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Merger Agreement
By and Among
Fry's Electronics, Inc.,
FCOP Acquisition, Inc.
and
Cyberian Outpost, Inc.
Dated as of September 4, 2001
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<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE I. DEFINITIONS..................................................................................... 2
1.01. Certain Definitions................................................................................. 2
ARTICLE II. THE MERGER..................................................................................... 6
2.01. The Merger.......................................................................................... 6
2.02. Effective Time...................................................................................... 7
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
ARTICLE III. CONVERSION OF SHARES.......................................................................... 7
3.01. Conversion.......................................................................................... 7
3.02. Conversion of Stock................................................................................. 8
3.03. Procedures for Exchange of the Company Common Stock for Merger Consideration........................ 8
3.04. Buyer Sub Common Stock.............................................................................. 9
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................. 9
4.01. Organization and Qualification...................................................................... 10
4.02. Organizational Documents; By-Laws; Corporate Records................................................ 10
4.03. Capitalization of Company........................................................................... 11
4.04. Ownership of Affiliates............................................................................. 11
4.05. Authority........................................................................................... 12
4.06. No Conflict......................................................................................... 12
4.07. Consents and Approvals.............................................................................. 13
4.08. Absence of Certain Payments......................................................................... 13
4.09. Compliance.......................................................................................... 13
4.10. Title to Assets..................................................................................... 13
4.11. Condition of Assets................................................................................. 14
4.12. Sufficiency of Property and Assets to Conduct Business.............................................. 14
4.13. Financial Statements................................................................................ 14
4.14. Company Reports..................................................................................... 15
4.15. Inventory........................................................................................... 15
4.16. Relationship with Vendors, Manufacturers, and Resellers............................................. 15
4.17. Authorized Representative........................................................................... 15
4.18. Return Policy; Warranty and Product Liability Claims................................................ 16
4.19. Customer Complaints................................................................................. 16
4.20. Customer Lists...................................................................................... 16
4.21. Accounts Receivable; Accounts Payable............................................................... 16
4.22. No Undisclosed Liabilities.......................................................................... 16
4.23. Absence of Certain Changes or Events................................................................ 17
4.24. No Bonuses or Other Payments to Employees, Directors, Officers...................................... 17
4.25. Agreements, Contracts and Commitments............................................................... 18
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4.26. Contracts in Full Force and Effect.................................................................. 19
4.27. Environmental Liability............................................................................. 20
4.28. Absence of Litigation............................................................................... 20
4.29. Employee Benefit Programs........................................................................... 20
4.30. Employees........................................................................................... 21
4.31. Labor Matters....................................................................................... 21
4.32. Real Property and Leases............................................................................ 21
4.33. Taxes and Tax Returns............................................................................... 22
4.34. Insurance........................................................................................... 24
4.35. State Takeover Laws................................................................................. 24
4.36. Competing Interests................................................................................. 24
4.37. Interests of Company Insiders....................................................................... 24
4.38. Intellectual Property............................................................................... 25
4.39. Company Software.................................................................................... 25
4.40. Investment Banker................................................................................... 27
4.41. Company Information................................................................................. 27
4.42. Disclosure.......................................................................................... 27
4.43. Forbearance and Deferral Agreements................................................................. 27
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER......................................................... 27
5.01. Corporate Organization.............................................................................. 27
5.02. Authority........................................................................................... 28
5.03. No Conflict......................................................................................... 28
5.04. Consents and Approvals.............................................................................. 28
5.05. Funds............................................................................................... 28
5.06. Buyer Information................................................................................... 28
5.07. Buyer Sub........................................................................................... 28
5.08. Disclosure.......................................................................................... 29
ARTICLE VI. COVENANTS OF THE COMPANY....................................................................... 29
6.01. Conduct of Business Pending the Merger.............................................................. 29
6.02. Current Information................................................................................. 32
6.03. Other Financial Information......................................................................... 33
6.04. Access to Information............................................................................... 33
6.05. Approval of Company's Stockholders.................................................................. 34
6.06. Failure to Fulfill Conditions....................................................................... 34
6.07. Reasonable Best Efforts............................................................................. 34
6.08. Update of Disclosure Schedules...................................................................... 34
6.09. No Solicitation..................................................................................... 35
ARTICLE VII. COVENANTS OF BUYER............................................................................ 35
7.01. Conduct of Business Pending the Merger.............................................................. 35
7.02. Failure to Fulfill Conditions....................................................................... 35
7.03. Reasonable Best Efforts............................................................................. 35
ARTICLE VIII. REGULATORY AND OTHER MATTERS................................................................. 36
8.01. Certain Filings, Consents and Arrangements.......................................................... 36
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8.02. Regulatory Approvals............................................................................... 36
8.03. Legal Conditions to Merger......................................................................... 37
8.04. Employee Matters................................................................................... 37
8.05. Extension of Credit; Cross Default................................................................. 37
8.06. Director and Officer Indemnification; Liability Insurance.......................................... 37
8.07. Public Announcements............................................................................... 38
8.08. Additional Agreements.............................................................................. 38
ARTICLE IX. CONDITIONS TO THE MERGER....................................................................... 38
9.01. Conditions to Each Party's Obligations to Effect the Merger........................................ 38
9.02. Conditions to Obligations of the Buyer............................................................. 39
9.03. Conditions to Obligations of the Company........................................................... 39
ARTICLE X. TERMINATION, AMENDMENT AND WAIVER............................................................... 40
10.01. Termination........................................................................................ 40
10.02. Effect of Termination; Expenses.................................................................... 41
10.03. Amendment.......................................................................................... 42
10.04. Waiver............................................................................................. 42
ARTICLE XI. THE CLOSING.................................................................................... 42
11.01. Closing............................................................................................ 42
11.02. Deliveries At Closing.............................................................................. 43
ARTICLE XII. GENERAL PROVISIONS............................................................................ 43
12.01. Alternative Structure.............................................................................. 43
12.02. Assignment of Right to Purchase.................................................................... 43
12.03. Survival of Representations, Warranties and Agreements............................................. 43
12.04. Notices............................................................................................ 43
12.05. Severability....................................................................................... 45
12.06. Entire Agreement................................................................................... 45
12.07. Assignment......................................................................................... 45
12.08. Parties in Interest................................................................................ 45
12.09. Specific Performance............................................................................... 45
12.10. Governing Law...................................................................................... 45
12.11. Headings........................................................................................... 46
12.12. Interpretation..................................................................................... 46
12.13. Counterparts....................................................................................... 46
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Merger Agreement
This Merger Agreement, dated as of September 4, 2001 (this "Agreement"), by
and among Fry's Electronics, Inc., a California corporation (the "Buyer"), FCOP
Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of the
Buyer (the "Buyer Sub"), and Cyberian Outpost, Inc., a Delaware corporation (the
"Company").
WHEREAS, the Company and PC Connection, Inc., a Delaware corporation
("PCC"), are parties to a Merger Agreement, dated as of May 29, 2001 (the "PCC
Merger Agreement");
WHEREAS, in connection with the execution of the PCC Merger Agreement, (i)
the Company and PCC entered into a Stock Warrant Agreement, dated as of May 29,
2001 (the "Stock Warrant Agreement"); (ii) the Company and Merrimack Services
Corporation, a Delaware corporation and an affiliate of PCC ("MSC"), entered
into a Credit and Supply Agreement, Security Agreement and related Working
Capital Promissory Note, each dated as of May 29, 2001 (the "Credit Agreement,"
the "Security Agreement" and the "Note," respectively); and (iii) certain
stockholders of the Company granted irrevocable proxies in favor of PCC with
respect to the transactions contemplated by the PCC Merger Agreement (the
"Proxies" and, collectively with the Merger Agreement, the Stock Warrant
Agreement, the Credit Agreement, the Security Agreement and the Note, the "PCC
Transaction Documents");
WHEREAS, the Company desires to enter into a merger agreement with the
Buyer;
WHEREAS, PCC is willing to terminate the PCC Transaction Documents and
consent to the Company's execution of this Agreement, subject to the terms and
conditions of a certain termination agreement of even date herewith to be
entered into by the Company, PCC, MSC and the Buyer;
WHEREAS, the Boards of Directors of the Buyer, the Buyer Sub and the
Company have determined that it is in the best interests of their respective
companies and their shareholders to enter into the Agreement and consummate the
business combination transactions provided for herein, including the merger (the
"Merger") of the Buyer Sub with and into the Company, subject to the terms and
conditions set forth herein;
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, Darryl Peck, President and Chief Executive Officer of the
Company, is concurrently delivering to the Buyer an irrevocable proxy, in
substantially the form attached hereto as Exhibit A, pursuant to which among
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other things, Mr. Peck 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, the
Buyer and the Company agree as follows:
<PAGE>
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) "Business Day" shall mean any day on which banks are not
required or authorized to close in the City of Boston.
(g) "Buyer Board" shall have the meaning defined in Section
5.02.
(h) "Certificate" shall have the meaning defined in Section
3.02(a).
(i) "Certificate of Merger" shall have the meaning defined in
Section 2.02.
(j) "Closing" shall have the meaning defined in Section 2.02.
(k) "Closing Date" shall have the meaning defined in Section
2.02.
(l) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(m) "Company" shall mean Cyberian Outpost, Inc. or, after the
Merger, the Surviving Corporation.
(n) "Company Board" shall have the meaning defined in Section
4.05.
(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.
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(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 Plans" shall have the meaning defined in Section 4.29.
(u) "Company Reports" shall have the meaning defined in Section 4.14.
(v) "Company Stock Option" shall have the meaning defined in Section
4.03(c).
(w) "Company Stock Option Plans" shall have the meaning defined in
Section 4.03(b).
(x) "Constituent Corporation" means the Surviving Corporation and the
Buyer Sub, collectively.
(y) 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.
(z) "Currently Conducted," when referring to the Business, shall
include the Business as it is now conducted or contractually committed to be
conducted.
(aa) "DGCL" shall mean the Delaware General Corporation Law, as
amended.
(bb) "Deferred Intercompany Transaction" shall have the meaning set
forth in Treasury Regulation (S)1.1502-13.
(cc) "Effective Time" shall have the meaning defined in Section 2.02.
(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,
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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 Environmental 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.
(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) "Expiration Date" shall have the meaning defined in Section
10.01(b).
(ii) "Forbearance and Deferral Agreement" shall have the meaning
defined in Section 4.43.
(jj) "Governmental Entity" shall have the meaning defined in Section
4.07.
(kk) "Intellectual Property" shall have the meaning defined in Section
4.38(a).
(ll) "Latest Balance Sheet Date" shall have the meaning defined in
Section 4.13(b).
(mm) "Latest Balance Sheets" shall have the meaning defined in Section
4.13(b).
(nn) "Liabilities" shall have the meaning defined in Section 4.22.
(oo) "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,
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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.
(pp) "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 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.
(qq) "Material Contracts" shall have the meaning defined in Section
4.26.
(rr) "Merger" shall have the meaning defined in the Preamble.
(ss) "Merger Consideration" shall have the meaning defined in Section
3.01.
(tt) "Merger Letter of Transmittal" shall have the meaning defined in
Section 3.03(b).
(uu) "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 Company Agreement.
(vv) "Party" shall mean each of the Company, the Buyer and the Buyer
Sub.
(ww) "Paying Agent" shall have the meaning defined in Section
3.03(a).
(xx) 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.
(yy) "Previously Disclosed" shall mean disclosed in a Company
Disclosure Schedule dated on or prior to the date hereof.
(zz) "Proxy Statement" shall have the meaning defined in Section
4.41.
(aaa) "Requisite Approvals" shall have the meaning defined in Section
9.01(c).
(bbb) "Rights" shall mean warrants, options, rights, convertible
securities, stock appreciation rights and other arrangements or commitments
which obligate an entity to issue or
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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.
(ccc) "Secured Promissory Note" shall have the meaning defined in
Section 8.05.
(ddd) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(eee) "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 amended; the Trust Indenture Act of 1939, as amended; and the
rules and regulations of the SEC promulgated under each of said acts.
(fff) "Special Meeting" shall have the meaning defined in Section
6.05.
(ggg) The terms "subsidiary" or "subsidiaries" of the 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.
(hhh) "Surviving Corporation" shall have the meaning defined in
Section 2.01.
(iii) "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).
(jjj) "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.
(kkk) "Tweeter Joint Venture" means Tweeter@outpost.com, LLC a joint
venture of Cyberian Outpost, Inc. and Tweeter Home Entertainment Group, Inc.
(lll) "WARN Act" shall have the meaning defined in Section 4.31(b).
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) Buyer Sub shall be merged with and into the
Company with the Company continuing as the surviving corporation (the "Surviving
Corporation"); and (b) 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 Surviving
Corporation.
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2.02. Effective Time. The Merger shall be effected by the filing of a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware in accordance 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 Certificate
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, except that Darryl Peck and Christopher J. Walls shall be President
and Chief Executive Officer, and Vice President, Corporate Counsel,
respectively, of the Surviving Corporation.
2.05. Additional Actions. If, at any time after the Effective Time, the
Constituent 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 the Constituent
Corporation, title to and possession of any property or right of the Company
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, the Company and its
proper officers and directors shall be deemed to have granted to the Constituent
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 the Constituent Corporation and otherwise to carry out the purposes of
this Agreement; and the proper officers and directors of the Constituent
Corporation are fully authorized in the name of the Company 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.
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 (the "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, the 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 the right to receive $0.25 in
cash (the "Merger Consideration"), payable to the holder thereof, without
interest, upon the surrender of the Certificate formerly representing such
share.
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3.02. Conversion of Stock.
(a) All the Company Common Stock converted into the right to
receive the Merger Consideration 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 the
Merger Consideration into which the Company Common Stock represented by such
Certificate has been converted.
(b) 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 the Buyer or owned beneficially by any subsidiary of the Buyer
shall be cancelled and no cash, stock or other property shall be delivered in
exchange therefor.
(c) The provisions of Section 3.01 are based on the assumption
that there will be no more than 36,072,267 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 increase in this number as of the
Effective Time, the provisions of Section 3.01, including the Merger
Consideration, will be appropriately adjusted.
3.03. Procedures for Exchange of the Company Common Stock for Merger
Consideration.
(a) Prior to the Effective Time, the Buyer shall designate a
bank or trust company acceptable to the Company to act as paying agent in the
Merger (the "Paying Agent"). When and as needed, the Buyer shall provide the
Paying Agent with immediately available funds in an amount necessary to make the
payments contemplated by this Article III.
(b) As soon as reasonably practicable after the Effective Time,
the Paying Agent shall mail to each record holder of any Certificate whose
shares of Company Common Stock were converted into the right to receive the
Merger Consideration a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Paying Agent and shall be
in such form and have such other provisions as the Buyer or Buyer Sub may
reasonably specify) (the "Merger Letter of Transmittal") and instructions for
use in effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender to the Paying Agent of a Certificate or
Certificates, together with such Merger Letter of Transmittal duly executed, and
any other required documents, the holder of such Certificate or Certificates
shall be entitled to receive in exchange therefor the Merger Consideration less
any applicable withholding taxes, and such Certificate or Certificates shall
forthwith be cancelled. No interest shall be paid or accrued for the benefit of
holders of the Certificates on the consideration payable upon the surrender of
the Certificates. 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 the Buyer,
the posting by such person of a bond in such amount as the Buyer may direct as
indemnity against any claim that may be made against it with respect to
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such Certificate, the Paying Agent will issue in exchange for such lost, stolen
or destroyed Certificate the Merger Consideration deliverable in respect
thereof. If payment is to be made to a person other than the person in whose
name the Certificate surrendered is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay to the Paying Agent any transfer or other taxes required by
reason of the payment to a person other than the registered holder of the
Certificate surrendered or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable.
(c) At any time following twelve (12) months after the Effective Time,
the Buyer (or, at the Buyer's option, the Surviving Corporation) shall be
entitled to require the Paying Agent to deliver to it any funds (including any
interest received with respect thereto) which have been made available to the
Paying Agent and which have not been disbursed to holders of Certificates, and
thereafter such holders shall be entitled to look to the Surviving Corporation
(subject to abandoned property, escheat or other similar laws) only as general
creditors thereof with respect to the cash payable upon due surrender of their
Certificates. Notwithstanding the foregoing, none of the Buyer, the Buyer Sub
or the Paying 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. The
Surviving Corporation shall pay all charges and expenses, including those of the
Paying Agent, in connection with the exchange of cash for shares of Company
Common Stock. Until surrendered in accordance with the provisions of this
Section, each Certificate (other than Certificates representing shares of
Company Common Stock held by the Buyer or any direct or indirect subsidiary of
the Buyer, the Company or any of its subsidiaries) shall represent for all
purposes only the right to receive the Merger Consideration in cash multiplied
by the number of shares evidenced by such Certificate, without any interest
theron.
(d) From and after the Effective Time, there shall be no transfers on
the stock transfer books of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates formerly representing shares of
Company Common Stock are presented to the Surviving Corporation or the Paying
Agent, they shall be cancelled and exchanged for the Merger Consideration as
provided herein.
3.04. Buyer Sub Common Stock. Each share of common stock of the 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.
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 the Buyer (the "Company Disclosure
Schedule"), the Company hereby represents and warrants to the Buyer as follows:
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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.
(b) Outpost Holdings LLC ("Holdings Sub"), OutpostPro.com,
Incorporated ("CMP Sub"), Tweeter@Outpost.com, LLC (the "Tweeter Joint
Venture"), and Outpost Vendor Supply A ("Vendor Sub") are the only direct
subsidiaries of the Company. CMPExpress.com 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 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 made available to the 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-
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laws. The minute books of the Company, a copy of which has been made available
to the Buyer, contain in all material respects true and correct records of all
meetings held during the period beginning on January 1, 1998 and ending on April
12, 2001 and true and complete records of all other corporate actions taken of
the Company's stockholders and board of directors (including committees of the
board of directors) during such period.
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 (10,000,000) shares of Preferred Stock, $0.01 par value per share, of
which 31,693,545 shares of common stock and no shares of Preferred Stock are
issued and outstanding.
(b) Except (i) for options to acquire not more than 4,022,015 shares
of Company Common Stock pursuant to stock options outstanding as of the date
hereof under the Company's 1997 and 1998 Incentive Stock Plans and the Company's
Restated 1998 Employee, Director and Consultant Stock Plan (the "Company Stock
Option Plans"), and (ii) 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
or Rights in, the Company. There are no outstanding contractual obligations of
the Company to repurchase, redeem or otherwise acquire any Equity Interests or
Rights 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 options for the
purchase of Company Common Stock ("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.
(d) The Company Board has taken reasonable steps to ensure that all
outstanding Company Stock Options and all Company Stock Option Plans shall
terminate and be of no further force and effect not later than immediately prior
to the Effective Time.
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,
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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, including,
without limitation, the irrevocable proxy granted by Darryl Peck to the Buyer
with respect to Mr. Peck's shares of Company Common Stock, 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"), including, without limitation, for all
purposes of and under Section 203 of the DGCL, 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) except as set forth on
Section 4.06 of the Company Disclosure Schedule, 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 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.
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(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 Hart-Scott Rodino
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. Except as disclosed on Section 4.09 of the Company
disclosure Schedule, 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.
4.10. Title to Assets. Except as set forth in Section 4.10(b) of the
Company Disclosure Schedule, 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
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delinquent 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 the 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 the Buyer to conduct the Business in all material respects as Currently
Conducted. The Company is not, and the 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 May
31, 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 otherwise and whether due or to become
due) of the Company as of February 28, 2001 and May 31, 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
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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
July 31, 2001 balance sheet is attached as Section 4.13(b) of the Company
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, from and after such
filing, 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 March 1,
2001 to the date hereof. The Company does not now have a material dispute with
any Business Vendor. Except as set forth on Section 4.16 of the Company
Disclosure Schedule, 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, except as set forth on Section
4.16 of the Company Disclosure Schedule, 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.
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
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Section 4.17 of the Company 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 the 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 July 31, 2001, the Company had a total of
approximately 1.4 million customers of which approximately 800,000 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 Latest Balance Sheet Date; (c) obligations to be performed in
the ordinary course of business, consistent with past practice, under the
agreements, contracts, plans, leases, instruments, arrangements, licenses and
commitments set forth in Attachment 4.25 to Section 4.25 of the
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Company Disclosure Schedule or under agreements not required to be disclosed
pursuant to Section 4.25 and (d) Liabilities disclosed in the 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 as set forth on Section 4.24 of the Company Disclosure
Schedule and 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. Except as set forth on Schedule
4.26 of the Company Disclosure Schedule, all agreements, contracts, plans,
leases, instruments, arrangements, licenses and commitments set forth on
Attachment 4.25 to Section 4.25 of the Company Disclosure Schedule are valid and
in full force and effect, and those designated with an "M" on Attachment 4.25 to
Section 4.25 of the Company Disclosure Schedule are Material Contracts. For the
purposes of this Agreement, "Material Contracts" are those agreements,
contracts, plans, leases, instruments, arrangements, licenses or commitments the
breach, termination or loss of performance of which could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.
Except as set forth on Schedule 4.26 of the Company Disclosure Schedule, 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. Except as set forth on Schedule 4.26 of the Company Disclosure
Schedule, no notice has been received by the Company with respect to the
possible termination or modification of any Material Contract, and the Company
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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 made available to the Buyer a true, correct and complete
copy of each contract listed on Attachment 4.25 to 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 the 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
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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 any 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, 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.
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4.33. Taxes and Tax Returns. Except as disclosed in Section 4.33 of the
Company Disclosure Schedule, the Company represents to the 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 have filed all
Tax Returns for the fiscal year ended February 28, 2001 ("2001 Tax Returns"),
whether or not such 2001 Tax returns are or have become due as of the Closing
Date. All such Tax Returns were (or will be) correct and complete in all
respects. 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 any of 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 asserting that the Company or a
subsidiary 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 the 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
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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 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 July 31, 2001, the
amount of the Company's capital account in the Tweeter Joint Venture was
$3,330,372. The Company has a 50% percent interest in the profits, and a 50%
percent interest in the losses, of the Tweeter Joint Venture.
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4.34. Insurance. The Company has made available to the 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 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 the 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 the Company Financial
Statements delivered to the Buyer hereunder.
4.35. State Takeover Laws. The Company Board has approved the transactions
contemplated by this Agreement, including the grant by Mr. Peck to the Buyer of
an irrevocable proxy with respect to his shares of Company Common Stock, and
taken all other requisite action such that the provisions of the laws of the
DGCL 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 Contract
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 the
Buyer.
4.37. Interests of Company Insiders. Except as set forth in Section 4.37
of the Company Disclosure Schedule, 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 or owes any money to the Company.
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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,
"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
pending and 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 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) Except as set forth in Section 4.38(d) of the Company Disclosure
Schedule, 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 Date 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 the 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
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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
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 the 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
Date is sufficient as of the Closing Date for the uses of the Business as it is
Currently Conducted.
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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. If any Proxy Statement is required for the
consummation of the Merger under applicable laws, such statement shall comply in
all material respects with applicable Securities Laws, and shall not at the time
it is mailed or at the time of the Special Meeting (defined in Section 6.05)
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
provided, that no representation or warranty is being made by the Company with
respect to any information with respect to the Buyer or its Affiliates supplied
by the Buyer or any Affiliate of the Buyer to the Company specifically for
inclusion in the Proxy Statement. The letter to stockholders, notice of meeting,
proxy statement and form of proxy, or any information statement, as the case may
be, to be distributed to stockholders in connection with the Merger, or any
schedules required to be filed with the SEC in connection therewith, are
collectively referred to herein as the "Proxy Statement". As soon as practicable
after the date hereof, the Company shall prepare and file any other filings
required under the Securities Laws or any other federal or state securities,
takeover or Blue Sky laws relating to this Agreement and the transactions
contemplated by this Agreement, including the Merger.
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 the 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, the Buyer.
4.43. Forbearance and Deferral Agreements. Section 4.43 of the Company
Disclosure Schedule sets forth the following information with respect to each
creditor of the Company who, as of the date hereof, has entered into a
Forbearance and Deferral Agreement, a form of which agreement is set forth on
Attachment 4.43 to Section 4.43 of the Company Disclosure Schedule (a
"Forbearance and Deferral Agreement"): (A) the name of such creditor, and (B)
the dollar amount subject to such Forbearance and Deferral Agreement.
ARTICLE V. Representations And Warranties Of Buyer
The 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 California.
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,
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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. 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.
5.04. 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, 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; 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 Hart-
Scott Rodino 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.
5.05. Funds. The Buyer has the funds necessary and sufficient to
consummate the Merger and pay the Merger Consideration in accordance with the
terms of this Agreement.
5.06. Buyer Information. The information relating to the Buyer to be
contained in the Proxy Statement (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 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, the Buyer makes and
will make no representation or warranty with respect to any information supplied
by the Company or any Affiliate of the Company which is contained in any of the
foregoing documents.
5.07. Buyer Sub.
(a) Buyer Sub is 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 the Buyer free and clear of any Lien,
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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 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.
5.08. Disclosure. No representation or warranty contained in this
Agreement 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, 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 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 Company Disclosure 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
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publicly announce an intention to do, any of the following without the prior
written consent of the 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 upon exercise of the Company Stock Options;
(iii) make any distribution (by way of dividend or otherwise)
with respect to its Equity Interests;
(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;
(x) authorize any capital expenditures of more than $10,000
in the aggregate (other than expenditures listed in Section 6.01(b)(x) of
the Company Disclosure Schedule and previously approved by the Buyer);
(xi) (A) (x) adopt, amend, renew or terminate any plan or any
agreement, arrangement, 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
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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 the Buyer;
(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
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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 the 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
Section of the Company Disclosure 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 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 a Company 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 the Buyer and report the
general status of its ongoing operations at such times as the Buyer may
reasonably request. The 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 the 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 the Buyer such
information with respect to such events as the 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
the 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 the Buyer its Annual Report on Form 10-
K. The Company will deliver to the 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 the Buyer a consolidated balance
sheet and a consolidated statement of operations, without related notes, for
such month. The Company will provide the Buyer with an updated list
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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, the Company will furnish to the
Buyer copies of each annual, interim or special audit of the books of the
Company and the Company's Affiliates made by its independent accountants