EXHIBIT 10.1
EXECUTION COPY
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MERGER AGREEMENT
BY AND BETWEEN
PC CONNECTION, INC.
AND
CYBERIAN OUTPOST, INC.
DATED AS OF MAY 29, 2001
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TABLE OF CONTENTS
ARTICLE I. DEFINITIONS................................................................ 1
1.01. CERTAIN DEFINITIONS............................................................ 1
1.02. OTHER DEFINITIONAL MATTERS..................................................... 6
ARTICLE II. THE MERGER................................................................ 6
2.01. THE MERGER..................................................................... 6
2.02. EFFECTIVE TIME................................................................. 6
2.03. CERTIFICATE OF INCORPORATION AND BY-LAWS OF SURVIVING CORPORATION.............. 7
2.04. DIRECTORS AND OFFICERS OF SURVIVING CORPORATION................................ 7
2.05. ADDITIONAL ACTIONS............................................................. 7
2.06. EFFECTS OF THE MERGER.......................................................... 7
2.07. THE STOCK WARRANT AGREEMENT.................................................... 7
ARTICLE III. CONVERSION OF SHARES..................................................... 7
3.01. CONVERSION..................................................................... 7
3.02. CERTAIN DEFINED TERMS.......................................................... 8
3.03. EXCHANGE RATIO................................................................. 8
3.04. TERMINATION, NOTICE AND CURE................................................... 9
3.05. CONVERSION OF STOCK............................................................ 10
3.06. PROCEDURES FOR EXCHANGE OF THE COMPANY COMMON STOCK FOR MERGER CONSIDERATION... 10
3.07. BUYER SUB COMMON STOCK......................................................... 12
3.08. STOCK OPTIONS.................................................................. 12
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................. 13
4.01. ORGANIZATION AND QUALIFICATION................................................. 13
4.02. ORGANIZATIONAL DOCUMENTS; BY-LAWS; CORPORATE RECORDS........................... 14
4.03. CAPITALIZATION OF COMPANY...................................................... 14
4.04. OWNERSHIP OF AFFILIATES........................................................ 15
4.05. AUTHORITY...................................................................... 15
4.06. NO CONFLICT.................................................................... 15
4.07. CONSENTS AND APPROVALS......................................................... 16
4.08. ABSENCE OF CERTAIN PAYMENTS.................................................... 16
4.09. COMPLIANCE..................................................................... 16
4.10. TITLE TO ASSETS................................................................ 17
4.11. CONDITION OF ASSETS............................................................ 17
4.12. SUFFICIENCY OF PROPERTY AND ASSETS TO CONDUCT BUSINESS......................... 17
4.13. FINANCIAL STATEMENTS........................................................... 17
4.14. COMPANY REPORTS................................................................ 18
4.15. INVENTORY...................................................................... 18
4.16. RELATIONSHIP WITH VENDORS, MANUFACTURERS, AND RESELLERS........................ 18
4.17. AUTHORIZED REPRESENTATIVE...................................................... 19
4.18. RETURN POLICY; WARRANTY AND PRODUCT LIABILITY CLAIMS........................... 19
4.19. CUSTOMER COMPLAINTS............................................................ 19
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4.20. CUSTOMER LISTS................................................................. 19
4.21. ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE.......................................... 19
4.22. NO UNDISCLOSED LIABILITIES..................................................... 19
4.23. ABSENCE OF CERTAIN CHANGES OR EVENTS........................................... 20
4.24. NO BONUSES OR OTHER PAYMENTS TO EMPLOYEES, DIRECTORS, OFFICERS................. 20
4.25. AGREEMENTS, CONTRACTS AND COMMITMENTS.......................................... 21
4.26. CONTRACTS IN FULL FORCE AND EFFECT............................................. 22
4.27. ENVIRONMENTAL LIABILITY........................................................ 23
4.28. ABSENCE OF LITIGATION.......................................................... 23
4.29. EMPLOYEE BENEFIT PROGRAMS...................................................... 23
4.30. EMPLOYEES...................................................................... 23
4.31. LABOR MATTERS.................................................................. 24
4.32. REAL PROPERTY AND LEASES....................................................... 24
4.33. TAXES AND TAX RETURNS.......................................................... 24
4.34. INSURANCE...................................................................... 26
4.35. STATE TAKEOVER LAWS............................................................ 27
4.36. COMPETING INTERESTS............................................................ 27
4.37. INTERESTS OF COMPANY INSIDERS.................................................. 27
4.38. INTELLECTUAL PROPERTY.......................................................... 27
4.39. COMPANY SOFTWARE............................................................... 28
4.40. INVESTMENT BANKER.............................................................. 29
4.41. COMPANY INFORMATION............................................................ 29
4.42. DISCLOSURE..................................................................... 30
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER.................................... 30
5.01. CORPORATE ORGANIZATION......................................................... 30
5.02. AUTHORITY...................................................................... 30
5.03. CAPITALIZATION OF BUYER........................................................ 30
5.04. NO CONFLICT.................................................................... 31
5.05. CONSENTS AND APPROVALS......................................................... 31
5.06. FINANCIAL STATEMENTS........................................................... 31
5.07. BUYER REPORTS.................................................................. 31
5.08. ABSENCE OF CERTAIN CHANGES OR EVENTS........................................... 32
5.09. BUYER INFORMATION.............................................................. 32
5.10. BUYER SUB...................................................................... 32
5.11. DISCLOSURE..................................................................... 32
ARTICLE VI. COVENANTS OF THE COMPANY.................................................. 32
6.01. CONDUCT OF BUSINESS PENDING THE MERGER......................................... 32
6.02. CURRENT INFORMATION............................................................ 36
6.03. OTHER FINANCIAL INFORMATION.................................................... 36
6.04. ACCESS TO INFORMATION.......................................................... 37
6.05. APPROVAL OF COMPANY'S STOCKHOLDERS............................................. 38
6.06. FAILURE TO FULFILL CONDITIONS.................................................. 38
6.07. ALL REASONABLE EFFORTS......................................................... 38
6.08. UPDATE OF DISCLOSURE SCHEDULES................................................. 38
6.09. NO SOLICITATION................................................................ 38
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ARTICLE VII. COVENANTS OF BUYER....................................................... 39
7.01. CONDUCT OF BUSINESS PENDING THE MERGER......................................... 39
7.02. CURRENT INFORMATION............................................................ 39
7.03. FAILURE TO FULFILL CONDITIONS.................................................. 39
7.04. ALL REASONABLE EFFORTS......................................................... 39
7.05. STOCK LISTING.................................................................. 40
ARTICLE VIII. REGULATORY AND OTHER MATTERS............................................ 40
8.01. PROXY STATEMENT-PROSPECTUS..................................................... 40
8.02. REGULATORY APPROVALS........................................................... 40
8.03. LEGAL CONDITIONS TO MERGER..................................................... 41
8.04. COMPANY AFFILIATES............................................................. 41
8.05. EMPLOYEE MATTERS............................................................... 41
8.06. CREDIT AND SUPPLY ARRANGEMENT; CROSS DEFAULT................................... 42
8.07. DIRECTOR AND OFFICER INDEMNIFICATION; LIABILITY INSURANCE...................... 42
8.08. PUBLIC ANNOUNCEMENTS........................................................... 42
8.09. ADDITIONAL AGREEMENTS.......................................................... 42
ARTICLE IX. CONDITIONS TO THE MERGER.................................................. 43
9.01. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER.................... 43
9.02. CONDITIONS TO OBLIGATIONS OF THE BUYER......................................... 43
9.03. CONDITIONS TO OBLIGATIONS OF THE COMPANY....................................... 45
ARTICLE X. TERMINATION, AMENDMENT AND WAIVER.......................................... 46
10.01. TERMINATION................................................................... 46
10.02. EFFECT OF TERMINATION; EXPENSES............................................... 47
10.03. AMENDMENT..................................................................... 48
10.04. WAIVER........................................................................ 48
ARTICLE XI. THE CLOSING............................................................... 48
11.01. CLOSING....................................................................... 48
11.02. DELIVERIES AT CLOSING......................................................... 48
ARTICLE XII. GENERAL PROVISIONS....................................................... 48
12.01. ALTERNATIVE STRUCTURE......................................................... 48
12.02. ASSIGNMENT OF RIGHT TO PURCHASE............................................... 49
12.03. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS........................ 49
12.04. NOTICES....................................................................... 49
12.05. SEVERABILITY.................................................................. 50
12.06. ENTIRE AGREEMENT.............................................................. 50
12.07. ASSIGNMENT.................................................................... 50
12.08. PARTIES IN INTEREST........................................................... 50
12.09. SPECIFIC PERFORMANCE.......................................................... 50
12.10. GOVERNING LAW................................................................. 51
12.11. HEADINGS...................................................................... 51
12.12. INTERPRETATION................................................................ 51
12.13. COUNTERPARTS.................................................................. 51
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MERGER AGREEMENT
This Merger Agreement, dated as of May 29, 2001 (this "AGREEMENT"), by and
between PC Connection, Inc., a Delaware corporation (the "BUYER"), and Cyberian
Outpost, Inc., a Delaware corporation (the "COMPANY").
WHEREAS, the Boards of Directors of the Buyer and the Company have
determined that it is in the best interests of their respective companies and
their shareholders to consummate the business combination transactions provided
for herein, including the merger (the "MERGER") of the Company with a wholly-
owned direct or indirect subsidiary of Buyer ("BUYER SUB"), subject to the terms
and conditions set forth herein; and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and to prescribe certain conditions to
the Merger; and
WHEREAS, as a condition and inducement to the Buyer's willingness to enter
into this Agreement, (i) the Company is concurrently entering into a Stock
Warrant Agreement with the Buyer (the "STOCK WARRANT AGREEMENT"), in
substantially the form attached hereto as Exhibit A, pursuant to which the
Company is granting to the Buyer the option to purchase shares of Company Common
Stock (as defined herein) under certain circumstances and (ii) each director and
key employee of the Company listed on Exhibit B is concurrently delivering to
Buyer an irrevocable proxy, in substantially the form attached hereto as Exhibit
B, pursuant to which, among other things, each such director and employee has
designated the Buyer as his proxy to vote his shares of Company Common Stock in
favor of this Agreement and the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, Buyer
and the Company agree as follows:
ARTICLE I. DEFINITIONS
1.01. CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(a) "AFFILIATE" of a specified person shall mean a person who directly
or indirectly through one or more intermediaries controls, is controlled by, or
is under common control with, such specified person, including, without
limitation, any partnership or joint venture in which the person (either alone,
or through or together with any subsidiary) has, directly or indirectly, an
interest of 10% ownership or more.
(b) "AGREEMENT DOCUMENTS" shall mean this Agreement and all other
agreements, certificates and instruments to be executed in connection with or
pursuant to this Agreement.
(c) "ASSOCIATES" shall have the meaning defined in Section 4.25(m).
(d) "BUSINESS" shall mean the business of the Company, which is acting
as an Internet retailer of consumer and business technology and related
products, and offering eBusiness Services including but not limited to
end-to-end e- commerce solutions, Web site design and hosting, product
merchandising, and order processing and fulfillment to other retailers.
(e) "BUSINESS VENDORS" shall have the meaning defined in Section 4.16.
(f) The term "BUSINESS DAY" shall mean any day on which banks are not
required or authorized to close in the City of Boston.
(g) "BUYER COMMON STOCK" shall have the meaning defined in Section
3.01.
(h) "BUYER INDEX PRICE" shall have the meaning defined in Section
3.02(a).
(i) "BUYER TRADING PRICE" shall have the meaning defined in Section
3.02.
(j) "CERTIFICATE" shall have the meaning defined in Section 3.05(a).
(k) "CLOSING" shall have the meaning defined in Section 11.01.
(l) "CLOSING DATE" shall have the meaning defined in Section 11.01.
(m) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(n) "COMPANY" shall mean Cyberian Outpost, Inc. or, after the Merger,
the Surviving Corporation.
(o) "COMPANY COMMON STOCK" shall have the meaning defined in Section
3.01.
(p) "COMPANY DISCLOSURE SCHEDULE" shall have the meaning defined in the
preamble to Article IV.
(q) "COMPANY EQUITY INTEREST" shall refer to all Equity Interest in the
Company at the time outstanding.
(r) "COMPANY FINANCIAL STATEMENTS" shall mean (i) the consolidated
balance sheets of the Company and its subsidiaries as of February 28, 2000 and
2001 and the related consolidated statements of income, changes in shareholders'
equity and cash flows for the fiscal years ended February 28, 1999 through 2001,
inclusive, and the related notes and schedules, each of which has been audited
by KPMG LLP; and (ii) the consolidated balance sheets of the Tweeter Joint
Venture and its subsidiaries as of March 31, 2000 and 2001 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the fiscal years ended March 31, 1999 through 2001, inclusive, and the
related notes and schedules, each of which has been audited by KPMG LLP.
(s) "COMPANY INSIDER" shall have the meaning defined in Section 4.37.
(t) "COMPANY STOCK OPTION" shall have the meaning defined in Section
3.08.
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(u) "COMPANY PLANS" shall have the meaning defined in Section 4.29.
(v) "COMPANY REPORTS" shall have the meaning defined in Section 4.14.
(w) "COMPANY STOCK OPTION PLANS" shall have the meaning defined in
Section 3.08.
(x) The term "CONTROL" (including the terms "CONTROLLED BY" and "UNDER
COMMON CONTROL WITH") shall mean the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, as trustee or executor, by contract or credit arrangement or
otherwise.
(y) The term "CURRENTLY CONDUCTED," when referring to the Business,
shall include the Business as it is now conducted or contractually committed to
be conducted.
(z) "DGCL" shall mean the Delaware General Corporation Law, as amended.
(aa) "DEFERRED INTERCOMPANY TRANSACTION" shall have the meaning set
forth in Treasury Regulation (S)1.1502-13.
(bb) "EFFECTIVE TIME" shall have the meaning defined in Section 2.02.
(cc) "EMPLOYMENT AGREEMENT" shall have the meaning defined in Section
8.05(a).
(dd) "ENVIRONMENTAL LAWS" means any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with any
governmental entity relating to (1) the protection, preservation or restoration
of the environment (including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or (2) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Materials of Environment Concern.
The term Environmental Law includes without limitation (1) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
(S)9601, et seq; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. (S)6901, et seq; the Clean Air Act, as amended, 42 U.S.C. (S)7401, et
seq; the Federal Water Pollution Control Act, as amended, 33 U.S.C. (S)1251, et
seq; the Toxic Substances Control Act, as amended, 15 U.S.C. (S)9601, et seq;
the Emergency Planning and Community Right to Know Act, 42 U.S.C. (S)1101, et
seq; the Safe Drinking Water Act, 42 U.S.C. (S)300f, et seq; and all comparable
state and local laws, and (2) any common law (including without limitation
common law that may impose strict liability) that may impose liability or
obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Materials of Environmental Concern. "MATERIALS OF
ENVIRONMENTAL CONCERN" means pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products, and any other materials regulated under
Environmental Laws.
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(ee) "EQUITY INTEREST" in the case of a corporation shall mean its
capital stock, and in the case of a limited liability company shall mean its
units or other ownership interests.
(ff) "EXCESS LOSS ACCOUNT" shall have the meaning set forth in Treasury
Regulation (S)1.1502-19.
(gg) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(hh) "EXCHANGE AGENT" shall have the meaning defined in Section
3.06(a).
(ii) "EXCHANGE FUND" shall have the meaning defined in Section 3.06(a).
(jj) "EXCHANGE RATIO" shall have the meaning defined in Section 3.03.
(kk) "EXISTING EMPLOYMENT AGREEMENT" shall have the meaning defined in
Section 8.05(a).
(ll) "EXPENSES" shall have the meaning defined in Section 10.02(b).
(mm) "EXPIRATION DATE" shall have the meaning defined in Section
10.01(b).
(nn) "GOVERNMENTAL ENTITY" shall have the meaning defined in Section
4.07.
(oo) "INTELLECTUAL PROPERTY" shall have the meaning defined in Section
4.38(a).
(pp) "LAST CLOSING PRICE" shall have the meaning defined in Section
3.06(d).
(qq) "LATEST BALANCE SHEETS" shall have the meaning defined in Section
4.13(b).
(rr) "LATEST BALANCE SHEET DATE" shall have the meaning defined in
Section 4.13(b).
(ss) ""LIABILITIES" shall have the meaning defined in Section 4.22.
(tt) "LIEN" shall mean any interest, consensual or otherwise, in
property, whether real, personal or mixed property or assets, tangible or
intangible, securing an obligation owed to, or a claim by a third Person, or
otherwise evidencing an interest of a Person other than the owner of the
property, whether such interest is based on common law, statute or contract, and
including, but not limited to, any security interest, security title or lien
arising from a mortgage, recordation of abstract of judgment, deed of trust,
deed to secure debt, encumbrance, restriction, charge, covenant, restriction,
claim, exception, encroachment, easement, right of way, license, permit, pledge,
conditional sale, option trust (constructive or otherwise) or trust receipt or a
lease, consignment or bailment for security purposes and other title exceptions
and encumbrances affecting the property.
(uu) "MATERIAL ADVERSE EFFECT" shall mean any change or effect that is
materially adverse to the business, financial condition or results of operations
of a Party and its subsidiaries and Affiliates, taken as a whole, except to the
extent that such change or effect is attributable to
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or results from (i) the direct effect of the public announcement or pendency of
the transactions contemplated hereby on current or prospective customers or
revenues of a Party, or (ii) changes in general economic conditions or changes
affecting the industry generally in which such Party operates. Without limiting
the generality of the foregoing, it shall be a "Material Adverse Effect" if a
Party files or becomes the subject of a bankruptcy proceeding, makes an
assignment for the benefit of creditors, or has a receiver, trustee or
conservator appointed for any substantial part of its assets or properties.
(vv) "MATERIAL CONTRACTS" shall have the meaning defined in Section
4.26.
(ww) "MERGER" shall have the meaning defined in the Preamble.
(xx) "MERGER CONSIDERATION" shall have the meaning defined in Section
3.01.
(yy) "ORGANIZATIONAL DOCUMENTS" shall mean a corporation's Articles of
Organization, Certificate of Incorporation, or equivalent organizational
documents or, in the case of a limited liability company, its Certificate of
Formation or Limited Liability the Company Agreement.
(zz) "PARTY" shall mean each of the Company, the Buyer, and the
Surviving Corporation.
(aaa) "PERMITTED LIENS" shall have the meaning defined in Section 4.10.
(bbb) "PREVIOUSLY DISCLOSED" shall mean disclosed in a Disclosure
Schedule dated on or prior to the date hereof.
(ccc) The term "PERSON" shall mean an individual, corporation,
partnership, limited partnership, limited liability company, syndicate, person
(including, without limitation, a "person" as defined in Section 13(d)(3) of the
Exchange Act), trust, association or entity or government, political
subdivision, agency or instrumentality of a government.
(ddd) The term "PROXY STATEMENT-PROSPECTUS" shall have the meaning
defined in Section 8.01.
(eee) "RECORD HOLDER" shall have the meaning defined in Section
3.06(a).
(fff) "REQUISITE APPROVALS" shall have the meaning defined in Section
9.01(c).
(ggg) "RIGHTS" shall mean warrants, options, rights, convertible
securities, stock appreciation rights and other arrangements or commitments
which obligate an entity to issue or dispose of any of its capital stock or
other ownership interests or which provide for compensation based on the equity
appreciation of its capital stock.
(hhh) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
(iii) "SECURITIES LAWS" shall mean the Securities Act; the Exchange
Act; the Investment the Company Act of 1940, as amended; the Investment Advisers
Act of 1940, as
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amended; the Trust Indenture Act of 1939, as amended, and the rules and
regulations of the SEC promulgated thereunder.
(jjj) "STOCK WARRANT AGREEMENT" shall have the meaning defined in the
preamble to this Agreement.
(kkk) The terms "SUBSIDIARY" or "SUBSIDIARIES" of Buyer, the Company or
any other person shall mean an Affiliate controlled by such person, directly or
indirectly, through one or more intermediaries, except as otherwise defined
herein.
(lll) "SURVIVING CORPORATION" shall have the meaning defined in Section
2.01.
(mmm) "TAX" shall mean any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
section 59A), customs duties, capital stock, franchise profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not (including any interest in respect
of such penalty or addition).
(nnn) "TAX RETURN" shall mean any return, declaration, report, claim
for refund, or information return or statement, relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
(ooo) "TWEETER JOINT VENTURE" means Xxxxxxx@xxxxxxx.xxx, LLC a joint
venture of Cyberian Outpost, Inc. and Tweeter Home Entertainment Group, Inc.
(ppp) "WARN ACT" shall have the meaning defined in Section 4.31(b).
1.02. OTHER DEFINITIONAL MATTERS. Unless the context otherwise requires, a
term defined anywhere in this Agreement has the same meaning throughout; all
references to "the Agreement" or "this Agreement" are to this Agreement as
modified, supplemented or amended from time to time; and terms defined in the
singular shall have a comparable meaning when used in the plural, and vice
versa.
ARTICLE II. THE MERGER
2.01. THE MERGER. As promptly as practicable following the satisfaction or
waiver of the conditions to the parties' respective obligations hereunder, and
subject to the terms and conditions of this Agreement, at the Effective Time (as
defined in Section 2.02 hereof): (a) unless theretofore done, Buyer shall
organize the Buyer Sub in accordance with Delaware law; (b) Buyer Sub shall be
merged with and into the Company with the Company as the surviving corporation
(the "SURVIVING CORPORATION"); and (c) the separate existence of Buyer Sub shall
cease and all of the rights, privileges, powers, franchises, properties, assets,
liabilities and obligations of Buyer Sub shall be vested in and assumed by the
Company.
2.02. EFFECTIVE TIME. The Merger shall be effected by the filing of
articles of merger (the "ARTICLES OF MERGER") with the Secretary of State of the
State of Delaware in accordance
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with Delaware law to become effective on the day of the closing ("CLOSING DATE")
provided for in Article XI hereof (the "CLOSING"). The term "EFFECTIVE TIME"
shall mean the time on the Closing Date (or a subsequent date not later than the
opening of business on the next business day) when the Merger becomes effective
as set forth in the Articles of Merger.
2.03. CERTIFICATE OF INCORPORATION AND BY-LAWS OF SURVIVING CORPORATION.
The Certificate of Incorporation and By-laws of Buyer Sub immediately prior to
the Effective Time shall be the Certificate of Incorporation and By-laws of the
Surviving Corporation, until thereafter amended as provided therein and by
applicable law.
2.04. DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The Directors and
officers of Buyer Sub immediately prior to the Effective Time shall be the
initial Directors and officers of Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and By-Laws of Surviving
Corporation.
2.05. ADDITIONAL ACTIONS. If, at any time after the Effective Time,
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or any other acts are necessary or desirable (a) to vest,
perfect or confirm, of record or otherwise, in Surviving Corporation, title to
and possession of any property or right of Buyer Sub acquired or to be acquired
by reason of, or as a result of, the Merger, or (b) otherwise to carry out the
purposes of this Agreement, Buyer Sub and its proper officers and directors
shall be deemed to have granted to Surviving Corporation an irrevocable power of
attorney to execute and deliver all such proper deeds, assignments and
assurances in law and to do all acts necessary or proper to vest, perfect or
confirm title to and possession of such property or rights in Surviving
Corporation and otherwise to carry out the purposes of this Agreement; and the
proper officers and directors of Surviving Corporation are fully authorized in
the name of Buyer Sub or otherwise to take any and all such action.
2.06. EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
shall have the effects set forth in Sections 259 through 261 of the DGCL.
2.07. THE STOCK WARRANT AGREEMENT. The parties acknowledge that Company and
Buyer have entered into that certain Stock Warrant Agreement dated as of even
date herewith (the "STOCK WARRANT AGREEMENT") pursuant to which Company has
granted to Buyer the right to purchase certain shares of Company Common Stock
upon terms and conditions specified in the Stock Warrant Agreement.
ARTICLE III. CONVERSION OF SHARES
3.01. CONVERSION. At the Effective Time, each share of common stock, par
value $0.01 per share, of the Company ("COMPANY COMMON STOCK") issued and
outstanding immediately prior to the Effective Time (other than the Company
Common Stock then owned by the Company, any Company subsidiary, Buyer, or any
Buyer subsidiary), shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and exchangeable for an amount of
common stock, par value $0.01 per share, of Buyer ("BUYER COMMON STOCK") equal
to one share multiplied by the Exchange Ratio (rounded to the nearest
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four decimal places) determined in accordance with Section 3.03 (the "MERGER
CONSIDERATION").
3.02. CERTAIN DEFINED TERMS. As used herein, the following capitalized
terms shall have the specified values or meanings.
(a) "BUYER INDEX PRICE" shall mean $13.50 per share of Buyer Common
Stock.
(b) "BUYER TRADING PRICE" shall mean the average closing price of Buyer
Common Stock on the Nasdaq National Market System (as reported by The Wall
Street Journal or, if not reported thereby, another authoritative source) for
the ten consecutive trading days ending on the fourth day preceding the Closing
Date.
3.03. EXCHANGE RATIO. The "EXCHANGE RATIO" shall be determined as follows:
(a) If the Buyer Trading Price is equal to or greater than $12.15 and
is no greater than $14.85 (the "BASE RANGE"), the Exchange Ratio shall be
determined as follows ("TOTAL REVENUE" means the Company's total revenue for the
months of June, July and August, 2001):
EXCHANGE RATIO TOTAL REVENUE
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0.0550 At least $71.6 million
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0.0500 At least $67.4 million but
less than $71.6 million
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0.0450 At least $63.2 million but
less than $67.4 million
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0.0400 At least $58.9 million but
less than $63.2 million
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0.0350 Less than $58.9 million
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If the Buyer Trading Price is not within the Base Range, the otherwise
applicable Exchange Ratio set forth in this Section 3.03(a) shall be used as the
"BASE EXCHANGE RATIO" for purposes of calculating the Exchange Ratio pursuant to
subsection (b) or (c) of this Section 3.03, as applicable.
(b) If the Buyer Trading Price is greater than $14.85, the Exchange
Ratio shall be equal to:
14.85 X Base Exchange Ratio
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Buyer Trading Price
where "Base Exchange Ratio" is determined in accordance with Section 3.03(a).
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(c) If the Buyer Trading Price is less than $12.15 and is equal to or
greater than $10.80, the Exchange Ratio shall be equal to:
12.15 X Base Exchange Ratio
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Buyer Trading Price
where "Base Exchange Ratio" is determined in accordance with Section 3.03(a).
(d) If the Buyer Trading Price is less than $10.80, the Exchange Ratio
shall be as follows, unless the Buyer Trading Price is less than $10.125 and the
Exchange Ratio is increased or this Agreement is terminated in accordance with
the terms of Section 3.04 hereof:
EXCHANGE RATIO TOTAL REVENUE
---------------------------------------------------------------
0.0620 At least $71.6 million
---------------------------------------------------------------
0.0560 At least $67.4 million but
less than $71.6 million
---------------------------------------------------------------
0.0509 At least $63.2 million but
less than $67.4 million
---------------------------------------------------------------
0.0454 At least $58.9 million but
less than $63.2 million
---------------------------------------------------------------
0.0398 Less than $58.9 million
---------------------------------------------------------------
If the Buyer Trading Price is less than $10.80, the otherwise applicable
Exchange Ratio set forth in this Section 3.03(d) shall be used as the
"APPLICABLE EXCHANGE RATIO" for purposes of calculating the Exchange Ratio
pursuant to Section 3.04.
3.04. TERMINATION, NOTICE AND CURE.
(a) If the Buyer Trading Price is less than $10.125, the Company may
elect by giving written notice to Buyer prior to the third business day
immediately preceding the Closing Date to terminate this Agreement pursuant to
Section 10.01(g). Within two business days thereafter, Buyer may elect to
increase the Exchange Ratio to
10.125 X Applicable Exchange Ratio
--------------------------------------
Buyer Trading Price
where "Applicable Exchange Ratio" is determined in accordance with Section
3.03(d).
(b) In the event Buyer makes an election referred to in the preceding
Section 3.04(a), this Agreement shall not terminate and the Exchange Ratio shall
be determined in accordance with such Section 3.04(a). In the event Buyer does
not elect to increase the
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Exchange Ratio, this Agreement shall terminate on the date established as the
Closing Date with the consequences specified in Section 10.02 hereof.
3.05. CONVERSION OF STOCK.
(a) All the Company Common Stock converted into Buyer Common Stock
pursuant to this Article III shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist, and each certificate (each
a "CERTIFICATE") previously representing any such shares of the Company Common
Stock shall thereafter represent the right to receive (i) the number of whole
shares of Buyer Common Stock, and (ii) cash in lieu of fractional shares, into
which the Company Common Stock represented by such Certificate have been
converted. Certificates previously representing the Company Common Stock shall
be exchanged for certificates representing whole shares of Buyer Common Stock
and cash in lieu of fractional shares issued in consideration therefor upon the
surrender of such Certificates in accordance with this Section 3.05 without any
interest thereon.
(b) If prior to the Effective Time Buyer should split or combine its
common stock (or other securities which are convertible into such common stock)
or pay a dividend or other distribution in such common stock or convertible
securities, all without Buyer receiving consideration therefor, then an
appropriate and proportionate adjustment shall be made to the Exchange Ratio,
the Buyer Index Price and the Buyer Trading Price.
(c) At the Effective Time, all shares of the Company Common Stock held
in the treasury of the Company and all shares of the Company Common Stock owned
by Buyer or owned beneficially by any subsidiary of Buyer shall be cancelled and
no cash, stock or other property shall be delivered in exchange therefor.
(d) The provisions of Sections 3.03 and 3.05 are based on the
assumption that there will be 36,384,739 shares of Company Common Stock
outstanding or issuable upon the exercise of options or warrants or otherwise,
at the Effective Time. If there is any change in this number as of the Effective
Time, the provisions of Sections 3.03 and 3.05, including the Merger
Consideration will be appropriately adjusted.
3.06. PROCEDURES FOR EXCHANGE OF THE COMPANY COMMON STOCK FOR MERGER
CONSIDERATION.
(a) BUYER TO MAKE SHARES AVAILABLE. Buyer shall take all steps
necessary on and as of the Effective Time to deliver to the Exchange Agent (as
hereinafter defined), for the benefit of the holders of Certificates, for
exchange in accordance with this Section 3.06, certificates representing shares
of Buyer Common Stock and the cash in lieu of fractional shares to be paid
pursuant to this Section 3.06 (such cash and certificates for shares of Buyer
Common Stock, together with any dividends or distributions with respect thereto
being hereinafter referred to as the "EXCHANGE FUND") to be issued and paid in
exchange for outstanding Company Common Stock in accordance with this Agreement.
The Exchange Agent shall be such banking institution, corporate trust company,
or other stock transfer agent appointed by Buyer and reasonably satisfactory to
the Company to act as exchange agent hereunder (the "EXCHANGE AGENT"). The
Exchange Agent shall act as agent on behalf of record holders (individually, a
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"RECORD HOLDER") of the Company Common Stock at the Effective Time, other than
the Company, any Company subsidiary, Buyer, or any Buyer subsidiary.
(b) EXCHANGE OF CERTIFICATES. Within three business days after the
Effective Time, Buyer shall take all steps necessary to cause the Exchange Agent
to mail to each Record Holder of a Certificate or Certificates, a form letter of
transmittal for return to the Exchange Agent and instructions for use in
effecting the surrender of the Certificates for certificates representing the
Buyer Common Stock and the cash in lieu of fractional shares into which the
Company Common Stock represented by such Certificates shall have been converted
as a result of the Merger. The form letter (which shall be subject to the
reasonable approval of the Company) shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent. Upon surrender of a
Certificate for exchange and cancellation to the Exchange Agent, together with
such letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor (x) a certificate for the number of
whole shares of Buyer Common Stock to which such holder of the Company Common
Stock shall have become entitled pursuant to the provisions of this Section 3.06
and (y) a check representing the amount of cash in lieu of the fractional
shares, if any, which such holder has the right to receive in respect of
Certificates surrendered pursuant to the provisions of this Section 3.06, and
the Certificates so surrendered shall forthwith be cancelled. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by Buyer, the posting by such person of a
bond in such amount as Buyer may direct as indemnity against any claim that may
be made against it with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration deliverable in respect thereof. Certificates surrendered for
exchange by any person who is an "affiliate" of the Company for purposes of Rule
145(c) under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
shall not be exchanged for certificates representing shares of Buyer Common
Stock until Buyer has received the written agreement of such person contemplated
by Section 8.04 hereof.
(c) RIGHTS OF CERTIFICATE HOLDERS AFTER THE EFFECTIVE TIME. The holder
of a Certificate that prior to the Merger represented issued and outstanding
shares of the Company Common Stock shall have no rights, after the Effective
Time, with respect to such the Company Common Stock except to surrender the
Certificate in exchange for the Merger Consideration as provided in this
Agreement. No dividends or other distributions declared after the Effective Time
with respect to Buyer Common Stock shall be paid to the holder of any
un-surrendered Certificate until the holder thereof shall surrender such
Certificate in accordance with this Section 3.06. After the surrender of a
Certificate in accordance with this Section 3.06, the record holder thereof
shall be entitled to receive any such dividends or other distributions, without
any interest thereon, which theretofore had become payable with respect to
shares of Buyer Common Stock represented by such Certificate.
(d) FRACTIONAL SHARES. Notwithstanding anything to the contrary
contained herein, no certificates or scrip representing fractional shares of
Buyer Common Stock shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution with respect to Buyer Common Stock
shall be payable on or with respect to any fractional share, and such fractional
share interests shall not entitle the owner thereof to vote or to any other
rights of a
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stockholder of Buyer. In lieu of the issuance of any such fractional share,
Buyer shall pay to each former holder of the Company Common Stock who otherwise
would be entitled to receive a fractional share of Buyer Common Stock, an amount
in cash determined by multiplying the average closing sale price of Buyer Common
Stock on the Nasdaq National Market System as reported by The Wall Street
Journal for the 10 trading days immediately preceding the date of the Effective
Time (the "LAST CLOSING PRICE") by the fraction of a share of Buyer Common Stock
which such holder would otherwise be entitled to receive pursuant to Section
3.06(b) hereof. No interest will be paid on the cash which the holders of such
fractional shares shall be entitled to receive upon such delivery.
(e) SURRENDER BY PERSONS OTHER THAN RECORD HOLDERS. If the Person
surrendering a Certificate and signing the accompanying letter of transmittal is
not the Record Holder thereof, then it shall be a condition of the payment of
the Merger Consideration that such Certificate is properly endorsed to such
Person or is accompanied by appropriate stock powers, in either case signed
exactly as the name of the Record Holder appears on such Certificate, and is
otherwise in proper form for transfer, or is accompanied by appropriate evidence
of the authority of the Person surrendering such Certificate and signing the
letter of transmittal to do so on behalf of the Record Holder and that the
person requesting such exchange shall pay to the Exchange Agent in advance any
transfer or other taxes required by reason of the payment to a person other than
the registered holder of the Certificate surrendered, or required for any other
reason, or shall establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not payable.
(f) CLOSING OF TRANSFER BOOKS. From and after the Effective Time, there
shall be no transfers on the stock transfer books of the Company of the Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates representing such shares are presented
for transfer to the Exchange Agent, they shall be exchanged for the Merger
Consideration and cancelled as provided in this Section 3.06.
(g) RETURN OF EXCHANGE FUND. At any time following the 12-month period
after the Effective Time, Buyer shall be entitled to require the Exchange Agent
to deliver to it any portions of the Exchange Fund which had been made available
to the Exchange Agent and not disbursed to holders of Certificates (including,
without limitation, all interest and other income received by the Exchange Agent
in respect of all funds made available to it), and thereafter such holders shall
be entitled to look to Buyer (subject to abandoned property, escheat and other
similar laws) only as general creditors thereof with respect to any Merger
Consideration that may be payable upon due surrender of the Certificates held by
them. Notwithstanding the foregoing, neither Buyer nor the Exchange Agent shall
be liable to any holder of a Certificate for any Merger Consideration delivered
in respect of such Certificate to a public official pursuant to any abandoned
property, escheat or other similar law.
3.07. BUYER SUB COMMON STOCK. Each share of common stock of Buyer Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into one share of common stock of the Surviving Corporation at the
Effective Time.
3.08. STOCK OPTIONS. At the Effective Time, all Rights outstanding for the
purchase of Company Common Stock ("COMPANY STOCK OPTIONS"), including all
options outstanding pursuant to the Company's 1997 and 1998 Incentive Stock
Plans and the Company's Restated
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1998 Employee, Director and Consultant Stock Plan (the "COMPANY STOCK OPTION
PLANS") will become the right to receive, on the Closing Date, an amount of cash
(not less than $0) determined as follows:
Number of Option Shares X (Merger Consideration Value - Option Exercise
Price)
where "MERGER CONSIDERATION VALUE" is determined by multiplying the Exchange
Ratio by the Last Closing Price.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in a specific section of the Disclosure Schedule
previously delivered by the Company to Buyer (the "COMPANY DISCLOSURE
SCHEDULE"), the Company hereby represents and warrants to Buyer as follows:
4.01. ORGANIZATION AND QUALIFICATION.
(a) The Company is a corporation, duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Company is
qualified to do business in Connecticut and Ohio. The Company has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted and is duly qualified and in good standing
to do business in each jurisdiction in which the nature of the business
conducted by it or the ownership or leasing of its properties makes such
qualification necessary. Set forth on Section 4.01 of the Company Disclosure
Schedule is also a list of all assumed names under which the Company operates
and all jurisdictions in which the Company's assumed names are registered.
(b) Outpost Holdings LLC ("HOLDINGS SUB"), XxxxxxxXxx.xxx, Incorporated
("CMP SUB"), Xxxxxxx@Xxxxxxx.xxx, LLC (the "TWEETER JOINT VENTURE"), and Outpost
Vendor Supply A ("VENDOR SUB") are the only direct subsidiaries of the Company.
XXXXxxxxxx.xxx Internet Development Plc ("INDIA SUB") is a wholly owned
subsidiary of CMP Sub. (Holdings Sub, CMP Sub, Tweeter Joint Venture, Vendor Sub
and India Sub are, collectively, the "COMPANY SUBSIDIARIES.") The Company owns
50% of the Equity Interest of the Tweeter Joint Venture and all of the Equity
Interest of CMP Sub, Holdings Sub and Vendor Sub. Other than its interest in the
Company Subsidiaries, the Company does not, directly or indirectly, own any
Equity Interest or other equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, limited liability company, partnership, joint
venture or other business association or entity. Without limiting the generality
of the foregoing, the Company owns no Equity Interest in Outpost Vendor Supply
B, nor is Outpost Vendor Supply B a party to a contract with Wolf Camera.
(c) Holdings Sub is a limited liability corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
CMP Sub is a Pennsylvania corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania, and is
qualified to do business in New Jersey. The Tweeter Joint Venture is a limited
liability corporation duly organized, validly existing and in good
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standing under the laws of the State of Delaware. Vendor Sub is a Delaware
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. India Sub is an Indian private liability corporation
duly organized, validly existing and in good standing under the laws of India.
Each Company Subsidiary (i) has full power and authority to own or lease all of
its properties and assets and to carry on its business as now conducted, and
(ii) is duly licensed or qualified to do business and is in good standing in
each jurisdiction in which its ownership or leasing of property or the conduct
of its business requires such qualification.
4.02. ORGANIZATIONAL DOCUMENTS; BY-LAWS; CORPORATE RECORDS. The Company has
heretofore furnished to Buyer true, complete and correct copies of the
Organizational Documents and the By-Laws or equivalent organizational documents,
in each case as amended and restated to date, of the Company. Such
Organizational Documents, By-Laws and equivalent organizational documents are in
full force and effect. The Company is not in violation of any provision of its
Organizational Documents or equivalent organizational documents or of its
By-Laws. The minute books of the Company, a copy of which has been provided to
Buyer, contain in all material respects true and correct records of all meetings
held and true and complete records of all other corporate actions taken since
January 1, 1998 of the Company's stockholders and board of directors (including
committees of the board of directors).
4.03. CAPITALIZATION OF COMPANY.
(a) The authorized Equity Interest of the Company consists of fifty
million (50,000,000) shares of common stock, $0.01 par value per share and ten
million shares of Preferred Stock, $0.01 par value, of which 31,687,045 shares
of common stock and no shares of Preferred Stock are issued and outstanding.
(b) Except pursuant to (i) the Stock Warrant Agreement, (ii) options to
acquire not more than 4,340,987 shares of Company Common Stock pursuant to stock
options outstanding as of the date hereof under the Company Stock Option Plans,
and (iii) as otherwise disclosed on Section 4.03 of the Company Disclosure
Schedule, there are no outstanding subscriptions, options, warrants, calls or
other rights, agreements, arrangements or commitments of any character relating
to the issued or unissued Equity Interest of the Company or obligating the
Company to issue or sell any Equity Interests of, or other equity interests in,
the Company. There are no outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any Equity Interests of, or other equity
interests in, the Company or to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, the Company. All of the
Company Equity Interests are duly authorized, validly issued in compliance with
all applicable laws, and are fully paid and nonassessable and are free of
preemptive or similar rights created by statute, the Organizational Documents of
the Company, or any other agreement to which the Company is a party or bound.
(c) A true and correct list of all outstanding Company Stock Options,
including name of optionee, number of shares, and option exercise price, is set
forth on Section 4.03 of the Company Disclosure Schedule.
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4.04. OWNERSHIP OF AFFILIATES. The only Affiliates of the Company (each a
"COMPANY AFFILIATE") are set forth on Section 4.04 of the Company Disclosure
Schedule. The Company shall not be in violation of this Section 4.04 for not
listing a person as an Affiliate if the Company believes in good faith that the
person is not an Affiliate and if such person is not a director or officer of
the Company and does not own greater than or equal to ten percent of the
outstanding capital stock of the Company. The Equity Interests of the Company
Affiliates that are known to the Company have been duly authorized and validly
issued, are fully paid and nonassessable and are directly or indirectly owned as
specified in Section 4.04 of the Company Disclosure Schedule, free and clear of
all liens, claims, encumbrances, charges, pledges, restrictions or rights of
third parties of any kind whatsoever. To the knowledge of the Company, no Rights
are authorized, issued or outstanding with respect to the Equity Interests of
any Company Affiliate and, to the knowledge of the Company, there are no
agreements, understandings or commitments relating to the rights of any Company
Affiliate to vote or dispose of said Equity Interests.
4.05. AUTHORITY. The Company has full corporate power and authority (other
than the approval of the Company's stockholders) (i) to execute and deliver all
Agreement Documents to be executed by the Company in connection with or pursuant
to this Agreement; (ii) to perform its obligations under the Agreement Documents
and (iii) to consummate the transactions contemplated by the Agreement
Documents. The execution and delivery of the Agreement Documents and the
consummation of the transactions contemplated hereby or thereby have been duly
and validly approved by unanimous vote of the Board of Directors or other
governing body of the Company (the "COMPANY BOARD"), and no other corporate
proceedings on the part of the Company (other than the approval of the Company's
stockholders) are necessary to approve the Agreement Documents or to consummate
the transactions contemplated hereby or thereby. The Agreement Documents have
been duly and validly executed and delivered by the Company and constitute valid
and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except to the extent the enforcement
thereof may be limited by (A) bankruptcy, insolvency, reorganization, moratorium
or other similar law now or hereafter in effect relating to creditors' rights
generally and (B) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
4.06. NO CONFLICT.
(a) Assuming the effectuation of all filings and registrations with,
termination or expiration of any applicable waiting periods imposed by, and
receipt of all required consents, approvals, authorizations or permits from,
Governmental Entities, as well as approval of the Merger by the Company's
stockholders, neither the execution, delivery and performance of the Agreement
Documents by the Company, nor the consummation by the Company of the
transactions contemplated hereby or thereby, nor compliance by the Company with
any of the terms or provisions hereof or thereof, will (i) conflict with,
violate or result in a breach of any provision of the Organizational Documents
or By-Laws of the Company, (ii) conflict with, violate or result in a breach of
any statute, code, ordinance, rule, regulation, order, writ, judgment,
injunction or decree applicable to the Company, or by which any property or
asset of the Company is bound or affected, or (iii) conflict with, violate or
result in a breach of any provisions of or the loss of any benefit under,
constitute a default (or an event, which, with notice or lapse of time, or both,
would constitute a default) under, or give to others any right of
-15-
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien, pledge, security interest, charge or other encumbrance on
any property or asset of the Company pursuant to any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company is a party, or by which the Company is bound or affected.
(b) Neither the execution, delivery and performance of the Agreement
Documents by the Company, nor the consummation by the Company of the
transactions contemplated hereby or thereby, nor compliance by the Company with
any of the terms or provisions hereof or thereof, will result in the
cancellation or termination of, or give any party the right to cancel, modify or
amend any agreement for the sale of materials, products, services or supplies or
qualification authorizing or permitting the Company to sell materials, products,
services or supplies or qualification to any person.
4.07. CONSENTS AND APPROVALS. The execution, delivery and performance of
this Agreement by the Company does not require any consent, approval,
authorization or permit of, or filing with or notification to, any court,
administrative agency or commission or other governmental or regulatory
authority or instrumentality, domestic or foreign (each a "GOVERNMENTAL ENTITY")
or with any third party, except for (A) applicable requirements, if any, of
state takeover laws, (B) filing and recordation of appropriate merger documents
as required by the laws of the State of Delaware; (C) compliance with applicable
requirements, if any, of the Securities Act, the Exchange Act, state securities
laws, the pre-Merger notification requirements of the Xxxx-Xxxxx Xxxxxx
Antitrust Improvements Act of 1976, as amended or Foreign Competition Laws, (D)
consents of third parties disclosed on Section 4.25 of the Company Disclosure
Schedule, or (E) the approval of the Company's stockholders. The Company is not
aware of any reason why the approvals, consents and waivers referred to herein
should not be obtained.
4.08. ABSENCE OF CERTAIN PAYMENTS. Neither the Company nor any director or
officer, nor, to the knowledge of the Company, any agent, employee or other
person associated with or acting on behalf of the Company has used any funds of
the Company for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity, or made any direct or indirect unlawful
payments to government officials or employees from corporate funds, or
established or maintained any unlawful or unrecorded funds, or violated any
provisions of the Foreign Corrupt Practices Act of 1977 or any rules or
regulations promulgated thereunder.
4.09. COMPLIANCE. The Company holds all material licenses, franchises,
permits and authorizations necessary for the lawful conduct of its business
under and pursuant to, and has complied with and is not in conflict with, or in
default or violation of, (a) any statute, code, ordinance, law, rule,
regulation, order, writ, judgment, injunction or decree, published policies or
guidelines of any Governmental Entity, applicable to the Company or by which any
property or asset of the Company is bound or affected or (b) any note, bond,
mortgage, indenture, deed of trust, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company is a party or
by which the Company or any property or asset of the Company is bound or
affected; and the Company does not know of, nor has it received notice of, any
material violations of any of the above.
-16-
4.10. TITLE TO ASSETS. The Company has good and marketable title to all of
the assets it purports to own (a complete list of which is set forth in Section
4.10(a) of the Company Disclosure Schedule), and owns all of such assets free
and clear of any Liabilities (as defined in Section 4.22) or Liens, other than
(i) statutory liens securing current taxes and other obligations that are not
yet delinquent ("PERMITTED LIENS") and (ii) minor imperfections of title and
encumbrances that do not materially detract from or interfere with the present
use or value of such properties. The Company holds a valid leasehold interest in
all of the leased assets of the Company.
4.11. CONDITION OF ASSETS. All of the assets of the Company, including any
assets held under leases or licenses, are in good condition and repair, ordinary
wear and tear excepted, and are in good working order and have been properly and
regularly maintained.
4.12. SUFFICIENCY OF PROPERTY AND ASSETS TO CONDUCT BUSINESS. The assets,
rights, personal property, permits and contracts of the Company to be
transferred to Buyer in connection with the Merger (a) constitute all the
properties, assets and rights used in connection with the Business as Currently
Conducted, and also (b) include all the assets, properties and rights necessary
for Buyer to conduct the Business in all material respects as Currently
Conducted. The Company is not, and Buyer will not be, restricted from carrying
out the Business or any part thereof by any agreement, instrument, indenture or
court of arbitration decree.
4.13. FINANCIAL STATEMENTS.
(a) The Company has previously made available to the Buyer, for
copying, originals of the Company Financial Statements, which are accompanied by
the audit report of KPMG, LLP, independent public accountants for the Company.
The Company Financial Statements referred to in this Section 4.13 (including the
related notes, where applicable) fairly present, and the financial statements
referred to in Sections 6.02 and 6.03 hereof each will fairly present (subject,
in the case of unaudited statements, to audit adjustments normal in nature and
amount and the addition of customary notes), the assets, liabilities, results of
the operations and changes in stockholders' equity and financial position of the
Company and the Tweeter Joint Venture, as the case may be, for the respective
periods or as of the respective dates therein set forth; the Company Financial
Statements (including the related notes, where applicable) have been prepared,
and the financial statements referred to in Sections 6.02 and 6.03 hereof will
be prepared, in accordance with generally accepted accounting principles
("GAAP") consistently applied throughout and among the periods covered thereby,
except as indicated in the notes thereto. The audits of the Company and the
Tweeter Joint Venture, as the case may be, have been conducted in all material
respects in accordance with generally accepted auditing standards. The Company
Financial Statements have been prepared from the books and records of the
Company or the Tweeter Joint Venture, as the case may be, and the books and
records of the Company and the Tweeter Joint Venture, as the case may be, are
true and complete in all material respects and have been, and are being,
maintained in all material respects in accordance with applicable legal and
accounting requirements.
(b) The balance sheets of the Company as of February 28, 2001 and April
30, 2001 (the "LATEST BALANCE SHEETS"), including the notes thereto, make
adequate provision for all material liabilities and obligations of every nature
(whether accrued, absolute, contingent or
-17-
otherwise and whether due or to become due) of the Company as of February 28,
2001 and April 30, 2001, respectively, and except as and to the extent set forth
on such balance sheets, the Company has no material liability or obligation of
any nature (whether accrued, absolute, contingent or otherwise and whether due
or to become due) which would be required to be reflected or disclosed on a
balance sheet, or in the notes thereto, prepared in accordance with GAAP. The
Latest Balance Sheets have been prepared on a basis consistent with the
accounting principles and practices used in preparing previous balance sheets
provided to the Buyer. A true and correct copy of the April 30, 2001 balance
sheet is attached as Section 4.13(b) of the Company's Disclosure Schedule.
(c) No facts or circumstances exist which would give the Company reason
to believe that a material liability or obligation that, in accordance with GAAP
applied on a consistent basis, should have been reflected or disclosed on such
balance sheets, was not so reflected or disclosed.
4.14. COMPANY REPORTS. The Company has filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that were required to be filed, with (i) the Securities and Exchange
Commission ("SEC") pursuant to the Securities Act or the Exchange Act, and (ii)
any applicable state securities authorities (all such reports and statements are
collectively referred to herein as the "COMPANY REPORTS"). As of their
respective dates, no such Company Reports filed with the SEC contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading,
except that information filed as of a later date shall be deemed to modify
information as of an earlier date.
4.15. INVENTORY. All inventories reflected in the Latest Balance Sheets or
included in the assets of the Company are of good and merchantable quality and
are salable in the ordinary course of business (in the case of inventory held
for sale) or currently usable (in the case of other inventory). The value of the
inventories reflected in the Latest Balance Sheets are stated in accordance with
GAAP applied on a consistent basis. Except as set forth on Section 4.15 of the
Company Disclosure Schedule, the inventory contains no obsolete or outdated
items.
4.16. RELATIONSHIP WITH VENDORS, MANUFACTURERS, AND RESELLERS. The
Company's business relationship with vendors, manufacturers, and resellers
("BUSINESS VENDORS") with whom it has business dealings are generally
satisfactory. Section 4.16 of the Company Disclosure Schedule sets forth a list
of the one hundred (100) largest Business Vendors, based on sales from February
28, 2001 to the date hereof. The Company does not now have a material dispute
with any Business Vendor. In the past two years the Company has not received any
written notice that indicates dissatisfaction with the Company's performance of
its obligations to its Business Vendors. No notice has been received by the
Company with respect to the possible termination or modification of any
relationship with a Business Vendor, including but not limited to modifications
in co-op funds, rebates or marketing funds, and the Company has no reason to
believe that any business or financial relationship with a Business Vendor is
likely to be adversely affected by consummation of the Merger.
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4.17. AUTHORIZED REPRESENTATIVE. Set forth on Section 4.17 of the Company
Disclosure Schedule is a complete list and description of the vendors and
manufacturers for which the Company is an authorized representative ("VENDOR
RELATIONSHIPS"). Except as disclosed in Schedule 4.17 of the Company's
Disclosure Schedule, no notice has been received with respect to the possible
termination or modification of any Vendor Relationship and the Company has no
reason to believe that any Vendor Relationship will be adversely affected by
consummation of the Merger.
4.18. RETURN POLICY; WARRANTY AND PRODUCT LIABILITY CLAIMS.
(a) Section 4.18 of the Company Disclosure Schedule contains a true and
complete description of the Company's return policy for the business of the
Company, including, without limitation, a description of the circumstances under
which cash or merchandise refunds are given or goods are repaired by Company or
the original manufacturer.
(b) Neither the Company nor any officer or director of the Company is
or has been a defendant in any product liability litigation relating to any
product sold by the Company, and no such litigation is or has been threatened.
4.19. CUSTOMER COMPLAINTS. Set forth on Section 4.19 of the Company
Disclosure Schedule is a description of all customer complaints received by the
Company over the past year, other than one-time, non-systemic complaints
received in the normal course of the Company's business.
4.20. CUSTOMER LISTS. As of April 30, 2001, the Company had a total of
approximately 1.3 million customers of which approximately 750,000 have made
purchases in the last 12 months.
4.21. ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE.
(a) All accounts receivable and vendor accounts receivable, reflected
in the Latest Balance Sheets or generated since the date of the Latest Balance
Sheets (the "LATEST BALANCE SHEET DATE"), arose in the ordinary course of
business and are fully collectible in the ordinary course of business, at the
face amount thereof less any reserve reflected in the Latest Balance Sheets and
are not subject to counterclaim, setoff or other reduction. Set forth on Section
4.21(a) of the Company Disclosure Schedule is a true, correct and complete list,
including aging information, of all such accounts receivable and vendor accounts
receivable as of the Latest Balance Sheet Date.
(b) Set forth on Section 4.21(b) of the Company Disclosure Schedule is
a true, correct and complete list, including aging information, of all of the
Company's accounts payable as of the Latest Balance Sheet Date.
4.22. NO UNDISCLOSED LIABILITIES. The Company does not have any direct or
indirect debts, liabilities or obligations, including any liability for Taxes,
whether known or unknown, absolute, accrued, contingent or otherwise
("LIABILITIES"), except (a) Liabilities fully reflected in the Latest Balance
Sheets and related financial statement notations; (b) accounts payable and
Liabilities incurred in the ordinary course of business and consistent with past
practice since the
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Latest Balance Sheet Date; (c) obligations to be performed in the ordinary
course of business, consistent with past practice, under the Material Contracts
(as defined in Section 4.26) or under agreements not required to be disclosed
pursuant to Section 4.25 and (d) Liabilities disclosed in Company Reports. The
Company does not and will not have any obligations for severance costs, vacation
pay or sick leave associated with any employee of the Company in excess of
$10,000, other than obligations that are satisfied prior to the Effective Time.
Except as disclosed on Section 4.22 of the Company Disclosure Schedule, the
Company does not and will not have any obligations for warranty repair or
replacement, or otherwise in connection with the sale of materials, products,
services or supplies.
4.23. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since February 28, 2001, except
as contemplated by this Agreement, the Company has conducted its business only
in the ordinary course and in manners consistent with past practice and, since
February 28, 2001, except as set forth in Section 4.23 of the Company Disclosure
Schedule, there has not been (a) either individually or in the aggregate, any
Material Adverse Effect, (b) any material damage, destruction or loss with
respect to any property or asset of the Company, (c) any change by the Company
in its accounting methods, principles or practices, other than changes required
by applicable law or GAAP or regulatory accounting as concurred in by the
Company's independent accountants, (d) any revaluation by the Company of any
asset, including, without limitation, any writing down of the value of inventory
or writing off of notes or accounts receivable, other than in the ordinary
course of business consistent with past practice, (e) any entry by the Company
into any contract or commitment of more than $100,000, (f) any declaration,
setting aside or payment of any dividend or distribution in respect of any
Equity Interest of the Company or any redemption, purchase or other acquisition
of any of its securities, (g) any increase in or establishment of any insurance,
severance, retention, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards, or restricted stock
awards), stock purchase or other employee benefit plan, or the taking of any
other material action not in the ordinary course of business with respect to the
compensation or employment of directors, officers or employees of the Company,
(h) any strike, work stoppage, slowdown or other labor disturbance, (i) any
material election made by the Company for federal or state income tax purposes,
(j) any material liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise and whether due or to become due), including
without limiting the generality of the foregoing, liabilities as guarantor under
any guarantees or liabilities for taxes, other than in the ordinary course of
business consistent with past practice, (k) any forgiveness or cancellation of
any material indebtedness or material contractual obligation, (l) any mortgage,
pledge, lien or lease of any assets, tangible or intangible, of the Company with
a value in excess of $25,000 in the aggregate, (m) any acquisition or
disposition of any assets or properties (not including inventory acquired or
disposed of in the ordinary course of business consistent with past practice)
having a value in excess of $100,000, or any contract for any such acquisition
or disposition entered into, or (n) any lease of real or personal property
entered into, other than in the ordinary course of business consistent with past
practice.
4.24. NO BONUSES OR OTHER PAYMENTS TO EMPLOYEES, DIRECTORS, OFFICERS. Since
February 28, 2001, except as disclosed on Section 4.24 of the Company Disclosure
Schedule, the Company has not (a) paid or agreed to pay any bonus or any other
increase in the compensation payable or to become payable, or (b) granted or
agreed to grant any bonus, severance, retention
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or termination pay, or entered into any contract or arrangement to grant any
bonus, severance, retention or termination pay, to any director, officer or
employee of the Company.
4.25. AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as disclosed in Section
4.25 of the Company Disclosure Schedule, the Company is not a party to:
(a) any bonus, deferred compensation, pension, severance,
profit-sharing, stock option, employee stock purchase or retirement plan,
contract or arrangement or other employee benefit plan or other arrangement
covering the Company's employees;
(b) any employment agreement with any of the Company's employees that
contains any severance pay liabilities or obligations;
(c) any agreement for personal services or employment with any of the
Company's employees that is not terminable on 30 days' (or less) notice by the
Company without penalty or obligation to make payments related to such
termination;
(d) any agreement of guarantee or indemnification in an amount that is
material to the Company;
(e) any agreement or commitment containing a covenant limiting or
purporting to limit the freedom of the Company to compete with any person in any
geographic area or to engage in any line of business;
(f) any lease to which the Company is a party as lessor or lessee that
(x) provides for future payments of $10,000 or more, or (y) is material to the
conduct of the business of the Company;
(g) any joint venture agreement or profit-sharing agreement;
(h) except for trade indebtedness incurred in the ordinary course of
business, any loan or credit agreements providing for the extension of credit to
the Company or any instrument evidencing or related in any way to indebtedness
incurred in the acquisition of companies or other entities or indebtedness for
borrowed money by way of direct loan, sale of debt securities, purchase money
obligation, conditional sale, guarantee, or otherwise that individually is in
the amount of $5,000 or more;
(i) any license agreement, either as licensor or licensee, or
distributor, dealer, franchise, manufacturer's representative, sales agency or
other similar agreement or commitment;
(j) any agreement or arrangement for the assignment, sale or other
transfer by the Company of any agreement or lease (or right to payment
thereunder) by which it leases materials, products or other property to a third
party;
(k) any contract or agreement that provides any discount other than
pursuant to the Company's standard discount terms;
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(l) any agreement or commitment for the acquisition, construction or
sale of fixed assets owned or to be owned by the Company;
(m) any current agreement or commitment, not elsewhere specifically
disclosed pursuant to this Agreement, to which present or former directors,
officers or Affiliates of the Company or any of their "ASSOCIATES" (as defined
in the rules and regulations promulgated under the Securities Act) are parties;
(n) any agreement or arrangement for the sale of any of the assets,
properties or rights of the Company (other than in the ordinary course of
business) or for the grant of any preferential rights to purchase any of its
assets, properties or rights or any material agreement that requires the consent
of any third party to the transfer and assignment of any of its assets,
properties or rights;
(o) any contract providing for the payment of a commission or other fee
calculated as or by reference to the volume of web traffic or a percentage of
the profits or revenues of the Company or of any business segment of the
Company;
(p) any contract or agreement not described above involving the payment
or receipt by the Company of more than $25,000, or, in the case of contracts
involving payments by the Company, which cannot be terminated by it on 30 days'
notice without penalty, cost or liability; or
(q) any contract or agreement not described above that is material to
the business, operations, assets, financial condition, results of operations,
properties or prospects of the Company, including without limitation, agreements
relating to web site development and operations; marketing, promotion, affiliate
and advertising, including search engine referrals and Internet private
labeling; fulfillment operations; and telephone, credit card and freight carrier
services.
4.26. CONTRACTS IN FULL FORCE AND EFFECT. All agreements, contracts, plans,
leases, instruments, arrangements, licenses and commitments designated with an
"M" on Attachment 4.25 to Section 4.25 of the Company Disclosure Schedule
("MATERIAL CONTRACTS") are valid and in full force and effect. The Company has
not, nor to the knowledge of the Company has any other party thereto, breached
any provision of, or defaulted under the terms of, nor are there any facts or
circumstances (including, without limitation, the proposed consummation of the
transactions contemplated hereby) that would reasonably indicate that the
Company will or may be in such breach or default under, any such contract,
agreement, instrument, arrangement, commitment, plan, lease or license. No
notice has been received by the Company with respect to the possible termination
or modification of any Material Contract, and the Company has no reason to
believe that any business or financial relationship with any party to a Material
Contract is likely to be adversely affected by consummation of the Merger.
Section 4.25 of the Company Disclosure Schedule correctly identifies each such
contract the provisions of which would be limited or otherwise adversely
affected by this Agreement or the consummation of the Merger and each such
contract that requires the consent of a third party in order to have such
contract remain in full force and effect after consummation of the Merger. The
Company has provided
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Buyer with a true, correct and complete copy of each contract listed on Section
4.25 of the Company Disclosure Schedule, including all amendments thereto.
4.27. ENVIRONMENTAL LIABILITY. There is no litigation or other proceeding
seeking to impose, or that could reasonably result in the imposition on the
Company of, any liability arising under any of the Environmental Laws, pending
or, to the knowledge of the Company, threatened or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome against the Company; there is no reason
for any such potential litigation that would impose any such liability; and the
Company is not subject to any agreement, order, judgment, decree, or memorandum
by or with any court, Governmental Entity, regulatory authority or agency, or
third party imposing any such liability.
4.28. ABSENCE OF LITIGATION. Except as set forth in Section 4.28 of the
Company Disclosure Schedule, the Company is not a party to any, and there are no
pending, or to the knowledge of the Company, threatened, legal, administrative,
arbitral or other material claims, actions, proceedings or investigations of any
nature, against the Company or any property or asset of the Company, before any
court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, and no facts or circumstances have come to the
attention of the Company which could cause it to believe that a material claim,
action, proceeding or investigation against or affecting the Company could
reasonably be expected to occur. Neither the Company nor any property or asset
of the Company is subject to any order, writ, judgment, injunction, decree,
determination or award which restricts the Company's ability to conduct business
in any area in which it presently does business or which has or could reasonably
be expected to have, either individually or in the aggregate, a Material Adverse
Effect.
4.29. EMPLOYEE BENEFIT PROGRAMS. Section 4.29 of the Company Disclosure
Schedule contains a true, correct and complete list of all pension, profit
sharing, retirement, deferred compensation, welfare, insurance, disability,
bonus, vacation pay, severance pay and other similar plans, programs or
agreements, and every material personnel policy, whether reduced to writing or
not, relating to any persons employed by the Company and maintained at any time
by the Company or by any other member of a controlled group of corporations,
group of trades or businesses under common control or affiliated service group
which includes the Company (defined in accordance with Section 414(b), (c) and
(m) of the Code) (each, an "ERISA AFFILIATE") (collectively, the "COMPANY
PLANS"). The Company has made available to Buyer true, correct and complete
copies of all the Company Plans that have been reduced to writing, together with
all documents establishing or constituting any related trust, annuity contract,
insurance contract or other funding instrument, and summaries of those that have
not been reduced to writing. With respect to any "defined benefit plan," as
defined in Section 3(35) of ERISA, the Company has made available a copy of the
latest annual actuarial report, and with respect to all the Company Plans the
latest Forms 5500. Except as to benefits provided in accordance with each of the
Company Plans, neither the Company nor any Affiliate has any obligation or other
employee benefit plan liability under applicable law; nor has the Company or
Affiliate ever been obligated to contribute to any "multiemployer plan," as
defined in Section 3(37) of ERISA.
4.30. EMPLOYEES. Section 4.30 of the Company Disclosure Schedule lists each
employee or consultant of the Company, as well as each employee's and
consultant's date of hire, title,
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department, leave status, current salary/rate of compensation, current bonus
eligibility, date of last review and salary/bonus increase, accrued vacation,
retention or severance eligibility and accrued sick time and for each of 2001
year to date and 2000 each employee's or consultant's salary, bonus, commissions
and total compensation paid. No such employee or consultant has given the
officers or the human resources department of the Company any notice of his/her
specific plan to terminate his/her employment relation on a date prior to the
Effective Time. All employees of the Company are in good standing under the
Company's employment policies and manuals.
4.31. LABOR MATTERS.
(a) No work stoppage involving the Company is pending or, to the
knowledge of the Company, threatened. The Company is not involved in, nor, to
the knowledge of the Company, is the Company threatened with or affected by, any
dispute, arbitration, lawsuit or administrative proceeding relating to labor or
employment matters which might reasonably be expected to interfere in any
material respect with the business activities of the Company. No employee of the
Company is represented by any labor union, and no labor union is attempting to
organize employees of the Company.
(b) The Company has not implemented and does not intend to implement a
"plant closing" or a "mass layoff" within the meaning of the Worker Adjustment
and Retraining Notification Act ("WARN ACT"), 29 U.S.C. (S)2101 et seq., or any
similar state law or regulation.
4.32. REAL PROPERTY AND LEASES.
(a) The Company does not own any real property.
(b) The Company has received no notice of violation of any applicable
zoning regulation, ordinance or other law, order, regulation or requirement
relating to the Company's properties.
(c) All leases of real property leased for the use or benefit of the
Company to which the Company is a party, and all amendments and modifications
thereto, are in full force and effect, and there exists no default under any
such lease by the Company, nor, to the knowledge of the Company, has any event
occurred which with notice or lapse of time or both would constitute a material
default thereunder by the Company.
(d) Section 4.32 of the Company Disclosure Schedule sets forth a
description (including the street address) of all real property leased by the
Company. No premises other than such leased properties are used in the Business.
4.33. TAXES AND TAX RETURNS. Except as disclosed in Section 4.33 of the
Company Disclosure Schedule, the Company represents to Buyer as follows:
(a) Each of the Company and its subsidiaries has filed all Tax Returns
that it was required to file, and prior to the Closing Date will file all Tax
Returns for the fiscal year ended February 28, 2001 ("2001 TAX RETURNS"),
whether or not such 2001 Tax returns are due as of the Closing Date. All such
Tax Returns were (or will be) correct and complete in all respects.
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All Taxes owed by any of the Company and its subsidiaries (whether or not shown
on any Tax Return) have been paid, including all Taxes shown on the 2001 Tax
Returns. Neither the Company nor its subsidiaries is currently the beneficiary
of any extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where the Company and its
subsidiaries do not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no Liens on any of the assets of the Company or its
subsidiaries that arose in connection with any failure (or alleged failure) to
pay any Tax.
(b) Each of the Company and its subsidiaries has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or other
third party.
(c) No director or officer (or employee responsible for Tax matters) of
the Company and its subsidiaries expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no dispute
or claim concerning any Tax Liability of the Company or its subsidiaries either
(A) claimed or raised by any authority in writing or (B) as to which the
directors or officers (or employee responsible for Tax matters) of the Company
and its subsidiaries have knowledge based upon personal contact with any agent
of such authority. Section 4.33 of the Company Disclosure Schedule lists all
federal, state, local, and foreign income Tax Returns filed with respect to any
of the Company and its subsidiaries for taxable periods ended on or after
February 28, 1998, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. The Company
has delivered to Buyer correct and complete copies of all federal income Tax
Returns, examination reports, and statement of deficiencies assessed against or
agreed to by the Company or any of its subsidiaries since February 28, 1998.
(d) None of the Company and its subsidiaries has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(e) None of the Company and its subsidiaries has filed a consent under
Code section 341(f) concerning collapsible corporations. None of the Company and
its subsidiaries has made any payment, is obligated to make any payment, or is a
party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Code section 280G or Code
section 162(m). None of the Company and its subsidiaries has been a United
States real property holding corporation within the meaning of Code section
897(c)(2) during the applicable period specified in Code section
897(c)(1)(A)(ii). None of the Company and its subsidiaries is a party to any Tax
allocation or sharing agreement. None of the Company and its subsidiaries (i)
has been a member of an affiliated, combined, consolidated or unitary Tax group
for purposes of filing any Tax Return, other than, for purposes of filing
consolidated U.S. federal income tax returns, a group the common parent of which
was the Company) or (ii) has any Liability for the Taxes of any Person under
Treasury Regulation section 1.1502-6 (or any similar provision of state, local,
or foreign law), as a transferee or successor, by contract or otherwise.
(f) Section 4.33 of the Company Disclosure Schedule sets forth the
following information with respect to each of the Company and its subsidiaries
as of the most recent
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practicable date (as well as on an estimated pro forma basis as of the Closing
Date giving effect to the consummation of the transactions contemplated hereby):
(A) the basis of the Company or subsidiary in its assets; (B) the basis of the
stockholder(s) of the subsidiary in its stock (or the amount of any Excess Loss
Account); (C) the amount of any net operating loss, net capital loss, unused
investment or other credit, unused foreign tax, or excess charitable
contribution allocable to the Company or subsidiary, and the date on which such
amounts arose; and (D) the amount of any Deferred Intercompany Transaction.
(g) The unpaid Taxes of the Company and its subsidiaries (i) did not,
as of the Latest Balance Sheet Date, exceed the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the Latest
Balance Sheets (rather than in any notes thereto) and (ii) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company and its subsidiaries
in filing its Tax Returns.
(h) None of the Company and its subsidiaries will be required to
include any item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing Date
as a result of any (A) change in method of accounting for a taxable period
ending on or prior to the Closing Date under Code section 481(c) (or any
corresponding or similar provision of state, local or foreign income Tax law);
(B) "closing agreement" as described in Code section 7121 (or any corresponding
or similar provision of state, local or foreign income Tax law) executed on or
prior to the Closing Date; (C) Deferred Intercompany Transaction or Excess Loss
Account; (D) installment sale or open transaction disposition made on or prior
to the Closing Date; or (E) prepaid amount received on or prior to the Closing
Date.
(i) The Company has not experienced an "ownership change" described in
section 382 of the Code.
(j) Each of CMP Sub and Vendor Sub has always participated in the
filing of a consolidated federal income tax return with the Company as common
parent.
(k) For federal income tax purposes, Holdings Sub has since its
formation been treated as a disregarded entity.
(l) For federal income tax purposes, the Tweeter Joint Venture has
since its formation been treated as a partnership. As of the date hereof, the
amount of the Company's capital account in the Tweeter Joint Venture was
$3,018,425. The Company has a 50% percent interest in the profits, and a 50%
percent interest in the losses, of the Tweeter Joint Venture.
4.34. INSURANCE. The Company has made available to Buyer true and complete
copies of all material policies of insurance of the Company currently in effect.
All of the policies relating to insurance maintained by the Company with respect
to its material properties and the conduct of its business in any material
respect (or any comparable policies entered into as a replacement therefor) are
in full force and effect and the Company has not received any notice of
cancellation with respect thereto. All life insurance policies on the lives of
any of the current and former officers of the Company which are maintained by
the Company or which are otherwise included
-26-
as assets on the books of the Company (i) are, or will be at the Effective Time,
owned by the Company, free and clear of any claims thereon by the officers or
members of their families, except with respect to the death benefits thereunder,
as to which the Company agrees that there will not be an amendment prior to the
Effective Time without the consent of Buyer, and (ii) are accounted for properly
as assets on the books of the Company, as applicable, in accordance with GAAP in
all material respects. The Company does not have any material liability for
unpaid premiums or premium adjustments not properly reflected on such the
Company financial statements delivered to Buyer hereunder.
4.35. STATE TAKEOVER LAWS. The Board of Directors or other managing body of
Company has approved the transactions contemplated by this Agreement and taken
all other requisite action such that the provisions of the laws of the Delaware
General Corporate Law and any provisions of the Company's Organizational
Documents relating to special voting requirements for certain business
combinations will not apply to this Agreement or any of the transactions
contemplated hereby or thereby.
4.36. COMPETING INTERESTS. None of the Company or any director or officer
of the Company, or, to the knowledge of the Company, any agent or employee of
the Company, or any Affiliate or immediate family member of any of the foregoing
(a) owns, directly or indirectly, an interest in any entity that is a
competitor, customer or supplier of the Company or that otherwise has material
business dealings with the Company or (b) is a party to, or otherwise has any
direct or indirect interest opposed to the Company under, any Material Agreement
or other business relationship or arrangement material to the Company, provided
that the foregoing will not apply to any investment in publicly traded
securities constituting less than 3% of the outstanding securities in such
class. Neither the Company, nor any director or officer of the Company, nor, to
the knowledge of the Company, any agent or employee of the Company, is a party
to any non-competition, non-solicitation, exclusivity or other similar agreement
that would in any way restrict the business or activities of the Company or
Buyer.
4.37. INTERESTS OF COMPANY INSIDERS. No director, officer, agent or
employee of the Company, or any Affiliate or immediate family member (each, a
"COMPANY INSIDER") of any of the foregoing, (a) has any interest in any
property, real or personal, tangible or intangible, including Intellectual
Property used in or pertaining to the business of the Company, except for the
normal rights of a shareholder, and except for rights under existing employee
benefit plans or (b) is owed any money by the Company.
4.38. INTELLECTUAL PROPERTY.
(a) For purposes of this Agreement, "INTELLECTUAL PROPERTY" means all
(i) patents, copyrights and copyrightable works, trademarks, service marks,
trade names, service names, brand names, logos, trade dress, Internet domain
names and all goodwill symbolized thereby and appurtenant thereto; (ii) trade
secrets, inventions, technology, know-how, proprietary information, research
material, specifications, surveys, designs, drawings and processes; (iii)
artwork, photographs, editorial copy and materials, formats and designs,
including without limitation all content currently or previously displayed
through Internet sites owned or operated by the Company; (iv) customer, partner,
prospect and marketing lists, market research data, sales data and traffic and
user data; (v) registrations, applications, recordings, common law rights,
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"moral" rights of authors, licenses (to or from the Company) and other
agreements relating to any of the foregoing; (vi) rights to obtain renewals,
reissues, extensions, continuations, divisions or equivalent extensions of legal
protection pertaining to the foregoing; and (vii) claims, causes of action or
other rights at law or in equity arising out of or relating to any infringement,
misappropriation, distortion, dilution or other unauthorized use or conduct in
derogation of the foregoing occurring prior to the Closing.
(b) Section 4.38(b) of the Company Disclosure Schedule lists all
registered patents, copyrights, trademarks and service marks owned by the
Company or a Company Subsidiary.
(c) The Company or a Company Subsidiary owns or otherwise has the right
to use pursuant to Material Contracts (or standard form "shrink wrap" license
agreements for software regularly available in retail sales) all Intellectual
Property used by the Company or a Company Subsidiary in connection with or
necessary to the operation of the Business, without infringing on to the rights
of any person. The Company is not obligated to pay any royalty or other
consideration to any person in connection with the use of any such Intellectual
Property.
(d) No claim has been asserted against the Company to the effect that
the use of any Intellectual Property by the Company infringes the rights of any
person. To the knowledge of the Company, no other person is currently infringing
upon the rights of the Company with respect to the Intellectual Property.
(e) The Intellectual Property owned by the Company or a Company
Subsidiary or which the Company or a Company Subsidiary otherwise has the right
to use as of the Closing is sufficient as of the Closing Date for the uses of
the Business as Currently Conducted. The Company or a Company Subsidiary has
obtained all licenses and consents and has paid all royalties necessary to
enable Buyer to continue using the Intellectual Property after the Closing in
the manner it is currently being used or has been committed to be used.
4.39. COMPANY SOFTWARE.
(a) Section 4.39 of the Company Disclosure Schedule sets forth a true
and complete list of all software programs, systems and applications (A)
designed or developed or under development by employees of the Company or by
consultants on the Company's behalf including all documentation therefor (the
"OWNED SOFTWARE") or (B) licensed by the Company from any third party or
constituting "off-the-shelf" software (the "LICENSED SOFTWARE"), in each case
that is manufactured or used by the Company in the operation of its business
(collectively, the "SOFTWARE") and, in the case of Licensed Software, Section
4.39 of the Company Disclosure Schedule identifies each license agreement with
respect thereto.
(b) All of the Owned Software are original works of authorship and are
protected by the copyright laws of the United States. The Company owns all
right, title and interest in and to the Owned Software, and all copyrights
thereto, free and clear of all Liens, claims, encumbrances, charges, pledges,
restrictions or rights of third parties of any kind whatsoever ("ENCUMBRANCES"),
and has not sold, assigned, licensed, distributed or in any other way disposed
of or subjected the Owned Software to any Encumbrance. None of the Owned
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Software incorporates, is based on or is a derivative work of any third party
code that is subject to the terms of a public source license or otherwise
imposes conditions on the terms and conditions under which the Owned Software
may be used or distributed. To the knowledge of the Company, no other person is
currently infringing upon the rights of the Company with respect to the Owned
Software. No claim has been asserted against the Company to the effect that the
use of any Owned Software by the Company infringes the rights of any person.
(c) The Licensed Software is validly held and used by the Company and
may be used by the Company pursuant to the applicable license agreement with
respect thereto without the consent of, notice to, or payment of any royalty or
any other fee to any third party and is fully and freely utilizable by the Buyer
without the consent of, notice to or payment of any royalty to any third party.
All of the Company's computer hardware has validly licensed software installed
therein and the Company's use thereof does not conflict with or violate any such
license. No claim has been asserted against the Company to the effect that the
use of any Licensed Software by the Company infringes the rights of any person.
(d) To the knowledge of the Company, the Software is free from any
significant software defect, is free from any programming, documentation error
or virus ("BUGS") not consistent with commercially reasonable industry standards
acceptable for such Bugs, operates and runs in a reasonable and efficient
business manner, conforms to the specifications thereof, and, with respect to
the Owned Software, the applications can be compiled from their associated
source code without undue burden.
(e) The Company has not altered its data, or any Software or supporting
software that may in turn damage the integrity of the data, whether stored in
electronic, optical or magnetic or other form. The Company has made available to
Buyer all documentation in its possession relating to the use, maintenance and
operation of the Software, all of which is true and accurate in all material
respects (to the Company's knowledge, with respect to the Licensed Software).
(f) The Software owned or licensed by the Company as of the Closing is
sufficient as of the Closing Date for the uses of the Business as it is
Currently Conducted.
4.40. INVESTMENT BANKER. Except as set forth in Section 4.40 of the Company
Disclosure Schedule, no broker, finder or investment banker, is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. Details of the amount payable to the investment banker
are set forth in such Section 4.40 of the Company Disclosure Schedule.
4.41. COMPANY INFORMATION. The information relating to Company and its
Affiliates to be contained in the Proxy Statement-Prospectus, or any other
statement or application filed with any other Governmental Entity in connection
with the Merger and the other transactions contemplated by this Agreement, will
not contain as of the date of such Proxy Statement-Prospectus and as of the date
of the Special Meeting (defined in Section 6.05) any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, the Company makes and will make no
representation or warranty
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with respect to any information supplied by Buyer which is contained in any of
the foregoing documents. The Proxy Statement-Prospectus (except for such
portions thereof that relate only to Buyer and its Affiliates) will comply in
all material respects with the provisions of the Securities Laws and the rules
and regulations thereunder.
4.42. DISCLOSURE. No representation or warranty contained in this
Agreement, and no statement contained in any Schedule, certificate, list or
other writing furnished to Buyer pursuant to the provisions hereof, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements herein or
therein, in light of the circumstances in which they are made, not misleading.
No information believed by the Company to be material to the Merger and which is
necessary to make the representations and warranties herein contained, taken as
a whole, not misleading, has been withheld from, or has not been delivered in
writing to, Buyer.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company that:
5.01. CORPORATE ORGANIZATION. The Buyer is a corporation, duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Buyer has the requisite power and authority and all necessary governmental
approvals to own, lease and operate all of its properties and assets and to
carry on its business as it is now being conducted, and is duly licensed or
qualified to do business and is in good standing in each jurisdiction where the
nature of the business conducted by it or the character or location of the
properties and assets owned, leased or operated by it makes such licensing or
qualification necessary.
5.02. AUTHORITY. The Buyer has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
approved by the Board of Directors of the Buyer (the "BUYER BOARD"). This
Agreement has been duly and validly executed and delivered by the Buyer and
constitutes a valid and binding obligation of the Buyer, enforceable against the
Buyer in accordance with its terms.
5.03. CAPITALIZATION OF BUYER.
(a) The authorized Equity Interest of Buyer consists of 100,000,000
shares of common stock, $.01 par value per share and 10,000,000 shares of
preferred stock, $.01 par value per share, of which 24,419,525 shares of common
stock and no shares of Preferred Stock are issued and outstanding.
(b) Except for options to acquire not more than 2,739,414 shares of
Buyer Common Stock pursuant to stock options outstanding as of the date hereof
under the Buyer's Stock Option Plans, as of the date of this Agreement there are
no outstanding subscriptions, options, warrants, calls or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued Equity Interest of Buyer or obligating Buyer to issue or sell any
Equity Interests of, or other equity interests in, Buyer.
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(c) Buyer Common Stock is listed on the Nasdaq National Market System.
5.04. NO CONFLICT. Neither the execution, delivery and performance of this
Agreement by the Buyer, nor the consummation by the Buyer of the transactions
contemplated hereby, nor compliance by the Buyer with any of the terms or
provisions hereof, will (i) conflict with, violate or result in a breach of any
provision of the Organizational Documents or By-Laws of the Buyer, or (ii)
conflict with, violate or result in a breach of any statute, code, ordinance,
rule, regulation, order, writ, judgment, injunction or decree applicable to the
Buyer, or by which any property or asset of the Buyer is bound.
5.05. CONSENTS AND APPROVALS. The execution, delivery and performance of
this Agreement by the Buyer does not require any consent, approval,
authorization or permit of, or filing with or notification to any Governmental
Entity or with any third party, (A) applicable requirements, if any, of state
takeover laws, (B) filing and recordation of appropriate merger documents as
required by the laws of the State of Delaware; and (C) compliance with
applicable requirements, if any, of the Securities Act, the Exchange Act, state
securities laws, the pre-Merger notification requirements of the Xxxx-Xxxxx
Xxxxxx Antitrust Improvements Act of 1976, as amended or Foreign Competition
Laws. The Buyer is not aware of any reason why the approvals, consents and
waivers referred to herein should not be obtained.
5.06. FINANCIAL STATEMENTS. The Buyer has previously made available to the
Company copies of (i) the consolidated balance sheets of the Buyer and its
subsidiaries as of December 31 for the fiscal years 1999 and 2000 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the fiscal years 1998 through 2000, inclusive, as reported in the
Buyer's 2000 Annual Report on Form 10-K, and (ii) the unaudited consolidated
financial statements of Buyer and its subsidiaries as of March 31, 2000 and
March 31, 2001 as reported on the Buyer's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001, and the related unaudited consolidated statements
of income, changes in stockholders' equity and cash flows for the three month
period then ended. The December 31, 2000 consolidated balance sheet of the Buyer
(including the related notes, where applicable) fairly presents in all material
respects the consolidated financial position of the Buyer and its subsidiaries
as of the date thereof, and the other financial statements referred to in this
Section 5.06 (including the related notes where applicable) fairly present in
all material respects (subject, in the case of the unaudited statements, to
audit adjustments normal in nature and amount and the addition of customary
notes), the results of the consolidated operations and changes in shareholders'
equity and consolidated financial position of the Buyer for the respective
fiscal periods or as of the respective dates therein set forth and each of such
statements (including the related notes, where applicable) has been prepared in
accordance with GAAP consistently applied during the periods involved, except as
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q under the Exchange Act.
5.07. BUYER REPORTS. The Buyer has filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that were required to be filed, with (i) the Securities and Exchange
Commission ("SEC") pursuant to the Securities Act or the Exchange Act, and (ii)
any applicable state securities authorities (all such reports and statements are
collectively referred to herein as the "BUYER REPORTS"). As of their respective
dates, no such Buyer Reports filed with the SEC contained any untrue statement
of a material
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fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading, except that information filed as of a
later date shall be deemed to modify information as of an earlier date.
5.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 2000, there
has not been either individually or in the aggregate any Material Adverse Effect
with respect to the Buyer.
5.09. BUYER INFORMATION. The information relating to Buyer to be contained
in the Proxy Statement- Prospectus (as contemplated by Section 8.01) or any
other statement or application filed with any governmental body in connection
with the Merger and the other transactions contemplated by this Agreement will
not contain as of the date of such Proxy Statement-Prospectus or filing any
untrue statement of a material fact or omit to state a material fact necessary
to make such information not misleading. Notwithstanding the foregoing, Buyer
makes and will make no representation or warranty with respect to any
information supplied by Company which is contained in any of the foregoing
documents. The Proxy Statement-Prospectus (except for such portions thereof that
relate only to the Company or its Affiliates) will comply in all material
respects with the provisions of the Securities Laws and the rules and
regulations thereunder.
5.10. BUYER SUB.
(a) Upon its formation, Buyer Sub will be a corporation, duly
organized, validly existing and in good standing under the laws of Delaware, all
of the outstanding capital stock of which is, or will be prior to the Effective
Time, owned directly or indirectly by Buyer free and clear of any lien, charge
or other encumbrance. From and after its incorporation, Buyer Sub has not and
will not engage in any activities other than in connection with or as
contemplated by this Agreement.
(b) Buyer Sub has, or will have prior to the Effective Time, all
corporate power and authority to consummate the transactions contemplated
hereunder and carry out all of its obligations with respect to such
transactions. The consummation of the transactions contemplated hereby has been,
or will have been prior to the Closing, duly and validly authorized by all
necessary corporate action in respect thereof on the part of Buyer Sub.
5.11. DISCLOSURE. No representation or warranty contained in this
Agreement, and no statement contained in any Schedule, certificate, list or
other writing furnished to the Company pursuant to the provisions hereof,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
herein or therein, in light of the circumstances in which they are made, not
misleading.
ARTICLE VI. COVENANTS OF THE COMPANY
6.01. CONDUCT OF BUSINESS PENDING THE MERGER.
(a) The Company covenants and agrees that, except as contemplated by
this Agreement, between the date of this Agreement and the Effective Time,
unless the Buyer shall
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otherwise agree in writing, the Business of the Company shall be conducted only
in the Company, and the Company shall not take any action except in, the usual,
regular and ordinary course of business and the Company will generally conduct
its business in substantially the same way as heretofore conducted, and without
limiting the foregoing, the Company will continue to operate in the same
geographic markets serving the same market segments. The Company shall use its
reasonable best efforts to preserve substantially intact the business
organization of the Company, to keep available the present services of the
officers, employees and consultants of the Company and to preserve the current
relationships and goodwill of the Company with customers, suppliers and other
persons with which the Company has business relationships. Without limiting the
generality of the foregoing, the Company shall:
(i) maintain in full force and effect all contracts of insurance and
indemnity specified in any Schedule hereto;
(ii) repair and maintain all of its tangible properties and assets in
accordance with its usual and ordinary repair and maintenance standards;
(iii) continue to apply in full the same rigorous credit review
process used by the Company prior to the Closing in determining the extent
to which it will extend credit to customers or potential customers in the
ordinary course of business;
(iv) notify the Buyer of any material emergency or other material
change in the operation of its business or properties and of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated).
(b) By way of amplification and not limitation of clause (a) above, the
Company shall not between the date of this Agreement and the Effective Time,
directly or indirectly do, or publicly announce an intention to do, any of the
following without the prior written consent of Buyer through one of its
authorized representatives (which representatives shall be each of its Chief
Executive Officer, President and Chief Financial Officer):
(i) amend or otherwise change its Organizational Documents or By-laws
or equivalent organizational documents;
(ii) issue, deliver, sell, pledge, dispose of, grant, encumber, or
authorize the issuance, delivery, sale, pledge, disposition, grant or
encumbrance of, any Equity Interests of the Company, or any options,
warrants, convertible securities or other rights of any kind to acquire any
such Equity Interests, or any other ownership interest, of the Company, or
enter into any agreement with respect to any of the foregoing, other than
in connection with the Stock Warrant Agreement and upon exercise of the
Company Stock Options;
(iii) make any distribution (by way of dividend or otherwise) with
respect to its Equity Interests;
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(iv) split, combine or reclassify any of its Equity Interests or issue
or authorize or propose the issuance of any other securities in respect of,
in lieu of or in substitution for its Equity Interests;
(v) repurchase, redeem or otherwise acquire any Equity Interests of
the Company, or any securities convertible into or exercisable for any of
the Equity Interests of the Company;
(vi) enter into any new line of business or materially expand the
business currently conducted by the Company;
(vii) acquire or agree to acquire, by merging or consolidating with,
or by purchasing an equity interest in or a portion of the assets of, or by
any other manner, any business or any corporation, partnership, other
business organization or any division thereof or any material amount of
assets;
(viii) incur any indebtedness for borrowed money, increase the
aggregate amounts owed under the Company's existing credit facilities or
issue any debt securities or assume, guarantee or endorse, or otherwise as
an accommodation become responsible for, the obligations of any individual,
corporation or other entity, or make any loan or advance;
(ix) lower or otherwise alter its credit card fraud review process (as
more fully described in Exhibit 6.01);
------------
(x) authorize any capital expenditures of more than $25,000 in the
aggregate (other than expenditure listed on Schedule 6.01(b)(x) and
previously approved by Buyer);
(xi) (A) (x) adopt, amend, renew or terminate any plan or any
agreement, arrangement, plan or policy between the Company and one or more
of its current or former directors, officers or employees, or (y) increase
in any manner the compensation or fringe benefits of any director, officer
or employee or pay any benefit not required by any plan or agreement as in
effect as of the date hereof (including, without limitation, the granting
of stock options, stock appreciation rights, restricted stock, restricted
stock units or performance units or shares); or (B) enter into, modify or
renew any employment, severance or other agreement with any director,
officer or employee of the Company, or establish, adopt, enter into or
amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance, retention or other plan,
agreement, trust, fund, policy or arrangement providing for any benefit to
any director, officer or employee;
(xii) pay any bonus or any compensation other than base compensation,
except for payments of bonuses and other incentive compensation to sales
personnel pursuant to and consistent with the written sales incentive plan
which has been provided to and approved by Buyer;
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(xiii) take any action with respect to accounting methods, principles
or practices, other than changes required by applicable law or GAAP or
regulatory accounting as concurred in by the Company's independent
accountants;
(xiv) make any tax election or settle or compromise any federal,
state, local or foreign tax liability; (xv) pay, discharge or satisfy any
claim, liability or obligation, other than the payment, discharge or
satisfaction, in the ordinary course of business and consistent with past
practice;
(xvi) sell, lease, encumber, assign or otherwise dispose of, or agree
to sell, lease, encumber, assign or otherwise dispose of, any of its
material assets, properties or other rights or agreements;
(xvii) take any action that is intended or reasonably can be expected
to result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect, or any of the
conditions to the consummation of the Merger and the other transactions
contemplated by this Agreement set forth in Article IX not being satisfied
in any material respect, or in any material violation of any provision of
this Agreement;
(xviii) enter into or renew, amend or terminate, or give notice of a
proposed renewal, amendment or termination of or make any commitment with
respect to, (A) any contract, agreement or lease for office space or
operations space to which the Company is a party or by which the Company or
its properties is bound; (B) any lease, contract or agreement other than in
the ordinary course of business consistent with past practice including
renewals of leases to existing tenants of the Company ; (C) regardless of
whether consistent with past practices, any lease, contract, agreement or
commitment involving an aggregate payment by or to the Company of more than
$10,000 or requiring performance by the Company of any obligations at any
time more than one year after the time of execution;
(xix) enter into an agreement, contract, or commitment that, if
entered into prior to the date hereof, would be required to be listed on a
Schedule delivered to Buyer pursuant to the terms of this Agreement,
including without limitation, any arrangement or contract with respect to
web site development or operations; marketing, promotion, affiliate and
advertising, including search engine referrals and Internet private
labeling; fulfillment operations; or telephone, credit card or freight
carrier services;
(xx) amend, terminate or change in any material respect any lease,
contract, undertaking, arrangement or other commitment listed in any
Schedule (including without limitation its arrangements and contracts with
respect to web site development and operations; marketing, promotion,
affiliate and advertising, including search engine referrals and Internet
private labeling; fulfillment operations; and telephone, credit card or
freight carrier services) or knowingly do any act or omit to do
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any act, or permit an act or omission to act, that will cause a breach of
any such lease, contract, undertaking, arrangement or other commitment;
(xxi) change its pricing policies or its policies with respect to
freight rates charged to customers;
(xxii) enter into any transaction with an Insider; or
(xxiii) agree to do any of the foregoing.
6.02. CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Time, the Company will cause one or more of its
representatives to confer with representatives of Buyer and report the general
status of its ongoing operations at such times as Buyer may reasonably request.
Buyer will cooperate with the Company to establish a regular communications
process designed to minimize disruption to the Company's ongoing operations. The
Company will promptly notify Buyer of any material change in the normal course
of its business or in the operation of its properties and, to the extent
permitted by applicable law, of any governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated), or
the institution or the threat of material litigation involving the Company. The
Company will also provide Buyer such information with respect to such events as
Buyer may reasonably request from time to time. As soon as reasonably available,
but in no event more than 45 days after the end of each fiscal quarter ending
after the date of this Agreement (other than the last quarter of each fiscal
year), the Company will deliver to Buyer its quarterly report on Form 10-Q under
the Exchange Act, and, as soon as reasonably available, but in no event more
than 90 days after the end of each fiscal year, the Company will deliver to
Buyer its Annual Report on Form 10-K. The Company will deliver to Buyer all
Current Reports on Form 8-K at or before the time such reports are filed with
the SEC. Within 15 days after the end of each month, the Company will deliver to
Buyer a consolidated balance sheet and a consolidated statement of operations,
without related notes, for such month. The Company will provide Buyer with an
updated list promptly upon any change to the Company's list of authorized
signatories for bank accounts and safe deposit boxes.
6.03. OTHER FINANCIAL INFORMATION.
(a) Promptly upon receipt thereof, Company will furnish to Buyer copies
of each annual, interim or special audit of the books of Company and the Company
Affiliates made by its independent accountants and copies of all internal
control reports submitted to Company by such accountants in connection with each
annual, interim or special audit of the books of Company and the Company
Affiliates made by such accountants.
(b) As soon as practicable, Company will furnish to Buyer copies of all
such financial statements and reports as it shall send to its stockholders, the
SEC or any other regulatory authority, except as legally prohibited thereby.
(c) Company will furnish to Buyer, on a daily basis, a copy of the
daily operations report it furnishes to its senior management as well as cash
flow status and projections, and will provide Buyer with password access to
xxxxxxxxxxxxxx.xxx.
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(d) Company will deliver to the Buyer a closing balance sheet updating
the Latest Balance Sheets to a date not more than two days before the Closing,
including a detailed schedule of inventory, accounts receivable and accounts
payable, with aging information.
(e) With reasonable promptness, Company will furnish to Buyer such
additional financial data as Buyer may reasonably request.
6.04. ACCESS TO INFORMATION.
(a) Upon reasonable notice and subject to applicable laws relating to
the exchange of information, the Company shall afford to the officers,
employees, accountants, counsel and other representatives of the Buyer, access,
during normal business hours during the period prior to the Effective Time, to
all its properties, books, contracts, commitments and records and, during such
period, the Company shall make available to the Buyer all other information
concerning its business, properties and personnel as the Buyer may reasonably
request (other than information which the Company is not permitted to disclose
under applicable law). Buyer will cooperate with the Company to establish a
regular information dissemination process designed to minimize disruption to the
Company's ongoing operations. The Company shall not be required to provide
access to or to disclose information where such access or disclosure would
violate or prejudice the rights of the Company's customers, jeopardize the
attorney- client privilege of the institution in possession or control of such
information or contravene any law, rule, regulation, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the date of this
Agreement. The parties hereto will make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply.
(b) All information furnished by the Company to the Buyer or its
representatives pursuant hereto shall be treated as the sole property of the
Company and, if the Merger shall not occur, the Buyer and its representatives
shall return to the Company or destroy all of such written information and all
documents, notes, summaries or other materials containing, reflecting or
referring to, or derived from, such information. The Buyer shall, and shall use
its reasonable efforts to cause its representatives to, keep confidential all
such information, and shall not directly or indirectly use such information for
any competitive or other commercial purpose. The obligation to keep such
information confidential shall continue from the date the proposed Merger is
abandoned and shall not apply to (i) any information which (x) was already in
the Buyer's possession prior to the disclosure thereof by the Company; (y) was
then generally known to the public; or (z) was disclosed to the Buyer by a third
party not bound by an obligation of confidentiality or (ii) disclosures made as
required by law. It is further agreed that, if in the absence of a protective
order or the receipt of a waiver hereunder the Buyer is nonetheless, in the
opinion of its counsel, compelled to disclose information concerning the Company
to any tribunal or governmental body or agency or else stand liable for contempt
or suffer other censure or penalty, the Buyer may disclose such information to
such tribunal or governmental body or agency without liability hereunder.
(c) No investigation by any of the parties or their respective
representatives shall affect the representations and warranties of the other set
forth herein or any condition to the obligations of the parties hereto.
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6.05. APPROVAL OF COMPANY'S STOCKHOLDERS. Company will take all reasonable
steps necessary to duly call, give notice of, solicit proxies for, convene and
hold a special meeting (the "SPECIAL MEETING") of its stockholders as soon as
practicable for the purpose of approving this Agreement and the transactions
contemplated hereby. The date of the Special Meeting shall occur as soon as
practicable following the effectiveness of the Registration Statement (as more
fully described in Section 8.01) filed with the SEC. The Board of Directors of
Company will recommend to Company's stockholders the approval of this Agreement
and the transactions contemplated hereby and will use all reasonable efforts to
obtain, as promptly as practicable, the necessary approvals by Company's
stockholders of this Agreement and the transactions contemplated hereby,
provided, however, that nothing contained herein shall prohibit the Board of
Directors of Company from failing to make such a recommendation or modifying or
withdrawing its recommendation, if such Board shall have concluded in good faith
with the advice of counsel that such action is required to prevent such Board
from breaching its fiduciary duties to the stockholders of Company, and no such
action shall constitute a breach of this Agreement. Nothing in this Section 6.05
shall have any effect on the validity of the irrevocable proxies delivered to
Buyer by the Company's directors and certain key employees simultaneously with
the execution of this Agreement.
6.06. FAILURE TO FULFILL CONDITIONS. In the event that Company determines
that a condition to its obligation to complete the Merger cannot be fulfilled
and that it will not waive that condition, it will promptly notify Buyer.
6.07. ALL REASONABLE EFFORTS. Subject to the terms and conditions herein
provided, Company agrees to use all reasonable efforts to take, or cause to be
taken, all corporate or other action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
6.08. UPDATE OF DISCLOSURE SCHEDULES. From time to time prior to the
Effective Time, the Company will promptly supplement or amend the Company
Disclosure Schedule to reflect any matter which, if existing, occurring or known
at the date of this Agreement, would have been required to be set forth or
described in the Company Disclosure Schedule or which is necessary to correct
any information in the Company Disclosure Schedule which has been rendered
inaccurate thereby. No supplement or amendment to the Company Disclosure
Schedule shall have any effect for the purpose of determining satisfaction of
the conditions set forth in Section 9.02(a) hereof or the compliance by the
Company with the covenants set forth in Article VI and Article VIII hereof.
6.09. NO SOLICITATION. The Company shall not, directly or indirectly,
through any officer, director, agent or otherwise, solicit, initiate or
encourage the submission of any proposal or offer from any person relating to
any acquisition or purchase of any Equity Interests in the Company or all or
(other than in the ordinary course of business) any material portion of the
assets of the Company or any business combination with the Company, or, except
to the extent legally required in the discharge of their fiduciary duties,
recommend or endorse, or participate in any negotiations regarding, or furnish
to any other person any information with respect to, or otherwise cooperate in
any way with, or assist or participate in, facilitate, any effort or attempt by
any other person to do or seek any of the foregoing. The Company shall
immediately cease
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and cause to be terminated all existing discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. The Company
shall immediately notify Buyer if any such proposal or offer, or any inquiry or
contact with any person with respect thereto, is made and shall, in any such
notice to Buyer, indicate in reasonable detail the terms and conditions of such
proposal, offer, inquiry or contact and include with such notice and description
the identity of the person making the proposal, offer, inquiry or contact and
any written materials received by the Company regarding any proposal, offer,
inquiry or contact. The Company agrees to provide copies of all correspondence
(electronic or otherwise) with any person regarding any proposal, offer, inquiry
or contact and also agrees not to release any third party from, or waive any
provision of, any confidentiality or standstill agreement to which such the
Company is a party.
ARTICLE VII. COVENANTS OF BUYER
7.01. CONDUCT OF BUSINESS PENDING THE MERGER. During the period from the
date of this Agreement and continuing until the Effective Time, the Buyer shall
not, and shall not permit any of its subsidiaries to, take any action that is
intended or which reasonably can be expected to result in any of its
representations and warranties set forth in this Agreement being untrue in any
material respect, or in any of the conditions to the Merger or other
transactions contemplated in this Agreement as set forth in Article IX not being
satisfied in any material respect, or in a material violation of any provision
of this Agreement, except, in every case, as may be required by applicable law;
provided that nothing herein contained shall preclude Buyer from exercising its
rights under the Stock Warrant Agreement or taking any action Previously
Disclosed.
7.02. CURRENT INFORMATION. As soon as reasonably available, but in no event
more than 45 days after the end of each calendar quarter ending after the date
of this Agreement (other than the last quarter of each fiscal year ending
December 31), Buyer will deliver to the Company its quarterly report on Form
10-Q under the Exchange Act, and, as soon as reasonably available, but in no
event more than 90 days after the end of each fiscal year, Buyer will deliver to
the Company its Annual Report on Form 10-K. Buyer will deliver to the Company
all Current Reports on Form 8-K promptly after such reports are filed with the
SEC. As soon as practicable, Buyer will furnish to the Company copies of all
such financial statements and reports as it shall send to its stockholders, the
SEC or any other regulatory authority, except as legally prohibited thereby.
7.03. FAILURE TO FULFILL CONDITIONS. In the event that Buyer determines
that a condition to its obligation to complete the Merger cannot be fulfilled
and that it will not waive that condition, it will notify the Company within
five days after it determines that it will not waive the condition.
7.04. ALL REASONABLE EFFORTS. Subject to the terms and conditions herein
provided, Buyer agrees to use all reasonable efforts to take, or cause to be
taken, all corporate or other action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
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7.05. STOCK LISTING. Buyer agrees to list on the Nasdaq National Market
System, subject to official notice of issuance, the shares of Buyer Common Stock
to be issued in the Merger.
ARTICLE VIII. REGULATORY AND OTHER MATTERS
8.01. PROXY STATEMENT-PROSPECTUS. For the purposes (x) of registering
Buyer's Common Stock to be issued to holders of the Company's Common Stock in
connection with the Merger with the SEC under the Securities Act and applicable
state securities laws and (y) of holding the Company Special Meeting, the Buyer
and the Company shall cooperate in the preparation of a registration statement
(such registration statement, together with all and any amendments and
supplements thereto, being herein referred to as the "REGISTRATION STATEMENT"),
including a proxy statement/prospectus or statements satisfying all applicable
requirements of applicable state securities and banking laws, and of the
Securities Act and the Exchange Act, and the rules and regulations thereunder
(such proxy statement/prospectus in the form mailed by the Company to the
Company shareholders, together with any and all amendments or supplements
thereto, being herein referred to as the "PROXY STATEMENT- PROSPECTUS"). The
Buyer shall file the Registration Statement with the SEC. Each of the Buyer and
the Company shall use their best efforts to have the Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing, and the Company shall thereafter promptly mail the Proxy
Statement-Prospectus to its stockholders. The Buyer shall also use its best
efforts to obtain all necessary state securities law or "Blue Sky" permits and
approvals required to carry out the transactions contemplated by this Agreement,
and the Company shall furnish all information concerning the Company and the
holders of the Company Common Stock as may be reasonably requested in connection
with any such action. The Company and the Buyer shall each promptly notify the
other if at any time it becomes aware that the Proxy Statement-Prospectus
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading. In such event, the Company and the Buyer shall cooperate in the
preparation of a supplement or amendment to the Proxy Statement-Prospectus,
which corrects such misstatement or omission, and shall cause the same to be
filed with the SEC and distributed to stockholders of the Company.
8.02. REGULATORY APPROVALS. Each of the Company and Buyer will cooperate
with the other and use all reasonable efforts to prepare all necessary
documentation, to effect all necessary filings and to obtain all necessary
permits, consents, approvals and authorizations of all third parties and
Governmental Entities necessary to consummate the transactions contemplated by
this Agreement, including without limitation the Merger. The Company and the
Buyer will furnish each other and each other's counsel with all information
concerning themselves, their subsidiaries, directors, officers and stockholders
and such other matters as may be necessary or advisable in connection with the
Proxy Statement-Prospectus and any application, petition or any other statement
or application made by or on behalf of the Company or Buyer to any Governmental
Entity in connection with the Merger and the other transactions contemplated by
this Agreement. The Company and the Buyer shall have the right to review and
approve in advance all characterizations of the information relating to the
Buyer or the Company, as the case may be, and any of their respective
subsidiaries, which appear in any filing made in connection with the
transactions contemplated by this Agreement with any Governmental Entity . In
addition, the Company and the Buyer shall each furnish to the other a final copy
of each such filing made in connection with the transactions contemplated by
this Agreement with any
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Governmental Entity. Each of the Buyer and the Company represents and warrants
to the other that it is not aware of any reason why the approvals, consents and
waivers of Governmental Entities referred to herein and in Section 4.07 and
Section 5.05 should not be obtained.
8.03. LEGAL CONDITIONS TO MERGER. Each of the Buyer and the Company shall,
and shall cause each of its subsidiaries to, use its reasonable best efforts (a)
to take, or cause to be taken, all actions necessary, proper or advisable to
comply promptly with all legal requirements which may be imposed on such party
or its subsidiaries with respect to the Merger and, subject to the conditions
set forth in Article IX hereof, to consummate the transactions contemplated by
this Agreement and (b) to obtain (and to cooperate with the other party to
obtain) any consent, authorization, order or approval of, or any exemption by,
any Governmental Entity and any other third party which is required to be
obtained by the Company or the Buyer or any of their respective subsidiaries in
connection with the Merger and the other transactions contemplated by this
Agreement.
8.04. COMPANY AFFILIATES. The Company shall use all reasonable efforts to
cause each director, executive officer and other person who is an "affiliate"
(for purposes of Rule 145 under the Securities Act) of such party to deliver to
the other party hereto, as soon as practicable after the date of this Agreement,
and prior to the date of the shareholders meeting called by the Company to
approve this Agreement, a written agreement providing that such person will not
sell, pledge, transfer or otherwise dispose of any shares of Buyer Common Stock
to be received by such "affiliate" in the Merger otherwise than in compliance
with the applicable provisions of the Securities Act and the rules and
regulations thereunder.
8.05. EMPLOYEE MATTERS.
(a) EXISTING EMPLOYMENT AGREEMENTS. Following the Merger, Buyer shall,
or shall cause the Surviving Corporation to, honor in accordance with their
terms the employment agreements which have been Previously Disclosed by the
Company to the Buyer.
(b) CONTINUATION OF PLANS. Notwithstanding anything to the contrary
contained herein, the Buyer shall have sole discretion with respect to the
determination as to whether or when to terminate, merge or continue any employee
benefit plans and programs of the Company; provided, however, that the Buyer
shall continue to maintain such plans (other than stock based or incentive plans
or stock funds in retirement plans) until the continuing employees of the
Company are permitted to participate in the Buyer's or its Affiliates' plans.
(c) GRANT OF STOCK OPTIONS. After Closing, the Buyer intends to grant
options to purchase shares of Buyer Common Stock to existing employees of the
Company in amounts and on terms generally consistent with those afforded to
Buyer's similarly-situated employees. Such grants shall be conditioned upon each
grantee's entering into Buyer's standard confidential information/non-compete
and other agreements customarily executed by other employees of Buyer.
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(d) PARACHUTE PAYMENTS. Notwithstanding anything to the contrary
contained in this Agreement, in no event shall the Company take any action or
make any payments that would result, either individually or in the aggregate, in
the payment of an "excess parachute payment" within the meaning of Section 280G
of the Code or that would result, either individually or in the aggregate, in
payments that would be nondeductible pursuant to Section 162(m) of the Code.
8.06. CREDIT AND SUPPLY ARRANGEMENT; CROSS DEFAULT. Simultaneously with the
execution of this Agreement, Company and Buyer have entered into an arrangement
under which Buyer will finance the Company's inventory by supplying to the
Company all product that Buyer regularly stocks at Buyer's cost (defined as
invoice cost) plus 5% on net seven-day payment terms (the "CREDIT AND SUPPLY
AGREEMENT"). The maximum outstanding balance under the Credit and Supply
Agreement is limited to $5 million. There will also be a line of credit of up to
$3 million. All obligations will be secured by all the assets of the Company,
including a security interest in credit card receivables. Material breach by the
Company of its obligations under the Credit and Supply Agreement shall also be
deemed to be a breach of this Agreement.
8.07. DIRECTOR AND OFFICER INDEMNIFICATION; LIABILITY INSURANCE.
(a) Buyer hereby confirms that the indemnification obligations of the
Company to its directors and officers set forth in the Company's Certificate of
Incorporation and By-Laws and as provided by Delaware law, in each case as in
effect on the date of this Agreement, will not be extinguished by virtue of the
Merger.
(b) For a period of six (6) years after the Effective Time, Buyer will
maintain in effect and not cancel the "tail" insurance obtained by the Company
prior to the Closing for the benefit of the persons who served as directors or
officers of the Company before the Effective Time and relating to liabilities
and claims (and related expenses) made against them resulting from their service
as such prior to the Effective Time. The Company will pay no more than an
aggregate of $325,000 for such insurance for the full six year period of
coverage, and will consult with the Buyer prior to purchasing such insurance.
(c) This Section 8.07 shall be construed as an agreement as to which
the directors and officers of the Company are intended to be third party
beneficiaries and shall be enforceable by such persons and their heirs and
representatives.
8.08. PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect, neither
the Buyer nor the Company (nor any Affiliate of either) shall issue or cause the
publication of any press release or other public announcement with respect to,
or otherwise make any public statement concerning, the transactions contemplated
by this Agreement without the consent of the other party, which consent shall
not be unreasonably withheld.
8.09. ADDITIONAL AGREEMENTS. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, or to vest Buyer with full title to all properties, assets, rights,
approvals, immunities and franchises of any of the parties to the Merger, the
proper officers and directors of each party to this Agreement and their
respective subsidiaries shall take all such necessary action as may be
reasonably requested by the Buyer.
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ARTICLE IX. CONDITIONS TO THE MERGER
9.01. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved in accordance with applicable law
and Nasdaq National Market System policy by the requisite vote of the
stockholders of the Company.
(b) NO ORDERS, INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order,
injunction or decree (whether temporary, preliminary or permanent) issued by any
federal or state governmental authority or other agency or commission or federal
or state court of competent jurisdiction or other legal restraint or prohibition
(an "INJUNCTION") preventing the consummation of the Merger or any of the other
transactions contemplated by this Agreement shall be in effect and no proceeding
initiated by any Governmental Entity seeking an Injunction shall be pending. No
statute, rule, regulation, order, injunction or decree (whether temporary,
preliminary or permanent) shall have been enacted, entered, promulgated or
enforced by any federal or state governmental authority or other agency or
commission or federal or state court of competent jurisdiction, which prohibits,
restricts or makes illegal the consummation of the Merger or any of the other
transactions contemplated by this Agreement.
(c) FILINGS AND APPROVALS. All filings with and notifications to, and
all approvals and authorizations of, third parties (including, without
limitation, Governmental Entities and authorities) required for the consummation
of the transactions contemplated by this Agreement shall have been made or
obtained and all such approvals and authorizations (the "REQUISITE APPROVALS")
obtained shall be effective and shall not have been suspended, revoked or stayed
by action of any Governmental Entity or authority.
(d) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
shall have become effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued, and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(e) NASDAQ LISTING. The shares of Buyer Common Stock to be issued in
the Merger shall have been authorized for listing on the Nasdaq National Market
System subject to official notice of issuance.
(f) TAX OPINION. The Buyer and the Company shall have received the
opinion of Xxxxx, Xxxx & Xxxxx LLP, dated as of the Closing Date, to the effect
that the Merger will constitute a reorganization described in Section 368(a)(1)
of the Code and that each of Buyer, Buyer Sub and the Company will be a party to
the reorganization.
9.02. CONDITIONS TO OBLIGATIONS OF THE BUYER. The obligation of the Buyer
to effect the Merger is also subject to the satisfaction of or waiver by the
Buyer at or prior to the Effective Time of the following conditions:
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(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company in this Agreement which is qualified as to materiality
shall be true and correct and each such representation or warranty that is not
so qualified shall be true and correct in all material respects, in each case as
of the date of this Agreement, as applicable, and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date. The Buyer shall have received a certificate signed by the Chief Executive
Officer, Vice President, Finance and Administration, and Vice President,
Corporate Counsel, of the Company to such effect dated as of the Closing Date.
(b) AGREEMENTS AND COVENANTS. As of the Closing Date, the Company shall
have performed in all material respects all obligations and complied in all
material respects with all agreements or covenants of the Company to be
performed or complied with by it at or prior to the Closing Date under this
Agreement, and the Buyer shall have received a certificate to such effect signed
by the Chief Executive Officer, Vice President, Finance and Administration, and
Vice President, Corporate Counsel, of the Company dated as of the Closing Date.
(c) CONSENTS UNDER AGREEMENTS. The consent, approval or waiver of each
person whose consent or approval shall be required in order to permit the
succession by the Buyer pursuant to the Merger to any obligations, rights and
interests of the Company under any contract, indenture, lease, license, permit
or other agreement or instrument listed on Exhibit 9.02(c) shall have been
obtained, and none of such consents, waivers or approvals shall contain any term
or condition which would materially impair the value of the Company to the
Buyer.
(d) COMPANY FINANCIAL MATTERS. The Company's gross margin percentage of
net sales will remain within 350 basis points (+/-) of, and operating expenses
as a percentage of net sales will remain generally consistent with, the average
levels maintained in the first 90 days of fiscal 2002, and the Company's
tangible net worth as of August 31, 2001 shall not be less than $14 million.
(e) NO MATERIAL ADVERSE CHANGE. There shall have been no Material
Adverse Effect with respect to the Company since the Latest Balance Sheet Date.
(f) ARRANGEMENTS WITH VENDORS AND MATERIAL CONTRACTS. The agreements,
arrangements and understandings with the Business Vendors listed on Exhibit
9.02(d) and the Material Contracts listed on listed on Exhibit 9.02(d) shall be
in full force and effect and the Buyer shall have received assurances reasonably
satisfactory to it that such agreements, arrangements, understandings and
Material Contracts will continue in effect, without adverse modifications
(including but not limited to modifications in co-op funds, rebates or marketing
funds), following the Effective Time.
(g) OPINION OF THE COMPANY'S COUNSEL. The Buyer shall have received the
opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., dated as of the
Closing Date, in a form that is customary for transactions of this type and
reasonably acceptable to Buyer.
(h) NO BURDENSOME CONDITION. None of the Requisite Approvals shall
impose any term, condition or restriction upon the Buyer or any of its
subsidiaries that the Buyer
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reasonably determines would materially impair the value of the Company to the
Buyer or be materially burdensome.
(i) NO PARACHUTE PAYMENTS. The Company shall not have taken any action
or made any payments that would not be permitted pursuant to Section 8.05(d).
(j) TERMINATION OF COMPANY STOCK OPTIONS. The Company shall have
provided evidence satisfactory to the Buyer that at least 95% of the outstanding
Company Stock Options have been terminated.
(k) GENERAL RELEASE. Each of the key stockholders and officers of the
Company shall have executed and delivered to the Surviving Corporation a Release
in the form of Exhibit 9.02(k).
(l) INDIAN SUBSIDIARY. The Company shall have delivered evidence that
it has terminated the operations of its Indian subsidiary without cost or
liability to the Company, the Surviving Corporation or the Buyer in excess of
$50,000.
(m) TRADEMARK MATTERS. The Company shall have demonstrated in a manner
reasonably satisfactory to Buyer that it owns and has the right to use and
register the trademarks "Xxxxxxx.xxx" and "Outpost."
(n) CLAIMS UNDER ESCROW AGREEMENTS. The Company shall have filed all
appropriate notices of claim against the General Indemnity Escrow Agreement and
the Specific Indemnity Escrow Agreement executed in connection with the
XXXXxxxxxx.xxx, Inc. acquisition. Such notices of claim shall have been filed on
or before the Closing Date or September 7, 2001, whichever is earlier.
(o) NON-COMPETITION/NON-DISCLOSURE AGREEMENT. The Buyer and Xxxxxx Xxxx
shall have entered into a non-competition/non-disclosure agreement (commencing
as of the Closing Date) in a form reasonably satisfactory to Buyer.
9.03. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to effect the Merger are also subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Buyer in this Agreement which is qualified as to materiality
shall be true and correct and each such representation or warranty that is not
so qualified shall be true and correct in all material respects, in each case as
of the date of this Agreement, as applicable, and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date. The Company shall have received a certificate signed by the Chief
Executive Officer or Chief Financial Officer of the Buyer to such effect dated
as of the Closing Date.
(b) AGREEMENTS AND COVENANTS. As of the Closing Date, the Buyer shall
have performed in all material respects all obligations and complied in all
material respects with all agreements or covenants of the Buyer to be performed
or complied with by it at or prior to the Closing Date under this Agreement, and
the Company shall have received a certificate to such
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effect signed by the Chief Executive Officer, President or Chief Financial
Officer of the Buyer dated as of the Closing Date.
(c) OPINION OF COUNSEL. The Company shall have received the opinion of
Xxxxx, Xxxx & Xxxxx llp , dated as of the Closing Date, in a form that is
customary for transactions of this type and reasonably acceptable to Company.
(d) NO MATERIAL ADVERSE CHANGE. There shall have been no Material
Adverse Effect with respect to the Buyer since December 31, 2000.
(e) NO BURDENSOME CONDITION. None of the Requisite Approvals shall
impose any term, condition or restriction upon the Buyer, the Company or a
Company Subsidiary that the Company reasonably determines would materially
impair the value of the Merger to the stockholders of the Company.
ARTICLE X. TERMINATION, AMENDMENT AND WAIVER
10.01. TERMINATION. This Agreement may be terminated and the Merger and the
other transactions contemplated by this Agreement may be abandoned at any time
prior to the Effective Time, notwithstanding any requisite approval and adoption
of this Agreement and the transactions contemplated in this Agreement by the
stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of
Directors or other governing body of the Buyer and the Company;
(b) by either the Buyer or the Company if (i) the Effective Time shall
not have occurred on or before October 31, 2001 or such later date as the
parties may have agreed upon in writing (the "EXPIRATION DATE"); provided,
however, that the right to terminate this Agreement under this Section 10.01(b)
shall not be available to any party whose failure to fulfill any material
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date;
(c) by either the Buyer or the Company (i) ninety days after the date
on which any request or application for a regulatory approval required to
consummate the Merger shall have been denied or withdrawn at the request or
recommendation of the Governmental Entity which must grant such requisite
regulatory approval, unless within the ninety day period following such denial
or withdrawal a petition for rehearing or an amended application has been filed
with such Governmental Entity; provided, however, that no party shall have the
right to terminate this Agreement pursuant to this Section 10.01(c) (i) if such
denial or request or recommendation for withdrawal shall be due to the failure
of the party seeking to terminate this Agreement to perform or observe the
covenants and agreements of such party set forth herein or (ii) if any court of
competent jurisdiction or other governmental authority shall have issued an
order, decree, ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and nonappealable;
(d) by either the Company or the Buyer if the stockholders of the
Company shall have voted at the Special Meeting on the transactions contemplated
by this Agreement and such vote shall not have been sufficient to approve such
transactions.
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(e) by either the Buyer or the Company (provided that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein) if there shall have been a material breach
of any of the representations or warranties set forth in this Agreement on the
part of the other party (for purposes of this Section 10.01(e), a material
breach shall be deemed to be a breach which has, either individually or in the
aggregate, a Material Adverse Effect on the party making such representations or
warranties (provided, that no effect shall be given to any qualification
relating to materiality or a Material Adverse Effect in such representations and
warranties) or which materially adversely affects consummation of the Merger);
(f) By either the Buyer or the Company (provided, that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein) if there shall have been a material failure
to perform or comply with any of the covenants or agreements set forth in this
Agreement on the part of the other party; or
(g) by the Company, in accordance with the provisions of Section 3.04.
10.02. EFFECT OF TERMINATION; EXPENSES.
(a) In the event of the termination of this Agreement pursuant to
Section 10.01, this Agreement shall forthwith become void (except as set forth
in Section 12.03), and there shall be no liability on the part of any party
hereto, except (i) each party shall remain liable in any action at law or
otherwise for any liabilities or damages arising out of its gross negligence or
willful breach of any provision of this Agreement, or (ii) as otherwise provided
in this Section 10.02.
(b) If this Agreement is terminated as a result of any breach of a
representation, warranty, covenant or other agreement which is caused by the
gross negligence or willful breach of a party hereto, such party shall be liable
to the other party for all out-of-pocket costs and expenses, including, without
limitation, the reasonable fees and expenses of lawyers, accountants and
investment bankers, incurred by such other party in connection with the entering
into of this Agreement and the carrying out of any and all acts contemplated
hereunder ("EXPENSES"). The payment of Expenses is not an exclusive remedy, but
is in addition to any other rights or remedies available to the parties hereto
at law or in equity. Notwithstanding anything to the contrary herein, if (i) the
Buyer makes the payment contemplated in Section 10.02(c) of this Agreement,
Buyer shall not have any further monetary liability to the Company (or its
Subsidiaries), whether for Expenses, breach or otherwise and if (ii) either (x)
payments made by the Company to Buyer under the Stock Warrant Agreement or (y)
the Buyer's profit on sale of the Warrant or the Warrant Shares (as such terms
are defined in the Stock Warrant Agreement) reaches the Profit Cap, as defined
in Section 4 of the Stock Warrant Agreement, the Company shall not have any
further monetary liability to the Buyer (or its Subsidiaries), whether for
Expenses, breach or otherwise.
(c) Buyer hereby agrees to pay to Company, as liquidated damages and in
lieu of any other rights or remedies under this Agreement, a payment in the
amount of $1,000,000 if and only if the Company has terminated this Agreement in
accordance with Section 10.01(e) or 10.01(f) because Buyer has breached any of
its representations or warranties or failed to perform
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or comply with any of its covenants or agreements herein (unless the breach by
Buyer giving rise to such right of termination is non-volitional), to such
extent as to permit such termination.
(d) Except as otherwise provided in this Section 10.02, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expenses, whether or not any of the transactions contemplated by this Agreement
are consummated.
(e) In no event shall any officer, agent or director of the Company,
any Company Subsidiary, Buyer or any Buyer Subsidiary, be personally liable
hereunder for any breach or default by any party in any of its representations,
warranties, covenants and obligations hereunder unless any such breach or
default was caused by the gross negligence or willful misconduct of such
officer, agent or director.
10.03. AMENDMENT. This Agreement may be amended by the parties hereto by
action taken by or on behalf of their respective Boards of Directors or other
governing body at any time prior to the Effective Time. This Agreement may not
be amended except by an instrument in writing signed by the parties hereto.
10.04. WAIVER. At any time prior to the Effective Time, any party hereto
may (i) extend the time for the performance of any obligation or other act of
any other party hereto, (ii) waive any inaccuracy in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby, but
such extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE XI. THE CLOSING
11.01. CLOSING. Subject to the provisions of Article IX and Article X
thereof, the Closing of the transactions contemplated hereby shall take place at
the offices of Xxxxx, Xxxx & Xxxxx llp, Xxx Xxxx Xxxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx at 10:00 a.m. on a date specified by the Buyer at least five
business days prior to such date. The Closing Date shall be as soon as
practicable after the last required approval for the Merger has been obtained
and the last of all required waiting periods under such approvals have expired,
or at such other place, date or time as the Buyer and the Company may mutually
agree upon.
11.02. DELIVERIES AT CLOSIN. At the Closing the Company shall deliver to
the Buyer the opinions, certificates, and other closing documents and
instruments required to be delivered under Article IX hereof.
ARTICLE XII. GENERAL PROVISIONS
12.01. ALTERNATIVE STRUCTURE. Notwithstanding anything to the contrary
contained in this Agreement, prior to the Effective Time, the Buyer shall be
entitled to revise the structure of the Merger and the other transactions
contemplated hereby and thereby, provided that (i) there are no material adverse
federal or state income tax consequences to the Company as a result of
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the modification; (ii) there are no material adverse changes to the benefits and
other arrangements provided to or on behalf of the Company's directors, officers
and other employees; and (iii) such modification will not be likely to delay
materially or jeopardize receipt of any required regulatory approvals or other
consents and approvals relating to the consummation of the Merger. This
Agreement and any related documents shall be appropriately amended in order to
reflect any such revised structure.
12.02. ASSIGNMENT OF RIGHT TO PURCHASE. The Buyer shall have the right to
assign the right to consummate the Merger under this Agreement to a subsidiary
of the Buyer, provided, however, that the Buyer shall remain liable for payment
of the Purchase Price.
12.03. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All of the
representations and warranties of the parties contained in this Agreement (or in
any document delivered or to be delivered pursuant to this Agreement or in
connection with the Closing) shall expire on, and be terminated and extinguished
at, the Effective Time other than covenants that by their terms are to be
performed after the Effective Time (including without limitation the covenants
set forth in Sections 6.04(b) and 10.02 hereof), provided that no such
representations, warranties or covenants shall be deemed to be terminated or
extinguished so as to deprive the Buyer, the Buyer Sub or the Company (or any
director, officer or controlling person thereof) of any defense at law or in
equity which otherwise would be available against the claims of any person,
including, without limitation, any shareholder or former shareholder of either
the Buyer or the Company.
12.04. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified in a notice given in
accordance with this Section 12.04):
if to the Buyer:
PC Connection, Inc.
Xxxxx 000X
000 Xxxxxxx Xxxx
Xxxxxxxxx, Xxx Xxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxxxxxx
with a required copy to:
Xxxxx Xxxx & Xxxxx LLP
Xxx Xxxx Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxx
Xxxxx Xxxxxxxxx Xxxxx
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if to the Company:
Cyberian Outpost, Inc.
00 Xxxxx Xxxx Xxxxxx
Xxxx, Xxxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: President and CEO
with a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky & Popeo
Xxx Xxxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxx Xxxxxxxxxx
Xxxx Xxxxxxxx
12.05. 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 by this Agreement is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement be consummated as
originally contemplated to the fullest extent possible.
12.06. ENTIRE AGREEMENT. This Agreement (including the Disclosure Schedules
and Exhibits hereto) constitutes the entire agreement among the parties with
respect to the subject matter hereof and supersedes all prior agreements and
undertakings, both written and oral, among the parties, or any of them.
12.07. ASSIGNMENT. Except as provided in Section 12.02, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other party. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
12.08. PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
12.09. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that the provisions contained in this Agreement
are not performed in accordance with its specific terms or are otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and
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to enforce specifically the terms and provisions thereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
12.10. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New Hampshire applicable to contracts
executed in and to be performed in that State. All actions and proceedings
arising out of or relating to this Agreement shall be heard and determined in
any state or federal court sitting in the State of New Hampshire.
12.11. HEADINGS. The table of contents and the descriptive headings
contained in this Agreement are included for convenience of reference only and
shall not affect in any way the meaning or interpretation of this Agreement.
12.12. INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits, Annexes or Schedules, such reference shall be to a Section
of or Exhibit, Annex or Schedule to this Agreement unless otherwise indicated.
Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." The phrases "the date of this Agreement," "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to be May 29, 2001.
12.13. COUNTERPARTS. This Agreement may be executed (including by
facsimile) in one or more counterparts, and by the different parties hereto in
separate counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement.
* * * * *
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IN WITNESS WHEREOF, the Buyer and the Company have caused this Agreement to
be executed as a sealed instrument as of the date first written above by their
respective officers thereunto duly authorized.
THE BUYER:
PC CONNECTION, INC.
By: /s/ Xxxxx X. Xxxxxx
-------------------
Name: Xxxxx X. Xxxxxx
Title: President
THE COMPANY:
CYBERIAN OUTPOST, INC.
By: /s/ Xxxxxx Xxxx
---------------
Name: Xxxxxx Xxxx
Title: President & CEO
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