STOCK PURCHASE AGREEMENT
BY AND AMONG
GAMETECH INTERNATIONAL, INC.,
BINGO TECHNOLOGIES CORPORATION
AND
THE STOCKHOLDERS AND INDEMNITORS NAMED HEREIN
DATED AS OF FEBRUARY 8, 1999
INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
Exhibit A Schedule of Stockholders
Exhibit B Form of Noncompetition Agreement
Exhibit C Form of Escrow Agreement
Exhibit D-1 Form of Employment Agreement: GN
Exhibit D-2 Form of Employment Agreement: KN
Exhibit D-3 Form of Employment Agreement: JL
Exhibit E Form of Legal Opinion of ▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇,
Counsel to the Company
Exhibit F Form of Legal Opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇,
counsel to Parent
Exhibit G-1 Form of Siblings Promissory Note
Exhibit G-2 Form of JL Promissory Note
TABLE OF CONTENTS
PAGE
RECITALS 1
ARTICLE I THE ACQUISITION.............................................................................................2
1.1 THE ACQUISITION.....................................................................................2
1.2 CLOSING; CLOSING DATE...............................................................................2
1.3 CONSIDERATION.......................................................................................2
1.4 NET WORTH TRUE-UP...................................................................................2
1.5 CERTAIN DEFINITIONS.................................................................................4
1.6 TAX CONSEQUENCES....................................................................................5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY, THE STOCKHOLDERS AND INDEMNITORS 5
2.1 ORGANIZATION OF THE COMPANY.........................................................................5
2.2 SUBSIDIARIES........................................................................................6
2.3 COMPANY CAPITAL STRUCTURE...........................................................................6
2.4 AUTHORITY...........................................................................................6
2.5 NO CONFLICT.........................................................................................7
2.6 CONSENTS............................................................................................7
2.7 COMPANY FINANCIAL STATEMENTS........................................................................8
2.8 NO UNDISCLOSED LIABILITIES..........................................................................8
2.9 NO CHANGES..........................................................................................8
2.10 TAX MATTERS........................................................................................10
2.11 RESTRICTIONS ON BUSINESS ACTIVITIES................................................................12
2.12 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF EQUIPMENT.....................12
2.13 INTELLECTUAL PROPERTY..............................................................................13
2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS..............................................................17
2.15 INTERESTED PARTY TRANSACTIONS......................................................................19
2.16 GOVERNMENTAL AUTHORIZATION.........................................................................19
2.17 LITIGATION.........................................................................................19
2.18 ACCOUNTS RECEIVABLE; INVENTORY.....................................................................19
2.19 MINUTE BOOKS.......................................................................................20
2.20 ENVIRONMENTAL MATTERS..............................................................................20
2.21 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES...................................................21
2.22 EMPLOYEE BENEFIT PLANS AND COMPENSATION............................................................21
2.23 INSURANCE..........................................................................................24
2.24 COMPLIANCE WITH LAWS...............................................................................25
2.25 WARRANTIES; INDEMNITIES............................................................................25
2.26 ADEQUACY AND FUNCTIONALITY OF COMPANY PRODUCTS.....................................................25
2.27 COMPLETE COPIES OF MATERIALS.......................................................................25
2.28 INVESTMENT REPRESENTATIONS.........................................................................25
2.29 REPRESENTATIONS COMPLETE...........................................................................26
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT.................................................................27
3.1 ORGANIZATION, STANDING AND POWER...................................................................27
3.2 AUTHORITY..........................................................................................27
3.3 NO CONFLICT........................................................................................27
3.4 CONSENTS...........................................................................................28
3.5 CAPITAL STRUCTURE..................................................................................28
3.6 SEC FILINGS........................................................................................28
3.7 LITIGATION.........................................................................................29
3.8 COMPLIANCE WITH LAW AND CHARTER DOCUMENTS..........................................................29
3.9 YEAR 2000 COMPLIANT................................................................................29
3.10 FULL DISCLOSURE....................................................................................29
ARTICLE IV CONDUCT PRIOR TO THE CLOSING..............................................................................30
4.1 CONDUCT OF BUSINESS OF THE COMPANY.................................................................30
4.2 CONDUCT OF BUSINESS OF PARENT......................................................................32
4.3 NO SOLICITATION....................................................................................32
ARTICLE V ADDITIONAL AGREEMENTS......................................................................................33
5.1 PARENT REGISTRATION................................................................................33
5.2 REGISTRATION ON FORM S-3...........................................................................34
5.3 EXPENSES OF REGISTRATION...........................................................................35
5.4 REGISTRATION PROCEDURES............................................................................35
5.5 INDEMNIFICATION....................................................................................36
5.6 SIBLINGS' INDEMNIFICATION OF PARENT................................................................36
5.7 ACCESS TO INFORMATION..............................................................................37
5.8 CONFIDENTIALITY....................................................................................37
5.9 EXPENSES...........................................................................................37
5.10 PUBLIC DISCLOSURE..................................................................................38
5.11 CONSENTS...........................................................................................38
5.12 FIRPTA COMPLIANCE..................................................................................38
5.13 REASONABLE EFFORTS.................................................................................38
5.14 NOTIFICATION OF CERTAIN MATTERS....................................................................38
5.15 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES........................................................39
5.16 CERTAIN POST-CLOSING MATTERS.......................................................................39
5.17 NON-COMPETITION AGREEMENTS.........................................................................39
5.18 EMPLOYMENT AGREEMENTS..............................................................................39
5.19 NASDAQ LISTING.....................................................................................39
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5.20 PARENT RIGHT OF FIRST REFUSAL......................................................................39
5.21 LIMITATION ON AGGREGATE SALES......................................................................40
5.22 LITIGATION BETWEEN THE PARTIES.....................................................................40
5.23 COMPANY EMPLOYEES..................................................................................40
ARTICLE VI CONDITIONS TO THE ACQUISITION.............................................................................41
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE ACQUISITION..................................41
6.2 CONDITIONS TO OBLIGATIONS OF COMPANY AND THE STOCKHOLDERS..........................................41
6.3 CONDITIONS TO THE OBLIGATIONS OF PARENT............................................................42
ARTICLE VII SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS; INDEMNIFICATION...................................43
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS..............................................43
7.2 INDEMNIFICATION....................................................................................44
7.3 METHOD OF ASSERTING CLAIMS.........................................................................45
7.4 INDEMNIFICATION LIABILITY LIMITATIONS..............................................................45
7.5 SECURITYHOLDER AGENT OF THE STOCKHOLDERS; POWER OF ATTORNEY........................................46
7.6 THIRD-PARTY CLAIMS.................................................................................46
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.......................................................................47
8.1 TERMINATION........................................................................................47
8.2 EFFECT OF TERMINATION..............................................................................48
8.3 AMENDMENT..........................................................................................48
8.4 EXTENSION; WAIVER..................................................................................48
ARTICLE IX GENERAL PROVISIONS........................................................................................48
9.1 NOTICES............................................................................................48
9.2 INTERPRETATION.....................................................................................50
9.3 COUNTERPARTS.......................................................................................50
9.4 ENTIRE AGREEMENT; ASSIGNMENT.......................................................................50
9.5 SEVERABILITY.......................................................................................51
9.6 OTHER REMEDIES.....................................................................................51
9.7 GOVERNING LAW......................................................................................51
9.8 RULES OF CONSTRUCTION..............................................................................51
9.9 ATTORNEYS FEES.....................................................................................51
9.10 THIRD PARTY BENEFICIARIES..........................................................................51
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "AGREEMENT") is made and entered into as
of February 8, 1999 among Gametech International, Inc., a Delaware corporation
("PARENT"), Bingo Technologies Corporation, a Nevada corporation (the
"COMPANY"), ▇▇▇▇ ▇. ▇▇▇▇▇▇ ("JL"), Siblings Partners, L.P., a Delaware limited
partnership ("SIBLINGS"); (JL and Siblings collectively, the "STOCKHOLDERS"),
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("GN") and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("KN").
RECITALS
A. The Board of Directors of Parent believes it is in the best interests of
Parent and its stockholders that Parent acquire the Company through the purchase
of all capital stock of the Company (the "ACQUISITION") and, in furtherance
thereof, have approved the Acquisition.
B. Pursuant to the Acquisition, among other things, all of the issued and
outstanding securities of the Company shall be purchased in exchange for Parent
Common Stock (as defined herein) and the promissory notes and cash consideration
as described in Section 1.3.
C. The Company and the Stockholders, on the one hand, and Parent, on the
other hand, desire to make certain representations, warranties, covenants and
other agreements in connection with the Acquisition. GN, KN and JL (the
"Indemnitors") desire to provide certain indemnities to Parent in connection
with the Acquisition.
D. Concurrent with the execution of this Agreement, as a material
inducement to Parent to enter into this Agreement, (i) GN, KN and JL are
entering into agreements not to compete with Parent (the "NONCOMPETITION
AGREEMENTS") in the form of EXHIBIT B hereto, (ii) the Stockholders, the
Indemnitors, Parent and the Escrow Agent, as defined in Section 1.3(c) are
entering into an Escrow Agreement (the "ESCROW AGREEMENT") in the form of
EXHIBIT C hereto and (iii) GN, KN and JL and Parent are entering into employment
agreements in the forms of ▇▇▇▇▇▇▇▇ ▇-▇, ▇-▇, and D-3 hereto (the "Employment
Agreements").
E. GN and KN are beneficial owners of Siblings.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE ACQUISITION
1.1 THE ACQUISITION. At the Closing (as defined in Section 1.2) and subject
to and upon the terms and conditions of this Agreement, the Stockholders shall
sell to Parent, and Parent shall purchase from Stockholders 10,000 shares of the
Company's Common Stock, constituting all of the outstanding capital stock of the
Company in consideration of the payments described below. As a result of the
Acquisition, the Company shall become a wholly-owned subsidiary of Parent.
1.2 CLOSING; CLOSING DATE. Unless this Agreement is earlier terminated
pursuant to Section 8.1, the closing of the Acquisition (the "CLOSING") will
take place as promptly as practicable, but no later than five (5) business days
following satisfaction or waiver of the conditions set forth in Article VI, at
the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation, ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, unless another place or time is agreed to
in writing by Parent and the Company. The date upon which the Closing actually
occurs is herein referred to as the "CLOSING DATE."
1.3 CONSIDERATION.
(a) SIBLINGS. In consideration of the purchase of 6,863 shares of Company Common
Stock from Siblings, at the Closing Parent shall deliver to Siblings 1,866,938
shares of Parent Common Stock (the "SIBLINGS SHARES"), and $5,912,529 (the
"SIBLINGS CLOSING CASH"). In further consideration of such purchase, Parent
shall deliver to Siblings a promissory note in the amount of $943,065 (the
"SIBLINGS DEFERRED CASH") substantially in the form attached hereto as Exhibit
G-1.
(b) JL. In consideration of the purchase of 3,137 shares of Company
Common Stock from JL, at the Closing Parent shall deliver to JL $2,905,465 (the
"JL CLOSING CASH"). In further consideration of such purchase, Parent shall
deliver to JL a promissory note in the amount of $3,681,268 (the "JL DEFERRED
CASH") substantially in the form attached hereto as Exhibit G-2. Parent shall
have certain offset rights with respect to a portion of the JL Deferred Cash
pursuant to Article VII hereof and the Escrow Agreement.
(c) ESCROW FUND. At the Closing, on behalf of the Stockholders and the
Indemnitors, pursuant to Article VII hereof, Parent shall deposit into an escrow
fund (the "ESCROW FUND") 373,387 of the Siblings Shares (the "SIBLINGS ESCROW
SHARES") issued in the name of an escrow agent (the "ESCROW AGENT"), $1,371,118
of the Siblings Closing Cash (the "SIBLINGS ESCROW CASH"), and $581,093 of the
JL Closing Cash (the "JL ESCROW CASH"; the Siblings Escrow Shares, the Siblings
Escrow Cash and JL Escrow Cash, collectively, the "ESCROW FUND").
1.4 NET WORTH TRUE-UP.
(a) Within forty-five (45) days following the Closing Date, the
Company's independent auditors ("COMPANY'S ACCOUNTANTS") shall furnish Parent
and the Stockholders with a
2
report (the "COMPANY NET WORTH REPORT"), which shall set forth, in reasonable
detail, the Tangible Net Worth (as defined below) of the Company as of the
Closing Date. In making such determination, Company shall prepare a balance
sheet for the Company as of the Closing Date audited by Company's Accountants
and shall include such audited balance sheet, and their report thereon, as part
of the Company Net Worth Report. The Company Net Worth Report shall indicate the
procedures employed by Company's Accountants in preparing the Company Net Worth
Report and shall contain such other financial information and methods of
calculation as may be reasonably necessary for Parent to evaluate the accuracy
thereof. Parent shall have a period of ten (10) days after receipt of the
Company Net Worth Report to notify the Stockholders of their election to accept
or reject (and in the case of a rejection, there shall be included in such
notice the reasons for such rejection in reasonable detail) the Company Net
Worth Report. In the event no notice is received by the Stockholders during such
ten (10) day period, the Company Net Worth Report and any required adjustments
resulting therefrom shall be deemed accepted by Parent. In the event Parent
shall timely reject the Company Net Worth Report, Parent's independent auditors
("PARENT'S ACCOUNTANTS") and Company's accountants shall promptly (and in any
event within thirty (30) days following the date upon which Parent shall reject
the Company Net Worth Report) attempt to make a joint determination of the
Tangible Net Worth of the Company as of the Closing Date and such determination
and any required adjustments resulting therefrom shall be final and binding on
the parties hereto. In the event the Company's Accountants and Parent's
Accountants are unable to agree upon the required Tangible Net Worth
determination as herein provided, within 90 days from the Closing Date, such
determination shall be made by the Phoenix office of Ernst & Young at or prior
to the expiration of 120 days from the Closing Date and such determination and
any required adjustments resulting therefrom shall be final and binding on all
the parties hereto. As used in this Section 1.4(a), "TANGIBLE NET WORTH" shall
mean total assets less total liabilities of the Company, determined in
accordance with GAAP.
(b) Within forty-five (45) days following the Closing Date, Parent's
independent auditors ("PARENT'S ACCOUNTANTS") shall furnish Parent and the
Stockholders with a report (the "PARENT NET WORTH REPORT"), which shall set
forth, in reasonable detail, the Tangible Net Worth (as defined below) of the
Parent as of the Closing Date. In making such determination, Parent shall
prepare a balance sheet as of the Closing Date audited by Parent's Accountants
and shall include such audited balance sheet, and their report thereon, as part
of the Parent Net Worth Report. The Parent Net Worth Report shall indicate the
procedures employed by Parent's Accountants in preparing the Parent Net Worth
Report and shall contain such other financial information and methods of
calculation as may be reasonably necessary for the Stockholders to evaluate the
accuracy thereof. The Stockholders shall have a period of ten (10) days after
receipt of the Parent Net Worth Report to notify Parent of their election to
accept or reject (and in the case of a rejection, there shall be included in
such notice the reasons for such rejection in reasonable detail) the Parent Net
Worth Report. In the event no notice is received by Parent during such ten (10)
day period, the Parent Net Worth Report and any required adjustments resulting
therefrom shall be deemed accepted by the Stockholders. In the event the
Stockholders shall timely reject the Parent Net Worth Report, the Company's
independent auditors ("COMPANY'S ACCOUNTANTS") and Parent's accountants shall
promptly (and in any event within thirty (30) days following the date upon which
the Stockholders shall reject the Parent Net Worth Report) attempt to make a
joint determination of the Tangible Net
3
Worth of the Parent as of the Closing Date and such determination and any
required adjustments resulting therefrom shall be final and binding on the
parties hereto. In the event Parent's Accountants and the Stockholder's
Accountants shall be unable to agree upon the required Tangible Net Worth
determination as herein provided, within 90 days from the Closing Date, such
determination shall be made by the Phoenix office of Ernst & Young at or prior
to the expiration of 120 days from the Closing Date and such determination and
any required adjustments resulting therefrom shall be final and binding on all
the parties hereto. As used in this Section 1.4(b), "TANGIBLE NET WORTH" shall
mean total assets less total liabilities of Parent determined in accordance with
GAAP.
(c) If the Company Net Worth Report shall reflect a Tangible Net Worth
of the Company as of the Closing Date that is less than $2,085,914 then such
deficit shall constitute Damages (as defined in Section 7.2 below) to Parent
hereunder and shall be immediately payable to Parent from the Escrow Fund,
provided, however that if the Parent Net Worth Report shall reflect a Tangible
Net Worth of Parent as of the Closing Date that is less than $40,322,115 then
the amount of such Damages shall be reduced by one dollar for each dollar that
the Tangible Net Worth of Parent is less than $40,322,115, but such adjustment
shall not reduce the amount of such Damages to less than zero. For example, if
the deficit in the Tangible Net Worth of the Company is $200,000: (a) and if the
there is no deficit in the Tangible Net Worth of Parent, the amount of such
Damages would be $200,000; (b) and if the deficit in the Tangible Net Worth of
Parent is $50,000, the amount of such Damages would be $150,000; (c) and if the
deficit in the Tangible Net Worth of Parent is $200,000 or more, the amount of
such Damages would be zero. Promptly following the foregoing determination,
Parent and the Securityholder Agent, as defined in Section 7.3 below, shall
prepare and deliver to the Escrow Agent joint written instructions setting forth
the results of each such determination, including, specifically, the amount of
Escrow Fund to be delivered to Parent.
1.5 CERTAIN DEFINITIONS. For all purposes of this Agreement the following
terms shall have the following definitions:
"COMPANY CAPITAL STOCK" shall mean shares of Company Common
Stock and shares of any other capital stock of the Company.
"COMPANY COMMON STOCK" shall mean shares of common stock of
the Company.
"ESCROW FUND" shall have the meaning set forth in Section
1.3(c).
"SIBLINGS ESCROW SHARES" shall have the meaning set forth in
Section 1.3(c).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"GAAP" shall mean U.S. generally accepted accounting principles.
"KNOWLEDGE" with respect to a particular fact or circumstance,
shall mean actual knowledge of such particular fact or circumstance,
4
or knowledge of other facts or circumstances from which a reasonable person
should have known of such particular fact or circumstance, by the officers or
directors of the Company, Parent, or by the Stockholders, as the case may be.
"LITIGATION" shall mean that certain litigation involving
Bingo Card Minder Corporation and Parent, called Bingo Card Minder Corporation
vs. Gametech International, Inc., C96-997FMS WDB.
"PARENT COMMON STOCK" shall mean shares of the common stock,
par value $.001, of Parent.
1.6 TAX CONSEQUENCES. Each party acknowledges that such party has
consulted with such party's tax advisor with respect to the tax consequences
of this Agreement and the transactions contemplated hereby under the Internal
Revenue Code of 1986, as amended (the "CODE") and other applicable law, and
that such party is relying solely on such advice.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY,
THE STOCKHOLDERS AND INDEMNITORS
Each of the Company, the Stockholders and the Indemnitors hereby, jointly
and severally, represents and warrants to Parent, subject to such exceptions as
are specifically disclosed in the disclosure schedule (referencing the
appropriate Section and paragraph numbers of this Agreement) supplied by the
Company and the Stockholders to Parent and dated the date hereof (the
"DISCLOSURE SCHEDULE"), that on the date hereof and as of the Closing as though
made at the Closing as follows:
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada. Section 2.1 of the Disclosure Schedule sets forth a list of all
jurisdictions in which the Company is currently conducting business and a list
of all jurisdictions in which the Company is qualified to do business. The
Company has the corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified could have a Company Material Adverse Effect. For all
purposes of this Agreement, the term "COMPANY MATERIAL ADVERSE EFFECT" means any
change, event or effect that is materially adverse to the business, assets
(including intangible assets), condition (financial or otherwise),
capitalization or results of operations or prospects of the Company except for
those changes, events and effects that (i) are directly caused by conditions
affecting the United States economy as a whole or affecting the industry in
which such entity competes as a whole, which conditions do not affect such
entity in a disproportionate manner, or (ii) are related to or result from the
announcement or pendency of the Acquisition. The Company has delivered a true
and correct copy of its Articles of Incorporation and Bylaws, each as amended to
date, to Parent.
5
Section 2.1 of the Disclosure Schedule lists the directors and officers of the
Company. The operations now being conducted by the Company have not been
conducted under any other name.
2.2 SUBSIDIARIES. The Company does not have, and has never had, any
subsidiaries or affiliated companies and does not otherwise own, and has not
otherwise owned, any shares in the capital of or any interest in, or control,
directly or indirectly, any corporation, partnership, association, joint venture
or other business entity.
2.3 COMPANY CAPITAL STRUCTURE
(a) As of the date hereof, the authorized Company Capital Stock
consists of 10,000,000 shares of authorized Company Common Stock of which 10,000
shares are issued and outstanding as of the date hereof. All outstanding Capital
Stock of the Company is held by the Stockholders. All outstanding shares of
Company Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by statute, the
Articles of Incorporation or Bylaws of the Company or any agreement to which the
Company is a party or by which it is bound and have been issued in compliance
with federal and state securities laws. There are no declared or accrued unpaid
dividends with respect to any shares of the Company's Capital Stock. The Company
has no other capital stock authorized, issued or outstanding.
(b) There are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Company is a party or
by which it is bound obligating the Company to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the Capital Stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. There are
no outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting stock of the Company. As a result of the Acquisition, Parent will be
the sole record and beneficial owner of all outstanding Company Capital Stock
and all rights to acquire or receive any Company Capital Stock, whether or not
such Company Capital Stock is outstanding.
2.4 AUTHORITY.
(a) The Company has all requisite power and authority to enter into
this Agreement and any Related Agreements (as hereinafter defined) to which it
is a party and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and any Related Agreements to which
the Company is a party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of the Company, and no further action is required on the part of the
Company, Indemnitors or the Stockholders to authorize the Agreement, any Related
Agreements to which the Company is a party and the transactions contemplated
hereby and thereby. This Agreement and the Acquisition have been unanimously
approved by the Board of Directors of the Company and the stockholders of the
Company. This Agreement and any Related Agreements to which the Company is a
party have
6
been duly executed and delivered by the Company, and, assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
constitute the valid and binding obligation of the Company, enforceable in
accordance with their respective terms, subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and to
rules of law governing specific performance, injunctive relief or other
equitable remedies. The "RELATED AGREEMENTS" shall mean all such ancillary
agreements required in this Agreement to be executed and delivered in connection
with the transactions contemplated hereby, including the Noncompetition
Agreements, Employment Agreements and the Escrow Agreement.
(b) Each of the Stockholders and the Indemnitors has all requisite
power and authority to enter into this Agreement and any Related Agreements to
which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and any Related Agreements
to which each Stockholder or Indemnitor is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of such Stockholder or Indemnitor, and no further
action is required on the part of such Stockholder or Indemnitor to authorize
the Agreement, any Related Agreements to which it is a party and the
transactions contemplated hereby and thereby. This Agreement and any Related
Agreements to which such Stockholder or Indemnitor is a party have been duly
executed and delivered by the such Stockholder or Indemnitor, and, assuming the
due authorization, execution and delivery by the other parties hereto and
thereto, constitute the valid and binding obligation of such Stockholder or
Indemnitor, enforceable in accordance with their respective terms, subject to
the laws of general application relating to bankruptcy, insolvency and the
relief of debtors and to rules of law governing specific performance, injunctive
relief or other equitable remedies.
2.5 NO CONFLICT. The execution, delivery and performance of this Agreement
and each of the Related Agreements to which the Company, Indemnitors or the
Stockholders are a party by either the Company or the Stockholders or the
Indemnitors do not, and, the consummation of the transactions contemplated
hereby and thereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation, modification or acceleration of any
obligation or loss of any benefit under (any such event, a "CONFLICT") (i) any
provision of the Articles of Incorporation and Bylaws of the Company, (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise or license to which the Company or the Stockholders or the
Indemnitors or any of their respective properties or assets (including
intangible assets) are subject or (iii) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to the Company or the Stockholders
or the Indemnitors or their respective properties or assets or (iv) any
provision of the agreement of limited partnership of Siblings, as amended to
date.
2.6 CONSENTS. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local, tribal or other foreign
governmental authority, instrumentality, agency or commission ("GOVERNMENTAL
ENTITY") or any third party, including a party to any agreement with the Company
(so as not to trigger any Conflict), is required by or with respect to the
Company or the Stockholders or the Indemnitors in connection with the execution
and delivery of this Agreement and any Related
7
Agreements to which the Company or the Stockholders or the Indemnitors is a
party or the consummation of the transactions contemplated hereby and thereby,
except for such consents, waivers, approvals, orders or authorizations as may be
required with respect to the gaming licenses now held by the Company in light of
this Agreement and the transactions contemplated hereby. There is no fact or
circumstance relating to the Company, Siblings, GN, KN, or JL which would
prevent Parent and the Company from obtaining any such required consent, waiver,
approval, order, or authorization following the Closing.
2.7 COMPANY FINANCIAL STATEMENTS. Section 2.7 of the Disclosure Schedule
sets forth the Company's audited consolidated balance sheet as of December 31,
1997 and the related audited consolidated statements of income and cash flow for
the twelve-month period ended December 31, 1997 (the "YEAR-END FINANCIALS") and
the Company's audited balance sheet as of September 30, 1998, and the related
audited statements of income and cash flow for that period (the "INTERIM
FINANCIALS"). The Year-End Financials and the Interim Financials are correct in
all material respects and have been prepared in accordance with GAAP applied on
a basis consistent throughout the periods indicated and consistent with each
other. The Year-End Financials and the Interim Financials present fairly the
consolidated financial condition and consolidated operating results of the
Company and any consolidated subsidiaries as of the dates and during the periods
indicated therein. The Company's audited Balance Sheet as of September 30, 1998
shall be hereinafter referred to as the "CURRENT BALANCE SHEET." The Company has
also provided internal unaudited financial statements for the months of October,
November and December, 1998 (the "UNAUDITED FINANCIALS"). The Unaudited
Financials have been prepared on a basis consistent with the audited financials
and present fairly the consolidated financial condition and consolidated
operating results of the Company as of the dates and for the periods indicated
therein, subject to normal year end audit adjustments and accruals.
2.8 NO UNDISCLOSED LIABILITIES. The Company does not have any liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
any type, whether accrued, absolute, contingent, matured, unmatured or other
(whether or not required to be reflected in financial statements in accordance
with GAAP), which (i) has not been reflected in the Current Balance Sheet, or
(ii) has not arisen in the ordinary course of business consistent with past
practices since September 30, 1998.
2.9 NO CHANGES. Since September 30, 1998, there has not been, occurred or
arisen any:
(a) amendments or changes to the Articles of Incorporation or Bylaws
of the Company;
(b) capital expenditure or related commitment by the Company,
exceeding $20,000 individually or $50,000 in the aggregate;
(c) destruction of, damage to or loss of any material assets, business
or customer of the Company (whether or not covered by insurance);
8
(d) claim of wrongful discharge or other unlawful labor practice or
action;
(e) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company;
(f) revaluation by the Company of any of its assets;
(g) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company or any direct or
indirect redemption, purchase or other acquisition by the Company of its capital
stock;
(h) increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors, employees or advisors,
or the declaration, payment or commitment or obligation of any kind for the
payment, by the Company of a bonus or other additional salary or compensation to
any such person except annualized increases not exceeding 7% for any individual
and 4% in the aggregate per annum;
(i) any agreement, contract, covenant, instrument, lease, license or
commitment to which the Company is a party or by which they or any of its assets
(including intangible assets) are bound or any termination, extension, amendment
or modification the terms of any agreement, contract, covenant, instrument,
lease, license or commitment to which the Company is a party or by which it or
any of its assets are bound except in the ordinary course of business consistent
with reasonable commercial practice;
(j) sale, lease, license or other disposition of any of the assets or
properties of the Company or any creation of any security interest in such
assets or properties other than the sale of inventory in the ordinary course of
business, consistent with past practices;
(k) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others, except for reasonable advances to employees for
travel and business expenses in the ordinary course of business, consistent with
past practice;
(l) waiver or release of any right or claim of the Company including
any write-off or other compromise of any account receivable of the Company;
(m) the commencement or notice or threat of any lawsuit or, to the
Company's or the Stockholders' Knowledge, proceeding or investigation against
the Company or its affairs;
(n) Knowledge of any claim or potential claim of ownership by any
person other than the Company of the Company Intellectual Property (as defined
in Section 2.13 below) or of infringement by the Company of any other person's
Intellectual Property excluding the Litigation;
9
(o) issuance or sale, or contract to issue or sell, by the Company of
any shares of its capital stock or securities exchangeable, convertible or
exercisable therefor, or any securities, warrants, options or rights to purchase
any of the foregoing;
(p) (i) sale or license of any Company Intellectual Property or
entering into of any agreement with respect to the Company Intellectual Property
with any person or entity or with respect to the Intellectual Property of any
person or entity or (ii) purchase or license of any Intellectual Property or
entering into of any agreement with respect to the Intellectual Property of any
person or entity or (iii) change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or royalties set or charged
by persons who have licensed Intellectual Property to the Company, except in the
case of this clause (iii) in the ordinary course of business consistent with
reasonable commercial practice;
(q) any event or condition of any character that has had or is
reasonably likely to have a Company Material Adverse Effect;
(r) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with reasonable commercial
practices; or
(s) agreement by the Company or any officer or employee thereof to do
any of the things described in the preceding clauses (a) through (r) (other than
negotiations with Parent and its representatives regarding the transactions
contemplated by this Agreement).
2.10 TAX MATTERS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "TAX" or,
collectively, "TAXES", means (i) any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts; (ii) any liability for the payment of any amounts of the type
described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period; and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) as a
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
10
(b) TAX RETURNS AND AUDITS.
(i) As of the Closing, the Company will have prepared and
timely filed all required federal, state, local and foreign returns, estimates,
information statements and reports ("RETURNS") relating to any and all Taxes
concerning or attributable to the Company or its operations and such Returns are
true and correct and have been completed in accordance with applicable law.
(ii) As of the Closing, the Company (A) will have paid all
Taxes it is required to pay and will have withheld with respect to its employees
all federal and state income taxes, FICA, FUTA and other Taxes required to be
withheld, and (B) will have accrued all Taxes attributable to the period between
September 30, 1998 and the Closing and will not have incurred any liability for
Taxes for such period other than in the ordinary course of business, consistent
with past practice.
(iii) The Company has not been delinquent in the payment of
any Tax nor is there any Tax deficiency outstanding, assessed or proposed
against the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the
Company has occurred in the past five taxable years of the Company or is
presently in progress, nor has the Company been notified of any request for such
an audit or other examination.
(v) The Company has no liabilities for unpaid federal, state,
local, tribal and foreign Taxes which have not been accrued or reserved against
on the Current Balance Sheet, whether asserted or unasserted, contingent or
otherwise.
(vi) The Company has made available to Parent copies of all
foreign, federal and state income and all state sales and use Returns for the
Company filed for the last five taxable years of the Company.
(vii) There are (and immediately following the Closing there
will be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"LIENS") on the assets of the Company relating to or attributable to Taxes other
than Liens for Taxes not yet due and payable.
(viii) Neither the Company nor the Stockholders has Knowledge
of any reasonable basis for the assertion of any claim relating or attributable
to Taxes which, if adversely determined, would result in any Lien on the assets
of the Company.
(ix) None of the Company's assets are treated as "tax-exempt
use property", within the meaning of Section 168(h) of the Code.
11
(x) As of the Closing, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions of
this Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount in
consideration of the performance of services for the Company by such employee or
former employee that would not be deductible for income tax purposes as an
expense under applicable law.
(xi) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(4) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xii) The Company is not a party to any tax sharing,
indemnification or allocation agreement nor does the Company owe any amount
under any such agreement, other than this Agreement.
(xiii) The Company is not and has not been at any time, a
"United States Real Property Holding Corporation" within the meaning of Section
897(c)(2) of the Code.
(xiv) No adjustment relating to any Return filed by the
Company has been proposed formally or, to the Knowledge of the Company or the
Stockholders, informally by any tax authority to the Company or any
representative thereof.
(C) EXECUTIVE COMPENSATION TAX. There is no contract, agreement, plan
or arrangement to which the Company is a party as of the date of this Agreement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of Company, individually or collectively, that could
give rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Code.
2.11 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement (noncompete
or otherwise), commitment, judgment, injunction, order or decree to which the
Company is a party or otherwise binding upon the Company which has or may have
the effect of prohibiting, impairing or restricting any business practice of the
Company, any acquisition of property (tangible or intangible) by the Company or
the conduct of business by the Company. Without limiting the foregoing, the
Company has not entered into any agreement under which it is restricted from
selling, licensing or otherwise distributing any of its technology or products
to or providing services to, customers or potential customers or any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
2.12 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF
EQUIPMENT.
(a) The Company owns no real property, nor has it ever owned any real
property. Section 2.12(a) of the Disclosure Schedule sets forth a list of all
real property currently leased by the Company, the name of the lessor, the date
of the lease and each amendment thereto and, with respect to any current lease,
the aggregate annual rental and/or other fees payable under any such lease. All
such current leases are in full force and effect, are valid and effective in
accordance with their
12
respective terms, there is not, under any of such leases, any existing default
or event of default (or event which with notice or lapse of time, or both, would
constitute a default) and, to the Knowledge of the Company, Indemnitors and the
Stockholders, there is not, under any of such leases, an existing default or
event of default by a party thereto other than the Company (or event which with
notice or lapse of time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of their respective
tangible properties and assets, real, personal and mixed, used or held for use
in its business, free and clear of any Liens, except as reflected in the Current
Balance Sheet and except for Liens for Taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not detract from the value, or
interfere with the present use, of the property subject thereto or affected
thereby.
(c) Section 2.12(c) of the Disclosure Schedule lists all material
items of equipment (the "EQUIPMENT") owned or leased by the Company and such
Equipment is, (i) adequate for the conduct of the business of the Company as
currently conducted and (ii) in good operating condition, regularly and properly
maintained, subject to normal wear and tear.
(d) The Company has sole and exclusive ownership, free and clear of
any Liens, of all customer files and other customer information relating to
customers of the Company's current and former customers (the "CUSTOMER
INFORMATION"). No person other than the Company possesses any claims or rights
with respect to use of the Customer Information.
2.13 INTELLECTUAL PROPERTY.
(a) For the purposes of this Agreement, the following terms have the
following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the
following, in any form and embodied in any media, (i) works of authorship
including, without limitation, computer programs, source code and executable
code, whether embodied in software, firmware or otherwise, documentation,
designs, files, records, data and mask works, (ii) inventions (whether or not
patentable), improvements, and technology, (iii) proprietary and confidential
information, trade secrets and know how, (iv) databases, data compilations and
collections and technical data, (v) logos, trade names, trade dress, trademarks
and service marks, (vi) domain names, web addresses and sites, and (vii) tools,
methods and processes.
"INTELLECTUAL PROPERTY RIGHTS" shall mean worldwide
common law and statutory rights associated with (i) patents and patent
applications, (ii) copyrights, copyrights registrations and copyrights
applications and "moral" rights, (iii) the protection of trade and industrial
secrets and confidential information, (iv) other proprietary rights relating to
intangible intellectual property, (v) trademarks, trade names and service marks,
(vi) analogous rights to those
13
set forth above, and (vii) divisions, continuations, renewals, reissuances and
extensions of the foregoing (as applicable) now existing or hereafter filed,
issued or acquired.
"COMPANY INTELLECTUAL PROPERTY" shall mean any
Intellectual Property and Intellectual Property Rights that are owned by or
exclusively licensed to the Company.
"REGISTERED INTELLECTUAL PROPERTY RIGHTS" shall mean
Intellectual Property Rights that have been registered, filed, certified or
otherwise perfected by recordation with any state, government or other public
legal authority.
(b) Section 2.13(b) of the Disclosure Schedule lists all Registered
Intellectual Property owned by, or filed in the name of, the Company (the
"COMPANY REGISTERED INTELLECTUAL PROPERTY") and lists any proceedings or actions
before any court, tribunal (including the United States Patent and Trademark
Office (the "PTO") or equivalent authority anywhere in the world) related to any
of the Company Registered Intellectual Property. Section 2.13 (b) of the
Disclosure Schedule also lists and identifies all computer software that is
owned by the Company (collectively, "Owned Software") and all computer software
(other than Owned Software) that is used by the Company for any purpose
whatsoever in its business as presently conducted (collectively, the "Licensed
Software"). The Owned Software and the Licensed Software are collectively
referred to as the "Software").
(c) Each item of Company Intellectual Property, including all Company
Registered Intellectual Property listed in Section 2.13(b) of the Disclosure
Schedule and all Intellectual Property licensed to the Company, is free and
clear of any Liens or other encumbrances. The Company is the exclusive owner of
all Company Intellectual Property.
(d) To the extent that any Intellectual Property has been developed or
created independently or jointly by any person other than the Company for which
the Company has, directly or indirectly, paid, the Company has a written
agreement with such person with respect thereto, and the Company thereby has
obtained ownership of, and is the exclusive owner of, all such Intellectual
Property and associated Intellectual Property Rights by operation of law or by
valid assignment.
(e) The Company has not transferred ownership of or granted any
license of or right to use or authorized the retention of any rights to use any
Intellectual Property or Intellectual Property Rights that is or was Company
Intellectual Property, to any other person, except as provided in Section
2.13(g) below.
(f) The Company Intellectual Property constitutes all the Intellectual
Property and Intellectual Property Rights used in and/or necessary to the
conduct of the business of the Company as it currently is conducted, planned or
is reasonably contemplated to be conducted, including, without limitation, the
design, development, manufacture, use, import and sale of products, technology
and services (including products, technology or services currently under
development). The Company has valid licenses to all software owned by third
parties that is used in and/or
14
necessary to the operation of the Company's products as they are currently used,
and the Company is not in default with respect to any such license.
(g) Other than "shrink-wrap" and similar widely available third-party
commercial end-user licenses, the contracts, licenses and agreements listed in
Section 2.13(g) of the Disclosure Schedule include all contracts, licenses and
agreements to which the Company is a party with respect to any Intellectual
Property and Intellectual Property Rights. No person who has licensed
Intellectual Property or Intellectual Property Rights to the Company has
ownership rights or license rights to improvements made by the Company in such
Intellectual Property which has been licensed to the Company.
(h) Section 2.13(h) of the Disclosure Schedule lists all contracts,
licenses and agreements between the Company and any other person wherein or
whereby the Company has agreed to, or assumed, any obligation or duty to
warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or
incur any obligation or liability or provide a right of rescission with respect
to the infringement or misappropriation by the Company or such other person of
the Intellectual Property Rights of any person other than the Company.
(i) The operation of the business of the Company as it currently is
conducted or is reasonably contemplated to be conducted, including but not
limited to the design, development, use, import, manufacture and sale of the
products, technology or services (including products, technology or services
currently under development) of the Company does not infringe or misappropriate
the Intellectual Property Rights of any person, violate the rights of any person
(including rights to privacy or publicity), or constitute unfair competition or
trade practices under the laws of any jurisdiction, and the Company has not
received notice from any person claiming that such operation or any act,
product, technology or service (including products, technology or services
currently under development) of the Company infringes or misappropriates the
Intellectual Property Rights of any person or constitutes unfair competition or
trade practices under the laws of any jurisdiction (nor to the Knowledge of the
Company, the Indemnitors or the Stockholders is there any reasonable basis
therefor).
15
(j) Each item of Company Registered Intellectual Property is valid and
subsisting, and all necessary registration, maintenance and renewal fees in
connection with such Company Registered Intellectual Property have been paid and
all necessary documents and certificates in connection with such Company
Registered Intellectual Property have been filed with the relevant patent,
copyright, trademark or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property. There are no actions that must be taken by the
Company within sixty (60) days of the scheduled Closing Date, including the
payment of any registration, maintenance or renewal fees or the filing of any
documents, applications or certificates for the purposes of maintaining,
perfecting or preserving or renewing any Registered Intellectual Property. In
each case in which the Company has acquired any Intellectual Property rights
from any person, the Company has obtained a valid and enforceable assignment
sufficient to irrevocably transfer all rights in such Intellectual Property and
the associated Intellectual Property Rights (including the right to seek past
and future damages with respect thereto) to the Company and, to the maximum
extent provided for by, and in accordance with, applicable laws and regulations,
the Company has recorded each such assignment with the relevant governmental
authorities, including the PTO, the U.S. Copyright Office, or their respective
equivalents in any relevant foreign jurisdiction, as the case may be.
(k) There are no contracts, licenses or agreements between the Company
and any other person with respect to Company Intellectual Property under which
there is any dispute known to the Company, Indemnitors or the Stockholders
regarding the scope of such agreement, or performance under such agreement
including with respect to any payments to be made or received by the Company
thereunder.
(l) To the Knowledge of the Company, Indemnitors and the Stockholders,
no person is infringing or misappropriating any Company Intellectual Property.
(m) The Company has taken all commercially reasonable steps in order
to protect the Company's rights in confidential information and trade secrets of
the Company or provided by any other person to the Company. All current and
former employees, consultants and contractors of the Company who have or have
had access to confidential, proprietary or trade secret information of the
Company ("Recipients") have entered proprietary information, confidentiality and
assignment of inventions agreements with the Company. Section 2.13 of the
Disclosure Schedule contains a list of all Recipients indicating those who have
signed the agreements and those who have not entered such agreements and the
form of each such agreement.
(n) No Company Intellectual Property, Intellectual Property Rights or
service of the Company is subject to any proceeding or outstanding decree,
order, judgment, agreement or stipulation that restricts in any manner the use,
transfer or licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
16
(o) No (i) product, technology, service or publication of the Company;
(ii) material published or distributed by the Company or (iii) conduct or
statement of Company constitutes obscene material, a defamatory statement or
material, false advertising or otherwise violates any law or regulation.
(p) All of the Company's products (including products currently under
development) will record, store, process, calculate and present calendar dates
falling on and after (and if applicable, spans of time including) January 1,
2000, and will calculate any information dependent on or relating to such dates
in the same manner, and with the same functionality, data integrity and
performance, as the products record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dates (collectively, "YEAR 2000 COMPLIANT").
All of the Company's products (i) will lose no functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000 and
(ii) will be interoperable with other products used and distributed by the
Company that may deliver records to the Company's products or receive records
from the Company's products, or interact with the Company's products, including
but not limited to back-up and archived data. All of the Company's internal
computer and technology products and systems are Year 2000 Compliant.
2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS.
(a) Except as set forth in Sections 2.13(g), 2.13(h) or 2.14(a) of the
Disclosure Schedule, the Company is not a party to nor is it bound by:
(i) Any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization,
(ii) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan,
(iii) any fidelity or surety bond or completion bond,
(iv) any lease of personal property with annual payments
individually in excess of $10,000 or $25,000 in the aggregate,
(v) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person,
(vi) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $20,000 individually or
$50,000 in the aggregate,
17
(vii) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business,
(viii) any mortgages, indentures, loans or credit agreements,
security agreements, guarantees or other agreements or instruments relating to
the borrowing of money or extension of credit,
(ix) any purchase order or contract for the purchase of
materials involving in excess of $10,000 individually or $25,000 in the
aggregate, with the exception of standard inventory, part or product purchases
necessary to meet production schedules based on signed customer orders or to
meet short term production forecasts per commercially reasonable procedures in
which case any such purchase order or contract in excess of $30,000 individually
or $100,000 in the aggregate.
(x) any construction contracts,
(xi) any dealer, distribution, joint marketing, development or
other customer agreement with annualized value in excess of $20,000,
(xii) any sales representative, original equipment
manufacturer, value added, remarketer, reseller or independent software vendor
or other agreement for use or distribution of the Company's products, technology
or services,
(xiii) any partnership or joint venture agreement,
(xiv) any agreement between the Company and any Stockholder or
Indemnitor (or affiliates); or
(xv) any other agreement, contract or commitment that
involves $10,000 individually or $25,000 in the aggregate or more or is not
cancelable without penalty within thirty (30) days.
(b) The Company is in compliance with and has not breached, violated
or defaulted under, or received written notice that it has breached, violated or
defaulted under, any of the terms or conditions of any agreement, contract,
covenant, instrument, lease, license or commitment described in the Company
Disclosure Schedule (collectively a "CONTRACT"), nor do the Company, Indemnitors
or the Stockholders have Knowledge of any event that would constitute such a
breach, violation or default with the lapse of time, giving of notice or both.
Each Contract is in full force and effect and to the Company's Knowledge, no
party obligated to the Company pursuant thereto is under default thereunder. The
Company has obtained, or will obtain prior to the Closing Date, all necessary
consents, waivers and approvals ( which consents, waivers, and approvals are set
forth on Section 2.14(b) of the Disclosure Schedule) of parties to any Contract
as are required thereunder in connection with the Acquisition or for such
Contracts to remain in effect without modification after the Closing. Following
the Closing, the Company will be permitted to exercise all of its rights under
the Contracts without the payment of any additional amounts or consideration
other than ongoing
18
fees, royalties or payments which the Company would otherwise be required to pay
had the transactions contemplated by this Agreement not occurred.
2.15 INTERESTED PARTY TRANSACTIONS. No officer or director of the Company
or Stockholder (nor any ancestor, sibling, descendant or spouse of any of such
persons, or any trust, partnership or corporation in which any of such persons
has or within the last three (3) years has had an interest), has or has had,
directly or indirectly, (i) an interest in any entity which furnished or sold,
or furnishes or sells, services, products or technology that the Company
furnishes or sells, or proposes to furnish or sell, or (ii) any interest in any
entity that purchases from or sells or furnishes to the Company any goods or
services or (iii) a beneficial interest in any Contract (iv) any amounts owed by
or owed to the Company; provided, that ownership of no more than one percent
(1%) of the outstanding voting stock of a publicly traded corporation shall not
be deemed an "interest in any entity" for purposes of this Section 2.15.
2.16 GOVERNMENTAL AUTHORIZATION. Section 2.16 of the Disclosure Schedule
accurately lists each consent, license, permit, grant or other authorization
issued to the Company by a Governmental Entity (i) pursuant to which the Company
currently operates or holds any interest in any of their properties or (ii)
which is required for the operation of its business or the holding of any such
interest (herein collectively called "COMPANY AUTHORIZATIONS"). The Company
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company to operate or conduct its business
or hold any interest in its properties or assets.
2.17 LITIGATION. There is no action, suit, claim or proceeding of any
nature pending, or, to the Company's, Indemnitors' or the Stockholders'
Knowledge, threatened, (a) against the Company, its activities, properties
(tangible or intangible) or any of its officers, directors or employees of the
Company in connection with such officer's, director's or employee's relationship
with, or actions taken on behalf of, the Company, or (b) that seeks to prevent,
enjoin, alter or delay the transactions contemplated by this Agreement, nor, to
the Knowledge of the Company, Indemnitors or the Stockholders, is there any
reasonable basis therefor. To the Company's, Indemnitors' or the Stockholders'
Knowledge, there is no investigation pending or threatened against the Company,
its properties or any of its officers or directors (nor, to the best Knowledge
of the Company or the Stockholders, is there any reasonable basis therefor) by
or before any Governmental Entity. No Governmental Entity has within the last
five (5) years challenged or questioned the legal right of the Company to
conduct its operations as presently or previously conducted. The Company is not
a party to or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality. Except as set
forth on Section 2.17 of the Disclosure Schedule, the Company has not initiated
any action, suit, claim or proceeding of any nature.
2.18 ACCOUNTS RECEIVABLE; INVENTORY.
(a) The Company has made available to Parent a list of all accounts
receivable of the Company as of September 30, 1998 along with a range of days
elapsed since invoice.
19
(b) All of the accounts receivable of the Company arose in the
ordinary course of business, are carried at values determined in accordance with
GAAP consistently applied and are collectible except to the extent of reserves
therefor set forth in the Current Balance Sheet. No person has any Lien on any
of such Accounts Receivable and no request or agreement for deduction or
discount has been made with respect to any of such Accounts Receivable.
(c) All of the inventories of the Company were purchased, acquired or
produced in the ordinary and regular course of business and in a manner
consistent with the Company's regular inventory practices and are set forth on
the Company's books and records in accordance with the practices and principles
of the Company consistent with the method of treating said items in prior
periods. None of the inventory of the Company reflected on the Current Balance
Sheet or on the Company's books and records (in either case net of the reserve
therefor) is obsolete, defective or in excess of the needs of the business of
the Company reasonably anticipated for the normal operation of the business
consistent with past practices and outstanding customer contracts. The
presentation of inventory on the Current Balance Sheet conforms to GAAP and such
inventory is stated at the lower of cost (determined using the first-in,
first-out method) or net realizable value. No person has any Lien on any
Inventory.
2.19 MINUTE BOOKS. The minutes of the Company made available to counsel for
Parent are the only minutes of the Company and contain a reasonably accurate
summary of all meetings of the Board of Directors (or committees thereof) of the
Company and its shareholders or actions by written consent since the time of
incorporation of the Company.
2.20 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. The Company has not: (i) operated any
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased; or (ii) illegally released any material
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, and urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws (a
"HAZARDOUS MATERIAL"), but excluding office and janitorial supplies properly and
safely maintained. No Hazardous Materials are present as a result of the
deliberate actions of the Company or, to the Company's, Indemnitors' or the
Stockholders' Knowledge, as a result of any actions of any other person or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company has at
any time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Closing, nor has it disposed of, transported, sold, or
20
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "HAZARDOUS MATERIALS ACTIVITIES") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) PERMITS. The Company currently holds all environmental approvals,
permits, licenses, clearances and consents (the "ENVIRONMENTAL PERMITS")
necessary for the conduct of the Company's Hazardous Material Activities and
other businesses of the Company as such activities and businesses are currently
being conducted.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's, Indemnitors' or the Stockholders' Knowledge, threatened concerning
any Environmental Permit, Hazardous Material or any Hazardous Materials Activity
of the Company. To the Knowledge of the Company, Indemnitors and the
Stockholders, there is no fact or circumstance which is reasonably likely to
involve the Company in any environmental litigation or impose upon the Company
any environmental liability.
2.21 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set forth
in Section 2.21 of the Disclosure Schedule, neither the Company nor any
Stockholder has incurred, nor will they incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with the Agreement or any transaction contemplated hereby.
Section 2.21 of the Disclosure Schedule sets forth the principal terms and
conditions of any agreement, written or oral, with respect to such fees.
2.22 EMPLOYEE BENEFIT PLANS AND COMPENSATION.
(a) The following terms shall have the meanings set forth
below:
(i) "AFFILIATE" shall mean any other person or entity under
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder;
(ii) "EMPLOYEE PLAN" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether written, unwritten or otherwise, funded or unfunded,
including without limitation, each "employee benefit plan," within the meaning
of Section 3(3) of ERISA which is or has been maintained, contributed to, or
required to be contributed to, by the Company or any Affiliate for the benefit
of any Employee, or with respect to which the Company or any Affiliate has or
may have any liability or obligation;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
21
(v) "EMPLOYEE" shall mean any current or former employee,
consultant or director of the Company or any Affiliate;
(vi) "EMPLOYEE AGREEMENT" shall mean each management,
employment, severance, consulting, relocation, or similar agreement, contract or
understanding between the Company or any Affiliate and any Employee;
(vii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993,
as amended; (ix) "IRS" shall mean the Internal Revenue Service;
(x)"PBGC" shall mean the Pension Benefit Guaranty Corporation;
and
(xi) "PENSION PLAN" shall mean each Employee Plan which is an
"employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
(b) SCHEDULE. Schedule 2.22(b) contains an accurate and complete list
of each Employee Plan and each Employee Agreement under each Employee Plan or
Employee Agreement. The Company has no plan or commitment to establish any new
Employee Plan or Employee Agreement, to modify any Employee Plan or Employee
Agreement (except to the extent required by law or to conform any such Employee
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Parent in writing, or as required by this
Agreement), or to enter into any Employee Plan or Employee Agreement.
(c) DOCUMENTS. The Company has provided to Parent: (i) correct and
complete copies of all documents embodying each Employee Plan and each Employee
Agreement including (without limitation) all amendments thereto and all related
trust documents; (ii) the three (3) most recent annual reports (Form Series 5500
and all schedules and financial statements attached thereto), if any, required
under ERISA or the Code in connection with each Employee Plan; (iii) if the
Employee Plan is funded, the most recent annual and periodic accounting of
Employee Plan assets; (iv) the most recent summary plan description together
with the summary(ies) of material modifications thereto, if any, required under
ERISA with respect to each Employee Plan; (v) all material written agreements
and contracts relating to each Employee Plan, including, but not limited to,
administrative service agreements and group insurance contracts; (vi) all
communications material to any Employee or Employees relating to any Employee
Plan and any proposed Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
liability to the Company; (vii) all correspondence to or from any governmental
agency relating to any Employee Plan; (viii) all COBRA forms and related
notices; (ix) all policies pertaining to fiduciary liability insurance covering
the fiduciaries for each Employee Plan; (x) all discrimination tests for each
Employee Plan for the most recent plan year; and (xi) all registration
statements,
22
annual reports (Form 11-K and all attachments thereto) and prospectuses prepared
in connection with each Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. (i) The Company has performed all
obligations required to be performed by it under, is not in default or violation
of, and the Company, Indemnitors and Stockholders have no Knowledge of any
default or violation by any other party to each Employee Plan, and each Employee
Plan has been established and maintained in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) no "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred
with respect to any Employee Plan; (iii) there are no actions, suits or claims
pending, or, to the Knowledge of the Company, Indemnitors or the Stockholders,
threatened nor, to the Knowledge of the Company, Indemnitors or the
Stockholders, is there any basis therefor (other than routine claims for
benefits) against any Employee Plan or against the assets of any Employee Plan;
(iv) each Employee Plan can be amended, terminated or otherwise discontinued
after the Closing in accordance with its terms, without liability to Parent, the
Company or any Affiliate (other than ordinary administration expenses); (v)
there are no audits, inquiries or proceedings pending or, to the Knowledge of
the Company, Indemnitors or the Stockholders or any Affiliates, threatened by
the IRS or DOL with respect to any Employee Plan; and (vi) neither the Company
nor any Affiliate is subject to any penalty or tax with respect to any Employee
Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the Code.
(e) NO PENSION PLANS. Neither the Company nor any Affiliate has ever
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan subject to Title IV of ERISA.
(f) NO POST-EMPLOYMENT OBLIGATIONS. No Employee Plan provides, or
reflects or represents any liability to provide, retiree life insurance, retiree
health or other retiree employee welfare benefits to any person for any reason,
except as may be required by COBRA or other applicable statute, and the Company
has never represented, promised or contracted (whether in oral or written form)
to any Employee (either individually or to Employees as a group) or any other
person that such Employee(s) or other person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefit, except to
the extent required by statute.
(g) COBRA. Neither the Company nor any Affiliate has, prior to the
Closing, violated any of the health care continuation requirements of COBRA, the
requirements of FMLA or any similar provisions of state law applicable to its
Employees.
(h) EFFECT OF TRANSACTION. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Employee Plan, Employee Agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
23
(i) EMPLOYMENT MATTERS. The Company: (i) is in compliance with all
applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees; (ii) has withheld
and reported all amounts required by law or by agreement to be withheld and
reported with respect to wages, salaries and other payments to Employees; (iii)
is not liable for any arrears of wages or any taxes or any penalty for failure
to comply with any of the foregoing; and (iv) is not liable for any payment to
any trust or other fund governed by or maintained by or on behalf of any
governmental authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending or, to the Knowledge of the Company.
Indemnitors or the Stockholders, threatened or reasonably anticipated claims or
actions against the Company under any worker's compensation policy or long-term
disability policy, nor to the Knowledge of the Company, Indemnitors or the
Stockholders, is there any reasonable basis therefor.
(j) LABOR. No work stoppage or labor strike against the Company is
pending, or to the Knowledge of the Company, Indemnitors or the Stockholders
threatened nor, to the Knowledge of the Company, Indemnitors or the
Stockholders, is there any reasonable basis therefor. The Company does not Know
of any activities or proceedings of any labor union to organize any Employees.
There are no actions, suits, claims, labor disputes or grievances pending, or,
to the Knowledge of the Company, Indemnitors or the Stockholders, threatened or
reasonably anticipated relating to any labor, safety or discrimination matters
involving any Employee, including, without limitation, charges of unfair labor
practices or discrimination complaints. Within the last five (5) years, the
Company has not engaged in any unfair labor practices within the meaning of the
National Labor Relations Act. The Company is not presently, nor has it been in
the past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to Employees and no collective bargaining agreement is
being negotiated by the Company.
(k) NO INTERFERENCE OR CONFLICT. To the Knowledge of the Company,
Indemnitors and the Stockholders, no shareholder, officer, employee or
consultant of the Company is obligated under any contract or agreement or is
subject to any judgment, decree or order of any court or administrative agency
that would interfere with such person's efforts to promote the interests of the
Company or that would interfere with the Company's business. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business as presently conducted or presently proposed to be conducted nor any
activity of such officers, directors, employees or consultants in connection
with the carrying on of the Company's business as presently conducted or
currently proposed to be conducted, will, to the Company's, Indemnitors' and the
Stockholders' Knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract or
agreement under which any of such officers, directors, employees or consultants
is now bound.
2.23 INSURANCE. Section 2.23 of the Disclosure Schedule lists all insurance
policies and fidelity bonds (collectively, "Insurance") covering the assets,
business, equipment, properties, operations, employees, officers and directors
of the Company. The Company has maintained
24
Insurance levels for the two years prior to, and in effect at, the Closing Date
which represent generally reasonable, adequate coverage as appropriate. There is
no claim by the Company pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid, and the Company is otherwise in compliance with the terms
of such policies and bonds (or other policies and bonds providing substantially
similar insurance coverage). Neither the Company, Indemnitors nor the
Stockholders has Knowledge of any threatened termination of, or premium increase
with respect to, any of such policies.
2.24 COMPLIANCE WITH LAWS. The Company has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
material foreign, federal, state, tribal or local statute, law or regulation.
2.25 WARRANTIES; INDEMNITIES. Except for the warranties and indemnities
contained in (i) those contracts and agreements set forth in Section 2.13(g) of
the Disclosure Schedule and (ii) the Company's standard product warranty
agreements substantially in the form set forth in Section 2.13(g) of the
Disclosure Schedule, the Company has not given any warranties or indemnities
relating to products or technology sold or licensed or services rendered by the
Company. Section 2.25 of the Disclosure Schedule contains a complete and
accurate summary of all warranty claims on the Company's products occurring
during the past five years. The Current Balance Sheet reflects a reasonable
warranty reserve determined in accordance with GAAP.
2.26 ADEQUACY AND FUNCTIONALITY OF COMPANY PRODUCTS. The assets of the
Company, including, without limitation, the source code and products of the
Company, are now and following the Closing will be sufficient for the conduct of
the business of the Company in the same manner as the business is now conducted.
The Owned Software now performs, and following the Closing will perform,
substantially in accordance with applicable user documentation provided by the
Company to the customers using such Owned Software, and does not contain and is
not subject to any operational defect or limitation which is reasonably likely
to substantially impair the capability or effectiveness of the Owned Software to
achieve its functions described in such user documentation. The Owned Software
contains all current revisions of such software in the Company's possession, and
includes all source code, object code, forms of such software and all computer
programs, materials processes, tapes, and know-how related to such Owned
Software. The Company has delivered to the Parent complete and correct copies of
the current version of all user documentation in the Company's possession
related to the Owned Software.
2.27 COMPLETE COPIES OF MATERIALS. The Company has delivered or made
available true and complete copies of each document (or summaries of same) that
has been requested by Parent or its counsel.
2.28 INVESTMENT REPRESENTATIONS
Siblings represents and warrants to the following:
25
(a) EXPERIENCE. Siblings has substantial experience in evaluating and
investing in private placement transactions of securities in companies similar
to the Parent so that it is capable of evaluating the merits and risks of
investment in Parent and have the capacity to protect its own interests.
(b) INVESTMENT. Siblings is acquiring the Siblings Shares for
investment for its own account, not as a nominee or agent, and not with the view
to, or for resale in connection with, any distribution thereof. Siblings
understands that the Siblings Shares to be acquired hereunder have been issued
pursuant to a specific exemption from the registration provisions of the
Securities Act, the availability of which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of Siblings'
representations as expressed herein.
(c) RULE 144. Siblings acknowledges that the Siblings Shares must be
held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from such registration is available, and that there is no
assurance that any exemption from such registration requirements will ever
become available. Siblings is aware of the provisions of Rule 144 promulgated
under the Securities Act which permit limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions, including,
among other things, the existence of a public market for the shares, the
availability of certain current public information about Parent, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being effected through a "broker's transaction" or
in transactions directly with a "market maker" and the number of shares being
sold during any three-month period not exceeding specified limitations. Siblings
acknowledges that in the event the application requirements of Rule 144 are not
met, registration under the Securities Act or an exemption from registration
will be required for any disposition of its stock. Siblings understands that
although Rule 144 is not exclusive, the Commission has expressed its opinion
that persons proposing to sell restricted securities received in a private
offering other than in a registered offering or pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers to sales and that such persons and the brokers who
participate in the transactions do so at their own risk.
(d) ACCESS TO DATA. Siblings has had an opportunity to discuss
Parent's business, management and financial affairs with its management.
Siblings has also had an opportunity to ask questions of officers of Parent,
which questions were answered to its satisfaction. Siblings understands that
such discussions, as well as any written information issued by Parent, were
intended to describe certain aspects of Parent's business and prospects but were
not a thorough or exhaustive description.
2.29 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by the Company, Indemnitors or the Stockholders (as modified by the
Disclosure Schedule), nor any statement made in any Schedule or certificate
furnished by the Company, Indemnitors or the Stockholders pursuant to this
Agreement, taken together, contains or will contain at the Closing, any untrue
statement of a material fact,
26
or omits or will omit at the Closing to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company, subject to such
exceptions as are specifically disclosed in the disclosure schedule supplied by
Parent to the Stockholders and dated the date hereof, that on the date hereof,
and as of the Closing as though made on the date hereof, as follows:
3.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Parent has the corporate power to own its properties and to carry on
its business as now being conducted and is duly qualified to do business and is
in good standing in each jurisdiction in which the failure to be so qualified
would have a Parent Material Adverse Effect. Parent has made available a true
and correct copy of its Certificate of Incorporation and Bylaws, as amended to
date, to counsel for the Company. For all purposes of this Agreement, the term
"PARENT MATERIAL ADVERSE EFFECT" means any change, event or effect that is
materially adverse to the business, assets (including intangible assets),
financial condition, capitalization or results of operations or prospects of
Parent and its subsidiaries taken as a whole, except for those changes, events
and effects that (i) are directly caused by conditions affecting the United
States economy as a whole or affecting the industry in which such entity
competes as a whole, which conditions do not affect such entity in a
disproportionate manner, or (ii) are related to or result from the announcement
or pendency of the Acquisition.
3.2 AUTHORITY. Parent has all requisite corporate power and authority to
enter into this Agreement and any Related Agreements to which it is a party and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and any Related Agreements to which it is a party
and the consummation of the transactions contemplated hereby and thereby have
been, or will be prior to the Closing, duly authorized by all necessary
corporate action on the part of Parent. This Agreement and any Related
Agreements to which Parent is a party have been duly executed and delivered by
Parent and constitute the valid and binding obligations of Parent, enforceable
in accordance with their terms, except as such enforceability may be limited by
principles of public policy and subject to the laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
3.3 NO CONFLICT. The execution, delivery and performance of this Agreement
and any Related Agreements to which it is a party do not, and the consummation
of the transactions contemplated hereby and thereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a Conflict under (i) any provision of the
Certificate of Incorporation, as amended, and Bylaws of Parent, (ii) any
mortgage, indenture,
27
lease, contract or other agreement or instrument, permit, concession, franchise
or license to which Parent or any of its respective properties or assets are
subject and which has been filed as an Exhibit to Parent's filings under the
Securities Act or the Exchange Act or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or its
properties or assets, except where such Conflict will not have a Parent Material
Adverse Effect.
3.4 CONSENTS. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, or any third
party is required by or with respect to Parent in connection with the execution
and delivery of this Agreement and any Related Agreements to which it is a party
or the consummation of the transactions contemplated hereby and thereby, except
for such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws and
such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings which, if not obtained or made, would not have a Parent
Material Adverse Effect. All such filings will be made within the time
prescribed by law.
3.5 CAPITAL STRUCTURE.
(a) The authorized stock of Parent consists of 40,000,000 shares of
Common Stock, $.001 par value, of which 9,367,576 shares were issued and
outstanding as of December 31, 1998, and 5,000,000 shares of undesignated
Preferred Stock, $0.001 par value. No shares of Preferred Stock are issued or
outstanding. All such shares have been duly authorized, and all such issued and
outstanding shares have been validly issued, are fully paid and nonassessable
and are free of any liens or encumbrances other than any liens or encumbrances
created by or imposed upon the holders thereof. Parent has also reserved
2,000,000 shares of Common Stock for issuance pursuant to its employee and
director stock and option plans. There are no other options, warrants, calls,
rights, commitments or agreements of any character to which Parent is a party or
by which it is bound obligating Parent to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of Parent or obligating Parent to grant, extend or
enter into any such option, warrant, call, right, commitment or agreement.
(b) The shares of Parent Common Stock to be issued pursuant to the
Acquisition will be duly authorized, validly issued, fully paid, non-assessable,
free of any liens or encumbrances and not subject to any preemptive rights or
rights of first refusal created by statute or the Articles of Incorporation or
Bylaws of Parent or any agreement to which Parent is a party or is bound except
as provided in this Agreement.
3.6 SEC FILINGS. Parent has filed in a timely manner all forms, reports and
documents required to be filed by Parent. All such required forms, reports and
documents (including those Parent may file subsequent to the date hereof) are
referred to herein as the "SEC REPORTS." As of their respective dates, the SEC
Reports (i) were prepared, in all material respects, in accordance with the
requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"),
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such SEC Reports and (ii) did not at the time they
were filed (or if amended or superseded by a filing prior to
28
the date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. Parent is
not a party to any material contract, agreement or other arrangement which was
required to
have been filed as an exhibit to the SEC Reports that is not so filed.
3.7 LITIGATION. There is no action, suit, proceeding, claim, arbitration or
investigation ("Action") pending: (a) against Parent, its respective activities,
properties or assets or, to Parent's Knowledge, against any officer, director or
employee of Parent in connection with such officer's, director's or employee's
relationship with, or actions taken on behalf of, Parent which Parent believes
is reasonably likely to have a Parent Material Adverse Effect, or (b) that seeks
to prevent, enjoin, alter or delay the transactions contemplated by this
Agreement. Parent is not a party to or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. No action by Parent is currently pending nor does Parent intend
to initiate any action which is reasonably likely to have a Parent Material
Adverse Effect.
3.8 COMPLIANCE WITH LAW AND CHARTER DOCUMENTS. Parent is not in violation
or default of any provisions of its Certificate of Incorporation or Bylaws, as
amended. Parent has complied and is in compliance with all applicable statutes,
laws, and regulations and executive orders of the United States of America and
all states, foreign countries and other governmental bodies and agencies having
jurisdictions over Parent's businesses or properties, except for any violations
that would not, either individually or in the aggregate, have a Parent Material
Adverse Effect.
3.9 YEAR 2000 COMPLIANT. All of Parent's products (including products
currently under development) will record, store, process, calculate and present
calendar dates falling on and after (and if applicable, spans of time including)
January 1, 2000, and will calculate any information dependent on or relating to
such dates in the same manner, and with the same functionality, data integrity
and performance, as the products record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dates (collectively, "YEAR 2000 COMPLIANT").
All of Parent's products (i) will lose no functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000 and
(ii) will be interoperable with other products used and distributed by Parent
that may deliver records to Parent's products or receive records from Parent's
products, or interact with Parent's products, including but not limited to
back-up and archived data. All of Parent's internal computer and technology
products and systems are Year 2000 Compliant.
3.10 FULL DISCLOSURE. None of the representations or warranties made by
Parent, nor any statement made in any schedule or certificate furnished by
Parent pursuant to this Agreement and the Related Agreements, nor the SEC
Reports, taken together, contains or will contain at the Closing, any untrue
statement of a material fact, or omits or will omit at the Closing to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstance under which they were made, not
misleading.
29
ARTICLE IV
CONDUCT PRIOR TO THE CLOSING
4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing, each of the Company and the Stockholders agree (except
to the extent that Parent shall otherwise consent in writing), to carry on the
Company's business in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted, to pay the debts and Taxes of the
Company when due, to pay or perform other obligations when due, and, to the
extent consistent with such business, use their best efforts consistent with
past practice and policies to preserve intact the Company's present business
organizations, keep available the services of the Company's present officers and
key employees and preserve the Company's relationships with regulators,
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, all with the goal of preserving unimpaired the
Company's goodwill and ongoing businesses at the Closing. The Company shall
promptly notify Parent of any event or occurrence or emergency not in the
ordinary course of business of the Company and any material event involving the
Company. Except as expressly contemplated by this Agreement as set forth in
Section 4.1 of the Disclosure Schedule, the Company shall not, without the prior
written consent of Parent:
(a) Make any capital expenditure or commitment exceeding $20,000
individually or $50,000 in the aggregate;
(b) (i) Sell any Company Intellectual Property or enter into any
agreement with respect to the Company Intellectual Property with any person or
entity or with respect to the Intellectual Property of any person or entity
except as previously disclosed to Parent in writing, (ii) buy any Intellectual
Property or enter into any agreement with respect to the Intellectual Property
of any other person or entity, (iii) enter into any agreement with respect to
development of any Intellectual Property with a third party except as previously
disclosed to Parent in writing;
(c) Transfer to any person or entity any rights to the Company
Intellectual Property;
(d) Enter into or amend any Contract pursuant to which any other party
is granted marketing, distribution, development or similar rights of any type or
scope with respect to any products or technology except as previously disclosed
to Parent in writing;
(e) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the Contracts set
forth or described in the Disclosure Schedule;
(f) Commence or settle any litigation;
30
(g) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or 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 of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of the capital
stock of the Company (or options, warrants or other rights exercisable
therefor);
(h) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of the Company's capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating the Company to issue or purchase any
such shares or other convertible securities.
(i) Cause or permit any amendments to the Company's Articles (or
Certificate) of Incorporation or Bylaws;
(j) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Company's
business;
(k) Sell, lease, license or otherwise dispose of any of its properties
or assets, except as previously disclosed to Parent in writing;
(l) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others except as disclosed in the Disclosure Schedule;
(m) Grant any loans to others or purchase debt securities of others or
amend the terms of any outstanding loan agreement;
(n) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof and disclosed in the
Disclosure Schedule;
(o) Adopt any employee benefit plan, or enter into any employment
contract, pay or agree to pay any special bonus or special remuneration to any
director or employee, or increase the salaries or wage rates of its employees;
(p) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
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(q) Pay, discharge or satisfy, in an amount in excess of $10,000 in
any one case or $25,000 in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Current Balance Sheet;
(r) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(s) Enter into any strategic alliance, joint marketing arrangement or
agreement, or joint venture;
(t) Other than as specifically requested in writing by Parent,
accelerate the vesting schedule of any of the outstanding Company Options or
Company Capital Stock;
(u) Hire any employee except in replacement of a terminated employee
or except as reasonably necessary consistent with the needs of the business of
the Company; not terminate the employment of any management level or other key
employee; or
(v) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (u) above, or any other action that would
prevent the Company from performing or cause the Company not to perform its
covenants hereunder.
4.2 CONDUCT OF BUSINESS OF PARENT. . During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing, the Parent agrees that it shall, and shall cause it
subsidiaries to, conduct its business in the usual, regular and ordinary course
in substantially the same manner as heretofore conducted. Without limiting the
foregoing, and except as expressly contemplated by this Agreement, the Parent
shall not, without the prior written consent of the Company, (i) declare, set
aside or pay any dividends on or make any other distributions in respect of its
capital stock, or split, combine or reclassify any of its capital stock; (ii)
amend its Articles of Incorporation or (iii) enter into any transaction or
series of transactions which would be required to be reported on Form 8-K.
4.3 NO SOLICITATION. Until the earlier of the Closing or the date of
termination of this Agreement pursuant to the provisions of Section 8.1 hereof,
neither the Company nor any of the Stockholders or Indemnitors (nor will the
Company nor any of the Stockholders or Indemnitors permit any of its officers,
directors, agents, representatives or affiliates to) directly or indirectly,
take any of the following actions with any party other than Parent and its
designees: (a) solicit, encourage, initiate or participate in any negotiations
or discussions with respect to, any offer or proposal to acquire all,
substantially all or a significant portion of the Company's business, properties
or technologies or any portion of the Company's capital stock (whether or not
outstanding) whether by merger , purchase of assets, tender offer or otherwise,
or effect any such transaction, (b) disclose any information not customarily
disclosed to any person concerning the
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Company's business, technologies or properties or afford to any person or entity
access to its properties, technologies, books or records, (c) assist or
cooperate with any person to make any proposal to purchase all or any part of
the Company's capital stock or assets, (d) enter into any agreement with any
person providing for the acquisition of all or any significant portion of the
Company (whether by way of merger, purchase of assets, tender offer or
otherwise) or (e) solicit, initiate, participate or continue in any negotiation
or discussion with respect to any offer or proposal to acquire all,
substantially all or a significant portion of the business, properties or
technologies or any portion of capital stock of any other entity whether by
merger, purchase of assets, tender offer or otherwise, or effect any such
transaction. In addition to the foregoing, if the Company or any of the
Stockholders receives, prior to the Closing or the termination of this
Agreement, any offer, proposal, or request relating to any of the above, the
Company or the Stockholders, as applicable, shall immediately notify Parent
thereof, including information as to the identity of the offeror or the party
making any such offer or proposal and the terms thereof in reasonable detail,
and such other information related thereto as Parent may reasonably request. The
parties hereto agree that irreparable damage would occur in the event that the
provisions of this Section 4.3 were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed by the
parties that Parent shall be entitled to seek an injunction or injunctions to
prevent breaches of the provisions of this Section 4.3 and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which Parent may be entitled at law or in equity.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PARENT REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time to time the
Parent shall determine to register any of its equity securities, either for its
own account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, (ii) a registration
relating solely to a Rule 145 transaction, or (iii) a registration in which the
only equity security being registered is Common Stock issuable upon conversion
of convertible debt securities which are also being registered, the Parent will:
(i) Promptly give to Siblings written notice
thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within twenty (20) days after receipt of such written notice
from the Parent, by Siblings.
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(b) UNDERWRITING. If the registration of which the Parent gives notice
is for a registered public offering involving an underwriting, the Parent shall
so advise Siblings as a part of the written notice given pursuant to Section
5.2(a)(i). In such event the right of Siblings to registration pursuant to this
Section 5.2 shall be conditioned upon Siblings' participation in such
underwriting, and the inclusion of the Siblings Shares in the underwriting shall
be limited to the extent provided herein.
Siblings shall (together with the Parent and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Parent. Notwithstanding any other provision of this
Section 5.1, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may exclude some or all of the Siblings Shares from such
registration. The Parent shall so advise Siblings of the number of Siblings
Shares that may be included in the registration and underwriting.
If Siblings disapproves of the terms of any such underwriting, it may
elect to withdraw therefrom by written notice to the Parent and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
(c) RIGHT TO TERMINATE REGISTRATION. The Parent shall have the right
to terminate or withdraw any registration initiated by it under this Section 5.1
prior to the effectiveness of such registration whether or not Siblings has
elected to include securities in such registration.
5.2 REGISTRATION ON FORM S-3.
(a) If Siblings requests that the Parent file a registration statement
on Form S-3 (or any successor form to Form S-3) for a public offering of
Siblings Shares, the reasonably anticipated aggregate price to the public of
which, net of underwriting discounts and commissions, would exceed $1,500,000,
and the Parent is a registrant entitled to use Form S-3 to register the Siblings
Shares for such an offering, the Parent shall use its best efforts to cause such
Siblings Shares to be registered for the offering on such form and to cause such
Siblings Shares to be qualified in such jurisdictions as Siblings may reasonably
request; provided, however, that the Parent shall not be required to effect more
than one registration in the aggregate on behalf of Siblings pursuant to this
Section 5.2 per year. The Parent shall inform other holders of Parent securities
of the proposed registration and offer them the opportunity to participate. In
the event the registration is proposed to be part of an underwritten public
offering, the substantive provisions of Section 5.1(b) shall be applicable to
each such registration initiated under this Section 5.2. The Parent may include
other shares of Common Stock in any of the registrations provided for in this
Section 5.2, provided that such inclusion will not interfere with the marketing
(including the price to the public) of the Siblings Shares to be registered by
Siblings.
(b) Notwithstanding the foregoing, the Parent shall not be obligated
to take any action pursuant to this Section 5.2:
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(i) in any particular jurisdiction in which the Parent would
be required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Parent is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(ii) following the period starting with the date sixty (60)
days prior to the Parent's estimated date of filing of, and ending on the date
six (6) months immediately following, the effective date of any registration
statement pertaining to securities of the Parent (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), provided that the Parent is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective; or
(iii) if the Parent shall furnish to Siblings a certificate
signed by the Chief Executive Officer of the Parent stating that in the good
faith judgment of the Chief Executive Officer it would be detrimental to the
Parent or its stockholders for registration statements to be filed in the near
future, then the Parent's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed ninety (90)
days from the receipt of the request to file such registration statement by
Siblings, provided that the Parent may not exercise this deferral right more
than once per twelve (12) month period.
5.3 EXPENSES OF REGISTRATION. All registration expenses, including without
limitation all Federal and "blue sky" registration, filing and qualification
fees, printers' and accounting fees, and fees and disbursements of counsel for
Parent, incurred in connection with the registration pursuant to Sections 5.1
and 5.2 shall be borne by Parent. All Selling Expenses, as defined below, shall
be borne by the persons who sell the shares generating said Selling Expenses.
"Selling Expenses" shall mean all underwriting discounts and selling commissions
applicable to the sale of Siblings Shares pursuant to this Agreement, together
with the fees of any counsel to the selling shareholders.
5.4 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Parent pursuant to this Agreement,
the Parent will keep Siblings advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof. The
Parent will:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for at least ninety (90) days or until
the distribution described in the registration statement has been completed,
whichever first occurs;
(b) Furnish to Siblings and to the underwriters of the securities
being registered such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as such
underwriters may reasonably request in order to facilitate the public offering
of such securities.
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5.5 INDEMNIFICATION.
(a) PARENT'S INDEMNIFICATION OF SIBLINGS. Parent will indemnify
Siblings with respect to which registration of the Siblings Shares has been
effected pursuant to this Agreement, and each underwriter thereof, if any, and
each person who controls such underwriter, against all claims, losses, damages
or liabilities (or actions in respect thereof) suffered or incurred by any of
them, to the extent such claims, losses, damages or liabilities arise out of or
are based upon any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus or any related Registration Statement incident
to any such Registration, or any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by Parent of any rule or
regulation promulgated under the Securities Act applicable to Parent and
relating to actions or inaction required of Parent in connection with any such
registration; and Parent will reimburse Siblings, each such underwriter and each
person who controls Siblings or such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action; PROVIDED, HOWEVER, that the
indemnity contained in this Section 5.5 shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if settlement is
effected without the consent of the Parent (which consent shall not unreasonably
be withheld); and provided, further, that the Parent will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based upon any untrue statement or omission based upon
written information furnished to Parent by Siblings, such underwriter,
controlling person or other indemnified person and stated to be for use in
connection with the offering of securities of Parent.
5.6 SIBLINGS' INDEMNIFICATION OF PARENT. Siblings will indemnify Parent,
each of its directors and officers, each person who controls the Parent within
the meaning of the Securities Act, and each other Stockholder, against all
claims, losses, damages and liabilities (or actions in respect thereof) suffered
or incurred by any of them and arising out of or based upon any untrue statement
(or alleged untrue statement) of a material fact contained in such Registration
Statement or related prospectus, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by Siblings of any rule or
regulation promulgated under the Securities Act applicable to Siblings and
relating to action or inaction required of Siblings in connection with the
registration of the Siblings Shares pursuant to such Registration Statement; and
will reimburse Parent, such other Stockholders, such directors, officers,
partners, persons, underwriters and controlling persons for any legal and any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such Registration Statement or
prospectus in reliance upon and in conformity with written information furnished
to Parent by Siblings and stated to be specifically for use in connection with
the offering of securities of Parent.
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5.7 ACCESS TO INFORMATION. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Closing to (a) all of the
Company's properties, books, contracts, commitments and records, (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of the Company as Parent may reasonably
request and (c) all key employees of the Company as identified by Parent. The
Company agrees to provide to Parent and its accountants, counsel and other
representatives copies of internal financial statements (including by returns
and supporting documentation) promptly upon request. No information or knowledge
obtained in any investigation pursuant to this Section 5.7 shall affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Acquisition.
Notwithstanding the foregoing, in accordance with the terms of that certain
Confidential Disclosure Agreement, dated November 9, 1998, neither the Company
nor Parent are required to furnish the other with information regarding the
Litigation.
5.8 CONFIDENTIALITY. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 5.7, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transaction contemplated hereby shall be governed by the terms of the
Confidential Disclosure Agreements, dated February 12, 1998, from Parent to the
Company, and dated October 29, 1997, from the Company to Parent and November 9,
1998.
5.9 EXPENSES.
(a) (i) All fees and expenses incurred by Parent in connection with
the Acquisition including, without limitation, all legal, accounting, financial
advisory, consulting and all other fees and expenses of third parties in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of Parent and (ii) all fees and expenses incurred by the Company, Indemnitors
and the Stockholders in connection with the Acquisition including, without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties other than the Ladenburg Fee, as defined
below ("Third Party Expenses") in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby, prior to the execution of this Agreement shall be the
obligation of the Company and after the execution of this Agreement shall be the
obligation of the Stockholders provided, however, that in the event the
Acquisition is not consummated such Third Party Expenses shall be the obligation
of the Company.
(b) In the event that the Acquisition is consummated, Parent agrees to
pay the lesser of the investment banking fees incurred by the Company and/or the
Stockholders in connection with the Acquisition or $500,000 of the Company's
investment banking fees to Ladenburg (the "Ladenburg Fee"), and the Company and
the Stockholders agree that Parent shall have full recourse to the Escrow Fund
for payments to Ladenburg in excess of $500,000.
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5.10 PUBLIC DISCLOSURE. Upon execution of this Agreement, Parent shall
issue a press release reasonably acceptable to the Company. Unless otherwise
required by law, prior to the Closing, no disclosure (whether or not in response
to an inquiry) of the subject matter of this Agreement shall be made by Parent,
the Company or any Stockholders. Under no circumstances will the Company (or any
of its respective officers, directors, employees, affiliates or agents), or any
Stockholder discuss or disclose the existence or terms of this Agreement, or the
transaction contemplated hereby, with or to any third party other than such
legal, accounting and financial advisors of such party who have a need to know
such information solely for purposes of assisting such party in connection with
this Agreement or the transactions contemplated hereby. Notwithstanding the
foregoing, the Company and the Stockholders, but only after consultation with
Parent, may at any time make public disclosure if it is advised by legal counsel
that such disclosure is required under applicable law or regulatory authority.
5.11 CONSENTS. The Company shall use its best efforts to obtain the
consents, waivers, assignments and approvals under any of the Contracts as may
be required in connection with the Acquisition (all of such consents, waivers
and approvals are set forth in the Disclosure Schedule) so as to preserve all
rights of, and benefits to, the Company thereunder.
5.12 FIRPTA COMPLIANCE. On the Closing Date, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.13 REASONABLE EFFORTS. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement.
5.14 NOTIFICATION OF CERTAIN MATTERS. Each party shall give prompt notice
to each other party of (i) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which is likely to cause any representation or
warranty of such party contained in this Agreement to be untrue or inaccurate at
or prior to the Closing and (ii) any failure of such party, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.14 shall not limit or otherwise affect any remedies available to
the party receiving such notice. No disclosure by the Company or the
Stockholders pursuant to this Section 5.14, however, shall be deemed to amend or
supplement the Disclosure Schedule or prevent or cure any misrepresentations,
breach of warranty or breach of covenant.
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5.15 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at the
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.16 CERTAIN POST-CLOSING MATTERS.
(a) Parent agrees to cause the Company to repay to GN $3,709,879.67
plus interest accruing at the rate of 7.0% per annum between the Closing and the
date of payment with respect to GN's loans to the Company within 10 days after
the Closing. Upon such payment GN will confirm in writing that all of GN's loans
to the Company are satisfied in full and GN shall release all security interests
in the Company's assets.
(b) Parent agrees to use commercially reasonable efforts to obtain the
release of the personal guaranties of GN, KN and JL from obligations with
respect to [the Tokai equipment lease and the Company's credit cards.]
(c) Parent agrees within 10 days after the Closing either (i) to repay
the Company's loans with Nevada Banking Company and terminate the agreement with
Nevada Banking Company, or (ii) to obtain the release of all Stockholders
guaranties to Nevada Banking Company, including the release of any collateral
securing such guaranties.
5.17 NON-COMPETITION AGREEMENTS. Each of GN, KN and JL shall deliver to
Parent concurrently with the execution of this Agreement an executed
Non-Competition Agreement in the form attached hereto as Exhibit B. Each of GN,
KN and JL covenants that he shall comply with the Non-Competition Agreement.
5.18 EMPLOYMENT AGREEMENTS. Each of GN, KN and JL shall deliver to Parent
concurrently with the execution of this Agreement an executed Employment
Agreement in the form attached hereto as Exhibits ▇-▇, ▇-▇ and D-3,
respectively.
5.19 NASDAQ LISTING. Parent agrees to authorize for listing on the Nasdaq
National Market the shares of Parent Common Stock issuable, in connection with
the Acquisition, upon official notice of issuance.
5.20 PARENT RIGHT OF FIRST REFUSAL. At any time before the third
anniversary of the Closing a Stockholder, or any of such Stockholder's
"affiliates" or "associates" (as those terms are defined in Rule 405 promulgated
under the Securities Act of 1933, as amended) ("Selling Stockholder") proposes
to sell, transfer the voting rights in, or otherwise transfer for value in
excess of 150,000 Siblings Shares in a transaction or series of related
transactions or in excess of 600,000 Siblings Shares in a twelve month period
(the "Offered Securities") to any person or group of persons (the "Proposed
Transferee") in one or more related transactions, Selling Stockholder shall
first offer to sell the Offered Securities to Parent at the same price and on
the same terms in a writing delivered to the Parent (the "Parent Offer"), which
Parent Offer shall remain open and irrevocable for a period of five (5) days
after delivery (the "Parent Offer Period").
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(a) NOTICE OF PARENT ACCEPTANCE. Notice of Parent's election to
accept, in whole or in part, a Parent Offer shall be made by a writing signed by
an officer of Parent specifying the portion of the Offered Securities that
Parent elects to purchase, delivered to the Selling Stockholder prior to the
expiration of the Parent Offer Period (the "Parent Acceptance Notice").
(b) CLOSING. The closing of the purchase by Parent of some or all of
the Offered Securities upon the terms and conditions specified in the Parent
Offer shall occur within three (3) business days of receipt by the Selling
Stockholder of the Parent Acceptance Notice and shall be subject to the
preparation, execution and delivery of a purchase agreement reasonably
satisfactory to the Parent and the Selling Stockholder, as the case may be, and
their respective counsel; provided, however, that the Selling Shareholder shall
not be required to make any representations or warranties in such purchase
agreement except with respect to such Selling Shareholder's authority to enter
into such agreement and its ownership of the Offered Shares.
(c) LEGEND. Each certificate representing Siblings Shares now owned by
the Stockholders shall be endorsed with the following legend:
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF AN
AGREEMENT BY AND BETWEEN THE STOCKHOLDER AND THE CORPORATION.
COPIES OF THE APPLICABLE PORTIONS OF SUCH AGREEMENT MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION."
(d) LEGEND REMOVAL. The legend referred to in Section 5.20(c) shall be
removed upon termination of this Agreement in accordance with the provisions of
Article VIII.
5.21 LIMITATION ON AGGREGATE SALES. Siblings agrees that, for a period of
six months after the Closing, such stockholder will not sell more than 200,000
Siblings Shares without the prior written consent of Parent.
5.22 LITIGATION BETWEEN THE PARTIES. On the date of execution of this
Agreement, Ball shall dismiss with prejudice any lawsuit or other proceeding
against Golf.
5.23 COMPANY EMPLOYEES. Parent agrees, with respect to employees employed
by the Company immediately prior to the Closing who continue as employees of
Parent following the Closing, as follows: (a) such continuing employees will be
deemed to have begun their employment with Parent on the date they began
employment with the Company for the purposes of vacation time, and severance and
profit sharing eligibility with participation in profit sharing to begin May 1,
1999, (b) such continuing employees will be deemed to have begun their
employment with Parent on the date they began employment with the Company for
the purposes of health insurance and 401(k) plan participation to the extent
permitted thereunder, (c) such continuing employees will be integrated into
Parent's compensation and bonus structure consistent with their responsibilities
and experience as determined by Parent, and (d) such continuing employees will
be eligible for participation in
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Parent's stock option program consistent with their responsibilities and
experience as determined by Parent. The exact timing of implementation of the
foregoing will be determined by Parent.
ARTICLE VI
CONDITIONS TO THE ACQUISITION
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE ACQUISITION. The
respective obligations of the Stockholders and Parent to effect the Acquisition
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) NO ORDER. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Acquisition illegal or
otherwise prohibiting consummation of the Acquisition.
(b) COMBINED BOARD. Parent shall have appointed three designees of the
Company to Parent's Board of Directors as follows: KN shall be appointed as a
Class I director, JL shall be appointed as a Class II director and GN shall be
appointed as a Class III director.
6.2 CONDITIONS TO OBLIGATIONS OF COMPANY AND THE STOCKHOLDERS. The
obligations of the Company and the Stockholders to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions, any
of which may be waived, in writing, exclusively by the Stockholders:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of Parent in this Agreement shall be true and correct in all material
respects on and as of the Closing as though such representations and warranties
were made on and as of such time and each of Parent shall have performed and
complied in all material respects with all covenants and obligations of this
Agreement required to be performed and complied with by it as of the Closing.
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Acquisition shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Acquisition, which makes the consummation of the Acquisition illegal.
(c) CLAIMS. There shall not have occurred any claims (whether or not
asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or may have a Parent
Material Adverse Effect. There shall be no BONA FIDE action, suit, claim or
proceeding of any nature pending, or overtly threatened, against the Parent, Sub
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or the Company, their respective properties or any of their officers or
directors, arising out of, or in any way connected with, the Acquisition or the
other transactions contemplated by the terms of this Agreement, that would
materially and adversely affect the consummation of the transactions
contemplated hereby or have a Company or Parent Material Adverse Effect.
(d) LEGAL OPINION. The Company and Stockholders shall have received a
legal opinion from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, legal counsel to Parent,
substantially in the form of Exhibit F hereto.
(e) NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
Parent Material Adverse Effect since the date of this Agreement.
(f) CERTIFICATE OF THE PARENT. Company shall have been provided with a
certificate executed on behalf of Parent by an authorized officer to the effect
that, as of the Closing:
(i) all representations and warranties made by Parent and Sub
in this Agreement are true and correct in all material respects on and as of the
Closing as though such representations and warranties were made on and as of
such time; and
(ii) all covenants and obligations of this Agreement to be
performed by Parent on or before such date have been so performed in all
material respects.
6.3 CONDITIONS TO THE OBLIGATIONS OF PARENT. The obligations of Parent to
consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Closing of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of the Company, the Stockholders and the Indemnitors in this
Agreement shall be true and correct in all material respects on and as of the
Closing as though such representations and warranties were made on and as of the
Closing and the Company, the Stockholders and the Indemnitors shall have
performed and complied in all material respects with all covenants and
obligations of this Agreement required to be performed and complied with by them
as of the Closing.
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Acquisition shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Acquisition, which makes the consummation of the Acquisition illegal.
(c) CLAIMS. There shall not have occurred any claims (whether or not
asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or may have a Company
Material Adverse Effect. There shall be no BONA FIDE action, suit, claim or
proceeding of any nature pending, or overtly threatened, against the Parent, Sub
or the Company, their respective properties or any of their officers or
directors, arising out of, or in any way connected with,
the Acquisition or the other transactions contemplated by the terms of this
Agreement, that would materially and adversely affect the consummation of the
transactions contemplated hereby or have a Company or Parent Material Adverse
Effect.
(d) THIRD PARTY CONSENTS. Any and all consents, waivers, assignments
and approvals listed in Sections 2.5 and 2.6 of the Disclosure Schedule shall
have been obtained.
(e) LEGAL OPINION. Parent shall have received a legal opinion from
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, legal counsel to the Company, substantially in the
form of Exhibit E hereto.
(f) NO MATERIAL ADVERSE CHANGES. There shall not have occurred any
Company Material Adverse Effect since the date of this Agreement.
(g) CERTIFICATE OF THE COMPANY AND STOCKHOLDERS. Parent shall have been
provided with a certificate executed by the Stockholders and executed on behalf
of the Company by an authorized officer to the effect that, as of the Closing:
(i) all representations and warranties made by the Company and
the Stockholders in this Agreement are true and correct in all material respects
on and as of the Closing as though such representations and warranties were made
on and as of such time;
(ii) all covenants and obligations of this Agreement to be
performed by the Company on or before such date have been so performed in all
material respects; and
(iii) the provisions set forth in Sections 6.3 have been
satisfied.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS;
INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Regardless of any
investigation by any party hereto, the Company's, Indemnitors', the
Stockholders' and Parent's representations, warranties and covenants in this
Agreement or in any instrument delivered pursuant to this Agreement shall
terminate on the second anniversary of the Closing Date, except: (i) to the
extent a Claim Notice (as defined below) has been submitted prior to such date;
(ii) claims based on fraud; (iii) claims based on the representations and
warranties contained in Sections 2.3, 2.4 and 2.10; and (iv) claims based on
breach of any Related Agreement.
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7.2 INDEMNIFICATION.
(a) Subject to the terms and conditions of this Article VII, the
Indemnitors agree jointly and severally to indemnify and hold Parent and its
officers, directors, agents, affiliates and representatives (collectively, the
"INDEMNITEES"), from and in respect of, and hold the Indemnitees harmless
against, any and all damages, fines, penalties, losses, liabilities, judgments,
deficiencies, deficits in Tangible Net Worth as described in Section 1.4 above,
and expenses (including without limitation amounts paid in settlement, interest,
court costs, costs of investigators, reasonable fees and expense of attorneys
and accountants and other expenses of litigation), offset or reduced by the
amount of any insurance proceeds or tax benefits actually received by Parent in
respect of any of the foregoing, incurred or suffered by any of the Indemnitees
("DAMAGES") resulting from, relating to or in connection with (i) any
misrepresentation, breach of representation or warranty or failure to perform
any covenant or agreement of the Company or the Stockholders or the Indemnitors
contained in this Agreement or any inaccuracy in any schedule or certificate
delivered by the Company or the Shareholders or the Indemnitors pursuant to this
Agreement, (ii) any Damages relating to a Tangible Net Worth shortfall as
determined in accordance with Section 1.4 of the Agreement, (iii) any Damages
relating to a breach of the Non-Competition Agreements (iv) payments to
Ladenburg in excess of the amounts specified in Section 5.9 and (v) any Damages
relating to those Special Matters agreed to in writing by Parent and the Company
at the closing. In the event that on or prior to the date that is one (1) year
from the Closing, any of the Key Employees (as defined below) shall have
voluntarily terminated their employment with Parent (or one of its affiliates)
without Good Reason, or if Parent shall terminate the employment of any Key
Employee for cause Parent shall be entitled to Damages in the amount of $300,000
as liquidated damages and shall be entitled immediately to receive such amount
from the Escrow Fund. For purposes of this Section 7.2(a) "Key Employees" shall
mean those employees identified in writing by Parent and the Company, and "Good
Reason" shall mean a substantial reduction in such Key Employee's
responsibilities or compensation, or a relocation of such Key Employee's primary
place of work to a location other than the ▇▇▇▇▇▇ City-Stateline, Nevada area,
or the Tempe, Arizona area. Notwithstanding the first sentence of this Section
7.2(a), (i) each Indemnitor and each Stockholder shall be severally and not
jointly liable for claims based on such party's representations and warranties
contained in Section 2.4(b), and (ii) each Indemnitor and each Stockholder shall
be severally and not jointly liable for claims based on breach of any Related
Agreement by such party; provided, that GN and KN shall be jointly and severally
liable for claims against Siblings described in clauses (i) and (ii).
(b) To secure the indemnification obligations of the Indemnitors to the
Indemnitees, the Escrow Fund will be deposited with the Escrow Agent in
accordance with Section 1.3 hereof and the Escrow Agreement. To further secure
the indemnification obligations of the Indemnitors to the Indemnities, Parent
shall have the right to offset indemnified claims against payment of up to 20%
of the JL Deferred Cash (the "JL OFFSET AMOUNT")
(c) Each Indemnitor acknowledges that its indemnification obligations
hereunder are solely in his capacity as a former shareholder or beneficial owner
of shares of the Company, and, accordingly, the indemnification obligations in
this Article VII shall not entitle any current or former
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officer, director or employee of the Company to any indemnification from the
Company pursuant to the Articles of Incorporation, or any agreement with the
Company (notwithstanding any insurance policy)
7.3 METHOD OF ASSERTING CLAIMS. Parent shall give prompt written notice (the
"Claim Notice") to the agent for the Indemnitors (the "Securityholder Agent") as
identified in Section 7.5 below, and the Escrow Agent of any claim or event
known to it which gives rise or may give rise to a claim for indemnification
hereunder (an "Indemnifiable Claim") as provided in the Escrow Agreement.
7.4 INDEMNIFICATION LIABILITY LIMITATIONS.
(a) The maximum aggregate liability of the Indemnitors for Damages
shall be limited to the Maximum Liability Amount (as defined below), except (i)
for claims based on fraud, (ii) for breaches of the representations and
warranties contained in Sections 2.3 and 2.4 in which case the Indemnitors shall
be liable for the total amount of such Damages, and (iii) for breaches of the
representations and warranties contained in Section 2.10 in which case the
Indemnitors shall be liable for Damages as described in Section 7.4(e). The
"MAXIMUM LIABILITY AMOUNT" shall initially equal the First Liability Amount. The
"FIRST LIABILITY AMOUNT" shall mean an amount equal to the sum of (i) the
product of the number of Siblings Escrow Shares multiplied by the Parent Share
Deemed Value (as defined below), plus (ii) the Siblings Escrow Cash, plus (iii)
the JL Escrow Cash, plus (iv) 20% of the JL Deferred Cash. The "PARENT SHARE
DEEMED VALUE" shall mean the last reported sale price of the Parent Common Stock
at the most recent close of daily trading prior to the Closing as reported by
the Nasdaq Stock Market.
(b) Twelve months after the Closing Date the Maximum Liability Amount
will be reduced to an amount equal to the sum of (i) 50% of the First Liability
Amount and (ii) the estimated liability (as set forth on the applicable Claim
Notice) of all unresolved claims submitted prior to twelve months after the
Closing Date.
(c) Eighteen months after the Closing Date the Maximum Liability Amount
will be reduced to an amount equal to the sum of (i) 25% of the First Liability
Amount and (ii) the estimated liability (as set forth on the applicable Claim
Notice) of all unresolved claims submitted prior to eighteen months after the
Closing Date.
(d) The Stockholders shall not be liable under this Article VII unless
Indemnity Amounts (as determined pursuant to the Escrow Agreement) totaling in
excess of $250,000 (the "Basket Amount") have been determined in which case
Parent shall be entitled to recover all Indemnity Amounts; PROVIDED, HOWEVER,
Indemnity Amounts with respect to (i) the adjustment for a shortfall in the
Tangible Net Worth of the Company in accordance with Section 1.4, (ii) payments
to Ladenburg in excess of $500,000, (iii) Damages payable with
respect to the termination of Key Employees pursuant to Section 7.2(a), (iv)
claims based on fraud, (v) breaches of the representations and warranties
contained in Sections 2.3 and 2.4, and (vi) those Special Matters identified in
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Schedule 7.2 as excluded from the Basket Amount, shall be paid without regard to
the Basket Amount.
(e) The maximum liability of the Indemnitors for Damages based on
breach of the representations and warranties contained in Section 2.10 shall be
the First Liability Amount minus the Indemnity Amounts (as defined in the Escrow
Agreement) paid to Parent. Indemnity Amounts with respect to Section 2.10 ("Tax
Indemnity Amounts") shall be subject to Section 7.4(d) and the Basket Amount
until the second anniversary of the Closing Date, and to a special basket amount
(the "Tax Basket") thereafter, as follows. The Tax Basket shall equal $250,000
less the total amount of Tax Indemnity Amounts which have not been paid at the
second anniversary of the Closing Date due to the operation of Section 7.4(d).
After the second anniversary of the Closing Date, the Stockholders shall not be
liable under this Article VII for Damages based on breach of the representations
and warranties contained in Section 2.10 until additional Tax Indemnity Amounts
total in excess of the Tax Basket in which case Parent shall be entitled to
recover all Tax Indemnity Amounts. For example, if Tax Indemnity Amount A is
determined to be $100,000 prior to the second anniversary of the Closing Date
and there are no other Indemnity Amounts determined, then Parent will not be
entitled to recover Tax Indemnity Amount A, and the Tax Basket following the
second anniversary of the Closing Date will be $150,000. In the same case, if
following the second anniversary of the Closing Date, Tax Indemnity Amount B is
determined to be $75,000, Parent will not be entitled to recovery, but if Tax
Amount C is then determined to be $100,000, Parent will be entitle to recover
the entire amount of Tax Indemnity Amount A, Tax Indemnity Amount B, and Tax
Indemnity Amount C.
(f) Nothing in this Article VII shall limit, in any manner (whether by
time, amount, procedure or otherwise), any remedy at law or in equity to which
Parent may be entitled as a result of actual fraud or willful misrepresentation
or misconduct by the Company or Stockholders.
(g) The indemnification obligations of the Indemnitors hereunder shall
be the sole and exclusive obligations of the Indemnitors (as beneficial owners
of the Company) with respect to any Damages under this Agreement and no former
shareholder, optionholder, warrantholder, officer, director or employee of the
Company other than the Indemnitors shall have any other personal liability to
Parent or Sub in connection with this Agreement following the Closing.
7.5 SECURITYHOLDER AGENT OF THE STOCKHOLDERS; POWER OF ATTORNEY. In the
event that the Acquisition is closed, GN shall be appointed as the
Securityholder Agent for each Stockholder of the Company and for each
Indemnitor.
7.6 THIRD-PARTY CLAIMS. In the event Parent becomes aware of a third-party
claim which Parent believes may result in a demand against the Escrow Fund,
Parent shall notify the Securityholder Agent of such claim, and the
Securityholder Agent and the Shareholders of the Company shall be entitled, at
their expense, to participate in any defense of such claim. Parent shall have
the right in its sole discretion to settle any such claim; provided, however,
that except with the consent of the Securityholder Agent, no settlement of any
such claim with third-party claimants shall be determinative of the amount or
validity of any claim against the Escrow Fund. In the event that
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the Securityholder Agent has consented to any such settlement, the
Securityholder Agent shall have no power or authority to object under any
provision of this Article VII to the amount of any claim by Parent against the
Escrow Fund with respect to such settlement.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8.2, this Agreement may be
terminated and the Acquisition abandoned at any time prior to the Closing:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Closing has not occurred by
March 31, 1999, PROVIDED, HOWEVER, that the right to terminate this Agreement
under this Section 8.1(b)(i) shall not be available to any party whose action or
failure to act has been a principal cause of or resulted in the failure of the
Acquisition to occur on or before such date and such action or failure to act
constitutes a breach of this Agreement; (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Acquisition; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Acquisition by any Governmental Entity that would make consummation of the
Acquisition illegal;
(c) by Parent if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Acquisition by any Governmental Entity, which would: (i) prohibit Parent's
ownership or operation of any portion of the business of the Company or (ii)
compel Parent or the Company to dispose of or hold separate all or a portion of
the business or assets of the Company or Parent as a result of the Acquisition;
(d) by Parent if it is not in material breach of its obligations under
this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company or the Stockholders and such breach has not been cured within ten (10)
calendar days after written notice to the Company; PROVIDED, HOWEVER, that, no
cure period shall be required for a breach which by its nature cannot be cured;
(e) by the Company if neither it nor any Stockholder is in material
breach of their respective obligations under this Agreement and there has been a
material breach of any representation, warranty, covenant or agreement contained
in this Agreement on the part of Parent and such breach has not been cured
within ten (10) calendar days after written notice to Parent; PROVIDED, HOWEVER,
that no cure period shall be required for a breach which by its nature cannot be
cured; or
(f) by Parent if an event having a Company Material Adverse Effect
shall have occurred after the date of this Agreement.
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(g) by the Company or the Stockholders if an event having a Parent
Material Adverse Effect shall have occurred after the date of this Agreement.
8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, or the Company, or
their respective officers, directors or stockholders, provided that each party
shall remain liable for any breaches of this Agreement prior to its termination;
provided further that, the provisions of Sections 5.8, 5.9(a) and 5.10, Article
IX and this Section 8.2 shall remain in full force and effect and survive any
termination of this Agreement.
8.3 AMENDMENT. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of Parent, the
Company and the Stockholders.
8.4 EXTENSION; WAIVER. At any time prior to the Closing, Parent and the
Stockholders may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice), PROVIDED, HOWEVER,
that notices sent by mail will not be deemed given until received:
(a) if to Parent, to:
Gametech International, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
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with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
Professional Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Company, to
Bingo Technologies Corporation
Post Office Box 5367
▇▇▇ ▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to the Stockholders or Indemnitors, to:
Siblings Partners, L.P.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(d) If to the Escrow Agent, to:
US Bank Trust, N.A.
Global Escrow Depository Services #SANF0527
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
9.2 INTERPRETATION. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the Exhibits hereto, the
Confidential Disclosure Agreements, dated February 12, 1998, October 29, 1997
and November 9, 1998, between the Company and Parent and the documents and
instruments and other agreements among the parties hereto referenced herein: (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings both written
and oral, among the parties with respect to the subject matter hereof; (b) are
not intended to confer upon any other person any rights or remedies hereunder;
and (c) shall not be assigned (other than by operation of law), except that
Parent may assign its rights and delegate its obligations hereunder to its
affiliates, provided, however, that an assignment to an affiliate shall not
relieve Parent of its obligations hereunder.
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9.5 SEVERABILITY. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
9.6 OTHER REMEDIES. Any and all remedies herein expressly conferred upon a
party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by law or equity upon such party, and the exercise by a
party of any one remedy will not preclude the exercise of any other remedy.
9.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any court within Maricopa County, State of Arizona, in connection
with any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of Arizona for such persons and waives and
covenants not to assert or plead any objection which they might otherwise have
to such jurisdiction, venue and such process.
9.8 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.9 ATTORNEYS FEES. If any action or other proceeding relating to the
enforcement of any provision of this Agreement is brought by any party hereto,
the prevailing party shall be entitled to recover reasonable attorneys' fees,
costs and disbursements (in addition to any other relief to which the prevailing
party may be entitled).
9.10 THIRD PARTY BENEFICIARIES. . Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person or entity other than the parties hereto.
-51-
IN WITNESS WHEREOF, Parent, the Company, the Indemnitors, and the
Stockholders have caused this Agreement to be signed, all as of the date first
written above.
GAMETECH INTERNATIONAL, INC. BINGO TECHNOLOGIES
CORPORATION
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇ By:/s/ ▇▇▇▇ ▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇ Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer Title: President
STOCKHOLDERS:
SIBLINGS PARTNERS, L.P.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Title: /s/ not legible
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/s/ ▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇▇
INDEMNITORS
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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/s/ ▇▇▇▇ ▇▇▇▇▇▇
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EXHIBIT A
SCHEDULE OF STOCKHOLDERS
SHARES OF TOTAL SHARES OF CASH
COMPANY SHARES OF PARENT CONSIDERATION
NAME AND BEING PARENT TO PLACED INTO TOTAL CASH PLACED INTO PROMISSORY
ADDRESS EXCHANGED BE RECEIVED ESCROW CONSIDERATION ESCROW NOTE
SIBLINGS
PARTNERSHIP
L.P. 6,863. 1,866,938 373,387 $5,912,529 $1,371,118 $943,065
JL 3,137 0 0 2,905,465 581,093 3,681,268