1
Exhibit 2
AGREEMENT OF MERGER
DATED AS OF APRIL 17, 1998
AMONG
THQ INC.,
GAMEFX ACQUISITION COMPANY,
AND
GAMEFX, INC.
2
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, dated as of April 17, 1998, among
THQ INC., a Delaware corporation ("Parent"), GAMEFX ACQUISITION COMPANY, a
Delaware corporation and a wholly owned subsidiary of Parent ("Mergerco"), and
GAMEFX, INC., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company is a Delaware corporation having an
authorized capital that consists of 7,500,000 shares of common stock, par value
$0.01 per share (the "Company Common Stock"), of which, as of the date hereof,
4,902,000 shares are issued and outstanding; and
WHEREAS, Parent is a Delaware corporation having an authorized
capital of (i) 35,000,000 shares of common stock, par value $0.01 per share
(the "THQ Stock"), of which, as of March 20, 1998, approximately 6,888,560
shares were issued and outstanding, and (ii) 1,000,000 shares of preferred
stock, par value $0.01 per share, none of which, as of the date hereof, is
issued and outstanding; and
WHEREAS, Mergerco is a Delaware corporation having an
authorized capital of 1,000 shares of common stock, par value $1.00 per share,
all of which are issued and outstanding and owned of record and beneficially by
Parent; and
WHEREAS, the respective Boards of Directors of each of the
Company, Parent and Mergerco have approved the merger of the Company with and
into Mergerco pursuant to the terms and subject to the conditions set forth in
this Agreement, and the Board of Directors of the Company has directed that
this Agreement be submitted to the shareholders of the Company for adoption;
and
WHEREAS, the parties intend the merger to be a reorganization
under Section 368(a)(2)(D) of the Internal Revenue Code of 1986;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, it is hereby agreed among the parties as
follows:
1. DEFINITIONS.
In this Agreement, the following terms have the meanings
specified or referred to in this Section 1 and shall be equally applicable to
both the singular and plural forms. Any agreement referred to below shall mean
such agreement as amended, supplemented and modified from time to time to the
extent permitted by the applicable provisions thereof and by this Agreement.
"ACQUISITION PROPOSAL" has the meaning set forth in Section
7.9.
"ACTION" means any governmental investigation; any suit or
action at law or in equity; any arbitration, audit, assessment, grievance or
other proceeding, whether actual, proposed or threatened; and any other claim.
"ADDITIONAL CASH" has the meaning set forth in Section 3.2.1.
3
"AFFILIATE" means, with respect to any Person, any other
Person that directly or indirectly controls, is controlled by or is under
common control with such Person.
"AGREED ACCOUNTING PRINCIPLES" means generally accepted
accounting principles consistently applied, provided that, with respect to any
matter as to which there is more than one generally accepted accounting
principle, Agreed Accounting Principles means the generally accepted accounting
principles applied in the preparation of the Balance Sheet; and provided
further that, for purposes of the Agreed Accounting Principles, no known
adjustments for items or matters, regardless of the amount thereof, shall be
deemed to be immaterial.
"ASSOCIATE" of any Person means (i) a corporation or
organization of which such Person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10 percent or more of any class of equity
securities, (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity and (iii) any relative or spouse of such
Person, or any relative of such spouse, who has the same home as such Person or
who is a director or officer of the Person or any of its parents or
subsidiaries.
"BALANCE SHEET" means the balance sheet of the Company
included in the Financial Statements.
"BALANCE SHEET DATE" means December 31, 1997.
"BONUS AMOUNT," "BONUS PERIOD" and "BONUS PLAN" each has the
meaning set forth in Section 7.24.
"BONUS PLAN ADMINISTRATOR" shall mean, for each quarter of the
Bonus Plan, (i ) ▇▇▇▇▇, if he is an employee of the Company or Parent at the
end of such quarter, (ii) if ▇▇▇▇▇ is not an employee of the Company or Parent
at the end of such quarter, such other individual who at that date is the most
senior executive of the Company; provided, however, that such individual shall
not be entitled to participate in the Bonus Plan without the consent of the
chief executive officer of Parent.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act, as amended from time to time, and the rules
and regulations promulgated thereunder.
"CERTIFICATE OF MERGER" has the meaning set forth in Section
4.1.
"CLAIM NOTICE" has the meaning set forth in Section 11.3.1.
"CLOSING DATE" has the meaning set forth in Section 4.1.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and the rules and regulations promulgated thereunder.
"COMPANY" means GameFx, Inc., a Delaware corporation.
"COMPANY AGREEMENTS" has the meaning set forth in Section
5.17.2.
2
4
"COMPANY ANCILLARY AGREEMENTS" means all agreements,
instruments and documents being or to be executed and delivered by the Company
under this Agreement or in connection herewith.
"COMPANY COMMON STOCK" has the meaning set forth in the
recitals to this Agreement.
"COMPANY COMMON STOCK EQUIVALENTS" means the number of shares
of Company Common Stock issued and outstanding at the Effective Time plus the
number of shares of Common Stock issuable upon the exercise of Options
outstanding as of the Effective Time.
"COMPANY GROUP" shall mean any "affiliated group" (as defined
in Section 1504(a) of the Code without regard to the limitations contained in
Section 1504(b) of the Code) that, at any time on or before the Closing Date,
includes or has included the Company (or another such predecessor or
successor), or any other group of corporations that, at any time on or before
the Closing Date, files or has filed Tax Returns on a combined, consolidated or
unitary basis with the Company or any predecessor of or successor to the
Company (or another such predecessor or successor).
"COMPANY INTELLECTUAL PROPERTY" has the meaning set forth in
Section 5.18.
"COMPANY PROPERTY" means any real or personal property, plant,
building, facility, structure, underground storage tank, equipment or unit, or
other asset owned, leased or operated by the Company (including any surface
water thereon or adjacent thereto and any soil or ground water thereunder),
whether currently or at any previous time.
"CONFIDENTIALITY AGREEMENT" has the meaning set forth in
Section 13.5.
"CONTEMPLATED TRANSACTIONS" has the meaning set forth in
Section 5.2.3.
"COURT ORDER" means any judgment, order, award or decree of
any foreign, federal, state, local or other court or tribunal and any award in
any arbitration proceeding.
"COVERED PRODUCTS" has the meaning ascribed thereto in the
Employment Agreement.
"▇▇▇▇▇" means C. ▇▇▇▇ ▇▇▇▇▇.
"DEVELOPMENT TOOLS" has the meaning set forth in Section 5.20.
"DGCL" means the Delaware General Corporation Law, as amended.
"DISSENTING SHARES" has the meaning set forth in Section 3.3.
"EA" means Electronic Arts Inc.
"EA NOTES" means the promissory notes owing by the Company to
EA and identified on Schedule 5.3.
"EA OBLIGATIONS" means the aggregate principal and interest
owing on the EA Notes as of the Effective Time, as set forth on or as
determined in accordance with Schedule 5.3.
3
5
"EFFECTIVE TIME" has the meaning set forth in Section 4.1.
"EFFECTIVE TIME STOCKHOLDERS" means those Persons who, as of
the Effective Time, are the record holders of shares of Company Common Stock,
and each such Person's successors and assigns with respect to such shares.
"EFFECTIVE TIME MERGER SHARES" has the meaning set forth in
3.2.4.
"EMPLOYEE PLANS" has the meaning set forth in Section 5.23.
"EMPLOYMENT AGREEMENT" means the Employment Agreement between
Parent and ▇▇▇▇▇ in substantially in the form transmitted by ▇▇▇▇▇▇▇ ▇▇▇▇▇,
counsel for Parent, to ▇▇▇▇▇ ▇▇▇▇▇, counsel for the Company, under cover of a
letter dated April 16, 1998..
"ENCUMBRANCE" means any security interest, pledge, mortgage,
lien (including a mechanics' lien), encumbrance, lease, conditional sales
agreement, option, covenant, easement, restriction, charge, claim or other
defect in title of any nature on any property or asset or property interest,
whether voluntarily incurred or arising by operation of law or otherwise; and
includes any agreement or commitment to grant, make or enter into any of the
foregoing, the filing of any financing statement under the Uniform Commercial
Code or any agreement to file any such financing statement or to record any
lien in the real property records maintained by a Governmental Body.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, including the rules and regulations
promulgated thereunder.
"ERISA AFFILIATE" means (i) any corporation which at any time
on or before the Effective Time is or was a member of the same controlled group
of corporations (within the meaning of Section 414(b) of the Code) as the
Company; (ii) any partnership, trade or business (whether or not incorporated)
which at any time on or before the Effective Time is or was under common
control (within meaning of Section 414(c) of the Code) with the Company; and
(iii) any entity which at any time on or before the Effective Time is or was a
member of the same affiliated service group (within the meaning of Section
414(m) of the Code) as either the Company, any corporation described in clause
(i) of this definition or any partnership, trade or business described in
clause (ii) of this definition.
"ESCROW" has the meaning set forth in Section 4.4.
"ESCROW AGENT" means either Chase Manhattan Bank, N.A. or City
National Bank (as determined by Parent), in its capacity as escrow agent; or if
such entities are unable or unwilling to so act on terms acceptable to Parent,
another escrow agent mutually agreed upon by Parent and the Company.
"ESCROW AGREEMENT" has the meaning set forth in Section 7.17.
"ESCROW SHARES" has the meaning set forth in Section 4.4.
"EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934,
as amended.
4
6
"EXPENSES" means any and all expenses incurred in connection
with investigating, defending or asserting any Action indemnified against
hereunder (including court filing fees, court costs, arbitration fees or costs,
witness fees and reasonable fees and disbursements of legal counsel,
investigators, expert witnesses, consultants, accountants and other
professionals).
"FINANCIAL STATEMENTS" has the meaning set forth in Section
5.7.
"GENERAL CREDITOR" means each Person who, as of the Merger
Filing, is a creditor of the Company (other than EA and the Investor
Noteholders), whether or not the amount owing to such Person has been billed to
the Company as of the Merger Filing.
"GENERAL RELEASE AND COVENANT NOT TO ▇▇▇" means the General
Release and Covenant Not to ▇▇▇ in the form of Exhibit A.
"GOVERNMENTAL BODY" means any foreign, federal, state, local
or other governmental authority or regulatory body.
"GOVERNMENTAL CONSENTS AND FILINGS" has the meaning set forth
in Section 5.2.3.
"GOVERNMENTAL PERMITS" has the meaning set forth in Section
5.9.1.
"GROSS MERGER CONSIDERATION" has the meaning set forth in
Section 3.2.2.
"HAZARDOUS MATERIALS" has the meaning set forth in Section
5.27.1.
"INDEMNIFIED PERSON" and "INDEMNITOR" each has the meaning set
forth in Section 11.3.1.
"IRS" means the Internal Revenue Service.
"INVENTIONS" has the meaning set forth in Section 5.18.1.
"INVESTOR NOTES" means the promissory notes made by the
Company and identified on Schedule 5.3.
"INVESTOR NOTEHOLDERS" means the holders of the Investor Notes
as of the Effective Time.
"INVESTOR NOTES OBLIGATIONS" means the aggregate amount of
principal and interest owing on the Investor Notes as of the Effective Time,
as set forth on or as determined in accordance with Schedule 5.3.
"KNOWLEDGE" means, with reference to a party hereto, only the
actual knowledge of any of the directors and officers of such party, after
reasonable inquiry of such party's employees, agents and consultants and
information set forth in documents in the possession of such party.
"KNOWLEDGE QUALIFICATION" means a qualification to any
representation or warranty made by a party expressed as "to the knowledge" of
such party, that such party "has not received any notice that" or similar
language intended to limit the scope of such representation and warranty.
5
7
"LEASED REAL PROPERTY" has the meaning set forth in Section
5.13.
"LOSS" means any and all losses, costs, obligations,
liabilities, diminution in value, settlement payments, awards, judgments,
damage to the environment, natural resources or public health, fines,
penalties, damages, expenses, deficiencies or other charges, whether
foreseeable or unforeseeable.
"MATERIAL ADVERSE EFFECT" means, with respect to any party
hereto, any change or effect (or any development that, insofar as can be
reasonably foreseen, would result in any change or effect) that is materially
adverse to the assets, business, financial condition, results of operations or
prospects of such party.
"MERGER" has the meaning set forth in Section 2.1.
"MERGERCO" has the meaning specified in the first paragraph of
this Agreement.
"MERGER CONSIDERATION" has the meaning set forth in Section
3.2.2.
"MERGER FILING" has the meaning set forth in Section 4.2
"MERGER SHARES" has the meaning set forth in Section 3.2.1.
"MINIMUM CASH" has the meaning set forth in Section 3.2.1.
"MORAL RIGHTS" has the meaning set forth in Section 5.18.1.
"NASDAQ/NMS" has the meaning set forth in Section 7.11.
"NET MERGER SHARES" has the meaning set forth in Section
3.2.3.
"NET WHOLESALE REVENUE" has the meaning ascribed thereto in
the Employment Agreement.
"OPTIONS" means options granted by the Company under the Stock
Option Plan.
"OTHER EXECUTIVES" means ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇.
"PARENT" has the meaning specified in the first paragraph of
this Agreement.
"PARENT ANCILLARY AGREEMENTS" means all agreements,
instruments and documents being or to be executed and delivered by Parent under
this Agreement or in connection herewith.
"PARENT GROUP MEMBER" means Parent and its Affiliates and
their respective successors and assigns, including, after the Effective Time,
the Surviving Corporation; and the stockholders, directors, officers, employees
and agents of each of such Persons.
"PARENT SEC DOCUMENTS" has the meaning set forth in Section
6.4.
6
8
"PERMITTED ENCUMBRANCES" means (i) liens for taxes and other
governmental charges and assessments which are not yet due and payable, (ii)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable, and (iii) other liens or imperfections on
property which are not material in amount, do not interfere with, and are not
violated by the consummation of the transactions contemplated by, this
Agreement and do not materially detract from the value or marketability of, or
materially impair the existing use of, the property affected by such lien or
imperfection.
"PER SHARE STOCK" and "PER SHARE ADDITIONAL STOCK" each has
the meaning set forth in Section 3.2.
"PERSON" means any individual, corporation, partnership, joint
venture, association, company, trust, estate, unincorporated organization or
other entity, or any Governmental Body.
"POOL A," "POOL B" and "POOLS" each has the meaning set forth
in Section 7.24.1
"PRODUCTS" has the meaning set forth in Section 5.19.
"PRODUCTS UNDER DEVELOPMENT" has the meaning set forth in
Section 5.19.
"PUBLISHED PRODUCTS" has the meaning set forth in Section
5.19.
"PURCHASED SHARES" has the meaning set forth in Section 7.23.
"RCRA" means the Resource Conservation and Recovery Act, as
amended from time to time, and the rules and regulations promulgated
thereunder.
"REQUIREMENTS OF LAWS" means any foreign, federal, state and
local laws, statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Body (including those pertaining to
electrical, building, zoning, environmental and occupational safety and health
requirements) or common law.
"RSPAS" means the Restricted Stock Purchase Agreements entered
into in 1997 between the Company and certain of the Stockholders.
"SEC" means the U. S. Securities and Exchange Commission.
"SECURITIES ACT" means the U.S. Securities Act of 1933, as
amended.
"STOCK CERTIFICATE" has the meaning set forth in Section
3.1.1.
"STOCKHOLDER GROUP MEMBER" means (i) in the event the Merger
is not consummated, the Company, and (ii) from and after the Merger Filing,
each of the Effective Time Stockholders.
"STOCKHOLDERS" means those Persons who from time to time are
the holders of shares of Company Common Stock.
7
9
"STOCKHOLDERS' REPRESENTATIVES" means ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, acting from and after the Effective Time as a committee on
behalf of the Effective Time Stockholders in accordance with Section 7.16.
"STOCK OPTION PLAN" means the Company's 1997 Stock Option
Plan.
"STOCK PRICE" means the average closing price of the THQ Stock
on NASDAQ Stock Market for the ten trading days ending on the date of this
Agreement.
"STOCK PURCHASE AGREEMENT" has the meaning set forth in
Section 7.23.
"SUBSIDIARY" shall mean any corporation, partnership, limited
liability company, joint venture or other entity in which the Company (a) owns,
directly or indirectly, 50% or more of the outstanding voting securities or
equity interests or (b) is a general partner.
"SUPPLEMENTS AND AMENDMENTS" means the six Supplements and
Amendments to Employment, Confidentiality and Invention Assignment Agreement
between Parent and each of ▇▇▇▇▇ and the Other Executives, substantially in the
form of Exhibit B.
"SURVIVING CORPORATION" has the meaning set forth in Section
2.1.
"TANGIBLE ASSETS" means the tangible assets and properties of
the Company, whether owned or leased.
"TAX" (and, with correlative meaning, "Taxes") shall mean: (i)
any federal, state, local or foreign net income, gross income, gross receipts,
windfall profit, severance, property, production, sales, use, license, excise,
franchise, employment, payroll, withholding, alternative or add-on minimum, ad
valorem, value-added, transfer, stamp, or environmental tax, or any other tax,
custom, duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, addition to tax or
additional amount imposed by any governmental authority; and (ii) any liability
of the Company or any Subsidiary for the payment of amounts with respect to
payments of a type described in clause (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group, or as a result of any
obligation of the Company or any Subsidiary under any Tax Sharing Arrangement
or Tax indemnity arrangement.
"TAX RETURN" shall mean any return, report or similar
statement required to be filed with respect to any Tax (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return or declaration of estimated Tax.
"TAX SHARING ARRANGEMENT" shall mean any written or unwritten
agreement or arrangement for the allocation or payment of Tax liabilities or
payment for Tax benefits with respect to a consolidated, combined or unitary
Tax Return which Tax Return includes the Company or any Subsidiary.
"TECHFARM" means TechFarm II, L.P., a California limited
partnership.
"THQ STOCK" has the meaning set forth in the recitals to this
Agreement.
"TOTAL CONSIDERATION" has the meaning set forth in Section
3.2.1.
8
10
"TREASURY REGULATIONS" has the meaning set forth in Section
5.15.3.
"WARRANTS" means the warrants issued by the Company and
identified on Schedule 5.3.
"WARRANTHOLDERS" means the holders of the Warrants as of the
Effective Time.
2. THE MERGER.
2.1 THE MERGER; THE SURVIVING CORPORATION. On the terms
and subject to the conditions set forth herein, and in accordance with the
provisions of the DGCL, at the Effective Time the Company shall be merged with
and into Mergerco (the "Merger"). Upon the effectiveness of the Merger, the
separate existence of the Company shall cease except to the extent provided by
law in the case of a corporation after its merger into another corporation, and
Mergerco shall be the surviving corporation (the "Surviving Corporation") and
shall continue its existence under the laws of the State of Delaware.
2.2 EFFECTS OF THE MERGER. The Merger shall have the
effects set forth in Section 259 of the DGCL.
2.3 CERTIFICATE OF INCORPORATION, BYLAWS, DIRECTORS AND
OFFICERS. The Certificate of Incorporation and the Bylaws of Mergerco, as in
effect immediately prior to the Effective Time, shall continue in full force
and effect as the Certificate of Incorporation and the Bylaws of the Surviving
Corporation. The directors and officers of Mergerco immediately prior to the
Effective Time shall be the initial directors and officers of the Surviving
Corporation until their respective successors are duly elected and qualified.
3. CONVERSION OF SHARES; DETERMINATION OF PURCHASE PRICE.
3.1 CONVERSION TERMS. As of the Effective Time, by
virtue of the Merger and without any action on the part of any Stockholder or
any stockholder of Mergerco:
3.1.1 Each share of Company Common Stock that is
issued and outstanding immediately prior to the Effective Time, other
than (i) Dissenting Shares to the extent provided in Section 3.3, and
(ii) each share of Company Common Stock owned by THQ, shall, by virtue
of the Merger and without any action on the part of the holder
thereof, be converted into and become (I) the Per Share Stock, and
(II) the right to receive the Per Share Additional Stock; and each
share of Company Common Stock that is so converted shall, by virtue of
the Merger and without any action on the part of the holder thereof,
cease to be outstanding and shall be canceled and retired and shall
cease to exist; and each holder of a stock certificate which prior to
the Effective Time evidenced any such share (a "Stock Certificate")
shall thereafter cease to have any rights with respect to such share
except, upon the surrender of such Stock Certificate in accordance
with Section 4.3, the right to receive the Merger Shares provided for
in this Agreement;
3.1.2 Each share of Company Common Stock that,
immediately prior to the Effective Time, is owned by Parent, shall by
virtue of the Merger and without any action on the part of the Company
become one issued and outstanding share of Mergerco.
9
11
3.1.3 Each share of Company Common Stock that,
immediately prior to the Effective Time, is held in the treasury of
the Company, shall, by virtue of the Merger and without any action on
the part of the Company, cease to be outstanding and shall be canceled
and retired without payment of any consideration therefor, and shall
cease to exist; and
3.1.4 Each share of common stock of Mergerco issued
and outstanding immediately prior to the Effective Time shall continue
to be one issued and outstanding share of common stock of Mergerco.
3.2 DETERMINATION OF TOTAL CONSIDERATION, GROSS MERGER
CONSIDERATION, NET MERGER SHARES, EFFECTIVE TIME MERGER
SHARES, ETC.
3.2.1 The "Total Consideration" shall consist of $600,000
in cash (the "Minimum Cash") plus a combination of THQ Stock (the "Merger
Shares") and additional cash (the "Additional Cash") determined as follows,
based on the Stock Price:
--------------------------------------------------------------------------------------------------------------------
If the Stock Price is: Then the number of Merger Shares is: And the amount of the Additional Cash is:
====================================================================================================================
Below $20 320,000 $6.4 million less the product of 320,000
multiplied by the Stock Price
--------------------------------------------------------------------------------------------------------------------
$20 320,000 0
--------------------------------------------------------------------------------------------------------------------
Above $20 $6.4 million divided by the lesser of (i) 0
the Stock Price, or (ii) $25
--------------------------------------------------------------------------------------------------------------------
3.2.2 The "Gross Merger Consideration" shall be an
amount equal to (i) the Total Consideration, less (ii) the amount by
which (a) the portion of the Total Consideration that is applied or
deemed applied to satisfy the liabilities of the Company pursuant to
Sections 4.5.1 through 4.5.4 and the repurchase of the Warrants
pursuant to Section 4.5.5, exceeds (b) $167,448; for the purposes of
this computation, if the amount of cash so applied or deemed applied
is greater than the Minimum Cash, the number of Merger Shares included
in the Gross Merger Consideration shall be reduced by an amount equal
to (I) such excess, divided by (II) the Stock Price.
3.2.3 The "Net Merger Shares" shall be a number of
Merger Shares equal to (i) the number of Merger Shares that constitute
the Gross Merger Consideration, less (ii) a fraction,the numerator of
which is (a) the number of Purchased Shares, multiplied by (b) the
number of Merger Shares that constitute the Gross Merger
Consideration; and the denominator of which is the Company Common
Stock Equivalents plus the number of Purchased Shares. For example,
if the number of Merger Shares that constitutes the Gross Merger
Consideration is 215,000, the number of Purchased Shares is 222,000
and the Company Common Stock Equivalents is 4,977,000, the Net Merger
Shares would be 205,819.
3.2.4 The "Effective Time Merger Shares" shall be
the Net Merger Shares less the Escrow Shares deposited into the Escrow
pursuant to Section 4.4.
10
12
3.2.5 The "Per Share Stock" shall be a
number of Effective Time Merger Shares equal to the quotient obtained
by dividing (i) the number of Effective Time Merger Shares, less the
number of Merger Shares that will be issuable upon the exercise in
full of all of the Options outstanding as of the Efffective Time, by
(ii) the number of shares of Company Common outstanding at the
Effective Time.
3.2.6 The "Per Share Additional Stock" shall be an
amount equal to the quotient obtained by dividing (i) the number of
Net Merger Shares, if any, remaining in the Escrow upon termination of
the Escrow, by (ii) the number of shares of Company Common outstanding
at the Effective Time.
3.3 DISSENTING SHARES. Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock, if any, that are
issued and outstanding immediately prior to the Effective Time and that are
held by Stockholders who have not voted in favor of adoption of this Agreement,
and who have delivered a written demand for appraisal of such shares in the
manner provided in Section 262 of the DGCL, and who are otherwise entitled to
the benefits of such Section (the "Dissenting Shares"), shall not be converted
into or be exchanged for the right to receive the consideration provided in
Section 3.1.1, unless and until such holder shall have failed to perfect such
demand within the period prescribed by the DGCL or shall have effectively
withdrawn or lost the right to appraisal and payment under the DGCL. If such
holder shall have so failed to perfect or shall have effectively withdrawn or
lost such right, such shares shall thereupon be deemed to have been converted
into and to have become exchangeable for, at the Effective Time, the right to
receive the consideration provided in Section 3.1.1, without any interest
thereon.
3.4 CLOSING OF COMPANY TRANSFER RECORDS. At the
Effective Time, the stock transfer records of the Company shall be closed and
no transfer of shares of Company Common Stock shall thereafter be made.
4. CONSUMMATION OF THE MERGER.
4.1 CLOSING DATE. On the Closing Date, the Company,
Parent and Mergerco shall cause to be filed with the Secretary of State of the
State of Delaware a properly executed certificate of merger consistent with the
terms of this Agreement and the DGCL and in form and substance reasonably
satisfactory to the parties hereto (the "Certificate of Merger"). The
Certificate of Merger shall state that the effective time of the Merger (the
"Effective Time") shall be upon the filing of the Certificate of Merger, and
the Merger shall be effective at that time. The date on which the Certificate
of Merger is filed (the "Closing Date") shall be a date occurring within ten
business days after the condition set forth in Section 9.6 is satisfied or such
other date, as may be agreed upon by Parent and the Company at which the
conditions set forth in Sections 9 and 10 are satisfied or waived. In the
event that one or more of the conditions set forth in Sections 9 or 10 has not
been satisfied or waived on any date scheduled to be the Closing Date, this
Agreement shall not terminate (unless pursuant to the exercise by one of the
parties of its rights under Section 12) and the Closing Date shall be
rescheduled to such date as may be mutually agreed by Parent and the Company
or, if no such date is mutually agreed upon within two business days after the
previously scheduled Closing Date, the earliest date specified in a written
notice given by Parent or the Company to the other that is at least three
business days after the giving of such notice.
11
13
4.2 THE MERGER FILING. The "Merger Filing" shall mean
the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware. To facilitate the Merger Filing, the parties shall execute
and acknowledge the Certificate of Merger in accordance with the laws of the
State of Delaware prior to the Closing Date and the Company shall deliver the
executed Certificate of Merger to counsel for Parent. Such counsel shall file
the Certificate of Merger on the Closing Date immediately upon receipt of
telephonic authorization from representatives of Parent and the Company. On
the Closing Date, representatives of the parties shall meet at the offices of
Sidley & Austin at ▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, for the
purpose of delivering the documents described in Sections 4.6 through 4.8, and
subject to the satisfaction or waiver of each of the conditions set forth in
Sections 9 and 10, causing the Merger Filing to occur.
4.3 PAYMENT OF THE PER SHARE STOCK.
4.3.1 Parent shall establish such appropriate
procedures as may be necessary in order to provide for the payment, at
or as soon as practicable after the Effective Time, to each Effective
Time Stockholder who surrenders to Parent a duly endorsed Stock
Certificate together with a properly completed and duly executed
letter of transmittal, Merger Shares and cash in the amounts specified
in Section 3.1.1.
4.3.2 No certificate or scrip representing
fractional shares of THQ Stock shall be issued upon the surrender for
exchange of Stock Certificates pursuant to this Section 4.3. In lieu
of any such fractional share, each holder of Company Common Stock who
would otherwise be entitled to a fraction of a share of THQ Stock
shall be paid an amount in cash (without interest and rounded to the
nearest dollar), determined by multiplying the Stock Price by the
fractional interest to which such holder would otherwise be entitled.
For the purpose of paying such cash in lieu of fractional shares, all
Stock Certificates surrendered for exchange by a Stockholder shall be
aggregated.
4.3.3 No dividends or other distributions that are
declared on or after the Effective Time on THQ Stock, or are payable
to the holders of record thereof on or after the Effective Time, will
be paid to any Person entitled by reason of the Merger to receive a
certificate evidencing Merger Shares until such Person surrenders the
related Stock Certificate as provided in this Section 4.3.
4.3.4 The Merger Shares and cash issued or paid
upon the surrender of a Stock Certificate shall be deemed to have been
issued and paid in full satisfaction of all rights pertaining to the
shares of Company Common Stock evidenced by such Stock Certificates.
4.4 THE ESCROW. As a condition to the Merger Filing,
Parent shall deliver the following to the Escrow Agent, to be held by the
Escrow Agent in an escrow account (the "Escrow") in accordance with the
provisions of the Escrow Agreement the number of Merger Shares equal to 18% of
(i) the number of Merger Shares that are included in the Net Merger Shares,
less (ii) the number of Merger Shares that will be issuable upon the exercise
in full of all of the Options outstanding as of the Efffective Time (the
"Escrow Shares"). Within five business days after termination of the Escrow in
accordance with the Escrow Agreement, and pursuant to written instructions
delivered to the Escrow Agent by the Company and the Stockholders'
Representatives, the Escrow Agent shall deliver the Escrow Shares remaining in
the Escrow, after all deductions have been made therefrom pursuant to Section
11.1, (I) to each Effective Time Stockholder who surrendered a Stock
Certificate and received the Per Share Stock with respect to the shares
evidenced by such Stock Certificate, an amount equal to (a) the Per Share
Additional Stock, multiplied by (b) the number of shares of Company Common
Stock evidenced by such Stock Certificate; and (II) the balance to Parent.
12
14
Thereafter the Escrow Agent shall not be liable to any Persons claiming any
amount of such Escrow Shares; and any subsequent distribution of the balance of
such Escrow Shares shall be effected directly with Parent.
4.5 SATISFACTION OF CERTAIN LIABILITIES AND PURCHASE OF
THE WARRANTS. Concurrently with the Merger Filing:
4.5.1 Parent shall either pay directly to EA the
full amount of the EA Obligations, or shall provide sufficient funds
to the Company to enable the Company to pay to EA the full amount of
the EA Obligations, in which case the Company shall apply such funds
for such purpose (in either case, in payment and satisfaction in full
of the EA Notes and using a portion of the Minimum Cash).
4.5.2 Parent shall either pay directly to each
General Creditor the full amount due and owing as of such date to such
General Creditor, or shall provide sufficient funds to the Company to
enable the Company to pay to each General Creditor the full amount due
and owing as of such date to such General Creditor (or that has
accrued in favor of such General Creditor through the Closing Date),
in which case the Company shall apply such funds for such purpose (in
either case, using a portion of the Minimum Cash).
4.5.3 Parent and the Company shall agree in writing
on the amount of the obligations owing as of such date to each General
Creditor that is not yet due as of such date, and such amount shall be
deemed assumed by Parent at the Effective Time and shall be paid by
Parent in cash in the ordinary course of business following the
Effective Time.
4.5.4 Parent shall either pay directly to each
Investor Noteholder the Investor Notes Obligations, or shall provide
sufficient cash and/or THQ Stock to enable the Company to pay to each
Investor Noteholder the Investor Notes Obligations, in payment and
satisfaction in full of the Investor Notes (in either case using (i)
first, the portion of the Minimum Cash not applied pursuant to
Sections 4.5.1 and 4.5.2, if any, (ii) second, the Additional Cash, if
any, and (iii) the balance, the number of Merger Shares equal to such
balance owing to the Investor Noteholders divided by the Stock Price).
4.5.5 Parent shall either pay directly to each
Investor Noteholder, or shall provide sufficient THQ Stock to enable
the Company to pay to each Investor Noteholder, in consideration for
the purchase and cancellation of the Warrant(s) owned by such
Warrantholder, the number of Merger Shares equal to (i) 35% of the
principal balance of the Investor Note(s) issued to such Investor
Noteholder, divided by (ii) the Stock Price.
4.6 PARENT'S DELIVERIES. Subject to fulfillment or
waiver of the conditions set forth in Section 9, concurrently with the Merger
Filing Parent shall deliver to the Company all of the following:
4.6.1 a copy of the Certificate of Incorporation of
Parent, certified as of a recent date by the Secretary of State of the
State of Delaware;
4.6.2 a certificate of good standing of Parent,
issued as of a recent date by the Secretary of State of the State of
Delaware;
4.6.3 a certificate of the Secretary or an
Assistant Secretary of Parent, dated the Closing Date, in form and
substance reasonably satisfactory to the Company, to the effect that
(i) the
13
15
Certificate of Incorporation of Parent has not been amended or
modified since the date of certification of the Delaware Secretary of
State referred to in Section 4.6.1; (ii) the Bylaws of Parent, as
attached thereto, have not been amended or modified as of the Closing
Date; (iii) the resolutions of the Board of Directors of Parent
authorizing the execution, delivery and performance of this Agreement
and the transactions contemplated herein by Parent, as attached
thereto, are in full force and effect and have not been superseded,
amended or modified as of the Closing Date; and (iv) the incumbency
and signatures of the officers of Parent executing this Agreement and
any Parent Ancillary Agreement are as set forth on the certificate;
4.6.4 an opinion or opinions of counsel to Parent,
dated the Closing Date and in form and substance reasonably
satisfactory to the Company;
4.6.5 the certificate contemplated by Section 10.1,
duly executed by the President or any Vice President of Parent;
4.6.6 the Supplements and Amendments, dated the
Closing date and duly executed by Parent; and
4.6.7 the Employment Agreement, dated the Closing
Date and duly executed by Parent.
4.7 MERGERCO'S DELIVERIES. Subject to the fulfillment or
waiver of the conditions set forth in Section 9, concurrently with the Merger
Filing Mergerco shall deliver to the Company all of the following:
4.7.1 a copy of the Certificate of Incorporation of
Mergerco, certified as of a recent date by the Secretary of State of
the State of Delaware;
4.7.2 a certificate of good standing of Mergerco,
issued as of a recent date by the Secretary of State of the State of
Delaware;
4.7.3 a certificate of the Secretary or an
Assistant Secretary of Mergerco, dated the Closing Date, in form and
substance reasonably satisfactory to the Company to the effect that
(i) the Certificate of Incorporation of Mergerco has not been amended
or modified since the date of certification of the Delaware Secretary
of State referred to in Section 4.7.1; (ii) the Bylaws of Mergerco, as
attached thereto, have not been amended or modified as of the Closing
Date; (iii) the resolutions of the Board of Directors of Mergerco
authorizing the execution, delivery and performance of this Agreement
and the transactions contemplated herein by Mergerco and the written
consent of Parent adopting this Agreement in accordance with Section
251 of the DGCL, as attached thereto, are in full force and effect and
have not been superseded, amended or modified as of the Closing Date;
and (iv) the incumbency and signatures of the officers of Mergerco
executing this Agreement are as set forth on the certificate;
4.7.4 an opinion or opinions of counsel to
Mergerco, dated the Closing Date and in form and substance reasonably
satisfactory to Parent; and
4.7.5 the certificate contemplated by Section 10.1,
duly executed by the President or any Vice President of Mergerco.
14
16
4.8 THE COMPANY'S DELIVERIES. Subject to fulfillment or
waiver of the conditions set forth in Section 10, concurrently with the Merger
Filing the Company shall deliver (or cause to be delivered) to Parent all of
the following:
4.8.1 a copy of the Certificate of Incorporation of
the Company, certified as of a recent date by the Secretary of State
of the State of Delaware;
4.8.2 a certificate of good standing of the
Company, issued as of a recent date by the Secretary of State of the
State of Delaware;
4.8.3 a certificate of the Secretary or an
Assistant Secretary of the Company, dated the Closing Date, in form
and substance reasonably satisfactory to Parent, to the effect that
(i) the Certificate of Incorporation of the Company has not been
amended or modified since the date of certification of the Delaware
Secretary of State referred to in Section 4.8.1; (ii) the Bylaws, as
attached thereto, have not been amended or modified as of the Closing
Date; (iii) the resolutions of the Board of Directors of the Company
authorizing the execution and performance of this Agreement and the
transactions contemplated herein and the resolutions of the
Stockholders adopting this Agreement, as attached thereto, are in full
force and effect and have not been superseded, amended or modified as
of the Closing Date; and (iv) the incumbency and signatures of the
officers of the Company executing this Agreement and any Company
Ancillary Agreement are as set forth on the certificate;
4.8.4 an opinion or opinions of counsel to the
Company, dated the Closing Date and in form and substance reasonably
satisfactory to Parent;
4.8.5 all consents, waivers or approvals, if any,
obtained by the Company with respect to the consummation of the
Contemplated Transactions;
4.8.6 the certificates contemplated by Sections 9.1
and 9.2, duly executed by the President or any Vice President of the
Company;
4.8.7 the Employment Agreement, dated the Closing
Date and duly executed by ▇▇▇▇▇ and the Company;
4.8.8 the Supplements and Amendments, dated the
Closing Date and duly executed by the Company and each of ▇▇▇▇▇ and
the Other Executives;
4.8.9 the General Release and Covenant Not to ▇▇▇,
dated the Closing Date and duly executed by each of TechFarm, ▇▇▇▇▇
and the Other Executives.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As an inducement to Parent and Mergerco to enter into this
Agreement and to consummate the transactions contemplated hereby, the Company
represents and warrants to Parent and Mergerco as follows:
15
17
5.1 ORGANIZATION AND GOOD STANDING. The Company is duly
and validly formed and subscribed under the laws of Delaware, is validly
existing and in good standing under the laws of Delaware and any applicable
provincial or local authority, has the power and authority to own, operate and
lease its properties and to carry on its business as now conducted and as
presently proposed to be conducted and is registered or qualified to conduct
its business in each country and subdivision thereof (including each state)
where it owns or rents property, has employees or conducts business. Schedule
5.1 contains a correct and complete list of the countries and the subdivisions
thereof in which the Company is qualified or registered to conduct business.
True and complete copies of the Company's Certificate of Incorporation and all
amendments thereto through the date hereof, and the Company's Bylaws as amended
through the date hereof, have been delivered to Parent.
5.2 POWER, AUTHORIZATION AND VALIDITY.
5.2.1 The Company has the right, power, legal
capacity and authority to enter into and perform its obligations under
this Agreement and all of the Company Ancillary Agreements.
5.2.2 The Company has full power and authority to
execute, deliver and perform this Agreement and all of the Company
Ancillary Agreements. The execution, delivery and performance of this
Agreement and the Company Ancillary Agreements by the Company have
been duly authorized and approved by the Company's board of directors
and, except for the adoption of this Agreement by the Stockholders in
accordance with Section 7.2.1 and the Merger Filing, no other
corporate proceedings on the part of the Company are necessary to
authorize this Agreement or the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the
Company and is the legal, valid and binding obligation of the Company
enforceable in accordance with its terms, and each of the Company
Ancillary Agreements has been duly authorized by the Company and upon
execution and delivery by the Company will be a legal, valid and
binding obligation of the Company enforceable in accordance with its
terms.
5.2.3 Other than the Merger Filing, no consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state or local
governmental authority on the part of the Company (the "Governmental
Consents and Filings") is required in connection with the consummation
of the transactions contemplated by this Agreement and the Company
Ancillary Agreements (the "Contemplated Transactions").
5.3 CAPITALIZATION.
5.3.1 The authorized capital of the Company
consists of 7,500,000 shares of common stock, par value $0.01 per
share, of which 4,902,000 have been duly issued and are currently
issued and outstanding and none are held as treasury shares. The
number of shares reserved for issuance and the purpose of such
reservation are set forth on Schedule 5.3.
5.3.2 Except for (i) the Investor Notes, (ii) the
Warrants, and (iii) the 977,000 shares of Common Stock reserved for
issuance under the Stock Option Plan, under which Options to purchase
297,000 shares of Common Stock are outstanding:
5.3.2.1 There are not outstanding any
options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the
16
18
Company of any shares of its capital stock or any securities
convertible into or ultimately exchangeable or exercisable for
any shares of the Company's capital stock; and
5.3.2.2 Except as set forth on Schedule
5.3.2, no shares of the Company's outstanding capital stock,
or capital stock issuable upon exercise or exchange of any
outstanding options, warrants or rights, or other stock
issuable by the Company, are subject to any rights of first
refusal or other rights to purchase such stock (whether in
favor of the Company or any other person), pursuant to any
agreement or commitment of the Company.
5.3.3 Attached to this Agreement as Schedule 5.3 is
a complete list of (i) all Stockholders and the number of shares of
Company Common Stock held by each, (ii) each holder of a Warrant and
the number of Warrants held by each, (iii) all Investor Noteholders,
the amount of each Convertible Note, and the amount that will be
payable on each Convertible Note as of the Merger Filing, and (iv)
each of the EA Notes and the amount that will be payable on each EA
Note as of the Merger Filing.
5.3.4 At the Effective Time and after giving effect
to the transactions consummated concurrently with the Merger Filing,
(i) none of the Warrants, the Investor Notes or the EA Notes will be
outstanding, and (ii) Options to purchase not more than 297,000 shares
of Company Common Stock will be outstanding.
5.3.5 All of the issued and outstanding shares of
Company Common Stock are held beneficially and of record by the
Persons identified as the holder of such shares in Schedule 5.3, free
and clear of any lien, charge or encumbrance (except as set forth in
Schedule 5.3), and no voting, dividend or other rights to any of such
shares have been granted to any party other than the indicated
beneficial and record owner. All issued and outstanding securities of
the Company have been duly authorized and validly issued, are fully
paid and nonassessable, are not subject to any right of rescission,
and have been offered, issued, sold and delivered by the Company in
full compliance with all registration or qualification requirements
(or applicable exemptions therefrom) and all other applicable
provisions, including, without limitation, anti-fraud provisions of
the securities and corporate laws of the United States, Delaware,
Massachusetts and all other applicable jurisdictions. There is no
liability to any beneficial or record holder of the Company securities
for dividends accrued or declared but unpaid. Except as set forth on
Schedule 5.3.5, there are no voting agreements, rights of first
refusal or other restrictions (other than normal restrictions on
transfer under applicable securities laws) applicable to any of the
Company's outstanding shares. The Company has no liability to any
former stockholders or partners. The Company has not issued any
certificate evidencing any shares of Company Common Stock in
replacement for any certificate that has been lost, destroyed or
stolen, except upon receipt from the issuee thereof of written
indemnification agreements in favor of the Company. True and complete
copies of such indemnification agreements have been delivered to
Parent.
5.3.6 The Company has not granted or agreed to
grant to any person or entity any rights to have any securities of the
Company registered or listed with any governmental authority or stock
exchange in order to facilitate the sale of such securities.
17
19
5.4 SUBSIDIARIES. The Company does not have any
subsidiaries or any controlling interest, direct or indirect, in any Person.
5.5 NO VIOLATIONS OR REQUIRED CONSENTS. Neither the
execution and delivery of this Agreement nor any of the Company Ancillary
Agreements, nor the consummation of any Contemplated Transaction, (a) will
conflict with or (with or without notice or lapse of time, or both) result in a
breach of the terms, conditions or provisions of, or constitute a default, an
event of default or an event creating rights of acceleration, termination or
cancellation or a loss of rights under, or result in the creation or imposition
of any Encumbrance upon, any of the Company's assets, under (i) the Certificate
of Incorporation or Bylaws of the Company, (ii) any Company Agreement, (iii)
any other material note, instrument, agreement, mortgage, lease, license,
franchise, permit or other authorization, right, restriction or obligation to
which the Company is a party or by which any of its assets or business is
subject or by which the Company is bound, (iv) any Court Order to which either
the Company or, to the Company's knowledge, any Stockholder is a party or by
which the Company's assets or business is subject or by which the Company is
bound, or (v) any Requirements of Laws affecting the Company or its respective
assets or business; or (b) requires the consent, approval or notification of
any third party (other than the Governmental Consents and Filings).
5.6 LITIGATION. Except as set forth in Schedule 5.6,
there is not (i) any Action pending against the Company, or any officer,
director or employee of the Company, (ii) to the knowledge of the Company any
threat of any Action, or (iii) any factual basis for any Action, which Action,
if determined adversely to the Company, has an amount at issue that is greater
than $3,000 individually and $10,000 in the aggregate. The Company is not a
party to or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality and there is no
Action initiated by the Company currently pending or any Action which the
Company intends to initiate.
5.7 FINANCIAL STATEMENTS; BOOKS AND RECORDS.
5.7.1 The Company has delivered to Parent the
Company's unaudited balance sheet as of the Balance Sheet Date and
statement of operations for the period commencing on the date of
incorporation of the Company and ending on the Balance Sheet Date,
which are attached hereto as Schedule 5.7 (the "Financial
Statements"). The Financial Statements: (i) were prepared in
accordance with the books and records of the Company; (ii) are true,
correct, complete and fairly present the financial condition of the
Company at the respective dates therein indicated and the results of
operations for the respective periods therein specified; (iii) have
been prepared in accordance with Agreed Accounting Principles applied
on a consistent basis; and (iv) is certified by the Chief Financial
Officer of the Company as fairly presenting, in all material respects,
the financial position of the Company.
5.7.2 Without limiting the foregoing, the Company
has no debt, liability or obligation of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due,
that is not reflected, reserved against or disclosed in the Financial
Statements, except for (i) those that are not required to be reported
in accordance with Agreed Accounting Principles and are disclosed by
the Company in writing to Parent to the extent required pursuant to
Sections 5.6 or 5.17 hereof, and (ii) those nonmaterial obligations,
individually or in the aggregate, that may have been incurred after
the Balance Sheet Date in the ordinary course of its business,
consistent with past practice.
18
20
5.8 AVAILABILITY OF ASSETS AND LEGALITY OF USE. The
assets owned, leased or licensed by the Company constitute all the assets used
in its business (including all books, records, computers and computer programs
and data processing systems). All Tangible Assets are in good condition
(subject to normal wear and tear and immaterial impairments of value and
damage) and serviceable condition and are generally suitable for the uses for
which intended. The Company does not employ any assets that are owned by any
Person other than the Company or a lessor of such assets to the Company
pursuant to a lease that is either set forth on Schedule 5.17 or is not
required to be set forth thereon.
5.9 GOVERNMENTAL PERMITS.
5.9.1 The Company owns, holds or possesses all
licenses, franchises, permits, privileges, immunities, approvals and
other authorizations from Governmental Bodies which are necessary to
entitle it to own or lease, operate and use its assets and to carry on
and conduct its business as currently conducted (herein collectively
called "Governmental Permits"). Schedule 5.9 sets forth a list and
brief description of each Governmental Permit owned, held or possessed
by the Company. Complete and correct copies of all such Governmental
Permits have been delivered to Parent.
5.9.2 Except as set forth in Schedule 5.9, (i) the
Company has fulfilled and performed its obligations under each of the
Governmental Permits, and no event has occurred or condition or state
of facts exists which constitutes or, after notice or lapse of time or
both, would constitute a breach or default under any such Governmental
Permit or which permits or, after notice or lapse of time or both,
would permit revocation or termination of any such Governmental
Permit, or which might adversely affect in any material respect the
rights of the Company under any such Governmental Permit; (ii) no
notice of cancellation, of default or of any material dispute
concerning any Governmental Permit, or of any event, condition or
state of facts described in the preceding clause, has been received
by, or is known to, the Company; and (iii) each of the Governmental
Permits is valid, subsisting and in full force and effect and will
continue in full force and effect after the Effective Time, in each
case without (x) the occurrence of any breach, default or forfeiture
of rights thereunder, or (y) the consent, approval, or act of, or the
making of any filing with, any Governmental Body.
5.10 REAL PROPERTY. The Company does not own any Real
Property.
5.11 PERSONAL PROPERTY. The Company's fixed asset
register sets forth a true and complete listing as of January 30, 1998 of all
machinery, equipment, vehicles, furniture and other personal property owned by
the Company, other than such items that have been expended in the fiscal year
in which acquired. A complete and correct copy of such fixed asset register as
of such date has been delivered to Parent in the form of a document titled
Schedule of Capital Equipment and is dated January 30, 1998.
5.12 PERSONAL PROPERTY LEASES. The Company has delivered
to Parent true and correct copies of each lease or other agreement under which
the Company is lessee of, or holds or operates, any Tangible Assets.
5.13 TITLE TO PROPERTIES. The Company has good and
marketable title to all assets set forth on the balance sheet included in the
Financial Statements and all of the assets thereafter acquired by it (except
for such assets as have been spent, sold or transferred in the ordinary course
of business since the Balance
19
21
Sheet Date), free and clear of all Encumbrances, except Permitted Encumbrances.
All leases of real property (the "Leased Real Property") or personal property
to which the Company is a party (i) are in good standing in all material
respects, (ii) afford the Company peaceful and undisturbed possession of the
subject matter of the lease, and (iii) to the knowledge of the Company provide
the Company with valid leasehold interests in such assets free of any
Encumbrances except Permitted Encumbrances. The Company is not aware of any
violation, nor has any such entity or person received any notice of any
violation, of any zoning, building, safety or environmental ordinance,
regulation or requirement or other law, bylaw or regulation applicable to the
operation of owned or leased properties or assets, the violation of which could
have a material adverse effect on the Company's business. Neither the whole nor
any part of any Leased Real Property is subject to any pending suit for
condemnation or other taking by any public authority or other Person, and, to
the knowledge of the Company, no such condemnation or other taking is
threatened or contemplated.
5.14 ACCOUNTS RECEIVABLE. All accounts receivable of the
Company have arisen from bona fide transactions by the Company in the ordinary
course of its business.
5.15 TAXES.
5.15.1 (i) Except for any federal and state income
and/or franchise Tax Returns for the Company's fiscal year ended
December 31, 1996, the Company has filed on or before the date due all
Tax Returns required to be filed (after giving effect to any
extensions); (ii) all such Tax Returns are complete and accurate and
disclose all Taxes required to be paid by the Company for the periods
covered thereby and all Taxes shown to be due on such Tax Returns have
been timely paid; (iii) all Taxes (whether or not shown on any Tax
Return) owed by the Company and required to be paid on or before the
Closing Date have been (or will be) timely paid; (iv) the Company has
not waived or been requested to waive any statute of limitations in
respect of Taxes; (v) the Tax Returns referred to in clause (i) have
not been examined by the Internal Revenue Service or any state, local
or foreign taxing authority; (vi) there is no Action pending or
proposed or threatened with respect to Taxes of the Company and, to
the Company's knowledge, no basis exists therefor; (vii) the Company
is not a party to any Tax Sharing Arrangement or any Tax indemnity
arrangement and the Company will not have any liability under any Tax
Sharing Arrangement or Tax indemnity arrangement on or after the
Closing Date; (viii) the Company has filed returns as a separate
entity and has not been a member of any Company Group; (ix) there are
no liens for Taxes upon any of the Company Property except liens
relating to current Taxes not yet due; (x) all Taxes which the Company
is required by law to withhold or to collect for payment have been
duly withheld and collected, and have been paid or accrued, reserved
against and entered on the books of the Company; (xi) no claim has
ever been made by a Taxing authority in a jurisdiction where the
Company has never paid Taxes or filed Tax Returns asserting that the
Company is or may be subject to Taxes assessed by such jurisdiction;
(xii) the Company has no knowledge of any facts that, if known to any
taxing authority, would likely result in the issuance of a notice of
proposed deficiency or similar notice of intention to assess Taxes
against the Company; (xiii) there are no Tax rulings, requests for
rulings, or closing agreements relating to the Company which could
affect the Company's liability for Taxes for any period after the
Closing Date; (xiv) as a result of a change in accounting method for a
Tax period beginning on or before the Closing Date, the Company will
not be required to include any adjustment under Section 481(c) of the
Code (or any corresponding provision of state or local Tax law) in
taxable income for any Tax period beginning on or after the Closing
Date; (xv) as a result of any "closing agreement" (as described in
Section 7121 of the Code or any corresponding provision of state or
local Tax law), the Company will not be required to include any item
of income in, or exclude any item of deduction
20
22
from, any taxable period beginning on or after the Closing Date; (xvi) the
Company has not disposed of property in a transaction being accounted for under
the installment method pursuant to Section 453 or 453A of the Code; and (xviii)
the Company has not filed a consent under Section 341(f) of the Code or any
comparable provision of state or local Tax law.
5.15.2 No transaction contemplated by this Agreement is
subject to withholding under Section 1445 of the Code.
5.15.3 Except as set forth on Schedule 5.15.3, in connection
with the transactions contemplated by this Agreement there will be no
payment, nor will there be any acceleration of the vesting of any
options, payments or other benefits, in each case that will be (or
under Section 280G of the Code and the Treasury Regulations thereunder
will be presumed to be) a "parachute payment" to a "disqualified
individual" as those terms are defined in Section 280G of the Code and
the Treasury Regulations thereunder, without regard to whether such
payment or acceleration is reasonable compensation for personal
services performed or to be performed in the future.
5.16 ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet
Date, the Company has carried on its business in the ordinary course
substantially in accordance with the procedures and practices in effect on the
Balance Sheet Date, and since the Balance Sheet Date there has not been:
5.16.1 any change in the financial condition,
properties, assets, liabilities, business or operations of the Company
which change by itself or in conjunction with all other such changes,
whether or not arising in the ordinary course of business, has had or
can reasonably be expected to have a material adverse effect on the
Company;
5.16.2 any contingent liability incurred by the
Company as guarantor or surety with respect to the obligations of
others;
5.16.3 any mortgage, encumbrance or lien filed
against any of the properties of the Company;
5.16.4 except as set forth on Schedule 5.16.4, any
obligation or liability in excess of $10,000, individually or in the
aggregate, incurred by the Company other than in the ordinary course
of business;
5.16.5 any purchase, sale or other disposition, or
any agreement or other arrangement for the purchase, sale or other
disposition, of any of the properties or assets of the Company other
than in the ordinary course of business or in amounts less than
$10,000;
5.16.6 any damage, destruction or loss, whether or
not covered by insurance, materially and adversely affecting the
properties, assets or business of the Company (as presently conducted
or presently proposed to be conducted);
5.16.7 except as set forth on Schedule 5.16.7, any
declaration, setting aside or payment of any dividend on, or the
making of any other distribution in respect of, the shares of the
Company, any split, combination or recapitalization of the capital
stock of the Company or any direct or indirect redemption, purchase or
other acquisition of the capital stock of the Company;
21
23
5.16.8 any material change with respect to the
management, supervisory, development or other key personnel of the
Company;
5.16.9 except as set forth on Schedule 5.16.9, any
satisfaction or discharge of any lien, claim or encumbrance or payment
of any obligation by the Company, except such a satisfaction,
discharge or payment made in the ordinary course of business that is
not material to the assets, properties, financial condition, operating
results or business of the Company;
5.16.10 any obligation or liability incurred by the
Company to any of its officers, directors or any loans or advances
made to any of its officers or directors except normal compensation
and expense allowances payable to officers consistent with past
practices;
5.16.11 any waiver by the Company of a valuable
right or of a material debt;
5.16.12 any material change or amendment to a
material contract or arrangement by which the Company or any of its
assets or properties is bound or subject, except for changes or
amendments which are expressly provided for or disclosed in this
Agreement or the Company Ancillary Agreements;
5.16.13 except as set forth on Schedule 5.16.13, any
capital expenditure or commitments therefor by the Company in excess
of $10,000, individually or in the aggregate; or
5.16.14 except as set forth on Schedule 5.16.14, to
the knowledge of the Company, any other event or condition of any
character which would materially and adversely affect the assets,
properties, financial condition, operating results or, business of the
Company.
5.17 AGREEMENTS AND COMMITMENTS.
5.17.1 Attached to this Agreement as Schedule 5.17
is a complete list of every oral or written executory agreement,
obligation or commitment which is material to the Company, its
financial condition, business or prospects (including but not limited
to):
5.17.1.1 Any contract, commitment, letter
contract, quotation, purchase order, bid or proposal providing
for payments by or to the Company in an aggregate amount of
$5,000 or more;
5.17.1.2 Any license agreement as licensor
or licensee or any agreement to encumber, transfer or sell
rights in or with respect to any of the Company's Intellectual
Property (as defined in Section 5.18.1), except for standard
non-exclusive software licenses for products that are
available through general retail or mail-order channels that
are granted to end-user customers in the ordinary course of
business, the form of which has been provided or made
available to Parent's counsel;
5.17.1.3 Any agreement for the purchase,
sale or lease of real or personal Property or intangible
assets involving total payments of more than $10,000;
22
24
5.17.1.4 Any agreement for the purchase or
sale of any business unit, business entity or franchise;
5.17.1.5 Any publishing, dealer,
distributor, sales representative, original equipment
manufacturer or value added remarketer agreement and any other
agreement accounting for more than $10,000 of the Company's
revenue in any consecutive twelve-month period;
5.17.1.6 Any purchase or sale agreement
relating to any equity or debt security;
5.17.1.7 Any joint venture contract or
arrangement or any other agreement that involves a sharing of
profits with other persons or entities;
5.17.1.8 Any instrument evidencing
indebtedness for borrowed money by way of direct loan, sale of
debt securities, purchase money obligation, conditional sale,
guarantee or otherwise (except for trade indebtedness and
advances to employees incurred in the ordinary course of
business), and any instrument, contract, indenture or
financing statement evidencing any lien, encumbrance or
security interest in any of the Company's assets;
5.17.1.9 Any contract containing covenants
purporting to limit the Company's freedom to compete in any
line of business in any geographic area;
5.17.1.10 Any lease of real or personal
property; and
5.17.1.11 Any other agreement not listed
above that is material to the assets, properties, financial
condition, operating results or business of the Company.
5.17.2 Except as set forth on Schedule 5.17.2, all
agreements, obligations and commitments listed or required to be
listed according to Sections 5.17.1, 5.18 and 5.23 (collectively the
"Company Agreements") are valid and in full force and effect in all
material respects and a true and complete copy of each has been
delivered to, or made available for inspection by, Parent's counsel.
Neither the Company nor any other party is in breach or default in any
material respect under the terms of any Company Agreement, nor does
the Company have any knowledge of any claim or threat by any other
party that the Company has breached any Company Agreement.
5.17.3 To the extent any Company Agreement with a
third party provides for development or other performance by the
Company: (i) such development or other performance has been timely and
properly completed in accordance with the terms of such Company
Agreement and the Company has no liability arising out of any prior
deliverables; (ii) the Company is in full compliance with all internal
schedules and specifications to meet any milestone or other delivery
specified in such Company Agreement the date of which milestone or
delivery has not yet occurred; and (iii) the Company is not aware of
any matter which might cause the Company not to timely and properly
meet any such milestone or other delivery date in full accordance with
the applicable Company Agreement. The Company is in full compliance
with all maintenance and enhancement obligations contained in all
Company Agreements, and the Company has not received any notice from
23
25
any party to the contrary. No other party to a Company Agreement has
ever exercised a "right to complete" or similar provision in a Company
Agreement that allowed such party to correct or complete any
deliverable item from the Company. Except as set forth on Schedule
5.17, there are no Company AgreementS regarding the publishing or
distribution of products. In the event any Company Agreement is
terminated by the other party thereto, the Company will have no
liability for a refund or other repayment of any advance, minimum
guarantee or other amounts previously paid to the Company under such
Company Agreement.
5.18 INTELLECTUAL PROPERTY.
5.18.1 The Company owns or has the right to use all
right, title and interest in all patents, patent applications,
trademarks, service marks, trade names, copyrights, trade secrets,
know-how, technology, Moral Rights (as defined below) and other
intellectual property and proprietary rights reasonably necessary to
the conduct of its business as presently conducted and as presently
proposed to be conducted (the "Company Intellectual Property").
"Moral Rights" means any rights of paternity or integrity, any right
to claim authorship of an invention, improvement, original work of
authorship, formula, process, computer program, database or trade
secret ("Inventions"), to object to any distortion, mutilation or
other modification of, or other derogatory action in relation to, any
Invention, whether or not such would be prejudicial to any developer's
honor or reputation. Set forth on Schedule 5.18 hereto is a true and
complete list of all patents, copyright and trademark registrations
and all applications therefor regarding the Company Intellectual
Property that are owned or licensed by the Company, and no loss,
cancellation, termination, expiration or denial of any such
registration or application is foreseeable by the Company except as
set forth in Schedule 5.18. Copies of all forms of non-disclosure or
confidentiality agreements utilized to protect the Company
Intellectual Property have been provided to Parent's counsel.
5.18.2 To the knowledge of the Company, no employee,
Stockholder or other security holder of the Company or any other
Person has any ownership right, title, interest, claim in or lien on
any of the Company Intellectual Property, nor is any Person currently
infringing or using any misappropriated Company Intellectual Property.
The Company has taken and will take all steps reasonably necessary to
preserve its legal rights in, and the secrecy of, the Company
Intellectual Property, except that for which disclosure is required
for legitimate business or legal reasons. Except as set forth in any
Company Agreement, the Company has not granted, and there are not
outstanding, any options, licenses or agreements of any kind relating
to any Company Intellectual Property, nor is the Company bound by or a
party to any option, license or agreement of any kind with respect to
any of the Company Intellectual Property. Except as set forth in any
Company Agreement, the Company is not obligated to pay any royalties
or other payments to third parties with respect to the marketing,
sale, distribution, manufacture, license or use of any Company
Intellectual Property.
5.18.3 The business of the Company as presently
conducted and as proposed to be conducted by the Company with respect
to product produced or in production prior to the Closing does not and
will not cause the Company to infringe or violate any of the patents,
trademarks, service marks, trade names, copyrights, trade secrets,
proprietary rights or other intellectual property rights of any other
person or entity, and the Company has not received any claim or notice
of infringement or potential infringement of the intellectual property
of any other person. The Company is not using any confidential
information or trade secrets of any former employer of any of its past
or present employees. The Company has no reason to believe it is or
will be necessary to utilize any inventions
24
26
of any employees of the Company (or persons the Company currently
intends to hire) made prior to their employment by the Company.
Except as set forth on Schedule 5.18.3, at no time during the
conception or reduction to practice of any Invention that is a part of
the Company Intellectual Property was any developer, inventor or other
contributor to such Invention operating under any grants from any
governmental entity or agency or private source, performing research
sponsored by any governmental entity or agency or private source or
subject to any employment agreement or invention assignment or
nondisclosure agreement or other obligation with any third party that
could adversely affect the Company's rights in the Company
Intellectual Property.
5.19 PRODUCTS AND DISTRIBUTION. Schedule 5.19 contains a
complete list of all of the software products (by SKU) developed, published
and/or distributed by the Company which products have been commercially
released (the "Published Products") and all products (by SKU) currently under
development by the Company, or which the Company is contractually obligated to
develop (the "Products Under Development") and collectively with the Published
Products referred to as the "Products").
5.19.1 Schedule 5.19 sets forth, for each Product, a
list of all contracts and agreements (including without limitation all
development, trademark license, technology license, distribution or
other agreements) relating to the Product.
5.19.2 Schedule 5.19 also sets forth, for each
Product Under Development and as of the date of this Agreement, the
following: (a) the currently scheduled final software delivery date,
and (b) an estimate of percentage of completion.
5.20 DEVELOPMENT TOOLS. Schedule 5.20 contains a complete
list of all software development tools used or intended to be used by the
Company in the development of any of the Products, except for any such tools
that are generally available and are used in their generally available form
(such as standard compilers) (the "Development Tools"). Schedule 5.20 also
sets forth, for each Development Tool: (i) for any Development Tool not
entirely developed internally by the Company employees, the identity of the
independent contractors and consultants involved in such development and a list
of the agreements with such independent contractors and consultants; (ii) a
list of any third parties with any rights to receive royalties or other
payments with respect to such Development Tool, and a schedule of all such
royalties payable; (iii) a list of any restrictions on the Company's
unrestricted right to use and distribute such Development Tool; and (iv) a list
of all agreements between the Company and third parties for the use by such
third party of such Development Tool. The Company has sufficient right, title
and interest in and to the Development Tools for the conduct of its business as
currently conducted and as proposed to be conducted.
5.21 COMPLIANCE WITH LAW AND CHARTER DOCUMENTS. The
Company is not in violation or default of any provisions of its Certificate of
Incorporation or Bylaws, both as amended; and to the knowledge of the Company,
except for any violations that individually and in the aggregate would have no
material adverse impact on the Company's business, the Company is in compliance
with all applicable statutes, laws, regulations and executive orders of the
United States and all states, provinces and local authorities and all foreign
countries or other governmental bodies and agencies having jurisdiction over
the Company's business or properties. The Company has not received any notice
of any violation of such statutes, laws, regulations or orders which has not
been remedied prior to the date hereof.
25
27
5.22 [RESERVED].
5.23 EMPLOYEES AND EMPLOYEE RELATIONS.
5.23.1 The Company has no employment contract or
material consulting agreement currently in effect that is not
terminable on notice or whose lawful termination would result in any
payment to the terminated employee greater than the minimum amounts
required by Massachusetts law upon termination of an employee (other
than agreements with the sole purpose of providing for the
confidentiality of proprietary information or assignment of
inventions). All officers, employees and consultants of the Company
have executed and delivered to the Company an agreement regarding the
protection of such proprietary information and the assignment of
inventions to the Company in the form previously delivered to Parent.
The Company Intellectual Property does not incorporate or include any
"Prior Inventions" of any officer, employee or consultant (as such
term is defined in such forms).
5.23.2 The Company (i) has never been and is not now
subject to a union organizing effort, (ii) is not subject to any
collective bargaining agreement with respect to any of its employees,
(iii) is not subject to any other contract, written or oral, with any
trade or labor union, employees' association or similar organization,
and (iv) is not a party to any current strike or labor dispute. To
the knowledge of the Company, (I) no labor union has requested, sought
or attempted to represent any employees, representatives or agents of
the Company, (II) there is no labor organization activity involving
the Company's employees, (III) the consummation of the Contemplated
Transactions will not have a material adverse effect on the Company's
labor relations and (IV) none of the Company's key employees intend to
leave their employ.
5.23.3 Schedule 5.23.3 contains a summary of all
pension, retirement, disability, medical, dental or other health
plans, life insurance or other death benefit plans, profit sharing,
deferred compensation agreements, stock, option, bonus or other
incentive plans, vacation, sick, holiday or other paid leave plans,
severance plans or other similar employee benefit plans maintained by
the Company (the "Employee Plans"). Each of the Employee Plans, and
their administration, is, in all material respects, in compliance with
all applicable federal, state, provincial, municipal, local and other
governmental laws and ordinances, orders, rules and regulations and
the Company is in full compliance with the terms of all of the
Employee Plans.
5.23.4 All contributions or other payments due with
respect to any Employee Plan have been made or accrued on the
Financial Statements except those contributions or payments accruing
after the Balance Sheet Date in the ordinary course.
5.23.5 Neither the Company nor any ERISA Affiliate
has or has ever maintained any "employee pension benefit plan" or
"employee welfare benefit plan" (as such terms are defined in ERISA)
or has ever been required to make any payment to any employee pension
benefit plan or employee welfare plan.
5.23.6 To the knowledge of the Company, no employee
of the Company is in violation of (i) any material term of any
employment contract, invention disclosure or assignment agreement or
noncompetition agreement or (ii) any material term of any other
contract or agreement, or any restrictive covenant, relating to the
right of any such employee to be employed by the Company
26
28
or to use trade secrets or proprietary information of others. To the
knowledge of the Company, the mere fact of employment of any employee
of the Company does not subject the Company to any liability to any
third party. There are no Actions pending or, to the knowledge of the
Company, threatened (or any basis therefor), relating to the prior
employment of any of the Company's employees or consultants, their use
in connection with the Company's business of any information,
technology or techniques allegedly proprietary to any of their former
employers, clients or other parties, or their obligations under any
agreements with prior employers, clients or other parties.
5.23.7 Other than the Employment Agreement and
except as required by law or as set forth on Schedule 5.23.7, the
Company is not a party to any (i) agreement with any executive officer
or other key employee of the Company (a) the benefits of which are
contingent, or the terms of which are materially altered, upon the
execution of this Agreement or the Ancillary Agreements (other than
the modification of such benefits or terms of employment by the
Employment Agreement) or the occurrence of any of the Contemplated
Transactions, (b) providing any term of employment or compensation
guarantee or (c) providing severance benefits or other benefits after
the termination of employment of such employee regardless of the
reason for such termination of employment, or (ii) agreement or plan,
including, without limitation, any stock option plan, stock
appreciation rights plan or stock purchase plan, any of the benefits
of which will be materially increased, or the vesting of benefits of
which will be materially accelerated, by the occurrence of any of the
Contemplated Transactions or the execution of this Agreement or the
Ancillary Agreements or the value of any of the benefits of which will
be calculated on the basis of any of the Contemplated Transactions or
the provisions of this Agreement or the Ancillary Agreements.
5.23.8 A list of all ongoing employees, officers and
development consultants of the Company and their current compensation
(salary and bonuses), their last annual review date and their latest
change in compensation (salary or bonus) is set forth in Schedule
5.23.8 attached to this Agreement.
5.23.9 The Company is not aware that any employee or
consultant of the Company is obligated under any agreement (including
licenses, covenants or commitments of any nature) or subject to any
judgment, decree or order of any court or administrative agency, or
any other restriction, that would interfere with the use of his or her
best efforts to carry out his or her duties for the Company or to
promote the interests of the Company or that would conflict with the
Company's business as presently conducted or proposed to be conducted.
The carrying on of the Company's business by the employees and
contractors of the Company and the conduct of the Company's business
as presently proposed, will not, to the Company's knowledge, conflict
with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument
under which any of such employees or contractors or the Company is now
obligated.
5.24 BUSINESS PLAN. The Company's Business Plan (Revision
2.0) has been delivered to the Company under cover of a letter from ▇▇▇▇▇ ▇.
▇▇▇▇▇ dated April 7, 1998.
5.25 CORPORATE DOCUMENTS. The Company has made available
to Parent for examination all documents and information listed in the Exhibits
and Schedules to this Agreement, including, without limitation, the following:
(i) copies of the Company's Certificate of Incorporation as currently in
effect; (ii) the Company's corporate minute books containing all records of all
proceedings, consents, actions and meetings of the Company's stockholders and
the Company's Board of Directors or any committees thereof,
27
29
(iii) the Company's stock ledgers and journals reflecting all stock issuances
and transfers; and (iv) all permits, orders and consents now in effect and
issued by any regulatory agency expressly to the Company and all applications
for such permits, orders and consents. The minute books and stock records of
the Company provided to Parent contain a complete summary of all meetings,
consents and actions of the Board of Directors and the stockholders of the
Company, and all issuances and transfers of the Company securities, since the
time of its incorporation, accurately reflecting all transactions referred to
in such minutes and records in all material respects.
5.26 NO BROKERS. The Company is not obligated for the
payment of fees or expenses of any investment banker, broker or finder in
connection with the origin, negotiation or execution of this Agreement or the
Company Ancillary Agreements or in connection with any Contemplated
Transaction.
5.27 ENVIRONMENTAL MATTERS.
5.27.1 To the knowledge of the Company, during the
period that the Company has leased or owned its properties or owned or
operated any facilities, there have been no disposals, releases or
threatened releases of Hazardous Materials (as defined below) on, from
or under such properties or facilities. The Company has no knowledge
of any presence, disposals, releases or threatened releases of
Hazardous Materials on, from or under any of such properties or
facilities, which may have occurred prior to the Company having taken
possession of any of such properties or facilities. For purposes of
this Agreement, the terms "disposal," "release," and "threatened
release" shall have the definitions assigned thereto by CERCLA. For
the purposes of this Section "Hazardous Materials" shall mean any
hazardous or toxic substance, material or waste which is or becomes
prior to the Closing regulated under, or defined as a "hazardous
substance," "pollutant," "contaminant," "toxic chemical," "hazardous
material," "toxic substance," or "hazardous chemical" under (1)
CERCLA; (2) the Emergency Planning and Community Right-to-Know Act, 42
U.S.C. Section 11001 et seq.; (5) the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq.; (4) the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq.; (5) the
Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 et
seq.; (6) regulations promulgated under any of the above statutes; or
(7) any applicable state or local statute, ordinance, rule, or
regulation that has a scope or purpose similar to those statutes
identified above.
5.27.2 To the knowledge of the Company, none of the
Company's properties or facilities is in violation of any federal,
state, or local law, ordinance, regulation, or order relating to
industrial hygiene or to the environmental conditions on, under or
about such properties or facilities, including, but not limited to,
soil and ground water condition. During the time that the Company has
owned or leased its properties and facilities, neither the Company
nor, to the Company's knowledge, any third party, has used, generated,
manufactured or stored on, under or about such properties or
facilities or transported to or from such properties or facilities any
Hazardous Materials.
5.27.3 During the time that the Company has owned or
leased its properties and facilities, there has been no litigation
brought or threatened against the Company, or any settlement reached
by the Company with, any party or parties alleging the presence,
disposal, release or threatened release of any Hazardous Materials on,
from or under any of such properties or facilities.
28
30
5.28 INSURANCE. The Company maintains, and at all times
since the incorporation of the Company has maintained, fire and casualty,
general liability, business interruption, and product liability insurance which
is prudent for similarly sized and similarly situated businesses and which
provides coverage sufficient in amount to allow the Company to replace any of
its properties that might be damaged or destroyed.
5.29 DISCLOSURE. This Agreement, the Company Ancillary
Agreements, the Exhibits hereto and thereto, the certificates and documents
delivered by, or to be delivered by, the Company to Parent under this Agreement
or the Company Ancillary Agreements, taken together, do not contain any untrue
statement of a material fact and do not omit to state any material fact
necessary in order to make the statements contained herein and therein, in
light of the circumstances under which such statements were made, not
misleading.
6. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGERCO.
As an inducement to the Company to enter into this Agreement
and to consummate the transactions contemplated hereby, Parent and Mergerco
hereby jointly and severally represent and warrant to the Company and agree as
follows:
6.1 ORGANIZATION AND CAPITAL STRUCTURE.
6.1.1 Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to own or lease
and to operate and use its properties and assets and to carry on its
business as now conducted. The authorized capital of Parent consists
of (i) 35,000,000 shares of THQ Stock, par value $0.01 per share, of
which, as of March 20, 1998, approximately 6,888,560 shares were
issued and outstanding, and (ii) 1,000,000 shares of preferred stock,
par value $0.01 per share, none of which is issued and outstanding or
reserved for any purpose. Except for options and warrants described
in the Parent SEC Documents and as contemplated hereby, there are no
options, warrants or other rights to acquire from Parent, or
agreements or commitments by Parent to issue or sell, any shares of
capital stock of Parent, whether on conversion of other securities or
otherwise. All of the Merger Shares, when issued and delivered in
accordance with this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable.
6.1.2 Mergerco is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware. The authorized capital of Mergerco consists of 1,000 shares
of common stock, par value $1.00 per share, all of which have been
issued and are outstanding and none are held as treasury shares. All
of the outstanding shares of capital stock of Mergerco are validly
issued, fully paid and nonassessable and owned of record and
beneficially by Parent, free from all Encumbrances.
6.2 AUTHORITY.
6.2.1 Parent has full corporate power and authority
to execute, deliver and perform this Agreement and all of the Parent
Ancillary Agreements. The execution, delivery and performance of this
Agreement and the Parent Ancillary Agreements by Parent will have have
been duly ratified and approved by Parent's board of directors by the
Merger Filing and, except for the adoption of this
29
31
Agreement by Parent as the sole stockholder of Mergerco in accordance
with Section 7.3, no other corporate proceedings on the part of Parent
are necessary to authorize this Agreement, the Parent Ancillary
Agreements and the transactions contemplated hereby and thereby. This
Agreement has been duly authorized, executed and delivered by Parent
and is the legal, valid and binding obligation of Parent enforceable
in accordance with its terms and each of the Parent Ancillary
Agreements has been duly authorized by Parent and upon execution and
delivery by Parent will be a legal, valid and binding obligation of
Parent enforceable in accordance with its terms.
6.2.2 Mergerco has full corporate power and
authority to execute, deliver and perform this Agreement. The
execution, delivery and performance of this Agreement by Mergerco have
been duly authorized and approved by Mergerco's board of directors
and, except for the adoption of this Agreement by Parent in accordance
with Section 7.3 and the Merger Filing, no other corporate proceedings
on the part of Mergerco are necessary to authorize this Agreement and
the transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by Mergerco and is the legal, valid
and binding agreement of Mergerco enforceable in accordance with its
terms.
6.2.3 Neither the execution or delivery of this
Agreement or any of the Parent Ancillary Agreements, the consummation
of any of the transactions contemplated hereby or thereby nor
compliance with or fulfillment of the terms, conditions and provisions
hereof or thereof will:
6.2.3.1 conflict with, result in a breach of
the terms, conditions or provisions of, or constitute a
default, an event of default or an event creating rights of
acceleration, termination or cancellation or a loss of rights
under, or result in the creation or imposition of any
Encumbrance upon any of Parent's or Mergerco's assets under,
(i) the Certificate of Incorporation or Bylaws of Parent or
the Certificate of Incorporation or Bylaws of Mergerco, (ii)
any material note, instrument, agreement, mortgage, lease,
license, franchise, permit or other authorization, right,
restriction or obligation to which either Parent or Mergerco
is a party or any of their respective assets or business is
subject or by which either Parent or Mergerco is bound, (iii)
any Court Order to which either Parent or Mergerco is a party
or by which either Parent or Mergerco is bound or (iv) any
Requirements of Laws affecting Parent or Mergerco, except for,
in the case of clauses (ii) or (iii) of this Section 6.2.3.1,
any such conflicts, breaches, defaults, rights or Encumbrances
that, individually or in the aggregate, would not have a
Material Adverse Effect on Parent or materially impair the
ability of Parent to perform its obligations hereunder or
prevent the consummation of any of the transactions
contemplated hereby; or
6.2.3.2 require the approval, consent,
authorization or act of, or the making by either Parent or
Mergerco of any declaration, filing or registration with, any
Person, except for the Merger Filing and such other consents,
orders, authorizations, registrations, declarations and
filings the failure of which to be obtained or made would not,
individually or in the aggregate, have a Material Adverse
Effect on Parent or materially impair the ability of Parent to
perform its obligations hereunder or prevent the consummation
of any of the transactions contemplated hereby.
6.3 NO INVESTMENT BANKER FEES PAYABLE BY STOCKHOLDERS.
Neither the Company nor any Stockholder will have any liability for any fees or
commissions payable by either Mergerco or Parent (or
30
32
any Person acting on behalf of Mergerco or Parent) to any investment banker,
broker, finder or intermediary for or on account of the transactions
contemplated by this Agreement.
6.4 PARENT SEC DOCUMENTS. Parent has previously
delivered to the Company and each of the Stockholders of the Company complete
and correct copies of all reports, statements and registration statements
(including annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and proxy statements) filed by it with the SEC since
January 1, 1998 (the "Parent SEC Documents"). As of their respective dates,
the Parent SEC Documents complied in all material respects with the
requirements of the Exchange Act and none of the Parent SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
6.5 MERGERCO. Parent has no present plan or intention
following the Merger to cause Mergerco to issue additional shares of stock.
Parent has no present plan or intention following the Merger to reacquire any
of its shares issued in the transaction, except for repurchases of unvested
stock as provided in the RSPAs that will continue in effect after the Effective
Time. Parent has no present plan or intention following the Merger to
distribute, transfer or sell the stock of Mergerco, liquidate Mergerco, merge
Mergerco with or into another corporation, or sell or otherwise dispose of any
Mergerco's or the Company's assets, except for dispositions made in the
ordinary course of business or transfers of assets to corporations controlled
by Parent. Following the Merger, Parent will cause Mergerco to continue the
Company's historic business or use a significant portion of its business assets
in a business. Parent is not an investment company as defined in Sections
368(a)(2)(F)(iii) and 368(a)(2)(F)(iv) of the Code.
7. ACTION PRIOR TO OR CONCURRENTLY WITH THE MERGER FILING.
The parties hereto covenant and agree to take the following
actions between the date hereof and the Merger Filing:
7.1 [RESERVED].
7.2 ACTION BY STOCKHOLDERS. The Company shall prepare
and circulate for signature a written consent pursuant to which the
Stockholders shall approve the Merger in accordance with the DGCL and the
Company's Certificate of Incorporation and Bylaws.
7.3 ACTION BY PARENT. Parent shall take such actions, as
the sole stockholder of Mergerco, as may be necessary to approve the Merger and
adopt this Agreement under the DGCL.
7.4 INVESTIGATION OF THE COMPANY BY PARENT. The Company
shall afford to the officers, employees and authorized representatives of
Parent (including its accountants, attorneys and financial advisors) complete
access during normal business hours to the offices, properties, employees and
business and financial records (including computer files, retrieval programs
and similar documentation) of the Company to the extent Parent shall deem
necessary or desirable, and shall furnish to Parent or its authorized
representatives such additional information concerning the operations,
properties and business of the Company as may be reasonably requested to enable
Parent or its representatives to verify the accuracy of the representations and
warranties contained in this Agreement, to verify that the covenants of the
Company contained in this Agreement have been complied with, to determine
whether the conditions set forth in Section 9 have been
31
33
satisfied, and to make the determinations provided for in this Agreement.
Parent agrees that such investigation shall be conducted in such a manner as
not to interfere unreasonably with the operations of the Company. No
investigation made by Parent or its representatives hereunder shall affect the
efficacy of any of the representations and warranties of the Company hereunder
or the rights of Parent under Section 11.
7.5 PRESERVE ACCURACY OF REPRESENTATIONS AND WARRANTIES.
Each of the parties hereto shall refrain from taking any action which would
render any representation or warranty set forth in Sections 5 or 6 of this
Agreement inaccurate as of the Effective Time. Each party shall promptly
notify the other parties of any Action that shall be instituted or threatened
against such party to restrain, prohibit or otherwise challenge the legality of
any transaction contemplated by this Agreement. The Company shall promptly
notify Parent of any Action that may be instituted or threatened the Company
which would have been listed in Schedule 5.6 if such Action had arisen prior to
the date hereof.
7.6 CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME.
Except as expressly contemplated by this Agreement, the Company shall carry on
its business in, and not enter into any material transaction other than in
accordance with, the ordinary course consistent with past practice and, to the
extent consistent therewith, use its reasonable best efforts to preserve intact
its current business organization, keep available the services of its current
employees and preserve its relationships with Persons having dealings with it.
In connection therewith, the Company shall not (i) transfer or cause to be
transferred any employee or agent of the Company to any Affiliates of the
Company or any Stockholder, (ii) permit any Affiliate of the Company or of any
Stockholder to offer employment to any such employee or agent, or (iii)
otherwise attempt to persuade any such employee or agent to terminate his or
her relationship with the Company other than for reasons that are in the best
interests of the Company. Without limiting the generality of the foregoing,
and except as expressly contemplated by this Agreement, the Company shall not,
without the prior written consent of Parent:
7.6.1 take any action of the nature described in
Section 5.16;
7.6.2 grant any additional options, issue, deliver,
sell, pledge, dispose of or otherwise encumber any shares of its
capital stock or other securities (including any rights, warrants or
options to acquire any shares of its capital stock or other
securities); or issue any certificate evidencing any shares of Company
Common Stock in replacement for any certificate that has been lost,
destroyed or stolen, except upon receipt from the issuee thereof of
indemnification of the Company in form and substance satisfactory to
Parent;
7.6.3 amend its Certificate of Incorporation or
Bylaws;
7.6.4 acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the
assets of or equity in, or by any other manner, any business or any
Person or division thereof;
7.6.5 make or incur any new capital expenditure or
expenditures which, individually, is in excess of $10,000 or, in the
aggregate, are in excess of $50,000;
7.6.6 pay, discharge or satisfy (i) any claim by or
liability or obligation owing to, any present, former or purported
holder of any securities of the Company, or (ii) any other claim,
liability or obligation other than the payment, discharge or
satisfaction thereof in the ordinary course
32
34
of business consistent with past practice; in each case whether such
claim, liability or obligation is absolute, accrued, asserted or
unasserted, contingent or otherwise;
7.6.7 alter through merger, liquidation,
reorganization, restructuring or in any other fashion its corporate
structure;
7.6.8 enter into or adopt, or amend, any bonus,
incentive, deferred compensation, insurance, medical, hospital,
disability or severance plan, agreement or arrangement or enter into
or amend any employee benefit plan or employment, consulting or
management agreement, other than any such amendment to an employee
benefit plan that is made to maintain the qualified status of such
plan or its continued compliance with applicable law; or pay or commit
to pay any bonus to any officer or employee of the Company, or make
any other material change in the compensation of its employees;
7.6.9 modify in any material respect any of the
Company Agreements; or enter into any agreement, understanding,
obligation or commitment; or incur any indebtedness or obligation, of
the type that would have been required to be listed in Schedule 5.17if
in existence on the date hereof; or enter into any contract that
provides for any approval or consent by any Person to the
transactions contemplated by this Agreement;
7.6.10 enter into any other transaction affecting
the business of the Company, other than in the ordinary course of
business consistent with past practice or as expressly contemplated by
this Agreement; or
7.6.11 file any Tax Return in respect of its Federal
income taxes or state income or franchise taxes.
7.7 NOTIFICATION BY THE COMPANY OF CERTAIN MATTERS.
During the period prior to the Effective Time, the Company shall promptly
advise Parent in writing of (i) any change or event of which the Company has
knowledge that could have a Material Adverse Effect on the Company, (ii) any
notice or other communication from any third Person alleging that the consent
of such third Person is or may be required in connection with the transactions
contemplated by this Agreement, and (iii) any material default under any
Company Agreement or event which, with notice or lapse of time or both, would
become such a default on or prior to the Effective Time and of which the
Company has knowledge.
7.8 MUTUAL COOPERATION; REASONABLE BEST EFFORTS. The
parties hereto shall cooperate with each other, and shall use their respective
reasonable best efforts to cause as promptly as possible the fulfillment of the
conditions to each other party's obligations hereunder and to obtain as
promptly as possible all consents, authorizations, orders or approvals from
each and every Person required in connection with the transactions contemplated
by this Agreement. Each of the parties hereto shall take all such actions as
may reasonably be requested by another party hereto in order to further the
consummation of the transactions contemplated hereby and the acquisition of the
control of the Company by Parent on the terms and subject to the conditions set
forth herein and to permit such party to verify that the covenants of the other
parties contained in this Agreement have been complied with.
7.9 NO SOLICITATION. The Company acknowledges that
Parent has incurred and will incur substantial third party fees and internal
costs in performing its due diligence investigation and performing its
33
35
other covenants and agreements hereunder. In consideration of the efforts
Parent has undertaken and proposes to undertake and in order to facilitate the
transactions contemplated hereby, the Company agrees that it will not, nor
shall it authorize or permit any of its Affiliates or any officer, director,
employee, investment banker, attorney or other adviser or representative of the
Company or any of its Affiliates to, (i) solicit, initiate, or encourage the
submission of, any Acquisition Proposal, (ii) enter into any agreement with
respect to any Acquisition Proposal, or (iii) except to the extent required by
law as advised by counsel in writing, participate in any discussions or
negotiations regarding, or furnish to any person any information for the
purpose of facilitating the making of, or take any other action to facilitate
any inquiries or the making of, any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal. The Company
promptly shall advise Parent of any Acquisition Proposal and any inquiries with
respect to any Acquisition Proposal. "Acquisition Proposal" means any proposal
for a merger or other business combination involving the Company or any of its
Affiliates or any proposal or offer to acquire in any manner, directly or
indirectly, an equity interest in the Company or any of its Affiliates, any
voting securities of the Company or any of its Affiliates or a substantial
portion of the assets of the Company.
7.10 REMOVAL OF ASSETS. The Company shall not knowingly
permit the removal from the Company's premises of any of the Assets, books or
records by any of the Stockholders or any of the Company's directors, officers
or employees.
7.11 LISTING APPLICATION. Parent will promptly file an
application to list on the National Association of Securities Dealers Automated
Quotations/National Market System ("NASDAQ/NMS"), subject to official notice of
issuance, the Merger Shares to be issued pursuant to Section 3.1 and will use
its best efforts to effect such listing on the NASDAQ/NMS, subject to official
notice of issuance, on or prior to the Effective Time.
7.12 ASSUMPTION OF STOCK OPTIONS. At or before
theEffective Time, Parent shall agree to assume the obligations of the Company
with respect to the Options, with the effect that (i) each of the Options shall
remain outstanding in accordance with the terms of the Plan and the agreements
reflecting the terms and conditions of each of the Options, and (ii) upon each
exercise of an Option after the Effective Time, the holder of such Option shall
be entitled to receive the same amount of cash and Merger Shares as such holder
would have received in respect of such Option had the Option been exercised
immediately prior to the Effective Time and the Company Common Stock received
upon such exercise been converted into the right to receive cash and Merger
Shares in the Merger. Parent agrees to file with the SEC a registration
statement on Form S-8 covering the THQ Shares that will be issuable upon the
exercise of the Options not later than 60 days after the Closing Date.
7.13 INVESTOR NOTES AND WARRANTS. The Company will (i)
promptly prepare, execute and cause each of the Investor Noteholders to execute
an amendment to the Investor Notes or other appropriate agreement, in form and
substance acceptable to Parent, pursuant to which each Investor Noteholder
agrees to accept the consideration described in Section 4.5.4 in full
satisfaction of the Investor Notes Obligations and to tender its Investor
Note(s) to Parent for cancellation at the Effective Time upon the payment of
the Investor Notes in accordance with Section 4.5.4, (ii) promptly prepare,
execute and cause each of the Warrantholders to execute an agreement, in form
and substance satisfactory to Parent, pursuant to which each Warrantholder
agrees that its Warrants shall be deemed canceled and terminated at the
Effective Time upon the payment of the amount set forth in Section 4.5.5, and
(iii) deliver such fully executed amendments and/or agreements to Parent at or
before the Merger Filing.
34
36
7.14 CONSENTS OF THIRD PARTIES AND GOVERNMENTAL APPROVALS.
7.14.1 The Company will act diligently and
reasonably to secure, before the Effective Time, the consent, approval
or waiver, in form and substance reasonably satisfactory to Parent,
from any party to any Company Agreement required to satisfy the
condition set forth in Section 9.5; provided, however, that the
Company shall not make any agreement or understanding affecting the
Company or its assets or business as a condition for obtaining any
such consents or waivers except with the prior written consent of
Parent.
7.14.2 During the period prior to the Effective
Time, the parties hereto shall act diligently and reasonably, and
shall cooperate with each other, to secure any consents and approvals
of any Governmental Body required to be obtained by them in order to
permit the consummation of the transactions contemplated by this
Agreement or to otherwise satisfy the conditions set forth in Section
9.4; provided, however, that the Company shall not make any agreement
or understanding affecting the Company or its assets or business as a
condition for obtaining any such consents or approvals except with the
prior written consent of Parent.
7.15 FEES AND EXPENSES. Except as may otherwise be
expressly provided in this Agreement, each of the parties shall bear its own
costs and expenses (including the fees and disbursements of their counsel,
accountants and other financial, legal, accounting or other advisors), incurred
by it in connection with the preparation, negotiation, execution, delivery and
performance of this Agreement and each of the other documents and instruments
executed in connection with or contemplated by this Agreement and the
consummation of the transactions contemplated hereby and thereby; provided,
however, if this Agreement is terminated without consummation of the Merger
other than by reason of (i) by Parent pursuant to Section 12.1.3, or (ii) by
the Company in breach of this Agreement, Parent shall pay to the Company all
reasonable and verifiable out-of-pocket costs and expenses (exclusive of travel
costs) incurred by the Company from and after January 19, 1998 (up to a maximum
of $25,000); and, provided further, that any fees and disbursements of counsel,
accountants and other financial, legal, accounting and other advisors retained
by the Company or any Stockholder and incurred for services rendered after the
Effective Time in connection with the Merger or this Agreement shall be borne
and paid by the Effective Time Stockholders.
7.16 THE STOCKHOLDERS' REPRESENTATIVES. The Stockholders'
Representatives shall be the representatives of the Stockholders after the
Effective Time (and their agents and attorneys-in-fact with the power and
authority to take all action on behalf of all Indemnifying Parties with respect
to any action or decisions required to be made under the Escrow Agreement,
Section 11 or otherwise with respect to this Agreement and the Merger), acting
as a committee in accordance with the procedures set forth the DGCL applicable
to boards of directors of Delaware corporations and the provisions of the
bylaws of the Company as in effect as of the Effective Time applicable to the
board of directors of the Company; and each of the Parent Group Members shall
be entitled to deal with the Stockholders' Representatives on such basis.
7.17 PREPARATION OF ESCROW AGREEMENT. As soon as
practicable after the date hereof, the parties shall prepare and cause to be
executed by the parties and by the Stockholders' Representatives, prior to or
concurrently with the Merger Filing, an escrow agreement among the Company,
Parent, the Stockholders' Representatives and the Escrow Agent (the "Escrow
Agreement"). The Escrow Agreement shall, among other matters, (i) appoint the
Escrow Agent as the escrow agent thereunder, (ii) provide for the deposit by
Parent of the Escrow Shares into the Escrow concurrently with the Merger
Filing, (iii) provide for the release of Escrow Shares to Parent in accordance
with the terms thereof, (iv) provide for the procedures
35
37
by which the Parent Group Members may submit Claims Notices and by which the
Stockholders' Representatives may challenge such Claims Notices, (v) provide
for the release to the Stockholders on the 18-month anniversary of the Closing
Date of all Escrow Shares then in escrow (except to extent any such amounts are
required to cover Losses or Expenses for which a right to indemnification is
asserted in Claim Notices), and (vi) include such other provisions as are
customary for such agreements or which the Escrow Agent requires be included
for its benefit.
7.18 REGISTRATION RIGHTS. Parent agrees to provide to
each of the Investor Noteholders and each of the Effective Time Stockholders
registration rights with respect to the shares of THQ Stock issued to them, on
the terms and subject to the conditions set forth in Exhibit C hereto.
7.19 RSPAS; CERTAIN CASH PAYMENTS.
7.19.1 The Company shall (i) caused to be
terminated, effective at the Effective Time, (a) the RSPA dated as of
May 30, 1997 between the Company and TechFarm, as amended, (b) the
RSPA dated as of April 29, 1997 between the Company and ▇▇▇▇▇, and (c)
the two RSPAs each dated as of July 8, 1997 between the Company and
Wolosenko, as amended, (ii) cause to be terminated, effective at the
Effective Time, the corresponding Escrow Agreements and Assignments
(each as defined in such RSPAs), (iii) cause each of ▇▇▇▇▇ and
Wolosenko to pay to the Company at the Merger Filing the outstanding
balance of the Purchase Price (as defined in their RSPAs), and (iv)
upon consummation of the foregoing, deliver to TechFarm, ▇▇▇▇▇ and
Wolosenko the certificates evidencing the Stock (as defined in such
RSPA's).
7.19.2 The Company shall
7.19.2.1 cause to be amended, effective at
the Effective Time, the RSPAs between the Company and each of
the Other Executives, each dated as of April 29, 1997, for the
purpose of (i) deleting Section 3.1(c) thereof (the possible
accelerated vesting upon a change of control) and the first
sentence of Section 4.2 thereof (the termination of Section 4
of the RSPAs upon the closing date of an underwritten public
offering), and (ii) providing for the assignment, by THQ to
the Other Executives, of THQ's rights to purchase Stock from
any Other Executive(s) whose employment with the Company
terminates prior to the time his or their Stock (as defined in
such RSPA's) is fully vested, which right will be exercisable
by those Other Executives who remain employees of the Company
at that time; and
7.19.2.2 cause each of the Other Executives
to pay to the Company at the Merger Filing the outstanding
balance of such the Purchase Price (as defined in their
RSPAs).
7.19.3 Other than as provided in Sections 7.19.1 and
7.19.2, at the Effective Time (i) Parent shall assume all of the
Company's obligations under, and shall be entitled to the benefit of,
each of the RSPAs in effect as of the Effective Time (as amended) and
the corresponding Escrow Agreements and Assignments, and (ii) in
accordance with Section 5 of the RSPAs, the term "Stock" as used in
the RSPAs shall mean the shares of Merger Stock into which the Company
Common Stock has been converted into in the Merger.
7.19.4 In order to provide to ▇▇▇▇▇, Wolosenko and
the Other Executives a portion of the cash that will be required to be
paid by each of them in accordance with Sections 7.19.1 and
36
38
7.19.2, at the Merger Filing the Company shall pay to each of such
individuals cash in an amount equal to (i) the amount each such
individual is required to pay for their Stock, less (ii) such tax and
related withholdings on such amount as is required by applicable law.
The amount of such payment and withholdings will be additional
compensation to ▇▇▇▇▇ and the Other Executives and additional
consulting fees to Wolosenko.
7.20 TERMINATION OF CONSULTING SERVICES AGREEMENT. At or
before the Effective Time, the Company shall have terminated its Consulting
Services Agreement with TechFarm that was effective May 19, 1997.
7.21 OFFERS OF EMPLOYMENT. At the Closing, Parent shall
make employment offers on behalf of the Company to each of the Other Executives
on terms consistent with those previously agreed to by Parent and the Company.
7.22 TAX TREATMENT. Parent and the Company shall each
use its best efforts to cause the Merger to be treated as a reorganization
within the meaning of Section 368(a) of the Code. To the extent permitted
under applicable tax laws, the Merger shall be reported as a reorganization
within the meaning of Section 368(a)(2)(D) of the Code in all federal, state,
and local tax returns after the Effective Time.
7.23 STOCK PURCHASE AGREEMENTS; PURCHASED SHARES. Prior
to the Effective Time, the Company shall distribute to each Stockholder who
holds less than 50,000 Company Common Shares a Stock Purchase Agreement
substantially in the form of Exhibit D (the "Stock Purchase Agreement"), and
shall use its best efforts to persuade each such Stockholder to execute and
return to Parent a counterpart of the Stock Purchase Agreement and to perform
such Stockholders' obligations under the executed Stock Purchase Agreements.
THQ agrees that, immediately prior to the Merger Filing, it will purchase from
such Stockholders who have executed and returned a Stock Purchase Agreement all
of the Company Common Stock owned by such Stockholder on the terms set forth in
the Stock Purchase Agreements. The aggregate number of shares of Company
Common Stock purchased by Parent pursuant to the Stock Purchase Agreements is
referred to as the "Purchased Shares." To the extent that such purchase by
Parent would otherwise be prohibited by the provisions of any of the RSPAs, the
Company hereby waives such provisions.
7.24 BONUS PLAN FOR COMPANY EMPLOYEES. Parent shall
implement, on the terms and subject to the conditions set forth in this Section
7.24, a bonus plan for the employees of the Company following the Merger (the
"Bonus Plan").
7.24.1 The Bonus Plan shall provide for two bonus
pools (the "Pools"), each in an amount equal to 2% of the Net
Wholesale Revenue generated during each fiscal quarter of the Company
during the period commencing on July 1, 1998 and ending June 30, 2002
(the "Bonus Period") derived from Covered Products (the "Bonus
Amount"). One of the Pools shall be referred to as "Pool A" and the
Bonus Amount for Pool A for each quarter during the Bonus Period shall
be paid by Parent to (i) the Other Executives, if and to the extent
that each Other Executive is an employee of the Company or Parent
during such quarter and (ii) such other individuals who are key
executives of the Company; in either case who are designated by the
Bonus Plan Administrator as participants in Pool A for such quarter.
The other Pool shall be referred to as "Pool B" and the Bonus Amount
for Pool B for each quarter during the Bonus Period shall be paid by
Parent to employees of the Company who are not participants in Pool A
for such quarter and who are designated by the Bonus Plan
Administrator as a particpant in Pool B for such quarter.
37
39
7.24.2 The Bonus Amounts shall be paid by Parent at
the same times during the Bonus Period at which ▇▇▇▇▇ is entitled to
receive his "Incentive Compensation" pursuant to Section 2.2 of the
Employment Agreement (but shall be payable each quarter during the
Bonus Period irrespective of whether the Employment Agreement is then
in effect).
7.24.3 The Bonus Plan Administrator shall have the
discretion to determine (i) how much of the Bonus Amounts in each of
Pool A and Pool B shall be distributed each quarter, and (ii) which of
the participants in each Pool shall participate each quarter, based on
such criteria as may be established by the Bonus Plan Administrator
(which criteria may be subjective). No executive or other employee of
the Company shall, by virtue of the establishment of the Bonus Plan,
or by virtue of being designated a participant in either Pool, have
any vested right in or to any share of any Bonus Amount unless and
until such amount is actually paid to him or her.
7.24.4 Parent may cause the Bonus Amounts to be paid
by the Company.
7.24.5 ▇▇▇▇▇ shall not be eligible to participate in
the Bonus Plan.
8. [RESERVED].
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGERCO
The obligations of Parent and Mergerco to cause the Merger
Filing shall, except to the extent waived by Parent, be subject to the
satisfaction, on or prior to the Merger Filing, of the following conditions:
9.1 NO MISREPRESENTATION OR BREACH OF COVENANTS AND
WARRANTIES. There shall have been no material breach by the Company in the
performance of its covenants and agreements herein or in any of the Company
Ancillary Agreements. None of the representations and warranties of the
Company contained or referred to herein shall be untrue and incorrect in any
respect (in the case of any representation or warranty containing any
materiality qualification) or in any material respects (in the case of any
representation and warranty without any materiality qualification) either when
make or as of the Effective Time (in each case, without regard to any Knowledge
Qualification that may be included in such representation and warranty), except
for changes therein specifically permitted by this Agreement or resulting from
any transaction expressly consented to in writing by Parent. There shall have
been delivered to Parent and Mergerco a certificate or certificates to such
effect, dated the Closing Date and signed on behalf of the Company by the
President or any Vice President of the Company.
9.2 NO CHANGES TO OR DESTRUCTION OF PROPERTY. Between
the date hereof and the Effective Time, there shall have been (i) no change or
event having a Material Adverse Effect on the Company; and (ii) no material
adverse federal or state legislative or regulatory change affecting the
Company's business; and there shall have been delivered to Parent and Mergerco
a certificate or certificates to such effect, dated the Closing Date and signed
on behalf of the Company by the President or any Vice President of the Company.
9.3 NO RESTRAINT OR LITIGATION. (i) No order shall have
been entered in any Action before any Governmental Body, and no preliminary or
permanent injunction by a court of competent
38
40
jurisdiction shall have been issued and remain in effect, that would have the
effect of (a) making the purchase of, or payment for, any shares of Company
Common Stock pursuant to this Agreement illegal, or (b) otherwise making the
consummation of the Merger illegal; and (ii) no Action shall be pending before
any Governmental Body or any such court against the Company, Parent or Mergerco
that challenges the legality or validity of this Agreement, the Merger or any
of the transactions contemplated hereby or seek damages or any other remedy in
connection therewith (other than in connection with the exercise of appraisal
rights).
9.4 NECESSARY GOVERNMENTAL APPROVALS. The parties shall
have received all approvals and actions of or by all Governmental Bodies which
are necessary to consummate the transactions contemplated hereby which are
required to be obtained prior to the Effective Time by applicable Requirements
of Laws or which are necessary to prevent a Material Adverse Effect on the
Company.
9.5 NECESSARY CONSENTS. The Company shall have received
consents, in form and substance reasonably satisfactory to Mergerco and Parent,
to the transactions contemplated hereby from the other parties to all
contracts, leases, agreements and permits to which the Company is a party or by
which the Company or any of its assets is affected and which are specified in
Schedule 9.5 or are otherwise necessary to prevent a Material Adverse Effect on
the Company.
9.6 STOCKHOLDER APPROVAL. The written consent described
in Section 7.2 shall have been executed by TechFarm, ▇▇▇▇▇ and the Other
Executives and shall be effective after the consummation of the purchase by THQ
of Company Common Stock pursuant to the Stock Purchase Agreements and prior to
the Merger Filing; Stockholders holding not more than 3% of the outstanding
Company Common Stock shall have delivered a written demand for appraisal of
their Company Common Stock pursuant to Section 262 of the DGCL; and there shall
have been delivered to Parent and Mergerco a certificate or certificates to
such effect, dated the Effective Date and signed on behalf of the Company by
the President or any Vice President of the Company.
9.7 THE STOCK PRICE. The Stock Price shall not be less
than $14.00 per share.
9.8 CERTIFICATION OF SHARES AND OPTIONS OUTSTANDING. At
the Closing Meeting, the Company shall deliver a certification of its corporate
secretary to the effect that the number of shares of Company Common Stock and
the number of Options outstanding as of the Closing Date is consistent with the
representations made in Section 5.3.2.
9.9 COMFORT LETTERS. Parent shall have received comfort
letters addressed to Parent from Deloitte & Touche LLP, the independent public
accountants for Parent, and from such investment banking firm as may be
selected by Parent, dated the Effective Date, in each case in form and
substance reasonably satisfactory to Parent, covering such matters as Parent
shall reasonably request.
9.10 PARENT BOARD RATIFICATION. The execution, delivery
and performance of this Agreement and the Parent Ancillary Agreements by Parent
shall have have been duly ratified and approved by Parent's board of directors.
39
41
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.
The obligations of the Company to cause the Merger Filing
shall, except to the extent waived by the Company, be subject to the
satisfaction, on or prior to the Merger Filing, of the following conditions:
10.1 NO MISREPRESENTATION OR BREACH OF COVENANTS AND
WARRANTIES. There shall have been no material breach by Parent or Mergerco in
the performance of any of their respective covenants and agreements herein.
None of the representations and warranties of Parent or Mergerco contained or
referred to herein shall be untrue and incorrect in any respect (in the case of
any representation or warranty containing any materiality qualification) or in
any material respects (in the case of any representation and warranty without
any materiality qualification), either when made or as of the Effective Time
(in each case, without regard to any Knowledge Qualification that may be
included in such representation and warranty), except for changes therein
specifically permitted by this Agreement or resulting from any transaction
expressly consented to in writing by the Company. There shall have been
delivered to the Company a certificate or certificates to such effect, dated
the Closing Date and signed on behalf of Parent by the President or any Vice
President of Parent and on behalf of Mergerco by the President or any Vice
President of Mergerco.
10.2 NO RESTRAINT OR LITIGATION. (i) No order shall have
been entered in any Action before any Governmental Body, and no preliminary or
permanent injunction by a court of competent jurisdiction shall have been
issued and remain in effect, that would have the effect of (a) making the
purchase of, or payment for, any shares of Company Common Stock pursuant to
this Agreement illegal, or (b) otherwise making the consummation of the Merger
illegal; and (ii) no Action shall be pending before any Governmental Body or
any such court against the Company that challenges the legality or validity of
this Agreement, the Merger or any of the transactions contemplated hereby or
seek damages or any other remedy in connection therewith (other than in
connection with the exercise of dissenters' rights).
10.3 NECESSARY GOVERNMENTAL APPROVALS. The Company shall
have received all approvals and actions of or by all Governmental Bodies
necessary to consummate the transactions contemplated hereby, which are
required to be obtained prior to the Effective Time by applicable Requirements
of Laws.
10.4 STOCKHOLDER ACTION. This Agreement shall have been
approved and adopted by the holders of a majority of the outstanding Company
Common Stock.
11. INDEMNIFICATION.
11.1 INDEMNIFICATION OF PARENT GROUP MEMBERS. Each Parent
Group Member shall be indemnified and held harmless from and against any and
all Losses and Expenses incurred by such Parent Group Member in connection with
or arising from:
11.1.1 any breach or failure to perform, or any
third party claim that if successful would constitute a breach or
failure to perform, by the Company of any of its agreements, covenants
or obligations in this Agreement or in any Company Ancillary Agreement
to be performed prior to the Effective Time;
11.1.2 any breach, or any third party claim that if
successful would constitute a breach, of any warranty, or the
inaccuracy, or any third party claim that if successful would
constitute
40
42
an inaccuracy, of any representation or warranty of Company, contained
or referred to in this Agreement (including any misrepresentation or
warranty in, or omission from, any Schedule, Exhibit, statement,
certificate, report or other document furnished or to be furnished by
or on behalf of the Company or any Stockholder pursuant hereto or
thereto); provided, however, that for the purpose of this Section 11,
any Knowledge Qualification included in any such representation
(except for Section 5.16.14) shall be disregarded and the Parent Group
Members shall be entitled to be indemnified against Losses and
Expenses irrespective of whether the Company had notice or knowledge
of the matters addressed by such representation; or
11.1.3 any liability or obligation of the Company in
respect of the assets, operations or business of the Company arising
from events occurring on or prior to the Effective Time, excepting
only (a) such liabilities and obligations as are disclosed in the
Schedules to this Agreement, or (b) are assumed pursuant to Section
4.5.3;
After a final determination of a Loss or Expense in accordance with Section
11.3, Parent shall have the right to set off or recover any Losses or Expenses
with respect to which Parent is entitled to indemnification under this Section
11.1 against any payments otherwise payable to the Effective Time Stockholders
from the Escrow in accordance with the terms of the Escrow Agreement, and,
except in the event of fraud, such right of set-off and recovery shall be
Parent's sole recourse against the Stockholders with respect to the indemnity
set forth in this Section 11.
11.2 INDEMNIFICATION BY PARENT AND THE SURVIVING
CORPORATION. Parent and the Surviving Corporation shall jointly and severally
indemnify and hold harmless each Stockholder Group Member from and against any
and all Loss and Expense incurred by such Stockholder Group Member in
connection with or arising from:
11.2.1 any breach or failure to perform, or any
third party claim that if successful would constitute a breach or
failure to perform, by Parent or the Surviving Corporation of any of
their respective agreements, covenants or obligations in this
Agreement or in any Parent Ancillary Agreement; or
11.2.2 any breach, or any third party claim that if
successful would constitute a breach, of any warranty or the
inaccuracy, or any third party claim that if successful would
constitute an inaccuracy, of any representation or warranty of Parent
or Mergerco contained or referred to in this Agreement (including any
misrepresentation or warranty in, or omission from, any Schedule,
Exhibit, statement, certificate, report or other document furnished or
to be furnished by or on behalf of Parent or Mergerco pursuant
hereto).
11.3 NOTICE OF CLAIMS.
11.3.1 If any Parent Group Member (with respect to
Section 11.1) or any Stockholder Group Member (with respect to Section
11.2) believes that it has suffered or incurred any Loss or incurred
any Expense, such Parent Group Member or Stockholder Group Member, as
the case may be (the "Indemnified Person"), shall so notify the
parties obligated to provide indemnification to such Indemnified
Person (the "Indemnitor") (which, in the event such notice is given by
a Parent Group Member, shall be given to the Stockholders'
Representatives) promptly in writing describing such Loss or Expense,
the amount thereof, if known, and the method of
41
43
computation of such Loss or Expense, all with reasonable particularity
and containing a reference to the provisions of this Agreement, any
certificate delivered pursuant hereto or any Parent Ancillary
Agreement or Company Ancillary Agreement in respect of which such Loss
or Expense shall have occurred (such written notification being
sometimes hereinafter referred to as the "Claim Notice"); provided,
however, that an omission by the Indemnified Person to give notice as
provided herein shall not relieve the Indemnitor of its
indemnification obligation under this Section 11 except (i) to the
extent that such omission results in a failure of actual notice to the
Indemnitor and such Indemnitor is materially damaged as a result of
such failure to give notice, or (ii) if the Indemnified Person fails
to give notice prior to the termination of the indemnity obligation.
If any Action is instituted by or against a third party with respect
to which any Indemnified Person intends to claim any liability or
expense as Loss or Expense under this Section 11, such Indemnified
Person shall promptly notify the Indemnitor of such Action as
specified in this Section 11.3.1. The Indemnified Persons shall
assume the defense of any Action with counsel of their own choosing,
which counsel shall be satisfactory to the Stockholder Representatives
in the exercise of their reasonable judgement, and shall act
reasonably and in accordance with their good faith business judgment
in handling such Action. Prior to effecting any settlement of such
Action, the Indemnified Persons shall solicit the consent of the
Stockholders' Representatives. If such consent is unreasonably
withheld or delayed, the Indemnified Persons may proceed to effect
such settlement. The Stockholders' Representatives (and the
Stockholders) and the Indemnified Persons shall make available to each
other and their counsel and accountants all books and records and
information relating to any Action, keep each other fully apprised as
to the details and progress of all proceedings relating thereto and
render to each other such assistant as may be reasonably required to
ensure the prior and adequate defense of any and all Actions.
11.3.2 In calculating any Loss or Expense there
shall be deducted (i) any insurance recovery in respect thereof (and
no right of subrogation shall accrue hereunder to any insurer), and
(ii) the amount of any tax benefit to the Indemnified Person (or any
of its Affiliates) with respect to such Loss or Expense (after giving
effect to the tax effect of receipt of the indemnification payments).
11.3.3 After the giving of any Claim Notice, the
amount of indemnification to which an Indemnified Person shall be
entitled under this Section 11 shall be determined: (i) by a written
agreement between the Indemnified Person and the Indemnitor; (ii) in
accordance with the final determination of a court of competent
jurisdiction; or (iii) by any other means to which the Indemnified
Person and the Indemnitor shall agree.
11.4 EXPIRATION OF INDEMNIFICATION.
11.4.1 In the event the Merger is consummated, the
Parent Group Members' right to indemnification pursuant to Section
11.1 shall expire on the date that is 18 months after the Closing
Date; provided, however, that if any Claim Notice is given by a Parent
Group Member prior to the expiration of such 18-month period, such
Parent Group Member's right to indemnification in respect of the
matters giving rise to such Claim Notice (i) shall continue until such
matters are finally terminated or otherwise resolved between such
Parent Group Member and the Stockholders' Representatives or by a
court of competent jurisdiction and all amounts, if any, payable
hereunder in respect of those matters are finally determined and paid
from the Escrow, and (ii) shall extend to all Losses and Expenses that
are the subject of that indemnification obligation, whether incurred
before or after such Claim Notice is given.
42
44
11.4.2 In the event the Merger is consummated, the
Stockholder Group Members' right to indemnification pursuant to
Section 11.2 shall expire on the date that is 18 months after the
Closing Date; provided, however, that if any Claim Notice is given by
a Stockholder Group Member prior to the expiration of such 18-month
period, such Stockholder Group Member's right to indemnification in
respect of the matters giving rise to such Claim Notice (i) shall
continue until such matters are finally terminated or otherwise
resolved between such Stockholder Group Member, Parent and the
Surviving Corporation or by a court of competent jurisdiction and all
amounts, if any, payable hereunder in respect of those matters are
finally determined and paid by Parent and/or the Surviving
Corporation, and (ii) shall extend to all Losses and Expenses that are
the subject of that indemnification obligation, whether incurred
before or after such Claim Notice is given.
11.5 EXCLUSIVE REMEDY FOLLOWING THE MERGER. In the event
that the Merger is consummated, any claim against any party hereto for any
breach of this Agreement or the Parent Ancillary Agreements or in connection
with any of the transactions contemplated hereby or thereby shall be made
solely pursuant to this Section 11.
12. TERMINATION.
12.1 TERMINATION RIGHTS. Notwithstanding anything
contained in this Agreement to the contrary notwithstanding, the obligations of
the parties to consummate the Merger may be terminated at any time prior to the
Effective Time:
12.1.1 By the mutual consent of all of the parties hereto;
12.1.2 By Parent or the Company if the Merger Filing
shall not have occurred on or before the later of (i) five business
days following the Company Meeting, or (ii) 60 days after the date
hereof (or such later date as may be mutually agreed to by Parent and
the Company);
12.1.3 By Parent in the event of any material breach
by the Company of any of its agreements, representations or warranties
contained herein and, with respect to any such breach that is curable,
the failure of Company to cure such breach within seven days after
receipt of notice from Parent requesting that such breach be cured; or
12.1.4 By the Company in the event of any material
breach by Parent or Mergerco of any of their respective agreements,
representations or warranties contained herein and, with respect to
any breach that is curable, the failure of Parent to cure such breach,
or cause Mergerco to cure such breach, within seven days after receipt
of notice from the Company requesting that such breach be cured.
12.2 NOTICE OF TERMINATION. Any party desiring to
terminate the obligation of the parties to consummate the Merger this Agreement
pursuant to Section 12.1 (other than Section 12.1.1) shall give notice of such
termination to each of the other parties to this Agreement, identifying in such
notice the provision under which such termination is being effected.
12.3 EFFECT OF TERMINATION. In the event that the
obligation of the parties to consummate the Merger shall be terminated pursuant
to this Section 12, all further obligations of the parties under this
43
45
Agreement shall be terminated without further liability of any party to the
others; provided, however, that such termination shall not relieve any party
from liability for its breach of this Agreement, or from such party's
obligations under Sections 11 or 13.6 or, to the extent applicable, Section
7.15.
13. GENERAL PROVISIONS.
13.1 SURVIVAL OF OBLIGATIONS. All representations,
warranties, covenants and obligations contained in this Agreement shall survive
the consummation of the transactions contemplated by this Agreement for the
periods set forth herein.
13.2 NO PUBLIC ANNOUNCEMENT. No party hereto shall,
without the approval of all of the other parties, make any press release or
other public announcement or to the Stockholders) concerning the transactions
contemplated by this Agreement, except to the extent that the Company shall be
so obligated by law, in which case such party shall so advise Parent of such
determination and the basis therefor and will either prepare a joint statement
with Parent for public release or will permit Parent to review and approve the
content of such announcement not less than 24 hours prior to its release by the
Company; provided, however, that the foregoing shall not preclude
communications or disclosures necessary to implement the provisions of this
Agreement.
13.3 NOTICES. All notices, requests, demands, consents,
approvals, designations and other communications called for or contemplated by
this Agreement shall be in writing and shall be deemed given to the party to
whom addressed (i) when delivered to such party by hand or by facsimile
transmission, (ii) one business day after being sent to such party by overnight
courier, or (iii) three business days after being sent to such party by
registered or certified mail (return receipt requested, postage prepaid), in
each case at the following address, or at such other address as such party may
designate by notice in the manner aforesaid:
If to the Company
(after the Effective Time),
Parent or Mergerco, to:
THQ Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
President and Chief Executive Officer
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
Sidley & Austin
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
44
46
If to the Company (prior
to the Effective Time) to:
GameFx, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: C. ▇▇▇▇ ▇▇▇▇▇,
President and Chief Executive Officer
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
General Counsel Associates LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telecopier: 650-428-3901
If to the Stockholders' Representatives to:
C. ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
TechFarm II, L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
General Counsel Associates LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telecopier: 650-428-3901
or to such other address as such party may indicate by a notice delivered to
the other parties hereto.
45
47
13.4 SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES.
13.4.1 The rights of each party under this Agreement
shall not be assignable by such party prior to the Effective Time
without the written consent of each of the other parties. Following
the Effective Time, any party may assign any of its rights hereunder,
but no such assignment shall relieve it of its obligations hereunder.
13.4.2 This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and
permitted assigns. The successors and permitted assigns hereunder
shall include without limitation, in the case of Parent, any permitted
assignee as well as the successors in interest to such permitted
assignee (whether by merger, liquidation (including successive mergers
or liquidations) or otherwise). Except as provided in Section 11 in
the event of the consummation of the Merger with respect to the rights
and remedies of the Stockholders, nothing in this Agreement, expressed
or implied, is intended or shall be construed to confer upon any
Stockholder or other Person other than (i) the parties hereto and
their successors and permitted assigns, and (ii) the Stockholders'
Representatives, in their capacity as such, any right, remedy or claim
under or by reason of this Agreement or the transactions contemplated
hereby.
13.5 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
Exhibits and Schedules referred to herein and the documents delivered pursuant
hereto, together with the Mutual Confidentiality Agreement dated as of February
13, 1998 by and among Parent, the Company, ▇▇▇▇▇ and TechFarm (the
"Confidentiality Agreement") contain the entire understanding of the parties
hereto with regard to the subject matter contained herein or therein; and such
agreements and other documents supersede all prior agreements and
understandings between or among any of the parties hereto, including without
limitation the Letter of Intent dated as of February 13, 1988 by and among
Parent, the Company, ▇▇▇▇▇ and TechFarm (which is hereby terminated). This
Agreement shall not be amended, modified or supplemented except by a written
instrument signed by an authorized representative of each of the parties
hereto.
13.6 MODIFICATION TO CONFIDENTIALITY AGREEMENT. The
Confidentiality Agreement is hereby modified by deleting the second paragraph
of Section 4 thereof. The parties hereby confirm that as so modified, the
Confidentiality Agreement is in full force and effect in accordance with its
terms.
13.7 RULES OF CONSTRUCTION. Whenever in this Agreement
the context so suggests, references to the masculine shall be deemed to include
the feminine and the neuter, references to the singular shall be deemed to
include the plural, and references to "or" shall be deemed to be disjunctive
but not necessarily exclusive. No provision of this Agreement shall be
construed in favor of or against any party hereto by reason of the extent to
which any such party or its counsel participated in the drafting thereof, nor
shall the interpretation of this Agreement be affected by reason that this
Agreement or any provision hereof is inconsistent with any prior draft hereof.
Except where expressly provided to the contrary, each reference herein to a
"Section" is to a Section of this Agreement; each reference herein to a Section
includes all Sections subsidiary to the Section referred to. The words
"herein," "hereof," and "hereunder," and other words of similar import, refer
to this Agreement as a whole and not to any particular Article, Section or
subsection, and the word "including" means "including but not limited to."
Titles and headings to Sections herein are inserted for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement. The Schedules and Exhibits referred to
herein shall be construed with and as an integral part of this Agreement to the
same extent as if they were set forth verbatim herein. Except as expressly
stated
46
48
to the contrary herein, all dollar amounts in this Agreement refer to lawful
money of the United States of America.
13.8 WAIVERS. Any term or provision of this Agreement may
be waived, or the time for its performance may be extended, by the party or
parties entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently authorized for the purposes of this Agreement if, as to any party,
it is authorized in writing by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any party thereafter to enforce each and every such provision. No waiver of
any breach of this Agreement shall be held to constitute a waiver of any other
or subsequent breach.
13.9 EQUITABLE RELIEF. Each of the parties hereto agrees
that a monetary remedy for a breach of this Agreement would be inadequate and
would be impracticable and extremely difficult to prove, and further agrees
that such a breach would cause the other party irrevocable harm, and that
either party shall be entitled to temporary and permanent injunctive relief
without the necessity of proving actual damages and without the necessity of
posting a bond or making any undertaking in connection therewith. Any such
requirement of a bond or undertaking is hereby waived by the parties.
13.10 PARTIAL INVALIDITY. Wherever possible, each
provision hereof shall be interpreted in such manner as to be effective and
valid under applicable law, but in case any one or more of the provisions
contained herein shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such provision shall be ineffective to the
extent, but only to the extent, of such invalidity, illegality or
unenforceability without invalidating the remainder of such invalid, illegal or
unenforceable provision or provisions or any other provisions hereof, unless
such a construction would be unreasonable.
13.11 BUSINESS DAY. Whenever this Agreement requires that
an action be taken or a notice be given on a date that would otherwise not be a
business day, the time period for taking such action or giving such notice
shall be extended to the first day thereafter that is a business day.
13.12 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in one or more counterparts, each of which shall be considered an
original instrument, but all of which shall be considered one and the same
agreement, and shall become binding when one or more counterparts have been
signed by each of the parties hereto and delivered to each of the other
parties.
13.13 FURTHER ASSURANCES. From time to time after the
Effective Time, the officers and directors of the Surviving Corporation shall
be authorized to execute and deliver, in the name and on behalf of Mergerco,
the Company or otherwise, such deeds and other instruments and to take or cause
to be taken such further or other action as shall be necessary or desirable in
order to vest or perfect in or to confirm, of record or otherwise, in the
Surviving Corporation title to, and possession of, all of the property, rights,
privileges, powers, immunities and franchises of Mergerco and the Company and
otherwise carry out the purposes of this Agreement.
13.14 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the internal laws (as opposed to the conflicts
of law provisions) of the State of Delaware.
13.15 ATTORNEYS' FEES. In the event any legal action is
instituted to construe or enforce this Agreement or any provision hereof, the
prevailing party shall be entitled to recover reasonable attorneys' fees.
47
49
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed the day and year first above written.
GAMEFX, INC.
a Delaware corporation
By: /s/ C. ▇▇▇▇ ▇▇▇▇▇
---------------------------------
C. ▇▇▇▇ ▇▇▇▇▇, President
GAMEFX ACQUISITION COMPANY
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
THQ INC.,
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
Each of the following Persons hereby executes this Agreement
for the purpose of being bound by the provisions of Section 13.5 and 13.6.
/s/ C. ▇▇▇▇ ▇▇▇▇▇
-----------------------------------------
C. ▇▇▇▇ ▇▇▇▇▇
TECHFARM II, L.P.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------
Its: General Partner
---------------------------------
Signature Page 1 of 1
50
EXHIBIT DESCRIPTION
A General Release and Covenant Not to ▇▇▇
B Form of Supplement and Amendment to Employment,
Confidentiality and Invention Assignment Agreement
C Registration Obligations of Parent
D Form of Stock Purchase Agreement
SCHEDULE* DESCRIPTION
-------- -----------
5.1 Jurisdictions in which the Company is qualified
5.3 Capitalization, List of Stockholders, Investor Noteholders and Warrantholders
5.3.2 Rights of first refusal
5.3.5 Voting agreements, rights of first refusal, etc.
5.6 Actions
5.7 Financial Statements
5.9 Governmental Permits
5.15.3 Section 280G payments
5.16.4 Obligations in excess of $10,000
5.16.7 Dividends, etc.
5.16.9 Satisfaction of liens, etc.
5.16.13 Capital expenditures, etc.
5.16.14 Other events or conditions
5.17 Agreements and commitments
5.17.2 Exceptions to validity, etc.
5.18 Intellectual property
5.18.3 Government grants, etc.
5.19 Software products
5.20 Development Tools
5.23.3 Employee Plans
5.23.7 Employment agreements, etc.
5.23.8 Employees and compensation
9.5 Necessary consents
*Note: The Schedules are omitted from this filing. The Company agrees to
furnish supplementally a copy of any Schedule to the Commission upon
request.
51
EXHIBIT A
GENERAL RELEASE AND COVENANT NOT TO ▇▇▇
THIS GENERAL RELEASE AND COVENANT NOT TO ▇▇▇ (this "Release")
is being executed and delivered in connection with the transactions
contemplated by the Agreement of Merger, dated as of April 17, 1998 (the
"Merger Agreement"), by and among THQ Inc. ("Parent"), GameFx, Inc. (the
"Company") and GameFx Acquisition Company ("Mergerco"), pursuant to which the
Company will be merged with and into Mergerco and all issued and outstanding
shares of common stock of the Company held by the undersigned will be converted
into the right to receive shares of common stock of Parent and/or cash (the
"Merger").
For the consideration to be received by the undersigned
pursuant to the Merger, the sufficiency of which is hereby acknowledged, and
intending to be legally bound, the undersigned, for himself and on behalf of
his affiliates, heirs, executors, assigns and personal representatives
(collectively, the "Derivative Claimants"), knowingly and voluntarily, hereby
releases, waives and forever discharges the Company and Parent, and their
respective affiliates, shareholders, controlling persons, directors, officers,
employees and agents, subsidiaries, successors and assigns (collectively, the
"Released Parties"), from all claims, demands, damages, liabilities,
obligations, contracts, manner of actions, causes, causes of action, suits,
debts, sums of money, accounts, reckonings, judgments and executions,
whatsoever, in law or in equity (collectively, "Claims") of any kind, nature or
description whatsoever, whether known or unknown (and if unknown, regardless of
whether knowledge of the same may have affected the decision of the undersigned
to make this Release), which now exist or which may hereafter arise based on
any fact or circumstance arising or occurring on or at any time on or before
the date hereof, including, but not limited to, any rights to indemnification
or reimbursement from the Company, whether or not relating to claims pending
on, or asserted after the date hereof; provided, however, that nothing
contained herein shall operate as a waiver or release of any of the
undersigned's rights (i) under the Agreement of Merger or any agreement entered
into in connection with the transactions contemplated by the Merger Agreement,
or (ii) for compensation and benefits earned or accrued by the undersigned as
an employee or officer of the Company through the date hereof.
The undersigned acknowledges that he (a) has read this
Release; (b) understands that this Release constitutes a release of claims; (c)
has been fully advised by counsel; (d) intends to be bound personally and
legally by this document; and (e) fully understands that he cannot make any
further claims or seek any further recovery by reason of any Claims subsequent
to the date hereof.
In furtherance of the foregoing, the undersigned irrevocably
covenants on behalf of himself and the Derivative Claimants to refrain from,
directly or indirectly, asserting any Claims or demand, or commencing,
instituting or causing to be commenced, any proceeding of any kind against any
of the Released Parties with respect to any of the matters within the scope
52
of this Release and agrees to hold each of the Released Parties harmless with
respect to any such suit or prosecution in contravention of this Release.
If any provision of this Release is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Release will remain in full force and effect. Any provision of this
Release held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable
This Release shall be governed by and construed under the laws
of the State of Massachusetts without regard to principles of conflicts of law.
__________________________________
(Signature)
__________________________________
(Name)
Dated: ______________________, 1998
[to be dated the Closing Date]
A-2
53
EXHIBIT B
SUPPLEMENT AND AMENDMENT TO
EMPLOYMENT, CONFIDENTIALITY AND INVENTION ASSIGNMENT AGREEMENT
THIS SUPPLEMENT AND AMENDMENT TO EMPLOYMENT, CONFIDENTIALITY
AND INVENTION AGREEMENT (this "Supplement") is made this ______ day of
_______________, 1998, by _____________________________ ("Stockholder") in
favor of GAMEFX, INC., a Delaware corporation ("GameFx"), and THQ INC., a
Delaware corporation ("THQ"), with reference to the following facts:
A. GameFx, THQ and GameFx Acquisition Company, a
Delaware corporation and a wholly owned subsidiary of THQ ("Mergerco"), have
entered into an Agreement of Merger dated as of April 17, 1998 (the "Merger
Agreement"), pursuant to which THQ has agreed to acquire all of the issued and
outstanding shares of common stock of GameFx (the "GameFx Common Stock") by
causing GameFx to merge with and into Mergerco (the "Merger").
B. Pursuant to and at the effective time of the Merger,
by operation of law, (i) all of the Common Stock owned by Stockholder will be
converted into the right to receive common stock of THQ as set forth in the
Merger Agreement, and (ii) GameFx will become a wholly owned subsidiary of THQ;
and in such manner Stockholder will have sold to THQ and disposed of all of the
GameFx Common Stock owned by Stockholder.
C. Stockholder has previously executed and delivered to
GameFx an Employment, Confidential Information and Invention Assignment
Agreement (the "Employment Matters Agreement").
D. As a material inducement to THQ and GameFx to enter
into the Merger Agreement and consummate the Merger, Stockholder has agreed to
execute and deliver to THQ and GameFx this Supplement for the purpose of
supplementing and amending the Employment Matters Agreement.
NOW, THEREFORE, in consideration for the "Merger
Consideration" (as defined in the Merger Agreement) to be received by
Stockholder, Stockholder hereby agrees that the Employment Matters Agreement
shall be supplemented and amended as follows:
1. For purposes of this Supplement and the Employment
Matters Agreement, the following terms shall have the following meanings:
"Person" means any person, firm, corporation, partnership,
governmental jurisdiction or agency or other entity or enterprise.
"Territory" means the entire world.
"GameFx's Business" means the activities of (i) developing,
publishing and distributing interactive entertainment software, and (ii)
developing and exploiting applied technologies and development tool sets for
use in the creation of interactive entertainment software.
54
"Company" means both GameFx and THQ, and their respective
subsidiaries, affiliates, successors and assigns.
2. Section 1 of the Employment Matters Agreement
("At-Will Employment") is hereby deleted in its entirety.1
3. Section 2 of the Employment Matters Agreement
("Confidential Information") is hereby amended to add the following subsection:
(d) In the event that I becomes legally compelled to
disclose any of the Confidential Information, I will provide
the Company with prompt notice thereof so that the Company may
seek a protective order or other protective remedy and/or
waive compliance with the provisions of this Agreement
concerning the disclosure of such Confidential Information. I
agree to furnish only that portion of the Confidential
Information that is legally required and to cooperate with any
efforts of the Company to obtain a protective order or other
reasonable assurance that confidential treatment will be
accorded the Confidential Information.
4. Section 7 of the Employment Matters Agreement
("Solicitation of Employees") is hereby amended and restated in its entirety to
read as follows:
7. Solicitation of Employees and Related Matters. I
agree that during the Term (as defined in Section 12 below), I will
not either directly or indirectly (i) solicit, induce, recruit or
encourage any of the Company's employees to leave their employment, or
take away any such employee, or attempt to solicit, induce, recruit,
encourage or take away any employee of the Company, either for myself
or for any other Person, or (ii) take any action, or advise or assist
any Person to take any action, that would impair the goodwill of the
business of the Company, including but not limited to actions that
would interfere with or damage the Company's business relationships
with its employees, licensees, creditors and others with whom it does
business.
5. Section 10(a) ("Arbitration") of the Employment
Matters Agreement is hereby deleted in its entirety.
6. Section 11(c) ("Severability") of the Employment
Matters Agreement is hereby amended and restated in its entirety to read as
follows:
(c) SEVERABILITY. No provision of this Agreement shall
be construed so as to require the performance of any undertaking
contrary to law or which is not enforceable under law, and whenever
there is a conflict between any provision of this Agreement and any
law contrary to which the Company and I have no legal right to
contract, the latter shall prevail, but in such event the provision of
this Agreement so affected shall be curtailed and limited only to the
extent necessary to bring it within the legal requirements. In
particular, if any of my covenants set forth herein is found by a
court to be unreasonable in its duration or scope or in violation of
public policy, I agree that the other provisions of this Agreement
will continue in full force and effect, and that the affected covenant
shall be enforced to the extent doing so would not be unreasonable or
in violation of public policy.
____________________
1For C. ▇▇▇▇ ▇▇▇▇▇' agreement only.
B-2
55
7. Section 11 of the Employment Matters Agreement ("General
Provisions") is hereby amended to add the following subsections:
(e) ATTORNEYS FEES. Notwithstanding Section 10 hereof,
in the event suit is brought to enforce or interpret this Agreement or
any part hereof or the rights or obligations of any Person hereunder,
the prevailing party shall be entitled to recover his reasonable
attorneys' fees to be fixed by the court.
(f) NO WAIVERS. The failure of the Company at any time
to require my performance of any provision of this Agreement shall not
affect its right thereafter to enforce the same; nor shall the waiver
by the Company of any breach of any provision thereof or hereof be
construed to be a waiver of any succeeding breach of any such
provision, or as a waiver of the provision itself.
(g) SURVIVAL OF OBLIGATIONS. I acknowledge and agree
that my obligations under this Agreement shall constitute covenants
that are independent from any obligations that are or may be owing to
me by the Company, and thus shall be enforceable by the Company
notwithstanding any breach or alleged breach by the Company of any
obligation to me. My obligations under this Agreement shall continue
beyond the termination of my employment by the Company (except as may
be expressly set forth to the contrary herein), and shall be binding
upon my personal representatives, executors and heirs. This Agreement
constitutes my continuing agreement and will be binding on me
notwithstanding any termination of my employment and any subsequent
re-employment or re-engagement by the Company, even if I am not
requested to execute another copy of this Agreement upon my
re-employment.
8. The Employment Matters Agreement is hereby amended to add the
following Section 12:
12. COVENANT NOT TO COMPETE. I agree that I will not,
for the period commencing on the date hereof and ending on the later
of (i) the third anniversary of the date hereof, and (ii) one year
after the termination of my employment with the Company for any
reason, whether with or without cause (such period the "Term"),
(i) directly or indirectly engage in; or
(ii) have any interest in (whether as a proprietor,
partner, investor or stockholder) any Person that directly or
indirectly is or expects to become engaged in; or
(iii) assist or render services (whether or not for
compensation, and whether as a director, officer, employee,
agent, advisor, consultant or lender) to or for any Person
that directly or indirectly is or expects to become engaged in
any aspect of GameFx's Business anywhere in the Territory; provided,
however, the foregoing shall not prohibit the ownership, in the
aggregate, directly or indirectly, of less than two percent (2%) of
any class of securities of any entity that is engaged in any portion
of the GameFx Business so long as such securities are listed on a
national securities exchange or are traded publicly in the
over-the-counter market; [and, provided further, that Stockholder may
serve on the technical advisory boards of Intel Corporation and 3Dfx
Interactive Inc. so long as those activities do not cause Stockholder
to breach any of the other provisions of the Employment Matters
Agreement](2).
____________________
(2)Additional language for C. ▇▇▇▇ ▇▇▇▇▇' agreement.
B-3
56
9. Except as expressly supplemented and amended by this
Supplement, the Employment Matters Agreement shall continue in full force and
effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereof have executed this
Supplement as of the date first written above.
"STOCKHOLDER"
_____________________________
AGREED TO AND ACCEPTED:
GAMEFX, INC.
By: ___________________________
C. ▇▇▇▇ ▇▇▇▇▇, President
THQ, INC.
By: ___________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
B-4
57
EXHIBIT C
REGISTRATION OBLIGATIONS OF PARENT
1. DEFINITIONS. Each capitalized term used in this Exhibit but not defined
herein shall have the meaning ascribed to such term in the Agreement of Merger
dated as of April 17, 1998 by and among THQ Inc., GameFx Acquisition Company and
GameFx, Inc. (the "Merger Agreement"); and as used in this Exhibit the following
terms shall have the following meanings:
"Commission" means the Securities and Exchange Commission.
"Confirmation and Request for Registration" means a written
confirmation pursuant to which a Holder (i) requests that the Registerable
Shares held by such Holder be included in the Registration Statement, (ii)
provides the Holder Information and such other information as may be reasonably
requested by Parent, (iii) agrees to be bound by such Holder's obligations set
forth in Section 3 of this Exhibit and the indemnification provisions set forth
in this Exhibit.
"Continuously Effective" means that the Registration Statement
shall not cease to be effective and available for Transfers of Registrable
Securities thereunder for longer than either (i) any ten consecutive business
days, or (ii) an aggregate of fifteen business days.
"Holder Information" means, with respect to a Holder, such
information regarding such Holder as is required by Item 507 of Regulation S-K
promulgated by the Commission under the Securities Act, (ii) whether the
intended method of disposition of such Holder's Registerable Shares differs
from the Proposed Plan of Distribution (and if so, in what manner), and (iii)
any additional information as may be required to be included in the
Registration Statement by a Selling Holder; in each case as shall be required
to effect the registration of such Registrable Shares pursuant to the
Registration Statement, the disclosures required in the Prospectus with respect
thereto and the offer and Transfer of such Registrable Shares pursuant to the
Prospectus.
"Holders" means (i) Effective Time Shareholders and the
Convertible Noteholders, and (ii) any other Person who acquires any of the
Registrable Shares from another Holder if (a) such Transferor and Trasferee
shall have delivered to Parent a written notice of such Transfer setting forth
the name of such Person, and (b) such Tranferee shall have executed and
delivered to Parent a properly completed Confirmation and Request for
Registration; in each case at such times as such Transferee shall own
Registrable Shares.
"Proposed Plan of Distribution" means a draft of the portion
of the Registration Statement that describes the intended methods of
disposition of the Registrable Shares by the Selling Holders.
"Prospectus" means, with respect to the Registration Statement
and each amendment thereto, the form of prospectus included therein.
"Registrable Shares" means, as of any date of determination,
(i) the THQ Shares that are either (a) issued to the Convertible Noteholders
pursuant to Section 4.5.4 of the Merger Agreement, (b) issued or issuable to
the Effective Time Stockholders pursuant to Section 3.1.1 of the Merger
Agreement; (ii) any shares or other securities issued as a dividend or other
distribution with respect to, or in exchange by Parent
58
generally for, or in replacement by Parent generally of, such THQ Shares; and
(iii) any securities issued in exchange for such THQ Shares in any merger or
reorganization of Parent; in each case that continue to be owned by a Holder on
such date of determination.
"Registration Statement" means a registration statement on
Form S-3, as amended from time to time, registering the offer and sale by the
Selling Holders of such Selling Holders' Registerable Shares included therein
for offer and Transfer on a delayed or continuous basis pursuant to Rule 415
under the Securities Act.
"Selling Holder" means a Holder who (i) complies with Section
3.1 of this Exhibit, (ii) if such Holder is not an Effective Time Stockholder
or a Convertible Noteholder, such Holder holds not less than 500 Registerable
Shares both at the time such Holder delivers its Confirmation and Request for
Registration and at the time the Registration Statement is declared effective
(or such lesser number as Parent, in its sole and absolute discretion, shall
determine for such Holder),and (iii) whose Registerable Shares are included in
the Registration Statement.
"Transfer" means the act of selling, giving, transferring,
creating a trust (voting or otherwise), assigning or otherwise disposing of
(other than pledging, hypothecating or otherwise transferring as security) (and
correlative words shall have correlative meanings).
"Violation" shall have the meaning set forth in Section 5.1
hereof.
2. REGISTRATION OBLIGATIONS OF PARENT. Parent shall:
2.1 Following the Effective Time, send to each Holder a
form of Confirmation and Request for Registration.
2.2 Not later than 45 days after the Closing Date, file
the Registration Statement with the Commission and thereafter use all
reasonable efforts to cause the Registration Statement to be declared effective
as soon as practicable. Parent shall be entitled to postpone, for up to 60
days, the filing of the Registration Statement if the Board of Directors of
Parent determines, in its good faith reasonable judgment, that the registration
of the Registerable Shares would interfere with or require the premature
disclosure of any transaction or business matter involving Parent.
2.3 Include in the Registration Statement the number of
each Holder's Registrable Shares as shall be specified in the Confirmations and
Requests for Registrations provided to Parent pursuant to Section 3.1 of this
Exhibit.
2.4 For each Selling Holder, use all reasonable efforts
to keep the Registration Statement Continuously Effective until the earlier of
(i) the date on which such Selling Holder's Registerable Shares may be sold
pursuant to Rule 144 promulgated by the Commission under the Securities Act, or
(ii) such date as of which all of such Selling Holder's Registerable Shares
registered under the Registration Statement have been Transferred.
2.5 During the effectiveness of the Registration
Statement, and subject to Section 3.3 of this Exhibit, upon notice to Parent by
a Selling Holder of a Transfer of Registerable Shares pursuant to the
Registration Statement and receipt by Parent of a certificate from such Selling
Holder representing for the benefit of Parent and its counsel that (i) such
Registerable Shares were offered and have been Transferred by such Selling
Holder in a manner consistent with the description set under the caption "Plan
of Distribution"
C-2
59
in the Prospectus, and (ii) such Selling Holder has complied, in connection
with such offer and Transfer, with the prospectus delivery requirements under
the Securities Act, Parent shall promptly take such actions as may be necessary
to cause such Registerable Shares to be reissued in the name of the transferee
free of any restrictive legend under the Securities Act.
2.6 In the event that any Registrable Shares included in
the Registration Statement remain unsold at the end of the period specified in
Section 2.4 of this Exhibit, Parent may file a post-effective amendment to the
Registration Statement for the purpose of de-registering such unsold
Registerable Shares.
2.7 Furnish to each Selling Holder, without charge, such
numbers of copies of the Registration Statement, any pre- effective or
post-effective amendment thereto, the final Prospectus, and any amendments or
supplements thereto, in each case in conformity with the requirements of the
Securities Act, and such other related documents, as each Selling Holder may
reasonably request in order to facilitate the Transfer of the Registrable
Shares owned by such Selling Holder.
2.8 Use all reasonable efforts to register and qualify
the Registrable Shares covered by the Registration Statement under such
securities laws of such states or jurisdictions as shall be reasonably
requested by the Selling Shareholders; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
2.9 Promptly notify each Selling Holder of any stop order
issued or threatened to be issued by the Commission in connection therewith
(and take all reasonable actions required to prevent the entry of such stop
order or to remove it if entered).
2.10 Cause the Registrable Shares covered by the
Registration Statement, if the THQ Shares are then listed on a securities
exchange or included for quotation in a recognized trading market, to be so
listed or included.
3. CONDITIONS TO PARENT'S OBLIGATIONS; OBLIGATIONS OF THE SELLING
HOLDERS.
3.1 The obligations of Parent under Section 2 with respect to each
Holder are subject to the satisfaction of each of the following conditions:
3.1.1 Such Holder shall complete, execute and
deliver to Parent the Confirmation and Request for Registration not
later than 15 days after the Confirmation and Request for Registration
is sent by Parent to such Shareholder pursuant to Section 2.1 of this
Exhibit.
3.1.2 Prior to the effectiveness of the
Registration Statement, such Holder shall furnish to Parent such
amendments and supplements to its Holder Information set forth in such
Holder's Confirmation and Request for Registration as may be necessary
in order to assure that the Holder Information included in the
Registration Statement for such Holder does not include a misstatement
of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.
3.1.3 If such Holder is a Selling Holder, such
Holder shall cooperate with Parent in the preparation of the
Registration Statement in the manner and to the extent reasonably
requested by Parent, including executing and delivering to Parent such
documents as Parent may reasonably
C-3
60
request in order to permit Parent to comply with all applicable laws
or to obtain acceleration of the effectiveness of the Registration
Statement.
3.2 After the effectiveness of the Registration
Statement, each Selling Holder shall furnish to Parent such amendments and
supplements to its Holder Information provided pursuant to Section 3.1 of this
Exhibit as may be necessary in order to assure that the Holder Information
included in the Registration Statement for such Holder does not include a
misstatement of a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
3.3 In the event that Parent gives a notice to a Selling
Holder of the happening of an event or development as a result of which the
Registration Statement or Prospectus contains any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, then pending
Parent's preparation and filing with the Commission of such materials as Parent
may deem necessary to assure that the Registration Statement and Prospectus do
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, such Selling Holder shall thereupon cease making offers
and Transfers of Registerable Shares pursuant to the Registration Statement or
deliveries of the Prospectus and, if requested by Parent, shall return to
Parent all copies of the Prospectus not theretofore delivered by such Selling
Holder to third parties; and, if required, Parent shall furnish to each Selling
Holder revised Prospectuses or supplements to or amendments of the Prospectus
as Parent may deem necessary; and following such filing with the Commission
and/or their receipt of the same each Selling Holder shall be free to resume
making offers and Transfers of Registered Shares
4. EXPENSES OF REGISTRATION.
Parent shall pay all expenses incurred in connection with the
registration, filing and qualification of the Registrable Shares, including all
registration, filing and NASD or securities exchange fees; all fees and
expenses of complying with securities or blue sky laws; all word processing,
duplicating and printing expenses; and the fees and disbursements of counsel
and accountants for Parent; but excluding all discounts, commissions or fees of
selling brokers or similar securities industry professionals and any fees and
expenses of counsel and accountants for the Selling Holders.
5. INDEMNIFICATION; CONTRIBUTION.
5.1 To the extent permitted by applicable law, Parent
shall indemnify and hold harmless each Selling Holder; each Person, if any, who
controls such Selling Holder within the meaning of the Securities Act; and each
officer, director, partner and employee of such Selling Holder and such
controlling Person; against any and all losses, claims, damages, liabilities
and expenses, incurred by such party pursuant to any actual or threatened
action, suit, proceeding or investigation, or to which any of the foregoing
Persons may become subject under the Securities Act, to the extent such losses,
claims, damages, liabilities and expenses arise out of or are based upon any of
the following (collectively a "Violation"):
5.1.1 Any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement,
including any final Prospectus, or any amendments or supplements
thereto;
5.1.2 The omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading; or
C-4
61
5.1.3 Any violation or alleged violation by Parent
of the Securities Act, the Exchange Act or any applicable state
securities law;
provided, however, that the indemnification required by this Section 5.1 shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or expense if such settlement is effected without the consent of
Parent, nor shall Parent be liable in any such case for any such loss, claim,
damage, liability or expense to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with the
Holder Information or other information furnished to Parent by or on behalf of
a Selling Holder expressly for use in connection with the Registration
Statement.
5.2 To the extent permitted by applicable law, each
Selling Holder shall, severally and not jointly, indemnify and hold harmless
Parent; each of its directors, each of its officers who shall have signed the
Registration Statement; each Person, if any, who controls Parent within the
meaning of the Securities Act; any other Selling Holder, any controlling Person
of any such other Selling Holder and each officer, director, partner, and
employee of such other Selling Holder and such controlling Person; against any
and all losses, claims, damages, liabilities and expenses (joint and several),
incurred by such party pursuant to any actual or threatened action, suit,
proceeding or investigation, or to which any of the foregoing Persons may
otherwise become subject under the Securities Act, to the extent such losses,
claims, damages, liabilities and expenses arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written Holder
Information or other information furnished to Parent by or on behalf of such
Selling Holder expressly for use in connection with the Registration Statement;
provided, however, that in no event shall any Selling Holder be responsible for
any amount payable as damages in any such action or suit in an amount in excess
of the amount of proceeds received by such Holder from the sale of its
Registerable Shares.
5.3 Promptly after receipt by an indemnified party under
this Section 5 of notice of the commencement of any action, suit, proceeding,
investigation or threat thereof made in writing for which such indemnified
party may make a claim under this Section 5, such indemnified party shall
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties. The failure to deliver written notice to the
indemnifying party within a reasonable time following the commencement of any
such action, if prejudicial to its ability to defend such action, shall relieve
such indemnifying party of any liability to the indemnified party under this
Section 5 but shall not relieve the indemnifying party of any liability that it
may have to any indemnified party otherwise than pursuant to this Section 5.
Any such indemnified party shall have the right to employ separate counsel in
any such action, claim or proceeding and to participate in the defense thereof,
but the fees and expenses of such counsel shall be the expenses of such
indemnified party unless (i) the indemnifying party has agreed to pay such fees
and expenses, or (ii) the indemnifying party shall have failed to promptly
assume the defense of such action, claim or proceeding, or (iii) the named
parties to any such action, claim or proceeding (including any impleaded
parties) include both such indemnified party and the indemnifying party, and
such indemnified party shall have been advised by counsel that there may be one
or more legal defenses available to it which are different from or in addition
to those available to the indemnifying party and that the assertion of such
defenses would create a conflict of interest such that counsel employed by the
indemnifying party could not faithfully represent the indemnified party (in
which case, if such indemnified party notifies the indemnifying party in
writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such action, claim or proceeding on behalf of such indemnified
party, it being understood, however, that the indemnifying party shall not, in
connection with any one such action, claim or proceeding or separate but
substantially similar or related actions, claims or proceedings in the same
C-5
62
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys (together with appropriate local counsel) at any time for all such
indemnified parties, unless in the reasonable judgment of such indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such action, claim or
proceeding, in which event the indemnifying party shall be obligated to pay the
fees and expenses of such additional counsel or counsels). No indemnifying
party shall be liable to an indemnified party for any settlement of any action,
proceeding or claim without the written consent of the indemnifying party,
which consent shall not be unreasonably withheld.
5.4 If the indemnification required by this Section 5
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to in
this Section 5 as a matter of law or public policy:
5.4.1 The indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party
and indemnified parties in connection with the actions which resulted
in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any Violation has been
committed by, or relates to information supplied by, such indemnifying
party or indemnified parties, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such Violation. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth
in Section 5.1 and 5.2, any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or
proceeding.
5.4.2 The parties hereto agree that it would not be
just and equitable if contribution pursuant to this Section 5.4 were
determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred
to in Section 5.4.1. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any Person who was not guilty of a
fraudulent misrepresentation.
5.5 If indemnification is available under this Section 5,
the indemnifying parties shall indemnify each indemnified party to the full
extent provided in this Section 5 without regard to the relative fault of such
indemnifying party or indemnified party or any other equitable consideration
referred to in Section 5.4.
5.6 The obligations of Parent and the Selling Holders
under this Section 5 shall survive the completion of any offering of
Registrable Shares pursuant to the Registration Statement and any termination
of this Agreement.
6. AMENDMENT, MODIFICATION AND WAIVERS; FURTHER ASSURANCES. Parent may
take any action herein prohibited, or omit to perform any act herein required
to be performed by it; in each case only if Parent shall have obtained the
written consent of Holders holding more than 50% of the Registerable Shares.
Such amendment, action or omission shall not require the consent of any other
Holder.
C-6
63
7. NOTICES. All notices, requests, demands, consents, approvals,
designations and other deliveries and communications called for or contemplated
by this Agreement shall be in writing and shall be given (i) in the case of
Parent, to the address and in the manner set forth in Section 13.3 of the
Merger Agreement, and (ii) in the case of any Holder in the manner set forth in
Section 13.3 of the Merger Agreement and to the address (a) set forth in
Schedule 5.3 to the Merger Agreement, or (b) as otherwise provided by such
Holder in writing to Parent in the manner set forth in Section 13.3 of the
Merger Agreement.
C-7
64
EXHIBIT D
THQ, INC.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
April ___, 1998
To: ________________________, a
stockholder of GameFx, Inc.
Dear Stockholder:
As you may be aware, THQ, Inc. ("THQ") has entered or expects
to enter into an agreement with GameFx, Inc. ("GameFx") that will result in THQ
acquiring all of the outstanding shares of GameFx.
THQ is a leading developer, publisher and distributor of
interactive entertainment software. The common stock of THQ is traded on the
NASDAQ National Market.
This acquisition will occur as the result of the merger of
GameFx with a subsidiary of THQ (the "Merger"). In the Merger, each of the
outstanding shares of GameFx will be exchanged for shares of THQ. The exact
exchange ratio will not be known until the day the Merger is consummated, and
will depend primarily on the amount of debt GameFx has at that time and on the
market price of THQ's shares during a 10-day measuring period prior to the
Merger. However, it is expected that the value of the THQ shares distributed
in the Merger will have a value (based on such market price) of approximately
$0.80 per share of GameFx, i.e. each GameFx share will have a value of
approximately $0.80 for purposes of the Merger. A portion of the shares of THQ
issued in the Merger will go into an escrow account and will be subject to
certain types of claims that THQ may have after the Merger.
In order to facilitate the Merger, THQ is offering to
purchase, from each of the stockholders of GameFx who owns less than 50,000
shares of GameFx, all of those shares, for cash. This letter agreement (this
"Agreement") will set forth the terms of that offer to you and, upon your
execution and return of a copy of this Agreement, will set forth THQ's binding
agreement to purchase, and your binding agreement to sell, all of your GameFx
shares.
Accordingly, THQ and you agree as follows:
1. On the terms, and subject to the conditions, set
forth in this Agreement, immediately prior to the "Merger Consummation" (as
defined below) THQ will purchase and acquire from you, and you will sell and
deliver to THQ, all of the shares of common stock of
65
GameFx owned by you at that time, whether now owned or acquired by you prior to
the Merger (the "Subject Shares"). The time and date on which this purchase
and sale are consummated is referred to as the "Closing."
2. The "Merger Consummation" means the date and time at
which THQ and GameFx consummate the Merger.
3. The consideration payable by THQ for the Subject
Shares will consist of cash in an amount that is the equivalent in value, per
share of GameFx, of the shares of THQ to be issued in the Merger (the "Purchase
Price"). For example, if in the Merger each share of GameFx is exchanged for
$0.80 worth of THQ Shares, the consideration for each of your Subject Shares
will be $.80 in cash. THQ will mail to you, at the address you specify below,
a check in the amount of the Purchase Price immediately following the Closing.
None of the Purchase Price will be subject to the escrow described above.
4. As further consideration for your selling the Subject
Shares to THQ, if at the time of the Closing you continue to owe to GameFx the
purchase price for the Subject Shares, THQ will pay that amount for you.
5. In the event that ▇▇▇▇▇ ▇▇▇▇▇, Esq., counsel for
GameFx in the Merger, is not already in possession of the stock certificate(s)
evidencing the Subject Shares, you agree to immediately deliver them to ▇▇.
▇▇▇▇▇. You also agree to deliver to her a stock assignment, on a form that
will be provided to you, executed in blank and left undated, for the purpose of
assigning to THQ at the Closing all of your right, title and interest in and to
the Subject Shares (the "Stock Power"). You agree that ▇▇. ▇▇▇▇▇ shall hold
the stock certificate(s) evidencing the Subject Shares and the Stock Power for
our mutual benefit pending the Closing.
6. You hereby irrevocably appoint ▇▇. ▇▇▇▇▇ (and any
other persons she may designate) as your agent and attorney-in-fact for the
purpose of completing the Stock Power and delivering the Stock Power and the
certificate(s) evidencing the Subject Shares to THQ at the Closing.
7. It is a condition to the Closing that it occur on or
before June 1, 1998. If it does not, either THQ or you may terminate this
Agreement and all of THQ's and your respective rights and obligations under
this Agreement. However, you may not terminate this Agreement under any other
circumstances, and THQ is relying on this Agreement and its continuing
effectiveness in proceeding to arrange for the consummation of the Merger. THQ
may so terminate this Agreement at any time if it determines that the Merger
will not be consummated. Any election to terminate must be by written notice
sent (in the case of notices sent to THQ) to the address specified above,
attention Chief Financial Officer, or (in the case of notices sent to you) to
the address you set forth below.
8. You represent and warrant to THQ that: (i) the number
of shares of common stock you currently own is set forth below opposite your
signature, (ii) you are, and at the
D-2
66
Closing you will continue to be, the sole owner of the number of Subject Shares
set forth below, and none of the Subject Shares are or will be subject to any
liens or encumbrances in favor of any other person or entity, (iii) no other
person or entity has any right to acquire any of the Subject Shares from you,
and (iv) accordingly, upon the consummation of the Closing, THQ will acquire
all of the Subject Shares subject to no claims of any kind by any person or
entity, (v) you do not need the consent of any person or entity to sell the
Subject Shares to THQ, and (vi) such sale will not cause you to violate any
agreement, judgement or court order to which you are a party or that is binding
on you or your property. You agree to indemnify THQ for any damages it may
suffer if any of these representations are warranties are not correct.
* * *
If the foregoing is acceptable to you and reflects the
agreement you are willing to make with THQ, please so indicate by executing a
copy of this Agreement and returning it to:
▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
General Counsel Associates LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: 650-428-3901
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President and Chief Executive Officer
THQ Inc.
Agreed to and accepted as
of the date first set forth above:
________________________________ ____________________________
Signature of Stockholder Number of Shares of GameFx
________________________________
Print Name of Stockholder
________________________________
Address
________________________________
Telephone
D-3