SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of
the Securities Exchange Act of 1934
Check the appropriate box:
[X] Preliminary Information Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[_] Definitive Information Statement
theglobe.com, inc.
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(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[X] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
(1) Title of each class of securities to which
transaction applies: N/A
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(2) Aggregate number of securities to which
transaction applies: N/A
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and
state how it was determined):
N/A
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(4) Proposed maximum aggregate value of transaction: $37,500.000.00
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(5) Total fee paid: $4,413.75
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
N/A
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(2) Form, Schedule or Registration Statement No.:
N/A
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(3) Filing Party:
N/A
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(4) Date Filed:
N/A
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theglobe.com, inc.
110 E. Broward Boulevard
Suite 1400
Fort Lauderdale, FL 33301
(954) 769-5900
NOTICE OF ADOPTION OF PURCHASE AGREEMENT
AND APPROVAL OF SALE OF SUBSIDIARY
BY
WRITTEN CONSENT OF STOCKHOLDERS
September __, 2005
NOTICE IS HEREBY GIVEN, pursuant to Section 228 of the General Corporation
Law of the State of Delaware ("Delaware Law") that on August 18, 2005, the
holders of more than a majority of the outstanding shares of common stock of
theglobe.com, inc., a Delaware corporation ("theglobe"), acted by written
consent, without a meeting of stockholders, to adopt the Purchase Agreement by
and between theglobe, SendTec, Inc. ("SendTec") a Florida corporation, and
RelationServe Media, Inc., a Nevada corporation ("RelationServe") (the "Purchase
Agreement"), and approve the transactions contemplated thereby. Under the
Purchase Agreement, theglobe will sell the business of its subsidiary, SendTec,
Inc. to RelationServe for $37.5 million in cash. In connection with the Purchase
Agreement, theglobe also entered into, or will enter into prior to closing,
several ancillary agreements to the Purchase Agreement. These agreements
include, or will include, a Redemption Agreement (the "Redemption Agreement")
and a Termination Agreement (the "Termination Agreement"). Pursuant to the
ancillary agreements theglobe will redeem approximately 28.9 million shares of
its common stock from the management of SendTec and will terminate certain
options, warrants and other rights of SendTec management and certain employees
for amounts totaling approximately $12.6 million in cash. The sale of our
SendTec assets may constitute the sale of "substantially all" of our assets
within the meaning of Delaware Law and requires the consent of the holders a
majority of the outstanding shares held by our stockholders.
As permitted by Delaware Law, no meeting of stockholders of theglobe is
being held to vote on the adoption of the Purchase Agreement or approval of the
sale of SendTec because such transactions have been approved by the requisite
majority of stockholders in an action by written consent of the stockholders of
theglobe. The terms and conditions of the Purchase Agreement and the various
transactions contemplated thereby are described in detail in the enclosed
Information Statement, which is incorporated by reference and made part of this
notice.
/s/ Robin Segaul Lebowitz
-----------------------------------
Robin Segaul Lebowitz
Secretary Fort Lauderdale, Florida
INFORMATION STATEMENT
INTRODUCTION
After careful consideration, the Board of Directors of theglobe has
unanimously adopted the Asset Purchase Agreement dated as of August 10, 2005,
and as amended on August 23, 2005 (the "Purchase Agreement"), by and between
theglobe.com, inc., a Delaware corporation ("theglobe"), SendTec, Inc., a
Florida corporation ("SendTec") and RelationServe Media, Inc., a Nevada
corporation ("RelationServe"), whereby theglobe will sell the business and
substantially all of the net assets of its subsidiary, SendTec, Inc., to
RelationServe for $37.5 million in cash subject to certain adjustments. In
addition to approving the Purchase Agreement, the Board of Directors has
approved several ancillary agreements and transactions as contemplated by the
Purchase Agreement. These agreements include, or will include, the Redemption
Agreement (the "Redemption Agreement") pursuant to which theglobe will redeem
28,879,097 shares of its common stock held by the management of SendTec and a
Termination Agreement (the "Termination Agreement") pursuant to which certain
options, warrants and other rights owned by SendTec management and a few other
employees will be terminated. Such ancillary agreements will result in payments
totaling approximately $12.6 million in cash. The Board of Directors has
determined that the asset sale is advisable and in the best interests of
theglobe and its stockholders. The asset sale involves risks, including the
existence of conditions to the obligation of RelationServe to complete the asset
sale, all of which must either be satisfied or waived prior to the completion of
the asset sale. The Purchase Agreement and related agreements and transactions
are more fully described in the section entitled "The Purchase Agreement."
Mr. Michael Egan, the Chairman and CEO of theglobe, together with certain
of his affiliates, and a few other stockholders whom collectively are the
beneficial owners of approximately 51% of the issued and outstanding shares of
theglobe common stock, the sole class of voting securities of theglobe, have
executed a written consent adopting the Purchase Agreement and approving the
transactions contemplated thereby in accordance with Section 228 of Delaware
Law. The action by written consent is sufficient to approve the asset sale and
the other transactions contemplated by the Purchase Agreement without any
further action or vote of the stockholders of theglobe. Accordingly, no other
actions are necessary to approve the asset sale, and no such actions are being
requested. The stockholders of RelationServe are not required to approve the
asset sale.
THIS IS NOT A REQUEST FOR YOUR VOTE OR A PROXY. WE ARE NOT ASKING YOU FOR
A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. THIS INFORMATION STATEMENT
IS DESIGNED TO INFORM YOU OF THE ASSET SALE AND TO PROVIDE YOU WITH INFORMATION
ABOUT THE ASSET SALE AND THE BACKGROUND TO THE ASSET SALE.
NEITHER THE ASSET SALE NOR THE PURCHASE AGREEMENT HAS BEEN APPROVED OR
DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE "SEC"),
OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE FAIRNESS OR MERIT OF THE ASSET SALE OR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS INFORMATION STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OR STATEMENTS (OTHER THAN THOSE CONTAINED IN THIS INFORMATION
STATEMENT) REGARDING THE ASSET SALE OR THE OTHER MATTERS DISCUSSED HEREIN AND,
IF GIVEN OR MADE, ANY SUCH REPRESENTATIONS OR INFORMATION PROVIDED MUST NOT BE
RELIED ON AS HAVING BEEN AUTHORIZED OR SANCTIONED BY THEGLOBE OR ANY OTHER
PERSON.
This Information Statement is being furnished to stockholders of theglobe
beginning September __, 2005 in connection with the proposed asset sale to
RelationServe. It is being furnished to theglobe stockholders of record as of
September 2, 2005. You should not assume that the information contained herein
is accurate as of any date other than the date hereof. All information in this
Information Statement concerning theglobe has been supplied by theglobe. All
information contained in this Information Statement concerning RelationServe has
been supplied by RelationServe. A copy of the Purchase Agreement is attached to
this Information Statement as Annex A.
The date of the Information Statement is September _____, 2005
SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Information Statement contains "forward-looking statements" regarding
our assumptions, projections, expectations, intentions or beliefs about future
events. We caution you that these statements may and often do vary from actual
results, and the differences between these statements and actual results can be
material. Accordingly, we cannot assure you that actual results will not differ
materially from those expressed or implied by the forward-looking statements.
These forward-looking statements include, among others, statements concerning
our financial position and results, ability to consummate the asset sale, and
the business strategy, plans and objectives of management for future operations,
including development plans and objectives relating to our business.
Forward-looking statements speak only as of the date of this Information
Statement. We expressly disclaim any obligation or undertaking to release,
publicly or otherwise, any updates or revisions to any forward-looking statement
contained in this Information Statement to reflect any change in our
expectations or any change in events, conditions, assumptions or circumstances
on which any such statement is based unless so required by applicable law,
including the securities laws of the United States and the rules and regulations
of the SEC.
iv
CONTENTS
Clause Page
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SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS iv
SUMMARY 1
QUESTIONS AND ANSWERS ABOUT THE ASSET SALE 3
INFORMATION REGARDING THE PARTIES 5
BACKGROUND OF THE ASSET SALE 6
REASONS FOR THE ASSET SALE 7
OUR FUTURE PLANS 8
ABSENCE OF DISSENTERS' RIGHTS 8
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON 8
THE PURCHASE AGREEMENT 8
ANCILLARY AGREEMENTS TO THE PURCHASE AGREEMENT 17
THE FAIRNESS OPINION 21
GOVERNMENTAL AND REGULATORY MATTERS 22
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS 22
STOCKHOLDER CONSENT TO THE ASSET SALE 22
FINANCING OF THE ASSET SALE 23
CERTAIN PRO FORMA FINANCIAL INFORMATION AND RELATED DATA 24
INFORMATION ABOUT THEGLOBE 30
WHERE YOU CAN FIND MORE INFORMATION ABOUT THEGLOBE 43
Annex A--Purchase Agreement, as Amended A-1
Annex B--Redemption Agreement B-1
Annex C--Fairness Opinion C-1
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i
SUMMARY
The following is a summary of information contained elsewhere in this
Information Statement. Reference is made to, and this summary is qualified in
its entirety by, the more detailed information contained elsewhere in this
Information Statement and the exhibits attached hereto. We urge you to read this
Information Statement and the Purchase Agreement and Redemption Agreement set
forth on Annex A and Annex B, respectively, in their entirety. They contain
important information relating to theglobe and the asset sale.
The Parties Involved in the Asset Sale
o The parties involved in the asset sale are theglobe, its
wholly-owned subsidiary, SendTec, and RelationServe. Six members of
management of SendTec ("SendTec Management") are also parties to the
Redemption and Termination Agreements. For additional information
regarding theglobe, SendTec and RelationServe, see "Information
Regarding the Parties" and "Information about theglobe."
Purchase Price
o Under the Purchase Agreement, theglobe will sell to RelationServe
all the assets, properties, licenses and agreements necessary to
conduct theglobe's SendTec business in exchange for $37,500,000, of
which $1,000,000 (together with shares of our common stock valued at
$750,000) will be placed in escrow, as described below.
RelationServe will also assume certain existing ordinary course
SendTec liabilities. In addition, before closing theglobe is
entitled to cause SendTec to distribute working capital to theglobe.
theglobe distributed approximately $2 million from SendTec to itself
on August 11, 2005. SendTec's remaining working capital as of the
date of closing is payable to theglobe by RelationServe and is
anticipated to range between $1.5 to $2 million assuming the asset
sale closes within the next 45 days and no further working capital
distributions are made prior to the closing date. The asset sale
will become effective following the satisfaction or waiver of all
conditions precedent by the parties as contemplated by the Purchase
Agreement. For additional information, see the section in this
information statement entitled "The Purchase Agreement--Purchase and
Sale of Assets."
Redemption and Termination Agreements
o Immediately after the closing of the asset sale, theglobe will
pursuant to a Redemption Agreement dated August 23, 2005, redeem
28,879,097 shares of its common stock from the six members of
SendTec Management and will also terminate certain options, warrants
and other rights held by the SendTec management team and a few other
employees pursuant to the Termination Agreement for amounts totaling
approximately $12.6 million in cash. These shares, warrants and
other rights were issued to SendTec management in connection with
theglobe's acquisition of SendTec on September 1, 2004.
For additional information regarding the redemption, see the section
in this Information Statement entitled "Ancillary Agreements to the
Purchase Agreement" - "The Redemption Agreement" and "The
Termination Agreement."
Use of Proceeds
o theglobe will use the proceeds of the asset sale, after payment of
approximately $12.6 million pursuant to the Redemption Agreement and
Termination Agreement, for expenses incurred in connection with the
asset sale (which, including investment banking fees, are not
anticipated to exceed $1.3 million), and for its remaining business
operations, including working capital. For additional information,
see the section in this Information Statement entitled "Our Future
Plans".
Indemnity
o The Purchase Agreement requires theglobe to indemnify RelationServe
for damages arising from any of the following:
1
o any inaccuracy or breach of any of the representations or warranties
made by theglobe in the Purchase Agreement; provided, however, that
as to certain representations and warranties which relate to the
operation of SendTec's business, theglobe is only responsible for a
breach of such representations and warranties if:
o corresponding representations and warranties which theglobe is
receiving from SendTec management pursuant to the Redemption
Agreement are also not breached; or
o if the damages suffered by RelationServe exceed the amount
which RelationServe is able to recover from SendTec
manangement.
o the failure of theglobe to observe any covenant, agreement or
provision of the Purchase Agreement; and
o certain other matters.
The obligation of theglobe to indemnify RelationServe is generally
limited to the amounts held in the Hold Back Escrow described below.
theglobe has no obligation to indemnify for the first $175 thousand
of losses incurred by RelationServe, and then only for amounts in
excess of $75 thousand.
Hold Back Escrow Agreement
o Prior to the closing, the parties will enter into an escrow
agreement with the law firm of Olshan Grundman Frome Rosenzweig &
Wolosky, LLP, as escrow agent, to place $1 million in cash, together
with a number of shares of our restricted common stock having an
aggregate value of Seven Hundred and Fifty Thousand Dollars
($750,000) (valued at the average closing price of theglobe's common
stock over a trailing ten (10) day period prior to the Closing), in
escrow to secure theglobe's indemnification obligations under the
Purchase Agreement. Funds will be released to theglobe in accordance
with the following schedule: $750,000 in cash after the sooner of 6
months from the date of closing or completion by RelationServe of
the audit of SendTec's operations for the period ending December 31,
2005, with the cash and shares constituting the balance of the
escrow fund being released after one year and 45 days from the
closing date, in each case assuming no claims against the escrow.
For further information regarding these matters, see "The Purchase
Agreement--Indemnification and Escrow" and "Ancillary Agreements to
the Purchase Agreement--Hold Back Escrow Agreement."
Representations and Warranties of theglobe
o The representations and warranties of theglobe contained in the
Purchase Agreement include customary representations regarding the
assets to be conveyed to RelationServe. However, as to many of the
representations and warranties in the Purchase Agreement which
relate to the operations of SendTec, theglobe is only responsible
for a breach of such operational representations if:
o SendTec management did not breach corresponding
representations and warranties given by them (which are
limited to their knowledge) to theglobe in the Redemption
Agreement; or
o if the damages suffered by RelationServe exceed the amount
which RelationServe is able to recover from SendTec
management.
See "The Purchase Agreement--Representations, Warranties and Covenants"
and "Ancillary Agreements to the Purchase Agreement" - "The Redemption Agreement
- Representations and Warranties."
Conditions to Closing
o Before the asset sale can be consummated, certain closing conditions
must be satisfied or waived. These conditions are described in this
Information Statement in the section entitled "The Purchase
Agreement--Conditions Precedent to the Closing of the Asset Sale."
2
Closing
o The asset sale is expected to close approximately 20 days following
the mailing of this Information Statement and upon the satisfaction
or waiver of the closing conditions under the Purchase Agreement. We
anticipate that the asset sale will close in late September of 2005.
Termination
o RelationServe and theglobe have the option to terminate the Purchase
Agreement under certain circumstances, including the ability to
terminate the agreement if the asset sale has not been completed by
October 31, 2005. See "The Purchase Agreement--Termination."
Vote Required
o Since the asset sale may constitute "all or substantially all" of
the assets of theglobe as defined under Section 271 of Delaware Law,
theglobe has elected to obtain stockholder approval of the asset
sale. Section 271 of Delaware Law requires the approval of the
holders of a majority of the outstanding shares of the Company. On
August 18, 2005, certain stockholders collectively representing 51%
of theglobe's issued and outstanding voting stock approved the asset
sale by written consent. See "Stockholder Consent to the Asset
Sale."
Tax Consequences
o The asset sale does not generate any US federal income tax
consequences to the stockholders of theglobe. See "Certain United
States Federal Income Tax Considerations" for a summary of the tax
consequences to theglobe.
QUESTIONS AND ANSWERS ABOUT THE ASSET SALE
The following questions and answers are presented for your convenience
only and briefly address some questions you may have about the asset sale. They
may not contain all of the information that is important to you. We urge you to
read carefully the entire Information Statement, including the annexes.
Q: Why am I receiving this Information Statement?
A: This Information Statement describes the asset sale of our SendTec
business to RelationServe and the approval of the asset sale by written
consent. Our board of directors is providing this Information Statement to
you pursuant to Section 14(c) of the Securities Exchange Act of 1934, as
amended, solely to inform you of, and provide you with information about,
the asset sale before it is consummated.
Q: Who is entitled to receive this Information Statement?
A: Stockholders of record as of the record date (September 2, 2005) are
entitled to receive this Information Statement and the accompanying notice
of shareholder action by written consent, which describes the corporate
action that has been approved by the written consent of stockholders who
collectively represent 51% of theglobe's issued and outstanding voting
stock.
Q: Am I being asked to vote on the asset sale?
3
A: No, we are not asking you to vote for approval of the asset sale or to
provide your written consent to the asset sale. Your vote or written
consent is not required for approval of the asset sale, because the asset
sale has been approved by written consent.
Q: Will there be a stockholder meeting to consider and approve the asset
sale?
A: No, a stockholder meeting will not be held to consider and approve the
asset sale. The asset sale has already been approved by written consent.
Q: Will any of the proceeds from the asset sale be distributed to me as a
shareholder?
A: No. We intend to use the proceeds from the asset sale to (i) pay
approximately $12.6 million pursuant to the Redemption Agreement and
Termination Agreement (ii) pay the expenses related to the asset sale,
which are estimated to be not more than $1.3 million, and (iii) for use in
connection with our remaining businesses, including for general corporate
purposes and working capital.
Q: Is the asset sale subject to the satisfaction of any conditions?
A: Yes. Before the asset sale can be consummated, certain closing conditions
must be satisfied or waived. These conditions are described in this
Information Statement in the section entitled "The Purchase
Agreement--Conditions Precedent to the Closing of the Asset Sale." If
these conditions are not satisfied or waived, then the asset sale will not
be consummated even though it has been approved by written consent.
Q: When do you expect the asset sale to be consummated?
A: We intend to consummate the asset sale on the date on which all of the
closing conditions specified in the Purchase Agreement are satisfied or
waived. Assuming the closing conditions are satisfied or waived by such
date, we expect to consummate the asset sale in late September 2005.
Q: Will you continue to operate the company if the asset sale is consummated?
A: Yes, we intend to continue to operate theglobe's remaining businesses
following the consummation of the asset sale. theglobe's remaining
businesses consist primarily of our Voice over the Internet Telephony,
Computer Games and Internet Services businesses. None of these other
businesses is presently profitable.
Q: What are the U.S. federal income tax consequences of the asset sale?
A: The net proceeds from the asset sale will consist solely of cash. The sale
of the SendTec assets will generate a capital gain or loss to us depending
on whether the net proceeds are greater or less than our adjusted tax
basis in the assets constituting the SendTec business. We believe that we
have net operating losses available that will substantially offset any
gains realized upon consummation of the asset sale.
Our stockholders will not directly experience any U.S. federal income tax
consequences as a result of the consummation of the asset sale.
For additional information on the U.S. federal income tax consequences of
the asset sale, see the section in this information statement entitled
"Certain U.S. Federal Income Tax Considerations".
Q: What should I do now?
A: No action by you is required.
Q: Who can help answer my questions?
4
A: If you would like additional copies, without charge, of this Information
Statement or if you have questions about the asset sale, then you should
contact us as follows:
theglobe, inc.
Attn: Edward Cespedes, President
110 East Broward Boulevard
Suite 1400
Fort Lauderdale, FL 33301
(954) 769-5900
INFORMATION REGARDING THE PARTIES
theglobe.com, inc. and SendTec, Inc.
Founded in 1995, theglobe.com, inc. ("theglobe" or the "Company") currently
manages four primary lines of business. One line of business, Voice over
Internet Protocol ("VoIP") telephony services, includes voiceglo Holdings, Inc.,
a wholly-owned subsidiary of theglobe that offers VoIP-based phone services and
features. The term VoIP refers to a category of hardware and software that
enables people to use the Internet to make phone calls. The second line of
business consists of our historical network of three wholly-owned businesses,
each of which specializes in the games business by delivering games information
and selling games in the United States and abroad. These businesses are: our
print publication business, which consists of Computer Games and Now Playing
magazines; our online website business, which consists of our Computer Games
Online website (www.cgonline.com) and our Now Playing Online website
(www.nowplayingmag.com), which are the online counterparts to our magazine
publications; and our Chips & Bits, Inc. ("Chips & Bits") games distribution
company (www.chipsbits.com). We entered into a third line of business, marketing
services, on September 1, 2004, with our acquisition of SendTec, Inc.
("SendTec"), a direct response marketing services and technology company. On May
9, 2005, the Company entered into a fourth line of business when it exercised
its option to acquire Tralliance Corporation ("Tralliance"), a company which had
recently entered into an agreement to become the registry for the ".travel"
top-level Internet domain.
theglobe's principal executive office is located at: 110 E. Broward Boulevard,
Suite 1400, Fort Lauderdale, Florida 33301, and its telephone number is: (954)
769-5900.
RelationServe Media, Inc.
Headquartered in Fort Lauderdale, Florida, RelationServe Media, Inc.
("RelationServe") develops and executes client-tailored online and offline
marketing programs. As part of its full suite of marketing solutions,
RelationServe owns and manages one of the industry's largest security-compliant
email databases with over 175 million security-complaint email addresses and a
total postal database of 180 million records for its client's direct marketing
initiatives. RelationServe believes that it has the industry's largest and most
accurate database for appending and enhancing customer database records with
information on more than 85 million opt-in consumers. In addition, RelationServe
owns a collection of over 60 web-mining properties that generate over 10 million
online registration page views per month for client lead generation initiatives.
For more information, visit http://www.relationserve.com.
RelationServe's principal executive office is located at: 6700 North Andrews
Avenue, Fort Lauderdale, Florida 33309 and its telephone number is: (954)
202-6000.
5
BACKGROUND OF THE ASSET SALE
In February 2005, theglobe engaged Thomas Weisel Partners, LLC ("Thomas
Weisel Partners") to evaluate and assist with potential capital raising
alternatives. theglobe was reviewing several strategies, including:
o a private placement of securities in either theglobe or its
wholly-owned subsidiary, SendTec;
o the sale of its SendTec business; or
o the sale of all or part of theglobe's businesses or assets.
In early March 2005, after numerous discussions, theglobe and Thomas
Weisel Partners concluded that the best alternative for theglobe was to pursue a
sale of the SendTec business and agreed to approach a limited set of potential
buyers. Between March 11 and March 18, Thomas Weisel Partners contacted a total
of seventeen potential buyers. On March 18, 2005, the management of SendTec, in
partnership with a private equity firm, submitted a proposal to acquire SendTec.
Only one other party put forth a proposal which it withdrew shortly thereafter
in April. On May 10, 2005, after extensive negotiations, theglobe entered into a
non-binding letter of intent with the SendTec management and its private equity
partner and allowed SendTec management's private equity partner to conduct due
diligence of the SendTec business. On June 10, 2005, the proposal submitted by
the SendTec management and its private equity partner was withdrawn.
During the following couple of weeks, SendTec management and theglobe
negotiated a memorandum of understanding to agree on distribution of any
proceeds from a sale. At this point, theglobe and Thomas Weisel Partners agreed
to approach a larger set of potential buyers. Beginning in late June, Thomas
Weisel Partners initiated a full marketing process and made initial contact with
over 55 parties and held discussions with over 15 parties.
In early July 2005, RelationServe contacted theglobe regarding the
potential acquisition of theglobe's subsidiary, SendTec.
On July 11, Scott Hirsch, a RelationServe shareholder and founder, met
with Thomas Weisel Partners and SendTec management at SendTec's offices in St.
Petersburg, Florida.
On July 14, 2005, a meeting was held between Edward Cespedes, theglobe's
President, and Michael Brauser, a shareholder and representative of
RelationServe. At that meeting, Mr. Brauser presented an offer to acquire our
SendTec business for $40 million. The offer consisted of $20 million in cash and
$20 million in RelationServe common stock. Mr. Cespedes indicated that the offer
was insufficient and encouraged Mr. Brauser to take a closer look at the SendTec
business, meet the management team personally and consider presenting an
improved offer. Mr. Cespedes also indicated that any revised offer would need to
consist of a greater percentage of cash consideration.
On July 19, 2005, Mr. Cespedes and Mr. Brauser traveled to SendTec's
headquarters in St. Petersburg, Florida where a meeting was held with SendTec's
senior management team and a representative of Thomas Weisel Partners. Mr. Scott
Hirsch, also attended the meeting. During that meeting, the parties, led by Mr.
Cespedes and Mr. Brauser, engaged in various rounds of presentations and
negotiations. At the conclusion of the meeting, the parties tentatively agreed
to an increased offer of approximately $37.5 million in cash to theglobe in
exchange for the SendTec business. In addition, the SendTec management team
tentatively agreed to separate consideration of $15 million in RelationServe
common stock. On July 21, 2005, another party submitted a preliminary proposal
to acquire the SendTec business. On July 27, 2005, theglobe and RelationServe
entered into a letter of intent regarding the proposed transaction.
During the weeks of July 25 and August 1, 2005, both parties commenced and
completed satisfactory due diligence. During this time, the parties also began
circulating a draft Asset Purchase Agreement and other documents related to
the transaction.
On August 9, 2005, Mr. Cespedes and Mr. Brauser met at the offices of
Proskauer Rose LLP, theglobe's outside legal counsel to conclude the final
points related to the Asset Purchase Agreement. That evening, theglobe held a
telephonic board meeting to approve the terms of the transaction.
Following the Board's approval, theglobe and SendTec executed the Asset
Purchase Agreement effective as of August 10, 2005.
6
REASONS FOR THE ASSET SALE
theglobe's Reasons for the Asset Sale
SendTec was originally acquired by us on September 1, 2004 in exchange for
consideration consisting of:
o $6,000,000 in cash,
o the issuance of an aggregate of approximately 35,000,000 shares of
theglobe's common stock,
o a subordinated promissory note in the amount of $1 million due
September 1, 2005; and
o an undertaking to issue warrants to acquire an additional 2,500,000
shares of common stock to the SendTec shareholders when and if
SendTec achieves certain earnings before income taxes, depreciation
and amortization ("EBITDA") targets for the year ending December 31,
2005.
We also issued various replacement options and earn-out options to employees of
SendTec in connection with the acquisition.
During the first quarter of 2005, management began actively re-evaluating
theglobe's primary business lines, particularly in view of theglobe's critical
need for cash and the overall net losses of theglobe. Since that time,
management with the assistance of Thomas Weisel Partners, its financial
advisors, has explored a number of strategic alternatives for theglobe and/or
its component businesses, including continuing to operate the businesses,
selling certain businesses or assets, or entering into new businesses.
As part of the re-evaluation process, theglobe, during the first quarter
of 2005, made the decision to discontinue using its SendTec business to perform
marketing services for its VoIP telephony business, and to instead dedicate 100%
of SendTec's marketing resources to support and grow SendTec's own third party
revenue producing customer base. A significant part of the rationale for
theglobe's acquisition of SendTec in September 2004 related to the perceived
synergies initially thought to be obtainable by having SendTec effectively
function as the marketing department for theglobe's VoIP telephony business. By
the first quarter of 2005, it became apparent that this marketing strategy was
not viable and that the initially perceived synergies would not be realized. It
was at this point in time that the continued ownership of SendTec became less
strategically important to the Company.
On May 9, 2005, based upon management's expectation of favorable
investment returns, theglobe exercised its purchase option and acquired
Tralliance Corporation ("Tralliance"), an Internet related business venture.
Tralliance was created to develop, operate and administer the ".travel"
top-level domain, a new segment of the Internet devoted to the travel industry.
Tralliance recently entered into an agreement with the Internet Corporation for
Assigned Names and Numbers ("ICANN") to become the registry operator for the
".travel" top-level domain. The Tralliance purchase price consisted of the
issuance of 2,000,000 shares of theglobe's Common Stock, warrants to acquire
475,000 shares of theglobe's Common Stock at $0.11 per share and $40,000 in
cash.
theglobe's consolidated cash and cash equivalents balance at August 5,
2005 was approximately $5.4 million. We currently have no access to credit
facilities with traditional third party lenders. Notwithstanding the $4.0
million in total proceeds received from the issuance of convertible promissory
notes to partnerships controlled by our Chairman and Chief Executive Officer
during April, June and July of 2005, our attempts to raise additional equity
capital since the beginning of 2005 have not been successful. Additionally,
based upon its current financial condition, management does not believe that
theglobe would be able to raise additional equity capital in the foreseeable
future. Management also believes that other than its SendTec business, theglobe
owns no other business or asset(s) that could likely be sold within the
short-term future for significant cash proceeds.
7
Management believes that theglobe will continue to be unprofitable and use
cash in its operations during the remainder of 2005. Additionally, the $1.0
million promissory note issued in connection with the SendTec acquisition
becomes due on September 1, 2005, which will serve to further deplete theglobe's
cash resources.
In consideration of the above, theglobe's Board of Directors concluded
that their failure to approve the sale of its SendTec business to RelationServe
would expose theglobe to the risk of forced asset liquidation and/or further
equity dilution at or below current market price and/or having to file for
bankruptcy protection. The Board further concluded that the net cash proceeds
received from the sale of SendTec would provide sufficient liquidity to enable
theglobe to complete the development of and begin the implementation of a
strategic business plan and to operate its remaining businesses on a going
concern basis.
OUR FUTURE PLANS
The Company's VoIP telephony services and computer games business continue to
incur operating losses at the present time. Additionally, our newly-acquired
Internet service business, Tralliance, is on the verge of evolving from the
start-up phase of its operations and plans to begin collecting fees for its
services during the fourth quarter of 2005. Following the consummation of the
Asset Sale, we intend to continue to operate our remaining businesses, while we
complete the development of our new strategic business plan.
Our new business plan may involve making certain changes to improve the
profitability of existing businesses or may instead result in decisions to sell
or dispose of certain unprofitable businesses or components. Additionally, we
may use the proceeds from the Asset Sale to enter into one or more new lines of
business, through either acquisitions or internal development.
For information showing the pro forma effect of the asset sale, see "Certain Pro
Forma Financial Information and Related Data."
ABSENCE OF DISSENTERS' RIGHTS
No dissenters' or appraisal rights are available to the stockholders under
the General Corporation Law of the State of Delaware, theglobe's certificate of
incorporation or its bylaws in connection with the asset sale.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Other than Paul Soltoff, who serves as the President of SendTec, no
director, executive officer, or affiliate of theglobe has any substantial
interest, direct or indirect, by security holdings or otherwise, in any action
covered by the related resolutions adopted by the Board of Directors, which is
not shared by all other stockholders. Pursuant to the Redemption and Termination
Agreements, Mr. Soltoff will receive approximately $4,091,731 in exchange for
the repurchase of 10,183,190 shares of our common stock and the cancellation of
all rights to acquire up to an additional 1,204,707 shares of our common stock
upon the exercise of options or warrants, if and to the extent such warrants
were to be hereinafter earned. These shares, options and warrants were issued to
Mr. Soltoff in connection with our acquisition of SendTec in September 2004.
THE PURCHASE AGREEMENT
Purchase and Sale of Assets
In exchange for $37,500,000 and the assumption by RelationServe of certain
existing ordinary course SendTec liabilities as of the closing date, SendTec and
theglobe will sell and transfer to RelationServe all rights, properties and
assets held or used by theglobe or SendTec in connection with SendTec's direct
marketing advertising business. The principal assets being sold to RelationServe
are: cash and accounts receivable, property and equipment, all rights to
SendTec's proprietary software, customer lists, contracts with customers,
equipment, leases, use of the SendTec name, as well as contracts, records and
documents maintained and used by SendTec in connection with its direct
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marketing advertising business, including personal property, contract rights,
intellectual property, governmental licenses, permits, and all books, records
and other documents maintained by SendTec and the goodwill of the business in
connection with its operation of its business.
Payment of Purchase Price
The $37.5 million purchase price will be paid in the following manner:
o Thirty-Six Million Five Hundred Thousand Dollars ($36,500,000) will
be paid as follows at closing:
Thirty-Five Million Five Hundred Thousand Dollars ($35,500,000) will
be paid in immediately available funds by wire transfer to the bank
account of theglobe; and
One Million Dollars ($1,000,000), which will be released pursuant to
the terms of an Escrow Agreement by and between RelationServe,
theglobe and Proskauer Rose LLP (the "Escrow Agent"), and sent by
wire transfer to the bank account of theglobe; and
o One Million Dollars in cash ($1,000,000), together with a number of
shares of our restricted common stock having an aggregate value of
Seven Hundred and Fifty Thousand Dollars ($750,000) (valued at the
average closing price of theglobe's common stock over a trailing ten
(10) day period prior to the Closing), will be held by the Escrow
Agent pursuant to the terms of an Escrow Agreement to secure
theglobe's indemnification obligations under the Purchase Agreement,
portions of which sum are subject to release beginning upon the
earlier of six months or completion by RelationServe of an audit of
SendTec's business for the year ended December 31, 2005 following
the closing of the asset sale. If at the time a claim is made for
indemnification, the escrow shares have diminished below $750,000,
then theglobe must make up the difference of any shortfall (up to
the $750,000 amount) in cash. theglobe may also elect to pay cash in
lieu of releasing any of the escrow shares in the event of a claim.
Any shares released from escrow will be entitled to customary
"piggy-back" registration rights.
Working Capital
The Purchase Agreement provides that the Purchase Price will be adjusted
upward or downward to the extent that SendTec's estimated closing date working
capital is greater than or less than zero. On August 11, 2005, theglobe
distributed $2 million from SendTec to itself following the signing of the
Purchase Agreement. SendTec's remaining working capital as of the date of
closing is anticipated to range from $1.5 to $2.0 million, assuming that the
asset sale closes within the next 45 days and no further working capital
distributions are made prior to the closing date. The Purchase Agreement also
provides for a post-closing audit of the closing date working capital. In the
event the audit reveals an amount other than the estimated working capital
number used for the closing, there will be an adjustment to the Purchase Price.
Representations, Warranties, and Covenants
The Purchase Agreement contains substantial representations and warranties
of theglobe regarding SendTec's direct marketing advertising business and the
assets being transferred to RelationServe. These representations are effective
as of the date of signing of the Purchase Agreement and as of the date of the
closing of the asset sale, except as to certain representations relating to the
operation of SendTec which theglobe did not give until it received comparable
representations from management of SendTec in the Redemption Agreement. The
representations and warranties include many that the parties have defined as
"Operational Representations" and which relate primarily to various operational
aspects of the SendTec business and assets. As to these Operational
Representations, theglobe is only responsible for a breach of such Operational
Representations if:
o SendTec management did not breach corresponding representations and
warranties given by them to theglobe in the Redemption Agreement; or
o if the damages suffered by RelationServe exceed the amount which
RelationServe is able to recover from SendTec management (which
pursuant to a separate agreement between RelationServe and SendTec
management is anticipated to be limited to recovery of up to 200,000
shares of RelationServe common stock to be owned by SendTec
management).
The primary representations and warranties made by theglobe are as
follows:
Organization; Authority. theglobe is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with full
corporate power and authority to conduct its respective business as it is being
conducted. theglobe and SendTec each have the necessary power to own the assets
and to carry on the
9
SendTec business as it is being conducted. Each has all requisite power and
authority to enter into and perform under the Purchase Agreement and the
ancillary agreements to the Purchase Agreement, and the execution and delivery
of the Purchase Agreement and the ancillary agreements to the Purchase Agreement
has been duly authorized by all necessary corporate action and constitute valid
and binding obligations of theglobe and SendTec.
Non-Contravention. The execution and performance of the Purchase Agreement
will not cause theglobe or SendTec to be in breach of its certificate of
incorporation, bylaws or any contract binding upon it and will not conflict with
or violate any applicable law, rule or regulation.
Financial Statements and SEC Reports. The financial statements provided by
theglobe to RelationServe were prepared in accordance with GAAP and present
fairly in all material respects the financial position, assets and liabilities
of theglobe, and in the case of the financial statements of SendTec, of SendTec.
Certain annual and quarterly reports of theglobe filed with the SEC since August
30, 2004, do not contain any untrue statement of a material fact or omit to
state a material fact, and such SEC filings comply in all material respects with
the Securities Exchange Act of 1934.
Absence of Changes. SendTec has conducted its business in the ordinary
course since June 30, 2005 and since that date there has not been a material
adverse change in its operations and it has not taken nor suffered various other
acts or obligations.
Title to Properties. SendTec has good, clear and marketable title to all
of the assets being transferred free of any liens or encumbrances except as
permitted by the Purchase Agreement.
Intellectual Property. SendTec owns or has exclusive right to use the
intellectual property to be transferred to RelationServe, and has taken steps to
protect such intellectual property, and that the operation of SendTec's business
does not infringe on any intellectual property owned by any third parties.
No Prior Claims Against Prior SendTec Owners. theglobe has not asserted
any historical claims against the sellers of the SendTec business since theglobe
acquired it on September 1, 2004;
Other Customary Representations. theglobe has also made various customary
representations and warranties (most of which are considered Operational
Representations) in the Purchase Agreement including representations and
warranties with respect to following matters:
o absence of any material liabilities relating to the SendTec
business, other than the liabilities being assumed;
o lack of any consents to consummation of the asset sale;
o lack of any pending litigation except as otherwise disclosed;
o labor and employee benefit plans and related matters;
o the nature and types of certain contracts being transferred as part
of SendTec's business and the lack of any breach by SendTec of such
contracts;
o environmental matters relating to the operation of the SendTec
business;
o tax matters and the payment of taxes relating to the SendTec
business;
o SendTec's relationship with its suppliers and customers, including
identification of its major customers; and
10
o absence of any knowing material misstatements or omissions in
Purchase Agreement.
In general, the representations and warranties of theglobe and SendTec
will survive for a period of one year and 45 days after the closing. With a few
exceptions in which theglobe's survival period is longer, the operational
representations which theglobe received from SendTec management will survive for
the same period of time.
The representations and warranties made by RelationServe cover the
following topics as they relate to RelationServe:
o organization and good standing;
o authorization, execution and delivery of the Purchase Agreement and
related agreements by RelationServe;
o the absence of conflicts between the Purchase Agreement and
RelationServe's certificate of incorporation or bylaws;
o the lack of any necessary consents;
o that it is not involved any litigation, except as noted; and
o that it has received financing commitments in the amount of at least
$30 million.
Operation of the SendTec Business Pending Closing
During the period between the signing of the Purchase Agreement and the
closing of the asset sale as contemplated by the Purchase Agreement, theglobe is
restricted from taking a significant number of actions that could impact the
SendTec business or any of the assets to be transferred to RelationServe.
Without the prior written consent of RelationServe, SendTec has agreed that
until the closing it shall do the following with respect to the SendTec
business:
o continue to operate the SendTec business consistent with past
practice and not take action with respect to the SendTec business
outside of the ordinary course of business;
o use its reasonable best efforts to preserve its business intact, the
value of its assets and comply with applicable laws;
o not to split, repurchase or take certain other actions involving its
capital stock;
o amend its charter or bylaws;
o enter into certain mergers or acquisitions of others;
o incur any indebtedness except for short term borrowings in the
ordinary course of business;
o amend any benefit plan or increase the rate of pay of its employees
except increases in the ordinary course of business;
o not terminate or modify any of the contracts to be assumed by
RelationServe; and
o certain other restrictions with respect to the conduct of the
SendTec business.
11
Additional Covenants
Covenants of theglobe
Until the closing of the asset sale, theglobe has agreed to take certain
actions to help ensure that all of the conditions to closing the asset sale are
satisfied and that theglobe uses its best efforts to preserve the value of the
assets to be purchased by RelationServe. These actions include:
o using its best efforts to preserve the accuracy of its
representations and warranties in the Purchase Agreement;
o using its best efforts to satisfy all the conditions precedent to
closing the asset sale;
o notifying RelationServe of certain matters, including an adverse
change in the SendTec business or any material default under the
contacts being assumed by RelationServe;
o providing access to information about SendTec and its assets;
o undertaking to secure stockholder approval within 7 days of the date
of the Purchase Agreement which was secured by the written action
described in this Information Statement; and
o undertaking to prepare, file and mail this Information Statement.
Covenants of RelationServe
Prior to the closing, RelationServe has agreed to undertake certain
actions to help ensure that the conditions to the closing of the asset sale are
all satisfied. These actions include:
o using its best efforts to preserve the accuracy of its
representations and warranties in the Purchase Agreement; and
o using its best efforts to satisfy the conditions precedent to
closing the asset sale agreement.
No Solicitation of Alternative Transactions
In addition to the covenants discussed above, until the asset sale has
been completed or the Purchase Agreement has been terminated, theglobe has
agreed not to allow any of its officers, directors, employees, or other agents
to, directly or indirectly, take any of the following actions:
o solicit, initiate, or encourage an "acquisition proposal;"
o engage in negotiations with, or disclose any nonpublic information
relating to theglobe to, any person that would encourage or
facilitate the making of an acquisition proposal; or
o enter into any letter of intent, memorandum of understanding or
definitive agreement with respect to an acquisition proposal.
Notwithstanding the foregoing, theglobe and its board of directors shall
not be prevented from engaging in discussion with any person in connection with
an unsolicited, bona fide written acquisition proposal (a "Third Party
Proposal") that is superior to the proposal offered by RelationServe if:
12
o a majority of theglobe's Board of Directors determines in good faith
(after consultation with its financial advisors) that the
transactions contemplated by such Third-Party Proposal are capable
of being completed and that such Third-Party Proposal is or is
reasonably expected to result in a Superior Transaction (as defined
herein);
o a majority of theglobe's Board of Directors determines in good faith
(after receiving the advice of outside legal counsel) that the
failure to pursue such Superior Proposal would likely result in a
reasonable possibility of a breach of their fiduciary duties as
directors under applicable law; and
o theglobe complies in all material respects with its obligations to
inform and provide to RelationServe of such Proposals.
In the event that the Board of Directors determines to accept a Superior
Proposal and terminate the asset sale with RelationServe, theglobe has agreed to
pay RelationServe a break-up fee of $1 million as liquidated damages.
A "Superior Proposal" means a bona fide Third-Party Proposal to purchase
at least a majority of the outstanding equity securities of either theglobe or
SendTec pursuant to a stock purchase agreement, tender offer or exchange offer
or to effect any merger, consolidation, business combination or sale of all or
substantially all of the assets being acquired pursuant to the Purchase
Agreement, recapitalization or similar transaction involving SendTec, on terms
which a majority of theglobe's Board of Directors determines in good faith
(after consultation with its financial advisors) to be superior to theglobe and
its shareholders (in their capacity as shareholders) from a financial point of
view (taking into account, among other things, all legal, financial, regulatory
and other aspects of the proposal and identity of the offeror) as compared to
(i) the transactions contemplated by the asset sale with RelationServe and (ii)
any alternative proposed by RelationServe in response to such Third-Party
Proposal (taking into account the same factors, including whether it is
reasonably capable of being consummated) (any such transaction is referred to as
a "Superior Transaction").
Conditions Precedent to the Closing of the Asset Sale
Conditions Precedent to Obligations of both theglobe (and SendTec) and
RelationServe. The obligations of RelationServe and theglobe to complete the
asset sale are subject to the satisfaction or waiver of several closing
conditions, including the following:
o All necessary consents of third parties to the asset sale shall have
been obtained;
o There shall not be pending or threatened any action before any
governmental entity challenging or otherwise seeking to prevent the
consummation of the asset sale;
o The parties shall have received all necessary permits and approvals
of governmental entities;
o theglobe shall have entered into the Redemption Agreement and the
Termination Agreement;
o theglobe, RelationServe and the Escrow Agent shall have entered into
the Escrow Agreement;
o theglobe shall have received Operational Representations from
SendTec's management;
o all proceedings in connection with the asset sale shall be
satisfactory in all reasonable respects to the parties and their
counsel, including expiration of the applicable waiting period after
the date this Information Statement was first mailed to theglobe's
stockholders; and
o theglobe shall have received a favorable fairness opinion from
Thomas Weisel Partners.
13
Each of the conditions listed above may be severally waived by
RelationServe or theglobe without notice, liability or obligation to any person.
Conditions Precedent to Obligations of RelationServe. RelationServe's
obligations to complete the asset sale are subject to the satisfaction or waiver
of several conditions precedent, including each of the following conditions, at
or prior to the closing of the transactions contemplated by the Purchase
Agreement:
o The representations and warranties of theglobe shall be true and
correct as of the date of the Purchase Agreement and shall be true
and correct in all material respects on and as of the Closing Date
with the same effect as if made on the Closing Date, except for
those representations and warranties which speak as of a specific
date, and theglobe shall have complied with all covenants and
agreements and satisfied all conditions on theglobe's part in the
Purchase Agreement, and theglobe shall have provided RelationServe
with a certificate with respect to the foregoing signed by an
authorized officer of theglobe;
o All encumbrances on the assets shall have been released (with
certain exceptions);
o RelationServe shall have received from Florida and Delaware counsel
for theglobe, a written opinion dated the Closing Date and addressed
to RelationServe, in substantially the form attached to the Purchase
Agreement;
o RelationServe will have received such bills of sale and other
documents of transfer relating to transfer of the assets;
o theglobe shall have entered into and delivered to RelationServe the
non-competition and confidentiality agreement;
o RelationServe shall have entered into employment agreements, stock
agreements and related documents with each member of SendTec
management;
o No material adverse effect shall have occurred since the signing of
the Purchase Agreement; and
o certain other matters.
Each of the conditions listed above is solely for the benefit of
RelationServe and may be waived by RelationServe without notice, liability or
obligation to any person.
Conditions Precedent to Obligations of theglobe and SendTec. theglobe's
and SendTec's obligations to complete the asset sale are subject to the
satisfaction or waiver of the following conditions at or prior to the closing of
the transactions contemplated by the Purchase Agreement:
o the representations and warranties of RelationServe in the agreement
shall be true and correct as of the date of the Purchase Agreement
and be true and correct in all material respects on and as of the
closing, except for those representations and warranties which speak
as of a specific date, and RelationServe shall have complied with
all covenants and agreements and satisfied all conditions on
RelationServe's part in the Purchase Agreement, and RelationServe
shall have provided theglobe and SendTec with a certificate with
respect to the foregoing signed by an authorized officer of
RelationServe;
o certain employees of SendTec (besides management) designated by
theglobe shall have entered into termination agreements with respect
to certain options and warrants which they hold to acquire shares of
theglobe's common stock; and
14
o theglobe shall have received from counsel for RelationServe, a
written opinion dated the Closing Date and addressed to theglobe and
SendTec, in substantially the form attached to the Purchase
Agreement.
Each of the conditions listed above is solely for the benefit of theglobe
and SendTec and may be waived by theglobe and SendTec without notice, liability
or obligation to any person.
Post-Closing Obligations
Following the closing, theglobe and RelationServe have agreed to undertake
various actions, including the following:
o that RelationServe will offer employment to each SendTec's employees
employed by SendTec on the closing date and the transitioning of
various employee benefits;
o theglobe will provide RelationServe with access to certain books and
records retained by SendTec;
o that for a period of one year after closing (with noted exceptions),
theglobe and SendTec will not engage in any advertising agency or
similar business primarily engaged in, and deriving a majority of
its annual revenue from managing or procuring advertising services
for others nor any business engaged in offline direct response
marketing technology;
o that for the same one year period neither theglobe nor SendTec will
solicit or raid customers or personnel of the business being sold;
o theglobe will use its commercially reasonable efforts to collect
account receivables relating to the SendTec business; and
o each party will take such further actions and execute such further
documents as is necessary to carry out the transactions contemplated
by the Purchase Agreement.
Indemnification and Escrow
Indemnification
theglobe and SendTec are jointly obligated to indemnify RelationServe in
the following circumstances:
o any failure to perform or breach of any representation or warranty
(other than an Operational Representation, which is addressed
below), covenant, obligation or undertaking made by either Globe or
Seller in any of the transaction documents (including the Schedules
and Exhibits hereto or thereto), or in any other statement,
certificate or other instrument delivered pursuant hereto or
thereto, or any misrepresentation contained therein;
o the ownership or operation of the SendTec business prior to the
Closing Date other than as to liabilities being assumed by
RelationServe;
o any of the assets of SendTec being retained by SendTec and not
included in the asset sale; and
o any breach of an Operational Representation, but only if:
o such breach of an Operational Representation is not also a
breach of the corresponding Operational Representation made by
SendTec's management in the Redemption Agreement (or other
agreement that contains Operational Representations by Seller
Management) or
o if the damages suffered by RelationServe exceed the amount
which RelationServe is able to recover from SendTec management
(which pursuant to a separate agreement between RelationServe
and SendTec management is anticipated to be limited to
recovery of up to 200,000 shares of RelationServe common stock
to be owned by SendTec management).
theglobe will not be liable for any indemnification claims made by
RelationServe unless the aggregate amount of damages incurred by RelationServe
is in excess of $175,000, in which case theglobe will be liable only for the
portion in excess of $75,000.
15
In the absence of intentional fraud, RelationServe's sole and exclusive
recourse against SendTec and theglobe are the right to:
o offset losses against the cash and the escrowed shares pursuant to
the Holdback Escrow Agreement;
o to require payment of any deficit in the share value of the shares
of common stock being held in the escrow; and
o to require payment arising in connection with any adjustment
relating to the working capital adjustment to the purchase price.
Termination
At any time prior to the closing, the Purchase Agreement may be terminated
by either party as follows:
o by mutual written consent each of RelationServe, theglobe and
SendTec;
o by either party if the closing shall not have occurred on or before
October 31, 2005;
theglobe and SendTec may, on or prior to the closing, terminate this
Agreement without liability if:
o there shall have been a material breach of any representations or
warranties set forth in the Purchase Agreement on the part of
RelationServe or if any representations or warranties of
RelationServe shall have become untrue, provided that neither
theglobe nor SendTec have materially breached any of their
obligations;
o there shall have been a material breach by RelationServe of any of
its covenants of agreements and the breach would materially and
adversely affect the ability of RelationServe or SendTec to
consummate the asset sale, and RelationServe has not cured such
breach within 10 business days after notice; provided that neither
theglobe nor SendTec has materially breached any of their
obligations; or
o any condition precedent to theglobe's or SendTec obligation to close
is not fulfilled by RelationServe or waived by SendTec by the
closing date.
RelationServe may, on or prior to the closing, terminate the Purchase Agreement
without liability if:
o there shall have been a material breach of any representations or
warranties set forth in the Purchase Agreement on the part of either
theglobe or SendTec or if any representations or warranties of
either theglobe or SendTec shall have become untrue to the extent it
would have a material adverse effect provided that RelationServe has
not materially breached any of its obligations hereunder;
o there shall have been a material breach by SendTec or theglobe of
one or more of their respective covenants or agreements having a
material adverse effect on SendTec or its business or materially
adversely affecting (or materially delaying) the ability of SendTec
and RelationServe to consummate the asset sale, and neither theglobe
nor SendTec has cured such breach within 10 business days after
notice, provided that RelationServe has not materially breached any
of its obligations hereunder;
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o any condition precedent to RelationServe's obligation to close is
not fulfilled or waived by RelationServe by the closing date.
Termination Fees
If the Purchase Agreement is terminated because theglobe enters into an
acquisition transaction relating to a Superior Proposal, theglobe must pay
RelationServe a break-up termination fee of $1,000,000 in cash promptly
following such termination. Provided that RelationServe is not then entitled to
terminate the Purchase Agreement, if SendTec exercises certain of its rights to
terminate the Purchase Agreement then RelationServe must pay theglobe a
termination fee of $1,000,000.
ANCILLARY AGREEMENTS TO THE PURCHASE AGREEMENT
Redemption Agreement
General
In connection with the Asset Purchase Agreement, theglobe entered into a
Redemption Agreement dated August 23, 2005 with SendTec's management providing
for the redemption by theglobe from them of an aggregate of 28,879,097 shares of
theglobe's common stock for an aggregate redemption price of approximately $11.6
million.
Representations and Warranties
Each member of SendTec's management will make certain representations and
warranties to theglobe in connection with the redemption, including as to:
o their ownership of the shares being redeemed;
o non-contravention of other agreements;
o the absence of litigation concerning the Redemption Agreement and
the shares;
o their financial experience; and
o their access to information.
Each member of SendTec's management is also making certain representations and
warranties to the best of his or her knowledge, to theglobe concerning
operational matters associated with the business of SendTec (which are sometimes
referred to as the "Operational Representations" in this Information Statement).
theglobe is relying on these Operational Representations to make corresponding
representations to RelationServe in the Purchase Agreement. RelationServe is
also entitled to rely on such Operational Representations from SendTec's
management. Generally speaking, these Operational Representations will survive
the closing for a period of 1 year and 45 days.
In turn, theglobe is making certain representations and warranties to SendTec's
management, including as to:
o its authority to enter into the Redemption Agreement;
o the absence of any litigation concerning the Redemption Agreement
and the shares being redeemed;
17
o that the entering into, and performance of, the Redemption Agreement
does not violate law, rule or regulation; and
o that the entering into of the Redemption Agreement and payment of
the redemption price does not violate Delaware corporate law.
Termination of Stockholders' Agreement
Upon consummation of the redemption, the Stockholders' Agreement to which
SendTec's management are a party will be terminated.
Directors and Officers Liability Insurance
The Redemption Agreement requires that, for so long as any of Michael Egan,
Edward Cespedes and Robin Segaul Lebowitz are covered by a policy of directors
and officers liability insurance with respect to their service as a current or
former director and/or officer of theglobe, but for not more than five years,
Paul Soltoff will be afforded the same coverage as is available to Mr. Egan, Mr.
Cespedes and/or Ms. Segaul Lebowitz under such policy.
Conditions Precedent
There are certain conditions precedent to the obligations of the parties under
the Redemption Agreement, including:
o confirmation of the accuracy of the parties' representations and
warranties and compliance with covenants;
o certification by theglobe as to the resolutions of its Board
approving the Redemption Agreement and the incumbency of its
officers; and
o the closing of the Purchase Agreement.
General Releases
The Redemption Agreement provides for mutual general releases by SendTec's
management and theglobe. Excluded from the general release to be provided by
SendTec's management are matters involving:
o the Redemption Agreement itself;
o theglobe's obligations under the $1 million promissory note issued
to Paul Soltoff as agent for the benefit of SendTec's management and
others;
o claims for indemnification as a former director or officer of
theglobe or its affiliates; and
o claims based upon their employment.
Excluded form the general release to be provided by theglobe are matters
involving the Redemption Agreement itself.
The general releases will become null and void if, pursuant to a final,
non-appealable determination of a court of competent jurisdiction:
18
o the Redemption Agreement is held to be null and void and
unenforceable or the consideration paid by theglobe under the
Redemption Agreement is determined to violate the Delaware General
Corporation Law, fraudulent transfer laws, or similar laws; and
o the consideration paid by theglobe under the Redemption Agreement is
required to be returned to theglobe.
Indemnification
The Redemption Agreement provides for mutual indemnification by the parties
relating to breaches of their respective representations and warranties and
failure to abide by their respective agreements. theglobe, however, will have no
recourse against SendTec's management for breach of the Operational
Representations, other than recovery of 50% of its legal fees up to an aggregate
of $50,000. Instead, as a third-party beneficiary to the Operational
Representations being made by SendTec's management, RelationServe will have the
ability to seek indemnification for a breach of those representations.
RelationServe's recovery against SendTec's management will be generally limited
to recovery of 200,000 shares of RelationServe's stock which theglobe
understands RelationServe intends to issue, and hold in escrow, pursuant to a
separate agreement between RelationServe and SendTec management.
Termination
The Redemption Agreement may be terminated at any time prior to the closing of
the Purchase Agreement:
o by theglobe and Paul Soltoff, with the consent of RelationServe
(which consent will be deemed given if the escrow agreement pursuant
to which 200,000 shares of RelationServe stock are to be held in
escrow is terminated. The 200,000 shares represent shares which we
understand RelationServe intends to issue to SendTec management and
hold in escrow pursuant to a separate agreement between them in
connection with the closing of the asset sale) by mutual written
agreement;
o by theglobe or by Paul Soltoff, if the closing of the Asset Purchase
Agreement does not occur on or prior to November 30, 2005;
o by theglobe or by Paul Soltoff, if the Asset Purchase Agreement is
terminated.
Termination Agreement
General
In connection with the Purchase Agreement, theglobe will enter into one or more
Termination Agreements with SendTec's management providing for the termination
and cancellation, effective upon the closing of the Purchase Agreement, of
options and warrants held by, or issuable to, SendTec's management for an
aggregate consideration of approximately $400,000. The Termination Agreement
also contains the agreement of SendTec's management to the termination of their
employment with SendTec effective upon the closing of the Purchase Agreement. We
anticipate entering into similar agreements with a few other employees of
SendTec with regard to options and warrants which they own. The following
summarizes the anticipated general terms of the Termination Agreement.
Release
Each member of SendTec's management will, effective at the closing of the
Purchase Agreement, release theglobe, SendTec and their respective affiliates
from claims associated with their ownership of the options and warrants and
their employment with SendTec.
Covenant not to Sue
Each member of SendTec's management will agree not to assert any claim against
theglobe, SendTec and/or their respective affiliates that is the subject of his
or her release.
19
Survival of Confidentiality Obligations
Each member of SendTec's management that is party to an Employment Agreement
with SendTec will agree that his confidentiality obligations under his
Employment Agreement will survive the termination of his Employment Agreement.
Termination
The Termination Agreement may be terminated at any time prior to the closing of
the Purchase Agreement:
o by theglobe and Paul Soltoff by mutual written agreement;
o by theglobe or by Paul Soltoff, if the closing of the Purchase
Agreement does not occur on or prior to November 30, 2005; or
o by theglobe or by Paul Soltoff, if the Purchase Agreement is
terminated.
Hold Back Escrow Agreement
The Purchase Agreement provides for the execution and delivery by
RelationServe, theglobe, and Olshan Grundman Frome Rosenzweig & Wolosky, LLP, as
escrow agent, of an Escrow Agreement. The Escrow Agreement will govern the
Escrow Fund described above in "The Purchase Agreement - Indemnification and
Escrow" and as further described below.
The Escrow Fund will consist of $1 million in cash, together with a number
of shares of our restricted common stock having an aggregate value of Seven
Hundred and Fifty Thousand Dollars ($750,000) (valued at the average closing
price of theglobe's common stock over a trailing ten (10) day period prior to
the Closing), and its purpose is to secure theglobe's indemnification
obligations under the Purchase Agreement. Funds will be released from escrow to
theglobe in accordance with the following schedule: $750,000 in cash after the
sooner of 6 months from the date of closing and completion by RelationServe of
the audit of SendTec's operations for the period ending December 31, 2005, with
the shares constituting the balance of the escrow fund being released after one
year and 45 days from the closing date, in each case assuming no claims against
the escrow. If at the time a claim is made for indemnification the escrow shares
have diminished in value below $750,000, then theglobe must make up the
difference of any shortfall (up to the $750,000 amount) in cash. theglobe may
also elect to pay cash in lieu of releasing any of the escrow shares in the
event of a claim. Any shares released from escrow will be entitled to customary
"piggy-back" registration rights.
The Escrow Agreement will also set forth the duties of the Escrow Agent
and contain various other customary provisions.
SendTec Note Payment Arrangement
In connection with the Purchase Agreement, theglobe and RelationServe (and
Michael Brauser, an individual stockholder of RelationServe), intend to enter
into an agreement whereby RelationServe and Michael Brauser will agree to pay
when due the principal amount owing under theglobe's $1 million promissory note
issued in favor of the former owners of SendTec. theglobe will pay the accrued
interest on the promissory note at maturity. The promissory note is due
September 1, 2005. In exchange for payment of the promissory note, RelationServe
(if it is the payor) will be credited with $1 million against the purchase price
due at closing of the asset sale. If Mr. Brauser pays the $1 million principal
amount, then he will be repaid by theglobe out of the proceeds which it receives
at the closing of the asset sale. theglobe will also pay RelationServe or Mr.
Brauser, as the case may be, interest at the rate of 4% per annum from September
1, 2005 through the date of closing of the asset sale.
20
THE FAIRNESS OPINION
The Board of Directors of theglobe engaged Thomas Weisel Partners to
render an opinion as to whether, as of the date of its opinion, the purchase
consideration to be received by theglobe for the sale of the business and
substantially all of the net assets of SendTec to RelationServe is fair, from a
financial point of view, to theglobe.
On August 12, 2005, Thomas Weisel Partners made a presentation to the
Board of Directors of theglobe setting forth its financial analyses regarding
the transaction and delivered its opinion that, based upon and subject to the
assumptions made, matters considered, and limitations on its review as set forth
in the opinion, the purchase consideration is fair, from a financial point of
view, to theglobe as of August 10, 2005. Directed to our Board of Directors, the
Fairness Opinion addresses only the fairness to theglobe, from a financial point
of view, of the consideration to be received by theglobe pursuant to the
Purchase Agreement and does not address any of the ancillary agreements to the
Purchase Agreement between theglobe and management of SendTec.
THE FULL TEXT OF THE WRITTEN OPINION OF THOMAS WEISEL PARTNERS, DATED AS
OF AUGUST 12, 2005, IS ATTACHED AS ANNEX C AND IS INCORPORATED BY REFERENCE INTO
THIS INFORMATION STATEMENT. THEGLOBE AND THOMAS WEISEL PARTNERS URGE YOU TO READ
THE THOMAS WEISEL PARTNERS OPINION CAREFULLY AND IN ITS ENTIRETY FOR A
DESCRIPTION OF THE ASSUMPTIONS MADE, MATTERS CONSIDERED, PROCEDURES FOLLOWED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN BY THOMAS WEISEL PARTNERS IN RENDERING ITS
OPINION. THE SUMMARY OF THE THOMAS WEISEL PARTNERS OPINION SET FORTH IN THIS
INFORMATION STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE OPINION.
No limitations were imposed by theglobe on the scope of Thomas Weisel
Partners investigation or the procedures to be followed by Thomas Weisel
Partners in rendering its opinion. The opinion was for the use and benefit of
theglobe's Board of Directors in connection with its consideration of the
transaction and was not intended to be and does not constitute a recommendation
to any shareholder of theglobe as to how that shareholder should vote with
respect to the transaction. Thomas Weisel Partners was not requested to opine as
to, and its opinion does not address, the relative merits of the transaction and
any alternatives to the transaction, theglobe's underlying business decision to
proceed with or effect the transaction or any other aspect of the transaction.
The opinion also does not address any related transaction between theglobe or
RelationServe and the management of SendTec.
In connection with its opinion, Thomas Weisel Partners, among other things:
o reviewed certain publicly available financial and other data with
respect to theglobe, including the consolidated financial statements
for recent years and interim periods to March 31, 2005 and certain
other relevant financial and operating data relating to theglobe and
SendTec made available to them from published sources and from the
internal records of theglobe and SendTec;
o reviewed the financial terms and conditions of the Asset Purchase
Agreement;
o compared SendTec from a financial point of view with certain other
companies which Thomas Weisel Partners deemed to be relevant;
o considered the financial terms, to the extent publicly available, of
selected recent business combinations which Thomas Weisel Partners
deemed to be comparable, in whole or in part, to the transaction;
o reviewed and discussed with representatives of the management of
theglobe and SendTec certain information of a business and financial
nature regarding SendTec, furnished to Thomas Weisel Partners by
them, including financial forecasts and related assumptions of
theglobe and SendTec;
21
o made inquiries regarding and discussed the transaction and the Asset
Purchase Agreement and other matters related thereto with theglobe's
counsel; and,
o performed such other analyses and examinations as they have deemed
appropriate.
In connection with their review, Thomas Weisel Partners did not assume any
obligation independently to verify the foregoing information and relied on its
being accurate and complete in all material respects. With respect to the
financial forecasts for SendTec provided to Thomas Weisel Partners by the
management of theglobe and SendTec, Thomas Weisel Partners assumed for purposes
of its opinion that the forecasts have been reasonably prepared on bases
reflecting the best available estimates and judgments of theglobe's and
SendTec's management at the time of preparation as to the future financial
performance of SendTec and that they provide a reasonable basis upon which
Thomas Weisel could form its opinion. Thomas Weisel Partners also assumed that
there have been no material changes in SendTec's assets, financial condition,
results of operations, business or propects since the date of its last financial
statements made available to Thomas Weisel Partners. They relied on advice of
counsel and independent accountants provided to theglobe as to all legal and
financial reporting matters with respect to SendTec, the transaction and the
Purchase Agreement. Thomas Weisel Partners assumed that the transaction would be
consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934
and all other applicable federal and state statutes, rules and regulations. In
addition, Thomas Weisel Partners has not assumed responsibility for making an
independent evaluation, appraisal or physical inspection of any of the assets or
liabilities (contingent or otherwise) of SendTec, nor have they been furnished
with any such appraisals.
Thomas Weisel Partners' opinion is based on economic, monetary and market
and other conditions as in effect on, and the information made available to them
as of, August 10, 2005. Accordingly, although subsequent developments may affect
their opinion, they have not assumed any obligation to update, review or
reaffirm this opinion.
Thomas Weisel Partners acted as financial advisor to theglobe in
connection with the transaction and will receive a fee for its services,
including rendering the opinion, a significant portion of which is contingent
upon the consummation of the transaction. Further, theglobe has agreed to
indemnify Thomas Weisel Partners, its affiliates, and their respective partners,
directors, officers, agents, consultants, employees and controlling persons
against specific liabilities, including liabilities under the federal securities
laws.
The Board selected Thomas Weisel Partners as financial advisor based on
its qualifications, expertise and reputation. In the ordinary course of its
business, Thomas Weisel Partners actively trades the equity securities of
theglobe and RelationServe for its own account and for the account of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
GOVERNMENTAL AND REGULATORY MATTERS
Except with respect to the expiration of the 20-calendar day period from
the dissemination of this Information Statement to theglobe's stockholders until
the asset sale may be consummated, the parties are not aware of any governmental
or regulatory approvals required in connection with the consummation of the
asset sale.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the anticipated material U.S. federal income
tax consequences to theglobe upon the asset sale. The discussion does not cover
all aspects of U.S. federal income taxation and does not address state, local,
foreign, or other tax laws. The summary is based on the tax laws of the United
States, including the Internal Revenue Code of 1986, as amended, its legislative
history, existing and proposed regulations thereunder, published rulings and
court decisions, all as currently in effect and all subject to change at any
time, possibly with retroactive effect.
At present, theglobe anticipates recognizing a gain for federal income tax
purposes on the Asset Sale equal to the difference between the purchase price
(less transaction costs) and theglobe's tax basis in the assets being sold. The
gain will be taxed at theglobe's top marginal tax rate. However, theglobe
anticipates using its prior and any current year net operating losses to offset
the recognized gain on the Asset Sale. theglobe anticipates, however, that it
will pay some amount of Alternative Minimum Tax on the gain, due to net
operating loss limitations, which will likely be imposed. The Asset Sale may
also produce tax liability in certain states which may not be offset by
theglobe's net operating loss carryforwards in those certain states due to state
statutes limiting the use of such net operating loss carryforwards.
The Asset Sale will not produce any separate and independent federal
income tax consequences to theglobe's stockholders.
STOCKHOLDER CONSENT TO THE ASSET SALE
Under Section 228 of the Delaware Law, unless otherwise provided in a
corporation's certificate of incorporation, any action required to be taken at
any annual or special meeting of stockholders, or any action that may be taken
at any annual or special meeting of stockholders, may be taken without a
meeting, without prior notice and without a vote, if a written consent to that
action is signed by the stockholders having not less than the minimum number of
votes that would be necessary to authorize or take that action at a meeting at
which all shares were present and voted. Under Delaware Law, the approval by the
holders of a majority of the outstanding shares of theglobe's common stock may
be required to adopt the asset purchase agreement and approve the transactions
contemplated thereby.
22
On August 18, 2005, stockholders of theglobe holding in excess of a
majority of the outstanding shares of theglobe's common stock, constituting the
sole class of voting securities of theglobe, executed and delivered to the
secretary of theglobe their consent adopting the asset purchase agreement and
approving the transactions contemplated thereby. Pursuant to Section 228 of the
Delaware Law, theglobe is hereby delivering notice of the stockholders' consent
to all holders of theglobe common stock as of September 2, 2005 who did not
participate in the action by written consent. The stockholder consent is
sufficient under Delaware law to approve the asset purchase agreement without
the requirement of any other stockholder vote. No further action of the
stockholders is necessary to approve the asset sale.
The table below sets forth the actual shares of common stock over which
the parties executing the written consent have voting authority. For purposes of
this table, shares of common stock over which such parties may be deemed the
beneficial owner (which includes shares which may be acquired within the next 60
days, such as upon the exercise or conversion of options, warrants and
convertible notes) but which do not represent actual issued and outstanding
shares of our common stock are not presented.
--------------------------------------------------------------------------------
Number of Percent of
Holder Shares Total
--------------------------------------------------------------------------------
Dancing Bear Investments, Inc. 8,303,148 4.26%
--------------------------------------------------------------------------------
E&C Capital Partners LLLP 36,469,012 18.71%
--------------------------------------------------------------------------------
E&C Capital Partners II LLLP 4,000,000 2.05%
--------------------------------------------------------------------------------
Michael S. Egan 530,455 0.27%
--------------------------------------------------------------------------------
S. Jacqueline Egan 3,541,337 1.82%
--------------------------------------------------------------------------------
Michael S. Egan Grantor Retained Annuity Trust
FBO Sarah Egan Mooney 2,007,000 1.03%
--------------------------------------------------------------------------------
Michael S. Egan Grantor Retained Annuity Trust
FBO Eliza Shenners Egan 2,007,000 1.03%
--------------------------------------------------------------------------------
Michael S. Egan Grantor Retained Annuity Trust
FBO Catherine Lewis Egan 2,014,000 1.03%
--------------------------------------------------------------------------------
Michael S. Egan Grantor Retained Annuity Trust
FBO Teague Michael Thomas Egan 2,014,000 1.03%
--------------------------------------------------------------------------------
Michael S. Egan Grantor Retained Annuity Trust
FBO Riley Martin Michael Egan 2,014,000 1.03%
--------------------------------------------------------------------------------
The Nantucket Trust Irrevocable Trust 2,000,000 1.03%
--------------------------------------------------------------------------------
E&C Capital Partners as Proxyholder(1) 28,699,874 14.73%
--------------------------------------------------------------------------------
Huizenga Investments Limited 2,000,000 1.03%
--------------------------------------------------------------------------------
W.A. Bryan Patten 1,720,100 0.88%
--------------------------------------------------------------------------------
W.A. Bryan Patten as Proxyholder (2) 604,500 0.31%
--------------------------------------------------------------------------------
Patten and Patten, Inc. as Proxyholder(3) 1,380,000 0.71%
--------------------------------------------------------------------------------
Total 99,304,326 50.96%
--------------------------------------------------------------------------------
----------------------------
(1) Holds a proxy on behalf of Paul Soltoff, 10,183,190 shares; Eric Obeck,
4,629,171 shares; Harry Greene, 4,629,171 shares; Irv and Nadine Brechner,
4,629,171 shares; and Donald Gould, 4,629,171 shares pursuant to a
Stockholders' Agreement dated September 1, 2004.
(2) Holds a proxy on behalf of Kathleen Carter Patten, 167,500 shares; William
A. Bryan Patten, 220,000 shares; and Sarah Caldwell Patten, 217,000
shares.
(3) Holds a proxy on behalf of C. Robert Clark Rollover IRA, Creel Medical
Services, Inc. Profit Sharing Trust, Henry Crumbliss Rollover IRA, A.R.
Fortune, II Rollover, IRA, Lesslie W. Lee IRA, Bonnie G. McBride Rollover
IRA, and Robert L. Raitz, M.D. Rollover IRA; 50,000 shares each; 711
East Company, 300,000 shares; W.A. Bryan Patten and Z. Carter Patten, III
Trustees U/WZ Carter Patten, Jr.- Sons Trust, 300,000 shares; Patten and
Patten, Inc. Profit Sharing Plan, 100,000 shares; Patten and Patten Inc.
Profit Sharing Plan fbo Frank M. Robbins, III, 150,000 shares; and Eloise
D. Robbins, 180,000.
FINANCING OF THE ASSET SALE
The asset sale is not conditioned on any financing arrangements by
RelationServe. RelationServe has represented in the Purchase Agreement that it
has financing commitments for at least $30 million. theglobe will receive
immediately available funds at the closing of the asset sale, subject only to
the holdback of $1 million pursuant to the Holdback Escrow Agreement.
23
CERTAIN PRO FORMA FINANCIAL INFORMATION AND RELATED DATA
INDEX TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Page
--------
Introduction to Pro Forma Condensed
Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . PF-2
Pro Forma Condensed Consolidated
Balance Sheet as of June 30, 2005. . . . . . . . . . . . . . . . . . . . . PF-3
Pro Forma Condensed Consolidated Statement
of Operations for the year ended December 31, 2004. . . . . . . . . . . . . PF-4
Pro Forma Condensed Consolidated Statement
of Operations for the six months ended June 30, 2005. . . . . . . . . . . . PF-5
Notes to Pro Forma Condensed Consolidated Financial Statements. . . . . . . PF-6
PF-1
24
theglobe.com, inc.
INTRODUCTION TO PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma condensed consolidated financial statements give effect
to (i) the Asset Purchase Agreement (the "Agreement") with RelationServe Media,
Inc. ("RelationServe") entered into by theglobe.com, inc. ("theglobe" or the
"Company") and SendTec, Inc. ("SendTec") on August 10, 2005, whereby the Company
agreed to sell all of the business and substantially all of the net assets of
its SendTec marketing services subsidiary to RelationServe, and (ii) the related
ancillary agreements, including the Redemption Agreement and the Termination
Agreement (the "Ancillary Agreements") as contemplated by the transaction. The
pro forma condensed consolidated balance sheet of theglobe as of June 30, 2005
has been prepared as if the Company's sale of the SendTec business and the
redemption and termination of shares pursuant to the Ancillary Agreements had
been consummated on June 30, 2005. The pro forma condensed consolidated
statements of operations of theglobe for the year ended December 31, 2004 and
the six months ended June 30, 2005 are presented as if the Company's sale of the
SendTec business and the redemption of shares pursuant to the Redemption
Agreement occurred on September 1, 2004 (the original date of acquisition of
SendTec by the Company) and the effect was carried forward through the balance
of the year 2004 and the six month period ended June 30, 2005. The pro forma
condensed consolidated statement of operations for the year ended December 31,
2004 excludes the estimated net gain resulting from the sale of the SendTec
business.
Pursuant to the terms of the Agreement, the sales price of the SendTec business
will be $37,500,000 in cash, subject to certain net working capital adjustments.
The closing of the transaction is subject to the satisfaction of a number of
closing conditions. Pursuant to the terms of the Ancillary Agreements, the
Company will redeem approximately 28,900,000 shares of its Common Stock, and
terminate certain other options and warrants, owned by management and certain
employees of SendTec for approximately $12,600,000 in cash. These shares and
related options and warrants were issued to management and certain employees of
SendTec in connection with the Company's acquisition of SendTec on September 1,
2004.
The pro forma condensed consolidated financial statements are based upon
available information and certain assumptions considered reasonable by
management. The pro forma condensed consolidated financial statement reflect
estimated federal and state income tax liabilities which may be subject to
further adjustment based on the actual carrying value of net assets sold at the
date of closing, among other considerations. The pro forma condensed
consolidated financial statements do not represent what the Company's financial
position would have been assuming the completion of the Company's sale of the
SendTec business and the redemption and termination of shares pursuant to the
Ancillary Agreements had occurred on June 30, 2005, or what the Company's
results of operations would have been assuming the completion of the Company's
sale of the SendTec business and the redemption of shares pursuant to the
Redemption Agreement had occurred on September 1, 2004, nor do they project the
Company's financial position or results of operations at any future date or for
any future period. These pro forma condensed consolidated financial statements
should be read in conjunction with the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2004 and its Quarterly Report on Form 10-Q for
the quarter ended June 30, 2005 as filed with the Securities and Exchange
Commission.
PF-2
25
theglobe.com, inc.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2005
(UNAUDITED)
Securities
theglobe Disposition Redemption/ PRO FORMA
HISTORICAL Adjustments Termination ADJUSTED
------------- ------------- ------------- -------------
Assets
Current Assets:
Cash and cash equivalents $ 4,976,487 $ (3,926,426) (a) $ (12,600,000) (f) $ 26,461,516
36,200,000 (b)
(1,000,000) (c)
2,811,455 (d)
Restricted cash -- 1,000,000 (c) 1,000,000
Marketable securities 42,736 -- -- 42,736
Accounts receivable, net 8,210,661 (7,385,596) (a) -- 825,065
Inventory, net 247,195 -- -- 247,195
Prepaid expenses 995,946 (390,767) (a) -- 605,179
Deposits on inventory purchases 77,250 -- -- 77,250
Other current assets 277,647 (2,600) (a) -- 275,047
------------- ------------- ------------- -------------
Total current assets 14,827,922 27,306,066 (12,600,000) 29,533,988
Goodwill 11,709,952 (11,709,952) (a) -- --
Intangible assets 2,045,211 (1,500,000) (a) -- 545,211
Property and equipment, net 2,931,215 (902,969) (a) -- 2,028,246
Other assets 95,422 (28,604) (a) -- 66,818
------------- ------------- ------------- -------------
Total assets $ 31,609,722 $ 13,164,541 $ (12,600,000) $ 32,174,263
============= ============= ============= =============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 8,701,615 $ (6,650,682) (a) $ -- $ 2,050,933
Accrued expenses and other current liabilities 3,479,574 (2,104,667) (a) -- 2,374,907
1,000,000 (e)
Deferred revenue 266,719 (138,585) (a) -- 128,134
Notes payable and current portion of long-term debt 4,131,379 -- -- 4,131,379
------------- ------------- ------------- -------------
Total current liabilities 16,579,287 (7,893,934) -- 8,685,353
Long-term debt 7,264 -- -- 7,264
Other long-term liabilities 130,366 -- -- 130,366
------------- ------------- ------------- -------------
Total liabilities 16,716,917 (7,893,934) -- 8,822,983
------------- ------------- ------------- -------------
Stockholders' Equity:
Common stock 187,355 7,500 (c) (29,578) (f) 165,277
Additional paid-in capital 286,070,574 742,500 (c) (112,829) (f) 286,700,245
Treasury stock, at cost (371,458) -- 371,458 (f) --
Escrowed shares -- (750,000) (c) (750,000)
Accumulated deficit (270,993,666) 21,058,475 (e) (12,829,051) (f) (262,764,242)
------------- ------------- ------------- -------------
Total stockholders' equity 14,892,805 21,058,475 (12,600,000) 23,351,280
------------- ------------- ------------- -------------
Total liabilities and stockholders' equity $ 31,609,722 $ 13,164,541 $ (12,600,000) $ 32,174,263
============= ============= ============= =============
The accompanying notes are an integral part of these pro forma
condensed consolidated financial statements.
PF-3
26
theglobe.com, inc.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
(UNAUDITED)
theglobe Disposition PRO FORMA
HISTORICAL Adjustments ADJUSTED
------------- ------------- -------------
Net revenue $ 16,041,032 $ (13,408,183) (g) $ 3,498,791
------------- 865,942 (h) -------------
-------------
Operating expenses:
Cost of revenue 18,262,105 (9,670,229) (g) 9,054,739
462,863 (h)
Sales and marketing 7,386,637 (691,654) (g) 7,098,062
403,079 (h)
Product development 1,053,886 -- 1,053,886
General and adminstrative 9,102,151 (1,621,146) (g) 7,246,774
(234,231) (i)
Depreciation 1,402,712 (107,270) (g) 1,295,442
Amortization of intangibles 222,834 (120,000) (g) 102,834
Impairment charge 1,661,975 -- 1,661,975
Loss on settlement of contractual obligation 406,750 -- 406,750
------------- ------------- -------------
Total operating expenses 39,499,050 (11,578,588) 27,920,462
------------- ------------- -------------
Loss from operations (23,458,018) (963,653) (24,421,671)
------------- ------------- -------------
Other expense, net:
Interest expense, net (656,633) (9,715) (g) (666,348)
Other expense, net (158,550) -- (158,550)
------------- ------------- -------------
Other expense, net (815,183) (9,715) (824,898)
------------- ------------- -------------
Loss before income taxes (24,273,201) (973,368) (25,246,569)
Income taxes -- -- --
------------- ------------- -------------
Net loss $ (24,273,201) $ (973,368) $ (25,246,569)
============= ============= =============
Basic and diluted net loss per common share $ (0.19) $ (0.21)
============= =============
Weighted average basic and diluted shares outstanding 127,843,000 121,886,000 (j)
============= =============
The accompanying notes are an integral part of these pro forma condensed
consolidated financial statements.
PF-4
27
theglobe.com, inc.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005
(UNAUDITED)
theglobe Disposition PRO FORMA
HISTORICAL Adjustments ADJUSTED
------------- ------------- -------------
Net revenue $ 19,425,046 $ (18,469,603) (g) $ 1,280,160
------------- 324,717 (h) -------------
-------------
Operating expenses:
Cost of revenue 16,638,712 (12,669,759) (g) 4,165,571
196,618 (h)
Sales and marketing 2,175,902 (1,063,516) (g) 1,240,485
128,099 (h)
Product development 654,257 -- 654,257
General and adminstrative 6,099,641 (2,357,554) (g) 3,412,777
(329,310) (i)
Depreciation 752,539 (169,368) (g) 583,171
Amortization of intangibles 198,800 (180,000) (g) 18,800
------------- ------------- -------------
Total operating expenses 26,519,851 (16,444,790) 10,075,061
------------- ------------- -------------
Loss from operations (7,094,805) (1,700,096) (8,794,901)
------------- ------------- -------------
Other expense, net:
Interest expense, net (3,029,574) (25,032) (g) (3,054,606)
Other expense, net (278,837) -- (278,837)
------------- ------------- -------------
Other expense, net (3,308,411) (25,032) (3,333,443)
------------- ------------- -------------
Loss before income taxes (10,403,216) (1,725,128) (12,128,344)
Income taxes 15,576 (15,576) (g) --
------------- ------------- -------------
Net loss $ (10,418,792) $ (1,709,552) $ (12,128,344)
============= ============= =============
Basic and diluted net loss per common share $ (0.06) $ (0.08)
============= =============
Weighted average basic and diluted shares outstanding 177,680,000 148,801,000 (j)
============= =============
The accompanying notes are an integral part of these pro forma
condensed consolidated financial statements.
PF-5
28
theglobe.com, inc.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BALANCE SHEET
(a) To reflect the adjustment required to eliminate the assets sold and
liabilities assumed in connection with the sale of our SendTec business to
RelationServe.
(b) To reflect the $37,500,000 in cash proceeds as per the Agreement, less a
$1,000,000 fee payable to the Company's financial advisors and $300,000 in
other estimated transaction costs.
(c) To reflect the $1,000,000 in cash proceeds and common shares valued at
$750,000 which will be escrowed as per the Escrow Agreement.
(d) To reflect the cash proceeds received as a result of the net working
capital adjustment as defined in the Agreement, estimated herein using net
working capital of SendTec as of June 30, 2005.
(e) To reflect the estimated gain on sale of SendTec assets net of applicable
estimated Federal and state income taxes and to reflect accruals for such
estimated income taxes.
(f) To record the redemption and retirement of 28,879,097 common shares
purchased from the management of SendTec pursuant to the terms of the
Ancillary Agreements. Also assumes the retirement of the 699,281 shares of
treasury stock held by the Company as of June 30, 2005. Also reflects the
redemption and cancellation of certain options to acquire common stock of
theglobe previously issued to SendTec management and employees.
STATEMENT OF OPERATIONS
(g) To reflect the adjustment required to eliminate the results of operations
of our SendTec subsidiary for the period indicated.
(h) To reflect the adjustment to reverse the elimination of intercompany
revenue recorded and the related costs incurred by SendTec for marketing
services provided to the Company's VoIP telephony services business for
the period indicated.
(i) To reflect the elimination of deferred compensation recorded related to
replacement stock options issued to SendTec employees in connection with
the acquisition of SendTec on September 1, 2004 for the period indicated.
(j) The weighted average basic and diluted shares outstanding for the twelve
months ended December 31, 2004 assumes the common shares redeemed were
split evenly between those issued as of September 1, 2004, the SendTec
acquisition date, and those issued December 1, 2004 as a result of the
conversion of preferred shares issued at acquisition into theglobe.com
Common Stock, and that such shares were redeemed on their respective date
of issuance. The weighted average basic and diluted shares outstanding for
the six months ended June 30, 2005 assumes the common shares were redeemed
as of January 1, 2005.
PF-6
29
INFORMATION ABOUT THEGLOBE
Description of Business
As of July 2005, theglobe.com, inc. (the "Company" or "theglobe") managed
four primary lines of business. One line of business, Voice over Internet
Protocol ("VoIP") telephony services, includes voiceglo Holdings, Inc., a
wholly-owned subsidiary of theglobe that offers VoIP-based phone services and
features. The term VoIP refers to a category of hardware and software that
enables people to use the Internet to make phone calls. The second line of
business consists of our historical network of three wholly-owned businesses,
each of which specializes in the games business by delivering games information
and selling games in the United States and abroad. These businesses are: our
print publication business, which consists of Computer Games and Now Playing
magazines; our online website business, which consists of our Computer Games
Online website (www.cgonline.com) and our Now Playing Online website
(www.nowplayingmag.com), which are the online counterparts to our magazine
publications; and our Chips & Bits, Inc. ("Chips & Bits") games distribution
company (www.chipsbits.com). We entered into a third line of business, marketing
services, on September 1, 2004, with our acquisition of SendTec, Inc.
("SendTec"), a direct response marketing services and technology company. On May
9, 2005, the Company entered into a fourth line of business when it exercised
its option to acquire Tralliance Corporation ("Tralliance"), a company which had
recently entered into an agreement to become the registry for the ".travel"
top-level Internet domain.
During 2002 and 2003, the Company's computer games business segment
provided 100% and 90%, respectively, of our consolidated net revenue. In 2004,
our SendTec business, which comprises our marketing services business segment,
and our computer games business segment provided 78% and 19% of consolidated net
revenue, net of intersegment eliminations, respectively. As of August 2005, the
Company's revenue continues to be derived principally from the operations of
SendTec, and to a lesser extent from the operations of our computer games
related businesses. Our VoIP products and services have yet to produce any
significant revenue. Tralliance does not expect to begin generating revenue
until sometime around September 2005.
During the first quarter of 2005, management began actively re-evaluating
the Company's primary business lines, particularly in view of the Company's
critical need for cash and the overall net losses of the Company. As a result,
management is currently exploring a number of strategic alternatives for the
Company and/or its businesses, including continuing to operate the businesses,
selling certain businesses or assets, or entering into new lines of businesses.
HISTORICAL OVERVIEW
theglobe was incorporated on May 1, 1995 (inception) and commenced
operations on that date. Originally, theglobe.com was an online community with
registered members and users in the United States and abroad. That product gave
users the freedom to personalize their online experiences by publishing their
own content and by interacting with others having similar interests. However,
due to the deterioration of the online advertising market, the Company was
forced to restructure and ceased the operations of its online community on
August 15, 2001. The Company then sold most of its remaining online and offline
properties. The Company continues to operate its Computer Games print magazine
and the associated website Computer Games Online (www.cgonline.com), as well as
the games distribution business of Chips & Bits, Inc. (www.chipsbits.com). On
June 1, 2002, Chairman Michael S. Egan and Director Edward A. Cespedes became
Chief Executive Officer and President of the Company, respectively.
On November 14, 2002, the Company acquired certain Voice over Internet
Protocol ("VoIP") assets and is now pursuing opportunities related to this
acquisition. In exchange for the assets, the Company issued warrants to acquire
1,750,000 shares of its Common Stock and an additional 425,000 warrants as part
of an earn-out structure upon the attainment of certain performance targets. The
earn-out performance targets were not achieved and the 425,000 earn-out warrants
expired on December 31, 2003.
On February 25, 2003, theglobe.com entered into a Loan and Purchase Option
Agreement, as amended,
30
with Tralliance, an Internet related business venture, pursuant to which it
agreed to fund, in the form of a loan, at the discretion of the Company,
Tralliance's operating expenses and obtained the option to acquire all of the
outstanding capital stock of Tralliance in exchange for, when and if exercised,
$40,000 in cash and the issuance of an aggregate of 2,000,000 unregistered
restricted shares of theglobe's Common Stock (the "Option"). On May 5, 2005,
Tralliance and the Internet Corporation for Assigned Names and Numbers ("ICANN")
entered into an agreement designating Tralliance as the registry for the
".travel" top-level domain. On May 9, 2005, the Company exercised its option to
acquire all of the outstanding capital stock of Tralliance. The purchase price
consisted of the issuance of 2,000,000 shares of theglobe's Common Stock,
warrants to acquire 475,000 shares of theglobe's Common Stock and $40,000 in
cash. The warrants are exercisable for a period of five years at an exercise
price of $0.11 per share. The Common Stock issued as a result of the acquisition
of Tralliance is entitled to certain "piggy-back" registration rights.
On May 28, 2003, the Company acquired Direct Partner Telecom, Inc.
("DPT"), a company engaged in VoIP telephony services in exchange for 1,375,000
shares of the Company's Common Stock and the issuance of warrants to acquire
500,000 shares of the Company's Common Stock. The transaction included an
earn-out arrangement whereby the former stockholders of DPT may earn additional
warrants to acquire up to 2,750,000 shares of the Company's Common Stock at an
exercise price of $0.72 per share upon the attainment of certain performance
targets by DPT over approximately a three year period following the date of
acquisition. The performance targets for the first 500,000 of these earn-out
warrants were not achieved and expired on March 31, 2004. An additional 750,000
of the warrants were forfeited effective March 31, 2005, as performance targets
for the second of the three year periods were not achieved. Subject to certain
qualifications, the warrants will accelerate and be deemed earned in the event
of a "change in control" of the Company, as defined in the acquisition
documents.
DPT was a specialized international communications carrier providing VoIP
communications services to emerging countries. The DPT network had provided
"next generation" packet-based telephony and value added data services to
carriers and businesses in the United States and internationally. The Company
acquired all of the physical assets and intellectual property of DPT and
originally planned to continue to operate the company as a subsidiary and engage
in the provision of VoIP services to other telephony businesses on a wholesale
transactional basis. In the first quarter of 2004, the Company decided to
suspend DPT's wholesale business and dedicate the DPT physical and intellectual
assets to its retail VoIP business. As a result, the Company wrote off the
goodwill associated with the purchase of DPT and has since employed these
physical assets in the build out of the retail VoIP network.
On September 1, 2004, the Company closed upon an Agreement and Plan of
Merger dated August 31, 2004, pursuant to which the Company acquired all of the
issued and outstanding shares of capital stock of SendTec, a direct response
marketing services and technology company. Pursuant to the terms of the Merger,
in consideration for the acquisition of SendTec, theglobe paid consideration
consisting of: (i) $6,000,000 in cash, excluding transaction costs, (ii) the
issuance of an aggregate of 17,500,024 shares of theglobe's Common Stock, (iii)
the issuance of an aggregate of 175,000 shares of Series H Automatically
Converting Preferred Stock (which as more fully described below, was
subsequently converted into approximately 17,500,500 shares of theglobe's Common
Stock), and (iv) the issuance of a subordinated promissory note in the amount of
$1 million. In addition, warrants to acquire shares of the Company's Common
Stock would be issued to the former shareholders of SendTec when and if SendTec
exceeds forecasted operating income, as defined, of $10.125 million, for the
year ending December 31, 2005. The number of earn-out warrants would range from
an aggregate of approximately 250,000 to 2,500,000 (if actual operating income
exceeds the forecast by at least 10%). If and to the extent the warrants are
earned, the exercise price of the performance warrants would be $0.27 per share
and they will be exercisable for a period of five years. The Company also issued
an aggregate of approximately 4,000,000 replacement options to acquire
theglobe's Common Stock for each of the issued and outstanding options to
acquire SendTec shares held by the former employees of SendTec. The subordinated
promissory note bears interest at the rate of 4% per annum and matures in one
lump sum of principal and interest on September 1, 2005.
Each share of the Series H Preferred Stock was automatically converted
into 100 shares of theglobe's Common Stock on December 1, 2004, the effective
date of the amendment to the Company's certificate of incorporation increasing
its authorized shares of Common Stock from 200,000,000 shares to 500,000,000
shares.
31
OUR LINES OF BUSINESS
OUR VOIP TELEPHONY BUSINESS
The use of the Internet to provide voice communications services is
becoming more prevalent as new providers enter the market and the technology
becomes more accepted. According to Insight Research, VoIP-based services will
grow from $13.0 billion in 2002 to nearly $197.0 billion in 2007. VoIP
technology translates voice into data packets, transmits the packets over data
networks and reconverts them into voice at their destination. Unlike traditional
telephone networks, VoIP does not require dedicated circuits to complete
telephone calls. Instead, VoIP networks can be shared by multiple users for
voice, data and video simultaneously. These types of data networks are more
efficient than dedicated circuit networks because they are not restricted by
"one-call, one-line" limitations of traditional telephone networks. Accordingly,
improved efficiency creates cost savings that can be passed on to the consumer
in the form of lower rates.
Development of our VoIP Business.
On November 14, 2002, we entered the VoIP business by acquiring certain
software assets from Brian Fowler. Today those assets serve as the foundation of
the retail VoIP products and services that we provide to our customers.
On May 28, 2003, the Company acquired DPT, a company engaged in VoIP
wholesale telephony services. At the time we acquired DPT, it was a specialized
international communications carrier providing wholesale VoIP communications
services to emerging countries. In the first quarter of 2004, we decided to
suspend DPT's wholesale business and dedicate the DPT physical and intellectual
assets to our retail VoIP business.
During the third quarter of 2003, the Company launched its first suite of
consumer and business level VoIP services. The Company launched its
browser-based VoIP product during the first quarter of 2004. These services
allow consumers and enterprises to communicate using VoIP technology for
dramatically reduced pricing compared to traditional telephony networks. The
services also offer traditional telephony features such as voicemail, caller ID,
call forwarding, and call waiting for no additional cost to the consumer, as
well as incremental services that are not currently supported by the public
switched telephone network ("PSTN") like the ability to use numbers remotely and
voicemail to email services. In the fourth quarter of 2004, the Company
announced an "instant messenger" or "IM" related application which enables users
to chat via voice or text across multiple platforms using their preferred
instant messenger service. Additionally, during the second quarter of 2005, the
Company released a number of new VoIP products and features which allow users to
communicate via mobile phones, traditional land line phones and/or computers.
The Company now provides the following VoIP services, on a retail basis,
to individual consumers and businesses:
o Browser-Based - full functioning voice and messaging capabilities that reside
on the computer desktop and also include web-based solutions. The only system
requirements are a browser and an Internet connection. The Company is seeking
various patents to protect its position. The browser-based products work on
broadband, dial-up and wi-fi Internet connections and can optionally be used
with a USB phone or other peripheral devices.
o Hardware-Based - a long-distance or phone line replacement service. Requires
an Internet connection and can optionally be used with an adapter or regular,
cellular, wi-fi or USB phone directly over a user's computer if desired. The
service works on broadband, dial-up and wi-fi Internet connections.
The Company's retail VoIP products are provided under various tradenames
including "voiceglo", "GloPhone" and "tglo". Customers choose their levels of
service from a number of available packages and complete online registrations
and credit card payment transactions via websites maintained by the Company. The
Company's browser-based plans require the customers to download a simple
"plug-in" to their browsers to enable voice and messaging communications.
Certain of the Company's hardware-based plans require the customer to either
register the phones (and phone numbers) that the customer will be using and/or
to purchase and install certain
32
peripheral equipment such as adapters or bridge devices prior to activating
service.
Sales and Marketing.
The Company is continuing to develop its 2005 product sales and
distribution strategy, which is primarily focused on promoting the new products
and features that were released in the second quarter of 2005. The Company
intends to market its services through both direct and indirect retail sales
channels, primarily through Internet advertising, structured customer referral
programs and partnerships with established third party retailers.
Development of our Network and Carrier Relationships; Equipment Suppliers.
In order to offer our services we have invested substantial time, capital
and other resources on the development of our VoIP network. Our VoIP network is
comprised of switching hardware and software, servers, billing and inventory
systems, and telecommunication carrier services. We own and operate VoIP
equipment located in leased data center facilities in Miami, New York, Atlanta
and Boston, and interconnect these switches utilizing a leased transport network
through numerous carrier agreements with third party providers. Through these
carrier relationships we are able to carry the traffic of our customers over the
Internet and interact with the PSTN. These carrier relationships also provide
the Company with a leased network for telephone numbers, or "footprint," in more
than 100 area codes in approximately 34 states. The network also provides for
both domestic and international call termination. We generally enter into one
year agreements with these data centers and carriers, with the terms of several
agreements extending to three to five years. The capacity of our VoIP network,
presently greatly exceeds the current level of customer demand and usage. The
Company has been successful in recently terminating substantially all of the
minimum usage requirement commitments for which it was previously obligated
under certain of its carrier agreements. Additionally, the Company is currently
negotiating to reduce the amounts payable during 2005 for other network data
center and carrier circuit interconnection services.
Research and Development.
Internet telephony is a technical service offering. As a technology, basic
VoIP service, although complex, is well-understood and has been adapted by many
companies that are selling basic services to consumers and businesses worldwide.
The Company, however, believes that in order to be competitive and differentiate
itself among its peers, it must continuously upgrade its service offering. To
that end, the Company is engaged in a program of continuous development of its
products. Since the initial launch of its VoIP service, the Company has
introduced a number of new features which have increased the functionality of
its products and has plans to introduce additional new products and features in
the future.
OUR COMPUTER GAMES BUSINESS
Computer Games Magazine and Now Playing Magazine
- As a leading consumer print publication for games, Computer Games magazine
boasts: a reputation for being a reliable, trusted, and engaging games magazine;
more editorial, tips and hints than most other similar magazines; a
knowledgeable editorial staff providing increased editorial integrity and
content; and, broad-based editorial coverage, appealing to a wide audience of
gamers.
- In Spring 2004, a new magazine, Now Playing began to be delivered within
Computer Games magazine and in March 2005, Now Playing began to be distributed
as a separate publication. Now Playing covers movies, DVD's, television, music,
games, comics and anime, and is designed to fulfill the wider pop culture
interests of our current readers and to attract a more diverse group of
advertisers; autos, television, telecommunications and film to name a few.
Computer Games Online
Computer Games Online (www.cgonline.com) is the online counterpart to
Computer Games magazine.
33
Computer Games Online is a source of free computer games news and information
for the sophisticated gamer, featuring news, reviews and previews.
- Features of Computer Games Online include: game industry news; truthful,
concise reviews; first looks, tips and hints; multiple content links; thousands
of archived files; and easy access to game buying.
Now Playing Online
Now Playing Online (www.nowplayingmag.com) is the online counterpart for
Now Playing magazine. Now Playing Online provides free, up-to-date entertainment
news and information for the pop culture consumer.
- Features of Now Playing Online include: industry news in music, movies and
games; reviews of concerts, movies and DVDs; and exclusive video interviews by
Now Playing writers done with well-known Hollywood stars.
Chips & Bits
Chips & Bits (www.chipsbits.com) is a games distribution business that
attracts customers in the United States and abroad. Chips & Bits covers all the
major game platforms available, including Macintosh, Window-based PCs, Sony
PlayStation, Sony PlayStation2, Microsoft's Xbox, Nintendo 64, Nintendo's
GameCube, Nintendo's Game Boy, and Sega Dreamcast, among others.
Advertising.
We continue to attract major advertisers to our Computer Games print
magazine, which is a widely respected consumer print magazine for gamers. During
the years ended December 31, 2004 and 2003, no single advertiser accounted for
more than 10% of total net revenue. For the twelve months ended December 31,
2004, 42 clients advertised in our Computer Games magazine. Following a series
of cost reduction measures and restructuring, we currently have an internal
advertising sales staff of two account executives and an advertising director,
all of whom are dedicated to selling advertising space in our Computer Games and
Now Playing print magazines and online. Although these professionals focus on
developing long-term strategic relationships with clients as they sell
advertisements in our Computer Games print magazine, most of our actual
advertising contracts are for periods of one to three months.
OUR MARKETING SERVICES BUSINESS
On September 1, 2004, the Company acquired SendTec, a direct response
marketing services and technology company. SendTec provides clients a complete
offering of direct marketing products and services to help their clients market
their products both on the Internet ("online") and through traditional media
channels such as television, radio and print advertising ("offline"). By
utilizing SendTec's marketing products and services, SendTec's clients seek to
increase the effectiveness and the return on investment of their advertising
campaigns. SendTec's online and offline direct marketing products and services
include strategic campaign development, creative development, creative
production and post-production, media buying and tracking, campaign management,
campaign analysis and optimization, technology systems implementation and
integration for campaign tracking and many other agency type services. In
addition, SendTec has a suite of technology solutions, Results, Optimization,
Yield ("ROY"), SendTec Optimization and Reporting ("SOAR") and iFactz, which
enable it to deliver, track, and optimize direct marketing campaigns across
multiple distribution channels, including television, radio, direct mail, print
and the Internet. The combination of SendTec's direct marketing capabilities,
technology and experience in both online and offline marketing, enable its
clients to optimize their advertising campaigns across a broad spectrum of
advertising mediums. SendTec is organized into two primary product line
divisions, the DirectNet Advertising Division and the Creative South Division.
Additionally, its proprietary iFactz technology provides software tracking
solutions that benefit both the DirectNet Advertising and Creative South
businesses.
A substantial portion of SendTec's revenue is derived from a limited
number of customers. During the first half of 2005, two customers of SendTec
accounted for approximately 45% of SendTec's total net revenue and during the
four months ended December 31, 2004, two customers of SendTec accounted for
approximately 52% of
34
SendTec's total net revenue. Two of SendTec's customers, Sureclick Promotions
LLC and DDB Worldwide Communications Group, Inc., each accounted for greater
than 10% of the Company's consolidated net revenue for the year ended December
31, 2004. For the six months ended June 30, 2005, SendTec customers who
individually comprised over 10% of the Company's consolidated net revenue
included Sureclick Promotions LLC and RealNetworks, Inc. The loss of any one or
more of these customers could have a material adverse effect on SendTec's
business.
DirectNet Advertising (DNA)
DNA is the digital marketing services division of SendTec. DNA offers a
variety of products and services that enable online advertisers and publishers
to generate performance based results through online marketing channels such as,
web advertising, e-commerce up-sells, affiliate marketing, search marketing and
email marketing. DNA's broad range of products and services include creative
strategy and execution, strategic offer development, production planning, media
planning, media buying and search optimization. Through these products and
services DNA's clients can address all aspects of the marketing continuum, from
strategic planning through execution, including results management and campaign
refinements. DNA's proprietary technologies, including its ROY online tracking
software, allow advertisers and publishers to track, report and optimize online
campaign activity all the way to the "conversion level" (which means a
consumer's actual response to the offer, as for example, by making a purchase).
DNA's knowledge of digital advertising strategies, targeting methods, media
placements and creative executions combined with its innovative and dependable
technology help DNA's clients to improve their advertising performance and
return on investment.
Creative South
Creative South is the creative strategy, production and media buying
division of SendTec. Creative South services both online and offline clients of
SendTec, and its production capabilities cover a range of distribution media
including television, radio, direct mail, print and digital. Creative South has
developed, produced and distributed numerous direct response television
campaigns for clients and has received national awards for its creative and
production work. Creative South maintains in-house two state-of-the-art
non-linear digital video editing suites. Creative South's production department
includes experienced directors, producers and editors on staff. Creative South's
media buying department provides a full range of services including strategic
media planning, media trafficking, media buying, media tracking and post-buy
media and financial analysis. Creative South's media buying department has
executed media buying assignments for all types of television (broadcast and
cable), radio and print formats and Creative South's long time relationships
with its media partners have enabled SendTec to provide its clients competitive
media prices.
iFactz
iFactz is SendTec's Application Service Provider or "ASP" technology that
tracks and reports the online responses that are generated from offline direct
response advertising. Historically, advertisers have lacked the ability to
accurately track which offline advertising yields results online and thus
advertisers have been unable to properly optimize their media buys. iFactz
intelligently tracks and reports web activity from all offline advertising - TV
(even national cable), radio, print and direct mail - in real time. iFactz's
Intelligent Sourcing(TM) is a patent-pending media technology that informs the
user where online customers come from, and what corresponding activity they
produced on the user's website. The iFactz patent was filed in November of 2001
and SendTec expects the patent application for iFactz to be reviewed during
2005. iFactz's ASP design enables advertisers to implement and access the
technology in a timely and cost efficient manner, as there are no cumbersome,
time-consuming and costly implementation expenses and lead times. iFactz is
licensed to clients both as a stand alone technology solution and as part of an
overall campaign offering.
OUR INTERNET SERVICES BUSINESS
Tralliance, headquartered in New York City, was incorporated in 2002 to
develop products and services to enhance online commerce between consumers and
the travel and tourism industries, including administration of the ".travel"
top-level domain. In February 2003, theglobe entered into a Loan and Purchase
Option Agreement, as
35
amended, with Tralliance in which theglobe agreed to fund, in the form of a
loan, at the discretion of theglobe, Tralliance's operating expenses and
obtained the option to acquire all of the outstanding capital stock of
Tralliance. On May 5, 2005, the Internet Corporation for Assigned Names and
Numbers (ICANN) and Tralliance entered into a contract whereby Tralliance was
designated as the registry for the ".travel" top-level domain for a period of
ten years. Effective May 9, 2005, theglobe exercised its option to purchase
Tralliance.
As the registry for the ".travel" top-level domain, Tralliance will be
responsible for the administration and maintenance of the master directory and
database of all second-level ".travel" domain names. In addition, Tralliance
will be offering, free of charge, to all ".travel" top-level domain registrants
the ".travel" directory, a global online source of travel data organized
according to a unique vocabulary for the travel industry. Tralliance has
outsourced or is planning to outsource to third parties many of the processes
required to operate as the ".travel" registry. Expected to launch in the 2005
fourth quarter, the full introduction of ".travel" will be preceded by a start
up period for limited registration of pre-authenticated ".travel" registrants
during the third quarter of 2005. Tralliance does not expect to begin collecting
fees from ".travel" registrars for its services until sometime in the fourth
quarter 2005.
COMPETITION
VoIP Telephony Business
The telecommunications industry has experienced a great deal of
instability during the past several years. During the 1990s, forecasts of very
high levels of future demand brought a significant number of new entrants and
new capital investments into the industry. New global carriers were joined by
many of the largest traditional carriers and built large global or regional
networks to compete with the global wholesalers. However, in the last several
years many of the new global carriers and many industry participants have either
gone through bankruptcy or no longer exist. The networks were built primarily to
meet the expected explosion in bandwidth demand from data, with specific
emphasis upon Internet applications. Those forecasts have not materialized,
telecommunications capacity now far exceeds actual demand, and the resulting
marketplace is characterized by fierce price competition as traditional and next
generation carriers compete to secure market share. Resulting lower prices have
eroded margins and have kept many carriers from attaining positive cash flow
from operations.
During the past several years, a number of companies have introduced
services that make Internet telephony or voice services over the Internet
available to businesses and consumers. All major telecommunications companies,
including entities like AT&T, Verizon, Sprint and MCI, as well as iBasis,
Net2Phone and deltathree, compete or can compete directly with us. A number of
cable operators have also begun to offer VoIP telephony services via cable
modems which provide access to the Internet.
Our competitors can be divided into domestic competitors and international
competitors. The international market is highly localized. In markets where
telecommunications have been fully deregulated, the competition continues to
increase. In newly deregulated markets even new entrants to the VoIP space can
rapidly capture significant market share. Competitors in these markets include
both government-owned and incumbent phone companies, as well as emerging
competitive carriers. The principle competitive factors in this marketplace
include: price, quality of service, distribution, customer service, reliability,
network capacity, and brand recognition. The long distance market in the United
States is highly competitive. There are numerous competitors in the pure play
VoIP space and we expect to face continuing competition from these existing, as
well as new, competitors. The principal competitive factors in the marketplace
include those identified above, as well as enhanced communications services. Our
competitors include VoIP services companies such as Net2Phone, Skype, Vonage,
Go2Call and deltathree.
Many of our competitors have substantially greater financial, technical
and marketing resources, larger customer bases, longer operating histories,
greater brand recognition and more established relationships in the industry
than we have. As a result, certain of these competitors may be able to adopt
more aggressive pricing policies which may hinder our ability to market our
voice services.
Computer Games Business
Competition among games print magazines is high. We compete for
advertising and circulation revenues
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principally with publishers of other technology and games magazines with similar
editorial content as our magazines. The technology magazine industry has
traditionally been dominated by a small number of large publishers. We believe
that we compete with other technology and games publications based on the nature
and quality of our magazines' editorial content and the attractive demographics
of our readers.
The computer games marketplace has become increasingly competitive due to
acquisitions, strategic partnerships and the continued consolidation of a
previously fragmented industry. In addition, an increasing number of major
retailers have increased the selection of video games offered by their
traditional "bricks and mortar" locations and their online commerce sites,
resulting in increased competition.
Marketing Services Business
The direct response advertising market is highly competitive. We compete
with a variety of large and small advertising agencies but our primary
competitors are interactive marketing companies such as ValueClick, aQuantive,
Advertising.com and Performics. Currently, the online performance based
advertising market in which we compete is still evolving and it is expected that
certain government regulations may be implemented to better define acceptable
practices and methodologies.
Many current and potential competitors have advantages over us, such as
longer operating histories, greater name recognition, larger client bases,
greater access to advertising space on high-traffic websites and significantly
greater financial, technical and marketing resources. In addition, existing or
future competitors may develop or offer services that provide significant
performance, price, creative or other advantages over those offered by us.
Current and potential competitors may establish cooperative relationships
among themselves or with third parties to increase the ability of their products
and services to address the needs of our clients and prospective clients. As a
result it is possible that new competitors may emerge and rapidly acquire
significant market share. If we fail to compete effectively against other
advertising service companies, we could lose clients or advertising inventory
and our revenue could decline. We expect competition to continue to increase
because there are no significant barriers to entry.
Our Results, Optimization, Yield ("ROY") online tracking software provides
the Company with a unique competitive advantage by enabling us to optimize
campaigns and by enabling advertising clients and distribution partners to
access real-time conversion information. Additionally, our iFactz software
provides an excellent complementary platform for our ROY tracking software and
enables us to offer a complete technology tracking solution for online and
offline direct response marketing. We believe that iFactz currently provides
SendTec with a significant competitive advantage in its marketing services
business and we are not aware of any similar technologies available in the
market today.
Historically, a high percentage of SendTec's marketing services revenue
has been generated from a few major customers. We believe that a limited number
of clients will continue to be the source of a substantial portion of SendTec's
marketing services revenue for the foreseeable future. Key factors in
maintaining SendTec's relationships with these clients include SendTec's
performance on individual campaigns, the strength of SendTec's professional
reputation and the relationships of SendTec's key executives with client
personnel. To the extent that SendTec's performance does not meet client
expectations, or SendTec's reputation or relationships with one or more major
clients are impaired, SendTec's marketing services revenue could decline and its
operating results could be adversely affected.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We regard substantial elements of our websites and underlying technology
as proprietary. In addition, we have developed in our VoIP business and direct
response marketing business certain technologies which we believe are
proprietary. Further, we are investigating other opportunities and are seeking
to develop additional proprietary technology. We attempt to protect these assets
by relying on intellectual property laws. We also generally enter into
confidentiality agreements with our employees and consultants and in connection
with our license agreements with third parties. We also seek to control access
to and distribution of our technology, documentation and other
37
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use our proprietary information
without authorization or to develop similar technology independently. We pursue
the registration of our trademarks in the United States and internationally. We
are also currently pursuing patent protection for certain of our VoIP
technologies, including certain technology related to our linkage of a telephone
number to an IP address and our browser to telephone interface, and for
SendTec's direct response marketing business' iFactz Intelligent Sourcing(TM)
media technology.
Effective trademark, service mark, copyright, patent and trade secret
protection may not be available in every country in which our services are made
available through the Internet. Policing unauthorized use of our proprietary
information is difficult. Existing or future trademarks or service marks applied
for or registered by other parties and which are similar to ours may prevent us
from expanding the use of our trademarks and service marks into other areas.
Enforcing our patent rights could result in costly litigation. Our patent
applications could be rejected or any patents granted could be invalidated in
litigation. Should this happen, we may lose a significant competitive advantage.
Additionally, our competitors or others could be awarded patents on technologies
and business processes that could require us to significantly alter our
technology, change our business processes or pay substantial license and royalty
fees.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
In General
We are subject to laws and regulations that are applicable to various
Internet activities. There are an increasing number of federal, state, local and
foreign laws and regulations pertaining to the Internet and telecommunications,
including Voice over Internet Protocol ("VoIP"). In addition, a number of
federal, state, local and foreign legislative and regulatory proposals are under
consideration. Laws or regulations have been and may continue to be adopted with
respect to the Internet relating to, among other things, fees and taxation of
VoIP telephony services, liability for information retrieved from or transmitted
over the Internet, online content regulation, user privacy, data protection,
pricing, content, copyrights, distribution, electronic contracts and other
communications, consumer protection, including public safety issues like
enhanced 911 emergency service ("E911"), the Communications Assistance for Law
Enforcement Act ("CALEA"), the provision of online payment services, broadband
residential Internet access, and the characteristics and quality of products and
services.
Changes in tax laws relating to electronic commerce could materially
affect our business, prospects and financial condition. One or more states or
foreign countries may seek to impose sales or other tax collection obligations
on out-of-jurisdiction companies that engage in electronic commerce. A
successful assertion by one or more states or foreign countries that we should
collect sales or other taxes on services could result in substantial tax
liabilities for past sales, decrease our ability to compete with traditional
telephony, and otherwise harm our business.
Currently, decisions of the U.S. Supreme Court restrict the imposition of
obligations to collect state and local sales and use taxes with respect to
electronic commerce. However, a number of states, as well as the U.S. Congress,
have been considering various initiatives that could limit or supersede the
Supreme Court's position regarding sales and use taxes on electronic commerce.
If any of these initiatives addressed the Supreme Court's constitutional
concerns and resulted in a reversal of its current position, we could be
required to collect sales and use taxes. The imposition by state and local
governments of various taxes upon electronic commerce could create
administrative burdens for us and could adversely affect our VoIP business
operations, and ultimately our financial condition, operating results and future
prospects.
Regardless of the type of state tax imposed, the threshold issue involving
state taxation of any transaction is always whether sufficient nexus, or
contact, exists between the taxing entity and the taxpayer or the transaction to
which the tax is being applied. The concept of nexus is constantly changing and
no bright line exists that would sufficiently alert a business as to whether it
is subject to tax in a specific jurisdiction. All states which have attempted to
tax Internet access or online services have done so by asserting that the sale
of such telecommunications services, information services, data processing
services or other type of transaction is subject to tax in that particular
state.
38
A handful of states impose taxes on computer services, data processing
services, information services and other similar types of services. Some of
these states have asserted that Internet access and/or online information
services are subject to these taxes.
Most states have telecommunications sales or gross receipts taxes imposed
on interstate calls or transmissions of data. A sizable minority tax only
intrastate calls. Although these taxes were enacted long before the birth of
electronic commerce and VoIP, several states have asserted that Internet access
and/or online information services are subject to these taxes.
For example, in the 2005 Florida legislative session, Florida incorporated
into the tax imposed by Chapter 202, Florida Statutes, (the Communications
Services Tax) language which establishes tax nexus in Florida for VoIP. The
Florida legislature inserted this language to protect the scope of the tax base
for the Communications Services Tax. The language could have the effect of
imposing the Communications Services Tax on VoIP services not based in the state
of Florida.
The Florida legislature borrowed the language that it used to amend the
Florida Statute from the national Streamlined Sales Tax Project. This project is
being touted by many states as a proposed tax simplification plan. If adopted by
other states, the language included in the Florida law could have a far reaching
effect in many states in the United States.
Moreover, the applicability to the Internet of existing laws governing
issues such as intellectual property ownership and infringement, copyright,
trademark, trade secret, obscenity, libel, employment and personal privacy is
uncertain and developing. It is not clear how existing laws governing issues
such as property ownership, sales and other taxes, libel, and personal privacy
apply to the Internet and electronic commerce. Any new legislation or
regulation, or the application or interpretation of existing laws or
regulations, may decrease the growth in the use of the Internet or VoIP
telephony services, may impose additional burdens on electronic commerce or may
alter how we do business.
New laws and regulations may increase our costs of compliance and doing
business, decrease the growth in Internet use, decrease the demand for our
services or otherwise have a material adverse effect on our business.
VoIP Regulation
The use of the Internet and private IP networks to provide voice services
over the Internet is a relatively recent market development. Although the
provision of such services is currently permitted by United States federal law
and largely unregulated within the United States, several foreign governments
have adopted laws and/or regulations that could restrict or prohibit the
provision of voice communications services over the Internet or private IP
networks.
Federal Communications Commission Regulation
In the United States, the Federal Communications Commission (the "FCC")
has so far declined to make a general conclusion that all forms of VoIP services
constitute telecommunications services (rather than information services). The
FCC's Internet Policy Working Group was established to assist the FCC in
identifying, evaluating, and addressing policy issues that will arise as
traditional telecommunications services migrate to Internet based platforms. The
FCC has held a forum on VoIP to study and discuss issues including regulatory
classification and has held two solutions summits regarding VoIP: the first
solutions summit focused on VoIP solutions for E911 issues and the second
solutions summit focused on VoIP solutions for disability access issues.
On March 10, 2004, the FCC released its IP-Enabled Services Notice of
Proposed Rulemaking which included guidelines and questions upon which it is
seeking public comment to determine what regulation, if any, will govern
companies that provide VoIP services. Specifically, the FCC has expressed an
intention to further examine the question of whether certain forms of
phone-to-phone VoIP services are information services or telecommunications
services. The two classifications are treated differently in several respects,
with certain information services being regulated to a lesser degree than
telecommunications services. The FCC has noted that certain forms of
phone-to-phone VoIP services bear many of the same characteristics as more
traditional voice
39
telecommunications services and lack the characteristics that would render them
information services. The FCC has indicated that the mechanisms for contributing
to the Universal Service Fund, issues as to applicability of access charges and
other matters will be considered in that context.
On March 10, 2004, (on the same day that the FCC released its IP-Enabled
Services Notice of Proposed Rulemaking), in a response to a petition by
Pulver.com which sought a declaration that Pulver.com's Free World Dialup
("FWD") is neither telecommunications nor a telecommunications service, the FCC
ruled that Pulver.com's FWD offering is an unregulated information service
subject to the FCC's jurisdiction. The ruling specifically does not address
whether traditional phone regulations might apply to VoIP services in which end
users interconnect with the traditional telephone system.
In April 2004, in response to a petition by AT&T which sought a
declaration to preclude local exchange carriers from imposing access charges on
certain AT&T "phone-to-phone" IP telephony services the FCC ruled that the
service that AT&T described is a telecommunications service upon which
interstate access charges may be assessed. However, the FCC emphasized that its
decision is limited to the type of service described by AT&T in that proceeding,
i.e., an interexchange service that: (1) uses ordinary customer premises
equipment (CPE) with no enhanced functionality; (2) originates and terminates on
the public switched telephone network (PSTN); and (3) undergoes no net protocol
conversion and provides no enhanced functionality to end users due to the
provider's use of IP technology.
In November 2004, the FCC issued a Memorandum Opinion and Order ("MO&O")
which preempted an order of the Minnesota Public Utilities Commission applying
its traditional telephone company regulations to Vonage's DigitalVoice service,
which provides VoIP service and other communications capabilities. The FCC
issued this MO&O in response to a petition that Vonage filed with the FCC. The
FCC concluded that the DigitalVoice service cannot be separated into interstate
and intrastate communications for compliance with Minnesota's requirements
without negating valid federal policies and rules. In so doing, the FCC
clarified that it, not the state commissions, has the responsibility and
obligation to decide whether certain regulations apply to DigitalVoice and other
IP-enabled services having the same capabilities. The FCC stated that for such
services, comparable regulations of other states must likewise yield to
important federal objectives. However, in this MO&O, the FCC did not express an
opinion on the applicability to Vonage of Minnesota's general laws governing
entities conducting business within Minnesota, such as laws concerning taxation;
fraud; general commercial dealings; and marketing, advertising, and other
business practices. The FCC stated that it expects that as it moves forward in
establishing policies and rules for DigitalVoice and other IP-enabled services,
states will continue to play their vital role in protecting consumers from
fraud, enforcing fair business practices, for example, in advertising and
billing, and generally responding to consumer inquiries and complaints.
At the same time as Vonage filed its petition with the FCC, it filed a
lawsuit in the district court in Minnesota against the Minnesota Public
Utilities Commission ("Minnesota Commission") to challenge the Minnesota
Commission's order asserting regulatory jurisdiction over Vonage and ordering
Vonage to comply with all state statutes and regulations relating to the
offering of telephone service in Minnesota. In October 2003, the district court
entered a permanent injunction in favor of Vonage. In January 2004, the court
denied a motion by the Minnesota Commission for reconsideration, and an appeal
to the U.S. Court of Appeals for the Eighth Circuit is pending. However, other
states are not bound by this decision and may reject the VoIP operator's
position and may seek to subject us to regulation.
If the FCC or any state determines to regulate VoIP, they may impose
surcharges, taxes, licensing or additional regulations upon providers of VoIP.
These surcharges could include access charges payable to local exchange carriers
to carry and terminate traffic, contributions to the Universal Service Fund or
other charges. In August 2004, the FCC issued a Notice of Proposed Rulemaking in
which it tentatively concluded that providers of VoIP services that the
Department of Justice, Federal Bureau of Investigation, and Drug Enforcement
Agency (collectively, "Law Enforcement") characterize as "managed" or "mediated"
are subject to the CALEA as telecommunications carriers under the "Substantial
Replacement Provision." The Substantial Replacement Provision describes the
unique definition of "telecommunications carrier" in CALEA to include entities
that provide "a replacement for a substantial portion of the local telephone
exchange service." Law Enforcement describes managed or mediated VoIP services
as those services that offer voice communications calling capability whereby the
VoIP provider acts as a mediator to manage the communication between its end
points and to provide call set up,
40
connection, termination, and party identification features, often generating or
modifying dialing, signaling, switching, addressing or routing functions for the
user. Law Enforcement distinguishes managed communications from "non-managed" or
"peer-to-peer" communications, which involve disintermediated communications
that are set up and managed by the end user via its customer premises equipment
or personal computer. In these non-managed, or disintermediated, communications,
the VoIP provider has minimal or no involvement in the flow of packets during
the communication, serving instead primarily as a directory that provides users'
Internet web addresses to facilitate peer-to-peer communications. In this
proceeding, the FCC has requested comment on the appropriateness of this
distinction between managed and non-managed VoIP communications for purposes of
CALEA.
Regulations requiring compliance with CALEA could also place a significant
financial burden on us. The imposition of any such additional fees, charges,
taxes, licenses and regulations on VoIP services could materially increase our
costs and may reduce or eliminate the competitive pricing advantage we seek to
enjoy.
In May 2005, the FCC adopted an Order and Notice of Proposed Rulemaking
that requires VoIP providers to supply enhanced emergency 911 ("E911") service.
On June 3, 2005, the FCC released the text of the First Report and Order and
Notice of Proposed Rulemaking in the E911 proceeding (the "E911 Order").
Previously, Texas and Connecticut Attorneys General filed lawsuits against
Vonage, accusing Vonage of not warning customers about limits to its 911
service. As a result of the E911 Order, VoIP service providers that interconnect
to the public switched telephone network ("Interconnected VoIP Providers") will
be required to mimic the 911 emergency calling capabilities offered by
traditional landline phone companies. All Interconnected VoIP Providers must
deliver 911 calls to the appropriate local public safety answering point
("PSAP"), along with call back number and location, where the PSAP is able to
receive that information. E911 must be included in the basic service offering;
it cannot be an optional or extra feature. The PSAP delivery obligation, along
with call back number and location information must be provided regardless of
whether the service is "fixed" or "nomadic." User registration of location is
permissible initially, although the FCC is committed to an advanced form of E911
that will determine user location without user intervention, one of the topics
of the further Notice of Proposed Rulemaking to be released.
Additionally, all Interconnected VoIP Providers must obtain affirmative
acknowledgement from all subscribers that they have been advised of the
circumstances under which E911 service may not be available. Further, an
Interconnected VoIP Provider must make it possible for customers to update their
address (i.e., change their registered location) via at least one option that
requires no equipment other than that needed to access the VoIP service. All
Interconnected VoIP Providers must comply with the requirements of the E911
Order within 120 days of the publication of the E911 Order in the Federal
Register, with the exception that the customer notification obligations must be
complied with within 30 days of the publication.
The E911 Order applies to certain of our products. Even with the E911
provisioned, the IP dialtone service provided by us is only as reliable as a
customer's underlying broadband data service and Internet service provider
(neither service is provided by us), and may not be suitable for use in all
emergency situations.
The E911 Order will increase our cost of doing business and may adversely
affect our ability to deliver the VoIP telephony services to new and existing
customers in all geographic regions. We cannot guarantee that E911 service will
be available to all of our subscribers. There is also risk that specific E911
requirements may impede our ability to offer service in a manner that conforms
to these requirements. The E911 Order and subsequent orders or clarifications
could have a material adverse effect on our business, financial condition and
operating results.
State Regulation
Although VoIP services are presently largely unregulated by the state
governments, such state governments and their regulatory authorities may assert
jurisdiction over the provision of intrastate IP communications services where
they believe that their telecommunications regulations are broad enough to cover
regulation of IP services. A number of state regulators have recently taken the
position that VoIP providers are telecommunications providers and must register
as such within their states. VoIP operators have resisted such registration on
the position that VoIP is not, and should not be, subject to such regulations
because VoIP is an information service, not a telecommunication service and
because VoIP is interstate in nature, not intrastate. Various state regulatory
authorities have initiated proceedings to examine the regulatory status of
Internet telephony services, and in several
41
cases rulings have been obtained to the effect that the use of the Internet to
provide certain intrastate services does not exempt an entity from paying
intrastate access charges in the jurisdictions in question. However, in the
Vonage MO&O, the FCC found that the characteristics of Vonage's DigitalVoice
service preclude any practical identification of, and separation into,
interstate and intrastate communications for purposes of effectuating a dual
federal/state regulatory scheme. Therefore, because it is a jurisdictionally
mixed service, the FCC has exclusive jurisdiction under the Act to determine the
policies and rules, if any, that govern the interstate aspect of DigitalVoice
service. In fact, the FCC stated that multiple state regulatory regimes would
likely violate the Commerce Clause because of the unavoidable effect that
regulation on an intrastate component would have on interstate use of the
service. As state governments, courts, and regulatory authorities continue to
examine the regulatory status of Internet telephony services, they could render
decisions or adopt regulations affecting providers of VoIP or requiring such
providers to pay intrastate access charges or to make contributions to universal
service funding. Should the Commission determine to regulate IP services, states
may decide to follow the FCC's lead and impose additional obligations as well.
Other Regulation
The regulatory treatment of IP communications outside the United States
varies significantly from country to country. Some countries currently impose
little or no regulation on Internet telephony services, as in the United States.
Other countries, including those in which the governments prohibit or limit
competition for traditional voice telephony services, generally do not permit
Internet telephony services or strictly limit the terms under which those
services may be provided. Still other countries regulate Internet telephony
services like traditional voice telephony services, requiring Internet telephony
companies to make various telecommunications service contributions and pay other
taxes. We may incur substantial liabilities for expenses necessary to comply
with these laws and regulations or penalties for any failure to comply.
Compliance with these laws and regulations may also cause us to have to change
or limit our business practices in a manner adverse to our business.
More aggressive regulation of Internet telephony providers and VoIP
services may adversely affect our VoIP business operations, and ultimately our
financial condition, operating results and future prospects.
Certain Other Regulation Affecting The Internet
Today, there are still relatively few laws specifically directed towards
online services. However, due to the increasing popularity and use of the
Internet and online services, many laws and regulations relating to the Internet
are being debated at all levels of governments around the world and it is
possible that such laws and regulations will be adopted. It is not clear how
existing laws governing issues such as property ownership, copyrights and other
intellectual property issues, taxation, libel and defamation, obscenity, and
personal privacy apply to online businesses. The vast majority of these laws
were adopted prior to the advent of the Internet and related technologies and,
as a result, do not contemplate or address the unique issues of the Internet and
related technologies. In the United States, Congress has recently adopted
legislation that regulates certain aspects of the Internet, including online
content, user privacy and taxation. In addition, Congress and other federal
entities are considering other legislative and regulatory proposals that would
further regulate the Internet. Congress has, for example, considered legislation
on a wide range of issues including Internet spamming, database privacy,
gambling, pornography and child protection, Internet fraud, privacy and digital
signatures. For example, Congress recently passed and the President signed into
law several proposals that have been made at the U.S. state and local level that
would impose additional taxes on the sale of goods and services through the
Internet. These proposals, if adopted, could substantially impair the growth of
e-commerce, and could diminish our opportunity to derive financial benefit from
our activities. For example, in December 2004, the U.S. federal government
enacted the Internet Tax Nondiscrimination Act (the "ITNA"). While the ITNA
generally extends through November 2007 the moratorium on taxes on Internet
access and multiple and discriminatory taxes on electronic commerce, it does not
affect the imposition of tax on a charge for voice or similar service utilizing
Internet Protocol or any successor protocol. In addition, the ITNA does not
prohibit federal, state, or local authorities from collecting taxes on our
income or from collecting taxes that are due under existing tax rules. Various
states have adopted and are considering Internet-related legislation. Increased
U.S. regulation of the Internet, including Internet tracking technologies, may
slow its growth, particularly if other governments follow suit, which may
negatively impact the cost of doing business over the Internet and materially
adversely affect our business, financial condition, results of operations and
future prospects. Legislation has also been proposed that would clarify the
regulatory status of VoIP service. The Company
42
has no way of knowing whether legislation will pass or what form it might take.
Domain names have been the subject of significant trademark litigation in the
United States and internationally. The current system for registering,
allocating and managing domain names has been the subject of litigation and may
be altered in the future. The regulation of domain names in the United States
and in foreign countries may change. Regulatory bodies are anticipated to
establish additional top-level domains and may appoint additional domain name
registrars or modify the requirements for holding domain names, any or all of
which may dilute the strength of our names. We may not acquire or maintain our
domain names in all of the countries in which our websites may be accessed, or
for any or all of the top-level domain names that may be introduced.
Internationally, the European Union has also enacted several directives
relating to the Internet. The European Union has, for example, adopted a
directive that imposes restrictions on the collection and use of personal data.
Under the directive, citizens of the European Union are guaranteed rights to
access their data, rights to know where the data originated, rights to have
inaccurate data rectified, rights to recourse in the event of unlawful
processing and rights to withhold permission to use their data for direct
marketing. The directive could, among other things, affect U.S. companies that
collect or transmit information over the Internet from individuals in European
Union member states, and will impose restrictions that are more stringent than
current Internet privacy standards in the U.S. In particular, companies with
offices located in European Union countries will not be allowed to send personal
information to countries that do not maintain adequate standards of privacy.
Compliance with these laws is both necessary and difficult. Failure to comply
could subject us to lawsuits, fines, criminal penalties, statutory damages,
adverse publicity, and other losses that could harm our business. Changes to
existing laws or the passage of new laws intended to address these privacy and
data protection and retention issues could directly affect the way we do
business or could create uncertainty on the Internet. This could reduce demand
for our services, increase the cost of doing business as a result of litigation
costs or increased service or delivery costs, or otherwise harm our business.
Other laws that reference the Internet, such as the European Union's Directive
on Distance Selling and Electronic Commerce has begun to be interpreted by the
courts and implemented by the European Union member states, but their
applicability and scope remain somewhat uncertain. Regulatory agencies or courts
may claim or hold that we or our users are either subject to licensure or
prohibited from conducting our business in their jurisdiction, either with
respect to our services in general, or with respect to certain categories or
items of our services. In addition, because our services are accessible
worldwide, and we facilitate VoIP telephony services to users worldwide, foreign
jurisdictions may claim that we are required to comply with their laws. For
example, the Australian high court has ruled that a U.S. website in certain
circumstances must comply with Australian laws regarding libel. As we expand our
international activities, we become obligated to comply with the laws of the
countries in which we operate. Laws regulating Internet companies outside of the
U.S. may be less favorable than those in the U.S., giving greater rights to
consumers, content owners, and users. Compliance may be more costly or may
require us to change our business practices or restrict our service offerings
relative to those in the U.S. Our failure to comply with foreign laws could
subject us to penalties ranging from criminal prosecution to bans on our
services.
WHERE YOU CAN FIND MORE INFORMATION ABOUT THEGLOBE
theglobe files annual, quarterly and special reports, proxy statements and
other information with the SEC. These materials can be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, New York, New York 10048. Copies of these materials can also be obtained
from the SEC at prescribed rates by writing to the Public Reference Section of
the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC maintains a
World Wide Web site at http://www.sec.gov that contains annual and quarterly
reports, proxy and other information that are filed electronically with the SEC.
43
ANNEX A
(the Asset Purchase Agreement, as Amended)
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is entered into as of August 10, 2005, by
and between RelationServe Media, Inc., a Nevada corporation, or a designated
subsidiary thereof (the "BUYER"), theglobe.com, inc., a Delaware corporation
("GLOBE") and SendTec, Inc., a Florida corporation ("SELLER").
WHEREAS, Seller is engaged in the direct-response marketing business;
WHEREAS, Seller is a wholly-owned subsidiary of Globe;
WHEREAS, Seller and Globe desire that Seller sell, and Buyer desires to
purchase, substantially all of the business and assets of Seller (the
"BUSINESS") on the terms and conditions set forth in this Agreement; and
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants contained herein and intending to be legally bound, Buyer and
Seller hereby agree as follows:
ARTICLE 1. SALE AND TRANSFER OF ASSETS.
1.1. Acquired Assets. Subject to the terms and conditions set forth
herein, including, without limitation, satisfaction or waiver of the conditions
set forth in Sections 9 and 10 hereof, at the Closing (as defined herein),
Seller shall sell, convey, assign, transfer and deliver to Buyer, and Buyer
shall purchase from Seller, all of Seller's right, title and interest in, to and
under the business, rights, claims and assets (of every kind, nature and
description, whether tangible or intangible, whether accrued, contingent or
otherwise, and wherever situated and whether or not reflected on the books and
records of Seller) relating to or used in connection with, or necessary for the
conduct of, the Business, except the Excluded Assets (as defined herein) (the
"ACQUIRED ASSETS"), free and clear of any and all liens, security interests,
claims, charges, options, mortgages, debts, leases (or subleases), conditional
sales agreements, title retention agreements, material defects as to title or
restrictions against the transfer or assignment thereof and encumbrances of any
kind (collectively, "ENCUMBRANCES") except for such Encumbrances listed on
Schedule 1.1 hereto ("PERMITTED ENCUMBRANCES"). The Acquired Assets shall
include, without limitation, the following:
(a) All tangible assets used in or necessary to the Business,
whether owned or leased and whether located on the property of the
Business or elsewhere, including, without limitation, all manufacturing,
production, maintenance, testing and other machinery, motor vehicles,
furniture, computers, printers and office equipment;
(b) All intangible assets used or useful in or necessary to the
Business, including, without limitation: the name "SendTec" and all
derivations thereof, all trade names, domain names, websites, service
marks names, trade dress, logos, trade secrets, copyrights, designs,
technical information, know-how, processes, techniques, research and
development information, supplies, plans, proposals, technical data,
computer software, financial, marketing and business data, pricing and
cost information, business and marketing plans, formulas, devices,
software or compilations of information; all patents, license rights and
sublicense rights to all
patents and trademarks, and other intangible assets registered in the name
of Seller and currently used or proposed to be used by Seller or any of
its Affiliates in connection with, or necessary or useful for the conduct
of the Business, all registrations and applications therefore and all
licenses (as licensee or licensor) and other agreements related thereto
(the "INTELLECTUAL PROPERTY") all of which are listed on Schedule 5.11(a)
hereto, and all of Seller's rights to use or allow others to use such
Intellectual Property and all claims for infringement of any Intellectual
Property, and intangible rights relating thereto;
(c) All current customer or client lists, files, documentation,
records and related documentation used in connection with the Business,
all of which customers (but not other information) are listed on Schedule
1.1(c) hereto;
(d) All of Seller's rights to the products, services and product or
service line extensions of the Business, whether now existing or currently
under development;
(e) All of the Seller's rights and interests arising under or in
connection with Contracts (as defined in Section 5.14 hereof), all of
which are listed on Schedule 1.1(e) hereto;
(f) All franchises, licenses, permits, consents, authorizations,
approvals and certificates, or any waiver of the foregoing, required by
any person or organization including any Governmental Authority (as
defined herein), held, used or otherwise possessed by Seller in connection
with and/or necessary to the operation of the Business, to the extent
transferable to Buyer under applicable laws, all of which are listed on
Schedule 1.1(f) (the "PERMITS");
(g) All leases of equipment, machinery or other tangible personal
property used in connection with and/or necessary to the operation of the
Business, all of which are listed on Schedule 1.1(g) (the "PERSONAL
PROPERTY LEASES" and the personal property subject to such leases to the
extent of Seller's leasehold interest therein);
(h) All leases of real property used in connection with and/or
necessary to the operation of the Business as listed on Schedule 1.1(h)
(the "REAL PROPERTY LEASES", and the real property subject to such leases
to the extent of Seller's leasehold interest therein, the "LEASED REAL
PROPERTY");
(i) All goodwill and going concern value associated with the
Business;
(j) All books of account, general, financial, Tax (as defined
herein) and personal records, property records, purchasing and sales
records, credit and collections records, personnel and payroll records,
invoices, shipping records, warranties on all services, supplies and
equipment, correspondence and other documents, files, papers, mailing
lists, customer, licensee, representative and vendor lists, and all
computer software, programs and data and any rights thereto owned,
associated with or employed by Seller or its Affiliates used in, or
relating to, the Business;
(k) All rights with respect to unemployment, workers' and workmen's
compensation, and other similar insurance reserves and rebates relating to
Transferred Employees (as defined herein);
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(l) All amounts owing Seller or any of its Affiliates as of the
Closing for services or products provided by the Business prior to the
Closing, whether or not an invoice for such services or products has been
submitted, including, without limitation, prepaid assets and expenses,
insurance allocations, travel advances, rent and utility deposits and
deposits for goods and services relating to the operation of the Business
(the "ACCOUNTS RECEIVABLE") as listed on Schedule 1.1(l);
(m) All cash, commercial paper, cash equivalents and marketable
securities of the Business on hand or in any bank accounts or securities
accounts owned by Seller, each of which is listed on Schedule 1.1(m).
(n) All customer deposits of the Business owned by Seller;
(o) All information services systems and computer hardware and
software of the Business;
(p) All sales data, including all sales representatives, account
books, logs and other documents reflecting sales strategies and
appointments and suppliers' names of the Business and all sales and
promotional materials used by Seller in connection with the Business;
(q) All of Seller's inventories of the Business existing on the
Closing Date (as defined herein), including but not limited to,
disposables, spare parts, materials, works-in-process, active shipments,
ordered goods and supply items, that are (i) held for sale or rent, (ii)
used in connection with the sale or rental or other Acquired Assets, (iii)
parts used in the repair of Acquired Assets, or (iv) held by a third party
under a rental arrangement whether located on the premises of either
Seller, in transit to or from such premises, in warehouses, in premises of
manufacturers (collectively "INVENTORY");
(r) All claims, causes of action, rights of recovery and rights of
set-off of any kind (including rights to insurance proceeds, indemnity
claims and rights under and pursuant to all warranties, service contracts,
representations and guaranties made by suppliers of products, materials or
equipment, or components thereof and third-party service providers),
pertaining to or arising out of, the Business and inuring to the benefit
of Seller with respect to the Business;
(s) All products, ideas or concepts of the Seller under research on
or prior to the Closing Date that relate to the Business;
(t) All other assets, properties, rights and business of every kind
and nature owned or held by Seller or its Affiliates which are used in the
Business, or in which Seller has an interest, known or unknown, fixed or
unfixed, choate or inchoate, accrued, absolute, contingent or otherwise,
whether or not specifically referred to in this Agreement, except the
Excluded Assets.
1.2. Excluded Assets. Notwithstanding the foregoing, the following assets
relating to the Business are being retained by Seller, are expressly excluded
from the purchase and sale contemplated hereby, and, as such, are not included
in the Acquired Assets (the "EXCLUDED ASSETS"):
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(i) All property and assets of Seller that are not related to
the Business;
(ii) All insurance policies, other than rights to receive
proceeds of insurance policies related to the Acquired Assets or the
Business, and all rights of offset, counterclaims and insurance
coverage thereunder;
(iii) All severance, pension, retirement and other employee
benefit plans other than the right to any refunds or reimbursements
thereunder;
(iv) All rights of Seller with respect to the claims, refunds,
causes of action, rights of recovery, rights of set-off and all
other rights and assets of every kind and nature related to the
Excluded Liabilities (as defined below);
(v) All monies to be received by Seller and all other rights
of Seller under this Agreement including, without limitation, the
Purchase Price (as defined herein) and the other agreements,
documents, and instruments executed or delivered in connection with
this Agreement; and
(vi) The right to receive mail and other communications
addressed to Seller relating to any of the assets described in the
foregoing clauses (i) through (v) or the Excluded Liabilities.
ARTICLE 2. ASSUMPTION OF OBLIGATIONS.
2.1. Assumption of Certain Liabilities. Buyer is assuming only the
following liabilities and obligations of Seller, and Buyer and Seller agree that
there will be no other outstanding liabilities, to suppliers or otherwise, of
the Business assumed by Buyer, other than those listed in this Section 2.1:
(a) The liabilities reflected on the Balance Sheet and all other
liabilities of the Business incurred thereafter in the Ordinary Course;
and
(b) All other liabilities and obligations of the Business and the
Acquired Assets to the extent first arising or maturing (but only to the
extent so maturing) after the Closing Date.
The liabilities and obligations of Seller identified in subsections (a)
and (b) of this Section 2.1 are hereinafter collectively referred to as the
"ASSUMED LIABILITIES."
2.2. Liabilities Not Assumed. With the exception of the Assumed
Liabilities, Buyer shall not by execution and performance of this Agreement or
otherwise, assume or otherwise be responsible in any way for any liability or
obligation of any nature, whether absolute, contingent, accrued, or known or
unknown, of Seller or any Affiliate of Seller whether or not relating to the
Business.
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ARTICLE 3. PURCHASE PRICE.
The total purchase price for the Acquired Assets to be paid to Seller by
Buyer shall be Thirty-Seven Million Five Hundred Thousand Dollars ($37,500,000)
(the "PURCHASE PRICE") and shall be paid in the following manner:
3.1. Closing Payment. At the Closing (as defined herein), against delivery
of appropriate instruments of sale, transfer, conveyance and assignment with
respect to the Acquired Assets, Buyer shall deliver to Seller:
(a) Thirty-Six Million Five Hundred Thousand Dollars ($36,500,000)
to be paid as follows at Closing:
(i) Thirty-Five Million Five Hundred Thousand Dollars
($35,500,000) (the "CLOSING AMOUNT") to be paid in immediately
available funds by wire transfer to the bank account of Globe; and
(ii) One Million Dollars ($1,000,000) (the "ESCROW AMOUNT"),
which shall be released pursuant to the terms of the that certain
Escrow Agreement by and between Buyer, Globe and Proskauer Rose LLP
(the "ESCROW AGENT"), dated as of the date hereof, substantially in
the form of Exhibit A hereto (the "ESCROW AGREEMENT") and sent by
wire transfer to the bank account of Globe; and
(b) One Million Dollars in cash ($1,000,000) (the "Holdback Cash"),
which shall, together with the Escrowed Shares, be held by the Holdback
Escrow Agent pursuant to the terms of the Holdback Escrow Agreement (as
such terms are defined in Section 3.2 below).
3.2. Escrowed Shares.
(a) As additional protection for the Buyer in the event that the
Buyer suffers any Losses for which the Buyer is entitled to
indemnification hereunder, Globe shall, at the Closing, issue to the Buyer
and deposit with Olshan Grundman Frome Rosenzweig & Wolosky, LLP (the
"HOLDBACK ESCROW AGENT"), a number of shares of restricted common stock of
Globe (the "ESCROWED SHARES") having an aggregate value of Seven Hundred
and Fifty Thousand Dollars ($750,000) (valued at the average closing price
of Globe common stock over a trailing ten (10) day period prior to the
Closing, which shares shall be entitled to customary "piggyback"
registration rights). Unless and until any Escrowed Shares are released to
the Buyer pursuant to the Holdback Escrow Agreement (as defined below),
the Buyer may not sell, assign, pledge, encumber or otherwise transfer
such Escrowed Shares, nor shall the Buyer have the right to vote such
Escrowed Shares.
(b) Partial Release of Holdback Cash. On the first to occur of: (i)
the date that is six months after the Closing Date; or (ii) the date that
Buyer receives audited financial statements of the Business for the fiscal
year ended December 31, 2005 (the first of such dates being the "PARTIAL
RELEASE DATE"), the parties shall cause the Holdback Escrow Agent to
release from the Holdback Escrow Agreement (as defined below) and pay to
Globe the sum of Seven Hundred Fifty Thousand Dollars ($750,000) in cash;
provided, however, that if, on the Partial Release Date, the Buyer (A)
shall have sustained indemnifiable Losses in excess of $100,000 that have
already been satisfied by recourse against the Holdback Cash, (B) shall
have pending any good faith Claims for indemnifiable Losses that are
reasonably estimated by the Buyer to exceed
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$100,000 in the aggregate or (C) shall have pending any good faith Claims
for indemnifiable Losses that would, when Buyer's reasonable estimates
thereof are aggregated with any indemnifiable Losses sustained by Buyer
that have already been satisfied by recourse against the Holdback Cash,
exceed $100,000, then such $750,000 sum shall not be paid to Globe on the
Partial Release Date and the entire balance of the Holdback Cash remaining
on the Partial Release Date shall continue to be held and disbursed by the
Holdback Escrow Agent pursuant to the terms of the Holdback Escrow
Agreement.
(c) Holdback Escrow Agreement. The Holdback Cash and the Escrowed
Shares shall be held by the Holdback Escrow Agent pursuant to an Escrow
Agreement substantially in the form of Exhibit B hereto (the "HOLDBACK
ESCROW AGREEMENT") during the Indemnification Period (as defined herein).
At the expiration of the Indemnification Period, (i) the then remaining
balance of the Holdback Cash shall be paid to Globe and (ii) the then
remaining number of Escrowed Shares shall be returned to Globe, whereupon
such Escrowed Shares shall be cancelled and shall cease to be issued and
outstanding. The Holdback Cash and Escrowed Shares shall not, to the
extent permitted by law, be subject to claims of any creditors of Globe or
Seller.
(d) Globe's Election. In the event that the Buyer suffers any
Loss(es), for which the Buyer is entitled to indemnification hereunder for
which the Holdback Cash shall not be sufficient to fully indemnify Buyer
as provided in Article 11, Buyer shall have the right at the time of
payment of any such Claim(s) to payment of the deficit by transfer to
Buyer by the Holdback Escrow Agent of such number of the Escrowed Shares
that shall have an aggregate Fair Market Value that is sufficient to pay
such deficit. If the Fair Market Value of the Escrowed Shares is less than
the amount required to be remitted to Buyer, then Seller and Globe shall
be jointly and severally liable and shall be required at the time required
for payment of such Claim(s) to immediately pay to the Buyer the
difference between the Fair Market Value of the Escrowed Shares (or the
then remaining Escrowed Shares) and the amount of such Loss(es) payable in
respect of such Claim(s) (such difference, the "Share Value Deficit");
provided, however, that in no event shall more than an aggregate of
$750,000 in value (whether in the transferred Escrowed Shares' Fair Market
Value or in cash required to fund a Share Value Deficit) be payable in
respect of any Loss(es) that cumulatively become payable for which the
Holdback Cash shall not be sufficient to fully indemnify as provided in
Article 11. In addition, in the event that the Buyer suffers any Loss(es)
for which Buyer is entitled to indemnification hereunder for which the
Escrowed Shares shall be paid to Buyer, Globe shall have the right to
elect to pay all or a portion of such Loss(es) in cash in lieu of Escrowed
Shares, provided, further, that Globe (i) gives prompt written notice of
such election to Buyer prior to delivery of the Escrowed Shares to Buyer
by the Holdback Escrow Agent, and (ii) pays to Buyer by wire transfer of
immediately available funds an amount equal to the Fair Market Value of
the Escrowed Shares that would have been released to Buyer had Globe not
elected to pay such Loss(es) in cash.
3.3. Adjustments to Purchase Price.
(a) Closing Date Balance Sheet Adjustment. The Purchase Price shall
be adjusted at Closing in accordance with the Closing Date Balance Sheet,
as defined below, to the
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extent that Seller's Net Working Capital as reflected on the Closing Date
Balance Sheet is more than or less than $0.
(b) Closing Date Balance Sheet. Seller shall prepare and deliver an
estimated balance sheet dated as of the Closing Date (the "CLOSING DATE
BALANCE SHEET"), as soon as practical, but in all cases, within one (1)
Business Day (as defined herein) prior to the Closing Date. Such Closing
Date Balance Sheet shall be prepared by Seller's accountants in accordance
with GAAP applied consistently with past accounting practices of Seller.
If the Closing Date Balance Sheet establishes that Seller's Net Working
Capital is more or less than $0, then, in that event, the Purchase Price
shall be increased or decreased dollar-for-dollar (the "ADJUSTMENT") by
the amount of the excess or deficiency. Thus, for example, if the Closing
Date Balance Sheet shows Net Working Capital of $250,000, the Purchase
Price shall be increased by $250,000. If, on the other hand, the Closing
Date Balance Sheet shows Net Working Capital of less than $0, the Purchase
Price shall be reduced to the extent of such deficit.
3.4. Post-Closing Audit Adjustment. Buyer shall direct the preparation of
an audit of the Closing Date Balance Sheet and shall deliver the same to the
Globe and Seller prior to March 31, 2006. To the extent that the audited Closing
Date Balance Sheet shows a different Net Working Capital as of the Closing Date
than the estimate previously prepared by Seller, Globe and Seller shall be
responsible to pay to Buyer the amount of any deficit by which Net Working
Capital is less than the estimate, and Buyer shall pay to Seller, any greater
amount by which the audited Closing Date Balance Sheet Net Working Capital
exceeds the estimate within 15 days of delivery of the audited Closing Date
Balance Sheet to Seller.
3.5. Allocation of Purchase Price. The parties hereto agree that the
taxable purchase of the Acquired Assets shall be an "applicable asset
acquisition" governed by Section 1060 of the Code. The parties hereto further
agree that the Purchase Price shall be allocated in accordance with Schedule 3.5
hereto (as may be later adjusted in accordance with Section 3.3). Each of Buyer
and Seller agrees to complete IRS Form 8594 consistently with such allocation
and, if requested by the other, to furnish the other with a copy of such Form
prepared in draft form no less than 45 days prior to the filing due date of such
Form. None of Buyer, Seller or Seller's Affiliates shall file any return or take
a position with any taxing authority or in connection with any tax related
litigation that is inconsistent with this Section 3.5, unless required to do so
pursuant to a determination within the meaning of Section 1313(a) of the
Internal Revenue Code (the "CODE").
ARTICLE 4. CLOSING.
4.1. Closing. The closing of the transactions contemplated hereby (the
"CLOSING") shall be held at such date, time and place as Buyer and Seller
mutually agree but in any event prior to October 31, 2005 (the "CLOSING DATE").
4.2. Deliveries at Closing. Upon satisfaction or waiver of all conditions
set forth herein, at the Closing:
(a) Seller shall duly execute and deliver to the Buyer bills of sale
and instruments of assignment and transfer as may be necessary to vest in
the Buyer good and
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marketable title to all of the Acquired Assets, in each case subject to no
Encumbrance, and for assumption of the Assumed Liabilities.
(b) The Buyer shall deliver or cause to be delivered the Closing
Amount to Seller.
(c) The Escrow Amount shall be released to Seller pursuant to the
terms of the Escrow Agreement.
(d) The Holdback Amount shall be delivered into escrow for the
Indemnification Period under the Holdback Escrow Agreement.
(e) Each of the parties thereto shall execute and deliver each of
the documents, instruments or agreements required to be executed and
delivered pursuant to Sections 9 and 10 hereof.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF SELLER AND GLOBE. The Seller
and Globe, jointly and severally, represent and warrant to the Buyer as of the
date hereof (except as otherwise indicated) as follows, provided, however, that
Seller's and Globe's representations and warranties contained in Section 5.3(b)
or (c) (as it relates to Seller and/or the Business), 5.5 (as it relates to
Seller and/or the Business) 5.6, 5.7, 5.8, 5.9 (as it relates to Seller and/or
the Business), 5.10 (as it relates to Seller and/or the Business) 5.11, 5.12,
5.13, 5.14, 5.15, 5.16 (as it relates to Seller and/or the Business), 5.17,
5.18, 5.19 and 5.20 (collectively, the "Operational Representations") shall not
be deemed to have been made upon execution by Globe hereof, and shall only be
deemed made when, and if, comparable representations and warranties are made by
Seller Management (as defined in Section 9.11) to Globe (and as to which
representations and warranties by Seller Management Buyer shall also be entitled
to rely upon hereunder provided, however, neither Seller nor Globe shall be
required to obtain Seller Management consent to any such reliance), which may be
made in the Globe Redemption Agreement (as defined in Section 9.10) or in any
another document or agreement, relating to such matters, and upon obtaining such
management representations, the Operational Representations shall be deemed to
be made by Globe:
5.1. Organization; Authority. (a) Globe is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the State of Florida (i.e., Seller is organized and its status
is "active"). Seller and Globe are each duly licensed or qualified to do
business as a foreign entity, and are each in good standing in each jurisdiction
where such qualification is necessary as listed on Schedule 5.1, which, with
respect to Seller, are the only jurisdictions in which qualifications are
required in connection with the operation of the Business. True and complete
copies of the charter and bylaws, including any amendments thereto through the
date hereof (certified as of a recent date hereof by the Secretary of each
Seller), of each of Seller and Globe have been delivered to Buyer.
(b) Seller and Globe each have all requisite corporate power and
authority to (i) execute and deliver this Agreement, the other Transaction
Documents to which each is a party (the "SELLER TRANSACTION DOCUMENTS")
and any related agreements to which either of them is a party and to
perform the transactions contemplated hereby and thereby (the
"CONTEMPLATED
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TRANSACTIONS"), (ii) to use its corporate name, (iii) to operate its
business and to carry on its business as presently conducted, and (iv) to
own, lease and otherwise hold its properties and assets. All of the issued
and outstanding capital stock of Seller is owned beneficially and of
record by Globe.
5.2. Authority Relative to the Transaction Documents. Seller and Globe
have all requisite corporate authority and power to execute and deliver this
Agreement and the other Seller Transaction Documents to which it is or will
become a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the other Seller
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by all required
corporate and stockholder action on the part of Seller and by all required
corporate and stockholder action on the part of Globe and no other corporate,
shareholder or other proceedings on the part of Seller or Globe (other than
stockholder approval by the stockholders of Globe) are necessary to authorize
this Agreement or the other Seller Transaction Documents or to consummate the
Contemplated Transactions. The Seller Transaction Documents have been duly and
validly executed and delivered by Seller and Globe as applicable, and, assuming
the Seller Transaction Documents have been duly authorized, executed and
delivered by Buyer, the Seller Transaction Documents constitute the valid and
binding agreement of Seller and Globe enforceable against Seller and Globe in
accordance with their terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally, including the
effect of statutory and other laws regarding fraudulent conveyances and
preferential transfers and subject to the limitations imposed by general
equitable principles (regardless whether such enforceability is considered in a
proceeding at law or in equity).
5.3. Non-Contravention. Except as listed on Schedule 5.3, the execution
and delivery by Seller and Globe of this Agreement and the Seller Transaction
Documents and the consummation by the Seller and Globe of the Contemplated
Transactions will not (a) violate or conflict with any provision of their
respective charters or bylaws, each as amended to date; (b) conflict with or
result in the breach or termination of (or constitute a default for any event
which, with notice or lapse of time or both would constitute a default) under,
or give to others any rights of termination or cancellation of, or accelerate
the performance required by, or maturity of, or result in the creation of any
Encumbrance pursuant to any of the terms, conditions or provisions of, any
Contract which either Seller or Globe is a party; (c) constitute a violation of,
or be in conflict with, or constitute or create a default under, or result in
the creation or imposition of any Encumbrance; or (d) violate any statute, law,
ordinance, guideline, interpretation, judgment, decree, order, regulation or
rule of any Governmental Authority (as defined herein). The execution and
delivery of this Agreement by Seller and Globe and the performance of this
Agreement, the Seller Transaction Documents and the related or Contemplated
Transactions by Seller and Globe will not require filing or registration with,
or the issuance of any Permit by, any Person or Governmental Authority under any
applicable Law (other than any obligations to file an Information Statement and
other reports as required by the Exchange Act (as defined herein) or any
contracts to which Seller and Globe is a party. The Contemplated Transactions
will not violate or conflict with any contract, agreement, or understanding
relating to the acquisition of Seller by Globe.
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5.4. Compliance with Law. Except as set forth on Schedule 5.4, the
Business has been conducted in accordance with all applicable Laws (except, in
each such case, for any non-compliance that individually or in the aggregate has
not had, and would not reasonably be expected to have, a Material Adverse
Effect). Seller has complied with, and is in compliance with (a) all Laws
applicable to Seller or any of its properties and (b) all terms and provisions
of all Contracts to which Seller is a party, or to which the Acquired Assets or
the Business is subject (except, in each such case, for any non-compliance that
individually or in the aggregate has not had, and would not reasonably be
expected to have, a Material Adverse Effect). Except as set forth in Schedule
5.4 hereto, neither Seller nor Globe has committed, been charged with, or been
under investigation with respect to, nor does there exist, any violation of any
provision of any Law with respect to the Acquired Assets or the Business.
Neither the Seller nor Globe is subject to any decree, injunction, judgment,
order, ruling, assessment or writ issued by any Governmental Authority which
could impair its ability to consummate the transactions contemplated hereby or
adversely affect Buyer's ownership of the Acquired Assets or conduct of the
Business from and after Closing.
5.5. SEC Documents; Financial Statements. (a) Since August 30, 2004, Globe
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the Securities and Exchange Commission ("SEC") pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT") (all of the foregoing filed prior to the date hereof and
all exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS"). As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements included
in the SEC Documents ("SEC FINANCIAL STATEMENTS") complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. The SEC Financial
Statements have been prepared in accordance with generally accepted accounting
principles in the United States ("GAAP"), consistently applied during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of Seller and Globe (as it relates to Seller and the Business) as of
the dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). As at the respective dates of the SEC Financial
Statements, there were no material liabilities or obligations of Seller (whether
absolute or contingent) except for those liabilities and obligations reflected
on or adequately reserved for therein. To the knowledge of the executive
officers of Globe, no information provided by or on behalf of Seller to Buyer or
which is included in the SEC Documents contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they are or were
made, not misleading.
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(b) Certain Financial Information. Globe has delivered to Buyer
complete and correct copies of (i) audited financial statements for Seller
as of and for the calendar year ended December 31, 2004 and the related
statements of income and cash flows for the periods ending on such date;
and (ii) the unaudited financial statements for Seller as of and for the
6-month period ended June 30, 2005 (the "BALANCE SHEET DATE") and the
related statements of income and cash flows for the periods ending on such
dates (the "SELLER FINANCIAL STATEMENTS", and together with the SEC
Financial Statements, the "FINANCIAL STATEMENTS"), copies of which are
attached as Exhibit 5.8(b) hereto. The unaudited balance sheet of Seller
as of the Balance Sheet Date is hereinafter referred to as the "BALANCE
SHEET". Each of the Seller Financial Statements has been prepared in
accordance with GAAP, applied on a consistent basis throughout the
relevant periods (except as may be otherwise indicated in such Seller
Financial Statements or the notes thereto), and fairly presents in all
material respects the assets, liabilities and financial position of Seller
as of such dates and for the periods indicated subject, in the case of
unaudited financial statements, to normal year end adjustments. Since the
Balance Sheet Date, there has been no change in any of the significant
accounting policy practices or procedures of Seller or Globe.
5.6. Absence of Certain Changes and Events. Since the Balance Sheet Date,
Seller's business has been conducted only in the ordinary course of business
consistent with past practice of Seller (the "ORDINARY Course"). Without
limiting the foregoing, except as set forth on Schedule 5.6, since the Balance
Sheet Date, there has not been, occurred or arisen:
(a) any material adverse change in the operations (as now conducted
or as presently proposed to be conducted), assets, liabilities, earnings,
business, properties, rights, net worth, or condition (financial or
otherwise) of Seller, nor are any such changes threatened, anticipated or
contemplated;
(b) any sale, lease or other disposition of any properties or assets
of Seller, or any transaction that is material to the business of Seller
entered into or carried out, except in the Ordinary Course;
(c) any material change made in the methods of doing business, nor
has a Material Adverse Effect in the accounting principles or practices or
the method of application of such principles or practices used by Seller
or any change in depreciation or amortization policies or rates
theretofore adopted occurred;
(d) any Encumbrance imposed or agreed to be imposed on or with
respect to any of the Acquired Assets or capital stock of Seller, other
than the Permitted Encumbrances;
(e) any modification, waiver, change, amendment, release, rescission
or termination of, or accord and satisfaction with respect to, any
material term, condition or provision of any Contract (as defined herein),
other than any satisfaction by performance in accordance with the terms
thereof in the Ordinary Course;
(f) any actual, threatened, anticipated or contemplated casualty,
loss, damage or destruction (whether or not covered by insurance),
conversion, termination, cancellation, default or taking by eminent domain
or other action by any Governmental Authority that has had or could
reasonably be expected to have a Material Adverse Effect;
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(g) any adverse pending, threatened, anticipated or contemplated
dispute of any kind with any contractor, subcontractor, customer,
supplier, source of financing, employee, landlord, subtenant or licensee
of Seller that is reasonably likely to result in any material reduction in
the amount, or any change in the material terms or conditions, of business
with any material customer, supplier or source of financing of Seller;
(h) any increase, other than in the Ordinary Course, in the
compensation payable or to become payable to any of Seller's officers,
employees, agents or consultants (including, without limitation, any
increase pursuant to any bonus, pension, profit-sharing or other plan or
commitment), or the entering into with or modification of any employment
contract or other agreement concerning the compensation of any officer, or
employee, or the making of any loan to, or engagement in any transaction
with, any officers, directors or shareholders of Seller, or the
establishment of any new, or the modification of any existing, employee
benefit, compensation or stock plan of Seller that affects the employees
of Seller;
(i) capital expenditures or commitments therefore by Seller in
excess of $10,000 in the aggregate for additions, alterations or
modifications to the property, plant or equipment of Seller;
(j) the incurrence of any material obligation or liability (whether
absolute, accrued, contingent or otherwise and whether due or to become
due) or the incurrence or entering into of any transaction, contract or
commitment by Seller with respect to its business, other than items
incurred or entered into (as the case may be) in the Ordinary Course;
(k) any payment, discharge or satisfaction of any claim, Encumbrance
or liability by Seller other than in the Ordinary Course (whether
absolute, accrued, contingent or otherwise and whether due or to become
due);
(l) any labor trouble, problem or grievance that has had or could
reasonably be expected to have a Material Adverse Effect;
(m) any license, sale, transfer, pledge, mortgage or other
disposition of any tangible or intangible asset or Intellectual Property
of Seller other than in the Ordinary Course;
(n) any cancellation of any Indebtedness (as defined herein) or
claims or any amendment, termination, diminution or waiver of any rights
of material value to Seller;
(o) any change in the customers or the personnel of Seller other
than such routine changes which occur in the Ordinary Course;
(p) any material decrease in the level of maintenance of any
material tangible assets of Seller from that level generally in effect
prior to the date hereof;
(q) any material failure to operate the business of Seller in the
Ordinary Course, including, but not limited to, any failure by Seller to
make capital expenditures or investments in Seller or any failure to pay
trade accounts payable consistent with past practice;
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(r) any pending, threatened, anticipated or contemplated occurrence
or situation of any kind, nature or description (including, without
limitation, the enactment of any Laws (as defined herein)) that has had or
could reasonably be expected to have a Material Adverse Effect; and
(s) any agreement or understanding, whether in writing or otherwise,
for Seller to take any of the actions specified in (a) through (r) above.
5.7. Title to Properties.
(a) Acquired Assets. Seller has, and is transferring to Buyer, good,
clear and valid record and marketable title to, and possession of, all of
the Acquired Assets owned by Seller, free and clear of any Encumbrances
(other than Permitted Encumbrances). Seller has, and is transferring to
Buyer, valid and subsisting leasehold interests or licenses in, and
possession of, all of the Acquired Assets that are leased by Seller.
Seller has the full right, power and authority to sell, convey, transfer,
assign and deliver the Acquired Assets, without the need to obtain the
consent or approval of any third party, except as listed on Schedule
5.7(a). At and as of the Closing, Seller will convey the Acquired Assets
to Buyer by deeds, bills of sale, certificates of title and other
instruments of assignment and transfer effective in each case to vest in
Buyer, and Buyer will have, good and valid record and marketable title to
all of the Acquired Assets, free and clear of any and all Encumbrances,
except for Permitted Encumbrances. The Acquired Assets are, in all
material respects, in good condition and repair and are adequate and
sufficient for Seller's intended purposes, ordinary wear and tear
excepted. The Acquired Assets will transfer to Buyer under this Agreement
(and other documents contemplated hereby), and constitute, all of the
material assets and properties (personal and mixed, tangible and
intangible) and rights necessary or desirable to permit Buyer to conduct
the Business consistent with Seller's past business practice.
(b) Leases. (i) Schedule 1.1(h) contains a list of all material
agreements under which real property is leased by Seller and used in
connection with the Business. All of the Leased Real Property including
any buildings, structures and appurtenances thereon, are, to Seller's
knowledge, in good operating condition and repair, are in such condition
as to permit surrender by Seller to the lessors thereof without any
material cost or expense for repair or restoration if any of the Real
Property Leases were terminated on the date hereof, are adequate and
suitable for the uses for which intended by Seller, each has adequate
rights of ingress and egress for operation of the Business in the Ordinary
Course and there does not exist any condition that interferes in any
material may with the use or the economic value thereof.
(ii) Schedule 1.1(g) contains a list of all leases or material
agreements under which Seller, with respect to the Business, is
lessee of or holds or operates any items of machinery, equipment,
motor vehicles, computer equipment, printers, office furniture or
fixtures owned by any third party, true, complete and correct copies
(or, in the case of oral leases or agreements, descriptions) of
which leases and agreements have been furnished to Buyer. Seller are
the owners and holders of all of the leasehold estates purported to
be granted by such leases or agreements and all other leases or
agreements under which Seller are lessee of or hold or operate any
such items owned by a third party, and each of such leases and
agreements is in full force and effect and constitutes a legal,
valid and binding obligation of the respective parties
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thereto enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the
enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered
in a proceeding at law or in equity. There is not under any of such
leases any existing default or, to the knowledge of Seller, event,
condition or occurrence which, with the giving of notice or lapse of
time, or both, would constitute a default thereunder. Except as
provided on Schedule 5.7(c)(ii) hereto, to Seller's knowledge, each
of the items of machinery, equipment, printers, office furniture and
fixtures covered by the Personal Property Leases is in good
operating condition and repair, is in such condition as to permit
surrender thereof by Seller to the lessors without any material cost
or expense for repair or restoration if such leases were terminated
on the date hereof, is suitable for the uses for which intended by
Seller in the Ordinary Course and there does not exist any condition
that interferes in any material way with the use or economic value
thereof.
5.8. Absence of Liabilities. Except for the Assumed Liabilities, and
except as set forth on Schedule 5.8 there are no material liabilities or
obligations of any nature (whether liquidated, unliquidated, accrued, absolute,
contingent or otherwise, and whether due or to become due) probable of assertion
relating to the Business except for:
(a) liabilities set forth or reflected (or reserved against) in the
Balance Sheet that have not been paid or discharged since the date
thereof;
(b) liabilities arising under agreements or other commitments listed
on Schedule 5.8(b) hereto;
(c) current liabilities arising in the Ordinary Course subsequent to
the Balance Sheet Date, that are accurately reflected on its books and
records in a manner consistent with past practice; or
(d) the Excluded Liabilities, which shall be retained by Seller.
5.9. Consents; Transferability of Licenses, Etc.
(a) Except as set forth on Schedule 5.9(a) hereto, no consent,
approval or authorization of, or registration, qualification or filing
with, any Person or Governmental Authority is required for the execution
and delivery by Seller and Globe of this Agreement and the Seller's
Transaction Documents or for the consummation by Seller of the
Contemplated Transactions. Except as set forth on Schedule 5.9(a), no
consent of any third party is required for the transfer of the Acquired
Assets as provided in this Agreement.
5.10. Litigation, etc. Except as set forth on Schedule 5.10 hereto, no
claim, action, suit, proceeding or investigation whether civil or criminal, in
law or equity, before any arbitration or Governmental Authority is pending or
threatened in writing: (i) against Seller, (ii) relating to or affecting the
ability of Seller to execute this Agreement or the Seller's Transaction
Documents or consummate the transactions contemplated herein or therein, or
(iii) which questions the validity of this Agreement or any of the Seller's
Transaction Documents or challenges any of the transactions contemplated hereby
or thereby, nor to Seller's and Globe's knowledge is there any basis for any
such action, suit, proceeding or investigation. None of the matters set forth in
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Schedule 5.10 hereto, either individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect.
5.11. Intellectual Property.
(a) Schedule 5.11(a) hereto sets forth a complete and accurate list
of all Intellectual Property, which is the only intellectual property or
other proprietary rights of any kind or nature necessary to permit Buyer
to carry on the business of Seller after the Closing as presently
conducted by Seller. Schedule 5.11(a) also includes a complete and
accurate list of all United States and foreign patent, copyright,
trademark, service mark, trade dress, domain name and other registrations
and applications, indicating for each the applicable jurisdiction,
registration number (or application number), and date issued or filed, and
all unregistered Intellectual Property. Except to the extent set forth in
Schedule 5.11(a), Seller owns or has the sole and exclusive right to use
all of the Intellectual Property used or necessary for use in connection
with the business of Seller as presently conducted or proposed to be
conducted, and the consummation of the transactions contemplated by the
Transaction Documents will not alter or impair any such right. All
Intellectual Property is valid, subsisting, in full force and effect,
enforceable and has not been abandoned as of the date hereof. Except as
has not or would not reasonably be expected to have a Material Adverse
Effect, Seller has taken all action necessary or desirable to maintain and
protect each item of Intellectual Property. The Intellectual Property of
Seller is free and clear of any Encumbrances other than Permitted
Encumbrances and, except as set forth on Schedule 5.11(a), is fully
assignable by Seller to any Person, without payment, consent of any person
or other condition or restriction. Seller does not use any Intellectual
Property in connection with the Business other than as set forth on
Schedule 5.11(a). No registered Intellectual Property has been or is now
involved in any cancellation, dispute or litigation, and, to the knowledge
of Seller, no such action is threatened. Except as set forth in Schedule
5.11(a), no patent of Seller included in the Intellectual Property has
been or is now involved in any interference, reissue, re-examination or
opposition proceeding.
(b) License Agreements. Schedule 5.11(b) sets forth a complete and
accurate list of all licenses, sublicenses, consent, royalty or other
agreements concerning Intellectual Property to which Seller is a party or
by which any of the assets of Seller is bound (other than generally
commercially available, non-custom, off-the-shelf software application
programs having a retail acquisition price of less than $10,000 per
license) relating to the Business (collectively, "LICENSE AGREEMENTS").
All of the License Agreements are valid and binding obligations of Seller
enforceable in accordance with their terms except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws affecting the enforcement of creditors' rights
generally and general equitable principles regardless of whether such
enforceability is considered in a proceeding at law or in equity, and to
Seller's knowledge, there exists no event or condition which will result
in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default by Seller under any such License
Agreement. Seller has performed all obligations required to be performed
by it, and Seller is not in default (or alleged to be in default) under
any Contract relating to any of the foregoing in any way that would or
reasonably could be expected to have a Material Adverse Effect. No party
to any Contract relating to Intellectual Property has given Seller notice
of its intention to cancel, terminate or fail to renew such License
Agreement.
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(c) No Infringement. Seller has taken all commercially reasonable
steps to maintain, police and protect the Intellectual Property of Seller.
Except as disclosed in Schedule 5.11(c), (i) to the knowledge of Seller,
the conduct of Seller's businesses as currently conducted does not
infringe or otherwise impair or conflict with ("INFRINGE") any
Intellectual Property rights of any Person, and the Intellectual Property
rights of Seller are not being Infringed by any Person; and to the
knowledge of Seller (ii) there is no litigation or order pending or
outstanding, or to the knowledge of Seller, threatened or imminent, that
seeks to limit or challenge or that concerns the ownership, use, validity
or enforceability of any Intellectual Property or Seller's use of any
Intellectual Property owned by a third party, and, to the knowledge of
Seller, there is no valid basis for the same.
(d) Royalties. No royalties, honoraria or other fees are payable by
Seller to any Person for the use of or right to use any Intellectual
Property, except as set forth in Schedule 5.11(d).
5.12. Permits. The Permits listed in Schedule 5.12 constitute all of the
licenses, permits, certificates, approvals, exemptions, franchises,
registrations, variances, accreditations or authorizations currently used in or
required for the operation of the Business as operated by Seller prior to the
Closing Date except for any Permits the absence of which would not have a
Material Adverse Effect. The Permits are valid and in full force and effect and
there are no pending proceedings which could result in the termination,
revocation, limitation or impairment of any of the Permits. Seller has not
received notice of any violations in respect of any of the Permits.
5.13. Labor and Employment Matters; ERISA Matters.
(a) Schedule 5.13 contains a list of each employee of Seller (such
employees, the "SELLER EMPLOYEES"). Except as set forth on Schedule 5.16,
there are no employment, consulting, severance or indemnification
contracts between Seller and any of the Seller Employees. Seller either
has paid to date or will pay within the normal payroll cycle after the
Closing Date all accrued wages, salary, commissions, vacation and sick pay
accrued on or before the Closing Date for all of the Seller Employees and,
agents and representatives of Seller. Seller is in compliance with Laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours.
(b) Except as set forth on Schedule 5.13(b), Seller maintains no
employee welfare benefit plans or employee pension benefit plans (within
the meaning of Section 3(1) or Section 3(2), respectively, of the Employee
Retirement Income Security Act of 1974, as amended (ERISA). Seller shall
be solely liable for all obligations with respect to all employee welfare
benefit plans (within the meaning of Section 3(1) of ERISA) of which
Seller is or ever has been a party or by which it is or ever has been
bound.
(c) To Globe's knowledge, there are no pending investigations
involving Seller by the U.S. Department of Labor or any other Governmental
Agency. There is no unfair labor practice charge or complaint against
Seller pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened
against Seller. No collective bargaining agreement or modification thereof
is currently being
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negotiated by Seller. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of Seller.
No material labor dispute with Seller Employees exists or, to the
knowledge of Globe, is imminent.
5.14. Contracts, Etc. Schedule 1.1(e) sets forth a complete and accurate
list of all written Contracts to which Seller is a party. As used in this
Agreement, the word "CONTRACT" means:
(a) agreement for the purchase, sale, lease, or license of services,
products, or assets that are not cancelable without penalty and that
require total future payments in excess of $50,000 in any fiscal year in
any instance, or entered into other than in the Ordinary Course (but
excluding, for the avoidance of doubt, any such agreement whereby payments
are contingent in nature);
(b) agreements to purchase all or substantially all of its
requirements for a particular product or service from a particular
supplier or suppliers, or to supply all of a particular customer's or
customers' requirements for a certain service or product;
(c) agreement or other commitment pursuant to which any Person has
agreed to indemnify or hold harmless any other Person;
(d) employment agreement, consulting agreement, or agreement
providing for severance payments or other additional rights or benefits
(whether or not optional) in the event of the sale or other change in
control;
(e) agreement with any current or former Affiliate, shareholder,
officer, director, employee, or consultant, or with any Person in which
any such Affiliate, shareholder, officer, director, employee, or
consultant has an interest;
(f) joint venture or teaming agreement;
(g) agreement with any domestic or foreign government or agency or
executive office thereof or any subcontract and any third party relating
to a contract between such third party and any domestic or foreign
government or agency or executive office thereof; or
(h) agreement imposing non-competition or exclusive dealing
obligations.
Seller has delivered to the Buyer true, correct and complete copies of all such
Contracts, together with all amendments, modifications and supplements thereto.
Each of the Contracts listed on Schedule 5.14 hereto is in full force and
effect, the Seller is not in breach of any of the provisions of any such
Contract (to the extent that any such breach has or could reasonably be expected
to have a Material Adverse Effect), nor to Seller's knowledge is Seller or any
other party to any such Contract in default thereunder, nor to Seller's
knowledge does any event or condition exist which with notice or the passage of
time or both would constitute a default thereunder. Seller has performed in all
material respects with all obligations required to be performed by Seller to
date under each such Contract. Except as set forth in Schedules 5.14(a) and
5.14(b), no approval or consent of any Person is needed in order that the
Contracts continue in full force and effect following the consummation of the
transactions contemplated by this Agreement, and no such
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Contract includes any provision the effect of which may be to enlarge or
accelerate any obligations of the Seller thereunder or give additional rights to
any other party thereto or shall in any other way be affected by, or terminate
or lapse by reason of, the transactions contemplated by this Agreement or the
Seller's Transaction Documents.
5.15. Environmental Matters. Except as set forth on Schedule 5.15: (a)
Seller is in material compliance with all applicable Environmental Laws; (b)
there is no Environmental Claim pending against the Seller with regard to the
Acquired Assets, Leased Real Property, or Business; (c) Seller has obtained all
material Permits, approvals, identification numbers, licenses or other
authorizations required under any applicable Environmental Laws with regard to
the Acquired Assets or Business (the "ENVIRONMENTAL PERMITS") and is in material
compliance with their requirements; (d) to the knowledge of Seller, there are no
underground or aboveground storage tanks or any surface impoundments, septic
tanks, pits, sumps or lagoons in which Hazardous Materials (as defined herein)
are being or have been treated, stored or disposed of on any real property
Seller currently owns or leases for the Business other than in material
compliance with applicable Environmental Laws; (e) Seller has not undertaken or
completed any investigation or assessment or remedial or response action
relating to any release, discharge or disposal of or contamination with
Hazardous Materials at any site, location or operation of Seller, either
voluntarily or pursuant to the order of any Governmental Authority or the
requirements of any Environmental Law; and (f) there have been no actions,
suits, demands, demand letters, claims, liens, notices of non-compliance or
violation, notices of liability or potential liability, investigations,
proceedings, consent orders or consent agreements relating in any way to
Environmental Laws, any Environmental Permits or any Hazardous Materials (the
"ENVIRONMENTAL CLAIMS") against Seller that remain outstanding or unresolved.
5.16. Taxes. Except as set forth on Schedule 5.16 hereto:
(a) Neither Globe nor Seller nor any member of a Relevant Group has
failed to file any Tax return required to be filed, which failure could
result in the imposition of any Encumbrance (other than Permitted
Encumbrances) on or against the Acquired Assets, the Business or the Buyer
or in any liability to the Buyer, as transferee or otherwise. All Taxes
imposed on the Seller or any member of a Relevant Group, the non-payment
of which could result in an Encumbrance (other than Permitted
Encumbrances) on or against the Acquired Assets, the Business or the Buyer
or in any liability to the Buyer, as transferee or otherwise, have been or
will prior to the Closing Date be paid by the Seller. All deposits
required to be made by the Seller or any member of a Relevant Group in
respect of any material Tax, including, without limitation, withholding
taxes, have been or will be made in a timely fashion. There are no
material Tax deficiencies or claims asserted against Seller or any member
of a Relevant Group the non payment of which could result in any
Encumbrances (other than a Permitted Encumbrance) on or against the
Acquired Assets or in any liability to Buyer, as transferee or otherwise,
nor is there any basis for any such deficiency or claim;
(b) Neither Globe nor Seller is not party to any Tax allocation or
sharing agreement or understanding that could, under any circumstances,
require any payment by Buyer, any of its subsidiaries or any affiliate
thereof after the Closing Date;
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(c) No waiver of any statute of limitations relating to Taxes has
been executed or given by Seller. There are no Encumbrances with respect
to Taxes upon any of the Acquired Assets or the Business. All required Tax
returns relating to the Business, including amendments to date, have been
prepared in good faith without negligence or willful misrepresentation and
are complete and accurate in all material respects; and
(d) No Tax return of either Globe or Seller is currently under audit
by the IRS or by any other taxing authority. Neither the IRS nor any other
taxing authority is now asserting or, to the knowledge of Globe,
threatening to assert against either Globe or Seller any deficiency or
claim for additional Taxes or interest thereon or penalties in connection
therewith or any adjustment that would have a Material Adverse Effect.
5.17. Insurance. Schedule 5.17 lists all insurance Policies and binders of
liability, theft, fidelity, life, fire, product liability, health, unemployment,
workers' and workmen's compensation, errors and omissions and other types of
insurance, self insurance practices and performance bonds covering Seller
(collectively, the "POLICIES"). Seller maintains such policies of insurance with
financially sound and reputable insurance companies, funds, or underwriters, of
the kinds required to cover such risks and are in such amounts and with such
deductibles and exclusions as are consistent with prudent business practice of a
comparable business. Seller warrants that all such Policies (a) are valid,
enforceable and in full force and effect, (b) are sufficient for compliance by
Seller with all requirements of Law and all Contracts to which it is a party and
(c) provide that they will remain in full force and effect and will not in any
way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. All premiums with respect to such Policies are
currently paid, and no basis exists for early termination thereof on the part of
the insurer. Seller is not in default with respect to its obligations under any
of such Policies, nor has Seller received any notification or other indication
from any insurer or agent of any intent to cancel or not to renew or increase
the premiums on any such Policies. To Seller's knowledge no facts or
circumstances exist which would relieve the insurer under any Policy of its
obligation to satisfy in full any valid claim of the Seller thereunder. Seller
has not, during the last 5 fiscal years, been denied or had revoked or rescinded
any policy of insurance.
5.18. Suppliers and Customers. Schedule 5.18 identifies each contractor,
subcontractor, customer and supplier of Seller that in each case is material to
the Business. Schedule 5.18 lists the products and services supplied by Seller
to such customer. Except as set forth on Exhibit 5.18, there are (i) no
customers of Seller accounting for more than 10% of the gross revenues of its
business for the last twelve-month period, and (ii) no sole-source suppliers of
significant goods or services (other than electricity, gas, telephone or water)
to Seller, with respect to which alternative sources of supply are not readily
available on comparable terms and conditions. No material supplier or material
customer of the business of Seller has, during the past 12 months, cancelled or
otherwise terminated its services or supplies to Seller or its use or purchase
of the products or services of Seller, or has communicated any threat in writing
to Seller to do so. Neither Seller nor Globe has any knowledge that any such
supplier or customer intends to cancel, reduce or otherwise terminate its
relationship with Seller or the usage or purchase of the products of Seller, or
that the transactions contemplated by this Agreement will result in any such
cancellation, reduction or termination.
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5.19. Subsidiaries. Seller has no subsidiaries or equity investments in
any other corporation, association, partnership, joint venture or other entity.
5.20. Certain Line Items and Related Items.
(a) Accounts Receivable. To Seller's knowledge, all Receivables of
Seller received in connection with the Business have arisen only from bona
fide transactions entered into in the Ordinary Course, are the legal and
binding claims of Seller, free and clear of all Encumbrances (other than
Permitted Encumbrances), have been recorded in accordance with GAAP and
are not and shall not be subject to any counterclaim, set-off or defense
(except to the extent reserved against). Since the Balance Sheet Date, no
customer has notified Seller, orally or in writing, that they intend to
assert any material right to a discount, allowance or chargeback with
respect to any products or services. The Receivables are current as of the
date hereof. Seller has delivered to the Buyer a complete and accurate
aging list of all Receivables as of a date not more than 5 days prior to
the Closing Date.
(b) Accounts Payable. The accounts payable related to Seller, as
reflected on the Financial Statements or thereafter and recorded by
Seller, have arisen only from bona fide transactions entered into in the
Ordinary Course. All payment terms in connection therewith are consistent
with past practices of Seller.
5.21. Potential Conflicts of Interest. Except for compensation to regular
employees of Seller, and as set forth on Schedule 5.21, neither Seller nor any
officer, director or stockholder of the Seller, nor any Affiliate, (a) owns,
directly or indirectly, any interest in (excepting not more than 1% stock
holdings for investment purposes in securities of publicly held and traded
companies) or is an officer, director, employee or consultant of any Person that
is a competitor, lessor, lessee, customer or supplier of Seller; (b) owns,
directly or indirectly, in whole or in part, any tangible or intangible property
which the Seller is using with respect to the Business; (c) is a party to any
transaction with Seller providing for the furnishing of services by, or rental
or real or personal property from, or otherwise requiring payments to, any such
director, officer, employee or shareholder or such Affiliate; or (d) has any
cause of action or other claim whatsoever related to Seller against, or owes any
amount related to Seller to, Seller, except for claims in the Ordinary Course,
such as for accrued vacation pay, accrued benefits under employee benefit plans
and similar matters and agreements.
5.22. Broker. Except as set forth in Schedule 5.23, neither Seller nor
Globe has not retained, utilized or been represented by any broker, agent,
finder or other intermediary in connection with the negotiation or consummation
of this Agreement or the Transaction Documents or the transactions contemplated
by this Agreement.
5.23. Delaware Reincorporation. Seller and Globe have been provided with
information regarding the planned Reincorporation Merger (as defined below) and
consent thereto.
5.24. Seller Acquisition Agreements. Globe has not asserted any claim
against the "Company" or any "Company Shareholder", as such terms are defined in
that certain Agreement and Plan of Merger by and among theglobe.com, inc,
Seller, Inc., and Seller Acquisition, Inc. dated August 30, 2004 (the "GLOBE
AGREEMENT"), for breach of any of the representations,
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warranties, or covenants in the Globe Agreement and, to the knowledge of Globe,
Globe has no basis to assert any such claim.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to the Seller as follows:
6.1. Organization of the Buyer; Authority. The Buyer is corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Nevada. The Buyer has all requisite corporate power and authority to execute
and deliver this Agreement, the other Transaction Documents to which it is a
party (the "BUYER TRANSACTION DOCUMENTS") and any related agreements to which it
is a party and to perform the Contemplated Transactions.
6.2. Corporate Approval; Binding Effect. The Buyer has obtained all
necessary corporate action, authorizations and approvals required for the
execution and delivery of the Buyer Transaction Documents and the consummation
of the transactions contemplated hereby and thereby. This Agreement and each of
such Buyer Transaction Documents have been duly executed and delivered by the
Buyer and constitutes the legal, valid and binding obligation of the Buyer,
enforceable against the Buyer in accordance with its terms except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally, including the effect of statutory and other laws regarding fraudulent
conveyances and preferential transfers and subject to the limitations imposed by
general equitable principles (regardless whether such enforceability is
considered in a proceeding at law or in equity).
6.3. Non-Contravention. The execution and delivery by the Buyer of the
Buyer Transaction Documents and the consummation by the Buyer of the
transactions contemplated hereby and thereby will not (a) violate or conflict
with any provisions of the charter or bylaws of the Buyer, each as amended to
date; (b) conflict with or result in the breach or termination of (or constitute
a default for any event which, with notice or lapse of time or both would
constitute a default) under, or accelerate the performance required by, any
contract, lease, agreement, commitment or other instrument or restriction of any
kind to which the Seller is a party, or result in a violation of any Law of any
Governmental Authority applicable to the Buyer, or (ii) on the ability of the
Buyer to perform its obligations hereunder or under the Transaction Documents.
6.4. Governmental Consents. Except as set forth in Schedule 6.4 hereto, no
consent, approval or authorization of, or registration, qualification or filing
with, any Governmental Authority is required for the execution and delivery by
the Buyer of this Agreement and the Buyer Transaction Documents to which it is a
party or for the consummation by the Buyer of the transactions contemplated
hereby or thereby.
6.5. Broker. Except as set froth in Schedule 6.5, the Buyer has not
retained, utilized or been represented by any broker, agent, finder or other
intermediary in connection with the negotiation or consummation of this
Agreement or of the transactions contemplated by this Agreement.
6.6. Litigation, etc. Except as set forth on Schedule 6.6 hereto, no
claim, action, suit, proceeding or investigation whether civil or criminal, in
law or equity, before any arbitration or Governmental Authority is pending or
threatened in writing: (i) against Buyer, (ii) relating to or
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affecting the ability of Buyer to execute this Agreement or the Buyer's
Transaction Documents or consummate the transactions contemplated herein or
therein, or (iii) which questions the validity of this Agreement or any of the
Buyer's Transaction Documents or challenges any of the transactions contemplated
hereby or thereby, nor to Buyer's knowledge is there any basis for any such
action, suit, proceeding or investigation. None of the matters set forth in
Schedule 6.6 hereto, either individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect.
6.7. Financing. Buyer has received financing commitments in an amount of
at least $30,000,000.
6.8. Reincorporation Merger. Buyer has approved a reincorporation of Buyer
to the State of Delaware by virtue of a merger of Buyer with and into its
wholly-owned Delaware subsidiary named RelationServe, Inc. (the "REINCORPORATION
MERGER"). The Reincorporation Merger has been approved by the Board of Directors
and the stockholders of Buyer, and will be effective upon the filing of
certificates of merger with the Delaware and Nevada Secretary of State. The
Reincorporation Merger is expected to occur following the date of execution of
this Agreement and prior to the Closing Date. Upon effectiveness of the
Reincorporation Merger, the representations and warranties, covenants and
conditions of Buyer made herein, and to be made at Closing, and the term
"Buyer," as used in this Agreement, will, for all purposes, mean RelationServe,
Inc., as Buyer, and as public parent holding company of the businesses owned and
operated by Buyer. Following the effective time of the Reincorporation Merger,
RelationServe, Inc. shall change its name to RelationServe Media, Inc. and each
of the representations and warranties contained herein shall continue to be true
and correct, except that references to the Nevada incorporation of Buyer shall
be replaced with Delaware and the Delaware corporation shall be bound by all the
covenants and conditions of Buyer as stated herein.
ARTICLE 7. COVENANTS
7.1. Operations Prior to the Closing Date.
Except as set forth on Schedule 7.1 and except as otherwise permitted by
the prior written consent of Buyer, during the period from the date of this
Agreement to the Closing Date: (i) the business of Seller shall be conducted
only in, and neither Globe nor the Seller shall take any action except in, the
Ordinary Course; and (ii) Globe and Seller shall use their reasonable best
efforts to preserve the business of Seller substantially intact, to preserve the
value of the assets and properties, wherever located, that are material to
Seller in existence on the date hereof, to comply with all Laws and requirements
of any Governmental Authority applicable to Seller and to preserve the present
relationships of Seller with customers, suppliers and other persons with which
Seller has business relations. By way of amplification and not limitation,
except as contemplated by this Agreement, Seller shall not, between the date of
this Agreement and the Closing Date, directly or indirectly, do, or propose or
agree to do, any of the following, except as set forth on Schedule 7.1 hereto
and except as permitted by the prior written consent of Buyer:
(a) either (i) split, combine or reclassify any of its Capital Stock
or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares
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of its Capital Stock, or (ii) purchase, redeem or otherwise acquire any
shares of Capital Stock or the Capital Stock of any of its subsidiaries or
any other securities thereof or any rights, warrants, or options to
acquire any such shares or other securities. Buyer understands and agrees
that Globe relies upon Seller to meet Globe's liquidity needs and that,
prior to Closing, Globe will continue to cause Seller to distribute funds
to Globe;
(b) issue, deliver, sell, pledge or otherwise encumber any shares of
its Capital Stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities;
(c) amend its charter or bylaws or other comparable organizational
documents, as applicable;
(d) agree to acquire (i) by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, limited liability company, partnership,
joint venture or other entity or division thereof or (y) any assets that
individually or in the aggregate are material to Seller, except for
purchases of inventory in the Ordinary Course;
(e) either (i) incur any Indebtedness or guarantee any Indebtedness
of another person, issue or sell any debt securities or warrants or other
rights to acquire any debt securities, guarantee any debt securities of
another person, enter into any "keep well" or other agreement to maintain
any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, except for
short-term borrowings incurred in the Ordinary Course consistent with the
Ordinary Course, or (ii) make any loans, advances or capital contributions
to, or investments in, any other person, other than Seller or any direct
or indirect subsidiary of Seller or to officers and employees of Seller or
any of its subsidiaries for travel, business or relocation expenses in the
Ordinary Course;
(f) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise, other than the payment discharge, settlement or satisfaction in
the Ordinary Course of liabilities reflected or reserved against in, or
contemplated by, the Financial Statements, incurred since the date of such
Financial Statements in the Ordinary Course, or which do not in the
aggregate have a Material Adverse Effect;
(g) either (i) amend (other than as required by Laws) any benefit
plan of Seller in any material respect, (ii) increase the compensation or
bonus opportunity of any employee of Seller, except for any increases in
the Ordinary Course, or (iii) grant any additional equity based
compensation to any employee of Seller, except for grants in the Ordinary
Course;
(h) make or agree to make any new capital expenditure or capital
expenditures which individually is in excess of $10,000 or in the
aggregate are in excess of $25,000;
(i) make any change to its accounting methods, principles or
practices, except as may be required by GAAP;
(j) make any tax election with respect to Seller;
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(k) sell (except in the Ordinary Course), assign, pledge, dispose of
or encumber any of the assets or properties of Seller;
(l) fail to defend or initiate any matter or proceed with any matter
before any governmental, regulatory or administrative authorities that is
necessary to protect Seller;
(m) fail to (i) maintain the assets or properties of Seller in
customary repair, order and condition in all respects, (ii) maintain
insurance for Seller reasonably comparable in all material respects to
that in effect on the date of this Agreement or (iii) in the event of a
casualty, loss or damage to any of the assets or properties of Seller
prior to the Closing Date for which the Seller are insured, either repair
or replace such damaged assets or, at the option of the Buyer, transfer
the proceeds of such insurance to the Buyer;
(n) fail to comply with all Laws and all material contractual
obligations applicable to Seller;
(o) terminate, replace, settle any dispute under, amend or otherwise
modify any material Contract or waive any of the obligations of the
parties (other than the Seller's) to such material Contracts or the
Seller's rights under any of such agreements relating to the Business; or
(p) enter into or agree to any contract, commitment, arrangement or
understanding in relation to the Business which, if entered into on the
date hereof, would be required to be disclosed on a Schedule to this
Agreement, unless disclosed to Buyer.
7.2. Preserve Accuracy of Representations and Warranties. Each of the
parties hereto shall refrain from taking any action which would render any
representation or warranty contained in Articles 5 or 6 of this Agreement
inaccurate as of the Closing Date. Each party hereto shall promptly notify the
other of any proceeding that shall be instituted or threatened against such
party to restrain, prohibit or otherwise challenge the legality of the
Contemplated Transactions. Globe and Seller shall promptly notify the Buyer of
(a) any proceeding that may be threatened, brought, asserted or commenced
against it which if such proceeding had arisen prior to the date hereof would
have been required to be disclosed to Buyer hereunder; (b) any fact which, if
known on the date of this Agreement, would have been required to be set forth or
disclosed pursuant to this Agreement; and (c) any actual, impending or
threatened breach of any of the representations and warranties contained in this
Agreement and with respect to the latter, shall use their best efforts to remedy
such actual, impending or threatened breach.
7.3. Notification by the Seller of Certain Matters. During the period
prior to the Closing Date, the Seller will promptly advise the Buyer in writing
of (a) any adverse change in the Business, (b) any written notice or other
formal communication from any third Person alleging that the consent of such
third Person is or may be required in connection with the Contemplated
Transactions and (c) any material default under any Contract or event of which,
with notice or lapse of time or both, would become such a default on or prior to
the Closing Date.
7.4. Access to Information. From and after the date hereof, the Seller
shall give, or cause to be given, to Buyer and its representatives, employees
and financing sources, timely access to all of its the titles, contracts, books,
records, files, documents, and personnel as the Buyer shall
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reasonably request, furnish to the Buyer all such information concerning its
business and affairs as the Buyer reasonably may request and cause its
independent public accountants to permit Buyer and its representatives to
examine all records and working papers in order to permit an independent
accounting firm selected by the Buyer to conduct an audit of the Business's
financial statements in a diligent manner.
7.5. No Negotiation. (a) Except as specifically set forth in this Section
7.5 hereof, until the earlier of the Closing or the termination of this
Agreement pursuant to Article 12 hereof (the "EXCLUSIVITY PERIOD"), neither
Globe nor Seller shall, directly or indirectly, individually or through any of
their respective officers, directors, stockholders, employees, representatives,
agents, affiliates, or otherwise (collectively, the "REPRESENTATIVES") initiate,
solicit or encourage, or respond to (other than to say that they are
contractually obligated not to respond, and referring such party to public
disclosure regarding this Agreement, but shall not otherwise respond, including,
without limitation, by way of furnishing non-public information or assistance)
any proposals, inquiries or offers from any person or entity, including, but not
limited to, any stockholder of Globe or Seller ("THIRD-PARTY"), or enter into
any confidentiality agreement, due diligence agreement, letter of intent,
purchase agreement, merger agreement or other arrangement, regarding any
proposed sale of all or any portion of the Acquired Assets or control thereof,
whether by means of a sale or exchange of shares, sale of assets, whether in
whole or in part, merger, recapitalization, liquidation or otherwise
("THIRD-PARTY ACQUISITION"). Except as specifically set forth in this Section
7.5, during the Exclusivity Period, neither Globe nor Seller shall have, and
shall take reasonable efforts to cause their Representatives not to have, any
discussions, conversations, negotiations or other communications relating to any
Third-Party Acquisition with any Third-Party expressing interest therein, and
shall immediately discontinue negotiations with any Third-Party with which it
heretofore has engaged in negotiations or discussions regarding any Third-Party
Acquisition (an "EXISTING POTENTIAL ACQUIROR"). During the Exclusivity Period,
Globe and Seller immediately shall notify Buyer of all terms of any written
inquiry, contact, communication, or proposal by any Third-Party with respect to
any Third-Party Acquisition that is received by either of them or any of their
Representatives (including the response thereto), and promptly (within 72 hours
of receipt) shall provide Buyer with a copy of any such written inquiry,
contact, communication or proposal. With respect to any oral inquiry, contact,
communication or proposal, Globe and Seller shall document the same in writing
(including the response thereto) and reasonably promptly provide Buyer with a
copy of the same. Seller agrees that: if this Agreement is terminated by Seller
as a result of its acceptance of a Superior Proposal, then upon the earlier of
such termination or acceptance, Globe and Seller immediately shall become
obligated to pay and shall pay to Buyer by wire transfer (in immediately
available funds) liquidated damages in the amount of One Million Dollars
($1,000,000) (the "FEE"), which Globe and Seller acknowledge is reasonable under
the circumstances and designed to compensate Buyer for the lost opportunity to
consummate the Contemplated Transactions. This Fee will serve as the exclusive
remedy to Buyer hereunder in the event of payment required as a result of the
arrangements set forth herein, including, but not limited to, Buyer's damages
relative to its efforts, expenses and costs incurred in evaluating the
Contemplated Transactions. The parties acknowledge that the foregoing provisions
do not necessarily require Globe or Seller to provide Buyer a written summary of
on-going discussions with a third party, nor shall Seller be required to
document to Buyer any oral inquiry, contact, communication or proposal that does
not materially change any inquiry, contact, communication or proposal previously
provided by Buyer.
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(b) The parties acknowledge that prior to the Closing, in response
to a bona fide unsolicited written proposal for a Third-Party Acquisition
that did not result from the breach of this Section 7.5 (a "THIRD-PARTY
PROPOSAL") and following delivery to Buyer of notice and a copy of the
Third-Party Proposal in compliance with its obligations under Section 7.5
hereof, Globe and Seller may participate in discussions or negotiations
with or furnish information (pursuant to a confidentiality agreement with
customary terms comparable to those in place with Buyer or already in
place with regard to Existing Potential Acquirors) to any Third-Party
which makes a bona fide written Third-Party Proposal if, and only if,
prior to taking such action: (A) a majority of Globe's Board of Directors
determines in good faith (after consultation with its financial advisors)
that the transactions contemplated by such Third-Party Proposal are
capable of being completed and that such Third-Party Proposal is or is
reasonably expected to result in a Superior Transaction (as defined
herein) and (B) a majority of Globe's Board of Directors determines in
good faith (after receiving the advice of outside legal counsel) that the
failure to pursue such Superior Proposal would likely result in a
reasonable possibility of a breach of their fiduciary duties as directors
under applicable law and (C) Sellers comply in all material respects with
the information and notice obligations set forth in this Section 7.5.
(c) For purposes of this Agreement, "SUPERIOR PROPOSAL" means a bona
fide Third-Party Proposal to purchase at least a majority of the
outstanding equity securities of either Globe or Seller pursuant to a
stock purchase agreement, tender offer or exchange offer or to effect any
merger, consolidation, business combination or sale of all or
substantially all of the Acquired Assets, recapitalization or similar
transaction involving the Seller, on terms which a majority of Globe's
Board of Directors determines in good faith (after consultation with its
financial advisors) to be superior to Globe and its shareholders (in their
capacity as shareholders) from a financial point of view (taking into
account, among other things, all legal, financial, regulatory and other
aspects of the proposal and identity of the offeror) as compared to (i)
the transactions contemplated hereby and (ii) any alternative proposed by
Buyer in accordance with Section 7.5(d) (taking into account the same
factors, including whether it is reasonably capable of being consummated)
(any such transaction being referred to herein as a "SUPERIOR
TRANSACTION").
(d) Seller and Buyer agree that, notwithstanding anything to the
contrary herein, prior to the Closing, Globe and Seller, and/or their
Board of Directors, may take the actions otherwise prohibited by Section
7.5(a), subject to the conditions of and as limited by Section 7.5(b)
(e) Buyer agrees that nothing contained in this Section 7.5 shall
prohibit Globe from taking and disclosing to its shareholders a position
contemplated by Rule 14d-9 and Rule 14e-2 promulgated under the Securities
Exchange Act of 1934, as amended, with respect to any tender offer or from
making any disclosure to Globe shareholders which the Board of Directors
determines, on the advice of counsel, that it is required to disclose
under applicable law.
(f) If at any time prior to the Closing, a Superior Proposal is
received by the Seller and the Board of Directors of Globe determines in
good faith (after receiving the advice of outside legal counsel) that it
is necessary to withhold or withdraw its recommendation of the
Contemplated Transaction (as defined herein) and to enter into an
agreement to effect the
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Superior Proposal in order to comply with its fiduciary duties to its
shareholders under applicable law, then the Globe Board of Directors may
withhold or withdraw its recommendation of this Transaction; provided that the
Globe Board of Directors may not withdraw its recommendation pursuant to this
Section 7.5(f) unless and until (i) four (4) Business Days have elapsed
following delivery to Buyer of a written notice of such determination by the
Board of Directors of Globe, and during such four (4) Business Day period Globe
has fully cooperated with Buyer, including, without limitation, informing Buyer
of the terms and conditions of such Superior Proposal and the identity of the
Third-Party making such Superior Proposal and providing to Buyer copies of all
documents required by Section 7.5(a), with the intent of enabling the parties
hereto the opportunity to Buyer to negotiate and attempt to agree to a
modification of the terms and conditions of this Agreement to provide at least
equivalent value to the Seller as determined in the reasonable and good faith
exercise of the discretion of the Board of Directors of Globe, so that the
transactions contemplated hereby may be effected; and (ii) at the end of such
four (4) Business Day period the Third-Party Proposal continues in the good
faith judgment of the Board of Directors of Globe to constitute a Superior
Proposal compared to the Contemplated Transaction or any other offer made by
Buyer and the Board of Directors of Globe confirms its determination (after
receiving the advice of outside legal counsel) that it is necessary to withhold
or withdraw its recommendation of the Transaction and enter into an agreement to
effect the Superior Proposal to comply with its fiduciary duties to its
shareholders under applicable law.
(g) Notwithstanding anything herein to the contrary, this Section
7.5 shall survive the termination of this Agreement.
7.6. Best Efforts. Each party shall use its best efforts timely to satisfy
each of the conditions to be satisfied by it as provided in Articles 8 and 9 of
this Agreement.
7.7. Escrowed Funds. On the date hereof, the Buyer shall place the Escrow
Amount into escrow pursuant to the Escrow Agreement. Prior to Closing, the
Escrow Amount shall only be payable to Seller pursuant to Section 12.2 hereof.
7.8. Confidentiality. Prior to, on and after the Closing Date and for a
period of two (2) years thereafter, Globe, Seller and Buyer agree to (and shall
cause their respective Affiliates and representatives to) maintain the
confidentiality of all confidential or proprietary information of Seller and
Buyer, and agree not to, directly or indirectly, disclose any such confidential
or proprietary information except to the extent that disclosure of any portion
thereof is required by law or determined to be necessary to comply with any
legal or regulatory order, regulation or requirement or to the extent the
information becomes generally available to the public other than as a result of
a disclosure by Seller or Buyer.
7.9. Expenses. Except as otherwise set forth herein, Buyer on the one
hand, and Globe and Seller on the other hand, shall each bear their own
respective expenses incurred in connection with the preparation, execution,
delivery and performance of this Agreement and the Transaction Documents and in
connection with all obligations required to be performed by each of them under
this Agreement and the Transaction Documents, whether or not the transactions
contemplated hereby and thereby are consummated.
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7.10. Public Announcements. Globe, Seller and Buyer shall consult with
each other before issuing any press release, public announcement or other public
statement concerning the contemplated Transactions or any transaction
contemplated by this Agreement or any of the Transaction Documents, and shall
not issue any such public announcement, press release or public statement prior
to such consultation, except as may be required by law. Copies of any such
announcement or filings shall be delivered to the other parties hereto prior to
release.
7.11. Information Statement.
(a) As promptly as reasonably practicable following the date of this
Agreement, Globe shall, with the assistance of Buyer, prepare and mail the
information statement to be sent to the stockholders of Globe in
connection with obtaining stockholder approval of the Contemplated
Transactions (as amended or supplement, the "Information Statement").
Buyer and Globe will cooperate with each other in the preparation of the
Information Statement. Without limiting the generality of the foregoing,
(i) Globe will provide Buyer with a reasonable opportunity to review and
comment on the Information Statement and (ii) Buyer will furnish to Globe
true and correct information relating to it and its arrangements with
Seller Management required by applicable securities laws to be set forth
in the Information Statement.
(b) Globe agrees that none of the information supplied or to be
supplied by Globe for inclusion or incorporated by reference in the
Information statement will, at the date it is first mailed to the
stockholders of Globe, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statement therein, in the light of the circumstances
under which they are made, not misleading.
(c) Globe shall use its reasonable best efforts, after consultation
with buyer, to resolve all SEC comments with respect to the Information
Statement as promptly as practicable after receipt thereof. Each of Buyer
and Globe agree to correct any information provided by it for use in the
Information Statement which shall have become false or misleading. Globe
shall as soon as reasonably practicable notify Buyer of the receipt of any
comments from or other correspondence with the SEC staff with respect to
the Information Statement and any request by the SEC for any amendment to
the Information Statement or for additional information (and promptly
deliver a copy of such comments, correspondence or request to Buyer).
Globe shall use its reasonable best efforts to cause the Information
Statement to be mailed to Globe's stockholders as promptly as practicable
after the Information Statement is cleared by the SEC.
7.12. Stockholder Approval. Glove shall obtain stockholder approval of the
Contemplated Transactions by written consent within seven (7) days following the
date hereof.
7.13. Operational Representations. Globe shall use its reasonable best
efforts (but shall not be required to incur any separate payment therefore) to
secure the Operational Representations as to which Globe and Seller (and/or
Buyer for the purpose of any of the rights of Buyer under any of the Management
Agreements, including, without limitation, any escrowed property provided by
Seller Management) shall be beneficiaries. The foregoing shall not require the
Seller or Globe to procure the agreement of Seller Management that their
Operational Representations may be relied upon by management.
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7.14. Availability of Financing. Buyer shall use its reasonable best
efforts to provide that there shall have been funded into one or more escrow
accounts within thirty (30) days of the date of this Agreement not less than
$30,000,000 which shall be available to Buyer for the purposes of the Purchase
Price payable at the Closing pursuant to this Agreement, without condition other
than as relate to closing of the Contemplated Transactions, execution and
delivery by Buyer of definitive securities purchase and related agreements
(including, without limitation, perfection of any security interest in and to
any Acquired Assets), and issuance of securities to the purchasers thereof. In
the event that within such thirty (30) day period, Seller shall not have been
provided evidence that such funds have been received in escrow, Seller and Globe
may, at any time thereafter, (i) terminate this Agreement and receive the
Termination Fee (as defined herein); (ii) terminate Section 7.5 hereof and seek
an alternative transaction which Seller and Globe shall have the right to close
such transaction without any liability to Buyer for payment of a Fee under
Section 7.5; and/or (iii) take no action.
ARTICLE 8. POST-CLOSING COVENANTS.
8.1. Transferred Employees.
(a) Offer of Employment. Subject to and in accordance with the
provisions of this Section 8.1, Buyer shall, effective upon the Closing,
offer full-time employment to each of the Seller employees employed by
Seller as of the Closing Date that Buyer, in its sole discretion, elects
to offer employment, as listed on Schedule 5.16 hereof, on terms and
conditions substantially equivalent to the terms and conditions of
employment and benefits for current employees of Buyer in similar job
classifications and grades. Buyer shall hire all of the Seller employees
who accept such offer. Buyer will deliver to Seller a list of all of the
Seller employees who have accepted an offer of employment from Buyer
promptly after the Closing. Each of the Seller employees who actually
becomes a full-time employee of Buyer upon the Closing is hereinafter
referred to as a "TRANSFERRED EMPLOYEE."
(b) Transition. The employment of each Transferred Employee by
Seller shall end effective as of the close of business on the day before
the Closing Date and the employment of the Transferred Employees by Buyer
shall commence at or after 12:01 a.m. on the Closing Date.
(c) Retention of Employees Prior to Closing. Seller shall expend its
reasonable efforts to assist Buyer in securing the employment on the
Closing Date of the Seller employees; provided, however, that Seller shall
not be required to incur any financial obligation beyond continuing to pay
for current employee compensation and benefits prior to the Closing in
connection with the foregoing unless otherwise required by this Agreement.
(d) Compensation and Benefits of Transferred Employees. Coverage for
Transferred Employees under Buyer's benefit plans and programs shall
commence as of 12:01 a.m. on the Closing Date. Buyer shall give each
Transferred Employee credit for such Transferred Employee's years of most
recent continuous service (including time during approved leaves of
absences of less than 26 weeks) with Seller for purpose of determining
participation and benefit levels under all of Buyer's vacation policies
and benefit plans and programs, unless otherwise prohibited by law or the
terms of any of Buyer's benefit plans and programs, and shall
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give each Transferred Employee credit for any accrued vacation time to
which each Transferred Employee would be entitled immediately prior to
Closing under Seller's current vacation policy. Seller shall retain
responsibility for any claims under their health insurance policies made
by Transferred Employees arising out of insurable losses incurred or
claims accrued on or prior to the Closing Date.
(e) Employees Other than Transferred Employees. Seller shall retain
responsibility for Employees that are neither offered nor accepted
employment with Buyer and for employees of the Business listed on Schedule
8.1(e).
(f) All liabilities or obligations to any Seller Employee resulting
from Buyer's failure to offer employment to any Seller Employee shall be
and remain the sole responsibility and liability of the Seller.
8.2. Access.
(a) After the Closing Date, Globe and Seller agree to make available
to the Buyer for inspection and copying at the Buyer's expense, at
reasonable times upon request, any records and documents relating to the
Business which were not delivered to the Buyer at Closing and were
retained by Globe or Seller which, at the time of such request, are in the
possession or control of the Seller and all Tax returns. In addition,
Globe and Seller agree to provide reasonable assistance in the collection
of information or documents and make available to Buyer any financial data
and other information retained by Seller relating to Seller, and will make
available such former employees of the Business that at the time shall be
employed by Globe or Seller, as Buyer shall from time to time reasonably
request, in connection with claims or actions brought by or against third
parties based on events or circumstances concerning Seller and to permit
Buyer to prepare any Tax returns and in connection with any examination by
any Governmental Authority of Tax returns relating to the Business or
Seller, as applicable, for periods from and after the Closing Date.
Seller's reasonable expenses in connection therewith shall be reimbursed
by Buyer. Seller and its principals shall cooperate with Buyer and its
accountants in the preparation of all financial statements contemplated by
this Agreement or required to be filed by Buyer under applicable Law. Such
cooperation shall include, but not be limited to, issuing representation
letters to the Buyer's accountants with respect to all financial
statements of Globe and Seller covering dates or periods on or prior to
the Closing Date.
(b) Subsequent to the Closing Date, Buyer shall provide Globe and
Seller with such assistance (including provision of records) as may
reasonably be requested by Globe and Seller in connection with the
preparation of any Tax Return, the response to any audit or other
examination by any Governmental Authority, or an judicial or
administrative proceedings relating to any liability for Taxes.
8.3. Covenant Not to Compete.
(a) Seller and Globe acknowledge and recognize the highly
competitive nature of the industry in which Seller and the Business
operate. Accordingly, in consideration of the premises contained herein
and the consideration to be received hereunder, neither Globe nor Seller
shall, during the Non-Competition Period (as defined below), anywhere in
North America:
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(i) directly or indirectly engage, whether or not such engagement shall be
as a member, partner, stockholder, affiliate or other participant, in any
Competitive Business (as defined herein), or represent in any way any
Competitive Business, whether or not such engagement or representation
shall be for profit, (ii) knowingly or intentionally interfere with,
disrupt or attempt to disrupt the relationship, contractual or otherwise,
between Buyer and any other person or entity, including, without
limitation, any customer, supplier, employee or consultant of Buyer with
respect to the Business, (iii) induce any employee of Buyer to terminate
his or her employment with Buyer or to engage in any Competitive Business
in any manner described in the foregoing clause (i) or (iv) affirmatively
assist or induce any other person or entity to engage in any Competitive
Business in any manner described in the foregoing clause (i). Anything
contained in this Section 8.3 to the contrary notwithstanding, an
investment by Globe or Seller in any publicly traded company in which
either Globe or Seller and their affiliates exercise no operational or
strategic control and which, collectively, constitutes less than 5% of the
capital of such entity shall not constitute a breach of this Section 8.3.
(b) As used herein, "NON COMPETITION PERIOD" shall mean the period
commencing on the Closing Date hereof and terminating 5 years from the
Closing Date.
(c) "COMPETITIVE BUSINESS" shall mean any business engaged in the
development, sales and support of online and offline direct-response
marketing services or that is substantially similar to the services and
products offered by the Seller as of the date hereof.
(d) Seller and Seller understand that the foregoing restrictions may
limit their ability to earn income in a business similar to that of the
Buyer, following Closing but they nevertheless acknowledge that they have
received and will receive sufficient consideration and other benefits
provided hereunder to clearly justify such restrictions.
(e) Globe, Seller and Buyer recognize and acknowledge that the
restrictions set forth herein are reasonable as to form and scope.
Notwithstanding the foregoing, it is the desire and intent of the parties
that the provisions of this Section 8.3 shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any
particular provision of this Section 8.3 shall be adjudicated to be
invalid or unenforceable, such provision shall be deemed amended to (i)
delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation
of such provision in the particular jurisdiction in which such
adjudication is made or (ii) otherwise to render it enforceable in such
jurisdiction.
(f) Each of Buyer, Globe and Seller acknowledges and understands
that the provisions of this Section 8.3 are of a special and unique
nature, the loss of which cannot be adequately compensated for in damages
by an action at law, and that the breach or threatened breach of the
provisions of this Section 8.3 would cause the Buyer irreparable harm. In
the event of a breach or threatened breach by Globe or Seller of the
provisions of this Agreement, the Buyer shall be entitled to an injunction
restraining Globe and Seller from such breach without requirement to post
bond or otherwise prove damage. Nothing contained in this Section 8.3
shall be construed as prohibiting the Buyer from or limiting the Buyer in
pursuing any other remedies available for any breach or threatened breach
of this Agreement.
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8.4. Nondisparagement. After the Closing Date, none of the parties will
disparage any other party hereto or any of such party's managers, directors,
officers, employees, representatives or agents, successors or assigns.
8.5. Forwarding of Inquiries. After the Closing Date, Globe and Seller
shall forward, in a reasonable and prompt manner, all inquiries relating to the
Business to such persons, offices or locations as the Buyer shall designate in
writing.
8.6. Name Change. From and after the Closing Date Seller shall not use for
any commercial purposes a name containing "Seller" or any derivative thereof, in
any manner and for any purpose whatsoever.
8.7. Further Assurances. At any time and from time to time after the
Closing Date, each party shall, without further consideration, execute and
deliver to the other such other instruments of transfer and assumption and shall
take such other action as the other may reasonably request to carry out the
transactions contemplated by this Agreement. Globe and Seller agree to perform
all acts that are reasonably within their purview, authority and/or ability and
deliver all documents reasonably requested by Buyer to perfect and confirm
Buyer's rights to the Acquired Assets, including, without limitation, the
Intellectual Property being transferred to Buyer hereunder, including documents
for filing with the U.S. Patent and Trademark Office, the U.S. Copyright Office,
Network Solutions, Inc., and other administering parties or offices concerning
intellectual property.
8.8. Taxes; Tax Treatment. All sales Taxes and transfer Taxes incurred in
connection with the Contemplated Transactions shall be borne by Seller.
8.9. Collection of Accounts Receivable. After the Closing Date, Seller
shall use commercially reasonable efforts to collect any Accounts Receivable
that were generated in connection with the Business prior to the Closing Date
which shall be retained by Buyer for its own accounting, Globe and Seller shall
promptly remit to Buyer (within 2 business days) any payments on Accounts
Receivable received by Seller or Globe after the Closing Date. After the Closing
Date, Buyer shall have the right to notify any customers who owe Seller any
amounts properly payable to Buyer to send their payments directly to Buyer.
ARTICLE 9. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The obligation of
the Buyer to consummate the Closing and to make all payments of the Purchase
Price shall be subject to the satisfaction at or prior to the Closing of each of
the following the parties shall have (A) to meet our obligations to deliver, (B)
sign our management conditions (to the extent noncompliance is not waived in
writing by the Buyer):
9.1. Representations and Warranties True at Closing; Compliance with
Covenants; Corporate Approvals.
(a) The representations and warranties made by Globe and Seller in
or pursuant to this Agreement shall be true and correct in all material
respects as of the date hereof and as of the Closing Date with the same
effect as though such representations and warranties had been made or
given at and as of the Closing Date (except for representations and
warranties that speak as of a specific date, which shall be true and
correct as of such specific date);
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(b) Globe and Seller shall each have performed and complied in all
material respects with all of their covenants, obligations and conditions
under this Agreement to be performed or complied with by each of them on
or prior to the Closing;
(c) all corporate approvals necessary to authorize the Contemplated
Transactions shall have been obtained by Globe and Seller.
The Buyer shall have received a certificate, executed by an executive officer of
each or Globe and Seller and dated as of the Closing Date, to the foregoing
effect and certifying to (x) the adoption and copies of resolutions of the Board
of Directors and shareholders, each Seller approving the Contemplated
Transactions; (y) the incumbency of officers of each of Globe and Seller who are
executing this Agreement or any of the Seller's Transaction Documents or
certificates contemplated hereunder; and (z) attached copies of Seller's charter
and bylaws.
(d) Globe and Seller shall deliver to Buyer (i) a certificate of
good standing of Globe and Seller, as of the most recent practicable date,
from the Secretary of State of the states of incorporation of each of
Globe and Seller; and (ii) certificates from the Secretary of State of the
appropriate official in each state in which such Globe and Seller is
qualified to do business to the effect that Globe and Seller are in good
standing in such state; in each case, dated as of a date not more than 5
Business Days prior to the Closing Date.
9.2. Consents. Globe, Seller and Buyer shall have obtained all necessary
consents of third parties to the Contemplated Transactions, including, without
limitation, any consents required by the Contracts and any required consents of
any creditors, lessors, suppliers and Governmental Authorities, including,
without limitation, those set forth in Schedules 5.9(a) and 5.9(b), copies of
which shall have been delivered to Buyer;
9.3. No Litigation. No restraining order or injunction shall prevent the
transactions contemplated by this Agreement and no action, suit or proceeding
shall be pending or threatened before any court or administrative body: (a) in
which it will be or is sought to restrain or prohibit or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby or (b) in connection with any claim for damages in excess of
$5,000 against the Seller.
9.4. Release of Encumbrances. All Encumbrances (other than Permitted
Encumbrances) shall have been released on or prior to Closing.
9.5. Governmental Permits and Approvals. The parties shall have received
all necessary Permits and approvals from any Governmental Authority.
9.6. Opinion of Counsel. Proskauer Rose LLP, counsel to Seller, and
Delaware counsel to Seller, shall have delivered to the Buyer a written opinion,
addressed to the Buyer and dated the Closing Date, substantially in the form of
Exhibit C hereto (the "SELLER'S OPINIONS").
9.7. Documents of Transfer. The Seller shall have delivered to Buyer all
documents of transfer representing all of the Acquired Assets, duly endorsed in
blank or with duly executed powers attached, in proper form for transfer and
with required transfer stamps, if any, affixed.
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9.8. Records. Seller shall have delivered to Buyer all of the minute
books, stock ledgers and similar records of Seller.
9.9. Holdback Escrow Agreement. Seller and Escrow Agent shall have
delivered a duly executed copy of the Holdback Escrow Agreement to Buyer.
9.10. Management Agreements. Each of the individuals listed on Schedule
9.11 hereto shall have delivered to Buyer a duly executed copy of that certain:
(a) Representation Certification substantially in the form annexed hereto as
Exhibit D hereto; (b) Employment Agreement, substantially in the form annexed
hereto as Exhibit E hereto; and (c) Stock Agreement, substantially in the form
annexed hereto as Exhibit F hereto; and (d) Escrow Agreement, substantially in
the form of Exhibit G hereto, between each of the individuals listed on Schedule
9.11, and Buyer, dated as of the date hereof, (the "MANAGEMENT AGREEMENTS").
9.11. Seller Management. Paul Soltoff, Eric Obeck, Donald Gould, Harry
Greene, Irvine Brechner, Nadine Brechner, and Allen Vance (collectively, "Seller
Management") shall have executed and delivered to Globe a Securities Redemption
Agreement providing for, among other things, the repurchase of certain shares of
the common stock of Globe held by Seller Management on terms acceptable to Globe
(the "Redemption Agreement").
9.12. Termination Agreement. Seller Management shall have executed and
delivered to Globe a Termination Agreement providing for, among other things,
the cancellation of certain options and warrants on terms acceptable to Globe
(the "Termination Agreement").
9.13. No Material Adverse Change. There shall not have occurred a Material
Adverse Effect since the date hereof.
9.14. Proceedings and Documents Satisfactory. All proceedings in
connection with the transactions contemplated by this Agreement and all
certificates and documents delivered to the Buyer in connection with the
transactions contemplated by this Agreement shall be satisfactory in all
reasonable respects to the Buyer and its counsel and the Buyer shall have
received the originals or certified or other copies of all such records and
documents as the Buyer may reasonably request.
9.15. Operational Representations. Globe shall have received the
Operational Representations from Seller Management (but shall not be required to
incur any separate payment therefore) in form and substance satisfactory to
Globe on which Buyer shall be able to rely for the purpose of any of the rights
of Buyer under any of the Management Agreements, including, without limitation,
against any escrowed property. The foregoing shall not require the Seller or
Globe to procure the agreement of Seller Management that their Operational
Representations may be relied upon by management.
9.16. Fairness Opinion. Globe shall have received a favorable fairness
opinion from Thomas Weisel Partners.
ARTICLE 10. CONDITIONS PRECEDENT TO OBLIGATIONS OF GLOBE AND SELLER. The
obligation of Globe and Seller to consummate the Closing shall be subject to the
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satisfaction, at or prior to the Closing, of each of the following conditions
(to the extent noncompliance is not waived in writing by Globe and Seller):
10.1. Representations and Warranties True at Closing; Compliance with
Covenants; Corporate Approvals.
(a) The representations and warranties made by Buyer in this
Agreement shall be true and correct in all material respects as of the
date hereof and as of the Closing Date with the same effect as though such
representations and warranties had been made or given at and as of the
Closing Date (except for representations and warranties that speak as of a
specific date, which shall be true and correct as of such specific date);
(b) Buyer shall have performed and complied with all of its
covenants, obligations and conditions under this Agreement that are to be
performed or complied with by it at or prior to the Closing;
(c) all corporate approvals necessary to authorize the Contemplated
Transactions shall have been obtained by Buyer; and
(d) Buyer shall have delivered a certificate of good standing of
Buyer, as of the most recent practicable date, from the Secretary of State
of the state of incorporation of Buyer.
Seller shall have received a certificate, executed by an executive officer of
Buyer and dated as of the Closing Date, to the foregoing effect and certifying
to: (a) the adoption and copies of resolutions of the Board of Directors of
Buyer approving the Contemplated Transactions; (y) the incumbency of officers of
Buyer who are executing this Agreement or any of the Buyer Transaction Documents
or certificates contemplated hereunder; and (z) attached copies of the Buyer's
charter and bylaws.
10.2. Consents. Globe, Seller and Buyer shall have obtained any necessary
consents of third parties to the Contemplated Transactions including, without
limitation, any consents required by the Contracts and any required consents of
any creditors, suppliers and Governmental Authorities, including, without
limitation, those set forth in Schedules 5.9(a) and 5.9(b).
10.3. No Litigation. No restraining order or injunction shall prevent the
transactions contemplated by this Agreement and no action, suit or proceeding
shall be pending or threatened before any court or administrative body in which
it will be or is sought to restrain or prohibit or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
10.4. Governmental Permits and Approvals. The parties shall have received
all necessary approvals from any Governmental Authority.
10.5. Purchase Price. Buyer shall have delivered to Seller the Closing
Amount to Seller and delivered to the Escrow Agent the Holdback Amount.
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10.6. Escrow Agreement. Buyer and Escrow Agent shall have delivered a duly
executed copy of the Holdback Escrow Agreement to Buyer and deposited the
Holdback Amount with the escrow agent therefore.
10.7. Seller Management. Seller Management shall have executed and
delivered to Globe the Redemption Agreement and the Termination Agreement, each
on terms acceptable to Globe.
10.8. Options and Warrants. Certain Persons (as designated by Globe) whose
options and/or warrants to purchase Globe common stock shall have agreed to the
termination of such options and/or warrants on terms reasonably satisfactory to
Globe
10.9. Opinion of Counsel. Olshan Grundman Frome Rosenzweig & Wolosky, LLP,
counsel to Buyer, shall have delivered to the Seller and Globe a written
opinion, addressed to the Seller and Globe, and dated the Closing Date,
substantially in the form of Exhibit H hereto (the "BUYER'S OPINION").
10.10. Proceedings and Documents Satisfactory. All proceedings in
connection with the transactions contemplated by this Agreement and all
certificates and documents delivered to Seller in connection with the
transactions contemplated by this Agreement (including expiration of the
applicable waiting period after distribution of the Information Statement to
Globe's stockholders) shall be satisfactory in all reasonable respects to Seller
and their counsel, and Seller shall have received the originals or certified or
other copies of all such records and documents as the Seller may reasonably
request.
10.11. Operational Representations. Globe shall have received the
Operational Representations from Seller Management in form and substance
satisfactory to Globe.
10.12. Fairness Opinion. Globe shall have received a favorable fairness
opinion from Thomas Weisel Partners.
ARTICLE 11. INDEMNIFICATION.
11.1. Survival of Representations and Warranties. The representations and
warranties of the parties hereto contained in this Agreement, the Transaction
Documents or otherwise made in writing in connection with the Contemplated
Transactions (in each case except as affected by the transactions contemplated
by this Agreement) shall be deemed material and, notwithstanding any pre-Closing
investigations, examinations, or prior knowledge of Buyer or any due diligence
conducted by Buyer, shall be deemed to have been relied on by the Buyer and
shall survive the consummation of the transactions contemplated hereby and the
payment of the Purchase Price until 5:00 p.m. EST on the date that is one year
and forty-five days following the Closing Date (such period, the
"INDEMNIFICATION PERIOD"), and thereafter until resolved if a claim in respect
thereof has been made prior to such date), except that (i) any representation of
Globe or Seller with respect to Tax matters, environmental matters and employee
benefit matters shall survive until expiration of the statute of limitations
applicable to claims with respect to such matters, and (ii) any representation
of Globe or Seller with respect to title matters shall survive for five years.
Each representation and warranty made by Globe or Seller or the Buyer in this
Agreement shall expire on the last day, if any, that Claims (as defined herein)
for breaches of such representation or warranty may be made pursuant to this
Article 11, except that any such representation
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or warranty that has been made the subject of a Claim prior to such expiration
date shall survive with respect to such Claim until the final resolution of such
Claim pursuant to this Article 11.
11.2. Indemnity by Globe, Seller and Their Affiliates. Regardless of any
pre-Closing investigations, examinations or prior knowledge of the Buyer or any
due diligence conducted by Buyer, each of Globe and Seller, severally and not
jointly, agrees to indemnify and hold Buyer and its Affiliates and their
respective officers, directors, stockholder, employees and agents (collectively,
the "Buyer Indemnified Group") harmless from and with respect to any and all
losses, assessments, liabilities, claims, damages, deficiencies, costs and
expenses, including, without limitation, reasonable attorneys' and accountants'
fees and disbursements ("LOSSES") related to, or arising directly or indirectly
out of:
(a) any failure to perform or breach by either Globe or Seller of
any representation or warranty (other than an Operational Representation,
which is addressed in clause (d) below), covenant, obligation or
undertaking made by either Globe or Seller in any Transaction Document
(including the Schedules and Exhibits hereto or thereto), or in any other
statement, certificate or other instrument delivered pursuant hereto or
thereto, or any misrepresentation contained therein;
(b) the ownership or operation of the Business prior to the Closing
Date other than Assumed Liabilities;
(c) the Excluded Assets and all liabilities other than Assumed
Liabilities; and
(d) any breach of an Operational Representation made by Globe or
Seller, but only to the extent that such breach of an Operational
Representation is not also a breach of the corresponding Operational
Representation made by Seller Management in the Redemption Agreement (or
other agreement that contains Operational Representations) by Seller
Management.
11.3. Indemnity by the Buyer. The Buyer agrees to indemnify and hold
Seller harmless from and with respect to any and all Losses related to, or
arising directly or indirectly out of, any failure to perform or breach by the
Buyer of any representation or warranty, covenant, obligation or undertaking
made by the Buyer in any Transaction Document (including the Schedules and
Exhibits hereto and thereto), or in any other statement, certificate or other
instrument delivered pursuant hereto and as a result of Buyer's ownership and
operation of the Business following Closing.
11.4. Claims.
(a) Notice. Any party seeking indemnification hereunder (the
"INDEMNIFIED PARTY") shall promptly notify the other party hereto (the
"INDEMNIFYING PARTY") of any action, suit, proceeding, claim, demand,
assessment, judgment, cost, expense or breach (a "CLAIM") with respect to
which the Indemnified Party claims indemnification hereunder, by
delivering a written notice thereof together with a statement setting
forth such information with respect to such Claim as the Indemnified Party
shall then have (an "INDEMNIFICATION NOTICE") provided that failure of the
Indemnified Party to give an Indemnification Notice shall not relieve the
Indemnifying Party
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of its obligations under this Section 11.4 except to the extent, if at
all, that such Indemnifying Party shall have been prejudiced thereby in
its ability to defend the suit, action, claim, proceeding or investigation
for which such indemnification is sought by reason of such failure.
(b) Third-Party Claims. If such Claim relates to any action, suit,
proceeding or demand instituted against the Indemnified Party by a third
party (a "THIRD-PARTY CLAIM"), the Indemnifying Party shall be entitled to
participate in the defense of such Third-Party Claim after receipt of the
Indemnification Notice from the Indemnified Party, as follows. Within 30
days after receipt of the Indemnification Notice of a particular matter
from the Indemnified Party, the Indemnifying Party may assume the defense
of such Third-Party Claim, in which case the Indemnifying Party shall have
the authority to negotiate, compromise and settle such Third-Party Claim,
if and only if the following conditions are satisfied:
(i) the Indemnifying Party shall have confirmed in writing
that it is obligated hereunder to indemnify the Indemnified Party
with respect to such Third-Party Claim;
(ii) the Indemnifying Party retains counsel that is acceptable
to the Indemnified Party, which acceptance shall not be unreasonably
withheld or delayed; and
(iii) the Indemnified Party is kept reasonably informed of
such action, suit or proceeding at all stages thereof whether or not
it is represented by separate counsel.
However, notwithstanding the preceding sentence, if (a) the Indemnifying
Party fails or refuses to defend the Claim then Indemnified Party may defend
and/or settle such Claim, after giving notice of proposed settlement to the
Indemnifying Party, on such terms as the Indemnified Party may reasonably deem
appropriate and no such action taken by the Indemnified Party in defending or
settling such Claim will release the Indemnifying Party of any obligation
hereunder. Except under the circumstances described in the preceding sentence,
the Indemnified Party will not enter into any settlement agreement without the
consent of the Indemnifying Party which consent shall not be unreasonably
withheld or delayed. The Indemnifying Party will not, without the prior written
consent of the Indemnified Party (which will not be unreasonably withheld),
enter into any settlement of a Claim, if pursuant to or as a result of such
settlement, injunctive or other equitable relief will be imposed against the
Indemnified Party or if such settlement does not expressly unconditionally
release the Indemnified Party from all liabilities or obligations with respect
to such Claim, with prejudice. The Indemnified Party and the Indemnifying Party
will cooperate with the each other in the defense, compromise or settlement of
any Claim for which indemnification is sought.
(c) Limitation on Indemnity. Other than any amounts that are payable
pursuant to Section 3.3 or Section 3.4 hereof which amounts shall be
payable in full, an Indemnifying Party shall be liable under Section
11.4(a) hereof for Claims only if the aggregate amount of all Claims
against Globe and Seller, collectively, on the one hand, or against Buyer,
on the other hand, exceed $175,000, and in such case, such the
Indemnifying Party shall be liable only for Indemnification of an amount
that is in excess of $75,000 (for the absence of doubt, and by way of
example, a $200,000 Claim shall be entitled to $125,000 in indemnification
payments).
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11.5. Cooperation. If requested by the Indemnifying Party, the Indemnified
Party shall cooperate to the extend reasonably requested in the defense or
prosecution of any suit, action, demand, assessment, judgment, claim, proceeding
or investigation for which such Indemnifying Party is being called upon to
indemnify the Indemnified Party pursuant to this Article 11, and the Indemnified
Party shall furnish such records, information and testimony and attend all such
conferences, discovery proceedings, hearing, trials and appeals as may be
reasonably requested in connection therewith and, if appropriate, the
Indemnified Party shall make any counterclaim against the party asserting such
suit, action, demand, assessment, judgment, claim, proceeding or investigation
or any cross-complaint against any person in connection therewith and the
Indemnified Party further agrees to take such other actions as reasonably may be
requested by an Indemnifying Party to reduce or eliminate any Loss for which the
Indemnifying Party would have responsibility, but the Indemnifying Party will
reimburse the Indemnified Party for any fees or expenses incurred by it in so
cooperating or acting at the request of the Indemnifying Party.
11.6. Buyer's Right of Offset; Sole Recourse Against Seller/Globe.
Notwithstanding anything to the contrary contained in this Agreement or the
other Transaction Documents, Buyer and each other member of the Buyer
Indemnified Group shall have, as their sole and exclusive recourse for Losses
against Seller and Globe, the right to (i) offset Losses against the Holdback
Cash and the Escrowed Shares pursuant to the Holdback Escrow Agreement; (ii) to
require payment of the Share Value Deficit as provided in Section 3.2(d); and
(iii) to require payment arising in connection with any adjustment under Section
3.3 or Section 3.4 hereof. Buyer shall provide written notice to the Seller at
least 2 days prior to the date of such offset. The foregoing shall not
constitute a limitation on or prevent Buyer from exercising any rights as
against any Seller Management or for intentional fraud.
11.7. Remedies Exclusive. The remedies provided in this Article 11 shall
be the sole and exclusive remedies, and shall preclude assertion by an
Indemnified Person of any and all other remedies against an Indemnified Party.
11.8. Insurance. The amount of any indemnification under this Article 11
shall be reduced by any amount recovered by the Indemnified Party (net of
reasonable expenses incurred in obtaining such recovery) under any insurance
policy or from any Third Party (which recovery the Indemnified Party shall use
it reasonably commercial efforts to pursue, but shall not be obligated to
commence litigation) and by the amount of any direct and immediate income tax
benefit, related to the indemnified Loss obtained by the Indemnified Party. If,
after an indemnification payment has been made with respect to a Loss, the
Indemnified Party has any recovery, or obtains any income Tax benefit, with
respect to that Loss, the Indemnified Party shall promptly pay to the
Indemnifying Party the amount of that recovery or income Tax benefit, net of
reasonably expenses incurred in obtaining recovery.
11.9. Adjustment. Any payment of indemnification amount under this Article
11 shall be accounted for as an adjustment to the Purchase Price.
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ARTICLE 12. TERMINATION
12.1. Termination. (a) Anything contained in the Transaction Documents to
the contrary notwithstanding, this Agreement may be terminated at any time prior
to the Closing Date:
(i) by the mutual consent of Buyer, Globe and Seller; or
(ii) by Buyer or Seller (the "TERMINATING PARTY") if the
Closing shall not have occurred on or before 11:59 p.m. on October
31, 2005 (or such later date as may be mutually agreed to by Buyer
and the Seller); provided that if the Closing shall not have
occurred as a result of the willful act or omission of one of the
parties, then such Terminating Party may not terminate this
Agreement pursuant to this Section 12.1(a).
(b) Globe and Seller may, on or prior to the Closing Date, terminate
this Agreement without liability if:
(i) there shall have been a material breach of any
representations or warranties set forth in this Agreement on the
part of Buyer or if any representations or warranties of Buyer shall
have become untrue, provided that neither Globe nor Seller have
materially breached any of their obligations hereunder;
(ii) there shall have been a material breach by Buyer of any
of its covenants of agreements hereunder and such breach would
materially and adversely affect the ability Buyer or Seller to
consummate the transactions contemplated by this Agreement, and
Buyer has not cured such breach within 10 Business Days after notice
by Seller thereof setting forth in reasonable detail the nature of
such breach; provided that neither Globe nor Seller has materially
breached any of their obligations hereunder; or
(iii) any condition to Closing set forth in Article 10 shall
not have been fulfilled by Buyer or waived by Seller by the Closing
Date.
(c) Buyer may, on or prior to the Closing Date, terminate this
Agreement without liability if:
(i) there shall have been a material breach of any
representations or warranties set forth in this Agreement on the
part of either Globe or Seller or if any representations or
warranties of either Globe or Seller shall have become untrue to the
extent it would have a Material Adverse Effect provided that Buyer
has not materially breached any of its obligations hereunder;
(ii) there shall have been a material breach by Seller or
Globe of one or more of their respective covenants or agreements
hereunder having a Material Adverse Effect on Seller or the Business
or materially adversely affecting (or materially delaying) the
ability of Seller and Buyer to consummate transactions contemplated
by this Agreement, and neither Globe nor Seller has cured such
breach within 10 Business Days after notice by Buyer thereof setting
forth in reasonable detail the nature of such breach, provided that
Buyer has not materially breached any of its obligations hereunder;
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(iii) any condition to Closing set forth in Article 9 shall
not have been fulfilled or waived by Buyer by the Closing Date.
12.2. Certain Termination Rights.
(a) Notwithstanding anything to the contrary contained herein, in
the event that: (A) none of the events in 12.1(c)(i)-(iii) has occurred
and Seller terminates this Agreement pursuant to Section 12.1(b); or (B)
in the event that Seller terminates this Agreement pursuant to Section
7.14, Buyer shall immediately pay to Seller the Escrow Amount (the
"TERMINATION FEE") which Buyer and Globe acknowledge is reasonable under
the circumstances and designed to compensate Seller and Globe for the lost
opportunity to consummate the Contemplated Transactions. The termination
Fee will serve as the exclusive remedy to Globe, Seller and any Affiliates
hereunder in the event of a breach by Buyer, including, but not limited
to, damages relative to their efforts, expenses and costs incurred in
evaluating the Contemplated Transactions.
(b) This Agreement may be terminated by Globe or Seller pursuant to
Section 7.5 and as provided therein.
12.3. Notice of Termination. Any party desiring to terminate this
Agreement pursuant to Section 12.(a)(ii), 12.1(b) or 12.2 shall give written
notice of such termination to the other party to this Agreement specifying the
reason for such termination.
12.4. Effect of Termination. In the event that this Agreement shall be
terminated pursuant to Section 12.1, each party shall pay all expenses incurred
by it in connection with this Agreement, and no party shall have any further
obligations or liability for any damages or expenses under this Agreement. In
the event of any termination, all further obligations of the parties under this
Agreement (other than those set forth in Sections 7.10, 7.11 and provisions
which by their terms are intended to survive termination, including, without
limitation, this Article 12) shall be terminated without further liability of
any party to the other; provided, however, that nothing contained herein shall
be construed to prevent any parties hereto from pursuing any remedy available at
law or in equity for any breach, violation, default or other failure of
performance of any other party hereto prior to Closing.
ARTICLE 13. GENERAL.
13.1. Notices. All notices, demands and other communications hereunder
shall be in writing or by written telecommunication, and shall be deemed to have
been duly given if delivered personally or if mailed by certified mail, return
receipt requested, postage prepaid, or if sent by overnight courier, or sent by
written telecommunication, as follows:
If to the Seller:
theglobe.com, inc.
110 East Broward Boulevard
Suite 1400
Ft. Lauderdale, FL 33301
with copies to:
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Proskauer Rose LLP
2255 Glades Road
Suite 340W
Boca Raton, FL 33434
Attn: Donald E. "Rocky" Thompson II, Esq.
Fax: 561-241-7145
If to the Buyer, to:
RelationServe Media, Inc.
6700 North Andrews Avenue
Ft. Lauderdale, FL 33309
Attn: Mandee Heller Adler
Fax: 954-202-6160
with copies to:
Olshan Grundman Frome Rosenzweig & Wolosky LLP
Park Avenue Tower
65 East 55th Street
New York, NY 10022
Attn: Harvey J. Kesner, Esq.
Fax: 212-451-2222
Any such notice shall be effective (a) if delivered personally, when
received, (b) if sent by overnight courier, when receipted for, (c) if mailed,
five (5) days after being mailed as described above, and (d) if sent by written
telecommunication, when dispatched; provided that notice is sent simultaneously
via another permitted method.
13.2. Entire Agreement. This Agreement contains the entire understanding
of the parties, supersedes all prior agreements and understandings relating to
the subject matter hereof and shall not be amended except by a written
instrument hereafter signed by all of the parties hereto.
13.3. Expenses, Taxes. Except as otherwise specifically set forth herein,
each party shall pay its own fees and expenses incident to the preparation and
carrying out of this Agreement, whether or not the Contemplated Transactions are
consummated (other than any excise, sales, use or transfer Taxes or any other
such Taxes which are payable or arise as a result of execution of this Agreement
or the transfer of the Acquired Assets to the Buyer pursuant to this Agreement,
which shall be paid by Seller).
13.4. Partial Invalidity. If any term or provision of this Agreement or
the application hereof to any person, property or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Agreement or the
application of such term or provision to persons, property or circumstances
other than those as to which it is invalid or unenforceable shall not be
affected thereby, and each term and provision of this Agreement shall be valid
and enforced to the fullest extent permitted by law.
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13.5. Amendment, Modification and Waiver. This Agreement shall not be
altered or otherwise amended except pursuant to an instrument in writing signed
by each of the parties hereto. The waiver by one party of the performance of any
covenant, condition or promise shall not invalidate this Agreement, nor shall it
be considered a waiver by such party of any other covenant, condition or
promise. The delay in pursuing any remedy or in insisting upon full performance
for any breach or failure of any covenant, condition or promise shall not
prevent a party from later pursuing any remedies or insisting upon full
performance for the same or any similar breach or failure.
13.6. Headings. The various section headings in this Agreement are
inserted for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement or any provisions hereof.
13.7. Construction. This Agreement shall be construed according to its
fair meaning and neither for nor against any party hereto irrespective of which
party caused the same to be drafted. Each of the parties acknowledges that it
has been represented by an attorney in connection with the preparation and
execution of this Agreement.
13.8. Governing Law. The validity and construction of this Agreement shall
be governed by the internal laws of the State of Delaware, without giving effect
to the principles of conflicts of laws thereof.
13.9. Arbitration of Disputes.
(a) Any controversy or claim arising out of, relating to, or in
connection with, this Agreement or the Seller Transaction Documents, or
the breach, termination or validity thereof, shall be settled by
arbitration in accordance with the Center for Public Resources for
Non-Administered Arbitration by a sole arbitrator. The Parties expressly
waive any right to punitive, exemplary or similar damages and the
arbitrator is expressly prohibited from awarding any such damages.
Judgment upon the award rendered by the Arbitrator shall be entered by an
court having jurisdiction thereof. The seat of the arbitration shall be
Broward County, Florida.
(b) In order to facilitate the comprehensive resolution of related
disputes, and upon request of any party to the arbitration proceeding, the
arbitrator may, within 90 days of his or her appointment, consolidate the
arbitration proceeding involving any of the parties relating to this
Agreement or any Seller Transaction Documents. The arbitration shall not
consolidate such arbitrations unless he or she determines that (i) there
are issues of fact or law common to the two proceedings so that a
consolidated proceeding would be more efficient than separate proceedings,
and (ii) on party would be prejudiced as a result of such consolidation
through undue delay or otherwise. In the case of a consolidated
proceeding, the arbitration shall be conducted in the manner provided in
subparagraph (a) of this paragraph.
13.10. Sections and Section Headings. The headings of sections and
subsections are for reference only and shall not limit or control the meaning
thereof.
13.11. Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns. This agreement shall be fully assignable by Buyer to any
majority-owned subsidiary of Buyer formed for the purpose
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of acquiring the Business and the Acquired Assets from Seller. Except as
provided herein, neither this Agreement nor the obligations of any party
hereunder shall be assignable or transferable by such party without the prior
written consent of the other party hereto.
13.12. Severability. In the event that any covenant, condition, or other
provision herein contained is held to be invalid, void, or illegal by any court
of competent jurisdiction, the same shall be deemed to be severable from the
remainder of this Agreement and shall in no way affect, impair, or invalidate
any other covenant, condition, or other provision contained herein.
13.13. No Implied Rights or Remedies. Except as otherwise expressly
provided herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or to give any person, firm or corporation, other than
the Seller and the Buyer and their respective shareholders, any rights or
remedies under or by reason of this Agreement.
13.14. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
ARTICLE 14. CERTAIN DEFINITIONS. As used herein the following terms not
otherwise defined have the following respective meanings:
"AFFILIATE" shall mean any Person directly or indirectly controlling,
controlled by or under direct or indirect common control with the specified
Person and shall include (a) any Person who is a director or beneficial holder
of at least 10% of any class of the then-outstanding capital stock (or other
shares of beneficial interest) of such Person and family members of any such
Person, (b) any Person of which such Person or an Affiliate of such Person under
clause (a) hereof shall, directly or indirectly, either beneficially own at
least 10% of any class of the then outstanding capital stock (or other shares of
beneficial interest) or constitute at least a 10% equity participant, and (c) in
the case of a specified Person who is an individual, family members of such
Person.
"BUSINESS DAY" shall mean any day excluding Saturday, Sunday and any day
on which banks in New York City are authorized by law or other governmental
action to close.
"ENVIRONMENTAL CLAIM" shall mean any written claim, action, demand, order,
or notice by or on behalf of, any Governmental Authority or person alleging
potential liability arising out of, based on or resulting from the violation of
any applicable Environmental Law or Environmental Permit or relating to any
Hazardous Materials.
"ENVIRONMENTAL LAWS" shall mean all Laws that are applicable to Seller
relating to Releases or threatened Releases of Hazardous Materials or otherwise
relating to pollution or protection of the environment, health, safety or
natural resources, including, without limitation, those relating to (A) the
Releases or threatened releases of Hazardous Materials or materials containing
Hazardous Materials or (B) the manufacture, generation, handling, treatment,
storage, transport, disposal or handling of Hazardous Materials or materials
containing Hazardous Materials.
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14.1. "FAIR MARKET VALUE" shall mean the average for the ten (10) trading
days immediately preceding the date of determination of the daily high and low
prices of publicly traded shares of stock, rounded to the nearest cent, on the
principal national securities exchange on which shares of stock are listed (if
the shares of stock are so listed), or on the Nasdaq Stock Market (if the shares
of stock are regularly quoted on the Nasdaq Stock Market), or, if not so listed
or regularly quoted, the mean between the closing bid and asked prices of
publicly traded shares of stock in the over-the-counter market, or, if such bid
and asked prices shall not be available, as reported by any nationally
recognized quotation service selected by Buyer, or as determined by the Board in
a manner consistent with the provisions of the Code.
"GOVERNMENTAL AUTHORITY" shall mean any domestic or foreign federal, state
or local agency, authority, board, bureau, court, instrumentality or other
entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers, in each case, to the extent having jurisdiction over the
Seller or Globe, as applicable
"HAZARDOUS MATERIALS" shall mean all substances, matters and other
particles defined or listed as "hazardous" or "toxic" under Environmental Laws
or that are otherwise regulated by Environmental Laws.
"INDEBTEDNESS" shall mean as applied to any Person, (a) all indebtedness
of such Person for borrowed money, whether current or funded, or secured or
unsecured, (b) all indebtedness of such Person for the deferred purchase price
of property or services represented by a note, (c) all indebtedness of such
Person created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even though the
rights and remedies of the sellers or lender under such agreement in the event
of default are limited to repossession or sale of such property), (d) all
indebtedness of such Person secured by a purchase money mortgage or other lien
to secure all or part of the purchase price of property subject to such mortgage
or lien, (e) all obligations under leases which shall have been or must be, in
accordance with generally accepted accounting principles, recorded as capital
leases in respect of which such Person is liable as lessee, (f) any liability of
such Person in respect of banker's acceptances or letters of credit, (g) all
interest, fees and other expenses owed with respect to indebtedness described in
the foregoing clause (a), (b), (c), (d), (e) or (f) above, and (h) all
indebtedness referred to in clause (a), (b), (c), (d), (e), (f) or (g) above
which is directly or indirectly guaranteed by such Person or which such Person
has agreed (contingently or otherwise) to purchase or otherwise acquire or in
respect of which it has otherwise assured a creditor against loss.
"INTELLECTUAL PROPERTY" shall mean all intangible assets used in or
necessary to the conduct of the business of Seller, including, without
limitation: the name "Seller" and all derivations thereof, all trade names,
domain names, websites, service marks names, trade dress, logos, trade secrets,
copyrights and registrations and applications therefore, designs, technical
information, know-how, processes and techniques, research and development
information, and supplies, plans, proposals, technical data, computer software,
financial, marketing and business data, pricing and cost information, and
business and marketing plans, formulas, devices, software or compilations of
information; patents, license rights and sublicense rights to all patents and
trademarks, and other intangible assets registered in the name of Seller or any
of its Affiliates and currently used by Seller in connection with, or necessary
for the conduct of the business of
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Seller, all applications therefore and all licenses (as licensee or licensor)
and other agreements related thereto as described on Schedule 5.12(a) hereto,
and all of Seller's rights to use or allow others to use such names, all
registrations and applications for registration and all claims for infringement
of any intellectual property and intangible rights relating thereto.
"IRS" shall man the United States Internal Revenue Service.
"LAWS" shall mean any federal, state, local, municipal, foreign,
international, multinational or other administrative order, constitution, law,
ordinance, principle of common law, rule, regulation, statute or treaty or any
order of any Governmental Authority, or any license, franchise, consent,
approval, permit or similar right granted under any of the foregoing including,
without limitation, all federal, state and local privacy laws, rules and
regulations, and all other applicable laws of similar tenor and effect, all laws
relating to occupational health and safety, equal employment opportunities, fair
employment practices and discrimination, privacy, security and exchange of
information, the Sarbanes Oxley Act of 2002, the Digital Millennium Copyright
Act, the CAN-SPAM Act of 2003, the Children's Online Protection Act, the
Children's Online Privacy Protection Act, the Protection of Children from Sexual
Predators Act, rules and regulations promulgated by the Federal Trade Commission
and the Federal Communications Commission, and other laws, rules, and
regulations, applicable to the Business or any of its properties or assets.
"MATERIAL ADVERSE EFFECT" shall mean circumstance, change in, or effect on
the Business, or the Seller that, individually or in the aggregate: (a) is, or
would reasonably be expected to be, materially adverse to the business,
operations, assets or liabilities, employee relationships, customer or supplier
relationships, results of operations or the financial condition or prospects of
the Business or (b) would materially and adversely affect the ability to operate
or conduct the Business in the Ordinary Course.
"NET WORKING CAPITAL" shall mean the current assets minus the current
liabilities, in each case acquired by the Buyer, less intercompany transactions.
"PERMITS" shall mean all franchises, licenses, permits, consents,
authorizations, approvals and certificates, or any waiver of the foregoing,
required by any person or organization including any Governmental Authority (as
defined herein), and held, used or otherwise possessed by Seller in connection
with and/or necessary to the operation of the business of Seller, to the extent
transferable to Buyer under applicable Laws as listed on Schedule 4.13.
"PERMITTED ENCUMBRANCES" means (i) liens for Taxes not yet due and payable
or being contested in good faith by appropriate proceedings and with respect to
which adequate reserves have been established; (ii) rights reserved to any
Governmental Authority to regulate the affected property; (iii) statutory liens
of banks and rights of set-off; (iv) as to leased assets, interests of the
lessors and sublessors thereof and liens affecting the interests of the lessors
and sublessors thereof; (v) inchoate materialmen's, mechanics', workmen's,
repairmen's or other like liens arising in the Ordinary Course; (vi) liens
incurred or deposits made in the Ordinary Course in connection with workers'
compensation and other types of social security; (vii) licenses of trademarks or
other intellectual property rights granted by the Seller in the Ordinary Course
and not interfering in any material respect with the Ordinary Course of the
Business of Seller; and
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(viii) as to real property, any encumbrance, adverse interest, constructive or
other trust, claim, attachment, exception to or defect in title or other
ownership interest (including, but not limited to, reservations, rights of
entry, rights of first refusal, possibilities of reverter, encroachments,
easement, rights of way, restrictive covenants, leases, and licenses) of any
kind, which otherwise constitutes an interest in or claim against property,
whether arising pursuant to any Laws, under any contract or otherwise, that do
not, individually or in the aggregate, have a Material Adverse Effect on
Seller's use thereof as currently used in the Ordinary Course.
"PERSON" shall mean a corporation, an association, a partnership, an
organization, a business, an individual, a limited liability company, a
government or political subdivision thereof or a governmental agency (including
without limitation, any federal, state, local or municipal regulatory or
administrative body).
"PRE-CLOSING TAX PERIOD" shall mean all taxable periods ending on or
before the Closing Date and the portion ending on the Closing Date of any
taxable period that includes (but does not end on) the Closing Date.
"RELEASE" shall mean any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment, including the movement of Hazardous Materials through the air,
soil, surface water or groundwater.
"RELEVANT GROUP" shall mean any combined, consolidated, affiliated,
unitary or similar group of which either Seller is or was a member.
"TAX" shall mean any federal, state, local, foreign and other income,
profits, franchise, capital, withholding, unemployment insurance, social
security, occupational, production, severance, gross receipts, value added,
sales, use, excise, real and personal property, ad valorem, occupancy, transfer,
employment, disability, workers' compensation or other similar tax, duty or
other governmental charge (including all interest and penalties thereon and
additions thereto).
"TRANSACTION DOCUMENTS" shall mean this Agreement, the Bill of Sale and
other documents and agreements of even date herewith or delivered at Closing.
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IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Asset Purchase Agreement to be duly executed and
delivered as a sealed instrument as of the 10th day of August, 2005.
SELLERS:
theglobe.com, inc.
By:
-----------------------------------------
Title:
SENDTEC, INC.
By:
-----------------------------------------
Title:
BUYER:
RELATIONSERVE MEDIA, INC.
By:
-----------------------------------------
Title:
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AMENDMENT NO. 1
TO
ASSET PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT (this "Amendment") is
entered into as of this 23rd day of August, 2005, by and among RelationServe
Media, Inc., a Nevada corporation ("Buyer"), theglobe.com, inc., a Delaware
corporation ("Globe") and SendTec, Inc., a Florida corporation ("Seller").
Capitalized terms used and not defined herein shall have the respective meanings
ascribed to them in the Asset Purchase Agreement (as defined below).
RECITALS:
WHEREAS, Buyer, Globe and Seller are parties to that certain Asset
Purchase Agreement dated as of August 10, 2005 (the "Asset Purchase Agreement");
and
WHEREAS, Buyer, Globe and Seller desire to amend the Asset Purchase
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and obligations
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Amendment.
(a) Section 7.14 of the Asset Purchase Agreement is deleted in its
entirety;
(b) Section 8.3(b) of the Asset Purchase Agreement shall delete the
words "5 years" and insert the words "12 months" in their place;
(c) Section 8.3(c) of the Asset Purchase Agreement shall be deleted in
its entirety and shall be replaced with the following:
"Competitive Business" shall mean: (i) any advertising agency or
similar business that, in either case, is primarily engaged in, and
derives the majority of its annual revenues from, managing or
procuring Internet-based advertising services on behalf of
third-parties in exchange for a fee; or (ii) any business engaged in
the development, sale, or support of offline (i.e. non-Internet)
direct-response marketing technology on behalf of third-parties.
Notwithstanding anything herein to the contrary, Competitive
Business shall not include the delivery by Globe (or any of its
Affiliates) of marketing services and/or products (including without
limitation, the sale or licensing of marketing tools, the generation
of leads and/or the sale, licensing, acquisition or sharing of
data), which services and products are understood and agreed to
involve marketing activities and not the management or procurement
of advertising services.
(d) Section 8.3(d) shall be amended to replace the first word thereof
with "The Globe";
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(e) Section 8.3(g) shall be added to the Asset Purchase Agreement as
follows:
"The Globe and Seller agree that during the Non Competition Period,
neither of them shall, directly or indirectly:
(i) solicit, raid, entice or induce any present or former (since
September 1, 2004) client, customer or vendor of the Seller
("Customer") or of Buyer to become a client, customer or
vendor of any other person or entity for any Competitive
Business, or authorize, encourage or assist the taking of such
actions by any other person or entity; or
(ii) solicit, raid, entice or induce any employee, agent,
consultant, advisor, independent contractor or person
otherwise engaged by Seller at any time since September 1,
2004 or of Buyer ("Personnel") to become employed or otherwise
engaged by any other person or entity for the purpose of any
Competitive Business or rendering services the same as, or
similar to, those services as from time-to-time had been
provided by such Personnel to or on behalf of Seller or Buyer
or authorize, encourage or assist the taking of such actions
by any other person or entity; or
(iii) contact or communicate with any Customer or Personnel for any
business purpose restricted hereby without the presence or
prior consent of Buyer.";
(f) Section 8.6 shall be amended by deleting the word "Seller" within
the parenthetical and replacing it with the word "SendTec";
(g) The preamble of ARTICLE 5, "REPRESENTATIONS AND WARRANTIES OF SELLER
AND GLOBE" preceding the individual section paragraphs of Article 5
thereof is deleted in its entirety and shall be replaced with the
following: "The Seller and Globe, jointly and severally, represent
and warrant to the Buyer as of the date hereof (except as otherwise
indicated) as follows:";
(h) Each of the specific representations that are set forth on Exhibit A
hereto shall replace the identical numbered representation and
warranty that is set forth in Article 5 of the Asset Purchase
Agreement, with each such identical numbered representation and
warranty (or subparagraph thereof as the case may be) amended in its
entirety to read as set forth on Exhibit A hereto and all
representations and warranties that are not included on Exhibit A
(including any subparagraphs) remaining unchanged and in full force
and effect.
(i) Notwithstanding Section 11.1 or anything else to the contrary in the
Asset Purchase Agreement, the parties agree that the representations
and warranties set forth on Exhibit A attached hereto, as well as
each other representation and warranty made by Seller Management in
the Redemption Agreement, may be updated by any member(s) of Seller
Management prior to Closing in accordance with Section 7(a) of the
Redemption Agreement (without any liability to Globe) for the period
between the date they are first deemed given pursuant to Article 5
of the Asset Purchase Agreement (which is understood and agreed to
be the date hereof) and the Closing Date (including for this
purpose, the closing of the Redemption Agreement) for any schedules
or changes to the Operational Representations made to Globe pursuant
to the Redemption Agreement, provided that (i) Buyer is informed in
writing of such updating under the Redemption Agreement and (ii)
proceeds to Closing without claiming that such update is a breach of
an Operational Representation as opposed to an update thereof. If
any one or more of such Operational Representations is updated by
any member(s) of Seller Management pursuant to the Redemption
Agreement, then the Operational Representations set forth on Exhibit
A hereto and, to the extent not set forth on Exhibit A, the Asset
Purchase Agreement, shall, without further action, be automatically
updated to precisely match the updated Operational Representation(s)
made by such member(s) of Seller Management, with all other
representations and warranties not so revised continuing in full
force and effect unchanged.
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(j) Section 9.10 is deleted in its entirety and shall be replaced with
the following: "Management Agreements. Each of the individuals
listed on Schedule 9.10 hereto shall have delivered to Buyer a duly
executed copy of that certain: (a) Representation Certification
substantially in the form annexed hereto as Exhibit D hereto; (b)
Employment Agreement, substantially in the form annexed hereto as
Exhibit E hereto; and (c) Stock Agreement, substantially in the form
annexed hereto as Exhibit F hereto. In addition, Seller Management
shall have executed and delivered to Buyer an escrow agreement on
terms and conditions satisfactory to Buyer, including, without
limitation, terms providing for a minimum of 200,000 shares of
Buyer's common stock being placed in escrow for the purpose of
permitting Buyer to satisfy any losses suffered by Buyer as a result
of the breach by any member(s) of Seller Management of any one or
more Operational Representations set forth in the Redemption
Agreement (the agreements referred to in this Section 9.10 being
collectively referred to herein as the "Management Agreements")."
(k) Section 10.7 is deleted in its entirety and shall be replaced with
the following: "Seller Management. Seller Management shall have
executed and delivered to Globe the Redemption Agreement and the
Termination Agreement, each on terms acceptable to Globe. Seller
Management shall have executed and delivered an escrow agreement on
terms and conditions satisfactory to Globe and Seller, including,
without limitation, terms providing for a minimum of 200,000 shares
of Buyer's common stock being placed in escrow for the purpose of
permitting Buyer to satisfy any losses suffered by Buyer as a result
of the breach by any member(s) of Seller Management of any one or
more Operational Representations set forth in the Redemption
Agreement (the "Management Escrow Agreement")."
(l) Section 11.1 is amended by deleting the words "and employee benefit
matters" in (i) and inserting the word "and" between "Tax matters"
and "environmental matters" and deleting the "'" between such
phrases.
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(m) Section 11.1 is amended by deleting ", and (ii) any representation
of Globe or Seller with respect to title matters shall survive for
five years".
(n) Section 11.2 (d) is deleted in its entirety and shall be replaced
with the following: "subject to Section 11.10 hereof, any breach of
any representation or warranty that is also made by any member of
Seller Management in the Redemption Agreement (an "Operational
Representation")."; and
(o) Section 11.10 shall be added to the Asset Purchase Agreement as
follows: "In the event that a Claim is made against Globe or Seller
that is in whole or in part based upon breach of an Operational
Representation, Globe shall give prompt written notice thereof to
Seller Management in accordance with the requirements of the
Redemption Agreement, with notice thereof to Buyer, identifying the
basis therefore. Buyer agrees that Buyer's first recourse for breach
of any Operational Representation shall be pursuant to the
Redemption Agreement, the Management Escrow Agreement and any Seller
Management property then held in escrow under the Management Escrow
Agrement (collectively, "Escrow Property"). In the event that Buyer
is able to satisfy in full any Claim for breach of an Operational
Representation against the Escrow Property, then Buyer's sole
recourse shall be against such Escrow Property. If, however, the
value of the Escrow Property is less than the amount of the losses
arising from the breach of an Operational Representation by any
member(s) of Seller Management, then Buyer shall be entitled to
recourse against the Holdback Cash and the Escrowed Shares then in
the possession of the Holdback Escrow Agent, with such rights as are
provided in Section 3.2(d). Seller and Globe agree that without the
prior written consent of Buyer, neither Seller nor Globe shall
modify or amend the Redemption Agreement, nor waive any rights
thereunder, if such action would have an adverse effect on Buyer's
rights. Buyer agrees that without the prior written consent of
Seller and Globe, Buyer shall not modify, waive, or amend any of
Buyer's rights under or with respect to the Redemption Agreement,
the Escrow Agreement or the Escrow Property.
2. Ratification. Except as specifically provided in this Amendment, the Asset
Purchase Agreement is ratified and confirmed as written and shall remain
in full force and effect. The provisions of Article 8 of the Asset
Purchase Agreement and other provisions which by their terms are intended
to have effect following the Closing Date, as amended hereby, shall
survive the Closing for the periods set forth. To the extent that this
Amendment incorporates any terms or requires reference to external facts
or conditions, the provisions of Section 13.2 "Entire Agreement" are
hereby amended for the purposes of such incorporation and references.
3. Execution in Counterparts. This Amendment may be executed by the parties
hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and both of which when taken together shall
constitute one and the same agreement.
4. Governing Law. This Amendment shall be governed by the internal laws of
the State of Delaware without regard to principles of conflicts of law.
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date and year first above written.
BUYER:
RELATIONSERVE MEDIA, INC.
By:
-------------------------------------------
Title:
GLOBE:
theglobe.com, inc.
By:
-------------------------------------------
Title:
SELLER:
SENDTEC, INC.
By:
-------------------------------------------
Title:
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EXHIBIT A
5.3 Non-Contravention. Except as listed on Schedule 5.3, the execution and
delivery by Seller and Globe of this Agreement and the Seller Transaction
Documents and the consummation by the Seller and Globe of the Contemplated
Transactions will not . . . ; (b) conflict with or result in the breach or
termination of (or constitute a default for any event which, with notice or
lapse of time or both would constitute a default) under, or give to others any
rights of termination or cancellation of, or accelerate the performance required
by, or maturity of, or result in the creation of any Encumbrance pursuant to any
of the terms, conditions or provisions of, any Contract which either Seller or
Globe is a party; (c) constitute a violation of, or be in conflict with, or
constitute or create a default under, or result in the creation or imposition of
any Encumbrance (except a Permitted Encumbrance). [except as noted above,
remainder of 5.3 is unchanged].
5.5 [unchanged].
5.6 Absence of Certain Changes and Events. Since June 30, 2005 (the "Balance
Sheet Date"), the business of Seller has been conducted only in the ordinary
course of business consistent with past practice of Seller (the "Ordinary
Course"). Without limiting the foregoing, except as set forth on Schedule 5.6,
since the Balance Sheet Date, there has not been, occurred or arisen:
(a) any material adverse change, taken as a whole, in the assets,
liabilities, financial condition or results of operation of Seller;
(b) any sale, lease or other disposition of any properties or assets
of Seller in excess of $10,000 individually or in the aggregate except in
the Ordinary Course;
(c) any material change in the methods of doing business that has
had or would reasonably be expected to have a Material Adverse Effect (as
defined below);
(d) any material change in the accounting principles or practices or
the method of application of such principles or practices used by Seller,
or any change in depreciation or amortization policies or rates previously
adopted, that has had or would reasonably be expected to have a Material
Adverse Effect;
(e) any Encumbrance imposed or agreed to be imposed on or with
respect to any of the Acquired Assets other than Permitted Encumbrances;
(f) any material modification, waiver, change, amendment, release,
rescission or termination of, or accord and satisfaction with respect to,
any material term, condition or provision of any Contract, other than any
satisfaction by performance in accordance with the terms thereof in the
Ordinary Course;
(g) any casualty, loss, damage or destruction (whether or not
covered by insurance), or taking by eminent domain or other action by any
Governmental Authority, that has had or would reasonably be expected to
have a Material Adverse Effect;
(h) any adverse pending, or threatened dispute of any kind with any
contractor, subcontractor, customer, supplier, employee, landlord,
subtenant or licensee of Seller that is reasonably likely to result in any
material reduction in the amount, or any change in the material terms or
conditions or any material customer, supplier or other relationship of
Seller that has had, or would reasonably be expected to have a Material
Adverse Effect;
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(i) other than in the Ordinary Course, any increase in the
compensation payable or to become payable to any of Seller's officers,
employees, agents or consultants (including, without limitation, any
increase pursuant to any bonus, pension, profit-sharing or other plan or
commitment), or the entering into or modification of any employment
contract or other agreement concerning the compensation of any officer, or
employee, or the making of any loan to, or engagement in any transaction
with, any officers, directors or shareholders of Seller, or the
establishment of any new, or the modification of any existing, employee
benefit, compensation or stock plan of Seller that affects the employees
of Seller;
(j) any capital expenditure or commitment therefor by Seller in
excess of $25,000 in the aggregate for additions, alterations or
modifications to the property, plant or equipment of Seller;
(k) the incurrence or entering into of any transaction, contract or
commitment by Seller with respect to its business, other than items
incurred or entered into (as the case may be) in the Ordinary Course;
(l) any payment, discharge or satisfaction of any claim, Encumbrance
or liability by Seller in excess of $25,000 individually or in the
aggregate, other than in the Ordinary Course;
(m) any organized labor strike or grievance that has had or could
reasonably be expected to have a Material Adverse Effect;
(n) any license, sale, transfer, pledge, mortgage or other
disposition of any tangible or intangible asset or Intellectual Property
of Seller in excess of $25,000 individually or in the aggregate other than
in the Ordinary Course;
(o) any cancellation of any Indebtedness or claims or any amendment,
termination, diminution or waiver of any rights of material value to
Seller in excess of $25,000 individually or in the aggregate; and
(p) any agreement or understanding, whether in writing or otherwise,
for Seller to take any of the actions specified in (a) through (o) above.
For purposes of this Schedule, the term "Material Adverse Effect" shall mean any
material adverse effect on the business, operations, financial condition, or
results of operations of the Business.
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5.7 Title to Properties.
(a) Acquired Assets. Seller has, and upon Closing, will transfer to Buyer, good,
clear and valid title to, and possession of, all of the Acquired Assets owned by
Seller, free and clear of any Encumbrances (other than Permitted Encumbrances).
Seller has, and upon Closing, will transfer to Buyer, valid and subsisting
leasehold interests or licenses in, and possession of, all of the Acquired
Assets that are leased by Seller. Seller has the full right, power and authority
to sell, convey, transfer, assign and deliver the Acquired Assets, without the
need to obtain the consent or approval of any third party, except as listed on
Schedule 5.7(a). At and as of the Closing, Seller will convey the Acquired
Assets to Buyer by deeds, bills of sale, certificates of title and other
instruments of assignment and transfer effective in each case to vest in Buyer,
and Buyer will have, good and valid title to all of the Acquired Assets, free
and clear of any and all Encumbrances, except for Permitted Encumbrances. The
Acquired Assets are, in all material respects, in good condition and repair and
are adequate and sufficient for Seller's intended purposes, ordinary wear and
tear excepted. The Acquired Assets will transfer to Buyer under this Agreement
(and other documents contemplated hereby), and constitute, all of the material
assets and properties (personal and mixed, tangible and intangible) and rights
necessary or desirable to permit Buyer to conduct the Business consistent with
Seller's past business practice.
(b) Leases. (i) Schedule 1.1(h) contains a list of all material agreements under
which real property is leased by Seller and used in connection with the
Business. All of the Leased Real Property including any buildings, structures
and appurtenances thereon, are, to Seller's knowledge, in good operating
condition and repair, ordinary wear and tear excepted, are in such condition as
to permit surrender by Seller to the lessors thereof without any material cost
or expense for repair or restoration if any of the Real Property Leases were
terminated on the date hereof, are adequate and suitable for the uses for which
intended by Seller, each has adequate rights of ingress and egress for operation
of the Business in the Ordinary Course and there does not exist any condition
that interferes in any material way with the use or the economic value thereof.
(ii) Schedule 1.1(g) contains a list of all leases or material agreements under
which Seller, with respect to the Business, is lessee of or holds or operates
any items of machinery, equipment, motor vehicles, computer equipment, printers,
office furniture or fixtures owned by any third party, true, complete and
correct copies (or, in the case of oral leases or agreements, descriptions) of
which leases and agreements have been furnished to Buyer. Seller is the owner
and holder of all of the leasehold estates purported to be granted by such
leases or agreements and all other leases or agreements under which Seller is
lessee of or holds or operates any such items owned by a third party, and each
of such leases and agreements is in full force and effect and constitutes a
legal, valid and binding obligation of the respective parties thereto
enforceable in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles regardless of whether such enforceability is
considered in a proceeding at law or in equity. There is not under any of such
leases any existing default or, to the knowledge of Seller, event, condition or
occurrence which, with the giving of notice or lapse of time, or both, would
constitute a default thereunder. Except as provided on Schedule 5.7(c)(ii)
hereto, to Seller's knowledge, each of the items of machinery, equipment,
printers, office furniture and fixtures covered by the Personal Property Leases
is in good operating condition and repair, is in such condition as to permit
surrender thereof by Seller to the lessors without any material cost or expense
for repair, ordinary wear and tear excepted, or restoration if such leases were
terminated on the date hereof, is suitable for the uses for which intended by
Seller in the Ordinary Course and there does not exist any condition that
interferes in any material way with the use or economic value thereof.
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5.8 Absence of Liabilities. Except for the Assumed Liabilities, and except as
set forth on Schedule 5.8 there are no material liabilities or obligations of
Seller of any nature (whether liquidated, unliquidated, accrued, absolute or
contingent (within the meaning of GAAP), and whether due or to become due)
probable of assertion relating to the Business except for:
(a) liabilities set forth or reflected (or reserved against) in the Balance
Sheet that have not been paid or discharged since the date thereof;
(b) liabilities or obligations arising under agreements or other commitments
listed on Schedule 5.8(b);
(c) current liabilities arising in the Ordinary Course subsequent to the
Balance Sheet Date, that are accurately reflected on its books and records
in a manner consistent with past practice; or
(d) the Excluded Liabilities (which shall be retained by Seller); or
(e) liabilities or obligations that do not or would not, either individually
or in the aggregate, have a Material Adverse Effect
5.9 [unchanged]
5.10 [unchanged]
5.11 Intellectual Property.
(a) Schedule 5.11(a) hereto sets forth a complete and accurate list of all
registered Intellectual Property used in the Business as presently
conducted by Seller and any applications therefor. Except to the extent
set forth in Schedule 5.11(a), Seller owns or has the right to use all of
the Intellectual Property used in the Business as presently conducted, and
the consummation of the transactions contemplated by the Transaction
Documents will not alter or impair any such right. All Intellectual
Property is valid, subsisting, in full force and effect, enforceable
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity), and has not been abandoned as of the date
hereof. Except as has not or is not reasonably likely to have a Material
Adverse Effect, Seller has taken all reasonable action to maintain and
protect each item of Intellectual Property. The Intellectual Property is
free and clear of any Encumbrances other than Permitted Encumbrances and,
except for generally commercially available, non-custom, off-the-shelf
software application programs, or except as set forth on Schedule 5.11(a),
is fully assignable by Seller to any Person, without payment, consent of
any person or other condition or restriction. No registered Intellectual
Property has been or is now involved in any cancellation, dispute or
litigation, and, to the knowledge of Seller, no such action is threatened.
Except as set forth in Schedule 5.11(a), no patent of Seller included in
the Intellectual Property has been or is now involved in any interference,
reissue, re-examination or opposition proceeding.
A-57
(b) License Agreements. Schedule 5.11(b) sets forth a complete and accurate
list of all licenses, sublicenses, consents, royalties or other agreements
concerning Intellectual Property to which Seller is a party or by which
any of the assets of Seller is bound (other than generally commercially
available, non-custom, off-the-shelf software application programs having
a retail acquisition price of less than $10,000 per license) relating to
the Business (collectively, "License Agreements"). All of the License
Agreements are valid and binding obligations of Seller enforceable in
accordance with their terms except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles regardless of whether such enforceability is
considered in a proceeding at law or in equity, and to Seller's knowledge,
except for generally commercially available, non-custom, off-the-shelf
software application programs, there exists no event or condition which
will result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default by Seller under any such
License Agreement. Seller has performed all obligations required to be
performed by it, and Seller is not in default (or alleged to be in
default) under any Contract relating to any of the foregoing in any way
that is reasonably likely to have a Material Adverse Effect. No party to
any Contract relating to Intellectual Property has given Seller notice of
its intention to cancel, terminate or fail to renew such License
Agreement.
(c) No Infringement. Except as disclosed in Schedule 5.11(c): (i) to the
knowledge of Seller, the conduct of Seller's businesses as currently
conducted does not infringe any Intellectual Property rights of any
Person, and the Intellectual Property rights of Seller are not being
infringed by any Person, except for such infringements in (i) or (ii) that
would not have a Material Adverse Effect; and (ii) there is no litigation
or order pending or outstanding, or, to the knowledge of Seller,
threatened, that seeks to limit or challenge or that concerns the
ownership, use, validity or enforceability of any Intellectual Property or
Seller's use of any Intellectual Property owned by a third party, and, to
the knowledge of Seller, there is no valid basis for the same.
(d) Royalties. No royalties, honoraria or other fees are payable by Seller to
any Person for the use of or right to use any Intellectual Property,
except as set forth in Schedule 5.11(d).
(e) Intellectual Property. For purposes of this Section 5.11, the term
"Intellectual Property" includes the following that are owned by or
licensed to Seller: (i) all domain names, websites, service marks, trade
dress, logos, copyrights; (ii) computer software; (iii) trade secrets;
(iv) confidential and proprietary (A) technical information, (B) know-how,
processes, (C) techniques, (D) research and development information, and
(E) business and marketing plans; (v) patents; (vi) license rights and
sublicense rights to all patents and trademarks; (vii) other intangible
assets registered in the name of Seller or any Affiliate currently used by
Seller in connection with business of Seller; and (viii) all registrations
and applications of patents, copyrights, trademarks and service marks, and
all licenses (as licensee or licensor) and other agreements related
thereto.
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5.12 Permits. The Permits (as defined below) listed in Schedule 5.12 constitute
all of the material licenses, permits, certificates, approvals, exemptions,
franchises, registrations, variances, accreditations or authorizations currently
used in or required for the operation of the Business as operated by Seller
prior to the Closing Date except for any Permits the absence of which would not
have a Material Adverse Effect. The Permits are valid and in full force and
effect and there are no pending proceedings against Seller which could result in
the termination, revocation, limitation or impairment of any of the Permits.
Seller has not received notice of any violations in respect of any of the
Permits. For purposes of this Schedule, the term "Permits" means all franchises,
licenses, permits, consents, authorizations, approvals and certificates, or any
waiver of the foregoing, issued or granted by any Governmental Authority, to the
extent transferable to Buyer under applicable Laws as listed on Schedule 4.13.
5.13 Labor and Employment Matters.
(a) Schedule 5.13 contains a list of each employee of Seller (such employees,
the "Seller Employees"). Except as set forth on Schedule 5.13, there are
no employment, consulting, severance or indemnification contracts between
Seller and any of the Seller Employees. Except as provided on Schedule
5.13, Seller has paid all accrued wages, salary, and commissions, and paid
or made available all vacation and sick pay, accrued as of the date of
this Agreement for all of the Seller Employees, agents and representatives
of Seller. Seller is in material compliance with Laws respecting
employment and employment practices, terms and conditions of employment
and wages and hours.
(b) Seller maintains no employee welfare benefit plans or employee pension
benefit plans (within the meaning of Section 3(1) or Section 3(2),
respectively, of the Employee Retirement Income Security Act of 1974, as
amended (ERISA). Seller shall be solely liable for all obligations with
respect to all employee welfare benefit plans (within the meaning of
Section 3(1) of ERISA) of which Seller is or ever has been a party or by
which it is or ever has been bound.
(c) To Globe's knowledge, there are no pending investigations against Seller
by the U.S. Department of Labor or any other Governmental Agency. There is
no unfair labor practice charge or complaint against Seller pending before
the National Labor Relations Board or any strike, picketing, boycott,
dispute, slowdown or stoppage pending or threatened against Seller. No
collective bargaining agreement or modification thereof is currently being
negotiated by Seller. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of Seller.
No material labor dispute with Seller Employees exists or, to the
knowledge of Globe, is imminent.
5.14 Contracts. Schedule 5.14 sets forth a complete and accurate list of all
written Contracts to which Seller is a party. As used in this Agreement, the
word "Contract" means:
(a) agreement for the purchase, sale, lease, or license of services,
products, or assets that are not cancelable without penalty and that require
total future payments in excess of $75,000 in any fiscal year in any instance,
or entered into other than in the Ordinary Course (but excluding, for the
avoidance of doubt, any such agreement whereby payments are contingent in
nature);
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(b) agreements to purchase all or substantially all of its requirements
for a particular product or service from a particular supplier or suppliers, or
to supply all of a particular customer's or customers' requirements for a
certain service or product;
(c) agreement or other commitment pursuant to which any Person has agreed
to indemnify or hold harmless any other Person;
(d) agreement with any current or former Affiliate, shareholder, officer,
director, employee, or consultant, or with any Person in which any such
Affiliate, shareholder, officer, director, employee, or consultant has an
interest;
(e) joint venture or teaming agreement;
(f) agreement with any domestic or foreign government or agency or
department thereof; or
(g) agreement imposing non-competition or exclusive dealing obligations.
Seller has delivered to the Buyer true, correct and complete copies of all such
Contracts, together with all amendments, modifications and supplements thereto.
Except as provided in Schedule 5.14, each of the Contracts listed on Schedule
5.14 hereto is in full force and effect, the Seller is not in breach of any of
the provisions of any such Contract (to the extent that any such breach has or
is reasonably likely to have a Material Adverse Effect), nor, to Seller's
knowledge, is Seller or any other party to any such Contract in material default
thereunder, nor, to Seller's knowledge, does any event or condition exist which
with notice or the passage of time or both would constitute a default thereunder
that is reasonably likely to have a Material Adverse Effect. Seller has
performed in all material respects all obligations required to be performed by
Seller to date under each such Contract. Except as set forth in Schedules
5.14(a) and 5.14(b), no approval or consent of any Person is needed in order
that such Contracts continue in full force and effect following the consummation
of the transactions contemplated by this Agreement, and no such Contract
includes any provision the effect of which may be to enlarge or accelerate any
obligations of the Seller thereunder or give additional rights to any other
party thereto or shall in any other way be affected by, or terminate or lapse by
reason of, the transactions contemplated by this Agreement or the Seller's
Transaction Documents.
5.15 Environmental Matters. Except as set forth on Schedule 5.15: (a) Seller is
in material compliance with all applicable Environmental Laws; (b) there is no
Environmental Claim pending against the Seller with regard to the Acquired
Assets, including, without limitation, the Seller's leasehold interest in the
current St. Petersburg, Florida location of Seller, or Business; (c) Seller has
obtained all material Permits, approvals, identification numbers, licenses or
other authorizations required under any applicable Environmental Laws with
regard to the Acquired Assets or Business (the "Environmental Permits") and is
in material compliance with their requirements; (d) to the knowledge of Seller,
there are no underground or aboveground storage tanks or any surface
impoundments, septic tanks, pits, sumps or lagoons in which Hazardous Materials
are being or have been treated, stored or disposed of on any real property
Seller currently owns or leases for the Business other than in material
compliance with applicable Environmental Laws; (e) Seller has not undertaken or
completed any investigation or assessment or remedial or response action
relating to any release, discharge or disposal of or contamination with
Hazardous Materials at any site, location or operation of Seller, either
voluntarily or pursuant to the order of any Governmental Authority or the
requirements of any Environmental Law; and (f) there have been no actions,
suits, demands, demand letters, claims, liens, notices of non-compliance or
violation, notices of liability or potential liability, investigations,
proceedings, consent orders or consent agreements relating in any way to
Environmental Laws, any Environmental Permits or any Hazardous Materials (the
"Environmental Claims") against Seller that remain outstanding or unresolved.
A-60
5.16 [unchanged]
5.17 Insurance. Schedule 5.17 lists all insurance policies and binders of
liability, theft, fidelity, life, fire, product liability, health, unemployment,
workers' and workmen's compensation, errors and omissions and other types of
insurance, self insurance practices and performance bonds covering Seller
(collectively, the "Policies"). All of such Policies are valid, enforceable and
in full force and effect. All premiums with respect to such Policies are
currently paid, and no basis exists for early termination thereof on the part of
the insurer. Seller is not in default with respect to its obligations under any
of such Policies, nor has Seller received any written notification from any
insurer or agent of any intent to cancel or not to renew or increase the
premiums on any such Policies. To Seller's knowledge, no facts or circumstances
exist which would relieve the insurer under any Policy of its obligation to
satisfy in full any valid claim of the Seller thereunder. Seller has not, during
the last 5 fiscal years, been denied or had revoked or rescinded any policy of
insurance.
5.18 Suppliers and Customers. Schedule 5.18 identifies each contractor,
subcontractor, customer and supplier of Seller that in each case is material to
the Business. For purposes of this Section, a material customer is one that
produced more than 10% of Seller's revenues during the last year and a material
supplier is one to which Seller paid more than $75,000 during the last year.
Schedule 5.18 lists the products and services supplied by Seller to each
material customer. Except as set forth on Exhibit 5.18, there are no material
suppliers, or sole-source suppliers of significant goods or services (other than
electricity, gas, telephone or water) to Seller, with respect to which
alternative sources of supply are not readily available on comparable terms and
conditions. No material supplier or material customer of the business of Seller
has, during the past 12 months, cancelled or otherwise terminated its services
or supplies to Seller or its use or purchase of the products or services of
Seller, or has communicated any threat in writing to Seller to do so. No such
supplier or customer has given Seller written notice that it intends to cancel,
reduce or otherwise terminate its relationship with Seller or the usage or
purchase of the products of Seller, or that the transactions contemplated by
this Agreement will result in any such cancellation, reduction or termination.
5.19 [unchanged]
5.20 Certain Line Items and Related Items.
(a) Accounts Receivable. To Seller's knowledge, all accounts
receivable of Seller received in connection with the Business (the
"Receivables") have arisen only from bona fide transactions entered into
in the Ordinary Course, are the legal and binding claims of Seller, free
and clear of all Encumbrances (other than Permitted Encumbrances), have
been recorded in accordance with GAAP and are not subject to any
counterclaim, set-off or defense (except to the extent reserved against).
Since the Balance Sheet Date, no customer has given Seller written notice
that it intends to assert any material right to a discount, allowance or
chargeback with respect to any products or services, except for any
discounts, allowances or chargebacks that have not had and would not
reasonably be expected to have a Material Adverse Effect. The Receivables
are current as of the date hereof. Seller has delivered to the Buyer a
complete and accurate aging list of all Receivables as of a date not more
than 5 days prior to the date of this Agreement.
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(b) Accounts Payable. The accounts payable related to Seller, as
reflected on the Financial Statements or thereafter and recorded by
Seller, have arisen only from bona fide transactions entered into in the
Ordinary Course. Except as provided in Schedule 5.20(b), all payment terms
in connection therewith are consistent with past practices of Seller.
A-62
REDEMPTION AGREEMENT
This Redemption Agreement (this "Agreement") is made effective as of
August 23, 2005, by and among theglobe.com, inc., a Delaware corporation (the
"Corporation"), and Paul Soltoff ("Soltoff"), Eric Obeck ("Obeck"), Donald Gould
("Gould"), Harry Greene ("Greene"), Irvine and Nadine Brechner, as tenants by
the entirety ("Brechner") and Allen Vance ("Vance") (each a "Shareholder" and
collectively, the "Shareholders"). Michael Egan, Edward Cespedes, E&C Capital
Partners LLLP and Dancing Bear Investments, Inc. (each, a "Globe Principal" and
collectively, the "Globe Principals") are entering into this Agreement solely
for the purposes of Sections 3(a) and 8(b) hereof.
Recitals
A. Each Shareholder is the owner of that number of shares ("Shares") of
the common stock, $.001 par value (the "Common Stock") of the Corporation as set
forth opposite such Shareholder's name on Schedule A attached hereto and made a
part hereof (collectively, the "Shares").
B. The Corporation owns all of the shares of capital stock of SendTec,
Inc., a Florida corporation (the "Seller").
C. The Seller and the Corporation are parties to an Asset Purchase
Agreement with RelationServe Media, Inc. (the "Buyer") providing for the sale by
the Seller and the purchase by the Buyer or its designated subsidiary of
substantially all of the Seller's assets (the "Asset Purchase Agreement"). A
copy of the Asset Purchase Agreement has been furnished to the Shareholders.
D. The Corporation and the Shareholders, other than Vance, among others,
are parties to a Stockholders' Agreement dated as of September 1, 2004 (the
"Stockholders' Agreement").
E. The Shareholders have agreed to sell all 28,879,097 of their Shares of
Common Stock in exchange for the consideration set forth opposite such
Shareholder's name on Schedule A, and the Corporation has agreed to purchase and
redeem the Shares upon the terms set forth herein. The Shareholders and the
Corporation have negotiated the redemption price for the Shares on an arm's
length basis taking into account the large block of Common Stock represented by
the Shares and believe that the redemption price reflects the fair market value
of such block of Shares.
F. In connection with the Asset Purchase Agreement, the Corporation has
requested that the Shareholders, who hold or have held various management
positions with the Seller, provide to the Corporation, in this Agreement,
certain representations and warranties about the Seller, as set forth in Section
4(e) of this Agreement, and that the Seller and the Buyer (even though the Buyer
is not a party to this Agreement) be entitled to rely on such representations
solely to the extent, and subject to the terms and limitations, provided in this
Agreement.
G. As security to the Buyer, and as the Buyer's sole remedy (except to the
extent expressly provided in Section 9(d)) against the Shareholders with respect
to any breach of the representations and warranties in Section 4(e), at the
Closing (as such term is defined in the Asset Purchase Agreement), the
Shareholders shall deposit or caused to be deposited certain assets (the "Escrow
Assets") into escrow under an escrow agreement entered into as of the date of
this Agreement among the Shareholders, the Buyer and Olshan Gundman Frome
Rosenzweig & Wolosky LLP, New York, NY, as Escrow Agent (the "Escrow
Agreement").
H. The Shareholders are willing to provide the representations and
warranties in Section 4(e) of this Agreement subject to the terms and
limitations of this Agreement.
Operative Terms
In consideration of the mutual covenants and agreements contained herein,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. Redemption of Shares. Concurrently with the Closing, the Corporation
will purchase and redeem from each Shareholder, and each Shareholder will sell
to the Corporation, the Shares listed on Schedule A as being owned by such
Shareholder ("such Shareholder's Shares"), and each Shareholder will deliver to
the Corporation all of the Shareholders' stock certificates representing such
Shareholder's Shares, accompanied by appropriate stock transfer powers duly
executed to the Corporation (the "Redemption").
2. Redemption Price. Concurrently with the Closing, the Corporation will
pay to each Shareholder, as complete consideration for the Redemption of such
Shareholder's Shares and such Shareholders' other obligations and undertakings
under this Agreement, a cash payment in the amount set forth opposite such
Shareholder's name on Schedule A (the "Redemption Price"). The parties intend
that the transaction be a capital transaction and that Shareholders will obtain
long term capital gains treatment with respect to the Redemption, and the
parties shall report on their respective state and federal income tax returns
the Redemption on such basis.
3. Other Agreements.
(a) Termination of Stockholders' Agreement. Each of the parties
agrees that the Stockholders' Agreement shall be terminated concurrently
with the closing of the Redemption without further right of, or obligation
or restriction on, any party thereto.
(b) Directors' and Officers' Liability Insurance; and
Indemnification. For so long as any of Michael Egan, Edward Cespedes and
Robin Segaul Lebowitz is covered by a policy of directors and officers
liability insurance with respect to his or her service as a current or
former director and/or officer of the Corporation (a "D&O Policy"), but
for not more than six (6) years following the Closing, Soltoff will be
afforded the same coverage as is available to Mr. Egan, Mr. Cespedes
and/or Ms. Segaul Lebowitz under such D&O Policy. Soltoff acknowledges
that he has been provided with a copy of the Corporation's current D&O
Policy.
B-2
4. Shareholders' Representations and Warranties. Each Shareholder
represents and warrants to the Corporation that:
(a) Such Shareholder has the right, power and legal capacity to
enter into and perform his or her obligations under this Agreement, and
this Agreement constitutes, and each document or instrument to be executed
by such Shareholder pursuant to the terms hereof will be, upon its
execution and delivery, the valid and legally binding obligation of such
Shareholder, enforceable against such Shareholder in accordance with its
terms.
(b) Such Shareholder exclusively owns all right, title and interest
in and holds full legal, equitable and beneficial ownership of the Shares
that are listed opposite such Shareholder's name on Schedule A, free and
clear of any liens, security interests, encumbrances and restrictions on
or conditions to transfer or assignment other than those set forth in the
Stockholders' Agreement. There are no outstanding agreements or
commitments of any nature obligating such Shareholder to transfer the
Shares owned by such Shareholder or any interest therein to any other
party. The sale, transfer and assignment to the Corporation of the Shares
owned by such Shareholder shall transfer to the Corporation good and valid
title to the Shares owned by such Shareholder, free and clear of any lien,
security interest, encumbrance or restriction.
(c) The execution and delivery by such Shareholder of this Agreement
and the performance of such Shareholder's obligations under this Agreement
does not and will not (i) violate and law, rule or regulation to which
such Shareholder is subject; or (ii) breach or violate any judgment,
order, decree, mortgage, lease or other contract or commitment to which
such Shareholder is a party or by which he or she is bound the violation
or breach of which (in either clause (i) or (ii) above) could have an
adverse effect on this Agreement or the transactions contemplated by this
Agreement.
(d) There is no claim, suit, action, legal, administrative, or other
proceeding pending or, to such Shareholder's knowledge, threatened,
against such Shareholder with respect to this Agreement, the Shares, any
interest therein or the transactions contemplated hereby.
(e) The representations and warranties on Schedule B attached to
this Agreement and made a part hereof are correct to the best of such
Shareholder's knowledge.
(f) By reason of the Shareholder's business or financial experience,
or the business or financial experience of his or her professional advisor
who is unaffiliated with and who is not compensated by the Corporation,
such Shareholder has the ability to evaluate the business of the
Corporation, the value of the Shares owned by the Shareholder, the tax
consequences of the transactions contemplated by this Agreement and the
sufficiency of the Redemption Price.
(g) Such Shareholder acknowledges that such Shareholder has had the
opportunity to obtain additional information regarding the Corporation and
its business, and has been given the opportunity to meet with officials of
the Corporation and to have such officials answer any questions regarding
the Corporation and its business and all such questions have been answered
to such Shareholder's satisfaction.
B-3
5. Corporation's Representations and Warranties. The Corporation hereby
represents and warrant to the Shareholders that:
(a) The Corporation has the right, power and legal capacity to enter
into and perform its obligations under this Agreement.
(b) This Agreement has been duly authorized by all necessary
corporate and other action on the part of the Corporation and constitutes,
and each document or instrument to be executed by the Corporation pursuant
to the terms hereof will be, upon its execution and delivery, the valid
and legally binding obligation of the Corporation, enforceable against the
Corporation in accordance with its terms.
(c) The execution and delivery by the Corporation of this Agreement
and the performance of its obligations under this Agreement does not and
will not: (i) violate any law, rule or regulation to which the Corporation
is subject or by which it is bound; or (ii) breach or violate any
judgment, order, decree, mortgage, lease or other contract or commitment
to which the Corporation is a party or by which it is bound, the violation
or breach of which (in either clause (i) or (ii) above) could have an
adverse effect on this Agreement or the transactions contemplated by this
Agreement.
(d) There is no claim, suit, action, legal, administrative, or other
proceeding pending or, to the knowledge of the Corporation, threatened,
against the Corporation with respect to this Agreement, the Shares or any
interest therein or the transactions contemplated under this Agreement.
(e) Neither the entering into of this Agreement by the Corporation
nor the purchase, redemption and payment by the Corporation of the
Redemption Price to the Shareholders will violate the Delaware General
Corporation Law.
6. Conditions Precedent to Obligations of the Shareholders. The obligation
of the Shareholders to consummate the sale and purchase under this Agreement
shall be subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (to the extent satisfaction is not waived in writing by the
Shareholders):
(a) The representations and warranties made by the Corporation in
Section 5 of this Agreement shall be true and correct in all material
respects as of the date hereof and as of the Closing with the same effect
as though such representations and warranties had been made or given at
and as of the Closing (except for representations and warranties that
speak as of a specific date, which shall be true and correct in all
material respects as of such specific date);
(b) The Corporation shall have performed and complied with all of
its covenants, obligations and conditions under this Agreement that are to
be performed or complied with by it at or prior to the Closing;
B-4
(c) The Shareholders shall have received a certificate, executed by
an executive officer of the Corporation and dated as of the Closing Date,
as defined in the Asset Purchase Agreement, reasonably satisfactory to the
Shareholders, certifying the matters set forth in Section 6(a) and Section
6(b) and further certifying to: (i) the adoption of the board of directors
of the Corporation of a resolution, that has not been amended, modified or
rescinded, approving the transactions contemplated by this Agreement (the
"Contemplated Transactions"); (ii) the incumbency of officers of the
Corporation who are executing this Agreement or any of the documents with
respect to the Contemplated Transactions or certificates contemplated
hereunder; and (iii) the Corporation's charter and bylaws; and
(d) The Closing under the Asset Purchase Agreement will have
occurred and such Closing will have taken place not later than November
30, 2005.
7. Conditions Precedent to Obligations of the Corporation. The obligation
of the Corporation to consummate the purchase and redemption under this
Agreement shall be subject to the satisfaction, at or prior to the Closing, of
each of the following conditions (to the extent satisfaction is not waived in
writing by the Corporation):
(a) The representations and warranties made by the Shareholders in
Section 4 of this Agreement shall be true and correct in all material
respects as of the date hereof and, as modified by any updates to the
representations and warranties contained in Section 4(e) that have been
furnished by the Shareholders to the Corporation, as of the Closing, with
the same effect as though such representations and warranties (as modified
by such updates) had been made or given at and as of the Closing (except
for representations and warranties that speak as of a specific date,
which, as modified by the updates described above, shall be true and
correct in all material respects as of such specific date);
(b) The Shareholders shall have performed and complied with all of
their covenants, obligations and conditions under this Agreement that are
to be performed or complied with by them at or prior to the Closing;
(c) The Corporation shall have received a certificate, executed by
the Shareholders, and dated as of the Closing Date, reasonably
satisfactory to the Shareholders, certifying the matters set forth in
Section 7(a) and Section 7(b); and (d) The Closing under the Asset
Purchase Agreement will have occurred and such Closing will have taken
place not later than November 30, 2005.
8. General Releases.
(a) By the Shareholders. At the Closing, each of the Shareholders
will execute and deliver to the Corporation a general release containing
the terms set forth in Schedule C.
(b) By the Corporation and the Globe Principals. At the Closing, the
Corporation and each of the Globe Principals will execute and deliver to
each Shareholder, and the Corporation shall cause the Seller to execute
and deliver to each Shareholder, a general release containing the terms
set forth in Schedule D.
B-5
9. Survival; Notice of Claims; Burden of Proof; and Limited Recourse.
(a) Survival of Representations and Warranties. The representations
and warranties of the parties hereto contained in this Agreement shall
survive the Closing; provided, however, that each of the representations
and warranties in Section 4(e) shall expire and be of no force or effect
at 5:00 p.m. Eastern Time on the date that is one year and 45 days after
the Closing Date (the "Survival Period"), except to the extent that, prior
to the end of the Survival Period, the Shareholders' Representative (as
defined in Section 10), shall have received notice of a claimed breach of
a representation or warranty in Section 4(e), together with a reasonable
summary of the facts or allegations then known to the Corporation that
relate to such claim; provided, however, that the receipt by the
Shareholders' Representative of notice of a breach of a representation or
warranty in Section 4(e) prior to the expiration of the Survival Period,
as required in the immediately preceding sentence, shall be an absolute
condition precedent to the bringing of any claim with respect to such
breach. In the event that notice of a claim is so received within the
Survival Period, the Buyer shall be entitled to assert such claim of
breach under the terms of the Escrow Agreement as the Buyer's sole and
exclusive remedy (except to the extent expressly provided in Section 9(d))
against the Shareholders with respect to such breach.
(b) Notice of Claims; and Defense of Claims. In the event that the
Buyer notifies the Corporation of a claim for breach of representation or
warranty made by the Seller or the Corporation in the Asset Purchase
Agreement, and the Corporation wishes to assert that such breach by the
Seller or the Corporation resulted from the breach by the Shareholders (or
any of them) of a corresponding representation in Section 4(e) of this
Agreement, the Corporation shall give to the Shareholders' Representative
prompt notice of such claim prior to the end of the Survival Period. In
the case that such claim arises out of or is related to a claim of a third
party, the Buyer or the Corporation shall give prompt notice to the
Shareholders' Representative of such third party claim. The Shareholders
will be entitled to participate in the defense of such third party claim
at the cost of the Shareholders and, upon notice given by the
Shareholder's Representative to the Corporation and the Buyer within a
reasonable time after receipt by the Shareholders' Representative of the
notice described in the immediately preceding sentence, the Shareholders
shall be entitled to assume the defense of such third party claim, on
behalf of the Corporation and the Buyer, with counsel reasonably
satisfactory to the Buyer.
(c) Limited Remedies in Favor of the Corporation as to Section 4(e)
Representations. None of the Shareholders shall be liable to the
Corporation with respect to the breach of any representation or warranty
in Section 4(e), except that the Shareholders shall reimburse the
Corporation for fifty percent (50%) of the legal fees and costs incurred
by the Corporation in proving a breach of one or more of the
representations and warranties in Section 4(e) (provided, however, that
the aggregate obligation of the Shareholders to reimburse the Corporation
for legal fees and costs under this Section 9(c) shall not exceed Fifty
Thousand Dollars ($50,000) and shall be payable only to the extent that
the Corporation (rather than the Buyer) proves that the Shareholders have
breached one or more of such representations and warranties).
B-6
(d) Limited Remedies in Favor of the Buyer as to Representations.
The Buyer shall have no recourse against any or all of the Shareholders in
the event of a breach of a representation in Section 4(a), (b), (c), (d),
(f) or (g). In the event of a breach of a representation in Section 4(e),
and subject to the terms and limitations of this Section 9, the sole
remedy of the Buyer against the Shareholders with respect to the breach of
such representation (except in the case of a fraudulent misrepresentation
by the Shareholders as to such representation) shall be under the Escrow
Agreement.
10. Termination.
(a) Events of Termination. This Agreement may be terminated at any
time prior to the Closing:
(i) by the mutual written consent of the Corporation and Paul
Soltoff (the "Shareholders' Representative"), with the consent of
the Buyer, which consent of the Buyer shall be deemed to have been
given if the Escrow Agreement is terminated prior to the Closing;
(ii) by the Corporation or by the Shareholders' Representative
(the "Terminating Party") if the Closing under the Asset Purchase
Agreement shall not have occurred on or before 11:59 p.m. Eastern
Time on November 30, 2005 (or such later date as may be mutually
agreed to by the Corporation and the Shareholders' Representative);
or
(iii) by the Corporation or the Shareholders' Representative,
upon any event of termination of the Asset Purchase Agreement.
(b) Notice of Termination. Any party desiring to terminate this
Agreement pursuant to Section 10(a) shall give notice of such termination
to the other party to this Agreement (which other party shall mean the
Shareholders' Representative, in the case of a termination by the
Corporation) specifying the reason for such termination.
(c) Effect of Termination. In the event that this Agreement shall be
terminated pursuant to Section 10, all further obligations of the parties
under this Agreement shall be terminated without further liability of any
party to the other; provided, however, that nothing contained herein shall
be construed to prevent any party hereto from pursuing any remedy
available at law or in equity for any breach, violation, default or other
failure of performance under this Agreement of any other party hereto
prior to Closing.
11. Indemnification.
(a) Indemnification by the Shareholders. The Shareholders will,
severally and not jointly, indemnify, defend and hold harmless the
Corporation (which, for purposes of this Section 11(a) shall include each
other "Released Party" (as defined in Schedule C hereto)) from and against
all losses, liabilities, costs, damages and expenses (including reasonable
attorneys' fees) (collectively, "Losses") incurred by the Corporation in
connection with: (i) a breach by any Shareholder of any of his or her
respective representations and warranties contained in this Agreement,
subject to the limitations set forth in Section 9(c) with respect to any
breach of the representations set forth in Section 4(e), or (ii) the
failure of any Shareholder to comply with his or her covenants contained
in this Agreement or his or her General Release.
B-7
(b) Indemnification by the Corporation. The Corporation will
indemnify, defend and hold harmless the Shareholders (which, for purposes
of this Section 11(b) shall include each other "Released Party" (as
defined in Schedule D hereto)) from and against all losses, liabilities,
costs, damages and expenses (including reasonable attorneys' fees)
incurred by them (individually or collectively) in connection with: (i) a
breach by the Corporation of any of its representations and warranties
contained in this Agreement or (ii) the failure of the Corporation to
comply with its covenants contained in this Agreement or the General
Release.
12. General Provisions.
(a) Notices. All notices, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if
delivered personally or if mailed by certified mail, return receipt
requested, postage prepaid, or if sent by overnight courier, as follows:
If to the Corporation: theglobe.com, inc.
110 East Broward Boulevard
Suite 1400
Ft. Lauderdale, FL 33301
Attn: Edward Cespedes
with a copy to: Proskauer Rose LLP
2255 Glades Road
Suite 340W
Boca Raton, FL 33434
Attention: Donald E. "Rocky" Thompson II, Esq.
If to the Shareholders: Paul Soltoff, as Shareholders' Representative
80 Sand Pine Drive N.E.
St. Petersburg, FL 33703
with copies to: Carlton Fields, P.A.
P.O. Box 3239
Tampa, Florida 33601
Attention: Nathaniel L. Doliner, Attorney at Law
B-8
and
RelationServe Media, Inc.
Attention: Chairman
6700 N. Andrews Avenue
Ft. Lauderdale, FL 33309
and
Olshan Gundman Frome Rosenzweig & Wolosky LLP
65 East 55th Street
New York, NY 10022
Attention: Harvey J. Kesner, Esq.
Any such notice shall be deemed given and received (a) if delivered
personally, when received, (b) if sent by overnight courier, when
receipted for, or (c) if mailed, five (5) days after being mailed as
described above.
(b) Successors and Assigns. This Agreement is binding upon, and
shall inure to the benefit of, the parties and their respective heirs,
executors, representatives, administrators, successors, and assigns.
(c) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(d) Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof, and supersedes all proposals, communications,
representations, warranties or agreements, either oral or written, between
the parties hereto prior to the date hereof with respect to the subject
matter hereof. No representations or warranties are being made by any or
all of the Shareholders to the Corporation or the Buyer with respect to
the Seller, this Agreement, the Asset Purchase Agreement or the
transactions contemplated by this Agreement or the Asset Purchase
Agreement except to the extent set forth in Section 4 and subject to the
other terms and limitations of this Agreement.
(e) Further Assurances. Each of the parties hereto shall, at the
requesting party's expense, take such further actions as are reasonably
deemed by the requesting party to be necessary or desirable in order to
effectively carry out the intent and purpose of this Agreement and the
transactions contemplated hereby.
(f) Attorneys' Fees and Costs. If any legal action or other
proceeding is brought by a party hereto for the enforcement of this
Agreement, or because of an alleged breach, default or misrepresentation
by the other party in connection with any provision of this Agreement,
such party, if successful in such legal action or other proceeding, shall
(subject to the terms and limitations in Section 9(c) with respect to the
Corporation's right to recover legal fees and costs), be entitled to
recover reasonable attorneys' fees and court costs incurred in that action
or proceeding, in addition to any other relief to which such party may be
entitled.
B-9
(g) Construction. Should any provision of this Agreement require
interpretation or construction, it is agreed by the parties that the court
interpreting or construing this Agreement shall not apply a presumption
that the provisions hereof shall be more strictly construed against one
party by reason of the rule of construction that a document is to be
construed more strictly against the party who prepared the Agreement, it
being agreed that all parties have participated in the preparation of all
provisions of this Agreement.
(h) Governing Law. This Agreement shall be enforced, governed and
interpreted by the laws of the State of Delaware without regard to
Delaware's conflict of laws principles that would result in the
application of the laws of any other jurisdiction.
(i) Jurisdiction and Venue. The parties acknowledge that a
substantial portion of negotiations and anticipated performance and
execution of this Agreement occurred or shall occur in Broward County,
Florida, and that, therefore, each of the parties irrevocably and
unconditionally (a) agrees that any suit, action or legal proceeding
arising out of or relating to this Agreement shall be brought only in the
courts of record of the State of Florida in Broward County or the United
States District Court, Southern District of Florida; (b) consents to the
jurisdiction of each such court in any suit, action or proceeding; and (c)
waives any objection which it may have to the laying of the venue of any
such suit, action or proceeding in any of such courts.
(j) Amendments. This Agreement may be amended only in writing by the
Corporation and the Shareholders and, to the extent that any amendment
would adversely affect the rights of the Buyer, the Buyer.
(k) Limited Power of Attorney. The Shareholders hereby grant to the
Shareholders' Representative a limited power of attorney to take actions
on their behalf to the extent that the Shareholders' Representative is
expressly granted the right to act or consent under this Agreement.
[Signatures begin on the next page]
B-10
The parties have executed this Redemption Agreement as of the day and
year first above written.
CORPORATION: theglobe.com, inc.
By:___________________________________
Printed Name:_________________________
Title:________________________________
SHAREHOLDERS:
______________________________________
Paul Soltoff
______________________________________
Eric Obeck
______________________________________
Donald Gould
______________________________________
Harry Greene
______________________________________
Irv Brechner, as a tenant by the entireties
______________________________________
Nadine Brechner, as a tenant by the entireties
______________________________________
Allen Vance
B-11
The undersigned are executing this Agreement solely for the purpose of
agreeing to the provisions of Section 3(a) and 8(b) hereof.
GLOBAL PRINCIPALS:
______________________________________
Michael S. Egan
______________________________________
Edward Cespedes
E&C CAPITAL PARTNERS, LLLP
By:___________________________________
Printed Name:_________________________
Title:________________________________
DANCING BEAR INVESTMENTS, INC.
By:___________________________________
Printed Name:_________________________
Title:________________________________
B-12
SCHEDULE A
List of Shareholders, Shares, and Redemption Prices
------------------------------------------------------------------------------
Name Shares Owned Subject to
Redemption under this Agreement Redemption Price
------------------------------------------------------------------------------
Paul Soltoff 10,183,190 $4,091,731
------------------------------------------------------------------------------
Eric Obeck 4,629,171 1,860,048
------------------------------------------------------------------------------
Donald Gould 4,629,171 1,860,048
------------------------------------------------------------------------------
Harry Greene 4,629,171 1,860,048
------------------------------------------------------------------------------
Irv and Nadine Brechner, as 4,629,171 1,860,048
tenants by the entireties
------------------------------------------------------------------------------
Allen Vance 179,223 72,023
------------------------------------------------------------------------------
Total: 28,879,097 Shares $11,603,946
------------------------------------------------------------------------------
B-13
Schedule B
Representations and Warranties
Note: Defined terms in this Schedule B that are not otherwise defined in this
Schedule B shall be as defined in the Asset Purchase Agreement by and between
theglobe.com, inc., SendTec, Inc. and RelationServe Media, Inc dated as of
August 10, 2005 (as amended prior on or prior to the date of the Redemption
Agreement), a copy of which has been furnished to the Shareholders (the "Asset
Purchase Agreement").
5.3 Non-Contravention. Except as listed on Schedule 5.3, the execution and
delivery by Seller of the Asset Purchase Agreement and the Seller's Transaction
Documents and the consummation by the Seller of the Contemplated Transactions
will not (a) [intentionally omitted] (b) conflict with or result in the breach
or termination of (or constitute a default for any event which, with notice or
lapse of time or both would constitute a default) under, or give to others any
rights of termination or cancellation of, or accelerate the performance required
by, or maturity of, or result in the creation of any Encumbrance pursuant to any
of the terms, conditions or provisions of, any Contract which Seller is a party;
or (c) constitute a violation of, or be in conflict with, or constitute or
create a default under, or result in the creation or imposition of any
Encumbrance (except a Permitted Encumbrance).
5.5 SEC Documents; Financial Statements.
(a) Since August 30, 2004, the Shareholders, in their capacity as
management of the Seller (the "Seller Management") have overseen the preparation
of and provided to Globe information with respect to the Seller for the purpose
of inclusion by Globe in reports, schedules, forms, statements and other
documents required to be filed by Globe with the Securities and Exchange
Commission ("SEC") pursuant to Globe's reporting requirements under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (all of the
foregoing information provided by the Seller Management to Globe prior to the
date hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "Documents"). None of the Documents, at the time
they were included in any reports, schedules, forms, statements, or other
documents filed with the SEC, contained, with respect to the Seller, any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(b) Financial Statements. The (i) unaudited financial statements of
the Seller as of and for the calendar year ended December 31, 2004 and the
related statements of income and cash flows for the periods ending on such date
(the "Annual Financial Statements"); and (ii) the unaudited financial statements
for Seller as of and for the 6-month period ended June 30, 2005 (the "Balance
Sheet Date") and the related statements of income and cash flows for the periods
ending on such dates (the "Interim Financial Statements", and together with the
Annual Financial Statements, the "Financial Statements"), have been prepared by
and delivered to Globe have been prepared in accordance with GAAP, applied on a
consistent basis throughout the relevant periods (except as may be otherwise
indicated in such Seller Financial Statements or the notes thereto), and fairly
present in all material respects the assets, liabilities and financial position
of Seller as of such dates and for the periods indicated subject, in the case of
unaudited financial statements, to normal year end adjustments and the absence
of footnotes. Since the Balance Sheet Date, there has been no change made by
Seller in any of the significant accounting policies, practices or procedures of
Seller.
B-14
5.6 Absence of Certain Changes and Events. Since the Balance Sheet Date,
the business of Seller has been conducted only in the ordinary course of
business consistent with past practice of Seller (the "Ordinary Course").
Without limiting the foregoing, except as set forth on Schedule 5.6, since the
Balance Sheet Date, there has not been, occurred or arisen:
(a) any material adverse change, taken as a whole, in the assets,
liabilities, financial condition or results of operation of Seller;
(b) any sale, lease or other disposition of any properties or assets
of Seller in excess of $10,000 individually or in the aggregate except in the
Ordinary Course;
(c) any material change in the methods of doing business that has
had or would reasonably be expected to have a Material Adverse Effect (as
defined below);
(d) any material change in the accounting principles or practices or
the method of application of such principles or practices used by Seller, or any
change in depreciation or amortization policies or rates previously adopted,
that has had or would reasonably be expected to have a Material Adverse Effect;
(e) any Encumbrance imposed or agreed to be imposed on or with
respect to any of the Acquired Assets other than Permitted Encumbrances;
(f) any material modification, waiver, change, amendment, release,
rescission or termination of, or accord and satisfaction with respect to, any
material term, condition or provision of any Contract, other than any
satisfaction by performance in accordance with the terms thereof in the Ordinary
Course;
(g) any casualty, loss, damage or destruction (whether or not
covered by insurance), or taking by eminent domain or other action by any
Governmental Authority, that has had or would reasonably be expected to have a
Material Adverse Effect;
(h) any adverse pending, or threatened dispute of any kind with any
contractor, subcontractor, customer, supplier, employee, landlord, subtenant or
licensee of Seller that is reasonably likely to result in any material reduction
in the amount, or any change in the material terms or conditions or any material
customer, supplier or other relationship of Seller that has had, or would
reasonably be expected to have a Material Adverse Effect;
(i) other than in the Ordinary Course, any increase in the
compensation payable or to become payable to any of Seller's officers,
employees, agents or consultants (including, without limitation, any increase
pursuant to any bonus, pension, profit-sharing or other plan or commitment), or
the entering into or modification of any employment contract or other agreement
concerning the compensation of any officer, or employee, or the making of any
loan to, or engagement in any transaction with, any officers, directors or
shareholders of Seller, or the establishment of any new, or the modification of
any existing, employee benefit, compensation or stock plan of Seller that
affects the employees of Seller;
B-15
(j) any capital expenditure or commitment therefor by Seller in
excess of $25,000 in the aggregate for additions, alterations or modifications
to the property, plant or equipment of Seller;
(k) the incurrence or entering into of any transaction, contract or
commitment by Seller with respect to its business, other than items incurred or
entered into (as the case may be) in the Ordinary Course;
(l) any payment, discharge or satisfaction of any claim, Encumbrance
or liability by Seller in excess of $25,000 individually or in the aggregate,
other than in the Ordinary Course;
(m) any organized labor strike or grievance that has had or could
reasonably be expected to have a Material Adverse Effect;
(n) any license, sale, transfer, pledge, mortgage or other
disposition of any tangible or intangible asset or Intellectual Property of
Seller in excess of $25,000 individually or in the aggregate other than in the
Ordinary Course;
(o) any cancellation of any Indebtedness or claims or any amendment,
termination, diminution or waiver of any rights of material value to Seller in
excess of $25,000 individually or in the aggregate; and
(p) any agreement or understanding, whether in writing or otherwise,
for Seller to take any of the actions specified in (a) through (o) above.
For purposes of this Schedule, the term "Material Adverse Effect" shall mean any
material adverse effect on the business, operations, financial condition, or
results of operations of the Business.
5.7 Title to Properties.
(a) Acquired Assets. Seller has, and, upon Closing, will transfer to
Buyer, good, clear and valid title to, and possession of, all of the Acquired
Assets owned by Seller, free and clear of any Encumbrances (other than Permitted
Encumbrances). Seller has, and upon the Closing, will transfer to Buyer, valid
and subsisting leasehold interests or licenses in, and possession of, all of the
Acquired Assets that are leased by Seller. Seller has the full right, power and
authority to sell, convey, transfer, assign and deliver the Acquired Assets,
without the need to obtain the consent or approval of any third party, except as
listed on Schedule 5.7(a). At and as of the Closing, Seller will convey the
Acquired Assets to Buyer by deeds, bills of sale, certificates of title and
other instruments of assignment and transfer effective in each case to vest in
Buyer, and Buyer will have, good and valid title to all of the Acquired Assets,
free and clear of any and all Encumbrances, except for Permitted Encumbrances.
The Acquired Assets are, in all material respects, in good condition and repair
and are adequate and sufficient for Seller's intended purposes, ordinary wear
and tear excepted. The Acquired Assets will transfer to Buyer under this
Agreement (and other documents contemplated hereby), and constitute, all of the
material assets and properties (personal and mixed, tangible and intangible) and
rights necessary or desirable to permit Buyer to conduct the Business consistent
with Seller's past business practice.
B-16
(b) Leases.
(i) Schedule 1.1(h) contains a list of all material agreements under
which real property is leased by Seller and used in connection with the
Business. All of the Leased Real Property including any buildings, structures
and appurtenances thereon, are in good operating condition and repair, ordinary
wear and tear excepted, are in such condition as to permit surrender by Seller
to the lessors thereof without any material cost or expense for repair or
restoration if any of the Real Property Leases were terminated on the date
hereof, are adequate and suitable for the uses for which intended by Seller,
each has adequate rights of ingress and egress for operation of the Business in
the Ordinary Course and there does not exist any condition that interferes in
any material way with the use or the economic value thereof.
(ii) Schedule 1.1(g) contains a list of all leases or material
agreements under which Seller, with respect to the Business, is lessee of or
holds or operates any items of machinery, equipment, motor vehicles, computer
equipment, printers, office furniture or fixtures owned by any third party,
true, complete and correct copies (or, in the case of oral leases or agreements,
descriptions) of which leases and agreements have been furnished to Buyer.
Seller is the owner and holder of all of the leasehold estates purported to be
granted by such leases or agreements and all other leases or agreements under
which Seller is lessee of or holds or operates any such items owned by a third
party, and each of such leases and agreements is in full force and effect and
constitutes a legal, valid and binding obligation of the respective parties
thereto enforceable in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
or similar laws affecting the enforcement of creditors' rights generally and
general equitable principles regardless of whether such enforceability is
considered in a proceeding at law or in equity. There is not under any of such
leases any existing default or event, condition or occurrence which, with the
giving of notice or lapse of time, or both, would constitute a default
thereunder. Except as provided on Schedule 5.7(c)(ii) hereto, each of the items
of machinery, equipment, printers, office furniture and fixtures covered by the
Personal Property Leases is in good operating condition and repair, ordinary
wear and tear excepted, is in such condition as to permit surrender thereof by
Seller to the lessors without any material cost or expense for repair or
restoration if such leases were terminated on the date hereof, is suitable for
the uses for which intended by Seller in the Ordinary Course and there does not
exist any condition that interferes in any material way with the use or economic
value thereof.
5.8 Absence of Liabilities. Except for the Assumed Liabilities, and except
as set forth on Schedule 5.8, there are no material liabilities or obligations
of Seller of any nature (whether liquidated, unliquidated, accrued, absolute, or
contingent (within the meaning of GAAP) and whether due or to become due)
probable of assertion relating to the Business except for:
(a) liabilities set forth or reflected (or reserved against) in the
Balance Sheet that have not been paid or discharged since the date thereof;
B-17
(b) liabilities or obligations arising under agreements or other
commitments listed on Schedule 5.8(b);
(c) current liabilities arising in the Ordinary Course subsequent to
the Balance Sheet Date, that are accurately reflected on its books and records
in a manner consistent with past practice;
(d) the Excluded Liabilities; or
(e) liabilities or obligations that do not or would not, either
individually or in the aggregate, have a Material Adverse Effect.
5.9 Consents; Transferability of Licenses, Etc. Except as set forth on
Schedule 5.9(a) hereto, no consent, approval or authorization of, or
registration, qualification or filing with, any Person or Governmental Authority
is required for the execution and delivery by Seller of the Asset Purchase
Agreement or the Seller's Transaction Documents or for the consummation by
Seller of the Contemplated Transactions. Except as set forth on Schedule 5.9(a),
no consent of any third party is required for the transfer of the Acquired
Assets as provided in this Agreement.
5.10. Litigation, etc. Except as set forth on Schedule 5.10 hereto, no
claim, action, suit, proceeding or investigation whether civil or criminal, in
law or equity, before any arbitration or Governmental Authority is pending or
threatened in writing: (i) against Seller, (ii) relating to or affecting the
ability of Seller to execute this Agreement or the Seller's Transaction
Documents or consummate the transactions contemplated herein or therein, or
(iii) which questions the validity of this Agreement or any of the Seller's
Transaction Documents or challenges any of the transactions contemplated hereby
or thereby, nor is there any basis for any such action, suit, proceeding or
investigation. None of the matters set forth in Schedule 5.10 hereto, either
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
5.11. Intellectual Property.
(a) Schedule 5.11(a) hereto sets forth a complete and accurate list
of all registered Intellectual Property used in the Business as presently
conducted by Seller and any applications pending therefor. Except to the extent
set forth in Schedule 5.11(a), Seller owns or has the right to use all of the
Intellectual Property used in the Business as presently conducted, and the
consummation of the transactions contemplated by the Asset Purchase Agreement
will not alter or impair any such right. All Intellectual Property is valid,
subsisting, in full force and effect, enforceable (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
or similar laws affecting the enforcement of creditors' rights generally and
general equitable principles regardless of whether such enforceability is
considered in a proceeding at law or in equity), and has not been abandoned as
of the date hereof. Except as has not or is not reasonably likely to have a
Material Adverse Effect, Seller has taken reasonable action to maintain and
protect each item of Intellectual Property. The Intellectual Property is free
and clear of any Encumbrances other than Permitted Encumbrances and, except for
generally commercially available, non-custom, off-the-shelf software application
programs, or except as set forth on Schedule 5.11(a), is fully assignable by
Seller to any Person, without payment, consent of any person or other condition
or restriction. No Intellectual Property has been or is now involved in any
cancellation, dispute or litigation, and no such action is threatened. Except as
set forth in Schedule 5.11(a), no patent of Seller included in the Intellectual
Property has been or is now involved in any interference, reissue,
re-examination or opposition proceeding.
B-18
(b) License Agreements. Schedule 5.11(b) sets forth a complete and
accurate list of all licenses, sublicenses, consents, royalties or other
agreements concerning Intellectual Property to which Seller is a party or by
which any of the assets of Seller is bound (other than generally commercially
available, non-custom, off-the-shelf software application programs having a
retail acquisition price of less than $10,000 per license) relating to the
Business (collectively, "License Agreements"). All of the License Agreements are
valid and binding obligations of Seller enforceable in accordance with their
terms except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
enforcement of creditors' rights generally and general equitable principles
regardless of whether such enforceability is considered in a proceeding at law
or in equity, and, except for the non-assignability of generally commercially
available, non-custom, off-the-shelf software application programs, there exists
no event or condition which will result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default by
Seller under any such License Agreement. Seller has performed all obligations
required to be performed by it, and Seller is not in default (or alleged to be
in default) under any Contract relating to any of the foregoing in any way that
is reasonably likely to have a Material Adverse Effect. No party to any Contract
relating to Intellectual Property has given Seller notice of its intention to
cancel, terminate or fail to renew such License Agreement.
(c) No Infringement. Except as disclosed in Schedule 5.11(c): (i)
the conduct of Seller's businesses as currently conducted does not infringe any
Intellectual Property rights of any Person, and the Intellectual Property rights
of Seller are not being infringed by any Person, except for such infringements
in (i) or (ii) that would not have a Material Adverse Effect; and (ii) there is
no litigation or order pending or outstanding, or threatened, that seeks to
limit or challenge or that concerns the ownership, use, validity or
enforceability of any Intellectual Property or Seller's use of any Intellectual
Property owned by a third party, and there is no valid basis for the same.
(d) Royalties. No royalties, honoraria or other fees are payable by
Seller to any Person for the use of or right to use any Intellectual Property,
except as set forth in Schedule 5.11(d).
(e) Intellectual Property. For purposes of this Section 5.11, the
term "Intellectual Property" includes the following that are owned by or
licensed to Seller: (i) all domain names, websites, service marks, trade dress,
logos, copyrights; (ii) computer software; (iii) trade secrets; (iv)
confidential and proprietary (A) technical information, (B) know-how, processes,
(C) techniques, (D) research and development information, and (E) business and
marketing plans; (v) patents; (vi) license rights and sublicense rights to all
patents and trademarks; (vii) other intangible assets registered in the name of
Seller or any Affiliate currently used by Seller in connection with business of
Seller; and (viii) all registrations and applications of patents, copyrights,
trademarks and service marks, and all licenses (as licensee or licensor) and
other agreements related thereto.
B-19
5.12 Permits. The Permits (as defined below) listed in Schedule 5.12
constitute all of the material licenses, permits, certificates, approvals,
exemptions, franchises, registrations, variances, accreditations or
authorizations currently used in or required for the operation of the Business
as operated by Seller prior to the Closing Date except for any Permits the
absence of which would not have a Material Adverse Effect. The Permits are valid
and in full force and effect and there are no pending proceedings against Seller
which could result in the termination, revocation, limitation or impairment of
any of the Permits. Seller has not received notice of any violations in respect
of any of the Permits. For purposes of this Schedule, the term "Permits" means
all franchises, licenses, permits, consents, authorizations, approvals and
certificates, or any waiver of the foregoing, issued or granted by any
Governmental Authority, to the extent transferable to Buyer under applicable
Laws as listed on Schedule 4.13.
5.13 Labor and Employment Matters.
(a) Schedule 5.13 contains a list of each employee of Seller (such
employees, the "Seller Employees"). Except as set forth on Schedule 5.13, there
are no employment, consulting, severance or indemnification contracts between
Seller and any of the Seller Employees. Except as provided on Schedule 5.13,
Seller has paid all accrued wages, salary, and commissions, and paid or made
available all vacation and sick pay, accrued as of the date of this Agreement
for all of the Seller Employees, agents and representatives of Seller. Seller is
in material compliance with Laws respecting employment and employment practices,
terms and conditions of employment and wages and hours.
(b) Seller maintains no employee welfare benefit plans or employee
pension benefit plans (within the meaning of Section 3(1) or Section 3(2),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
(ERISA)).
(c) There are no pending investigations against Seller by the U.S.
Department of Labor or any other Governmental Agency. There is no unfair labor
practice charge or complaint against Seller pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or threatened against Seller. No collective bargaining agreement or
modification thereof is currently being negotiated by Seller. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of Seller. No material labor dispute with Seller Employees
exists or is imminent.
5.14 Contracts. Schedule 5.14 sets forth a complete and accurate list of
all written Contracts to which Seller is a party. As used in this Agreement, the
word "Contract" means:
(a) agreement for the purchase, sale, lease, or license of services,
products, or assets that are not cancelable without penalty and that require
total future payments in excess of $75,000 in any fiscal year in any instance,
or entered into other than in the Ordinary Course (but excluding, for the
avoidance of doubt, any such agreement whereby payments are contingent in
nature);
B-20
(b) agreements to purchase all or substantially all of its
requirements for a particular product or service from a particular supplier or
suppliers, or to supply all of a particular customer's or customers'
requirements for a certain service or product;
(c) agreement or other commitment pursuant to which any Person has
agreed to indemnify or hold harmless any other Person;
(d) agreement with any current or former Affiliate, shareholder,
officer, director, employee, or consultant, or with any Person in which any such
Affiliate, shareholder, officer, director, employee, or consultant has an
interest;
(e) joint venture or teaming agreement;
(f) agreement with any domestic or foreign government or agency or
department thereof; or
(g) agreement imposing non-competition or exclusive dealing
obligations.
Seller has delivered to the Buyer true, correct and complete copies of all such
Contracts, together with all amendments, modifications and supplements thereto.
Except as provided in Schedule 5.14, each of the Contracts listed on Schedule
5.14 hereto is in full force and effect, the Seller is not in breach of any of
the provisions of any such Contract (to the extent that any such breach has or
is reasonably likely to have a Material Adverse Effect), nor is Seller or any
other party to any such Contract in material default thereunder, nor does any
event or condition exist which with notice or the passage of time or both would
constitute a default thereunder that is reasonably likely to have a Material
Adverse Effect. Seller has performed in all material respects all obligations
required to be performed by Seller to date under each such Contract. Except as
set forth in Schedules 5.14(a) and 5.14(b), no approval or consent of any Person
is needed in order that such Contracts continue in full force and effect
following the consummation of the transactions contemplated by this Agreement,
and no such Contract includes any provision the effect of which may be to
enlarge or accelerate any obligations of the Seller thereunder or give
additional rights to any other party thereto or shall in any other way be
affected by, or terminate or lapse by reason of, the transactions contemplated
by the Asset Purchase Agreement.
5.15 Environmental Matters. Except as set forth on Schedule 5.15: (a)
Seller is in material compliance with all applicable Environmental Laws; (b)
there is no Environmental Claim pending against the Seller with regard to the
Acquired Assets, including, without limitation, the Seller's leasehold interest
in the current St. Petersburg, Florida location of Seller, or Business; (c)
Seller has obtained all material Permits, approvals, identification numbers,
licenses or other authorizations required under any applicable Environmental
Laws with regard to the Acquired Assets or Business (the "Environmental
Permits") and is in material compliance with their requirements; (d) there are
no underground or aboveground storage tanks or any surface impoundments, septic
tanks, pits, sumps or lagoons in which Hazardous Materials are being or have
been treated, stored or disposed of on any real property Seller currently owns
or leases for the Business other than in material compliance with applicable
Environmental Laws; (e) Seller has not undertaken or completed any investigation
or assessment or remedial or response action relating to any release, discharge
or disposal of or contamination with Hazardous Materials at any site, location
or operation of Seller, either voluntarily or pursuant to the order of any
Governmental Authority or the requirements of any Environmental Law; and (f)
there have been no actions, suits, demands, demand letters, claims, liens,
notices of non-compliance or violation, notices of liability or potential
liability, investigations, proceedings, consent orders or consent agreements
relating in any way to Environmental Laws, any Environmental Permits or any
Hazardous Materials (the "Environmental Claims") against Seller that remain
outstanding or unresolved.
B-21
5.16 Taxes. Except as set forth on Schedule 5.16 hereto:
(a) Seller has not failed to file any Tax return required to be
filed, which failure could result in the imposition of any Encumbrance (other
than Permitted Encumbrances) on or against the Acquired Assets, the Business or
the Buyer or in any liability to the Buyer, as transferee or otherwise. All
Taxes imposed on the Seller, the non-payment of which could result in an
Encumbrance (other than Permitted Encumbrances) on or against the Acquired
Assets, the Business or the Buyer or in any liability to the Buyer, as
transferee or otherwise, have been or will prior to the Closing Date be paid by
the Seller. All deposits required to be made by the Seller in respect of any
material Tax, including, without limitation, withholding taxes, have been or
will be made in a timely fashion. There are no material Tax deficiencies or
claims asserted against Seller the non payment of which could result in any
Encumbrances (other than a Permitted Encumbrance) on or against the Acquired
Assets or in any liability to Buyer, as transferee or otherwise, nor is there
any basis for any such deficiency or claim;
(b) Seller is not a party to any Tax allocation or sharing agreement
or understanding that could, under any circumstances, require any payment by
Buyer, any of its subsidiaries or any affiliate thereof after the Closing Date;
(c) No waiver of any statute of limitations relating to Taxes has
been executed or given by Seller. There are no Encumbrances with respect to
Taxes upon any of the Acquired Assets or the Business. All required Tax returns
relating to the Business, including amendments to date, have been prepared in
good faith without negligence or willful misrepresentation and are complete and
accurate in all material respects; and
(d) No Tax return of Seller is currently under audit by the IRS or
by any other taxing authority. Neither the IRS nor any other taxing authority is
now asserting or threatening to assert against Seller any deficiency or claim
for additional Taxes or interest thereon or penalties in connection therewith or
any adjustment that would have a Material Adverse Effect.
5.17 Insurance. Schedule 5.17 lists all insurance policies and binders of
liability, theft, fidelity, life, fire, product liability, health, unemployment,
workers' and workmen's compensation, errors and omissions and other types of
insurance, self insurance practices and performance bonds covering Seller
(collectively, the "Policies"). All of such Policies are valid, enforceable and
in full force and effect. All premiums with respect to such Policies are
currently paid, and no basis exists for early termination thereof on the part of
the insurer. Seller is not in default with respect to its obligations under any
of such Policies, nor has Seller received any written notification from any
insurer or agent of any intent to cancel or not to renew or increase the
premiums on any such Policies; no facts or circumstances exist which would
relieve the insurer under any Policy of its obligation to satisfy in full any
valid claim of the Seller thereunder. Seller has not, during the last 5 fiscal
years, been denied or had revoked or rescinded any policy of insurance.
B-22
5.18 Suppliers and Customers. Schedule 5.18 identifies each contractor,
subcontractor, customer and supplier of Seller that in each case is material to
the Business. For purposes of this Section, a material customer is one that
produced more than 10% of Seller's revenues during the last year and a material
supplier is one to which Seller paid more than $75,000 during the last year.
Schedule 5.18 lists the products and services supplied by Seller to each
material customer. Except as set forth on Exhibit 5.18, there are no material
suppliers, or sole-source suppliers of significant goods or services (other than
electricity, gas, telephone or water) to Seller, with respect to which
alternative sources of supply are not readily available on comparable terms and
conditions. No material supplier or material customer of the business of Seller
has, during the past 12 months, cancelled or otherwise terminated its services
or supplies to Seller or its use or purchase of the products or services of
Seller, or has communicated any threat in writing to Seller to do so. No such
supplier or customer has given Seller written notice that it intends to cancel,
reduce or otherwise terminate its relationship with Seller or the usage or
purchase of the products of Seller, or that the transactions contemplated by
this Agreement will result in any such cancellation, reduction or termination.
5.19 Subsidiaries. Seller has no subsidiaries or equity investments in any
other corporation, association, partnership, joint venture or other entity.
5.20 Certain Line Items and Related Items.
(a) Accounts Receivable. All accounts receivable of Seller received
in connection with the Business (the "Receivables") have arisen only from bona
fide transactions entered into in the Ordinary Course, are the legal and binding
claims of Seller, free and clear of all Encumbrances (other than Permitted
Encumbrances), have been recorded in accordance with GAAP and are not subject to
any counterclaim, set-off or defense (except to the extent reserved against).
Since the Balance Sheet Date, no customer has given Seller written notice that
it intends to assert any material right to a discount, allowance or chargeback
with respect to any products or services, except for any discounts, allowances
or chargebacks that have not had and would not reasonably be expected to have a
Material Adverse Effect. The Receivables are current as of the date hereof.
Seller has delivered to the Buyer a complete and accurate aging list of all
Receivables as of a date not more than 5 days prior to the date of this
Agreement.
(b) Accounts Payable. The accounts payable related to Seller, as
reflected on the Financial Statements or thereafter and recorded by Seller, have
arisen only from bona fide transactions entered into in the Ordinary Course.
Except as provided in Schedule 5.20(b), all payment terms in connection
therewith are consistent with past practices of Seller.
[End of Schedule B]
B-23
SCHEDULE C
RELEASE BY EACH SHAREHOLDER
For valuable and good consideration, the receipt and sufficiency of which
are hereby acknowledged, the Shareholder, on behalf of himself and his heirs,
successors and assigns, does hereby forever release, acquit and discharge the
Corporation, its officers, directors, assigns, attorneys, employees and agents
(including specifically Edward Cespedes and Michael Egan), and their respective
Affiliates (as defined in Rule 501 promulgated under the Securities Act of
1933), officers, directors, assigns, attorneys, employees, and agents
(collectively, the "Released Parties") from all claims, benefits, rights
demands, sums of money, causes of action, statutory claims, suits, damages,
debts, obligations, trespasses, losses, expenses and liability whatsoever
(whether known or unknown, asserted or unasserted, absolute or contingent,
accrued or unaccrued and whether due or to become due) (the "Liability") arising
contemporaneously with or prior to the date hereof, or on account of or arising
out of any matter, cause or event occurring contemporaneously with or prior to
the date hereof, including, but not limited to, any claim of breach of any
fiduciary duty (including without limitation the duties of care and loyalty) by
any Released Party in its, her or his capacity as an equity holder, member,
manager, officer, employee, agent or representative of the Corporation.
Notwithstanding the foregoing, this General Release shall not apply to any
of the Shareholders' respective rights under the Redemption Agreement and the
Termination Agreement, both dated as of August ___, 2005, by and among the
Corporation, SendTec and the Shareholders, (ii) the obligations and liabilities
of the Corporation under that certain $1,000,009.09 Subordinated Promissory
Note, dated as of September 1, 2004, made payable to Paul Soltoff in his
capacity as the "Payees Representative," (iii) Liabilities arising from any
breach by the Corporation of any representation or other term or provision of
the Redemption Agreement, (iv) any claim by the Shareholder for indemnification
as a director or former director or officer or former officer of the
Corporation, the Seller or any of their Affiliates, or (v) any claims relating
to the Shareholder's employment with the Corporation.
Further, subject to the terms of the next succeeding paragraph, the
Shareholder hereby irrevocably covenants to refrain from, directly or
indirectly, asserting any claim or demand, or commencing, instituting or causing
to be commenced, any proceeding of any kind against a Released Party based upon
any matter released hereby.
This release shall be null and void and of no force or effect if, pursuant
to a final, non-appealable determination of a court of competent jurisdiction,
the Redemption Agreement is held to be null and void, or unenforceable, or the
consideration paid under the Redemption Agreement to the releasing Shareholder
is determined to violate the Delaware General Corporation Law, fraudulent
transfer laws, or similar laws.
The Shareholder represents to the Released Parties that he, she or it has
not assigned or transferred or purported to assign or transfer to any person or
entity all or any part of, or any interest in, any claim, contention, demand,
cause of action (at law or in equity) or Liability of any nature, character, or
description whatsoever, which is or which purports to be released or discharged
by this General Release.
[End of Schedule C]
B-24
SCHEDULE D
RELEASE BY THE CORPORATION, CERTAIN STOCKHOLDERS AND SELLER
For valuable and good consideration, the receipt and sufficiency of which
are hereby acknowledged, the Corporation, SendTec, Michael S. Egan, Edward
Cespides, E&C Capital Partners, LLLP, and Dancing Bear Investments, Inc., on
behalf of itself or himself (individually and collectively) and its or his
respective agents and Affiliates (as defined in Rule 501 promulgated under the
Securities Act of 1933), and each of its or his respective successors and
assigns (collectively, the "Releasing Parties"), does each hereby forever
release, acquit and discharge each Shareholder, and his or her agents, heirs,
successors and assigns (collectively, the "Released Parties") from all claims,
benefits, rights demands, sums of money, causes of action, statutory claims,
suits, damages, debts, obligations, trespasses, losses, expenses and liability
whatsoever (whether known or unknown, asserted or unasserted, absolute or
contingent, accrued or unaccrued and whether due or to become due) (the
"Liability") arising contemporaneously with or prior to the date hereof, or on
account of or arising out of any matter, cause or event occurring
contemporaneously with or prior to the date hereof, including, but not limited
to, any claim of breach of any fiduciary duty (including without limitation the
duties of care and loyalty) by any Released Party in his capacity as an equity
holder, member, manager, director, officer, employee, agent or representative of
the Corporation, the Seller or any of their Affiliates.
Notwithstanding the foregoing this General Release shall not apply to any
of the Corporation's respective rights under the Redemption Agreement and the
Termination Agreement, both dated as of August ___, 2005, by and among the
Corporation, SendTec and the Shareholders.
Further, each of the Releasing Parties hereby irrevocably covenants to
refrain from, directly or indirectly, asserting any claim or demand, or
commencing, instituting or causing to be commenced, any proceeding of any kind
against a Released Party based upon any matter released hereby.
This release shall be null and void and of no force or effect if, pursuant
to a final, non-appealable determination of a court of competent jurisdiction,
the Redemption Agreement is held to be null and void, or unenforceable, or the
consideration paid under the Redemption Agreement to the Shareholders is
determined to violate the Delaware General Corporation Law, fraudulent transfer
laws, or similar laws.
The Corporation SendTec, Michael S. Egan, Edward Cespides, E&C Capital
Partners, LLLP, and Dancing Bear Investments, Inc. each represents to the
Released Parties that it or he has not assigned or transferred or purported to
assign or transfer to any person or entity all or any part of, or any interest
in, any claim, contention, demand, cause of action (at law or in equity) or
Liability of any nature, character, or description whatsoever, which is or which
purports to be released or discharged by this General Release.
[End of Schedule D]
B-25
ANNEX C
(the Fairness Opinion)
THOMAS WEISEL PARTNERS LLC
PRIVILEGED AND CONFIDENTIAL
August 12, 2005
Board of Directors
Theglobe.com, Inc.
110 E. Broward Boulevard, 14th Floor
Ft. Lauderdale, FL 33301
Ladies and Gentlemen:
We understand that theglobe.com, Inc. a Delaware corporation ("Seller"),
and RelationServe Media, Inc. a Nevada corporation ("Buyer"), entered into an
Asset Purchase Agreement dated August 10, 2005 (the "Asset Purchase Agreement"),
pursuant to which Seller will sell all the assets of its wholly-owned
subsidiary, SendTec, Inc., a Florida corporation ("SendTec") (the
"Transaction"). Pursuant to the Transaction, as more fully described in the
Asset Purchase Agreement, we understand that Seller will receive cash
consideration of $37,500,000 plus net working capital of SendTec at closing,
estimated to be an amount of $2,800,000 as of 6/30/2005 (the "Transaction
Consideration"). The terms and conditions of the Transaction are set forth in
more detail in the Asset Purchase Agreement.
You have asked for our opinion as investment bankers as to whether the
Transaction Consideration to be received by the Seller pursuant to the
Transaction is fair to the Seller from a financial point of view, as of August
10, 2005.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to Seller,
including the consolidated financial statements for recent years and interim
periods to March 31, 2005 and certain other
Board of Directors
Theglobe.com
August 12, 2005
Page 2
relevant financial and operating data relating to Seller and SendTec made
available to us from published sources and from the internal records of Seller
and SendTec; (ii) reviewed the financial terms and conditions of the Asset
Purchase Agreement; (iii) compared SendTec from a financial point of view with
certain other companies which we deemed to be relevant; (iv) considered the
financial terms, to the extent publicly available, of selected recent business
combinations which we deemed to be comparable, in whole or in part, to the
Transaction; (v) reviewed and discussed with representatives of the management
of Seller and SendTec certain information of a business and financial nature
regarding SendTec, furnished to us by them, including financial forecasts and
related assumptions of Seller and SendTec; (vi) made inquiries regarding and
discussed the Transaction and the Asset Purchase Agreement and other matters
related thereto with Seller's counsel; and (vii) performed such other analyses
and examinations as we have deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for SendTec provided to us by the management of Seller and SendTec,
upon their and your advice and with your consent we have assumed for purposes of
our opinion that the forecasts have been reasonably prepared on bases reflecting
the best available estimates and judgments of Seller's and SendTec's management
at the time of preparation as to the future financial performance of SendTec and
that they provide a reasonable basis upon which we can form our opinion. We have
also assumed that there have been no material changes in SendTec's assets,
financial condition, results of operations, business or prospects since the date
of its last financial statements made available to us. We have relied on advice
of counsel and independent accountants provided to Seller as to all legal and
fina ncial reporting matters with respect to SendTec, the Transaction and the
Asset Purchase Agreement. We have assumed that the Transaction will be
consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934 and all other applicable federal and state
statutes, rules and regulations. In addition, we have not assumed responsibility
for making an independent evaluation, appraisal or physical inspection of any of
the assets or liabilities (contingent or otherwise) of SendTec, nor have we been
furnished with any such appraisals. Finally, our opinion is based on economic,
monetary and market and other conditions as in effect on, and the information
made available to us as of, August 10, 2005. Accordingly,
Board of Directors
Theglobe.com
August 12, 2005
Page 3
although subsequent developments may affect this opinion, we have not assumed
any obligation to update, revise or reaffirm this opinion.
We have further assumed with your consent that the Transaction will be
consummated in accordance with the terms described in the Asset Purchase
Agreement, without any further amendments thereto, and without waiver by Seller
of any of the conditions to its obligations thereunder.
We have acted as financial advisor to Seller in connection with the
Transaction and will receive a fee for our services, including rendering this
opinion, a significant portion of which is contingent upon the consummation of
the Transaction. In the ordinary course of our business, we actively trade the
equity securities of Seller and Buyer for our own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Transaction Consideration to be received by the
Seller pursuant to the Transaction is fair to Seller from a financial point of
view, as of August 10, 2005.
This opinion is directed to the Board of Directors of Seller in its
consideration of the Transaction and is not a recommendation to any shareholder
as to how such shareholder should vote with respect to the Transaction. Further,
this opinion addresses only the financial fairness of the Transaction
Consideration and does not address the relative merits of the Transaction and
any alternatives to the Transaction, Seller's underlying decision to proceed
with or effect the Transaction, or any other aspect of the Transaction. This
opinion also does not address any related transaction between Seller or Buyer
and the management of SendTec. This opinion may not be used or referred to by
Seller, or quoted or disclosed to any person in any manner, without our prior
written consent, which consent is hereby given to the inclusion of this opinion,
in its entirety, in any proxy or information statement filed with the Securities
and Exchange Commission in connection with the Transaction. In furnishing this
opinion, we do no t admit that we are experts within the meaning of the term
"experts" as used in the Securities Act and the rules and regulations
promulgated thereunder, nor do we admit that this opinion constitutes a report
or valuation within the meaning of Section 11 of the Securities Act.
Board of Directors
Theglobe.com
August 12, 2005
Page 4
Very truly yours,
THOMAS WEISEL PARTNERS LLC