Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
DATED AS OF
FEBRUARY 1, 1999
BY AND AMONG
XXXXXXXX.XXX, INC.,
NIRVANA ACQUISITION CORP.,
XXXXXXXXXXX.XXX, INC.
AND
CERTAIN SHAREHOLDERS THEREOF
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 1, 1999 (this
"Agreement"), by and among xxxxxxxx.xxx, inc., a Delaware corporation
("theglobe"), Nirvana Acquisition Corp., a Washington corporation and a
wholly-owned subsidiary of theglobe ("Merger Sub"), xxxxxxxxxxx.xxx, inc.,
a Washington corporation (the "Company"), d/b/a Xxxxx.xxx, and Xxxx Xxxxxx,
Xxxxxx Xxxxxx, Xxxx Xxxxxx, Xxxxxxx Xxxxxx, Xxx XxXxxxxxx and Xxxxx XxXxxxx
(collectively, the "Sellers"). theglobe, Merger Sub, the Company and the
Sellers are sometimes referred to herein, individually, as a "Party," and
collectively, as the "Parties."
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of theglobe, Merger
Sub and the Company have each determined that the merger of Merger Sub with
and into the Company (the "Merger") upon the terms and subject to the
conditions set forth in this Agreement is advisable, fair to and in the
best interests of their respective corporations and shareholders and have
approved the Merger;
WHEREAS, the holders of at least 80% of the outstanding shares of
the Company Common Stock (as defined below) have executed an action of
shareholders by written consent pursuant to the Revised Code of Washington
(the "RCW") Section 23B.07.040 approving and adopting the Merger and this
Agreement in accordance with RCW 23B.11.030 (the "Shareholder Consent");
WHEREAS, in accordance with the terms of this Agreement, holders
of the common stock, without par value, of the Company (the "Company Common
Stock" or "Company Shares") will receive common stock, par value $0.001
per share, of theglobe ("theglobe Common Stock" or "theglobe Shares"); and
WHEREAS, it is intended that, for federal income tax purposes,
the Merger will qualify as a reorganization under Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"), and the Agreement
will constitute a plan of reorganization within the meaning of Section 368
of the Code and the Treasury Regulations promulgated thereunder, and it is
further intended that theglobe Common Stock be issued in the Merger will be
issued in a transaction exempt from registration under the Securities Act
of 1933, as amended (the "Securities Act"), and the qualification
requirements of any state "blue sky" laws.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained in this Agreement, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. At the Effective Time (as defined in Section
1.2(b)) and subject to and upon the terms and conditions of this Agreement
and in accordance with RCW 23B.11.060, Merger Sub shall be merged with and
into the Company and the separate corporate existence of Merger Sub shall
cease. The Company shall continue as the surviving corporation (sometimes
referred to herein as the "Surviving Corporation") in the Merger, and as of
the Effective Time shall be a wholly-owned subsidiary of theglobe. The
Merger shall have the effects specified in RCW 23B.11.060.
Section 1.2 The Closing; Effective Time. (a) The closing of the Merger
(the "Closing") shall take place at the offices of Fried, Frank, Harris,
Xxxxxxx & Xxxxxxxx, Xxx Xxx Xxxx Xxxxx, Xxx Xxxx, Xxx Xxxx, 00000, on the
date hereof (the "Closing Date").
(b) Concurrently with the execution and delivery of this
Agreement, theglobe, the Company and Merger Sub shall cause Articles of
Merger in respect of the Merger to be properly executed and filed with the
Secretary of State of the State of Washington as provided in RCW 23B.11.050
and RCW 23B.11.090. The Merger shall become effective at such time at which
the Articles of Merger shall be duly filed with the Secretary of State of
the State of Washington (the time that the Merger becomes effective, the
"Effective Time").
Section 1.3 Subsequent Actions. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments, assurances or any other actions or
things are necessary or desirable to continue in, vest, perfect or confirm
of record the Surviving Corporation's right, title or interest in, to or
under any of the rights, properties, privileges, franchises or assets of
either of the constituent corporations of the Merger, or otherwise to carry
out the intent of this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of either of the constituent corporations of the Merger,
all such deeds, bills of sale, assignments and assurances and to take and
do, in the name and on behalf of each of such constituent corporations or
otherwise, all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest
in, to and under such rights, properties, privileges, franchises or assets
or otherwise to carry out the intent of this Agreement.
Section 1.4 Articles of Incorporation; Bylaws; Directors and Officers
of the Surviving Corporation. At the Effective Time:
(a) The Restated Articles of Incorporation of the Company as
in effect immediately prior to the Effective Time shall be the articles of
incorporation of the Surviving Corporation at and after the Effective Time
(until amended as provided by Law (as defined in Section 3.6(a))).
(b) The Bylaws of the Company as in effect immediately prior
to the Effective Time shall be the bylaws of the Surviving Corporation at
and after the Effective Time (until amended as provided by Law, the
articles of incorporation of the Surviving Corporation and the bylaws of
the Surviving Corporation, as applicable).
(c) The officers of Merger Sub immediately prior to the
Effective Time shall serve in their respective offices as officers of the
Surviving Corporation at and after the Effective Time, until their
successors are elected or appointed and qualified or until their
resignation or removal.
(d) The directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation at and
after the Effective Time, until their successors are elected or appointed
and qualified or until their resignation or removal.
ARTICLE II
MERGER CONSIDERATION
Section 2.1 Treatment of Capital Stock. The manner and basis of
converting the shares of Company Common Stock and shares of Common Stock of
Merger Sub, by virtue of the Merger and without any action on the part of
any holder thereof, shall be as set forth in this Article II.
Section 2.2 Conversion of Common Stock. (a) At the Effective Time, by
virtue of the Merger and without any action on the part of any party, each
share of Company Common Stock (other than Dissenting Shares (as defined in
Section 2.6)) issued and outstanding immediately prior to the Effective
Time (each, an "Outstanding Share" and collectively, the "Outstanding
Shares"), and all rights in respect thereof, shall at the Effective Time,
without any action on the part of any holder, forthwith cease to exist and
be converted into the right to receive the Merger Consideration Per Share
(as defined in Section 2.4(a)).
(b) Except as otherwise provided in this Agreement,
commencing immediately after the Effective Time, each certificate which,
immediately prior to the Effective Time, represented issued and outstanding
shares of Company Common Stock shall evidence the right to receive shares
of theglobe Common Stock on the basis set forth in this Agreement.
Section 2.3 Conversion of Common Stock of Merger Sub. At the Effective
Time, by virtue of the Merger and without any action on the part of any
party, each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time, and all rights in respect thereof,
shall forthwith cease to exist and be converted into one validly issued,
fully paid and nonassessable share of common stock of the Surviving
Corporation.
Section 2.4 Merger Consideration. (a) The "Merger Consideration Per
Share" shall be 0.023513329 shares of theglobe Common Stock.
(b) theglobe shall issue to each holder of a stock
certificate (a "Shareholder") which immediately prior to the Effective Time
represented Outstanding Shares other than Dissenting Shares (a
"Certificate") the number of shares of theglobe Common Stock equal to the
number of shares of Company Common Stock represented by such Certificate
multiplied by the Merger Consideration Per Share, subject to receipt by
theglobe of the Certificate and a completed and duly executed letter of
transmittal in the form of Exhibit 2.4(b)(i) (a "Letter of Transmittal").
Each Seller shall deliver an executed Accredited Investor Questionnaire in
the form of Exhibit 2.4(b)(ii) at the Closing. No later than 10 days
following the date hereof, the Company shall mail a Letter of Transmittal
to all holders of Certificates representing Company Common Stock.
(c) The Company and the Sellers are delivering to theglobe
concurrently with the execution and delivery of this Agreement a
certificate setting forth (i) the number of Outstanding Shares, (ii) the
number of shares of Company Common Stock issuable upon the exercise of any
options exercisable for shares of Company Common Stock ("Options") and the
exercise price of each such Option, and warrants exercisable for shares of
Company Common Stock ("Warrants") and the exercise price of each such
Warrant, in both cases outstanding immediately prior to the Effective Time
and not being exercised in connection with the Merger, (iii) the amount of
cash and cash equivalents of the Company held by the Company at its
headquarters or in its bank accounts as of the Effective Time, (iv) the
amount as of the Effective Time of any paid and any unpaid portion
immediately prior to the Effective Time of any bonuses payable by the
Company in connection with the Merger, (v) the amount paid by the Company
immediately prior to the Effective Time to repay in full all indebtedness
of the Company under the Promissory Note, dated November 4, 1998, by the
Company in favor of Xxxx Xxxxxx in principal amount of $147,415.98 (the
"Xxxxxx Note") and to pay all amounts owing by the Company to XxXxxxxxx
Xxxxx & Co. under the oral agreement on January 1, 1999 with respect to the
purchase of certain office equipment in the aggregate amount of $20,589.00
(the "XxXxxxxxx Purchase"); in each case together with reasonable backup
thereto. For purposes of this Agreement, the terms "cash," "cash
equivalents," and "cash on hand" shall not include any amounts withheld
from "wages" (as defined in Section 3401(a) of the Code or analogous
provisions by state or local law) in respect of applicable withholding
taxes.
Section 2.5 Cash in Lieu of Fractional Shares. Notwithstanding
anything in this Agreement to the contrary, no certificates or scrip
evidencing fractional shares of theglobe Common Stock shall be issued upon
the surrender for exchange of Certificates, and such fractional share
interests will not entitle the owner thereof to vote or to any rights of a
shareholder of theglobe. In lieu of any such fractional shares, each holder
of Company Shares upon surrender of a Certificate pursuant to this Article
II shall be paid an amount in cash (without interest), rounded to the
nearest cent, determined by multiplying (x) $42.779 by (y) the fractional
interest to which such holder would otherwise be entitled (after taking
into account all Certificates held by such holder). Any payment received by
a holder of Company Shares with respect to fractional share interests is
merely intended to provide a mechanical rounding off of, and is not
separately bargained for, consideration.
Section 2.6 Dissenter's Rights. Prior to the date hereof, the Company
and the Sellers agree that they have given due notice to the Shareholders
of the Shareholder Consent (other than Shareholders who have previously
executed a counterpart to the Shareholder Consent) and information
concerning such Shareholders' dissenters' rights in accordance with the
applicable provisions of the RCW. Notwithstanding any provision of this
Agreement to the contrary, any shares of Company Common Stock that are held
immediately prior to the Effective Time by a holder who has neither voted
in favor of the Merger nor consented thereto in writing and who has
demanded and perfected the right, if any, for appraisal of such shares in
accordance with the provisions of RCW 23B.13.010, et. seq. and has not
withdrawn or lost such right to such appraisal ("Dissenting Shares") shall
not be converted into or represent a right to receive the consideration
pursuant to Section 2.4(a), but the holder of such shares shall only be
entitled to such appraisal rights as are granted by applicable Law. If a
holder of such shares shall thereafter effectively withdraw or lose
(through failure to perfect or otherwise) the right to appraisal with
respect to such shares, then, as of the occurrence of such event, such
shares shall be deemed to have been converted into and represent only the
right to receive the consideration pursuant to Section 2.4(a), without
interest, upon the surrender of the Certificate or Certificates
representing such shares and upon delivery of a duly executed Letter of
Transmittal.
Section 2.7 Option and Warrant Rollovers; Transaction Bonuses. (a)
Each Option outstanding at the Effective Time shall, at the Effective Time,
be assumed by theglobe and shall thereafter constitute an option to
acquire, on the same terms and conditions as were applicable under such
assumed Option immediately prior to the Effective Time, a number of shares
of theglobe Common Stock equal to the product of the Merger Consideration
Per Share multiplied by the number of shares of Company Common Stock
subject to such Option immediately prior to the Effective Time, with an
exercise price per share of theglobe Common Stock (rounded up to the
nearest $.001) equal to the aggregate exercise price for the shares of
Company Common Stock subject to such Option immediately prior to the
Effective Time divided by the number of full shares of theglobe Common
Stock purchasable pursuant to such Option immediately following the
Effective Time; provided, however, that the number of shares of theglobe
Common Stock that may be purchased upon exercise of such Option shall not
include any fractional shares and, upon the last such exercise of such
Option, theglobe shall pay to the holder thereof an amount of cash equal to
such fraction multiplied by $42.779. theglobe shall assume the obligations
of the Company under the Company's 1998 Amended Stock Option Plan and shall
comply with the terms thereof.
(b) Each Warrant outstanding at the Effective Time shall, at
the Effective Time, be assumed by theglobe and shall thereafter constitute
a warrant to acquire, on the same terms and conditions as were applicable
under such assumed Warrant immediately prior to the Effective Time, a
number of shares of theglobe Common Stock equal to the product of the
Merger Consideration Per Share multiplied by the number of shares of
Company Common Stock subject to such Warrant immediately prior to the
Effective Time, with an exercise price per share (rounded up to the nearest
$.001) equal to the aggregate exercise price for the shares of Company
Common Stock subject to such Warrant immediately prior to the Effective
Time divided by the number of full shares of theglobe Common Stock
purchasable pursuant to such Warrant immediately following the Effective
Time; provided, however, that the number of shares of theglobe Common Stock
that may be purchased upon exercise of such Warrant shall not include any
fractional shares and, upon the last such exercise of such Warrant,
theglobe shall pay to the holder thereof an amount of cash equal to such
fraction multiplied by $42.779.
(c) (i) At the Closing, the Sellers and the Company shall
deliver to theglobe evidence that no cash has been delivered to Xxx
XxXxxxxxx in respect of, and $392,000 in cash has been withheld in respect
of applicable withholding taxes in partial payment of, the bonus payable in
respect of the Merger pursuant to the XxXxxxxxx Employment Agreement (as
defined in Section 6.1(d)). Following the Effective Time, the Surviving
Corporation or theglobe shall withhold the remaining amount required to be
withheld in respect of such bonus pursuant to applicable withholding taxes
in partial payment of such bonus. As promptly as practicable (but in any
event within five business days) following the Effective Time, the
Surviving Corporation shall, and theglobe shall cause the Surviving
Corporation to, deliver to Xxx XxXxxxxxx shares of theglobe Common Stock in
respect of the remaining unpaid portion of such bonus, subject to delivery
by Xxx XxXxxxxxx to the Surviving Corporation and theglobe of a receipt
stating that all amounts owed to him under the XxXxxxxxx Employment
Agreement have been satisfied.
(ii) At the Closing, the Sellers and the Company shall
deliver to theglobe evidence that no cash has been delivered to Xxxxx
XxXxxxx in respect of, and $196,000 in cash has been withheld in respect of
applicable withholding taxes in partial payment of, the bonus payable in
respect of the Merger pursuant to the XxXxxxx Employment Agreement (as
defined in Section 6.1(d)). Following the Effective Time, the Surviving
Corporation or theglobe shall withhold the remaining amount required to be
withheld in respect of such bonus pursuant to applicable withholding taxes
in partial payment of such bonus. As promptly as practicable (but in any
event within five business days) following the Effective Time, the
Surviving Corporation shall, and theglobe shall cause the Surviving
Corporation to, deliver to Xxxxx XxXxxxx shares of theglobe Common Stock in
respect of the remaining unpaid portion of such bonus, subject to delivery
by Xxxxx XxXxxxx to the Surviving Corporation and theglobe of a receipt
stating that all amounts owed to him under the XxXxxxx Employment Agreement
have been satisfied.
Section 2.8 Closing of Transfer Books. From and after the Effective
Time, the stock transfer books of the Company shall be closed and no
transfer of Company Common Stock shall thereafter be made.
Section 2.9 Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the date of this
Agreement with respect to theglobe Common Stock with a record date after
the Effective Time will be paid to the holder of any unsurrendered
Certificate with respect to the shares of theglobe Common Stock represented
thereby until the holder of record of such Certificate shall surrender such
Certificate. Subject to applicable Law, following surrender of any such
Certificate, there shall be paid to the record holder of the Certificates
representing whole shares of theglobe Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective
Time payable with respect to such whole shares of theglobe Common Stock.
Section 2.10 Transfers of Ownership. If any certificate for shares of
theglobe Common Stock is to be issued in a name other than that in which
the Certificate surrendered in exchange therefor is registered, it will be
a condition of the issuance thereof that the Certificate so surrendered
will be properly endorsed and otherwise in proper form for transfer and
that the Person (as defined in Section 8.3(a)) requesting such exchange
will have paid to theglobe or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares
of theglobe Common Stock in any name other than that of the registered
holder of the Certificate surrendered or established to the satisfaction of
theglobe or any agent designated by it that such tax has been paid or is
not payable.
Section 2.11 No Liability. Notwithstanding anything to the contrary in
this Agreement, none of theglobe, the Surviving Corporation or any other
Party shall be liable to a holder of shares of theglobe Common Stock or
Company Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
Section 2.12 Lost, Stolen or Destroyed Certificates. In the event any
Certificates evidencing shares of Company Common Stock shall have been
lost, stolen or destroyed, theglobe shall issue in exchange for such lost,
stolen or destroyed Certificates, upon the making of an affidavit of that
fact by the holder thereof, the appropriate number of shares of theglobe
Common Stock and the appropriate amount of cash for fractional shares, if
any, as may be required pursuant to Section 2.5; provided, that theglobe
may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates
to indemnify theglobe (including through the posting of a bond) against any
loss or cost incurred by or claim that may be made against theglobe or the
Surviving Corporation with respect to the Certificates alleged to have been
lost, stolen or destroyed.
Section 2.13 Restricted Securities. The shares of theglobe Common
Stock issued in connection with the Merger will be "restricted securities"
under the Securities Act and Rule 144 promulgated thereunder and may only
be sold or otherwise transferred pursuant to an effective registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act. It is understood that the certificates
evidencing the shares of theglobe Common Stock issued in connection with
the Merger will bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
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 satisfactory to the Company that such registration is not required
or unless sold pursuant to Rule 144 of such Act."
(b) Any legend required by applicable state Law.
Section 2.14 Registration Rights. Holders of theglobe Common Stock
issued pursuant to this Agreement (including those Persons to whom shares
of theglobe Common Stock may become issuable pursuant to Section 2.7(b)
upon the exercise of Warrants and Xxx XxXxxxxxx and Xxxxx XxXxxxx in
respect of the shares of theglobe Common Stock issued to them pursuant to
Section 2.7(c)) shall, as of the Effective Time, be entitled to certain
registration rights with respect to such shares as provided in the form of
Registration Rights Agreement set forth in Exhibit 2.14 hereto (the
"Registration Rights Agreement").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE SELLERS
The Company and each of the Sellers hereby jointly and severally
represent and warrant to theglobe and Merger Sub as follows:
Section 3.1 Organization. The Company is a corporation duly organized,
validly existing and authorized to transact business in the corporate form
under the laws of the State of Washington and has the requisite corporate
power and authority to carry on its business as it is now being conducted.
The Company is duly qualified and licensed as a foreign corporation to do
business, and is in good standing (and has paid all relevant franchise or
analogous taxes), in each jurisdiction where the character of its assets
owned or held under lease or the nature of its business makes such
qualification necessary, except where the failure to be so qualified and in
good standing would not, individually or in the aggregate, have a material
adverse effect on the business, operations, results of operations or
financial condition of the Company. The minute books (containing the
records of meetings of shareholders, the board of directors, and any
committees of the board of directors), the share record and certificate
books of the Company contain true, complete and accurate records of all
corporate actions taken at any such meetings and other corporate governance
matters, the stock ownership of the Company and the transfer of the shares
of its capital stock since the date of inception of the Company. Schedule
3.1 lists each of the directors and officers of the Company.
Section 3.2 Authority. Each of the Sellers and the Company has the
requisite right, power and authority (and, in the case of the Sellers,
legal capacity) to enter into this Agreement and any Ancillary Documents
(as defined in Section 8.3(a)) to which it is a party and to carry out its
obligations hereunder and thereunder. This Agreement has been, and each of
the Ancillary Documents to which it is a party has been or will be, duly
and validly executed and delivered by each of the Sellers and the Company
and constitutes, and each of the Ancillary Documents to which it is a party
constitutes, or will upon execution and delivery constitute, a valid and
binding obligation of such Person, enforceable against such Person in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws
affecting creditors rights generally or by general principles of equity.
All proceedings or other actions on the part of the Company and each Seller
necessary to authorize this Agreement or any of the Ancillary Documents to
which it is a party and the transactions contemplated hereby or thereby
have been taken. Each Seller is an "accredited investor" as defined in Rule
501 of the rules and regulations promulgated under the Securities Act.
Section 3.3 Capitalization; Title to Shares; Cash on Hand. The
authorized capital stock of the Company consists of 25,000,000 shares of
Company Common Stock and 5,000,000 shares of preferred stock, without par
value, of which 13,058,644 shares of Company Common Stock are issued and
outstanding. No shares of the Company's preferred stock are issued and
outstanding. The full name and address of each Shareholder, and the number
of shares owned by such Shareholder, is set forth on Schedule 3.3. All the
issued and outstanding shares of Company Common Stock are validly issued,
fully paid and nonassessable and those shares of Company Common Stock held
by the Sellers are owned free and clear of any lien, pledge, charge,
assessment, security interest, mortgage, claim, option, easement,
imperfection of title, tenancy or other legal or equitable right of others,
or other encumbrance of any character whatsoever (including, without
limitation, any right of first refusal) (each an "Encumbrance"). Except as
set forth on Schedule 3.3, there are no shares of capital stock of the
Company authorized, issued or outstanding, and there are no outstanding
Options, Warrants, or other convertible or exchangeable securities,
subscriptions, rights (including, without limitation, preemptive rights),
stock-based or stock-related awards or other contracts, agreements or
arrangements (or Commitments with respect to the issuance or grant of any
of the foregoing) to which the Company or any of the Sellers is a party or
by which the Company or any of the Sellers may be bound of any character
relating to, or obligating the Company or the Sellers to issue, grant,
award, transfer or sell, or based on the value of, any issued or unissued
shares of Company's capital stock or other securities of the Company. There
are no voting trusts, proxies or other agreements or understandings to
which the Company or any of the Sellers is a party with respect to the
voting of capital stock of the Company. At the Effective Time, there is at
least $400,000 of cash and cash equivalents of the Company held by the
Company at its headquarters or in its bank accounts.
Section 3.4 Subsidiaries. Except as set forth on Schedule 3.4, the
Company does not own, and has never owned, directly or indirectly any
interest in any corporation, partnership, joint venture or other business
association, or any other Person.
Section 3.5 Financial Statements. Schedule 3.5 sets forth the balance
sheets of the Company for the fiscal year ended December 31, 1998, December
31, 1997 and December 31, 1996, and the related statements of income and
retained earnings and cash flows for the periods then ended, including the
notes thereto (collectively, the "Financial Statements.") The Financial
Statements as of and for the period ended December 31, 1998 are referred to
herein as the "1998 Financial Statements." The Financial Statements (i) are
in accordance with the books and records of the Company in all material
respects, (ii) fairly present the financial position, results of operations
and cash flows of the Company in all material respects as of the respective
dates and for the respective periods referred to therein and (iii) except
as set forth on Schedule 3.5, were prepared in accordance with generally
accepted United States accounting principles ("GAAP"), in effect on the
date hereof, applied on a basis consistent with that of prior years. The
books of account and other financial and corporate records of the Company
are complete and correct in all material respects.
Section 3.6 Compliance with Laws; Permits. (a) Except as set forth on
Schedule 3.6(a), the Company has complied at all times since inception and
presently is in compliance with all foreign and domestic (federal, state
and local) laws, statutes, ordinances, rules, regulations and bodies of law
(collectively, "Laws") and Orders (as defined in Section 3.7) in all
material respects. Except as set forth on Schedule 3.6(a), since the
Company's inception, neither the Company nor any Seller is aware of or has
received any notice of any alleged material failure to comply with any
applicable Law. A complete and correct list of each license, permit,
consent, registration, certificate, franchise, approval, order or other
authorization of any governmental entity (each, a "Permit") held by the
Company is set forth on Schedule 3.6(a). Except as set forth on Schedule
3.6(a), the Company has all Permits required for the conduct of its
business in all material respects. All of the Company's Permits are valid
and in full force and effect, and the Company has duly performed and is in
material compliance with all of its obligations under such Permits. No
event (including without limitation the execution, delivery and performance
of this Agreement and the consummation of the Merger) has occurred with
respect to such Permits which allows, or after notice or lapse of time or
both would allow, the suspension, limitation, revocation, non-renewal or
termination thereof or would result in any other material impairment of the
rights of the Company in and under any of such Permits, and no terminations
thereof or proceedings to suspend, limit, revoke or terminate any material
Permit have been threatened.
(b) (i) Neither the Company nor any Seller has received any
notices, directives, violation reports, actions or claims from or by any
federal, state or local governmental agency or any other Person concerning
the Company and any Environmental Laws (as defined in Section 3.6(b)(ii))
or alleging that, in connection with Hazardous Materials (as defined in
Section 3.6(b)(ii)), conditions at any real properties owned or leased by
the Company have resulted in or caused or threatened to result in or cause
injury or death to any Person or damage to any property, including, without
limitation, damage to natural resources, and no such notices, directives,
violation reports, actions, claims, assessments or allegations exist; (ii)
the Company does not currently lease, operate or own any real properties
that, to the knowledge of the Company or any Seller, are listed or are
threatened to be listed on a "Superfund" list or with respect to which
there is any pending proceeding or investigation under any Environmental
Law and, to the knowledge of the Company or any Seller, no such proceeding
or investigation is threatened; (iii) throughout the period of operation of
any real properties by the Company, the Company has operated and continues
to operate such real properties in material compliance with all
Environmental Laws; (iv) to the knowledge of the Company and the Sellers,
no underground storage tanks either are, or have been, located at any of
such real properties; (v) there has been no spill, discharge, release,
contamination or cleanup by the Company of any Hazardous Materials used,
generated, treated, stored, disposed of or handled by the Company at such
real properties and, to the knowledge of the Company and the Sellers, no
spill, discharge or release or contamination or cleanup of or by Hazardous
Materials has occurred on or to such real properties by any third party;
(vi) the Company has not used, generated, treated, stored, disposed of,
handled, transported or released any Hazardous Material in a manner which
would give rise to any Liability (as defined in Section 3.9) under any
Environmental Laws; (vii) the Company and the Sellers are not aware of any
facts, events, or conditions (including, without limitation, the
generation, treatment, transport, storage, emission, disposal, release or
other placement, deposit or location of any substance) which interfere with
or prevent continued compliance by the Company with, or give rise to any
present or potential Liability (including with respect to past activities)
under, any Environmental Laws; and (viii) to the knowledge of the Company
and each of the Sellers, the Company has obtained all applicable Permits
which are material to its business and required to be obtained under all
applicable Environmental Laws.
(ii) For the purposes of this Agreement, the term
"Environmental Laws" shall mean, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections
9601 et seq., the Emergency Planning and Community Right-to-Know Act of
1986, 42 U.S.C. Sections 11001 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Sections 6901 et seq., the Toxic Substances Control
Act, 15 U.S.C. Sections 2601 et seq., the Federal Insecticide, Fungicide,
and Rodenticide Act, 7 U.S.C. Sections 136 et seq., the Clean Air Act, 42
U.S.C. Sections 7401 et seq., the Clean Water Act (Federal Water Pollution
Control Act), 33 U.S.C. Sections 1251 et seq., the Safe Drinking Water Act,
42 U.S.C. Sections 300f et seq., the Occupational Safety and Health Act, 29
U.S.C. Sections 641, et seq., the Hazardous Materials Transportation Act,
49 U.S.C. Sections 1801, et seq., as any of the above statutes have been or
may be amended from time to time, all rules and regulations promulgated
pursuant to any of the above statutes, and any other foreign, federal,
state or local law, statute, ordinance, rule or regulation governing
Environmental Matters, as the same have been or may be amended from time to
time, including any common law cause of action (including, without
limitation, nuisance and trespass causes of action) providing any right or
remedy relating to Environmental Matters, all indemnity agreements and
other contractual obligations (including without limitation leases, asset
purchase agreements and merger agreements) relating to Environmental
Matters, and all applicable judicial and administrative decisions and
Orders relating to Environmental Matters; the term "Hazardous Substances"
shall mean any pollutants, contaminants, substances, materials, wastes,
constituents, compounds, chemicals, natural or man-made elements or forces
(including, without limitation, petroleum or any by-products or fractions
thereof, any form of natural gas, lead, asbestos or asbestos-containing
materials, building construction materials and debris, polychlorinated
biphenyls ("PCBs") or PCB-containing equipment, radon and other radioactive
elements, electromagnetic field and other types of radiation, sonic forces,
infectious, carcinogenic, mutagenic, or etiologic agents, pesticides,
defoliants, explosives, flammables, corrosives and urea formaldehyde foam
insulation) that are regulated by, or may now or in the future form the
basis of liability under, any Environmental Laws; and the term
"Environmental Matters" shall mean any matter arising out of, relating to,
or resulting from pollution, contamination, protection of the environment,
human health or safety, or health or safety of employees, and any matter
relating to emissions, discharges, disseminations, releases or threatened
releases of Hazardous Substances into the air (indoor or outdoor), surface
water, groundwater, soil, buildings, facilities, real or personal property
or fixtures, or otherwise arising out of, relating to, or resulting from
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, handling, release or threatened release of Hazardous
Substances.
Section 3.7 Consents; No Violations. Except as set forth on Schedule
3.7, neither the execution, delivery or performance of this Agreement or
the Ancillary Documents by the Company or the Sellers nor the consummation
of the transactions contemplated hereby or thereby will (a) conflict with,
or result in a breach or a violation of, any provision of the Restated
Articles of Incorporation or Bylaws of the Company; (b) constitute, with or
without notice or the passage of time or both, a breach, violation or
default, create an Encumbrance, or give rise to any right of termination,
modification, cancellation, prepayment, suspension, limitation, revocation
or acceleration, under (i) any Law, (ii) any judgment, order, injunction,
ruling, decree, stipulation or award of any governmental entity or private
arbitration panel (each, an "Order") to which the Company or any Seller is
subject or by which the Company or any Seller or any of their respective
properties is bound or (iii) any Permit or Commitment of any Seller or the
Company, or to which they or any of them or any of their, his or its
properties is subject; (c) require any consent, approval or authorization
of, notification to, filing with, or exemption or waiver by, any
governmental entity; or (d) create any Encumbrance upon any of the assets
or properties of the Company.
Section 3.8 Commitments. (a) Schedule 3.8(a) sets forth a true and
complete list of all of the following contracts, agreements,
understandings, arrangements and commitments of any nature whatsoever,
whether written or oral, including all amendments thereof and supplements
thereto (collectively, "Commitments") of the following types to which (i)
the Company is a party or (ii) any Seller is a party in connection with the
business or operations of the Company, or, in either case, by or to which
the Company or any of its properties may be bound or subject:
(i) Commitments for the sale of any real or personal
(tangible or intangible) properties other than in the ordinary course
of business, or for the grant of any option or preferential rights to
purchase any such properties;
(ii) Commitments for the construction, modification or
repair of any building, structure or facility or for the incurrence of
any capital expenditures or for the acquisition of fixed assets, in
each case providing for aggregate payments in excess of $20,000;
(iii) Commitments relating to the acquisition by the
Company of any operating business or the capital stock of any other
Person that has not been consummated or that has been consummated but
contains representations, covenants, guaranties, indemnities or other
obligations that remain in effect;
(iv) Commitments relating to any Litigation (as defined
in Section 3.15);
(v) Commitments relating to the lending or borrowing of
money, including loan agreements, guarantees of any debt, liability or
obligation of any Person, performance bonds, letters of credit,
bankers acceptances and similar instruments or arrangements;
(vi) Commitments under which the Company agrees to
indemnify any Person;
(vii) Commitments containing covenants of the Company
or any successor thereto or any employee not to compete, do business
in any line of business or in any geographical area or with any
Person, or to disclose certain information, or covenants of any other
Person not to compete with the Company in any line of business or in
any geographical area or disclose information concerning the Company;
(viii) Commitments pursuant to which the Company (A)
leases, subleases, licenses or otherwise has the right to use any
personal property or (B) is the lessor of any personal property;
(ix) Commitments in respect of licenses or Commitments
relating to Intellectual Property (as defined in Section 3.16(a)), and
Commitments relating to retailer relationships, e-commerce
relationships and advertising arrangements;
(x) Commitments in respect of any joint venture,
partnership or other similar arrangement (including, without
limitation, any joint development agreement);
(xi) Commitments with any governmental entity;
(xii) Commitments relating to general or special powers
of attorney (whether as grantor or grantee);
(xiii) Commitments with any Employee (as defined in
Section 3.20(k)(ii)) or consultant relating to (A) non-disclosure,
confidentiality, assignment of inventions or proprietary rights and
non-competition and (B) severance, bonus or similar arrangements that
become payable in connection with or following the Merger;
(xiv) Commitments (other than those specified in any of
clauses (i) through (xiii) of this clause (a)) which relate to or
affect the business, operations or any of the assets or properties of
the Company in any way, except those (A) which are specifically not
required to be scheduled pursuant to the provisions of any of clauses
(i) through (xiii) of this paragraph (a), (B) which are cancellable by
the Company on 90 days' or less notice without any penalty or other
financial obligation and which involve payments of less than $20,000
in such 90 day period, or (C) which involve annual aggregate payments
of $20,000 or less, and, in any case, are not material to the business
or financial condition of the Company; and
(xv) Commitments currently in negotiation by the
Company of a type which if entered into would be required to be listed
on Schedule 3.8(a) or to be disclosed on any other Schedule hereto.
(b) True and complete copies of all Commitments listed on
Schedule 3.8(a) have been delivered or made available to theglobe. Except
as set forth on Schedule 3.8(b), all of the Commitments referred to in the
preceding paragraph (a) are valid, binding, in full force and effect and
enforceable in accordance with their terms against the Company or the
applicable Seller (as the case may be), and to the knowledge of the Company
and the Sellers, against the respective counterparties to such Commitments.
Complete copies (or, if oral, full written descriptions) of all Commitments
required to be so listed, including all amendments thereto, and complete
copies of all standard form Commitments used by the Company in the conduct
of its business, have been delivered to theglobe. Except as set forth on
Schedule 3.8(b), (i) there is no breach, violation or default and no event
which, with notice or lapse of time or both, would constitute a breach,
violation or default, or give rise to any Encumbrance or right of
termination, modification, cancellation, prepayment, suspension,
limitation, revocation or acceleration under, any Commitment listed or
required to be listed on Schedule 3.8(a) and (ii) neither the Company nor,
to the knowledge of the Company and each Seller, any other party to any of
the Commitments listed on Schedule 3.8(a) is in material arrears in respect
of the performance or satisfaction of the terms and conditions on its part
to be performed or satisfied under any of such Commitments and no material
waiver or material indulgence has been granted by any of the parties
thereto.
Section 3.9 Absence of Undisclosed Liabilities. Except as set forth on
Schedule 3.9 or incurred in connection with the transactions contemplated
hereby, the Company does not have any debts, creditors or obligations
(absolute, accrued, contingent or otherwise) matured or unmatured
("Liabilities") other than (a) Liabilities which are adequately reflected,
or fully accrued or provided for in the 1998 Financial Statements or (b)
Liabilities arising since December 31, 1998 in the ordinary course of
business consistent (in amount and kind) with past practice which are not,
individually or in the aggregate, material.
Section 3.10 Absence of Certain Changes. Except as set forth on
Schedule 3.10, since December 31, 1998: (i) the business of the Company has
been conducted in the ordinary course of business consistent with past
practice, and (ii) the Company has not (a) suffered any change, event or
development or series of changes, events or developments which is or could
reasonably be expected to have a material adverse effect on the business,
financial condition, operations, results of operations or prospects of the
Company; (b) suffered any damage, destruction or casualty loss to its
physical properties (whether or not covered by insurance) which has been or
could reasonably be expected to be material; (c) been the subject of any
investigation by a governmental entity or Litigation threatened or
commenced since such date which could reasonably be expected to result in
an outcome that is material; (d) except for fair consideration, in the
ordinary course of business and consistent with past practice, canceled or
compromised any debts or waived or permitted to lapse any claims or rights
or sold, transferred or otherwise disposed of any of its properties or
assets; (e) made or committed to make any capital expenditure or commitment
individually or in the aggregate in excess of $20,000; (f) made any change
in any method of accounting or accounting practice; (g) increased any
salaries, wages or any employee benefits, paid any bonuses, or otherwise
increased the compensation of any of its officers, directors or
consultants, other than in the ordinary course of business and consistent
with past practice; (h) declared, set aside or paid any dividends or other
distributions to any holder of its capital stock or other securities or
redeemed or otherwise acquired any shares of its capital stock or other
equity securities or issued or sold any additional shares of the capital
stock of, or any other equity interests in, the Company, or securities
convertible into or exchangeable for such shares or equity interests; (i)
made any loan to or engaged in any other transaction with any officer,
director, employee, consultant or shareholder, other than advances to such
persons in the ordinary course of business in connection with travel and
other business-related expenses; or (j) agreed to take any action referred
to in this Section 3.10(ii).
Section 3.11 Brokers and Finders; Fees. None of the Company or the
Sellers has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the
transactions contemplated hereby.
Section 3.12 Real Estate. (a) "Owned Real Property" shall mean the
real property owned by the Company, together with all buildings and other
structures, facilities or improvements currently or hereafter located
thereon, all fixtures, systems, equipment and items of personal property of
the Company attached or appurtenant thereto and all easements, licenses,
rights and appurtenances relating to the foregoing. Schedule 3.12(a) sets
forth a list of all the Owned Real Property. With respect to the Owned Real
Property, (i) the Company has good and marketable title in fee simple to
the Owned Real Property, free and clear of all Encumbrances except for (A)
Encumbrances disclosed in Schedule 3.12(a), (B) liens for taxes not yet due
and payable, and (C) Encumbrances that are not material, (ii) there are no
outstanding options or rights of first refusal in favor of any other party
to purchase the Owned Real Property or any portion thereof or interest
therein, (iii) there are no leases, subleases, licenses, options, rights,
concessions or other agreements, affecting any portion of the Owned Real
Property, (iv) all existing water, sewer, gas, electricity, telephone and
other utilities required for the construction, use, occupancy, operation
and maintenance of the Owned Real Property are adequate in all material
respects for the use, occupancy, operation and maintenance thereof, as
currently conducted or currently exists, and (v) the Company has all rights
of access necessary for ingress to and egress from the Owned Real Property
from or to public streets.
(b) "Leased Real Property" shall mean the real property
leased by the Company, as tenant, together with, to the extent leased by
the Company, all buildings and other structures, facilities or improvements
currently or hereafter located thereon, all fixtures, systems, equipment
and items of personal property of the Company attached or appurtenant
thereto, and all easements, licenses, rights and appurtenances relating to
the foregoing. Schedule 3.12(b) sets forth a list of all Leased Real
Property. With respect to the Leased Real Property, (i) the Company has
good and valid leasehold estates in the Leased Real Property, free and
clear of all Encumbrances, (ii) to the knowledge of the Company and the
Sellers, all existing water, sewer, gas, electricity, telephone and other
utilities required for the construction, use, occupancy, operation and
maintenance of the Leased Real Property are adequate in all material
respects for the use, occupancy, operation and maintenance thereof, as
currently conducted or currently exists, and (iii) the Company has all
rights of access necessary for ingress to and egress from the Leased Real
Property. Except as set forth on Schedule 3.12(b), (A) each such lease or
sublease is legal, valid, binding and enforceable and in full force and
effect and (B) the execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement will not
cause a material breach or require any third party consent under any such
lease or sublease.
(c) Except as set forth on Schedule 3.12(c), (i) none of the
Sellers or the Company has, since the Company's inception, received written
notice of any pending or, to the knowledge of the Company or any of the
Sellers, threatened condemnation or eminent domain proceedings or their
local equivalent with respect to the Owned Real Property or the Leased Real
Property, (ii) the Owned Real Property, the use and occupancy thereof by
the Company, and the conduct of its business thereon and therein do not
violate any deed restrictions, applicable law consisting of building codes,
zoning, subdivision or other land use or similar laws the violation of
which would adversely affect the use, value or occupancy of any such
property or the conduct of business thereon, (iii) none of the Sellers or
the Company has, since the Company's inception, received written notice of
a material violation of the restrictions or Laws described in the foregoing
clause (ii), and (iv) none of the structures or improvements on any of the
Owned Real Property encroaches upon real property of another Person, and no
structure or improvement of another Person encroaches upon any of the Owned
Real Property or Leased Real Property, which would materially interfere
with the use thereof in the ordinary course of business.
Section 3.13 Sufficiency of Assets. Except as set forth on Schedule
3.13, the assets, rights, and properties owned, leased or licensed by the
Company constitute all assets, rights, and properties used or held for use
in the conduct of its business as presently conducted or proposed to be
conducted.
Section 3.14 Tangible Property. Except as set forth on Schedule 3.14,
the buildings, facilities, machinery, equipment, furniture, leasehold and
other improvements, fixtures, vehicles, structures, any related items and
other tangible property that are required to properly operate the business
of the Company or are material to the financial condition or prospects of
the Company (the "Tangible Property") are in good operating condition and
repair (normal wear and tear excepted), free of any material structural or
engineering defects, are being maintained and replaced in all material
respects in accordance with past practice, and are suitable for their
current use. The Company has good and marketable title to, or a valid
leasehold interest in or contractual right to use, all Tangible Property,
free and clear of all Encumbrances except (A) as disclosed in Schedule 3.14
and (B) Encumbrances that are not material.
Section 3.15 Litigation and Orders. Except as set forth on Schedule
3.15, there is no claim, demand, notice, action, suit, proceeding,
arbitration, investigation, audit, inquiry or hearing by or before any
governmental entity or private arbitration tribunal ("Litigation") pending
or, to the knowledge of the Company or any of the Sellers, threatened
against, affecting or involving the Company or any of its rights or
properties, or which seek to prevent or challenge the transactions
contemplated hereby. There are no unsatisfied judgments against the Company
or any consent decrees or other Orders to which the Company is subject or
its assets or properties are bound.
Section 3.16 Intellectual Property. (a) Except as set forth on
Schedule 3.16(a), the Company owns, or licenses or otherwise possesses
legally enforceable rights to use (i) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements
thereon, and all patents, patent applications and patent disclosures,
together with all reissuances, continuations, continuations-in-part,
revisions, extensions and reexaminations thereof; (ii) all trademarks,
service marks, trade dress, logos, trade names and corporate names,
together with all translations, adaptations, derivations and combinations
thereof and including all goodwill associated therewith, and all
applications, registrations and renewals in connection therewith; (iii) all
copyrightable works, all copyrights and all applications, registrations and
renewals in connection therewith; (iv) all mask works and all applications,
registrations and renewals in connection therewith; (v) all trade secrets
and confidential business information (including ideas, inventory, research
and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technology, technical data, designs,
drawings, specifications, net lists, schematics, algorithms, tangible or
intangible proprietary information, or material, customer and supplier
lists, pricing and cost information and business and marketing plans and
proposals); (vi) all computer software or applications including data and
related documentation (in source code and/or object code form); (vii) all
other proprietary rights; (viii) all copies and tangible embodiments of the
foregoing (in whatever form or medium); and (ix) all licenses or agreements
in connection with the foregoing (collectively, "Intellectual Property")
that has been used in the business of the Company, or is used in the
business of the Company as currently conducted or as proposed to be
conducted by the Company ("Company Intellectual Property"). The Company has
not (i) licensed any of the Company Intellectual Property in source code
form to any party or (ii) entered into any exclusive agreements relating to
the Company Intellectual Property with any party.
(b) Schedule 3.16(b) lists (i) all patents and patent
applications and all registered trademarks, trade names, and service marks,
trademark applications, service xxxx applications, registered copyrights,
and registered mask works included in the Company Intellectual Property,
including the jurisdictions in which such Intellectual Property has been
issued or registered or in which any application for such issuance and
registration has been filed; (ii) all material unregistered trademarks,
trade names, service marks, copyrights, and mask works included in the
Company Intellectual Property; (iii) all licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which any
Person is authorized to use any Intellectual Property; (iv) all licenses,
sublicenses and other agreements as to which the Company is a party and
pursuant to which the Company is authorized to use any third party patents,
trademarks or copyrights, including software (collectively, "Third Party
Intellectual Property Rights") which are incorporated in, are, or form a
part of any Company product; and (v) all URLs owned or used by the Company
and any URLs with respect to which the Company has any rights.
(c) Other than as set forth on Schedule 3.16(c), to the
knowledge of the Company and the Sellers, no third party, including any
Employee or consultant or former Employee or consultant of the Company, has
interfered with, infringed upon, misappropriated, made unauthorized use,
disclosed, or otherwise come into conflict with any Intellectual Property
rights of the Company, and the Company has not brought any action, suit or
proceeding for infringement of the Company Intellectual Property or breach
of any license or agreement involving the Company Intellectual Property
against any third party.
(d) Other than as set forth on Schedule 3.16(d), neither the
Company nor, to the knowledge of the Company or any Seller, any third
party, including any Employee or consultant or former Employee or
consultant (but, with respect to third parties, only to an extent that
could result in Liability to the Company), has interfered with, infringed
upon, misappropriated, made unauthorized use, disclosed, or otherwise come
into conflict with any Third Party Intellectual Property Rights, and the
Company has not received any charge, complaint, claim, demand or notice
alleging any such interference, infringement, misappropriation or violation
(including any claim that the Company must license or refrain from using
any Third Party Intellectual Property Rights). The continued operation of
the business of the Company as presently conducted and as presently
proposed to be conducted will not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Third Party
Intellectual Property Rights. The Company is not, nor will it be as a
result of the execution and delivery of this Agreement or the performance
of its obligations under this Agreement, in breach of any license,
sublicense or other Commitment relating to any Intellectual Property or
Third Party Intellectual Property Rights.
(e) All Company Intellectual Property is valid and
subsisting. Each item of Company Intellectual Property will be owned or
available for use by the Company on identical terms and conditions
immediately subsequent to the Closing hereunder. Except as set forth in
Schedule 3.16(e), the Company has taken appropriate action to maintain and
protect each material item of Company Intellectual Property, including,
where necessary, appropriate steps to protect and preserve confidentiality.
(f) With respect to each item of Company Intellectual
Property (and any item of Intellectual Property underlying Company
Intellectual Property pursuant to a license, sublicense, agreement or
permission), except as set forth in Schedule 3.16(f):
(i) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand is pending or, to
the knowledge of the Company or any Seller, is threatened which
challenges the legality, validity, enforceability, use or ownership of
the item and such item is not subject to any outstanding Order;
(ii) in the case of Company Intellectual Property, the
Company possesses all right, title and interest in and to the item,
free and clear of any Encumbrance, license or other restriction;
(iii) in the case of Company Intellectual Property,
each license, sublicense, agreement or permission covering the item is
legal, valid, binding, enforceable and in full force and effect;
(iv) in the case of Company Intellectual Property, each
license, sublicense, agreement or permission covering the item will
continue to be legal, valid, binding, enforceable and in full force
and effect on identical terms following the Closing;
(v) in the case of Company Intellectual Property, no
party to any license, sublicense, agreement or permission covering the
item is to the knowledge of the Company or any Seller in breach or
default thereof, and no event has occurred which with notice or lapse
of time or both would constitute a breach or default or permit
termination, modification or acceleration thereunder;
(vi) in the case of Company Intellectual Property, no
party to any license, sublicense, agreement or permission has
repudiated any provision thereof;
(vii) with respect to any sublicense relating to the
item of Company Intellectual Property, the representations and
warranties set forth in subsections (iii) through (vi) are true and
correct with respect to the underlying license; and
(viii) with respect to each license, sublicense,
agreement or permission, the Company has not granted any sublicense or
similar right with respect to the license, sublicense, agreement or
permission.
(g) Except as set forth in Schedule 3.16(g), the Company has
secured valid written assignments from all consultants and Employees who
contributed to the creation or development of the Company Intellectual
Property of the rights to such contributions that the Company does not
already own by operation of law.
(h) Except as disclosed on Schedule 3.16(h), the Company has
taken all appropriate steps to protect and preserve the confidentiality of
all Company Intellectual Property not otherwise protected by patents,
patent applications or copyrights ("Confidential I.P. Information"). All
use, disclosure or appropriation of Confidential I.P. Information owned by
the Company by or to a third party has been pursuant to the terms of a
written agreement between the Company and such third party. All use,
disclosure or appropriation of Confidential I.P. Information not owned by
the Company has been pursuant to the terms of a written agreement between
the Company and the owner of such Confidential I.P. Information, or is
otherwise lawful.
(i) The Company has made available to theglobe copies of the
current versions of all proprietary software, in Source Code (as defined
below) and object code forms, that are used or are proposed to be used in
the business of the Company as currently conducted or as proposed to be
conducted by the Company, together with all documentation used in
connection therewith ("Software"). "Source Code" means the complete and
current version of the source code and all source documentation to enable
theglobe to exercise the foregoing license above.
Section 3.17 Year 2000 Compliance. The Software used by the Company
(except for off-the-shelf, shrink-wrap Software that is commercially
available for retail purchase) will not require expenditures on the part of
the Company in excess of $10,000, in the aggregate, in order to: (a)
accurately process date information before, during and after January 1,
2000, including, but not limited to, accepting date input, providing date
output and performing calculations on dates or portions of dates; (b)
function accurately and without interruption before, during and after
January 1, 2000 without any change in operations associated with the advent
of the new century; (c) respond to two digit year date input in a way that
resolves the ambiguity as to century in a disclosed, defined and
predetermined manner; and (d) store and provide output of date information
in ways that are unambiguous as to century. The Company has not received
any notice from any of its principal vendors of hardware or software or
other Persons with whom the Company has material business relationships
that its hardware or software is not Year 2000 compliant in a way adversely
affecting the Company, and the Company and the Sellers have no knowledge
that the hardware or software of any of such vendors or other Persons is
not Year 2000 compliant in a way adversely affecting the Company.
Section 3.18 Taxes. (a) Except as set forth in Schedule 3.18:
(i) The Company has duly filed all Tax Returns (as
defined in Section 3.18(d)) required to have been filed by the Company
in a timely manner (taking into account all lawful extensions of due
dates), all of which Tax Returns are true and complete in all material
respects. All Tax Returns filed on or after March 15, 1998 were filed
consistent with past practice (including all tax elections and methods
of accounting);
(ii) all Taxes (as defined in Section 3.18(d)) required
to have been paid by the Company have been paid. Adequate reserves
have been established in the 1998 Financial Statements for the payment
of all Taxes of the Company that are attributable to the period ending
on December 31, 1998 that are not yet due and payable; and adequate
reserves have been or will be established in the books and records of
the Company for the payment of all Taxes of the Company that are
attributable to the period beginning after December 31, 1998 and
ending on the Closing Date that are not yet due and payable;
(iii) all Taxes required to be collected or withheld by
the Company have been collected and withheld and any such amounts that
are required to be remitted to any taxing authority have been duly
remitted;
(iv) no outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect
to any Taxes or Tax Returns of the Company have been given by or on
behalf of the Company;
(v) the Company has not requested an extension of time
within which to file any Tax Return in respect of any fiscal year
which has not since been filed;
(vi) neither the Company nor the Sellers have taken or
agreed to take any action that would prevent or impede the Merger from
qualifying as a reorganization under Section 368 of the Code. The
Company and the Sellers have not failed to take any action which, if
such action were not taken, would prevent or impede the Merger from
qualifying as a reorganization under Section 368 of the Code;
(vii) for taxable years for which the applicable
statute of limitations has not expired (A) there is no Litigation
underway or, to the knowledge of the Company or any of the Sellers,
pending or threatened, with respect to any liability for Taxes that
relates to the Company, (B) no taxing authority in a jurisdiction
where the Company does not file Tax Returns has made a claim,
assertion or threat to the Company or any of the Sellers that the
Company or any Seller is or may be subject to taxation by such
jurisdiction, (C) there are no Tax rulings, requests for rulings, or
closing agreements relating to the Company which could affect the
liability for Taxes of the Company for any period (or portion of a
period) after the date hereof, (D) any adjustment of Taxes of the
Company made by the IRS in any examination which is required to be
reported to the appropriate state, local or foreign taxing authorities
has been reported, and any additional Taxes due with respect thereto
have been paid, (E) the Company has not disposed of any property in a
transaction being accounted for under the installment method pursuant
to Section 453 of the Code, (F) the Company has not agreed and is not
required to include in income any adjustment pursuant to Section 481
or 482 of the Code (or analogous provisions of applicable Law) which
could affect the liability for Taxes of the Company for any period (or
portion of a period) after the date hereof, and the Internal Revenue
Service (the "IRS") (or other taxing authority) has not proposed to
the Company or any of the Sellers, and, to the knowledge of the
Company and each of the Sellers, is not considering, any such
adjustment which could have such an effect;
(viii) the states, territories and jurisdictions
(whether foreign or domestic) in which the Company has filed income,
franchise, sales and use Tax Returns are set forth in Schedule 3.18;
(ix) none of the assets of the Company (A) is property
that is required to be treated as being owned by any other Person
pursuant to the "safe harbor lease" provisions of Section 168(f)(8) of
the Internal Revenue Code of 1954, (B) is "tax-exempt use property"
within the meaning of Code Section 168(h), or (C) directly or
indirectly secures any debt the interest of which is tax exempt under
Code Section 103(a);
(x) no power of attorney has been granted by or with
respect to the Company with respect to any matter relating to Taxes;
(xi) all Tax deficiencies which have been claimed,
proposed or assessed against the Company have been fully paid or
finally settled;
(xii) the Company has not filed a consent pursuant to
Section 341(f) of the Code (or any predecessor provision);
(xiii) the Company is not now nor has it ever been a
party to or bound by any Commitment (including, without limitation,
any arrangement required or permitted by applicable Law (including
pursuant to Treasury Regulation Section 1.1502-6 or any analogous
provision of state, local or foreign Law) and including any Tax
sharing agreement) which affords any other Person the benefit of any
net operating loss, net capital loss, investment Tax credit, foreign
Tax credit, charitable deduction or any other credit or Tax attribute
which could reduce Taxes (including, without limitation, deductions
and credits related to alternative minimum Taxes) of the Company.
Except with respect to leases of real and personal property, the
Company has no liability for the Taxes of any other person by
contract, agreement to indemnify, applicable Law or otherwise and is
not a party to any such contract or agreement. The Company is not and
has never been a party to any tax sharing agreement.
(xiv) there are no liens with respect to Taxes upon any
of the properties or assets, real or personal, tangible or intangible,
of the Company (other than immaterial Encumbrances for Taxes not yet
due); and
(xv) The Company is not and has not been since its
inception a "United States Real Property Holding Corporation" within
the meaning of Section 897 of the Code.
(b) The Company will deliver or make available to theglobe
complete and accurate copies of: (i) all audit reports, revenue agent's
reports and other written assertions of deficiencies or other liabilities
for Taxes of the Company with respect to past periods for which the
limitations period has not run, letter rulings and Technical Advice
Memoranda relating to United States federal, state and local Taxes and
foreign Taxes due from or with respect to the Company, (ii) all Tax Returns
filed by the Company and (iii) any closing agreements entered into by the
Company with any taxing authority, in each case existing on the date
hereof.
(c) The Company and the initial Shareholders made a valid
election, effective as of April 1996, for the Company to be treated as an
"S" corporation within the meaning of Section 1361(a) of the Code and
within the meaning of analogous state or local provisions in the
jurisdictions set forth on Schedule 3.18. For federal and applicable state
and local income Tax purposes, the Company has properly qualified as an "S"
corporation since the effective date of such election through the date of
this Agreement, and will properly qualify as an "S" corporation through and
until the Closing Date in all jurisdictions in which it is subject to
Income Tax (as defined in Section 5.1). The Company has never been subject
to income Tax as a "C" corporation within the meaning of Section 1361(a) of
the Code or within the meaning of analogous state or local provisions.
(d) For purposes of this Agreement, (i) "Tax" (and, with
correlative meaning, "Taxes") means any federal, state, local or foreign
income, gross receipts, property, sales, use, license, excise, franchise,
employment, payroll, premium, withholding, alternative or added minimum, ad
valorem, inventory, transfer or excise tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalty or addition to tax, imposed by any
governmental entity, and includes, without limitation, any taxes of another
person, including taxes owing under a contract, as transferee or successor,
under Treas. Reg. Section 1.1502-6 or analogous provision of state, foreign or
local law or otherwise, and (ii) "Tax Return" means any return, report or
similar statement required to be filed with respect to any Tax (including
any attached schedules), including, without limitation, any information
return, claim for refund, amended return or declaration of estimated Tax.
(e) Schedule 3.18 sets forth a complete and accurate list of
the initial purchase price and date of issuance of each of the Company
Shares outstanding as of the Closing Date other than with respect to
Company Shares issued as compensation ("Compensatory Shares"). In addition,
Schedule 3.18 sets forth the date of issuance of each Compensatory Share,
the value of which has been or will be reflected on the Company's federal
income tax returns for taxable periods ending on or before the Closing
Date.
Section 3.19 Insurance. Schedule 3.19 sets forth a list of all
policies or binders of fire, liability, product liability, workers
compensation, vehicular and other insurance held by or on behalf of the
Company, including the amounts of such insurance and annual premiums with
respect thereto. Such policies and binders are in full force and effect.
The Company has obtained and maintained in full force and effect insurance
with responsible and reputable insurance companies or associations in such
amounts, on such terms, with such deductibles, and covering such risks, as
is customarily carried by reasonably prudent Persons conducting businesses
or owning assets similar to those of the Company, and has maintained in
full force and effect liability insurance against claims for personal
injury or death or property damage occurring in connection with the
activities of the Company or any properties owned, occupied or controlled
by them in such amount as is customarily carried by reasonably prudent
Persons conducting businesses or owning assets similar to those of the
Company. There is no default with respect to any provision contained in any
such policy or binder, nor has the Company failed to give any notice or
present any claim under any such policy or binders in due and timely
fashion. There are no outstanding Company claims by the Company in excess
of normal retentions that are not covered under any such policies or
binders and there has not occurred any event that might reasonably form the
basis of any claim in excess of normal retentions that is not covered
against or relating to the Company that is not covered by any of such
policies or binders. No notice of cancellation or non-renewal of any such
policies or binders has been received by the Company.
Section 3.20 Employee Benefits. (a) Schedule 3.20(a) contains a true
and complete list of each Company Employee Plan (as defined in Section
3.20(k)(i)) and each Employee Agreement (as defined in Section
3.20(k)(iii)). The Company does not have any plan or commitment to
establish any new Company Employee Plan, to enter into any Employee
Agreement or to modify or to terminate any Company Employee Plan or
Employee Agreement.
(b) Except as set forth in Schedule 3.20(b), the Company has
provided, or has caused to be provided, to theglobe current, accurate and
complete copies of all documents embodying each Company Employee Plan and
each Employee Agreement.
(c) Except as set forth in Schedule 3.20(c), the Company has
performed all material obligations required to be performed by it under
each Company Employee Plan and Employee Agreement. Except as set forth in
Schedule 3.20(c), each Company Employee Plan has been established and
maintained in accordance with its terms and in all material respects in
compliance with all applicable Laws and Orders. No Company Employee Plan is
an "employee pension benefit plan" as defined in Section 3(2) of ERISA (as
defined in Section 3.20(k)(v)), or a Multiemployer Plan (as defined in
Section 3.20(k)(vii)). There are no actions, proceedings, arbitrations,
suits or claims pending, or to the knowledge of the Company or the Sellers,
threatened or anticipated (other than routine claims for benefits) with
respect to any Company Employee Plan or Employee Agreement or by any
Employee (as defined in Section 3.20(k)(ii)) with respect to the Company.
Each Company Employee Plan can be amended, terminated or otherwise
discontinued without material liability to the Company. No Company Employee
Plan is under audit or investigation by the IRS, the Department of Labor,
the PBGC (as defined in Section 3.20(k)(viii)) or other governmental
authority, and to the knowledge of the Company and each of the Sellers, no
such audit or investigation is pending or threatened. No liability under
any Company Employee Plan has been funded nor has any such obligation been
satisfied with the purchase of a contract from an insurance company as to
which the Company has received notice that such insurance company is
insolvent or is in rehabilitation or any similar proceeding.
(d) Except as set forth on Schedule 3.20(d), the Company
does not maintain nor contribute to any Company Employee Plan which
provides, or has any liability to provide, life insurance, medical,
severance or other employee welfare benefits to any Employee upon his
retirement or termination of employment, except as may be required by
applicable Law, including, but not limited to, Section 4980B of the Code
and Sections 601 through 609 of ERISA.
(e) Except as set forth in Schedule 3.20(d), the execution
of, and performance of the transactions contemplated by, this Agreement
will not (either alone, in the aggregate or, pursuant to any Company
Employee Plan or Employee Agreement, upon the occurrence of any additional
or subsequent events) (i) constitute an event that will result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation
to fund benefits under any Company Employee Plan or Employee Agreement, or
(ii) result in the triggering or imposition of any restrictions or
limitations on the right of the Company or theglobe to amend or terminate
any Company Employee Plan. No payment or benefit which will or may be made
by the Company, theglobe, the Sellers or any of their respective Affiliates
under any Company Employee Plan or Employee Agreement may be characterized
as an "excess parachute payment," within the meaning of Section 280G(b)(1)
of the Code which is contingent on the change in ownership of the Company
resulting from the acquisition of Company Common Stock by theglobe pursuant
to this Agreement. Except as set forth in Schedule 3.20(e), no officer,
director or Employee of the Company, nor any Shareholder, is entitled to
any "sale bonus payment," "retention payment," or any other payment or
benefit in connection with, or as a result of, the transactions
contemplated by this Agreement.
(f) The Company is in compliance in all material respects
with all applicable Laws (domestic and foreign) respecting employment,
employment practices, labor, terms and conditions of employment, wages and
hours, withholding taxes, unemployment compensation and Social Security.
(g) No work stoppage or labor strike against the Company by
Employees is pending or, to the knowledge of the Company or the Sellers,
threatened. The Company (i) is not involved in or, to the knowledge of the
Company or the Sellers, threatened with any labor dispute, grievance, or
litigation relating to labor matters and (ii) is not presently, nor has it
been in the past a party to, or bound by, any collective bargaining, union
or similar agreement, nor is any such agreement or contract currently being
negotiated by the Company. No Employees are currently or while employed by
the Company have ever been represented by any labor union with respect to
their employment by the Company and to the knowledge of the Company or the
Sellers no activities the purpose of which is to achieve such
representation of all or some of such Employees are threatened or ongoing.
(h) With respect to each Welfare Plan (as defined in Section
3.20(k)(ix)), all benefit claims incurred (including claims incurred but
not reported) prior to the Effective Time by Employees thereunder for which
the Company is, or will become, liable are (i) insured pursuant to a
contract of insurance whereby the insurance company bears any risk of loss
with respect to such claims; (ii) covered under a contract with a health
maintenance organization (an "HMO") pursuant to which the HMO bears the
liability for such claims, or (iii) reflected as a liability or accrued for
on the 1998 Financial Statements.
(i) The Company has no ERISA Affiliates nor has it ever had
any ERISA Affiliates.
(j) To the knowledge of the Company and each of the Sellers,
no key Employee or group of Employees have any plans to terminate
employment with the Company.
(k) For purposes of this Agreement,
(i) "Company Employee Plan" shall mean each Employee
Plan (other than an Employee Agreement) to which the Company has or
may have any liability, contingent or otherwise.
(ii) "Employee" shall mean each current, former, or
retired employee, officer, consultant, advisor, independent
contractor, agent or director of the Company.
(iii) "Employee Agreement" shall mean each management,
employment, severance, change of control, consulting, or similar
agreement or contract between the Company and any Employee pursuant to
which the Company has or may have any Liability.
(iv) "Employee Plan" shall mean each plan, trust,
program, policy, payroll 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 of any kind, whether formal or informal,
funded or unfunded, written or oral and whether or not legally
binding.
(v) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time, and all applicable
rules and regulations thereunder.
(vi) "ERISA Affiliate" shall mean each business or
entity which is a member of a "controlled group of corporations,"
under "common control" or a member of an "affiliated service group"
with the Company within the meaning of Sections 414(b), (c) or (m) of
the Code, or is required to be aggregated with the Company under
Section 414(o) of the Code, or is under "common control" with the
Company, within the meaning of Section 4001(a)(14) of ERISA.
(vii) "Multiemployer Plan" shall mean any Employee Plan
which is a "multiemployer plan," as defined in Section 3(37) or
4001(a)(3) of ERISA.
(viii) "PBGC" shall mean the Pension Benefit Guaranty
Corporation.
(ix) "Welfare Plan" shall mean each Company Employee
Plan that is an "employee welfare benefit plan" within the meaning of
Section 3(1) of ERISA.
Section 3.21 Personnel Information. Schedule 3.21 contains a list of
all individuals employed by the Company and all directors and independent
contractors providing material services to the Company in connection with
the operation of the business thereof.
Section 3.22 Affiliate Relationships. Except as set forth on Schedule
3.22, no officer, director or Shareholder of the Company (nor any spouse of
any of such persons, or any trust, partnership or corporation in which any
of such persons has or has had a material economic interest) has or has
had, directly or indirectly, (i) an interest in any entity which furnishes
or sells or proposes to furnish or sell a material amount of services or
products to the Company; (ii) any interest in any entity that purchases
from or sells or furnishes to the Company, any material amount of products
or services; or (iii) a beneficial interest in any Commitment set forth in
Schedule 3.8(a); provided, that ownership of no more than one percent of
the outstanding voting stock of a publicly traded corporation shall not be
deemed an "interest in any entity" for purposes of this Section 3.22.
Section 3.23 No Termination of Business Relationship. None of the
Persons with which the Company has a material business relationship has
given notice or other indication of any intention to cancel or otherwise
terminate a business relationship with the Company and neither the Company
nor any Seller has any knowledge of any event (including, without
limitation, the transactions contemplated hereby) which would precipitate
the cancellation or termination of, or entitle any such entity or customer
to terminate, such a business relationship.
Section 3.24 Disclosure; Projections. When taken together, the
statements (including the representations, warranties and covenants) by the
Company and the Sellers contained in this Agreement, the Schedules and
Exhibits hereto, the Ancillary Documents, the documents, written statements
or certificates furnished or to be furnished to theglobe or Merger Sub or
their representatives pursuant hereto or in connection with the
transactions contemplated hereby, and the Azazz! Business Description dated
November 1998 (the "Business Description") do not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements contained herein or therein not misleading.
With respect to any projections contained in the Business Description, such
projections were prepared in good faith and at the time prepared there was
a reasonable basis for such projections and the assumptions made in
connection therewith. Except as set forth on Schedule 3.24, to the
knowledge of the Company and each of the Sellers, there has been no event
or occurrence since the date of the Business Description that would cause
any of them to believe that there is not on the date hereof a reasonable
basis for such projections and the assumptions made in connection therewith
assuming for this purpose that such projections were made immediately prior
to the Effective Time.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THEGLOBE
theglobe represents and warrants to the Company and the Sellers
as follows:
Section 4.1 Organization. theglobe is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to carry on
its business as it is now being conducted. Merger Sub is a corporation duly
organized, validly existing and authorized to transact business in the
corporate form under the laws of the State of Washington and has the
requisite corporate power and authority to carry on its business as it is
now being conducted. Each of theglobe and Merger Sub is duly qualified and
licensed as a foreign corporation to do business, and is in good standing
(and has paid all relevant franchise or analogous taxes), in each
jurisdiction where the character of its assets owned or held under lease or
the nature of its business makes such qualification necessary, except where
the failure to be so qualified and in good standing would not, individually
or in the aggregate, have a material adverse effect on the business,
operations, or financial condition of theglobe or Merger Sub or the ability
of theglobe or Merger Sub to perform their obligations under this
Agreement.
Section 4.2 Authority. Each of theglobe and Merger Sub has the
requisite right, power and authority to enter into this Agreement and any
Ancillary Documents to which it is a party and to carry out its obligations
hereunder and thereunder. This Agreement has been, and each Ancillary
Document to which theglobe and Merger Sub are parties will be, duly and
validly executed and delivered by theglobe and Merger Sub and constitute or
will constitute, as the case may be, a valid and binding obligation of
theglobe and Merger Sub, enforceable against them in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium or other similar laws affecting
creditors' rights generally or by general principles of equity. All
corporate proceedings or other actions on the part of each of theglobe and
Merger Sub necessary to authorize this Agreement or any of the Ancillary
Documents to which it is a party and the transactions contemplated hereby
and thereby have been taken.
Section 4.3 Capitalization; Title to Shares. The authorized capital
stock of theglobe consists of 100,000,000 shares of theglobe Common Stock
and 3,000,000 shares of preferred stock, $0.001 per share, of which
10,312,756 shares of theglobe Common Stock and no shares of preferred stock
were issued and outstanding as of January 29, 1999. All the issued and
outstanding shares of theglobe Common Stock are validly issued, fully paid
and nonassessable. Except pursuant to this Agreement and except as
disclosed in theglobe SEC Reports (as defined in Section 4.6(a)) and
Schedule 4.3, there are no shares of capital stock of theglobe authorized
and there are no outstanding subscriptions, options, warrants, rights,
stock-based or stock-related awards or convertible or exchangeable
securities or other agreements to which theglobe is a party of any
character relating to, or obligating theglobe to issue, grant, award,
transfer or sell, any issued or unissued shares of theglobe's capital stock
or other securities of theglobe. Except as disclosed in theglobe SEC
Reports, there are no voting trusts, proxies or other agreements or
understandings to which theglobe is a party with respect to the voting of
capital stock of theglobe. theglobe has full corporate power and authority
to deliver theglobe Shares to the Shareholders pursuant to the Merger and
to transfer to the Shareholders at Closing, good and valid title to
theglobe Shares.
Section 4.4 Securities of theglobe. The shares of theglobe Common
Stock to be issued pursuant to this Agreement (including any such shares
issuable upon the exercise of Options and Warrants after the Effective
Time) have been duly authorized for issuance, and such securities, when
issued and delivered to the Company's securityholders, will be validly
issued, fully paid and nonassessable.
Section 4.5 Consents; No Violations. Except as set forth on Schedule
4.5, neither the execution, delivery or performance of this Agreement or
the Ancillary Documents by theglobe or Merger Sub nor the consummation of
the transactions contemplated hereby or thereby will (a) conflict with, or
result in a breach or a violation of, any provision of the charter or
by-laws of theglobe or Merger Sub; (b) constitute, with or without notice
or the passage of time or both, a violation or default under (i) any Law or
(ii) any Order to which theglobe or Merger Sub is subject or by which
theglobe or any of its properties is bound; or (c) require any consent,
approval or authorization of, notification to, filing with, or exemption or
waiver by, any governmental entity.
Section 4.6 SEC Reports; Financial Statements. (a) theglobe has filed
all forms, reports and documents (including all Exhibits, Schedules and
Annexes thereto) required to be filed by it with the Securities and
Exchange Commission (the "SEC") since November 12, 1998, including any
amendments or supplements thereto (collectively, including any such forms,
reports and documents filed after the date hereof, "theglobe SEC Reports").
theglobe SEC Reports as of their respective filing dates (i) were in all
material respects in accordance with the requirements of the Securities Act
or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
the case may be, and the rules and regulations promulgated thereunder, 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 in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(b) The financial statements, including all related notes
and schedules, contained in theglobe SEC Reports (or incorporated therein
by reference) fairly present in all material respects the consolidated
financial position of theglobe and its consolidated subsidiaries as at the
respective dates thereof and the consolidated results of operations,
retained earnings and cash flows of theglobe and its consolidated
subsidiaries for the respective periods indicated, in each case in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except for changes in accounting principles disclosed in the
notes thereto) and the rules and regulations of the SEC, except that
interim financial statements are subject to normal year-end adjustments
which are not and are not expected to be, individually or in the aggregate,
material in amount and do not include certain notes which may be required
by GAAP but which are not required by Form 10-Q of the Exchange Act.
Section 4.7 Absence of Certain Changes. Since September 30, 1998,
there has not occurred any event which would have a material adverse effect
on the business, operations, or financial condition of theglobe or Merger
Sub or on the ability of theglobe or Merger Sub to perform their
obligations under this Agreement.
Section 4.8 Taxes. Neither theglobe nor Merger Sub has taken or agreed
to take any action that would prevent or impede the Merger from qualifying
as a reorganization under Section 368 of the Code. Neither theglobe nor
Merger Sub have failed to take any action which, if such actions were not
taken, would prevent or impede the Merger from qualifying as a
reorganization under Section 368 of the Code.
Section 4.9 Litigation. Except as disclosed in theglobe SEC Reports
filed prior to the date hereof, there is no Litigation pending or, to the
knowledge of theglobe, threatened, against theglobe or Merger Sub or any of
their properties or assets, except for Litigation which would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the business, operations, or financial condition of
theglobe or Merger Sub or the ability of theglobe or Merger Sub to perform
their obligations under this Agreement.
Section 4.10 Board Action. The Boards of Directors of theglobe and
Merger Sub have approved this Agreement, the Ancillary Documents and the
transactions contemplated hereby and thereby, including the Merger.
Section 4.11 Brokers and Finders. Neither theglobe nor Merger Sub has
employed any broker or finder or incurred any liability for any brokerage
fees, commissions or finders' fees in connection with the transactions
contemplated hereby.
ARTICLE V
COVENANTS
Section 5.1 Tax Provisions. (a) (i) The Sellers shall, jointly and
severally, indemnify and hold harmless theglobe and theglobe's Affiliates
(including without limitation the Surviving Corporation) from and against
any and all Income Taxes of the Company for (x) any taxable period ending
on or prior to the Closing Date, and (y) any portion ending on the Closing
Date of any taxable period ending after the Closing Date, and against any
Losses incurred by the Company with respect thereto.
(ii) With respect to any taxable period commencing
before, and ending after, the Closing Date, the amount of Income Taxes
for such taxable period allocable to the portion of the period prior
to and including the Closing Date shall be determined based on an
interim closing of the books of the Company as of the close of
business on the Closing Date. For purposes of computing the Sellers'
responsibility for Income Taxes of the Company, the Company's
effective Income Tax rate for the portion of the taxable year ending
on the Closing Date shall not be less than the Company's average
Income Tax rate for the entire taxable year. "Income Tax" or "Income
Taxes" means any federal, state, local or foreign income Tax and in
each instance any interest, penalties or additions to tax attributable
to such Tax.
(iii) With respect to Income Taxes that relate to Tax
Returns not required to be filed prior to the Closing Date and which
relate to taxable periods or portions of periods which end on or
before or include the Closing Date, the Sellers shall pay to theglobe
the Income Taxes shown as due on any such Tax Returns (or, if
applicable, the portion thereof calculated pursuant to paragraph (ii)
above) at least two days prior to the due date for filing such Tax
Returns. Except with respect to the Tax Returns dealt with in Section
5.1(c), theglobe shall furnish a representative of the Sellers with a
copy of the Return at least five days before the Return is due to be
filed.
(b) The Sellers, theglobe, and the Surviving Corporation
will treat the Merger as a reorganization under Section 368 of the Code for
all Tax purposes. Except as required by Law or by this Agreement (including
without limitation any payments made pursuant to dissenters' rights under
applicable Law), neither the Sellers, nor theglobe, nor the Surviving
Corporation will take any action or cause to be taken any action after the
Effective Time that will prevent or impede the Merger from qualifying as a
reorganization under Section 368 of the Code. Except as required by Law or
by this Agreement, neither the Sellers, nor theglobe, nor the Surviving
Corporation will fail to take any action which, if such action were not
taken, would prevent or impede the Merger from qualifying as a
reorganization under Section 368 of the Code.
(c) The Sellers shall cause to be prepared, consistent with
prior practice of the Company, all federal, state and local "S" corporation
income Tax Returns of the Company for taxable years ended on or prior to
the Closing Date (the "Final S Corporation Returns") and shall provide such
Tax Returns to theglobe no later than 30 days prior to the due date of the
particular Tax Return (taking into account all extensions) for theglobe's
review and consent (which consent shall not be unreasonably withheld. The
Company shall timely file all of its Final S Corporation Returns. theglobe
shall make available to the Sellers the Company's books and records in the
Company's possession required by the Sellers in connection with the
preparation of the Final S Corporation Returns pursuant to this Section
5.1(c).
(d) theglobe shall allow the Sellers to copy any and all
books and records of the Company relating to any taxable period ending on
or prior to the Closing Date and shall cooperate fully, as and to the
extent reasonably requested by the Sellers, in connection with the filing
of such Tax Returns and any audit, litigation or other proceeding with
respect to such Tax Returns. Such cooperation shall include the retention
and (upon Seller's request) the provision of records and information which
are reasonably relevant to any such audit, litigation or other proceeding
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
(e) Except with respect to any matter subject to
indemnification claims under Article VII, which shall be governed in
accordance with such Article, (i) the Sellers shall control any audit or
Litigation with respect to any federal, state or local "S" corporation
income Tax Return for taxable years ended on or prior to the Closing Date,
and (ii) the Sellers shall not settle, compromise or abandon any such audit
or Litigation without obtaining the prior written consent of theglobe,
which consent shall not be unreasonably withheld, provided that such
consent shall not be deemed to be unreasonably withheld if such settlement,
compromise or abandonment could have an adverse impact on theglobe, the
Surviving Corporation, or any of their Affiliates.
(f) All transfer, transfer gains, documentary, sales, use,
stamp, registration and other similar Taxes and fees (including any
penalties, interest, additions to tax, and costs and expenses relating to
such Taxes) incurred in connection with the Merger shall be borne 50% by
the Sellers and 50% by the Surviving Corporation. The Sellers, at their own
expense, shall file all necessary Tax Returns and other documentation with
respect to all such transfer, transfer gains, documentary, sales, use,
stamp, registration and other Taxes and fees. The Surviving Corporation
shall cooperate with the Sellers in the preparation of such Tax Returns.
Section 5.2 Confidentiality. Each of the Sellers agrees that no Seller
will disclose any Confidential Information (as defined herein) after the
date hereof to any third party. "Confidential Information" shall mean any
information concerning the Company or theglobe which is in the possession
of any Seller or its Affiliates on the date hereof, other than information
which is or becomes available to the public (other than as a result of the
disclosure by such Seller or any of its Affiliates of such information in
contravention of the covenants set forth in this Section 5.2). The
covenants and agreements contained in this Section 5.2 shall expire on the
third anniversary of the Closing Date.
Section 5.3 Preparation of Information Statement. theglobe has
prepared, with the cooperation of the Company and the Sellers, certain
informational materials (the "Information Statement") which the Company and
the Sellers agree has previously been distributed (or given with the notice
to Shareholders referenced in the first sentence of Section 2.6) to the
Shareholders.
Section 5.4 Non-Competition Agreement. Each of the Sellers agrees
that (a) for a period of one year immediately following the Closing, it shall
not, without the prior written consent of the Company, engage in any
Competitive Activity anywhere in the world (including, without limitation,
anywhere in the United States of America), and (b) for a period of two years
following the Closing it shall not, without the prior written consent of the
Company, directly or indirectly solicit for employment, including, without
limitation, recommending to any subsequent employer the solicitation for
employment of, or hire, any employee of the Company. The Parties acknowledge
and agree that (w) the Sellers will receive substantial and valuable benefits
under this Agreement in consideration of the covenants and agreements of the
Sellers set forth in this Section 5.4, (x) theglobe would not have executed
and delivered this Agreement, or agreed to consummate the transactions
contemplated hereby upon the terms and conditions set forth in this
Agreement, if the Sellers had not entered into the covenants and agreements
set forth in this Section 5.4, (y) the parties intend that such agreements
and covenants be enforceable and that it would be grossly inequitable if a
court or judicial tribunal were to not enforce such covenants and agreements
to the fullest extent provided herein, and (z) the geographical scope of this
Section 5.4 is necessary because Competitive Activities can be conducted from
virtually any location in the world due to the fact that the business of the
Company is conducted on and through the internet. "Competitive Activity"
shall mean engaging in any of the following activities: (i) serving as a
director of any Competitor; (ii) directly or indirectly (x) controlling any
Competitor or (y) owning any equity or debt interests in any Competitor
(other than equity or debt interests which are publicly traded and do not
exceed 5% of the particular class of interests then outstanding) (it being
understood that, if any such interests in any Competitor are owned by an
investment vehicle or other entity in which the Seller owns an equity
interest, a portion of the interests in such Competitor owned by such entity
shall be attributed to the Seller, such portion determined by applying the
percentage of the equity interest in such entity owned by the Seller to the
interests in such Competitor owned by such entity); (iii) directly or
indirectly soliciting, diverting, taking away, appropriating or otherwise
interfering with any of the customers or suppliers of the Company or any
Affiliate controlled by the Company; or (iv) employment by (including serving
as an officer of), or providing consulting services to, any Competitor;
provided, however, that in no event will Xxxxxxx Xxxxxx be deemed to have
engaged in a Competitive Activity by virtue of the continuation of his
current activities in the area of product fulfillment and shipping on behalf
of third parties. "Competitor" shall mean any Person that is engaged in a
business similar to the Company's business, without regard to size or is
engaged in owning, operating or acquiring directly or indirectly (through a
corporation, trust, partnership or other Person) one or more entities engaged
in a business similar to the Company's business, without regard to size.
Section 5.5 Listing Application. As soon as reasonably practicable
following the Effective Time, theglobe shall prepare and submit to the
Nasdaq National Market a listing application covering the shares of
theglobe Common Stock issuable in the Merger, and shall use its reasonable
best efforts to obtain approval for the listing of such shares, subject to
official notice of issuance.
Section 5.6 Registration Statement on Form S-8. theglobe shall file a
Form S-8 Registration Statement with the SEC for the shares of theglobe
Common Stock issuable upon exercise of each Option (unless the shares
issuable upon exercise of any such Option shall not be permitted to be
registered on such form according to applicable Law) substantially
contemporaneously with the filing with the SEC by theglobe of the shelf
registration statement required by the terms of the Registration Rights
Agreement, or at such earlier time as the Company has filed with the SEC
all financial statements, including any pro forma financial information,
and all other information required to be filed with the SEC prior to the
filing of such Form S-8.
Section 5.7 Director and Officer Indemnification. theglobe agrees that
all rights to indemnification or exculpation now existing in favor of the
employees, agents, directors or officers of the Company (the "Company
Indemnified Parties") as provided in its Restated Articles of Incorporation
or Bylaws shall continue in full force and effect for a period of not less
than two years from the Effective Time; provided, however, that, in the
event any claim or claims are asserted or made within such two-year period,
all rights to indemnification in respect of any such claim or claims shall
continue until disposition of any and all such claims. Notwithstanding
anything in the first sentence of this Section 5.7 to the contrary, there
shall be no obligation on the part of the Surviving Corporation or theglobe
to indemnify or exculpate any Company Indemnified Party for any matter
arising out of the Merger or any matter with respect to which the Sellers
have indemnification obligations pursuant to this Agreement.
Section 5.8 Keylease Plus. theglobe agrees to use its commercially
reasonable best efforts to cause the termination of the Guarantees made by
Xxxx Xxxxxx in favor of Keylease Plus Inc., dated October 3, 1996 and
September 9, 1997, and further agrees to indemnify and hold harmless Xxxx
Xxxxxx for all Losses incurred by Xxxx Xxxxxx after the Effective Time
arising out of such guarantee.
Section 5.9 Benefits. At the Effective Time, and for the period ending
one year thereafter, theglobe shall, or shall cause the Surviving
Corporation to, provide to each employee of the Company who becomes
employed by theglobe or the Surviving Corporation at the Effective Time
(each, a "Retained Employee") with employee benefit plans, policies,
programs and arrangements that in the aggregate either (i) are not less
favorable than those provided to the Retained Employee by the Company
immediately prior to the Effective Time, or (ii) are not less favorable
than those provided to similarly situated employees of theglobe; provided,
however, that the plans, policies, programs and arrangements provided by
the Company or theglobe shall for this purpose not include salary or
incentive or equity-based compensation. For purposes of all employee
benefit plans, policies, programs and arrangements maintained or
contributed to after the Effective Time by theglobe or its subsidiaries
(including, but not limited to, the Surviving Corporation), theglobe shall,
or shall cause its subsidiaries (including, but not limited to, the
Surviving Corporation) to, treat, and shall cause each such plan, policy,
program or arrangement (in each case, once made available to Retained
Employees) to treat, the Retained Employees' service with the Company prior
to the Effective Time as service rendered to theglobe and its subsidiaries
(including, but not limited to, the Surviving Corporation) for purposes of
determining eligibility to participate and vesting thereunder, but only to
the extent such service would have been taken into account had such
employee actually been employed by theglobe or its subsidiaries prior to
the Effective Time. For purposes of determining the amount of vacation,
sick leave and similar time-off benefits to which Retained Employees shall
be entitled upon becoming employees of theglobe or its subsidiaries
(including, but not limited to, the Surviving Corporation), theglobe and
its subsidiaries (including, but not limited to, the Surviving Corporation)
shall deem each Retained Employee's entire period of employment with the
Company prior to the Effective Time as if it had been employment with
theglobe and its subsidiaries (including, but not limited to, the Surviving
Corporation), but only to the extent such period of employment was taken
into account by the Company prior to the Effective Time for purposes of
determining the amount of vacation, sick leave or similar time-off benefits
from the Company.
theglobe and its subsidiaries (including, but not limited
to, the Surviving Corporation) shall waive, or shall cause to be waived,
any and all pre-existing condition limitations under any health, dental,
vision, disability, life insurance, cafeteria or similar plan, program or
arrangement (once such plan, program or arrangement is made available to
Retained Employees) with respect to Retained Employees (and their eligible
dependents) who immediately prior to the Effective Time participated in
such plan, program or arrangement maintained or contributed to by the
Company, but only to the extent such limitations did not apply prior to the
Effective Time in such plan, program or arrangement of the Company.
Nothing in this Section shall prevent theglobe or its
subsidiaries (including, but not limited to, the Surviving Corporation)
from amending or terminating any Employee Plan or any other Commitment in
accordance with their terms and applicable Law.
Section 5.10 Further Assurances. After the Closing, each of the
Parties will, at the request of any other Party hereto (a "Requesting
Party"), execute, acknowledge and deliver to such Requesting Party all such
further assignments, conveyances, endorsements, deeds, powers of attorney,
consents and other documents and take such other action as a Requesting
Party may reasonably request to consummate the transactions contemplated
hereby.
ARTICLE VI
CLOSING DELIVERIES
Section 6.1 Closing Deliveries to theglobe and Merger Sub. The
following is being delivered to theglobe and Merger Sub concurrently with
the execution and delivery of this Agreement:
(a) An executed Employment Contract (with attached exhibits
relating to option arrangements) with the Company in the form of Exhibit
6.1(a) hereto from the Persons listed on Schedule 6.1(a).
(b) An executed counterpart to the Registration Rights
Agreement from each of the Sellers.
(c) A certificate of the Secretary of the Company certifying
as to:
(i) resolutions of its shareholders and its board of
directors authorizing the execution, delivery and performance of this
Agreement and the execution, delivery and performance of all other
agreements, documents and transactions contemplated hereby; and
(ii) the incumbency of its officers executing this
Agreement and the Ancillary Documents.
(d) Evidence regarding satisfaction in full of the deferred
compensation obligations under the Employment Agreement between the Company
and Xxxxx X. XxXxxxxxx, dated July 30, 1998 (the "XxXxxxxxx Employment
Agreement"), under the Employment Agreement between the Company and Xxxxx
X. XxXxxxx, dated July 30, 1998 (the "XxXxxxx Employment Agreement"), and
under oral arrangements with Xxxx Xxxxxx.
(e) Evidence of repayment in full of all amounts owing under
the Xxxxxx Note.
(f) Evidence of payment in full of all amounts owing under
the XxXxxxxxx Purchase.
Section 6.2 Closing Deliveries to the Company and the Sellers. The
following is being delivered to the Company and the Sellers concurrently
with the execution and delivery of this Agreement:
(a) An executed counterpart to the Registration Rights
Agreement from theglobe.
(b) A certificate of the Secretary of each of theglobe and
Merger Sub certifying as to:
(i) resolutions of its board of directors authorizing
the execution, delivery and performance of this Agreement and the
execution, delivery and performance of all other agreements, documents
and transactions contemplated hereby; and
(ii) the incumbency of its officers executing this
Agreement and the Ancillary Documents.
ARTICLE VII
INDEMNIFICATION
Section 7.1 Survival. The representations and warranties of the
parties hereto contained herein or in any Ancillary Document shall expire
on the day which is 12 months following the date hereof, except that the
representations and warranties set forth in Sections 3.18, 3.20(i), 3.6(b)
and 4.8 of this Agreement shall survive the Closing Date until 30 days
following the expiration of the applicable statute of limitations
(including any extensions thereof) and the representations and warranties
set forth in Section 3.3 of this Agreement shall survive indefinitely.
After the expiration of such periods, any claim by a party hereto based
upon any such representation or warranty shall be of no further force and
effect, except to the extent a party has asserted a claim in accordance
with this Article VII for breach of any such representation or warranty
prior to the expiration of such period, in which event any representation
or warranty to which such claim relates shall survive with respect to such
claim until such claim is resolved as provided in this Article VII. All
covenants and agreements of the parties hereto shall survive the Closing
until performed in accordance with their terms.
Section 7.2 Indemnification by theglobe. (a) From and after the date
hereof, theglobe shall indemnify, defend and hold harmless the Sellers and
their Affiliates (collectively, the "Seller Indemnified Group") from and
against all Liabilities, losses, damages, penalties, claims (including
third-party claims, whether or not meritorious), costs, interest,
judgments, fines, amounts paid in settlement and expenses (including,
without limitation, reasonable attorney's fees, whether incurred in
connection with a claim for indemnification hereunder or in connection with
any third party claim) (collectively, "Losses") incurred or suffered by any
member of the Seller Indemnified Group based upon, resulting from or
arising out of (i) the breach of any representation or warranty of theglobe
or Merger Sub contained in this Agreement or any of the Ancillary Documents
or (ii) the breach of any covenant or agreement of theglobe or Merger Sub
contained in this Agreement or any of the Ancillary Documents.
(b) theglobe's indemnification obligations pursuant to
Section 7.2(a)(i) shall be effective only after the amount of Losses, in
the aggregate, incurred by the Seller Indemnified Group exceed $500,000,
and if such aggregate liabilities exceed $500,000, theglobe shall be liable
for all such Losses, subject to the following sentence, but only to the
extent such Losses exceed the initial $500,000. The maximum amount
recoverable by any Seller together with any of its Affiliates, in the
aggregate, under Section 7.2(a)(i) shall be an amount in shares of theglobe
Common Stock (valued on the date of payment) equal to the amount set forth
next to the name of such Seller on Exhibit 7.3. theglobe shall make
indemnification payments pursuant to this Section 7.2 in the form of
theglobe Common Stock.
Section 7.3 Indemnification by the Sellers. (a) From and after the
date hereof, each of the Sellers, jointly and severally, shall indemnify,
defend and hold harmless theglobe, Merger Sub, the Surviving Corporation
and each of their respective Affiliates, officers, directors, employees,
members, agents, successors, transferees and assigns (collectively,
"theglobe Indemnified Group") from and against all Losses incurred or
suffered by any member of theglobe Indemnified Group based upon, resulting
from or arising out of (i) the breach of any representation or warranty of
any of the Sellers or the Company contained in this Agreement or any of the
Ancillary Documents, (ii) the breach of any covenant or agreement of any of
the Sellers (provided, however, that in no event will any Seller be liable
for any breach of the covenants contained in Section 5.4 of this Agreement
by any other Seller) or the Company (but with respect to the Company only
for breaches of covenants and agreements to be performed prior to or at the
Effective Time) contained in this Agreement or any of the Ancillary
Documents, (iii) any indebtedness of the Company for borrowed money (which
shall in no event include lease obligations of the Company or ordinary
course trade payables) other than the Xxxxxx Note incurred prior to or at
the Effective Time which remains outstanding at the Effective Time (the
Losses to include the dollar amount of any such indebtedness), (iv) the
exercise of dissenters' rights by holders of Dissenting Shares (the Losses
to include the entire amount of any payments required to be made by the
Company in respect of dissenters' rights), (v) Transaction Costs (as
defined below) to the extent they exceed $150,000, (vi) any claims relating
to shares of Company Common Stock issued, and Warrants, Options or other
equity awards granted, by the Company, (vii) any claims relating to the
XxXxxxxxx Employment Agreement or the XxXxxxx Employment Agreement and any
payments made (and the calculations of the amount of such payments)
thereunder, (viii) any disclosure made in the Information Statement based
upon or derived from any erroneous information provided to theglobe by any
of the Shareholders or, prior to or at the Effective Time, by the Company
and (ix) any claims relating to the Letter Agreement, dated June 30, 1998,
between Xxx Xxxxxx and the Company. "Transaction Costs" shall mean the
aggregate amount of all fees and expenses of financial, legal, accounting
and other advisors retained by the Company and other out-of-pocket costs of
the Company incurred in connection with the transactions contemplated
hereby paid at any time or payable by the Company (other than such fees and
expenses which the Shareholders, prior to the Closing, have paid or agreed
in writing to pay).
(b) The Sellers' indemnification obligations pursuant to
Section 7.3(a)(i) shall be effective only after the amount of Losses, in
the aggregate, incurred by theglobe Indemnified Group exceed $500,000 (the
"Basket"), and if such aggregate liabilities exceed the Basket the Sellers
shall be liable for the dollar value of such liabilities in excess of the
Basket, but only to the extent such Losses exceed the Basket. The Basket
shall not be applicable to a breach of the representations and warranties
in Sections 3.3, 3.6(b), 3.18 and 3.20(i). The maximum amount recoverable,
in the aggregate, under Section 7.3(a)(i) from any Seller shall be an
amount in cash for each individual as set forth in Exhibit 7.3 (each, a
"Seller Cap"); provided, however, that the Seller Caps shall not be
applicable to amounts recoverable as a result of a breach of the
representations contained in Sections 3.3, 3.6(b), 3.18 and 3.20(i).
(c) The materiality (or correlative meaning) qualifications
included in the representations and warranties set forth in Article III
shall have no effect on any provisions in this Section 7.3 concerning the
indemnities of the Seller with respect to such representations and
warranties, each of which is given as though there were no materiality
qualification for purposes of such indemnities.
(d) The Company and theglobe each acknowledge and agree
that, except (i) as expressly otherwise provided herein or (ii) to the
extent any Losses incurred by such party result from any fraudulent
misrepresentation by the Sellers or (prior to the Closing Date) the
Company, theglobe Indemnified Group's sole and exclusive monetary remedy
with respect to any and all claims based upon, resulting from or arising
out of the breach of this Agreement or any Ancillary Document by the
Sellers or the Company shall be pursuant to the indemnification provisions
of this Article VII.
Section 7.4 Indemnification Procedure. (a) The party seeking
indemnification under this Agreement (the "Indemnified Party") shall
promptly notify the party from which indemnification is being sought (the
"Indemnifying Party") of the facts and circumstances upon which the
Indemnified Party intends to base a claim for indemnification hereunder
("Notices"). Notice shall in all events be considered prompt if given (1)
no later than 15 days after the Indemnified Party learns of the facts upon
which it will claim such indemnification or (2) if earlier, in sufficient
time to allow the Indemnifying Party to exercise its rights pursuant to
this Article VII; provided, however, that the failure to provide such
Notice of claims promptly (so long as a notice of claims is given before
the date on which the applicable representation or warranty ceases to
survive) shall not affect the obligations of the Indemnifying Party
hereunder except to the extent the Indemnifying Party is prejudiced
thereby. The Indemnifying Party shall have the right, at its own cost, to
participate jointly in the defense of any third-party claim, demand,
lawsuit or other proceeding in connection with which the Indemnified Party
has claimed indemnification hereunder, and may elect (the "Election") to
take over the defense of such claim within 10 business days following
Notice thereof upon its written unconditional acknowledgment of its
obligation to indemnify the Indemnified Party with respect to such claim;
provided, however, that theglobe shall be permitted, at its option, to
require that Sellers shall not take over the defense of any claim brought
by any Person with which theglobe or the Surviving Corporation has a
material business relationship against any member of theglobe Indemnified
Group for which indemnification is available pursuant to this Article VII,
and upon exercise of such option such member of theglobe Indemnified Group
shall defend such claim, subject to the following conditions: (i) the
Sellers shall be entitled, in their discretion and at their expense, to
engage counsel and to participate in any discussions, meetings,
negotiations and other communications which may be held or conducted
between such member of theglobe Indemnified Group and such customer or
supplier, or their respective counsels, with respect to such claim; (ii)
such member of theglobe Indemnified Group shall consult with a
representative of the Sellers (assuming one has been appointed by the
Sellers) before making or communicating to such customer or supplier, or
its counsel, any decisions concerning such member's strategy or position
with respect to the defense of such claim; and (iii) such member of
theglobe Indemnified Group shall not settle or otherwise dispose of such
claim without the consent of the aforementioned representative of the
Sellers. If the Indemnifying Party makes an Election, (x) it shall keep the
Indemnified Party informed as to the status of the applicable matter and
shall send promptly copies of all pleadings to the Indemnified Party, (y)
with respect to any issue involved in such claim, it shall have the sole
right, with respect to claims or portions of claims seeking monetary
damages only, to settle or otherwise dispose of such claim on such terms as
it, in its sole discretion, shall deem appropriate; provided, however, that
the consent of the Indemnified Party to the settlement or disposition shall
be required if such settlement or disposition shall result in or would
reasonably be expected to result in any Liability to, equitable relief
against or adverse business effect on the Indemnified Party, which consent
shall not be unreasonably withheld or delayed, and (z) the Indemnified
Party shall have the right to participate jointly in the defense of such
claim, but shall do so at its own cost not subject to reimbursement. If the
Indemnifying Party does not elect to take over the defense of a third-party
claim, the Indemnified Party shall have the right to contest, compromise or
settle such claim in the exercise of its reasonable judgment.
(b) Notwithstanding any provision of this Article VII to the
contrary, with respect to any third-party claim or demand that the
Indemnifying Party is defending, the Indemnified Party shall have the right
to retain separate counsel to represent it and the Indemnifying Party shall
pay the fees and expenses of such separate counsel if the Indemnified Party
receives and certifies to the Indemnified Party that it has received advice
of counsel to the effect that there exist sufficient conflicts that make it
reasonably necessary or appropriate for separate counsel to represent the
Indemnified Party and the Indemnifying Party.
(c) The amounts for which an Indemnifying Party shall be
liable under Sections 7.2 and 7.3 of this Agreement shall be net of any
insurance proceeds received by the Indemnified Party (less the costs of
collection of such insurance proceeds) compensating the Indemnified Party
for Losses of the Indemnified Party for which the Indemnifying Party would
otherwise be liable pursuant to this Article VII.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Public Announcements. No Party shall make any public
statements, including, without limitation, any press releases, with respect
to this Agreement and the transactions contemplated hereby without the
prior written consent of the other party, except as may be required by Law.
Section 8.2 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made as of the date of receipt and shall be delivered
personally or mailed by registered or certified mail (postage prepaid,
return receipt requested), sent by overnight courier or sent by telecopy,
to the applicable party at the following addresses or telecopy numbers (or
at such other address or telecopy number for a party as shall be specified
by like notice):
(a) if to the Company or any Seller:
xxxxxxxxxxx.xxx, inc.
0 Xxxxxxxxx Xxxxx
Xxxxxxxx, XX 00000-0000
Attention: Xxxxx XxXxxxx
Telecopy No.: (000) 000-0000
with a copy to:
Xxxxxxx Coie LLP
0000 0xx Xxxxxx
00xx Xxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxx
Telecopy No.: (000) 000-0000
(b) if to theglobe or Merger Sub:
xxxxxxxx.xxx, inc.
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxxxxx
Telecopy No.: 000-000-0000
with a copy to:
Fried, Frank, Harris, Xxxxxxx & Xxxxxxxx
Xxx Xxx Xxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxx Jacob, Esq.
Telecopy No.: (000) 000-0000
Section 8.3 Certain Definitions. (a) For purposes of this Agreement,
the following terms shall have the following meanings:
"Affiliate" of a Person means a Person that directly or
indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the first mentioned
Person. The Company shall be deemed to be an Affiliate of the
Shareholders before the Effective Time and an Affiliate of theglobe
after the Effective Time.
"Ancillary Documents" shall mean all Commitments,
certificates and other documents delivered simultaneously with this
Agreement or to be delivered at the Closing in connection with the
transactions contemplated hereby including, without limitation, the
Employment Agreements and the Registration Rights Agreement.
"control" (including the terms "controlled by" and
"under common control with") means the possession, direct or indirect,
of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of stock, as
trustee or executor, by contract or credit arrangement or otherwise.
"Person" shall mean an individual, a corporation, a
limited liability company, a partnership, an association, a trust or
any other entity or organization, including a governmental entity.
(b) Whenever the words "include," "includes" or "including"
are used in this Agreement, they shall be understood to be followed by the
words "without limitation" if such words are not already present.
Section 8.4 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 8.5 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic
or legal substance of the transactions contemplated hereby is not affected
in any manner materially adverse to any Party. Upon a determination that
any term or other provision is invalid, illegal or incapable of being
enforced, the Parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the Parties as closely as
possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the maximum extent possible.
Section 8.6 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, constitutes the entire agreement and supersedes any and all
other prior agreements and undertakings, both written and oral, among the
parties hereto, or any of them, with respect to the subject matter hereof
and, except as specifically set forth herein, does not and is not intended
to, confer upon any Person other than the Parties any rights or remedies
hereunder.
Section 8.7 Assignment. Except as otherwise set forth herein, this
Agreement shall not be assigned by any party by operation of law or
otherwise without the express written consent of each of the other parties.
Section 8.8 Governing Law. This Agreement shall be governed by and
construed in accordance with, the laws of the State of New York without
regard to the conflicts of laws provisions thereof, provided that the
provisions of Article II relating to the form of Merger shall be governed
by the applicable provisions of RCW 23B. Each of the parties irrevocably
and unconditionally consents to submit to the exclusive jurisdiction of the
federal courts of the State of New York and the courts of the United States
of America located in the Southern District of the State of New York for
any Litigation arising out of or relating to this Agreement or the Merger
or any of the other transactions contemplated hereby (and agrees not to
commence any Litigation relating hereto except in these courts), and
further agrees that service of any process, summons, notice or document by
U.S. registered mail to its respective address set forth in Section 8.2
shall be effective service of process for any Litigation brought against it
in any such court. Each of the Parties hereby irrevocably and
unconditionally waives any objection to the laying of venue of any
Litigation arising out of this Agreement or the Merger or any of the other
transactions contemplated hereby in the courts of the State of New York or
the courts of the United States of America located in the State of New York
and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such Litigation brought in any
such court has been brought in an inconvenient forum. Each of the parties
hereto hereby irrevocably and unconditionally waives any right it may have
to trial by jury in connection with any Litigation arising out of or
relating to this Agreement, the Merger or any of the other transactions
contemplated hereby or thereby.
Section 8.9 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties in separate counterparts,
each of which when executed shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first written above by their respective
officers thereunto duly authorized.
xxxxxxxx.xxx, inc.
By: /s/ Xxxx X. Xxxxxxxxx
------------------------------
Name: Xxxx X. Xxxxxxxxx
Title: Co-Chief Executive
Officer and Co-President
NIRVANA ACQUISITION CORP.
By: /s/ Xxxx X. Xxxxxxxxx
------------------------------
Name: Xxxx X. Xxxxxxxxx
Title: Chief Executive
Officer
XXXXXXXXXXX.XXX, INC.
By: /s/ Xxxxx X. XxXxxxxxx
------------------------------
Name: Xxxxx X. XxXxxxxxx
Title: President & CEO
SELLERS
/s/ Xxxx Xxxxxx
------------------------------
Xxxx Xxxxxx
/s/ Xxxxxx Xxxxxx
------------------------------
Xxxxxx Xxxxxx
/s/ Xxxx Xxxxxx
------------------------------
Xxxx Xxxxxx
/s/ Xxxxxxx Xxxxxx
------------------------------
Xxxxxxx Xxxxxx
/s/ Xxx XxXxxxxxx
------------------------------
Xxx XxXxxxxxx
/s/ Xxxxx XxXxxxx
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