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Exhibit 3
ASSET PURCHASE AGREEMENT
By and Among
eLOT, Inc.
and
PLASMANET, INC.
Dated as of
June 8, 2001
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TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
ARTICLE II
PURCHASE, CONSIDERATION AND ADDITIONAL AGREEMENTS
2.1 Sale and Purchase of Assets...........................................3
2.2 Assets Not to Be Transferred..........................................3
2.3 No Assumption of Liabilities..........................................3
2.4 Purchase Shares.......................................................3
2.5 Allocation............................................................5
2.6 Sales and Use Taxes...................................................5
2.7 Instruments of Transfer...............................................5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Corporate Existence; Authority........................................5
3.2 Title to Assets; Conflicting Interests; Effect of Agreement...........5
3.3 Consents..............................................................6
3.4 The Trademarks and Trade Name.........................................6
3.5 Litigation............................................................6
3.6 Compliance with Laws..................................................6
3.7 Taxes.................................................................6
3.8 Contracts.............................................................6
3.9 Insurance.............................................................6
3.10 No Material Changes...................................................6
3.11 Restrictions on Business Activities...................................6
3.12 Investment Matters....................................................7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
4.1 Incorporation; Authority..............................................7
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4.2 Conflicting Interests.................................................7
4.3 Capitalization........................................................7
4.4 Consents..............................................................8
4.5 No Material Changes...................................................8
4.6 Litigation............................................................8
4.7 Compliance with Laws..................................................8
4.8 Taxes.................................................................8
4.9 Absence of Further Requirements.......................................8
4.10 No General Solicitation...............................................8
4.11 No Registration Required..............................................8
4.12 Net Current Assets; Pro Forma Total Equity............................8
ARTICLE V
AGREEMENTS TO BE PERFORMED PRIOR TO THE CLOSING
5.1 Full Access...........................................................9
5.2 Conduct of Business...................................................9
5.3 Notices and Consents..................................................9
5.4 Management of Website.................................................9
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT
6.1 Representations True and Correct.....................................10
6.2 Covenants Performed..................................................10
6.3 No Material Adverse Change...........................................10
6.4 Officers' Certificates...............................................10
6.5 Absence of Litigation................................................10
6.6 Necessary Consents...................................................10
6.7 Management Agreement.................................................10
6.8 Parent Stockholder Approval..........................................10
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
7.1 Representations True and Correct.....................................10
7.2 Covenants Performed..................................................10
7.3 No Material Adverse Change...........................................10
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7.4 Officers' Certificate................................................11
7.5 Absence of Litigation................................................11
7.6 Necessary Consents...................................................11
7.7 Registration Rights Agreement........................................11
7.8 Management Agreement.................................................11
7.9 Parent Stockholder Approval..........................................11
ARTICLE VIII
THE CLOSING
8.1 The Closing..........................................................11
8.2 Deliveries at the Closing............................................11
ARTICLE IX
INDEMNIFICATION AND SURVIVAL
9.1. Indemnification by Seller............................................11
9.2. Indemnification by Parent............................................11
9.3. Limitations on Liability.............................................11
9.4. Indemnification Procedure............................................12
9.5. Exclusive Remedies...................................................12
ARTICLE X
OBLIGATIONS OF PARTIES AFTER CLOSING
10.1 Further Assurances...................................................12
10.2 Tax Returns..........................................................12
10.3 Post-Closing Date Access to Information..............................12
10.4 Board Observer.......................................................12
10.5 Participation Rights.................................................13
10.6 DCC Put Right........................................................13
10.7 Standstill...........................................................13
10.8 Authorized Shares....................................................14
ARTICLE XI
TERMINATION
11.1 Termination..........................................................14
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11.2 Effect of Termination................................................14
ARTICLE XII
CONFIDENTIALITY
12.1 Confidentiality......................................................14
12.2 Public Announcements.................................................14
ARTICLE XIII
GENERAL PROVISIONS
13.1 Broker or Finder.....................................................14
13.2 Payment of Costs.....................................................14
13.3 Entire Agreement; Waivers............................................15
13.4 Successors and Assigns...............................................15
13.5 Effect of Headings...................................................15
13.6 Notices..............................................................15
13.7 Governing Law........................................................15
13.8. Waiver of Jury Trial.................................................16
13.9 Parties in Interest..................................................16
13.10 Severability.........................................................16
13.11 Counterparts.........................................................16
13.12 Attorneys' Fees......................................................16
13.13 Assignment...........................................................16
13.14 Disclosure on Schedules..............................................16
EXHIBIT
A - Management Agreement
B - Registration Rights Agreement
SCHEDULES
2.1(b) - Prepaid Expenses
2.1(c) - Contracts, Agreements, Licenses and Leases
2.1(d) - Permits and Licenses
2.4 - Series A Preferred Stock Term Sheet
2.7 - Domain Names
3.2 - Liens, Encumbrances, and Restrictions
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3.3 - Consents
3.4 - The Trademarks and Trade Name
3.5 - Litigation
3.6 - Compliance with Laws
3.9 - Insurance
3.10 - Material Changes
4.4 - Consents
4.5 - Material Changes
4.6 - Litigation
4.12 - Projected Net Current Assets
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of this 8th
day of June 2001, is made and entered into by and among eLOT, Inc., a Virginia
corporation ("Parent" or "Buyer") and PlasmaNet, Inc., a Delaware corporation
("Seller").
RECITALS
WHEREAS, Seller owns and operates the Internet website entitled
"▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇" (the "Website"), and has developed a business in
connection therewith (the "Business"); and
WHEREAS, Seller desires to sell, and Buyer desires to purchase, the
assets of Seller related to the Business on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and representations contained herein, the parties hereto agree as
follows.
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
"Additional Stock" shall mean any shares of Parent Common Stock or
other securities of Parent exchangeable, convertible or exercisable for Parent
Common Stock other than: (1) securities to be issued pursuant to outstanding
commitments on the date hereof or upon exchange, conversion or exercise of
securities outstanding on the date hereof; (2) securities to be issued to
employees, consultants or directors of Parent or its affiliates directly or
pursuant to a stock option, restricted stock or similar plan approved by the
Board of Directors of Parent; (3) securities to be issued in an underwritten
public offering (or upon exchange, conversion or exercise of such securities);
and (4) an additional number of shares of Parent Common Stock equal to the
greater of ten million (10,000,000) shares or five percent (5%) of the
authorized shares of Parent Common Stock.
"Agreement" has the meaning specified in the first paragraph of this
Agreement.
"Allocation" has the meaning specified in Section 2.5.
"Assigned Contracts" has the meaning specified in Section 2.1(c).
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"▇▇▇▇▇ ▇▇▇▇▇▇▇▇" has the meaning specified in Section 10.4.
"Business" has the meaning specified in the recitals to this Agreement.
"Buyer" has the meaning specified in the first paragraph of this
Agreement.
"Closing" has the meaning specified in Section 8.1.
"Closing Date" has the meaning specified in Section 8.1.
"Conversion Shares" means shares of Parent Common Stock issuable upon
conversion of the Parent Series A Preferred Stock.
"DCC" means Dialogic Communications Corp.
"Intellectual Property" has the meaning specified in Section 3.5(a)(i).
"Intellectual Property Rights" has the meaning specified in Section
3.5(a)(ii).
"Liens" has the meaning specified in Section 2.1.
"Losses" has the meaning specified in Section 9.1.
"March 31, 2002 Measurement Period" means the period beginning December
1, 2001 and ending March 31, 2002.
"Measurement Period" means the November 30, 2001 Measurement Period,
the March 31, 2002 Measurement Period or the September 30, 2002 Measurement
Period, as the case may be.
"Net Cash Proceeds" means cash proceeds, net of (1) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel, accountants and investment banks) associated with such sale; (2)
provisions for taxes payable in connection with such sale; and (3) appropriate
amounts to be provided as a reserve against any liabilities associated with the
sale.
"Net Contribution" for any period means total revenue (other than
barter revenue) of the Business from all sources for such period net of expenses
to the extent such expenses are related to the Business, including bonding
expenses, an appropriate allowance for bad debts, customary sales commissions
(whether external or internal) to agents of Parent, all sales commissions paid
to agents of Seller, management fees to Seller, fees related to maintenance of
the Website, development expenses agreed by Seller and marketing and advertising
expenses to the members of the ▇▇▇▇▇▇▇▇▇.▇▇▇ website, but excluding all
corporate overhead
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expenses, for such period, all as determined in accordance with generally
accepted accounting principles.
"Net Current Assets" means current assets less current liabilities in
accordance with generally accepted accounting principles applied by Parent on a
consistent basis provided that no obligations arising from Parent's 7 1/2%
Convertible Subordinated Debentures due 2011 shall be included in current
liabilities and any indebtedness of Parent or its subsidiaries incurred after
the date hereof shall be excluded from current liabilities to the extent that
such obligation does not become payable within six (6) months.
"November 30, 2001 Measurement Period" means the period beginning June
1, 2001 and ending November 30, 2001.
"Parent" has the meaning specified in the first paragraph of this
Agreement.
"Parent Common Stock" means the common stock, par value $0.01 per
share, of Parent.
"Parent Series A Preferred Stock" has the meaning specified in Section
2.4(a).
"Parent Stockholder Approval" means the approval of the issuance and
potential issuance of the shares of Parent Common Stock to be issued or issuable
under this Agreement by a majority of the total votes cast in person or by proxy
at a meeting of stockholders of Parent.
"Pre-Closing Period" has the meaning specified in Section 2.4(h).
"PTO" has the meaning specified in Section 3.5(b).
"Qualified Member" has the meaning specified in Section 2.4(i).
"Reference Balance Sheet" has the meaning specified in Section 4.1(a).
"Returns" has the meaning specified in Section 3.8.
"Seller" has the meaning specified in the first paragraph of this
Agreement.
"Seller Earned Conversion Share Amount" means an amount equal to seven
hundred thousand (700,000) shares, as increased or decreased pursuant to
Sections 2.4(b), (c), (d) and (e).
"Seller's Intellectual Property" has the meaning specified in Section
3.5(a)(iii).
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"Seller's Registered Intellectual Property Rights" has the meaning
specified in Section 3.5(a)(iv).
"September 30, 2002 Measurement Period" means the period beginning
April 1, 2002 and ending September 30, 2002.
"Statement" has the meaning specified in Section 2.4(g).
"Tax" or "Taxes" has the meaning specified in Section 3.8.
"Trade Secrets" has the meaning specified in Section 3.5(n).
"Transferred Assets" has the meaning specified in Section 2.1.
"Website" has the meaning specified in the recitals to this Agreement.
ARTICLE II
PURCHASE, CONSIDERATION AND ADDITIONAL AGREEMENTS
2.1 Sale and Purchase of Assets. Subject to the terms and conditions of
this Agreement, Seller agrees to transfer, convey, assign and deliver to Buyer,
and Buyer agrees to purchase from Seller, free and clear of all liens, security
interests, claims, charges and encumbrances ("Liens"), all of Seller's right,
title and interest in and to all of the following assets and properties,
tangible and intangible, personal or mixed, wherever located (collectively, the
"Transferred Assets"):
(a) the trade name, miscellaneous design and domain name
"FreeWorldLottery"; the URL address ▇▇▇▇://▇▇▇.▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇;
and the freeworld lottery member list consisting of name, postal
address and email address and data relating to the consumer preferences
collected by Seller on the Website;
(b) all prepaid expenses, which are listed on Schedule 2.1(b);
(c) all right, title and interest of Seller to the contracts,
agreements, licenses, leases and documents which are listed on Schedule
2.1(c) (collectively, the "Assigned Contracts"), including, without
limitation, any and all agreements, permissions and the like relating
to the Internet server on which the Business is currently hosted;
(d) all permits, licenses, franchises, consents, authorities
and other similar authorizations, if any, of any federal, state, local
or foreign governmental body which
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relate to the Business and which may be lawfully assigned or
transferred, subject to any action by such body which may be required
in connection with such assignment or transfer, listed on Schedule
2.1(d);
(e) all of Seller's transferable books and records used in
connection with the Business, including, without limitation, all
supplier lists, all marketing plans, drawings, blueprints, but not
including Seller's minute book, tax returns, financial statements or
similar corporate documents; and
(f) all of Seller's claims against any parties regarding other
Transferred Assets and any unliquidated rights of Seller under
manufacturers' and vendors' warranties or guarantees in connection with
the Transferred Assets.
2.2 Assets Not to Be Transferred. Notwithstanding any provision of this
Agreement to the contrary, Seller shall retain and Buyer shall not acquire any
other assets of Seller other than the Transferred Assets.
2.3 No Assumption of Liabilities. Except as expressly provided herein,
Buyer is not assuming and shall have no responsibility for any liability,
obligation or commitment of any nature, whether now or hereafter existing, of
Seller. Seller shall remain liable for and shall pay, settle or discharge in the
ordinary course of Seller's business (unless circumstances warrant otherwise)
all such liabilities, obligations or commitments.
2.4 Purchase Shares.
(a) As consideration for the Transferred Assets, Parent shall
issue to Seller on the Closing Date one (1) share of Parent Series A Preferred
Stock (the "Parent Series A Preferred Stock", the terms of which are set forth
on Schedule 2.4 hereto), which shall be convertible into twenty two million
seven hundred thousand (22,700,000) Conversion Shares or such lesser amount of
Conversion Shares as determined pursuant to the provisions of this Section 2.4.
(b) (i) If Net Contribution for the November 30, 2001 Measurement
Period is equal to or greater than three million dollars ($3,000,000), then
there shall be credited to the Seller Earned Conversion Share Amount (upon final
determination of Net Contribution for such period) twelve million (12,000,000)
Conversion Shares. If Net Contribution for the November 30, 2001 Measurement
Period is less than three million dollars ($3,000,000) but equal to or greater
than two million five hundred fifty thousand dollars ($2,550,000), then there
shall be credited to the Seller Earned Conversion Share Amount (upon final
determination of Net Contribution for such period) that number of Conversion
Shares equal to the product of (A) twelve million (12,000,000) and (B) the
product of (I) 0.9 and (II) (1) Net Contribution for such period divided by (2)
three million dollars ($3,000,000).
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(ii) If Net Contribution for the November 30, 2001 Measurement
Period is less than two million two hundred fifty thousand dollars ($2,250,000),
then there shall be deducted from the Seller Earned Conversion Share Amount
(upon final determination of Net Contribution for such period) three million
(3,000,000) Conversion Shares.
(c)(i) If the sum of (A) the amount, if any, by which Net
Contribution for the November 30, 2001 Measurement Period exceeds three million
dollars ($3,000,000) and (B) Net Contribution for the March 31, 2002 Measurement
Period is equal to or greater than two million dollars ($2,000,000), then,
subject to Section 2.4(c)(ii), there shall be credited to the Seller Earned
Conversion Share Amount upon final determination of Net Contributions for such
periods) four million (4,000,000) Conversion Shares. If the sum of (A) the
amount, if any, by which Net Contribution for the November 30, 2001 Measurement
Period exceeds three million dollars ($3,000,000) and (B) Net Contribution for
the March 31, 2002 Measurement Period is less than two million dollars
($2,000,000) but equal to or greater than one million seven hundred thousand
dollars ($1,700,000), then, subject to Section 2.4(c)(ii), there shall be
credited to the Seller Earned Conversion Share Amount (upon final determination
of Net Contributions for such periods) that number of Conversion Shares equal to
the product of (I) four million (4,000,000) and (II) the product of (1) 0.9 and
(2) (x) the sum of (a) the amount, if any, by which Net Contribution for the
November 30, 2001 Measurement Period exceeds three million dollars ($3,000,000)
and (b) Net Contribution for the March 31, 2002 Measurement Period divided by
(y) two million dollars ($2,000,000).
(ii) If Net Contribution for the March 31, 2002 Measurement
Period is less than one million five hundred thousand dollars ($1,500,000),
there shall be deducted from the Seller Earned Conversion Share Amount (upon
final determination of Net Contribution for such period) three million
(3,000,000) Conversion Shares.
(d)(i) If the sum of (A) the amount, if any, by which the sum of
(x) Net Contribution for the November 30, 2001 Measurement Period and (y) Net
Contribution for the March 31, 2002 Measurement Period exceeds five million
dollars ($5,000,000) and (B) Net Contribution for the September 30, 2002
Measurement Period is equal to or greater than three million dollars
($3,000,000), then, subject to Section 2.4(d)(ii), there shall be credited to
the Seller Earned Conversion Share Amount (upon final determination of Net
Contributions for such periods) three million (3,000,000) Conversion Shares. If
the sum of (A) the amount, if any, by which the sum of (x) Net Contribution for
the November 30, 2001 Measurement Period and (y) Net Contribution for the March
31, 2002 Measurement Period exceeds five million dollars ($5,000,000) and (B)
Net Contribution for the September 2002 Measurement Period is less than three
million dollars ($3,000,000) but equal to or greater than two million five
hundred fifty thousand dollars ($2,550,000), then, subject to Section
2.4(d)(ii), there shall be credited to the Seller Earned Conversion Share Amount
(upon final determination of Net Contributions for such periods) that number of
Conversion Shares equal to the product of (I) three
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million (3,000,000) and (II) the product of (1) 0.9 and (2) (x) the sum of (a)
the amount, if any, by which the sum of (X) Net Contribution for the November
31, 2001 Measurement Period and (Y) Net Contribution for the March 31, 2002
Measurement Period exceeds five million dollars ($5,000,000) and (b) Net
Contribution for the September 30, 2002 Measurement Period divided by (y) three
million dollars ($3,000,000).
(ii) If Net Contribution for the September 30, 2002 Measurement
Period is less than two million two hundred fifty thousand dollars ($2,250,000),
then there shall be deducted from the Seller Earned Conversion Share Amount
(upon final determination of Net Contribution for such period) three million
(3,000,000) Conversion Shares.
(e) If the aggregate Net Contribution for all three
Measurement Periods is equal to or greater than nine million dollars
($9,000,000), there shall be credited to the Seller Earned Conversion
Share Amount (upon final determination of such Net Contributions for
such periods) three million (3,000,000) Conversion Shares.
(f) For purposes of this Section 2.4, in the event of any
change in the Parent Common Stock by reason of any stock dividend,
stock split, combination or recapitalization with respect to the
Conversion Shares, the number of Conversion Shares thereafter issuable
upon conversion of the Parent Series A Preferred Stock, and other
calculations with respect to the Conversion Shares, pursuant to this
Section 2.4 shall be in the same amount that Seller would have been
entitled to if the Conversion Shares been issued to Seller prior to any
such dividend, stock split, combination or recapitalization. In the
event that Parent shall be a party to any merger, consolidation,
declare any liquidating dividend after a sale of all or substantially
all of Parent's assets or other similar transaction pursuant to which
the outstanding Parent Common Stock is converted into cash, securities
or other property, thereafter, in lieu of issuing Conversion Shares
upon conversion of the Parent Series A Preferred Stock which may be
issued to Seller pursuant to this Section 2.4, Parent shall pay to
Seller the cash, securities and other property that Seller would have
received had it held at the effective time of such merger,
consolidation or other similar transaction the number of Conversion
Shares that would have been issuable pursuant to this Section 2.4.
(g) Within fifteen (15) days after the end of each Measurement
Period, Seller shall deliver to Parent a statement (a "Statement") of
Net Contribution for such period. Parent shall cooperate with Seller in
preparation of each Statement. Seller shall cooperate with and provide
Parent and Parent's independent accountants access, upon reasonable
notice and during reasonable business hours, to review its work papers
and to report to Parent as to the progress of the preparation of each
Statement. In the event Parent disputes any matter or matters on a
Statement, Parent may within fifteen (15) days after the delivery of
such Statement notify Seller of such dispute in writing setting forth
in reasonable detail the nature of such dispute and the facts upon
which it is based, together with the application or treatment
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proposed by Parent and the reasons supporting the use of such application or
treatment rather than that used by Seller. Seller shall respond to such notice
from Parent in writing within [ten (10)] days after receipt thereof. If no such
notice is given by Parent within the time specified, a Statement shall be deemed
accepted by Parent. If the parties have not resolved all matters in dispute
relating to a Statement within fifteen (15) days after Seller's receipt of such
notice from Parent, either party may notify the other in writing that it elects
to submit all remaining issue(s) to resolution by a neutral accounting firm of
national reputation. Each party hereby irrevocably waives any right to commence
litigation in any jurisdiction or to seek indemnification under Article IX of
this Agreement on the basis of any dispute under the provisions of this Section
2.4(g). Within ten (10) days after receipt of such notice of election by either
party, the parties shall agree upon the selection of a neutral accounting firm
or, if they are unable to agree, each party shall submit the names of two
neutral firms and a firm shall be selected at random from among them. A firm
shall be considered neutral if it has not within the past three years performed
and does not concurrently perform or contemplate performing any accounting,
consulting or other services for either of the parties or their respective
affiliates having an aggregate value in excess of $250,000 per year. The firm
selected shall resolve all matters remaining in dispute solely on the basis of
the provisions of this Section 2.4. Such firm shall not be required to follow
any particular rules of procedure, it being the intention of the parties to
create a feasible, practical and expeditious method for resolving any
disagreement hereunder. The decision of such firm hereunder shall be final and
binding and shall not be subject to review or challenge of any kind. The fees
and expenses of such firm shall be borne by the party whose Net Contribution
proposal submitted to such firm was farther from that determined by such firm.
(h) With respect to that portion of any Measurement Period
occurring prior to the Closing Date (a "Pre-Closing Period"), Net Contribution
for such Pre-Closing Period shall be included in the calculation of Net
Contribution for the applicable Measurement Period and Seller shall assign to
Buyer at the Closing accounts receivable (net of bad debt allowance determined
in accordance with generally accepted accounting principles) and/or cash in an
amount equal to (a) Net Contribution for such Pre-Closing Period less (b) prize
expense for such Pre-Closing Period to the extent incurred in compliance with
Section 5.4; provided, further, that if such calculation yields an amount less
than or equal to zero (0), no such assignment need be made by Seller. If the
Closing occurs, Parent shall be responsible for all prize expense from and after
June 1, 2001 which may be netted against the Net Contribution discussed in this
paragraph (h).
(i) If as of December 31, 2002, the total number of Qualified
Members equals or exceeds two million (2,000,000), that number of validly issued
fully paid and non-assessable Conversion Shares equal to the Seller Earned
Conversion Share Amount (not to exceed twenty two million seven hundred thousand
(22,700,000) Conversion Shares) shall be issued to Seller upon conversion and
surrender of Parent Series A Preferred Stock. If the
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number of Qualified Members does not equal or exceed two million (2,000,000) as
of December 31, 2002, the Parent Series A Preferred Stock shall be deemed
retired and cancelled and of no further force and effect. As used herein,
"Qualified Member" shall mean any member who has registered with FreeWorld
Lottery and either remains subscribed to the FreeWorld Lottery results
notification email or has played the FreeWorld Lottery game within the preceding
ninety (90) days.
2.5 Allocation. The parties shall use all commercially reasonable
efforts to agree to an allocation of the consideration for the Transferred
Assets among the Transferred Assets (the "Allocation"), and each of Parent and
Seller agree to report the sale and purchase of the Transferred Assets
consistently with the Allocation for all federal, state and local income and
other tax purposes.
2.6 Sales and Use Taxes. Seller and Buyer shall each bear fifty percent
(50%) of all sales and use taxes, if any, that either party shall be responsible
by law to pay and discharge by reason of or in connection with the sale and
transfer hereunder of the Transferred Assets. Notwithstanding any provision of
this Agreement to the contrary, the parties agree to pay and discharge promptly
whenever due their respective shares of the entire amount of all such taxes
arising in connection with the transactions set forth hereunder, whether levied
on Parent, Buyer or Seller. Parent, Buyer and Seller agree to use their
respective good faith efforts to minimize the amount of any sales tax that may
be due with respect to the transactions contemplated hereunder, and each party
agrees to give the other parties reasonable prior written notice of any such
amounts which may be claimed to be due by any governmental taxing authority.
2.7 Instruments of Transfer. The sale, assignment, transfer, conveyance
and delivery of the Transferred Assets shall be made by such bills of sale and
other recordable instruments of assignment, transfer and conveyance as Buyer
shall reasonably request, including, without limitation, such instruments of
transfer as may be required by Network Solutions, Inc., Internic, or any
successor organization thereto, in connection with the transfer by Seller to
Buyer of the domain names set forth on Schedule 2.7, attached hereto and made a
part hereof, and the related URLs and web site addresses, as well as any
instruments of transfer or registration forms required in connection with any of
the Transferred Assets. All transfer fees payable to Network Solutions or other
relevant organization with respect to the transfer of the domain names set forth
on Schedule 2.7 shall be paid by Seller.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Parent as follows:
3.1 Corporate Existence; Authority.
(a) Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Seller has the full
corporate power to carry on its business as now being conducted and to own and
operate the property and assets now owned and operated by it. Seller is duly
qualified to transact business and is in good standing in each jurisdiction
where such qualification is required by law or regulation, except for those
jurisdictions where the failure to so qualify will not have a material adverse
effect on the use of the Transferred Assets following the Closing.
(b) Seller has the right, power, legal capacity and authority to
enter into, and perform its obligations under, this Agreement.
(c) All corporate action on the part of Seller necessary for the
authorization, execution, delivery and performance of this Agreement by Seller
and the performance of all of Seller's obligations hereunder has been taken.
This Agreement constitutes a valid and binding obligation of Seller, enforceable
in accordance with its terms, except for 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.
3.2 Title to Assets; Conflicting Interests; Effect of Agreement.
(a) Seller has good and marketable title to, or a valid leasehold
interest in, each and all of the Transferred Assets, free and clear of all Liens
other than as set forth in Schedule 3.2.
(b) Except as set forth on Schedule 3.2, none of the Transferred
Assets is held under any lease, security agreement, conditional sales contract
or other title retention or security arrangement, or is located other than in
the possession of Seller.
(c) Without limiting the generality of the foregoing, except as
set forth on Schedule 3.2, Seller is the exclusive owner or exclusive licensee
of all Seller's Intellectual Property.
(d) The execution and delivery of this Agreement by Seller does
not, and the consummation of the transactions contemplated hereby and compliance
with the provi-
17
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sions hereof will not, conflict with, result in a breach of, constitute a
default (with or without notice or lapse of time, or both) under or violation
of, or result in the creation of any Lien pursuant to any provision of the
organizational documents of Seller, any law or regulation of any governmental
authority, foreign or domestic, or any provision of any agreement, instrument,
contract understanding, order, judgment or decree to which Seller is a party or
by which Seller or any of the Transferred Assets is bound or affected, nor will
it give to any other person or entity any interests or rights of any kind,
including rights of termination, acceleration or cancellation, in or with
respect to any of the Transferred Assets, except for any breach, termination,
acceleration or cancellation of rights which would not, individually or in the
aggregate, have a material adverse effect on the Transferred Assets or on the
ability of Seller to consummate the transactions contemplated hereunder.
3.3 Consents. Except as listed on Schedule 3.3, no consent of any
person not a party to this Agreement and no consent of any governmental
authority is required to be obtained on the part of Seller to permit the
consummation of the transactions contemplated by this Agreement, including
without limitation the transfer to Buyer of all right, title and interest in and
to the Transferred Assets owned by Seller, free and clear of any Lien.
3.4 The Trademarks and Trade Name. The Seller is the owner of the
trademarks and trade name, FreeWorldLottery, to the extent noted on Schedule
3.4, together with the goodwill of the business connected with the use of and
symbolized by the trademarks. Such trademarks and trade name are subsisting, and
have not been abandoned, and to the best of Seller's knowledge no other firm,
corporation, association or person has the right to use such trademarks and
trade name in commerce in the identical form thereof. Except as set forth on
Schedule 3.4, to the knowledge of Seller, no legal proceedings have been
instituted, are pending or threatened with respect to the trademarks or trade
name or which challenge Seller's rights, title or interest in respect thereto.
3.5 Litigation. Schedule 3.5 contains a description of all litigation,
proceedings or controversies (including, without limitation, unsettled claims)
that are pending or, to Seller's knowledge, threatened or anticipated by or
against Seller with respect to the Transferred Assets and/or the Business before
any court, government agency (including, without limitation, the Federal Trade
Commission, any state attorney general's office, the U.S. Copyright Office or
the PTO) or any other administrative body. Seller has furnished or made
available to Buyer copies of all relevant court papers and other documents in
its possession which relate to the matters listed on Schedule 3.5. Seller is not
in default with respect to any order, subpoena, writ, injunction or decree of
any federal, state, local or foreign court, department, agency or
instrumentality.
3.6 Compliance with Laws. Except as set forth on Schedule 3.6 hereto
and to Seller's knowledge, Seller has complied in all material respects with all
applicable federal,
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state and local statutes, laws and regulations (including, without limitation,
any and all applicable building, zoning, environmental or other law, ordinance
or regulation) affecting the Transferred Assets and/or the operation of the
Business.
3.7 Taxes. Seller has timely filed within the time periods for filing
or any extension granted with respect thereto all federal, state, local and
other returns, estimates and reports ("Returns") relating to any and all taxes
of whatever kind or other governmental charges, obligations, fines deficiencies,
assessments or fees, including any secondary or transferee liability for taxes
and any related interest or penalties ("Tax" or "Taxes"), that Seller is
required to file with respect to the Transferred Assets. To Seller's knowledge,
Seller has paid all Taxes it is required to pay with respect to the Transferred
Assets. There are no pending or to Seller's knowledge threatened audits,
examinations, assessments, asserted deficiencies or claims for additional Taxes
with respect to the Transferred Assets. To Seller's knowledge, there are no
Liens relating to or attributable to Taxes on any of the Transferred Assets.
3.8 Contracts. There is no default, or event that with notice or lapse
of time, or both, would constitute a default, by Seller, or to Seller's
knowledge, by any other party under any of the Assigned Contracts. Except for
the Assigned Contracts, Seller is not a party to, nor are the Transferred Assets
bound by, any other contract, license, agreement or understanding that would
impose any material adverse restriction on the use or future disposition of the
Transferred Assets by Buyer.
3.9 Insurance. Schedule 3.9 contains a true and correct list of all
insurance policies held by Seller with respect to the Business. Seller has
provided to Buyer copies of all such insurance policies.
3.10 No Material Changes. Except as set forth on Schedule 3.10, since
December 31, 2000, with respect to the Business, including, without limitation,
in connection with the Transferred Assets, there has not been any:
(a) material adverse change in the financial condition,
liabilities, assets, business or prospects of the Business and/or, as
applicable, of any or all of the Transferred Assets;
(b) waiver or release of any right or claim of Seller relating
to the Transferred Assets, except in the ordinary course of Seller's
business; and
(c) other event or condition of any character that has or
might have a material adverse effect on the condition of the
Transferred Assets.
3.11 Restrictions on Business Activities. There is no agreement
(whether a noncompete agreement, nondisclosure agreement or otherwise),
commitment, judgment, injunc-
19
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tion, order or decree to which Seller is a party or which is otherwise binding
upon Seller which has or may have the effect of prohibiting or impairing any
business practice of Seller (as presently conducted by Seller) which would have
a material adverse effect on the Transferred Assets. Without limiting the
foregoing, Seller has not entered into any agreement under which it is
restricted from selling, licensing or otherwise distributing any of Seller's
Intellectual Property or which could limit in any material respect Buyer's use
or operation of the Transferred Assets in 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 any market.
3.12 Investment Matters. Seller is capable of evaluating the merits and
risks of its investment in Parent as a result hereof, and has the capacity to
protect its own interests in making its investment in Parent. Seller (i)
understands that the Parent Common Stock to be issued to it hereunder has not
been registered under the Securities Act of 1933, as amended, or under any state
securities laws, and are being offered and sold in reliance upon federal and
state exemptions for transactions not involving any public offering, (ii) is
acquiring the Parent Common Stock to be issued to it hereunder solely for its
own account for investment purposes, and not with a view to the distribution
thereof, (iii) is a sophisticated investor with knowledge and experience in
business and financial matters, (iv) has received certain information concerning
Parent and has had the opportunity to obtain additional information as desired
in order to evaluate the merits and the risks inherent in holding the Parent
Common Stock, and (v) is able to bear the economic risk and lack of liquidity
inherent in holding the Parent Common Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to Seller as follows:
4.1 Incorporation; Authority.
(a) Parent is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation. Parent
has the full corporate power to carry on its business as now being conducted and
to own and operate the property and assets now owned and operated by it. Parent
is duly qualified to transact business and is in good standing in each
jurisdiction where such qualification is required by law or regulation except
for those jurisdictions where the failure to qualify will not reasonably be
expected to have a material adverse effect on Parent. The execution and delivery
of this Agreement by Parent and the consummation by each of the transactions
contemplated herein have and, other than the Parent Stockholder Approval, no
further corporate authorization is necessary on the
20
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part of Parent. There are no liabilities of Parent, other than liabilities (i)
reflected or reserved against on Parent's consolidated balance sheet of March
31, 2001 ("Reference Balance Sheet"), (ii) incurred since the date of the
Reference Balance Sheet in the ordinary course of business, consistent with past
practice, of Parent, (iii) which would not have a material adverse effect on
Parent or (iv) not required to be reflected or reserved on a balance sheet of
Parent under generally accepted accounting principles. Reserves are reflected on
the Reference Balance Sheet against liabilities in accordance with generally
accepted accounting principles.
(b) All corporate action (other than the Parent Stockholder
Approval) on the part of each of Parent necessary for the authorization,
execution, delivery and performance of this Agreement by Parent has been taken.
(c) Parent has the right, power, legal capacity and authority to
enter into, and perform its obligations under, this Agreement.
(d) This Agreement constitutes a valid and binding obligation of
Parent, enforceable in accordance with its terms, except for 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.
4.2 Conflicting Interests. The execution and delivery of this Agreement
by each of Parent does not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not, conflict
with, result in a breach of, constitute a default (with or without notice or
lapse of time, or both) under or violation of, or result in the creation of any
Lien, pursuant to any provision of the organizational documents of Parent, any
law or regulation of any governmental authority, foreign or domestic, or any
provision of any agreement, instrument, understanding, order, judgment or decree
to which Parent is a party, or by which Parent or any of its assets are bound.
4.3 Capitalization.
(a) The shares of Parent Common Stock to be issued or issuable
to Seller hereunder have been duly authorized and, when issued in compliance
with the provisions of this Agreement, will be validly issued, fully paid and
non-assessable and will be free of any liens, subject to restrictions on
transfer under state and/or federal securities laws.
(b) The shares of Parent Series A Preferred Stock to be issued
or issuable to Seller hereunder have been duly authorized and, when issued in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and non-assessable and will be free of any liens, subject to restrictions
on transfer under state and/or federal securities laws.
21
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(c) The authorized capital of Parent consists of (i) 1,000,000
shares of Preferred Stock, par value 0.01 per share, of which no shares were
issued and outstanding as of the date hereof; and (ii) 130,000,000 shares of
Parent Common Stock, of which 73,356,027 shares were issued and outstanding as
of May 31, 2001. As of May 31, 2001, Parent had reserved (A) 10,163,888 of
Parent Common Stock for issuance pursuant to Parent's option plans, (B) 300,000
shares of Parent Common Stock for issuance pursuant to outstanding warrants and
(C) 1,537,882 shares of Parent Common Stock for issuance upon conversion of
convertible subordinated debentures.
(d) The issued and outstanding shares of Parent Common Stock
have been duly authorized and validly issued and are fully paid and
non-assessable; none of the outstanding shares of Parent Common Stock was issued
in violation of the preemptive or other similar rights of any securityholder of
the Company.
4.4 Consents. Except as listed on Schedule 4.4, no consent of any
person not a party to this Agreement and no consent of any governmental
authority is required to be obtained on the part of Parent to permit the
consummation of the transactions contemplated by this Agreement.
4.5 No Material Changes. Except as set forth on Schedule 4.5, since
December 31, 2000 there has not been any:
(a) transaction or accounting adjustment by Parent except in
the ordinary business;
(b) material adverse changes in the financial condition,
liabilities, assets, business or prospects of Parent; provided that the
determination after the date hereof by any governmental agency of
authority that such agency or authority will not consider or not permit
lottery tickets to be sold on websites of Parent, or over the Internet
generally, shall not constitute such a material adverse change;
(c) destruction, damage to or loss of any asset (whether or
not covered by insurance) that materially and adversely affects the
financial condition of Parent;
(d) change in accounting methods or practices (including,
without limitation, any change in depreciation or amortization policies
or rates) by Parent;
(e) sale or transfer of any substantial portion of the assets
of Parent, except in the ordinary course of business; or
(f) agreement by Parent to do any of the things described in
the preceding clauses (a) through (e).
22
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4.6 Litigation. Schedule 4.6 contains a description of all litigation,
proceedings or controversies (including, without limitation, unsettled claims)
to which Parent is a party that are pending or, to Parent's knowledge,
threatened or anticipated by or against Buyer or Seller before any court,
government agency (including, without limitation, the Federal Trade Commission,
any state attorney general's office, the U.S. Copyright Office or the PTO) or
any other administrative body which could reasonably be expected to have a
material adverse effect on Parent. Parent is not in default with respect to any
order, subpoena, writ, injunction or decree of any federal, state, local or
foreign court, department, agency or instrumentality which could reasonably be
expected to have a material adverse effect on Parent.
4.7 Compliance with Laws. To the Parent's knowledge, Parent has
complied in all material respects with all applicable federal, state and local
statutes, laws and regulations (including, without limitation, any and all
applicable building, zoning, environmental or other law, ordinance or
regulation, and any requirements set forth under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, and the rules and
regulations issued thereunder from time to time, and any further requirements
set forth under any state securities or "blue sky" laws) affecting its business
and assets, except where the failure to so comply would not reasonably be
expected to have a material adverse effect on Parent.
4.8 Taxes. Parent has timely filed within the time periods for filing
or any extension granted with respect thereto all Returns related to any and all
Taxes, that Parent is required to file from time to time, except where the
failure to so file would not reasonably be expected to have a material adverse
effect on Parent. To the Parent's knowledge, Parent has paid all Taxes they are
required to pay from time to time, except where the failure to so pay would not
reasonably be expected to have a material adverse effect on Parent. There are no
pending, or, to the Parent's knowledge, threatened audits, examinations,
assessments, asserted deficiencies or claims for additional Taxes payable by
Parent which would reasonably be expected to have a material adverse effect on
Parent. To Parent's knowledge, there are no Liens outstanding relating to or
attributable to Taxes payable by Parent which would reasonably be expected to
have a material adverse effect on Parent.
4.9 Absence of Further Requirements. No filing with, or authorization,
approval, consent, license, order, registration, qualification or decree of, any
court or governmental authority or agency is necessary or required for the
performance by the Parent of its obligations hereunder, in connection with the
consummation of the transactions contemplated by this Agreement, except such as
have been already obtained or are contemplated by the Registration Rights
Agreement.
4.10 No General Solicitation. Assuming the accuracy of Seller's
representations and warranties contained herein, the issuance by the Parent of
the shares of Parent Common Stock to be issued or issuable to the Seller does
not constitute an offer or a sale of such securi-
23
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ties by means of any general solicitation or general advertising within the
meaning of Rule 502(c) of the Securities Act of 1933, as amended.
4.11 No Registration Required. Assuming the accuracy of Seller's
representations and warranties contained herein, it is not necessary in
connection with the issuance and delivery of the shares of Parent Common Stock
to be issued or issuable in the manner contemplated by this Agreement, to
register any of such securities under the Securities Act of 1933, as amended.
4.12 Net Current Assets; Pro Forma Total Equity.
(a) As of March 31, 2001, Net Current Assets were equal to or
greater than as set forth on Schedule 4.12
(b) The statement of projected Net Current Assets, as of May 31,
2001 and August 31, 2001, on Schedule 4.12 has been reasonably prepared by
Parent using the best available information and judgment by Parent as of the
date hereof.
(c) As of March 31, 2001, on a pro forma basis after giving
effect to this Agreement and Amendment No. 1 to Strategic Cooperation Agreement
of even date herewith, Parent would have had consolidated total equity as set
forth on Schedule 4.12.
ARTICLE V
AGREEMENTS TO BE PERFORMED PRIOR TO THE CLOSING
From the date of execution of this Agreement until and including the
Closing Date:
5.1 Full Access. Buyer and its counsel, accountants and other
representatives shall have full access, at all reasonable times and in a manner
as to not interfere with the business of Seller, during normal business hours to
all properties, books, accounts, records, contracts and documents of or relating
to the Business and the Transferred Assets.
5.2 Conduct of Business. Seller, unless Buyer shall have otherwise
consented in writing:
(a) will use its best efforts to (i) preserve and maintain the
business and assets (including, without limitation, the assets that
shall comprise the Transferred Assets) of the Business in their present
condition, subject to changes in normal and ordinary course; and (ii)
preserve Seller's present relationships with suppliers, customers
24
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and other third parties to the extent that such relationships relate to
the Business and/or the Transferred Assets;
(b) will carry on the business and activities of the Business
diligently and in substantially the same manner as they have been
previously carried on;
(c) will not enter into any transaction or incur any liability
or obligation (absolute or contingent) with respect to the Business,
except transactions entered into, or liabilities or obligations
incurred, in the ordinary course of business;
(d) will not enter into, assume or become bound or obligated
by any contract, license, agreement or obligation that relates to the
Business and/or the Transferred Assets or extend or modify the terms of
any presently existing contract, license, agreement or obligation
relating to the Business and/or the Transferred Assets that (i)
involves the payment of more than twenty-five thousand dollars
($25,000) per year or (ii) extends any such agreement, license,
contract or obligation for more than one year; and
(e) will not cancel any debts or claims owed to Seller that
pertain to the Business and/or the Transferred Assets, except in the
ordinary course of business.
5.3 Notices and Consents. Each party will give any notices to third
parties and use its commercially reasonable efforts to obtain any third party
consents required to be obtained by it in connection with this Agreement. Each
party will give any notices to and make any filings with and use its
commercially reasonable efforts to obtain any authorizations, consents and
approvals of government and governmental agencies required to be obtained by it
in connection with this Agreement. Seller shall supply to Parent any information
reasonably requested by Parent for inclusion in the proxy statement to be given
to holders of Parent Common Stock in connection with the Parent Stockholder
Approval. Such information shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
5.4 Management of Website. From June 1, 2001 through the Closing Date,
Seller represents that it has operated, and agrees that it shall continue to
operate, the Website as currently conducted as disclosed to Parent regarding
games, rules for games, prizes, structure of prizes and odds for games.
25
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ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT
The obligations of Parent to consummate the Closing contemplated by
this Agreement are subject to the satisfaction, or waiver in writing by Parent,
at or before the Closing, of each of the following conditions:
6.1 Representations True and Correct. All representations and
warranties made by Seller in this Agreement, or in any written statement
delivered by Seller under this Agreement, shall be true and correct in all
material respects on the date hereof and on and as of the Closing Date as though
made on such date (unless such representation or warranty speaks only as of a
certain date, in which event such representation or warranty shall be true and
correct as of such date), subject to such immaterial additions, deletions and
modifications to the Schedules to this Agreement between the date of this
Agreement and the Closing Date.
6.2 Covenants Performed. Seller shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by Seller
on or before the Closing Date.
6.3 No Material Adverse Change. There shall not have been any material
adverse change in the business, financial condition, results of operations or
prospects of the Business, and Seller shall not have sustained any material loss
or damage to all or any material portion of the Transferred Assets, whether or
not insured.
6.4 Officers' Certificates. Parent shall have received a certificate,
dated the Closing Date, signed by an authorized officer of Seller certifying
that the conditions set forth in Sections 6.1, 6.2, 6.3 and 6.6 have been
fulfilled.
6.5 Absence of Litigation. No action, suit or proceeding before any
court or any governmental body or authority pertaining to the transactions
contemplated by this Agreement or their consummation shall have been instituted
or threatened on or before the Closing Date.
6.6 Necessary Consents. All necessary agreements and consents of any
third parties required to be obtained by Seller for the consummation of the
transactions contemplated by this Agreement shall have been obtained by Seller
and delivered to Parent.
6.7 Management Agreement. Seller shall have executed and delivered to
Parent the Management Agreement in the form attached hereto as Exhibit A.
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6.8 Parent Stockholder Approval. The Parent Stockholder Approval shall
have been obtained.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate the Closing contemplated by
this Agreement are subject to the satisfaction, or waiver in writing by Seller,
at or before the Closing, of each of the following conditions:
7.1 Representations True and Correct. All representations and
warranties made by Parent in this Agreement, or in any written statement
delivered by Parent under this Agreement, shall be true and correct on the date
hereof and on and as of the Closing Date as though made on such date (unless
such representation or warranty speaks only as of a certain date, in which event
such representation or warranty shall be true and correct as of such date),
subject to such immaterial additions, deletions and modifications to the
Schedules to this Agreement between the date of this Agreement and the Closing
Date.
7.2 Covenants Performed. Parent shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by Parent
on or before the Closing Date.
7.3 No Material Adverse Change. There shall not have been any material
adverse change in the business, financial condition, results of operations or
prospects of Parent; provided that the determination after the date hereof by
any governmental agency or authority that such agency or authority will not
consider or permit lottery tickets to be sold on websites of Parent or Buyer, or
over the Internet generally, shall not constitute such a material adverse
change.
7.4 Officers' Certificate. Seller shall have received a certificate,
dated the Closing Date, signed by an authorized officer of Buyer certifying that
the conditions set forth in Sections 7.1, 7.2, 7.3, 7.6 and 7.9 have been
fulfilled.
7.5 Absence of Litigation. No action, suit or proceeding before any
court or any governmental body or authority pertaining to the transactions
contemplated by this Agreement or their consummation shall have been instituted
or threatened on or before the Closing Date.
7.6 Necessary Consents. All necessary agreements and consents of any
third parties required to be obtained by Parent or Buyer for the consummation of
the transactions con-
27
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templated by this Agreement shall have been obtained by Parent and Buyer and
delivered to Seller.
7.7 Registration Rights Agreement. Parent and Buyer shall have duly
executed and delivered to Seller the Registration Rights Agreement in the form
attached hereto as Exhibit B.
7.8 Management Agreement. Parent and Buyer shall have executed and
delivered to Seller the Management Agreement in the form attached hereto as
Exhibit A.
7.9 Parent Stockholder Approval. The Parent Stockholder Approval shall
have been obtained.
ARTICLE VIII
THE CLOSING
8.1 The Closing. Subject to satisfaction or waiver of the conditions
precedent to obligations of the parties hereto, the purchase and sale of the
Transferred Assets (the "Closing") shall take place at the offices of ▇▇▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ at 10:00 a.m. local time,
on a day to be agreed by Parent and Seller as soon as practicable after the
conditions set forth in Articles VI and VII have been satisfied or waived, or at
such other time and place as the parties may agree (the "Closing Date").
8.2 Deliveries at the Closing. At the Closing: (i) Seller will deliver
the certificates and documents to be delivered by it pursuant to Article VI;
(ii) Parent will deliver the certificates and documents to be delivered by them
pursuant to Article VII; (iii) Seller will execute, acknowledge and deliver to
Buyer assignments and bills of sale and such other instruments of sale,
transfer, registration, conveyance and assignment as Buyer may reasonably
request in form and substance reasonably satisfactory to Buyer; and (iv) Parent
shall issue and deliver to Seller certificates representing the shares of Parent
Common Stock and one share of the Parent Series A Preferred Stock as
contemplated by Section 2.4(a).
ARTICLE IX
INDEMNIFICATION AND SURVIVAL
9.1. Indemnification by Seller. Subject to Sections 9.3 and 9.4, Seller
will indemnify and hold Parent harmless against any and all Losses to which
Parent becomes subject or
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which Parent suffer or incur, insofar as such Losses arise out of or result from
(a) any liability, obligation or commitment of Seller, (b) the inaccuracy of any
representation or warranty of Seller contained herein, (c) the breach of any
covenant of Seller contained herein, or (d) any failure to comply with any bulk
transfer or similar law in connection with the transactions contemplated hereby.
As used herein, "Losses" means losses, liabilities, claims, damages and expenses
(including reasonable attorneys' fees and costs of investigation), whether or
not involving a third party claim; provided that Losses shall not include any
consequential, special, multiple, punitive or exemplary damages, including, but
not limited to, damages arising from loss of profits, business interruption or
goodwill, except to the extent resulting from third party claims.
9.2. Indemnification by Parent. Subject to Sections 9.3 and 9.4, Parent
will indemnify and hold Seller harmless against any and all Losses to which
Seller becomes subject or which Seller suffers or incurs, insofar as such Losses
arise out of or result from (a) the inaccuracy of any representation or warranty
of Parent contained herein, (b) the breach of any covenant of Parent contained
herein, (c) except for matters as to which Buyer is entitled to indemnification
pursuant to Section 9.1, the operations of the Business or the use of the
Transferred Assets subsequent to the Closing Date or (d) any liability,
obligation or commitment of Parent.
9.3. Limitations on Liability.
(a) The representations, warranties, covenants and agreements
of the parties shall survive the Closing and any investigation by the parties.
Any claim by any party with respect to any representation or warranty by another
party for indemnification must be made by written notice given within
twenty-four (24) months after the Closing Date.
(b) Seller will have no obligation to indemnify Parent for any
Losses pursuant to clause (b) of Section 9.1, except to the extent that such
Losses, taken together, exceed one hundred thousand dollars ($100,000), and then
only to the extent of such excess. In no event shall Seller be liable for
aggregate Losses under Section 9.1(b) of more than one million dollars
($1,000,000).
9.4. Indemnification Procedure. Promptly after receipt by any
indemnified party of notice of the commencement of any action, proceeding, or
claim in respect of which the indemnified party intends to seek indemnification
pursuant to Section 9.1 or 9.2, the indemnified party shall notify the
indemnifying party in writing; provided that the omission to so notify shall not
relieve the indemnifying party of its indemnification obligations except to the
extent the indemnifying party is materially prejudiced thereby. The indemnifying
party shall be entitled to assume control of the defense of such action or claim
with counsel reasonably satisfactory to the indemnified party; provided,
however, that:
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(i) the indemnified party shall be entitled to participate in
the defense of such claim and to employ counsel at its own expense to
assist in the handling of such claim;
(ii) no indemnifying party shall consent to the entry of any
judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by each claimant or plaintiff to
the indemnified party of a release from all liability in respect of
such claim or if, pursuant to or as a result of such consent or
settlement, injunctive or other equitable relief would be imposed
against the indemnified party or such judgment or settlement could
materially interfere with the business, operations or assets of the
indemnified party; and
(iii) after written notice by the indemnifying party to the
indemnified party of its election to assume control of the defense of
any such action in accordance with the foregoing provisions, the
indemnifying party shall not be liable to such indemnified party
hereunder for any legal fees, costs and expenses subsequently incurred
by such indemnified party in connection with the defense thereof.
If the indemnifying party does not assume control of the defense of
such claim in accordance with the foregoing provisions, the indemnified party
shall have the right to defend such claim in such manner as it may deem
appropriate at the reasonable cost and expense of the indemnifying party, and
the indemnifying party will promptly reimburse the indemnified party therefore
in accordance with this Section 9.4; provided that the indemnified party shall
not be entitled to consent to the entry of any judgment or enter into any
settlement of such claim without the prior written consent of the indemnifying
party (not to be unreasonably withheld).
9.5. Exclusive Remedies. If the Closing occurs, then the remedies
provided in this Article IX shall constitute the sole and exclusive remedies
with respect to all claims for breach of any representation or warranty
contained in this Agreement, except for fraud or other willful dishonesty.
Notwithstanding the foregoing, the provisions of this Article IX shall not
affect the rights of any party hereto against any third party (including a third
party whose claim against a party hereto is the basis of a claim for
indemnification) and shall not inure to the benefit of any third party.
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ARTICLE X
OBLIGATIONS OF PARTIES AFTER CLOSING
10.1 Further Assurances. At the request of Buyer, and without further
consideration, Seller agrees to execute after the Closing Date such documents
and instruments and to do such further acts as may be reasonably necessary or
desirable to perfect Buyer's title to the Transferred Assets.
10.2 Tax Returns. To the extent that failure to do so would adversely
affect the Transferred Assets, Seller shall (i) continue to timely file within
the time period for filing, or any applicable extension granted with respect
thereto, all Federal, state, local and other Returns relating to any and all
Taxes it is required to file with respect to the conduct of the Business or the
use of the Transferred Assets prior to the Closing Date and (ii) be responsible
for and pay when due any and all Taxes (A) relating or pertaining to the period
(or that portion of any period) ending on or prior to the Closing Date,
attributable to, levied or imposed upon, or incurred in connection with the
Transferred Assets and (B) incurred in connection with the operations of Seller.
10.3 Post-Closing Date Access to Information. If after the Closing, in
order properly to prepare documents or reports required to be filed with
governmental authorities or its financial statements, it is necessary that Buyer
be furnished with additional information relating to the Transferred Assets and
such information is in possession of Seller, Seller will use its reasonable
efforts to furnish, or cause to be furnished, such information to Buyer.
10.4 Board Observer. Until the later of September 30, 2002 or such time
as Seller shall own less than twenty percent (20%) of the outstanding Parent
Common Stock, Seller shall be entitled to designate one (1) individual
reasonably acceptable to Parent (such designee, a "Board Observer") who shall be
entitled to notice of, to attend and to any documentation distributed to members
before, during or after, all meetings (including any action to be taken by
written consent) of the Board of Directors of Parent; provided, however, that
Parent reserves the right to withhold any information and to exclude such Board
Observer from any meeting or portion thereof (so long as Parent notifies the
Board Observer of such withholding and of any action taken by the Board as a
result of such meeting) if access to such information or attendance at such
meeting would, (i) in the judgment of Parent's counsel, adversely affect the
attorney-client privilege between Parent and its counsel or cause the Board to
breach its fiduciary duties, or (ii) in the good faith determination of a
majority of the Board, result in a conflict of interest with Parent. Parent will
use its best efforts to ensure that any withholding of information or any
restriction on attendance is strictly limited only to the extent necessary set
forth in the preceding sentence. The Board Observer shall not be (a) permitted
to vote at any meeting of the Board or (b) counted for purposes of determining
whether there is suffi-
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cient quorum for the Board to conduct its business. Seller may replace the Board
Observer with or without cause in its sole discretion by providing written
notice to Parent at least five (5) days prior to any such action taking effect.
10.5 Participation Rights. Each time Parent proposes to offer any
Additional Stock for cash, Parent shall first make an offering of such
Additional Stock to Seller in accordance with the following provisions:
(a) Parent shall deliver a written notice to Seller stating
(i) its bona fide intention to offer such Additional Stock, (ii) the
number of shares such Additional Stock to be offered and (iii) the
price and terms, if any, upon which it proposes to offer such
Additional Stock.
(b) Within five (5) days after delivery of such notice, Seller
may elect to purchase or obtain, at the price and on the terms
specified in the notice, up to that portion of such Additional Stock
which equals the proportion that the number of shares of Parent Common
Stock owned by Seller bears to the total number of shares of Parent
Common Stock then outstanding. Such purchase shall be completed at the
same closing as that of any third party purchasers.
(c) Parent may, during the sixty (60) day period following the
expiration of the period provided in Section 10.5(b) hereof, offer the
remaining unsubscribed portion of the additional Stock to any person or
persons at a price not less than, and upon terms no more favorable to
the offeree than, those specified in the notice. If Parent does not
enter into an agreement for the sale of the Additional Stock within
such period, or if such agreement is not consummated within sixty (60)
days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Additional Stock shall not be offered
unless first reoffered to Seller in accordance herewith.
(d) The covenants set forth in this Section 10.5 shall
terminate and be of no further force or effect on later of September
30, 2002 or such time as Seller shall own less than twenty percent
(20%) of the outstanding Parent Common Stock.
10.6 DCC Put Right.
(a) Within thirty (30) days following the sale by Parent of
all or substantially all of the voting capital stock of DCC owned by Parent as
of the date of this Agreement, Parent shall deliver written notice to Seller
setting forth the amount of Net Cash Proceeds from such sale and offering to
utilize the lesser of twenty percent (20%) or two million dollars ($2,000,000)
of such Net Cash Proceeds to purchase from Seller shares of Parent Common Stock
acquired by Seller pursuant to this Agreement or the Strategic Cooperation
Agreement (as amended) at a purchase price of thirty cents ($0.30) per share of
Parent Common Stock.
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(b) If Seller wishes to accept such offer in whole or in part,
it must provide written notice thereof to Parent within five (5) days of receipt
of Parent's notice of such sale. If Seller rejects such offer or does not
respond within such five (5) day period, Seller shall have no further rights
with respect to such Net Cash Proceeds. If Seller validly accepts such offer,
the closing of the sale of such shares of Parent Common Stock shall occur at a
time and place mutually acceptable to Parent and Seller. At such closing, Parent
shall deliver the purchase price by wire transfer to an account described in
writing by Seller, and Seller shall deliver certificates representing the shares
of Parent Common Stock to be sold, free and clear of all liens, together with
stock powers duly executed in blank.
10.7 Standstill.
(a) Seller agrees that until (i) September 30, 2002 and (ii)
during any period of time as Seller beneficially owns at least twenty seven and
one-half percent (27.5%) of the outstanding Parent Common Stock, Seller shall
not, and shall cause its affiliates not to: (A) in any manner acquire, agree to
acquire or make any proposal to acquire, directly or indirectly, by means of
purchase, merger, business combination or in any other manner, beneficial
ownership of any securities or property of Parent or any of its subsidiaries
(other than the shares of Parent Common Stock issuable under this Agreement and
the Strategic Cooperation Agreement (as amended)), provided that after the total
number of shares issuable to Seller pursuant to Section 2.4 of this Agreement
have been issued, Seller may purchase additional shares of Parent Common Stock,
provided that after any such purchase Seller would beneficially own less than
35% of the outstanding shares of Parent Common Stock, (B) make, or in any way
participate, directly or indirectly, in any "solicitation" of "proxies" (as such
terms are used in the proxy rules of the Securities and Exchange Commission) to
vote, or seek to advise or influence any person with respect to the voting of,
any voting securities of Parent or any of its subsidiaries, (C) form, join or in
any way participate in a "group" (within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) with respect to any voting
securities of Parent or any of its subsidiaries, (D) otherwise act, alone or in
concert with others, to seek to control the management, Board, governing
instruments, policies or affairs of Parent, (E) make any public disclosure, or
take any action that could require Parent to make any public disclosure, with
respect to any of the matters set forth in this Section 10.7, (F) disclose any
intention, plan or arrangement inconsistent with the foregoing or (G) advise,
assist or encourage any other persons in connection with any of the foregoing.
Nothing contained in this Section 10.7(a) shall be construed to prevent Seller
from voting its shares of Parent Common Stock that were previously issued to
Seller with respect to any matter submitted to a shareholder vote. If Seller's
beneficial ownership of shares of Parent Common Stock increases to a percentage
equal to or greater than thirty five percent (35%) as a result of a decrease in
the number of outstanding shares of Parent Common Stock, such increase shall not
be deemed to be a violation of clause (A) above, and Seller shall not be
required to dispose of shares of Parent Common Stock by reason of such increase.
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(b) If any person (other than (i) Seller or any of its
affiliates, (ii) any group within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, as amended, of which Seller or any of its affiliates is a
member, or (iii) any person who acquires any such outstanding Parent Common
Stock through any action benefiting, or after receiving information provided to,
directly or indirectly, such person in a manner constituting a violation by
Seller of any of the provisions of this Section 10.7 or any confidentiality
provisions in this Agreement or in the Strategic Cooperation Agreement (as
amended)) acquires beneficial ownership of a majority of the outstanding Parent
Common Stock or if Parent sells all or substantially all of its assets this
section 10.7 shall terminate.
10.8 Authorized Shares. Parent agrees that it shall not increase the
number of authorized shares of Parent Common Stock to an amount greater than one
hundred and seventy million (170,000,000) shares prior to December 31, 2002.
ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated:
(a) By mutual agreement by Parent, Buyer and Seller;
(b) By Parent and Buyer if the conditions precedent to their
obligation to close set forth in Article VI hereof are not satisfied on
or prior to June 30, 2002; or
(c) By Seller if the conditions precedent to Seller's
obligation to close set forth in Article VII hereof are not satisfied
on or prior to June 30, 2002.
11.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 11.1 above, this Agreement shall (except for
the provisions of this Article XI and Article XII) forthwith become void, and
there shall be no liability on the part of Parent, Buyer or Seller; provided,
however, that the foregoing shall not relieve any party for Losses incurred as a
result of any breach of this Agreement.
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ARTICLE XII
CONFIDENTIALITY
12.1 Confidentiality. All information not previously disclosed to the
public or generally known to persons engaged in the respective businesses of
Parent and Seller which shall have been furnished by Parent to Seller or by
Seller to Buyer as provided in this Agreement or otherwise in connection with
the transactions contemplated hereby shall not be disclosed by the party
receiving such information to any person, other than its employees, legal
counsel, financial advisers, accountants or agents in confidence, or used for
any purpose other than is contemplated herein; provided, however, that Seller
shall be entitled to include information with respect to the transactions
contemplated by this Agreement in a registration statement under the Securities
Act of 1933, as amended, to the extent such information is required to be
included therein pursuant to the rules and regulations of the Securities
Exchange Commission. In the event that as transactions contemplated by this
Agreement shall not be consummated, all such information which shall be in
writing shall be returned to the party furnishing the same, including, to the
extent reasonably practicable, all copies or reproductions thereof which may
have been prepared.
12.2 Public Announcements. Except as required by applicable law, no
party hereto shall disclose, or permit their respective officers,
representatives, agents or employees to disclose, the existence or terms of this
Agreement to any third party without the prior written consent of the other
parties, which consent shall not be unreasonably withheld or delayed. The
parties hereto will mutually agree in advance on the form, timing and contents
of announcements and disclosures regarding the transactions contemplated by this
Agreement.
ARTICLE XIII
GENERAL PROVISIONS
13.1 Broker or Finder. Seller shall pay the fees of any brokers or
finders alleged to be payable because of any act, omission or statement of
Seller or its affiliates. Parent shall pay the fees of any broker or finders
alleged to be payable because of any act, omission or statement of Parent or its
affiliate (including Buyer).
13.2 Payment of Costs. Parent shall pay all costs and expenses incurred
or to be incurred by Parent and Buyer in negotiating and preparing this
Agreement and in closing the transactions referred to in this Agreement. Seller
shall pay all such costs and expenses incurred
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or to be incurred by Seller in negotiating and preparing this Agreement and in
closing the transactions referred to in this Agreement.
13.3 Entire Agreement; Waivers.
(a) This Agreement and the exhibits and schedules hereto
constitute the entire agreement between the parties pertaining to the subject
matter hereof. No supplement, modification or amendment of this Agreement shall
be binding unless executed in writing by all the parties. No waiver of any of
the provisions of this Agreement shall be deemed, or shall constitute, a waiver
of any other provision, whether or not similar, nor shall any waiver constitute
a continuing waiver. No waiver shall be binding unless executed in writing by
the party making the waiver.
(b) Each of the exhibits and schedules attached to this
Agreement is incorporated herein by reference as if set forth in full herein.
13.4 Successors and Assigns. This Agreement shall be binding on, and
shall inure to the benefit of, the parties to it and their respective permitted
successors and assigns.
13.5 Effect of Headings. The subject headings of the paragraphs and
subparagraphs of this Agreement are included for purposes of convenience only,
and shall not affect the construction of any of its provisions.
13.6 Notices.
(a) A notice required or permitted to be given by one party to
another under this Agreement must be in writing and is treated as being duly
given if it is: (i) sent by air courier to that other party's address; (ii)
delivered personally or by commercial delivery service to that other party's
address; (iii) mailed by registered or certified mail (return receipt requested)
to that other party's address; or (iv) sent by facsimile to the other party
(with printed acknowledgment of completed transmission).
(b) A notice given to a party in accordance with clause
13.6(a) is treated as having been duty given and received: (i) when delivered
(if left at that party's address or delivered personality or by commercial
delivery service to that other party's address); (ii) two (2) business days
after delivery to the courier (if sent by air courier); or (iii) on the business
day of receipt of the transmission (if given by facsimile and sent to the
facsimile receiver number of that party with printed acknowledgment of completed
transmission).
To Parent: eLOT, INC.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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Attention: ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To Buyer: PlasmaNet, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: Hall ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may change its address for purposes of this paragraph by giving notice
of the new address to each of the other parties in the manner set forth above.
13.7 Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York applicable to agreements
made and to be performed wholly within such jurisdiction without regard to the
conflicts of laws provisions thereof. Each of the parties agrees to personal
jurisdiction in any action brought in any court, Federal or State, within the
City of New York, State of New York having subject matter jurisdiction over
matters arising under this Agreement. Any suit, action or proceeding arising out
of or relating to this Agreement shall only be instituted in a Federal or State
court located in the City of New York, State of New York. Each party waives any
objection which it may have now or hereafter to the laying of the venue of such
suit, action or proceeding, and irrevocably submits to the jurisdiction of any
such court in any such suit, action or proceeding.
13.8. Waiver of Jury Trial. Each party hereby irrevocably waives all
right to trial by jury in any action, proceeding or counterclaim (whether based
on contract, tort or otherwise)
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arising out of or relating to this Agreement or the actions of the parties in
the negotiations, administration, performance and enforcement thereof.
13.9 Parties in Interest. Nothing in this Agreement, express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective and
permitted successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
party to this Agreement, nor shall any provision give any third persons any
right of subrogation or action against any party to this Agreement.
13.10 Severability. Should any provision of this Agreement be
determined to be invalid, it shall be severed from this Agreement and the
remaining provisions shall remain in full force and effect.
13.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
13.12 Attorneys' Fees. Should it become necessary for any party to this
Agreement to employ an attorney (i) to assert any right or enforce any
obligation under this Agreement or (ii) to defend against any action brought by
another party which action arises out of this Agreement, then the prevailing
party shall be entitled to recover reasonable attorneys' fees from the
nonprevailing party.
13.13 Assignment. Seller shall not assign this Agreement without first
obtaining the written consent of Parent. Parent may not assign its rights
hereunder without the consent of Seller.
13.14 Disclosure on Schedules. Any item disclosed in a Schedule
attached hereto in response to one section or subsection of this Agreement shall
be deemed disclosed in response to any other section or subsection in which it
is required to be disclosed provided that such disclosure for one section or
subsection would be sufficient for the purpose of disclosure for such other
section or subsection.
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IN WITNESS WHEREOF, the parties to this Agreement have duly executed it
on the day and year first above written.
eLOT, INC.
By:
-----------------------------------------
Title:
PLASMANET, INC.
By:
-----------------------------------------
Title:
