Filed by Cyberian Outpost, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Cyberian Outpost, Inc.
Commission File Number: 000-24659
The following communications contain forward-looking statements within the
meaning of the Safe Harbor Provisions of the Private Securities Litigation
Reform Act of 1995 about Cyberian Outpost, Inc., PC Connection, Inc., and the
proposed merger. These statements are not guarantees of future performance and
actual results could differ materially from current expectations as a result of
numerous factors. Potential risks and uncertainties include, but are not
limited to: the inability to consummate the merger due to the stockholders not
approving the merger or the inability of Cyberian Outpost to fulfill the closing
conditions set forth in the agreement, computer sales may continue to slow,
and/or their average order size may decrease; the ability to attract and retain
key personnel and customers; actual results in connection with continuing or
discontinued operations and other risks detailed in Cyberian Outpost's reports
filed with the U.S. Securities and Exchange Commission (the "SEC"). In the event
the merger is not consummated, potential risks and uncertainties include, but
are not limited to, the availability of continued financing; Cyberian Outpost's
ability to address its financing obligations in light of its existing debt
obligations and market conditions; the results of Cyberian Outpost's efforts to
implement its business strategy, including filing for restructuring; Cyberian
Outpost may be unable to enter into strategic alternatives on favorable terms or
at all; the uncertainty of Cyberian Outpost's ability to continue as a going
concern; the possibility of delisting of Cyberian Outpost's common stock from
the Nasdaq National Market; and the effect that Cyberian Outpost's financial
condition may have on the willingness of customers to purchase products from
Outpost.com or on its relationships with vendors and suppliers and their
willingness and ability to supply Cyberian Outpost with inventory.
THE FOLLOWING IS THE MERGER AGREEMENT, DATED AS OF MAY 29, 2001, BY AND BETWEEN
PC CONNECTION, INC. AND CYBERIAN OUTPOST, INC., A COPY OF WHICH CYBERIAN
OUTPOST, INC. FILED ON A CURRENT REPORT ON FORM 8-K WITH THE SEC ON JUNE 4,
2001.
EXECUTION COPY
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MERGER AGREEMENT
BY AND BETWEEN
PC CONNECTION, INC.
AND
CYBERIAN OUTPOST, INC.
DATED AS OF MAY 29, 2001
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TABLE OF CONTENTS
ARTICLE I. DEFINITIONS................................................................ 1
1.01. CERTAIN DEFINITIONS............................................................ 1
1.02. OTHER DEFINITIONAL MATTERS..................................................... 6
ARTICLE II. THE MERGER................................................................ 6
2.01. THE MERGER..................................................................... 6
2.02. EFFECTIVE TIME................................................................. 6
2.03. CERTIFICATE OF INCORPORATION AND BY-LAWS OF SURVIVING CORPORATION.............. 7
2.04. DIRECTORS AND OFFICERS OF SURVIVING CORPORATION................................ 7
2.05. ADDITIONAL ACTIONS............................................................. 7
2.06. EFFECTS OF THE MERGER.......................................................... 7
2.07. THE STOCK WARRANT AGREEMENT.................................................... 7
ARTICLE III. CONVERSION OF SHARES..................................................... 7
3.01. CONVERSION..................................................................... 7
3.02. CERTAIN DEFINED TERMS.......................................................... 8
3.03. EXCHANGE RATIO................................................................. 8
3.04. TERMINATION, NOTICE AND CURE................................................... 9
3.05. CONVERSION OF STOCK............................................................ 10
3.06. PROCEDURES FOR EXCHANGE OF THE COMPANY COMMON STOCK FOR MERGER CONSIDERATION... 10
3.07. BUYER SUB COMMON STOCK......................................................... 12
3.08. STOCK OPTIONS.................................................................. 12
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................. 13
4.01. ORGANIZATION AND QUALIFICATION................................................. 13
4.02. ORGANIZATIONAL DOCUMENTS; BY-LAWS; CORPORATE RECORDS........................... 14
4.03. CAPITALIZATION OF COMPANY...................................................... 14
4.04. OWNERSHIP OF AFFILIATES........................................................ 15
4.05. AUTHORITY...................................................................... 15
4.06. NO CONFLICT.................................................................... 15
4.07. CONSENTS AND APPROVALS......................................................... 16
4.08. ABSENCE OF CERTAIN PAYMENTS.................................................... 16
4.09. COMPLIANCE..................................................................... 16
4.10. TITLE TO ASSETS................................................................ 17
4.11. CONDITION OF ASSETS............................................................ 17
4.12. SUFFICIENCY OF PROPERTY AND ASSETS TO CONDUCT BUSINESS......................... 17
4.13. FINANCIAL STATEMENTS........................................................... 17
4.14. COMPANY REPORTS................................................................ 18
4.15. INVENTORY...................................................................... 18
4.16. RELATIONSHIP WITH VENDORS, MANUFACTURERS, AND RESELLERS........................ 18
4.17. AUTHORIZED REPRESENTATIVE...................................................... 19
4.18. RETURN POLICY; WARRANTY AND PRODUCT LIABILITY CLAIMS........................... 19
4.19. CUSTOMER COMPLAINTS............................................................ 19
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4.20. CUSTOMER LISTS................................................................. 19
4.21. ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE.......................................... 19
4.22. NO UNDISCLOSED LIABILITIES..................................................... 19
4.23. ABSENCE OF CERTAIN CHANGES OR EVENTS........................................... 20
4.24. NO BONUSES OR OTHER PAYMENTS TO EMPLOYEES, DIRECTORS, OFFICERS................. 20
4.25. AGREEMENTS, CONTRACTS AND COMMITMENTS.......................................... 21
4.26. CONTRACTS IN FULL FORCE AND EFFECT............................................. 22
4.27. ENVIRONMENTAL LIABILITY........................................................ 23
4.28. ABSENCE OF LITIGATION.......................................................... 23
4.29. EMPLOYEE BENEFIT PROGRAMS...................................................... 23
4.30. EMPLOYEES...................................................................... 23
4.31. LABOR MATTERS.................................................................. 24
4.32. REAL PROPERTY AND LEASES....................................................... 24
4.33. TAXES AND TAX RETURNS.......................................................... 24
4.34. INSURANCE...................................................................... 26
4.35. STATE TAKEOVER LAWS............................................................ 27
4.36. COMPETING INTERESTS............................................................ 27
4.37. INTERESTS OF COMPANY INSIDERS.................................................. 27
4.38. INTELLECTUAL PROPERTY.......................................................... 27
4.39. COMPANY SOFTWARE............................................................... 28
4.40. INVESTMENT BANKER.............................................................. 29
4.41. COMPANY INFORMATION............................................................ 29
4.42. DISCLOSURE..................................................................... 30
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER.................................... 30
5.01. CORPORATE ORGANIZATION......................................................... 30
5.02. AUTHORITY...................................................................... 30
5.03. CAPITALIZATION OF BUYER........................................................ 30
5.04. NO CONFLICT.................................................................... 31
5.05. CONSENTS AND APPROVALS......................................................... 31
5.06. FINANCIAL STATEMENTS........................................................... 31
5.07. BUYER REPORTS.................................................................. 31
5.08. ABSENCE OF CERTAIN CHANGES OR EVENTS........................................... 32
5.09. BUYER INFORMATION.............................................................. 32
5.10. BUYER SUB...................................................................... 32
5.11. DISCLOSURE..................................................................... 32
ARTICLE VI. COVENANTS OF THE COMPANY.................................................. 32
6.01. CONDUCT OF BUSINESS PENDING THE MERGER......................................... 32
6.02. CURRENT INFORMATION............................................................ 36
6.03. OTHER FINANCIAL INFORMATION.................................................... 36
6.04. ACCESS TO INFORMATION.......................................................... 37
6.05. APPROVAL OF COMPANY'S STOCKHOLDERS............................................. 38
6.06. FAILURE TO FULFILL CONDITIONS.................................................. 38
6.07. ALL REASONABLE EFFORTS......................................................... 38
6.08. UPDATE OF DISCLOSURE SCHEDULES................................................. 38
6.09. NO SOLICITATION................................................................ 38
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ARTICLE VII. COVENANTS OF BUYER....................................................... 39
7.01. CONDUCT OF BUSINESS PENDING THE MERGER......................................... 39
7.02. CURRENT INFORMATION............................................................ 39
7.03. FAILURE TO FULFILL CONDITIONS.................................................. 39
7.04. ALL REASONABLE EFFORTS......................................................... 39
7.05. STOCK LISTING.................................................................. 40
ARTICLE VIII. REGULATORY AND OTHER MATTERS............................................ 40
8.01. PROXY STATEMENT-PROSPECTUS..................................................... 40
8.02. REGULATORY APPROVALS........................................................... 40
8.03. LEGAL CONDITIONS TO MERGER..................................................... 41
8.04. COMPANY AFFILIATES............................................................. 41
8.05. EMPLOYEE MATTERS............................................................... 41
8.06. CREDIT AND SUPPLY ARRANGEMENT; CROSS DEFAULT................................... 42
8.07. DIRECTOR AND OFFICER INDEMNIFICATION; LIABILITY INSURANCE...................... 42
8.08. PUBLIC ANNOUNCEMENTS........................................................... 42
8.09. ADDITIONAL AGREEMENTS.......................................................... 42
ARTICLE IX. CONDITIONS TO THE MERGER.................................................. 43
9.01. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER.................... 43
9.02. CONDITIONS TO OBLIGATIONS OF THE BUYER......................................... 43
9.03. CONDITIONS TO OBLIGATIONS OF THE COMPANY....................................... 45
ARTICLE X. TERMINATION, AMENDMENT AND WAIVER.......................................... 46
10.01. TERMINATION................................................................... 46
10.02. EFFECT OF TERMINATION; EXPENSES............................................... 47
10.03. AMENDMENT..................................................................... 48
10.04. WAIVER........................................................................ 48
ARTICLE XI. THE CLOSING............................................................... 48
11.01. CLOSING....................................................................... 48
11.02. DELIVERIES AT CLOSING......................................................... 48
ARTICLE XII. GENERAL PROVISIONS....................................................... 48
12.01. ALTERNATIVE STRUCTURE......................................................... 48
12.02. ASSIGNMENT OF RIGHT TO PURCHASE............................................... 49
12.03. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS........................ 49
12.04. NOTICES....................................................................... 49
12.05. SEVERABILITY.................................................................. 50
12.06. ENTIRE AGREEMENT.............................................................. 50
12.07. ASSIGNMENT.................................................................... 50
12.08. PARTIES IN INTEREST........................................................... 50
12.09. SPECIFIC PERFORMANCE.......................................................... 50
12.10. GOVERNING LAW................................................................. 51
12.11. HEADINGS...................................................................... 51
12.12. INTERPRETATION................................................................ 51
12.13. COUNTERPARTS.................................................................. 51
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MERGER AGREEMENT
This Merger Agreement, dated as of May 29, 2001 (this "AGREEMENT"), by and
between PC Connection, Inc., a Delaware corporation (the "BUYER"), and Cyberian
Outpost, Inc., a Delaware corporation (the "COMPANY").
WHEREAS, the Boards of Directors of the Buyer and the Company have
determined that it is in the best interests of their respective companies and
their shareholders to consummate the business combination transactions provided
for herein, including the merger (the "MERGER") of the Company with a wholly-
owned direct or indirect subsidiary of Buyer ("BUYER SUB"), subject to the terms
and conditions set forth herein; and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and to prescribe certain conditions to
the Merger; and
WHEREAS, as a condition and inducement to the Buyer's willingness to enter
into this Agreement, (i) the Company is concurrently entering into a Stock
Warrant Agreement with the Buyer (the "STOCK WARRANT AGREEMENT"), in
substantially the form attached hereto as Exhibit A, pursuant to which the
Company is granting to the Buyer the option to purchase shares of Company Common
Stock (as defined herein) under certain circumstances and (ii) each director and
key employee of the Company listed on Exhibit B is concurrently delivering to
Buyer an irrevocable proxy, in substantially the form attached hereto as Exhibit
B, pursuant to which, among other things, each such director and employee has
designated the Buyer as his proxy to vote his shares of Company Common Stock in
favor of this Agreement and the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, Buyer
and the Company agree as follows:
ARTICLE I. DEFINITIONS
1.01. CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(a) "AFFILIATE" of a specified person shall mean a person who directly
or indirectly through one or more intermediaries controls, is controlled by, or
is under common control with, such specified person, including, without
limitation, any partnership or joint venture in which the person (either alone,
or through or together with any subsidiary) has, directly or indirectly, an
interest of 10% ownership or more.
(b) "AGREEMENT DOCUMENTS" shall mean this Agreement and all other
agreements, certificates and instruments to be executed in connection with or
pursuant to this Agreement.
(c) "ASSOCIATES" shall have the meaning defined in Section 4.25(m).
(d) "BUSINESS" shall mean the business of the Company, which is acting
as an Internet retailer of consumer and business technology and related
products, and offering eBusiness Services including but not limited to
end-to-end e- commerce solutions, Web site design and hosting, product
merchandising, and order processing and fulfillment to other retailers.
(e) "BUSINESS VENDORS" shall have the meaning defined in Section 4.16.
(f) The term "BUSINESS DAY" shall mean any day on which banks are not
required or authorized to close in the City of Boston.
(g) "BUYER COMMON STOCK" shall have the meaning defined in Section
3.01.
(h) "BUYER INDEX PRICE" shall have the meaning defined in Section
3.02(a).
(i) "BUYER TRADING PRICE" shall have the meaning defined in Section
3.02.
(j) "CERTIFICATE" shall have the meaning defined in Section 3.05(a).
(k) "CLOSING" shall have the meaning defined in Section 11.01.
(l) "CLOSING DATE" shall have the meaning defined in Section 11.01.
(m) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(n) "COMPANY" shall mean Cyberian Outpost, Inc. or, after the Merger,
the Surviving Corporation.
(o) "COMPANY COMMON STOCK" shall have the meaning defined in Section
3.01.
(p) "COMPANY DISCLOSURE SCHEDULE" shall have the meaning defined in the
preamble to Article IV.
(q) "COMPANY EQUITY INTEREST" shall refer to all Equity Interest in the
Company at the time outstanding.
(r) "COMPANY FINANCIAL STATEMENTS" shall mean (i) the consolidated
balance sheets of the Company and its subsidiaries as of February 28, 2000 and
2001 and the related consolidated statements of income, changes in shareholders'
equity and cash flows for the fiscal years ended February 28, 1999 through 2001,
inclusive, and the related notes and schedules, each of which has been audited
by KPMG LLP; and (ii) the consolidated balance sheets of the Tweeter Joint
Venture and its subsidiaries as of March 31, 2000 and 2001 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the fiscal years ended March 31, 1999 through 2001, inclusive, and the
related notes and schedules, each of which has been audited by KPMG LLP.
(s) "COMPANY INSIDER" shall have the meaning defined in Section 4.37.
(t) "COMPANY STOCK OPTION" shall have the meaning defined in Section
3.08.
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(u) "COMPANY PLANS" shall have the meaning defined in Section 4.29.
(v) "COMPANY REPORTS" shall have the meaning defined in Section 4.14.
(w) "COMPANY STOCK OPTION PLANS" shall have the meaning defined in
Section 3.08.
(x) The term "CONTROL" (including the terms "CONTROLLED BY" and "UNDER
COMMON CONTROL WITH") shall mean the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, as trustee or executor, by contract or credit arrangement or
otherwise.
(y) The term "CURRENTLY CONDUCTED," when referring to the Business,
shall include the Business as it is now conducted or contractually committed to
be conducted.
(z) "DGCL" shall mean the Delaware General Corporation Law, as amended.
(aa) "DEFERRED INTERCOMPANY TRANSACTION" shall have the meaning set
forth in Treasury Regulation (S)1.1502-13.
(bb) "EFFECTIVE TIME" shall have the meaning defined in Section 2.02.
(cc) "EMPLOYMENT AGREEMENT" shall have the meaning defined in Section
8.05(a).
(dd) "ENVIRONMENTAL LAWS" means any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with any
governmental entity relating to (1) the protection, preservation or restoration
of the environment (including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or (2) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Materials of Environment Concern.
The term Environmental Law includes without limitation (1) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
(S)9601, et seq; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. (S)6901, et seq; the Clean Air Act, as amended, 42 U.S.C. (S)7401, et
seq; the Federal Water Pollution Control Act, as amended, 33 U.S.C. (S)1251, et
seq; the Toxic Substances Control Act, as amended, 15 U.S.C. (S)9601, et seq;
the Emergency Planning and Community Right to Know Act, 42 U.S.C. (S)1101, et
seq; the Safe Drinking Water Act, 42 U.S.C. (S)300f, et seq; and all comparable
state and local laws, and (2) any common law (including without limitation
common law that may impose strict liability) that may impose liability or
obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Materials of Environmental Concern. "MATERIALS OF
ENVIRONMENTAL CONCERN" means pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products, and any other materials regulated under
Environmental Laws.
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(ee) "EQUITY INTEREST" in the case of a corporation shall mean its
capital stock, and in the case of a limited liability company shall mean its
units or other ownership interests.
(ff) "EXCESS LOSS ACCOUNT" shall have the meaning set forth in Treasury
Regulation (S)1.1502-19.
(gg) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(hh) "EXCHANGE AGENT" shall have the meaning defined in Section
3.06(a).
(ii) "EXCHANGE FUND" shall have the meaning defined in Section 3.06(a).
(jj) "EXCHANGE RATIO" shall have the meaning defined in Section 3.03.
(kk) "EXISTING EMPLOYMENT AGREEMENT" shall have the meaning defined in
Section 8.05(a).
(ll) "EXPENSES" shall have the meaning defined in Section 10.02(b).
(mm) "EXPIRATION DATE" shall have the meaning defined in Section
10.01(b).
(nn) "GOVERNMENTAL ENTITY" shall have the meaning defined in Section
4.07.
(oo) "INTELLECTUAL PROPERTY" shall have the meaning defined in Section
4.38(a).
(pp) "LAST CLOSING PRICE" shall have the meaning defined in Section
3.06(d).
(qq) "LATEST BALANCE SHEETS" shall have the meaning defined in Section
4.13(b).
(rr) "LATEST BALANCE SHEET DATE" shall have the meaning defined in
Section 4.13(b).
(ss) ""LIABILITIES" shall have the meaning defined in Section 4.22.
(tt) "LIEN" shall mean any interest, consensual or otherwise, in
property, whether real, personal or mixed property or assets, tangible or
intangible, securing an obligation owed to, or a claim by a third Person, or
otherwise evidencing an interest of a Person other than the owner of the
property, whether such interest is based on common law, statute or contract, and
including, but not limited to, any security interest, security title or lien
arising from a mortgage, recordation of abstract of judgment, deed of trust,
deed to secure debt, encumbrance, restriction, charge, covenant, restriction,
claim, exception, encroachment, easement, right of way, license, permit, pledge,
conditional sale, option trust (constructive or otherwise) or trust receipt or a
lease, consignment or bailment for security purposes and other title exceptions
and encumbrances affecting the property.
(uu) "MATERIAL ADVERSE EFFECT" shall mean any change or effect that is
materially adverse to the business, financial condition or results of operations
of a Party and its subsidiaries and Affiliates, taken as a whole, except to the
extent that such change or effect is attributable to
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or results from (i) the direct effect of the public announcement or pendency of
the transactions contemplated hereby on current or prospective customers or
revenues of a Party, or (ii) changes in general economic conditions or changes
affecting the industry generally in which such Party operates. Without limiting
the generality of the foregoing, it shall be a "Material Adverse Effect" if a
Party files or becomes the subject of a bankruptcy proceeding, makes an
assignment for the benefit of creditors, or has a receiver, trustee or
conservator appointed for any substantial part of its assets or properties.
(vv) "MATERIAL CONTRACTS" shall have the meaning defined in Section
4.26.
(ww) "MERGER" shall have the meaning defined in the Preamble.
(xx) "MERGER CONSIDERATION" shall have the meaning defined in Section
3.01.
(yy) "ORGANIZATIONAL DOCUMENTS" shall mean a corporation's Articles of
Organization, Certificate of Incorporation, or equivalent organizational
documents or, in the case of a limited liability company, its Certificate of
Formation or Limited Liability the Company Agreement.
(zz) "PARTY" shall mean each of the Company, the Buyer, and the
Surviving Corporation.
(aaa) "PERMITTED LIENS" shall have the meaning defined in Section 4.10.
(bbb) "PREVIOUSLY DISCLOSED" shall mean disclosed in a Disclosure
Schedule dated on or prior to the date hereof.
(ccc) The term "PERSON" shall mean an individual, corporation,
partnership, limited partnership, limited liability company, syndicate, person
(including, without limitation, a "person" as defined in Section 13(d)(3) of the
Exchange Act), trust, association or entity or government, political
subdivision, agency or instrumentality of a government.
(ddd) The term "PROXY STATEMENT-PROSPECTUS" shall have the meaning
defined in Section 8.01.
(eee) "RECORD HOLDER" shall have the meaning defined in Section
3.06(a).
(fff) "REQUISITE APPROVALS" shall have the meaning defined in Section
9.01(c).
(ggg) "RIGHTS" shall mean warrants, options, rights, convertible
securities, stock appreciation rights and other arrangements or commitments
which obligate an entity to issue or dispose of any of its capital stock or
other ownership interests or which provide for compensation based on the equity
appreciation of its capital stock.
(hhh) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
(iii) "SECURITIES LAWS" shall mean the Securities Act; the Exchange
Act; the Investment the Company Act of 1940, as amended; the Investment Advisers
Act of 1940, as
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amended; the Trust Indenture Act of 1939, as amended, and the rules and
regulations of the SEC promulgated thereunder.
(jjj) "STOCK WARRANT AGREEMENT" shall have the meaning defined in the
preamble to this Agreement.
(kkk) The terms "SUBSIDIARY" or "SUBSIDIARIES" of Buyer, the Company or
any other person shall mean an Affiliate controlled by such person, directly or
indirectly, through one or more intermediaries, except as otherwise defined
herein.
(lll) "SURVIVING CORPORATION" shall have the meaning defined in Section
2.01.
(mmm) "TAX" shall mean any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
section 59A), customs duties, capital stock, franchise profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not (including any interest in respect
of such penalty or addition).
(nnn) "TAX RETURN" shall mean any return, declaration, report, claim
for refund, or information return or statement, relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
(ooo) "TWEETER JOINT VENTURE" means Tweeter@outpost.com, LLC a joint
venture of Cyberian Outpost, Inc. and Tweeter Home Entertainment Group, Inc.
(ppp) "WARN ACT" shall have the meaning defined in Section 4.31(b).
1.02. OTHER DEFINITIONAL MATTERS. Unless the context otherwise requires, a
term defined anywhere in this Agreement has the same meaning throughout; all
references to "the Agreement" or "this Agreement" are to this Agreement as
modified, supplemented or amended from time to time; and terms defined in the
singular shall have a comparable meaning when used in the plural, and vice
versa.
ARTICLE II. THE MERGER
2.01. THE MERGER. As promptly as practicable following the satisfaction or
waiver of the conditions to the parties' respective obligations hereunder, and
subject to the terms and conditions of this Agreement, at the Effective Time (as
defined in Section 2.02 hereof): (a) unless theretofore done, Buyer shall
organize the Buyer Sub in accordance with Delaware law; (b) Buyer Sub shall be
merged with and into the Company with the Company as the surviving corporation
(the "SURVIVING CORPORATION"); and (c) the separate existence of Buyer Sub shall
cease and all of the rights, privileges, powers, franchises, properties, assets,
liabilities and obligations of Buyer Sub shall be vested in and assumed by the
Company.
2.02. EFFECTIVE TIME. The Merger shall be effected by the filing of
articles of merger (the "ARTICLES OF MERGER") with the Secretary of State of the
State of Delaware in accordance
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with Delaware law to become effective on the day of the closing ("CLOSING DATE")
provided for in Article XI hereof (the "CLOSING"). The term "EFFECTIVE TIME"
shall mean the time on the Closing Date (or a subsequent date not later than the
opening of business on the next business day) when the Merger becomes effective
as set forth in the Articles of Merger.
2.03. CERTIFICATE OF INCORPORATION AND BY-LAWS OF SURVIVING CORPORATION.
The Certificate of Incorporation and By-laws of Buyer Sub immediately prior to
the Effective Time shall be the Certificate of Incorporation and By-laws of the
Surviving Corporation, until thereafter amended as provided therein and by
applicable law.
2.04. DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The Directors and
officers of Buyer Sub immediately prior to the Effective Time shall be the
initial Directors and officers of Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and By-Laws of Surviving
Corporation.
2.05. ADDITIONAL ACTIONS. If, at any time after the Effective Time,
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or any other acts are necessary or desirable (a) to vest,
perfect or confirm, of record or otherwise, in Surviving Corporation, title to
and possession of any property or right of Buyer Sub acquired or to be acquired
by reason of, or as a result of, the Merger, or (b) otherwise to carry out the
purposes of this Agreement, Buyer Sub and its proper officers and directors
shall be deemed to have granted to Surviving Corporation an irrevocable power of
attorney to execute and deliver all such proper deeds, assignments and
assurances in law and to do all acts necessary or proper to vest, perfect or
confirm title to and possession of such property or rights in Surviving
Corporation and otherwise to carry out the purposes of this Agreement; and the
proper officers and directors of Surviving Corporation are fully authorized in
the name of Buyer Sub or otherwise to take any and all such action.
2.06. EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
shall have the effects set forth in Sections 259 through 261 of the DGCL.
2.07. THE STOCK WARRANT AGREEMENT. The parties acknowledge that Company and
Buyer have entered into that certain Stock Warrant Agreement dated as of even
date herewith (the "STOCK WARRANT AGREEMENT") pursuant to which Company has
granted to Buyer the right to purchase certain shares of Company Common Stock
upon terms and conditions specified in the Stock Warrant Agreement.
ARTICLE III. CONVERSION OF SHARES
3.01. CONVERSION. At the Effective Time, each share of common stock, par
value $0.01 per share, of the Company ("COMPANY COMMON STOCK") issued and
outstanding immediately prior to the Effective Time (other than the Company
Common Stock then owned by the Company, any Company subsidiary, Buyer, or any
Buyer subsidiary), shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and exchangeable for an amount of
common stock, par value $0.01 per share, of Buyer ("BUYER COMMON STOCK") equal
to one share multiplied by the Exchange Ratio (rounded to the nearest
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four decimal places) determined in accordance with Section 3.03 (the "MERGER
CONSIDERATION").
3.02. CERTAIN DEFINED TERMS. As used herein, the following capitalized
terms shall have the specified values or meanings.
(a) "BUYER INDEX PRICE" shall mean $13.50 per share of Buyer Common
Stock.
(b) "BUYER TRADING PRICE" shall mean the average closing price of Buyer
Common Stock on the Nasdaq National Market System (as reported by The Wall
Street Journal or, if not reported thereby, another authoritative source) for
the ten consecutive trading days ending on the fourth day preceding the Closing
Date.
3.03. EXCHANGE RATIO. The "EXCHANGE RATIO" shall be determined as follows:
(a) If the Buyer Trading Price is equal to or greater than $12.15 and
is no greater than $14.85 (the "BASE RANGE"), the Exchange Ratio shall be
determined as follows ("TOTAL REVENUE" means the Company's total revenue for the
months of June, July and August, 2001):
EXCHANGE RATIO TOTAL REVENUE
---------------------------------------------------------------------
0.0550 At least $71.6 million
---------------------------------------------------------------------
0.0500 At least $67.4 million but
less than $71.6 million
---------------------------------------------------------------------
0.0450 At least $63.2 million but
less than $67.4 million
---------------------------------------------------------------------
0.0400 At least $58.9 million but
less than $63.2 million
---------------------------------------------------------------------
0.0350 Less than $58.9 million
---------------------------------------------------------------------
If the Buyer Trading Price is not within the Base Range, the otherwise
applicable Exchange Ratio set forth in this Section 3.03(a) shall be used as the
"BASE EXCHANGE RATIO" for purposes of calculating the Exchange Ratio pursuant to
subsection (b) or (c) of this Section 3.03, as applicable.
(b) If the Buyer Trading Price is greater than $14.85, the Exchange
Ratio shall be equal to:
14.85 X Base Exchange Ratio
-----------------------------------------
Buyer Trading Price
where "Base Exchange Ratio" is determined in accordance with Section 3.03(a).
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(c) If the Buyer Trading Price is less than $12.15 and is equal to or
greater than $10.80, the Exchange Ratio shall be equal to:
12.15 X Base Exchange Ratio
----------------------------------
Buyer Trading Price
where "Base Exchange Ratio" is determined in accordance with Section 3.03(a).
(d) If the Buyer Trading Price is less than $10.80, the Exchange Ratio
shall be as follows, unless the Buyer Trading Price is less than $10.125 and the
Exchange Ratio is increased or this Agreement is terminated in accordance with
the terms of Section 3.04 hereof:
EXCHANGE RATIO TOTAL REVENUE
---------------------------------------------------------------
0.0620 At least $71.6 million
---------------------------------------------------------------
0.0560 At least $67.4 million but
less than $71.6 million
---------------------------------------------------------------
0.0509 At least $63.2 million but
less than $67.4 million
---------------------------------------------------------------
0.0454 At least $58.9 million but
less than $63.2 million
---------------------------------------------------------------
0.0398 Less than $58.9 million
---------------------------------------------------------------
If the Buyer Trading Price is less than $10.80, the otherwise applicable
Exchange Ratio set forth in this Section 3.03(d) shall be used as the
"APPLICABLE EXCHANGE RATIO" for purposes of calculating the Exchange Ratio
pursuant to Section 3.04.
3.04. TERMINATION, NOTICE AND CURE.
(a) If the Buyer Trading Price is less than $10.125, the Company may
elect by giving written notice to Buyer prior to the third business day
immediately preceding the Closing Date to terminate this Agreement pursuant to
Section 10.01(g). Within two business days thereafter, Buyer may elect to
increase the Exchange Ratio to
10.125 X Applicable Exchange Ratio
--------------------------------------
Buyer Trading Price
where "Applicable Exchange Ratio" is determined in accordance with Section
3.03(d).
(b) In the event Buyer makes an election referred to in the preceding
Section 3.04(a), this Agreement shall not terminate and the Exchange Ratio shall
be determined in accordance with such Section 3.04(a). In the event Buyer does
not elect to increase the
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Exchange Ratio, this Agreement shall terminate on the date established as the
Closing Date with the consequences specified in Section 10.02 hereof.
3.05. CONVERSION OF STOCK.
(a) All the Company Common Stock converted into Buyer Common Stock
pursuant to this Article III shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist, and each certificate (each
a "CERTIFICATE") previously representing any such shares of the Company Common
Stock shall thereafter represent the right to receive (i) the number of whole
shares of Buyer Common Stock, and (ii) cash in lieu of fractional shares, into
which the Company Common Stock represented by such Certificate have been
converted. Certificates previously representing the Company Common Stock shall
be exchanged for certificates representing whole shares of Buyer Common Stock
and cash in lieu of fractional shares issued in consideration therefor upon the
surrender of such Certificates in accordance with this Section 3.05 without any
interest thereon.
(b) If prior to the Effective Time Buyer should split or combine its
common stock (or other securities which are convertible into such common stock)
or pay a dividend or other distribution in such common stock or convertible
securities, all without Buyer receiving consideration therefor, then an
appropriate and proportionate adjustment shall be made to the Exchange Ratio,
the Buyer Index Price and the Buyer Trading Price.
(c) At the Effective Time, all shares of the Company Common Stock held
in the treasury of the Company and all shares of the Company Common Stock owned
by Buyer or owned beneficially by any subsidiary of Buyer shall be cancelled and
no cash, stock or other property shall be delivered in exchange therefor.
(d) The provisions of Sections 3.03 and 3.05 are based on the
assumption that there will be 36,384,739 shares of Company Common Stock
outstanding or issuable upon the exercise of options or warrants or otherwise,
at the Effective Time. If there is any change in this number as of the Effective
Time, the provisions of Sections 3.03 and 3.05, including the Merger
Consideration will be appropriately adjusted.
3.06. PROCEDURES FOR EXCHANGE OF THE COMPANY COMMON STOCK FOR MERGER
CONSIDERATION.
(a) BUYER TO MAKE SHARES AVAILABLE. Buyer shall take all steps
necessary on and as of the Effective Time to deliver to the Exchange Agent (as
hereinafter defined), for the benefit of the holders of Certificates, for
exchange in accordance with this Section 3.06, certificates representing shares
of Buyer Common Stock and the cash in lieu of fractional shares to be paid
pursuant to this Section 3.06 (such cash and certificates for shares of Buyer
Common Stock, together with any dividends or distributions with respect thereto
being hereinafter referred to as the "EXCHANGE FUND") to be issued and paid in
exchange for outstanding Company Common Stock in accordance with this Agreement.
The Exchange Agent shall be such banking institution, corporate trust company,
or other stock transfer agent appointed by Buyer and reasonably satisfactory to
the Company to act as exchange agent hereunder (the "EXCHANGE AGENT"). The
Exchange Agent shall act as agent on behalf of record holders (individually, a
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"RECORD HOLDER") of the Company Common Stock at the Effective Time, other than
the Company, any Company subsidiary, Buyer, or any Buyer subsidiary.
(b) EXCHANGE OF CERTIFICATES. Within three business days after the
Effective Time, Buyer shall take all steps necessary to cause the Exchange Agent
to mail to each Record Holder of a Certificate or Certificates, a form letter of
transmittal for return to the Exchange Agent and instructions for use in
effecting the surrender of the Certificates for certificates representing the
Buyer Common Stock and the cash in lieu of fractional shares into which the
Company Common Stock represented by such Certificates shall have been converted
as a result of the Merger. The form letter (which shall be subject to the
reasonable approval of the Company) shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent. Upon surrender of a
Certificate for exchange and cancellation to the Exchange Agent, together with
such letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor (x) a certificate for the number of
whole shares of Buyer Common Stock to which such holder of the Company Common
Stock shall have become entitled pursuant to the provisions of this Section 3.06
and (y) a check representing the amount of cash in lieu of the fractional
shares, if any, which such holder has the right to receive in respect of
Certificates surrendered pursuant to the provisions of this Section 3.06, and
the Certificates so surrendered shall forthwith be cancelled. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by Buyer, the posting by such person of a
bond in such amount as Buyer may direct as indemnity against any claim that may
be made against it with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration deliverable in respect thereof. Certificates surrendered for
exchange by any person who is an "affiliate" of the Company for purposes of Rule
145(c) under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
shall not be exchanged for certificates representing shares of Buyer Common
Stock until Buyer has received the written agreement of such person contemplated
by Section 8.04 hereof.
(c) RIGHTS OF CERTIFICATE HOLDERS AFTER THE EFFECTIVE TIME. The holder
of a Certificate that prior to the Merger represented issued and outstanding
shares of the Company Common Stock shall have no rights, after the Effective
Time, with respect to such the Company Common Stock except to surrender the
Certificate in exchange for the Merger Consideration as provided in this
Agreement. No dividends or other distributions declared after the Effective Time
with respect to Buyer Common Stock shall be paid to the holder of any
un-surrendered Certificate until the holder thereof shall surrender such
Certificate in accordance with this Section 3.06. After the surrender of a
Certificate in accordance with this Section 3.06, the record holder thereof
shall be entitled to receive any such dividends or other distributions, without
any interest thereon, which theretofore had become payable with respect to
shares of Buyer Common Stock represented by such Certificate.
(d) FRACTIONAL SHARES. Notwithstanding anything to the contrary
contained herein, no certificates or scrip representing fractional shares of
Buyer Common Stock shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution with respect to Buyer Common Stock
shall be payable on or with respect to any fractional share, and such fractional
share interests shall not entitle the owner thereof to vote or to any other
rights of a
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stockholder of Buyer. In lieu of the issuance of any such fractional share,
Buyer shall pay to each former holder of the Company Common Stock who otherwise
would be entitled to receive a fractional share of Buyer Common Stock, an amount
in cash determined by multiplying the average closing sale price of Buyer Common
Stock on the Nasdaq National Market System as reported by The Wall Street
Journal for the 10 trading days immediately preceding the date of the Effective
Time (the "LAST CLOSING PRICE") by the fraction of a share of Buyer Common Stock
which such holder would otherwise be entitled to receive pursuant to Section
3.06(b) hereof. No interest will be paid on the cash which the holders of such
fractional shares shall be entitled to receive upon such delivery.
(e) SURRENDER BY PERSONS OTHER THAN RECORD HOLDERS. If the Person
surrendering a Certificate and signing the accompanying letter of transmittal is
not the Record Holder thereof, then it shall be a condition of the payment of
the Merger Consideration that such Certificate is properly endorsed to such
Person or is accompanied by appropriate stock powers, in either case signed
exactly as the name of the Record Holder appears on such Certificate, and is
otherwise in proper form for transfer, or is accompanied by appropriate evidence
of the authority of the Person surrendering such Certificate and signing the
letter of transmittal to do so on behalf of the Record Holder and that the
person requesting such exchange shall pay to the Exchange Agent in advance any
transfer or other taxes required by reason of the payment to a person other than
the registered holder of the Certificate surrendered, or required for any other
reason, or shall establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not payable.
(f) CLOSING OF TRANSFER BOOKS. From and after the Effective Time, there
shall be no transfers on the stock transfer books of the Company of the Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates representing such shares are presented
for transfer to the Exchange Agent, they shall be exchanged for the Merger
Consideration and cancelled as provided in this Section 3.06.
(g) RETURN OF EXCHANGE FUND. At any time following the 12-month period
after the Effective Time, Buyer shall be entitled to require the Exchange Agent
to deliver to it any portions of the Exchange Fund which had been made available
to the Exchange Agent and not disbursed to holders of Certificates (including,
without limitation, all interest and other income received by the Exchange Agent
in respect of all funds made available to it), and thereafter such holders shall
be entitled to look to Buyer (subject to abandoned property, escheat and other
similar laws) only as general creditors thereof with respect to any Merger
Consideration that may be payable upon due surrender of the Certificates held by
them. Notwithstanding the foregoing, neither Buyer nor the Exchange Agent shall
be liable to any holder of a Certificate for any Merger Consideration delivered
in respect of such Certificate to a public official pursuant to any abandoned
property, escheat or other similar law.
3.07. BUYER SUB COMMON STOCK. Each share of common stock of Buyer Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into one share of common stock of the Surviving Corporation at the
Effective Time.
3.08. STOCK OPTIONS. At the Effective Time, all Rights outstanding for the
purchase of Company Common Stock ("COMPANY STOCK OPTIONS"), including all
options outstanding pursuant to the Company's 1997 and 1998 Incentive Stock
Plans and the Company's Restated
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1998 Employee, Director and Consultant Stock Plan (the "COMPANY STOCK OPTION
PLANS") will become the right to receive, on the Closing Date, an amount of cash
(not less than $0) determined as follows:
Number of Option Shares X (Merger Consideration Value - Option Exercise
Price)
where "MERGER CONSIDERATION VALUE" is determined by multiplying the Exchange
Ratio by the Last Closing Price.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in a specific section of the Disclosure Schedule
previously delivered by the Company to Buyer (the "COMPANY DISCLOSURE
SCHEDULE"), the Company hereby represents and warrants to Buyer as follows:
4.01. ORGANIZATION AND QUALIFICATION.
(a) The Company is a corporation, duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Company is
qualified to do business in Connecticut and Ohio. The Company has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted and is duly qualified and in good standing
to do business in each jurisdiction in which the nature of the business
conducted by it or the ownership or leasing of its properties makes such
qualification necessary. Set forth on Section 4.01 of the Company Disclosure
Schedule is also a list of all assumed names under which the Company operates
and all jurisdictions in which the Company's assumed names are registered.
(b) Outpost Holdings LLC ("HOLDINGS SUB"), OutpostPro.com, Incorporated
("CMP SUB"), Tweeter@Outpost.com, LLC (the "TWEETER JOINT VENTURE"), and Outpost
Vendor Supply A ("VENDOR SUB") are the only direct subsidiaries of the Company.
CMPExpress.com Internet Development Plc ("INDIA SUB") is a wholly owned
subsidiary of CMP Sub. (Holdings Sub, CMP Sub, Tweeter Joint Venture, Vendor Sub
and India Sub are, collectively, the "COMPANY SUBSIDIARIES.") The Company owns
50% of the Equity Interest of the Tweeter Joint Venture and all of the Equity
Interest of CMP Sub, Holdings Sub and Vendor Sub. Other than its interest in the
Company Subsidiaries, the Company does not, directly or indirectly, own any
Equity Interest or other equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, limited liability company, partnership, joint
venture or other business association or entity. Without limiting the generality
of the foregoing, the Company owns no Equity Interest in Outpost Vendor Supply
B, nor is Outpost Vendor Supply B a party to a contract with Wolf Camera.
(c) Holdings Sub is a limited liability corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
CMP Sub is a Pennsylvania corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania, and is
qualified to do business in New Jersey. The Tweeter Joint Venture is a limited
liability corporation duly organized, validly existing and in good
-13-
standing under the laws of the State of Delaware. Vendor Sub is a Delaware
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. India Sub is an Indian private liability corporation
duly organized, validly existing and in good standing under the laws of India.
Each Company Subsidiary (i) has full power and authority to own or lease all of
its properties and assets and to carry on its business as now conducted, and
(ii) is duly licensed or qualified to do business and is in good standing in
each jurisdiction in which its ownership or leasing of property or the conduct
of its business requires such qualification.
4.02. ORGANIZATIONAL DOCUMENTS; BY-LAWS; CORPORATE RECORDS. The Company has
heretofore furnished to Buyer true, complete and correct copies of the
Organizational Documents and the By-Laws or equivalent organizational documents,
in each case as amended and restated to date, of the Company. Such
Organizational Documents, By-Laws and equivalent organizational documents are in
full force and effect. The Company is not in violation of any provision of its
Organizational Documents or equivalent organizational documents or of its
By-Laws. The minute books of the Company, a copy of which has been provided to
Buyer, contain in all material respects true and correct records of all meetings
held and true and complete records of all other corporate actions taken since
January 1, 1998 of the Company's stockholders and board of directors (including
committees of the board of directors).
4.03. CAPITALIZATION OF COMPANY.
(a) The authorized Equity Interest of the Company consists of fifty
million (50,000,000) shares of common stock, $0.01 par value per share and ten
million shares of Preferred Stock, $0.01 par value, of which 31,687,045 shares
of common stock and no shares of Preferred Stock are issued and outstanding.
(b) Except pursuant to (i) the Stock Warrant Agreement, (ii) options to
acquire not more than 4,340,987 shares of Company Common Stock pursuant to stock
options outstanding as of the date hereof under the Company Stock Option Plans,
and (iii) as otherwise disclosed on Section 4.03 of the Company Disclosure
Schedule, there are no outstanding subscriptions, options, warrants, calls or
other rights, agreements, arrangements or commitments of any character relating
to the issued or unissued Equity Interest of the Company or obligating the
Company to issue or sell any Equity Interests of, or other equity interests in,
the Company. There are no outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any Equity Interests of, or other equity
interests in, the Company or to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, the Company. All of the
Company Equity Interests are duly authorized, validly issued in compliance with
all applicable laws, and are fully paid and nonassessable and are free of
preemptive or similar rights created by statute, the Organizational Documents of
the Company, or any other agreement to which the Company is a party or bound.
(c) A true and correct list of all outstanding Company Stock Options,
including name of optionee, number of shares, and option exercise price, is set
forth on Section 4.03 of the Company Disclosure Schedule.
-14-
4.04. OWNERSHIP OF AFFILIATES. The only Affiliates of the Company (each a
"COMPANY AFFILIATE") are set forth on Section 4.04 of the Company Disclosure
Schedule. The Company shall not be in violation of this Section 4.04 for not
listing a person as an Affiliate if the Company believes in good faith that the
person is not an Affiliate and if such person is not a director or officer of
the Company and does not own greater than or equal to ten percent of the
outstanding capital stock of the Company. The Equity Interests of the Company
Affiliates that are known to the Company have been duly authorized and validly
issued, are fully paid and nonassessable and are directly or indirectly owned as
specified in Section 4.04 of the Company Disclosure Schedule, free and clear of
all liens, claims, encumbrances, charges, pledges, restrictions or rights of
third parties of any kind whatsoever. To the knowledge of the Company, no Rights
are authorized, issued or outstanding with respect to the Equity Interests of
any Company Affiliate and, to the knowledge of the Company, there are no
agreements, understandings or commitments relating to the rights of any Company
Affiliate to vote or dispose of said Equity Interests.
4.05. AUTHORITY. The Company has full corporate power and authority (other
than the approval of the Company's stockholders) (i) to execute and deliver all
Agreement Documents to be executed by the Company in connection with or pursuant
to this Agreement; (ii) to perform its obligations under the Agreement Documents
and (iii) to consummate the transactions contemplated by the Agreement
Documents. The execution and delivery of the Agreement Documents and the
consummation of the transactions contemplated hereby or thereby have been duly
and validly approved by unanimous vote of the Board of Directors or other
governing body of the Company (the "COMPANY BOARD"), and no other corporate
proceedings on the part of the Company (other than the approval of the Company's
stockholders) are necessary to approve the Agreement Documents or to consummate
the transactions contemplated hereby or thereby. The Agreement Documents have
been duly and validly executed and delivered by the Company and constitute valid
and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except to the extent the enforcement
thereof may be limited by (A) bankruptcy, insolvency, reorganization, moratorium
or other similar law now or hereafter in effect relating to creditors' rights
generally and (B) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
4.06. NO CONFLICT.
(a) Assuming the effectuation of all filings and registrations with,
termination or expiration of any applicable waiting periods imposed by, and
receipt of all required consents, approvals, authorizations or permits from,
Governmental Entities, as well as approval of the Merger by the Company's
stockholders, neither the execution, delivery and performance of the Agreement
Documents by the Company, nor the consummation by the Company of the
transactions contemplated hereby or thereby, nor compliance by the Company with
any of the terms or provisions hereof or thereof, will (i) conflict with,
violate or result in a breach of any provision of the Organizational Documents
or By-Laws of the Company, (ii) conflict with, violate or result in a breach of
any statute, code, ordinance, rule, regulation, order, writ, judgment,
injunction or decree applicable to the Company, or by which any property or
asset of the Company is bound or affected, or (iii) conflict with, violate or
result in a breach of any provisions of or the loss of any benefit under,
constitute a default (or an event, which, with notice or lapse of time, or both,
would constitute a default) under, or give to others any right of
-15-
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien, pledge, security interest, charge or other encumbrance on
any property or asset of the Company pursuant to any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company is a party, or by which the Company is bound or affected.
(b) Neither the execution, delivery and performance of the Agreement
Documents by the Company, nor the consummation by the Company of the
transactions contemplated hereby or thereby, nor compliance by the Company with
any of the terms or provisions hereof or thereof, will result in the
cancellation or termination of, or give any party the right to cancel, modify or
amend any agreement for the sale of materials, products, services or supplies or
qualification authorizing or permitting the Company to sell materials, products,
services or supplies or qualification to any person.
4.07. CONSENTS AND APPROVALS. The execution, delivery and performance of
this Agreement by the Company does not require any consent, approval,
authorization or permit of, or filing with or notification to, any court,
administrative agency or commission or other governmental or regulatory
authority or instrumentality, domestic or foreign (each a "GOVERNMENTAL ENTITY")
or with any third party, except for (A) applicable requirements, if any, of
state takeover laws, (B) filing and recordation of appropriate merger documents
as required by the laws of the State of Delaware; (C) compliance with applicable
requirements, if any, of the Securities Act, the Exchange Act, state securities
laws, the pre-Merger notification requirements of the Hart-Scott Rodino
Antitrust Improvements Act of 1976, as amended or Foreign Competition Laws, (D)
consents of third parties disclosed on Section 4.25 of the Company Disclosure
Schedule, or (E) the approval of the Company's stockholders. The Company is not
aware of any reason why the approvals, consents and waivers referred to herein
should not be obtained.
4.08. ABSENCE OF CERTAIN PAYMENTS. Neither the Company nor any director or
officer, nor, to the knowledge of the Company, any agent, employee or other
person associated with or acting on behalf of the Company has used any funds of
the Company for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity, or made any direct or indirect unlawful
payments to government officials or employees from corporate funds, or
established or maintained any unlawful or unrecorded funds, or violated any
provisions of the Foreign Corrupt Practices Act of 1977 or any rules or
regulations promulgated thereunder.
4.09. COMPLIANCE. The Company holds all material licenses, franchises,
permits and authorizations necessary for the lawful conduct of its business
under and pursuant to, and has complied with and is not in conflict with, or in
default or violation of, (a) any statute, code, ordinance, law, rule,
regulation, order, writ, judgment, injunction or decree, published policies or
guidelines of any Governmental Entity, applicable to the Company or by which any
property or asset of the Company is bound or affected or (b) any note, bond,
mortgage, indenture, deed of trust, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company is a party or
by which the Company or any property or asset of the Company is bound or
affected; and the Company does not know of, nor has it received notice of, any
material violations of any of the above.
-16-
4.10. TITLE TO ASSETS. The Company has good and marketable title to all of
the assets it purports to own (a complete list of which is set forth in Section
4.10(a) of the Company Disclosure Schedule), and owns all of such assets free
and clear of any Liabilities (as defined in Section 4.22) or Liens, other than
(i) statutory liens securing current taxes and other obligations that are not
yet delinquent ("PERMITTED LIENS") and (ii) minor imperfections of title and
encumbrances that do not materially detract from or interfere with the present
use or value of such properties. The Company holds a valid leasehold interest in
all of the leased assets of the Company.
4.11. CONDITION OF ASSETS. All of the assets of the Company, including any
assets held under leases or licenses, are in good condition and repair, ordinary
wear and tear excepted, and are in good working order and have been properly and
regularly maintained.
4.12. SUFFICIENCY OF PROPERTY AND ASSETS TO CONDUCT BUSINESS. The assets,
rights, personal property, permits and contracts of the Company to be
transferred to Buyer in connection with the Merger (a) constitute all the
properties, assets and rights used in connection with the Business as Currently
Conducted, and also (b) include all the assets, properties and rights necessary
for Buyer to conduct the Business in all material respects as Currently
Conducted. The Company is not, and Buyer will not be, restricted from carrying
out the Business or any part thereof by any agreement, instrument, indenture or
court of arbitration decree.
4.13. FINANCIAL STATEMENTS.
(a) The Company has previously made available to the Buyer, for
copying, originals of the Company Financial Statements, which are accompanied by
the audit report of KPMG, LLP, independent public accountants for the Company.
The Company Financial Statements referred to in this Section 4.13 (including the
related notes, where applicable) fairly present, and the financial statements
referred to in Sections 6.02 and 6.03 hereof each will fairly present (subject,
in the case of unaudited statements, to audit adjustments normal in nature and
amount and the addition of customary notes), the assets, liabilities, results of
the operations and changes in stockholders' equity and financial position of the
Company and the Tweeter Joint Venture, as the case may be, for the respective
periods or as of the respective dates therein set forth; the Company Financial
Statements (including the related notes, where applicable) have been prepared,
and the financial statements referred to in Sections 6.02 and 6.03 hereof will
be prepared, in accordance with generally accepted accounting principles
("GAAP") consistently applied throughout and among the periods covered thereby,
except as indicated in the notes thereto. The audits of the Company and the
Tweeter Joint Venture, as the case may be, have been conducted in all material
respects in accordance with generally accepted auditing standards. The Company
Financial Statements have been prepared from the books and records of the
Company or the Tweeter Joint Venture, as the case may be, and the books and
records of the Company and the Tweeter Joint Venture, as the case may be, are
true and complete in all material respects and have been, and are being,
maintained in all material respects in accordance with applicable legal and
accounting requirements.
(b) The balance sheets of the Company as of February 28, 2001 and April
30, 2001 (the "LATEST BALANCE SHEETS"), including the notes thereto, make
adequate provision for all material liabilities and obligations of every nature
(whether accrued, absolute, contingent or
-17-
otherwise and whether due or to become due) of the Company as of February 28,
2001 and April 30, 2001, respectively, and except as and to the extent set forth
on such balance sheets, the Company has no material liability or obligation of
any nature (whether accrued, absolute, contingent or otherwise and whether due
or to become due) which would be required to be reflected or disclosed on a
balance sheet, or in the notes thereto, prepared in accordance with GAAP. The
Latest Balance Sheets have been prepared on a basis consistent with the
accounting principles and practices used in preparing previous balance sheets
provided to the Buyer. A true and correct copy of the April 30, 2001 balance
sheet is attached as Section 4.13(b) of the Company's Disclosure Schedule.
(c) No facts or circumstances exist which would give the Company reason
to believe that a material liability or obligation that, in accordance with GAAP
applied on a consistent basis, should have been reflected or disclosed on such
balance sheets, was not so reflected or disclosed.
4.14. COMPANY REPORTS. The Company has filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that were required to be filed, with (i) the Securities and Exchange
Commission ("SEC") pursuant to the Securities Act or the Exchange Act, and (ii)
any applicable state securities authorities (all such reports and statements are
collectively referred to herein as the "COMPANY REPORTS"). As of their
respective dates, no such Company Reports filed with the SEC contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading,
except that information filed as of a later date shall be deemed to modify
information as of an earlier date.
4.15. INVENTORY. All inventories reflected in the Latest Balance Sheets or
included in the assets of the Company are of good and merchantable quality and
are salable in the ordinary course of business (in the case of inventory held
for sale) or currently usable (in the case of other inventory). The value of the
inventories reflected in the Latest Balance Sheets are stated in accordance with
GAAP applied on a consistent basis. Except as set forth on Section 4.15 of the
Company Disclosure Schedule, the inventory contains no obsolete or outdated
items.
4.16. RELATIONSHIP WITH VENDORS, MANUFACTURERS, AND RESELLERS. The
Company's business relationship with vendors, manufacturers, and resellers
("BUSINESS VENDORS") with whom it has business dealings are generally
satisfactory. Section 4.16 of the Company Disclosure Schedule sets forth a list
of the one hundred (100) largest Business Vendors, based on sales from February
28, 2001 to the date hereof. The Company does not now have a material dispute
with any Business Vendor. In the past two years the Company has not received any
written notice that indicates dissatisfaction with the Company's performance of
its obligations to its Business Vendors. No notice has been received by the
Company with respect to the possible termination or modification of any
relationship with a Business Vendor, including but not limited to modifications
in co-op funds, rebates or marketing funds, and the Company has no reason to
believe that any business or financial relationship with a Business Vendor is
likely to be adversely affected by consummation of the Merger.
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4.17. AUTHORIZED REPRESENTATIVE. Set forth on Section 4.17 of the Company
Disclosure Schedule is a complete list and description of the vendors and
manufacturers for which the Company is an authorized representative ("VENDOR
RELATIONSHIPS"). Except as disclosed in Schedule 4.17 of the Company's
Disclosure Schedule, no notice has been received with respect to the possible
termination or modification of any Vendor Relationship and the Company has no
reason to believe that any Vendor Relationship will be adversely affected by
consummation of the Merger.
4.18. RETURN POLICY; WARRANTY AND PRODUCT LIABILITY CLAIMS.
(a) Section 4.18 of the Company Disclosure Schedule contains a true and
complete description of the Company's return policy for the business of the
Company, including, without limitation, a description of the circumstances under
which cash or merchandise refunds are given or goods are repaired by Company or
the original manufacturer.
(b) Neither the Company nor any officer or director of the Company is
or has been a defendant in any product liability litigation relating to any
product sold by the Company, and no such litigation is or has been threatened.
4.19. CUSTOMER COMPLAINTS. Set forth on Section 4.19 of the Company
Disclosure Schedule is a description of all customer complaints received by the
Company over the past year, other than one-time, non-systemic complaints
received in the normal course of the Company's business.
4.20. CUSTOMER LISTS. As of April 30, 2001, the Company had a total of
approximately 1.3 million customers of which approximately 750,000 have made
purchases in the last 12 months.
4.21. ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE.
(a) All accounts receivable and vendor accounts receivable, reflected
in the Latest Balance Sheets or generated since the date of the Latest Balance
Sheets (the "LATEST BALANCE SHEET DATE"), arose in the ordinary course of
business and are fully collectible in the ordinary course of business, at the
face amount thereof less any reserve reflected in the Latest Balance Sheets and
are not subject to counterclaim, setoff or other reduction. Set forth on Section
4.21(a) of the Company Disclosure Schedule is a true, correct and complete list,
including aging information, of all such accounts receivable and vendor accounts
receivable as of the Latest Balance Sheet Date.
(b) Set forth on Section 4.21(b) of the Company Disclosure Schedule is
a true, correct and complete list, including aging information, of all of the
Company's accounts payable as of the Latest Balance Sheet Date.
4.22. NO UNDISCLOSED LIABILITIES. The Company does not have any direct or
indirect debts, liabilities or obligations, including any liability for Taxes,
whether known or unknown, absolute, accrued, contingent or otherwise
("LIABILITIES"), except (a) Liabilities fully reflected in the Latest Balance
Sheets and related financial statement notations; (b) accounts payable and
Liabilities incurred in the ordinary course of business and consistent with past
practice since the
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Latest Balance Sheet Date; (c) obligations to be performed in the ordinary
course of business, consistent with past practice, under the Material Contracts
(as defined in Section 4.26) or under agreements not required to be disclosed
pursuant to Section 4.25 and (d) Liabilities disclosed in Company Reports. The
Company does not and will not have any obligations for severance costs, vacation
pay or sick leave associated with any employee of the Company in excess of
$10,000, other than obligations that are satisfied prior to the Effective Time.
Except as disclosed on Section 4.22 of the Company Disclosure Schedule, the
Company does not and will not have any obligations for warranty repair or
replacement, or otherwise in connection with the sale of materials, products,
services or supplies.
4.23. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since February 28, 2001, except
as contemplated by this Agreement, the Company has conducted its business only
in the ordinary course and in manners consistent with past practice and, since
February 28, 2001, except as set forth in Section 4.23 of the Company Disclosure
Schedule, there has not been (a) either individually or in the aggregate, any
Material Adverse Effect, (b) any material damage, destruction or loss with
respect to any property or asset of the Company, (c) any change by the Company
in its accounting methods, principles or practices, other than changes required
by applicable law or GAAP or regulatory accounting as concurred in by the
Company's independent accountants, (d) any revaluation by the Company of any
asset, including, without limitation, any writing down of the value of inventory
or writing off of notes or accounts receivable, other than in the ordinary
course of business consistent with past practice, (e) any entry by the Company
into any contract or commitment of more than $100,000, (f) any declaration,
setting aside or payment of any dividend or distribution in respect of any
Equity Interest of the Company or any redemption, purchase or other acquisition
of any of its securities, (g) any increase in or establishment of any insurance,
severance, retention, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards, or restricted stock
awards), stock purchase or other employee benefit plan, or the taking of any
other material action not in the ordinary course of business with respect to the
compensation or employment of directors, officers or employees of the Company,
(h) any strike, work stoppage, slowdown or other labor disturbance, (i) any
material election made by the Company for federal or state income tax purposes,
(j) any material liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise and whether due or to become due), including
without limiting the generality of the foregoing, liabilities as guarantor under
any guarantees or liabilities for taxes, other than in the ordinary course of
business consistent with past practice, (k) any forgiveness or cancellation of
any material indebtedness or material contractual obligation, (l) any mortgage,
pledge, lien or lease of any assets, tangible or intangible, of the Company with
a value in excess of $25,000 in the aggregate, (m) any acquisition or
disposition of any assets or properties (not including inventory acquired or
disposed of in the ordinary course of business consistent with past practice)
having a value in excess of $100,000, or any contract for any such acquisition
or disposition entered into, or (n) any lease of real or personal property
entered into, other than in the ordinary course of business consistent with past
practice.
4.24. NO BONUSES OR OTHER PAYMENTS TO EMPLOYEES, DIRECTORS, OFFICERS. Since
February 28, 2001, except as disclosed on Section 4.24 of the Company Disclosure
Schedule, the Company has not (a) paid or agreed to pay any bonus or any other
increase in the compensation payable or to become payable, or (b) granted or
agreed to grant any bonus, severance, retention
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or termination pay, or entered into any contract or arrangement to grant any
bonus, severance, retention or termination pay, to any director, officer or
employee of the Company.
4.25. AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as disclosed in Section
4.25 of the Company Disclosure Schedule, the Company is not a party to:
(a) any bonus, deferred compensation, pension, severance,
profit-sharing, stock option, employee stock purchase or retirement plan,
contract or arrangement or other employee benefit plan or other arrangement
covering the Company's employees;
(b) any employment agreement with any of the Company's employees that
contains any severance pay liabilities or obligations;
(c) any agreement for personal services or employment with any of the
Company's employees that is not terminable on 30 days' (or less) notice by the
Company without penalty or obligation to make payments related to such
termination;
(d) any agreement of guarantee or indemnification in an amount that is
material to the Company;
(e) any agreement or commitment containing a covenant limiting or
purporting to limit the freedom of the Company to compete with any person in any
geographic area or to engage in any line of business;
(f) any lease to which the Company is a party as lessor or lessee that
(x) provides for future payments of $10,000 or more, or (y) is material to the
conduct of the business of the Company;
(g) any joint venture agreement or profit-sharing agreement;
(h) except for trade indebtedness incurred in the ordinary course of
business, any loan or credit agreements providing for the extension of credit to
the Company or any instrument evidencing or related in any way to indebtedness
incurred in the acquisition of companies or other entities or indebtedness for
borrowed money by way of direct loan, sale of debt securities, purchase money
obligation, conditional sale, guarantee, or otherwise that individually is in
the amount of $5,000 or more;
(i) any license agreement, either as licensor or licensee, or
distributor, dealer, franchise, manufacturer's representative, sales agency or
other similar agreement or commitment;
(j) any agreement or arrangement for the assignment, sale or other
transfer by the Company of any agreement or lease (or right to payment
thereunder) by which it leases materials, products or other property to a third
party;
(k) any contract or agreement that provides any discount other than
pursuant to the Company's standard discount terms;
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(l) any agreement or commitment for the acquisition, construction or
sale of fixed assets owned or to be owned by the Company;
(m) any current agreement or commitment, not elsewhere specifically
disclosed pursuant to this Agreement, to which present or former directors,
officers or Affiliates of the Company or any of their "ASSOCIATES" (as defined
in the rules and regulations promulgated under the Securities Act) are parties;
(n) any agreement or arrangement for the sale of any of the assets,
properties or rights of the Company (other than in the ordinary course of
business) or for the grant of any preferential rights to purchase any of its
assets, properties or rights or any material agreement that requires the consent
of any third party to the transfer and assignment of any of its assets,
properties or rights;
(o) any contract providing for the payment of a commission or other fee
calculated as or by reference to the volume of web traffic or a percentage of
the profits or revenues of the Company or of any business segment of the
Company;
(p) any contract or agreement not described above involving the payment
or receipt by the Company of more than $25,000, or, in the case of contracts
involving payments by the Company, which cannot be terminated by it on 30 days'
notice without penalty, cost or liability; or
(q) any contract or agreement not described above that is material to
the business, operations, assets, financial condition, results of operations,
properties or prospects of the Company, including without limitation, agreements
relating to web site development and operations; marketing, promotion, affiliate
and advertising, including search engine referrals and Internet private
labeling; fulfillment operations; and telephone, credit card and freight carrier
services.
4.26. CONTRACTS IN FULL FORCE AND EFFECT. All agreements, contracts, plans,
leases, instruments, arrangements, licenses and commitments designated with an
"M" on Attachment 4.25 to Section 4.25 of the Company Disclosure Schedule
("MATERIAL CONTRACTS") are valid and in full force and effect. The Company has
not, nor to the knowledge of the Company has any other party thereto, breached
any provision of, or defaulted under the terms of, nor are there any facts or
circumstances (including, without limitation, the proposed consummation of the
transactions contemplated hereby) that would reasonably indicate that the
Company will or may be in such breach or default under, any such contract,
agreement, instrument, arrangement, commitment, plan, lease or license. No
notice has been received by the Company with respect to the possible termination
or modification of any Material Contract, and the Company has no reason to
believe that any business or financial relationship with any party to a Material
Contract is likely to be adversely affected by consummation of the Merger.
Section 4.25 of the Company Disclosure Schedule correctly identifies each such
contract the provisions of which would be limited or otherwise adversely
affected by this Agreement or the consummation of the Merger and each such
contract that requires the consent of a third party in order to have such
contract remain in full force and effect after consummation of the Merger. The
Company has provided
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Buyer with a true, correct and complete copy of each contract listed on Section
4.25 of the Company Disclosure Schedule, including all amendments thereto.
4.27. ENVIRONMENTAL LIABILITY. There is no litigation or other proceeding
seeking to impose, or that could reasonably result in the imposition on the
Company of, any liability arising under any of the Environmental Laws, pending
or, to the knowledge of the Company, threatened or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome against the Company; there is no reason
for any such potential litigation that would impose any such liability; and the
Company is not subject to any agreement, order, judgment, decree, or memorandum
by or with any court, Governmental Entity, regulatory authority or agency, or
third party imposing any such liability.
4.28. ABSENCE OF LITIGATION. Except as set forth in Section 4.28 of the
Company Disclosure Schedule, the Company is not a party to any, and there are no
pending, or to the knowledge of the Company, threatened, legal, administrative,
arbitral or other material claims, actions, proceedings or investigations of any
nature, against the Company or any property or asset of the Company, before any
court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, and no facts or circumstances have come to the
attention of the Company which could cause it to believe that a material claim,
action, proceeding or investigation against or affecting the Company could
reasonably be expected to occur. Neither the Company nor any property or asset
of the Company is subject to any order, writ, judgment, injunction, decree,
determination or award which restricts the Company's ability to conduct business
in any area in which it presently does business or which has or could reasonably
be expected to have, either individually or in the aggregate, a Material Adverse
Effect.
4.29. EMPLOYEE BENEFIT PROGRAMS. Section 4.29 of the Company Disclosure
Schedule contains a true, correct and complete list of all pension, profit
sharing, retirement, deferred compensation, welfare, insurance, disability,
bonus, vacation pay, severance pay and other similar plans, programs or
agreements, and every material personnel policy, whether reduced to writing or
not, relating to any persons employed by the Company and maintained at any time
by the Company or by any other member of a controlled group of corporations,
group of trades or businesses under common control or affiliated service group
which includes the Company (defined in accordance with Section 414(b), (c) and
(m) of the Code) (each, an "ERISA AFFILIATE") (collectively, the "COMPANY
PLANS"). The Company has made available to Buyer true, correct and complete
copies of all the Company Plans that have been reduced to writing, together with
all documents establishing or constituting any related trust, annuity contract,
insurance contract or other funding instrument, and summaries of those that have
not been reduced to writing. With respect to any "defined benefit plan," as
defined in Section 3(35) of ERISA, the Company has made available a copy of the
latest annual actuarial report, and with respect to all the Company Plans the
latest Forms 5500. Except as to benefits provided in accordance with each of the
Company Plans, neither the Company nor any Affiliate has any obligation or other
employee benefit plan liability under applicable law; nor has the Company or
Affiliate ever been obligated to contribute to any "multiemployer plan," as
defined in Section 3(37) of ERISA.
4.30. EMPLOYEES. Section 4.30 of the Company Disclosure Schedule lists each
employee or consultant of the Company, as well as each employee's and
consultant's date of hire, title,
-23-
department, leave status, current salary/rate of compensation, current bonus
eligibility, date of last review and salary/bonus increase, accrued vacation,
retention or severance eligibility and accrued sick time and for each of 2001
year to date and 2000 each employee's or consultant's salary, bonus, commissions
and total compensation paid. No such employee or consultant has given the
officers or the human resources department of the Company any notice of his/her
specific plan to terminate his/her employment relation on a date prior to the
Effective Time. All employees of the Company are in good standing under the
Company's employment policies and manuals.
4.31. LABOR MATTERS.
(a) No work stoppage involving the Company is pending or, to the
knowledge of the Company, threatened. The Company is not involved in, nor, to
the knowledge of the Company, is the Company threatened with or affected by, any
dispute, arbitration, lawsuit or administrative proceeding relating to labor or
employment matters which might reasonably be expected to interfere in any
material respect with the business activities of the Company. No employee of the
Company is represented by any labor union, and no labor union is attempting to
organize employees of the Company.
(b) The Company has not implemented and does not intend to implement a
"plant closing" or a "mass layoff" within the meaning of the Worker Adjustment
and Retraining Notification Act ("WARN ACT"), 29 U.S.C. (S)2101 et seq., or any
similar state law or regulation.
4.32. REAL PROPERTY AND LEASES.
(a) The Company does not own any real property.
(b) The Company has received no notice of violation of any applicable
zoning regulation, ordinance or other law, order, regulation or requirement
relating to the Company's properties.
(c) All leases of real property leased for the use or benefit of the
Company to which the Company is a party, and all amendments and modifications
thereto, are in full force and effect, and there exists no default under any
such lease by the Company, nor, to the knowledge of the Company, has any event
occurred which with notice or lapse of time or both would constitute a material
default thereunder by the Company.
(d) Section 4.32 of the Company Disclosure Schedule sets forth a
description (including the street address) of all real property leased by the
Company. No premises other than such leased properties are used in the Business.
4.33. TAXES AND TAX RETURNS. Except as disclosed in Section 4.33 of the
Company Disclosure Schedule, the Company represents to Buyer as follows:
(a) Each of the Company and its subsidiaries has filed all Tax Returns
that it was required to file, and prior to the Closing Date will file all Tax
Returns for the fiscal year ended February 28, 2001 ("2001 TAX RETURNS"),
whether or not such 2001 Tax returns are due as of the Closing Date. All such
Tax Returns were (or will be) correct and complete in all respects.
-24-
All Taxes owed by any of the Company and its subsidiaries (whether or not shown
on any Tax Return) have been paid, including all Taxes shown on the 2001 Tax
Returns. Neither the Company nor its subsidiaries is currently the beneficiary
of any extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where the Company and its
subsidiaries do not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no Liens on any of the assets of the Company or its
subsidiaries that arose in connection with any failure (or alleged failure) to
pay any Tax.
(b) Each of the Company and its subsidiaries has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or other
third party.
(c) No director or officer (or employee responsible for Tax matters) of
the Company and its subsidiaries expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no dispute
or claim concerning any Tax Liability of the Company or its subsidiaries either
(A) claimed or raised by any authority in writing or (B) as to which the
directors or officers (or employee responsible for Tax matters) of the Company
and its subsidiaries have knowledge based upon personal contact with any agent
of such authority. Section 4.33 of the Company Disclosure Schedule lists all
federal, state, local, and foreign income Tax Returns filed with respect to any
of the Company and its subsidiaries for taxable periods ended on or after
February 28, 1998, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. The Company
has delivered to Buyer correct and complete copies of all federal income Tax
Returns, examination reports, and statement of deficiencies assessed against or
agreed to by the Company or any of its subsidiaries since February 28, 1998.
(d) None of the Company and its subsidiaries has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(e) None of the Company and its subsidiaries has filed a consent under
Code section 341(f) concerning collapsible corporations. None of the Company and
its subsidiaries has made any payment, is obligated to make any payment, or is a
party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Code section 280G or Code
section 162(m). None of the Company and its subsidiaries has been a United
States real property holding corporation within the meaning of Code section
897(c)(2) during the applicable period specified in Code section
897(c)(1)(A)(ii). None of the Company and its subsidiaries is a party to any Tax
allocation or sharing agreement. None of the Company and its subsidiaries (i)
has been a member of an affiliated, combined, consolidated or unitary Tax group
for purposes of filing any Tax Return, other than, for purposes of filing
consolidated U.S. federal income tax returns, a group the common parent of which
was the Company) or (ii) has any Liability for the Taxes of any Person under
Treasury Regulation section 1.1502-6 (or any similar provision of state, local,
or foreign law), as a transferee or successor, by contract or otherwise.
(f) Section 4.33 of the Company Disclosure Schedule sets forth the
following information with respect to each of the Company and its subsidiaries
as of the most recent
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practicable date (as well as on an estimated pro forma basis as of the Closing
Date giving effect to the consummation of the transactions contemplated hereby):
(A) the basis of the Company or subsidiary in its assets; (B) the basis of the
stockholder(s) of the subsidiary in its stock (or the amount of any Excess Loss
Account); (C) the amount of any net operating loss, net capital loss, unused
investment or other credit, unused foreign tax, or excess charitable
contribution allocable to the Company or subsidiary, and the date on which such
amounts arose; and (D) the amount of any Deferred Intercompany Transaction.
(g) The unpaid Taxes of the Company and its subsidiaries (i) did not,
as of the Latest Balance Sheet Date, exceed the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the Latest
Balance Sheets (rather than in any notes thereto) and (ii) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company and its subsidiaries
in filing its Tax Returns.
(h) None of the Company and its subsidiaries will be required to
include any item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing Date
as a result of any (A) change in method of accounting for a taxable period
ending on or prior to the Closing Date under Code section 481(c) (or any
corresponding or similar provision of state, local or foreign income Tax law);
(B) "closing agreement" as described in Code section 7121 (or any corresponding
or similar provision of state, local or foreign income Tax law) executed on or
prior to the Closing Date; (C) Deferred Intercompany Transaction or Excess Loss
Account; (D) installment sale or open transaction disposition made on or prior
to the Closing Date; or (E) prepaid amount received on or prior to the Closing
Date.
(i) The Company has not experienced an "ownership change" described in
section 382 of the Code.
(j) Each of CMP Sub and Vendor Sub has always participated in the
filing of a consolidated federal income tax return with the Company as common
parent.
(k) For federal income tax purposes, Holdings Sub has since its
formation been treated as a disregarded entity.
(l) For federal income tax purposes, the Tweeter Joint Venture has
since its formation been treated as a partnership. As of the date hereof, the
amount of the Company's capital account in the Tweeter Joint Venture was
$3,018,425. The Company has a 50% percent interest in the profits, and a 50%
percent interest in the losses, of the Tweeter Joint Venture.
4.34. INSURANCE. The Company has made available to Buyer true and complete
copies of all material policies of insurance of the Company currently in effect.
All of the policies relating to insurance maintained by the Company with respect
to its material properties and the conduct of its business in any material
respect (or any comparable policies entered into as a replacement therefor) are
in full force and effect and the Company has not received any notice of
cancellation with respect thereto. All life insurance policies on the lives of
any of the current and former officers of the Company which are maintained by
the Company or which are otherwise included
-26-
as assets on the books of the Company (i) are, or will be at the Effective Time,
owned by the Company, free and clear of any claims thereon by the officers or
members of their families, except with respect to the death benefits thereunder,
as to which the Company agrees that there will not be an amendment prior to the
Effective Time without the consent of Buyer, and (ii) are accounted for properly
as assets on the books of the Company, as applicable, in accordance with GAAP in
all material respects. The Company does not have any material liability for
unpaid premiums or premium adjustments not properly reflected on such the
Company financial statements delivered to Buyer hereunder.
4.35. STATE TAKEOVER LAWS. The Board of Directors or other managing body of
Company has approved the transactions contemplated by this Agreement and taken
all other requisite action such that the provisions of the laws of the Delaware
General Corporate Law and any provisions of the Company's Organizational
Documents relating to special voting requirements for certain business
combinations will not apply to this Agreement or any of the transactions
contemplated hereby or thereby.
4.36. COMPETING INTERESTS. None of the Company or any director or officer
of the Company, or, to the knowledge of the Company, any agent or employee of
the Company, or any Affiliate or immediate family member of any of the foregoing
(a) owns, directly or indirectly, an interest in any entity that is a
competitor, customer or supplier of the Company or that otherwise has material
business dealings with the Company or (b) is a party to, or otherwise has any
direct or indirect interest opposed to the Company under, any Material Agreement
or other business relationship or arrangement material to the Company, provided
that the foregoing will not apply to any investment in publicly traded
securities constituting less than 3% of the outstanding securities in such
class. Neither the Company, nor any director or officer of the Company, nor, to
the knowledge of the Company, any agent or employee of the Company, is a party
to any non-competition, non-solicitation, exclusivity or other similar agreement
that would in any way restrict the business or activities of the Company or
Buyer.
4.37. INTERESTS OF COMPANY INSIDERS. No director, officer, agent or
employee of the Company, or any Affiliate or immediate family member (each, a
"COMPANY INSIDER") of any of the foregoing, (a) has any interest in any
property, real or personal, tangible or intangible, including Intellectual
Property used in or pertaining to the business of the Company, except for the
normal rights of a shareholder, and except for rights under existing employee
benefit plans or (b) is owed any money by the Company.
4.38. INTELLECTUAL PROPERTY.
(a) For purposes of this Agreement, "INTELLECTUAL PROPERTY" means all
(i) patents, copyrights and copyrightable works, trademarks, service marks,
trade names, service names, brand names, logos, trade dress, Internet domain
names and all goodwill symbolized thereby and appurtenant thereto; (ii) trade
secrets, inventions, technology, know-how, proprietary information, research
material, specifications, surveys, designs, drawings and processes; (iii)
artwork, photographs, editorial copy and materials, formats and designs,
including without limitation all content currently or previously displayed
through Internet sites owned or operated by the Company; (iv) customer, partner,
prospect and marketing lists, market research data, sales data and traffic and
user data; (v) registrations, applications, recordings, common law rights,
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"moral" rights of authors, licenses (to or from the Company) and other
agreements relating to any of the foregoing; (vi) rights to obtain renewals,
reissues, extensions, continuations, divisions or equivalent extensions of legal
protection pertaining to the foregoing; and (vii) claims, causes of action or
other rights at law or in equity arising out of or relating to any infringement,
misappropriation, distortion, dilution or other unauthorized use or conduct in
derogation of the foregoing occurring prior to the Closing.
(b) Section 4.38(b) of the Company Disclosure Schedule lists all
registered patents, copyrights, trademarks and service marks owned by the
Company or a Company Subsidiary.
(c) The Company or a Company Subsidiary owns or otherwise has the right
to use pursuant to Material Contracts (or standard form "shrink wrap" license
agreements for software regularly available in retail sales) all Intellectual
Property used by the Company or a Company Subsidiary in connection with or
necessary to the operation of the Business, without infringing on to the rights
of any person. The Company is not obligated to pay any royalty or other
consideration to any person in connection with the use of any such Intellectual
Property.
(d) No claim has been asserted against the Company to the effect that
the use of any Intellectual Property by the Company infringes the rights of any
person. To the knowledge of the Company, no other person is currently infringing
upon the rights of the Company with respect to the Intellectual Property.
(e) The Intellectual Property owned by the Company or a Company
Subsidiary or which the Company or a Company Subsidiary otherwise has the right
to use as of the Closing is sufficient as of the Closing Date for the uses of
the Business as Currently Conducted. The Company or a Company Subsidiary has
obtained all licenses and consents and has paid all royalties necessary to
enable Buyer to continue using the Intellectual Property after the Closing in
the manner it is currently being used or has been committed to be used.
4.39. COMPANY SOFTWARE.
(a) Section 4.39 of the Company Disclosure Schedule sets forth a true
and complete list of all software programs, systems and applications (A)
designed or developed or under development by employees of the Company or by
consultants on the Company's behalf including all documentation therefor (the
"OWNED SOFTWARE") or (B) licensed by the Company from any third party or
constituting "off-the-shelf" software (the "LICENSED SOFTWARE"), in each case
that is manufactured or used by the Company in the operation of its business
(collectively, the "SOFTWARE") and, in the case of Licensed Software, Section
4.39 of the Company Disclosure Schedule identifies each license agreement with
respect thereto.
(b) All of the Owned Software are original works of authorship and are
protected by the copyright laws of the United States. The Company owns all
right, title and interest in and to the Owned Software, and all copyrights
thereto, free and clear of all Liens, claims, encumbrances, charges, pledges,
restrictions or rights of third parties of any kind whatsoever ("ENCUMBRANCES"),
and has not sold, assigned, licensed, distributed or in any other way disposed
of or subjected the Owned Software to any Encumbrance. None of the Owned
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Software incorporates, is based on or is a derivative work of any third party
code that is subject to the terms of a public source license or otherwise
imposes conditions on the terms and conditions under which the Owned Software
may be used or distributed. To the knowledge of the Company, no other person is
currently infringing upon the rights of the Company with respect to the Owned
Software. No claim has been asserted against the Company to the effect that the
use of any Owned Software by the Company infringes the rights of any person.
(c) The Licensed Software is validly held and used by the Company and
may be used by the Company pursuant to the applicable license agreement with
respect thereto without the consent of, notice to, or payment of any royalty or
any other fee to any third party and is fully and freely utilizable by the Buyer
without the consent of, notice to or payment of any royalty to any third party.
All of the Company's computer hardware has validly licensed software installed
therein and the Company's use thereof does not conflict with or violate any such
license. No claim has been asserted against the Company to the effect that the
use of any Licensed Software by the Company infringes the rights of any person.
(d) To the knowledge of the Company, the Software is free from any
significant software defect, is free from any programming, documentation error
or virus ("BUGS") not consistent with commercially reasonable industry standards
acceptable for such Bugs, operates and runs in a reasonable and efficient
business manner, conforms to the specifications thereof, and, with respect to
the Owned Software, the applications can be compiled from their associated
source code without undue burden.
(e) The Company has not altered its data, or any Software or supporting
software that may in turn damage the integrity of the data, whether stored in
electronic, optical or magnetic or other form. The Company has made available to
Buyer all documentation in its possession relating to the use, maintenance and
operation of the Software, all of which is true and accurate in all material
respects (to the Company's knowledge, with respect to the Licensed Software).
(f) The Software owned or licensed by the Company as of the Closing is
sufficient as of the Closing Date for the uses of the Business as it is
Currently Conducted.
4.40. INVESTMENT BANKER. Except as set forth in Section 4.40 of the Company
Disclosure Schedule, no broker, finder or investment banker, is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. Details of the amount payable to the investment banker
are set forth in such Section 4.40 of the Company Disclosure Schedule.
4.41. COMPANY INFORMATION. The information relating to Company and its
Affiliates to be contained in the Proxy Statement-Prospectus, or any other
statement or application filed with any other Governmental Entity in connection
with the Merger and the other transactions contemplated by this Agreement, will
not contain as of the date of such Proxy Statement-Prospectus and as of the date
of the Special Meeting (defined in Section 6.05) any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, the Company makes and will make no
representation or warranty
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with respect to any information supplied by Buyer which is contained in any of
the foregoing documents. The Proxy Statement-Prospectus (except for such
portions thereof that relate only to Buyer and its Affiliates) will comply in
all material respects with the provisions of the Securities Laws and the rules
and regulations thereunder.
4.42. DISCLOSURE. No representation or warranty contained in this
Agreement, and no statement contained in any Schedule, certificate, list or
other writing furnished to Buyer pursuant to the provisions hereof, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements herein or
therein, in light of the circumstances in which they are made, not misleading.
No information believed by the Company to be material to the Merger and which is
necessary to make the representations and warranties herein contained, taken as
a whole, not misleading, has been withheld from, or has not been delivered in
writing to, Buyer.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company that:
5.01. CORPORATE ORGANIZATION. The Buyer is a corporation, duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Buyer has the requisite power and authority and all necessary governmental
approvals to own, lease and operate all of its properties and assets and to
carry on its business as it is now being conducted, and is duly licensed or
qualified to do business and is in good standing in each jurisdiction where the
nature of the business conducted by it or the character or location of the
properties and assets owned, leased or operated by it makes such licensing or
qualification necessary.
5.02. AUTHORITY. The Buyer has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
approved by the Board of Directors of the Buyer (the "BUYER BOARD"). This
Agreement has been duly and validly executed and delivered by the Buyer and
constitutes a valid and binding obligation of the Buyer, enforceable against the
Buyer in accordance with its terms.
5.03. CAPITALIZATION OF BUYER.
(a) The authorized Equity Interest of Buyer consists of 100,000,000
shares of common stock, $.01 par value per share and 10,000,000 shares of
preferred stock, $.01 par value per share, of which 24,419,525 shares of common
stock and no shares of Preferred Stock are issued and outstanding.
(b) Except for options to acquire not more than 2,739,414 shares of
Buyer Common Stock pursuant to stock options outstanding as of the date hereof
under the Buyer's Stock Option Plans, as of the date of this Agreement there are
no outstanding subscriptions, options, warrants, calls or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued Equity Interest of Buyer or obligating Buyer to issue or sell any
Equity Interests of, or other equity interests in, Buyer.
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(c) Buyer Common Stock is listed on the Nasdaq National Market System.
5.04. NO CONFLICT. Neither the execution, delivery and performance of this
Agreement by the Buyer, nor the consummation by the Buyer of the transactions
contemplated hereby, nor compliance by the Buyer with any of the terms or
provisions hereof, will (i) conflict with, violate or result in a breach of any
provision of the Organizational Documents or By-Laws of the Buyer, or (ii)
conflict with, violate or result in a breach of any statute, code, ordinance,
rule, regulation, order, writ, judgment, injunction or decree applicable to the
Buyer, or by which any property or asset of the Buyer is bound.
5.05. CONSENTS AND APPROVALS. The execution, delivery and performance of
this Agreement by the Buyer does not require any consent, approval,
authorization or permit of, or filing with or notification to any Governmental
Entity or with any third party, (A) applicable requirements, if any, of state
takeover laws, (B) filing and recordation of appropriate merger documents as
required by the laws of the State of Delaware; and (C) compliance with
applicable requirements, if any, of the Securities Act, the Exchange Act, state
securities laws, the pre-Merger notification requirements of the Hart-Scott
Rodino Antitrust Improvements Act of 1976, as amended or Foreign Competition
Laws. The Buyer is not aware of any reason why the approvals, consents and
waivers referred to herein should not be obtained.
5.06. FINANCIAL STATEMENTS. The Buyer has previously made available to the
Company copies of (i) the consolidated balance sheets of the Buyer and its
subsidiaries as of December 31 for the fiscal years 1999 and 2000 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the fiscal years 1998 through 2000, inclusive, as reported in the
Buyer's 2000 Annual Report on Form 10-K, and (ii) the unaudited consolidated
financial statements of Buyer and its subsidiaries as of March 31, 2000 and
March 31, 2001 as reported on the Buyer's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001, and the related unaudited consolidated statements
of income, changes in stockholders' equity and cash flows for the three month
period then ended. The December 31, 2000 consolidated balance sheet of the Buyer
(including the related notes, where applicable) fairly presents in all material
respects the consolidated financial position of the Buyer and its subsidiaries
as of the date thereof, and the other financial statements referred to in this
Section 5.06 (including the related notes where applicable) fairly present in
all material respects (subject, in the case of the unaudited statements, to
audit adjustments normal in nature and amount and the addition of customary
notes), the results of the consolidated operations and changes in shareholders'
equity and consolidated financial position of the Buyer for the respective
fiscal periods or as of the respective dates therein set forth and each of such
statements (including the related notes, where applicable) has been prepared in
accordance with GAAP consistently applied during the periods involved, except as
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q under the Exchange Act.
5.07. BUYER REPORTS. The Buyer has filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that were required to be filed, with (i) the Securities and Exchange
Commission ("SEC") pursuant to the Securities Act or the Exchange Act, and (ii)
any applicable state securities authorities (all such reports and statements are
collectively referred to herein as the "BUYER REPORTS"). As of their respective
dates, no such Buyer Reports filed with the SEC contained any untrue statement
of a material
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fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading, except that information filed as of a
later date shall be deemed to modify information as of an earlier date.
5.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 2000, there
has not been either individually or in the aggregate any Material Adverse Effect
with respect to the Buyer.
5.09. BUYER INFORMATION. The information relating to Buyer to be contained
in the Proxy Statement- Prospectus (as contemplated by Section 8.01) or any
other statement or application filed with any governmental body in connection
with the Merger and the other transactions contemplated by this Agreement will
not contain as of the date of such Proxy Statement-Prospectus or filing any
untrue statement of a material fact or omit to state a material fact necessary
to make such information not misleading. Notwithstanding the foregoing, Buyer
makes and will make no representation or warranty with respect to any
information supplied by Company which is contained in any of the foregoing
documents. The Proxy Statement-Prospectus (except for such portions thereof that
relate only to the Company or its Affiliates) will comply in all material
respects with the provisions of the Securities Laws and the rules and
regulations thereunder.
5.10. BUYER SUB.
(a) Upon its formation, Buyer Sub will be a corporation, duly
organized, validly existing and in good standing under the laws of Delaware, all
of the outstanding capital stock of which is, or will be prior to the Effective
Time, owned directly or indirectly by Buyer free and clear of any lien, charge
or other encumbrance. From and after its incorporation, Buyer Sub has not and
will not engage in any activities other than in connection with or as
contemplated by this Agreement.
(b) Buyer Sub has, or will have prior to the Effective Time, all
corporate power and authority to consummate the transactions contemplated
hereunder and carry out all of its obligations with respect to such
transactions. The consummation of the transactions contemplated hereby has been,
or will have been prior to the Closing, duly and validly authorized by all
necessary corporate action in respect thereof on the part of Buyer Sub.
5.11. DISCLOSURE. No representation or warranty contained in this
Agreement, and no statement contained in any Schedule, certificate, list or
other writing furnished to the Company pursuant to the provisions hereof,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
herein or therein, in light of the circumstances in which they are made, not
misleading.
ARTICLE VI. COVENANTS OF THE COMPANY
6.01. CONDUCT OF BUSINESS PENDING THE MERGER.
(a) The Company covenants and agrees that, except as contemplated by
this Agreement, between the date of this Agreement and the Effective Time,
unless the Buyer shall
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otherwise agree in writing, the Business of the Company shall be conducted only
in the Company, and the Company shall not take any action except in, the usual,
regular and ordinary course of business and the Company will generally conduct
its business in substantially the same way as heretofore conducted, and without
limiting the foregoing, the Company will continue to operate in the same
geographic markets serving the same market segments. The Company shall use its
reasonable best efforts to preserve substantially intact the business
organization of the Company, to keep available the present services of the
officers, employees and consultants of the Company and to preserve the current
relationships and goodwill of the Company with customers, suppliers and other
persons with which the Company has business relationships. Without limiting the
generality of the foregoing, the Company shall:
(i) maintain in full force and effect all contracts of insurance and
indemnity specified in any Schedule hereto;
(ii) repair and maintain all of its tangible properties and assets in
accordance with its usual and ordinary repair and maintenance standards;
(iii) continue to apply in full the same rigorous credit review
process used by the Company prior to the Closing in determining the extent
to which it will extend credit to customers or potential customers in the
ordinary course of business;
(iv) notify the Buyer of any material emergency or other material
change in the operation of its business or properties and of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated).
(b) By way of amplification and not limitation of clause (a) above, the
Company shall not between the date of this Agreement and the Effective Time,
directly or indirectly do, or publicly announce an intention to do, any of the
following without the prior written consent of Buyer through one of its
authorized representatives (which representatives shall be each of its Chief
Executive Officer, President and Chief Financial Officer):
(i) amend or otherwise change its Organizational Documents or By-laws
or equivalent organizational documents;
(ii) issue, deliver, sell, pledge, dispose of, grant, encumber, or
authorize the issuance, delivery, sale, pledge, disposition, grant or
encumbrance of, any Equity Interests of the Company, or any options,
warrants, convertible securities or other rights of any kind to acquire any
such Equity Interests, or any other ownership interest, of the Company, or
enter into any agreement with respect to any of the foregoing, other than
in connection with the Stock Warrant Agreement and upon exercise of the
Company Stock Options;
(iii) make any distribution (by way of dividend or otherwise) with
respect to its Equity Interests;
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(iv) split, combine or reclassify any of its Equity Interests or issue
or authorize or propose the issuance of any other securities in respect of,
in lieu of or in substitution for its Equity Interests;
(v) repurchase, redeem or otherwise acquire any Equity Interests of
the Company, or any securities convertible into or exercisable for any of
the Equity Interests of the Company;
(vi) enter into any new line of business or materially expand the
business currently conducted by the Company;
(vii) acquire or agree to acquire, by merging or consolidating with,
or by purchasing an equity interest in or a portion of the assets of, or by
any other manner, any business or any corporation, partnership, other
business organization or any division thereof or any material amount of
assets;
(viii) incur any indebtedness for borrowed money, increase the
aggregate amounts owed under the Company's existing credit facilities or
issue any debt securities or assume, guarantee or endorse, or otherwise as
an accommodation become responsible for, the obligations of any individual,
corporation or other entity, or make any loan or advance;
(ix) lower or otherwise alter its credit card fraud review process (as
more fully described in Exhibit 6.01);
------------
(x) authorize any capital expenditures of more than $25,000 in the
aggregate (other than expenditure listed on Schedule 6.01(b)(x) and
previously approved by Buyer);
(xi) (A) (x) adopt, amend, renew or terminate any plan or any
agreement, arrangement, plan or policy between the Company and one or more
of its current or former directors, officers or employees, or (y) increase
in any manner the compensation or fringe benefits of any director, officer
or employee or pay any benefit not required by any plan or agreement as in
effect as of the date hereof (including, without limitation, the granting
of stock options, stock appreciation rights, restricted stock, restricted
stock units or performance units or shares); or (B) enter into, modify or
renew any employment, severance or other agreement with any director,
officer or employee of the Company, or establish, adopt, enter into or
amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance, retention or other plan,
agreement, trust, fund, policy or arrangement providing for any benefit to
any director, officer or employee;
(xii) pay any bonus or any compensation other than base compensation,
except for payments of bonuses and other incentive compensation to sales
personnel pursuant to and consistent with the written sales incentive plan
which has been provided to and approved by Buyer;
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(xiii) take any action with respect to accounting methods, principles
or practices, other than changes required by applicable law or GAAP or
regulatory accounting as concurred in by the Company's independent
accountants;
(xiv) make any tax election or settle or compromise any federal,
state, local or foreign tax liability; (xv) pay, discharge or satisfy any
claim, liability or obligation, other than the payment, discharge or
satisfaction, in the ordinary course of business and consistent with past
practice;
(xvi) sell, lease, encumber, assign or otherwise dispose of, or agree
to sell, lease, encumber, assign or otherwise dispose of, any of its
material assets, properties or other rights or agreements;
(xvii) take any action that is intended or reasonably can be expected
to result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect, or any of the
conditions to the consummation of the Merger and the other transactions
contemplated by this Agreement set forth in Article IX not being satisfied
in any material respect, or in any material violation of any provision of
this Agreement;
(xviii) enter into or renew, amend or terminate, or give notice of a
proposed renewal, amendment or termination of or make any commitment with
respect to, (A) any contract, agreement or lease for office space or
operations space to which the Company is a party or by which the Company or
its properties is bound; (B) any lease, contract or agreement other than in
the ordinary course of business consistent with past practice including
renewals of leases to existing tenants of the Company ; (C) regardless of
whether consistent with past practices, any lease, contract, agreement or
commitment involving an aggregate payment by or to the Company of more than
$10,000 or requiring performance by the Company of any obligations at any
time more than one year after the time of execution;
(xix) enter into an agreement, contract, or commitment that, if
entered into prior to the date hereof, would be required to be listed on a
Schedule delivered to Buyer pursuant to the terms of this Agreement,
including without limitation, any arrangement or contract with respect to
web site development or operations; marketing, promotion, affiliate and
advertising, including search engine referrals and Internet private
labeling; fulfillment operations; or telephone, credit card or freight
carrier services;
(xx) amend, terminate or change in any material respect any lease,
contract, undertaking, arrangement or other commitment listed in any
Schedule (including without limitation its arrangements and contracts with
respect to web site development and operations; marketing, promotion,
affiliate and advertising, including search engine referrals and Internet
private labeling; fulfillment operations; and telephone, credit card or
freight carrier services) or knowingly do any act or omit to do
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any act, or permit an act or omission to act, that will cause a breach of
any such lease, contract, undertaking, arrangement or other commitment;
(xxi) change its pricing policies or its policies with respect to
freight rates charged to customers;
(xxii) enter into any transaction with an Insider; or
(xxiii) agree to do any of the foregoing.
6.02. CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Time, the Company will cause one or more of its
representatives to confer with representatives of Buyer and report the general
status of its ongoing operations at such times as Buyer may reasonably request.
Buyer will cooperate with the Company to establish a regular communications
process designed to minimize disruption to the Company's ongoing operations. The
Company will promptly notify Buyer of any material change in the normal course
of its business or in the operation of its properties and, to the extent
permitted by applicable law, of any governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated), or
the institution or the threat of material litigation involving the Company. The
Company will also provide Buyer such information with respect to such events as
Buyer may reasonably request from time to time. As soon as reasonably available,
but in no event more than 45 days after the end of each fiscal quarter ending
after the date of this Agreement (other than the last quarter of each fiscal
year), the Company will deliver to Buyer its quarterly report on Form 10-Q under
the Exchange Act, and, as soon as reasonably available, but in no event more
than 90 days after the end of each fiscal year, the Company will deliver to
Buyer its Annual Report on Form 10-K. The Company will deliver to Buyer all
Current Reports on Form 8-K at or before the time such reports are filed with
the SEC. Within 15 days after the end of each month, the Company will deliver to
Buyer a consolidated balance sheet and a consolidated statement of operations,
without related notes, for such month. The Company will provide Buyer with an
updated list promptly upon any change to the Company's list of authorized
signatories for bank accounts and safe deposit boxes.
6.03. OTHER FINANCIAL INFORMATION.
(a) Promptly upon receipt thereof, Company will furnish to Buyer copies
of each annual, interim or special audit of the books of Company and the Company
Affiliates made by its independent accountants and copies of all internal
control reports submitted to Company by such accountants in connection with each
annual, interim or special audit of the books of Company and the Company
Affiliates made by such accountants.
(b) As soon as practicable, Company will furnish to Buyer copies of all
such financial statements and reports as it shall send to its stockholders, the
SEC or any other regulatory authority, except as legally prohibited thereby.
(c) Company will furnish to Buyer, on a daily basis, a copy of the
daily operations report it furnishes to its senior management as well as cash
flow status and projections, and will provide Buyer with password access to
outpostreports.com.
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(d) Company will deliver to the Buyer a closing balance sheet updating
the Latest Balance Sheets to a date not more than two days before the Closing,
including a detailed schedule of inventory, accounts receivable and accounts
payable, with aging information.
(e) With reasonable promptness, Company will furnish to Buyer such
additional financial data as Buyer may reasonably request.
6.04. ACCESS TO INFORMATION.
(a) Upon reasonable notice and subject to applicable laws relating to
the exchange of information, the Company shall afford to the officers,
employees, accountants, counsel and other representatives of the Buyer, access,
during normal business hours during the period prior to the Effective Time, to
all its properties, books, contracts, commitments and records and, during such
period, the Company shall make available to the Buyer all other information
concerning its business, properties and personnel as the Buyer may reasonably
request (other than information which the Company is not permitted to disclose
under applicable law). Buyer will cooperate with the Company to establish a
regular information dissemination process designed to minimize disruption to the
Company's ongoing operations. The Company shall not be required to provide
access to or to disclose information where such access or disclosure would
violate or prejudice the rights of the Company's customers, jeopardize the
attorney- client privilege of the institution in possession or control of such
information or contravene any law, rule, regulation, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the date of this
Agreement. The parties hereto will make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply.
(b) All information furnished by the Company to the Buyer or its
representatives pursuant hereto shall be treated as the sole property of the
Company and, if the Merger shall not occur, the Buyer and its representatives
shall return to the Company or destroy all of such written information and all
documents, notes, summaries or other materials containing, reflecting or
referring to, or derived from, such information. The Buyer shall, and shall use
its reasonable efforts to cause its representatives to, keep confidential all
such information, and shall not directly or indirectly use such information for
any competitive or other commercial purpose. The obligation to keep such
information confidential shall continue from the date the proposed Merger is
abandoned and shall not apply to (i) any information which (x) was already in
the Buyer's possession prior to the disclosure thereof by the Company; (y) was
then generally known to the public; or (z) was disclosed to the Buyer by a third
party not bound by an obligation of confidentiality or (ii) disclosures made as
required by law. It is further agreed that, if in the absence of a protective
order or the receipt of a waiver hereunder the Buyer is nonetheless, in the
opinion of its counsel, compelled to disclose information concerning the Company
to any tribunal or governmental body or agency or else stand liable for contempt
or suffer other censure or penalty, the Buyer may disclose such information to
such tribunal or governmental body or agency without liability hereunder.
(c) No investigation by any of the parties or their respective
representatives shall affect the representations and warranties of the other set
forth herein or any condition to the obligations of the parties hereto.
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6.05. APPROVAL OF COMPANY'S STOCKHOLDERS. Company will take all reasonable
steps necessary to duly call, give notice of, solicit proxies for, convene and
hold a special meeting (the "SPECIAL MEETING") of its stockholders as soon as
practicable for the purpose of approving this Agreement and the transactions
contemplated hereby. The date of the Special Meeting shall occur as soon as
practicable following the effectiveness of the Registration Statement (as more
fully described in Section 8.01) filed with the SEC. The Board of Directors of
Company will recommend to Company's stockholders the approval of this Agreement
and the transactions contemplated hereby and will use all reasonable efforts to
obtain, as promptly as practicable, the necessary approvals by Company's
stockholders of this Agreement and the transactions contemplated hereby,
provided, however, that nothing contained herein shall prohibit the Board of
Directors of Company from failing to make such a recommendation or modifying or
withdrawing its recommendation, if such Board shall have concluded in good faith
with the advice of counsel that such action is required to prevent such Board
from breaching its fiduciary duties to the stockholders of Company, and no such
action shall constitute a breach of this Agreement. Nothing in this Section 6.05
shall have any effect on the validity of the irrevocable proxies delivered to
Buyer by the Company's directors and certain key employees simultaneously with
the execution of this Agreement.
6.06. FAILURE TO FULFILL CONDITIONS. In the event that Company determines
that a condition to its obligation to complete the Merger cannot be fulfilled
and that it will not waive that condition, it will promptly notify Buyer.
6.07. ALL REASONABLE EFFORTS. Subject to the terms and conditions herein
provided, Company agrees to use all reasonable efforts to take, or cause to be
taken, all corporate or other action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
6.08. UPDATE OF DISCLOSURE SCHEDULES. From time to time prior to the
Effective Time, the Company will promptly supplement or amend the Company
Disclosure Schedule to reflect any matter which, if existing, occurring or known
at the date of this Agreement, would have been required to be set forth or
described in the Company Disclosure Schedule or which is necessary to correct
any information in the Company Disclosure Schedule which has been rendered
inaccurate thereby. No supplement or amendment to the Company Disclosure
Schedule shall have any effect for the purpose of determining satisfaction of
the conditions set forth in Section 9.02(a) hereof or the compliance by the
Company with the covenants set forth in Article VI and Article VIII hereof.
6.09. NO SOLICITATION. The Company shall not, directly or indirectly,
through any officer, director, agent or otherwise, solicit, initiate or
encourage the submission of any proposal or offer from any person relating to
any acquisition or purchase of any Equity Interests in the Company or all or
(other than in the ordinary course of business) any material portion of the
assets of the Company or any business combination with the Company, or, except
to the extent legally required in the discharge of their fiduciary duties,
recommend or endorse, or participate in any negotiations regarding, or furnish
to any other person any information with respect to, or otherwise cooperate in
any way with, or assist or participate in, facilitate, any effort or attempt by
any other person to do or seek any of the foregoing. The Company shall
immediately cease
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and cause to be terminated all existing discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. The Company
shall immediately notify Buyer if any such proposal or offer, or any inquiry or
contact with any person with respect thereto, is made and shall, in any such
notice to Buyer, indicate in reasonable detail the terms and conditions of such
proposal, offer, inquiry or contact and include with such notice and description
the identity of the person making the proposal, offer, inquiry or contact and
any written materials received by the Company regarding any proposal, offer,
inquiry or contact. The Company agrees to provide copies of all correspondence
(electronic or otherwise) with any person regarding any proposal, offer, inquiry
or contact and also agrees not to release any third party from, or waive any
provision of, any confidentiality or standstill agreement to which such the
Company is a party.
ARTICLE VII. COVENANTS OF BUYER
7.01. CONDUCT OF BUSINESS PENDING THE MERGER. During the period from the
date of this Agreement and continuing until the Effective Time, the Buyer shall
not, and shall not permit any of its subsidiaries to, take any action that is
intended or which reasonably can be expected to result in any of its
representations and warranties set forth in this Agreement being untrue in any
material respect, or in any of the conditions to the Merger or other
transactions contemplated in this Agreement as set forth in Article IX not being
satisfied in any material respect, or in a material violation of any provision
of this Agreement, except, in every case, as may be required by applicable law;
provided that nothing herein contained shall preclude Buyer from exercising its
rights under the Stock Warrant Agreement or taking any action Previously
Disclosed.
7.02. CURRENT INFORMATION. As soon as reasonably available, but in no event
more than 45 days after the end of each calendar quarter ending after the date
of this Agreement (other than the last quarter of each fiscal year ending
December 31), Buyer will deliver to the Company its quarterly report on Form
10-Q under the Exchange Act, and, as soon as reasonably available, but in no
event more than 90 days after the end of each fiscal year, Buyer will deliver to
the Company its Annual Report on Form 10-K. Buyer will deliver to the Company
all Current Reports on Form 8-K promptly after such reports are filed with the
SEC. As soon as practicable, Buyer will furnish to the Company copies of all
such financial statements and reports as it shall send to its stockholders, the
SEC or any other regulatory authority, except as legally prohibited thereby.
7.03. FAILURE TO FULFILL CONDITIONS. In the event that Buyer determines
that a condition to its obligation to complete the Merger cannot be fulfilled
and that it will not waive that condition, it will notify the Company within
five days after it determines that it will not waive the condition.
7.04. ALL REASONABLE EFFORTS. Subject to the terms and conditions herein
provided, Buyer agrees to use all reasonable efforts to take, or cause to be
taken, all corporate or other action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
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7.05. STOCK LISTING. Buyer agrees to list on the Nasdaq National Market
System, subject to official notice of issuance, the shares of Buyer Common Stock
to be issued in the Merger.
ARTICLE VIII. REGULATORY AND OTHER MATTERS
8.01. PROXY STATEMENT-PROSPECTUS. For the purposes (x) of registering
Buyer's Common Stock to be issued to holders of the Company's Common Stock in
connection with the Merger with the SEC under the Securities Act and applicable
state securities laws and (y) of holding the Company Special Meeting, the Buyer
and the Company shall cooperate in the preparation of a registration statement
(such registration statement, together with all and any amendments and
supplements thereto, being herein referred to as the "REGISTRATION STATEMENT"),
including a proxy statement/prospectus or statements satisfying all applicable
requirements of applicable state securities and banking laws, and of the
Securities Act and the Exchange Act, and the rules and regulations thereunder
(such proxy statement/prospectus in the form mailed by the Company to the
Company shareholders, together with any and all amendments or supplements
thereto, being herein referred to as the "PROXY STATEMENT- PROSPECTUS"). The
Buyer shall file the Registration Statement with the SEC. Each of the Buyer and
the Company shall use their best efforts to have the Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing, and the Company shall thereafter promptly mail the Proxy
Statement-Prospectus to its stockholders. The Buyer shall also use its best
efforts to obtain all necessary state securities law or "Blue Sky" permits and
approvals required to carry out the transactions contemplated by this Agreement,
and the Company shall furnish all information concerning the Company and the
holders of the Company Common Stock as may be reasonably requested in connection
with any such action. The Company and the Buyer shall each promptly notify the
other if at any time it becomes aware that the Proxy Statement-Prospectus
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading. In such event, the Company and the Buyer shall cooperate in the
preparation of a supplement or amendment to the Proxy Statement-Prospectus,
which corrects such misstatement or omission, and shall cause the same to be
filed with the SEC and distributed to stockholders of the Company.
8.02. REGULATORY APPROVALS. Each of the Company and Buyer will cooperate
with the other and use all reasonable efforts to prepare all necessary
documentation, to effect all necessary filings and to obtain all necessary
permits, consents, approvals and authorizations of all third parties and
Governmental Entities necessary to consummate the transactions contemplated by
this Agreement, including without limitation the Merger. The Company and the
Buyer will furnish each other and each other's counsel with all information
concerning themselves, their subsidiaries, directors, officers and stockholders
and such other matters as may be necessary or advisable in connection with the
Proxy Statement-Prospectus and any application, petition or any other statement
or application made by or on behalf of the Company or Buyer to any Governmental
Entity in connection with the Merger and the other transactions contemplated by
this Agreement. The Company and the Buyer shall have the right to review and
approve in advance all characterizations of the information relating to the
Buyer or the Company, as the case may be, and any of their respective
subsidiaries, which appear in any filing made in connection with the
transactions contemplated by this Agreement with any Governmental Entity . In
addition, the Company and the Buyer shall each furnish to the other a final copy
of each such filing made in connection with the transactions contemplated by
this Agreement with any
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Governmental Entity. Each of the Buyer and the Company represents and warrants
to the other that it is not aware of any reason why the approvals, consents and
waivers of Governmental Entities referred to herein and in Section 4.07 and
Section 5.05 should not be obtained.
8.03. LEGAL CONDITIONS TO MERGER. Each of the Buyer and the Company shall,
and shall cause each of its subsidiaries to, use its reasonable best efforts (a)
to take, or cause to be taken, all actions necessary, proper or advisable to
comply promptly with all legal requirements which may be imposed on such party
or its subsidiaries with respect to the Merger and, subject to the conditions
set forth in Article IX hereof, to consummate the transactions contemplated by
this Agreement and (b) to obtain (and to cooperate with the other party to
obtain) any consent, authorization, order or approval of, or any exemption by,
any Governmental Entity and any other third party which is required to be
obtained by the Company or the Buyer or any of their respective subsidiaries in
connection with the Merger and the other transactions contemplated by this
Agreement.
8.04. COMPANY AFFILIATES. The Company shall use all reasonable efforts to
cause each director, executive officer and other person who is an "affiliate"
(for purposes of Rule 145 under the Securities Act) of such party to deliver to
the other party hereto, as soon as practicable after the date of this Agreement,
and prior to the date of the shareholders meeting called by the Company to
approve this Agreement, a written agreement providing that such person will not
sell, pledge, transfer or otherwise dispose of any shares of Buyer Common Stock
to be received by such "affiliate" in the Merger otherwise than in compliance
with the applicable provisions of the Securities Act and the rules and
regulations thereunder.
8.05. EMPLOYEE MATTERS.
(a) EXISTING EMPLOYMENT AGREEMENTS. Following the Merger, Buyer shall,
or shall cause the Surviving Corporation to, honor in accordance with their
terms the employment agreements which have been Previously Disclosed by the
Company to the Buyer.
(b) CONTINUATION OF PLANS. Notwithstanding anything to the contrary
contained herein, the Buyer shall have sole discretion with respect to the
determination as to whether or when to terminate, merge or continue any employee
benefit plans and programs of the Company; provided, however, that the Buyer
shall continue to maintain such plans (other than stock based or incentive plans
or stock funds in retirement plans) until the continuing employees of the
Company are permitted to participate in the Buyer's or its Affiliates' plans.
(c) GRANT OF STOCK OPTIONS. After Closing, the Buyer intends to grant
options to purchase shares of Buyer Common Stock to existing employees of the
Company in amounts and on terms generally consistent with those afforded to
Buyer's similarly-situated employees. Such grants shall be conditioned upon each
grantee's entering into Buyer's standard confidential information/non-compete
and other agreements customarily executed by other employees of Buyer.
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(d) PARACHUTE PAYMENTS. Notwithstanding anything to the contrary
contained in this Agreement, in no event shall the Company take any action or
make any payments that would result, either individually or in the aggregate, in
the payment of an "excess parachute payment" within the meaning of Section 280G
of the Code or that would result, either individually or in the aggregate, in
payments that would be nondeductible pursuant to Section 162(m) of the Code.
8.06. CREDIT AND SUPPLY ARRANGEMENT; CROSS DEFAULT. Simultaneously with the
execution of this Agreement, Company and Buyer have entered into an arrangement
under which Buyer will finance the Company's inventory by supplying to the
Company all product that Buyer regularly stocks at Buyer's cost (defined as
invoice cost) plus 5% on net seven-day payment terms (the "CREDIT AND SUPPLY
AGREEMENT"). The maximum outstanding balance under the Credit and Supply
Agreement is limited to $5 million. There will also be a line of credit of up to
$3 million. All obligations will be secured by all the assets of the Company,
including a security interest in credit card receivables. Material breach by the
Company of its obligations under the Credit and Supply Agreement shall also be
deemed to be a breach of this Agreement.
8.07. DIRECTOR AND OFFICER INDEMNIFICATION; LIABILITY INSURANCE.
(a) Buyer hereby confirms that the indemnification obligations of the
Company to its directors and officers set forth in the Company's Certificate of
Incorporation and By-Laws and as provided by Delaware law, in each case as in
effect on the date of this Agreement, will not be extinguished by virtue of the
Merger.
(b) For a period of six (6) years after the Effective Time, Buyer will
maintain in effect and not cancel the "tail" insurance obtained by the Company
prior to the Closing for the benefit of the persons who served as directors or
officers of the Company before the Effective Time and relating to liabilities
and claims (and related expenses) made against them resulting from their service
as such prior to the Effective Time. The Company will pay no more than an
aggregate of $325,000 for such insurance for the full six year period of
coverage, and will consult with the Buyer prior to purchasing such insurance.
(c) This Section 8.07 shall be construed as an agreement as to which
the directors and officers of the Company are intended to be third party
beneficiaries and shall be enforceable by such persons and their heirs and
representatives.
8.08. PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect, neither
the Buyer nor the Company (nor any Affiliate of either) shall issue or cause the
publication of any press release or other public announcement with respect to,
or otherwise make any public statement concerning, the transactions contemplated
by this Agreement without the consent of the other party, which consent shall
not be unreasonably withheld.
8.09. ADDITIONAL AGREEMENTS. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, or to vest Buyer with full title to all properties, assets, rights,
approvals, immunities and franchises of any of the parties to the Merger, the
proper officers and directors of each party to this Agreement and their
respective subsidiaries shall take all such necessary action as may be
reasonably requested by the Buyer.
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ARTICLE IX. CONDITIONS TO THE MERGER
9.01. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved in accordance with applicable law
and Nasdaq National Market System policy by the requisite vote of the
stockholders of the Company.
(b) NO ORDERS, INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order,
injunction or decree (whether temporary, preliminary or permanent) issued by any
federal or state governmental authority or other agency or commission or federal
or state court of competent jurisdiction or other legal restraint or prohibition
(an "INJUNCTION") preventing the consummation of the Merger or any of the other
transactions contemplated by this Agreement shall be in effect and no proceeding
initiated by any Governmental Entity seeking an Injunction shall be pending. No
statute, rule, regulation, order, injunction or decree (whether temporary,
preliminary or permanent) shall have been enacted, entered, promulgated or
enforced by any federal or state governmental authority or other agency or
commission or federal or state court of competent jurisdiction, which prohibits,
restricts or makes illegal the consummation of the Merger or any of the other
transactions contemplated by this Agreement.
(c) FILINGS AND APPROVALS. All filings with and notifications to, and
all approvals and authorizations of, third parties (including, without
limitation, Governmental Entities and authorities) required for the consummation
of the transactions contemplated by this Agreement shall have been made or
obtained and all such approvals and authorizations (the "REQUISITE APPROVALS")
obtained shall be effective and shall not have been suspended, revoked or stayed
by action of any Governmental Entity or authority.
(d) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
shall have become effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued, and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(e) NASDAQ LISTING. The shares of Buyer Common Stock to be issued in
the Merger shall have been authorized for listing on the Nasdaq National Market
System subject to official notice of issuance.
(f) TAX OPINION. The Buyer and the Company shall have received the
opinion of Foley, Hoag & Eliot LLP, dated as of the Closing Date, to the effect
that the Merger will constitute a reorganization described in Section 368(a)(1)
of the Code and that each of Buyer, Buyer Sub and the Company will be a party to
the reorganization.
9.02. CONDITIONS TO OBLIGATIONS OF THE BUYER. The obligation of the Buyer
to effect the Merger is also subject to the satisfaction of or waiver by the
Buyer at or prior to the Effective Time of the following conditions:
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(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company in this Agreement which is qualified as to materiality
shall be true and correct and each such representation or warranty that is not
so qualified shall be true and correct in all material respects, in each case as
of the date of this Agreement, as applicable, and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date. The Buyer shall have received a certificate signed by the Chief Executive
Officer, Vice President, Finance and Administration, and Vice President,
Corporate Counsel, of the Company to such effect dated as of the Closing Date.
(b) AGREEMENTS AND COVENANTS. As of the Closing Date, the Company shall
have performed in all material respects all obligations and complied in all
material respects with all agreements or covenants of the Company to be
performed or complied with by it at or prior to the Closing Date under this
Agreement, and the Buyer shall have received a certificate to such effect signed
by the Chief Executive Officer, Vice President, Finance and Administration, and
Vice President, Corporate Counsel, of the Company dated as of the Closing Date.
(c) CONSENTS UNDER AGREEMENTS. The consent, approval or waiver of each
person whose consent or approval shall be required in order to permit the
succession by the Buyer pursuant to the Merger to any obligations, rights and
interests of the Company under any contract, indenture, lease, license, permit
or other agreement or instrument listed on Exhibit 9.02(c) shall have been
obtained, and none of such consents, waivers or approvals shall contain any term
or condition which would materially impair the value of the Company to the
Buyer.
(d) COMPANY FINANCIAL MATTERS. The Company's gross margin percentage of
net sales will remain within 350 basis points (+/-) of, and operating expenses
as a percentage of net sales will remain generally consistent with, the average
levels maintained in the first 90 days of fiscal 2002, and the Company's
tangible net worth as of August 31, 2001 shall not be less than $14 million.
(e) NO MATERIAL ADVERSE CHANGE. There shall have been no Material
Adverse Effect with respect to the Company since the Latest Balance Sheet Date.
(f) ARRANGEMENTS WITH VENDORS AND MATERIAL CONTRACTS. The agreements,
arrangements and understandings with the Business Vendors listed on Exhibit
9.02(d) and the Material Contracts listed on listed on Exhibit 9.02(d) shall be
in full force and effect and the Buyer shall have received assurances reasonably
satisfactory to it that such agreements, arrangements, understandings and
Material Contracts will continue in effect, without adverse modifications
(including but not limited to modifications in co-op funds, rebates or marketing
funds), following the Effective Time.
(g) OPINION OF THE COMPANY'S COUNSEL. The Buyer shall have received the
opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., dated as of the
Closing Date, in a form that is customary for transactions of this type and
reasonably acceptable to Buyer.
(h) NO BURDENSOME CONDITION. None of the Requisite Approvals shall
impose any term, condition or restriction upon the Buyer or any of its
subsidiaries that the Buyer
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reasonably determines would materially impair the value of the Company to the
Buyer or be materially burdensome.
(i) NO PARACHUTE PAYMENTS. The Company shall not have taken any action
or made any payments that would not be permitted pursuant to Section 8.05(d).
(j) TERMINATION OF COMPANY STOCK OPTIONS. The Company shall have
provided evidence satisfactory to the Buyer that at least 95% of the outstanding
Company Stock Options have been terminated.
(k) GENERAL RELEASE. Each of the key stockholders and officers of the
Company shall have executed and delivered to the Surviving Corporation a Release
in the form of Exhibit 9.02(k).
(l) INDIAN SUBSIDIARY. The Company shall have delivered evidence that
it has terminated the operations of its Indian subsidiary without cost or
liability to the Company, the Surviving Corporation or the Buyer in excess of
$50,000.
(m) TRADEMARK MATTERS. The Company shall have demonstrated in a manner
reasonably satisfactory to Buyer that it owns and has the right to use and
register the trademarks "Outpost.com" and "Outpost."
(n) CLAIMS UNDER ESCROW AGREEMENTS. The Company shall have filed all
appropriate notices of claim against the General Indemnity Escrow Agreement and
the Specific Indemnity Escrow Agreement executed in connection with the
CMPExpress.com, Inc. acquisition. Such notices of claim shall have been filed on
or before the Closing Date or September 7, 2001, whichever is earlier.
(o) NON-COMPETITION/NON-DISCLOSURE AGREEMENT. The Buyer and Darryl Peck
shall have entered into a non-competition/non-disclosure agreement (commencing
as of the Closing Date) in a form reasonably satisfactory to Buyer.
9.03. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to effect the Merger are also subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Buyer in this Agreement which is qualified as to materiality
shall be true and correct and each such representation or warranty that is not
so qualified shall be true and correct in all material respects, in each case as
of the date of this Agreement, as applicable, and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date. The Company shall have received a certificate signed by the Chief
Executive Officer or Chief Financial Officer of the Buyer to such effect dated
as of the Closing Date.
(b) AGREEMENTS AND COVENANTS. As of the Closing Date, the Buyer shall
have performed in all material respects all obligations and complied in all
material respects with all agreements or covenants of the Buyer to be performed
or complied with by it at or prior to the Closing Date under this Agreement, and
the Company shall have received a certificate to such
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effect signed by the Chief Executive Officer, President or Chief Financial
Officer of the Buyer dated as of the Closing Date.
(c) OPINION OF COUNSEL. The Company shall have received the opinion of
Foley, Hoag & Eliot llp , dated as of the Closing Date, in a form that is
customary for transactions of this type and reasonably acceptable to Company.
(d) NO MATERIAL ADVERSE CHANGE. There shall have been no Material
Adverse Effect with respect to the Buyer since December 31, 2000.
(e) NO BURDENSOME CONDITION. None of the Requisite Approvals shall
impose any term, condition or restriction upon the Buyer, the Company or a
Company Subsidiary that the Company reasonably determines would materially
impair the value of the Merger to the stockholders of the Company.
ARTICLE X. TERMINATION, AMENDMENT AND WAIVER
10.01. TERMINATION. This Agreement may be terminated and the Merger and the
other transactions contemplated by this Agreement may be abandoned at any time
prior to the Effective Time, notwithstanding any requisite approval and adoption
of this Agreement and the transactions contemplated in this Agreement by the
stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of
Directors or other governing body of the Buyer and the Company;
(b) by either the Buyer or the Company if (i) the Effective Time shall
not have occurred on or before October 31, 2001 or such later date as the
parties may have agreed upon in writing (the "EXPIRATION DATE"); provided,
however, that the right to terminate this Agreement under this Section 10.01(b)
shall not be available to any party whose failure to fulfill any material
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date;
(c) by either the Buyer or the Company (i) ninety days after the date
on which any request or application for a regulatory approval required to
consummate the Merger shall have been denied or withdrawn at the request or
recommendation of the Governmental Entity which must grant such requisite
regulatory approval, unless within the ninety day period following such denial
or withdrawal a petition for rehearing or an amended application has been filed
with such Governmental Entity; provided, however, that no party shall have the
right to terminate this Agreement pursuant to this Section 10.01(c) (i) if such
denial or request or recommendation for withdrawal shall be due to the failure
of the party seeking to terminate this Agreement to perform or observe the
covenants and agreements of such party set forth herein or (ii) if any court of
competent jurisdiction or other governmental authority shall have issued an
order, decree, ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and nonappealable;
(d) by either the Company or the Buyer if the stockholders of the
Company shall have voted at the Special Meeting on the transactions contemplated
by this Agreement and such vote shall not have been sufficient to approve such
transactions.
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(e) by either the Buyer or the Company (provided that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein) if there shall have been a material breach
of any of the representations or warranties set forth in this Agreement on the
part of the other party (for purposes of this Section 10.01(e), a material
breach shall be deemed to be a breach which has, either individually or in the
aggregate, a Material Adverse Effect on the party making such representations or
warranties (provided, that no effect shall be given to any qualification
relating to materiality or a Material Adverse Effect in such representations and
warranties) or which materially adversely affects consummation of the Merger);
(f) By either the Buyer or the Company (provided, that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein) if there shall have been a material failure
to perform or comply with any of the covenants or agreements set forth in this
Agreement on the part of the other party; or
(g) by the Company, in accordance with the provisions of Section 3.04.
10.02. EFFECT OF TERMINATION; EXPENSES.
(a) In the event of the termination of this Agreement pursuant to
Section 10.01, this Agreement shall forthwith become void (except as set forth
in Section 12.03), and there shall be no liability on the part of any party
hereto, except (i) each party shall remain liable in any action at law or
otherwise for any liabilities or damages arising out of its gross negligence or
willful breach of any provision of this Agreement, or (ii) as otherwise provided
in this Section 10.02.
(b) If this Agreement is terminated as a result of any breach of a
representation, warranty, covenant or other agreement which is caused by the
gross negligence or willful breach of a party hereto, such party shall be liable
to the other party for all out-of-pocket costs and expenses, including, without
limitation, the reasonable fees and expenses of lawyers, accountants and
investment bankers, incurred by such other party in connection with the entering
into of this Agreement and the carrying out of any and all acts contemplated
hereunder ("EXPENSES"). The payment of Expenses is not an exclusive remedy, but
is in addition to any other rights or remedies available to the parties hereto
at law or in equity. Notwithstanding anything to the contrary herein, if (i) the
Buyer makes the payment contemplated in Section 10.02(c) of this Agreement,
Buyer shall not have any further monetary liability to the Company (or its
Subsidiaries), whether for Expenses, breach or otherwise and if (ii) either (x)
payments made by the Company to Buyer under the Stock Warrant Agreement or (y)
the Buyer's profit on sale of the Warrant or the Warrant Shares (as such terms
are defined in the Stock Warrant Agreement) reaches the Profit Cap, as defined
in Section 4 of the Stock Warrant Agreement, the Company shall not have any
further monetary liability to the Buyer (or its Subsidiaries), whether for
Expenses, breach or otherwise.
(c) Buyer hereby agrees to pay to Company, as liquidated damages and in
lieu of any other rights or remedies under this Agreement, a payment in the
amount of $1,000,000 if and only if the Company has terminated this Agreement in
accordance with Section 10.01(e) or 10.01(f) because Buyer has breached any of
its representations or warranties or failed to perform
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or comply with any of its covenants or agreements herein (unless the breach by
Buyer giving rise to such right of termination is non-volitional), to such
extent as to permit such termination.
(d) Except as otherwise provided in this Section 10.02, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expenses, whether or not any of the transactions contemplated by this Agreement
are consummated.
(e) In no event shall any officer, agent or director of the Company,
any Company Subsidiary, Buyer or any Buyer Subsidiary, be personally liable
hereunder for any breach or default by any party in any of its representations,
warranties, covenants and obligations hereunder unless any such breach or
default was caused by the gross negligence or willful misconduct of such
officer, agent or director.
10.03. AMENDMENT. This Agreement may be amended by the parties hereto by
action taken by or on behalf of their respective Boards of Directors or other
governing body at any time prior to the Effective Time. This Agreement may not
be amended except by an instrument in writing signed by the parties hereto.
10.04. WAIVER. At any time prior to the Effective Time, any party hereto
may (i) extend the time for the performance of any obligation or other act of
any other party hereto, (ii) waive any inaccuracy in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby, but
such extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE XI. THE CLOSING
11.01. CLOSING. Subject to the provisions of Article IX and Article X
thereof, the Closing of the transactions contemplated hereby shall take place at
the offices of Foley, Hoag & Eliot llp, One Post Office Square, Boston,
Massachusetts at 10:00 a.m. on a date specified by the Buyer at least five
business days prior to such date. The Closing Date shall be as soon as
practicable after the last required approval for the Merger has been obtained
and the last of all required waiting periods under such approvals have expired,
or at such other place, date or time as the Buyer and the Company may mutually
agree upon.
11.02. DELIVERIES AT CLOSIN. At the Closing the Company shall deliver to
the Buyer the opinions, certificates, and other closing documents and
instruments required to be delivered under Article IX hereof.
ARTICLE XII. GENERAL PROVISIONS
12.01. ALTERNATIVE STRUCTURE. Notwithstanding anything to the contrary
contained in this Agreement, prior to the Effective Time, the Buyer shall be
entitled to revise the structure of the Merger and the other transactions
contemplated hereby and thereby, provided that (i) there are no material adverse
federal or state income tax consequences to the Company as a result of
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the modification; (ii) there are no material adverse changes to the benefits and
other arrangements provided to or on behalf of the Company's directors, officers
and other employees; and (iii) such modification will not be likely to delay
materially or jeopardize receipt of any required regulatory approvals or other
consents and approvals relating to the consummation of the Merger. This
Agreement and any related documents shall be appropriately amended in order to
reflect any such revised structure.
12.02. ASSIGNMENT OF RIGHT TO PURCHASE. The Buyer shall have the right to
assign the right to consummate the Merger under this Agreement to a subsidiary
of the Buyer, provided, however, that the Buyer shall remain liable for payment
of the Purchase Price.
12.03. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All of the
representations and warranties of the parties contained in this Agreement (or in
any document delivered or to be delivered pursuant to this Agreement or in
connection with the Closing) shall expire on, and be terminated and extinguished
at, the Effective Time other than covenants that by their terms are to be
performed after the Effective Time (including without limitation the covenants
set forth in Sections 6.04(b) and 10.02 hereof), provided that no such
representations, warranties or covenants shall be deemed to be terminated or
extinguished so as to deprive the Buyer, the Buyer Sub or the Company (or any
director, officer or controlling person thereof) of any defense at law or in
equity which otherwise would be available against the claims of any person,
including, without limitation, any shareholder or former shareholder of either
the Buyer or the Company.
12.04. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified in a notice given in
accordance with this Section 12.04):
if to the Buyer:
PC Connection, Inc.
Route 101A
730 Milford Road
Merrimack, New Hampshire 03054
Facsimile: (603) 423-2041
Attention: Steven Markiewicz
with a required copy to:
Foley Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Facsimile: (617) 832-7000
Attention: Peter W. Coogan
Carol Hempfling Pratt
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if to the Company:
Cyberian Outpost, Inc.
25 North Main Street
Kent, Connecticut 06757
Facsimile: (860) 927-8665
Attention: President and CEO
with a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky & Popeo
One Financial Center
Boston, MA 02111
Facsimile: (617) 542-2241
Attention: Mark Chamberlin
Mike Fantozzi
12.05. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated by this Agreement is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement be consummated as
originally contemplated to the fullest extent possible.
12.06. ENTIRE AGREEMENT. This Agreement (including the Disclosure Schedules
and Exhibits hereto) constitutes the entire agreement among the parties with
respect to the subject matter hereof and supersedes all prior agreements and
undertakings, both written and oral, among the parties, or any of them.
12.07. ASSIGNMENT. Except as provided in Section 12.02, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other party. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
12.08. PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
12.09. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that the provisions contained in this Agreement
are not performed in accordance with its specific terms or are otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and
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to enforce specifically the terms and provisions thereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
12.10. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New Hampshire applicable to contracts
executed in and to be performed in that State. All actions and proceedings
arising out of or relating to this Agreement shall be heard and determined in
any state or federal court sitting in the State of New Hampshire.
12.11. HEADINGS. The table of contents and the descriptive headings
contained in this Agreement are included for convenience of reference only and
shall not affect in any way the meaning or interpretation of this Agreement.
12.12. INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits, Annexes or Schedules, such reference shall be to a Section
of or Exhibit, Annex or Schedule to this Agreement unless otherwise indicated.
Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." The phrases "the date of this Agreement," "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to be May 29, 2001.
12.13. COUNTERPARTS. This Agreement may be executed (including by
facsimile) in one or more counterparts, and by the different parties hereto in
separate counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement.
* * * * *
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IN WITNESS WHEREOF, the Buyer and the Company have caused this Agreement to
be executed as a sealed instrument as of the date first written above by their
respective officers thereunto duly authorized.
THE BUYER:
PC CONNECTION, INC.
By: /s/ Wayne L. Wilson
-------------------
Name: Wayne L. Wilson
Title: President
THE COMPANY:
CYBERIAN OUTPOST, INC.
By: /s/ Darryl Peck
---------------
Name: Darryl Peck
Title: President & CEO
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THE FOLLOWING IS THE STOCK WARRANT AGREEMENT, DATED AS OF MAY 29, 2001, BETWEEN
CYBERIAN OUTPOST, INC. AND PC CONNECTION, INC., A COPY OF WHICH CYBERIAN
OUTPOST, INC. FILED ON A CURRENT REPORT ON FORM 8-K WITH THE SEC ON JUNE 4,
2001.
EXECUTION COPY
- --------------------------------------------------------------------------------
STOCK WARRANT AGREEMENT
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
1. CERTAIN DEFINITIONS................................. 1
2. GRANT OF WARRANT.................................... 4
3. EXERCISE OF WARRANT................................. 4
4. PROFIT CAP.......................................... 5
5. CERTAIN AGREEMENTS OF THE ISSUER.................... 6
6. SURRENDER AND EXCHANGE.............................. 6
7. FURTHER ADJUSTMENT IN NUMBER OF SHARES PURCHASABLE.. 6
8. REGISTRATION........................................ 7
9. REPURCHASE OF WARRANT............................... 7
10. SUBSTITUTE WARRANT................................. 9
11. REPURCHASE OF SUBSTITUTE WARRANT................... 10
12. EXTENSION OF TIME.................................. 12
13. REPRESENTATIONS AND WARRANTIES OF ISSUER........... 12
14. REPRESENTATIONS AND WARRANTIES OF GRANTEE.......... 12
15. NO ASSIGNMENT...................................... 12
16. REASONABLE BEST EFFORTS............................ 13
17. SURRENDER OF WARRANT............................... 13
18. SPECIFIC PERFORMANCE............................... 14
19. SEVERABILITY....................................... 14
20. NOTICES............................................ 14
21. GOVERNING LAW...................................... 14
22. COUNTERPARTS....................................... 14
23. COSTS AND EXPENSES................................. 14
24. ENTIRE AGREEMENT................................... 15
25. CAPITALIZED TERMS.................................. 15
-i-
STOCK WARRANT AGREEMENT
STOCK WARRANT AGREEMENT, dated as of May 29, 2001, between Cyberian
Outpost, Inc., a Delaware corporation ("ISSUER"), and PC Connection, Inc., a
Delaware corporation ("GRANTEE").
WITNESSETH:
WHEREAS, Grantee and Issuer have entered into a Merger Agreement of even
date herewith (the "MERGER AGREEMENT"), which agreement has been executed by the
parties hereto immediately prior to this Agreement; and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the Warrant (as
defined in Section 2(a)
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. CERTAIN DEFINITIONS.
(a) "1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
(b) "ACQUISITION TRANSACTION" shall mean (w) a merger or consolidation,
or any similar transaction, involving Issuer or any Significant Subsidiary
(as defined in Rule 1-02 of Regulation S-X promulgated by the Securities
and Exchange Commission (the "SEC")) of Issuer, (x) a purchase, lease or
other acquisition of all or a substantial portion of the assets of Issuer
or any Significant Subsidiary of Issuer, (y) a purchase or other
acquisition (including by way of merger, consolidation, share exchange or
otherwise) of securities representing 10% or more of the voting power of
Issuer or any Significant Subsidiary of Issuer, or (z) any substantially
similar transaction; provided, however, that in no event shall any (i)
merger, consolidation, or similar transaction involving Issuer or any
Significant Subsidiary in which the voting securities of Issuer outstanding
immediately prior thereto continue to represent (by either remaining
outstanding or being converted into the voting securities of the surviving
entity of any such transaction) at least 65% of the combined voting power
of the voting securities of the Issuer or the surviving entity outstanding
immediately after the consummation of such merger, consolidation, or
similar transaction, or (ii) any merger, consolidation, purchase or similar
transaction involving only the Issuer and one or more of its Subsidiaries
or involving only any two or more of such Subsidiaries, be deemed to be an
Acquisition Transaction, provided any such transaction is not entered into
in violation of the terms of the Merger Agreement.
(c) The term "BENEFICIAL OWNERSHIP" shall have the meaning assigned
thereto in Section 13(d) of the 1934 Act.
(d) "EXERCISE TERMINATION EVENT" shall mean each of the following:
(i) the Effective Time (as defined in the Merger Agreement) of the
Merger; or
1
(ii) the passage of twelve months after termination of the Merger
Agreement if such termination follows the occurrence of an Initial
Triggering Event.
(e) "HOLDER" shall mean the holder or holders of the Warrant.
(f) "INITIAL TRIGGERING EVENT" shall mean any of the following events or
transactions occurring (x) on or after May 1, 2001, in the case of events
described in Section 1(f)(v), and (y) after the date hereof, with respect
to events described in the other subsections of this Section 1(f):
(i) Issuer or any of its Subsidiaries (each an "ISSUER
SUBSIDIARY"), without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an Acquisition
Transaction (as defined in Section 1(b)) with any person other than
Grantee or any of its Subsidiaries (each a "GRANTEE SUBSIDIARY") or the
Board of Directors of Issuer shall have recommended that the
stockholders of Issuer approve or accept any Acquisition Transaction or
shall have failed to publicly oppose an Acquisition Transaction, in each
case with any person other than Grantee or a Grantee Subsidiary;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced its intention to authorize, recommend or
propose, to engage in an Acquisition Transaction with any person other
than Grantee or a Grantee Subsidiary;
(iii) the Board of Directors of Issuer shall have publicly
withdrawn or modified, or publicly announced its intention to withdraw
or modify, in any manner adverse to Grantee, its recommendation that the
stockholders of Issuer approve the transactions contemplated by the
Merger Agreement, or the Board of Directors of Issuer shall have failed
to reaffirm such recommendation within ten days after Grantee requests
in writing that such recommendation be reaffirmed;
(iv) The shareholders of Issuer shall have voted and failed to
approve and adopt the Merger Agreement and the Merger at a meeting which
has been held for that purpose or any adjournment or postponement
thereof, or such meeting shall not have been held in violation of the
Merger Agreement or shall have been canceled prior to termination of the
Merger Agreement if, prior to such meeting (or if such meeting shall not
have been held or shall have been canceled, prior to such termination),
any person (other than the Grantee or a Grantee Subsidiary) shall have
made a proposal to Issuer or its stockholders by public announcement or
written communication that is or becomes the subject of public
disclosure to engage in an Acquisition Transaction;
(v) On or after May 1, 2001, any person other than Grantee or any
Grantee Subsidiary shall have acquired beneficial ownership or the right
to acquire beneficial ownership of 9.7% or more of the outstanding
shares of Common Stock (the Issuer recognizes and agrees that the
Initial Triggering Event described in this Section 1(f)(v) has occurred
and is continuing as of the date of this Agreement);
(vi) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its stockholders by public
announcement or written
2
communication that is or becomes the subject of public disclosure to
engage in an Acquisition Transaction; or
(vii) After an overture is made by a person other than Grantee or
any Grantee Subsidiary to Issuer or its stockholders to engage in an
Acquisition Transaction, Issuer shall have breached any covenant or
obligation contained in the Merger Agreement and such breach (x) would
entitle Grantee to terminate the Merger Agreement and (y) shall not have
been cured prior to the Notice Date (as defined in Section 3(c)).
(g) The term "MARKET/OFFER PRICE" shall mean the highest of (i) the
price per share of Common Stock at which a tender offer or exchange offer
therefor has been made, (ii) the price per share of Common Stock to be paid
by any third party pursuant to an agreement with Issuer, (iii) the highest
closing price for shares of Common Stock within the six-month period
immediately preceding the date the Holder gives notice of the required
repurchase of this Warrant or the Owner gives notice of the required
repurchase of Warrant Shares, as the case may be, or (iv) in the event of a
sale of all or a substantial portion of Issuer's assets, the sum of the
price paid in such sale for such assets and the current market value of the
remaining assets of Issuer as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case
may be, divided by the number of shares of Common Stock of Issuer
outstanding at the time of such sale. In determining the market/offer
price, the value of consideration other than cash shall be determined by a
nationally recognized investment banking firm selected by the Holder or
Owner, as the case may be, and reasonably acceptable to the Issuer.
(h) The term "PERSON" shall have the meaning assigned thereto in
Sections 3(a)(9) and 13(d)(3) of the 1934 Act.
(i) A "REPURCHASE EVENT" shall be deemed to have occurred upon the
consummation of any merger, consolidation or similar transaction involving
Issuer or any purchase, lease or other acquisition of all or a substantial
portion of the assets of Issuer, other than any such transaction which
would not constitute an Acquisition Transaction pursuant to the proviso to
such definition (clauses (i) and (ii) of Section 1(b)); or upon the
acquisition by any person of beneficial ownership of 50% or more of the
then outstanding shares of Common Stock, provided that no such event shall
constitute a Repurchase Event unless a Subsequent Triggering Event shall
have occurred prior to an Exercise Termination Event.
(j) "SUBSEQUENT TRIGGERING EVENT" shall mean either of the following
events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 20% or
more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
Section 1(f)(i), 1(f)(iii). or 1(f)(iv), except that the percentage
referred to in the definition of Acquisition Transaction in clause (y)
of Section 1(b) shall be 20%.
3
2. GRANT OF WARRANT.
(a) WARRANT. Issuer hereby grants to Grantee an unconditional,
irrevocable Warrant (the "WARRANT") to purchase, subject to the terms hereof, up
to the "Number" (as defined below) of fully paid and nonassessable shares of
Issuer's Common Stock, $0.01 par value per share ("COMMON STOCK"), at a price of
$0.51 per share (the "WARRANT PRICE"); provided further that in no event shall
the number of shares of Common Stock for which this Warrant is exercisable
exceed 19.9% of the Issuer's issued and outstanding shares of Common Stock
without giving effect to any shares subject to or issued pursuant to the
Warrant. The "Number" shall initially be determined by multiplying (x) the
aggregate number of shares of Common Stock that were issued and outstanding as
of the date of this Agreement by (y) 19.9%. The number of shares of Common Stock
that may be received upon the exercise of the Warrant and the Warrant Price are
subject to adjustment as herein set forth.
(b) ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event that any
additional shares of Common Stock are issued or otherwise become outstanding
after the date of this Agreement (other than pursuant to this Agreement), the
number of shares of Common Stock subject to the Warrant shall be increased so
that, after such issuance, it equals 19.9% of the number of shares of Common
Stock then issued and outstanding without giving effect to any shares subject or
issued pursuant to the Warrant. Nothing contained in this Section 2(b)or
elsewhere in this Agreement shall be deemed to authorize Issuer or Grantee to
breach any provision of the Merger Agreement.
3. EXERCISE OF WARRANT.
(a) PRECONDITIONS TO EXERCISE. The Holder (as defined in Section 1(e))
may exercise the Warrant, in whole or part, and from time to time, if, but only
if, both an Initial Triggering Event (as defined in Section 1(f)) and a
Subsequent Triggering Event (as defined in Section 1(j) shall have occurred
prior to the occurrence of an Exercise Termination Event (as defined in Section
1(d)).
(b) NOTIFICATION BY ISSUER AS TO CERTAIN EVENTS. Issuer shall notify
Grantee promptly in writing of the occurrence of any Initial Triggering Event or
Subsequent Triggering Event (together, a "TRIGGERING EVENT"), it being
understood that the giving of such notice by Issuer shall not be a condition to
the right of the Holder to exercise the Warrant.
(c) NOTICE OF EXERCISE OF WARRANT. In the event the Holder is entitled
to and wishes to exercise the Warrant, it shall send to Issuer a written notice
(the date of which being herein referred to as the "NOTICE DATE") specifying (i)
the total number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 60 business
days from the Notice Date for the closing of such purchase (the "CLOSING DATE").
Any exercise of the Warrant shall be deemed to occur on the Notice Date relating
thereto.
(d) PAYMENT OF EXERCISE PRICE. At the closing referred to in Section
3(c), the Holder shall pay to Issuer the aggregate purchase price for the shares
of Common Stock purchased pursuant to the exercise of the Warrant in immediately
available funds by wire
4
transfer to a bank account designated by Issuer, provided that failure or
refusal of Issuer to designate such a bank account shall not preclude the
Holder from exercising the Warrant.
(e) DELIVERY OF CERTIFICATES. At such closing, simultaneously with the
delivery of immediately available funds as provided in Section 3(d), Issuer
shall deliver to the Holder a certificate or certificates representing the
number of shares of Common Stock purchased by the Holder and, if the Warrant
should be exercised in part only, a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder, and
the Holder shall deliver to Issuer a copy of this Agreement and a letter
agreeing that the Holder will not offer to sell or otherwise dispose of such
shares in violation of applicable law or the provisions of this Agreement.
(f) RESTRICTIVE LEGEND. Certificates for Common Stock delivered at a
closing hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Issuer and to resale restrictions arising under the Securities Act of 1933,
as amended. A copy of such agreement is on file at the principal office of
Issuer and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 ACT"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(g) HOLDER OF RECORD. Upon the giving by the Holder to Issuer of the
written notice of exercise of the Warrant provided for under Section 3(c) and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 3 in the name of the
Holder or its assignee, transferee or designee.
4. PROFIT CAP. Notwithstanding any other provision of this Agreement, the
maximum aggregate amount payable to Grantee by Issuer (net of any amounts paid
to reimburse Grantee for the aggregate amount previously paid pursuant hereto by
Grantee as the purchase price or exercise price with respect to any Warrant
Shares) pursuant Section 9, Section 11, or Section 17
5
shall not exceed One Million Five Hundred Thousand Dollars ($1,500,000) (the
"PROFIT CAP"). Grantee shall promptly return to Issuer any amount received under
Section 9, Section 11, or Section 17 in excess of the Profit Cap.
5. CERTAIN AGREEMENTS OF THE ISSUER. Issuer agrees: (i) that it shall at
all times maintain, free from preemptive rights, sufficient authorized but
unissued or treasury shares of Common Stock so that the Warrant may be exercised
without additional authorization of Common Stock after giving effect to all
other options, warrants, convertible securities and other rights to purchase
Common Stock; (ii) that it will not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer; (iii) promptly to take all action as may from time to time
be required (including complying with all premerger notification, reporting and
waiting period requirements specified in 15 U.S.C. sec. 18a and regulations
promulgated thereunder) in order to permit the Holder to exercise the Warrant
and Issuer duly and effectively to issue shares of Common Stock pursuant hereto;
and (iv) promptly to take all action provided herein to protect the rights of
the Holder against dilution.
6. SURRENDER AND EXCHANGE. Subject to the provisions of Section 15, this
Agreement (and the Warrant granted hereby) are exchangeable, without expense, at
the option of the Holder, upon presentation and surrender of this Agreement at
the principal office of Issuer, for other Agreements providing for Warrants of
different denominations entitling the holder thereof to purchase, on the same
terms and subject to the same conditions as are set forth herein, in the
aggregate the same number of shares of Common Stock purchasable hereunder. The
terms "AGREEMENT" and "WARRANT" as used herein include any Stock Warrant
Agreements and related Warrants for which this Agreement (and the Warrant
granted hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
7. FURTHER ADJUSTMENT IN NUMBER OF SHARES PURCHASABLE. In addition to the
adjustment in the number of shares of Common Stock that are purchasable upon
exercise of the Warrant pursuant to Section 2(b) of this Agreement, the number
of shares of Common Stock purchasable upon the exercise of the Warrant and the
Warrant Price shall be subject to adjustment from time to time as provided in
this Section 7. In the event of any change in, or distributions in respect of,
the Common Stock by reason of stock dividends, split-ups, mergers,
recapitalization, combinations, subdivisions, conversions, exchanges of shares,
distributions on or in respect of the Common Stock (whether or not the same
would be prohibited under the terms of the Merger Agreement), or the like, the
type and number of shares of Common Stock purchasable upon exercise hereof and
the Warrant Price shall be appropriately adjusted in such manner as shall fully
preserve the economic benefits provided hereunder and proper provision shall be
made in any agreement governing any such transaction to provide for such proper
adjustment and the full satisfaction of the Issuer's obligations hereunder.
6
8. REGISTRATION. The obligations set forth in this Section 8 shall apply
during such time as securities of the Issuer (or its successors or assigns) are
registered under the 1934 Act. Upon the occurrence of a Subsequent Triggering
Event that occurs prior to an Exercise Termination Event, Issuer shall, at the
request of Grantee delivered within 100 day after such Subsequent Triggering
Event (whether on its own behalf or on behalf of any subsequent holder of this
Warrant (or part thereof) or any of the shares of Common Stock issued pursuant
hereto), promptly prepare, file and keep current a shelf registration statement
under the 1933 Act covering the resale of this Warrant and any shares issued
pursuant to this Warrant and the issuance of any shares issuable pursuant to
this Warrant to the extent then permitted under the rules, regulations or
policies of the SEC and, to the extent not so permitted, the resale of such
shares issuable pursuant to this Warrant. The Issuer shall use its reasonable
best efforts to cause such registration statement to become effective and remain
current in order to permit the sale or other disposition of this Warrant and any
shares of Common Stock issued upon total or partial exercise of this Warrant
("WARRANT SHARES") in accordance with any plan of disposition requested by
Grantee. Issuer will use its reasonable best efforts to cause such registration
statement first to become effective and then to remain effective for such period
not in excess of 180 days from the day such registration statement first becomes
effective or such longer time as may be reasonably necessary to effect such
sales or other dispositions. Grantee shall have the right to demand two such
registrations. The foregoing notwithstanding, if, at the time of any request by
Grantee for registration of the Warrant or Warrant Shares as provided above,
Issuer is in registration with respect to an underwritten public offering of
shares of Common Stock, and if in the good faith judgment of the managing
underwriter or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering, the inclusion of the Holder's Warrant or Warrant
Shares would interfere with the successful marketing of the shares of Common
Stock offered by Issuer, the number of Warrant Shares otherwise to be covered in
the registration statement contemplated hereby may be reduced; and provided,
however, that after any such required reduction the number of Warrant Shares to
be included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be sold by the Holder and Issuer in
the aggregate; and provided further, however, that if such reduction occurs,
then the Issuer shall file a registration statement for the balance as promptly
as practical and no reduction shall thereafter occur. Each such Holder shall
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If requested by any such Holder in
connection with such registration, Issuer shall become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements for the Issuer. Upon receiving any request under this Section 8 from
any Holder, Issuer agrees to send a copy thereof to any other person known to
Issuer to be entitled to registration rights under this Section 8, in each case
by promptly mailing the same, postage prepaid, to the address of record of the
persons entitled to receive such copies. Notwithstanding anything to the
contrary contained herein, in no event shall Issuer be obligated to effect more
than two registrations pursuant to this Section 8 by reason of the fact that
there shall be more than one Grantee as a result of any assignment or division
of this Agreement.
9. REPURCHASE OF WARRANT.
(a) WARRANT TO BE REPURCHASED. Immediately prior to the occurrence of a
Repurchase Event (as defined in Section 1(i)), (i) following a request of the
Holder, delivered
7
prior to an Exercise Termination Event, Issuer (or any successor thereto) shall
repurchase the Warrant from the Holder at a price (the "WARRANT REPURCHASE
PRICE") equal to the amount by which (A) the market/offer price (as defined in
Section 1(g)) exceeds (B) the Warrant Price, multiplied by the number of shares
for which this Warrant may then be exercised and (ii) at the request of the
owner of Warrant Shares from time to time (the "OWNER") delivered within 100
days after such occurrence (or such later period as provided in Section 12),
Issuer shall repurchase such number of the Warrant Shares from the Owner as the
Owner shall designate at a price (the "WARRANT SHARE REPURCHASE PRICE") equal to
the market/offer price multiplied by the number of Warrant Shares so designated.
(b) METHOD OF EXERCISE. The Holder and the Owner, as the case may be,
may exercise its right to require Issuer to repurchase the Warrant and any
Warrant Shares pursuant to this Section 9 by surrendering for such purpose to
Issuer, at its principal office, a copy of this Agreement or certificates for
Warrant Shares, as applicable, accompanied by a written notice or notices
stating that the Holder or the Owner, as the case may be, elects to require
Issuer to repurchase this Warrant and/or the Warrant Shares in accordance with
the provisions of this Section 9. Within the later to occur of (x) five business
days after the surrender of the Warrant and/or certificates representing Warrant
Shares and the receipt of such notice or notices relating thereto and (y) the
time that is immediately prior to the occurrence of a Repurchase Event, Issuer
shall deliver or cause to be delivered to the Holder the Warrant Repurchase
Price and/or to the Owner the Warrant Share Repurchase Price therefor or the
portion thereof that Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) PROHIBITION ON REPURCHASE. To the extent that Issuer is prohibited
under applicable law or regulation from repurchasing the Warrant and/or the
Warrant Shares in full, Issuer shall immediately so notify the Holder and/or the
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Holder and/or the Owner, as appropriate, the portion of the Warrant Repurchase
Price and the Warrant Share Repurchase Price, respectively, that it is no longer
prohibited from delivering, within five business days after the date on which
Issuer is no longer so prohibited; provided, however, that if Issuer at any time
after delivery of a notice of repurchase pursuant to Section 9(b) is prohibited
under applicable law or regulation from delivering to the Holder and/or the
Owner, as appropriate, the Warrant Repurchase Price and the Warrant Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to use its
best efforts to obtain all required regulatory and legal approvals and to file
any required notices as promptly as practicable in order to accomplish such
repurchase), the Holder or Owner may revoke its notice of repurchase of the
Warrant or the Warrant Shares either in whole or to the extent of the
prohibition, whereupon, in the latter case, Issuer shall promptly (i) deliver to
the Holder and/or the Owner, as appropriate, that portion of the Warrant
Repurchase Price or the Warrant Share Repurchase Price that Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Holder, a new Stock Warrant Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Stock Warrant
Agreement was exercisable at the time of delivery of the notice of repurchase by
a fraction, the numerator of which is the Warrant Repurchase Price less the
portion thereof theretofore delivered to the Holder and the denominator of which
is the Warrant Repurchase Price, or (B) to the Owner a certificate for the
Warrant Shares it is then so prohibited from repurchasing.
8
(d) EXERCISE TERMINATION EVENT. The parties hereto agree that Issuer's
obligations to repurchase the Warrant or Warrant Shares under this Section 9
shall not terminate upon the occurrence of an Exercise Termination Event unless
no Subsequent Triggering Event shall have occurred prior to the occurrence of an
Exercise Termination Event.
10. SUBSTITUTE WARRANT.
(a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any
person, other than Grantee or one of its Subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii)
to permit any person, other than Grantee or one of its Subsidiaries, to
merge into Issuer and Issuer shall be the continuing or surviving
corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or
other securities of any other person or cash or any other property or the
then outstanding shares of Common Stock shall after such merger represent
less than 50% of the outstanding voting shares and voting share equivalents
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of
its Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Warrant shall, upon the
consummation of any such transaction and upon the terms and conditions set
forth herein, be converted into, or exchanged for, a warrant (the
"Substitute Warrant"), at the election of the Holder, of either (x) the
Acquiring Corporation (as hereinafter defined) or (y) any person that
controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "ACQUIRING CORPORATION" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), (ii) Issuer in a merger in which Issuer is the continuing
or surviving person, and (iii) the transferee of all or substantially
all of Issuer's assets.
(ii) "SUBSTITUTE COMMON STOCK" shall mean the common stock issued by
the issuer of the Substitute Warrant upon exercise of the Substitute
Warrant.
(iii) "ASSIGNED VALUE" shall mean the market/offer price, as defined
in Section 1(g).
(iv) "AVERAGE PRICE" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding
the consolidation, merger or sale in question, but in no event higher
than the closing price of the shares of Substitute Common Stock on the
day preceding such consolidation, merger or sale; provided that if
Issuer is the issuer of the Substitute Warrant, the Average Price shall
be computed with respect to a share of common stock issued by the person
merging into Issuer or by any company which controls or is controlled by
such person, as the Holder may elect.
(c) The Substitute Warrant shall have the same terms as the Warrant,
provided, that if the terms of the Substitute Warrant cannot, for legal
reasons, be the same as the Warrant,
9
such terms shall be as similar as possible and in no event less
advantageous to the Holder. The issuer of the Substitute Warrant shall also
enter into an agreement with the then Holder or Holders of the Substitute
Warrant in substantially the same form as this Agreement, which shall be
applicable to the Substitute Warrant.
(d) The Substitute Warrant shall be exercisable for such number of
shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Warrant is
then exercisable, divided by the Average Price. The exercise price of the
Substitute Warrant per share of Substitute Common Stock shall then be equal
to the Warrant Price multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock for which the Warrant is then
exercisable and the denominator of which shall be the number of shares of
Substitute Common Stock for which the Substitute Warrant is exercisable.
(e) In no event, pursuant to any of the foregoing provisions of this
Section 10, shall the Substitute Warrant be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise of
the Substitute Warrant. In the event that the Substitute Warrant would be
exercisable for more than 19.9% of the shares of Substitute Common Stock
outstanding prior to exercise but for this clause (e), the issuer of the
Substitute Warrant (the "SUBSTITUTE WARRANT ISSUER") shall make a cash
payment to Holder equal to the excess of (i) the value of the Substitute
Warrant without giving effect to the limitation in this clause (e) over
(ii) the value of the Substitute Warrant after giving effect to the
limitation in this clause (e). This difference in value shall be determined
by a nationally recognized investment banking firm selected by the Holder
or the Owner, as the case may be, and reasonably acceptable to the
Acquiring Corporation.
(f) Issuer shall not enter into any transaction described in Section
1010 unless the Acquiring Corporation and any person that controls the
Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
11. REPURCHASE OF SUBSTITUTE WARRANT.
(a) EXERCISE OF REPURCHASE RIGHT. At the request of the holder of the
Substitute Warrant (the "SUBSTITUTE WARRANT HOLDER"), the issuer of the
Substitute Warrant (the "SUBSTITUTE WARRANT ISSUER") shall repurchase the
Substitute Warrant from the Substitute Warrant Holder at a price (the
"SUBSTITUTE WARRANT REPURCHASE PRICE") equal to (x) the amount by which (i)
the Highest Closing Price (as hereinafter defined) exceeds (ii) the
exercise price of the Substitute Warrant, multiplied by the number of
shares of Substitute Common Stock for which the Substitute Warrant may then
be exercised plus (y) Grantee's Out-of-Pocket Expenses (to the extent not
previously reimbursed), and at the request of the owner (the "SUBSTITUTE
SHARE OWNER") of shares of Substitute Common Stock (the "SUBSTITUTE
SHARES"), the Substitute Warrant Issuer shall repurchase the Substitute
Shares at a price (the "SUBSTITUTE SHARE REPURCHASE PRICE") equal to (x)
the Highest Closing Price multiplied by the number of Substitute Shares so
designated plus (y) Grantee's Out-of-Pocket Expenses (to the extent not
previously reimbursed). The term "HIGHEST CLOSING PRICE" shall mean the
highest closing price for shares of Substitute Common Stock within the six-
month period immediately preceding the date the Substitute Warrant Holder
gives
10
notice of the required repurchase of the Substitute Warrant or the
Substitute Share Owner gives notice of the required repurchase of the
Substitute Shares, as applicable.
(b) EXERCISE OF REPURCHASE OF SUBSTITUTE WARRANT. The Substitute Warrant
Holder and the Substitute Share Owner, as the case may be, may exercise its
respective right to require the Substitute Warrant Issuer to repurchase the
Substitute Warrant and the Substitute Shares pursuant to this Section 11 by
surrendering for such purpose to the Substitute Warrant Issuer, at its
principal office, the agreement for such Substitute Warrant (or, in the
absence of such an agreement, a copy of this Agreement) and certificates
for Substitute Shares accompanied by a written notice or notices stating
that the Substitute Warrant Holder or the Substitute Share Owner, as the
case may be, elects to require the Substitute Warrant Issuer to repurchase
the Substitute Warrant and/or the Substitute Shares in accordance with the
provisions of this Section 11. As promptly as practicable, and in any event
within five business days after the surrender of the Substitute Warrant
and/or certificates representing Substitute Shares and the receipt of such
notice or notices relating thereto, the Substitute Warrant Issuer shall
deliver or cause to be delivered to the Substitute Warrant Holder the
Substitute Warrant Repurchase Price and/or to the Substitute Share Owner
the Substitute Share Repurchase Price therefor or the portion thereof which
the Substitute Warrant Issuer is not then prohibited under applicable law
and regulation from so delivering.
(c) PROHIBITION ON REPURCHASE OF SUBSTITUTE WARRANT. To the extent that
the Substitute Warrant Issuer is prohibited under applicable law or
regulation from repurchasing the Substitute Warrant and/or the Substitute
Shares in part or in full, the Substitute Warrant Issuer shall immediately
so notify the Substitute Warrant Holder and/or the Substitute Share Owner
and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Warrant Holder and/or the Substitute Share Owner, as
appropriate, the portion of the Substitute Share Repurchase Price,
respectively, which it is no longer prohibited from delivering, within five
business days after the date on which the Substitute Warrant Issuer is no
longer so prohibited; provided, however, that if the Substitute Warrant
Issuer is at any time after delivery of a notice of repurchase pursuant to
Section 11(b) prohibited under applicable law or regulation from delivering
to the Substitute Warrant Holder and/or the Substitute Share Owner, as
appropriate, the Substitute Warrant Repurchase Price and the Substitute
Share Repurchase Price, respectively, in full (and the Substitute Warrant
Issuer shall use its best efforts to receive all required regulatory and
legal approvals as promptly as practicable in order to accomplish such
repurchase), the Substitute Warrant Holder or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Warrant or the Substitute
Shares either in whole or to the extent of the prohibition, whereupon, in
the latter case, the Substitute Warrant Issuer shall promptly (i) deliver
to the Substitute Warrant Holder or Substitute Share Owner, as appropriate,
that portion of the Substitute Warrant Repurchase Price or the Substitute
Share Repurchase Price that the Substitute Warrant Issuer is not prohibited
from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Warrant Holder, a new Substitute Warrant evidencing the right of
the Substitute Warrant Holder to purchase that number of shares of the
Substitute Common Stock obtained by multiplying the number of shares of the
Substitute Common Stock for which the surrendered Substitute Warrant was
exercisable at the time of delivery of the notice of repurchase by a
fraction, the numerator of which is the Substitute Warrant Repurchase Price
less the portion
11
thereof theretofore delivered to the Substitute Warrant Holder and the
denominator of which is the Substitute Warrant Repurchase Price, or (B) to
the Substitute Share Owner, a certificate for the Substitute Warrant Shares
it is then so prohibited from repurchasing.
12. EXTENSION OF TIME. The 100-day period for exercise of certain rights
under Sections 3, 8, 9, and 15 shall be extended: (i) to the extent necessary to
obtain all regulatory approvals for the exercise of such rights, and for the
expiration of all statutory waiting periods; and (ii) to the extent necessary to
avoid liability under Section 16(b) of the 1934 Act by reason of such exercise.
13. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents and
warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of Issuer and no other corporate proceedings on the
part of Issuer are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Warrant, that number of
shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such
shares, upon issuance pursuant hereto, will be duly authorized, validly
issued, fully paid, nonassessable, and will be delivered free and clear of
all claims, liens, encumbrance and security interests and not subject to
any preemptive rights.
14. REPRESENTATIONS AND WARRANTIES OF GRANTEE. Grantee hereby represents
and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) The Warrant is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Warrant will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the Securities Act.
15. NO ASSIGNMENT. Neither of the parties hereto may assign any of its
rights or obligations under this Warrant Agreement or the Warrant created
hereunder to any other person, without the express written consent of the other
party, except that in the event a Subsequent
12
Triggering Event shall have occurred prior to an Exercise Termination Event,
Grantee, subject to the express provisions hereof, may assign in whole or in
part its rights and obligations hereunder within 90 days following such
Subsequent Triggering Event (or such later period as provided in Section 12).
16. REASONABLE BEST EFFORTS. Each of Grantee and Issuer will use its best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including without limitation making application
to list the shares of Common Stock issuable hereunder on the Nasdaq National
Market upon official notice of issuance.
17. SURRENDER OF WARRANT.
(a) Grantee may, at any time during which Issuer would be required to
repurchase the Warrant or any Warrant Shares pursuant to Section 9,
surrender the Warrant (together with any Warrant Shares issued to and then
owned by Grantee) to Issuer in exchange for a cash fee equal to the
Surrender Price (as defined below); provided, however, that Grantee may not
exercise its rights pursuant to this Section 17 if Issuer has repurchased
the Warrant (or any portion thereof) or any Warrant Shares pursuant to
Section 9. The "SURRENDER PRICE" shall be equal to (i) One Million Dollars
($1 million), plus (ii) if applicable, the aggregate purchase price
previously paid pursuant hereto by Grantee with respect to any Warrant
Shares, minus (iii) if applicable, the sum of (A) the excess of (1) the net
cash amounts, if any, received by Grantee pursuant to the arms' length sale
of Warrant Shares (or any other securities into which such Warrant Shares
were converted or exchanged) to any party not affiliated with Grantee, over
(2) the aggregate purchase price previously paid pursuant hereto by Grantee
with respect to such Warrant Shares and (B) the net cash amounts, if any,
received by Grantee pursuant to an arms' length sale of a portion of the
Warrant to any party not affiliated with Grantee.
(b) Grantee may exercise its right to surrender the Warrant and any
Warrant Shares pursuant to this Section 17 by surrendering to Issuer, at
its principal office, this Agreement together with certificates for Warrant
Shares, if any, accompanied by a written notice stating (i) that Grantee
elects to surrender the Warrant and Warrant Shares, if any, in accordance
with the provisions of this Section 17 and (ii) the Surrender Price. The
Surrender Price shall be payable in immediately available funds on or
before the second business day following receipt of such notice by Issuer.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from paying the Surrender Price to Grantee in full, Issuer shall
immediately so notify Grantee and thereafter deliver or cause to be
delivered, from time to time, to Grantee, the portion of the Surrender
Price that Issuer is no longer prohibited from paying, within five business
days after the date on which Issuer is no longer so prohibited, provided,
however, that if Issuer at any time after delivery of a notice of surrender
pursuant to paragraph (b) of this Section 17 is prohibited under applicable
law or regulation from paying to Grantee the Surrender Price in full (i)
Issuer shall (A) use its reasonable best efforts to obtain all required
regulatory and legal approvals and to file any required notices as promptly
as practicable in order to make such payments, (B) within five days of the
submission or receipt of any documents relating
13
to any such regulatory and legal approvals, provide Grantee with copies of
the same, and (C) keep Grantee advised of both the status of any such
request for regulatory and legal approvals, as well as any discussions with
any relevant regulatory or other third party reasonably related to the same
and (ii) Grantee may revoke such notice of surrender by delivery of a
notice of revocation to Issuer and, upon delivery of such notice of
revocation, the Exercise Termination Date shall be extended to a date six
months from the date on which the Exercise Termination Date would have
occurred if not for the provisions of this Section 17(c) (during which
period Grantee may exercise any of its rights hereunder, including any and
all rights pursuant to this Section 17).
(d) Grantee shall have rights substantially identical to those set forth
in paragraphs (a), (b) and (c) of this Section 17 with respect to the
Substitute Warrant and the Substitute Warrant Issuer during any period in
which the Substitute Warrant Issuer would be required to repurchase the
Substitute Warrant pursuant to Section 10.
18. SPECIFIC PERFORMANCE. The parties hereto acknowledge that damages would
be an inadequate remedy for a breach of this Agreement by either party hereto
and that the obligations of the parties hereto shall be enforceable by either
party hereto through injunctive or other equitable relief.
19. SEVERABILITY. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 9, the full number of shares of Common Stock
provided in Section 2(a) hereof (as adjusted pursuant to Section 2(b) or 7
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
20. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Merger Agreement.
21. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
22. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
23. COSTS AND EXPENSES. Except as otherwise expressly provided herein, each
of the parties hereto shall bear and pay all costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own
14
financial consultants, investment bankers, accountants and counsel.
24. ENTIRE AGREEMENT. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
except as assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein.
25. CAPITALIZED TERMS. Capitalized terms used in this Agreement and not
defined herein shall have the meanings assigned thereto in the Merger Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
CYBERIAN OUTPOST, INC.
By: /s/ Darryl Peck
----------------------------
Name: Darryl Peck
Title: President & CEO
PC CONNECTION, INC.
By: /s/ Wayne L. Wilson
----------------------------
Name: Wayne L. Wilson
Title: President
15
THE FOLLOWING IS THE CREDIT AND SUPPLY AGREEMENT, DATED AS OF MAY 29, 2001, BY
AND BETWEEN CYBERIAN OUTPOST, INC. AND MERRIMACK SERVICES CORPORATION, A COPY OF
WHICH CYBERIAN OUTPOST, INC. FILED ON A CURRENT REPORT ON FORM 8-K WITH THE SEC
ON JUNE 4, 2001.
EXECUTION COPY
CREDIT AND SUPPLY AGREEMENT
CREDIT AND SUPPLY AGREEMENT ("AGREEMENT"), dated as of May 29, 2001, by and
between Cyberian Outpost, Inc., a Delaware corporation ("OUTPOST") and Merrimack
Services Corporation, a Delaware corporation ("MSC").
WHEREAS, simultaneously with the execution and delivery of this Agreement
an Affiliate of MSC is entering into a certain Merger Agreement (the "MERGER
AGREEMENT") pursuant to which Outpost will merge with an Affiliate of MSC: and,
WHEREAS, in conjunction with the foregoing transactions, Outpost has
requested that MSC provide it with a line of credit (the "WORKING CAPITAL
LINE"), with the understanding that the proceeds of such Working Capital Line
are to be used by Outpost to fund necessary payments to trade creditors and
others pending the Closing of the Merger, and MSC is willing to do so upon the
terms and conditions hereinafter set forth;
WHEREAS, in conjunction with the foregoing transactions, Outpost has also
asked MSC to make certain items of inventory available to it for sale to
Outpost's customers, and MSC is willing to do so upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the promises, terms, covenants,
provisions and conditions set forth herein, and each intending to be legally
bound hereby, the parties agree as follows:
1. CERTAIN DEFINITIONS.
1.1. GENERAL. For the purposes of this Agreement, the terms listed
below shall have the following meanings:
(a) "AFFILIATE" of a specified person shall mean a person who
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with, such specified person,
including, without limitation, any partnership or joint venture in which the
person (either alone, or through or together with any subsidiary) has, directly
or indirectly, an interest of 10% ownership or more.
(b) "COLLATERAL" shall have the meaning defined in the Security
Agreement.
(c) "CREDIT EXTENSION PERIOD" shall mean the period beginning
on the date hereof and terminating on the occurrence of the first Credit
Extension Termination Event.
(d) "CREDIT EXTENSION TERMINATION EVENT" shall mean each of the
following:
(i) An Event of Default shall have occurred and be
continuing;
(ii) The Maturity Date shall have occurred;
-1-
(iii) Sixty days shall have passed after the date on
which the Merger Agreement is terminated by Outpost pursuant to
Section 10.01(e) or Section 10.01(f) of the Merger Agreement; or
(iv) Thirty days shall have passed after the date on
which a Subsequent Triggering Event (as such term is defined in the
Warrant Agreement) shall have first occurred.
(e) "EVENT OF DEFAULT" shall have the meaning set forth in the
Promissory Note.
(f) "INTEREST RATE" shall mean prime interest rate as reported
in The Wall Street Journal on the date of this Agreement.
(g) "INVENTORY LINE" shall mean the line of credit made
available (and advances made from time to time) by MSC to Outpost pursuant to
Section 2.
(h) "INVENTORY PAYABLE CAP" shall mean five million dollars
($5,000,000), except as otherwise provided in this Agreement.
(i) "INVENTORY PAYABLE DUE DATE" shall mean the date that is
seven calendar days after the date on which the Inventory Payable is first
created.
(j) "INVENTORY PAYABLES" shall mean amounts from time to time
owing by Outpost to MSC with respect to Inventory Items purchased by Outpost
from MSC or any Affiliate of MSC.
(k) "LOAN DOCUMENTS" shall mean each of this Agreement, the
Security Agreement, and the Promissory Note.
(l) "MATURITY DATE" shall mean the earliest to occur of
(i) the date which is five days after the Closing Date;
(ii) the date which is ninety days after the date on
which the Merger Agreement is terminated by Outpost pursuant to
Section 10.01(e) or Section 10.01(f) of the Merger Agreement;
(iii) the date on which the Merger Agreement is
terminated by MSC pursuant to Section 10.01(e) or Section 10.01(f) of
the Merger Agreement; (iv) the date on which the Merger Agreement
expires by its terms or is terminated by either party (except as
otherwise provided in Section 1.1(l)(ii)); or
(v) the date which is sixty days after a Subsequent
Triggering Event (as such term is defined in the Warrant Agreement)
shall have first occurred.
(m) "MERGER AGREEMENT" shall mean that certain Merger Agreement
dated as of the date hereof by and between Outpost and an Affiliate of MSC.
-2-
(n) "OBLIGATIONS" shall mean amounts owing to MSC from time to
time under the Working Capital Line or as Inventory Payables, including without
limitation all interest accrued from time to time.
(o) "SECURITY AGREEMENT" shall mean that certain Security
Agreement of even date herewith by and between MSC and Outpost.
(p) "WARRANT AGREEMENT" shall mean that certain Stock Warrant
Agreement dated as of the date hereof by and between an Affiliate of MSC and
Outpost.
(q) "WORKING CAPITAL LINE AMOUNT" shall mean Three Million
Dollars ($3,000,000).
1.2. CAPITALIZED TERMS, GENERALLY. Capitalized terms used and not
defined herein shall have the meanings defined in the Merger Agreement. Terms
defined in the singular shall have a comparable meaning when used in the plural,
and vice versa.
2. SALES OF INVENTORY BY MSC TO OUTPOST.
2.1. ORDERING AND DELIVERY OF INVENTORY ITEMS. During the Credit
Extension Period MSC agrees to make inventory ("INVENTORY ITEMS") available to
Outpost at MSC's Wilmington, Ohio warehouse, if the following conditions are
met:
(a) Outpost shall have submitted to MSC its purchase order and
such other documentation as MSC shall reasonably request to evidence its order
of the Inventory Item;
(b) MSC has the Inventory Item ordered by Outpost in stock and
ready for delivery;
(c) The aggregate amount of Inventory Payables that will be
outstanding upon MSC's delivery to Outpost of the requested Inventory Items will
not exceed the Inventory Payable Cap (it being agreed that any addition of any
overdue Inventory Payable to the Working Capital Loan Balance pursuant to
Section 2.3 shall not have the effect of decreasing the aggregate amount of
Inventory Payables at the time outstanding); and
(d) Outpost shall have provided evidence satisfactory to MSC
that:
(i) the requested Inventory Item has been ordered by a
third party customer of Outpost in the ordinary course of business;
(ii) such customer has provided payment by credit card
for such Inventory Item ("Card Charge");
(iii) Outpost has complied with all applicable credit
card fraud prevention procedures and policies in accepting such Card
Charges;
(iv) Outpost has given irrevocable instructions (which
by their terms cannot be altered without the written agreement of MSC)
to its credit card processor that
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all credit card payments be paid by the credit card processor directly
to a bank account in the name of and under the control of MSC, with
the result that all payments of the Card Charges ("Credit Card
Payments") will be made to MSC and not to Outpost;
(v) upon shipment of the Inventory Item Outpost will
have a Card Charge receivable (due and collectible in not more than
four (4) days from the date of Inventory Item shipment) for the
purchase price of the Inventory Item; and
(vi) the related Card Charge receivable and Credit Card
Payment each constitute Collateral under the Loan Documents.
(e) Outpost agrees to cause the procedures described in Section
2.1(d) to be complied with.
2.2. APPLICATION OF CREDIT CARD PAYMENTS. At the end of each
business day MSC will account to Outpost, reporting the amount of Credit Card
Payments received that day. MSC shall apply the aggregate amount of Credit Card
Payments received each day in the following order:
(a) Such Credit Card Payments shall first be applied so as to
pay down all Inventory Payables that have not been paid by the Inventory Payable
Due Date.
(b) Next, if an Event of Default shall have occurred or a
Credit Extension Termination Event shall have occurred,
(i) any remaining Credit Card Payments shall be applied
so as to pay down the Inventory Payables to which such Credit Card
Payment relate; and then
(ii) any additional remaining Credit Card Payments shall
be applied to pay down the outstanding balance of any Working Capital
Loans; and then
(iii) any additional remaining Credit Card Payments shall
be applied to pay down any then unpaid Inventory Payables.
(c) Finally, unless an Event of Default shall have occurred or
a Credit Extension Termination Event shall have occurred, any remaining Credit
Card Payments shall be paid over to Outpost.
2.3. PAYMENT FOR INVENTORY ITEMS. All purchases of Inventory Items
shall be on seven day net terms. The price for each Inventory Item shall be the
cost to MSC of each such Inventory Item plus 5%. Amounts due with respect to
Inventory Items shall be considered to be Inventory Payables hereunder. The full
amount of any Inventory Payable that has not been paid to MSC by the Inventory
Payable Due Date shall be added to the Working Capital Loan balance and shall
bear interest at the Interest Rate.
2.4. RETURNS OF INVENTORY ITEMS. Outpost may return Inventory Items
to MSC only with MSC's prior approval.
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3. WORKING CAPITAL LOANS. Outpost shall have the right to request MSC to
make, on the terms and conditions set forth in this Agreement, working capital
loans (each a "WORKING CAPITAL LOAN" and collectively, the "WORKING CAPITAL
LOANS") to Outpost from time to time during the Credit Extension Period. The
obligations of Outpost with respect to the Working Capital Loans shall be
evidenced by Outpost's promissory note substantially in the form of Exhibit A
(the "PROMISSORY NOTE") to be executed by Outpost before the first Working
Capital Loan is made. Outpost may prepay amounts borrowed as Working Capital
Loans without prepayment penalty.
4. MAXIMUM AMOUNT OF WORKING CAPITAL LOANS. The maximum principal amount
of Working Capital Loans (including, without limitation, Inventory Payables
added to the Working Capital Loans pursuant to Section 2.3) shall not exceed the
Working Capital Line Amount.
5. NOTICE AND MANNER OF BORROWING. Outpost shall submit a written request
that MSC make a Working Capital Loan under this Agreement, specifying (i) the
requested amount of the Loan; (ii) the purposes for which the proceeds of the
Loan will be used, (iii) the date (which shall be not less than three Business
Days after the date ("Request Date") the request is submitted to MSC) on which
Outpost is requesting the Loan to be made, and (iv) such other information as
MSC may reasonably request. MSC will inform Outpost as to whether the Loan
request has been approved not later than two Business Days after the Request
Date. MSC shall have sole and complete discretion in deciding whether or not to
approve a Loan request. If the Loan request has been approved, and if the
preconditions to borrowing set forth in Section 7 (with respect to the initial
Loan) or Section 8 (with respect to all other Loans) are met, not later than
3:00 p.m. on the date such Working Capital Loan is scheduled to be made (as
specified in the Loan request notice from Outpost), MSC will make such Working
Capital Loan available to Outpost by wire transfer to an account that is
designated in writing by Outpost to MSC at the time the notice of proposed
borrowing is delivered.
6. INTEREST.
6.1. GENERAL. Outpost shall pay interest to MSC on the unpaid
principal amount of the Working Capital Loans from time to time outstanding at a
rate per annum equal to the Interest Rate. Interest shall be calculated on the
basis of a year of 360 days for the actual number of days elapsed. Interest on
the Working Capital Loans shall be paid in immediately available funds on the
first day of each calendar month. The final payment of interest shall be paid
with the final payment of the Working Capital Loans (whether on the Maturity
Date or otherwise). Any interest amount not paid by Outpost when due shall not
constitute a default hereunder but shall be added to the principal amount owed
to MSC under the Promissory Note and (to the extent legally permissible) shall
bear interest thereafter at the Interest Rate until paid.
6.2. LIMITATION ON INTEREST PAYABLE. If, at any time, the rate of
interest payable on the Obligations shall be deemed by any competent court of
law, governmental agency or tribunal to exceed the maximum rate of interest
permitted by any applicable law, then, for such time as such rate would be
deemed excessive, its application shall be suspended and there shall be charged
instead the maximum rate of interest permissible under such law.
-5-
6.3. METHOD OF PAYMENT. Outpost shall make each payment under this
Agreement to MSC at its office located at Merrimack, New Hampshire on the date
when due in lawful money of the United States in immediately available funds
pursuant to wire transfer instructions provided by MSC. Whenever any payment to
be made under this Agreement shall be stated to be due on a day other than a day
which is a business day in New Hampshire, such payment shall be made on the next
succeeding business day, and such extension of time shall in such case be
included in the computation of the payment of interest.
7. CONDITIONS PRECEDENT TO INITIAL ADVANCES OF CREDIT UNDER WORKING
CAPITAL LOANS AND INVENTORY LINE. The following conditions shall be satisfied by
Outpost at or before the time MSC advances the first Working Capital Loan or
provides any Inventory Item to Outpost pursuant to the Inventory Line:
7.1. Outpost shall have delivered to MSC the Promissory Note, the
Security Agreement, and any UCC financing statements or other security documents
requested by MSC, together with appropriate certificates of legal existence and
good standing dated at or shortly before the date thereof. The documentation for
such Working Capital Loan shall be reasonably satisfactory in form and substance
to MSC and its counsel;
7.2. No Event of Default shall have occurred and be continuing, and
Outpost shall have delivered to MSC an Officer's Certificate confirming that no
Event of Default has occurred and is continuing; and
7.3. Outpost shall have delivered to MSC a legal opinion of its
counsel, in form and substance reasonably satisfactory to MSC and its counsel,
dated the date of the initial borrowing, as to such matters as MSC shall have
reasonably requested.
8. CONDITIONS PRECEDENT TO SUBSEQUENT ADVANCES OF CREDIT UNDER WORKING
CAPITAL LOANS AND INVENTORY LINE. The following condition shall be satisfied by
Outpost at or before the time MSC advances any Working Capital Loan after the
first Working Capital Loan and before MSC provides any additional Inventory Item
to Outpost pursuant to the Inventory Line:
8.1. No Credit Extension Termination Event shall have occurred; and
8.2. No Event of Default shall have occurred and be continuing, and
Outpost shall have delivered to MSC (upon request of MSC) an Officer's
Certificate confirming that no Event of Default has occurred and is continuing.
9. CREDIT EXTENSION TERMINATION EVENT. From and after the occurrence of a
Credit Extension Termination Event, (a) all obligations of MSC to make Working
Capital Loans hereunder shall terminate and (b) the Inventory Payable Cap shall
become zero dollars.
10. PAYMENT OF OBLIGATION ON OR BEFORE MATURITY DATE. Notwithstanding any
other provisions of the Loan Documents, Outpost agrees to pay all Obligations to
MSC in full on or before the Maturity Date.
11. SEVERABILITY. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or
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unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
12. RIGHT OF SET-OFF. MSC may transfer any Obligation to any Affiliate.
Obligations may be applied or set off by MSC or any Affiliate against any
liabilities of MSC or any such Affiliate to Outpost at any time whether or not
such liabilities are then due or other collateral is then available and without
regard to the adequacy of any such other collateral.
13. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the substantive laws of New Hampshire without
regard to its principles of conflicts of laws.
14. SECURITY AGREEMENT.
14.1. To secure the payment and performance of all obligations of
Outpost to MSC, Outpost and MSC have entered into the Security Agreement.
15. SUBMISSION TO JURISDICTION. TO INDUCE MSC TO ACCEPT THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS AND TO MAKE EACH OF THE EXTENSIONS OF CREDIT
CONTEMPLATED HEREBY:
15.1. OUTPOST IRREVOCABLY AGREES THAT, OTHER THAN AS MAY BE
NECESSARY IN MSC'S SOLE AND ABSOLUTE DISCRETION TO PRESERVE RIGHTS IN
COLLATERAL, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING
OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE
COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE STATE OF NEW
HAMPSHIRE.
15.2. Outpost hereby waives any right it may have to transfer or
change the venue of any litigation brought against Outpost by MSC in accordance
with this Section 15.
16. WAIVER OF TRIAL BY JURY. To the extent not prohibited by applicable
law which cannot be waived, Outpost and MSC hereby waive, and covenant that they
will not assert (whether as plaintiff, defendant or otherwise), any right to
trial by jury in any forum in respect of any issue, claim, demand, action, or
cause of action arising out of or based upon this Agreement or any other Loan
Document or the subject matter thereof or any obligation or in any way connected
with or related or incidental to the dealings of MSC or Outpost or any of them
in connection with any of the above, in each case whether now or hereafter
arising and whether sounding in contract or tort or otherwise. Outpost
acknowledges (i) that it has been informed by MSC that the provisions of this
Section 16 constitute a material inducement upon which MSC has relied, is
relying and will rely in entering into this Agreement and each other Loan
Document and (ii) that it has been advised by counsel as to the meaning and
effect of this Section.
17. NO ASSIGNMENT. This Agreement is personal to the parties hereto and
may not be assigned by either party, whether by operation of law or otherwise.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
CYBERIAN OUTPOST, INC.
By: /s/ Darryl Peck
----------------------------------------
Name: Darryl Peck
Title: President & CEO
MERRIMACK SERVICES CORPORATION
By: /s/ Mark A. Gavin
----------------------------------------
Name: Mark A. Gavin
Title: SVP of Finance & CFO
-8-
Exhibit A
WORKING CAPITAL LOAN PROMISSORY NOTE
$3,000,000 May 29, 2001
FOR VALUE RECEIVED, Cyberian Outpost, Inc., a Delaware corporation
("Outpost"), promises to pay to the order of Merrimack Services Corporation, a
Delaware corporation ("MSC"), on the earlier of (x) the date or dates set forth
in connection with the various Working Capital Loans made by MSC to Outpost and
(y) the Maturity Date, the principal sum of THREE MILLION DOLLARS ($3,000,000),
or such other principal sum as may from time to time be outstanding, and to pay
interest on the unpaid principal balance hereunder on the first day of each
calendar month (commencing on June 1, 2001) and on the Maturity Date, at the
annual Interest Rate determined as provided in the Loan Agreement. Funds paid
hereunder shall be applied first to accrued and unpaid interest and then to the
unpaid principal balance. Capitalized terms used and not defined herein shall
have the meanings defined in the Credit and Supply Agreement between Outpost and
MSC dated as of the date hereof (the "Loan Agreement"). All payments shall be
made at the offices of MSC in Merrimack, New Hampshire, or such other address as
MSC shall designate in a written notice to Outpost.
This Note is issued by Outpost pursuant to, and is governed by and subject
to the terms and conditions of, the Loan Agreement. All capitalized terms used
in this Note that are not defined herein, but that are defined in the Loan
Agreement, shall have the meanings assigned to them therein.
Nothing contained in this Note, the Loan Agreement or the instruments
securing this Note shall be deemed to establish or require the payment of a rate
of interest in excess of the amount legally enforceable. In the event that the
rate of interest so required to be paid exceeds the maximum rate legally
enforceable, the rate of interest so required to be paid shall be automatically
reduced to the maximum rate legally enforceable, and any excess paid over such
maximum enforceable rate shall be automatically credited on account of the
principal hereof without premium or penalty.
This Note may be prepaid in whole or in part at any time without penalty.
The occurrence or existence of any one or more of the following shall
constitute an "Event of Default" hereunder:
Outpost or any Subsidiary shall fail to pay when due and payable any
principal of the Obligations when the same becomes due (including without
limitation any failure to pay any Inventory Payable by the Inventory
Payable Due Date (as such term is defined the Credit Agreement));
Outpost shall fail to take any action provided for in the Loan
Documents with respect to creation or preservation of MSC's rights in the
Collateral;
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Outpost or any Subsidiary shall fail to perform any other term,
covenant or agreement contained in the Loan Documents within fifteen (15)
days after MSC has given written notice of such failure to Outpost;
Any representation or warranty of Outpost or any of its Subsidiaries
in the Loan Documents or in any certificate or notice given in connection
therewith shall have been false or misleading in any material respect at
the time made or deemed to have been made;
Any of the Loan Documents shall cease to be in full force and effect,
and
Dissolution, termination of existence, insolvency, business failure,
appointment of a receiver or custodian of any part of Outpost's property,
assignment or trust mortgage for the benefit of creditors by Outpost, the
recording or existence of any lien for unpaid taxes, the commencement of
any proceeding under any bankruptcy or insolvency laws of any state or of
the United States by or against Outpost, or service upon Secured Party of
any writ, summons, or process designed to affect any of Outpost's accounts
or other property.;
Upon the occurrence or existence of any Event of Default and at any time
thereafter during the continuance of such Event of Default, MSC may by written
notice to Outpost and after any opportunity to cure as set forth in the Loan
Agreement, declare all outstanding obligations payable by Outpost hereunder to
be immediately due and payable without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived. In addition to
the foregoing remedies, upon the occurrence or existence of any Event of
Default, MSC may exercise any right, power or remedy permitted to it by law,
either by suit in equity or by action at law, or both.
Notices to Outpost shall be by telecopy, delivery in hand or by courier, or
registered or certified mail (return receipt requested) and shall be deemed to
have been given or made when telegraphed, telecopied (and confirmed received),
delivered in hand or by courier, or five days after being deposited in the
United States mails postage prepaid, registered or certified, return receipt
requested, to Outpost at the address set forth in the Merger Agreement, or at
such other address specified by Outpost in accordance herewith to the holder.
No delay or omission on the part of MSC in exercising any right hereunder
shall operate as a waiver of such right or of any other right of MSC, nor shall
any delay, omission or waiver on any one occasion be deemed a bar to or waiver
of the same or any other right on any future occasion. Every maker, endorser
and guarantor of this Note or the obligations represented hereby waives
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note, assents to any extension or postponement of the time of payment or
any other indulgence, to any substitution, exchange or release of collateral and
to the addition or release of any other party or person primarily or secondarily
liable.
IN WITNESS WHEREOF, the undersigned has executed this Note as an instrument
under seal, as of the date first above written.
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CYBERIAN OUTPOST, INC.
By: /s/ Darryl Peck
---------------------
Title: President & CEO
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THE FOLLOWING IS THE SECURITY AGREEMENT, DATED AS OF MAY 29, 2001, BETWEEN
CYBERIAN OUTPOST, INC. AND MERRIMACK SERVICES CORPORATION, A COPY OF WHICH
CYBERIAN OUTPOST, INC. FILED ON A CURRENT REPORT ON FORM 8-K WITH THE SEC ON
JUNE 4, 2001.
EXECUTION COPY
SECURITY AGREEMENT
This Security Agreement is made this 29th day of May, 2001 (the
"Agreement") between Cyberian Outpost, Inc., a Delaware corporation with a
principal place of business at the address set forth on the signature page
hereof ("DEBTOR") and Merrimack Services Corporation, a Delaware corporation
("SECURED PARTY").
1. SECURITY INTEREST. Debtor, for valuable consideration, receipt of
which is acknowledged, hereby grants to Secured Party, a security interest in
Debtor's now owned or hereafter acquired: (a) inventory, (b) accounts, contract
rights, chattel paper, documents and instruments, (c) general intangibles,
including but not limited to trademarks, patent rights, copyrights, goodwill,
records, computer programs and rights in premises used in the conduct of
Debtor's business, (d) equipment, including but not limited to all vehicles,
machinery, tools, furniture and fixtures, (e) goods and other personal property
of every kind including tax refunds or interests in and claims under policies of
insurance, and (f) all credit card receivables and all Card Charges and Credit
Card Payments (each as defined in that certain Credit and Supply Agreement dated
as of the date hereof by and between Debtor and Secured Party ("Credit
Agreement")), and all products and proceeds of the above (the "COLLATERAL").
2. OBLIGATIONS SECURED. The security interest granted hereby secures
payment and performance of all debts, loans, liabilities and agreements of
Debtor to Secured Party or any affiliate of Secured Party of every kind and
description, whether now existing or hereafter arising (other than the Excluded
Obligations, as defined in Section 3), including without limitation any and all
"OBLIGATIONS" (as such term is defined in that certain Credit Agreement); and
3. EXCLUDED OBLIGATIONS. The following shall be "Excluded Obligations"
hereunder: Obligations of Debtor under the Merger Agreement between PC
Connection, Inc. ("PCC") and Debtor of even date herewith ("Merger Agreement")
and the Stock Warrant Agreement between PCC and the Debtor of even date herewith
(the "Merger Documents").
4. DEBTOR'S REPRESENTATIONS AND WARRANTIES. Debtor represents and
warrants that:
4.1. Debtor keeps its inventory at its Wilmington, Ohio location and
records concerning accounts, contract rights and other property at the location
shown below, which is its chief executive office. Debtor will promptly notify
Secured Party in writing of any change in the location of any Collateral or the
establishment of any new place of business where any Collateral or records are
kept.
4.2. Debtor is a corporation duly organized, validly existing and in
good standing under the laws of Delaware and is duly qualified to do business
under the laws of each state where the nature of the business done or property
owned requires such qualification. The execution, delivery and performance of
this Agreement have been duly authorized.
4.3. Debtor will at all times keep in a manner satisfactory to the
Secured Party accurate and complete records of Debtor's inventory and accounts,
will maintain the Collateral in
good repair and working order and will keep the Collateral insured, naming the
Secured Party as a loss payee.
4.4. Debtor is the owner of the Collateral free from all encumbrances
except for the security interest granted hereby and those listed in Schedule
4.10 of the Seller Disclosure Schedules to the Merger Agreement and will defend
the Collateral against the claims and demands of all persons and will not
pledge, create or suffer to exist any other security interest, lien or
encumbrance on the Collateral.
5. FINANCING STATEMENTS. Debtor hereby agrees to execute, deliver and pay
the cost of filing any financing statement, or other notices appropriate under
applicable law, in respect of any security interest created pursuant to this
Agreement that may at any time be required or that, in the opinion of Secured
Party, may at any time be desirable. In the event that any re-recording or
refiling thereof (or the filing of any statements of continuation or assignment
of any financing statement) is required to protect and preserve such lien or
security interest, Debtor shall, at its cost and expense, cause the same to be
re-recorded and/or refiled at the time and in the manner requested by Secured
Party. Debtor hereby irrevocably designates Secured Party, its agents,
representatives and designees as agents and attorneys-in-fact for Debtor to sign
and file such financing statements or other notices on behalf of Debtor.
6. DEBTOR'S RIGHTS UNTIL DEFAULT. In the absence of any default in the
Obligations and any default hereunder, Debtor shall have the right to possess
the Collateral, manage its property and sell its inventory in the ordinary
course of business.
7. DEFAULT. Debtor shall be in default under this Agreement upon the
happening of any of the following events or conditions, without demand or notice
from Secured Party:
7.1. Failure to observe or perform any of its agreements, warranties
or representations in this Agreement or any other agreement with the Secured
Party (other than the Merger Documents);
7.2. Failure to pay when due any obligation, whether by maturity,
acceleration or otherwise;
7.3. Upon the occurrence of any Event of Default under the Credit
Agreement; and
7.4. Dissolution, termination of existence, insolvency, business
failure, appointment of a receiver or custodian of any part of Debtor's
property, assignment or trust mortgage for the benefit of creditors by Debtor,
the recording or existence of any lien for unpaid taxes, or the commencement of
any proceeding under any bankruptcy or insolvency laws of any state or of the
United States by or against Debtor.
8. SECURED PARTY'S RIGHTS UPON DEFAULT. Upon default and at any time
thereafter, Secured Party, without presentment, demand, notice, protest or
advertisement of any kind, may:
8.1. Notify account debtors that the Collateral has been assigned to
Secured Party and that payments shall be made directly to Secured Party and upon
request of Secured Party, Debtor will so notify such account debtors that their
accounts must be paid to Secured Party. After
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notification, Debtor shall immediately upon receipt of all checks, drafts, cash
and other remittances deliver the same in kind to the Secured Party. Secured
Party shall have full power to collect, compromise, endorse, sell or otherwise
deal with the Collateral or proceeds thereof in its own name or in the name of
Debtor and Debtor hereby irrevocably appoints the Secured Party its attorney-in-
fact for this purpose;
8.2. Make all Obligations immediately due and payable, without
presentment, demand, protest, hearing or notice of any kind and exercise the
remedies of a Secured Party afforded by the New Hampshire Uniform Commercial
Code and other applicable law or by the terms of any agreement between Debtor
and Secured Party;
8.3. Notify Debtor to assemble the Collateral at a place designated by
Secured Party;
8.4. Take possession of the Collateral and the premises at which any
Collateral is located and sell all or part of the Collateral at a public or
private sale;
8.5. Refuse to honor or fulfill any then pending or future Purchase
Orders submitted by or on behalf of the Debtor to the Secured Party or any
affiliate; and
8.6. In the case of any sale or disposition of the Collateral, or the
realization of funds therefrom, the proceeds thereof shall first be applied to
the payment of the expenses of such sale, commissions, reasonable attorneys fees
and all charges paid or incurred by Secured Party pertaining to said sale or
this Agreement, including any taxes or other charges imposed by law upon the
Collateral and/or the owning, holding or transferring thereof; secondly, to pay,
satisfy and discharge the Obligations secured hereby; and, thirdly, to pay the
surplus, if any, to Debtor, provided that the time of any application of the
proceeds shall be at the sole and absolute discretion of Secured Party. To the
extent such proceeds do not satisfy the foregoing items, Debtor hereby promises
and agrees to pay any deficiency. Except for Collateral that is perishable or is
a type customarily sold in a recognized market, Secured Party will give Debtor
at least ten days written notice of the time and place of any sale of the
Collateral.
9. MISCELLANEOUS.
(a) Neither this Agreement nor any part thereof can be changed,
waived, or amended except by an instrument in writing signed by
Secured Party; and waiver on one occasion shall not operate as a
waiver on any occasion.
(b) Any notice required or permitted hereunder shall be in writing
and shall be duly given to any party if hand delivered or if
mailed first class postage prepaid to the address set forth below
or to such other address as may be specified by notice in
writing.
(c) The Uniform Commercial Code and other laws of the State of New
Hampshire shall govern the construction of this Agreement.
(d) In the event of an inconsistency between the provisions of this
Agreement and the provisions of the Credit Agreement, the terms
of the Credit Agreement shall govern.
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Executed as an instrument under seal by the duly authorized officers of the
parties as of the date first above written.
CYBERIAN OUTPOST, INC.
By: /s/ Darryl Peck
-----------------------------------
Title: President & CEO
Address: 23 North Main Street
P.O. Box 636
Kent, Connecticut 06757
MERRIMACK SERVICES CORPORATION
By: /s/ Mark A. Gavin
-----------------------------------
Title: SVP of Finance & CFO
Address: Route 101A
730 Milford Road
Merrimack, New Hampshire 03054
ATTEST:
- -----------------------------------
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********************************************************************************
Cyberian Outpost and PC Connection plan to file a Registration/Proxy Statement
on SEC Form S-4 in connection with the merger and Cyberian Outpost expects to
mail a Registration/Proxy Statement to its stockholders containing information
about the merger. Investors and security holders are urged to read the
Registration/Proxy Statement carefully when it is available. The
Registration/Proxy Statement will contain important information about Cyberian
Outpost, PC Connection, and the merger and related matters. Investors and
security holders will be able to obtain free copies of the Registration/Proxy
Statement through the web site maintained by the SEC at http://www.sec.gov.
In addition to the Registration/Proxy Statement, Cyberian Outpost files annual,
quarterly and special reports, proxy statements and other information with the
SEC. You may read and copy any reports, statements, and other information filed
by Cyberian Outpost at the SEC Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the Public Reference Room. Cyberian Outpost's
filings with the SEC also are available to the public from commercial document-
retrieval services and at the web site maintained by the SEC at
http://www.sec.gov.
Cyberian Outpost, its directors, executive officers and certain members of
management and employees may be considered participants in the solicitation of
proxies in connection with the merger. Information concerning Cyberian
Outpost's directors and executive officers can be found in the Annual Report on
Form 10-K for the year ended February 28, 2001, as filed with the SEC. Certain
directors and executive officers of Cyberian Outpost may have direct or indirect
interests in the merger due to securities holdings, vesting of options, and
rights to severance payments if their employment is terminated following the
merger. In addition, directors and officers, after the merger, will be
indemnified by PC Connection, and benefit from insurance coverage, for
liabilities that may arise from their service as directors and officers of
Cyberian Outpost prior to the merger. Additional information regarding the
participants in the solicitation will be contained in the Registration/Proxy
Statement.
2