EXHIBIT 10.1
SEPARATION AND
DISTRIBUTION AGREEMENT
BY AND BETWEEN
CREATIVE COMPUTERS, INC.
AND
uBID, INC.
(AS AMENDED)
DATED AS OF
DECEMBER 7, 1998
SEPARATION AND DISTRIBUTION AGREEMENT
-------------------------------------
(AS AMENDED)
THIS SEPARATION AND DISTRIBUTION AGREEMENT, dated as of December 7, 1998,
is by and between Creative Computers, Inc. ("CCI") and uBid, Inc. ("uBid").
Capitalized terms used herein and not otherwise defined shall have the
respective meanings assigned to them in Article I hereof.
WHEREAS, the Board of Directors of CCI has determined that it is
appropriate and desirable, on the terms and conditions contemplated hereby, to
cause uBid to offer and sell for its own account in the IPO (as defined below) a
limited number of shares of uBid Common Stock, and subsequently for CCI to
distribute to holders of shares of CCI Common Stock the outstanding shares of
uBid Common Stock owned directly or indirectly by CCI;
WHEREAS, the Distribution (as defined below) is intended to qualify as a
tax-free spin-off under Section 355 of the Code (as defined below);
WHEREAS, CCI has provided various services to uBid on an informal basis and
in connection with the separation of CCI and uBid the parties desire to
formalize certain relationships which will continue on a transitional basis; and
WHEREAS, it is appropriate and desirable to set forth the principal
corporate transactions required to effect the separation, the IPO and the
Distribution and certain other agreements that will govern certain matters
relating to the IPO and the Distribution and the relationship of CCI and uBid
following the IPO and the Distribution.
NOW, THEREFORE, for good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties, intending to be legally bound, agree
as follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms shall have the
following meanings:
1.1. ACTION means any demand, action, suit, countersuit, arbitration,
inquiry, proceeding or investigation by or before any federal, state, local,
foreign or international Governmental Authority or any arbitration or mediation
tribunal.
1.2. AFFILIATE of any Person means a Person that controls, is controlled
by, or is under common control with such Person. As used herein, "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such entity, whether through
ownership of voting securities or other interests, by contract or otherwise.
1
1.3. AGENT means the distribution agent to be appointed by CCI to
distribute to the stockholders of CCI pursuant to the Distribution the shares of
uBid Common Stock held by CCI.
1.4. AGREEMENT means this Separation and Distribution Agreement, including
all of the Schedules hereto.
1.5. ANCILLARY AGREEMENTS means the Services Agreement,
Internet/Telecommunications Agreement, the Joint Marketing Agreement and
Assignment and License Agreement each in the form set forth in Schedule 1.5.
1.6. APPLICABLE DEADLINE has the meaning set forth in Section 8.3(b).
1.7. ARBITRATION ACT means the United States Arbitration Act, 9 U.S.C. 1-
14, as the same may be amended from time to time.
1.8. ARBITRATION DEMAND DATE has the meaning set forth in Section 8.3(a).
1.9. ARBITRATION DEMAND NOTICE has the meaning set forth in Section 8.3(a).
1.10. CCI COMMON STOCK means the Common Stock, $.01 par value per share, of
CCI.
1.11. CCI GROUP means CCI and each Person (other than any member of the
uBid Group) that is an Affiliate of CCI immediately after the Closing Date.
1.12. CCI INDEMNITEES has the meaning set forth in Section 5.2.
1.13. CHANGE OF CONTROL of any Person means any of the following: (a) the
consummation of a merger, consolidation, or similar business combination
involving such Person, or a sale or other disposition of all or substantially
all of the assets of such Person; (b) the acquisition by any individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
such Act) of 40% or more of either (i) the then outstanding shares of common
stock of such Person, or (ii) the combined voting power of the then outstanding
voting securities of such Person entitled to vote generally in the election of
directors; or (c) individuals who, as of the Distribution Date, constitute the
Board of Directors of such Person (the "Incumbent Board") cease for any reason
to constitute at least a majority of such Board; provided, however, that any
-------- -------
individual becoming a director subsequent to the Distribution Date (other than
any such individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by
or on behalf of any Person other than the Board) whose election or nomination
for election by the stockholders of such Person was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board.
1.14. CLOSING means the receipt by uBid of the net proceeds of the IPO in
accordance with the terms of the Underwriting Agreement.
2
1.15. CLOSING DATE means the first time at which any shares of uBid Common
Stock are sold to the Underwriters pursuant to the IPO in accordance with the
terms of the Underwriting Agreement.
1.16. CODE means the Internal Revenue Code of 1986, as amended.
1.17. COMMISSION means the United States Securities and Exchange
Commission.
1.18. CONSENTS means any consent, waiver or approval from, or notification
requirements to, any third party.
1.19. CPR means the Center for Public Resources.
1.20. DISTRIBUTION means the distribution by CCI on a pro rata basis to
holders of CCI Common Stock of all of the outstanding shares of uBid Common
Stock owned by CCI on the Distribution Date as set forth in Article IV.
1.21. DISTRIBUTION DATE means the date determined pursuant to Section 3.1
on which the Distribution occurs.
1.22. EFFECTIVE IPO DATE means the date on which the IPO Registration
Statement is declared effective by the Commission.
1.23. EFFECTIVE TIME means 5:00 p.m., Eastern Standard Time or Eastern
Daylight Time (whichever shall be then in effect), on the Distribution Date.
1.24. ENVIRONMENTAL LAW means any federal, state, local, foreign or
international statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, common law (including tort and environmental
nuisance law), legal doctrine, order, judgment, decree, injunction, requirement
or agreement with any Governmental Authority, now or hereafter in effect
relating to health, safety, pollution or the environment (including ambient air,
surface water, groundwater, land surface or subsurface strata) or to emissions,
discharges, releases or threatened releases of any substance currently or at any
time hereafter listed, defined, designated or classified as hazardous, toxic
waste, radioactive or dangerous, or otherwise regulated, under any of the
foregoing, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of any such substances,
including the Comprehensive Environmental Response, Compensation and Liability
Act, the Superfund Amendments and Reauthorization Act and the Resource
Conservation and Recovery Act and comparable provisions in state, local, foreign
or international law.
1.25. ENVIRONMENTAL LIABILITIES means all Liabilities relating to, arising
out of or resulting from any Environmental Law or contract or agreement relating
to environmental, health or safety matters (including all removal, remediation
or cleanup costs, investigatory costs, governmental response costs, natural
resources damages, property damages, personal injury damages, costs of
compliance with any settlement, judgment or other determination of Liability and
indemnity, contribution or similar obligations) and all costs and expenses,
interest, fines, penalties or other monetary sanctions in connection therewith.
3
1.26. ESCALATION NOTICE has the meaning set forth in Section 8.2.
1.27. EXCHANGE ACT means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
1.28. GOVERNMENTAL APPROVAL means any notice, report or other filing to be
made, or any consent, registration, approval, permit or authorization to be
obtained from, any Governmental Authority.
1.29. GOVERNMENTAL AUTHORITY shall mean any federal, state, local, foreign
or international court, government, department, commission, board, bureau,
agency, official or other regulatory, administrative or governmental authority.
1.30. INDEMNIFYING PARTY has the meaning set forth in Section 5.4(a).
1.31. INDEMNITEE has the meaning set forth in Section 5.4(a).
1.32. INDEMNITY PAYMENT has the meaning set forth in Section 5.4(a).
1.33. INFORMATION means information, whether or not patentable or
copyrightable, in written, oral, electronic or other tangible or intangible
forms, stored in any medium, including studies, reports, records, books,
contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models,
prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes,
computer programs or other software, marketing plans, customer names,
communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or under their
direction (including attorney work product), and other technical, financial,
employee or business information or data.
1.34. INSURANCE POLICIES means the insurance policies written by insurance
carriers unaffiliated with CCI pursuant to which uBid (or their respective
officers or directors) will be insured parties after the Closing Date.
1.35. INSURANCE PROCEEDS means those monies:
(a) received by an insured from an insurance carrier; or
(b) paid by an insurance carrier on behalf of the insured;
in any such case net of any applicable premium adjustments (including reserves
and retrospectively rated premium adjustments) and net of any costs or expenses
incurred in the collection thereof.
1.36. IPO means the initial public offering by uBid of shares of uBid
Common Stock pursuant to the IPO Registration Statement.
4
1.37. IPO REGISTRATION STATEMENT means the registration statement on
Form S-1 (No. 333-58447) filed under the Securities Act, pursuant to which the
uBid Common Stock to be issued in the IPO will be registered, together with all
amendments thereto.
1.38. LIABILITIES means any and all losses, claims, charges, debts,
demands, actions, causes of action, suits, damages, obligations, payments, costs
and expenses, sums of money, accounts, reckonings, bonds, specialties,
indemnities and similar obligations, exonerations, covenants, contracts,
controversies, agreements, promises, doings, omissions, variances, guarantees,
make whole agreements and similar obligations, and other liabilities, including
all contractual obligations, whether absolute or contingent, matured or
unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown,
whenever arising, and including those arising under any law, rule, regulation,
Action, threatened or contemplated Action (including the costs and expenses of
demands, assessments, judgments, settlements and compromises relating thereto
and attorneys' fees and any and all costs and expenses, whatsoever reasonably
incurred in investigating, preparing or defending against any such Actions or
threatened or contemplated Actions), order or consent decree of any Governmental
Authority or any award of any arbitrator or mediator of any kind, and those
arising under any contract, commitment or undertaking, including those arising
under this Agreement or any Ancillary Agreement, in each case, whether or not
recorded or reflected or required to be recorded or reflected on the books and
records or financial statements of any Person.
1.39. PERSON means an individual, a general or limited partnership, a
corporation, a trust, a joint venture, an unincorporated organization, a limited
liability entity, any other entity and any Governmental Authority.
1.40. PRIME RATE means the rate which Chase Manhattan Bank (or any
successor thereto or other major money center commercial bank agreed to by the
parties hereto) announces from time to time as its prime lending rate, as in
effect from time to time.
1.41. PROSPECTUS means each preliminary, final or supplemental prospectus
forming a part of the IPO Registration Statement.
1.42. RECORD DATE means the close of business on the date to be determined
by the CCI Board of Directors as the record date for determining stockholders of
CCI entitled to receive shares of uBid Common Stock in the Distribution.
1.43. REGISTRATION RIGHTS AGREEMENT means the Registration Rights
Agreements, set forth as Exhibits A and B hereto, by and among CCI and uBid, on
the one hand, and Frank Khulusi, Sam Khulusi and uBid on the other.
1.44. SECURITIES ACT means the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
1.45. SECURITY INTEREST means any mortgage, security interest, pledge,
lien, charge, claim, option, right to acquire, voting or other restriction,
right-of-way, covenant, condition, easement, encroachment, restriction on
transfer, or other encumbrance of any nature whatsoever.
5
1.46. SUBSIDIARY OF ANY PERSON means any corporation or other organization
whether incorporated or unincorporated of which at least a majority of the
securities or interests having by the terms thereof ordinary voting power to
elect at least a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such Person or by any one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries; provided,
--------
however, that no Person that is not directly or indirectly wholly owned by any
- -------
other Person shall be a Subsidiary of such other Person unless such other Person
controls, or has the right, power or ability to control, that Person.
1.47. TAX INDEMNIFICATION AND ALLOCATION AGREEMENT means the Tax
Indemnification and Allocation Agreement, dated as of the date hereof, by and
among CCI and uBid.
1.48. TAXES has the meaning set forth in the Tax Indemnification and
Allocation Agreement.
1.49. THIRD PARTY CLAIM has the meaning set forth in Section 5.5(a).
1.50. uBID BUSINESS means the business of uBid as presently conducted.
1.51. uBID COMMON STOCK means Common Stock, $.001 par value per share, of
uBid.
1.52. uBID GROUP means uBid, each Subsidiary of uBid and each other Person
that is either controlled directly or indirectly by uBid immediately after the
Closing Date or that is contemplated to be controlled by uBid.
1.53. uBID INDEMNITEES has the meaning set forth in Section 5.3(a).
1.54. UNDERWRITERS means the managing underwriters for the IPO.
1.55. UNDERWRITING AGREEMENT means the underwriting agreement to be entered
into among uBid and the Underwriters with respect to the IPO.
ARTICLE II
THE IPO AND ACTIONS PENDING THE IPO
2.1. TRANSACTIONS PRIOR TO THE IPO. (a) Subject to the conditions specified
in Section 2.6, CCI and uBid shall use their reasonable best efforts to
consummate the IPO. Such actions shall include, but not necessarily be limited
to, those specified in this Section 2.1.
(b) uBid shall file the IPO Registration Statement, and such
amendments or supplements thereto, as may be necessary in order to cause the
same to become and remain effective as required by law or by the Underwriters,
including, but not limited to, filing such amendments to the IPO Registration
Statement as may be required by the Underwriting Agreement, the Commission or
federal, state or foreign securities laws. CCI and uBid shall also
6
cooperate in preparing, filing with the Commission and causing to become
effective a registration statement registering the uBid Common Stock under the
Exchange Act, and any registration statements or amendments thereof which are
required to reflect the establishment of, or amendments to, any employee benefit
and other plans necessary or appropriate in connection with the IPO, the
Distribution or the other transactions contemplated by this Agreement and the
Ancillary Agreements.
(c) uBid and CCI shall enter into the Underwriting Agreement, in form
and substance reasonably satisfactory to uBid and CCI and shall comply with its
respective obligations thereunder.
(d) CCI and uBid shall consult with each other and the Underwriters
regarding the timing, pricing and other material matters with respect to the
IPO.
(e) uBid shall use its reasonable best efforts to take all such action
as may be necessary or appropriate under state securities and blue sky laws of
the United States (and any comparable laws under any foreign jurisdictions) in
connection with the IPO.
(f) uBid shall prepare, file and use reasonable best efforts to seek to
make effective, an application for listing of the uBid Common Stock issued in
the IPO on the NASDAQ Stock Market, subject to official notice of issuance.
(g) uBid shall participate in the preparation of materials and
presentations as the Underwriters shall deem necessary or desirable.
(h) uBid shall pay all third party costs, fees and expenses relating to
the IPO, all of the reimbursable expenses of the Underwriters pursuant to the
Underwriting Agreement, all of the costs of producing, printing, mailing and
otherwise distributing the Prospectus, as well as the Underwriters' discount as
provided in the Underwriting Agreement.
2.2. PROCEEDS OF THE IPO. The IPO will be a primary offering of uBid Common
Stock and the net proceeds of the IPO will be retained by uBid.
2.3. CONDITIONS PRECEDENT TO CONSUMMATION OF THE IPO. As soon as
practicable after the date of this Agreement, the parties hereto shall use their
reasonable best efforts to satisfy the following conditions to the consummation
of the IPO. The obligations of the parties to consummate the IPO shall be
conditioned on the satisfaction, or waiver by CCI, of the following conditions:
(a) The IPO Registration Statement shall have been filed and declared
effective by the Commission, and there shall be no stop order in effect with
respect thereto.
(b) The actions and filings with regard to state securities and blue
sky laws of the United States (and any comparable laws under any foreign
jurisdictions) described in Section 2.1 shall have been taken and, where
applicable, have become effective or been accepted.
(c) The uBid Common Stock to be issued in the IPO shall have been
accepted for listing on the NASDAQ Stock Market, on official notice of issuance.
7
(d) uBid shall have entered into the Underwriting Agreement and all
conditions to the obligations of uBid and the Underwriters shall have been
satisfied or waived.
(e) CCI shall be satisfied in its sole discretion that it will own at
least 80.1% of the voting rights attached to the outstanding uBid Common Stock
following the IPO, and all other conditions to permit the Distribution to
qualify as a tax-free distribution to CCI's stockholders and CCI shall, to the
extent applicable as of the time of the IPO, be satisfied and there shall be no
event or condition that is likely to cause any of such conditions not to be
satisfied as of the time of the Distribution or thereafter.
(f) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the IPO or any of the other transactions contemplated by this
Agreement or any Ancillary Agreement shall be in effect.
(g) Such other actions as the parties hereto may, based upon the advice
of counsel, reasonably request to be taken prior to the IPO in order to assure
the successful completion of the IPO and the other transactions contemplated by
this Agreement shall have been taken.
(h) This Agreement shall not have been terminated.
ARTICLE III
THE DISTRIBUTION
3.1. THE DISTRIBUTION. (a) Subject to Section 3.3 hereof, on or prior to
the Distribution Date, CCI will deliver to the Agent for the benefit of holders
of record of CCI Common Stock on the Record Date, a single stock certificate,
endorsed by CCI in blank, representing all of the outstanding shares of uBid
Common Stock then owned by CCI, and shall cause the transfer agent for the
shares of CCI Common Stock to instruct the Agent to distribute on the
Distribution Date the appropriate number of such shares of uBid Common Stock to
each such holder or designated transferee or transferees of such holder.
(b) Subject to Section 3.4, each holder of CCI Common Stock on the
Record Date (or such holder's designated transferee or transferees) will be
entitled to receive in the Distribution a number of shares of uBid Common Stock
equal to the number of shares of CCI Common Stock held by such holder on the
Record Date multiplied by a fraction the numerator of which is the number of
shares of uBid Common Stock beneficially owned by CCI, on the Record Date and
the denominator of which is the number of shares of CCI Common Stock outstanding
on the Record Date.
(c) uBid and CCI, as the case may be, will provide to the Agent all
share certificates and any information required in order to complete the
Distribution on the basis specified above.
3.2. ACTIONS PRIOR TO THE DISTRIBUTION. (a) CCI and uBid shall prepare and
mail, prior to the Distribution Date, to the holders of CCI Common Stock, such
information
8
concerning uBid, its business, operations and management, the Distribution and
such other matters as CCI shall reasonably determine and as may be required by
law. CCI and uBid will prepare, and uBid will, to the extent required under
applicable law, file with the Commission any such documentation and any
requisite no action letters which CCI determines are necessary or desirable to
effectuate the Distribution and CCI and uBid shall each use its reasonable best
efforts to obtain all necessary approvals from the Commission with respect
thereto as soon as practicable.
(b) CCI and uBid shall take all such action as may be necessary or
appropriate under the securities or blue sky laws of the United States (and any
comparable laws under any foreign jurisdiction) in connection with the
Distribution.
(c) CCI and uBid shall take all reasonable steps necessary and
appropriate to cause the conditions set forth in Section 3.3 (subject to
Sections 3.3(d)) to be satisfied and to effect the Distribution on the
Distribution Date.
(d) uBid shall prepare and file, and shall use its reasonable best
efforts to have approved, an application for the listing on the NASDAQ Stock
Market, subject to official notice of distribution of the uBid Common Stock to
be distributed in the Distribution, and the shares of uBid Common Stock covered
by uBid Options to be granted under Section 3.6 below.
3.3. CONDITIONS TO DISTRIBUTION. The CCI Board currently intends to effect
the Distribution at any time commencing 180 days after the Closing Date and
ending on or prior to December 31, 1999. Subject to any restrictions contained
in the Underwriting Agreement, the CCI Board shall have the sole discretion to
determine the date of consummation of the Distribution at any time commencing
180 days after the Closing Date and ending on or prior to December 31, 1999. CCI
shall be obligated to consummate the Distribution on or before December 31,
1999, subject to the satisfaction, or waiver by the CCI Board in its sole
discretion, of the conditions set forth below. In the event that any such
condition shall not have been satisfied or waived on or before December 31,
1999, CCI shall consummate the Distribution as promptly as practicable following
the satisfaction or waiver by CCI of all such conditions.
(a) an opinion letter from PricewaterhouseCoopers LLP (the "PWC
Opinion") shall have been obtained in form and substance satisfactory to CCI in
its sole discretion, and shall be confirmed at the Distribution Date, to the
effect that, among other things, the Distribution will qualify as a tax-free
distribution for federal income tax purposes under Section 355 of the Code and
the Distribution by CCI of the uBid Common Stock to stockholders of CCI will not
result in recognition of any income, gain or loss for federal income tax
purposes to CCI or CCI's stockholders;
(b) if CCI, in its sole discretion, decides to seek a private letter
ruling from the Internal Revenue Service to the same effect as the PWC Opinion
(the "Letter Ruling"), the Letter Ruling shall have been obtained in form and
substance satisfactory to CCI, and shall continue in effect, consistent with the
conclusions reached in the PWC Opinion.
(c) any material Governmental Approvals and Consents necessary to
consummate the Distribution shall have been obtained and be in full force and
effect;
9
(d) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Distribution shall be in effect and no other event outside
the control of CCI shall have occurred or failed to occur that prevents the
consummation of the Distribution; and
(e) no other events or developments shall have occurred subsequent to
the Closing Date that, in the sole judgment of the Board of Directors of CCI,
would result in the Distribution having a material adverse effect on CCI or on
the stockholders of CCI.
The foregoing conditions are for the sole benefit of CCI and shall not give
rise to or create any duty on the part of CCI or the CCI Board of Directors to
waive or not waive any such condition.
3.4. FRACTIONAL SHARES. As soon as practicable after the Distribution
Date, CCI shall direct the Agent to determine the number of whole shares and
fractional shares of uBid Common Stock allocable to each holder of record or
beneficial owner of CCI Common Stock as of the Record Date, to aggregate all
such fractional shares and sell the whole shares obtained thereby at the
direction of CCI either to CCI, in open market transactions or otherwise, in
each case at then prevailing trading prices, and to cause to be distributed to
each such holder or for the benefit of each such beneficial owner to which a
fractional share shall be allocable such holder's or owner's ratable share of
the proceeds of such sale, after making appropriate deductions of the amount
required to be withheld for federal income tax purposes and after deducting an
amount equal to all brokerage charges, commissions and transfer taxes attributed
to such sale. CCI and the Agent shall use their reasonable best efforts to
aggregate the shares of CCI Common Stock that may be held by any beneficial
owner thereof through more than one account in determining the fractional share
allocable to such beneficial owner.
3.5. THE uBID BOARD OF DIRECTORS. CCI and uBid shall each take all actions
which may be required to elect or otherwise appoint as directors of uBid, on or
prior to the Distribution Date, such individuals as may be designated by uBid's
Board of Directors (which designation shall be approved by the majority of
uBid's directors who are at such time neither officers nor directors of CCI) as
additional or substitute members of the Board of Directors of uBid on the
Distribution Date.
3.6. ADJUSTMENT OF CCI STOCK OPTIONS. As of the Distribution Date, each
outstanding option to purchase CCI Common Stock granted prior to the Closing
Date (each a "CCI Option") shall be adjusted as set forth in this Section 3.6.
Each CCI Option shall be converted (an "Adjusted Option"), as of the
Distribution Date, into two options: an option (the "CCI Adjusted Option") to
purchase the same number of shares of CCI Common Stock covered by the CCI Option
and as to which the CCI Option has not been exercised as of the Distribution
Date ("CCI Option Number") and an option (the "uBid Option") to purchase a
number of shares of uBid Common Stock equal to the CCI Option Number times a
fraction, the numerator of which is the total number of shares of uBid Common
Stock distributed to CCI stockholders in the Distribution and the denominator of
which is the total number of shares of CCI Common Stock outstanding on the
record date for the Distribution (the "Distribution Ratio"). The terms of the
CCI Adjusted Option and the uBid Option (other than the exercise price and the
number of shares) shall be substantially the same as the CCI Option. The
exercise prices per share for each
10
CCI Adjusted Option and the uBid Option shall be established in a manner so
that: a) the aggregate "intrinsic value" (i.e. the market value of the stock
underlying the option, less the exercise price of such option, multiplied by the
number of shares then covered by such option) after the Distribution of the CCI
Adjusted Option plus the uBid Option is not greater than the intrinsic value of
the related CCI Option immediately prior to the Distribution; and b) the ratio
of the exercise price per option to the market value per share after the
Distribution is not lower than the ratio of the exercise price of the CCI Option
to the market value per share of CCI Common Stock immediately prior to the
Distribution. The determination of the exercise prices for each CCI Adjusted
Option and uBid Option shall be made by CCI as advised by its professional
advisors. The exercise prices for each CCI Adjusted Option and uBid Option will
be determined as follows:
1. Calculate the aggregate intrinsic value of the CCI Option immediately
prior to the Distribution and determine the ratio of the exercise price
for the CCI Option to the market value of CCI Common Stock immediately
prior to the Distribution (the "Pre-Distribution Exercise Price to Market
Price Ratio").
2. Calculate the preliminary CCI Adjusted Option exercise price by dividing
(x) the market value of CCI Common Stock (without uBid) immediately after
the Distribution by (y) the sum of (i) the market value of CCI Common
Stock immediately after the Distribution and (ii) the market value of
uBid Common Stock immediately after the Distribution multiplied by the
Distribution Ratio, and multiplying the result by the exercise price for
the CCI Option.
3. Divide the preliminary CCI Adjusted Option exercise price by the market
value of CCI Common Stock immediately after the Distribution to determine
the "CCI Adjusted Exercise Price to Market Price Ratio." If the CCI
Adjusted Exercise Price to Market Price Ratio is less than the Pre-
Distribution Exercise Price to Market Price Ratio, increase the
preliminary CCI Adjusted Option exercise price to align the CCI Adjusted
Exercise Price to Market Ratio with the Pre-Distribution Exercise Price
to Market Price Ratio in order to determine the final Adjusted CCI Option
exercise price.
4. Calculate the preliminary uBid Option exercise price by multiplying the
CCI Option Price by the result obtained by dividing (z) one minus the
fraction calculated in paragraph 2 above by (w) the Distribution Ratio.
5. Divide the preliminary uBid Option exercise price by the market value of
uBid Common Stock immediately after the Distribution to determine the
"uBid Adjusted Exercise Price to Market Price Ratio." If the uBid
Adjusted Exercise Price to Market Ratio is less than the Pre-Distribution
Exercise Price to Market Price Ratio, increase the preliminary uBid
Option exercise price to align the uBid Adjusted Exercise Price to Market
Price Ratio with the Pre-Distribution Exercise Price to Market Price
Ratio in order to determine the final uBid Option exercise price.
6. Finally, add the aggregate intrinsic values of the Adjusted CCI Option
and uBid Option and compare the sum to the aggregate intrinsic value
calculated in paragraph 1 above and make final adjustments, if necessary,
so that the aggregate intrinsic values of the
11
Adjusted CCI Option and uBid Option do not exceed the original aggregate
intrinsic value of the CCI Option.
The uBid Options to be granted with respect to each Adjusted Option shall
be issued under uBid's 1998 Stock Incentive Plan, and uBid shall take all
corporate action and make all required filings under applicable state Blue Sky
laws and the Securities Act to (i) issue the uBid Options required under this
Section 3.6 and (ii) to register or qualify the uBid Options and/or the
underlying shares of uBid Common Stock so that the shares of uBid Common Stock
acquired upon exercise of each uBid Option are freely tradable under the
Securities Act (except for shares acquired by Affiliates of uBid) and each
applicable state's Blue Sky laws.
ARTICLE IV
ANCILLARY AGREEMENTS, REGISTRATION RIGHTS AGREEMENTS AND
TAX INDEMNIFICATION AND ALLOCATION AGREEMENT
4.1. ANCILLARY AGREEMENTS. Prior to the date hereof, CCI has provided to
uBid the following services: administration (accounting, human resources,
legal), warehousing and distribution, Internet/telecom, and joint marketing.
uBid and CCI will enter into the Ancillary Agreements pursuant to which CCI will
provide certain of such services to uBid on a transitional basis as described in
the Ancillary Agreements. Effective as of the date hereof, each of CCI and uBid
will execute and deliver all of the Ancillary Agreements, the Registration
Rights Agreements and the Tax Indemnification and Allocation Agreement.
ARTICLE V
INDEMNIFICATION
5.1. RELEASE OF PRE-CLOSING CLAIMS. (a) Except as provided in Section
5.1(c), effective as of the Closing Date, uBid does hereby, for itself, its
respective Affiliates (other than any member of the CCI Group), successors and
assigns, and all Persons who at any time prior to the Closing Date have been
stockholders, directors, officers, agents or employees of any member of the uBid
Group (in each case, in their respective capacities as such), remise, release
and forever discharge each of CCI, its respective Affiliates (other than any
member of the uBid Group), successors and assigns, and all Persons who at any
time prior to the Closing Date have been stockholders, directors, officers,
agents or employees of CCI (in each case, in their respective capacities as
such), and their respective heirs, executors, administrators, successors and
assigns, from any and all Liabilities whatsoever, whether at law or in equity
(including any right of contribution), whether arising under any contract or
agreement, by operation of law or otherwise, existing or arising from all acts
and events occurring or failing to occur or alleged to have occurred or to have
failed to occur and all conditions existing or alleged to have existed on or
before the Closing Date, including in connection with the transactions and all
other activities to implement the IPO or the Distribution, between uBid and CCI
(including any contractual arrangements or arrangements existing or alleged to
exist between them on or before the Closing Date).
12
(b) Except as provided in Section 5.1(c), effective as of the Closing
Date, CCI does hereby, for itself and its Affiliates (other than any member of
the uBid Group), successors and assigns, and all Persons who at any time prior
to the Closing Date have been stockholders, directors, officers, agents or
employees of any member of the CCI Group (in each case, in their respective
capacities as such), remise, release and forever discharge uBid, the respective
members of the uBid Group, their respective Affiliates (other than any member of
the CCI Group), successors and assigns, and all Persons who at any time prior to
the Closing Date have been stockholders, directors, officers, agents or
employees of any member of the uBid Group (in each case, in their respective
capacities as such), and their respective heirs, executors, administrators,
successors and assigns, from any and all Liabilities whatsoever, whether at law
or in equity (including any right of contribution), whether arising under any
contract or agreement, by operation of law or otherwise, existing or arising
from all acts and events occurring or failing to occur or alleged to have
occurred or to have failed to occur and all conditions existing or alleged to
have existed on or before the Closing Date, including in connection with the
transactions and all other activities to implement the IPO or the Distribution,
between uBid and CCI (including any contractual arrangements or arrangements
existing or alleged to exist between them on or before the Closing Date).
(c) Nothing contained in Section 5.1(a) or (b) shall impair any right
of any Person to enforce this Agreement, any Ancillary Agreement, the
Registration Rights Agreements or the Tax Indemnification and Allocation
Agreement. Nothing contained in Section 5.1(a) or (b) shall release any Person
from:
(i) any Liability, contingent or otherwise, assumed,
transferred, assigned or allocated to the Group of which such Person is a
member in accordance with, or any other Liability of any member of any
Group under, this Agreement or any Ancillary Agreement;
(ii) any Liability for the sale, lease, construction or receipt
of goods, property or services purchased, obtained or used in the ordinary
course of business by a member of one Group from a member of any other
Group prior to the Closing Date;
(iii) any Liability for unpaid amounts for products or services
or refunds owing on products or services due on a value-received basis for
work done by a member of one Group at the request or on behalf of a member
of another Group;
(iv) any Liability that the parties may have with respect to
indemnification or contribution pursuant to this Agreement for claims
brought against the parties by third Persons, which Liability shall be
governed by the provisions of this Article V and Article VI and, if
applicable, the appropriate provisions of the Ancillary Agreements; or
(v) in the case of uBid, outstanding unpaid amounts as of the
Closing Date advanced to uBid for working capital and fixed asset
purchases, which amounts will be repaid in full not later than 18 months
following the Closing Date, with interest thereon payable monthly.
13
(vi) any Liability the release of which would result in the
release of any Person other than a Person released pursuant to this Section
5.1; provided that the parties agree not to bring suit or permit any of
their Subsidiaries to bring suit against any Person with respect to any
Liability to the extent that such Person would be released with respect to
such Liability by this Section 5.1 but for the provisions of this clause
(vi).
(d) uBid shall not make, and shall not permit any member of the uBid
Group to make, any claim or demand, or commence any Action asserting any claim
or demand, including any claim of contribution or any indemnification, against
CCI or any member of the CCI Group or any other Person released pursuant to
Section 5.1(a), with respect to any Liabilities released pursuant to Section
5.1(a). CCI shall not, and shall not permit any member of the CCI Group, to make
any claim or demand, or commence any Action asserting any claim or demand,
including any claim of contribution or any indemnification, against uBid or any
member of the uBid Group, or any other Person released pursuant to Section
5.1(b), with respect to any Liabilities released pursuant to Section 5.1(b).
(e) It is the intent of each of CCI and uBid by virtue of the
provisions of this Section 5.1 to provide for a full and complete release and
discharge of all Liabilities existing or arising from all acts and events
occurring or failing to occur or alleged to have occurred or to have failed to
occur and all conditions existing or alleged to have existed on or before the
Closing Date, between or among uBid or any member of the uBid Group, on the one
hand, and CCI or any member of the CCI Group, on the other hand (including any
contractual agreements or arrangements existing or alleged to exist between or
among any such members on or before the Closing Date), except as expressly set
forth in Section 5.1(c). At any time, at the request of any other party, each
party shall cause each member of its respective Group to execute and deliver
releases reflecting the provisions hereof.
5.2. INDEMNIFICATION BY uBID. Except as provided in Section 5.4, uBid
shall indemnify, defend and hold harmless CCI, each member of the CCI Group and
each of their respective directors, officers and employees, and each of the
heirs, executors, successors and assigns of any of the foregoing (collectively,
the "CCI Indemnitees"), from and against any and all Liabilities of the CCI
Indemnitees relating to, arising out of or resulting from any of the following
items (without duplication):
(a) the failure of uBid or any other member of the uBid Group or any
other Person to pay, perform or otherwise promptly discharge any liabilities of
uBid in accordance with their respective terms, whether prior to or after the
Closing Date or the date hereof;
(b) any breach by uBid or any member of the uBid Group of this
Agreement, any of the Ancillary Agreements, the Registration Rights Agreements
or the Tax Indemnification and Allocation Agreement;
(c) any untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, with
respect to all information contained in any IPO Registration Statement or
Prospectus.
14
5.3. INDEMNIFICATION BY CCI. (a) Except as otherwise provided in Section
5.4, CCI shall indemnify, defend and hold harmless uBid, each member of the uBid
Group and each of their respective directors, officers and employees, and each
of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "uBid Indemnitees"), from and against any and all Liabilities
of the uBid Indemnitees relating to, arising out of or resulting from any of the
following items (without duplication):
(i) the failure of CCI or any other member of the CCI Group or
any other Person to pay, perform or otherwise promptly discharge any
Liabilities of the CCI Group, whether prior to or after the Closing Date or
the date hereof; and
(ii) any breach by CCI or any member of the CCI Group of this
Agreement, any of the Ancillary Agreements or the Registration Rights
Agreements.
5.4. INDEMNIFICATION OBLIGATIONS NET OF INSURANCE PROCEEDS AND OTHER
AMOUNTS. (a) The parties intend that any Liability subject to indemnification or
reimbursement pursuant to this Article V or Article VI will be net of Insurance
Proceeds that actually reduce the amount of the Liability. Accordingly, the
amount which any party (an "Indemnifying Party") is required to pay to any
Person entitled to indemnification hereunder (an "Indemnitee") will be reduced
by any Insurance Proceeds theretofore actually recovered by or on behalf of the
Indemnitee in reduction of the related Liability. If an Indemnitee receives a
payment (an "Indemnity Payment") required by this Agreement from an Indemnifying
Party in respect of any Liability and subsequently receives Insurance Proceeds,
then the Indemnitee will pay to the Indemnifying Party an amount equal to the
excess of the Indemnity Payment received over the amount of the Indemnity
Payment that would have been due if the Insurance Proceeds had been received,
realized or recovered before the Indemnity Payment was made.
(b) An insurer who would otherwise be obligated to pay any claim
shall not be relieved of the responsibility with respect thereto or, solely by
virtue of the indemnification provisions hereof, have any subrogation rights
with respect thereto, it being expressly understood and agreed that no insurer
or any other third party shall be entitled to a "windfall" (i.e., a benefit they
would not be entitled to receive in the absence of the indemnification
provisions) by virtue of the indemnification provisions hereof. Nothing
contained in this Agreement, any Ancillary Agreement or the Registration Rights
Agreements shall obligate any member of any Group to seek to collect or recover
any Insurance Proceeds.
5.5. PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS. (a) If an
Indemnitee shall receive notice or otherwise learn of the assertion by a Person
(including any Governmental Authority) who is not a member of the CCI Group or
the uBid Group of any claim or of the commencement by any such Person of any
Action (collectively, a "Third Party Claim") with respect to which an
Indemnifying Party may be obligated to provide indemnification to such
Indemnitee pursuant to Section 5.2 or 5.3, or any other Section of this
Agreement, any Ancillary Agreement or the Registration Rights Agreements, such
Indemnitee shall give such Indemnifying Party written notice thereof within 20
days after becoming aware of such Third Party Claim. Any such notice shall
describe the Third Party Claim in reasonable detail. Notwithstanding the
foregoing, the failure of any Indemnitee or other Person to give notice as
provided in this Section 5.5(a) shall not relieve the related Indemnifying Party
of its obligations
15
under this Article V, except to the extent that such Indemnifying Party is
actually prejudiced by such failure to give notice.
(b) An Indemnifying Party may elect to defend (and, unless the
Indemnifying Party has specified any reservations or exceptions, to seek to
settle or compromise), at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, any Third Party Claim. Within 30 days after
the receipt of notice from an Indemnitee in accordance with Section 5.5(a) (or
sooner, if the nature of such Third Party Claim so requires), the Indemnifying
Party shall notify the Indemnitee of its election whether the Indemnifying Party
will assume responsibility for defending such Third Party Claim, which election
shall specify any reservations or exceptions. After notice from an Indemnifying
Party to an Indemnitee of its election to assume the defense of a Third Party
Claim, such Indemnitee shall have the right to employ separate counsel and to
participate in (but not control) the defense, compromise, or settlement thereof,
but the fees and expenses of such counsel shall be the expense of such
Indemnitee except as set forth in the next sentence. In the event that the
Indemnifying Party has elected to assume the defense of the Third Party Claim
but has specified, and continues to assert, any reservations or exceptions in
such notice, then, in any such case, the reasonable fees and expenses of one
separate counsel for all Indemnitees shall be borne by the Indemnifying Party.
(c) If an Indemnifying Party elects not to assume responsibility for
defending a Third Party Claim, or fails to notify an Indemnitee of its election
as provided in Section 5.5(d), such Indemnitee may defend such Third Party Claim
at the cost and expense of the Indemnifying Party.
(d) Unless the Indemnifying Party has failed to assume the defense of
the Third Party Claim in accordance with the terms of this Agreement, no
Indemnitee may settle or compromise any Third Party Claim without the consent of
the Indemnifying Party.
(e) No Indemnifying Party shall consent to entry of any judgment or
enter into any settlement of the Third Party Claim without the consent of the
Indemnitee if the effect thereof is to permit any injunction, declaratory
judgment, other order or other nonmonetary relief to be entered, directly or
indirectly, against any Indemnitee.
(f) The provisions of Section 5.5 and Section 5.6 shall not apply to
Taxes (which are covered by the Tax Indemnification and Allocation Agreement).
5.6. ADDITIONAL MATTERS. (a) Any claim on account of a Liability which
does not result from a Third Party Claim shall be asserted by written notice
given by the Indemnitee to the related Indemnifying Party. Such Indemnifying
Party shall have a period of 30 days after the receipt of such notice within
which to respond thereto. If such Indemnifying Party does not respond within
such 30-day period, such Indemnifying Party shall be deemed to have refused to
accept responsibility to make payment. If such Indemnifying Party does not
respond within such 30-day period or rejects such claim in whole or in part,
such Indemnitee shall be free to pursue such remedies as may be available to
such party as contemplated by this Agreement, the Ancillary Agreements and the
Registration Rights Agreements.
16
(b) In the event of payment by or on behalf of any Indemnifying Party
to any Indemnitee in connection with any Third Party Claim, such Indemnifying
Party shall be subrogated to and shall stand in the place of such Indemnitee as
to any events or circumstances in respect of which such Indemnitee may have any
right, defense or claim relating to such Third Party Claim against any claimant
or plaintiff asserting such Third Party Claim or against any other person. Such
Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner,
and at the cost and expense of such Indemnifying Party, in prosecuting any
subrogated right, defense or claim.
(c) In the event of an Action in which the Indemnifying Party is not a
named defendant, if the Indemnifying Party shall so request, the parties shall
endeavor to substitute the Indemnifying Party for the named defendant if at all
practicable. If such substitution or addition cannot be achieved for any reason
or is not requested, the named defendant shall allow the Indemnifying Party to
manage the Action as set forth in this Section and the Indemnifying Party shall
fully indemnify the named defendant against all costs of defending the Action
(including court costs, sanctions imposed by a court, attorneys' fees, experts'
fees and all other external expenses), the costs of any judgment or settlement,
and the cost of any interest or penalties relating to any judgment or
settlement.
5.7. REMEDIES CUMULATIVE. The remedies provided in this Article V shall be
cumulative and, subject to the provisions of Article VIII, shall not preclude
assertion by any Indemnitee of any other rights or the seeking of any and all
other remedies against any Indemnifying Party.
5.8. SURVIVAL OF INDEMNITIES. The rights and obligations of each of CCI
and uBid and their respective Indemnitees under this Article V shall survive the
sale or other transfer by any party of any Assets or businesses or the
assignment by it of any Liabilities.
ARTICLE VI
INTERIM OPERATIONS AND CERTAIN OTHER MATTERS
6.1. INSURANCE MATTERS. (a) uBid agrees that it will pay to CCI $8,614.00
per month (prorated on a daily basis for any partial month) in respect of the
period from the date hereof until the Distribution Date, such amount to be
payable in arrears by the 10th day of the next succeeding month, in respect of
Insurance Policies under which uBid will continue to have coverage following the
date hereof. CCI and uBid agree to cooperate in good faith to provide for an
orderly transition of insurance coverage from the date hereof through the
Distribution Date and for the treatment of any Insurance Policies that will
remain in effect following the Closing Date on a mutually agreeable basis. In no
event shall CCI, any other member of the CCI Group or any CCI Indemnitee have
liability or obligation whatsoever to any member of the uBid Group in the event
that any Insurance Policy or other contract or policy of insurance shall be
terminated or otherwise cease to be in effect for any reason, shall be
unavailable or inadequate to cover any Liability of any member of the uBid Group
for any reason whatsoever or shall not be renewed or extended beyond the current
expiration date.
17
(b) (i) Except as otherwise provided in any Ancillary Agreement,
the parties intend by this Agreement that uBid and each other member of the uBid
Group be successors-in-interest to all rights that any member of the uBid Group
may have as of the Closing Date as a subsidiary, affiliate, division or
department of CCI prior to the Closing Date under any policy of insurance issued
to CCI by any insurance carrier unaffiliated with CCI or under any agreements
related to such policies executed and delivered prior to the Closing Date,
including any rights such member of the uBid Group may have, as an insured or
additional named insured, subsidiary, affiliate, division or department, to
avail itself of any such policy of insurance or any such agreements related to
such policies as in effect prior to the Closing Date. At the request of uBid,
CCI shall take all reasonable steps, including the execution and delivery of any
instruments, to effect the foregoing; provided however that CCI shall not be
required to pay any amounts, waive any rights or incur any Liabilities in
connection therewith.
(ii) Except as otherwise contemplated by any Ancillary Agreement,
after the Closing Date, none of CCI or uBid or any member of their respective
Groups shall, without the consent of the other, provide any such insurance
carrier with a release, or amend, modify or waive any rights under any such
policy or agreement, if such release, amendment, modification or waiver would
adversely affect any rights or potential rights of any member of the other Group
thereunder; provided however that the foregoing shall not (A) preclude any
member of any Group from presenting any claim or from exhausting any policy
limit, (B) require any member of any Group to pay any premium or other amount or
to incur any Liability, or (C) require any member of any Group to renew, extend
or continue any policy in force. Each of uBid and CCI will share such
information as is reasonably necessary in order to permit the other to manage
and conduct its insurance matters in an orderly fashion.
(c) This Agreement shall not be considered as an attempted assignment
of any policy of insurance or as a contract of insurance and shall not be
construed to waive any right or remedy of any member of the CCI Group in respect
of any Insurance Policy or any other contract or policy of insurance.
(d) uBid does hereby, for itself and each other member of the uBid
Group, agree that no member of the CCI Group or any CCI Indemnitee shall have
any Liability whatsoever as a result of the insurance policies and practices of
CCI and its Affiliates as in effect at any time prior to the Closing Date,
including as a result of the level or scope of any such insurance, the
creditworthiness of any insurance carrier, the terms and conditions of any
policy, the adequacy or timeliness of any notice to any insurance carrier with
respect to any claim or potential claim or otherwise.
(e) Nothing in this Agreement shall be deemed to restrict any member
of the uBid Group from acquiring at its own expense any other insurance policy
in respect of any Liabilities or covering any period.
6.2. CERTAIN BUSINESS MATTERS. (a) Except as may be expressly set forth in
Section 6.3 below or in any Ancillary Agreement, no member of any Group shall
have any duty to refrain from (i) engaging in the same or similar activities or
lines of business as any member of any other Group, (ii) doing business with any
potential or actual supplier or customer of any member of any other Group, or
(iii) engaging in, or refraining from, any other activities
18
whatsoever relating to any of the potential or actual suppliers or customers of
any member of any other Group.
(b) Each of CCI and uBid is aware that from time to time certain
business opportunities may arise which more than one Group may be financially
able to undertake, and which are, from their nature, in the line of more than
one Group's business and are of practical advantage to more than one Group. In
connection therewith, the parties agree that if, following the Closing Date and
prior to (but not following) the Distribution Date, any of CCI or uBid acquires
knowledge of an opportunity that meets the foregoing standard with respect to
more than one Group, none of CCI or uBid shall have any duty to communicate or
offer such opportunity to any of the others and may pursue or acquire such
opportunity for itself, or direct such opportunity to any other Person.
6.3. NON-COMPETITION.
(a) CCI acknowledges that as the Parent of uBid it has become privy
to certain confidential information and trade secrets of uBid and further
acknowledges that it will derive substantial benefits from the consummation of
the transactions contemplated by this Agreement and that purchasers of Common
Stock of uBid in the IPO will be making substantial investments in reliance upon
the agreement contained in this Section 6.3 that the knowledge and expertise
developed by uBid and available to CCI will be preserved and will not be used in
competition with uBid. CCI hereby agrees that it is reasonable and necessary for
the protection of uBid that it agree, and accordingly CCI hereby does agree
that, for a period of nine months from the Distribution Date (the
"Noncompetition Period"), CCI will not directly or indirectly engage in the
Internet online auction business in substantially the same manner and format as
conducted by uBid on the date hereof (the "uBid Business") or become a
stockholder, partner or owner of any other person, corporation, firm or business
that is engaged in the uBid Business.
(b) The invalidity or non-enforceability of this Section 6.3 in any
respect shall not affect the validity or enforceability of this Section 6.3 in
any other respect or of any other provisions of this Agreement. In the event
that any provision of this Section 6.3 shall be held invalid or unenforceable by
a court of competent jurisdiction by reason of the geographic or business scope
or the duration thereof, such invalidity or unenforceability shall attach only
to the scope or duration of such provision and shall not affect or render
invalid or unenforceable any other provision of this Agreement, and, to the
fullest extent permitted by law, this Agreement shall be construed as if the
geographic or business scope or the duration of such provision had been more
narrowly drafted so as not to be invalid or unenforceable.
(c) CCI acknowledges that the Company would suffer irreparable harm
if CCI were to breach the provisions of this Section 6.3 and that the Company's
remedy at law for any such breach is and will be insufficient and inadequate and
that the Company shall be entitled to equitable relief, including by way of
temporary and permanent injunction, in addition to any remedies the Company may
have at law.
6.4. LATE PAYMENTS. Except as expressly provided to the contrary in this
Agreement or in any Ancillary Agreement, any amount not paid when due pursuant
to this Agreement or any Ancillary Agreement, the Registration Rights Agreements
or the Tax
19
Indemnification and Allocation Agreement (and any amounts billed or otherwise
invoiced or demanded and properly payable that are not paid within 30 days of
such bill, invoice or other demand) shall accrue interest at a rate per annum
equal to the Prime Rate plus 2%.
ARTICLE VII
EXCHANGE OF INFORMATION; CONFIDENTIALITY
7.1. AGREEMENT FOR EXCHANGE OF INFORMATION; ARCHIVES. (a) Each of CCI and
uBid, on behalf of its respective Group, agrees to provide, or cause to be
provided, to the other Group, at any time before or after the Distribution Date,
as soon as reasonably practicable after written request therefor, any
Information in the possession or under the control of such Group which the
requesting party reasonably needs (i) to comply with reporting, disclosure,
filing or other requirements imposed on the requesting party (including under
applicable securities or tax laws) by a Governmental Authority having
jurisdiction over the requesting party, (ii) for use in any other judicial,
regulatory, administrative, tax or other proceeding or in order to satisfy
audit, accounting, claims, regulatory, litigation, tax or other similar
requirements, or (iii) to comply with its obligations under this Agreement or
any Ancillary Agreement; provided, however, that in the event that any party
-------- -------
determines that any such provision of Information could be commercially
detrimental, violate any law or agreement, or waive any attorney client
privilege, the parties shall take all reasonable measures to permit the
compliance with such obligations in a manner that avoids any such harm or
consequence.
(b) After the Closing Date, uBid shall have access during regular
business hours (as in effect from time to time) to the documents and objects of
historic significance that relate to the business of uBid that are located in
the CCI Records. uBid may obtain copies (but not originals) of documents for
bona fide business purposes and may obtain objects for exhibition purposes for
commercially reasonable periods of time if required for bona fide business
purposes, provided that uBid shall cause any such objects to be returned
promptly in the same condition in which they were delivered to uBid and uBid
shall comply with any rules, procedures or other requirements, and shall be
subject to any restrictions (including prohibitions on removal of specified
objects), that are then applicable to CCI. Nothing herein shall be deemed to
restrict the access of any member of the CCI Group to any such documents or
objects or to impose any liability on any member of the CCI Group if any such
documents or objects are not maintained or preserved by CCI.
(c) After the date hereof, (i) uBid shall maintain in effect at its
own cost and expense adequate systems and controls to the extent necessary to
enable the members of the CCI Group to satisfy their respective reporting,
accounting, audit and other obligations, and (ii) uBid shall provide, or cause
to be provided, to CCI in such form as CCI shall request, at no charge to CCI,
all financial and other data and information as CCI determines necessary or
advisable in order to prepare CCI financial statements and reports or filings
with any Governmental Authority.
7.2. OWNERSHIP OF INFORMATION. Any Information owned by one Group that is
provided to a requesting party pursuant to Section 7.1 shall be deemed to remain
the property of the providing party. Unless specifically set forth herein,
nothing contained in this Agreement
20
shall be construed as granting or conferring rights of license or otherwise in
any such Information.
7.3. COMPENSATION FOR PROVIDING INFORMATION. The party requesting such
Information agrees to reimburse the other party for the reasonable costs, if
any, of creating, gathering and copying such Information, to the extent that
such costs are incurred for the benefit of the requesting party. Except as may
be otherwise specifically provided elsewhere in this Agreement or in any other
agreement between the parties, such costs shall be computed in accordance with
the providing party's standard methodology and procedures.
7.4. RECORD RETENTION. To facilitate the possible exchange of Information
pursuant to this Article VII and other provisions of this Agreement after the
Distribution Date, the parties agree to use their reasonable best efforts to
retain all Information in their respective possession or control on the
Distribution Date in accordance with the policies of CCI as in effect on the
Closing Date. No party will destroy, or permit any of its Subsidiaries to
destroy, any Information which the other party may have the right to obtain
pursuant to this Agreement prior to the third anniversary of the date hereof
without first using its reasonable best efforts to notify the other party of the
proposed destruction and giving the other party the opportunity to take
possession of such information prior to such destruction; provided, however,
-------- -------
that in the case of any Information relating to Taxes or to Environmental
Liabilities, such period shall be extended to the expiration of the applicable
statute of limitations (giving effect to any extensions thereof).
7.5. LIMITATION OF LIABILITY. No party shall have any liability to any
other party in the event that any Information exchanged or provided pursuant to
this Agreement which is an estimate or forecast, or which is based on an
estimate or forecast, is found to be inaccurate, in the absence of willful
misconduct by the party providing such Information. No party shall have any
liability to any other party if any Information is destroyed after reasonable
best efforts by such party to comply with the provisions of Section 7.4.
7.6. OTHER AGREEMENTS PROVIDING FOR EXCHANGE OF INFORMATION. The rights and
obligations granted under this Article VI are subject to any specific
limitations, qualifications or additional provisions on the sharing, exchange or
confidential treatment of Information set forth in any Ancillary Agreement.
7.7. PRODUCTION OF WITNESSES; RECORDS; COOPERATION. (a) After the Closing
Date, except in the case of an adversarial Action by one party against another
party, each party hereto shall use its reasonable best efforts to make available
to each other party, upon written request, the former, current and future
directors, officers, employees, other personnel and agents of the members of its
respective Group as witnesses and any books, records or other documents within
its control or which it otherwise has the ability to make available, to the
extent that any such person (giving consideration to business demands of such
directors, officers, employees, other personnel and agents) or books, records or
other documents may reasonably be required in connection with any Action in
which the requesting party may from time to time be involved, regardless of
whether such Action is a matter with respect to which indemnification may be
sought hereunder. The requesting party shall bear all costs and expenses in
connection therewith.
21
(b) If an Indemnifying Party chooses to defend or to seek to
compromise or settle any Third Party Claim, the other parties shall make
available to such Indemnifying Party or such other party, as the case may be,
upon written request, the former, current and future directors, officers,
employees, other personnel and agents of the members of its respective Group as
witnesses and any books, records or other documents within its control or which
it otherwise has the ability to make available, to the extent that any such
person (giving consideration to business demands of such directors, officers,
employees, other personnel and agents) or books, records or other documents may
reasonably be required in connection with such defense, settlement or
compromise, or such prosecution, evaluation or pursuit, as the case may be, and
shall otherwise cooperate in such defense, settlement or compromise, or such
prosecution, evaluation or pursuit, as the case may be.
(c) Without limiting the foregoing, the parties shall cooperate and
consult to the extent reasonably necessary with respect to any Actions.
(d) Without limiting any provision of this Section, each of the
parties agrees to cooperate, and to cause each member of its respective Group to
cooperate, with each other in the defense of any infringement or similar claim
with respect to any intellectual property and shall not claim to acknowledge, or
permit any member of its respective Group to claim to acknowledge, the validity
or infringing use of any intellectual property of a third Person in a manner
that would hamper or undermine the defense of such infringement or similar
claim.
(e) The obligation of the parties to provide witnesses pursuant to
this Section 7.7 is intended to be interpreted in a manner so as to facilitate
cooperation and shall include the obligation to provide as witnesses inventors
and other officers without regard to whether the witness or the employer of the
witness could assert a possible business conflict (subject to the exception set
forth in the first sentence of Section 7.7(a)).
(f) In connection with any matter contemplated by this Section 7.7,
the parties will enter into a mutually acceptable joint defense agreement so as
to maintain to the extent practicable any applicable attorney-client privilege
or work product immunity of any member of any Group.
7.8. CONFIDENTIALITY. (a) Subject to Section 7.9, each of CCI and uBid, on
behalf of itself and each member of its respective Group, agrees to hold, and to
cause its respective directors, officers, employees, agents, accountants,
counsel and other advisors and representatives to hold, in strict confidence,
with at least the same degree of care that applies to CCI's confidential and
proprietary information pursuant to policies in effect as of the Closing Date,
all Information concerning each such other Group that is either in its
possession (including Information in its possession prior to any of the date
hereof, the Closing Date or the Distribution Date) or furnished by any such
other Group or its respective directors, officers, employees, agents,
accountants, counsel and other advisors and representatives at any time pursuant
to this Agreement, any Ancillary Agreement, the Registration Rights Agreements,
the Tax Indemnification and Allocation Agreement or otherwise, and shall not use
any such Information other than for such purposes as shall be expressly
permitted hereunder or thereunder, except, in each case, to the extent that such
Information has been (i) in the public domain through no fault of such party or
any member of such Group or any of their respective directors, officers,
22
employees, agents, accountants, counsel and other advisors and representatives,
(ii) later lawfully acquired from other sources by such party (or any member of
such party's Group) which sources are not themselves bound by a confidentiality
obligation), or (iii) independently generated without reference to any
proprietary or confidential Information of the other party.
(b) Each party agrees not to release or disclose, or permit to be
released or disclosed, any such Information to any other Person, except its
directors, officers, employees, agents, accountants, counsel and other advisors
and representatives who need to know such Information (who shall be advised of
their obligations hereunder with respect to such Information), except in
compliance with Section 7.9. Without limiting the foregoing, when any
Information is no longer needed for the purposes contemplated by this Agreement,
any Ancillary Agreement, the Registration Rights Agreements or the Tax
Indemnification and Allocation Agreement, each party will promptly after request
of the other party either return to the other party all Information in a
tangible form (including all copies thereof and all notes, extracts or summaries
based thereon) or certify to the other party that it has destroyed such
Information (and such copies thereof and such notes, extracts or summaries based
thereon).
7.9. PROTECTIVE ARRANGEMENTS. In the event that any party or any member of
its Group either determines on the advice of its counsel that it is required to
disclose any Information pursuant to applicable law or receives any demand under
lawful process or from any Governmental Authority to disclose or provide
Information of any other party (or any member of any other party's Group) that
is subject to the confidentiality provisions hereof, such party shall notify the
other party prior to disclosing or providing such Information and shall
cooperate at the expense of the requesting party in seeking any reasonable
protective arrangements requested by such other party. Subject to the foregoing,
the Person that received such request may thereafter disclose or provide
Information to the extent required by such law (as so advised by counsel) or by
lawful process or such Governmental Authority.
ARTICLE VIII
ARBITRATION; DISPUTE RESOLUTION
8.1. AGREEMENT TO ARBITRATE. Except as otherwise specifically provided in
any Ancillary Agreement, the procedures for discussion, negotiation and
arbitration set forth in this Article VIII shall apply to all disputes,
controversies or claims (whether sounding in contract, tort or otherwise) that
may arise out of or relate to, or arise under or in connection with this
Agreement or any Ancillary Agreement, or the transactions contemplated hereby or
thereby (including all actions taken in furtherance of the transactions
contemplated hereby or thereby on or prior to the date hereof), or the
commercial or economic relationship of the parties relating hereto or thereto,
between or among any member of the CCI Group and the uBid Group. Each party
agrees on behalf of itself and each member of its respective Group that the
procedures set forth in this Article IX shall be the sole and exclusive remedy
in connection with any dispute, controversy or claim relating to any of the
foregoing matters and irrevocably waives any right to commence any Action in or
before any Governmental Authority, except as expressly provided in Sections
8.7(b) and 8.8 and except to the extent provided under the Arbitration Act in
the case of judicial review of arbitration results or awards. Each party on
behalf of itself and each member
23
of its respective Group irrevocably waives any right to any trial by jury with
respect to any claim, controversy or dispute set forth in the first sentence of
this Section 8.1.
8.2. ESCALATION. (a) It is the intent of the parties to use their
respective reasonable best efforts to resolve expeditiously any dispute,
controversy or claim between or among them with respect to the matters covered
hereby that may arise from time to time on a mutually acceptable negotiated
basis. In furtherance of the foregoing, any party involved in a dispute,
controversy or claim shall deliver a notice (an "Escalation Notice") demanding
an in person meeting involving representatives of the parties at a senior level
of management of the parties (or if the parties agree, of the appropriate
strategic business unit or division within such entity). A copy of any such
Escalation Notice shall be given to the Chief Financial Officer, or like officer
or official, of each party involved in the dispute, controversy or claim (which
copy shall state that it is an Escalation Notice pursuant to this Agreement).
Any agenda, location or procedure for such discussions or negotiations between
the parties may be established by the parties from time to time; provided,
--------
however, that the parties shall use their reasonable best efforts to meet within
- -------
30 days of the Escalation Notice.
(b) The parties may, by mutual consent, retain a mediator to aid the
parties in their discussions and negotiations by informally providing advice to
the parties. Any opinion expressed by the mediator shall be strictly advisory
and shall not be binding on the parties, nor shall any opinion expressed by the
mediator be admissible in any arbitration proceedings. The mediator may be
chosen from a list of mediators previously selected by the parties or by other
agreement of the parties. Costs of the mediation shall be borne equally by the
parties involved in the matter, except that each party shall be responsible for
its own expenses. Mediation is not a prerequisite to a demand for arbitration
under Section 8.3.
8.3. DEMAND FOR ARBITRATION. (a) At any time after the first to occur of
(i) the date of the meeting actually held pursuant to the applicable Escalation
Notice or (ii) 45 days after the delivery of an Escalation Notice (as
applicable, the "Arbitration Demand Date"), any party involved in the dispute,
controversy or claim (regardless of whether such party delivered the Escalation
Notice) may, unless the Applicable Deadline has occurred, make a written demand
(the "Arbitration Demand Notice") that the dispute be resolved by binding
arbitration, which Arbitration Demand Notice shall be given to the parties to
the dispute, controversy or claim in the manner set forth in Section 11.5. In
the event that any party shall deliver an Arbitration Demand Notice to another
party, such other party may itself deliver an Arbitration Demand Notice to such
first party with respect to any related dispute, controversy or claim with
respect to which the Applicable Deadline has not passed without the requirement
of delivering an Escalation Notice. No party may assert that the failure to
resolve any matter during any discussions or negotiations, the course of conduct
during the discussions or negotiations or the failure to agree on a mutually
acceptable time, agenda, location or procedures for the meeting, in each case,
as contemplated by Section 8.2, is a prerequisite to a demand for arbitration
under Section 8.3.
(b) Except as may be expressly provided in any Ancillary Agreement,
any Arbitration Demand Notice may be given until one year and 45 days after the
later of the occurrence of the act or event giving rise to the underlying claim
or the date on which such act or event was, or should have been, in the exercise
of reasonable due diligence, discovered by the
24
party asserting the claim (as applicable and as it may in a particular case be
specifically extended by the parties in writing, the "Applicable Deadline"). Any
discussions, negotiations or mediations between the parties pursuant to this
Agreement or otherwise will not toll the Applicable Deadline unless expressly
agreed in writing by the parties. Each of the parties agrees on behalf of itself
and each member of its Group that if an Arbitration Demand Notice with respect
to a dispute, controversy or claim is not given prior to the expiration of the
Applicable Deadline, as between or among the parties and the members of their
Groups, such dispute, controversy or claim will be barred. Subject to Sections
8.7(d) and 8.8, upon delivery of an Arbitration Demand Notice pursuant to
Section 8.3(a) prior to the Applicable Deadline, the dispute, controversy or
claim shall be decided by a sole arbitrator in accordance with the rules set
forth in this Article VIII.
8.4. ARBITRATORS. (a) Within 15 days after a valid Arbitration Demand
Notice is given, the parties involved in the dispute, controversy or claim
referenced therein shall attempt to select a sole arbitrator satisfactory to all
such parties.
(b) In the event that such parties are not able jointly to select a
sole arbitrator within such 15-day period, such parties shall each appoint an
arbitrator within 30 days after delivery of the Arbitration Demand Notice. If
one party appoints an arbitrator within such time period and the other party or
parties fail to appoint an arbitrator within such time period, the arbitrator
appointed by the one party shall be the sole arbitrator of the matter.
(c) In the event that a sole arbitrator is not selected pursuant to
paragraph (a) or (b) above and, instead, two or three arbitrators are selected
pursuant to paragraph (b) above, the two or three arbitrators will, within 30
days after the appointment of the later of them to be appointed, select an
additional arbitrator who shall act as the sole arbitrator of the dispute. After
selection of such sole arbitrator, the initial arbitrators shall have no further
role with respect to the dispute. In the event that the arbitrators so appointed
do not, within 30 days after the appointment of the later of them to be
appointed, agree on the selection of the sole arbitrator, any party involved in
such dispute may apply to CPR, New York, New York to select the sole arbitrator,
which selection shall be made by such organization within 30 days after such
application. Any arbitrator selected pursuant to this paragraph (c) shall be
disinterested with respect to any of the parties and the matter and shall be
reasonably competent in the applicable subject matter.
(d) The sole arbitrator selected pursuant to paragraph (a), (b) or
(c) above will set a time for the hearing of the matter which will commence no
later than 90 days after the date of appointment of the sole arbitrator pursuant
to paragraph (a), (b) or (c) above and which hearing will be no longer than 30
days (unless in the judgment of the arbitrator the matter is unusually complex
and sophisticated and thereby requires a longer time, in which event such
hearing shall be no longer than 90 days). The final decision of such arbitrator
will be rendered in writing to the parties not later than 60 days after the last
hearing date, unless otherwise agreed by the parties in writing.
(e) The place of any arbitration hereunder will be Los Angeles,
California, unless otherwise agreed by the parties.
25
8.5. HEARINGS. Within the time period specified in Section 8.4(d), the
matter shall be presented to the arbitrator at a hearing by means of written
submissions of memoranda and verified witness statements, filed simultaneously,
and responses, if necessary in the judgment of the arbitrator or both the
parties. If the arbitrator deems it to be essential to a fair resolution of the
dispute, live cross-examination or direct examination may be permitted, but is
not generally contemplated to be necessary. The arbitrator shall actively manage
the arbitration with a view to achieving a just, speedy and cost-effective
resolution of the dispute, claim or controversy. The arbitrator may, in his or
her discretion, set time and other limits on the presentation of each party's
case, its memoranda or other submissions, and refuse to receive any proffered
evidence, which the arbitrator, in his or her discretion, finds to be
cumulative, unnecessary, irrelevant or of low probative nature. Except as
otherwise set forth herein, any arbitration hereunder will be conducted in
accordance with the CPR Rules for Non-Administered Arbitration of Business
Disputes then prevailing (except that the arbitration will not be conducted
under the auspices of the CPR and the fee schedule of the CPR will not apply).
Except as expressly set forth in Section 8.8(b), the decision of the arbitrator
will be final and binding on the parties, and judgment thereon may be had and
will be enforceable in any court having jurisdiction over the parties.
Arbitration awards will bear interest at an annual rate of the Prime Rate plus
2% per annum. To the extent that the provisions of this Agreement and the
prevailing rules of the CPR conflict, the provisions of this Agreement shall
govern.
8.6. DISCOVERY AND CERTAIN OTHER MATTERS. (a) Any party involved in the
applicable dispute may request limited document production from the other party
or parties of specific and expressly relevant documents, with the reasonable
expenses of the producing party incurred in such production paid by the
requesting party. Any such discovery (which rights to documents shall be
substantially less than document discovery rights prevailing under the Federal
Rules of Civil Procedure) shall be conducted expeditiously and shall not cause
the hearing provided for in Section 8.5 to be adjourned except upon consent of
all parties involved in the applicable dispute or upon an extraordinary showing
of cause demonstrating that such adjournment is necessary to permit discovery
essential to a party to the proceeding. Depositions, interrogatories or other
forms of discovery (other than the document production set forth above) shall
not occur except by consent of the parties involved in the applicable dispute.
Disputes concerning the scope of document production and enforcement of the
document production requests will be determined by written agreement of the
parties involved in the applicable dispute or, failing such agreement, will be
referred to the arbitrator for resolution. All discovery requests will be
subject to the proprietary rights and rights of privilege of the parties, and
the arbitrator will adopt procedures to protect such rights and to maintain the
confidential treatment of the arbitration proceedings (except as may be required
by law). Subject to the foregoing, the arbitrator shall have the power to issue
subpoenas to compel the production of documents relevant to the dispute,
controversy or claim.
(b) The arbitrator shall have full power and authority to determine
issues of arbitrability but shall otherwise be limited to interpreting or
construing the applicable provisions of this Agreement or any Ancillary
Agreement, and will have no authority or power to limit, expand, alter, amend,
modify, revoke or suspend any condition or provision of this Agreement or any
Ancillary Agreement; it being understood, however, that the arbitrator will have
full authority to implement the provisions of this Agreement or any Ancillary
Agreement, and to fashion appropriate remedies for breaches of this Agreement
(including interim or permanent
26
injunctive relief); provided that the arbitrator shall not have (i) any
authority in excess of the authority a court having jurisdiction over the
parties and the controversy or dispute would have absent these arbitration
provisions or (ii) any right or power to award punitive or treble damages. It is
the intention of the parties that in rendering a decision the arbitrator give
effect to the applicable provisions of this Agreement and the Ancillary
Agreements and follow applicable law (it being understood and agreed that this
sentence shall not give rise to a right of judicial review of the arbitrator's
award).
(c) If a party fails or refuses to appear at and participate in an
arbitration hearing after due notice, the arbitrator may hear and determine the
controversy upon evidence produced by the appearing party.
(d) Arbitration costs will be borne equally by each party involved in
the matter, except that each party will be responsible for its own attorney's
fees and other costs and expenses, including the costs of witnesses selected by
such party.
8.7. CERTAIN ADDITIONAL MATTERS. (a) Any arbitration award shall be a bare
award limited to a holding for or against a party and shall be without findings
as to facts, issues or conclusions of law (including with respect to any matters
relating to the validity or infringement of patents or patent applications) and
shall be without a statement of the reasoning on which the award rests, but must
be in adequate form so that a judgment of a court may be entered thereupon.
Judgment upon any arbitration award hereunder may be entered in any court having
jurisdiction thereof.
(b) Prior to the time at which an arbitrator is appointed pursuant to
Section 8.4, any party may seek one or more temporary restraining orders in a
court of competent jurisdiction if necessary in order to preserve and protect
the status quo. Neither the request for, or grant or denial of, any such
temporary restraining order shall be deemed a waiver of the obligation to
arbitrate as set forth herein and the arbitrator may dissolve, continue or
modify any such order. Any such temporary restraining order shall remain in
effect until the first to occur of the expiration of the order in accordance
with its terms or the dissolution thereof by the arbitrator.
(c) Except as required by law, the parties shall hold, and shall
cause their respective officers, directors, employees, agents and other
representatives to hold, the existence, content and result of mediation or
arbitration in confidence in accordance with the provisions of Article VIII and
except as may be required in order to enforce any award. Each of the parties
shall request that any mediator or arbitrator comply with such confidentiality
requirement.
(d) In the event that at any time the sole arbitrator shall fail to
serve as an arbitrator for any reason, the parties shall select a new arbitrator
who shall be disinterested as to the parties and the matter in accordance with
the procedures set forth herein for the selection of the initial arbitrator. The
extent, if any, to which testimony previously given shall be repeated or as to
which the replacement arbitrator elects to rely on the stenographic record (if
there is one) of such testimony shall be determined by the replacement
arbitrator.
8.8. LIMITED COURT ACTIONS. (a) Notwithstanding anything herein to the
contrary, in the event that any party reasonably determines the amount in
controversy in any dispute,
27
controversy or claim (or any series of related disputes, controversies or
claims) under this Agreement or any Ancillary Agreement is, or is reasonably
likely to be, in excess of $5 million and if such party desires to commence an
Action in lieu of complying with the arbitration provisions of this Article,
such party shall so state in its Arbitration Demand Notice. If the other parties
to the arbitration do not agree that the amount in controversy in such dispute,
controversy or claim (or such series of related disputes, controversies or
claims) is, or is reasonably likely to be, in excess of $5 million, the
arbitrator selected pursuant to Section 8.4 hereof shall decide whether the
amount in controversy in such dispute, controversy or claim (or such series of
related disputes, controversies or claims) is, or is reasonably likely to be, in
excess of $5 million. The arbitrator shall set a date that is no later than ten
days after the date of his or her appointment for submissions by the parties
with respect to such issue. There shall not be any discovery in connection with
such issue. The arbitrator shall render his or her decision on such issue within
five days of such date so set by the arbitrator. In the event that the
arbitrator determines that the amount in controversy in such dispute,
controversy or claim (or such series of related disputes, controversies or
claims) is or is reasonably likely to be in excess of $5 million, the provisions
of Sections 8.4(d) and (e), 8.5, 8.6, 8.7 and 8.10 hereof shall not apply and on
or before (but, except as expressly set forth in Section 8.8(b), not after) the
tenth business day after the date of such decision, any party to the arbitration
may elect, in lieu of arbitration, to commence an Action with respect to such
dispute, controversy or claim (or such series of related disputes, controversies
or claims) in any court of competent jurisdiction. If the arbitrator does not so
determine, the provisions of this Article (including with respect to time
periods) shall apply as if no determinations were sought or made pursuant to
this Section 8.8(a).
(b) In the event that an arbitration award in excess of $5 million
is issued in any arbitration proceeding commenced hereunder, any party may,
within 60 days after the date of such award, submit the dispute, controversy or
claim (or series of related disputes, controversies or claims) giving rise
thereto to a court of competent jurisdiction, regardless of whether such party
or any other party sought to commence an Action in lieu of proceeding with
arbitration in accordance with Section 8.8(a). In such event, the applicable
court may elect to rely on the record developed in the arbitration or, if it
determines that it would be advisable in connection with the matter, allow the
parties to seek additional discovery or to present additional evidence. Each
party shall be entitled to present arguments to the court with respect to
whether any such additional discovery or evidence shall be permitted and with
respect to all other matters relating to the applicable dispute, controversy or
claim (or series of related disputes, controversies or claims).
8.9. CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in
writing, the parties will continue to provide service and honor all other
commitments under this Agreement and each Ancillary Agreement during the course
of dispute resolution pursuant to the provisions of this Article VIII with
respect to all matters not subject to such dispute, controversy or claim.
8.10. LAW GOVERNING ARBITRATION PROCEDURES. The interpretation of the
provisions of this Article VIII, only insofar as they relate to the agreement to
arbitrate and any procedures pursuant thereto, shall be governed by the
Arbitration Act and other applicable federal law. In all other respects, the
interpretation of this Agreement shall be governed as set forth in Section 11.2.
28
ARTICLE IX
FURTHER ASSURANCES AND ADDITIONAL COVENANTS
9.1. FURTHER ASSURANCES. (a) In addition to the actions specifically
provided for elsewhere in this Agreement, each of the parties hereto shall use
its reasonable best efforts, prior to, on and after the Closing Date, to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
reasonably necessary, proper or advisable under applicable laws, regulations and
agreements to consummate and make effective the transactions contemplated by
this Agreement, the Ancillary Agreements, the Registration Rights Agreements and
the Tax Indemnification and Allocation Agreement.
(b) Without limiting the foregoing, prior to, on and after the
Closing Date, each party hereto shall cooperate with the other parties, and
without any further consideration, but at the expense of the requesting party,
to execute and deliver, or use its reasonable best efforts to cause to be
executed and delivered, all instruments, including instruments of conveyance,
assignment and transfer, and to make all filings with, and to obtain all
consents, approvals or authorizations of, any Governmental Authority or any
other Person under any permit, license, agreement, indenture or other instrument
and to take all such other actions as such party may reasonably be requested to
take by any other party hereto from time to time, consistent with the terms of
this Agreement and the Ancillary Agreements, in order to effectuate the
provisions and purposes of this Agreement and the Ancillary Agreements and the
other transactions contemplated hereby and thereby. Without limiting the
foregoing, each party will, at the reasonable request, cost and expense of any
other party, take such other actions as may be reasonably necessary to vest in
such other party good and marketable title, free and clear of any Security
Interest, if and to the extent it is practicable to do so.
(c) On or prior to the Closing Date, CCI and uBid in their respective
capacities as direct and indirect stockholders of their respective Subsidiaries,
shall each ratify any actions which are reasonably necessary or desirable to be
taken by CCI, uBid or any other Subsidiary of CCI, as the case may be, to
effectuate the transactions contemplated by this Agreement.
(d) The parties hereto agree to take any reasonable actions necessary
in order for the Distribution to qualify as a tax-free distribution pursuant to
Section 355 of the Code.
(e) CCI and uBid, and each of the members of their respective Groups,
waive (and agree not to assert against any of the others) any claim or demand
that any of them may have against any of the others for any Liabilities or other
claims relating to or arising out of: (i) the failure of uBid or any member of
the uBid Group, on the one hand, or of CCI or any member of the CCI Group, on
the other hand, to provide any notification or disclosure required under any
state Environmental Law in connection with the transactions contemplated by this
Agreement, or (ii) any inadequate, incorrect or incomplete notification or
disclosure under any such state Environmental Law by the applicable transferor.
(f) Prior to the Closing Date, if one or more of the parties
identifies any commercial or other service that is needed to assure a smooth and
orderly transition of the businesses in connection with the consummation of the
transactions contemplated hereby, and that is not otherwise governed by the
provisions of this Agreement or any Ancillary Agreement,
29
the parties will cooperate in determining whether there is a mutually acceptable
arm's-length basis on which one or more of the other parties will provide such
service.
9.2. QUALIFICATION AS TAX-FREE DISTRIBUTION. After the Closing Date,
neither CCI nor uBid shall take, or permit any member of its respective Group to
take, any action which could reasonably be expected to prevent the Distribution
from qualifying as a tax-free distribution within the meaning of Section 355 of
the Code or any other transaction contemplated by this Agreement or any
Ancillary Agreement which is intended by the parties to be tax-free from failing
so to qualify. Without limiting the foregoing, after the Closing Date and on or
prior to the Distribution Date, uBid shall not issue or grant, and shall not
permit any member of the uBid Group to issue or grant, directly or indirectly,
any shares of uBid Common Stock or any rights, warrants, options or other
securities to purchase or acquire (whether upon conversion, exchange or
otherwise) any shares of uBid Common Stock (whether or not then exercisable,
convertible or exchangeable) except for grants of stock options to employees and
directors or uBid that by their terms cannot be exercised until after the
earlier of (i) the Distribution Date or (ii) 18 months following the Closing
Date.
ARTICLE X
TERMINATION
10.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at
any time prior to the Distribution Date by the mutual consent of CCI and uBid.
10.2. OTHER TERMINATION. This Agreement may be terminated by CCI at any
time prior to the Closing Date. The obligations of the parties under Article III
(including the obligation to pursue or effect the Distribution) may be
terminated by CCI if the Distribution Date shall not have occurred on or before
December 31, 1999.
10.3. EFFECT OF TERMINATION. (a) In the event of any termination of this
Agreement prior to the Closing Date, no party to this Agreement (or any of its
directors or officers) shall have any Liability or further obligation to any
other party.
(b) In the event of any termination of this Agreement on or after
the Closing Date, only the provisions of Article III will terminate and the
other provisions of this Agreement, each Ancillary Agreement and the
Registration Rights Agreements shall remain in full force and effect.
ARTICLE XI
MISCELLANEOUS
11.1. COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER. (a) This Agreement
may be executed in one or more counterparts, all of which shall be considered
one and the same agreement, and shall become effective when one or more
counterparts have been signed by each of the parties and delivered to the other
party.
30
(b) This Agreement, and the Exhibits, Schedules and Appendices
hereto contain the entire agreement between the parties with respect to the
subject matter hereof, supersede all previous agreements, negotiations,
discussions, writings, understandings, commitments and conversations with
respect to such subject matter and there are no agreements or understandings
between the parties other than those set forth or referred to herein or therein.
(c) CCI represents on behalf of itself and each other member of the
CCI Group and uBid represents on behalf of itself and each other member of the
uBid Group as follows:
(i) each such Person has the requisite corporate or other
power and authority and has taken all corporate or other action necessary
in order to execute, deliver and perform each of this Agreement, each of
the Ancillary Agreements, the Registration Rights Agreements and the Tax
Indemnification and Allocation Agreement to which it is a party and to
consummate the transactions contemplated hereby and thereby; and
(ii) this Agreement, each Ancillary Agreement, the
Registration Rights Agreements and the Tax Indemnification and Allocation
Agreement to which it is a party has been duly executed and delivered by it
and constitutes a valid and binding agreement of it enforceable in
accordance with the terms thereof.
11.2. GOVERNING LAW. Except as set forth in Section 8.10, this Agreement
shall be governed by and construed and interpreted in accordance with the laws
of the State of California (other than as to its laws of arbitration which shall
be governed under the Arbitration Act or other applicable federal law pursuant
to Section 8.10), irrespective of the choice of laws principles of the State of
California, as to all matters, including matters of validity, construction,
effect, enforceability, performance and remedies.
11.3. ASSIGNABILITY. Except as set forth in any Ancillary Agreement, the
Registration Rights Agreements or the Tax Indemnification and Allocation
Agreement, this Agreement, each Ancillary Agreement, the Registration Rights
Agreements and the Tax Indemnification and Allocation Agreement shall be binding
upon and inure to the benefit of the parties hereto and thereto, respectively,
and their respective successors and assigns; provided, however, that no party
-------- -------
hereto or thereto may assign its respective rights or delegate its respective
obligations under this Agreement, any Ancillary Agreement, the Registration
Rights Agreements or the Tax Indemnification and Allocation Agreement without
the express prior written consent of the other parties hereto or thereto.
11.4. THIRD PARTY BENEFICIARIES. Except for the indemnification rights
under this Agreement of any CCI Indemnitee or uBid Indemnitee in their
respective capacities as such, (a) the provisions of this Agreement, each
Ancillary Agreement, the Registration Rights Agreements and the Tax
Indemnification and Allocation Agreement are solely for the benefit of the
parties and are not intended to confer upon any Person except the parties any
rights or remedies hereunder, and (b) there are no third party beneficiaries of
this Agreement, any Ancillary Agreement, the Registration Rights Agreements or
the Tax Indemnification and Allocation Agreement and none of this Agreement, any
Ancillary Agreement, the Registration Rights Agreements or the Tax
Indemnification and Allocation Agreement shall provide any third person with any
remedy, claim, liability, reimbursement, claim of action or other right in
excess
31
of those existing without reference to this Agreement, any Ancillary Agreement,
the Registration Rights Agreements or the Tax Indemnification and Allocation
Agreement. No party hereto shall have any right, remedy or claim with respect to
any provision of this Agreement, any Ancillary Agreement, the Registration
Rights Agreements or the Tax Indemnification and Allocation Agreement to the
extent such provision relates solely to the other two parties hereto or the
members of such other two parties' respective Groups.
11.5. NOTICES. All notices requests, demands, waivers and other
communications under this Agreement, any Ancillary Agreement or the Tax
Indemnification and Allocation Agreement shall be in writing and shall be deemed
to have been duly given if delivered personally or by facsimile transmission or
mailed (certified or registered mail, postage prepaid, return receipt
requested):
If to CCI, to: Creative Computers, Inc.
2555 West 190th Street
Torrance, California 90504
Attention: Chief Financial Officer
Fax No.: (310) 354-5645
If to uBid: uBid, Inc.
2525 Busse Highway
Elk Grove Village, Illinois 60007
Attention: Chief Financial Officer
Fax No.: (847) 616-0318
or to such other person or address as any party shall specify by notice in
writing to the other party. All such notices, requests, demands, waivers and
communications shall be deemed to have been received on the date on which hand
delivered, upon transmission of the facsimile transmission by the sender and
issuance by the transmitting machine of a confirmation slip confirming that the
number of pages constituting the notice have been transmitted without error, or
on the third business day following the date on which so mailed, except for a
notice of change of address, which shall be effective only upon receipt thereof.
In the case of a notice sent by facsimile transmission, the sender shall
contemporaneously mail a copy of the notice to the addressee at the address
provided for above. However, such mailing shall in no way alter the time at
which the facsimile notice is deemed received. In no event shall the provision
of notice pursuant to this Section 11.5 constitute notice for service of
process.
11.6. SEVERABILITY. If any provision of this Agreement, any Ancillary
Agreement, the Registration Rights Agreements or the Tax Indemnification and
Allocation Agreement or the application thereof to any Person or circumstance is
determined by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions hereof or thereof, or the application of
such provision to Persons or circumstances or in jurisdictions other than those
as to which it has been held invalid or unenforceable, shall remain in full
force and effect and shall in no way be affected, impaired or invalidated
thereby, so long as the economic or legal
32
substance of the transactions contemplated hereby or thereby, as the case
may be, is not affected in any manner adverse to any party. Upon such
determination, the parties shall negotiate in good faith in an effort to agree
upon such a suitable and equitable provision to effect the original intent of
the parties.
11.7. FORCE MAJEURE. No party shall be deemed in default of this Agreement,
any Ancillary Agreement, the Registration Rights Agreements or the Tax
Indemnification and Allocation Agreement to the extent that any delay or failure
in the performance of its obligations under this Agreement, any Ancillary
Agreement, the Registration Rights Agreements or the Tax Indemnification and
Allocation Agreement results from any cause beyond its reasonable control and
without its fault or negligence, such as acts of God, acts of civil or military
authority, embargoes, epidemics, war, riots, insurrections, fires, explosions,
earthquakes, floods, unusually severe weather conditions, labor problems or
unavailability of parts, or, in the case of computer systems, any failure in
electrical or air conditioning equipment. In the event of any such excused
delay, the time for performance shall be extended for a period equal to the time
lost by reason of the delay.
11.8. PUBLICITY. Prior to the Distribution, each of uBid and CCI shall
consult with each other prior to issuing any press releases or otherwise making
public statements with respect to the IPO, the Distribution or any of the other
transactions contemplated hereby and prior to making any filings with any
Governmental Authority with respect thereto.
11.9. EXPENSES. uBid shall pay all third-party costs, fees and expenses
relating to the IPO, all of the reimbursable expenses of the Underwriters
pursuant to the Underwriting Agreement, all of the costs of producing, printing,
mailing and otherwise distributing any Prospectus, as well as the Underwriters'
discount provided for in the Underwriting Agreement. Except as expressly set
forth in this Agreement (including Section 3.1(h) hereof) or in any Ancillary
Agreement, the Registration Rights Agreements or in the Tax Indemnification and
Allocation Agreement, whether or not the Distribution is consummated, each party
hereto shall bear its own respective third party fees, costs and expenses paid
or incurred in connection with the Distribution.
11.10. HEADINGS. The article, section and paragraph headings contained in
this Agreement and in the Ancillary Agreements, the Registration Rights
Agreements and the Tax Indemnification and Allocation Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement or any Ancillary Agreement.
11.11. SURVIVAL OF COVENANTS. Except as expressly set forth in any
Ancillary Agreement, the Registration Rights Agreements and the Tax
Indemnification and Allocation Agreement, the covenants, representations and
warranties contained in this Agreement and each Ancillary Agreement, and
liability for the breach of any obligations contained herein, shall survive each
of the IPO and the Distribution.
11.12. WAIVERS OF DEFAULT. Waiver by any party of any default by the other
party of any provision of this Agreement, any Ancillary Agreement, the
Registration Rights Agreements or the Tax Indemnification and Allocation
Agreement shall not be deemed a waiver
33
by the waiving party of any subsequent or other default, nor shall it prejudice
the rights of the other party.
11.13. SPECIFIC PERFORMANCE. In the event of any actual or threatened
default in, or breach of, any of the terms, conditions and provisions of this
Agreement, any Ancillary Agreement, the Registration Rights Agreements or the
Tax Indemnification and Allocation Agreement, the party or parties who are or
are to be thereby aggrieved shall have the right to specific performance and
injunctive or other equitable relief of its rights under this Agreement, such
Ancillary Agreement, the Registration Rights Agreements or the Tax
Indemnification and Allocation Agreement, in addition to any and all other
rights and remedies at law or in equity, and all such rights and remedies shall
be cumulative. The parties agree that the remedies at law for any breach or
threatened breach, including monetary damages, are inadequate compensation for
any loss and that any defense in any action for specific performance that a
remedy at law would be adequate is waived. Any requirements for the securing or
posting of any bond with such remedy are waived.
11.14. AMENDMENTS. (a) No provisions of this Agreement, any Ancillary
Agreement, the Registration Rights Agreements or the Tax Indemnification and
Allocation Agreement shall be deemed waived, amended, supplemented or modified
by any party, unless such waiver, amendment, supplement or modification is in
writing and signed by the authorized representative of the party against whom it
is sought to enforce such waiver, amendment, supplement or modification.
(b) Without limiting the foregoing, the parties anticipate that, prior
to the Closing Date, some or all of the Schedules to this Agreement may be
amended or supplemented and, in such event, such amended or supplemented
Schedules shall be attached hereto in lieu of the original Schedules.
11.15. INTERPRETATION. Words in the singular shall be held to include the
plural and vice versa and words of one gender shall be held to include the other
genders as the context requires. The terms "hereof," "herein," and "herewith"
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement (or the applicable Ancillary Agreement, the Registration
Rights Agreements or the Tax Indemnification and Allocation Agreement) as a
whole (including all of the Schedules, Exhibits and Appendices hereto and
thereto) and not to any particular provision of this Agreement (or such
Ancillary Agreement, the Registration Rights Agreements or the Tax
Indemnification and Allocation Agreement). Article, Section, Exhibit, Schedule
and Appendix references are to the Articles, Sections, Exhibits, Schedules and
Appendices to this Agreement (or the applicable Ancillary Agreement) unless
otherwise specified. The word "including" and words of similar import when used
in this Agreement (or the applicable Ancillary Agreement, the Registration
Rights Agreements or the Tax Indemnification and Allocation Agreement) shall
mean "including, without limitation," unless the context otherwise requires or
unless otherwise specified. The word "or" shall not be exclusive.
IN WITNESS WHEREOF, the parties have caused this Separation and
Distribution Agreement to be executed by their duly authorized representatives.
34
CREATIVE COMPUTERS, INC.
By: /s/ THEODORE R. SANDERS
-----------------------
Name: Theodore R. Sanders
Title: Chief Financial Officer
uBID, INC.
By: /s/ THOMAS E. WERNER
--------------------
Name: Thomas E. Werner
Title: Vice President and
Chief Financial Officer
35
Exhibit A
(Creative Computers Inc. Registration Rights Agreements)
Exhibit B
(Frank and Sam Khulusi Registration Rights Agreements)
Schedule 1.5
(Ancillary Agreements)