----------------------------------------
AGREEMENT AND PLAN OF MERGER
----------------------------------------
BY AND AMONG
SPORTING MAGIC, INC.,
CMJ ACQUISITION COMPANY,
CMJ VENTURES, INC.
and
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ AND ▇▇▇▇ ▇▇▇▇▇▇
Dated as of March 1,2002
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of
March 1, 2002, by and among (i) Sporting Magic, Inc., a Delaware corporation
("SMI" ), (ii) CMJ Acquisition Company, a Delaware corporation and wholly owned
subsidiary of SMI ("Merger Sub"), (iii) CMJ Ventures, Inc., a Florida
corporation ("QM") and (iv) each of ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇
(collectively, the "Stockholders").
W I T N E S S E T H
WHEREAS, the Stockholders and each of the Boards of Directors of SMI,
Merger Sub and CMJ have approved the merger of Merger Sub with and into CMJ (the
"Mercer") upon the terms and subject to the conditions set forth in this
Agreement, and such Merger shall enable SMI to acquire all of the outstanding
equity capital of CMJ in exchange for cash, common stock of SMI and preferred
stock of SMI;
WHEREAS, after this transaction, CMJ shall become a wholly owned
subsidiary
WHEREAS, prior to this transaction, SMI acquired all of the
outstanding common stock on Next, Inc., a Delaware corporation ("Next"), whereby
Next became a partially owned subsidiary of SMI in its capacity as a publicly
traded holding company; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger qualify as a reorganization, for the benefit of each of CMJ and the
Stockholders, within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto intending to be legally bound, hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. At the Effective Time (as defined in Section
1.2) and upon the terms and subject to the conditions set forth in this
Agreement and in accordance with applicable provisions of the Delaware General
Corporation Law ("Delaware Law"), Merger Sub shall be merged with and into CMJ,
with CMJ being the surviving corporation of the Merger (the "Surviving_
Corporation") and becoming a wholly-owned subsidiary of SMI. Following the
Merger, the separate existence of Merger Sub shall cease.
Section 1.2 Effective Time. At the Closing (as defined in Section
1.7), the parties shall cause the Merger to be consummated by executing and
filing a duly executed Agreement and Plan of Merger and duly executed
Certificates of Merger (collectively the "Merger Documents"), with respect to
the Merger, with the Secretary of State of the State of Delaware, in such form
as SMI and CMJ reasonably determine is required by and in accordance with the
relevant provisions of Delaware Law. The time upon which such filing becomes
effective in accordance with Delaware Law is referred to herein as the
"Effective Time."
Section 1.3 Merger Consideration. For purposes of this agreement,
"Merger Consideration" shall mean, in the aggregate, (i) 1,400,000 shares of SMI
voting common stock, $.0001 par value per share, all unencumbered and free and
clear of all liens, charges, pledges, security interests or any other
restrictions except for those as may be imposed by federal or state securities
laws (collectively, the "SMI Common Stock") and (ii) 3,000 shares of SMI's
Series A preferred stock, $.0001 par value per share, all unencumbered and free
and clear of all liens, charges, pledges, security interests or any other
restrictions and created pursuant to a certificate of designation substantially
similar to the form of certificate of designation attached hereto as Exhibit A
(collectively, the "SMI Preferred Stock"). At the Effective Time, by virtue of
the Merger, and without further action by any person or entity, each issued and
outstanding share of CMJ Stock (as defined in Section 2.2) shall automatically
converted into the right to receive 2,545.4545 shares of SMI Common Stock and
5.4545 shares of SMI Preferred Stock. Schedule 1.33 sets forth to whom and in
what denominations the Merger Consideration is to be allocated amongst the
Stockholders or their designees. Fractional shares of either SMI Common Stock or
SMI Preferred Stock to be issued hereunder shall be rounded to the nearest whole
number.
Section 1.4 Effects of Merger. The Merger shall have the effects set
forth in the Merger Documents and applicable provisions of Delaware Law. Without
limiting the generality of the foregoing, at the Effective Time:
(a) All of the properties, rights, privileges, powers and franchises
of Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation;
(b) The directors and executive officers of the Surviving Corporation
shall be comprised of those individuals set forth on Schedule 1.4(b), and each
such director and executive officer shall hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation or until
their successors are duly elected and qualify;
(c) All shares of CMJ Stock held by CMJ as treasury stock shall be
cancelled and no payment shall be made with respect thereto; and
(d) Each share of capital stock of Merger Sub issued and outstanding
prior to the Effective Time shall be converted into one validly issued, fully
paid and nonassessable share of common stock of the Surviving Corporation, and
the stock of the Surviving Corporation issued pursuant to such conversion shall
constitute all of the issued and outstanding shares of capital stock of the
Surviving Corporation.
Section 1.5 Certificate of Incorporation and Bylaws. At the Effective
Time, the Bylaws and Certificate of Incorporation of CMJ shall be the Bylaws and
Certificate of Incorporation of the Surviving Corporation.
Section 1.6 Exchange of Shares.
(a) At the Closing, each Stockholder, shall deliver to SMI any
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of CMJ Stock ("CMJ Certificates") which were
converted into the right to receive shares of SMI Common Stock and SMI Preferred
Stock pursuant to Section 1.3 hereof, and SMI shall issue to
2
each Stockholder immediately upon receipt of such CMJ Certificate, a certificate
representing the number of shares of SMI Common Stock and SMI Preferred Stock
into which the shares represented by the CMJ Certificate were converted pursuant
to Section 1.3 hereof in connection with the Merger, and all CMJ Certificates so
surrendered shall subsequently be cancelled.
(b) After the Effective Time, there shall be no further registration
of transfers on the stock transfer books of CMJ of certificates representing any
CMJ capital stock that were outstanding immediately prior to the Effective Time.
If, after the Effective Time, certificates representing CMJ capital stock are
presented for any reason, they shall be cancelled and exchanged as provided in
this Section 1.
Section 1.7 The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ Frome ▇▇▇▇▇▇▇▇▇▇ & Wolosky LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇ as soon as practicable following satisfaction or waiver of all the
conditions to the obligations of the parties to consummate the transactions
contemplated hereby, or at such other time and place as SMI, CMJ and the
Stockholders shall mutually agree (the date on which such closing occurs being
herein referred to as the "Closing_ Date"); provided, however, that under no
circumstances may the Closing Date be later than March 15, 2002 in accordance
with Section 12.1(d).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CMJ AND THE STOCKHOLDERS
CMJ and each of the Stockholders, jointly and severally, represent and
warrant to SMI and Merger Sub as of the date hereof as follows:
Section 2.1 Corporate Organization, Requisite Authority to Conduct
Business; Certificate of Incorporation and Bylaws. CMJ is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida. CMJ has all corporate power and authority to own,
operate and lease its properties and to carry on its business as the same is now
being conducted. CMJ is duly qualified or licensed to do business as a foreign
corporation in each foreign jurisdiction listed on Schedule 2.1, which
constitute all of the foreign jurisdictions in which the conduct of its business
or the ownership or leasing of its properties require it to be so qualified or
licensed.
Section 2.2 Capitalization and Stockholdings. The authorized capital
stock of CMJ consists of 1,000 shares of common stock, $1.00 par value per
share, of which 550 shares are issued and outstanding (the "CMJ Stock"). The
Stockholders, beneficially and of record, own all of the CMJ Stock free and
clear of all liens, claims or encumbrances of any nature, in the respective
amounts set forth on Schedule 2.2. Each of the Stockholders has the full right,
power, legal capacity and authority to transfer and deliver the CMJ Stock
pursuant to this Agreement. The CMJ Stock has been duly authorized, validly
issued and is fully paid and non-assessable and free of preemptive rights. There
are no subscriptions, options, warrants, calls, rights, contracts, commitments,
agreements, understandings or arrangements to sell or issue any capital stock of
CMJ, including any right of conversion or exchange under any outstanding
security or other instrument, and no shares are reserved for issuance for any
purpose.
3
Section 2.3 Subsidiaries, etc. CMJ does not own (directly or
indirectly) any equity interest in any corporation, partnership, limited
liability company, joint venture, affiliate, association or other entity.
Section 2.4 Authority Relative to and Validity of this Agreement. CMJ
and the Stockholders have all requisite power, corporate or otherwise, and
authority to enter into this Agreement, to perform all of their obligations
hereunder and to consummate the transactions contemplated hereby without the
approval of any third party. The execution and delivery of this Agreement, the
performance by CMJ and the Stockholders of their respective obligations
hereunder and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of CMJ
including, without limitation, approval of CMJ's Board of Directors. There are
no corporate, contractual, statutory or other restrictions of any kind upon the
power and authority of CMJ or the Stockholders to execute and deliver this
Agreement and to consummate the transactions contemplated hereby and no action,
waiver or consent by any government or any agency, bureau, board, commission,
court, department, official, political subdivision, tribunal or other
instrumentality of any government, whether federal, state or local, domestic or
foreign (collectively, a "Governmental Entity") is necessary to make this
Agreement a valid instrument binding upon CMJ and the Stockholders in accordance
with its terms. This Agreement has been duly executed and delivered by CMJ and
the Stockholders, and constitutes the legal, valid and binding obligations of
CMJ and the Stockholders, enforceable against each such party in accordance with
its terms, except (i) as such enforceability may be limited by or subject to any
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, (ii) as such obligations are subject to
general principles of equity and (iii) as rights to indemnity may be limited by
federal or state securities laws or by public policy.
Section 2.5 No Conflict. The execution, delivery and performance of
this Agreement by CMJ and the Stockholders, and the consummation of the
transactions contemplated hereby (a) will not result in any violation of,
conflict with, constitute a breach, violation or default (with or without notice
or lapse of time, or both) under, give rise to a right of termination,
cancellation, forfeiture or acceleration of any obligation or loss of any
benefit under, or result in the creation or encumbrance on any of the properties
or assets of CMJ or the Stockholders pursuant to (i) any provision of CMJ's
Bylaws or Certificate of Incorporation or (ii) any agreement, contract,
understanding, note, mortgage, indenture, lease, franchise, license, permit or
other instrument to which CMJ or the Stockholders are a party or by which the
properties or assets of CMJ or the Stockholders are bound, or (b), conflict with
or result in any breach or violation of any statute, judgment, decree, order,
rule or governmental regulation applicable to CMJ or the Stockholders or their
respective properties or assets.
Section 2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, declaration of, or qualification or filing
with, any Governmental Entity, is required by or with respect to CMJ or the
Stockholders in connection with the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby, except
for such consents, approvals, orders, authorizations, registrations,
declarations, qualifications or filings as may be required under federal or
state securities laws in connection with the transactions contemplated hereby.
4
Section 2.7 Financial Statements. CMJ has delivered to SMI true,
correct and complete copies of its unaudited financial statements for the years
ended December 31, 2000 and 2001 (collectively, the "CMJ Financial Statements"),
a copy of which is attached hereto as Schedule 2.7. The CMJ Financial Statements
have been prepared in conformity with generally accepted accounting principles
("GAAP") and present fairly, in accordance with GAAP, the financial condition of
CMJ as at the respective dates thereof and the results of operations and cash
flows for the respective periods covered. Since December 31, 2001, CMJ has not
sold or otherwise disposed of or encumbered any of the properties or assets
reflected on the CMJ Financial Statements, or other assets owned or leased by
it, except in the ordinary course of business.
Section 2.8 Liabilities. CMJ has no liability, debt or obligation of
any nature (whether liquidated, unliquidated, direct, accrued, absolute,
contingent or otherwise, and whether due or to become due), except liabilities
that are (i) reflected on the CMJ Financial Statements, or (ii) were incurred in
the ordinary course of business and do not individually or in the aggregate
exceed $15,000.
Section 2.9 Absence of Certain Changes and Events. Since December 31,
2001, there has not been, with respect to CMJ, (a) any damage, destruction or
loss (whether or not covered by insurance) with respect to any assets or
properties; (b) any entry into any commitment or transaction (including, without
limitation, any borrowing or capital expenditure) other than commitments and/or
transactions (i) described in Schedule 2.9(a)(i), (ii) entered into in the
ordinary course of business in an amount not to exceed $15,000 in the aggregate
or (iii) as contemplated by this Agreement; (c) any transfer, assignment or sale
of, or rights granted under, any material leases, licenses, agreements, patents,
trademarks, trade names, copyrights or other assets other than those
transferred, assigned, sold or granted in the ordinary course of business and
consistent with past practice; (d) any mortgage, pledge, security interest or
imposition of any other encumbrance on any assets or properties except in the
ordinary course of business; (e) any payment of any liabilities of any kind
other than liabilities currently due; (f) any cancellation of any debts or
claims or forgiveness of amounts owed to CMJ; (g) any change in accounting
principles or methods (except insofar as may have been required by a change in
GAAP); (h) to the best of CMJ's and the Stockholders' knowledge and belief, any
change in any state or local law, rule or regulation applicable to or binding
upon the business of CMJ; (i) any dividend or distribution to the Stockholders;
or G) any increase in the compensation payable to any Stockholder or any
executive employee of CMJ. Since December 31, 2001, CMJ has conducted its
business only in the ordinary course and in a manner consistent with past
practice and has not made any material change in the conduct of its business or
operations.
Section 2.10 Taxes and Tax Returns.
(a) To the best of CMJ's and the Stockholders' knowledge and belief,
CMJ and any affiliated, consolidated, combined, unitary or similar group of
which it is or has been a member have filed or caused to be filed in a timely
manner all returns, declarations, reports, estimates, information returns and
statements with respect to Taxes (collectively, the "Tax Returns") required to
be filed under any United States federal, state or local or any foreign law
pertaining to Taxes and such Tax Returns are, in all material respects, true,
complete and correct. CMJ has paid, within the time and in the manner prescribed
by law or, alternatively, will pay in a
5
timely manner on or before the Closing Date, all Taxes required to be shown on
such Tax Returns. To the best of CMJ's and the Stockholders' knowledge and
belief, no claim has ever been made by an authority in a jurisdiction where CMJ
does not file Tax Returns that CMJ is or may be subject to taxation by that
jurisdiction. "Tax" or "Taxes" shall mean, collectively, all taxes, charges,
fees, levies or other assessments including, without limitation, all net income,
gross income, gross receipts, sales, use, value added, ad valorem, transfer,
franchise, profits, alternative (or add-on) minimum, license, withholding,
employment, environmental, payroll, disability, excise, estimated, severance,
stamp, occupation, property or other taxes, customs duties, fees, assessments or
charges of any kind whatsoever, whether computed on a consolidated, unitary,
combined, separate or any other basis, together with any interest and any
penalties, additions to tax or additional amounts imposed by any taxing
authority.
(b) To the best of CMJ's and the Stockholders' knowledge and belief,
CMJ has paid or accrued on its books and records amounts that are adequate for
the payment of all Taxes, whether or not required to be shown on any Tax Return,
not yet due and payable, including Taxes for any period that ends on or before
the Closing Date and for any period that begins before the Closing Date and ends
after the Closing Date to the extent such Taxes are attributable to the portion
of any such period ending on the Closing Date.
(c) To the best of CMJ's and the Stockholders' knowledge and belief,
CMJ has complied, in all material respects, with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes and has, within the
time and in the manner prescribed by law, withheld from employees and any other
third parties and paid over to the proper governmental authorities, all amounts
required to be so withheld and paid under all applicable laws.
(d) To the best of CMJ's and the Stockholders' knowledge and belief;
there are no outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns that have been given by CMJ and CMJ is not the beneficiary of any
extension to file any Tax Return.
(e) No federal, state, local or foreign audits or other administrative
or court proceedings are presently pending with regard to any Taxes or Tax
Returns of CMJ and, to the best of CMJ's and the Stockholders' knowledge and
belief, no deficiencies for any Taxes have been asserted against CMJ that have
not been resolved or paid in full. There are no tax liens or similar
encumbrances with respect to any of the assets of CMJ that arose in connection
with any failure (or alleged failure) to pay any Tax. No material issue is
currently being asserted by the Internal Revenue Service (the "IRS") or other
relevant taxing authority in any audit or examination of the Tax Returns of CMJ.
CMJ has not filed, with respect to any item, a disclosure statement pursuant to
Section 6662 of the Code, or any comparable disclosure with respect to federal,
state and/or local tax statutes.
(f) No currently effective power of attorney has been granted by CMJ
with respect to any matter relating to Taxes that is currently in force.
(g) CMJ has not at any time been included in a consolidated,
affiliated, combined, unitary or similar Tax Return nor was any such inclusion
required nor has any
6
liability on Taxes of any other person as a transferee, successor, by contract
or otherwise, been assessed against CMJ.
(h) CMJ's combined federal and state tax income liability for the
fiscal year ended December 31, 2001 shall not exceed $60,000.
Section 2.11 Title to Property.
(a) CMJ has good and marketable title to, or in the case of leased
assets and properties, valid leasehold interests in, all tangible real and
personal assets and property that it owns or leases or is used in the operation
of its business (collectively, the "Property"), free and clear of all liens,
claims and encumbrances of any nature, except those identified in the CMJ
Financial Statements. Schedule 2.11(a) sets forth a complete and accurate list
of all such owned or leased property including, without limitation, (i) all
inventory, machinery, equipment, tooling, parts, furniture, supplies, office
equipment, (ii) all leases of equipment or other property used in the conduct of
CMJ's business and (iii) all other owned or leased property. No financing
statement under the Uniform Commercial Code or any similar law naming CMJ as
debtor has been filed in any jurisdiction in respect of the Property, and
neither CMJ nor the Stockholders are a party to or bound under any agreement or
legal obligation authorizing a party to file any such financing statement,
except those financing statements that will be terminated at Closing.
(b) Each lease identified on Schedule 2.11(a) is valid and enforceable
in accordance with its terms, in all material respects, and is in full force and
effect. Except as set forth on Schedule 2.11(b), no consent or approval of any
landlord or other third party in connection with any such lease is necessary for
CMJ or the Stockholders to enter into and execute this Agreement and consummate
the transactions contemplated hereby. To the best of CMJ's and the Stockholders'
knowledge and belief, no other party to any lease is in default of its
obligations thereunder, and CMJ (or any other party to any such lease) has not
at any time delivered or received any notice of default which remains uncured
under any such lease and no event has occurred which, with the giving of notice
or the passage of time, or both, would constitute a default under any such
lease.
(c) All material items of equipment owned or leased by CMJ are in
adequate operating condition, regularly and properly maintained, subject to
normal wear and tear.
Section 2.12 Intellectual Property.
(a) CMJ owns, or holds adequate licenses or other legally enforceable
rights to use all patents, patent applications, trademarks, brand marks, service
marks, logos, brand names, domain names, trade names, copyrights, proprietary
software, know-how, trade secrets arising from any proprietary processes or any
similar proprietary intellectual property (collectively, the "CMJ Intellectual
Property") that are used in its business as it is presently being conducted. CMJ
owns or has the right to use, sell or license all CMJ Intellectual Property and
such CMJ Intellectual Property is believed to be sufficient for it to conduct
its business as it is currently being conducted. Schedule 2.12 hereto lists, as
may be applicable, each patent, patent right, patent application, trade name
registration, trademark application and/or registration, copyright application
and/or registration, domain name, source and object code owned or
7
possessed by CMJ. Such list specifies, as applicable: (i) the title of the
patent, trademark trade name, service ▇▇▇▇, copyright or application therefor;
(ii) the jurisdiction by or in which such patent, trademark, trade name, service
▇▇▇▇ or copyright exists and has been issued or registered or in which an
application has been filed, including the registration or application numbers;
and (iii) all Licenses (copies of which have been delivered to SMI). For the
purposes of this Agreement, "Licenses", collectively, means all licenses,
sub-licenses, agreements, permissions, undertakings and understandings pursuant
to which any third party is licensed or authorized to use any CMJ Intellectual
Property or pursuant to which CMJ is authorized to use any patents, trademarks,
trade secrets, service marks, trade names, copyrights, inventions, products and
processes under development, databases, drawings, designs, proprietary know-how
or information, other confidential information, or other rights with respect
thereto of any third party.
(b) The execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby will not constitute a
material breach of any instrument or agreement governing any CMJ Intellectual
Property, will not cause the forfeiture or termination or give rise to a right
of forfeiture or termination of any CMJ Intellectual Property or impair the
right of CMJ to use, sell or license any CMJ Intellectual Property or any
portion thereof.
(c) Neither the manufacture, marketing, license, sale or intended use
of any product currently licensed or sold by CMJ or currently under development
by CMJ violates any license or agreement between CMJ and any third party
relating to such product, nor infringes upon any intellectual property right of
any other party. There are no pending or, to the best of CMJ's and the
Stockholders' knowledge and belief, threatened claims or litigation contesting
the validity and ownership by CMJ or its right to use, sell, license or dispose
of any CMJ Intellectual Property, nor is there any basis for such a claim. CMJ
has not received any actual notice asserting that any CMJ Intellectual Property
or its proposed use, sale, license or disposition conflicts or will conflict
with the rights of any other party, nor is there any basis for such an
assertion.
(d) No current or prior officers, employees or consultants of CMJ have
asserted an ownership interest in any CMJ Intellectual Property as a result of
having been involved in the development of such property while employed by or
consulting to CMJ or otherwise.
Section 2.13 Legal Proceedings, Claims, Investigations, etc. There is
no legal, administrative, arbitration or other action or proceeding or
governmental investigation pending or, to the best of CMJ's and the
Stockholders' knowledge and belief, threatened, against CMJ (or any director,
officer or employee of CMJ) relating to the business or assets of CMJ. Neither
CMJ nor the Stockholders have been informed of, or have any actual knowledge of,
any violation of or default under, any laws, ordinances, regulations, judgments,
injunctions, orders or decrees (including without limitation, any immigration
laws or regulations) of any court, governmental department, commission, agency,
instrumentality or arbitrator applicable to CMJ or it business. CMJ is not
currently subject to any judgment, order, injunction or decree of any court,
arbitration authority, administrative agency or other Governmental Entity.
8
Section 2.14 Insurance. Schedule 2.14 hereto sets forth a list and
brief description of all existing insurance policies maintained by CMJ
pertaining to its business properties, personnel and assets. CMJ is not in
default with respect to any provision contained in any insurance policy, and has
not failed to give any notice or present any claim under any insurance policy in
a timely fashion. Copies of all such policies have been delivered to SMI. All
such policies are in full force and effect and following the Closing Date will
continue to be in full force and effect to the extent as may be paid for by SMI.
All payments with respect to such policies are current and will remain so up to
the Closing Date. CMJ has not received any notice threatening a suspension,
revocation, modification or cancellation of any such policy.
Section 2.15 Material Contracts. Schedule 2.15 sets forth a complete
and accurate list, as of the Closing Date, of all contracts or agreements to
which CMJ is a party (collectively, the "Contracts"). Any purchase order,
written or oral, in receipt of CMJ requiring the provision by CMJ of products or
services, the value of which exceeds $2,000 constitutes a Contract. Copies of
all written contracts and a description of the terms of all other oral contacts
to which CMJ is a party, including any and all amendments and modifications
thereto, have been delivered to SMI prior to the date hereof. Each of the
Contracts is valid and binding, in full force and effect and enforceable against
the parties thereto in accordance with its provisions. CMJ has not assigned,
mortgaged, pledged, encumbered, or otherwise hypothecated any of its right,
title or interest under any of the Contracts. To the best of CMJ's and the
Stockholders' knowledge and belief, neither CMJ nor any other party thereto is
in violation of, in default in respect of, nor has there occurred an event or
condition which, with the passage of time or giving of notice (or both), would
constitute a violation of, or a default under any Contract. No written or oral
notice has been received by either CMJ or the Stockholders claiming any default
by CMJ of, or indicating the desire or intention of any other party thereto to
amend, modify, rescind or terminate, any Contract.
Section 2.16 Inventories. All inventories reflected in the CMJ
Financial Statements are stated at the lower of cost or market on a
first-in-first-out basis in accordance with GAAP, with adequate reserves for
obsolete, obsolescent and slow moving items consistently applied in conformity
with past practices. Schedule 2.16 contains a true and complete list of all
inventory (including work in progress) of CMJ as of December 31, 2001. All
inventory of CMJ is in good and marketable condition and otherwise fit for sale
unless otherwise designated as obsolete in Schedule 2.16. Since December 31,
2001, none of such Inventory has been sold or otherwise disposed of except in
the ordinary course of business. On the Closing Date, SMI, in its sole
discretion, will determine whether CMJ will have inventory sufficient in
quantity, type and quality for the conduct of its business in accordance with
past practice.
Section 2.17 Customers. Except as set forth on Schedule 2.17, there
are no pending or, to the best of CMJ's and the Stockholders' knowledge and
belief, threatened disputes between CMJ and any of its locations, vendors,
suppliers, customers or other parties that in any way relate to the operation of
the business of CMJ. Schedule 2.17 lists all locations, vendors, suppliers,
customers or other parties that have commercial dealings with CMJ and relate to
the business of CMJ, and a description of the nature of such dealings.
Section 2.18 Accounts Receivable. All accounts receivables of CMJ have
arisen from bona fide transactions by CMJ in the ordinary course of business and
are, to the best
9
of CMTs and the Stockholders' knowledge and belief, deemed collectible by CMJ in
the ordinary course of business (without, however, CMJ giving any warranty to
SMI as to any extent of collectability whatsoever). Except as set forth on
Schedule 2.18, there are no defenses, claims of disabilities, offsets, refusals
to pay or other rights of offset against any such accounts receivable. Any
allowances that CMJ has established specifically for doubtful accounts have been
established on a basis consistent with CMJ's prior practice, credit experience
and GAAP consistently applied. CMJ has delivered to SMI a complete and accurate
aging list of all accounts receivables of CMJ as of December 31, 2001.
Section 2.19 Certain Transactions. Except as set forth on Schedule
2.19, none of the Stockholders, officers, directors or employees of CMJ, nor any
member of any such person's or Stockholder's family is presently a party to any
transaction with CMJ relating to the business of CMJ, including without
limitation, any contract, agreement or other arrangement (i) providing for the
furnishing of services by, (ii) providing for the rental of real or personal
property from, or (iii) otherwise requiring payments to (other than for services
as officers, directors or employees of CMJ), any such person or any corporation,
partnership, trust or other entity in which any such person has a substantial
interest as a stockholder, officer, director, trustee or partner.
Section 2.20 Broker. No broker, finder or investment banker is
entitled to any brokerage, finder's or similar fees or other commissions in
connection with the transactions contemplated hereby, based on the arrangements
made by or on behalf of CMJ or the Stockholders.
Section 2.21 Environmental Matters.
(a) Except as set forth on Schedule 2.21, CMJ is not the subject of,
or, to the best of CMJ's and the Stockholders' knowledge and belief, being
threatened to be the subject of (i) any enforcement proceeding, or (ii) any
investigation, brought in either case under any federal, state or local
environmental law, rule, regulation, or ordinance at any time in effect or (iii)
any third party claim relating to environmental conditions on or off the
properties of CMJ. CMJ has not been notified that it must obtain any permits or
licenses or file documents for the operation of its business under federal,
state and local laws relating to pollution protection of the environment.
Neither CMJ nor the Stockholders have been notified of any conditions on or off
the properties of CMJ that would give rise to any material liabilities, known or
unknown, under any federal, state or local environmental law, rule, regulation
or ordinance, or as the result of any claim of any third party. For the purposes
of this Section 2.22, an investigation shall include, but is not limited to, any
written notice received by CMJ or the Stockholders that relates to the onsite or
offsite disposal, release, discharge or spill of any waste, waste water,
pollutant or contaminants.
(b) To the best of CMJ's and the Stockholders' knowledge and belief,
there are no toxic wastes or other toxic or hazardous substances or materials,
pollutants or contaminants that CMJ (or any previous occupant of the facilities
of CMJ) has used, stored or otherwise held in or on any of the facilities of
CMJ, that are present at or have migrated from CMJ's facilities, whether
contained in ambient air, surface water, groundwater, land surface or subsurface
strata. The facilities of CMJ have been maintained by CMJ in compliance with all
environmental
10
protection, occupational, health and safety or similar laws, ordinances,
restrictions, licenses, and regulations. CMJ has not disposed of or arranged (by
contract, agreement or otherwise) for the disposal of any material or substance
that was generated or used by CMJ at any off-site location that has been or is
listed or, to the best of CMJ's and the Stockholders' knowledge and belief,
proposed for inclusion on any list promulgated by any Governmental Entity for
the purpose of identifying sites which pose a danger to health and safety. There
have been no environmental studies, reports and analyses made or prepared in the
last five years relating to the facilities of CMJ. CMJ has not installed any
underground storage tanks in any of its facilities and none of such facilities
contains any underground storage tanks.
Section 2.22 Illegal Payments. Neither CMJ nor the Stockholders have,
directly or indirectly, paid or delivered any fee, commission or other sum of
money or item of property, however characterized, to any finder, agent,
government official or other party, in the United States or any other country,
which is in any manner related to the business or operations of CMJ, that the
Stockholders know or have reason to believe to have been illegal under any
federal, state or local laws or the laws of any other country having
jurisdiction. CMJ has not participated, directly or indirectly, in any boycotts
affecting any of its actual or potential customers.
Section 2.23 Licenses. To the best of CMJ's and the Stockholders'
knowledge and belief, CMJ is the holder of all federal, state and local
licenses, permits and approvals required to conduct its business as it is
presently being conducted. All such licenses are in good standing, valid and
effective, and free and clear of any liens, conditions or restrictions which
might limit their full utilization as authorized by any Governmental Entity.
Schedule 2.23 lists each License so held and its date of expiration.
Section 2.24 Compliance with Law. To the best of CMJ's and the
Stockholders' knowledge and belief, CMJ has complied in all respects with all
laws, rules, regulations, arbitral determinations, orders, writs, decrees and
injunctions that are applicable to or binding upon CMJ, its business and
properties, and neither CMJ nor the Stockholders have received any notice or
have any knowledge of any violations thereof.
Section 2.25 Labor Matters. Neither CMJ nor the Stockholders have
received any notice from any labor union or group that it represents or intends
to represent the employees of CMJ. CMJ has complied in all material respects
with all applicable laws affecting employment and employment practices, terms
and conditions of employment and wages and hours. CMJ has not received any
notice of and there are no complaints against it pending or, to the best of
CMJ's and the Stockholders' knowledge and belief, threatened, before the
National Labor Relations Board, the Equal Employment Opportunity Commission, any
state or local Human Rights Commission or any other state or local agency in
respect of labor or employment matters. No labor strike, material dispute,
slowdown or stoppage has occurred with respect to the employees of CMJ and there
is no labor strike, material dispute, slowdown or stoppage pending or, to the
best of CMJ's and the Stockholders' knowledge and belief, threatened with
respect to its employees. There are no pending grievances or arbitration
proceedings against CMJ with respect to the operation of its business.
Section 2.26 Books of Account; Records. The general ledgers, books of
account and other records of CMJ in respect of its business are complete and
correct in all
11
material respects and have been maintained in accordance with good business
practices and on a consistent basis from period to period reflected therein.
Section 2.27 Investments in Competitors. Neither the Stockholders nor
any of their affiliates own, directly or indirectly, any interests or have any
investment in any person that is a competitor of CMJ other than the securities
of any issuer that are listed for trading on a national securities exchange or
are traded in the over-the-counter market which do not, in the case of any
Stockholder, constitute more than 2.0% of the total amount of such securities
that are outstanding.
ARTICLE III
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
In addition to those representations made by the Stockholders in
Article II, the Stockholders, jointly and severally, also represent and warrant
to SMI and Merger Sub as of the date hereof as follows:
Section 3.1 Investment Representations.
(a) The Stockholders are acquiring the Merger Consideration solely for
their own account as an investment and not with a view to any distribution or
resale thereof within the meanings of such terms under the Securities Act of
1933, as amended (the "Securities Act").
(b) Each of the Stockholders has such knowledge, experience and skill
in business and financial matters that each of the Stockholders is capable of
evaluating the merits and risks of an investment in the Merger Consideration.
(c) Each of the Stockholders (i) has received all information that
each of the Stockholders deems reasonably necessary to make an informed
investment decision with respect to an investment in the Merger Consideration;
(ii) has had the opportunity to make such investigation as each of the
Stockholders desires regarding SMI and an investment therein and (iii) has had
the opportunity to ask questions of representatives of SMI concerning SMI.
(d) Each of the Stockholders understands that he or she must bear the
economic risk of an investment in SMI for an uncertain period of time because
(i) the Merger Consideration has not been registered under the Securities Act
and applicable state securities laws and (ii) the Merger Consideration may not
be sold, transferred or otherwise disposed of without registration under the
Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the Merger Consideration or an
available exemption from registration under the Securities Act, the Merger
Consideration must be held indefinitely. In particular, each Stockholder is
aware that the Merger Consideration may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of that Rule
are met. In this connection, each Stockholder represents that he or she
understands that under Rule 144, the Merger Consideration must be held for at
least one year after purchase thereof from SMI prior to resale (two years in the
absence of public current information about SMI) and that, under certain
circumstances, the conditions for use of Rule 144 include the availability of
public current information about SMI, that sales be effected through a "broker's
12
transaction" or in transactions with a "market maker," and that the number of
shares being sold not exceed specified limitations. Such public current
information about SMI for purposes of Rule 144 is presently not available, and
may not be publicly available in the future.
(e) Each Stockholder understands that the certificates evidencing the
Merger Consideration may bear one or all of the following legends:
(i) "The shares represented by this certificate have not been
registered under the United States Securities Act of 1933. They
may not be sold, offered for sale, pledged, hypothecated or
otherwise transferred in the absence of a registration statement
in effect with respect to such shares under such Act or an opinion
of counsel or other evidence satisfactory to Sporting Magic, Inc.
and its counsel that such registration is not required."
(ii) Any legend required by any other jurisdiction.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SMI AND MERGER SUB
Each of SMI and Merger Sub, jointly and severally, hereby represent
and warrant to each of CMJ and the Stockholders as of the date hereof as
follows:
Section 4.1 Corporate Organization. SMI, Merger Sub and Next are
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware and have all necessary corporate power and
authority to own, operate and lease their properties and to carry on their
business as the same are now being conducted.
Section 4.2 Authority. SMI and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to perform their
obligations hereunder and consummate the transactions contemplated hereby. The
execution and delivery of this Agreement, the performance by SMI and Merger Sub
of their obligations hereunder and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of SMI and Merger Sub. This Agreement is a valid
and binding obligation of SMI and Merger Sub, enforceable against them in
accordance with its terms, except (i) as such enforceability may be limited by
or subject to any bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally, (ii) as such obligations are
subject to general principles of equity and (iii) as rights to indemnity may be
limited by federal or state securities laws or by public policy.
Section 4.3 Capitalization. The authorized capital stock of SMI
consists of 25,000,000 shares of SMI Common Stock, of which 9,489,225 shares are
issued and outstanding. In addition, SMI is obligated to issue, upon the
occurrence of certain events, 80,435 shares of SMI Preferred Stock. The issued
and outstanding SMI Common Stock has been duly authorized, validly issued and is
fully paid and nonassessable and free of preemptive rights. Except as set forth
on Schedule 4.3 hereto, there are no subscriptions, options, warrants, calls,
rights, contracts, commitments, understandings, restrictions or arrangements of
any kind relating to any shares of
13
either SMI Common Stock or SMI Preferred Stock, and there are no voting trusts,
buy-sell agreements or other agreements or understandings of any kind with
respect to either of SMI Common Stock or SMI Preferred Stock. When issued, the
Merger Consideration shall be duly issued, fully paid, and non-assessable and
comprise 23.3% and 4.3%, respectively, of the aggregate SMI Common and Preferred
Stock issued to ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and the ▇▇▇▇▇▇▇ ▇. III and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Living Trust (together, the "Next Stockholders") pursuant to
that certain Exchange Agreement, dated as of December 21, 2001 and as amended on
January 18, 2002 and February 1, 2002, by and among, SMI, ▇▇▇▇▇ ▇▇▇▇▇ and the
Next Stockholders. The authorized capital stock of Merger Sub consists of 1,000
shares of common stock, par value $0.001 per share, of which 100 shares are
validly issued and outstanding and owned solely by SMI. Merger Sub was formed
solely for the purpose of participating in the Merger, has no assets other than
that amount of cash that is required for it to be organized as a corporation
under Delaware Law and has conducted no activities other than in connection with
its incorporation.
Section 4.4 SMI and Next Financial Statements. SMI has delivered to
CMJ and the Stockholders, true, correct and complete copies of its audited
financial statements for the year ended August 31, 2001 and unaudited financial
statements for the three month period ended November 30, 2001 (collectively, the
"SMI Financial Statements"). Next has delivered to CMJ and the Stockholders,
true, correct and complete copies of its unaudited financial statement for the
year ended November 30, 2001 (the "Next Financial Statements", and together with
the SMI Financial Statements referred to collectively as the "Joint Financial
Statements"). The Joint Financial Statements have been prepared in accordance
with GAAP, and fairly present, in accordance with GAAP, the financial condition
of each of SMI and Next, as the case may be, as at the respective dates thereof,
and the results of operations and cash flows of SMI and Next, as the case may
be, for the periods covered. At November 30, 2001, there were no material
liabilities, absolute or contingent of SMI and Next, that were not shown or
reserved against on the balance sheets as of such date included in the Joint
Financial Statements, except obligations under the contracts set forth therein.
Since November 30, 2001, SMI and Next have not sold or otherwise disposed of or
encumbered any of the properties or assets reflected on the Joint Financial
Statements as of such date, or other assets owned or leased by them, except in
the ordinary course of business.
Section 4.5 Governmental Consents. No consent, approval, order or
authorization of; or registration, declaration of, or qualification or filing
with, any Governmental Entity is required by or with respect to SMI or Merger
Sub in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for the filing of
the Merger Documents and such consents, approvals, orders, authorizations,
registrations, declarations, qualifications or filings as may be required under
federal or state securities laws in connection with the transactions set forth
herein.
Section 4.6 No Conflicts, Absence of Defaults, No Third Party Consent
Required. The execution, delivery and performance of this Agreement by either
SMI or Merger Sub, and the consummation of the transactions contemplated hereby
will not (a) result in any violation of, conflict with, constitute a breach,
violation or default (with or without notice or lapse of time, or both) under,
give rise to a right of termination, cancellation, forfeiture or acceleration of
any obligation or loss of any benefit under, or result in the creation or
14
encumbrance on any of the properties or assets of SMI or Merger Sub pursuant to
(i) any provision of SMI's or Merger Sub's Bylaws or Certificate of
Incorporation or (ii) any agreement, contract, understanding, note, mortgage,
indenture, lease, franchise, license, permit or other instrument to which SMI or
Merger Sub is a party or by which the properties or assets of SMI or Merger Sub
are bound, (b) conflict with or result in any breach or violation of any
statute, judgment, decree, order, rule or governmental regulation applicable to
SMI, Merger Sub or their properties or assets, or (c) will require the consent
of any third party.
Section 4.7 Legal Proceedings, Claims, Investigations, etc. There is
no material legal, administrative, arbitration or other action or proceeding or
governmental investigation pending, or to the best of knowledge of SMI, Merger
Sub and Next, threatened, against SMI, Merger Sub or Next (or any director,
officer, agent, representative and/or employee of SMI, Merger Sub or Next)
relating to the business or assets of SMI, Merger Sub or Next. SMI, Merger Sub
and Next have not been informed of any violation of or default under, any laws,
ordinances, regulations, judgments, injunctions, orders or decrees (including
without limitation, any immigration laws or regulations) of any court,
governmental department, commission, agency, instrumentality or arbitrator
applicable to SMI, Merger Sub or Next or their respective businesses. SMI,
Merger Sub and Next are not currently subject to any judgment, order, injunction
or decree of any court, arbitral authority, administrative agency or other
governmental authority.
Section 4.8 SEC Documents. SMI has furnished to CMJ and each
Stockholder complete and accurate copies of the following documents
(collectively, "SMI's SEC Filings") that have been filed with the United States
Securities and Exchange Commission (the "SEC") under the United States
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder (the "Exchange Act"): SMI's Annual Report on Form 10-KSB for the year
ended August 31, 2001, SMI's Quarterly Report on Form 10-QSB for the quarter
ended November 30, 2001 and SMI's Proxy Statement for its action to be taken by
written consent in lieu of a meeting of stockholders dated June 1, 2002. Except
as set forth on Schedule 4.8, as of their respective filing dates, SMI's SEC
Filings complied in all material respects with the requirements of the Exchange
Act and, as of their respective filing dates, SMI's SEC Filings did not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
Section 4.9 Broker. Except as set forth on Schedule 4.9, no broker,
finder or investment banker is entitled to any brokerage, finder's or similar
fees or other commissions in connection with the transactions contemplated
hereby, based on the arrangements made by or on behalf of SMI or Merger Sub.
Section 4.10 Taxes and Tax Returns.
(a) To the best of SMI's knowledge and belief, SMI and any of its
affiliated, consolidated, combined, unitary or similar group of which it is or
has been a member has filed or caused to be filed in a timely manner all Tax
Returns required to be filed under any United States federal, state or local or
any foreign law pertaining to Taxes and such Tax Returns are, in all material
respects, true, complete and correct.
15
(b) To the best of SMI's knowledge and belief, SMI has paid and/or
accrued on its books and records amounts that are adequate for the payment of
all Taxes, whether or not required to be shown on any Tax Return, not yet due
and payable, including Taxes for any period that ends on or before the Closing
Date and for any period that begins before the Closing Date and ends after the
Closing Date to the extent such Taxes are attributable to the portion of any
such period ending on the Closing Date.
(c) To the best of SMI's knowledge and belief, SMI has complied, in
all material respects, with all applicable laws, rules and regulations relating
to the payment and withholding of Taxes and has, within the time and in the
manner prescribed by law, withheld from employees and any other third parties
and paid over to the proper governmental authorities, all amounts required to be
so withheld and paid under all applicable laws.
(d) To the best of SMI's knowledge and belief, there are no
outstanding waivers or comparable consents regarding the application of the
statute of limitations with respect to any Taxes or Tax Returns that have been
given by SMI and SMI is not the beneficiary of any extension to file any Tax
Return.
(e) No federal, state, local or foreign audits or other administrative
or court proceedings are presently pending with regard to any Taxes or Tax
Returns of SMI and, to the best of SMI's knowledge and belief, no deficiencies
for any Taxes have been asserted against SMI that have not been resolved or paid
in full.
(f) No currently effective power of attorney has been granted by SMI
with respect to any matter relating to Taxes that is currently in force.
(g) SMI has not at any time been included in a consolidated,
affiliated, combined, unitary or similar Tax Return nor was any such inclusion
required nor has any liability on Taxes of any other person as a transferee,
successor, by contract or otherwise, been assessed against SMI.
ARTICLE V
COVENANTS OF THE PARTIES PRIOR TO CLOSING
Section 5.1 Access. The Stockholders shall and shall cause CMJ to
authorize and permit SMI and its representatives, including its independent
accountants, financial advisers, agents and counsel to have reasonable access
during normal business hours, upon reasonable notice and in such manner as will
not unreasonably interfere with the conduct of CMJ's business, to all of CMJ's
properties, books, records, operating instructions and procedures and all other
information with respect to the business of CMJ as SMI may from time to time
request, and to make copies of such books, records and other documents and to
discuss the business with CMJ's directors and officers, in each case, as is
reasonably necessary or appropriate for the purposes of familiarizing itself
with CMJ and with obtaining any necessary approvals of or permits for the
transactions contemplated by this Agreement; provided, however, that CMJ shall
not be required to provide SMI or its representatives with access to any
information or materials required to be kept confidential pursuant to agreements
with third parties or by a provision, statute, ordinance, judicial order or
other law, rule or regulation.
16
Section 5.2 Conduct of Business. During the period beginning on the
date hereof and ending on the Closing Date, the Stockholders shall not and shall
cause CMJ not to, without the prior written consent of SMI, which consent shall
not be unreasonably withheld or delayed:
(a) conduct its business in any manner except in the ordinary course;
(b) terminate, or fail to renew or preserve, any material license,
permit, franchise, certificate of authority, or order, or any waiver of the
foregoing, required to be issued by any Governmental Entity;
(c) make any loan, guaranty or other extension of credit, or enter
into any commitment to make any loan, guaranty or other extension of credit, to
or for the benefit of any director, officer, employee, stockholder or any of
their respective affiliates;
(d) grant any general or uniform increase in the rates of pay or
benefits to officers, directors or employees (or a class thereof), or any
increase in salary or benefits of any officer, director or employee or pay any
bonus to any person in excess of $2,500;
(e) terminate, transfer or hire any additional employees or
consultants;
(f) sell, transfer, mortgage, encumber or otherwise dispose of any
assets or properties except dispositions of inventory in the ordinary course of
business consistent with past practices and other dispositions of assets not to
exceed $10,000 in the aggregate in the ordinary course of business consistent
with past practices;
(g) issue, grant, sell, redeem or acquire for value, or agree to
issue, sell, redeem or acquire for value, or amend or modify, any equity
securities or debt obligations of CMJ;
(h) change or amend its Certificate of Incorporation or Bylaws;
(i) terminate, amend or fail to use its commercially reasonable
efforts to renew any existing insurance coverage;
(j) other than in the ordinary course of business and consistent with
past practice, voluntarily incur or agree to incur any obligation or liability
(absolute or contingent) that individually or in the aggregate calls for payment
by CMJ or the Stockholders of more than $10,000;
(k) make any material investment, by purchase, contributions to
capital, property transfers, or otherwise, in any association, corporation,
limited liability company, individual, partnership, trust or any other entity or
organization (collectively, a "Person");
(1) other than as expressly provided herein, make any Tax election or
make any change in any method or period of accounting or in any accounting
policy, practice or procedure;
(m) dispose of or fail to preserve any CMJ Intellectual Property,
trade secrets or any rights to the use thereof, or
(n) agree to or make any commitment to take any actions prohibited by
this
Section 5.3 Preservation of Business Prior to Closing Date. During the
period beginning on the date hereof and ending on the Closing Date, (a) CMJ and
the Stockholders shall and shall cause CMJ to use its commercially reasonable
efforts to preserve its business and to preserve the goodwill of customers,
suppliers and others having business relations with CMJ and (b) CMJ and the
Stockholders shall consult with SMI concerning, and CMJ and the Stockholders
shall use commercially reasonable efforts to cooperate with SMI, in connection
with SMI's efforts to keep the services of the officers and employees of CMJ
that SMI may wish CMJ to retain. Except as set forth in Section 8.4 hereof,
nothing in this Section 5.3 shall obligate SMI or CMJ after the Closing to
retain or offer employment to any officer or employee of CMJ.
Section 5.4 Exclusivity.
(a) Unless SMI or Merger Sub is in breach of this Agreement prior to
the Closing, and such breach has not been cured within 15 days of CMJ or the
Stockholders providing SMI with written notice of such breach, the Stockholders,
CMJ and any of the directors, officers, employees, representatives or agents of
CMJ shall not, directly or indirectly, (i) discuss, negotiate, undertake,
authorize, recommend, propose or enter into, either as the proposed surviving,
merged, acquiring or acquired corporation, any transaction involving a merger,
consolidation, business combination, purchase or disposition of any amount of
assets or capital stock or other equity interest in CMJ other than the
transactions contemplated by this Agreement (an "Acquisition Transaction"), (ii)
facilitate, encourage, solicit or initiate discussions, negotiations or
submissions of proposals or offers in respect of an Acquisition Transaction,
(iii) furnish or cause to be furnished, to any Person any information concerning
the business operations, properties or assets of CMJ in connection with an
Acquisition Transaction, or (iv) otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
Person to do or seek any of the foregoing. The Stockholders will inform SMI in
writing immediately following the receipt by the Stockholders, CMJ or any CMJ
representative of any proposal or inquiry with respect to any Acquisition
Transaction.
(b) Should the parties hereto fail to consummate the Closing as a
direct or indirect result of any breach, whatsoever, of the covenants contained
in this Section 5.4, CMJ and the Stockholders, jointly and severally, agree to
reimburse SMI and Merger Sub for all costs and expenses actually incurred by SMI
and Merger Sub in furtherance of the transactions contemplated by this Agreement
unless SMI or Merger Sub is in breach of this Agreement.
Section 5.5 Reasonable Efforts. Subject to the terms and conditions of
this Agreement, each of the parties hereto shall use all commercially reasonable
efforts to take promptly, or cause to be taken promptly, all actions, and to do
promptly, or cause to be done promptly all things reasonably necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated hereby, to obtain all necessary waivers,
consents and approvals, to effect all necessary registrations and filings and to
remove any injunctions or other impediments or delays, legal or otherwise, in
order to
17
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement.
Section 5.6 Conduct, Notification of Certain Matters. Each of SMI,
Merger Sub, CMJ and the Stockholders shall use all commercially reasonable
efforts not to take, or fail to take, any action that from the date hereof
through the Closing would cause or constitute a breach of any of its respective
representations, warranties, agreements and covenants set forth in this
Agreement. The Stockholders and CMJ shall give prompt written notice to SMI, and
SMI shall give prompt written notice to CMJ and the Stockholders of (a) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which causes or is likely to cause any representation or warranty of the
Stockholders or CMJ, on the one hand, or SMI and/or Merger Sub, on the other
hand, contained in this Agreement to be untrue or inaccurate in any material
respect at or prior to the Closing and (b) any failure of the Stockholders, CMJ,
SMI or Merger Sub, as the case may be, to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.6 shall not limit or otherwise affect the other party's right to
rely on the representations and warranties herein or any the other remedies
available to the party receiving such notice.
ARTICLE VI
ADDITIONAL CONTINUING COVENANTS
Section 6.1 Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses regardless of the termination of
this Agreement or the failure to consummate the transactions contemplated
hereby.
Section 6.2 Taxes.
(a) Without the prior written consent of SMI, which consent shall not
be unreasonably withheld or delayed, neither the Stockholders nor CMJ, or any
affiliate of CMJ or the Stockholders shall, to the extent it may affect or
relate to CMJ, make or change any tax election, change any annual tax accounting
period, adopt or change any method of tax election, change any annual accounting
period, adopt or change any method of tax accounting, file any amended Tax
Return, enter into any closing agreement, settle any Tax claim or assessment,
surrender any right to claim a Tax refund, consent to any extension or waiver of
the limitation period applicable to any Tax claim or assessment or take or omit
to take any other action, if any such action or omission would have the effect
of materially increasing the Tax liability or reducing any Tax Asset of CMJ, SMI
or any affiliate of SMI.
(b) For purposes of this Agreement, "Tax Asset" shall mean any net
operating loss, net capital loss, investment tax credit, or any other credit or
tax attribute which could reduce Taxes (including, without limitation,
deductions and credits related to alternative minimum taxes).
18
(c) For purposes of this Agreement, "Tax Liability" shall mean any net
operating income, net capital income, or any other debit or tax attribute which
could increase Taxes (including, without limitation, additions and debits
related to alternative minimum taxes).
(d) Any and all existing tax sharing agreements or arrangements,
written or unwritten, binding CMJ, shall be terminated as of the Closing Date.
After the Closing Date, CMJ shall not have any rights or liabilities thereunder.
Section 6.3 Public Disclosure. All public announcements, statements
and press releases concerning the transactions contemplated by this Agreement
shall be mutually agreed upon by CMJ and SMI in writing before the issuance or
the making thereof and, subject to the advice of counsel, no party shall issue
any such press releases or make any such public statement prior to such mutual
agreement, except as may be required by law (including federal securities laws).
Notwithstanding the foregoing, the parties hereto acknowledge that SMI may be
required to describe transactions contemplated by this Agreement and/or file a
copy of this Agreement, including all exhibits and schedules hereto, with the
Securities and Exchange Commission in connection with related disclosure
obligations under applicable securities laws.
Section 6.4 Additional Documents and Further Assurances. At, and from
time to time after the date first written above, at the request and expense of
SMI but without further consideration, CMJ and the Stockholders shall execute
and deliver such other instruments of conveyance, assignment, transfer, and
delivery and take such other action as SMI reasonably may request in order to
more effectively convey, transfer, assign and deliver to the Surviving
Corporation, and to place the Surviving Corporation in possession and control
of, any of the rights, properties, assets and business intended to be sold,
conveyed, transferred, assigned and delivered hereunder, or to assist in the
collection or reduction to possession of any and all of such rights, properties,
and assets or to enable the Surviving Corporation to exercise and enjoy all
rights and benefits of CMJ or the Stockholders with respect thereto.
Section 6.5 Blue Sky Laws. SMI, Merger Sub and CMJ shall take such
steps as may be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable to the issuance of the Merger Consideration
and/or the conversion of the CMJ Stock. The parties hereto shall use all
reasonable efforts to assist each other in complying with all applicable
securities and blue sky laws.
Section 6.6 Confidentiality, Non-Competition.
(a) In the course of operation of the business of all parties, all
parties shall have received, and will continue to receive, information that
gives the other parties an advantage over its competitors, and which is
confidential and proprietary, relating to each parties' respective names and
preferences of customers, the costs and profits of particular lines, products
and markets, technological data, computer programs, know-how, potential
acquisitions, sources of financing, corporate operating and financing
strategies, expansion plans and similar related information (collectively, the
"Confidential Material"). At no time during the period commencing on the date
first written above shall any party to this Agreement, whether individually, or
jointly with others, for the benefit of himself, herself or any third party,
publish, disclose, use, or authorize anyone else to publish, disclose, or use
any Confidential Material of
19
the other parties; provided, however, that any such Confidential Material may be
disclosed only as required by law (by oral questions, interrogatories, requests
for information or documents, subpoena, civil investigative demand, or any
informal or formal investigation by any Governmental Entity). In the event that
any party is requested pursuant to, or is required by, applicable law or
regulation or by legal process to disclose any Confidential Material, such party
shall promptly notify the other parties of any anticipated disclosure obligation
and cooperate with the other parties, at such other parties' expense, in its
efforts to seek an appropriate protective order or other reliable assurance that
confidential treatment will be accorded to that portion of the Confidential
Material that is required to be disclosed. The parties acknowledge that any
disclosure of any Confidential Material would cause material and irrevocable
harm to the other parties and their respective business.
(b) In addition to, and without limitation of, the terms and
conditions set forth in the Employment Agreements (as defined in Section 8.4),
▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ hereby acknowledge and recognize the highly
competitive nature of the business of SMI and its affiliates and, accordingly,
agree that, in consideration for the Merger Consideration to be received by them
in connection with the consummation of the transactions contemplated herein, and
for other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, and to induce SMI to enter into this Agreement, neither
they, nor any of their affiliates, shall, from and after the Closing until the
fifth anniversary thereof, individually or jointly with others, directly or
indirectly, own, manage, operate, join, control, participate in, invest in, or
otherwise be connected with, in any manner, whether as an officer, director,
employee, partner, investor or otherwise, any business entity that is engaged or
otherwise involved in any business similar to the business of SMI, Next, CMJ, or
any affiliates thereof, whether through ownership, leasing or other operations,
or operate any businesses under a name using any derivative of the name
"Sporting Magic," "Next" or "CMJ Ventures," without first obtaining the prior
written consent of SMI, which may be withheld for any reason, or no reason, in
the sole discretion of SMI; provided, however, that such provision shall not
apply to the ownership by ▇▇▇▇ ▇▇▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇▇, solely as a passive
investment, of the securities of any issuer that are listed for trading on a
national securities exchange or are traded in the over-the-counter market which
do not, in the case of ▇▇▇▇ ▇▇▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇▇, constitute more than 2.0% of
the total amount of such securities that are outstanding.
(c) It is the desire and intent of the parties that the foregoing
provisions of this Section 6.6 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision of this
Section shall be adjudicated to be invalid or unenforceable, such provision
shall be deemed amended to delete therefrom the portion thus adjudicated to be
invalid or unenforceable, with such deletion only to apply with respect to the
operation of such provision of this Section 6.6 in the particular jurisdiction
in which such adjudication is made. In addition, in the event of a breach or
threatened breach by any Stockholder of any of the provisions of this Section
6.6, SMI and the Surviving Corporation shall be entitled to an injunction
restraining them, him or her, as the case may be, from such breach. Nothing
contained herein shall be construed as prohibiting SMI or the Surviving
Corporation from pursuing any other remedies available for such breach or
threatened breach.
20
Section 6.7 Reorganization. None of the parties hereto shall knowingly
take or fail to take any action, which action or failure would jeopardize the
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code, whether prior to or after the Closing.
Section 6.8 Lock-Up Agreements. For a period commencing on the Closing
Date hereof and terminating on the two year anniversary of the Closing Date,
each of the Stockholders shall enter into lock-up agreements with SMI,
substantially similar in form to any lock-up agreement entered into by all
stockholders of SMI that beneficially own 5% or more of all the outstanding SMI
Common Stock on the date of such lock-up agreements.
Section 6.9 Stockholder Rights. For a period commencing on the Closing
Date hereof and terminating on the two (2) year anniversary of the Closing Date
(the "Rights Period"), SMI shall grant each of the Stockholders, with respect to
the shares of SMI Common Stock and SMI Preferred Stock being acquired by the
Stockholders hereunder, rights on substantially similar terms to any such rights
granted by SMI to the Next Stockholders during the Rights Period.
ARTICLE VII
CONDITIONS TO THE CLOSING
The obligations of the parties to effect the Closing shall be subject
to the following conditions unless waived in writing by each of the parties
hereto:
Section 7.1 Illegality. There shall not have been any statute, rule or
regulation enacted, promulgated or deemed applicable to the transactions
contemplated by this Agreement by any Governmental Entity that prevents the
consummation of the Closing or that has the effect of making the conversion of
the CMJ Stock and/or transfer of the SMI Common Stock and SMI Preferred Stock
illegal.
Section 7.2 Absence of Litigation. No action, suit or proceeding
concerning SMI, Merger Sub, CMJ or any of the Stockholders shall be threatened
or pending by or before any court of competent jurisdiction or Governmental
Entity wherein an unfavorable judgment, order, decree, stipulation or injunction
would (i) prevent consummation of any of the transactions contemplated by this
Agreement or (ii) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation.
Section 7.3 Consents and Approvals. All filings and registrations
with, and notifications to, all federal, state, local and foreign authorities
required for consummation of the transactions contemplated by this Agreement
shall have been made, and all consents, approvals and authorizations of all
federal, state, local and foreign authorities and third parties to material
contracts, licenses, agreements or instruments required for consummation of the
transactions contemplated by this Agreement shall have been received and shall
be in full force and effect.
21
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF CMJ AND THE STOCKHOLDERS
The obligations of CMJ and the Stockholders under this Agreement are
subject to the satisfaction, on or prior to the Closing Date, unless waived in
writing by CMJ and the Stockholders, of each of the following conditions:
Section 8.1 Representations and Warranties of SMI. The representations
and warranties of SMI and Merger Sub contained in this Agreement shall be true
and correct on the date hereof and on and as of the Closing Date, as though made
on and as of the Closing Date (except for representations and warranties made as
of a specified date, which need only be true and correct as of the specified
date.
Section 8.2 Performance of Agreement. All covenants, conditions and
other obligations under this Agreement which are to be performed or complied
with by SMI or Merger Sub shall have been performed and complied with in all
material respects on or prior to the Closing in accordance with this Agreement.
Section 8.3 Certificates. SMI shall have furnished the Stockholders
and CMJ with a certificate dated the Closing Date signed by the Chief Executive
Officer or President of SMI to the effect that the conditions set forth in
Sections 8.1 and 8.2 have been satisfied.
Section 8.4 Employment. SMI shall have entered into an employment
agreement with ▇▇▇▇ ▇▇▇▇▇▇, substantially in the form attached hereto as Exhibit
B-1 (the "Employment Agreement").
Section 8.5 Opinion of Counsel to SMI. CMJ shall have received an
opinion of 01shan ▇▇▇▇▇▇▇▇ Frome ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, counsel to SMI
and Merger Sub dated the Closing Date, in form and substance reasonably
satisfactory to CMJ and the Stockholders, and their counsel, substantially in
the form attached hereto as Exhibit C.
Section 8.6 No Material Adverse Change. Each of CMJ and the
Stockholders shall have determined, in their sole discretion, that there are no
facts or circumstances that materially and adversely affect the value of the SMI
Common Stock and SMI Preferred Stock.
Section 8.7 Stockholder Liabilities. SMI, to the extent practicable,
at or prior to the Closing Date, and in no event later than 45 days thereafter,
shall have satisfied all current charges directly related to the business of CMJ
that have (i) been placed on any and all personal credit cards issued in the
name of ▇▇▇▇ ▇▇▇▇▇▇ and/or ▇▇▇▇ ▇▇▇▇▇▇ and (ii) that are set forth on Schedule
8.7. Moreover, within 45 days of the Closing Date, SMI shall use its best
efforts to procure the absolute and final release of the Stockholders as
guarantors on any obligations, directly relating to the business of CMJ, which
are also set forth on Schedule 8.7. To the extent SMI is unable to obtain any
such a release, it shall indemnify the Stockholders for the corresponding
personal guarantee.
Section 8.8 Due Diligence. Each of CMJ and the Stockholders shall have
completed, to their satisfaction and up to the Closing Date, their due diligence
review of SMI's and Next's legal, accounting and financial records with respect
to SMI's and Next's business.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF SMI AND MERGER SUB
The obligations of SMI under this Agreement are subject to the
satisfaction on or prior to the Closing Date, unless waived in writing by SMI or
Merger Sub, of each of the following conditions:
Section 9.1 Representations and Warranties of CMJ and the
Stockholders. The representations and warranties of CMJ and the Stockholders
contained in this Agreement shall be true and correct on the date hereof and on
and as of the Closing Date, as though made on and as of the Closing Date (except
for representations and warranties made as of a specified date, which need only
be true and correct as of the specified date).
Section 9.2 Performance of Agreement. All covenants, conditions and
other obligations under this Agreement to be performed or complied with by CMJ
and the Stockholders shall have been performed and complied with in all material
respects on or prior to the Closing in accordance with this Agreement.
Section 9.3 Certificates. Each of the Stockholders shall have
furnished SMI and Merger Sub with a certificate dated the Closing Date to the
effect that each of the conditions set forth in Sections 9.1 and 9.2 applicable
to such person have been satisfied and CMJ shall have furnished SMI and Merger
Sub with a certificate dated the Closing Date signed by its Chief Executive
Officer or President to the effect that each of the conditions set forth in
Sections 9.1 and 9.2 applicable to CMJ have been satisfied.
Section 9.4 Opinion of Counsel to CMJ and the Stockholders. SMI and
Merger Sub shall have received an opinion of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.S.C., counsel
to each of CMJ and the Stockholders, dated the Closing Date, in form and
substance reasonably satisfactory to SMI and Merger Sub and substantially in the
form attached hereto as Exhibit D.
Section 9.5 Employment. ▇▇▇▇ ▇▇▇▇▇▇ shall have entered into the
Employment Agreement.
Section 9.6 No Material Adverse Change. SMI and Merger Sub shall have
determined, in their sole discretion, that there are no facts or circumstances
that materially and adversely affect the value of the CMJ Stock.
Section 9.7 Due Diligence. SMI and Merger Sub shall have completed, to
their satisfaction and up to the Closing Date, their due diligence review of
CMJ's properties and CMJ's legal, accounting and financial records with respect
to the business of CMJ.
22
Section 9.8 Resignation. The present directors and executive officers
of CMJ shall have resigned and caused the individuals set forth on Schedule
1.4(b) to succeed them in such capacity.
ARTICLE X
TAX MATTERS
Section 10.1 Allocation of Tax Liabilities. Indemnification.
(a) The Stockholders hereby indemnify and hold harmless SMI with
respect to any and all Taxes that may be imposed on SMI, if any, (i) resulting
from a breach of any representation or warranty set forth in Section 2.10 or
this Article X (a "Breach"), (ii) with respect to all taxable periods of CMJ
ending on or prior to December 31, 2001, for amounts less than or equal to an
aggregate of $45,000.00 of Tax Liability or greater than an aggregate of $60,000
of Tax Liability or (iii) allocated to the Stockholders pursuant to Section
10.1(b) hereof. SMI hereby indemnifies the Stockholders for any and all Taxes
that may be imposed on the Stockholders for all taxable periods of CMJ
commencing after December 31, 2001 to the extent such taxes are attributable to
events occurring after December 31, 2001 and for any and all Taxes that may be
imposed on the Stockholders in excess of $45,000.00, up to an aggregate of
$15,000 of Tax Liability, for all taxable periods of CMJ ending on or prior to
December 31, 2001.
(b) CMJ and the Stockholders covenant and agree that they have duly
included, or will duly include, in their own Tax Returns their own allocable
share of items of income, gain, loss, deduction or credit attributable to that
taxable year or other taxable period that ends on or before the Closing Date
and, in the case of any taxable year or other taxable period that includes the
Closing Date, that part of the taxable year or other taxable period that ends at
the close of business on the Closing Date.
(c) The Stockholders shall make any payments under this Article X
within thirty (30) days after the final determination (as such term is defined
in Section 1313(a) of the Code) of any Tax Liability provided that whenever a
taxing authority asserts a claim, makes an assessment or otherwise disputes the
amounts of Taxes payable with respect to tax periods ending on or before
December 31, 2001 and the amount(s) in question is less than or equal to an
aggregate of $45,000.00 or greater than an aggregate of $60,000, SMI shall
notify the Stockholders within ten (10) days and thereafter the Stockholders
shall have the right to control any resulting proceedings and to determine when,
whether and to what extent to settle any such claim, assessment or dispute.
Notwithstanding the foregoing, the failure of SMI to give notice under the
preceding sentence shall not relieve the Stockholders of any obligations
hereunder unless such failure shall preclude the defense of such claim. The
Stockholders shall not agree to any adjustment or adjustments that would have
the effect of increasing the Tax Liability with respect to any period after the
Closing Date without obtaining the prior written consent of SMI.
(d) If, for any United States federal, state, local or foreign tax
purposes, the taxable period of CMJ does not terminate on the Closing Date,
Taxes, if any, attributable to the taxable period of CMJ that includes the
Closing Date shall be allocated, subject to Section 10.1 (a) hereof to (i) the
Stockholders for the period up to and including the Closing Date, and (ii)
22
SMI for the period subsequent to the Closing Date. For purposes of the preceding
sentence, Taxes for the period up to and including the Closing Date and for the
period subsequent to the Closing Date shall be determined on the basis of an
interim closing of the books as of the close of business on the Closing Date as
if such taxable period consists of one taxable period ending on the Closing Date
followed by a taxable period beginning on the day following the Closing Date.
For purposes of this subparagraph (d), exemptions, allowances or deductions that
are calculated on an annual basis, such as the deduction for depreciation, shall
be apportioned on a daily basis.
(e) The Stockholders shall prepare or cause to be prepared, and file
or cause to be filed, all Tax Returns of CMJ for all taxable periods of CMJ that
end on or prior to the Closing Date. All such returns shall be prepared on a
basis that is consistent with the manner in which the Stockholders prepared or
filed such Tax Returns for prior periods.
(f) After the Closing Date, SMI and the Stockholders shall provide
each other with reasonable cooperation in connection with the preparation of Tax
Returns of CMJ and shall make available to the other and to any taxing
authority, as reasonably requested, all information, records or documents
relating to Tax Liabilities or potential Tax Liabilities of CMJ for all periods
prior to or including the Closing Date and shall preserve all such information,
records and documents until the expiration of any statute of limitations or
extensions thereof.
ARTICLE XI
INDEMNIFICATION
Section 11.1 Survival of Representations. Warranties and Agreements.
Subject to the limitations set forth in this Article XI and notwithstanding any
investigation conducted at any time with regard thereto by or on behalf of SMI
and/or Merger Sub, on the one hand, or CMJ and/or the Stockholders, on the other
hand, all representations, warranties, covenants and agreements of SMI, Merger
Sub, CMJ or the Stockholders in this Agreement shall survive the execution,
delivery and performance of this Agreement and shall be deemed to have been made
again by SMI, Merger Sub, CMJ and the Stockholders at and as of the Closing. The
representations and warranties contained in this Agreement shall remain in full
force and effect for a period of eighteen (18) months after the Closing Date;
provide however, that the representations, warranties and covenants contained in
Section 2.10 and Article X relating to Taxes, Section 2.13 relating to
Intellectual Property and Section 2.22 relating to Environmental Matters shall
remain in full force and effect until the expiration of their respective
applicable statute of limitations (including any extensions thereof). The
obligation of indemnity provided herein shall survive the Closing. All
statements contained in any exhibit, schedule, statement, certificate or other
writing pursuant to this Agreement or in connection with the transactions
contemplated hereby shall be deemed representations and warranties of SMI,
Merger Sub, CMJ or the Stockholders, as the case may be, set forth in this
Agreement within the meaning of this Article.
23
Section 11.2 Indemnification.
(a) Each of CMJ and each Stockholder, and only the Stockholders
following the Closing, shall, jointly and severally, indemnify and hold harmless
SMI, and both SMI and the Surviving Corporation following the Closing, from and
against any and all losses, liabilities, damages, demands, claims, suits,
actions, judgments or causes of action, assessments, costs and expenses
including, without limitation, interest, penalties, reasonable attorneys' fees,
any and all reasonable expenses incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation (collectively, "Damages"), asserted against, resulting to, imposed
upon, or incurred or suffered by SMI or the Surviving Corporation, directly or
indirectly, as a result of or arising from the following (individually an
"Indemnifiable Claim" and collectively "Indemnifiable Claims" when used in the
context of SMI as the Indemnified Party (as defined below)):
(i) Any inaccuracy in or breach of any of the representations,
warranties or agreements made in this Agreement of CMJ or the
Stockholders or the non-performance of any covenant or obligation
to be performed by any of CMJ or the Stockholders under this
Agreement;
(ii) Any violation by CMJ or the Stockholders of any law, rule,
regulation, arbitral determination, order, writ, decree or
injunction on or prior to the Closing Date;
(iii) Any misrepresentation in or any omission from any exhibit,
schedule, statement, certificate or other writing furnished or to
be furnished by or on behalf of CMJ or the Stockholders under
this Agreement; and
(b) SMI, and SMI and the Surviving Corporation, jointly and severally,
following the Closing, shall indemnify and hold harmless the Stockholders, and
just the Stockholders following the Closing, from and against any and all
Damages asserted against, resulting to, imposed upon, or incurred or suffered by
the Stockholders, directly or indirectly, as a result of or arising from the
following (individually an "Indemnifiable Claim" and collectively "Indemnifiable
Claims" when used in the context of CMJ or any of the Stockholders as the
Indemnified Party):
(i) Any inaccuracy in or breach of any of the representations,
warranties or agreements made by SMI or Merger Sub in this
Agreement or the non-performance of any covenant or obligation to
be performed by SMI or Merger Sub under this Agreement; and
(ii) Any misrepresentation in or any omission from any exhibit,
schedule, statement, certificate or other writing furnished or to
be furnished by or on behalf of SMI or Merger Sub under this
Agreement.
(c) Without duplication of Damages, SMI and/or the Surviving
Corporation shall be deemed to have suffered Damages arising out of or resulting
from the matters referred to
24
in subsection (a) above if the same shall be suffered by any parent, subsidiary
or affiliate of either SMI or the Surviving Corporation.
Section 11.3 Procedure for Indemnification with Respect to Third Party
Claims. The Indemnified Party shall give the Indemnifying Party prompt written
notice of any third party claim, demand, assessment, suit or proceeding to which
the indemnity set forth in this Article XI applies which notice shall describe
said claim in reasonable detail (the "Indemnification Notice"). Notwithstanding
the foregoing, the Indemnified Party shall not have any obligation to give any
notice of any assertion of liability by a third party unless such assertion is
in writing, and the rights of the Indemnified Party to be indemnified hereunder
in respect of any third party claim shall not be adversely affected by its
failure to give notice pursuant to the foregoing unless and, if so, only to the
extent that, the Indemnifying Party is materially prejudiced thereby. The
Indemnifying Party shall have the right to control the defense or settlement of
any such action subject to the provisions set forth below in the event such
claim solely involves an action for monetary damages and could not affect the
Indemnified Party's business going forward, but the Indemnified Party may, at
its election, participate in the defense of any action or proceeding at its sole
cost and expense; provided, however, specifically, that SMI may defend itself
against any Indemnification Claim which may affect the business of CMJ going
forward. Notwithstanding the foregoing, if there exists a conflict of interest
that would make it inappropriate for the same counsel to represent both the
Indemnified and Indemnifying Parties, in connection with any Indemnifiable
Claim, then the Indemnified Party shall be entitled to retain its own counsel as
is reasonably satisfactory to the Indemnifying Party at the Indemnifying Party's
expense. In the event that such Indemnified Party seeks indemnification as
provided herein, such Indemnified Party shall make available to the Indemnifying
Party, at its expense, all witnesses, pertinent records, materials and
information in the Indemnified Party's possession or under the Indemnified
Party's control relating thereto as is reasonably required by the Indemnifying
Party. Should the Indemnifying Party fail to defend any such Indemnifiable Claim
(except for failure resulting from the Indemnified Party's failure to timely
give notice of such Indemnifiable claim), then, in addition to any other remedy,
the Indemnified Party may settle or defend such action or proceeding through
counsel of its own choosing and may recover from the Indemnifying Party the
amount of such settlement, demand, or any judgment or decree and all of its
costs and expenses, including reasonable fees and disbursements of counsel.
Except as permitted in the preceding sentence, the Indemnifying Party shall not
be liable for any settlement effected without its written consent, which consent
shall not be unreasonably withheld; provided. however, that if such approval is
unreasonably withheld, the liability of the Indemnifying Party shall be limited
to the amount of the proposed compromise or settlement and the amount of the
Indemnified Party's reasonable counsel fees incurred in defending such claim, as
permitted by the preceding sentence, at the time such consent is unreasonably
withheld. Notwithstanding the preceding sentence, the right of the Indemnified
Party to compromise or settle any claim without the prior written consent of the
Indemnifying Party shall only be available if a complete release of the
Indemnifying Party is contemplated to be part of the proposed compromise or
settlement of such third party claim. The Stockholders shall not agree to any
adjustment or adjustments that would increase Tax Liability of SMI, with respect
to any period ending after the Closing Date, without the prior written consent
of SMI.
Section 11.4 Limitations as to Amount. Notwithstanding the foregoing,
the Stockholders shall have no obligation to indemnify SMI or the Surviving
Corporation for any
25
Damages in excess of $20,000; provided, however, that this Section 11.4 shall
not apply (i) to any Damages resulting from the knowing breach of any
representation or warranty made by CMJ or the Stockholders that are set forth in
Articles II and III hereof or (ii) with respect to any indemnifiable Tax
Liability of CMJ (as set forth in Section 10.1(a)) for all taxable periods
ending on or before December 31, 2001, until the total amount of CMJ's Tax
Liability for such period exceeds $60,000.
ARTICLE XII
TERMINATION, AMENDMENT AND WAIVER
Section 12.1 Termination. This Agreement may be terminated and the
transactions contemplated by this Agreement abandoned at any time prior to the
Closing:
(a) By the mutual written consent of SMI, CMJ, Merger Sub and the
Stockholders;
(b) By CMJ and the Stockholders if it and the Stockholders or Merger
Sub are not in material breach of their representations, warranties or
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of SMI or Merger Sub or if any representation or warranty of SMI or
Merger Sub shall have become untrue, in either case such that the conditions set
forth in Articles VII and VIII would not be satisfied; provided, however, that
if such breach or breaches are capable of being cured prior to the Closing, such
breaches shall not have been cured within 30 days of delivery to SMI or Merger
Sub, as the case may be, of written notice of such breach or breaches (but no
such cure period shall be required if such breach by its nature cannot be
cured);
(c) By either SMI or Merger Sub if it is not in material breach of its
representations, warranties or obligations under this Agreement and there has
been a breach of any representation, warranty, covenant or agreement contained
in this Agreement on the part of the Stockholders or CMJ or if any
representation or warranty of the Stockholders or CMJ shall have become untrue,
in either case such that the conditions set forth in Article VII and IX would
not be satisfied; provided, however, that if such breach or breaches are capable
of being cured prior to the Closing, such breaches shall not have been cured
within 30 days of delivery to CMJ and the Stockholders of written notice of such
breach or breaches (but no such cure period shall be required if such breach by
its nature cannot be cured); or
(d) By SMI, Merger Sub or CMJ if. (i) the Closing has not occurred by
March 15, 2002 (provided that the right to terminate this Agreement under this
clause (i) shall not be available to any party whose willful failure to fulfill
any obligation hereunder has been the cause of, or resulted in, the failure of
the Closing to occur on or before such date); (ii) there shall be a final
non-appealable order, decree or ruling of a court of competent jurisdiction in
effect preventing consummation of the transactions contemplated hereby; or (iii)
there shall be any statute, rule, regulation or non-appealable order enacted,
promulgated or issued or deemed applicable to the transactions contemplated
hereby by any governmental entity that would make consummation of such
transactions illegal.
26
Section 12.2 Effect of Termination. In the event of any termination of
this Agreement in accordance with Sections 12.1 (a) or (d) hereof, this
Agreement shall forthwith become void and there shall be no liability under this
Agreement on the part of any party hereto or its respective affiliates,
officers, directors, employees or agents by virtue of such termination. In the
event of any termination of this Agreement in accordance with Sections 12.1 (b)
or (c), the parties hereto reserve their rights to take any action permitted by
law, including as provided in Section 13.2 hereof.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Notices.
All notices, requests, demands and other communications which are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or three days after
being sent by registered or certified mail, return receipt requested, postage
prepaid:
(a) If to SMI to:
Sporting Magic, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, its Chairman
with a copy (which shall not constitute notice) to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome ▇▇▇▇▇▇▇▇▇▇ & Wolosky LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
and
▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
Suite 1000 Volunteer Building
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: W. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇., Esq.
(b) If to Merger Sub
CMJ Acquisition Company
c/o Sporting Magic, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, its Chairman
with a copy (which shall not constitute notice) to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome ▇▇▇▇▇▇▇▇▇▇ & Wolosky LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
and
▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
Suite 1000 Volunteer Building
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: W. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇., Esq.
(c) If to the Stockholders to:
▇▇▇▇ ▇▇▇▇▇▇
[address]
▇▇▇▇ ▇▇▇▇▇▇
[address]
▇▇▇▇ ▇▇▇▇▇▇
[address]
with a copy (which shall not constitute notice) to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.S.C.
3000 National City Tower
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(d) If to CMJ to:
CMJ Ventures, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇, President
28
with a copy (which shall not constitute notice) to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.S.C.
3000 National City Tower
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as any party shall have specified by notice in writing
to the other in compliance with this Section 13.1.
Section 13.2 Specific Performance. All parties hereto recognize that,
because of the nature of the subject matter of this Agreement, it would be
impractical and extremely difficult to determine actual damages in the event of
a breach of this Agreement. Accordingly, if any of CMJ or the Stockholders, on
the one hand, or SMI or Merger Sub, on the other hand, commits a breach, or
threatens to commit a breach, of any of the provisions of hereof, as applicable,
of this Agreement. Accordingly, if any of CMJ or the Stockholders, on the one
hand, or SMI or Merger Sub, on the other hand, commits a breach, or threatens to
commit a breach, of any of the provisions of hereof, as applicable, of this
Agreement, SMI and Merger Sub, on the one hand, or CMJ and the Stockholders, on
the other hand, shall have the right to seek and receive a temporary restraining
order, injunction or other equitable remedy relating to the prevention or
cessation of such breach or threatened breach, including, without limitation,
the right to have the provisions of this Agreement specifically enforced by any
court having equity jurisdiction, it being mutually acknowledged and agreed that
any such breach or threatened breach will cause irreparable injury and that
monetary damages will not provide an adequate remedy.
Section 13.3 Entire Agreement. This Agreement, including the exhibits
and schedules attached hereto, constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof and
supersedes all prior agreements, representations and understandings among the
parties hereto, whether written or oral.
Section 13.4 Binding Effect. Benefits. Assignments. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns; nothing in this Agreement, expressed or
implied, is intended to confer on any other person, other than the parties
hereto or their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement. This Agreement
may not be assigned without the prior written consent of the other parties
hereto.
Section 13.5 Applicable Law. This Agreement and the legal relations
between the parties hereto shall be governed by and construed in accordance with
the laws of the State of Indiana, without regard to conflicts of law rules of
such state.
Section 13.6 Jurisdiction. The parties hereto agree that any suit,
action or proceeding seeking to enforce any provision of, or based on any matter
arising out of or in
29
connection with, this Agreement or the transactions contemplated hereby shall be
brought in the United States District Court for the Northern District of Indiana
or any Indiana State court sitting in Wabash, so long as one of such courts
shall have subject matter jurisdiction over such suit, action or proceeding, and
that any cause of action arising out of this Agreement shall be deemed to have
arisen from a transaction of business in the State of Indiana, and each of the
parties hereby irrevocably consents to the jurisdiction of such courts (and of
the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection that it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 13.1 shall be deemed
effective service of process on such party.
Section 13.7 Severability. With respect to any provision of this
Agreement finally determined by a court of competent jurisdiction to be
unenforceable, such court shall have jurisdiction to reform such provision so
that it is enforceable to the maximum extent permitted by law, and all the
parties hereto shall abide by such court's determination. In the event that any
provision of this Agreement cannot be reformed, such provision shall be deemed
to be severed from this Agreement, but every other provision of this Agreement
shall remain in full force and effect.
Section 13.8 No Third Party Beneficiaries. Nothing herein, expressed
or implied, is intended or shall be construed to confer upon or give to any
person, firm, corporation or legal entity, other than the parties hereto, any
rights, remedies or other benefits under or by reason of this Agreement.
Section 13.9 Headings. The headings and captions in this Agreement are
included for purposes of convenience only and shall not affect the construction
or interpretation of any of its provisions.
Section 13.10 Pronouns and Plurals. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, singular or plural
as the context may require. All references herein to "he," "him" or "his" or
"she," "her" or "hers" shall be for purposes of simplicity and, except with
reference to the Stockholders, are not intended to be a reference to a
particular gender.
Section 13.11 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
Section 13.12 Representation By Counsel; Interpretation. SMI, Merger
Sub, CMJ and the Stockholders each acknowledge that each party to this Agreement
has been represented by counsel in connection with this Agreement and the
transactions contemplated hereby. Accordingly, any rule of applicable
constitutional provision, statute, ordinance or other law, rule, regulation, or
interpretation by any Governmental Entity and any order or any legal
30
decision that would require interpretation of any claimed ambiguities in this
Agreement against the party that drafted it has no application and is expressly
waived. The provisions of this Agreement shall be interpreted in a reasonable
manner to effect the intent of the parties hereto.
[The remainder of this page was purposely left blank.]
31
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year hereinabove first set forth.
SPORTING MAGIC, INC.
By: /s/ ▇▇▇ ▇▇▇▇▇
-----------------------------
Name: ▇▇▇ ▇▇▇▇▇
Title: Chairman
CMJ VENTURES, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: President
CMJ ACQUISTION COMPANY
By: /s/ ▇▇▇ ▇▇▇▇▇
-----------------------------
Name: ▇▇▇ ▇▇▇▇▇
Title: Chairman
/s/ ▇▇▇▇ ▇▇▇▇▇▇
-----------------------------
▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇
-----------------------------
▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇
-----------------------------
▇▇▇▇ ▇▇▇▇▇▇
32