursuant to which Neversoft or any
Affiliate has or may have any material liability contingent or otherwise;
(v) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan," as defined in Sections 3(37)
and 4001(a)(3) of ERISA; and
(viii) "Pension Plan" shall refer to each Neversoft Employee
Plan which is an "employee pension benefit plan," within the meaning of
Section 3(2) of ERISA.
(b) Schedule 3.18(b) hereto contains an accurate and complete list
of each Employee Plan (including for each such plan a description of any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement of the value of any of the benefits of which
will be calculated on the basis of any transactions contemplated by this
Agreement) and each Employee Agreement of Neversoft. Except as set forth in
Schedule 3.18(b) hereto, neither Neversoft nor any of its Affiliates has any
announced plan or commitment, whether legally binding or not, to establish
any new Employee Plan or Employee Agreement, to modify any Employee Plan or
Employee Agreement (except to the extent required by law or to conform any
such Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Neversoft in writing,
or as required by this Agreement), or to enter into any Employee Plan or
Employee Agreement, nor does it have any intention or commitment to do any of
the foregoing.
(c) Documents. Neversoft has provided to Activision correct and
complete copies of all material documents embodying or relating to each
Employee Plan and each Employee Agreement including: (i) all amendments
thereto and written interpretations thereof; (ii) the most recent annual
actuarial valuations, if any, prepared for each Employee Plan; (iii) the
three most recent annual reports (Series 5500 and all schedules thereto), if
any, required under ERISA or the Code in connection with each Employee Plan
or related trust; (iv) if the Employee Plan is funded, the most recent annual
and periodic accounting of Employee Plan assets; (v) the most recent summary
plan description together with the most recent summary of material
modifications, if any, required under ERISA with respect to each Employee
Plan; (vi) all IRS determination letters and rulings relating to Employee
Plans and copies of all applications and correspondence to or from the IRS or
the Department of Labor ("DOL") with respect to any Employee Plan; (vii) all
communications material to any Employee or Employees relating to any Employee
Plan and any proposed Employee Plans, in each case, relating to any
amendments, terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would
result in any material liability to Neversoft; and (viii) all registration
statements and prospectuses prepared in connection with each Employee Plan.
(d) Employee Plan Compliance. (i) Except as set forth in Schedule
3.18(d) hereto, Neversoft and each of its Affiliates has performed in all
material respects all obligations required to be performed by them under each
Employee Plan, and each Employee Plan has been established and maintained in
all material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA and the Code; (ii) no "prohibited transaction," within the
meaning of Section 4975 of the Code or Section 406 of ERISA for which no
class or statutory exemption is available, has occurred with respect to any
Employee Plan; (iii) there are no material actions, suits or claims pending
or, to the knowledge of the Shareholders, threatened or anticipated (other
than routine claims for benefits) against any Employee Plan or against the
assets of any Employee Plan; (iv) such Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance
with its terms, without material liability to Neversoft or any of its
Affiliates (other than ordinary administration expenses typically incurred in
a termination event); (v) there are no audits, inquiries or proceedings
pending or, to the knowledge of the Shareholders, threatened by the IRS or
DOL with respect to any Employee Plan; (vi) Neversoft is not subject to any
penalty or tax with respect to any Employee Plan under Section 502(i) of
ERISA or Section 4975 through 4980B of the Code; (vii) all contributions,
including any top heavy contributions, required to be made prior to the
Closing by Neversoft or any ERISA Affiliate to any Employee Plan have been
made or shall be made on or before the Closing Date; and (viii) Neversoft and
its Affiliates are in compliance in all respects with the requirements of
Part 6 of Subtitle A of Title I of ERISA and any similar state laws
concerning group health care continuation coverage.
(e) Pension Plans. Neither Neversoft nor any of its Affiliates
currently maintain, sponsor, participate in or contribute to, nor have they
ever maintained, established, sponsored, participated in, or contributed to,
any Pension Plan which is subject to Part 3 of Subtitle B of Title I of
ERISA, Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has Neversoft or any of its
Affiliates contributed to or been requested or obligated to contribute to any
Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in
Schedule 3.18(g) hereto or as required by local, state or federal law, no
Employee Plan or any other employment agreement or arrangement to which
Neversoft is a party provides, or is required to provide, life insurance,
medical or other employee benefits to any Employee upon his or her retirement
or termination of employment for any reason, and Neversoft has never
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) that such
Employee(s) would be provided with life insurance, medical or other employee
welfare benefits upon their retirement or termination of employment.
(h) Effect of Transaction. The execution of this Agreement and
the consummation of the transactions contemplated hereby will not (either
alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Employee Plan, Employee Agreement, trust or
loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
Employee, except as set forth in Schedule 3.18(h) hereto.
(i) Employment Matters. Neversoft (i) is in compliance in all
respects with all applicable foreign, federal, state and local laws, rules
and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees except as would not individually or in the aggregate have a
Material Adverse Effect; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries, and other payments to
Employees; (iii) is not liable for any arrears of wages of any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) is not
liable for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent
with past practice).
(j) Labor. No work stoppage or labor strike against Neversoft is
pending or, to the knowledge of the Shareholders, threatened. Neversoft is
not involved in or, to the knowledge of the Shareholders, threatened with,
any labor dispute, grievance, administrative proceeding or litigation
relating to labor, safety, employment practices or discrimination matters
involving any Employee, including, without limitation, charges of unfair
labor practices or discrimination complaints, which, if adversely determined,
would individually or in the aggregate have a Material Adverse Effect.
Neversoft has not engaged in any unfair labor practices within the meaning of
the National Labor Relations Act which would, individually or in the
aggregate, directly or indirectly have a Material Adverse Effect. Neither
Neversoft nor any of its Affiliates has ever been a party to any agreement
with any labor organization or union, and none of the Employees are
represented by any labor organization or union, nor have any Employees
threatened to organize or join a union or filed a petition for representation
with the National Labor Relations Board.
(k) Schedule 3.18(k) hereto sets forth (i) the aggregate amounts
of bonus and severance payments that could be payable to employees of
Neversoft under existing Employee Agreements or Employee Plans on account of
the transactions contemplated by this Agreement (without regard to
termination of employment), and (ii) the aggregate amounts of severance
obligations that could be payable to employees of Neversoft under existing
Employee Agreements and Employee Plans on account of terminations of
employment following the Effective Time, separately stating the amounts that
are payable by reason of a termination following a change of control of
Neversoft.
(l) Schedule 3.18(l) sets forth a complete list of all persons who
are currently employees and consultants of Neversoft and all persons to whom
Neversoft has extended offers of employment and the compensation payable to
all such employees and consultants.
(m) Neversoft has continuously maintained, and continues to
maintain, stop loss insurance coverage for the self-insured portions of its
Employee Plans as set forth in Schedule 3.18(m).
3.19 Intellectual Property.
(a) For the purposes of this Agreement, the following terms have
the following definitions:
(i) "Intellectual Property" shall mean any or all of the
following and all rights in, arising out of, or associated therewith: (a)
all United States, international and foreign patents and applications
therefor and all reissues, divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof; (b) all inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data, customer
lists, proprietary processes and formulae, all source and object code,
algorithms, architectures, structures, display screens, layouts, inventions,
development tools and all documentation and media constituting, describing or
relating to the above, including, without limitation, manuals, memoranda and
records; (c) all copyrights, copyrights registrations and applications
therefor, and all other rights corresponding thereto throughout the world;
(d) all industrial designs and any registrations and applications therefor
throughout the world; (e) all trade names, logos, common law trademarks and
service marks, trademark and service xxxx registrations and applications
therefor throughout the world; (f) all proprietary databases and data
collections and all rights therein throughout the world; and (g) any
equivalent rights to any of the foregoing anywhere in the world.
(ii) "Neversoft Intellectual Property" shall mean that
Intellectual Property owned by, licensed to, or used by Neversoft.
(iii) "Neversoft Registered Intellectual Property" means
those United States, international and foreign: (a) patents and patent
applications (including provisional applications); (b) registered trademarks
and service marks, applications to register trademarks or service marks,
intent-to-use applications, or other registrations or applications related to
trademarks or service marks; and (c) registered copyrights and applications
for copyright registration, in each case included in the Neversoft
Intellectual Property. All of the foregoing are listed in Schedule
3.19(a)(iii) hereto.
(b) Schedule 3.19(b) hereto lists all non-routine proceedings or
actions known to the Shareholders before any court, tribunal (including the
United States Patent and Trademark Office ("PTO") or equivalent authority
anywhere in the world) related to any Neversoft Intellectual Property. No
Neversoft Intellectual Property is the subject of any non-routine proceeding
or outstanding decree, order, judgment, agreement, or stipulation restricting
in any manner the use, transfer, or licensing thereof by Neversoft, or which
may affect the validity, use or enforceability of such Neversoft
Intellectual Property.
(c) With respect to each item of Neversoft Registered Intellectual
Property, necessary registration, maintenance and renewal fees in connection
with such Neversoft Registered Intellectual Property have been made and all
necessary documents and certificates in connection with such Neversoft
Registered Intellectual Property have been filed with the relevant patent,
trademark or copyright authorities in the United States or abroad for the
purposes of maintaining such Neversoft Registered Intellectual Property.
(d) Neversoft has the right to use, market, distribute, sell or
license all Neversoft Intellectual Property used in its business as presently
conducted and as it is expected to be conducted as of the Effective Time,
including without limitation, all Intellectual Property used or to be used in
the Neversoft Products (as defined below), and such rights to use, market,
distribute, sell or license are sufficient for such conduct of their
respective businesses.
(e) Neither the manufacture, development, publication, marketing,
license, sale, distribution or use intended by Neversoft of any software
products currently being licensed, produced or sold by Neversoft or currently
under development by Neversoft (the "Neversoft Products") violates any
license or agreement between Neversoft and any third party or infringes any
Intellectual Property right, moral right or right of publicity or privacy of
any other party, and there is no pending or, to the knowledge of the
Shareholders, threatened claim or litigation contesting the validity,
ownership or right to use, market, distribute, sell, license or dispose of
any Neversoft Intellectual Property nor, to the knowledge of the
Shareholders, is there any basis for any such claim under applicable law, nor
has Neversoft received any notice asserting that any Neversoft Intellectual
Property or the proposed use, marketing, distribution, sale, license or
disposition thereof conflicts or will conflict with the rights of any other
party, nor, to the knowledge of the Shareholders, is there any basis for any
such assertion under applicable law. Schedule 3.19(e) hereto sets forth a
list of all Neversoft Products.
(f) Neversoft has timely and satisfactorily complied with their
respective milestone delivery requirements under all material agreements, if
any, pursuant to which Neversoft has agreed with a person other than
Activision or its affiliates to program, design or develop, whether for
original use or for porting or conversion (for use on a different hardware
platform or in a different language), any software products or any part
thereof, except where the failure to so comply could not reasonably be
expected to individually or in the aggregate have a Material Adverse Effect
with respect to Neversoft.
(g) Except as set forth in Schedule 3.19(g) hereto, to the extent
that any work, invention, or material has been developed or created by a
third party for Neversoft, Neversoft has a written agreement with such third
party with respect thereto and Neversoft thereby has obtained ownership of,
and is the exclusive owner of, or has a valid license to use, all Neversoft
Intellectual Property in such work, material or invention by operation of law
or by valid assignment or by agreement, as the case may be.
(h) Schedule 3.19(h) hereto lists all material contracts, licenses
and agreements to which Neversoft is a party that are currently in effect (i)
with respect to Neversoft Intellectual Property licensed or offered to any
third party; or (ii) pursuant to which a third party has licensed or
transferred any Intellectual Property to Neversoft. Except as set forth in
Schedule 3.19(h) hereto, Neversoft has not transferred ownership of, or
granted any exclusive license with respect to, any Neversoft Intellectual
Property, to any third party.
(i) Except as set forth in Schedule 3.19(i) hereto, the contracts,
licenses and agreements listed in Schedule 3.19(h) are in full force and
effect. The consummation of the transactions contemplated by this Agreement
will not violate or result in the breach, modification, cancellation,
termination, or suspension of such contracts, licenses and agreements listed
in Schedule 3.19(h) and will not cause the forfeiture or termination or give
rise to a right of forfeiture or termination of any rights of Neversoft to
any Neversoft Intellectual Property or impair the right of Neversoft after
the Effective Time to use, market, distribute, sell or license any Neversoft
Intellectual Property or portion thereof. Neversoft is in material
compliance with, and has not materially breached any term of any of such
contracts, licenses and agreements listed in Schedule 3.19(h) and, to the
knowledge of the Shareholders, all other parties to such contracts, licenses
and agreements listed in Schedule 3.19(h) are in compliance with, and have
not breached any term of, such contracts, licenses and agreements. Except as
set forth in Schedule 3.19(i) hereto, following the Effective Time, the
Surviving Corporation will be permitted to exercise all of Neversoft's rights
under the contracts, licenses and agreements listed in Schedule 3.19(h) to
the same extent Neversoft would have been able to had the transactions
contemplated by this Agreement not occurred and without the payment of any
additional funds other than ongoing fees, royalties or payments which
Neversoft would otherwise be required to pay.
(j) Schedule 3.19(j) hereto lists all contracts, licenses and
agreements between Neversoft and any third party wherein or whereby Neversoft
has agreed to, or assumed, other than in the ordinary course of business, any
obligation or duty to warrant, indemnify, hold harmless or otherwise assume
or incur any obligation or liability with respect to the infringement or
misappropriation by Neversoft or such third party of the Intellectual
Property of any third party.
(k) Except as set forth in Schedule 3.19(k) hereto, (a) Neversoft
has not received any notice or claim (whether written, oral or otherwise)
challenging Neversoft's ownership or rights in the Neversoft Intellectual
Property or claiming that any other person or entity has any legal or
beneficial ownership with respect thereto; (b) all the Neversoft Intellectual
Property rights owned by Neversoft and embodied in its products are legally
valid and enforceable without any material qualification, limitation or
restriction on their use; (c) Neversoft has not received any notice or claim
(whether written or oral) challenging the validity or enforceability of any
of the Neversoft Intellectual Property rights; and (d) to the Shareholders'
knowledge, no third party is infringing or misappropriating any part of the
Neversoft Intellectual Property.
(l) Neversoft has taken reasonable and practicable measures
designed to protect its rights in its confidential information and trade
secrets or any trade secrets or confidential information of third parties
provided to Neversoft. None of Neversoft, or any employees or, to the
Shareholders' knowledge, consultants of Neversoft, has permitted any such
confidential information or trade secrets to be used, divulged or
appropriated for the benefit of persons to the material detriment of
Neversoft.
(m) Schedule 3.19(m) hereto sets forth a list of all Internet
domain names used by Neversoft in its business (collectively, the "Domain
Names"). Neversoft has, and after the Effective Time the Surviving
Corporation will have, a valid registration and all material rights (free of
any material restriction) in and to the Domain Names, including, without
limitation, all rights necessary to continue to conduct Neversoft's business
as it is currently conducted.
3.20. Consents. Except as set forth in Schedule 3.20 hereto, no
consent, approval or authorization of, or exemption by, or filing with, any
governmental authority or any third party is required to be obtained or made
by the Shareholders in connection with the execution, delivery and
performance by the Shareholders of this Agreement or the taking by the
Shareholders of any other action contemplated hereby.
3.21. Insurance. Neversoft maintains, and has maintained or caused to
be maintained, without interruption, during its existence, policies or
binders of insurance covering such risk, and events, including personal
injury, property damage, and general liability in amounts set forth on
Schedule 3.21 hereto, and its current insurance policies will not terminate
due to the consummation of the transactions contemplated under this
Agreement. Neversoft has provided Activision prior to the Closing Date with
true, complete and correct copies of all insurance policies maintained
currently by Neversoft and all such policies are listed on Schedule 3.21
hereto.
3.22. Relationships with Suppliers, Licensors and Customers. No
current distributor, customer of Neversoft or supplier to Neversoft has
notified Neversoft of an intention to terminate or substantially alter its
existing business relationship with Neversoft, nor has any licensor under a
license agreement with Neversoft notified Neversoft of an intention to
terminate or substantially alter Neversoft's rights under such license, which
termination or alteration would have a Material Adverse Effect.
3.23. Bank Accounts. Schedule 3.23 hereto contains (a) a true and
complete list of names and locations of all banks, trust companies,
securities brokers, and other financial institutions at which Neversoft has
an account or safe deposit box or maintains a banking, custodial, trading,
trust, or other similar relationship, (b) a true and complete list and
description of each such account, box and relationship, (c) a list of all
signatories for each such account and box and (d) a list of all compensating
balances required with respect to each such account.
3.24. Tax and Accounting Treatment. (a) Neither Neversoft nor the
Shareholders have taken any action or engaged in any activities that would
preclude the treatment of the Merger as a tax free reorganization under
Section 368(a) of the Code.
(b) Except as set forth in Schedule 3.24(b), none of the
Shareholders or Neversoft has taken any of the following actions since the
inception of Neversoft: (i) any redemption or repurchase by Neversoft of any
of its equity securities; (ii) any issuance of capital stock or other
securities by Neversoft , any conversion of capital stock or equity
securities by Neversoft, any recapitalization of Neversoft or any conversion
of debt into equity; (iii) any grant, exercise, termination or modification
of any options, warrants or rights to acquire capital stock or other equity
securities of Neversoft or any stock appreciation, phantom stock or similar
rights; (iv) any repayment by Neversoft of any indebtedness to any
stockholder or other affiliate of Neversoft, or amendment of any terms of any
indebtedness or other obligation by Neversoft to any stockholder or other
affiliate of Neversoft; or (v) any contribution to the equity capital of
Neversoft, other than pro rata capital contributions made by the stockholders
at initial organization of Neversoft. Each of the Shareholders understands
that any of the foregoing actions could preclude Activision's ability to
account for the Merger under this Agreement as a pooling of interests.
3.25. Disclosure. No representation, warranty, statement or
information made or furnished by the Shareholders, including but not limited
to those contained in this Agreement, the Schedules hereto and each other
instrument furnished or to be furnished to Activision pursuant hereto or in
connection with the transactions contemplated hereby, contains or shall
contain any statement of a material fact that was untrue when made or omits
or shall omit any material fact necessary to make the information contained
in such representation, statement or information not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACTIVISION
Activision hereby represents and warrants to the Shareholders as
follows:
4.1. Organization. Activision and Merger Subsidiary are each a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, with all requisite corporate power and
authority to carry on their businesses as they are now being conducted, and
to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby.
4.2. Corporate Power and Authority; Effect of Agreement. The
execution, delivery and performance by Activision of this Agreement and the
consummation by Activision of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Activision.
No vote of the Activision stockholders is required to approve the issuance
of the Activision Common Stock as contemplated by this Agreement. This
Agreement has been duly and validly executed and delivered by Activision and
constitutes the valid and binding obligation of Activision, enforceable
against Activision in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws affecting creditors'
rights generally and general principles of equity.
4.3. Capitalization. (a) The authorized capital stock of Activision
consists of 50,000,000 shares of Activision Common Stock and 5,000,000
shares of preferred stock, $.000001 par value (the "Activision Preferred
Shares"). As of September 23, 1999, there were 24,223,549 shares of
Activision Common Stock issued and outstanding and no Activision Preferred
Shares issued and outstanding. All such outstanding shares of Activision are
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. Except as described in the Activision SEC Reports (as
defined in Section 4.5), Activision has no outstanding bonds, debentures,
notes or other obligations the holders of which have or upon the happening of
certain events would have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the stockholders of
Activision on any matter. Except as described in the Activision SEC Reports
and in other filings made by Activision with the Securities and Exchange
Commission (the "SEC"), there are no existing options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements, stock
appreciation rights or similar derivative securities or instruments or
commitments which obligate Activision to issue, transfer or sell any Shares
of Activision Common Stock or make any payments in lieu thereof other than
options or warrants granted to employees, directors, consultants and
licensors after the date of the most recent Activision SEC Report.
(b) The Activision Shares to be issued pursuant to this Agreement
will, upon issuance in accordance with this Agreement, be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights of
any nature.
4.4. No Violation. The execution, delivery and performance by
Activision of this Agreement and the consummation by Activision of the
transactions contemplated hereby will not, with or without the giving of
notice or the lapse of time, or both, conflict with or violate (i) any
provision of law, rule or regulation to which Activision is subject, (ii) any
order, judgment, injunction or decree binding upon or applicable to
Activision or binding upon the assets or properties of Activision, (iii)
violate any provision of the Certificate of Incorporation or the Bylaws of
Activision; except, in each case, for violations which in the aggregate would
not materially hinder or impair the consummation of the transactions
contemplated hereby, or (iv) other than the filings provided for in this
Agreement, require any consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory authority which
has not been obtained or made, except where the failure to obtain any such
consent, approval or authorization of, or declaration, filing or registration
with, any governmental or regulatory authority would not individually or in
the aggregate have a Material Adverse Effect on Activision.
4.5. SEC Documents. Since March 31, 1998, Activision has timely filed
with the SEC all forms, reports and documents required to be filed by
Activision since March 31, 1998 under the Securities Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder (the "Securities Laws"), including,
without limitation, (i) all Annual Reports on form 10-K, (ii) all Quarterly
Reports on form 10-Q, (iii) all proxy statements relating to meetings of
stockholders (whether annual or special), (iv) all Current Reports on form 8-
K and (v) all other reports, schedules, registration statements and other
documents, each as amended (collectively, the "Activision SEC Reports"), all
of which were prepared in compliance in all material respects with the
applicable requirements of the Exchange Act and the Securities Act. As of
their respective dates, the Activision SEC Reports (i) complied as to form in
all material respects with the applicable requirements of the Securities Laws
and (ii) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading. Each of the consolidated balance sheets of
Activision included in or incorporated by reference into the Activision SEC
Reports (including the related notes and schedules) fairly presents the
consolidated financial position of Activision and its consolidated
subsidiaries as of its date and each of the consolidated statements of
operations, cash flows and shareholders' equity included in or incorporated
by reference into the Activision SEC Reports (including any related notes and
schedules) fairly presents the results of operations, cash flows and
shareholders' equity, as the case may be, of Activision and its consolidated
subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods
involved, except as may be noted therein and except, in the case of the
unaudited statements, as permitted by Form 10-Q pursuant to Section 13 or
15(d) of the Exchange Act.
4.6. Absence of Certain Changes. Since June 30, 1999, Activision has
conducted its business in the ordinary course of such business and consistent
with past practices and there has not been any:
(a) change, event or condition (whether or not covered by
insurance) that has resulted in, or might reasonably be expected to result
in, a Material Adverse Effect;
(b) acquisition, sale or tansfer of any material asset of
Activision or any of its subsidiaries other than in the ordinary course of
business;
(c) declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, the shares of Activision
Common Stock or the shares of capital stock of any of its subsidiaries, or
any direct or indirect redemption, purchase or other acquisition by
Activision or any of its subsidiaries of any such shares;
(d) entering into, material amendment or termination of, or
default under, any material contract to which Activision or any of its
subsidiaries is a party or by which it is bound except in the ordinary course
of business; or
(e) agreement by Activision or any of its subsidiaries to do any
of the things described in the preceding clauses (a) through (d).
4.7. Material Compliance with Agreements. Activision is in material
compliance with, and has not materially breached any term of, any software
development agreements between Activision and Neversoft listed in Schedule
3.19(h).
4.8. No Trading in Activision Common Stock. Activision has not,
directly or indirectly, during the ten (10) trading days preceding the
Closing, purchased its own stock or manipulated its stock trading price.
4.9. No Brokers. Activision has not entered into any contract,
arrangement or understanding with any person or firm that may result in the
obligation of Activision or Neversoft to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby. Activision is not aware of any claim for
payment of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
4.10. Tax and Accounting Treatment. Neither Activision nor the
Merger Subsidiary have taken any action or engaged in any activities that
would preclude treatment of the Merger as a tax free reorganization under
Section 368(a) of the Code.
4.11. Disclosure. No representation, warranty, statement or
information made or furnished by Activision, including but not limited to
those contained in this Agreement, the Schedules hereto and each other
instrument furnished or to be furnished to the Shareholders pursuant hereto
or in connection with the transactions contemplated hereby, contains or shall
contain any statement of a material fact that was untrue when made or omits
or shall omit any material fact necessary to make the information contained
in such representation, statement or information not misleading.
ARTICLE V
CONDITIONS TO CLOSING
5.1. Conditions to Neversoft's and the Shareholders' Performance. The
obligation of Neversoft and the Shareholders to consummate and effect the
Merger and the other transactions contemplated herein shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions,
unless waived by the Shareholders:
(a) Activision shall have performed all obligations, taken all
necessary corporate actions, and complied with all terms, conditions,
agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Closing Date, and the Shareholders
shall have received a certificate, dated the Closing Date, signed on behalf
of Activision by the Chief Executive Officer, Co-Chairman, President or
General Counsel of Activision to the foregoing effect.
(b) As of the Closing Date, except as disclosed in the Activision
SEC Reports filed prior to the date of this Agreement, since June 30, 1999
there shall not have occurred any change, circumstance or event, concerning
Activision and its Subsidiaries taken as a whole that has had or could be
reasonably likely to have a Material Adverse Effect on Activision, and the
Shareholders shall have received a certificate dated the Closing Date signed
on behalf of Activision by the Chief Executive Officer, Co-Chairman,
President or General Counsel of Activision to the foregoing effect.
(c) The Board of Directors of Activision and Merger Subsidiary,
and the sole shareholder of Merger Subsidiary shall have approved this
Agreement, the Merger and the transactions contemplated hereby, and the
Shareholders shall have received true copies of the resolutions approving the
foregoing certified by the Secretary of Activision and Merger Subsidiary,
respectively.
(d) No statute, rule or regulation or injunction or order of any
court or administrative agency of competent jurisdiction shall be in effect
as of the Closing Date which prohibits Activision from consummating the
Merger.
(e) Activision shall have executed and delivered employment
agreements and proprietary information agreements with each of the
Shareholders in forms approved by Activision.
(f) Activision and Escrow Agent shall have executed and delivered
the Warranty Escrow Agreement (as defined in Section 6.2) substantially in
the form of Exhibit B attached hereto.
(g) Activision shall have amended its Internal Project Bonus Plan
to incorporate the modifications to such Plan set forth in Section 5 of the
Letter of Intent, dated September 13, 1999, between Activision and Neversoft
and approved and accepted by each of the Shareholders (the "Letter of
Intent").
(h) At the Closing, Activision shall deliver, or cause to be
delivered, certificates representing Activision Common Stock issued in the
names of the Shareholders in accordance with their respective interests and
bearing restrictive legends under the Securities Act, subject to the
provisions of Sections 6.1 and 6.2 of this Agreement (and the Warranty Escrow
Agreement) which require that certificates (accompanied by appropriate stock
powers) for Activision Common Stock be issued to the Shareholders in such
denominations as required to meet the requirements of the Warranty Escrow
Agreement and deposited with the Escrow Agent.
5.2. Conditions to Activision's and Merger Subsidiary's Performance.
The obligation of Activision and Merger Subsidiary to consummate and effect
the Merger and the other transactions contemplated herein shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions,
unless waived by Activision:
(a) Neversoft and the Shareholders shall have performed all
obligations, taken all necessary corporate actions, and complied with all
terms, conditions, agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing Date, and
Activision shall have received a certificate, dated the Closing Date, signed
on behalf of Neversoft by the Shareholders to the foregoing effect.
(b) As of the Closing Date, except as disclosed in the 1999
Financial Statements or in Schedule 3.10, since June 30, 1999 there shall not
have occurred any change, circumstance or event, concerning Neversoft that
has had or could be reasonably likely to have a Material Adverse Effect on
Neversoft, and Activision shall have received a certificate dated the Closing
Date signed on behalf of Neversoft by the Chief Executive Officer or
President of Neversoft and the Shareholders, individually, to the foregoing
effect.
(c) The Board of Directors of Neversoft and the Shareholders shall
have approved this Agreement, the Merger and the transactions contemplated
hereby, and Activision shall have received true copies of the resolutions
approving the foregoing certified by the Secretary of the Company.
(d) No statute, rule or regulation or injunction or order of any
court or administrative agency of competent jurisdiction shall be in effect
as of the Closing Date which prohibits the Shareholders from consummating the
Purchase.
(e) Neversoft shall have delivered to Activision a certificate of
good standing of Neversoft issued by the Secretary of State of California,
dated as of a date not more than ten (10) days prior to the Closing Date.
(f) Each of the Shareholders and up to seven (7) additional
employees of Neversoft to be designated by Neversoft with the approval of
Activision shall have executed and delivered employment agreements and
proprietary information agreements in forms approved by Activision and each
of the Shareholders shall have executed and delivered non-competition
agreements in form approved by Activision.
(g) Activision shall have received from each of the Shareholders
an executed copy of an Investment Letter substantially in the form of
Exhibit A attached hereto.
(h) The Shareholders shall have delivered to Activision all
consents required as described in Schedule 3.20, if any.
(i) The Shareholders shall have executed and delivered the
Warranty Escrow Agreement substantially in the form of Exhibit B attached
hereto.
(j) At the Closing, each of the Shareholders shall deliver, or
cause to be delivered, a certificate or certificates representing the
Neversoft Shares outstanding as of the Closing Date in good form and in each
case accompanied by duly executed stock powers endorsed to Activision, with
all required transfer taxes or stamps paid for or affixed thereto, free and
clear of all Encumbrances and fully paid and nonassessable.
(k) Activision shall have received from KPMG, independent auditors
for Activision, a letter dated the date of the Closing (which may contain
customary qualifications and assumptions), to the effect that KPMG concurs
with Activision's management's conclusion that no conditions exist related to
Activision or Neversoft that would preclude Activision from accounting for
the Merger as a pooling of interests.
ARTICLE VI
COVENANTS AND OTHER AGREEMENTS
6.1 Restrictions on Sale of Activision Shares. The Shareholders
acknowledge and agree that Activision Shares will be issued to the
Shareholders without registration under the Securities Act, based upon the
"private offering exemption", in reliance upon appropriate written
representations from the Shareholders (as set forth in their respective
Investment Letters attached hereto as Exhibit A); further evidenced by
restrictive legends on the certificates representing Activision Shares and
"stop transfer" instructions to Activision's transfer agent. Subject to
Activision's obligations under Section 6.3(a), Activision Shares will be
"restricted securities" within the meaning of the Securities Act and related
rules and regulations. Notwithstanding the provisions of the Securities Act,
the Shareholders acknowledge and agree that the Shareholders shall not have
the right to sell, pledge, gift, hypothecate or otherwise dispose of the
shares of Activision Common Stock until the issuance by Activision of its
first earnings press release after the Effective Time containing at least
thirty (30) days of combined operations of Activision's and Neversoft's
businesses.
6.2. Share Hold Back. In order to insure that the representations,
warranties and covenants made by the Shareholders under this Agreement are
not breached, and in order to provide a nonexclusive source of
indemnification of Activision pursuant to Article 7, Neversoft and the
Shareholders agree that the certificates representing ten percent (10%) of
the total number of Activision Shares issued to each Shareholder in
connection with the Merger shall be deposited in an Escrow Account (the
"Escrow Account") pursuant to a Warranty Escrow Agreement in the form
attached hereto as Exhibit B (the "Warranty Escrow Agreement") on the date of
the Closing. Such Activision Shares shall be held in the Escrow Account
during such period of time as set forth in the Warranty Escrow Agreement (the
"Hold Period"). Any dividends and distributions with respect to such
Activision Shares while held in the Escrow Account also shall be retained in
the Escrow Account until the expiration of the Hold Period for the account of
the Shareholders. Any offsets or deductions made from Activision Shares held
in the Escrow Account on account of any breach of this Agreement shall be
made on the last business day of the Hold Period, or at such other time as
set forth in the Escrow Agreement, and shall be based upon the closing price
of Activision Common Stock on the Nasdaq National Market ("NASDAQ") on the
date the Merger is consummated. All Activision Shares subject to such offset
or deduction shall be canceled by Activision, and the remaining Activision
Shares, together with any dividends paid or distributions made with respect
to such Activision Shares that have not been canceled, shall be then
delivered to the Shareholders in accordance with their respective interests.
Notwithstanding the foregoing, Activision Shares held in the Escrow Account
pursuant to the provisions of this Section 6.2 shall not be deemed the sole
source of recourse by Activision for indemnification under this Agreement,
and Neversoft and the Shareholders shall remain severally liable in
accordance with Article 7.
6.3. Registration of Activision Shares.
(a) Registration on Form S-3. Activision agrees to use its
reasonable best efforts to file with the SEC, as soon as practicable after
the Closing Date, a registration statement on Form S-3, or on such other form
as may be available, registering under the Securities Act, pursuant to Rule
415 under the Securities Act ("Rule 415") (if available), the offer and sale
in the future of all of the Activision Shares issued by Activision to the
Shareholders pursuant to this Agreement. Activision further agrees to (a)
use its commercially reasonable efforts to cause such registration statement
to be declared effective by the SEC as soon as practicable, (b) maintain the
effectiveness of such registration or successor registration statement filed
by Activision for the purpose of registering the shares of Activision Common
Stock (such registration statements being collectively referred to as the
"Registration Statement") until Activision Shares are eligible to be resold
without restriction on disposition pursuant to the Securities Act and its
related rules and regulations, (c) update the prospectus included in the
Registration Statement (the "Prospectus") from time to time as may be
necessary to assure that the Prospectus does not make any untrue statement of
a material fact or omit to state a material fact necessary in order to make
the Prospectus not misleading, and (d) provide such number of copies of the
Registration Statement and the Prospectus (as so updated) to the Shareholders
as they may reasonably request in order to facilitate the public sale or
other disposition of Activision Shares covered by such Registration
Statement.
(b) Costs and Expenses. Activision shall bear the costs incurred
for its legal counsel, accounting and all other costs and expenses in
connection with such registration including keeping the Registration
Statement effective, excluding brokers' commissions and underwriters' fees,
which may be incurred in connection with the preparation and filing of the
Registration Statement pursuant to Section 6.3(a).
(c) Cooperation and Indemnification. (i) The Shareholders agree
that they will provide all required cooperation and furnish all necessary
information and enter into such agreements customarily required of selling
stockholders in connection with the preparation of the Registration Statement
filed under the terms of this Section 6.3, and the Shareholders will
represent and warrant the accuracy and completeness of all written
information so furnished for inclusion in the Registration Statement and will
indemnify and hold Activision, and its directors, officers, shareholders, and
underwriters harmless from and against any liability, loss or damage
(including costs and reasonable attorneys' fees), incurred by or sustained
by, or asserted against, any of them, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in the
information provided by the Shareholders or based on any omission (or alleged
omission) to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
(ii) Activision shall indemnify and hold the
Shareholders harmless from and against any liability, loss or damage
(including costs and reasonable attorneys' fees) incurred by or sustained by,
or asserted against, any of them, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in the
Registration Statement, or based on any omission (or alleged omission) to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, except to the extent such untrue statement
of material fact (or alleged untrue statement) or omission (or alleged
omission) related to information supplied by any of the Shareholders for
inclusion in the Registration Statement.
6.4. Further Assurances. Each party hereto shall, at the request of
the other party and at such other party's expense, execute and deliver any
further instruments or documents and take all such further action as such
other party may reasonably request in order to effectuate the consummation of
the Merger. If, at any time or from time to time after the Effective Time,
any further action is necessary or desirable to carry out the purposes of
this Agreement and to vest the Surviving Corporation with full right, title
and possession to all assets, property, rights, privileges, powers and
franchises of either of the Constituent Corporations, the officers of the
Surviving Corporation are fully authorized in the name of each Constituent
Corporation or otherwise to take, and shall take, all such lawful and
necessary action.
6.5. Confidentiality. Following the Closing, the Shareholders shall
keep confidential all information concerning the business, operations,
properties, assets and financial affairs of Neversoft and may disclose such
information only upon receipt of prior written consent from Activision, as
required by law, or if such disclosure is required (a) in connection with the
Shareholders' filing of any state or federal income tax returns, or (b) by
order of any judicial or administrative authority; provided, however, the
Shareholders shall not be required to keep confidential information that (x)
is or becomes generally available to the public other than as a result of
disclosure by the Shareholders, (y) is or becomes available to the
Shareholders on a nonconfidential basis from a source other than Activision
or (z) the Shareholders or any of their affiliates is required to disclose
pursuant to applicable law, rule, regulation or subpoena.
6.6. Publicity. Activision and the Shareholders shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or any transaction contemplated
herein and shall not issue any such press release or make any such public
statement without the prior consent of the other party, which consent shall
not be unreasonably withheld; provided, however, that a party may, without
the prior consent of the other party, issue such press release or make such
public statement as may be required by law or the rules of the applicable
stock exchange if it has used its reasonable best efforts to consult with the
other party and to obtain such party's consent but has been unable to do so
in a timely manner.
6.7. Shareholder Approval. Each of the Shareholders has voted all
shares of Neversoft Common Stock held by him in favor of the approval and
adoption of this Agreement and the transactions contemplated hereby and the
approval of the Merger.
6.8. NASDAQ Listing. As promptly as practicable after the Effective
Time, Activision shall cause the Activision Shares to be listed, subject to
official notice of issuance, on NASDAQ.
6.9. Tax Treatment. No party shall take any action either prior to or
after the Effective Time that could reasonably be expected to cause the
Merger to fail to qualify as a "reorganization" under Section 368(a) of the
Code. Neversoft covenants that at the time of the Merger, its assets will
satisfy the "substantially all" test within the meaning of Revenue Procedure
77-37, 1977-2 C.B. 568.
7.0. Accounting Treatment. The parties agree that the Merger shall be
accounted on the books of Activision following the Merger under the "pooling
of interests" method of accounting. The parties agree not to take any action
or engage in any activities that could negatively effect the treatment of the
Merger by Activision as a pooling of interests. To the extent any provisions
contained in this Agreement would negatively affect such pooling treatment,
such provision(s) shall be modified accordingly to allow for the
accomplishment of the intended accounting treatment.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
7.1. Survival. Except as otherwise set forth in this Section 7.1, the
representations and warranties made in this Agreement or in any agreement,
certificate or other document executed at or prior to the Effective Time in
connection herewith (each an "Ancillary Document") shall survive until the
earlier to occur of (i) September 30, 2000 or (ii) the date upon which
Activision's auditors complete their first fiscal year end audit of financial
statements containing combined operations of Activision's and Neversoft's
businesses (the "Survival Date"). No investigation by Activision or on
Activision's behalf heretofore or hereafter conducted shall affect the
representations, warranties or covenants of the Shareholders set forth in
this Agreement.
7.2. Indemnification by the Shareholders. To the fullest extent
permitted by law, the Shareholders shall, severally and not jointly, defend,
indemnify and hold harmless Activision and Merger Subsidiary, and all
officers, directors and stockholders of Activision and Merger Subsidiary, and
their heirs, personal and legal representatives, guardians, successors and
assigns ("Activision Indemnified Parties"), from and against any and all
claims, losses, liabilities, taxes, interest, fines, penalties, suits,
actions, proceedings, demands, damages, costs and expenses (including
reasonable attorneys', accountants' and experts' fees and court costs) of
every kind and nature (collectively, "Losses") arising out of or resulting
from any breach by Neversoft or the Shareholders of any representation,
warranty, agreement or covenant made by them in this Agreement. The
Shareholders' liability to indemnify any Activision Indemnified Parties shall
be in proportion to his or her respective shareholdings of Neversoft as of
the Closing Date.
7.3. Indemnification Procedures. Promptly after receipt by an
Activision Indemnified Party under this Section of notice of the commencement
of any action or the incurrence of any Loss, such Activision Indemnified
Party will, if a claim in respect of such action is to be made against any
indemnifying party under this Section, notify the indemnifying party in
writing of the commencement of such action. Upon receipt of such notice the
indemnifying party or parties shall have the right to assume and control the
defense of such action with counsel of its choice, subject to the approval of
the Activision Indemnified Party, which approval shall not be unreasonably
withheld. The Activision Indemnified Parties shall have the right to
participate in the defense of any action and to be represented by counsel of
its or their own selection in connection with such action and to be kept
fully and completely informed by the indemnifying party and its counsel as to
the status of the action at all stages of the proceedings in such action, all
at the Activision Indemnified Partyies' cost and expense. The Activision
Indemnified Party shall cooperate with the indemnifying party in any defense
which the indemnifying party assumes. Activision shall be entitled to settle
any action solely for monetary damages with respect to which it controls the
defense. Neversoft shall be entitled to settle any action solely for
monetary damages with respect to which it controls the defense, subject to
the prior consent of Activision which consent shall not be unreasonably
withheld. The failure to notify an indemnifying party promptly of the
commencement of any such action will not relieve him or it of any liability
that he may have to any Activision Indemnified Party.
7.4. Limitation of Liability. For purposes of this Article 7:
(a) The Shareholders shall not have any liability to indemnify the
Activision Indemnified Parties in respect of Losses incurred by Activision
unless and until the aggregate amount of Losses exceeds One Hundred Thousand
Dollars ($100,000), at which time the Shareholders shall be liable to
indemnify Activision for the full amount of such Losses; and that recovery by
the Activision Indemnified Parties from the Shareholders in respect of all
Losses shall be limited to an aggregate dollar amount equal to ten percent
(10%) of the product of (i) 698,835 and (ii) the closing price of Activision
Common Stock on NASDAQ on the date the Merger is consummated. The
Shareholders' liability under Section 7.1 and this Section 7.4(a) shall be
several, not joint, and shall be in proportion to their respective
shareholdings of Neversoft as of the Closing Date. Any claim for
indemnification by Activision with respect to a Shareholder shall be settled
by delivery to Activision of a number of shares of Activision Common Stock
equal to such Shareholder's allocable portion of the Losses for which such
Shareholder is liable divided by the closing price of Activision Common Stock
on NASDAQ on the date the Merger is consummated (subject to adjustment for
any stock splits, reverse splits, recapitalizations or similar transactions
occurring after the Closing).
(b) Claims for Indemnification. No claim for indemnification will
be valid unless a Claim Notice (as defined the Warranty Escrow Agreement)
shall have been delivered pursuant to the Warranty Escrow Agreement on or
prior to April 25, 2000, after which date the obligation to indemnify shall
terminate with respect to any claim except those which were specifically
identified in a Claim Notice prior to such date.
7.5. Claims Resolution Procedure. The parties shall act in good faith
as expeditiously as possible to resolve any and all claims for
indemnification. To the extent any claims are not Finally Resolved (as
defined in the Warranty Escrow Agreement) on or before April 30, 2000 (the
"Claims Resolution Date"), then the claims shall be resolved in accordance
with the following arbitration procedure:
(a) Each of Activision, on the one hand, and the Shareholders, on
the other hand, shall select and appoint an arbitrator within five (5) days
after the Claims Resolution Date to finally settle all unresolved claims. An
arbitrator shall be selected and appointed by notice from one party (treating
the Shareholders as a single party) to the other. The two arbitrators so
selected shall select a third arbitrator and give written notice to the
parties hereto of such selection within ten (10) days after the Claims
Resolution Date. If the two arbitrators cannot agree on a third arbitrator
within such ten (10) day period, then each of them shall nominate one person
to serve as the third arbitrator and the third arbitrator shall be selected
from the two nominees by lot.
(b) The arbitration shall be conducted jointly by the three
arbitrators, who shall review all submissions by the parties with respect to
the claim and make an award, by majority vote, within forty-five (45) days
after the Claims Resolution Date, which award, when signed by each of the
arbitrators, shall be final and binding on the parties. Unless otherwise
determined by the arbitrators by majority vote, (i) no hearings shall be
held, and the decision shall be rendered based on written submissions by the
parties, and (ii) all written submissions must be made by the parties within
five (5) days after the date on which the third arbitrator is appointed. Once
the award is made, a claim shall be Finally Resolved for purposes of the
Warranty Escrow Agreement.
(c) If either party shall refuse or neglect to select and appoint
an arbitrator within five (5) days after the Claims Resolution Date in
accordance with Section 7.5(a), then the arbitrator so appointed by the first
party, acting alone as the sole arbitrator, shall proceed to arbitrate and
resolve all claims, and such arbitrator's award in writing signed by such
arbitrator shall be final and binding on the parties.
(d) All expenses of the arbitration shall be shared equally by
Activision, on the one hand, and the Shareholders, on the other, provided
that the arbitrator(s) shall have the right to award fees and expenses to the
prevailing party in the arbitration if they deem it appropriate under the
circumstances, and except that each party shall bear the costs and fees of
the arbitrator appointed by such party. The parties hereto agree that they
will cooperate in good faith to allow any arbitration hereunder to occur
promptly and be concluded as quickly as is reasonably possible.
(e) Judgment of any arbitration conducted hereunder may be entered
on the arbitrators' award in any court having jurisdiction, and each party
hereby consents to the jurisdiction of the California state courts sitting in
Los Angeles County for this purpose.
ARTICLE VIII
MISCELLANEOUS
8.1. Assignment; Binding Effect; Benefit. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without
the prior written consent of the other parties; provided, however, (i)
subject to the Shareholders' covenant under Section 6.11, the Shareholders
may assign to any transferee of Activision Shares their respective rights
pursuant to Section 6.3, which transferees shall also be subject to Section
6.11 hereof, and (ii) Activision may assign its rights, interests or
obligations hereunder to any affiliate provided that Activision remains
obligated hereunder and such assignment does not alter the rights, interests
or obligations of the Shareholders hereunder. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns. No
assignment permitted under this Agreement shall relieve any such assignor of
any of his or its obligations under this Agreement and any assignee shall
assume in writing all of the undertakings of assignor under this Agreement.
Notwithstanding anything contained in this Agreement to the contrary, nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the parties hereto or their respective heirs, surviving
corporations, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
8.2. Entire Agreement. This Agreement (including the Exhibits and
Schedules annexed hereto), and any documents delivered by the parties in
connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior negotiations,
agreements and understandings, whether written or oral, among the parties
with respect thereto. No addition to or modification of any provision of
this Agreement shall be binding upon any party hereto unless made in writing
and signed by all parties hereto.
8.3. Notices. Any notice required to be given hereunder shall be in
writing and shall be sent by facsimile transmission (confirmed by any of the
methods that follow), courier service (with proof of service), hand delivery
or certified or registered mail ( return receipt requested and first-class
postage prepaid) and addressed as follows:
If to the Shareholders: Neversoft Entertainment
00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attn: Xxxx Xxxxxx
Tel.: (000) 000-0000
Fax: (000) 000-0000
With a copy to: Xxxxxxx Xxxxx & Xxxxxx LLP
000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxx Xxxxxxx, Esq.
Tel.: (000) 000-0000
Fax: (000) 000-0000
If to Activision and Activision, Inc.
Merger Subsidiary: 0000 Xxxxx Xxxx xxxxxxxxx
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attn: Executive Vice President and
General Counsel
Tel.: (000) 000-0000
Fax: (000) 000-0000
With a copy to: Xxxxxxxx Xxxxxxxxx Xxxxxx
Aronsohn & Xxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx X. Xxxxxxxxx, Esq.
Tel.: (000) 000-0000
Fax: (000) 000-0000
or to such other address as any party shall specify by written notice so
given, and such notice shall be deemed to have been delivered as of the date
received.
8.4. Amendment. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of each of the parties hereto.
8.5. Governing Law. This Agreement has been executed and delivered by
the parties in California, and shall be governed by and construed in
accordance with the laws of the State of California without regard to its
rules of conflict of laws. All parties consent to the exercise of personal
jurisdiction over them in California and agree that any lawsuit arising out
of or relating to this Agreement shall be brought exclusively in a court of
competent subject matter jurisdiction located within the County of Los
Angeles, State of California.
8.6. Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof
each signed by less than all, but together signed by all of the parties
hereto. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of
the party executing (or on whose behalf such signature is executed) the same
with the same force and effect as if such facsimile signature were the
original thereof.
8.7. Headings. All of the Section and Article headings in this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
8.8. Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation
by or on behalf of any party, shall be deemed to constitute a waiver by the
party taking such action of compliance with any representations, warranties,
covenants or agreements contained in this Agreement. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
8.9. No Party Deemed Drafter. The parties agree that no one party shall
be deemed to be the drafter of this Agreement and that in the event this
Agreement is ever construed by a court of law or equity, such court shall not
construe this Agreement or any provision of this Agreement against any party
as the drafter of the Agreement. The parties, and each of them, acknowledge
that all parties have contributed substantially and materially to the
preparation of this Agreement.
8.10. Incorporation. The Schedules and Exhibits hereto and referred to
herein are hereby incorporated herein and made a part hereof for all purposes
as if fully set forth herein.
8.11. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
8.12. Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all
genders.
8.13. Specific Performance. The parties hereto agree that any material
breach or attempted or threatened breach of the provisions of this Agreement
could result in irreparable injury to the parties for which no adequate
remedy at law would exist, and damages would be difficult to determine, and
consent to specific performance of the terms hereof, without limiting the
applicability of any other remedy at law or equity.
8.14. Expenses. The parties agree that Activision shall bear all costs
and expenses incurred by it and Merger Subsidiary, and the Shareholders shall
bear all costs and expenses incurred by them and Neversoft, in connection
with negotiating and completing this Agreement and the transactions
contemplated hereby, including, without limiting the generality of the
foregoing, attorneys' and accountants' fees and expenses.
[SIGNATURE PAGE FOLLOWS.]
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
THE SHAREHOLDERS:
/s/ Xxxx Xxxxxx
--------------------------
Xxxx Xxxxxx
/s/ Xxxxxxx Xxxx
--------------------------
Xxxxxxx Xxxx
/s/ Xxxxxxxxxxx Xxxx
--------------------------
Xxxxxxxxxxx Xxxx
JCM PRODUCTIONS, INC.
dba Neversoft Entertainment
By: /s/ Xxxx Xxxxxx
------------------------
Name: Xxxx Xxxxxx
Title: President
ACTIVISION, INC.
By: /s/ Xxxxxx Xxxxxxxx
-------------------------
Name: Xxxxxx Xxxxxxxx
Title: President
NEVERSOFT ENTERTAINMENT, INC.
By: /s/ Xxxxxx Xxxxxxxx
--------------------------
Name: Xxxxxx Xxxxxxxx
Title: President
Exhibit A
LETTER OF INVESTMENT REPRESENTATIONS
The undersigned, ____________________ ("Purchaser"), hereby makes the
following representations and warranties to Activision, Inc. (the "Company")
in connection with his acquisition of ___________ shares of the Company's
Common Stock, $.000001 par value (the "Securities").
Purchaser hereby represents and warrants that:
1. Purchaser has such knowledge and experience in financial and
business matters that Purchaser is capable of evaluating the merits and risks
of the acquisition of the Securities and, by reason of Purchaser's financial
and business experience (either alone or together with any purchaser
representative), Purchaser has the capacity to protect Purchaser's interest
in connection with the acquisition of the Securities. Purchaser is
financially able to bear the economic risk of his investment in the
Securities.
2. Purchaser has received and reviewed all information Purchaser
considers necessary or appropriate for deciding whether to acquire the
Securities. Purchaser has had an opportunity to ask questions and receive
answers from the Company and its officers and employees regarding the terms
and conditions of the acquisition of the Securities and regarding the
business, financial affairs and other aspects of the Company, and has further
had the opportunity to obtain any information (to the extent the Company
possesses or can acquire such information without unreasonable effort or
expense) which Purchaser deems necessary to evaluate the investment and to
verify the accuracy of information otherwise provided to Purchaser.
3. Purchaser acknowledges that the Securities have not been registered
under the Securities Act of 1933, as amended (the "Act"), or qualified under
the California Corporate Securities Law of 1968, as amended, in reliance, in
part, on the representations and warranties of Purchaser set forth in this
document. Such Securities are being acquired by Purchaser for investment
purposes for Purchaser's own account only and not for resale or with a view
to the distribution of all or any part of such Securities. No other person
will have any direct or indirect beneficial interest in the Securities.
4. Purchaser understands that the Securities are and will be
"restricted securities" under the United States securities laws in that such
securities will be acquired from the Company in a transaction not involving a
public offering, and that such securities may be resold without registration
under the Act only in compliance with the Act and understands the resale
limitations imposed by the Act and is familiar with the applicable securities
laws and regulations, as presently in effect, and the conditions which must
be met for resale of "restricted securities."
5. Purchaser understands that the certificates evidencing the
Securities will bear the legend in substantially the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF
COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO AN APPLICABLE
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
Executed this ____ day of September, 1999.
By:_________________________
Exhibit B
WARRANTY ESCROW AGREEMENT
THIS WARRANTY ESCROW AGREEMENT, dated as of September 30, 1999 ("Escrow
Agreement"), among (i) ACTIVISION, INC., a Delaware corporation
("Activision"); (ii) XXXX XXXXXX, XXXXXXX XXXX and XXXXXXXXXXX XXXX
(collectively, the "Shareholders" and individually, a "Shareholder"); and
(iii) CITY NATIONAL BANK, a National Banking Association, as Escrow Agent
("Escrow Agent").
BACKGROUND
A. The Shareholders own all of the issued and outstanding shares of
capital stock, no par value (the "Neversoft Shares"), of JCM Productions,
Inc. dba Neversoft Entertainment ("Neversoft"), a California corporation.
Concurrently with the execution of this Escrow Agreement, Activision,
Neversoft Entertainment, Inc., a Delaware corporation and a wholly owned
subsidiary of Activison ("Merger Subsidiary"), Neversoft and the Shareholders
are entering into an Agreement and Plan of Reorganization (the "Merger
Agreement") pursuant to which Merger Subsidiary will be merged with and into
Neversoft and Neversoft shall be the surviving corporation in accordance with
the Merger Agreement.
B. Section 6.2 of the Merger Agreement provides that Activision shall
deposit an aggregate of ten percent (10%) of the shares of common stock (the
"Activision Shares"), par value $.000001 per share, of Activision
("Activision Common Stock") issued to the Shareholders pursuant to the Merger
Agreement (the "Escrow Shares"), and the Shareholders are to deposit stock
powers with respect to the Escrow Shares (the "Stock Powers"), into escrow to
be held by Escrow Agent in order to provide a source for indemnification of
Activision by the Shareholders in the event any of the representations,
warranties, covenants or agreements made by the Shareholders under the Merger
Agreement are breached.
C. Escrow Agent has agreed to accept, hold, and disburse the Escrow
Shares, the Stock Powers and other property that may be deposited in escrow,
in accordance with the terms of this Escrow Agreement.
D. In order to establish the escrow and to effect the provisions of
Section 6.2 of the Merger Agreement, the parties have entered into this
Escrow Agreement.
STATEMENT OF AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties, for
themselves, their successors and assigns, hereby agree as follows:
1. Definitions. The following terms shall have the following
meanings when used herein:
"Claim" shall mean a claim for indemnification asserted by
Activision pursuant to the Merger Agreement .
"Claim Notice" shall mean a notice given by Activision to the
Shareholders under the Merger Agreement asserting a Claim and setting forth
an estimate of the amount of such Claim, a copy of which notice shall be
given to Escrow Agent.
"Escrow Property" shall mean the Escrow Shares, the Stock Powers
and any dividends or distributions thereon and any other property or
securities into which the Escrow Shares may be converted or which the Escrow
Agent may receive pursuant to Section 4 on account of the Escrow Shares.
"Finally Resolved" as used in this Agreement shall mean the
following with respect to any Claim made by Activision:
(i) If the Claim is not disputed, the amount of the Claim;
(ii) If the Claim is resolved prior to a dispute, the amount of
the Claim as set forth in a Joint Written Direction;
(iii) If the Claim is disputed in whole or in part by the
Shareholders but is subsequently resolved, compromised or settled, the amount
of the Claim as set forth in a Joint Written Direction; or
(iv) If the Claim results in litigation between Activision and
the Shareholders, the entry of final judgment by the court having
jurisdiction over such matter and the expiration of all periods for appeal by
any of the parties.
"Hold Period" shall mean the period commencing on the date of this
Agreement and ending on the earlier to occur of (i) September 30, 2000, (ii)
the date on which Activision's auditors complete their first fiscal year end
audit of financial statements containing combined operations of Activision's
and Neversoft's businesses or (iii) the date set forth in a Joint Written
Direction.
"Joint Written Direction" shall mean a written direction executed
by a duly authorized representative of Activision and each Shareholder that
directs Escrow Agent to release all or a portion of the Escrow Property or to
take or refrain from taking an action pursuant to this Escrow Agreement.
"Shareholder Objection Notice" shall mean a written notification
given by the Shareholders or any of them to Activision and the Escrow Agent
which shall set forth the basis upon which such party disputes any matter
with respect to a Claim described in a Claim Notice.
2. Appointment of and Acceptance by Escrow Agent. Activision and the
Shareholders hereby appoint Escrow Agent to serve as escrow agent hereunder.
Escrow Agent hereby accepts such appointment and, upon receipt of the Escrow
Shares and Stock Powers in accordance with Section 3 below, agrees to hold,
invest, disburse and release the Escrow Property in accordance with this
Escrow Agreement.
3. Creation of Escrow. On the date of this Agreement, (i) Activision
shall deposit with the Escrow Agent certificates for the Escrow Shares, the
certificate numbers, registered owners and denominations of which are listed
on Exhibit 1 to this Agreement, and (ii) the Shareholders shall deposit with
the Escrow Agent the Stock Powers, substantially in the form of Exhibit 2, in
blank, duly executed by the Shareholders with signatures medallion
guaranteed. The Shareholders shall deposit in escrow at least two Stock
Powers for each certificate representing Escrow Shares.
4. Certain Matters Relating to the Escrow Shares.
(a) Voting Rights. The Shareholders shall have the right to vote
the Escrow Shares owned by them of record with respect to any matter
submitted to a vote of the holders of Activision Common Stock.
(b) Dividends and Distributions. In the case that during the
term of this Agreement the Escrow Agent or the Shareholders shall receive or
shall have credited to it or them, as the case may be, as a dividend or other
distribution upon or on account of any of the Escrow Shares any (i) cash
dividends paid by Activision; (ii) stock dividends in the form of additional
shares of Activision Common Stock or other securities of Activision; or (iii)
any other funds or any property through a distribution by Activision to its
stockholders or a capital transaction affecting the Activision Common Stock,
the Escrow Agent shall hold, or in the event any of such funds or property
are received by the Shareholders, the Shareholders shall promptly deposit
with the Escrow Agent for the Escrow Agent to hold, such cash or other
securities or property, in escrow as part of the Escrow Property in
accordance with this Escrow Agreement. If at any time during the term of
this Escrow Agreement Activision shall offer to its shareholders a choice
between receiving a stock dividend or a cash dividend, the Shareholders shall
make the determination as to which type of dividend shall be received by them
with respect to the Escrow Shares and shall notify Activision and the Escrow
Agent accordingly. The Escrow Agent shall receive a prior written notice of
any dividends or distributions payable to the Shareholders upon or on account
of any of the Escrow Shares.
(c) Tax Treatment. Activision and the Shareholders agree that,
for United States Federal income tax purposes, the Shareholders will be
treated as the sole owners of the Escrow Shares.
5. Disbursements of Escrow Property.
(a) Joint Written Direction. Escrow Agent shall release the
Escrow Property, at any time and from time to time, in whole or in part, in
accordance with a Joint Written Direction.
(b) Claim. (i) Pursuant to the terms and conditions of the
Merger Agreement , Activision may deliver to the Shareholders, with a copy to
Escrow Agent, at any time prior to the expiration of the Hold Period a Claim
Notice in accordance with the notice provisions of this Escrow Agreement.
(ii) Upon receipt of any Claim Notice, Escrow Agent shall, within
two (2) business days, make entries or notations in the account records
relating to the Escrow Property, indicating that property in the amount
of the Claim is reserved to satisfy a Claim, and identifying the date
of such Claim Notice.
(iii) A Shareholder may deliver to Activision, with a copy to
Escrow Agent, a Shareholder Objection Notice, within thirty (30) days
of delivery of a Claim Notice.
(iv) If a Shareholder Objection Notice is not delivered to
Activision and Escrow Agent within such thirty (30) day-period, then
upon the written direction of Activision to Escrow Agent, with a copy
to the Shareholders, the Escrow Agent shall deliver to Activision a
number of Escrow Shares and other Escrow Property equal in value to the
Claim.
(v) If a Shareholder Objection Notice is timely given, then the
Escrow Agent shall continue to hold all Escrow Property until the Claim
is Finally Resolved.
(c) Expiration of Escrow Period. Upon the expiration of the Hold
Period, Escrow Agent shall: (i) retain Escrow Property with a value
sufficient to pay in full all Claims, if any, that are the subject of a Claim
Notice delivered to Escrow Agent that have not been Finally Resolved at such
time, until such Claims have been Finally Resolved; and (ii) deliver the
balance of the Escrow Property to the Shareholders in accordance with their
interests. If Escrow Agent has not received any Claim Notice delivered by
the end of the Hold Period, Escrow Agent shall deliver the balance of the
Escrow Property to the Shareholders in accordance with their interests. The
parties agree that the Escrow Agent shall receive a prior written notice of
the termination of the Hold Period.
(d) Priorities; Valuations; Releases from the Escrow Property.
For determining the value of Escrow Property at any time, whether (i) for
purposes of determining the number of Escrow Shares to be released to
Activision pursuant to Section 5(b)(iv), (ii) for purposes of determining the
number of Escrow Shares to be released to Activision on account of any Claim
that is Finally Resolved, and (iii) for purposes of determining the number of
Escrow Shares to be retained by Escrow Agent at the expiration of the Hold
Period pursuant to Section 5(c), the value of Escrow Shares shall be based
upon the closing price of Activision Common Stock on the Nasdaq National
Market ("NASDAQ") on the date the Merger was consummated. The parties agree
that following the consummation of the Merger, the Escrow Agent shall receive
a written notice of the closing price of Activision Common Stock on NASDAQ on
the date the Merger was consummated.
(e) Release of Stock Powers. Whenever the Escrow Agent releases
Escrow Shares to Activision, it shall also release to Activision Stock Powers
associated with the released Escrow Shares. Whenever the Escrow Agent is
required to continue to hold Escrow Shares, it shall continue to hold
sufficient Stock Powers with respect to such Escrow Shares to administer the
Escrow Property under the terms of this Agreement.
(f) Cancellation of Escrow Shares. All Escrow Shares released to
Activision shall be canceled.
(g) Any cash, securities or other property received by Escrow
Agent pursuant to Section 4(b) on account of the Escrow Shares shall be held
together with the Escrow Shares on account of which such cash, securities or
other property was distributed, and whenever any Escrow Shares are released
to Activision or to the Shareholders, the other cash, security or other
property associated with such released Escrow Shares shall also be released.
The fair market value of all such other cash, securities and other property
shall be taken into account when determining the value of Escrow Property to
be released to a party pursuant to this Escrow Agreement.
(h) The parties acknowledge that the Escrow Property is owned of
record by, and, assuming there are no Claims, will ultimately be distributed
to each Shareholder in the amount set forth next to such Shareholder's name
on Exhibit 1 hereto. Whenever any Escrow Property is released to Activision,
it shall be released from the Escrow Property held of record by each
Shareholder in proportion to such Shareholder's percentage interest of Escrow
Shares as set forth on Exhibit 1.
6. Deposit Into Court. If, at any time, there shall exist any
dispute between Activision and the Shareholders with respect to the holding
or disposition of any portion of the Escrow Property or any other obligations
of Escrow Agent hereunder, or if at any time Escrow Agent is unable to
determine, to Escrow Agent's sole satisfaction, the proper disposition of any
portion of the Escrow Property or Escrow Agent's proper actions with respect
to its obligations hereunder, or if the parties have not within thirty (30)
days of the furnishing by Escrow Agent of a notice of resignation pursuant to
Section 8 of this Agreement, appointed a successor Escrow Agent to act
hereunder, then Escrow Agent may, in its sole discretion, take either or both
of the following actions:
(a) suspend the performance of any of its obligations under this
Escrow Agreement until such dispute or uncertainty shall be resolved to
the sole satisfaction of Escrow Agent or until a successor Escrow Agent
shall have been appointed (as the case may be); provided however, that
Escrow Agent shall continue to invest any cash in the Escrow Property
in accordance with Section 7 of this Agreement; and/or
(b) petition (by means of an interpleader action or any other
appropriate method) any court of competent jurisdiction in Los Angeles
County, California, for instructions with respect to such dispute or
uncertainty, and pay and deposit into such court all funds, securities
and other property held by it as part of the Escrow Property for
holding and disposition in accordance with the instructions of such
court.
Escrow Agent shall have no liability to Activision or the Shareholders, or
any other person, with respect to any such suspension of performance or
disbursement into court, specifically including any liability or claimed
liability that may arise, or be alleged to have arisen, out of or as a result
of any delay in the disbursement of funds held in the Escrow Funds or any
delay in or with respect to any other action required or requested of Escrow
Agent, other than as a result of the gross negligence or willful misconduct
of Escrow Agent.
7. Investment of Funds.
(a) Within two (2) business days following the receipt of any
funds held as part of the Escrow Property, Escrow Agent shall invest such
funds (i) in money market accounts issued by any bank, bank and trust
company, or national banking association (including Escrow Agent and its
affiliates) or (ii) otherwise pursuant to a Joint Written Direction (subject
to applicable minimum investments), Activision to not unreasonably withhold
consent to any reasonable investment the Shareholders may wish to make. Upon
the maturity thereof, Escrow Agent shall invest such monies in an interest-
bearing money market account or accounts at a nationally recognized
commercial bank (including Escrow Agent or its affiliates) or otherwise as
the parties shall direct by Joint Written Direction (subject to applicable
minimum investments).
(b) Notwithstanding anything to the contrary contained herein,
Escrow Agent may, without notice to the parties, sell or liquidate any of the
foregoing investments at any time if the proceeds of such investment are
required for any release of funds permitted or required hereunder, and Escrow
Agent shall not be liable or responsible for any loss, cost or penalty
resulting from any such sale or liquidation. With respect to any funds
received by Escrow Agent for deposit into the Escrow Property or any Joint
Written Direction received by Escrow Agent with respect to investment of any
funds after twelve o'clock, p.m., Los Angeles time, Escrow Agent shall not be
required to invest such funds or to effect such investment instruction until
the next day upon which banks in Los Angeles are open for business.
8. Resignation and Removal of Escrow Agent. Escrow Agent may resign
from the performance of its duties hereunder at any time by giving not less
than twenty (20) days' prior written notice to the parties, or may be
removed, with or without cause, by the parties, acting jointly by furnishing
a Joint Written Direction to Escrow Agent, at any time by the giving of ten
(10) days' prior written notice to Escrow Agent. Such resignation or removal
shall take effect upon the appointment of a successor escrow agent as
provided below or as otherwise agreed by Activision, the Shareholders and
Escrow Agent. Upon any such notice of resignation or removal, Activision and
the Shareholders jointly shall appoint a successor Escrow Agent hereunder,
which shall be a commercial bank, trust company or other financial
institution with offices in the United States with a combined capital and
surplus in excess of $100,000,000. Upon the acceptance in writing of any
appointment as Escrow Agent hereunder by a successor Escrow Agent, such
successor Escrow Agent shall thereupon succeed to and become vested with all
the rights, powers, privileges and duties of the retiring Escrow Agent, and
the retiring Escrow Agent shall be discharged from its duties and obligations
under this Escrow Agreement, but shall not be discharged from any liability
for actions taken as Escrow Agent hereunder prior to such succession. After
any retiring Escrow Agent's resignation or removal, the provisions of this
Escrow Agreement shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Escrow Agent under this Escrow
Agreement. In the event that a successor escrow agent is not so appointed,
then Escrow Agent may relinquish its custody of the Escrow Property by
delivering the Escrow Property to (a) any bank or trust company in the County
of Los Angeles, State of California, which is willing to act as escrow agent
thereunder in place and instead of Escrow Agent, or (b) the clerk or other
proper officer of a court of competent jurisdiction as may be permitted by
law within the County of Los Angeles, State of California. The fee of any
such bank or trust company or court officer shall be borne one-half by
Activision and one-half by the Shareholders. Upon such delivery, Escrow
Agent shall be discharged from its duties and obligations under this Escrow
Agreement, but shall not be discharged from any liability for actions taken
as Escrow Agent hereunder prior to such delivery.
9. Liability of Escrow Agent.
(a) Escrow Agent shall have no liability or obligation with
respect to the Escrow Property except for Escrow Agent's willful misconduct
or gross negligence. Escrow Agent's sole responsibility shall be for the
safekeeping, investment, and disbursement of the Escrow Property in
accordance with the terms of this Escrow Agreement. Escrow Agent shall have
no implied duties or obligations and shall not be charged with knowledge or
notice of any fact or circumstance not specifically set forth herein. Escrow
Agent may rely upon any instrument, not only as to its due execution,
validity and effectiveness, but also as to the truth and accuracy of any
information contained therein, which Escrow Agent shall in good faith believe
to be genuine, to have been signed or presented by the person or parties
purporting to sign the same and to conform to the provisions of this Escrow
Agreement. In no event shall Escrow Agent be liable for incidental,
indirect, special, consequential or punitive damages. Escrow Agent shall not
be obligated to take any legal action or commence any proceeding in
connection with the Escrow Property, any account in which Escrow Property is
deposited, this Escrow Agreement or the Merger Agreement , or to appear in,
prosecute or defend any such legal action or proceeding. Escrow Agent may
consult legal counsel selected by it in the event of any dispute or question
as to the construction of any of the provisions of this Agreement or of any
other agreement or of its duties hereunder, and shall incur no liability and
shall be fully indemnified from any liability whatsoever in acting in
accordance with the opinion or instruction of such counsel. Activision and
the Shareholders, jointly and severally, shall promptly pay, upon demand, the
reasonable fees and expenses of any such counsel.
(b) The Escrow Agent is authorized, in its sole discretion, to
comply with orders issued or process entered by any court with respect to the
Escrow Property, without determination by the Escrow Agent of such court's
jurisdiction in the matter. If any portion of the Escrow Property is at any
time attached, garnished or levied upon under any court order, or in case the
payment, assignment, transfer, conveyance or delivery of any such property
shall be stayed or enjoined by any court order, or in case any order,
judgment or decree shall be made or entered by any court affecting such
property or any part of such proceeds, then and in any such event, the Escrow
Agent is authorized, in its sole discretion, to rely upon and comply with any
such order, writ, judgment or decree which it is advised by legal counsel
selected by it is binding upon it without the need for appeal or other
action; and if the Escrow Agent complies with any such order, writ, judgment
or decree, it shall not be liable to any of the parties or to any other
person or entity by reason of such compliance even though such order, writ,
judgment or decree may be subsequently reversed, modified, annulled, set
aside or vacated. Escrow Agent shall give prompt written notice to
Activision and the Shareholders of its compliance with any such order, writ,
judgment or decree.
10. Indemnification of Escrow Agent. From and at all times after the
date of this Escrow Agreement, Activision and the Shareholders shall, to the
fullest extent permitted by law and to the extent provided herein, indemnify
and hold harmless Escrow Agent and each director, officer, employee,
attorney, agent and affiliate of Escrow Agent (collectively, the "Indemnified
Parties") against any and all actions, claims (whether or not valid), losses,
damages, liabilities, costs and expenses of any kind or nature whatsoever
(including without limitation reasonable attorneys' fees, costs and expenses)
incurred by or asserted against any of the Indemnified Parties from and after
the date of this Agreement, whether direct, indirect or consequential, as a
result of or arising from or in any way relating to any claim, demand, suit,
action or proceeding (including any inquiry or investigation) by any person
(including, without limitation, Activision or a Shareholder), whether
threatened or initiated, asserting a claim for any legal or equitable remedy
against any person under any statute or regulation (including, but not
limited to, any federal or state securities laws, or under any common law or
equitable cause or otherwise), arising from or in connection with the
negotiation, preparation, execution, performance or failure of performance of
this Escrow Agreement or any transactions contemplated herein, whether or not
any such Indemnified Party is a party to any such action, proceeding, suit or
the target of any such inquiry or investigation; provided, however, that no
Indemnified Party shall have the right to be indemnified hereunder for any
liability finally determined by a court of competent jurisdiction, subject to
no further appeal, to have resulted from the gross negligence or willful
misconduct of such Indemnified Party. If any such action or claim shall be
brought or asserted against any Indemnified Party, such Indemnified Party
shall promptly notify Activision and the Shareholders in writing, and
Activision and the Shareholders shall assume the defense of such action or
claim, including the employment of counsel and the payment of all expenses.
Such Indemnified Party shall, in its sole discretion, have the right to
employ separate counsel (who may be selected by such Indemnified Party in its
sole discretion) in any such action and to participate in the defense of such
action, and the fees and expenses of such counsel shall be paid by such
Indemnified Party, except that Activision and/or the Shareholders shall be
required to pay such fees and expenses if (a) Activision and/or the
Shareholders agree to pay such fees and expenses, or (b) Activision and/or
the Shareholders shall fail to assume the defense of such action or
proceeding or shall fail, in the reasonable discretion of such Indemnified
Party, to employ counsel satisfactory to the Indemnified Party in any such
action or proceeding, (c) Activision and/or the Shareholders are the
plaintiff in any such action or proceeding or (d) the named parties to any
such action or proceeding (including any impleaded parties) include both
Indemnified Party and Activision and/or the Shareholders, and Indemnified
Party shall have been advised by counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to Activision or the Shareholders; provided, however, in the case
of clause (d) Activision and the Shareholders shall only be responsible for
any fees of the Indemnified Party arising from additional or different legal
defenses available to it. Activision and the Shareholders shall be liable to
pay fees and expenses of counsel pursuant to the preceding sentence, except
that any obligation to pay under clause (a) shall apply only to the party so
agreeing. All such fees and expenses payable by Activision and/or the
Shareholders pursuant to the foregoing sentence shall be paid from time to
time as incurred, both in advance of and after the final disposition of such
action or claim. All of the foregoing losses, damages, costs and expenses of
the Indemnified Parties shall be payable by Activision and the Shareholders
upon demand by such Indemnified Party. The obligations of Activision and
the Shareholders under this Section 10 shall survive any termination of this
Escrow Agreement and the resignation or removal of Escrow Agent.
The parties agree that neither the payment by Activision or the
Shareholders of any claim by Escrow Agent for indemnification hereunder nor
the disbursement of any amounts to Escrow Agent from the Escrow Property in
respect of a claim by Escrow Agent for indemnification shall impair, limit,
modify, or affect, as between Activision and the Shareholders, the respective
rights and obligations of Activision, on the one hand, and the Shareholders,
on the other hand, under the Merger Agreement .
The obligations of Activision and the Shareholders under this
Section 10 shall be several and not joint, and unless otherwise allocated
pursuant to Section 23 of this Escrow Agreement, shall be allocated one-half
to Activision and one-half to the Shareholders severally in accordance with
their pro rata interests in Neversoft upon the closing of the transactions
contemplated by the Merger Agreement.
11. Fees and Expenses of Escrow Agent. Activision shall compensate
Escrow Agent for its services hereunder in accordance with Exhibit 3 attached
to this Agreement and, in addition, shall reimburse Escrow Agent for all of
its reasonable and actual out-of-pocket expenses, including travel expenses,
telephone and facsimile transmission costs, postage (including express mail
and overnight delivery charges), copying charges and the like. All of the
compensation and reimbursement obligations set forth in this Section 11 shall
be payable by Activision upon demand by Escrow Agent. The obligations of
Activision under this Section 11 shall survive any termination of this Escrow
Agreement and the resignation or removal of Escrow Agent.
12. Consent to Jurisdiction and Venue. In the event that any party
commences a lawsuit or other proceeding relating to or arising from this
Escrow Agreement, the parties agree that the United States District Court
sitting in Los Angeles, California shall have the sole and exclusive
jurisdiction over any such proceeding. If such court lacks federal subject
matter jurisdiction, the parties agree that the California State courts
sitting in Los Angeles County, California shall have sole and exclusive
jurisdiction. Any of these courts shall be proper venue for any such lawsuit
or judicial proceeding and the parties waive any objection to such venue.
The parties consent to and agree to submit to the jurisdiction of any of the
courts specified herein and agree to accept service or process to vest
personal jurisdiction over them in any of these courts.
13. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been validly served, given or
delivered upon receipt if delivered by hand, by overnight courier or by
facsimile, and addressed to the party to be notified as follows:
To Escrow Agent: City National Bank
Attention: Xxx Xxxxxxx
Trust Department
Suite 600
000 Xxxxx Xxxxxxx Xxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Tel.: (000) 000-0000
Fax: (000) 000-0000
To the Shareholders: JCM Productions, Inc.
dba Neversoft Entertainment
00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attn: Xxxx Xxxxxx
Tel.: (000) 000-0000
Fax: (000) 000-0000
In each case with a copy to:Xxxxxxx Xxxxx & Xxxxxx LLP
000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxx Xxxxxxx, Esq.
Tel.: (000) 000-0000
Fax: (000) 000-0000
To Activision: 0000 Xxxxx Xxxx Xxxxxxxxx
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: Executive Vice President
and General Counsel
Tel.: (000) 000-0000
Fax: (000) 000-0000
With a copy to: Xxxxxxxx Xxxxxxxxx Xxxxxx
Aronsohn & Xxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxxxxxx, Esq.
Tel.: (000) 000-0000
Fax: (000) 000-0000
or to such other address as each party may designate for itself by like
notice.
14. Amendment or Waiver. This Escrow Agreement may be changed,
waived, discharged or terminated only by a writing signed by the parties and
Escrow Agent. No delay or omission by any party in exercising any right with
respect to this Agreement shall operate as a waiver. A waiver on any one
occasion shall not be construed as a bar to, or waiver of, any right or
remedy on any future occasion.
15. Severability. To the extent any provision of this Escrow
Agreement is prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Escrow Agreement.
16. Governing Law. This Escrow Agreement has been executed and
delivered by the parties in California, and shall be governed by and
construed in accordance with the internal laws (and not laws pertaining to
conflicts or choice of law) of the State of California in all respects,
including all matters of validity, construction and performance of this
Escrow Agreement. All parties consent to the exercise of personal
jurisdiction over them in California and agree that any lawsuit or
arbitration arising out of or relating to this Escrow Agreement shall be
brought exclusively in a court of competent subject matter jurisdiction
located within the County of Los Angeles, State of California.
17. Entire Agreement. This Escrow Agreement constitutes the entire
agreement between the parties relating to the holding, investment,
disbursement and release of the Escrow Property and sets forth in their
entirety the obligations and duties of Escrow Agent with respect to the
Escrow Property.
18. Binding Effect. All of the terms of this Escrow Agreement, as
amended from time to time, shall be binding upon, inure to the benefit of and
be enforceable by the respective heirs, successors and assigns of Activision,
the Shareholders and Escrow Agent.
19. Execution in Counterparts. This Escrow Agreement and any Joint
Written Direction may be executed in two or more counterparts, each of which
when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same agreement or
direction. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid and binding obligation of the party executing
(or on whose behalf such signature is executed) the same with the same force
and effect as if such facsimile signature were the original thereof.
20. Termination. Upon the first to occur of the disbursement or
release of all Escrow Property pursuant to Joint Written Directions or the
disbursement or release of all Escrow Property into court pursuant to Section
6 of this Agreement, this Escrow Agreement shall terminate and Escrow Agent
shall have no further obligation or liability whatsoever with respect to this
Escrow Agreement or the Escrow Property.
21. Dealings. The Escrow Agent and any stockholder, director, officer
or employee of the Escrow Agent may buy, sell, and deal in any of the
securities of the Activision and become pecuniarily interested in any
transaction in which Activision or the Shareholders may be interested, and
contract and lend money to Activision or the Shareholders and otherwise act
as fully and freely as though it were not Escrow Agent under this Escrow
Agreement. Nothing herein shall preclude the Escrow Agent from acting in any
other capacity for Activision or the Shareholders or for any other entity.
22. Construction. When used herein the masculine includes the
feminine and neuter and the singular includes the plural and vice versa.
23. Attorneys' Fees. Should an action be instituted by any of the
parties to this Agreement in any court of law or equity pertaining to the
enforcement of any of the provisions of this Agreement, the prevailing party
shall be entitled to recover, in addition to any judgment or decree rendered
in such action, all court costs and reasonable attorneys' fees and expenses.
24. No Party Deemed Drafter. The parties agree that no one party
shall be deemed to be the drafter of this Agreement and that in the event
this Agreement is ever construed by a court of law or equity, such court
shall not construe this Agreement or any provision of this Agreement against
any party as the drafter of the Agreement. The parties, and each of them,
acknowledge that all parties have contributed substantially and materially to
the preparation of this Agreement.
25. Equitable Relief. The parties agrees that any material breach or
attempted or threatened breach of this Agreement could result in irreparable
injury to the parties for which there would be no adequate remedy at law and
consents to injunctive relief without limiting the applicability of any other
remedies.
26. Exhibits. The Exhibits attached to this Agreement are
incorporated by reference into this Agreement.
[Signature page follows.]
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be executed under seal as of the date first above written.
ACTIVISION, INC.
By:
--------------------------
Name:
Title:
SHAREHOLDERS
By:/s/ Xxxx Xxxxxx
---------------------------
Xxxx Xxxxxx
By:/s/Xxxxxxx Xxxx
---------------------------
Xxxxxxx Xxxx
By:/s/ Xxxxxxxxxxx Xxxx
---------------------------
Xxxxxxxxxxx Xxxx
CITY NATIONAL BANK
By: /s/ Xxx Xxxxxxx
---------------------------
Name: Xxx Xxxxxxx
Title:
EXHIBIT 1
ESCROW SHARES
Number of Shares
Shareholder Represented by Certificate Certificate Number
Xxxx Xxxxxx 23,295 AV 13088
0000 Xxxxxxx Xxxxx
Xxxxxxx Xxxx, XX 00000
Xxxxxxx Xxxx 23,295 AV 13090
000 Xxxx Xxxxxx, #X
Xxxxx Xxxxxx, XX 00000
Xxxxxxxxxxx Xxxx 23,295 AV 13092
0000 0xx Xxxxxx, #0
Xxxxx Xxxxxx, XX 00000
EXHIBIT 2
STOCK POWER SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________(______________) shares of the Common Stock,
$.000001 par value, of Activision, Inc. standing in his/her/its name on the
books of said Corporation, represented by Certificate No. ___, and does
hereby irrevocably constitute and appoint _______ as Attorney to transfer the
said shares of said __________________ Stock on the books of the said
Corporation, with full powers of substitution in the premises.
Dated: ___________________
_________________________________
(Signature)
_________________________________
(Printed or Typed Name)
EXHIBIT 3
FEES PAYABLE TO ESCROW AGENT
