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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
SECURITIES EXCHANGE ACT OF 1934
---------------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 12, 1996
THE FOREFRONT GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-27438 76-0365256
(STATE OR OTHER JURISDICTION (COMMISSION FILE NO.) (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
1330 POST OAK BOULEVARD, SUITE 1300
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 961-1101
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
1360 POST OAK BOULEVARD, SUITE 1600
HOUSTON, TEXAS 77056
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 12, 1996, The ForeFront Group, Inc. ("ForeFront" or the "Company")
consummated the acquisition (the "Transaction") of substantially all of the
assets of Bookmaker Corporation ("Bookmaker") pursuant to the terms of an Asset
Purchase Agreement dated as of June 12, 1996 (the "Purchase Agreement") by and
among the Company, Bookmaker and Martin Mazner, Hal Schectman and Chris
Kirkpatrick, (collectively, the "Stockholders"). Pursuant to the Purchase
Agreement, Bookmaker received an aggregate of 248,375 shares of common stock,
$.01 par value of the Company ("ForeFront Common Stock"), ten percent of which
was placed in escrow to satisfy claims of the Company that may arise for any
breach of the representations and warranties made by Bookmaker and the
Stockholders in the Purchase Agreement. An additional 115,129 and 84,133 shares
of ForeFront Common Stock ("Earnout Shares") were deposited in escrow and will
be issued to Bookmaker or its stockholders based upon the accomplishment of
certain revenue and profit milestones by Bookmaker during the remainder of 1996
and 1997, respectively. Failure to meet such milestones will cause some or all
of such Earnout Shares to be forfeited. In addition, the Company assumed
certain liabilities of Bookmaker. The purchase price was determined through
negotiations between the Company and representatives of Bookmaker. In
connection with the Transaction, the Company entered into customary employment
and non-competition agreements with the Stockholders.
The shares of ForeFront Common Stock were issued to Bookmaker pursuant to
an exemption from registration under the Securities Act of 1933, as amended (the
"Securities Act"). The Company has agreed to use its best efforts to file a
registration statement with the Securities and Exchange Commission within 120
days of the closing of the Transaction relating to the sale by Bookmaker and its
stockholders from time to time of the shares of ForeFront Common Stock received
by them in connection with the Transaction, and to keep such registration
statement effective for a period of thirty months from the consummation of the
Transaction (or, subject to certain exceptions, such shorter period of time as
such shares of ForeFront Common Stock shall be deemed "restricted securities"
under Rule 144 promulgated under the Securities Act). Bookmaker and its
stockholders have also been granted certain other piggyback registration rights
under certain circumstances.
Bookmaker develops, produces and sells software products, including
products that allow a user to download and print information in booklet form
from the Internet and intranets. ForeFront is engaged in the business of
developing, marketing and supporting client, server and integrated application
software products that enable the capture, organization and exchange of
information over the Internet and private computer networks.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired. It is impracticable for
ForeFront to provide the required financial statements of Bookmaker at this
time. ForeFront will file the required financial statements as soon as
practicable.
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(b) Pro Forma Financial Information. It is impracticable for ForeFront to
provide the required the pro forma financial information at this time.
ForeFront will file the required pro forma financial information as soon as
practicable.
(c) Exhibits.
99.1 Asset Purchase Agreement among The ForeFront Group, Inc., Bookmaker
Corporation, Martin Mazner, Hal Schectman and Chris Kirkpatrick, dated
June 12, 1996.
99.2 Escrow Agreement, dated as of June 12, 1996, by and among The
ForeFront Group, Inc., Bookmaker Corporation, Martin Mazner, Hal Schectman,
Chris Kirkpatrick and Texas Commerce Bank, N.A.
99.3 Registration Rights Agreement, dated as of June 12, 1996, by and
among The ForeFront Group, Inc. and Bookmaker Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE FOREFRONT GROUP, INC., a
Delaware corporation
[Signature of Ernest D. Rapp
appears here]
By: ------------------------------------
Name: Ernest D. Rapp
Title: Chief Financial Officer
June 27, 1996
3
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EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------ -------------------- ------
<S> <C>
99.1 Asset Purchase Agreement among The ForeFront
Group, Inc. Martin Mazner, Hal Schectman,
Chris Kirkpatrick and Bookmaker Corporation,
dated June 12, 1996.
99.2 Escrow Agreement, dated as of June 12, 1996,
by and among The ForeFront Group, Inc.,
Bookmaker Corporation, Martin Mazner, Hal
Schectman, Chris Kirkpatrick and Texas
Commerce Bank, N.A.
99.3 Registration Rights Agreement, dated as of
June 12, 1996, by and among The ForeFront
Group, Inc. and Bookmaker Corporation.
</TABLE>
- 4 -
<PAGE>
ASSET PURCHASE AGREEMENT
AMONG
THE FOREFRONT GROUP, INC.,
MARTIN MAZNER
HAL SCHECTMAN
CHRIS KIRKPATRICK
AND
BOOKMAKER CORPORATION
DATED: JUNE 12, 1996
<PAGE>
TABLE OF CONTENTS
ASSET PURCHASE AGREEMENT
Page
----
ARTICLE I
GENERAL
<TABLE>
<CAPTION>
<C> <S> <C>
1.1 Certain Definitions............................................. 1
1.2 Agreement to Purchase and Sell.................................. 2
1.3 Purchase Price.................................................. 5
1.4 Payment of Purchase Price....................................... 7
1.5 Assumption of Liabilities....................................... 8
1.6 Instruments of Transfer; Further Assurances..................... 10
1.7 Value Assigned to the Assets.................................... 10
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Sellers....................... 10
2.2 Representations and Warranties of Purchaser..................... 29
ARTICLE III
CONDUCT AND TRANSACTIONS PRIOR TO CLOSING
3.1 Access to Records and Properties; Confidentiality............... 31
3.2 Operation of Seller Corp........................................ 32
3.3 Consents........................................................ 33
3.4 No Public Announcements or Negotiation with Others.............. 34
3.5 Best Efforts to Satisfy Conditions.............................. 34
3.6 Insurance....................................................... 34
3.7 Payment of Liabilities.......................................... 35
3.8 Change of Seller Corp.'s Name................................... 35
3.9 Tax Matters..................................................... 35
3.10 Tax Free Reorganization......................................... 36
3.11 Liquidation of Seller Corp...................................... 36
ARTICLE IV
CONDITIONS OF CLOSING
4.1 Conditions of Obligations of Purchaser.......................... 36
4.2 Conditions of Obligations of Sellers............................ 37
4.3 Opportunity to Cure............................................. 38
</TABLE>
i
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<TABLE>
<CAPTION>
<C> <S> <C>
ARTICLE V
CLOSING DATE AND TERMINATION OF AGREEMENT
5.1 Closing Date.................................................... 39
5.2 Termination of Agreement........................................ 39
ARTICLE VI
INDEMNIFICATION AND ESCROW
6.1 Survival of Representations and Warranties...................... 40
6.2 Indemnity....................................................... 40
6.3 Procedure....................................................... 41
6.4 No Third Party Beneficiaries.................................... 42
ARTICLE VII
MISCELLANEOUS
7.1 Further Actions................................................. 42
7.2 No Broker....................................................... 42
7.3 Expenses........................................................ 42
7.4 Entire Agreement................................................ 42
7.5 Descriptive Headings............................................ 43
7.6 Notices......................................................... 43
7.7 Governing Law................................................... 44
7.8 Assignability................................................... 44
7.9 Waivers and Amendments.......................................... 44
7.10 Third Party Rights.............................................. 44
7.11 Severability.................................................... 44
7.12 Counterparts.................................................... 44
7.13 Tax Effects of Transaction...................................... 44
7.14 Employees....................................................... 44
7.15 Access to Records............................................... 45
7.16 Disclosure...................................................... 46
</TABLE>
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Annex A - Definitions
- -------
Schedules
- ---------
Schedule 1.2(b)(1) Scheduled Leases
Schedule 1.2(b)(2) Fixtures and Improvements
Schedule 1.2(b)(3) Realty Rights
Schedule 1.2(b)(4) Equipment
Schedule 1.2(b)(5) Permits
Schedule 1.2(b)(6) Intangible Assets
Schedule 1.2(b)(8) Scheduled Contracts
Schedule 1.2(b)(10) Backlog Orders
Schedule 1.2(b)(12) Bank Accounts
Schedule 1.2(c) Excluded Assets
Schedule 1.5(a)(2) Certain Liabilities
Schedule 1.7 Value Assigned to Assets
Schedule 2.1(a) Jurisdictions Where Qualified to do Business
Schedule 2.1(b) Consents and Authorization
Schedule 2.1(c) Financial Statements
Schedule 2.1(d) Permitted Encumbrances
Schedule 2.1(e) Insurance Policies
Schedule 2.1(f) Claims, Actions, Suits or Proceedings
Schedule 2.1(i) Instruments
Schedule 2.1(j) Employee Plans and Agreements
Schedule 2.1(k) Labor and Employee Relations
Schedule 2.1(l) Material Adverse Changes
Schedule 2.1(n) Material Contracts
Schedule 2.1(p) Environmental
Schedule 2.1(s) Pricing
Schedule 2.1(u) Similar Names
Schedule 2.1(v) Customers and Suppliers
Schedule 2.1(w) Shareholders' Claims
Exhibits
- --------
Exhibit 1.2(e) Non-Competition Agreement
Exhibit 1.4(b) Escrow Agreement
Exhibit 1.6(1) General Conveyance, Transfer and Assignment
Exhibit 1.6(2) Assumption Agreement
Exhibit 3.1 Confidentiality Agreement
Exhibit 4.1(c) Seller's (R)Counsel Opinion
Exhibit 4.1(d)(1) Employment Agreement - Martin Mazner
Exhibit 4.1(d)(2) Employment Agreement - Hal Schectman
Exhibit 4.1(d)(3) Employment Agreement - Chris Kirkpatrick
Exhibit 4.1(e) Registration Rights Agreement
Exhibit 4.2(c) Purchaser's Counsel Opinion
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of this 12th day of June, 1996 by and among The ForeFront Group, Inc., a
Delaware corporation ("Purchaser"), having its principal place of business in
Houston, Texas, Martin Mazner ("Mazner"), Hal Schectman ("Schectman"), and Chris
Kirkpatrick ("Kirkpatrick"), individuals residing in California (together, the
"Shareholders"), and Bookmaker Corporation, a California corporation ("Seller
Corp"), having its principal place of business in Palo Alto, California (the
Shareholders and Seller Corp. being collectively referred to herein as
"Sellers").
WHEREAS, Purchaser is engaged in the business of developing, marketing and
supporting client, server and integrated applications software products that
enable the capture, organization and exchange of information over the Internet
and private computer networks;
WHEREAS, Seller Corp. is engaged in the business of developing, producing
and selling software products, including products that allow a user to download
and print information from the Internet and intranets;
WHEREAS, the Shareholders own in excess of forty percent (40%) of the
capital stock of Seller Corp., are the sole officers and are directors of Seller
Corp.;
WHEREAS, Seller Corp. desires to sell to Purchaser the business of Seller
Corp. as a going concern and together therewith all of the assets of Seller
Corp. (collectively, the "Business"), and Purchaser desires to purchase the
Business, upon the terms and conditions hereinafter set forth; and
WHEREAS, Seller Corp. and Purchaser desire that the transfer of assets
contemplated hereunder shall constitute a tax-free reorganization within the
meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, in consideration of the mutual benefits to be derived and
the representations and warranties, conditions and promises contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
GENERAL
-------
1.1 Certain Definitions. Capitalized terms used in this Agreement and not
otherwise defined herein shall have the respective meanings set forth in Annex A
hereto.
<PAGE>
1.2 Agreement to Purchase and Sell.
(a) Subject to the terms and conditions of this Agreement, Seller
Corp. agrees to sell, convey, transfer, assign and deliver to Purchaser, and
Purchaser agrees to purchase from Seller Corp., all of Seller Corp.'s assets,
rights, franchises and properties, whether now or hereafter existing or
acquired, on the Effective Time of Closing (which assets, rights, franchises and
properties are herein collectively referred to as the "Assets" and individually
referred to as an "Asset"), free and clear of all Liens other than Permitted
Encumbrances. The Assets shall include, without limitation, the Assets
described in Section 1.2(b); provided that the Assets shall not include any of
the Excluded Assets.
(b) The Assets shall include the following:
(1) Leased Property. The leasehold estates of Seller Corp. on which
the Business or any part thereof is conducted, including the leasehold estates
created and/or otherwise evidenced by, or described in, the leases described in
Schedule 1.2(b)(1) hereto (the "Scheduled Leases") and including all rights of
Seller Corp. pertaining to tenements, hereditaments, easements, rights-of-way
and rights of ingress or egress pertaining thereto (collectively, the "Leased
Property").
(2) Fixtures and Improvements. All of Seller Corp.'s estates,
rights, titles and interests in and to all structures, fixtures, construction in
progress, improvements, betterments, installations and additions constructed,
erected or located on or attached or affixed to the Leased Property
(collectively, the "Fixtures and Improvements"), including the leasehold
improvements and other items described in Schedule 1.2(b)(2) hereto.
(3) Realty Rights. All of Seller Corp.'s estates, rights, titles and
interests in and to all tenements, hereditaments, easements, rights-of-way,
rights, licenses, patents, rights of ingress and egress, reversionary interests,
privileges and appurtenances belonging, pertaining or relating to the Leased
Property, including, without limitation, the easements, rights-of-way and other
interests described in Schedule 1.2(b)(3) hereto, any and all of Seller Corp.'s
rights to the present or future use of wastewater, wastewater capacity,
drainage, water or other utility facilities relating to the Leased Property,
including, without limitation, all of Seller Corp.'s reservations of or
commitments or letters covering any such use in the future, whether now owned or
hereafter acquired, and the entire right, title and interest of Seller Corp., if
any, in, to and under all streets, ways, alleys, passages, strips, gores, pipes,
pipelines, sewers, sewer rights, ditches, waters, water courses, water rights
and powers, air rights, railroad sidings, minerals, mineral rights and mineral
interests adjoining, upon, above, in, under or pertaining to the Leased
Property, all of Seller Corp.'s options and rights to purchase or otherwise
acquire real property that is adjacent to or nearby the Leased Property, and all
claims or demands whatsoever of Seller Corp., either in law or in equity, with
respect to the Leased Property, including, without limitation, any unpaid awards
to be made relating thereto, including any unpaid awards or damages payable by
reason of damage thereto or by reason of a widening of any adjoining streets or
roads or a changing of the grade with respect to same (the "Realty Rights").
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(4) Equipment. All of Seller Corp.'s right, title and interest in and
to the furniture, fixtures, equipment, machinery, apparatus, tools, dies,
appliances, vehicles, implements, spare parts, supplies and all other tangible
personal property of every kind and description owned or leased by Seller Corp.
and located either on the Leased Property or elsewhere insofar as any of the
foregoing relates to the Business (collectively, the "Equipment"). The
Equipment includes, without limitation, all of the items listed in Schedule
1.2(b)(4) hereto.
(5) Permits. All right, title and interest of Seller Corp. in, to and
under all Permits relating to the Business or all or any of the Assets,
including those listed in Schedule 1.2(b)(5) hereto.
(6) Intangible Assets. All right, title and interest of Seller Corp.
in, to and under all (i) patents, trademarks, technology, know-how, data,
copyrights, trade names, service marks, licenses, trade secrets, software
programs, covenants by others not to compete, rights and privileges used in the
conduct of the Business and other intellectual property (collectively, the
"Intellectual Property"), (ii) the right to recover for infringement of any
Intellectual Property, and (iii) all goodwill associated with the Business in
connection with which any of the Intellectual Property is used (collectively,
the "Intangible Assets"). The Intangible Assets include, without limitation,
all of the items listed in Schedule 1.2(b)(6) hereto.
(7) Goodwill. The goodwill and going concern value of the
Business.
(8) Scheduled Contracts. All right, title and interest of Seller
Corp. in, to and under all operating leases and other contracts and agreements
(including, without limitation, employment agreements, if any), in any way
relating to the Business, including, without limitation, those described in
Schedule 1.2(b)(8) hereto (such scheduled leases, contracts and other
agreements, collectively, the "Scheduled Contracts") and all of Seller Corp.'s
rights (including, without limitation, rights of refund, rebate and offset),
privileges, deposits, claims, causes of action and options relating or
pertaining thereto or any thereof.
(9) Inventories. All of Seller Corp.'s inventories located either at
the location of the Business or elsewhere insofar as any of the foregoing
relates to the Business, including, without limitation, finished goods, work-in-
progress, raw materials, supply inventories, and other inventories (the
"Inventories").
(10) Backlog Orders. All of Seller Corp.'s orders and contracts for
products manufactured or services rendered by Seller Corp. which are (i)
accepted by Seller Corp. in the ordinary course of business prior to the
Effective Time of Closing or (ii) listed in Schedule 1.2(b)(10) hereto and, in
each case, not filled or performed prior to the Effective Time of Closing (the
"Backlog Orders").
(11) Accounts. All accounts receivable of Seller Corp. and all other
rights of Seller Corp. to payment for goods sold or leased or for services
rendered, including without limitation, those which are not evidenced by
instruments or chattel paper, whether or not they have been earned by
performance or have been written off or reserved against as a bad debt or
doubtful
3
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account in any Financial Statements; together with all instruments and all
documents of title representing any of the foregoing, all rights in any
merchandise or goods which any of the same represent, and all rights, title,
security and guaranties in favor of Seller Corp. with respect to any of the
foregoing, including, without limitation, any right of stoppage in transit
(collectively, the "Accounts").
(12) Cash and Bank Accounts. The bank accounts described on Schedule
1.2(b)(12) (including all cash on deposit in such accounts and uncleared
deposits in such accounts), the petty cash of Seller Corp., all temporary cash
investments and instruments representing same (including without limitation
marketable securities), and all other cash and cash equivalents of Seller Corp.
(13) Books and Records. All of Seller Corp.'s books, records, papers
and instruments of whatever nature and wherever located that relate to the
Business or the Assets or which are necessary or appropriate in order for
Purchaser to conduct the Business from and after the Effective Time of Closing
in the manner in which it is presently being conducted, including, without
limitation (to the extent the same exist), accounting and financial records,
personnel and labor relations records, sales and property tax records and
returns, sales records, customer lists and other customer data (including credit
data) and the supplier list and other supplier data relating to the purchase of
utilities and other supplies used in connection with the Business (the
"Records").
(14) Prepaid Expenses and Current Assets. All right, title and
interest of Seller Corp. in and to all prepaid rentals, other prepaid expenses,
bonds, deposits and financial assurance requirements, and other current assets
relating to any of the Assets or the Business, including without limitation, all
prepaid expenses of the nature described in the Interim Balance Sheet but
excluding any deferred income taxes and prepaid insurance premiums.
(15) Insurance Proceeds, Etc. All insurance proceeds and insurance
claims of Seller Corp. relating to all or any part of the Assets (except rebates
of insurance premiums in respect of periods prior to the Effective Time of
Closing, which rebates shall remain the property of Seller Corp.) and, to the
extent transferable, the benefit of and the right to enforce the covenants and
warranties, if any, that Seller Corp. is entitled to enforce with respect to the
Assets against Seller Corp.'s predecessors in title to the Assets.
(16) Computers. All right, title and interest of Seller Corp. in
computer equipment and hardware, including, without limitation, all central
processing units, terminals, disk drives, tape drives, electronic memory units,
printers, keyboards, screens, peripherals (and other input/output devices),
modems and other communication controllers, and any and all parts and
appurtenances thereto, together with all intellectual property owned by Seller
Corp. and used in the operation of such computer equipment and hardware,
including, without limitation, all software, all of Seller Corp.'s rights under
any licenses related to Seller Corp.'s use, at any time, of such computer
equipment, hardware or software, and all of Seller Corp.'s rights in leases
pursuant to which Seller Corp. leases any computer equipment, hardware or
software; insofar and only insofar as any of the foregoing relates to the
Business.
4
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(17) Name. All of Seller Corp.'s rights, title and interest in the
name "Bookmaker Corporation" and all related names.
(18) Telephone Numbers. All of Seller Corp.'s right to telephone
numbers used exclusively in the Business.
(19) Other Intangibles. All right, title and interest of Seller Corp.
in, to and under all rights, privileges, claims, causes of action, and options
relating or pertaining to the Business or the foregoing Assets.
(20) Other Property. All other or additional privileges, rights,
interests, properties and assets of Seller Corp. of every kind and description
and wherever located that are used or intended for use in connection with, or
that are necessary to the continued conduct of, the Business as presently being
conducted.
(c) The Assets shall not include any of the assets of Seller Corp., as
of the Effective Time of Closing, set forth on Schedule 1.2(c) hereto (the
"Excluded Assets").
(d) Seller Corp. agrees to assign to Purchaser, and Purchaser agrees
to assume, perform and discharge all of the liabilities, duties and obligations
of Seller Corp. which arise after the Effective Time of Closing under the
Scheduled Leases.
(e) The Sellers agree to enter into a non-competition agreement with
Purchaser in the form of Exhibit 1.2(e) hereto ("Non-Competition Agreement").
1.3 Purchase Price. (a) The purchase price (the "Purchase Price") for the
Assets shall be the sum of (i) a number of shares of the Common Stock of
Purchaser ("Purchaser Common Stock") equal to 248,375 shares (the "Closing
Shares"), which represents the sum of Three Million Dollars divided by Twelve
Dollars per share, less the amount of cash set forth on Schedule 1.2(c) and
withheld by Seller Corp. as Excluded Assets, payable as provided in Section 1.4,
(ii) subject to the terms of Section 1.3(b), a number of Shares (the "Earnout
Shares") of Purchaser Common Stock equal to Two Million Seven Hundred Thousand
Dollars ($2,700,000), determined and payable as provided in Section 1.4; and
(iii) the liabilities of Seller Corp. assumed by Purchaser under Section 1.5.
(b) Notwithstanding anything in Section 1.3(a) to the contrary, in the
event that (i) the Gross Revenue attributable to the Business purchased by
Purchaser for calendar year 1996 (provided that no more than $695,534 in Gross
Revenue shall be attributable to the period from January 1, 1996 through the May
31, 1996) and the PBIT attributable to the Business purchased by Purchaser for
the period from the Closing Date through December 31, 1996 are not equal to or
greater than the levels set out below for such periods (the "1996 Earnout
Period"), or (ii) the Gross Revenue and PBIT attributable to the Business
purchased by Purchaser for calendar year 1997 (the "1997 Earnout Period") are
not equal to or greater than the levels set out below for such period, then in
each such event a portion of the Purchase Price up to Two Million Seven Hundred
Thousand Dollars ($2,700,000), as set forth below, shall be subject to
adjustment and forfeiture as provided
5
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herein and the number of Earnout Shares issuable to Seller Corp. or its assigns
in payment of the Purchase Price pursuant to Section 1.4 shall be reduced
accordingly. The required levels of Gross Revenue and PBIT are as follows:
<TABLE>
<CAPTION>
PURCHASE PRICE FORFEITED ($000)
--------------------------------------------------
PBIT LESS THAN
REVENUE $100K BUT MORE PBIT MORE THAN
PERIOD ($ MILLION) PBIT LESS THAN $0 THAN $0 $100K
- ------ ----------- ----------------- --------------- --------------
<S> <C> <C> <C> <C>
1996/(1)/ 2.9 675 450 0
2.8 900 540 180
2.7 900 630 360
2.6 900 720 540
2.5 900 810 720
============================================================================
1997 8 1,800 1,800 0
7 1,800 1,800 225
6 1,800 1,800 450
5 1,800 1,800 630
4 1,800 1,800 1,350
</TABLE>
- -------------------
/(1)/ PBIT for 1996 shall be determined on the basis of the period from the
Closing Date through December 31, 1996.
(c) From the Closing Date through and including December 31, 1997,
Purchaser agrees that it will use its reasonable best efforts to conduct the
Business in a manner which is consistent with usual and customary practices and
with the manner in which the Business was conducted by Seller Corp. prior to
Closing, and that it will recognize revenue attributable to the products and
services acquired by Purchaser hereunder, allocate overhead, and take such other
actions with respect to the calculation of the Gross Revenue and PBIT milestones
as are usual and customary and in accordance with generally accepted accounting
principles ("GAAP"). Purchaser also agrees that, in connection with any
products purchased from Seller Corp. hereunder which are bundled with other
products of Purchaser, it will allocate the revenue attributable to such
products on the basis of: (i) for retail products, an agreed upon percentage no
less than the weighted average retail prices of the individual products of
Purchaser and Seller Corp. which are bundled together; and (ii) for other sales
including sales to original equipment manufacturers on such basis as agreed to
by the parties thereto or their assigns.
1.4 Payment of Purchase Price. (a) At the Closing, (i) subject to Section
1.5(d), Purchaser shall issue to Seller Corp. a stock certificate or stock
certificates as requested by Seller Corp. representing the Closing Shares and
(ii) Purchaser shall assume the Assumed Liabilities; provided that ninety
percent (90%) of the Closing Shares shall be delivered to Seller Corp. at the
Closing, and
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the remaining ten percent (10%) of the Closing Shares (the "Escrow Shares")
shall be delivered to the Escrow Agent at Closing and held by the Escrow Agent
in escrow (the "Escrow") pursuant to the terms of Article VI hereto and the
Escrow Agreement.
(b) At the Closing, Purchaser and Seller Corp. shall enter into that
certain Escrow Agreement in the form attached as Exhibit 1.4(b) (the "Escrow
Agreement"), and Purchaser shall issue to Seller Corp. a stock certificate for
115,129 shares of Purchaser Common Stock, representing that number of shares of
Purchaser Common Stock equal to One Million Five Hundred Sixty Thousand Dollars
($1,560,000) divided by $13.55 (the "Fixed Earnout Shares"), and (ii) a stock
certificate for 84,133 shares of Purchaser Common Stock, representing that
number of shares of Purchaser Common Stock equal to One Million One Hundred
Forty Thousand Dollars ($1,140,000) divided by $13.55 (the "Variable Earnout
Shares"). The Fixed Earnout Shares and the Variable Earnout Shares are
sometimes hereinafter collectively referred to as the "Earnout Shares." All of
the Earnout Shares shall be delivered to the Escrow Agent at the Closing to be
held in Escrow pursuant to the Escrow Agreement. One-third of the Fixed Earnout
Shares and the Variable Earnout Shares, less any Earnout Shares which have been
forfeited pursuant to Section 1.3(b) hereof, shall be released from Escrow by
the Escrow Agent on or before April 30, 1997, and two-thirds of the Fixed
Earnout Shares and the Variable Earnout Shares, less any Earnout Shares which
have been forfeited pursuant to Section 1.3(b) hereof, shall be released from
Escrow by the Escrow Agent on or before April 30, 1998; provided however, that
the number of Variable Earnout Shares which have been earned on such dates shall
be adjusted to be equal to (x) in the case of those shares issuable on or before
April 30, 1997, an amount equal to the result obtained by (i) multiplying the
difference between $900,000 and the amount of the Purchase Price forfeited for
such 1996 Earnout Period pursuant to Section 1.3(b) times a fraction, the
numerator of which is 1.14 and the denominator of which is 2.7, and (ii)
dividing the result obtained in (x)(i) by the average of the closing prices for
Purchaser Common Stock as reported on the Nasdaq Stock Market for the twenty
(20) trading days ending on December 31, 1996, and (y) in the case of those
shares issuable on or before April 30, 1998, an amount equal to the results
obtained by (i) multiplying the difference between $1,800,000 and the amount of
the Purchase Price forfeited for such 1997 Earnout Period pursuant to Section
1.3(b) times a fraction, the numerator of which is 1.14 and the denominator of
which is 2.7, and (ii) dividing the result obtained in (y)(i) by the average of
the closing prices for Purchaser Common Stock as reported on the Nasdaq Stock
Market for the twenty (20) trading day ending on December 31, 1997. Any Earnout
Shares which are forfeited pursuant to Section 1.3(b) shall reduce the number of
Fixed Earnout Shares and Variable Earnout Shares on a pro rata basis. Any
Earnout Shares which have not been delivered by the Escrow Agent to Seller Corp.
or its assigns at April 30, 1998 and with regard to which there is no dispute
among the parties, shall be returned to Purchaser pursuant to the terms of the
Escrow Agreement and canceled, and Seller Corp. and the Shareholders shall have
no further right, title or interest therein. Seller Corp. or its assigns shall
be entitled to direct the voting of all Earnout Shares held by the Escrow Agent,
and any dividends declared on the Purchaser Common Stock by Purchaser during the
time that such shares are held by the Escrow Agent shall be delivered to the
Escrow Agent and, upon delivery of Earnout Shares to Seller Corp., the
applicable dividend, if any, attributable to such Earnout Shares shall be
delivered to Seller Corp. Any dividends attributable to Earnout Shares which
were not delivered to Seller Corp. by the Escrow Agent by April 30, 1998 shall
be returned to Purchaser with the corresponding Earnout Shares.
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(c) Notwithstanding anything in Section 1.4(b) to the contrary, under
no circumstance shall the number of Earnout Shares delivered to Seller Corp. or
its assigns exceed the number of Closing Shares delivered or deliverable
hereunder.
1.5 Assumption of Liabilities.
(a) The sole liabilities assumed by Purchaser hereunder (the "Assumed
Liabilities") are:
(1) the rights and obligations of Seller Corp. to perform (i) the
Scheduled Contracts specifically set forth in Schedule 1.2(b)(9) to the extent
the Scheduled Contracts have not been performed at the Effective Time of Closing
and (ii) the Scheduled Leases specifically set forth in Schedule 1.2(b)(1) to
the extent the Scheduled Leases remain in effect at the Effective Time of
Closing;
(2) the liabilities of Seller Corp. at the Effective Time of Closing
(i) to the extent that such liabilities are reflected in the Interim Balance
Sheet or incurred in the ordinary course of the Business between the date of the
Balance Sheets and the Effective Time of Closing, not paid at the Effective Time
of Closing and which are listed on Schedule 1.5(a)(2) hereto, and (ii) to the
extent that such liabilities are not reflected on Schedule 1.5(a)(2), but were
incurred in the ordinary course of the Business between the date of the Balance
Sheets and the Effective Time of Closing, and are not paid at the Effective Time
of Closing in an amount not in excess of $1,000 per liability and $10,000 in the
aggregate (the parties hereto agree that, in determining whether one or more
liabilities are discrete or part of the same liability for purposes of this
section, any reasonable basis for distinction shall be employed); and
(3) all State sales Taxes resulting from the Transaction.
(b) Except as otherwise provided in Section 1.5(a), Purchaser does not
assume or agree to pay, perform or discharge, and shall not be responsible for,
any other liabilities or obligations of Seller Corp., whether accrued, absolute,
contingent or otherwise, including without limitation, liabilities or
obligations based on, arising out of or in connection with:
(1) any defects in Products manufactured or sold by Seller Corp.;
(2) defective performance of any Scheduled Contract by Seller Corp.
prior to the Effective Time of Closing or Seller Corp.'s defaults under any
Scheduled Lease prior to the Effective Time of Closing;
(3) any Federal, state, local, foreign or other net income, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, lease, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, customs, duties, or other
taxes, fees, assessments or charges of any nature whatsoever (including without
limitation interest, penalties, additions to tax, or additional amounts with
respect thereto) imposed by any law, rule or regulation (collectively, "Taxes")
which are attributable or relating to
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the assets or the business of Seller Corp. for any periods ending on or before
the Effective Time of Closing, or which may be applicable because of Seller
Corp's sale of the Business or any of the Assets to Purchaser (collectively,
"Tax Obligations") except for income Taxes payable by Purchaser and as otherwise
provided in Section 1.5(a)(3).
(4) any lease obligations or indebtedness of Seller Corp. (except as
provided in Section 1.5(a)(1);
(5) any claims by any of Seller Corp.'s directors, officers, employees
or shareholders relating to this Agreement or its performance or consummation,
or any claims by any of them relating to or arising out of (i) their employment
(including without limitation any modification or termination thereof) by Seller
Corp., (ii) any employment contract or (iii) any pension or other benefit
liabilities of Seller Corp.;
(6) any unlicensed or other unauthorized use by Seller Corp. prior to
the Effective Time of Closing of any patented or unpatented invention, trade
secret, copyright, trademark or other industrial property right;
(7) any dividend or other distribution declared or otherwise payable
by Seller Corp; or
(8) any note, account payable or other obligation to any Seller or any
Affiliate thereof.
(c) Except for those subsections in this Section 1.5 which provide for
direct payment or credit or earlier settlement and payment between the parties,
within five (5) working days following the Effective Time of Closing, Seller
Corp. and Purchaser shall undertake in good faith mutually to agree upon and
execute and deliver to each other a closing statement setting forth the
determination of the items to be prorated and accounted for hereunder, and the
net amount due, if any, to either Seller Corp. or Purchaser, as the case may be,
shall be paid within two (2) business days following the receipt of the final
closing statement by certified or bank cashier's check payable to the order of
the party entitled thereto. If the parties are unable within said five (5) day
period to agree upon the appropriate proration of or payment due for an item of
revenue or expense or other item pursuant to this Section 1.5, then the parties
shall employ the Houston, Texas office of Arthur Andersen LLP, or such other
nationally recognized accounting firm as may be selected by the parties, as
independent certified public accountants (the "Accountant"), to determine the
amount of the proration or payment as of the Effective Time of Closing
consistent with the provisions of this Agreement. The Accountant shall make
such determination as promptly as possible, and in no event later than forty-
five (45) days following such employment. The amount of the proration or payment
as of the Effective Time of Closing as determined by the Accountant shall be
final and binding upon the parties, each of whom hereby consents to the
procedure herein set forth. The Accountant's fees shall be evenly divided
between the parties.
(d) If the current liabilities as disclosed on the Financial
Statements and assumed by Purchaser hereunder is greater than the value of the
current assets as disclosed on the Financial
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Statements, then such excess liability amount shall be divided by the ForeFront
Stock Price (the "Excess Liability Amount"). The number of Shares to be issued
by Purchaser to Seller Corp. pursuant to Section 1.4 hereof shall be reduced by
the number of shares of Purchaser Common Stock equal to the Excess Liability
Amount.
1.6 Instruments of Transfer; Further Assurances. In order to consummate
the transactions contemplated hereby, at the Closing, Seller Corp. shall execute
and deliver to Purchaser a completed General Conveyance, Transfer and
Assignment, in the form attached as Exhibit 1.6(1) hereto ("General Conveyance,
Transfer and Assignment"), covering all of the Assets, and Purchaser shall
execute and deliver to Seller Corp. a completed Assumption Agreement, in the
form attached as Exhibit 1.6(2) ("Assumption Agreement"), covering the Scheduled
Contracts and Scheduled Leases. At the Closing, and at all times thereafter as
may be necessary, the parties shall execute (1) such other instruments of
transfer as shall be reasonably necessary or appropriate to vest in Purchaser
title to the Assets and to comply with the purposes and intent of this Agreement
and (2) such other instruments as shall be reasonably necessary or appropriate
to evidence the assignment by Seller Corp. of the Assets and assumption by
Purchaser of the Scheduled Contracts, the Scheduled Leases and certain other
liabilities to the extent provided in Section 1.5(a).
1.7 Value Assigned to the Assets. Purchaser and Sellers hereby agree on
the proportion of the consideration to be allocated to each of the Assets
purchased pursuant to this Agreement as shall have been proposed by Purchaser
and reasonably approved by Sellers, as set forth on Schedule 1.7 hereto, and
Purchaser and Sellers agree that they shall not thereafter take any position or
action inconsistent with such allocation in the filing of any federal income tax
returns.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Sellers. Sellers, jointly and
severally, represent and warrant to Purchaser that the following are true and
correct on and as of the date of this Agreement:
(a) Organization and Good Standing of Seller Corp. Seller Corp. is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and is qualified to transact business and is in good
standing as a foreign corporation in the jurisdictions (which are listed in
Schedule 2.1(a)) where it is required to qualify in order to conduct its
businesses as presently conducted except where the failure to be so qualified
would not have a Material Adverse Effect. Seller Corp. has the corporate power
and authority to own, lease or operate all properties and assets now owned,
leased or operated by it and to carry on its businesses as now conducted. Seller
Corp. has heretofore delivered to Purchaser complete and correct copies of its
Articles of Incorporation and Bylaws, as amended and in effect on the date
hereof.
(b) Consents, Authorizations and Binding Effect.
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(1) Sellers may execute, deliver and perform this Agreement (including
without limitation execution, delivery and performance of the Operative
Documents to which each of them is a party) without the necessity of any of
Sellers obtaining any consent, approval, authorization or waiver or giving any
notice or otherwise, except for such consents, approvals, authorizations,
waivers and notices:
(i) which have been obtained and are unconditional and are in full force
and effect and such notices which have been given;
(ii) which are described on Schedule 2.1(b); or
(iii) which, if not obtained, would not cause a Material Adverse Effect.
(2) Seller Corp. has the corporate power to enter into this Agreement
and to carry out its respective obligations hereunder. This Agreement has been
duly authorized, executed and delivered by Seller Corp. and constitutes the
legal, valid and binding obligation of Seller Corp., enforceable against it in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, reorganization, fraudulent conveyance, insolvency and similar
laws of general application relating to or affecting the enforcement of rights
of creditors or general principles of equity.
(3) The execution, delivery and performance of this Agreement by
Seller Corp. does not and will not:
(i) constitute a violation of its Articles of Incorporation, as amended, or
its Bylaws, as amended;
(ii) except as set forth herein or in the Operative Documents, result in
any Lien against the Assets;
(iii) constitute a material violation of any material statute, judgment,
order, decree or regulation or rule of any Governmental Body applicable or
relating to any of Sellers or the Assets or the Business; or
(iv) conflict with, or constitute a breach or default under, or give rise
to any right of termination, cancellation or acceleration under, any term or
provision of any material contract, agreement, lease, mortgage, deed of trust,
commitment, license, franchise, Permit, authorization or any other instrument or
obligation to which any of Sellers is a party or by which their respective
assets are bound, or an event which with notice, lapse of time, or both, would
result in any such conflict, breach, default or right other than
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those breaches, defaults or violations which Sellers shall have cured on or
before the Effective Time of Closing.
(4) Without limiting the foregoing, the execution, delivery and
performance of the Operative Documents, and consummation of the transactions
contemplated thereby, have been duly authorized and approved by the Board of
Directors and shareholders of Seller Corp. without dissent.
(c) Financial Statements, Etc.. The following unaudited financial
statements of Seller Corp. have been delivered to Purchaser and are attached as
Schedule 2.1(c):
(1) the unaudited consolidated balance sheet of Seller Corp. as of
December 31, 1995 (the "Unaudited Balance Sheet") and 1994 and the related
unaudited statements of operations, of stockholder's equity and of cash flows
for the three-year period ended December 31, 1995, together with related notes
and schedules, (such balance sheets, the related statements of operations, of
stockholder's equity and of cash flows, and the related notes and schedules
being hereinafter together referred to as the "Unaudited Financial Statements");
and
(2) the unaudited consolidated balance sheet of Seller Corp. as of May
31, 1996 (the "Interim Balance Sheet") and the related unaudited statements of
operations, of stockholder's equity and of cash flows for the five-month periods
then ended (together with related notes and schedules) (such balance sheets, the
related statements of operations, of stockholder's equity and of cash flows, and
the related notes and schedules being hereinafter together referred to as the
"Interim Financial Statements").
The Unaudited Financial Statements and the Interim Financial
Statements (collectively, the "Financial Statements"), including the related
notes and schedules, have been prepared from the books and records of Seller
Corp. in conformity with GAAP applied on a basis consistent with preceding years
and throughout the periods involved and present fairly the financial position of
Seller Corp. as of the dates of such statements, subject to year-end adjustments
made consistent with GAAP with respect to the Interim Financial Statements.
The trade accounts and other receivables of Seller Corp. which are
classified as current assets on the Unaudited Balance Sheet and the Interim
Balance Sheet (collectively, the "Balance Sheets") are bona fide receivables,
were acquired in the ordinary course of business, are stated in accordance with
GAAP and, subject to the reserve for doubtful accounts, need not be written-off
as uncollectible.
The inventories of Seller Corp. reflected on the Balance Sheets have
been valued in accordance with GAAP, and the value of obsolete materials and
materials of below standard quality has been written down or reserved against in
accordance with GAAP. There have been no write-ups of inventories or other
assets except as set forth in Schedule 2.1(c).
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The aggregate fair market value (on a going concern basis) of the
Equipment and Vehicles is at least equal to the aggregate net book value thereof
as set forth on the Interim Balance Sheet.
Seller Corp. has no liabilities of the type and in amounts required to
be reflected or disclosed in a balance sheet (or notes thereto) prepared in
accordance with GAAP other than:
(i) those set forth or reserved against in the Interim Balance Sheet;
(ii) those incurred since the date of the Interim Balance Sheet in the
ordinary course of business;
(iii) those disclosed on Schedule 2.1(c); and
(iv) those referred to in this Agreement or that exist by reason of this
Agreement, but only to the extent that the existence of such liabilities is
ascertainable solely by reference to this Agreement.
Seller Corp.'s books of account have been kept accurately in all
material respects in the ordinary course of business, the transactions entered
therein represent bona fide transactions, and the revenues, expenses, assets and
liabilities of Seller Corp. have been properly recorded in such books in all
material respects.
(d) Title and Condition of Assets. Seller Corp. has good and
indefeasible title to the real property (in fee simple), interests in real
property, and tangible and intangible personal property owned by it that
comprise the Assets, free and clear of Liens, other than: (1) Permitted
Encumbrances; or (2) Liens which will be released or discharged at or prior to
the Effective Time of Closing.
The tangible Assets (i) are in all material respects, in good
operating condition, order and repair, subject to ordinary wear and tear, and
have been maintained in accordance with standard industry practice, (ii) are
adequate for the purposes for which they are being used and are capable of being
used in the Business as presently being conducted without present need for
repair or replacement except in the ordinary course of the Business, and (iii)
conform in all material respects with all applicable legal requirements known to
Sellers. All of the plants, facilities, machinery and equipment constituting the
Assets have been and are now producing sound and merchantable Products and are
adequate and sufficient for all operations conducted by Seller Corp. in
substantially the same manner as conducted prior to Closing.
Since the date of the Unaudited Balance Sheet, Seller Corp. has not
sold, transferred, leased, distributed or otherwise disposed of any of its
assets, or agreed to do so except for sales of products and services in the
ordinary course of business or the disposition of immaterial assets in the
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ordinary course of business or which in the reasonable judgment of management
are not necessary or advisable to the efficient operations of Seller Corp.
All real and tangible personal property held by Seller Corp. under
lease is held under a valid and binding lease agreement that is in full force
and effect except as the enforceability thereof may be limited by bankruptcy,
reorganization, fraudulent conveyance, insolvency and similar laws of general
application relating to or affecting the enforcement of rights of creditors or
general principles of equity. Seller Corp. is not in default, and no notice of
alleged default has been received by Seller Corp., under any such lease and to
Sellers' knowledge no lessor is in default or alleged to be in default
thereunder. None of the assignable rights of Seller Corp. under any lease will
be materially impaired by the consummation of the transactions contemplated by
this Agreement, assuming that the consent of the lessor to the assignment of
each lease described on Schedule 2.1(b) is obtained.
Substantially all items of raw materials, work-in-process and finished
goods included in the Inventories are in such condition that they can be readily
converted into merchantable finished goods by industry standard processing
procedures currently used by Seller Corp., substantially all items of finished
goods are of good standard and merchantable quality, and none of the items is
obsolete or defective, except in each case for items which have been written off
and so reflected on the Interim Balance Sheet or for which reserves are provided
in the Interim Balance Sheet. The quantities of each category and type of the
Inventories not written off or reserved against are reasonable and warranted in
the present circumstances of Seller Corp. and are not excessive. The Assets
constitute all material assets and properties, real, personal, tangible and
intangible, that are owned, leased or licensed by Seller Corp. and necessary for
the continued conduct of the Business as presently being conducted except for
those sold or disposed of in the ordinary course of business.
Schedule 1.2(b)(12) hereto contains a true and correct list of the
names of each bank, savings and loan or other financial institution in which
Seller Corp. or subsidiary has an account, including cash contribution accounts,
safe deposit boxes and lock box arrangements, and the names of all Persons
authorized to draw thereon or to have access thereto.
The temporary cash investments reflected in the Balance Sheets have
maturities not more than twelve (12) months from the date of acquisition by
Seller Corp. and consist of: (i) securities issued or guaranteed or insured by
the U.S. or any agency or instrumentality thereof; (ii) time deposit
certificates of deposit and banker's acceptances of commercial banks organized
under the laws of the U.S. or any state thereof with total assets of more than
Fifty Million Dollars ($50,000,000); (iii) commercial paper issued by any Person
incorporated in the U.S. rated at least A-2 or the equivalent thereof by
Standard & Poors Corporation or at least A-2 or the equivalent thereof by
Moody's Investors Service; or (iv) shares of money market funds substantially
all of whose assets are comprised of securities and assets of the type described
in clauses (i) through (iii) above. To Sellers' knowledge, the issuers of such
investments are not in default in respect of any obligations in respect of
borrowed money.
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(e) Insurance. Schedule 2.1(e) contains a list of all policies of
insurance maintained as of the date of this Agreement by Seller Corp., including
without limitation insurance providing benefits for employees, in effect as of
the date of this Agreement. The insurance policies set forth on Schedule 2.1(e)
provide adequate coverage less deductibles against the risks involved in the
Business and operation of the Assets. No Seller has received notice from any
insurance carrier of the intention of such carrier to discontinue any insurance
coverage afforded to Seller Corp.
(f) Litigation and Compliance With Laws, Etc. There are no claims,
actions, suits or proceedings, whether in equity or at law, or governmental or
administrative investigations pending or, to the knowledge of any Seller,
threatened against Seller Corp. or any Asset, except: (1) as described on
Schedule 2.1(f) or as may arise with respect to any of the matters described
thereon; (2) for any claims, actions, suits or proceedings which pertain to
routine claims by Persons other than Governmental Bodies that are covered by
insurance (subject to the applicable insurance deductibles); and (3) for minor
product warranty claims arising in the usual and ordinary course of business for
repair of products manufactured by Seller Corp. which in the aggregate may be
satisfied at nominal cost to Seller Corp.
Except as described on Schedule 2.1(f) hereto, as of the date of this
Agreement:
(1) To its knowledge, Seller Corp. is in compliance in all material
respects with, has, in all material respects, conducted since inception and does
conduct its business and operations in compliance with, and is not in material
default or violation in any respect under any material law, regulation, writ,
injunction, decree or order applicable to Seller Corp. or the Assets, including
without limitation all safety and health, antitrust, consumer protection, labor,
equal opportunity or discrimination laws, rules and regulations;
(2) there are no judgments outstanding and unsatisfied against Seller
Corp. or the Assets; and
(3) to its knowledge, there is no basis for any claim against or
liability of Seller Corp. on account of product warranties or with respect to
the manufacture, sale or rental of defective products (other than minor claims
arising in the usual and ordinary course of business for the repair of Seller
Corp.'s products which may be satisfied at nominal cost to Seller Corp.).
(g) Taxes.
(1) Sellers have properly completed and filed when due all Tax
reports, returns, declarations, statements, and other documents required to be
filed in respect of Taxes (collectively "Tax Returns") in connection with and in
respect of Seller Corp.'s business, assets, and employees. All such Tax Returns
were correct and complete in all material respects. All Taxes owed by Seller
Corp. (whether or not shown on any Tax Return) have been paid. No claim has
ever been made by an authority in a jurisdiction where Seller Corp. does not
file Tax Returns that it is or
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may be subject to taxation by that jurisdiction. Sellers have made available to
Purchaser all Tax Returns of Seller Corp. for the six (6) most recent periods
ending prior to the date hereof.
(2) With respect to all amounts in respect of Taxes imposed on Seller
Corp. or for which Seller Corp. is or could be liable, whether to taxing
authorities (as, for example, under local law) or to other persons or entities
(as, for example, under tax allocation agreements), with respect to all taxable
periods or portions of periods ending on or before the Closing Date, all
applicable tax laws and agreements have been substantially complied with, and
all such amounts required to be paid by Sellers in respect of Seller Corp. to
taxing authorities or others on or before the date hereof have been paid.
(3) No issues have been raised (and are currently pending) by any
taxing authority in connection with any of the Tax Returns. No waivers of
statutes of limitation have been given by or requested from Seller Corp. All
deficiencies asserted or assessments made as a result of any examinations have
been fully paid, or are fully reflected as a liability in the Financial
Statements, or are being contested and an adequate reserve therefor has been
established and is fully reflected in the Financial Statements.
(4) There are no Liens for Taxes on the assets of Seller Corp.
Consummation of the transactions herein contemplated will not result
in the imposition or creation of any Tax Obligations on the Assets, except for:
(1) Tax Obligations which remain the liability of Sellers under Section 1.5(b);
(2) Tax Obligations resulting from any Tax election made by Purchaser after the
Effective Time of Closing; or (3) sales Tax relating to the sale of the
Business.
(h) Intangible Assets. Schedule 1.2(b)(6) hereto sets forth
(1) all patents, patent applications, trademarks, trademark
registrations, applications for trademark registrations, trade names and
copyrights (i) which Seller Corp. owns or in which Seller Corp. has any
proprietary interest or (ii) which are used by Seller Corp. in any way in, or,
to the knowledge of Sellers, are necessary for the conduct of, the Business, and
(2) all license agreements with respect to any of the foregoing as to
which Seller Corp. is licensor or licensee.
There are no pending or, to the knowledge of Sellers, threatened
infringement claims against Seller Corp. by any Person with respect to any of
the items listed on Schedule 1.2(b)(6), nor has any such item been declared
invalid or been limited by any court or agreement. The Intangible Assets will
afford Purchaser immediately after the Effective Time of Closing the rights to
use all patents, technology, proprietary information, know-how, data, designs,
inventions, trademarks, copyrights, tradenames and servicemarks owned by Seller
Corp. or others necessary for the conduct
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of the Business as presently being conducted. To Sellers' knowledge, the use of
the Intangible Assets will not and, the conduct of the Business as presently
conducted does not, infringe on the rights of any other Person.
(i) Instruments in Full Force and Effect; Possession under Leases.
The Scheduled Contracts and the Scheduled Leases (including without limitation
licenses, royalties, assignments and similar agreements with respect to the
Intangible Assets) constituting a part of the Assets ("Instruments") are valid,
binding and in full force and effect, have not been amended or supplemented in
any manner or respect except as disclosed on Schedule 2.1(i) and upon assignment
and assumption, with applicable consents if necessary, will be enforceable by
Purchaser in accordance with their respective terms. There are no defaults by
Seller Corp. thereunder and Seller Corp. knows of no defaults thereunder by any
other party thereto, and to Sellers' knowledge, no event has occurred that with
the lapse of time or action or inaction by any party thereto would result in a
violation thereof or a default thereunder. None of the rights under the
Instruments will be impaired by the consummation of the transactions
contemplated by this Agreement, and all such rights will inure to and be
enforceable by Purchaser after the Effective Time of Closing without the
authorization, consent, approval, permit or licenses of, or filing with, any
other Person. Seller Corp. enjoys peaceful and undisturbed possession under all
leases included in the Scheduled Leases.
(j) Employee Plans and Agreements.
(1) Schedule 2.1(j) hereto (i) lists all of the pension plans, all of
the profit sharing plans and all of the retirement, stock option, stock
purchase, incentive, bonus, life, medical, vision, health, disability or
accident plans, deferred compensation plans, and other employee compensation or
benefit plans, agreements, practices, policies, customs, contracts, arrangements
or commitments, including without limitation severance agreements, holiday,
vacation or other similar matters, other "employee welfare benefit plans" (as
defined in Section 3(1) of ERISA), "employee pension benefit plans" (as defined
in Section 3(2) of ERISA and not exempted under Sections 4(b) or 201 of ERISA)
and labor union agreements, relating to officers or employees (including former
officers or employees) of Seller Corp. or any of its affiliates who perform
services to, in the name of or for the benefit of the Business ("Employees")
(collectively the "Plans" and individually a "Plan"), (ii) identifies each Plan
which is a defined benefit plan as defined in Section 3(35) of ERISA (a "Defined
Benefit Plan") or is a multi-employer plan within the meaning of Section 3(37)
of ERISA (a "Multi-Employer Plan"), (iii) identifies each of the Plans which
purports to be a tax qualified plan under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code") and identifies any trust funding
any of such plans which purports to be a tax exempt trust under Section
501(c)(9) of the Code, and (iv) in the case of each Multi-Employer Plan, sets
forth the Seller Corp. contributions made to such Plan for the last plan year
ending prior to the date of this Agreement. Seller Corp. has delivered, or will
deliver prior to the Closing, to Purchaser the following documents as in effect
on the date hereof: (A) true, correct and complete copies of each Plan,
including all amendments thereto, which is an employee pension benefit or
welfare benefit plan (within the meaning of Sections 3(1) or 3(2) of ERISA), and
in the case of any unwritten Plans, descriptions thereof, (B) with respect to
any Plans or Plan amendments described in the foregoing
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clause (A), (i) the most recent determination letter issued by the IRS after
September 1, 1974, if any, (ii) all trust agreements or other funding
agreements, including insurance contracts, (iii) with respect to each Defined
Benefit Plan, all notices of intent to terminate any such Plan and all notices
of reportable events with respect to any such Plan as to which the Pension
Benefit Guaranty Corporation ("PBGC") has not waived the thirty (30) day notice
requirement, (iv) the most recent actuarial valuations, annual reports, summary
plan descriptions, summaries of material modifications and summary annual
reports, if any, and (v) with respect to any Multi-Employer Plan, a schedule of
the amount of potential withdrawal liability if Seller Corp. incurred a partial
or complete withdrawal (as defined in Sections 4205 and 4203 of ERISA,
respectively) as of the Closing Date, calculated according to the information
made available under Section 4221(e) of ERISA.
(2) Each of the Plans that purports to be qualified under Section
401(a) of the Code is qualified and any trusts under such Plans are exempt from
federal income Tax under Section 501(a) of the Code. The retroactive cure
period with respect to any Plan amendments not yet submitted to the IRS has not
expired. The Plans each comply in all material respects with all other
applicable laws (including, without limitation, ERISA, the Age Discrimination in
Employment Act, the Omnibus Budget Reconciliation Act of 1986, the Consolidated
Budget Reconciliation Act of 1986, and the Omnibus Budget Reconciliation Act of
1987) of the United States and any applicable collective bargaining agreement.
Each of the trusts that purports to be a tax exempt trust under Section
501(c)(9) of the Code has received a favorable ruling or determination letter as
to its tax-exempt status. Other than claims for benefits submitted by
participants or beneficiaries or appeals from denial thereof, there is no
litigation, legal action, suit, investigation, claim, counterclaim or proceeding
pending or, to Sellers' knowledge, threatened against any Plan.
(3) With respect to any Plan, no prohibited transaction (within the
meaning of Section 406 of ERISA and/or Section 4975 of the Code) exists which
could subject Seller Corp. or Purchaser to any material liability or civil
penalty assessed pursuant to Section 502(i) of ERISA or a material Tax imposed
by Section 4975 of the Code. Neither Seller Corp., nor any of its respective
Affiliates, nor any administrator or fiduciary of any Plan (or agent of any
administrator or fiduciary of any Plan (or agent of any of the foregoing) has
engaged in any transaction or acted or failed to act in a manner which is likely
to subject Seller Corp. to any material liability for a breach of fiduciary or
other duty under ERISA or any other applicable law. The transactions
contemplated by the Operative Documents will not, to Sellers' knowledge, be, or
cause any, prohibited action.
(4) None of the Plans constitute a Defined Benefit Plan, and no
Defined Benefit Plan has been terminated or partially terminated after September
1, 1974.
(5) No plan termination liability to the PBGC or to any other person
or withdrawal liability to any Multi-Employer Plan has been or is expected to be
incurred with respect to any Plan or with respect to any employee benefit plan
sponsored by any entity under common control (within the meaning of Section 414
of the Code) with Seller Corp. by reason of any action taken by any Seller, or
any of their respective affiliates prior to the Closing Date. The PBGC has not
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instituted, and is not expected to institute, any proceedings to terminate any
Plan. As of the Effective Time of Closing, each Defined Benefit Plan (other
than a Multi-Employer Plan) to which Title IV of ERISA applies could be
terminated in a standard termination under Section 4041(b) of ERISA. To Sellers'
knowledge, there has been no "reportable event" (within the meaning of Section
4043(b) of ERISA and the regulations thereunder) with respect to any Plan, and
there exists no condition or set of circumstances which makes the termination of
any Plan by the PBGC likely. Seller Corp. has not received any notice that any
Multi-Employer Plan is in reorganization, that increased contributions may be
required to avoid a reduction in plan benefits or the imposition of any excise
tax or that the plan is or may become insolvent. Seller Corp. has paid all
premiums (and interest charges and penalties for late payment, if applicable)
due to the PBGC with respect to any Plan. No amendment to any plan has occurred
which has required or could require the provision of security to any such plan
under Section 401(a)(29) of the Code.
(6) All filings required by ERISA and the Code as to each Plan have
been timely filed and all notices and disclosures to participants required by
ERISA or the Code have been timely provided.
(7) All contributions made to or accrued with respect to all Employee
Plans are deductible under Section 404 or 162 of the Code. No amounts, nor any
assets or any Employee Plan are subject to Tax as unrelated business taxable
income under Section 511, 512, or 419A of the Code.
(8) To Sellers' knowledge, no facts exist which could result in a
material increase in premium costs of Plans for which benefits are insured or a
material increase in benefit costs of Plans which provide self insured benefits.
(9) No Plan provides (or has any obligation or commitment to provide)
health, medical, disability, life or other similar benefits with respect to any
current or former employees (or beneficiary thereof) of Seller Corp. beyond
their retirement or other termination of service (other than coverage mandated
by Title I, Subtitle B, Part 6 of ERISA, which coverage is fully paid by the
former employee or his dependents).
(k) Labor and Employee Relations.
(1) Except as listed in Schedule 2.1(k) hereto, there exists no
collective bargaining agreement or other labor union contract applicable to any
employee of Seller Corp. and no such agreement or contract has been requested by
any employee or group of employees of Seller Corp., nor has there been any
discussion with respect thereto by management of Seller Corp. with any employees
of Seller Corp. Seller Corp. has not received any written notification of any
unfair labor practice charges or complaints pending before any agency having
jurisdiction thereof nor are there any current union representation claims
involving any of the employees of Seller Corp. Further, Seller Corp. is not
aware of any such threatened charges or claims.
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(2) Except as set forth in Schedule 2.1(k) hereto, Seller Corp. is not
aware of any union organizing activities or proceedings involving, or any
pending petitions for recognition of, a labor union or association as the
exclusive bargaining agent for, or where the purpose is to organize, any group
or groups of employees of Seller Corp. There is not currently pending, with
regard to any of its facilities, any proceeding before the National Labor
Relations Board, wherein any labor organization is seeking representation of any
employees of Seller Corp.
(3) Except as set forth in Schedule 2.1(k) hereto, Seller Corp. is not
aware of any strikes, work stoppages, work slowdowns or lockouts nor of any
threats thereof, by or with respect to any of the employees of Seller Corp.
Since January 1, 1988 there have been no labor disputes, strikes, slowdowns,
work stoppages, lockouts or similar matters involving employees of Seller Corp.
(4) Except as set forth in Schedule 2.1(k), there are not pending any
grievances filed by employees of Seller Corp. within any collective bargaining
unit or by representatives of employees within any collective bargaining unit.
Further, there are no arbitration decisions, settlement agreements, injunctions,
consent decrees or conciliation agreements which affect the operation of the
Business other than those specifically listed in Schedule 2.1(k).
(5) Except as set forth in Schedule 2.1(k), there exists (i) no
charges of discrimination or lawsuits involving alleged violations of any fair
employment law, wage payment law, occupational safety and health law, and (ii)
to the knowledge of Sellers, no threatened or pending litigation arising out of
employment relationships, or other employment-related law, whether federal,
state or local, by any applicant, employee or former employee of Seller Corp. or
any representative of any such Person or Persons. No charges or claims
involving any of the facilities or employees of Seller Corp. are pending before
any administrative agency, local, state or federal, and no lawsuits involving
any of such facilities or employees are pending with respect to equal employment
opportunity, age discrimination, occupational safety, or any other form of
alleged employment practice or unfair labor practice.
(6) Seller Corp. complies in all material respects with all applicable
laws, rules and regulations relating to the employment of labor, including, but
without limitation, those relating to wages, hours, concerted activity, non-
discrimination, occupational health and safety and the payment and withholding
of Taxes, and Seller Corp. has no accrued liability for any arrears of wages or
any Taxes or penalties for failure to comply with any of the foregoing.
(7) Seller Corp. shall be solely responsible for all grievances,
arbitrations, claims, demands, or charges of any nature whatsoever including,
but not limited to, any such grievances, arbitrations, claims, demands, or
charges whether now known or not yet made by any employees, bargaining agents,
or governmental agencies, which result from or arise out of any event occurring
prior to the date of Closing, and, Seller Corp. agrees to hold harmless and
indemnify Purchaser for all such claims, if any, asserted against Purchaser.
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(l) Absence of Certain Changes, Etc. Except as disclosed in the
Interim Financial Statements or on Schedule 2.1(l) hereto, there has been no
material adverse change in the business, financial condition or results of
operations of Seller Corp. from that reflected in the Unaudited Financial
Statements.
Since the date of the Interim Balance Sheet and except as disclosed on
Schedule 2.1(l), Seller Corp. has
(1) conducted its operations in the ordinary course;
(2) not entered into any material transaction or contract, or amended
or terminated any material transaction or contract, except normal transactions
or contracts consistent in nature and scope with prior practices and entered
into in the ordinary course of business;
(3) not mortgaged, sold, transferred, distributed or otherwise
disposed of any of its material assets, except in the ordinary course of
business;
(4) not experienced any damage, destruction or loss to or of any of
its material assets except in the ordinary course of business and except to the
extent that any asset damaged, destroyed or lost has been repaired or replaced;
(5) not made or agreed to make any capital expenditures for additions
to property, plant or equipment, except for expenditures and commitments not
exceeding $10,000 in the aggregate;
(6) not made or agreed to make any change in the compensation payable
to any employee, except for increases in compensation in the ordinary course of
business substantially consistent with past practices of Seller Corp.;
(7) not granted credit to any material customer or distributor on
terms materially more favorable than the terms on which credit has been extended
to such customer or distributor in the past nor materially changed the terms of
any credit previously extended; or
(8) not accepted any order that involves a customer that is more than
60 days delinquent in an account receivable of Seller Corp.
(m) No Subsidiaries. There is no corporation, partnership, joint
venture, business trust or other legal entity in which Seller Corp., either
directly or indirectly through one or more intermediaries, owns or holds
beneficial or record ownership of any outstanding voting shares.
(n) Material Contracts, Etc.. Schedule 2.1(n) hereto lists all
contracts, leases, agreements and instruments material to the Business or
requiring the performance by Seller Corp. of any material obligations of Seller
Corp. after the date hereof except the following:
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(1) employment agreements terminable at will and contracts for
miscellaneous services terminable at will without the payment of any penalty
(except that all employment agreements with executive officers of Seller Corp.
are listed on Schedule 2.1(n);
(2) purchase orders and contracts with suppliers and customers entered
into in the ordinary course of business; and
(3) miscellaneous contracts, leases, agreements and instruments (with
Persons unaffiliated with Sellers) involving liabilities under all such
contracts, leases, agreements and instruments of not more than Ten Thousand
Dollars ($10,000) in the aggregate.
Sellers have heretofore delivered or made available to Purchaser or
its counsel complete copies of all contracts, leases, agreements and instruments
listed on Schedule 2.1(n).
There are no existing defaults by Seller Corp., or to the knowledge of
any Seller, other parties, under any of the contracts, leases, agreements and
instruments listed on Schedule 2.1(n). Except as set forth in Schedule 2.1(n),
Seller Corp. is not a party to any agreement, contract or covenant limiting the
freedom of the Seller Corp. or any party contracting with Seller Corp. from
competing in any line of business or with any Person in any geographic area.
(o) Licenses and Permits. Seller Corp. possesses all the Permits
listed in Schedule 1.2(b)(5) hereto, copies of all of which have been delivered
to Purchaser. Such Permits constitute to the knowledge of Sellers, all the
Permits necessary under law or otherwise for Seller Corp. to conduct the
Business as now being conducted and to construct, own, operate, maintain and use
the Assets in the manner in which they are now being constructed, operated,
maintained and used. Each of such Permits and Seller Corp.'s rights with
respect thereto (1) is valid and subsisting and in full force and effect, and
(2) following consummation of the transactions contemplated hereby, will
continue to be valid and subsisting in full force and effect, and enforceable by
Purchaser without any consent or approval of any Governmental Body or third
party; or, in lieu of such existing Permits, replacement or substitute Permits
will be available to or obtainable by Purchaser at little or no cost in the
ordinary course without any interruption of the conduct of the Business
following the Effective Time of Closing, assuming timely application therefor
and reasonable diligence in pursuit thereof by Purchaser. Seller Corp. is in
compliance in all material respects with the terms of such Permits. None of such
Permits have been, or to the knowledge of Sellers, are threatened to be,
revoked, canceled, suspended or modified.
(p) Environmental Matters. Without in any manner limiting any other
representations and warranties set forth in this Agreement, except as set forth
in Schedule 2.1(p) hereto:
(1) There have been no circumstances or events arising from or caused
by the business of Seller Corp. or on real property, equipment and fixtures
presently or, to Seller's
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Knowledge, formerly owned, leased or operated by Seller Corp. ("Seller Corp.
Sites") which could have caused any "Environmental Event" (as defined below)
with respect to the Seller Corp. Sites, any nearby properties or off-site
treatment, storage, recycling, reclaiming or disposal sites;
(2) To "Sellers' Knowledge" (as defined below), no "Environmental
Materials" (as defined below) have migrated or threatened to migrate from other
properties upon, about or beneath a Seller Corp. Site;
(3) There is no proceeding pending, no notice, notification, demand,
request for information, citation, summons or order has been issued, no
complaint has been filed, no penalty has been assessed, and no investigation or
review is pending or threatened by any "Governmental Authority" (as defined
below) or other person:
(i) with respect to any material violation of any "Environmental Law" (as
defined below) in connection with the assets of the Seller Corp., or operations
or conduct of the business of Seller;
(ii) with respect to any material failure to have any required Governmental
Approval relating to Environmental Materials or Environmental Events; or
(iii) with respect to any material generation, treatment, storage,
recycling, reclaiming, transportation, or disposal of any Environmental Material
that could cause an Environmental Event, generated by the operations or business
of Seller Corp. or located on assets of Seller Corp., or to Sellers' Knowledge,
any Seller Corp. Site;
(4) To Seller's knowledge, no Person has placed, held, located or
released any Environmental Material on any assets of Seller Corp. or , to
Seller's Knowledge, any Seller Corp. Site, equipment or fixtures so as to cause
an Environmental Event;
(5) The Seller Corp. Sites, equipment and fixtures have been operated
in material compliance with all Environmental Laws;
(6) To Seller's knowledge, there are no underground or aboveground
storage tanks, pits, sumps or impoundments, active or abandoned, situated on any
Seller Corp. Site;
(7) To Seller's knowledge, neither the Seller Corp. nor any business
conducted by it has transported or arranged for the transportation, storage,
and/or disposal (directly or indirectly) of any Environmental Material to or at
any location that is listed or proposed for listing on the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") National
Priority List or any comparable state list, or that is the subject of an
Environmental Event;
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(8) There are no environmental liens on the assets of Seller Corp. and
Seller has not received any written notice of any actions taken by any
Governmental Authority that could subject any of the assets of Seller Corp. to
an environmental lien under any Environmental Law;
(9) All notices required by all Environmental Laws have been given to
the required agencies and/or authorities;
(10) Seller Corp. holds, is and has been in compliance with all
necessary environmental "Governmental Approvals" (as defined below), there is no
condition that is reasonably likely to prevent or materially interfere in the
near future with compliance with the Governmental Approvals by Seller Corp. on
the Closing Date, and all permit fees are paid and current; and
(11) All financial assurances required by Environmental Laws are
properly in place and are fully funded to the extent presently required by
Environmental Laws.
As used in this Agreement,
(A) "Environmental Event" shall include but not be limited to the
spilling, discharging, leaking, pumping, draining, pouring, interring, emitting,
emptying, injecting, escaping, dumping, disposing, abandoning, migration or
other release of a material amount of any kind of Environmental Materials which
may cause a threat or actual injury to human health, the environment, plant or
animal life and in violation of any law in effect on the date hereof.
"Environmental Event" shall also include (i) the occurrence of any judicial,
quasi-judicial or administrative proceedings pursuant to any Environmental Laws;
(ii) any claims, demands, actions, causes of actions, remedial and/or abatement
response, remedial investigations/feasibility studies, ecological studies,
screening level studies, risk assessments, facility studies, environmental
studies, natural resource damage claims, damages, judgments, or settlements
related to Environmental Law.
(B) "Environmental Laws" means any and all laws (including, but not limited
to, CERCLA and corresponding state acts), statutes, ordinances, rules,
regulations, memoranda of understanding, orders, licenses, judicial decrees, or
administrative orders, treaties or permit conditions of any Governmental
Authority pertaining to the regulation of Environmental Materials lawfully in
effect in the jurisdiction in which the Seller Corp. Sites and/or the Seller
Corp. are located, and all statutory and common law environmental theories,
including but not limited to negligence, strict liability, nuisance and
trespass.
(C) "Environmental Material" shall include all substances whatsoever which
could cause or contribute to the occurrence of an Environmental Event.
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(D) "Governmental Approval" means any authorizations, consents, approvals,
waivers, exemptions, variances, franchises, permits and licenses issued by any
Governmental Authority.
(E) "Governmental Authority" means any federal, state, local, or foreign
government, or political subdivision thereof, exercising competent jurisdiction.
(F) "On" or "in", when used with respect to real property means "on, in,
under, above or about."
(G) "Sellers' Knowledge," for purposes of the representations and
warranties contained in this Section 2.1(p), means information which Sellers
have derived from all appropriate inquiry into the current and previous
ownership and uses and environmental status of the assets and business of the
Seller Corp., Seller Corp. Sites and nearby property which is consistent with
good commercial or customary practice in an effort to minimize liability.
(q) Solvency. Seller Corp. is not now insolvent, nor will Seller
Corp. be rendered insolvent by the occurrence of the Transaction. In addition,
immediately after giving effect to the consummation of the Transaction, (1)
Seller Corp. will be able to pay its remaining debts as they become due, (2) the
property of Seller Corp. does not and will not constitute unreasonably small
capital, and Seller Corp. will not have unreasonably small capital and will not
have insufficient capital with which to conduct its present or proposed business
and (3) taking into account pending and threatened litigation, final judgments
against Seller Corp. in actions for money damages are not reasonably anticipated
to be rendered at a time when, or in amounts such that Seller Corp. will be
unable to satisfy any such judgments promptly in accordance with their terms
(taking into account the maximum probable amount of such judgments in any such
actions and the earliest reasonable time at which such judgments might be
rendered). The cash available to Seller Corp., after taking into account all
other anticipated uses of the cash of Seller Corp., will be sufficient to pay
all such judgments promptly in accordance with their terms. As used in this
Section, (x) "insolvent" means, for any Person, that the sum of the present fair
saleable value of its assets does not and/or will not exceed its debts and other
probable liabilities, and (y) the term "debts" includes any legal liability,
whether matured or unmatured, liquidated or unliquidated, absolute, fixed or
contingent, disputed or undisputed or secured or unsecured.
(r) Excluded Assets. None of the Excluded Assets will be needed in
the continuing operation of the Business following the Effective Time of
Closing.
(s) Pricing. Attached hereto as Schedule 2.1(s) hereto is a complete
and accurate list of Seller Corp.'s standard prices and any applicable discounts
by customer name.
(t) Absence of Certain Business Practices. Neither Seller Corp. nor
any officer, employee or agent of Seller Corp., nor any other Person acting on
its behalf, has, directly or
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indirectly, within the past five years, given or agreed to give any gift or
similar benefit to any customer, supplier, government employee or other Person
who is or may be in a position to help or hinder the business of Seller Corp.
(or to assist Seller Corp. in connection with any actual or proposed
transaction) which (1) might subject Seller Corp. to any damage or penalty in
any civil, criminal or governmental litigation or proceeding, (2) if not given
in the past, might have had a Material Adverse Effect on the assets, business or
operations of Seller Corp. as reflected in the Unaudited Financial Statements,
or (3) if not continued in the future, might materially adversely effect the
assets, business operations or prospects of Seller Corp. or which might subject
Seller Corp. to suit or penalty in a private or governmental litigation or
proceeding.
(u) Corporate Name. To Sellers' knowledge, the use of the corporate
name of Seller Corp. does not infringe the right of any third party nor is it
confusingly similar with the corporate name of any third party. To Sellers'
knowledge, after the Closing Date, no Person or business entity other than
Purchaser will be authorized directly or indirectly to use the corporate name of
Seller Corp. or any name deceptively or confusingly similar thereto, except as
disclosed on Schedule 2.1(u).
(v) Customers and Suppliers. Schedule 2.1(v) hereto sets forth (1) a
true and correct list of (i) the ten (10) largest customers of Seller Corp. in
terms of sales during the fiscal year ended December 31, 1995, and (ii) the ten
(10) largest customers of Seller Corp. in terms of sales during the five months
ended May 31, 1996, showing the approximate total sales to each such customer
during each of such periods; (2) a true and correct list of (x) the ten (10)
largest suppliers of Seller Corp. in terms of purchases during the fiscal year
ended December 31, 1995 and (y) the ten (10) largest suppliers of Seller Corp.
in terms of purchases during the five month period ended May 31, 1996, showing
the approximate total purchases from each such supplier during such respective
periods. Except to the extent set forth in Schedule 2.1(v) there has not been
any material adverse change in the business relationship of Seller Corp. with
any customer or supplier so named in the disclosure statement. Except for the
customers and suppliers named in Schedule 2.1(v), Seller Corp. has not had any
customer which accounted for more than five percent (5%) of its sales during the
period from January 1, 1995 through and including the date hereof, or any
supplier from whom it purchased more than five percent (5%) of the total goods
or services purchased by it during such period.
(w) Competing Lines of Business. No Affiliate of Seller Corp. owns,
directly or indirectly, any interest in (excepting not more than a five percent
(5%) holding for investment purposes in securities of publicly held and traded
companies), or is an officer, director, employer or consultant of or otherwise
receives remuneration from, any Person which is, or is engaged in business as, a
competitor, lessor, lessee, customer or supplier of Seller Corp. No officer,
director or shareholder of Seller Corp. or any Affiliate of Seller Corp. has,
nor during the period beginning January 1, 1993 through, to and including the
date hereof, had any interest in any property, real or personal, tangible or
intangible, used in or pertaining to the Business. None of the Shareholders has
any claim or right against Seller Corp. except as set forth in Schedule 2.1(w).
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(x) Disclosure.
(1) Sellers have fully provided the Purchaser or its representatives
with all the information that the Purchaser has requested for deciding whether
to consummate the purchase of the Business pursuant to the terms and conditions
of this Agreement.
(2) No representation or warranty of Sellers contained in this
Agreement contains any materially untrue statement. No representation or
warranty of Sellers contained in this Agreement omits to state a material fact
necessary in order to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading, provided; however,
that notwithstanding any provision to the contrary herein, (i) Purchaser shall
be entitled only to rely on the latest version of information furnished to
Purchaser by Sellers which supersedes previous information furnished to
Purchaser, and (ii) except with respect to the adjustment to the Purchase Price
provided in Section 1.3(b), Sellers shall have no liability with respect to
estimates or projections which may be or may have been furnished to Purchaser,
including estimates of future revenues, earnings or profits or estimates of
amounts required to satisfy future obligations. All estimates or projections
communicated by any of Sellers to Purchaser were reasonably made, in good faith,
based upon assumptions reasonable under the circumstances.
(3) There is no fact known to any Seller which has specific
application to any Seller or the Business (other than general economic or
industry conditions) and which materially adversely affects or, so far as any
Seller can reasonably foresee, materially threatens, the assets, business,
prospects, financial condition or results of operations of the Business
considered as a whole which has not been set forth in this Agreement.
(y) Restrictions on Resales by Affiliates. Each Seller who is, or
will be upon consummation of the transactions contemplated hereby, an
"affiliate," as that term is used in paragraphs (c) and (d) of Rule 145 under
the Securities Act of 1933, as amended (the "1933 Act"), of the Purchaser or
Seller Corp. acknowledges and agrees that such Seller will not offer to sell,
sell or otherwise dispose of any shares of Purchaser Common Stock issued
pursuant to this Agreement, except, in each case, pursuant to an effective
registration statement or in compliance with Rule 144 or Rule 145, as either is
amended from time to time, or in a transaction which, in the opinion of legal
counsel satisfactory to the Purchaser, is exempt from the registration
requirements of the 1933 Act.
(z) Investment Representations.
(1) The shares of Purchaser Common Stock to be received by Sellers
pursuant to this Agreement will be acquired for investment for their own
accounts, not as a nominee or agent and not with a view to the sale or
distribution of any part thereof, and Sellers have no present intention of
selling, granting participations in, or otherwise distributing the same.
Sellers do not have any contract, undertaking, agreement, or arrangement with
any person to sell, transfer, or grant participations to such person, or to any
third person, with respect to any of the Purchaser Common Stock.
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(2) The Shareholders understand that the shares of Purchaser Common
Stock to be delivered pursuant to this Agreement are not registered under the
Securities Act of 1933, as amended (the "1933 Act") on the basis that the offer
and sale provided for in this Agreement and the issuance of securities hereunder
is exempt from registration under the 1933 Act, and that the Purchaser's
reliance on such exemption is predicated on Sellers' representations set forth
herein.
(3) Sellers have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of their
investment in the shares of Purchaser Common Stock to be delivered pursuant to
this Agreement and have the ability to bear the economic risks of such
investment. Sellers have had access to and an opportunity to inspect relevant
business, financial and other corporate information and data of the Purchaser.
All information Sellers requested from the Purchaser concerning the Purchaser
and its business and affairs has been made available to them. Sellers have had,
during the course of the transaction and prior to Closing, the opportunity to
ask questions of, and receive answers from, the Purchaser concerning the
Purchaser and its business and affairs and the Purchaser Common Stock and to
obtain additional information (to the extent the Purchaser possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to them.
(4) Sellers understand that the Purchaser Common Stock to be delivered
pursuant to this Agreement may not be sold, transferred, or otherwise disposed
of without registration under the 1933 Act or an exemption therefrom, and that
in the absence of an effective registration statement or an available exemption
that such securities must be held indefinitely.
(5) In no event will Sellers make a transfer or other disposition of
the Purchaser Common Stock unless such transfer or disposition is pursuant to an
effective registration statement under the 1933 Act or the Purchaser receives
evidence reasonably acceptable to it that such transfer or disposition is exempt
from the registration requirements of the 1933 Act, and such transfer may be
made without registration under the 1933 Act.
2.2 Representations and Warranties of Purchaser. Purchaser represents and
warrants to Sellers that the following are true and correct on and as of the
date of this Agreement and will be true and correct through the Effective Time
of Closing as if made on and as of that date:
(a) Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware and is qualified to
transact business and is in good standing as a foreign corporation in the
jurisdictions where it is required to qualify in order to conduct its businesses
as presently conducted. Purchaser has the corporate power and authority to own,
lease or operate all properties and assets now owned, leased or operated by it
and to carry on its businesses as now conducted.
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(b) Purchaser may execute, deliver and perform this Agreement without
the necessity of Purchaser obtaining any consent, approval, authorization or
waiver or giving any notice or otherwise, except for such consents, approvals,
authorizations, waivers and notices which have been obtained and are
unconditional and are in full force and effect and such notices which have been
given.
(c) The execution, delivery and performance of this Agreement do not
and will not:
(1) constitute a violation of the Certificate of Incorporation, as
amended, or the Bylaws, as amended, as the case may be, of Purchaser;
(2) constitute a violation of any statute, judgment, order, decree or
regulation or rule of any court, governmental authority or arbitrator applicable
or relating to Purchaser; or
(3) constitute a default under any contract to which Purchaser is a
party except where such default would not have a material adverse effect upon
Purchaser or the ability of Purchaser to perform its obligations under this
Agreement.
(d) This Agreement has been duly authorized, executed and delivered by
Purchaser. This Agreement constitutes the legal, valid and binding obligation
of Purchaser, enforceable in accordance with its terms, except as may be limited
by bankruptcy, reorganization, insolvency and similar laws of general
application relating to or affecting the enforcement of rights of creditors.
(e) The authorized stock of Purchaser consists of 20,000,000 shares of
Common Stock, $.01 par value, of which 4,833,465 shares were issued and
outstanding as of the date hereof, and 5,000,000 shares of undesignated
Preferred Stock, $.01 par value, none of which were issued and outstanding as of
the date hereof. 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. Purchaser has also
reserved (i) 1,500,000 shares of Common Stock for issuance to employees and
consultants pursuant to Purchaser's Amended and Restated 1992 Stock Option Plan,
pursuant to which, options to purchase no more than 1,400,000 shares of Common
Stock are outstanding as of the date hereof; (ii) 150,000 shares of Common Stock
for issuance to directors under the Company's 1996 Non-Employee Director Stock
Option Plan, pursuant to which options to purchase 20,000 shares of Common Stock
are outstanding as of the date hereof; and (iii) 500,000 shares of Common Stock
for issuance to employees under the Company's 1996 Employee Stock Purchase Plan,
pursuant to which no shares have been issued. An additional 255,664 shares of
Common Stock may be acquired pursuant to existing warrants to purchase Common
Stock issued in connection with previous financings, and additional shares may
be issued to a consultant for services rendered in connection with this
transaction. There are no other options, warrants, calls,
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rights, commitments or agreements of any character to which Purchaser is a party
or by which it is bound, obligating Purchaser to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of Purchaser or obligating Purchaser
to grant, extend or enter into any such option, warrant, call, right or
commitment or agreement.
(f) The Shares will be duly authorized, validly issued, fully paid,
and non-assessable and will be free of any liens and encumbrances except as set
forth herein or in the Operative Documents and except for liens or encumbrances
created by Seller Corp. or its shareholders.
(g) Purchaser has furnished Seller Corp. with a true and complete copy
of all of its filings with the Securities and Exchange Commission (the "SEC")
since its inception (the "SEC Documents"). The SEC documents comply in all
respects with the Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the SEC (together the
"SEC Laws"). Purchaser has, since its inception, complied in all respects with
the filing requirements of the SEC Laws. None of the SEC Documents contains any
material untrue statement or omits to state a material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The SEC Documents contain an audited consolidated
balance sheet of Purchaser as of December 31, 1995 and the related consolidated
statements of income and cash flow for the year then ended and the Purchaser's
unaudited consolidated balance sheet as of March 31, 1995 and the related
unaudited consolidated statements of income and cash flow for the three month
period then ended (collectively, the "Purchaser Financials"). The Purchaser
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 Purchaser Financials present
fairly the financial condition and operating results and cash flows of the
Purchaser as of the dates and during the periods indicated therein, subject, in
the case of unaudited statements, to normal year-end adjustments, which will not
be material in amount or significance, individually or in the aggregate.
(h) Since the date of the balance sheet included in the Purchaser's
most recently filed report on Form 10-Q or Form 10-K, Purchaser has conducted
its business in the ordinary course and there has not occurred: (i) any material
adverse change in the financial condition, liabilities, assets, business, or
prospects of Purchaser, (ii) any amendments or changes in the Articles of
Incorporation or Bylaws of Purchaser, (iii) any damage to, destruction or loss
of any assets of the Purchaser that materially and adversely affects the
financial condition, business or prospects of Purchaser or any of its
subsidiaries, (iv) any sale of a material amount of property of Purchaser,
except in the ordinary course of business; or (v) other than AllMicro
Corporation, any material acquisition of other corporations or businesses.
(i) There is no action, suit, proceeding, claim, arbitration or
investigation pending, or as to which Purchaser has received any notice of
assertion nor, to Purchaser's knowledge, is there a reasonable basis to expect
such notice of assertion, against Purchaser which
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would materially affect Purchaser or that in any manner challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions contemplated
by this Agreement.
(j) Purchaser does not have any material liability, 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
individually or in the aggregate (i) has not been reflected in the SEC Documents
and the financial statements contained therein or (ii) has not arisen in the
ordinary course of Purchaser's business since the date of the Purchaser's most
recently filed report on Form 10-Q or Form 10-K.
ARTICLE III
CONDUCT AND TRANSACTIONS PRIOR TO CLOSING
3.1 Access to Records and Properties; Confidentiality.
(a) Between the date of this Agreement and the Effective Time of
Closing, Sellers shall cause Seller Corp. to give, and Seller Corp. shall give,
to Purchaser and its advisors such access to the premises, books and records of
Seller Corp., and to cause the officers, employees and accountants of Seller
Corp. to furnish such financial and operating data and other information with
respect to Seller Corp. as Purchaser shall from time to time reasonably request.
Without limiting the generality of the foregoing, Sellers shall cause Seller
Corp. to give, and Seller Corp. shall give, to Purchaser and its representatives
access during normal business hours to the facilities and operations of Seller
Corp. so that Purchaser may at Purchaser's cost (1) obtain evaluations of the
Assets and (2) perform any and all assessing, testing, monitoring and
investigating that Purchaser deems necessary in its sole discretion with respect
to environmental matters concerning Seller Corp., its assets and the operation
of the Business. Any investigation pursuant to this Section 3.1 shall be
conducted at Purchaser's cost (other than the usual salary of employees of
Seller Corp., overhead expenses of Seller Corp. and the fees and expenses of
counsel and independent public accountants for Sellers) and in such manner as
not to interfere unreasonably with the business and operations of Seller Corp.
(b) In connection with the transactions contemplated by this
Agreement, in addition to, and not by way of limitation of, any other
obligations of Purchaser under or pursuant to any other agreement, whether
written or oral, with any Seller or any other obligations of Purchaser at law or
in equity, all information furnished to a party will be kept confidential by
such party and its associates, Affiliates, agents, employees, consultants and
advisors prior to the Closing Date, or in the event the Closing does not occur,
at all times, and will not be used in any manner adverse to the furnishing
party. During such time, each party will hold and will cause its associates,
Affiliates, agents, employees, consultants and advisors to hold in strict
confidence, unless compelled to disclose by judicial or administrative process
or, in the opinion of its counsel, by other requirements of law, all documents
and information concerning another party furnished to it by such other party or
its representatives in connection with the transactions contemplated by this
Agreement (except to the
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extent that such information can be shown to have been (1) previously available
to the party to which it was furnished on a non-confidential basis prior to its
disclosure, (2) in the public domain or (3) available on a non-confidential
basis from a Person other than a Person not bound by any confidentiality
agreement). Purchaser may release or disclose such information to its
associates, Affiliates, agents, employees, consultants and advisors in
connection with this Agreement prior to the Closing Date or in the event the
Closing does not occur only if such associates, Affiliates, agents, employees,
consultants and advisors are informed of the confidential nature of such
information and they agree in writing (substantially similar in substance to the
matters contained in this Section 3.1(b)) to such confidential treatment of all
such information. If the transactions contemplated by this Agreement are not
consummated, the parties agree to remain bound by the Confidentiality Agreement
previously executed by them, a copy of which is attached hereto as Exhibit 3.1
and incorporated herein for all purposes. Notwithstanding the foregoing, if a
party has been requested or is required (by oral questions, interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process) to disclose any information, the party so being required will
promptly notify the other parties so that such other parties may seek an
appropriate protective order. Each party warrants that it will cooperate fully
with the other parties in seeking such a protective order.
3.2 Operation of Seller Corp. Between the date hereof and the Effective
Time of Closing, except as contemplated herein or except with the prior consent
of Purchaser, which consent will not be unreasonably withheld, Sellers shall:
(a) cause Seller Corp. to operate the Business as presently operated,
only in the ordinary course, and in compliance with all laws, regulations,
writs, injunctions, decrees or orders applicable to Seller Corp. or its Assets,
including without limitation all environmental, safety and health, antitrust,
consumer protection, labor, equal opportunity or discrimination laws, rules and
regulations;
(b) cause the tangible Assets (except for sales from Inventories) to
be maintained and repaired in accordance with past practices of Seller Corp.;
(c) not dispose of, or commit to dispose of, any Assets (other than
the liquidation and settlement of Accounts and the sale and delivery of
Inventory and products covered by Backlog Orders, all in the ordinary and
customary course of Seller Corp's business);
(d) actively market the Products and services of Seller Corp. in
accordance with its usual practices; and
(e) continue in effect until immediately following the Effective Time
of Closing all present insurance coverage with respect to the Assets, the
Business and the Employees.
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All risk of loss arising out of fire and casualty and all liability to
third parties or to Employees arising out of operations of the Business prior to
the Effective Time of Closing shall be that of Sellers, and Purchaser shall have
no obligation or liability in connection therewith.
Sellers shall not effect any amendment to the Articles of Incorporation or
the Bylaws of Seller Corp. and shall not cause or permit the issuance of any
additional shares of the capital stock or equity interests (or options, warrants
or other rights to acquire capital stock or equity securities) of Seller Corp.
Sellers shall use best efforts to operate and maintain, or to cause to be
operated and maintained, the Business and the Assets in such a manner so that
the representations and warranties of Sellers contained herein shall continue to
be true and correct on and as of the Effective Time of Closing as if made on and
as of the Effective Time of Closing.
Sellers shall advise Purchaser promptly in writing of any condition or
circumstance, known to any Seller, occurring from the date hereof up to and
including the Effective Time of Closing that would cause the respective
representations and warranties of Sellers contained herein to become untrue in
any material respect.
3.3 Consents. Sellers shall use their respective reasonable best efforts
to obtain any consents of Governmental Bodies, suppliers, distributors, and
other Persons required in order for Sellers to sell and transfer the Business
pursuant to this Agreement. Purchaser agrees to use its reasonable best efforts
to assist Sellers in obtaining such consents.
3.4 No Public Announcements or Negotiation with Others.
(a) Sellers shall not issue any press release or make any public
statement regarding the transactions contemplated by this Agreement without
obtaining the prior consent of the Purchaser.
(b) Unless and until this Agreement shall have been terminated by
Purchaser or Sellers pursuant to Section 5.2, neither Shareholders, Seller Corp.
nor any of the officers or directors of Seller Corp., nor any Affiliates of any
of them whom they are able to influence shall:
(1) directly or indirectly, encourage, solicit, initiate or
participate in any discussions or negotiations with any corporation,
partnership, Person or other entity or group (other than to Purchaser or an
affiliate or an associate of Purchaser) concerning any merger, sale of
substantial assets, business combination, sale of shares of capital stock or
similar transactions involving the business of Seller Corp. or any Asset,
whether by providing non-public information or otherwise; or
(2) disclose, directly or indirectly, any information not
customarily disclosed to any Person concerning their business and properties,
afford to any other Person access
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to their properties, books or records or otherwise assist or encourage any
Person in connection with any of the foregoing.
In the event Sellers shall receive any offer for a transaction of the
type referred to in this Section 3.4, Sellers shall promptly inform Purchaser as
to any such offer.
3.5 Best Efforts to Satisfy Conditions. Sellers shall use their
respective reasonable best efforts to cause the conditions to the obligations of
Purchaser contained in Section 4.1 to be satisfied to the extent that the
satisfaction of such conditions is in the control of Sellers, and Purchaser
shall use its reasonable best efforts to cause the conditions to the obligations
of Sellers contained in Section 4.2 to be satisfied to the extent that the
satisfaction of such conditions is in the control of Purchaser.
3.6 Insurance. As of the Effective Time of Closing, Seller Corp. shall
cease to be covered with respect to any occurrence after the Effective Time of
Closing under the insurance policies obtained and maintained by Sellers covering
the business, property and employees of Seller Corp. All such occurrences prior
to the Effective Time of Closing which are insured under such policies shall
continue to be so insured, and Purchaser shall be entitled to the benefits
thereof to the limited extent necessary to hold Purchaser harmless from such
occurrences and any remaining benefits thereof shall be paid to the benefit of
Sellers. At Purchaser's request, Sellers shall make copies of such policies
available to Purchaser for inspection and shall assist Purchaser in determining
whether any claim or loss is covered by such policies of insurance.
Following the Effective Time of Closing, Purchaser shall give to Sellers
prompt notice of the assertion by any Person of any claim against Seller Corp.
which might be subject to the insurance coverage described in this Section 3.6.
Purchaser shall cooperate with Sellers and any applicable insurance carrier in
any investigation by Sellers or any applicable insurance carrier of any such
claim and shall give to Sellers and any applicable insurance carrier reasonable
access to the books, records and personnel formerly of Seller Corp. to the
extent reasonably necessary to enable Sellers and any applicable insurance
carrier to investigate such claim.
3.7 Payment of Liabilities. Sellers shall pay or otherwise satisfy in the
ordinary course all of Seller Corp.'s trade payables and shall fully pay or
otherwise satisfy in the ordinary course all other claims or liabilities
relating to the assets or the business of Seller Corp. incurred through the
Effective Time of Closing other than the Assumed Obligations. Sellers, jointly
and severally, agree to and do hereby indemnify and hold Purchaser harmless from
and against all claims, losses, demands, damages, liabilities, losses, costs and
expenses resulting from or relating to non-compliance by Purchaser or any Seller
with the bulk transfer provisions of the Uniform Commercial Code (or any similar
law) in connection with the sale and transfer of the Business to Purchaser other
than the Assumed Obligations and Purchaser and Sellers hereby waive compliance
therewith. Seller Corp. shall pay when due any sales, transfer or similar Taxes
which may become applicable in respect of Seller Corp.'s sale of the Business or
any of the Assets to Purchaser except
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federal and state income Taxes payable by Purchaser and the sales Taxes assumed
by Purchaser pursuant to Section 1.
3.8 Change of Seller Corp.'s Name. Immediately following the Closing,
Seller Corp. shall cease to use the name "Bookmaker Corporation" or any similar
name and as soon as practical thereafter will file with the office of the
Secretary of State of the State of California all documents necessary to change
the name of Seller Corp. to a name reasonably satisfactory to Purchaser. Pending
the effectiveness in California of Seller Corp's name change, Seller Corp. shall
file all necessary documentation with the appropriate governmental authorities
to evidence its doing business as an entity using a name other than "Bookmaker
Corporation." Seller Corp. shall take the equivalent action with respect to such
name in any other jurisdiction where it has been, is or is licensed to be used.
3.9 Tax Matters. Sellers promise and covenant the following with respect
to Tax matters:
(a) No new elections with respect to Taxes or any changes in current
elections with respect to Taxes affecting the Assets shall be made after the
date of this Agreement without the prior written consent of Purchaser.
(b) Sellers shall furnish Purchaser an affidavit, stating, under
penalty of perjury, the transferor's United States tax payer identification
number and that the transferor is not a foreign person, pursuant to Section
1445(b)(2) of the Code.
3.10 Tax Free Reorganization. The parties hereto shall report the
transactions contemplated by this Agreement as a tax-free reorganization under
Section 368(a)(1)(C) of the Code. Neither Purchaser nor Sellers shall take any
action not contemplated by the terms of the Operative Documents following the
Effective Time of Closing that would cause such transactions to fail to qualify
as a tax-free reorganization.
3.11 Liquidation of Seller Corp. Promptly following the Closing (but in no
event later than 12 months) Seller Corp. shall liquidate and distribute the
Shares and rights to receive the Shares to the shareholders of Seller Corp. (or
a liquidation trust established by such Shareholders).
ARTICLE IV
CONDITIONS OF CLOSING
4.1 Conditions of Obligations of Purchaser. The obligations of Purchaser
to consummate the purchase and sale under this Agreement are subject to the
satisfaction of the following conditions, each of which may be waived in writing
by Purchaser:
(a) Representations and Warranties; Performance of Obligations.
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(1) The representations and warranties of Sellers set forth in
Section 2.1 hereof and in each certificate, agreement, document or instrument
delivered pursuant hereto on or before the Closing Date or in connection with
the transactions contemplated hereby on the Closing Date shall have been and
shall be true and correct on and as of the date of this Agreement and shall be
true and correct on and as of the Closing Date, as though made on and as of the
Closing Date.
(2) Sellers shall have performed the covenants, agreements and
obligations required to be performed by them under this Agreement prior to and
on the Closing Date.
(3) Sellers shall have delivered to Purchaser their certificate
confirming the satisfaction of the conditions set forth in subparagraphs (1) and
(2) above and such other matters that Purchaser may reasonably request.
(b) Delivery of Instruments. Sellers shall have delivered to
Purchaser the duly authorized and executed General Conveyance, Transfer and
Assignment, and such other conveyance documents that Purchaser may reasonably
request to effect the transfer and conveyance of the Business to Purchaser.
(c) Opinion of Counsel to Sellers. Purchaser shall have received the
opinion of Sellers' counsel, dated the Closing Date, in the form of Exhibit
4.1(c) hereto.
(d) Employment Agreements. Mazner, Schectman and Kirkpatrick shall
have executed their respective Employment Agreements with Purchasers in the form
of Exhibits 4.1(d)(1), 4.1(d)(2), and 4.1(d(3) hereto, respectively (the
"Employment Agreements").
(e) Registration Rights Agreement. Sellers shall have executed the
Registration Rights Agreement in the form of Exhibit 4.1(e) hereto.
(f) Consents, Notices and Approvals. All consents and approvals of
all Persons necessary for the consummation of the Transaction under Seller
Corp.'s Articles of Incorporation or Bylaws or any agreement, Permit, law or
regulation (including, without limitation, under the Scheduled Contracts and
Scheduled Leases), shall have been received and delivered to Purchaser, all
notices to any Person required by any of the foregoing to be given in respect of
the Transaction prior to Closing shall have been duly given, and all necessary
action shall have been taken to assign to Purchaser the Scheduled Contracts, the
Scheduled Leases and any other material agreements between Seller Corp. and its
shareholders, suppliers, customers and other third parties.
(g) Purchaser's Investigation. The investigations by Purchaser and
its representatives in connection with the proposed transactions shall not have
caused Purchaser or its representatives to become aware of any facts or
circumstances relating to the business, operations, assets, properties,
liabilities, financial condition, results of operations or affairs of Seller
Corp., any of the Seller Corp. Sites or any of its other Assets, that, in the
sole good faith, reasonable judgment
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of Purchaser, make it inadvisable for Purchaser to proceed with the transactions
contemplated by this Agreement.
(h) Non-Competition Agreement. Sellers shall have delivered the duly
authorized and executed Non-Competition Agreement pursuant to Section 1.2(e).
(i) Escrow Agreement. Sellers shall have executed the Escrow
Agreement in the form of Exhibit 1.4(b).
(j) Other Matters. Sellers shall have delivered to Purchaser, in form
and substance reasonably satisfactory to counsel for Purchaser, such
certificates and other evidence as Purchaser may reasonably request as to the
satisfaction of the conditions contained in this Section 4.1.
4.2 Conditions of Obligations of Sellers. The obligations of Sellers to
consummate the sale and purchase under this Agreement are subject to the
satisfaction of the following conditions, each of which may be waived in writing
by Sellers:
(a) Representations and Warranties; Performance of Obligations. The
representations and warranties of Purchaser set forth in Section 2.2 hereof and
in each certificate, agreement, document or instrument delivered pursuant hereto
on or before the Closing Date or in connection with the transactions
contemplated hereby on the Closing Date shall have been and be
true and correct on and as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date. Purchaser shall have
performed the covenants, agreements and obligations necessary to be performed by
it under this Agreement prior to the Closing Date.
(b) Purchase Price and Other Payments. Purchaser shall have delivered
to Seller Corp. the Purchase Price and any other payments required to be made as
of the Closing Date pursuant to Article I hereof, and have delivered the Earnout
Shares to the Escrow Agent.
(c) Opinion of Counsel to Purchaser. Sellers shall have received the
opinion of Andrews & Kurth L.L.P. dated the Closing Date, in the form of Exhibit
4.2(c) hereto.
(d) Non-Competition Agreement. Purchaser shall have delivered the
duly authorized and executed Non-Competition Agreement pursuant to Section
1.2(e).
(e) Employment Agreements. Purchaser shall have executed the
Employment Agreements with Mazner, Schectman and Kirkpatrick in the forms of
Exhibits 4.1(d)(1), 4.1(d)(2) and 4.1(d)(3), respectively.
(f) Registration Rights Agreement. Purchaser shall have executed the
Registration Rights Agreement in the form of Exhibit 4.1(e).
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(g) Escrow Agreement. Purchaser shall have obtained the execution of
the Escrow Agreement in the form of Exhibit 1.4(b) by the Escrow Agent and shall
have executed and delivered same.
(h) Other Matters. Purchaser shall have delivered to Sellers, in form
and substance reasonably satisfactory to Sellers' counsel, such certificates and
other evidence as Sellers may reasonably request as to the satisfaction of the
conditions contained in this Section 4.2.
4.3 Opportunity to Cure. In the event that Purchaser shall notify
Sellers, or Sellers shall notify Purchaser, of its decision not to consummate
the sale and purchase of the Business hereunder due to the failure of any of the
conditions contained in Sections 4.1 or 4.2 hereof to be satisfied, Sellers or
Purchaser, as the case may be, shall have the opportunity for a reasonable
period of time to take such actions as may be necessary to remedy the
circumstances which have resulted in the failure of such conditions to be
satisfied.
ARTICLE V
CLOSING DATE AND TERMINATION OF AGREEMENT
5.1 Closing Date.
(a) Subject to the right of Sellers and Purchaser to terminate this
Agreement pursuant to Section 5.2 hereof, the closing for the consummation of
the purchase and sale contemplated by this Agreement (the "Closing") shall,
unless another date or place is agreed to in writing by Sellers and Purchaser,
take place at the offices of Andrews & Kurth L.L.P., 2170 Buckthorne Place,
Suite 150, The Woodlands, Texas, at 12:00 noon, Houston time on June 12, 1996 or
such other date as the parties may agree upon (the "Closing Date").
(b) For all purposes hereof, the term "the Effective Time of Closing"
shall occur upon the delivery to Purchaser of the General Conveyance, Transfer
and Assignment, and the other Operative Documents as contemplated herein on the
Closing Date.
5.2 Termination of Agreement.
(a) This Agreement may, by written notice given at or prior to Closing
in the manner hereinafter provided, be terminated or abandoned:
(1) in the event that the Effective Time of Closing shall not have
occurred on or before June 30, 1996, by Sellers or by Purchaser unless Sellers
and Purchaser otherwise agree in writing;
(2) by Purchaser if a default or breach shall be made by Sellers
with respect to the due and timely performance of any of their covenants and
agreements contained herein,
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or with respect to the correctness of or due compliance with any of their
representations and warranties contained in Article II hereof, and such default
cannot be cured and has not been waived;
(3) by Sellers if a default or breach shall be made by Purchaser
with respect to the due and timely performance of any of its covenants and
agreements contained herein, or with respect to the correctness of or due
compliance with any of its representations and warranties contained in Article
II hereof, and such default cannot be cured and has not been waived; or
(4) by mutual consent of Sellers and Purchaser;
(b) No termination of this Agreement, whether pursuant to this Section
5.2 or otherwise, shall terminate or impair any claim by Sellers or by Purchaser
against the other based upon any breach of Section 3.5 hereof, nor shall it
terminate any obligations of any party to the other with respect to
confidentiality under Section 3.1(b) hereof.
ARTICLE VI
INDEMNIFICATION AND ESCROW
6.1 Survival of Representations and Warranties All representations,
warranties and (except as provided by the following sentence) covenants of the
parties or any authorized representative thereof contained in this Agreement or
in any schedule or exhibit hereto, or in any certificate, document or other
instrument delivered in connection herewith, shall terminate and cease to be of
further force and effect as of the expiration of two years following the Closing
Date (the "Escrow Period"). Those covenants that expressly contemplate or
involve actions to be taken or obligations in effect after the Closing shall
survive in accordance with their terms.
6.2 Indemnity.
(a) Sellers, jointly and severally, agree to indemnify and hold
Purchaser and Purchaser's officers, directors, shareholders, Affiliates,
employees, agents and employee plan fiduciaries ("Indemnitees") harmless from
any and all damages, losses (which shall include any diminution in value),
shortages, liabilities (joint or several), payments, obligations, penalties,
claims, litigation, demands, defenses, judgments, suits, proceedings, costs,
disbursements or expenses (including without limitation, fees, disbursements and
expenses of attorneys, accountants and other professional advisors and of expert
witnesses and costs of investigation and preparation but excluding Assumed
Liabilities) of any kind or nature whatsoever (collectively "Damages"), directly
or indirectly resulting from, relating to or arising out of:
(1) any breach of or inaccuracy in any representation or
warranty of Sellers contained in Section 2.1 or in any Operative Document;
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(2) any breach or non-performance, partial or total, by
either Seller of any covenant or agreement of Sellers (or any affiliate or
subsidiary thereof) contained in this Agreement or in any Operative Document;
(3) the ownership, management or use of the Assets prior to
the Effective Time of Closing; the conduct of the Business prior to the
Effective Time of Closing, the products manufactured or sold by Seller Corp.
prior to the Effective Time of Closing (other than Damages attributable to
defects that are in Products in Inventory at the Effective Time of Closing to
the extent the defects resulted from Purchaser's negligence after the Effective
Time of Closing); all contracts, agreements, obligations, commitments and
liabilities of Seller Corp. of every kind and character relating in any way to
the assets or the business of Seller Corp. other than the Assumed Obligations;
Sellers' noncompliance with the bulk transfer provisions of the Uniform
Commercial Code (or any similar law) in connection with the sale and transfer of
the Assets and the Business to Purchaser; and, all pension, retirement, bonuses,
severance pay, salaries and all other compensation and benefits of whatsoever
nature (including all liabilities to any Person under ERISA and all liabilities
to any Governmental Body) attributable to service to or employment by Seller
Corp. prior to the Effective Time of Closing;
(4) any labor organization claiming it had any right to
represent any employees of Seller Corp. who are employed by Purchaser subsequent
to the Closing Date of this Agreement, where such claims for representation
arise out of circumstances existing prior to the Closing Date; and
(5) any losses or costs of defending against any claims which
may be made against Purchaser by any Person claiming violations of any local,
state, or federal laws relating to the employment relationship, including, but
not limited to, wages, hours, concerted activity, nondiscrimination,
occupational health and safety and the payment and withholding of Taxes, not
assumed by Purchaser where such claims arise out of circumstances occurring
prior to the Closing Date.
Notwithstanding any provision to the contrary in this Agreement, (i)
Sellers shall have no liability under this Section 6.2 or otherwise unless and
until the aggregate amount of such liability exceeds the sum of $10,000.00, and
(ii) in no event whatsoever shall the aggregate liability of Seller Corp. and
the Shareholders under this Agreement or any other matters arising out of this
Agreement or the Operative Documents or relating to the matters therein
(including all costs, expenses and attorneys' fees paid or incurred by Seller
Corp. and/or the Shareholders in connection therewith or with respect to the
curing of any and all misrepresentations or breaches under this Agreement but
excluding any liability resulting from fraud or intentional misconduct) exceed
the amount of the Escrow Shares held by Purchaser as provided in Section 1.4(a)
hereof and the sole recourse of Purchaser or its successors and assigns with
regard to any such liability shall be forfeiture and cancellation of the Escrow
Shares. From and after the Closing Date, the Escrow Shares shall be legally
outstanding and shall be shown as issued and outstanding on Purchaser's
financial statements. Sellers shall have the right to vote, and to receive
dividends declared on, the Escrow
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Shares during the period the Escrow Shares are held in escrow. The Escrow Shares
are not subject to forfeiture or return in the event of any Person's death or
bankruptcy, or the failure of Mazner, Schectman or Kirkpatrick to continue
employment with Purchaser.
6.3 Procedure.
(a) If a claim by a third party is made against any Indemnitee or in
the event that an Indemnitee determines, in good faith, that an event has
occurred which gives rise to a claim for Damages (together, a "Claim"), and if
such Indemnitee intends to seek indemnity with respect thereto under this
Article VI, the Indemnitee shall follow the procedure provided in the Escrow
Agreement. Purchaser shall be entitled to control the defense of any Claim
brought against Purchaser or any Indemnitee, in its sole discretion, provided
however that Sellers shall be entitled to participate in any such defense at its
expense. Notwithstanding the above, Purchaser agrees that it will not, with
respect to any Claims which are subject to indemnification hereunder, settle any
such Claim without the consent of Seller Corp. or its designee, which will not
be unreasonably withheld.
6.4 No Third Party Beneficiaries. The foregoing indemnification is
given solely for the purpose of protecting the parties to this Agreement and the
Indemnitees and shall not be deemed extended to, or interpreted in a manner to
confer any benefit, right or cause of action upon, any other Person.
ARTICLE VII
MISCELLANEOUS
7.1 Further Actions. From time to time, as and when requested by
Purchaser, Sellers shall execute and deliver, or cause to be executed and
delivered, such documents and instruments and shall take, or cause to be taken,
such further or other actions as may be reasonably necessary to transfer, assign
and deliver to Purchaser or its permitted assigns the Business (or to evidence
the foregoing) and to consummate and to effect the other transactions expressly
required to be performed by Sellers hereunder.
7.2 No Broker. Sellers represent and warrant to Purchaser that they
have no obligation or liability to any broker or finder by reason of the
transactions which are the subject of this Agreement. Sellers agree to
indemnify the Purchaser against, and to hold the Purchaser harmless from, at all
times after the date hereof, any and all liabilities and expenses (including
without limitation legal fees) resulting from, related to or arising out of any
claim by any Person for brokerage commissions or finder's fees, or rights to
similar compensation, on account of services purportedly rendered on behalf of
Sellers, in connection with this Agreement or the Transaction.
7.3 Expenses. Except as otherwise specifically provided herein,
Sellers and Purchaser shall each bear their own legal fees, accounting fees and
other costs and expenses with respect to the negotiation, execution and the
delivery of this Agreement and the consummation of the Transaction,
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and Seller Corp. will pay its expenses after the Effective Time of Closing out
of the Purchase Price proceeds paid by Purchaser to Seller Corp. pursuant to
Section 1.4. Notwithstanding anything herein to the contrary, (i) in the event
the Transaction is not consummated, Purchaser shall reimburse Sellers for the
reasonable legal and accounting expenses incurred by Sellers prior to June 13,
1996, in connection with the Transaction, not in excess of Twenty Thousand
Dollars ($20,000.00) (which may be increased by Purchaser in its sole
discretion) in the aggregate, and (ii) in the event the Transaction is
consummated, Purchaser shall assume the reasonable legal and accounting expenses
incurred by Sellers in connection with the Transaction, but not in excess of
Thirty Thousand Dollars ($30,000) in the aggregate.
7.4 Entire Agreement. This Agreement, the Exhibits hereto (including
without limitation the Confidentiality Agreement referred to in Section 3.1(b)),
contain, and are intended by the parties as a final expression of, the entire
agreement between Sellers and Purchaser with respect to the transactions
contemplated by this Agreement and, except as provided in Section 3.1(b),
supersedes all prior oral or written agreements, arrangements or understandings
with respect thereto.
7.5 Descriptive Headings. The descriptive headings of this Agreement
are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
7.6 Notices. All notices or other communications which are required
or permitted hereunder shall be in writing and shall be delivered either
personally or by telegram, telex, telecopy or similar facsimile means, by
registered or certified mail (postage prepaid and return receipt requested), or
by express courier or delivery service, addressed as follows:
If to Sellers: Bookmaker Corporation
2470 El Camino Real, Suite 108
Palo Alto, California 94306
Attention: President
Telecopy No. (415) 856-4734
With a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Steve Bochner
Telecopy No. (415) 496-4086
If to Purchaser: The ForeFront Group, Inc.
1360 Post Oak Blvd., Suite 1660
Houston, Texas 77056
Attention: President
Telecopy No. (713) 961-1149
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With copies to: Andrews & Kurth L.L.P.
2170 Buckthorne Place, Suite 150
The Woodlands, Texas 77380
Attention: Jeffrey R. Harder
Telecopy No. (713) 364-9538
or at such other address and number as either party shall have previously
designated by written notice given to the other party in the manner hereinabove
set forth. Notices shall be deemed given when received, if sent by telegram,
telex, telecopy or similar facsimile means (confirmation of such receipt by
confirmed facsimile transmission being deemed receipt of communications sent by
telex, telecopy or other facsimile means); and when delivered and receipted for
(or upon the date of attempted delivery where delivery is refused), if hand-
delivered, sent by express courier or delivery service, or sent by certified or
registered mail.
7.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas (other than the choice of law
principles thereof).
7.8 Assignability. This Agreement shall not be assignable otherwise
than by operation of law by any party without the prior written consent of the
other parties, and any purported assignment by any party without the prior
written consent of the other parties shall be void; provided, however, that
Seller Corp. and its shareholders may assign their rights hereunder to each
other and to a trust or corporation formed in connection with the liquidation of
Seller Corp.
7.9 Waivers and Amendments. Any waiver of any term or condition of
this Agreement, or any amendment or supplementation of this Agreement, shall be
effective only if in writing. A waiver of any breach or failure to enforce any
of the terms or conditions of this Agreement shall not in any way affect, limit
or waive a party's rights hereunder at any time to enforce strict compliance
thereafter with every term or condition of this Agreement.
7.10 Third Party Rights. Notwithstanding any other provision of this
Agreement, this Agreement shall not create benefits on behalf of any Person who
is not a party to this Agreement (including without limitation any broker or
finder, notwithstanding the provisions of Section 7.2 hereof), and this
Agreement shall be effective only as between the parties hereto, their
successors and permitted assigns; provided, however, that the Indemnitees are
intended third party beneficiaries hereof to the extent provided in Article VI.
7.11 Severability. In the event that any provision contained in this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and the remaining provisions of this Agreement
shall not, at the election of the party for whose benefit the provision exists,
be in any way impaired.
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7.12 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
Agreement.
7.13 Tax Effects of Transaction. Except as provided in Section 3.10,
neither Sellers nor Purchaser have made nor do either of them make herein any
representation or warranty as to the tax consequences of the Transaction to any
party or to the Shareholders. It is understood and agreed that each party has
looked to its own advisors for advice and counsel as to such tax effects.
7.14 Employees.
(a) Sellers will terminate the employment of all the officers and
employees performing services relating to the Business at the Effective Time of
Closing. Except as set forth in Section 7.14(b) or included in the Assumed
Liabilities Sellers shall be responsible for, and indemnify and hold the
Indemnitees harmless from, all Damages resulting from, relating to, or
arising out of (1) such termination of employment and (2) Employees' employment
contracts, collective bargaining agreements and pension and other employee plans
and agreements, including administrative and other costs of plan termination.
The indemnity provided in this Section shall be included in the indemnity
provided in Section 6.1 and subject to the terms of Article VI in all respects.
(b) Sellers will permit Purchaser to offer employment to some or all
of the Employees prior to or on the Effective Time of Closing, and Purchaser
will inform Sellers of the names of any Employees who are offered employment and
of any Employees whom it employs. Purchaser shall have full and absolute
discretion in determining the terms, conditions and benefits relating to such
employment, subject to the provisions in the following sentence.
Notwithstanding anything herein to the contrary, (i) nothing herein shall alter
or affect the terms of the Employment Agreements attached as Exhibits 4.1(d)(1),
4.1(d)(2) and 4.1(d)(3), and (ii) Purchaser shall provide each employee of
Seller Corp. (other than the Shareholders) on the Effective Time of Closing with
a ninety day employment contract from the Closing Date and thirty days
severance, except for Stan Otani, who shall have a ninety day contract and
ninety days severance, and Bill Gallinger, who shall have a one-year contract
from the Closing Date.
(c) Nothing contained in this Agreement shall obligate Purchaser to
continue the employment of any Employee (except as provided in the last sentence
of Section 7.14(b)). Nothing in this Section 7.14 is intended to create any
claim or right on the part of any employee of Sellers and no such employee shall
be entitled to assert any claim or right hereunder.
7.15 Access to Records.
(a) Following the Effective Time of Closing, Purchaser shall give to
Sellers free and unrestricted access to (and the right to make copies at the
expense of Sellers) the Records and to the extent that such were purchased by
Purchaser hereunder and relate to the business, operations,
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income, expenses and assets of Seller Corp. existing on, accruing or arising
prior to or occurring prior to Effective Time of Closing, but any access
pursuant to this Section 7.15 shall be conducted in such manner as not to
interfere unreasonably with the operations of the Business following the
Effective Time of Closing.
(b) Following the Effective Time of Closing, Sellers shall give to
Purchaser free and unrestricted access to (and the right to make copies at the
expense of Purchaser) the books, files, records and Tax returns and supporting
schedules and work papers of Seller Corp. to the extent that such relate to the
business, operations, income, expenses and assets of Seller Corp. existing on,
accruing or arising prior to or occurring prior to the Effective Time of
Closing, but any access pursuant to this Section 7.15 shall be conducted in such
manner as not to interfere unreasonably with the operations of the business of
Sellers following the Effective Time of Closing. Sellers shall (i) provide
Purchaser with such assistance as may reasonably be requested in connection with
the preparation of any Tax Return, audit, or other examination by any taxing
authority or judicial or administrative proceedings relating to liability for
Taxes, (ii) retain and provide Purchaser with any
records or other information that may be relevant to such Tax Return, audit or
examination, proceeding, or determination, and (iii) provide Purchaser with any
final determination of any such audit or examination, proceeding, or
determination that affects any amount required to be shown on any Tax Return
affected by the business, operations, income, expenses or assets of Seller Corp.
for any period. Without limiting the generality of the foregoing, Sellers shall
retain, until the applicable statutes of limitations (including any extensions)
have expired, copies of all Tax Returns, supporting work schedules, and other
records or information that may be relevant to such returns for all tax periods
or portions thereof ending before or including the Closing Date and shall not
destroy or otherwise dispose of any such records without first providing
Purchaser with a reasonable opportunity to review and copy the same.
7.16 Disclosure. Any disclosure made by any of Sellers on any
Schedule to this Agreement shall be deemed disclosed on any other Schedule to
which such disclosure applies.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
PURCHASER:
THE FOREFRONT GROUP, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
SELLERS:
------------------------------
Martin Mazner
------------------------------
Hal Schectman
------------------------------
Chris Kirkpatrick
BOOKMAKER CORPORATION
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
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ANNEX A
DEFINITIONS
"Accountant": As defined in Section 1.4(c).
"Accounts": As defined in Section as defined in Section 1.2(b)(11).
"Affiliate": Any Person that, directly or indirectly, controls, or is
controlled by or under common control with, another Person. For the purposes of
this definition, "control" (including the terms "controlled by" and "under
common control with"), as used with respect to any Person, means the power to
direct or cause the direction of the management and policies of such person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement": As defined in the introductory paragraph of
this Agreement.
"Assets" and "Asset": As defined in Section 1.2(a).
"Assumed Liabilities": As defined in Section 1.5(a).
"Assumption Agreement": As defined in Section 1.6.
"Audited Balance Sheet": As defined in Section
2.1(c)(1).
"Backlog Orders": As defined in Section 1.2(b)(10).
"Balance Sheets": As defined in Section 2.1(c).
"Business": As defined in the recitals of this Agreement.
"Claim": As defined in Section 6.3(b).
"Closing": As defined in Section 5.1.
"Closing Date": As defined in Section 5.1.
"Closing Shares": As defined in Section 1.3(a).
"Code": As defined in Section 1.4(c).
<PAGE>
"Common Stock": The common stock, par value $.01, issued by The
ForeFront Group, Inc., a Delaware corporation.
"Damages": As defined in Section 6.2.
"Defined Benefit Plan": As defined in Section 2.1(j)(1).
"Earnout Shares": As defined in Section 1.4(b).
"Effective Time of Closing": As defined in Section 5.1(b).
"Employees": As defined in Section 2.1(j)(1).
"Employment Agreements": As defined in Section 4.1(d).
"Environmental Event": As defined in Section 2.1(A).
"Environmental Law": As defined in Section 2.1(B).
"Environmental Materials": As defined in Section 2.1(C).
"Equipment": As defined in Section 1.2(b)(4).
"ERISA": Employee Retirement Income Security Act of 1974, as amended.
"Escrow": As defined in Section 1.4(b).
"Escrow Agent": Texas Commerce Bank, N.A.
"Escrow Agreement": As defined in Section 1.4(b).
"Escrow Period": As defined in Section 6.1.
"Escrow Shares": As defined in Section 1.3(a).
"Excess Liability Amount": As defined in Section 1.5(d).
"Excluded Assets": As defined in Section 1.2(c).
"Financial Statements": As defined in Section 2.1(c).
"Fixed Earnout Shares": As defined in Section 1.4(b).
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"Fixtures and Improvements": As defined in Section 1.2(b)(2).
"GAAP": As defined in Section 1.3(c).
"General Conveyance, Transfer and Assignment": As defined in Section
1.6(a).
"Governmental Approvals": As defined in Section 2.1(D).
"Governmental Authority": As defined in Section 2.1(E).
"Governmental Body or Bodies": Any court or any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Gross Revenue": All revenue attributable to sales of products
associated with the Business which are acquired from Seller Corp. as determined
in accordance with GAAP.
"Indemnitees": As defined in Section 6.2(a).
"Instruments": As defined in Section 2.1(j).
"Intangible Assets": As defined in Section 1.2(b)(6).
"Intellectual Property": As defined in Section 1.2(b)(6).
"Interim Balance Sheet": As defined in Section 2.1(c)(2).
"Interim Financial Statements": As defined in Section 2.1(c)(1).
"Inventories": As defined in Section 1.2(b)(9).
"Leased Property": As defined in Section 1.2(b)(1).
"Lien": All mortgages, deeds of trust, liens (including, without
limitation, all consensual liens and all statutory liens in favor of, or for the
benefit of, any Governmental Body, security interests, pledges, conditional sale
contracts, claims, rights of first refusal, options, charges, liabilities,
obligations, agreements, privileges, liberties, easements, rights-of-way,
limitations, reservations, restrictions and other encumbrances of any kind.
"Material Adverse Effect": means (a) Any change, development or
effect (individually or in the aggregate) in the general affairs, management,
business, results of operations, condition (financial or otherwise), assets,
liabilities or prospects (whether or not the result thereof would be
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covered by insurance) that would be material and adverse to Seller Corp., or (b)
any fact or development that would (individually or in the aggregate), impair
Sellers' ability or obligations to perform on a timely basis any material
obligations they have under this Agreement.
"Multi-Employer Plan": As defined in Section 2.1(j)(1).
"Non-Competition Agreement": As defined in Section 1.2(e).
"Operative Documents": This Agreement and all other agreements,
instruments, documents, and certificates executed and delivered by or on behalf
of Sellers or Purchaser at or before the Closing pursuant to this Agreement.
"Order": Any order, writ, injunction, decree, judgment, award or
determination of any court or Governmental Body.
"PBIT" ("Profits Before Income Taxes"): Gross Revenue less returns,
less all direct costs of goods sold, less all direct sales and marketing costs,
and less all direct general and administrative costs associated with the
operation of the new office of Purchaser where Bookmaker will be operated. In
addition to "direct" costs associated with the Bookmaker operations, appropriate
allocable expenses shall be considered for purposes of this calculation.
Revenues and costs discussed above shall be in accordance with GAAP.
"PBGC": As defined in Section 2.1(j).
"Permits": All permits, authorizations, certificates, approvals,
registrations, variances, exemptions, rights-of-way, franchises, privileges,
immunities, grants, ordinances, licenses and other rights or every kind and
character (a) under any (1) federal, state, local or foreign statute, ordinance
or regulation, (2) Order, (3) contract with any Governmental Body or (b) granted
by any Governmental Body.
"Permitted Encumbrances": (a) Liens for nondelinquent ad valorem
Taxes due under the Leases, nondelinquent statutory Liens arising other than by
the default or other breach of Sellers; (b) such Liens, minor imperfections of
title, or easements on leasehold estates, or personalty as do not in any
material respect detract from the value thereof and do not interfere with the
present use of the property subject thereto; and (c) Liens listed on Schedule
2.1(d) hereto.
"Person": An individual, partnership, joint venture, corporation,
bank, trust, unincorporated organization or a Governmental Body.
"Plans": As defined in Section 2.1(j).
"Products": All products manufactured, produced, marketed or distributed
by Seller Corp.
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"Purchase Price": As defined in Section 1.3(b).
"Purchaser Common Stock": As defined in Section 1.3.
"Purchaser Financials": As defined in Section 2.2(g).
"Realty Rights": As defined in Section 1.2(b)(3).
"Records": As defined in Section 1.2(b)(13).
"Registration Rights Agreement": As defined in Section 4.1(e).
"Scheduled Contracts": As defined in Section 1.2(b)(8).
"Scheduled Leases": As defined in Section 1.2(b)(1).
"SEC Documents": As defined in Section 2.2(g).
"SEC Laws": As defined in Section 2.2(g).
"Seller Corp. Sites": As defined in Section 2.1(p)(1).
"Sellers' Knowledge": As defined in Section 2.1(G).
"Tax Obligations": As defined in Section 1.5(b)(3).
"Tax Returns": As defined in Section 2.1(g)(1).
"Tax and Taxes": Any Federal, state, local, foreign or other net
income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, lien, service, service use, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property, customs,
duties, or other taxes, fees, assessments or charges of any nature whatsoever
(including, without limitation interest, penalties, additions to tax, or
additional amounts with respect thereto) imposed by any law rule or regulation.
"Transaction": The sale and purchase of the Assets, assignment and
assumption of certain liabilities, and performance of covenants, in each case as
contemplated by this Agreement.
"Unaudited Financial Statements": As defined in Section 2.1(c)(1).
"Variable Earnout Shares": As defined in Section 1.4(b).
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ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made this 12th day of June, 1996, by and among THE
FOREFRONT GROUP, INC., a Delaware corporation ("Purchaser"), BOOKMAKER
CORPORATION, a California corporation ("Seller Corp."), MARTIN MAZNER, HAL
SCHECTMAN, and CHRIS KIRKPATRICK, all individuals being residents of California
(the "Shareholders") (Seller Corp. and Shareholders are sometimes herein
collectively referred to as the "Sellers"), and TEXAS COMMERCE BANK, N.A., a
national banking corporation having an office at Houston, Texas, in its capacity
as escrow agent hereunder ("Escrow Agent"). Except as otherwise expressly
defined herein, each term used herein with its initial letter capitalized that
has been defined in the Purchase Agreement (as defined below) shall have the
same meaning herein as ascribed to it in the Purchase Agreement.
WITNESSETH:
-----------
WHEREAS, Purchaser and the Sellers are parties to an Asset Purchase
Agreement dated June 12, 1996 (the "Purchase Agreement"), pursuant to which
Purchaser has agreed to purchase substantially all of the assets of Seller
Corp.; Section 1.4(b) of the Purchase Agreement provides that the Purchaser
shall deliver a portion of the Purchase Price equal to the Earnout Shares to the
Escrow Agent; Section 1.4(a) and Article VI of the Purchase Agreement provide
that the Purchaser deliver a portion of the Purchase Price equal to the Escrow
Shares to the Escrow Agent; the purpose of this Escrow Agreement and the
creation of the Escrow Funds (as defined in Section 1 hereof) is to provide the
terms under which such Earnout Shares and Escrow Shares shall be released to
Sellers or returned to Purchaser and other terms relating thereto.
NOW THEREFORE, FOR AND IN CONSIDERATION of the mutual covenants and
agreements herein set forth, the parties hereto agree as follows:
1. Terms of Escrow. (a) Purchaser, on behalf of the Sellers, herewith
---------------
deposits with the Escrow Agent, and the Escrow Agent hereby acknowledges receipt
of, a stock certificate representing that number of shares (the "Fixed Earnout
Shares") of Purchaser Common Stock equal to 115,129 shares; a stock certificate
representing that number of shares of Purchaser Common Stock equal to 84,133
shares (the "Variable Earnout Shares"); and a stock certificate representing
that number of shares (the "Escrow Shares") of Purchaser Common Stock equal to
24,837 shares. The Fixed Earnout Shares and the Variable Earnout Shares are
sometimes hereinafter collectively referred to as the "Earnout Shares." The
Earnout Shares and Escrow Shares and all income and proceeds therefrom shall
constitute the escrow funds (the "Escrow Funds"), which shall be held and dealt
with by the Escrow Agent in accordance with the terms and conditions of this
Escrow Agreement.
<PAGE>
(b) On or before March 30, 1997 and March 30, 1998, Purchaser shall deliver
to the Escrow Agent and Sellers or their assigns a certificate (the
"Certificate"), executed by the Chief Executive Officer and the Chief Financial
Officer of the Company, representing the number of Earnout Shares which Sellers
shall have earned for the period from the Closing Date through December 31, 1996
and for calendar year 1997, respectively, (each, an "Earnout Period") pursuant
to the terms of Section 1.3(b) of the Purchase Agreement, and which Certificate
shall provide a detailed analysis of the basis for such determination. Within
thirty (30) days of receipt of such Certificate for an Earnout Period the Escrow
Agent shall deliver to Seller Corp. that portion of the Earnout Shares as is
designated in each such Certificate, together with any dividends which are in
the possession of the Escrow Agent and which are applicable to such Earnout
Shares being delivered to the Seller Corp. Any Earnout Shares for any Earnout
Period which have not been delivered to the Seller Corp. shall be delivered to
Purchaser by May 1 following the conclusion of such Earnout Period, together
with any dividends applicable thereto, and Sellers shall have no further
interest therein, unless Sellers, Seller Corp. or their assigns or
representative, have delivered to the Escrow Agent and Purchaser, on or before
such date, written notice of a disagreement with the conclusions set out in the
Certificate for such Earnout Period and a demand for arbitration pursuant to
Section 2 of this Agreement. In the event Sellers deliver any such written
notice provided for in the above sentence, the Escrow Agent shall hold all
Escrow Funds pending the determination of the arbitration provided in Section 2
below.
(c) In the event that an Indemnitee determines, in good faith, that an
event has occurred which gives rise to a claim for Damages (together, a
"Claim"), and if such Indemnitee intends to seek indemnity with respect thereto
under Article VI of the Purchase Agreement, the Indemnitee shall notify Sellers
or their assigns and the Escrow Agent of such Claim in writing. Such notice
(the "Notice") must be given no later than sixty (60) days after the assertion
or determination of such Claim but in no event after the expiration of the
Escrow Period. Indemnitee shall include in its Notice to Sellers the basis for
the Claim, the amount of the resulting Damages and the number of Escrow Shares
which it determines is necessary in order to satisfy such Damages. For
purposes of determining the number of Escrow Shares to be returned to Purchaser
and canceled, Sellers and Purchaser agree to use the Closing Stock Price
regardless of the actual fair market value of the Purchaser Common Stock at the
time of such determination hereunder. If any Seller wishes to dispute the
validity of any Claim or the amount of Damages for any Claim, it must give
Purchaser and the Escrow Agent written notice of such dispute and the basis
therefore, within thirty (30) days of receiving the Indemnitee's Notice.
Escrow Agent shall deliver to Purchaser, for cancellation, that number of Escrow
Shares as identified in the Notice from the Indemnitee within thirty (30) days
of receipt thereof, unless it has received written notice from Seller Corp. or
its assigns of a dispute as provided above. Any Escrow Shares held by the
Escrow Agent at the expiration of the Escrow Period which have not been applied
against any Damages as provided herein, or which do not represent Damages for
Claims whose validity or amount is still in dispute, shall be delivered to
Seller Corp. promptly following the expiration of the Escrow Period. Any Escrow
Shares withheld pending resolution of a dispute, shall be delivered or retained
and canceled, as may be determined, upon final resolution of the dispute.
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(d) In the event that the Escrow Agent is provided written notice by Seller
Corp. of the dissolution or pending dissolution of Seller Corp. together with a
list of each stockholder of Seller Corp. entitled to receive Escrow Funds and
each such stockholder's respective pro rata ownership interest (a "Liquidation
Notice"), then the Escrow Agent shall, in lieu of delivering the Escrow Funds to
Seller Corp., deliver such Escrow Funds pursuant to the instructions set forth
in the Liquidation Notice.
(e) Seller Corp. or its assigns shall be entitled to direct the voting of
all of the Earnout Shares and Escrow Shares held by the Escrow Agent, and the
Escrow Agent agrees to vote such Earnout Shares and Escrow Shares in accordance
with the written directions of Seller Corp., or in the event that written notice
of the dissolution of Seller Corp. is provided to the Escrow Agent, pursuant to
the instructions set forth in the Liquidation Notice. All cash funds held by
the Escrow Agent shall be invested by the Escrow Agent in accordance with the
directives received from time to time set forth in a written document signed by
the Purchaser and the Sellers and delivered to the Escrow Agent and all such
investments shall be issued in the joint names of the Purchaser and Seller Corp.
or its assigns. Absent any such written directives, the Escrow Agent shall hold
the Earnout Shares and Escrow Shares included in the Escrow Funds and shall
invest all other assets included in the Escrow Funds in direct obligations of
the United States of America and any of its instrumentalities, which are hereby
authorized and approved by Purchaser, Seller Corp. and the Shareholders (absent
written directive to the contrary as contemplated in the preceding sentence).
The Escrow Agent is hereby authorized and directed by Purchaser, Seller Corp.
and the Shareholders to liquidate from time to time any investment or
investments in order to make any distributions required by this Escrow
Agreement, notwithstanding any economic consequences of liquidating such
investment prior to its maturity.
2. Arbitration. In the event that Sellers, Seller Corp. or their assigns
-----------
or representatives provide written notice to the Purchaser and the Escrow Agent
of their dispute with the information provided in the Certificate as provided in
Section 1(b) or the Notice required in Section 1(c), such contested matter shall
be settled by arbitration in Houston, Texas (unless Purchaser and the Sellers
agree upon another location) before three arbitrators in accordance with the
rules then in effect of the American Arbitration Association. Seller Corp. or
its assigns and the Purchaser shall each, within 14 days from the date of the
relevant Sellers' notice pursuant to Section 1(b) or 1(c) hereof, designate one
arbitrator and such designated arbitrators shall mutually agree on, and shall
designate, a third arbitrator; provided, however, that, failing such agreement
within 30 days after their appointment, the third arbitrator shall be named by
the American Arbitration Association. Purchaser and Seller Corp. or its assigns
shall pay the fees and expenses of their respectively designated arbitrators and
shall bear equally the fees and expenses of the third arbitrator. The written
final decision of the majority of the arbitrators shall be furnished to the
Purchaser, Seller Corp. or its assigns and the Escrow Agent in writing and shall
constitute a conclusive determination of the contested claim in question,
binding upon the Purchaser, Seller Corp. or its assigns and the Escrow Agent and
shall not be contested by any of them.
3
<PAGE>
3. Rights of Escrow Agent.
----------------------
(a) The Escrow Agent undertakes to perform only such duties as are
expressly set forth herein, and shall not be required to refer to the Purchase
Agreement or take any other action with respect to any other matter which might
arise in connection with the Escrow Fund in carrying out its duties hereunder.
The Escrow Agent has no duty to determine or inquire into any happening or
occurrence or any performance or failure of performance of Purchaser or any
Seller. The Escrow Agent is not responsible in any manner for the sufficiency,
correctness, genuineness or validity of any of the documents, certificates,
instruments or notices deposited with the Escrow Agent pursuant to this Escrow
Agreement or for the form or execution thereof, or for the identity or authority
of any person executing or depositing the same.
(b) The Escrow Agent may rely, and shall be protected in acting or
refraining from acting, upon any written notice, instruction, certificates or
request furnished to it hereunder and believed by it to be genuine and to have
been signed or presented by the proper party or parties, provided that, as set
forth below, any modification of this Escrow Agreement shall be signed by all of
the parties hereto or their respective assigns. Purchaser and each Seller shall
indemnify the Escrow Agent against and in respect of any and all direct or
indirect damages, claims, losses, liabilities and expenses (including without
limitation, attorneys' fees) incurred by the Escrow Agent which may arise out of
or result from any false or incorrect notice, certificate or other communication
delivered pursuant to this Escrow Agreement by such party.
(c) In the event of any disagreement or controversy arising under this
Escrow Agreement or if conflicting demands or notices are made upon the Escrow
Agent growing out of or relating to this Escrow Agreement or in the event the
Escrow Agent in good faith is in doubt as to what action it should take
hereunder, the Escrow Agent shall have the right, at its election, to (1)
withhold and cease all further proceedings under, and performance of, this
Escrow Agreement, and of all instructions received hereunder, and resign as
Escrow Agent effective upon the appointment of a successor Escrow Agent by the
Purchaser and the Sellers (as contemplated by Section 3(e) below), or (ii) file
a suit in interpleader and obtain an order from a court of competent
jurisdiction requiring all parties involved to interplead and litigate in such
court their claims and rights among themselves and with the Escrow Agent. The
foregoing remedies shall be in addition to any other remedies available to the
Escrow Agent provided by law. Should any suit or legal proceeding be instituted
growing out of or related to this Escrow Agreement, whether such suit be
initiated by the Escrow Agent or others, the Escrow Agent shall have the right,
at its option, to cease all further proceedings under, and performance of, this
Escrow Agreement, and of all instructions received hereunder, until all
differences and doubts have been resolved by agreement or until the rights of
all parties shall have been fully and finally adjudicated.
(d) Purchaser and the Sellers hereby agree, jointly and severally, to
indemnify the Escrow Agent for, and to hold it harmless against, any loss,
liability or expense (including, without limitation, attorneys' fees) incurred
by it without gross negligence or bad faith on its part arising out
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<PAGE>
of or in connection with its entering into this Escrow Agreement and the
carrying out of its duties hereunder, including the costs and expenses of
defending itself against any claim of liability hereunder or in connection
therewith. The Escrow Agent may consult with counsel of its own choice as to
any matters arising hereunder, and shall have full and complete authorization
and protection for any action taken or suffered by it hereunder in good faith
and in accordance with the opinion of such counsel.
(e) The Escrow Agent may resign and be discharged from its duties or
obligations hereunder by giving notice of such resignation to Purchaser, Seller
Corp. or its assigns and the Sellers, specifying the date upon which such
resignation shall take effect, which shall be at least 30 days after the date of
such notice. Purchaser and Seller Corp. or its assigns, together, shall have
the right to terminate the appointment of the Escrow Agent hereunder by giving
to it notice of such termination specifying the date upon which such termination
shall take effect, which shall be at least 30 days after the date of such
notice. In either such event, Purchaser and Seller Corp. hereby agree to
mutually designate a successor Escrow Agent, and the parties hereto agree that,
upon demand of such successor Escrow Agent, all property in the Escrow Fund
shall be turned over and delivered to such successor Escrow Agent, which shall,
thereupon, be bound by all of the provisions hereof. In the event the Escrow
Agent does not receive notice of the banking or other institution which has been
designated as successor escrow agent within 30 days after the Escrow Agent's
resignation or termination hereunder, the Escrow Agent shall have no further
duties or obligations hereunder, and may (but shall in no event be required), at
its option and election, (i) tender the Escrow Funds to a court of competent
jurisdiction for disposition in such manner as such court shall determine, (ii)
petition any court of competent jurisdiction for the appointment of a successor
escrow agent or for such other relief or action as may effectuate the Escrow
Agent's resignation and termination of its rights, duties and obligations
hereunder, or (iii) take any other action it deems appropriate to terminate its
rights, duties and obligations hereunder. Purchaser and the Sellers shall
indemnify the Escrow Agent for, and hold it harmless against, all losses, costs,
liabilities, damages or expenses incurred by it in connection with its
resignation as Escrow Agent or its termination in such capacity and its transfer
and delivery of the Escrow Funds to any successor escrow agent.
(f) Purchaser hereby agrees to pay to the Escrow Agent reasonable
compensation for the services to be rendered by it hereunder and to pay or to
reimburse the Escrow Agent for all expenses, disbursements and advances
(including reasonable attorneys' fees) incurred or made by it in connection with
its joining this Escrow Agreement and with the carrying out of its duties
hereunder. The Escrow Agent's annual administration fee as in effect on the
date hereof is $3,000.00. The Escrow Agent acknowledges receipt of the initial
annual administration fee on the date hereof. Annual administration fees
thereafter shall be paid on the first day of each year during the term hereof,
commencing on June 12, 1997 or if not a business day, then, on the first
business day thereafter, and reimbursements for such expenses, disbursements and
advances shall be paid within 20 days after an invoice therefor is delivered by
the Escrow Agent to Purchaser. If any property or sums held hereunder is at any
time attached, garnished, or levied upon under any court order or by federal,
state or local taxing authorities, or in case the payment, assignment, transfer,
conveyance or delivery of any such property shall be stayed or enjoined by any
court order, or in case
5
<PAGE>
any order, judgment or decree shall be made or entered by any court
affecting such property or any part thereof, then and in any of such events, the
Escrow Agent is authorized to rely upon and comply with any such order, writ,
levy, judgment or decree which it is advised by legal counsel of its own
choosing is binding upon it; and if it complies with any such order, writ, levy,
judgment or decree, it shall not be liable to any of the parties hereto, or any
other person, firm or corporation, by reason of such compliance even though such
order, writ, levy, judgment or decree may be subsequently reversed, modified,
annulled, set aside or vacated. Without waiving any of its rights hereunder,
the Escrow Agent shall, at the time of service, notify Purchaser, Seller Corp.
and the Shareholders that it has been served with such order, writ, levy,
judgment or decree.
4. Termination. This Escrow Agreement shall terminate on the date the
-----------
Escrow Agent no longer holds any Escrow Funds hereunder. Prior to such date,
this Escrow Agreement may be amended or terminated only by an instrument in
writing duly executed by the Sellers and Purchaser and delivered to the Escrow
Agent; provided, however, that the duties, liabilities and obligations of the
Escrow Agent shall not be increased or modified without its written consent.
Escrow Agent shall not be responsible to solicit any documents or notices
referred to in this Escrow Agreement.
5. Discharge. In the event that Purchaser and the Sellers desire to
---------
choose another Escrow Agent, the successor Escrow Agent shall be chosen by
Purchaser and Seller Corp. or its assigns by mutual agreement. Any successor
Escrow Agent hereunder shall have all the rights, title, privileges, duties,
obligations and protection of the original Escrow Agent hereunder.
6. Notices.
-------
(a) Any notice to be given or other communication to be delivered hereunder
to Seller Corp., the Shareholders or Purchaser, shall be given in writing and
shall be deemed to have been given or delivered, as the case may be, when mailed
in the United States Post Office by express, registered or certified mail,
postage prepaid, to such party at its address first set forth above and, in the
case of Purchaser, to the attention of David Sikora, President, and, in the case
of Seller Corp., to the attention of Martin Mazner and, in the case of
Shareholders to the address on the signature pages hereof. Any party may change
the address to which notices are sent in the manner herein provided for giving
notice.
(b) Any notice or directions to be given or other communications to be
delivered to the Escrow Agent shall be in writing, shall either be hand-
delivered or sent by registered or certified mail and shall be deemed to have
been given or delivered, as the case may be, only when actually received by the
Trust Administration office of the Escrow Agent. All such notices, directions
and communications to the Escrow Agent shall be addressed as follows:
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<PAGE>
TEXAS COMMERCE BANK, N.A.
600 Travis Street, Suite 1150
Houston, Texas 77002
Attention: Corporate Trust, Escrow Section - Mona Rodgers
Fax: (713) 216-5476
7. Sellers. Any notice to be given or action to be taken hereunder on the
-------
part of the Sellers (including any amendment of this Agreement) shall be binding
on all the Sellers if given or taken by all of them or, if applicable, their
respective successors and assigns. If Seller Corp. is dissolved during the term
of this Agreement, then any notice to be given or action to be taken hereunder
on the part of the Sellers may be taken by all the Shareholders or, if
applicable, their respective successors and assigns.
8. Binding Effect. This Escrow Agreement shall be binding upon and inure
--------------
to the benefit of the parties hereto and their respective legal representatives,
heirs, distributees, successors and assigns.
9. Counterparts. This Escrow Agreement may be executed in more than one
------------
counterpart, each of which shall be deemed to be an original and all of which
shall constitute but one and the same instrument.
10. Governing Law; Cumulative Rights. This Escrow Agreement shall be
--------------------------------
construed under, and governed by, the laws of the State of Texas, excluding,
however, (a) its choice of law rules and (b) the portions of the Texas Trust
Code Sec. 111.001, et seq. of the Texas Property Code concerning fiduciary
duties and liabilities of trustees. All of Escrow Agent's rights hereunder are
cumulative of any other rights it may have at law, in equity or otherwise. The
parties hereto agree that the forum for resolution of any dispute arising under
this Escrow Agreement shall be Harris County, Texas, and each of the Sellers and
the Purchaser hereby consents, and submits itself, to the jurisdiction of any
state or federal court sitting in Harris County, Texas.
11. Tax Matters. Each of the Purchaser and Sellers shall provide Escrow
-----------
Agent with its taxpayer identification number documented by an appropriate Form
W8 or Form W9 upon execution of this Escrow Agreement. Failure so to provide
such forms may prevent or delay disbursements from the Escrow Funds and may also
result in the assessment of a penalty and Escrow Agent's being required to
withhold tax on any interest or other income earned on the Escrow Funds. Any
payments of income shall be subject to applicable withholding regulations then
in force in the United States or any other jurisdiction, as applicable.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written.
THE FOREFRONT GROUP, INC.
By:
Name:
Title:
BOOKMAKER CORPORATION
By:
Name:
Title:
Martin Mazner
Address:
Hal Schectman
Address:
Chris Kirkpatrick
Address:
TEXAS COMMERCE BANK, N.A.
By:
Name:
Title:
8
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made as of this
12th day of June 1996, by and among The ForeFront Group, Inc., a Delaware
corporation (the "Company") and Bookmaker Corporation (the "Seller").
RECITALS
--------
WHEREAS, the Seller has, pursuant to an Asset Purchase Agreement, dated as
of the date hereof (the "Purchase Agreement"), with the Company, certain
registration rights with respect to the "Closing Shares," "Earnout Shares" and
"Escrow Shares" (as defined in the Purchase Agreement) acquired under the
Purchase Agreement; and
WHEREAS, the obligations of the Seller under the Purchase Agreement are
conditioned upon the execution and delivery of this Agreement by the Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS
-------------------
As used in this Agreement, the following terms shall have the following
respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, par value $.01 per share, of
the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Holders" shall mean the Seller, each stockholder of Holder who has
received shares as a result of the liquidation of Seller, and any other holder
of Registrable Securities to whom the registration rights conferred by this
Agreement have been transferred in compliance with Section 2.13 hereof.
"Incremental Registration Expenses" shall mean underwriting discounts and
selling commissions attributable to the Registrable Securities being sold,
incremental state or federal registration and filing fees and state Blue Sky
fees and expenses incurred as a result of a Holder's participation in the
registration to which such fees and expenses relate, and the fees and expenses
of a Holder's own accountants and experts and more than one counsel to the
Selling Stockholders.
<PAGE>
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registered Securities" shall mean any of the Registrable Securities which
are included in a Registration Statement filed by the Company pursuant to
Section 2 hereof and which has been declared effective by the Commission.
"Registrable Securities" shall mean (i) the Shares issued to the Seller on
the date hereof and (ii) any Common Stock issued as a dividend or other
distribution with respect to or in exchange for or in replacement of the Shares;
provided, however, that Registrable Securities shall not include any shares of
Common Stock which have been previously sold in a registered public offering
under the Securities Act, or shares of Common Stock which would otherwise be
Registrable Securities held by a Holder who is then permitted to sell all of
such securities within any three (3) month period pursuant to Rule 144.
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with this Agreement including, without limitation, all registration
and filing fees, exchange listing fees, printing expenses, fees and
disbursements of counsel for the Company and one counsel for the Selling
Stockholders, state Blue Sky fees and expenses, and the expenses of any special
audits incident to or required by any such registration, but excluding
underwriting discounts and selling commissions attributable to the Registrable
Securities being sold, as well as all expenses normally incurred by the Company
in connection with its ordinary business activities, including, but not limited
to, rent and salaries.
"Registration Statement" shall mean a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any registration statement covering only securities proposed to
be issued in exchange for securities or assets of another corporation).
"Rule 144" shall mean Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission.
"Rule 145" shall mean Rule 145 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
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<PAGE>
"Selling Stockholders" shall mean the Holders of Registrable Securities to
be included in a Registration Statement.
"Shares" shall mean, collectively, the Closing Shares, Earnout Shares and
Escrow Shares.
2. REGISTRATION RIGHTS.
-------------------
2.1 Mandatory Registration.
----------------------
(a) Within 120 days of the "Closing Date" (as defined in the Asset
Purchase Agreement), the Company will:
(i) prepare and file with the Commission, a Registration Statement on Form
S-1 (or other appropriate form) with respect to the Shares and use its
reasonable best efforts to cause such Registration Statement to become and
remain effective for a period of 30 months after the Closing Date;
(ii) prepare and file with the Commission such amendments and supplements
to such Registration Statement and the prospectus used in connection therewith
as may be necessary to keep such Registration Statement effective for the period
contemplated in (i) above and comply with the provisions of the Securities Act
with respect to the disposition of all Shares covered by such Registration
Statement in accordance with the Holders' intended method of disposition set
forth in such Registration Statement for such period;
(iii) register or qualify the Shares, by the time the Registration
Statement is declared effective by the Commission, under all applicable state
securities or "Blue Sky" laws of such jurisdictions as each Underwriter, if any,
or Selling Stockholder shall request in writing, provided, that the Company
shall not be obligated to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified or to subject
itself to taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject;
(iv) keep each such registration or qualification effective during the
period the Registration Statement is required to be kept effective;
(v) upon request by a Holder, do any and all other acts and things which
may be reasonably necessary to enable such Underwriter, if any, and the Holder
to consummate the disposition of the Shares in each such jurisdiction;
(vi) notify the Holders when the Registration Statement has become
effective and when any post-effective amendments and supplements thereto become
effective;
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<PAGE>
(vii) in connection with an underwritten offering, if any, notify each
Holder if, between the effective date of the Registration Statement and the
closing of any sale of the Shares, the representations and warranties of the
Company contained in the underwriting agreement relating to any underwritten
offering cease to be true and correct in all material respects or if the Company
receives any notification with respect to the suspension of the qualification of
the Shares for sale in any jurisdiction or the initiation of any proceeding for
such purpose;
(viii) furnish or cause to be furnished forthwith to the Holders, a "cold
comfort" letter of the Company's independent accountants, as of the effective
date of the Registration Statement, as to such matters as customarily are
covered in accountant's letters delivered to underwriters in underwritten public
offerings of securities;
(ix) furnish or cause to be furnished forthwith to the Holders, an opinion
of counsel to the Company, as of the effective date of the Registration
Statement, in the form customarily provided by issuer's counsel in underwritten
public offerings of securities;
(x) furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus as the
Holders from time to time may reasonably request during the period of
distribution of the Shares;
(xi) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission with respect to the
disposition of the Shares covered by such Registration Statement, and make
available to its security Holders, as soon as reasonably practicable, an
earnings statement covering the period of at least 12 months, but not more than
18 months, beginning with the first month after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act; and
(xii) Use its best lawful efforts to cause all Registrable Securities to
be listed on each securities exchange on which similar securities issued by the
Company are then listed; and if not so listed, use its best lawful efforts to be
listed on the NASDAQ system.
(b) In connection with each registration under this Section, the Holders
will furnish to the Company in writing such information as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws.
(c) Subject to Section 2.2 below, the Company agrees to supplement or
amend the Registration Statement, if required by the Securities Act.
(d) All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Section 2.1 hereof, shall
be borne by the Company.
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<PAGE>
(e) The obligations of the Company under this Section 2.1 shall terminate
upon the expiration of 30 months from the effective date of a Registration
Statement or the date on which the Shares are no longer included as Registrable
Securities, whichever comes first.
2.2 Interference with Mandatory Registration.
----------------------------------------
(a) If, after the Registration Statement filed pursuant to Section 2.1 has
been declared effective, a stop order, injunction or other order or requirement
of the Commission or any other governmental agency or court is issued which
suspends the effectiveness of such Registration Statement, (i) upon receipt of
notice from the Company, the Holders will discontinue any disposition of Shares
or Registered Securities, respectively, pursuant to that Registration Statement
until receipt of notice from the Company that the suspension of the
effectiveness of the Registration Statement has been withdrawn and (ii) the
Company will use its reasonable best efforts to obtain the withdrawal of such
order or to meet such requirement at the earliest possible time.
(b) If, after the Registration Statement has become effective, an event
occurs as a result of which the Company determines that the Registration
Statement or the related prospectus contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, the Company will notify the Holder, if
applicable, use its reasonable best efforts to prepare and promptly file a post-
effective amendment or a supplement to the Registration Statement or the related
prospectus or promptly file any other required document so that, as thereafter
delivered to purchasers of the Shares or Registered Securities, such prospectus
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) Without limiting Section 2.2(a) and 2.2(b) hereof, if the Holders
shall propose to sell any of the Shares or Registered Securities, respectively,
pursuant to such Registration Statement, it shall notify the Company of its
intent to do so at least three (3) full Business Days prior to such sale. At
any time within such three (3) business day period, the Company may refuse to
permit the Holder to resell any of the Shares pursuant to such Registration
Statement; except that the Company may exercise this right only once in any 180
day period, unless the matter giving rise to the exercise by the Company of this
right is beyond the Company's control; and provided, further, that in order to
exercise this right, the Company must deliver a certificate in writing to the
Holder to the effect that a delay in such sale is necessary because a sale
pursuant to such Registration Statement in its then-current form would
reasonably be expected to constitute a violation of the federal securities laws.
Without limiting Section 2.2(b) hereof, in no event shall such delay exceed ten
(10) business days; provided, however, that if, prior to the expiration of such
ten (10) business day period, the Company delivers a certificate in writing to
the Holder to the effect that a further delay in such sale beyond such ten (10)
business day trading period is necessary because a sale pursuant to the
Registration Statement in its then-current form would reasonably be expected to
5
<PAGE>
constitute a violation of the federal securities laws, the Company may refuse to
permit the Holders to resell any of the Shares pursuant to the Registration
Statement for an additional period not to exceed five (5) business days, but in
no event shall any such delay exceed in the aggregate 15 business days, unless
the matter giving rise to the exercise of such right is beyond the Company's
control.
2.3 Selection of Underwriters. With respect to the registration of the
-------------------------
Shares pursuant to Section 2.1 hereof, at any time or from time to time after
the Closing, the Seller may elect to have the Shares sold to one or more persons
participating as underwriters for an underwritten offering. In such event, the
Company shall engage one or more nationally recognized independent investment
banking firms reasonably acceptable to the Holders of a majority of the Shares,
as underwriters.
2.4 Piggyback Registration. Whenever the Company proposes to file a
----------------------
Registration Statement at any time after the Closing Date and prior to five
years after such Closing Date, unless a Registration Statement with respect to
the Shares has previously been filed and declared effective by the Commission,
it will, at least 15 days prior to such filing, give written notice to all
Holders of Registrable Securities of its intention to do so and, upon the
written request of a Holder or Holders of Registrable Securities given within 10
days after the Company provides such notice (which request shall state the
intended method of disposition of such Registrable Securities), the Company
shall (subject to Section 2.6 below) use its best efforts to cause all
Registrable Securities that the Company has been requested by such Holder or
Holders to register to be registered under the Securities Act to the extent
necessary to permit their sale or other disposition in accordance with the
intended methods of distribution specified in the request of such Holder or
Holders; provided that the Company shall have the right to cancel, postpone or
withdraw any registration effected pursuant to this Section 2.4 without
obligation to any Holders of Registrable Securities. The Holders of Registrable
Securities that are registered shall be responsible for their proportionate
share of the Incremental Registration Expenses related to their Registrable
Securities, but shall not be responsible for any other Registration Expenses.
2.5 Underwriter's Reductions. If the offering to which the proposed
------------------------
registration under Section 2.4 relates is to be distributed by or through an
underwriter or underwriters, and if in the written opinion of the managing
underwriter the registration of all, or part of, the Registrable Securities that
the Holders have requested to be included and any other shares of Common Stock
sought to be registered by any other stockholder of the Corporation exercising
rights comparable to those of the Holders of Registrable Securities (the "Other
Common Stock"), would materially and adversely affect such public offering, then
the Company shall be required to include in the underwriting only that number of
Registrable Securities and Other Common Stock, if any, that the managing
underwriter believes may be sold without causing such adverse effect, and such
Registrable Securities as shall be excluded from registration by the managing
underwriter of an offering shall not be sold or offered for sale by the Holder
thereof until 120 days after the effective date of the Registration Statement.
In the event of any such determination by the managing underwriter, (i) the
number of Registrable Securities and Other Common Stock requested to be included
in the underwriting shall be reduced pro rata among the holders of the
Registrable
6
<PAGE>
Securities and the holders of Other Common Stock requesting such registration
and inclusion in the underwriting and may, in the determination of such managing
underwriter and consistent with pro rata reduction, be reduced to zero and (ii)
such Holder shall be responsible for and pay their proportionate share of the
Incremental Registration Expenses directly related thereto. If requested by such
underwriters, the Registrable Securities that are subject to the Registration
Statement shall be sold to or through such underwriters at the same price to be
paid to the Company or other stockholders owning shares of Other Common Stock
included in such registration if the Company or such other stockholders are
offering Common Stock.
2.6 Registration Procedures. If and whenever the Company is required by
-----------------------
Section 2.4 to use its best efforts to effect the registration of any of the
Registrable Securities under the Securities Act, the Company shall:
(i) prepare and file with the Commission any amendments and supplements to
the Registration Statement and the prospectus included in the Registration
Statement as may be necessary to keep the Registration Statement effective for a
period sufficient to effect the sale of the Registrable Securities, but in any
event not more than 90 days from the effective date;
(ii) furnish to each Selling Stockholder such reasonable numbers of copies
of the prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as the Selling
Stockholder may reasonable request to facilitate the public sale or other
disposition of the Registrable Securities owned by the Selling Stockholder;
provided, however, that the obligation of the Corporation to deliver copies of
prospectuses to such Selling Stockholders shall be subject to the receipt by the
Company of reasonable assurances from such Selling Stockholders that they will
comply with the applicable provisions of the Securities Act and of such other
securities laws as may be applicable in connection with any use by them of any
prospectuses; and
(iii) as expeditiously as possible, use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states or jurisdictions as the Selling
Stockholder shall reasonable request, and do any and all other acts and things
that may be necessary or desirable to enable the Selling Stockholder to
consummate the public sale or other disposition in such jurisdictions of the
Registrable Shares owned by the Selling Stockholder; provided, however, that
the Corporation shall not be required in connection with this Section 2.7(iii)
to qualify as a foreign corporation or execute a general consent to service of
process in any jurisdiction.
2.7 Amendments to Prospectus. If the Company has delivered preliminary or
------------------------
final prospectuses to the Selling Stockholder and after having done so, the
Company determines that such prospectus should be amended to comply with the
requirements of the Securities Act, the Company shall promptly notify the
Selling Stockholder and, if requested, the Selling Stockholder shall immediately
cease making offers of Registrable Securities and return all prospectuses to the
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<PAGE>
Corporation except for file copies used for archival purposes. The Company
shall use its best efforts to promptly provide the Selling Stockholder with
revised prospectuses and, following receipt of the revised prospectuses, the
Selling Stockholder shall be free to resume making offers of the Registrable
Securities.
2.8 Obligations of Selling Stockholders. No Registrable Securities shall
-----------------------------------
be included in a registration under Section 2.4 unless the Holder of such
Registrable Securities (a) completes and executes all questionnaires,
indemnities, underwriting agreements and other documents required under the
terms of any underwriting arrangement relating to such registration or under any
applicable rules and regulations of the Commission provided that such documents
are no more onerous than those executed or completed by the Company or any other
stockholder of the Company selling stock in such offering, and (b) provides to
the Company in writing such information as the Company may reasonably require
from such Holder (i) for inclusion in the Registration Statement relating to
such registration, (ii) describing the manner and circumstances of the proposed
sale or transfer of Registrable Securities by such Holder, and (iii) to enable
the Company to determine if an exemption provided for in this Agreement from the
Company's obligation to include such Registrable Securities in a Registration
Statement may be applicable.
2.9 Indemnification.
---------------
(a) To the extent permitted by law, the Company will indemnify each Holder
participating in a registration pursuant to this Agreement, each of its officers
and directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
to the extent such expenses, claims, losses, damages or liabilities arise out of
or are based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on 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
the Company of the Securities Act or any rule or regulation promulgated under
the Securities Act applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, each of its officers and directors, and each person controlling
such Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any
such claim, loss, damage, liability or action, provided, however, that the
indemnity contained herein shall not apply to amounts paid in settlement of any
claim, loss, damage, liability or expense if settlement is effected without the
consent of the Company (which consent shall not unreasonably be withheld), and
provided further, that the Company 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 on any untrue
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<PAGE>
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by such
Holder, controlling person or underwriter specifically for use therein.
Notwithstanding the foregoing, insofar as the foregoing indemnity relates to any
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the Commission at the time the registration
statement becomes effective or in the final prospectus filed with the Commission
pursuant to Rule 424 of the Commission, the indemnity agreement herein shall not
inure to the benefit of any underwriter or (if there is no underwriter) any
Holder if a copy of the final prospectus filed pursuant to Rule 424 was not
furnished to the person or entity asserting the loss, liability, claim or damage
at or prior to the time such furnishing is required by the Securities Act.
(b) To the extent permitted by law, each Holder will, if Registrable
Securities are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement by such
Holder (or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
omission by such Holder (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 such Holder of any rule or regulation
promulgated under the Securities Act applicable to such Holder and relating to
action or inaction required of such Holder in connection with any such
registration, qualification or compliance, and will reimburse the Company, such
Holders, such directors, officers, persons, underwriters or control persons for
any legal or 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, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
specifically for use therein; provided, however, that the indemnity contained
herein shall not apply to amounts paid in settlement of any claim, loss, damage,
liability or expense if settlement is effected without the consent of the Holder
(which consent shall not be unreasonably withheld). Notwithstanding the
foregoing, the liability of each Holder under this subsection (b) shall be
limited in an amount equal to the net proceeds from the sale of the shares sold
by such Holder, unless such liability arises out of or is based on willful
conduct by such Holder. In addition, insofar as the foregoing indemnity relates
to any such untrue statement (or alleged untrue statement) or omission (or
alleged omission) made in the preliminary prospectus but eliminated or remedied
in the amended prospectus on file with the Commission at the time the
registration statement becomes effective or in the final prospectus filed
pursuant to Rule 424 of the Commission, the indemnity agreement herein shall not
inure to the benefit of the Company, any underwriter or (if there is no
underwriter) any Holder if a copy of the final prospectus
9
<PAGE>
filed pursuant to Rule 424 was not furnished to the person or entity asserting
the loss, liability, claim or damage at or prior to the time such furnishing is
required by the Securities Act.
(c) Each party entitled to indemnification under this Section 2.9 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate or different
defenses. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnified Party shall consent to entry of any judgment or
enter into any settlement without the consent of each Indemnifying Party.
(d) If the indemnification provided for in this Section 2.9 is unavailable
to an Indemnified Party in respect of any losses, claims, damages or liabilities
referred to therein, then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities, in
such proportion as is appropriate to reflect the relative fault of the Company
on the one hand and the Selling Stockholders on the other, in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and the Selling Stockholders on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Selling Stockholders and the parties' relevant intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Selling Stockholders agree that it would not be
just and equitable if contribution pursuant to this Section 2.9(d) were based
solely upon the number of entities from whom contribution was requested or by
any other method of allocation which does not take account of the equitable
considerations referred to above in this Section 2.9(d). The amount paid or
payable by an Indemnified Party as a result of the losses, claims, damages and
liabilities referred to above in this Section 2.9(d) shall be deemed to include
any legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such action or claim, subject to
the provisions of Section 2.9(c) hereof. Notwithstanding the provisions of this
Section 2.9(d), no Selling Stockholder shall be required to contribute any
amount or make any other
10
<PAGE>
payments under this Agreement which in the aggregate exceed the proceeds
received by such Selling Stockholder. No person guilty of fraudulent
misrepresentation (within the meaning of the Securities Act) shall be entitled
to contribution under this Section (d) from any person who was not guilty of
such fraudulent misrepresentation.
(e) Notwithstanding the foregoing provisions of this Section 2.10, if
pursuant to an underwritten public offering of capital stock of the Company, the
Selling Stockholders and the underwriters enter into an underwriting or purchase
agreement relating to such offering which contains provisions covering
indemnification among the parties thereto in connection with such offering, the
indemnification provisions of this Section 2.10, to the extent they are in
conflict therewith, shall be deemed inoperative for the purpose of such
offering, except as to any parties to this Agreement who are not parties to such
subsequent underwriting or purchase agreement.
2.10 Certain Information.
-------------------
(a) As a condition to exercising the registration rights provided for
herein, each Holder, with respect to any Registrable Securities included in any
registration, shall furnish the Company such information regarding such Holder,
the Registrable Securities and the distribution proposed by such Holder as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in Section 2.
(b) The failure of any Holder to furnish the information requested pursuant
to Section 2.11(a) shall not affect the obligation of the Company under Section
2 to the remaining Holder(s) who furnish such information unless, in the
reasonable opinion of counsel to the Company or the underwriters, such failure
impairs or may impair the legality of the Registration Statement or the
underlying offering.
(c) Each Holder, with respect to any Registrable Securities included in any
registration, shall cooperate in good faith with the Company and its
underwriters, if any, in connection with such registration, including placing
such shares in escrow or custody to facilitate the sale and distribution
thereof.
(d) Each Holder, with respect to any Registrable Securities included in any
registration, shall make no further sales or other dispositions, or offers
therefor, of such shares under such registration statement if, during the
effectiveness of such registration statement, an intervening event should occur
which, in the opinion of counsel to the Company, makes the prospectus included
in such registration statement no longer comply with the Securities Act until
such time as such holder has received from the Company copies of a new, amended
or supplemented prospectus complying with the Securities Act.
2.11 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable
11
<PAGE>
Securities to the public without registration, after such time as a public
market exists for the Common Stock of the Company, the Company agrees to use its
best lawful efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, to promptly
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company and other information in the possession of or reasonably obtainable by
the Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing such Holder to sell any such securities
without registration. In addition, if at any time following the effective date
of the first registration of any of the Company's securities under the
Securities Act the Company shall cease to be subject to the requirements of
Section 15(d) of the Exchange Act, the Company will make available to any of the
Holders the information required by Rule 15c2-11(a)(4) of the Exchange Act (or
any corresponding rule hereafter in effect).
2.12 Transfer of Registration Rights. The rights granted to the Seller
-------------------------------
may be assigned without the consent of the Company to each stockholder of Seller
in connection with the liquidation of Seller, provided that each such
stockholder shall execute an acknowledgment agreeing to be bound by all of the
terms of this Agreement. Thereafter, the rights granted under this Agreement
may be assigned by each such stockholder of Seller to a transferee or assignee
in connection with any transfer or assignment of Registrable Securities provided
that: (i) such transferee or assignee is a partner or retired partner of any
stockholder which is a partnership, (ii) such transferee or assignee is a member
of the immediate family of such stockholder or a trust for the benefit of any
individual stockholder, or (iii) such transferee or assignee is acquiring no
less than 50,000 shares of Registrable Securities (as presently constituted and
subject to subsequent adjustments for stock splits, stock dividends, reverse
stock splits, and the like); provided further that (i) such transfer may
otherwise be effected in accordance with applicable securities laws, (ii) the
stockholder notifies the Company in writing prior to the transfer or assignment
and the assignee or transferee agrees in writing to be bound by the provisions
of this Agreement, and (iii) such transfer is not pursuant to a registration
statement under the Securities Act or Rule 144 promulgated under the Securities
Act.
2.13 Standoff Agreement. Each Holder agrees, upon request of the
------------------
underwriter managing a public offering of equity securities offered by the
Company, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any equity securities of the Company (other
than those included in the registration) without the prior written consent of
such
12
<PAGE>
underwriters, for such period of time from the effective date of a registration
statement relating to such underwritten public offering as may be requested by
the underwriters not to exceed ninety days; provided, that the officers and
directors of the Company who own stock of the Company also agree to such
restrictions. Furthermore, each Holder agrees that during any three-month period
following the Closing Date, such Holder will not sell more than twenty-five
percent (25%) of the total amount of Shares held by such Holder.
3. MISCELLANEOUS.
-------------
3.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY
-------------
THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF
LAWS PRINCIPLES THEREOF.
3.2 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
3.3 Effective Date; Entire Agreement; Amendment. This Agreement shall
-------------------------------------------
constitute the full and entire understanding and agreement between the parties
with regard to the subject hereof, and shall be effective at such time as it has
been signed by the Company and the Seller. Except as expressly provided herein,
this Agreement, or any provision hereof, may be amended, waived, discharged or
terminated upon the written consent of the Company and the Holders holding at
least one-half ( 1/2) of the then outstanding Registrable Securities owned by
Holders.
3.4 Notices, etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger
including Federal Express or similar courier service, addressed (a) if to a
Holder, at such Holder's address set forth on the signature page, or at such
other address as such party shall have furnished to the Company in writing, or
(b) if to the Company, at The ForeFront Group, Inc., 1360 Post Oak Boulevard,
Suite 1660, Houston, TX 77056, ATTN.: President, or at such other address as
the Company shall have furnished to the other parties hereto.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective upon receipt, if delivered personally or by
courier, or, if sent by mail, at the earlier of its receipt or 48 hours after
same has been deposited in a regularly maintained receptacle for the deposit of
the United States mail, addressed and mailed as aforesaid.
3.5 Delays or Omissions. Except as expressly provided herein, no delay or
-------------------
omission to exercise any right, power or remedy accruing to any party to this
Agreement shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character
13
<PAGE>
on the part of any party of any breach or default under this Agreement, or any
waiver on the part of any party of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any party to this Agreement, shall
be cumulative and not alternative.
3.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which may be executed by less than all of the parties
hereto, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
3.7 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
3.8 Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not considered in construing or
interpreting this Agreement.
14
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IN WITNESS WHEREOF, the undersigned or each of their respective duly
authorized officers or representatives have executed this agreement effective
upon the date first set forth above.
"COMPANY"
THE FOREFRONT GROUP, INC.
By:
------------------------------------
Title:
---------------------------------
"SELLER"
BOOKMAKER CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Address:
--------------------------------
--------------------------------
Acknowledged and Agreed:
The undersigned, a stockholder of Seller, hereby acknowledges his or
her agreement to be bound by the terms set forth herein.
----------------------------------------
Name:
__________________________________
Date:
----------------------------------
Address:
--------------------------------
--------------------------------
15
