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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 THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) FEBRUARY 8, 1999
-------------------------------
GAMETECH INTERNATIONAL, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 0-23401 33-0612983
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(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.
2209 W. 1ST STREET, SUITE 113, TEMPE, ARIZONA 85281
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (602) 804-1101
-----------------------------
NOT APPLICABLE.
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(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT.)
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Item 2. Acquisition or Disposition of Assets.
Effective February 8, 1999, GameTech International, Inc. ("GameTech"
or the "Company") acquired (the "Acquisition") all of the outstanding capital
stock of Bingo Technologies Corporation, a privately-held company
specializing in electronic bingo systems ("Bingo Technologies"). The
Acquisition was consummated in accordance with the terms of a Stock Purchase
Agreement between the Company, Bingo Technologies and the stockholders of
Bingo Technologies, dated as of February 8, 1999 (the "Agreement").
The aggregate consideration paid by the Company in connection with
the Acquisition was approximately $19.5 million, comprised of $8,817,994
cash, 1,866,938 unregistered shares of GameTech Common Stock and an aggregate
of $4,624,333 in unsecured promissory notes. Of these amounts, $1,952,211
cash and 373,387 shares of GameTech Common Stock were placed in escrow to
secure certain indemnification obligations of the Bingo Technologies
shareholders.
The aggregate consideration paid in the Acquisition was determined
through arm's length negotiations between representatives of the Company and
Bingo Technologies. Neither GameTech nor, to the knowledge of GameTech, any
affiliate, director or officer of GameTech, had any material relationship
with Bingo Technologies prior to the Acquisition.
In connection with Acquisition, the parties entered into certain
ancillary documents, including, without limitation, executive employment
agreements and noncompetition agreements with Gerald Novotny, Keith Novotny
and John Larsen, the Chairman and Chief Executive Officer, Chief Operating
Officer and President, respectively, of Bingo Technologies. Gerald Novotny,
Keith Novotny and John Larsen have also joined the Board of Directors of
GameTech.
The assets purchased principally consisted of certain inventories
valued by the parties as of January 31, 1999, of approximately $120,000;
trade receivables of $1.3 million; fixed assets net of accumulated
depreciation of $ 6.5 million; and goodwill and intangible assets of $ 1.5
million. Following the Acquisition, GameTech intends to continue to operate
Bingo Technologies in substantially the same manner as it was prior to the
Acquisition.
Related liabilities of Bingo Technologies assumed by GameTech include
$1.1 million of accounts payable and accrued expenses, $4.7 million of short
term debt, $800,000 of income taxes payable and $320,000 capital lease
obligations.
GameTech financed the $8,817,994 aggregate cash consideration paid in
connection with the Acquisition with available cash and cash equivalents.
Item 7. Financial Statements and Exhibits.
(a) FINANCIAL STATEMENTS.
At the time of filing this report on Form 8-K, it is impractical
to provide the required financial statements for Bingo
Technologies. The required
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financial statements will be filed by GameTech not later than 60
days following the date upon which this report on Form 8-K must
be filed.
(b) PRO FORMA FINANCIAL INFORMATION.
At the time of filing this report on Form 8-K, it is impractical
to provide the required pro forma financial information of Bingo
Technologies. The required pro forma financial information will
be filed by Game Tech not later than 60 days following the date
upon which this report on Form 8-K must be filed.
(c) EXHIBITS.
EXHIBIT NO. DESCRIPTION METHOD OF FILING
2 Stock Purchase Agreement, dated Filed herewith
February 8, 1999, between Filed herewith
GameTech, International Bingo Technologies
Corporation and the Stockholders and
Indemnitors named herein
99.1 Registrant's Press Release dated Filed herewith
February 8, 1999
99.2 Registrant's Press Release dated Filed herewith
February 11, 1999
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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.
GAMETECH INTERNATIONAL, INC.
Date: February 23, 1999 By: /s/ Andrejs K. Bunkse
----------------------
Andrejs K. Bunkse
Secretary
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STOCK PURCHASE AGREEMENT
BY AND AMONG
GAMETECH INTERNATIONAL, INC.,
BINGO TECHNOLOGIES CORPORATION
AND
THE STOCKHOLDERS AND INDEMNITORS NAMED HEREIN
DATED AS OF FEBRUARY 8, 1999
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TABLE OF CONTENTS
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RECITALS 1
ARTICLE I THE ACQUISITION.............................................................................................2
1.1 The Acquisition.....................................................................................2
1.2 Closing; Closing Date...............................................................................2
1.3 Consideration.......................................................................................2
1.4 Net Worth True-Up...................................................................................2
1.5 Certain Definitions.................................................................................4
1.6 Tax Consequences....................................................................................5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY, THE STOCKHOLDERS AND INDEMNITORS...........................5
2.1 Organization of the Company.........................................................................5
2.2 Subsidiaries........................................................................................6
2.3 Company Capital Structure...........................................................................6
2.4 Authority...........................................................................................6
2.5 No Conflict.........................................................................................7
2.6 Consents............................................................................................7
2.7 Company Financial Statements........................................................................8
2.8 No Undisclosed Liabilities..........................................................................8
2.9 No Changes..........................................................................................8
2.10 Tax Matters........................................................................................10
2.11 Restrictions on Business Activities................................................................12
2.12 Title to Properties; Absence of Liens and Encumbrances; Condition of Equipment.....................12
2.13 Intellectual Property..............................................................................13
2.14 Agreements, Contracts and Commitments..............................................................17
2.15 Interested Party Transactions......................................................................19
2.16 Governmental Authorization.........................................................................19
2.17 Litigation.........................................................................................19
2.18 Accounts Receivable; Inventory.....................................................................19
2.19 Minute Books.......................................................................................20
2.20 Environmental Matters..............................................................................20
2.21 Brokers' and Finders' Fees; Third Party Expenses.....................................................21
2.22 Employee Benefit Plans and Compensation............................................................21
2.23 Insurance..........................................................................................24
2.24 Compliance with Laws...............................................................................25
2.25 Warranties; Indemnities............................................................................25
2.26 Adequacy and Functionality of Company Products.....................................................25
2.27 Complete Copies of Materials.......................................................................25
2.28 Investment Representations.........................................................................25
2.29 Representations Complete...........................................................................26
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TABLE OF CONTENTS
(CONTINUED)
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT.................................................................27
3.1 Organization, Standing and Power...................................................................27
3.2 Authority..........................................................................................27
3.3 No Conflict........................................................................................27
3.4 Consents...........................................................................................28
3.5 Capital Structure..................................................................................28
3.6 SEC Filings........................................................................................28
3.7 Litigation.........................................................................................29
3.8 Compliance with Law and Charter Documents..........................................................29
3.9 Year 2000 Compliant................................................................................29
3.10 Full Disclosure....................................................................................29
ARTICLE IV CONDUCT PRIOR TO THE CLOSING..............................................................................30
4.1 Conduct of Business of the Company.................................................................30
4.2 Conduct of Business of Parent......................................................................32
4.3 No Solicitation....................................................................................32
ARTICLE V ADDITIONAL AGREEMENTS......................................................................................33
5.1 Parent Registration................................................................................33
5.2 Registration on Form S-3...........................................................................34
5.3 Expenses of Registration...........................................................................35
5.4 Registration Procedures............................................................................35
5.5 Indemnification....................................................................................36
5.6 Siblings' Indemnification of Parent................................................................36
5.7 Access to Information..............................................................................37
5.8 Confidentiality....................................................................................37
5.9 Expenses...........................................................................................37
5.10 Public Disclosure..................................................................................38
5.11 Consents...........................................................................................38
5.12 FIRPTA Compliance..................................................................................38
5.13 Reasonable Efforts.................................................................................38
5.14 Notification of Certain Matters....................................................................38
5.15 Additional Documents and Further Assurances........................................................39
5.16 Certain Post-Closing Matters.......................................................................39
5.17 Non-Competition Agreements.........................................................................39
5.18 Employment Agreements..............................................................................39
5.19 NASDAQ Listing.....................................................................................39
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5.20 Parent Right of First Refusal......................................................................39
5.21 Limitation on Aggregate Sales......................................................................40
5.22 Litigation between the Parties.....................................................................40
5.23 Company Employees..................................................................................40
ARTICLE VI CONDITIONS TO THE ACQUISITION.............................................................................41
6.1 Conditions to Obligations of Each Party to Effect the Acquisition..................................41
6.2 Conditions to Obligations of Company and the Stockholders..........................................41
6.3 Conditions to the Obligations of Parent............................................................42
ARTICLE VII SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS; INDEMNIFICATION...................................43
7.1 Survival of Representations, Warranties and Covenants..............................................43
7.2 Indemnification....................................................................................44
7.3 Method of Asserting Claims.........................................................................45
7.4 Indemnification Liability Limitations..............................................................45
7.5 Securityholder Agent of the Stockholders; Power of Attorney........................................46
7.6 Third-Party Claims.................................................................................46
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.......................................................................47
8.1 Termination........................................................................................47
8.2 Effect of Termination..............................................................................48
8.3 Amendment..........................................................................................48
8.4 Extension; Waiver..................................................................................48
ARTICLE IX GENERAL PROVISIONS........................................................................................48
9.1 Notices............................................................................................48
9.2 Interpretation.....................................................................................50
9.3 Counterparts.......................................................................................50
9.4 Entire Agreement; Assignment.......................................................................50
9.5 Severability.......................................................................................51
9.6 Other Remedies.....................................................................................51
9.7 Governing Law......................................................................................51
9.8 Rules of Construction..............................................................................51
9.9 Attorneys Fees.....................................................................................51
9.10 Third Party Beneficiaries..........................................................................51
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of February 8, 1999 among GameTech International, Inc., a Delaware
corporation ("Parent"), Bingo Technologies Corporation, a Nevada corporation
(the "Company"), John A. Larsen ("JL"), Siblings Partners, L.P., a Delaware
limited partnership ("Siblings"); (JL and Siblings collectively, the
"STOCKHOLDERS"), Gerald R. Novotny ("GN") and Keith A. Novotny ("KN").
RECITALS
A. The Board of Directors of Parent believes it is in the best interests
of Parent and its stockholders that Parent acquire the Company through the
purchase of all capital stock of the Company (the "Acquisition") and, in
furtherance thereof, have approved the Acquisition.
B. Pursuant to the Acquisition, among other things, all of the issued
and outstanding securities of the Company shall be purchased in exchange for
Parent Common Stock (as defined herein) and the promissory notes and cash
consideration as described in Section 1.3.
C. The Company and the Stockholders, on the one hand, and Parent, on the
other hand, desire to make certain representations, warranties, covenants and
other agreements in connection with the Acquisition. GN, KN and JL (the
"Indemnitors") desire to provide certain indemnities to Parent in connection
with the Acquisition.
D. Concurrent with the execution of this Agreement, as a material
inducement to Parent to enter into this Agreement, (i) GN, KN and JL are
entering into agreements not to compete with Parent (the "Noncompetition
Agreements") in the form of Exhibit B hereto, (ii) the Stockholders, the
Indemnitors, Parent and the Escrow Agent, as defined in Section 1.3(c) are
entering into an Escrow Agreement (the "Escrow Agreement") in the form of
Exhibit C hereto and (iii) GN, KN and JL and Parent are entering into
employment agreements in the forms of Exhibits D-1, D-2, and D-3 hereto (the
"Employment Agreements").
E. GN and KN are beneficial owners of Siblings.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the parties agree as follows:
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ARTICLE I
THE ACQUISITION
1.1 THE ACQUISITION. At the Closing (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the
Stockholders shall sell to Parent, and Parent shall purchase from
Stockholders 10,000 shares of the Company's Common Stock, constituting all of
the outstanding capital stock of the Company in consideration of the payments
described below. As a result of the Acquisition, the Company shall become a
wholly-owned subsidiary of Parent.
1.2 CLOSING; CLOSING DATE. Unless this Agreement is earlier terminated
pursuant to Section 8.1, the closing of the Acquisition (the "Closing") will
take place as promptly as practicable, but no later than five (5) business
days following satisfaction or waiver of the conditions set forth in Article
VI, at the offices of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, 650 Page Mill Road, Palo Alto, California, unless another place
or time is agreed to in writing by Parent and the Company. The date upon
which the Closing actually occurs is herein referred to as the "Closing Date."
1.3 CONSIDERATION.
(a) SIBLINGS. In consideration of the purchase of 6,863 shares of
Company Common Stock from Siblings, at the Closing Parent shall deliver to
Siblings 1,866,938 shares of Parent Common Stock (the "Siblings Shares"), and
$5,912,529 (the "Siblings Closing Cash"). In further consideration of such
purchase, Parent shall deliver to Siblings a promissory note in the amount of
$943,065 (the "Siblings Deferred Cash") substantially in the form attached
hereto as Exhibit G-1.
(b) JL. In consideration of the purchase of 3,137 shares of Company
Common Stock from JL, at the Closing Parent shall deliver to JL $2,905,465
(the "JL Closing Cash"). In further consideration of such purchase, Parent
shall deliver to JL a promissory note in the amount of $3,681,268 (the "JL
Deferred Cash") substantially in the form attached hereto as Exhibit G-2.
Parent shall have certain offset rights with respect to a portion of the JL
Deferred Cash pursuant to Article VII hereof and the Escrow Agreement.
(c) ESCROW FUND. At the Closing, on behalf of the Stockholders and
the Indemnitors, pursuant to Article VII hereof, Parent shall deposit into an
escrow fund (the "Escrow Fund") 373,387 of the Siblings Shares (the "Siblings
Escrow Shares") issued in the name of an escrow agent (the "Escrow Agent"),
$1,371,118 of the Siblings Closing Cash (the "Siblings Escrow Cash"), and
$581,093 of the JL Closing Cash (the "JL Escrow Cash"; the Siblings Escrow
Shares, the Siblings Escrow Cash and JL Escrow Cash, collectively, the
"Escrow Fund").
1.4 NET WORTH TRUE-UP.
(a) Within forty-five (45) days following the Closing Date, the
Company's independent auditors ("Company's Accountants") shall furnish Parent
and the Stockholders with a
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report (the "Company Net Worth Report"), which shall set forth, in reasonable
detail, the Tangible Net Worth (as defined below) of the Company as of the
Closing Date. In making such determination, Company shall prepare a balance
sheet for the Company as of the Closing Date audited by Company's Accountants
and shall include such audited balance sheet, and their report thereon, as
part of the Company Net Worth Report. The Company Net Worth Report shall
indicate the procedures employed by Company's Accountants in preparing the
Company Net Worth Report and shall contain such other financial information
and methods of calculation as may be reasonably necessary for Parent to
evaluate the accuracy thereof. Parent shall have a period of ten (10) days
after receipt of the Company Net Worth Report to notify the Stockholders of
their election to accept or reject (and in the case of a rejection, there
shall be included in such notice the reasons for such rejection in reasonable
detail) the Company Net Worth Report. In the event no notice is received by
the Stockholders during such ten (10) day period, the Company Net Worth
Report and any required adjustments resulting therefrom shall be deemed
accepted by Parent. In the event Parent shall timely reject the Company Net
Worth Report, Parent's independent auditors ("Parent's Accountants") and
Company's accountants shall promptly (and in any event within thirty (30)
days following the date upon which Parent shall reject the Company Net Worth
Report) attempt to make a joint determination of the Tangible Net Worth of
the Company as of the Closing Date and such determination and any required
adjustments resulting therefrom shall be final and binding on the parties
hereto. In the event the Company's Accountants and Parent's Accountants are
unable to agree upon the required Tangible Net Worth determination as herein
provided, within 90 days from the Closing Date, such determination shall be
made by the Phoenix office of Ernst & Young at or prior to the expiration of
120 days from the Closing Date and such determination and any required
adjustments resulting therefrom shall be final and binding on all the parties
hereto. As used in this Section 1.4(a), "Tangible Net Worth" shall mean total
assets less total liabilities of the Company, determined in accordance with
GAAP.
(b) Within forty-five (45) days following the Closing Date,
Parent's independent auditors ("Parent's Accountants") shall
furnish Parent and the Stockholders with a report (the "Parent Net
Worth Report"), which shall set forth, in reasonable detail, the
Tangible Net Worth (as defined below) of the Parent as of the
Closing Date. In making such determination, Parent shall prepare a
balance sheet as of the Closing Date audited by Parent's
Accountants and shall include such audited balance sheet, and their
report thereon, as part of the Parent Net Worth Report. The Parent
Net Worth Report shall indicate the procedures employed by Parent's
Accountants in preparing the Parent Net Worth Report and shall
contain such other financial information and methods of calculation
as may be reasonably necessary for the Stockholders to evaluate the
accuracy thereof. The Stockholders shall have a period of ten (10)
days after receipt of the Parent Net Worth Report to notify Parent
of their election to accept or reject (and in the case of a
rejection, there shall be included in such notice the reasons for
such rejection in reasonable detail) the Parent Net Worth Report.
In the event no notice is received by Parent during such ten (10)
day period, the Parent Net Worth Report and any required
adjustments resulting therefrom shall be deemed accepted by the
Stockholders. In the event the Stockholders shall timely reject the
Parent Net Worth Report, the Company's independent auditors
("Company's Accountants") and Parent's accountants shall promptly
(and in any event within thirty (30) days following the date upon
which the Stockholders shall reject the Parent Net Worth Report)
attempt to make a joint determination of the Tangible Net
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Worth of the Parent as of the Closing Date and such determination and any
required adjustments resulting therefrom shall be final and binding on the
parties hereto. In the event Parent's Accountants and the Stockholder's
Accountants shall be unable to agree upon the required Tangible Net Worth
determination as herein provided, within 90 days from the Closing Date, such
determination shall be made by the Phoenix office of Ernst & Young at or
prior to the expiration of 120 days from the Closing Date and such
determination and any required adjustments resulting therefrom shall be final
and binding on all the parties hereto. As used in this Section 1.4(b),
"Tangible Net Worth" shall mean total assets less total liabilities of Parent
determined in accordance with GAAP.
(c) If the Company Net Worth Report shall reflect a Tangible Net
Worth of the Company as of the Closing Date that is less than $2,085,914 then
such deficit shall constitute Damages (as defined in Section 7.2 below) to
Parent hereunder and shall be immediately payable to Parent from the Escrow
Fund, provided, however that if the Parent Net Worth Report shall reflect a
Tangible Net Worth of Parent as of the Closing Date that is less than
$40,322,115 then the amount of such Damages shall be reduced by one dollar
for each dollar that the Tangible Net Worth of Parent is less than
$40,322,115, but such adjustment shall not reduce the amount of such Damages
to less than zero. For example, if the deficit in the Tangible Net Worth of
the Company is $200,000: (a) and if the there is no deficit in the Tangible
Net Worth of Parent, the amount of such Damages would be $200,000; (b) and if
the deficit in the Tangible Net Worth of Parent is $50,000, the amount of
such Damages would be $150,000; (c) and if the deficit in the Tangible Net
Worth of Parent is $200,000 or more, the amount of such Damages would be
zero. Promptly following the foregoing determination, Parent and the
Securityholder Agent, as defined in Section 7.3 below, shall prepare and
deliver to the Escrow Agent joint written instructions setting forth the
results of each such determination, including, specifically, the amount of
Escrow Fund to be delivered to Parent.
1.5 CERTAIN DEFINITIONS. For all purposes of this Agreement the
following terms shall have the following definitions:
"Company Capital Stock" shall mean shares of Company Common Stock
and shares of any other capital stock of the Company.
"Company Common Stock" shall mean shares of common stock of the
Company.
"Escrow Fund" shall have the meaning set forth in Section 1.3(c).
"Siblings Escrow Shares" shall have the meaning set forth in
Section 1.3(c).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"GAAP" shall mean U.S. generally accepted accounting principles.
"Knowledge" with respect to a particular fact or circumstance,
shall mean actual knowledge of such particular fact or circumstance, or
knowledge of other facts or circumstances
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from which a reasonable person should have known of such particular fact or
circumstance, by the officers or directors of the Company, Parent, or by the
Stockholders, as the case may be.
"Litigation" shall mean that certain litigation involving Bingo
Card Minder Corporation and Parent, called Bingo Card Minder Corporation vs.
Gametech International, Inc., C96-997FMS WDB.
"Parent Common Stock" shall mean shares of the common stock, par
value $.001, of Parent.
1.6 TAX CONSEQUENCES. Each party acknowledges that such party has
consulted with such party's tax advisor with respect to the tax consequences
of this Agreement and the transactions contemplated hereby under the Internal
Revenue Code of 1986, as amended (the "Code") and other applicable law, and
that such party is relying solely on such advice.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY,
THE STOCKHOLDERS AND INDEMNITORS
Each of the Company, the Stockholders and the Indemnitors hereby,
jointly and severally, represents and warrants to Parent, subject to such
exceptions as are specifically disclosed in the disclosure schedule
(referencing the appropriate Section and paragraph numbers of this Agreement)
supplied by the Company and the Stockholders to Parent and dated the date
hereof (the "Disclosure Schedule"), that on the date hereof and as of the
Closing as though made at the Closing as follows:
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Nevada. Section 2.1 of the Disclosure Schedule sets forth a list of all
jurisdictions in which the Company is currently conducting business and a
list of all jurisdictions in which the Company is qualified to do business.
The Company has the corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified could have a Company Material Adverse Effect.
For all purposes of this Agreement, the term "Company Material Adverse
Effect" means any change, event or effect that is materially adverse to the
business, assets (including intangible assets), condition (financial or
otherwise), capitalization or results of operations or prospects of the
Company except for those changes, events and effects that (i) are directly
caused by conditions affecting the United States economy as a whole or
affecting the industry in which such entity competes as a whole, which
conditions do not affect such entity in a disproportionate manner, or (ii)
are related to or result from the announcement or pendency of the
Acquisition. The Company has delivered a true and correct copy of its
Articles of Incorporation and Bylaws, each as amended to date, to Parent.
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Section 2.1 of the Disclosure Schedule lists the directors and officers of
the Company. The operations now being conducted by the Company have not been
conducted under any other name.
2.2 SUBSIDIARIES. The Company does not have, and has never had, any
subsidiaries or affiliated companies and does not otherwise own, and has not
otherwise owned, any shares in the capital of or any interest in, or control,
directly or indirectly, any corporation, partnership, association, joint
venture or other business entity.
2.3 COMPANY CAPITAL STRUCTURE
(a) As of the date hereof, the authorized Company Capital Stock
consists of 10,000,000 shares of authorized Company Common Stock of which
10,000 shares are issued and outstanding as of the date hereof. All
outstanding Capital Stock of the Company is held by the Stockholders. All
outstanding shares of Company Capital Stock are duly authorized, validly
issued, fully paid and non-assessable and not subject to preemptive rights
created by statute, the Articles of Incorporation or Bylaws of the Company or
any agreement to which the Company is a party or by which it is bound and
have been issued in compliance with federal and state securities laws. There
are no declared or accrued unpaid dividends with respect to any shares of the
Company's Capital Stock. The Company has no other capital stock authorized,
issued or outstanding.
(b) There are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Company is a party
or by which it is bound obligating the Company to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the Capital Stock of the Company or obligating the
Company to grant, extend, accelerate the vesting of, change the price of,
otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights
with respect to the Company. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting stock of the Company.
As a result of the Acquisition, Parent will be the sole record and beneficial
owner of all outstanding Company Capital Stock and all rights to acquire or
receive any Company Capital Stock, whether or not such Company Capital Stock
is outstanding.
2.4 AUTHORITY.
(a) The Company has all requisite power and authority to enter into
this Agreement and any Related Agreements (as hereinafter defined) to which
it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and any Related
Agreements to which the Company is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company, and no further action
is required on the part of the Company, Indemnitors or the Stockholders to
authorize the Agreement, any Related Agreements to which the Company is a
party and the transactions contemplated hereby and thereby. This Agreement
and the Acquisition have been unanimously approved by the Board of Directors
of the Company and the stockholders of the Company. This Agreement and any
Related Agreements to which the Company is a party have
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been duly executed and delivered by the Company, and, assuming the due
authorization, execution and delivery by the other parties hereto and
thereto, constitute the valid and binding obligation of the Company,
enforceable in accordance with their respective terms, subject to the laws of
general application relating to bankruptcy, insolvency and the relief of
debtors and to rules of law governing specific performance, injunctive relief
or other equitable remedies. The "Related Agreements" shall mean all such
ancillary agreements required in this Agreement to be executed and delivered
in connection with the transactions contemplated hereby, including the
Noncompetition Agreements, Employment Agreements and the Escrow Agreement.
(b) Each of the Stockholders and the Indemnitors has all requisite
power and authority to enter into this Agreement and any Related Agreements
to which it is a party and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and any Related
Agreements to which each Stockholder or Indemnitor is a party and the
consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of such Stockholder or
Indemnitor, and no further action is required on the part of such Stockholder
or Indemnitor to authorize the Agreement, any Related Agreements to which it
is a party and the transactions contemplated hereby and thereby. This
Agreement and any Related Agreements to which such Stockholder or Indemnitor
is a party have been duly executed and delivered by the such Stockholder or
Indemnitor, and, assuming the due authorization, execution and delivery by
the other parties hereto and thereto, constitute the valid and binding
obligation of such Stockholder or Indemnitor, enforceable in accordance with
their respective terms, subject to the laws of general application relating
to bankruptcy, insolvency and the relief of debtors and to rules of law
governing specific performance, injunctive relief or other equitable remedies.
2.5 NO CONFLICT. The execution, delivery and performance of this
Agreement and each of the Related Agreements to which the Company,
Indemnitors or the Stockholders are a party by either the Company or the
Stockholders or the Indemnitors do not, and, the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse
of time, or both), or give rise to a right of termination, cancellation,
modification or acceleration of any obligation or loss of any benefit under
(any such event, a "Conflict") (i) any provision of the Articles of
Incorporation and Bylaws of the Company, (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise or
license to which the Company or the Stockholders or the Indemnitors or any of
their respective properties or assets (including intangible assets) are
subject or (iii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to the Company or the Stockholders or the
Indemnitors or their respective properties or assets or (iv) any provision of
the agreement of limited partnership of Siblings, as amended to date.
2.6 CONSENTS. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency
or commission or other federal, state, county, local, tribal or other foreign
governmental authority, instrumentality, agency or commission ("Governmental
Entity") or any third party, including a party to any agreement with the
Company (so as not to trigger any Conflict), is required by or with respect
to the Company or the Stockholders or the Indemnitors in connection with the
execution and delivery of this Agreement and any Related
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Agreements to which the Company or the Stockholders or the Indemnitors is a
party or the consummation of the transactions contemplated hereby and
thereby, except for such consents, waivers, approvals, orders or
authorizations as may be required with respect to the gaming licenses now
held by the Company in light of this Agreement and the transactions
contemplated hereby. There is no fact or circumstance relating to the
Company, Siblings, GN, KN, or JL which would prevent Parent and the Company
from obtaining any such required consent, waiver, approval, order, or
authorization following the Closing.
2.7 COMPANY FINANCIAL STATEMENTS. Section 2.7 of the Disclosure Schedule
sets forth the Company's audited consolidated balance sheet as of December
31, 1997 and the related audited consolidated statements of income and cash
flow for the twelve-month period ended December 31, 1997 (the "Year-End
Financials") and the Company's audited balance sheet as of September 30,
1998, and the related audited statements of income and cash flow for that
period (the "Interim Financials"). The Year-End Financials and the Interim
Financials are correct in all material respects and have been prepared in
accordance with GAAP applied on a basis consistent throughout the periods
indicated and consistent with each other. The Year-End Financials and the
Interim Financials present fairly the consolidated financial condition and
consolidated operating results of the Company and any consolidated
subsidiaries as of the dates and during the periods indicated therein. The
Company's audited Balance Sheet as of September 30, 1998 shall be hereinafter
referred to as the "Current Balance Sheet." The Company has also provided
internal unaudited financial statements for the months of October, November
and December, 1998 (the "Unaudited Financials"). The Unaudited Financials
have been prepared on a basis consistent with the audited financials and
present fairly the consolidated financial condition and consolidated
operating results of the Company as of the dates and for the periods
indicated therein, subject to normal year end audit adjustments and accruals.
2.8 NO UNDISCLOSED LIABILITIES. The Company does not have any liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement
of any type, whether accrued, absolute, contingent, matured, unmatured or
other (whether or not required to be reflected in financial statements in
accordance with GAAP), which (i) has not been reflected in the Current
Balance Sheet, or (ii) has not arisen in the ordinary course of business
consistent with past practices since September 30, 1998.
2.9 NO CHANGES. Since September 30, 1998, there has not been, occurred
or arisen any:
(a) amendments or changes to the Articles of Incorporation or
Bylaws of the Company;
(b) capital expenditure or related commitment by the Company,
exceeding $20,000 individually or $50,000 in the aggregate;
(c) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
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(d) claim of wrongful discharge or other unlawful labor practice or
action;
(e) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company;
(f) revaluation by the Company of any of its assets;
(g) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company or any direct
or indirect redemption, purchase or other acquisition by the Company of its
capital stock;
(h) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company of a bonus or other additional salary or
compensation to any such person except annualized increases not exceeding 7%
for any individual and 4% in the aggregate per annum;
(i) any agreement, contract, covenant, instrument, lease, license
or commitment to which the Company is a party or by which they or any of its
assets (including intangible assets) are bound or any termination, extension,
amendment or modification the terms of any agreement, contract, covenant,
instrument, lease, license or commitment to which the Company is a party or
by which it or any of its assets are bound except in the ordinary course of
business consistent with reasonable commercial practice;
(j) sale, lease, license or other disposition of any of the assets
or properties of the Company or any creation of any security interest in such
assets or properties other than the sale of inventory in the ordinary course
of business, consistent with past practices;
(k) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others, except for reasonable advances to employees for
travel and business expenses in the ordinary course of business, consistent
with past practice;
(l) waiver or release of any right or claim of the Company
including any write-off or other compromise of any account receivable of the
Company;
(m) the commencement or notice or threat of any lawsuit or, to the
Company's or the Stockholders' Knowledge, proceeding or investigation against
the Company or its affairs;
(n) Knowledge of any claim or potential claim of ownership by any
person other than the Company of the Company Intellectual Property (as
defined in Section 2.13 below) or of infringement by the Company of any other
person's Intellectual Property excluding the Litigation;
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(o) issuance or sale, or contract to issue or sell, by the Company
of any shares of its capital stock or securities exchangeable, convertible or
exercisable therefor, or any securities, warrants, options or rights to
purchase any of the foregoing;
(p) (i) sale or license of any Company Intellectual Property or
entering into of any agreement with respect to the Company Intellectual
Property with any person or entity or with respect to the Intellectual
Property of any person or entity or (ii) purchase or license of any
Intellectual Property or entering into of any agreement with respect to the
Intellectual Property of any person or entity or (iii) change in pricing or
royalties set or charged by the Company to its customers or licensees or in
pricing or royalties set or charged by persons who have licensed Intellectual
Property to the Company, except in the case of this clause (iii) in the
ordinary course of business consistent with reasonable commercial practice;
(q) any event or condition of any character that has had or is
reasonably likely to have a Company Material Adverse Effect;
(r) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with reasonable commercial
practices; or
(s) agreement by the Company or any officer or employee thereof to
do any of the things described in the preceding clauses (a) through (r)
(other than negotiations with Parent and its representatives regarding the
transactions contemplated by this Agreement).
2.10 TAX MATTERS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "Tax"
or, collectively, "Taxes", means (i) any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts; (ii) any liability for the
payment of any amounts of the type described in clause (i) as a result of
being a member of an affiliated, consolidated, combined or unitary group for
any period; and (iii) any liability for the payment of any amounts of the
type described in clause (i) or (ii) as a result of any express or implied
obligation to indemnify any other person or as a result of any obligations
under any agreements or arrangements with any other person with respect to
such amounts and including any liability for taxes of a predecessor entity.
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(b) TAX RETURNS AND AUDITS.
(i) As of the Closing, the Company will have prepared and
timely filed all required federal, state, local and foreign returns,
estimates, information statements and reports ("Returns") relating to any and
all Taxes concerning or attributable to the Company or its operations and
such Returns are true and correct and have been completed in accordance with
applicable law.
(ii) As of the Closing, the Company (A) will have paid all
Taxes it is required to pay and will have withheld with respect to its
employees all federal and state income taxes, FICA, FUTA and other Taxes
required to be withheld, and (B) will have accrued all Taxes attributable to
the period between September 30, 1998 and the Closing and will not have
incurred any liability for Taxes for such period other than in the ordinary
course of business, consistent with past practice.
(iii) The Company has not been delinquent in the payment of
any Tax nor is there any Tax deficiency outstanding, assessed or proposed
against the Company, nor has the Company executed any waiver of any statute
of limitations on or extending the period for the assessment or collection of
any Tax.
(iv) No audit or other examination of any Return of the
Company has occurred in the past five taxable years of the Company or is
presently in progress, nor has the Company been notified of any request for
such an audit or other examination.
(v) The Company has no liabilities for unpaid federal, state,
local, tribal and foreign Taxes which have not been accrued or reserved
against on the Current Balance Sheet, whether asserted or unasserted,
contingent or otherwise.
(vi) The Company has made available to Parent copies of all
foreign, federal and state income and all state sales and use Returns for the
Company filed for the last five taxable years of the Company.
(vii) There are (and immediately following the Closing there
will be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort
(collectively, "Liens") on the assets of the Company relating to or
attributable to Taxes other than Liens for Taxes not yet due and payable.
(viii) Neither the Company nor the Stockholders has Knowledge
of any reasonable basis for the assertion of any claim relating or
attributable to Taxes which, if adversely determined, would result in any
Lien on the assets of the Company.
(ix) None of the Company's assets are treated as "tax-exempt
use property", within the meaning of Section 168(h) of the Code.
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(x) As of the Closing, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions
of this Agreement, covering any employee or former employee of the Company
that, individually or collectively, could give rise to the payment of any
amount in consideration of the performance of services for the Company by
such employee or former employee that would not be deductible for income tax
purposes as an expense under applicable law.
(xi) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(4) of the Code
apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by the Company.
(xii) The Company is not a party to any tax sharing,
indemnification or allocation agreement nor does the Company owe any amount
under any such agreement, other than this Agreement.
(xiii) The Company is not and has not been at any time, a
"United States Real Property Holding Corporation" within the meaning of
Section 897(c)(2) of the Code.
(xiv) No adjustment relating to any Return filed by the
Company has been proposed formally or, to the Knowledge of the Company or the
Stockholders, informally by any tax authority to the Company or any
representative thereof.
(c) EXECUTIVE COMPENSATION TAX. There is no contract, agreement,
plan or arrangement to which the Company is a party as of the date of this
Agreement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of Company, individually or
collectively, that could give rise to the payment of any amount that would
not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
2.11 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree
to which the Company is a party or otherwise binding upon the Company which
has or may have the effect of prohibiting, impairing or restricting any
business practice of the Company, any acquisition of property (tangible or
intangible) by the Company or the conduct of business by the Company. Without
limiting the foregoing, the Company has not entered into any agreement under
which it is restricted from selling, licensing or otherwise distributing any
of its technology or products to or providing services to, customers or
potential customers or any class of customers, in any geographic area, during
any period of time or in any segment of the market.
2.12 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION
OF EQUIPMENT.
(a) The Company owns no real property, nor has it ever owned any
real property. Section 2.12(a) of the Disclosure Schedule sets forth a list
of all real property currently leased by the Company, the name of the lessor,
the date of the lease and each amendment thereto and, with respect to any
current lease, the aggregate annual rental and/or other fees payable under
any such lease. All such current leases are in full force and effect, are
valid and effective in accordance with their
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respective terms, there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default) and, to the Knowledge of the Company,
Indemnitors and the Stockholders, there is not, under any of such leases, an
existing default or event of default by a party thereto other than the
Company (or event which with notice or lapse of time, or both, would
constitute a default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of their
respective tangible properties and assets, real, personal and mixed, used or
held for use in its business, free and clear of any Liens, except as
reflected in the Current Balance Sheet and except for Liens for Taxes not yet
due and payable and such imperfections of title and encumbrances, if any,
which are not material in character, amount or extent, and which do not
detract from the value, or interfere with the present use, of the property
subject thereto or affected thereby.
(c) Section 2.12(c) of the Disclosure Schedule lists all material
items of equipment (the "Equipment") owned or leased by the Company and such
Equipment is, (i) adequate for the conduct of the business of the Company as
currently conducted and (ii) in good operating condition, regularly and
properly maintained, subject to normal wear and tear.
(d) The Company has sole and exclusive ownership, free and clear of
any Liens, of all customer files and other customer information relating to
customers of the Company's current and former customers (the "Customer
Information"). No person other than the Company possesses any claims or
rights with respect to use of the Customer Information.
2.13 INTELLECTUAL PROPERTY.
(a) For the purposes of this Agreement, the following terms have
the following definitions:
"Intellectual Property" shall mean any or all of the
following, in any form and embodied in any media, (i) works of authorship
including, without limitation, computer programs, source code and executable
code, whether embodied in software, firmware or otherwise, documentation,
designs, files, records, data and mask works, (ii) inventions (whether or not
patentable), improvements, and technology, (iii) proprietary and confidential
information, trade secrets and know how, (iv) databases, data compilations
and collections and technical data, (v) logos, trade names, trade dress,
trademarks and service marks, (vi) domain names, web addresses and sites, and
(vii) tools, methods and processes.
"Intellectual Property Rights" shall mean worldwide common law
and statutory rights associated with (i) patents and patent applications,
(ii) copyrights, copyrights registrations and copyrights applications and
"moral" rights, (iii) the protection of trade and industrial secrets and
confidential information, (iv) other proprietary rights relating to
intangible intellectual property, (v) trademarks, trade names and service
marks, (vi) analogous rights to those
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set forth above, and (vii) divisions, continuations, renewals, reissuances
and extensions of the foregoing (as applicable) now existing or hereafter
filed, issued or acquired.
"Company Intellectual Property" shall mean any Intellectual
Property and Intellectual Property Rights that are owned by or exclusively
licensed to the Company.
"Registered Intellectual Property Rights" shall mean
Intellectual Property Rights that have been registered, filed, certified or
otherwise perfected by recordation with any state, government or other public
legal authority.
(b) Section 2.13(b) of the Disclosure Schedule lists all Registered
Intellectual Property owned by, or filed in the name of, the Company (the
"Company Registered Intellectual Property") and lists any proceedings or
actions before any court, tribunal (including the United States Patent and
Trademark Office (the "PTO") or equivalent authority anywhere in the world)
related to any of the Company Registered Intellectual Property. Section 2.13
(b) of the Disclosure Schedule also lists and identifies all computer
software that is owned by the Company (collectively, "Owned Software") and
all computer software (other than Owned Software) that is used by the Company
for any purpose whatsoever in its business as presently conducted
(collectively, the "Licensed Software"). The Owned Software and the Licensed
Software are collectively referred to as the "Software").
(c) Each item of Company Intellectual Property, including all
Company Registered Intellectual Property listed in Section 2.13(b) of the
Disclosure Schedule and all Intellectual Property licensed to the Company, is
free and clear of any Liens or other encumbrances. The Company is the
exclusive owner of all Company Intellectual Property.
(d) To the extent that any Intellectual Property has been developed
or created independently or jointly by any person other than the Company for
which the Company has, directly or indirectly, paid, the Company has a
written agreement with such person with respect thereto, and the Company
thereby has obtained ownership of, and is the exclusive owner of, all such
Intellectual Property and associated Intellectual Property Rights by
operation of law or by valid assignment.
(e) The Company has not transferred ownership of or granted any
license of or right to use or authorized the retention of any rights to use
any Intellectual Property or Intellectual Property Rights that is or was
Company Intellectual Property, to any other person, except as provided in
Section 2.13(g) below.
(f) The Company Intellectual Property constitutes all the
Intellectual Property and Intellectual Property Rights used in and/or
necessary to the conduct of the business of the Company as it currently is
conducted, planned or is reasonably contemplated to be conducted, including,
without limitation, the design, development, manufacture, use, import and
sale of products, technology and services (including products, technology or
services currently under development). The Company has valid licenses to all
software owned by third parties that is used in and/or
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necessary to the operation of the Company's products as they are currently
used, and the Company is not in default with respect to any such license.
(g) Other than "shrink-wrap" and similar widely available
third-party commercial end-user licenses, the contracts, licenses and
agreements listed in Section 2.13(g) of the Disclosure Schedule include all
contracts, licenses and agreements to which the Company is a party with
respect to any Intellectual Property and Intellectual Property Rights. No
person who has licensed Intellectual Property or Intellectual Property Rights
to the Company has ownership rights or license rights to improvements made by
the Company in such Intellectual Property which has been licensed to the
Company.
(h) Section 2.13(h) of the Disclosure Schedule lists all contracts,
licenses and agreements between the Company and any other person wherein or
whereby the Company has agreed to, or assumed, any obligation or duty to
warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or
incur any obligation or liability or provide a right of rescission with
respect to the infringement or misappropriation by the Company or such other
person of the Intellectual Property Rights of any person other than the
Company.
(i) The operation of the business of the Company as it currently is
conducted or is reasonably contemplated to be conducted, including but not
limited to the design, development, use, import, manufacture and sale of the
products, technology or services (including products, technology or services
currently under development) of the Company does not infringe or
misappropriate the Intellectual Property Rights of any person, violate the
rights of any person (including rights to privacy or publicity), or
constitute unfair competition or trade practices under the laws of any
jurisdiction, and the Company has not received notice from any person
claiming that such operation or any act, product, technology or service
(including products, technology or services currently under development) of
the Company infringes or misappropriates the Intellectual Property Rights of
any person or constitutes unfair competition or trade practices under the
laws of any jurisdiction (nor to the Knowledge of the Company, the
Indemnitors or the Stockholders is there any reasonable basis therefor).
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(j) Each item of Company Registered Intellectual Property is valid
and subsisting, and all necessary registration, maintenance and renewal fees
in connection with such Company Registered Intellectual Property have been
paid and all necessary documents and certificates in connection with such
Company Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property. There are no actions that must be
taken by the Company within sixty (60) days of the scheduled Closing Date,
including the payment of any registration, maintenance or renewal fees or the
filing of any documents, applications or certificates for the purposes of
maintaining, perfecting or preserving or renewing any Registered Intellectual
Property. In each case in which the Company has acquired any Intellectual
Property rights from any person, the Company has obtained a valid and
enforceable assignment sufficient to irrevocably transfer all rights in such
Intellectual Property and the associated Intellectual Property Rights
(including the right to seek past and future damages with respect thereto) to
the Company and, to the maximum extent provided for by, and in accordance
with, applicable laws and regulations, the Company has recorded each such
assignment with the relevant governmental authorities, including the PTO, the
U.S. Copyright Office, or their respective equivalents in any relevant
foreign jurisdiction, as the case may be.
(k) There are no contracts, licenses or agreements between the
Company and any other person with respect to Company Intellectual Property
under which there is any dispute known to the Company, Indemnitors or the
Stockholders regarding the scope of such agreement, or performance under such
agreement including with respect to any payments to be made or received by
the Company thereunder.
(l) To the Knowledge of the Company, Indemnitors and the
Stockholders, no person is infringing or misappropriating any Company
Intellectual Property.
(m) The Company has taken all commercially reasonable steps in
order to protect the Company's rights in confidential information and trade
secrets of the Company or provided by any other person to the Company. All
current and former employees, consultants and contractors of the Company who
have or have had access to confidential, proprietary or trade secret
information of the Company ("Recipients") have entered proprietary
information, confidentiality and assignment of inventions agreements with the
Company. Section 2.13 of the Disclosure Schedule contains a list of all
Recipients indicating those who have signed the agreements and those who have
not entered such agreements and the form of each such agreement.
(n) No Company Intellectual Property, Intellectual Property Rights
or service of the Company is subject to any proceeding or outstanding decree,
order, judgment, agreement or stipulation that restricts in any manner the
use, transfer or licensing thereof by the Company or may affect the validity,
use or enforceability of such Company Intellectual Property.
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(o) No (i) product, technology, service or publication of the
Company; (ii) material published or distributed by the Company or (iii)
conduct or statement of Company constitutes obscene material, a defamatory
statement or material, false advertising or otherwise violates any law or
regulation.
(p) All of the Company's products (including products currently
under development) will record, store, process, calculate and present
calendar dates falling on and after (and if applicable, spans of time
including) January 1, 2000, and will calculate any information dependent on
or relating to such dates in the same manner, and with the same
functionality, data integrity and performance, as the products record, store,
process, calculate and present calendar dates on or before December 31, 1999,
or calculate any information dependent on or relating to such dates
(collectively, "Year 2000 Compliant"). All of the Company's products (i) will
lose no functionality with respect to the introduction of records containing
dates falling on or after January 1, 2000 and (ii) will be interoperable with
other products used and distributed by the Company that may deliver records
to the Company's products or receive records from the Company's products, or
interact with the Company's products, including but not limited to back-up
and archived data. All of the Company's internal computer and technology
products and systems are Year 2000 Compliant.
2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS.
(a) Except as set forth in Sections 2.13(g), 2.13(h) or 2.14(a) of
the Disclosure Schedule, the Company is not a party to nor is it bound by:
(i) Any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization,
(ii) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan,
(iii) any fidelity or surety bond or completion bond,
(iv) any lease of personal property with annual payments
individually in excess of $10,000 or $25,000 in the aggregate,
(v) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of
business or to compete with any person,
(vi) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $20,000 individually
or $50,000 in the aggregate,
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(vii) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business
enterprise outside the ordinary course of the Company's business,
(viii) any mortgages, indentures, loans or credit agreements,
security agreements, guarantees or other agreements or instruments relating
to the borrowing of money or extension of credit,
(ix) any purchase order or contract for the purchase of
materials involving in excess of $10,000 individually or $25,000 in the
aggregate, with the exception of standard inventory, part or product
purchases necessary to meet production schedules based on signed customer
orders or to meet short term production forecasts per commercially reasonable
procedures in which case any such purchase order or contract in excess of
$30,000 individually or $100,000 in the aggregate.
(x) any construction contracts,
(xi) any dealer, distribution, joint marketing, development or
other customer agreement with annualized value in excess of $20,000,
(xii) any sales representative, original equipment
manufacturer, value added, remarketer, reseller or independent software
vendor or other agreement for use or distribution of the Company's products,
technology or services,
(xiii) any partnership or joint venture agreement,
(xiv) any agreement between the Company and any Stockholder or
Indemnitor (or affiliates); or
(xv) any other agreement, contract or commitment that involves
$10,000 individually or $25,000 in the aggregate or more or is not cancelable
without penalty within thirty (30) days.
(b) The Company is in compliance with and has not breached,
violated or defaulted under, or received written notice that it has breached,
violated or defaulted under, any of the terms or conditions of any agreement,
contract, covenant, instrument, lease, license or commitment described in the
Company Disclosure Schedule (collectively a "Contract"), nor do the Company,
Indemnitors or the Stockholders have Knowledge of any event that would
constitute such a breach, violation or default with the lapse of time, giving
of notice or both. Each Contract is in full force and effect and to the
Company's Knowledge, no party obligated to the Company pursuant thereto is
under default thereunder. The Company has obtained, or will obtain prior to
the Closing Date, all necessary consents, waivers and approvals ( which
consents, waivers, and approvals are set forth on Section 2.14(b) of the
Disclosure Schedule) of parties to any Contract as are required thereunder in
connection with the Acquisition or for such Contracts to remain in effect
without modification after the Closing. Following the Closing, the Company
will be permitted to exercise all of its rights under the Contracts without
the payment of any additional amounts or consideration other than ongoing
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fees, royalties or payments which the Company would otherwise be required to
pay had the transactions contemplated by this Agreement not occurred.
2.15 INTERESTED PARTY TRANSACTIONS. No officer or director of the
Company or Stockholder (nor any ancestor, sibling, descendant or spouse of
any of such persons, or any trust, partnership or corporation in which any of
such persons has or within the last three (3) years has had an interest), has
or has had, directly or indirectly, (i) an interest in any entity which
furnished or sold, or furnishes or sells, services, products or technology
that the Company furnishes or sells, or proposes to furnish or sell, or (ii)
any interest in any entity that purchases from or sells or furnishes to the
Company any goods or services or (iii) a beneficial interest in any Contract
(iv) any amounts owed by or owed to the Company; provided, that ownership of
no more than one percent (1%) of the outstanding voting stock of a publicly
traded corporation shall not be deemed an "interest in any entity" for
purposes of this Section 2.15.
2.16 GOVERNMENTAL AUTHORIZATION. Section 2.16 of the Disclosure Schedule
accurately lists each consent, license, permit, grant or other authorization
issued to the Company by a Governmental Entity (i) pursuant to which the
Company currently operates or holds any interest in any of their properties
or (ii) which is required for the operation of its business or the holding of
any such interest (herein collectively called "Company Authorizations"). The
Company Authorizations are in full force and effect and constitute all
Company Authorizations required to permit the Company to operate or conduct
its business or hold any interest in its properties or assets.
2.17 LITIGATION. There is no action, suit, claim or proceeding of any
nature pending, or, to the Company's, Indemnitors' or the Stockholders'
Knowledge, threatened, (a) against the Company, its activities, properties
(tangible or intangible) or any of its officers, directors or employees of
the Company in connection with such officer's, director's or employee's
relationship with, or actions taken on behalf of, the Company, or (b) that
seeks to prevent, enjoin, alter or delay the transactions contemplated by
this Agreement, nor, to the Knowledge of the Company, Indemnitors or the
Stockholders, is there any reasonable basis therefor. To the Company's,
Indemnitors' or the Stockholders' Knowledge, there is no investigation
pending or threatened against the Company, its properties or any of its
officers or directors (nor, to the best Knowledge of the Company or the
Stockholders, is there any reasonable basis therefor) by or before any
Governmental Entity. No Governmental Entity has within the last five (5)
years challenged or questioned the legal right of the Company to conduct its
operations as presently or previously conducted. The Company is not a party
to or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality. Except as set
forth on Section 2.17 of the Disclosure Schedule, the Company has not
initiated any action, suit, claim or proceeding of any nature.
2.18 ACCOUNTS RECEIVABLE; INVENTORY.
(a) The Company has made available to Parent a list of all accounts
receivable of the Company as of September 30, 1998 along with a range of days
elapsed since invoice.
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(b) All of the accounts receivable of the Company arose in the
ordinary course of business, are carried at values determined in accordance
with GAAP consistently applied and are collectible except to the extent of
reserves therefor set forth in the Current Balance Sheet. No person has any
Lien on any of such Accounts Receivable and no request or agreement for
deduction or discount has been made with respect to any of such Accounts
Receivable.
(c) All of the inventories of the Company were purchased, acquired
or produced in the ordinary and regular course of business and in a manner
consistent with the Company's regular inventory practices and are set forth
on the Company's books and records in accordance with the practices and
principles of the Company consistent with the method of treating said items
in prior periods. None of the inventory of the Company reflected on the
Current Balance Sheet or on the Company's books and records (in either case
net of the reserve therefor) is obsolete, defective or in excess of the needs
of the business of the Company reasonably anticipated for the normal
operation of the business consistent with past practices and outstanding
customer contracts. The presentation of inventory on the Current Balance
Sheet conforms to GAAP and such inventory is stated at the lower of cost
(determined using the first-in, first-out method) or net realizable value. No
person has any Lien on any Inventory.
2.19 MINUTE BOOKS. The minutes of the Company made available to counsel
for Parent are the only minutes of the Company and contain a reasonably
accurate summary of all meetings of the Board of Directors (or committees
thereof) of the Company and its shareholders or actions by written consent
since the time of incorporation of the Company.
2.20 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. The Company has not: (i) operated any
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased; or (ii) illegally released any material
amount of any substance that has been designated by any Governmental Entity
or by applicable federal, state or local law to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, including,
without limitation, PCBs, asbestos, petroleum, and urea-formaldehyde and all
substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended,
or defined as a hazardous waste pursuant to the United States Resource
Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws (a "Hazardous Material"), but excluding
office and janitorial supplies properly and safely maintained. No Hazardous
Materials are present as a result of the deliberate actions of the Company
or, to the Company's, Indemnitors' or the Stockholders' Knowledge, as a
result of any actions of any other person or otherwise, in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that the Company has at any time owned, operated, occupied or
leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Closing, nor has it disposed of, transported, sold, or
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manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "Hazardous Materials Activities")
in violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) PERMITS. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "Environmental
Permits") necessary for the conduct of the Company's Hazardous Material
Activities and other businesses of the Company as such activities and
businesses are currently being conducted.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to
the Company's, Indemnitors' or the Stockholders' Knowledge, threatened
concerning any Environmental Permit, Hazardous Material or any Hazardous
Materials Activity of the Company. To the Knowledge of the Company,
Indemnitors and the Stockholders, there is no fact or circumstance which is
reasonably likely to involve the Company in any environmental litigation or
impose upon the Company any environmental liability.
2.21 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set
forth in Section 2.21 of the Disclosure Schedule, neither the Company nor any
Stockholder has incurred, nor will they incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with the Agreement or any transaction
contemplated hereby. Section 2.21 of the Disclosure Schedule sets forth the
principal terms and conditions of any agreement, written or oral, with
respect to such fees.
2.22 EMPLOYEE BENEFIT PLANS AND COMPENSATION.
(a) The following terms shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity
under common control with the Company within the meaning of Section 414(b),
(c), (m) or (o) of the Code and the regulations issued thereunder;
(ii) "Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written, unwritten or
otherwise, funded or unfunded, including without limitation, each "employee
benefit plan," within the meaning of Section 3(3) of ERISA which is or has
been maintained, contributed to, or required to be contributed to, by the
Company or any Affiliate for the benefit of any Employee, or with respect to
which the Company or any Affiliate has or may have any liability or
obligation;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
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(v) "Employee" shall mean any current or former
employee, consultant or director of the Company or any Affiliate;
(vi) "Employee Agreement" shall mean each management,
employment, severance, consulting, relocation, or similar agreement,
contract or understanding between the Company or any Affiliate and any
Employee;
(vii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of
1993, as amended;
(ix) "IRS" shall mean the Internal Revenue Service;
(x) "PBGC" shall mean the Pension Benefit Guaranty
Corporation; and
(xi) "Pension Plan" shall mean each Employee Plan which
is an "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
(b) SCHEDULE. Schedule 2.22(b) contains an accurate and complete
list of each Employee Plan and each Employee Agreement under each Employee
Plan or Employee Agreement. The Company has no plan or commitment to
establish any new Employee Plan or Employee Agreement, to modify any Employee
Plan or Employee Agreement (except to the extent required by law or to
conform any such Employee Plan or Employee Agreement to the requirements of
any applicable law, in each case as previously disclosed to Parent in
writing, or as required by this Agreement), or to enter into any Employee
Plan or Employee Agreement.
(c) DOCUMENTS. The Company has provided to Parent: (i) correct and
complete copies of all documents embodying each Employee Plan and each
Employee Agreement including (without limitation) all amendments thereto and
all related trust documents; (ii) the three (3) most recent annual reports
(Form Series 5500 and all schedules and financial statements attached
thereto), if any, required under ERISA or the Code in connection with each
Employee Plan; (iii) if the Employee Plan is funded, the most recent annual
and periodic accounting of Employee Plan assets; (iv) the most recent summary
plan description together with the summary(ies) of material modifications
thereto, if any, required under ERISA with respect to each Employee Plan; (v)
all material written agreements and contracts relating to each Employee Plan,
including, but not limited to, administrative service agreements and group
insurance contracts; (vi) all communications material to any Employee or
Employees relating to any Employee Plan and any proposed Employee Plans, in
each case, relating to any amendments, terminations, establishments,
increases or decreases in benefits, acceleration of payments or vesting
schedules or other events which would result in any liability to the Company;
(vii) all correspondence to or from any governmental agency relating to any
Employee Plan; (viii) all COBRA forms and related notices; (ix) all policies
pertaining to fiduciary liability insurance covering the fiduciaries for each
Employee Plan; (x) all discrimination tests for each Employee Plan for the
most recent plan year; and (xi) all registration statements,
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annual reports (Form 11-K and all attachments thereto) and prospectuses
prepared in connection with each Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. (i) The Company has performed all
obligations required to be performed by it under, is not in default or
violation of, and the Company, Indemnitors and Stockholders have no Knowledge
of any default or violation by any other party to each Employee Plan, and
each Employee Plan has been established and maintained in accordance with its
terms and in compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA or the Code; (ii) no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of
ERISA, has occurred with respect to any Employee Plan; (iii) there are no
actions, suits or claims pending, or, to the Knowledge of the Company,
Indemnitors or the Stockholders, threatened nor, to the Knowledge of the
Company, Indemnitors or the Stockholders, is there any basis therefor (other
than routine claims for benefits) against any Employee Plan or against the
assets of any Employee Plan; (iv) each Employee Plan can be amended,
terminated or otherwise discontinued after the Closing in accordance with its
terms, without liability to Parent, the Company or any Affiliate (other than
ordinary administration expenses); (v) there are no audits, inquiries or
proceedings pending or, to the Knowledge of the Company, Indemnitors or the
Stockholders or any Affiliates, threatened by the IRS or DOL with respect to
any Employee Plan; and (vi) neither the Company nor any Affiliate is subject
to any penalty or tax with respect to any Employee Plan under Section 502(i)
of ERISA or Sections 4975 through 4980 of the Code.
(e) NO PENSION PLANS. Neither the Company nor any Affiliate has
ever maintained, established, sponsored, participated in, or contributed to,
any Pension Plan subject to Title IV of ERISA.
(f) NO POST-EMPLOYMENT OBLIGATIONS. No Employee Plan provides, or
reflects or represents any liability to provide, retiree life insurance,
retiree health or other retiree employee welfare benefits to any person for
any reason, except as may be required by COBRA or other applicable statute,
and the Company has never represented, promised or contracted (whether in
oral or written form) to any Employee (either individually or to Employees as
a group) or any other person that such Employee(s) or other person would be
provided with retiree life insurance, retiree health or other retiree
employee welfare benefit, except to the extent required by statute.
(g) COBRA. Neither the Company nor any Affiliate has, prior to the
Closing, violated any of the health care continuation requirements of COBRA,
the requirements of FMLA or any similar provisions of state law applicable to
its Employees.
(h) EFFECT OF TRANSACTION. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone
or upon the occurrence of any additional or subsequent events) constitute an
event under any Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee.
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(i) EMPLOYMENT MATTERS. The Company: (i) is in compliance with all
applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld and reported all amounts required by law or by agreement to be
withheld and reported with respect to wages, salaries and other payments to
Employees; (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) is not
liable for any payment to any trust or other fund governed by or maintained
by or on behalf of any governmental authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice). There are no pending or, to the
Knowledge of the Company. Indemnitors or the Stockholders, threatened or
reasonably anticipated claims or actions against the Company under any
worker's compensation policy or long-term disability policy, nor to the
Knowledge of the Company, Indemnitors or the Stockholders, is there any
reasonable basis therefor.
(j) LABOR. No work stoppage or labor strike against the Company is
pending, or to the Knowledge of the Company, Indemnitors or the Stockholders
threatened nor, to the Knowledge of the Company, Indemnitors or the
Stockholders, is there any reasonable basis therefor. The Company does not
Know of any activities or proceedings of any labor union to organize any
Employees. There are no actions, suits, claims, labor disputes or grievances
pending, or, to the Knowledge of the Company, Indemnitors or the
Stockholders, threatened or reasonably anticipated relating to any labor,
safety or discrimination matters involving any Employee, including, without
limitation, charges of unfair labor practices or discrimination complaints.
Within the last five (5) years, the Company has not engaged in any unfair
labor practices within the meaning of the National Labor Relations Act. The
Company is not presently, nor has it been in the past, a party to, or bound
by, any collective bargaining agreement or union contract with respect to
Employees and no collective bargaining agreement is being negotiated by the
Company.
(k) NO INTERFERENCE OR CONFLICT. To the Knowledge of the Company,
Indemnitors and the Stockholders, no shareholder, officer, employee or
consultant of the Company is obligated under any contract or agreement or is
subject to any judgment, decree or order of any court or administrative
agency that would interfere with such person's efforts to promote the
interests of the Company or that would interfere with the Company's business.
Neither the execution nor delivery of this Agreement, nor the carrying on of
the Company's business as presently conducted or presently proposed to be
conducted nor any activity of such officers, directors, employees or
consultants in connection with the carrying on of the Company's business as
presently conducted or currently proposed to be conducted, will, to the
Company's, Indemnitors' and the Stockholders' Knowledge, conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract or agreement under which any of such officers,
directors, employees or consultants is now bound.
2.23 INSURANCE. Section 2.23 of the Disclosure Schedule lists all insurance
policies and fidelity bonds (collectively, "Insurance") covering the assets,
business, equipment, properties, operations, employees, officers and directors
of the Company. The Company has maintained
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Insurance levels for the two years prior to, and in effect at, the Closing
Date which represent generally reasonable, adequate coverage as appropriate.
There is no claim by the Company pending under any of such policies or bonds
as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under
all such policies and bonds have been paid, and the Company is otherwise in
compliance with the terms of such policies and bonds (or other policies and
bonds providing substantially similar insurance coverage). Neither the
Company, Indemnitors nor the Stockholders has Knowledge of any threatened
termination of, or premium increase with respect to, any of such policies.
2.24 COMPLIANCE WITH LAWS. The Company has complied with, is not in
violation of, and has not received any notices of violation with respect to,
any material foreign, federal, state, tribal or local statute, law or
regulation.
2.25 WARRANTIES; INDEMNITIES. Except for the warranties and indemnities
contained in (i) those contracts and agreements set forth in Section 2.13(g)
of the Disclosure Schedule and (ii) the Company's standard product warranty
agreements substantially in the form set forth in Section 2.13(g) of the
Disclosure Schedule, the Company has not given any warranties or indemnities
relating to products or technology sold or licensed or services rendered by
the Company. Section 2.25 of the Disclosure Schedule contains a complete and
accurate summary of all warranty claims on the Company's products occurring
during the past five years. The Current Balance Sheet reflects a reasonable
warranty reserve determined in accordance with GAAP.
2.26 ADEQUACY AND FUNCTIONALITY OF COMPANY PRODUCTS. The assets of the
Company, including, without limitation, the source code and products of the
Company, are now and following the Closing will be sufficient for the conduct
of the business of the Company in the same manner as the business is now
conducted. The Owned Software now performs, and following the Closing will
perform, substantially in accordance with applicable user documentation
provided by the Company to the customers using such Owned Software, and does
not contain and is not subject to any operational defect or limitation which
is reasonably likely to substantially impair the capability or effectiveness
of the Owned Software to achieve its functions described in such user
documentation. The Owned Software contains all current revisions of such
software in the Company's possession, and includes all source code, object
code, forms of such software and all computer programs, materials processes,
tapes, and know-how related to such Owned Software. The Company has delivered
to the Parent complete and correct copies of the current version of all user
documentation in the Company's possession related to the Owned Software.
2.27 COMPLETE COPIES OF MATERIALS. The Company has delivered or made
available true and complete copies of each document (or summaries of same)
that has been requested by Parent or its counsel.
2.28 INVESTMENT REPRESENTATIONS
Siblings represents and warrants to the following:
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(a) EXPERIENCE. Siblings has substantial experience in evaluating
and investing in private placement transactions of securities in companies
similar to the Parent so that it is capable of evaluating the merits and
risks of investment in Parent and have the capacity to protect its own
interests.
(b) INVESTMENT. Siblings is acquiring the Siblings Shares for
investment for its own account, not as a nominee or agent, and not with the
view to, or for resale in connection with, any distribution thereof. Siblings
understands that the Siblings Shares to be acquired hereunder have been
issued pursuant to a specific exemption from the registration provisions of
the Securities Act, the availability of which depends upon, among other
things, the bona fide nature of the investment intent and the accuracy of
Siblings' representations as expressed herein.
(c) RULE 144. Siblings acknowledges that the Siblings Shares must
be held indefinitely unless subsequently registered under the Securities Act
or unless an exemption from such registration is available, and that there is
no assurance that any exemption from such registration requirements will ever
become available. Siblings is aware of the provisions of Rule 144 promulgated
under the Securities Act which permit limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions,
including, among other things, the existence of a public market for the
shares, the availability of certain current public information about Parent,
the resale occurring not less than one year after a party has purchased and
paid for the security to be sold, the sale being effected through a "broker's
transaction" or in transactions directly with a "market maker" and the number
of shares being sold during any three-month period not exceeding specified
limitations. Siblings acknowledges that in the event the application
requirements of Rule 144 are not met, registration under the Securities Act
or an exemption from registration will be required for any disposition of its
stock. Siblings understands that although Rule 144 is not exclusive, the
Commission has expressed its opinion that persons proposing to sell
restricted securities received in a private offering other than in a
registered offering or pursuant to Rule 144 will have a substantial burden of
proof in establishing that an exemption from registration is available for
such offers to sales and that such persons and the brokers who participate in
the transactions do so at their own risk.
(d) ACCESS TO DATA. Siblings has had an opportunity to discuss
Parent's business, management and financial affairs with its management.
Siblings has also had an opportunity to ask questions of officers of Parent,
which questions were answered to its satisfaction. Siblings understands that
such discussions, as well as any written information issued by Parent, were
intended to describe certain aspects of Parent's business and prospects but
were not a thorough or exhaustive description.
2.29 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by the Company, Indemnitors or the Stockholders (as modified by the
Disclosure Schedule), nor any statement made in any Schedule or certificate
furnished by the Company, Indemnitors or the Stockholders pursuant to this
Agreement, taken together, contains or will contain at the Closing, any
untrue statement of a material fact, or omits or will omit at the Closing to
state any material fact
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necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company, subject to such exceptions
as are specifically disclosed in the disclosure schedule supplied by Parent to
the Stockholders and dated the date hereof, that on the date hereof, and as of
the Closing as though made on the date hereof, as follows:
3.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware. Parent has the corporate power to own its properties and to
carry on its business as now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to
be so qualified would have a Parent Material Adverse Effect. Parent has made
available a true and correct copy of its Certificate of Incorporation and
Bylaws, as amended to date, to counsel for the Company. For all purposes of
this Agreement, the term "Parent Material Adverse Effect" means any change,
event or effect that is materially adverse to the business, assets (including
intangible assets), financial condition, capitalization or results of
operations or prospects of Parent and its subsidiaries taken as a whole,
except for those changes, events and effects that (i) are directly caused by
conditions affecting the United States economy as a whole or affecting the
industry in which such entity competes as a whole, which conditions do not
affect such entity in a disproportionate manner, or (ii) are related to or
result from the announcement or pendency of the Acquisition.
3.2 AUTHORITY. Parent has all requisite corporate power and authority to
enter into this Agreement and any Related Agreements to which it is a party
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and any Related Agreements to which
it is a party and the consummation of the transactions contemplated hereby
and thereby have been, or will be prior to the Closing, duly authorized by
all necessary corporate action on the part of Parent. This Agreement and any
Related Agreements to which Parent is a party have been duly executed and
delivered by Parent and constitute the valid and binding obligations of
Parent, enforceable in accordance with their terms, except as such
enforceability may be limited by principles of public policy and subject to
the laws of general application relating to bankruptcy, insolvency and the
relief of debtors and rules of law governing specific performance, injunctive
relief or other equitable remedies.
3.3 NO CONFLICT. The execution, delivery and performance of this Agreement
and any Related Agreements to which it is a party do not, and the consummation
of the transactions contemplated hereby and thereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a Conflict under (i) any provision of the
Certificate of Incorporation, as amended, and Bylaws of Parent, (ii) any
mortgage, indenture,
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lease, contract or other agreement or instrument, permit, concession,
franchise or license to which Parent or any of its respective properties or
assets are subject and which has been filed as an Exhibit to Parent's filings
under the Securities Act or the Exchange Act or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Parent or
its properties or assets, except where such Conflict will not have a Parent
Material Adverse Effect.
3.4 CONSENTS. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity, or any
third party is required by or with respect to Parent in connection with the
execution and delivery of this Agreement and any Related Agreements to which
it is a party or the consummation of the transactions contemplated hereby and
thereby, except for such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable securities laws and such consents, waivers, approvals,
orders, authorizations, registrations, declarations and filings which, if not
obtained or made, would not have a Parent Material Adverse Effect. All such
filings will be made within the time prescribed by law.
3.5 CAPITAL STRUCTURE.
(a) The authorized stock of Parent consists of 40,000,000 shares of
Common Stock, $.001 par value, of which 9,367,576 shares were issued and
outstanding as of December 31, 1998, and 5,000,000 shares of undesignated
Preferred Stock, $0.001 par value. No shares of Preferred Stock are issued or
outstanding. All such shares have been duly authorized, and all such issued
and outstanding shares have been validly issued, are fully paid and
nonassessable and are free of any liens or encumbrances other than any liens
or encumbrances created by or imposed upon the holders thereof. Parent has
also reserved 2,000,000 shares of Common Stock for issuance pursuant to its
employee and director stock and option plans. There are no other options,
warrants, calls, rights, commitments or agreements of any character to which
Parent is a party or by which it is bound obligating Parent to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of Parent or
obligating Parent to grant, extend or enter into any such option, warrant,
call, right, commitment or agreement.
(b) The shares of Parent Common Stock to be issued pursuant to the
Acquisition will be duly authorized, validly issued, fully paid,
non-assessable, free of any liens or encumbrances and not subject to any
preemptive rights or rights of first refusal created by statute or the
Articles of Incorporation or Bylaws of Parent or any agreement to which
Parent is a party or is bound except as provided in this Agreement.
3.6 SEC FILINGS. Parent has filed in a timely manner all forms, reports and
documents required to be filed by Parent. All such required forms, reports and
documents (including those Parent may file subsequent to the date hereof) are
referred to herein as the "SEC Reports." As of their respective dates, the SEC
Reports (i) were prepared, in all material respects, in accordance with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such SEC Reports and (ii) did not at the time they
were filed (or if amended or superseded by a filing prior to
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the date of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Parent is not a party to any material contract, agreement or other
arrangement which was required to have been filed as an exhibit to the SEC
Reports that is not so filed.
3.7 LITIGATION. There is no action, suit, proceeding, claim, arbitration
or investigation ("Action") pending: (a) against Parent, its respective
activities, properties or assets or, to Parent's Knowledge, against any
officer, director or employee of Parent in connection with such officer's,
director's or employee's relationship with, or actions taken on behalf of,
Parent which Parent believes is reasonably likely to have a Parent Material
Adverse Effect, or (b) that seeks to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement. Parent is not a party to or
subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality. No action by Parent is
currently pending nor does Parent intend to initiate any action which is
reasonably likely to have a Parent Material Adverse Effect.
3.8 COMPLIANCE WITH LAW AND CHARTER DOCUMENTS. Parent is not in
violation or default of any provisions of its Certificate of Incorporation or
Bylaws, as amended. Parent has complied and is in compliance with all
applicable statutes, laws, and regulations and executive orders of the United
States of America and all states, foreign countries and other governmental
bodies and agencies having jurisdictions over Parent's businesses or
properties, except for any violations that would not, either individually or
in the aggregate, have a Parent Material Adverse Effect.
3.9 Year 2000 Compliant. All of Parent's products (including products
currently under development) will record, store, process, calculate and
present calendar dates falling on and after (and if applicable, spans of time
including) January 1, 2000, and will calculate any information dependent on
or relating to such dates in the same manner, and with the same
functionality, data integrity and performance, as the products record, store,
process, calculate and present calendar dates on or before December 31, 1999,
or calculate any information dependent on or relating to such dates
(collectively, "Year 2000 Compliant"). All of Parent's products (i) will lose
no functionality with respect to the introduction of records containing dates
falling on or after January 1, 2000 and (ii) will be interoperable with other
products used and distributed by Parent that may deliver records to Parent's
products or receive records from Parent's products, or interact with Parent's
products, including but not limited to back-up and archived data. All of
Parent's internal computer and technology products and systems are Year 2000
Compliant.
3.10 FULL DISCLOSURE. None of the representations or warranties made by
Parent, nor any statement made in any schedule or certificate furnished by
Parent pursuant to this Agreement and the Related Agreements, nor the SEC
Reports, taken together, contains or will contain at the Closing, any untrue
statement of a material fact, or omits or will omit at the Closing to state
any material fact necessary in order to make the statements contained herein
or therein, in the light of the circumstance under which they were made, not
misleading.
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ARTICLE IV
CONDUCT PRIOR TO THE CLOSING
4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing, each of the Company and the Stockholders agree
(except to the extent that Parent shall otherwise consent in writing), to
carry on the Company's business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay the debts and
Taxes of the Company when due, to pay or perform other obligations when due,
and, to the extent consistent with such business, use their best efforts
consistent with past practice and policies to preserve intact the Company's
present business organizations, keep available the services of the Company's
present officers and key employees and preserve the Company's relationships
with regulators, customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, all with the goal of preserving
unimpaired the Company's goodwill and ongoing businesses at the Closing. The
Company shall promptly notify Parent of any event or occurrence or emergency
not in the ordinary course of business of the Company and any material event
involving the Company. Except as expressly contemplated by this Agreement as
set forth in Section 4.1 of the Disclosure Schedule, the Company shall not,
without the prior written consent of Parent:
(a) Make any capital expenditure or commitment exceeding $20,000
individually or $50,000 in the aggregate;
(b) (i) Sell any Company Intellectual Property or enter into any
agreement with respect to the Company Intellectual Property with any person
or entity or with respect to the Intellectual Property of any person or
entity except as previously disclosed to Parent in writing, (ii) buy any
Intellectual Property or enter into any agreement with respect to the
Intellectual Property of any other person or entity, (iii) enter into any
agreement with respect to development of any Intellectual Property with a
third party except as previously disclosed to Parent in writing;
(c) Transfer to any person or entity any rights to the Company
Intellectual Property;
(d) Enter into or amend any Contract pursuant to which any other
party is granted marketing, distribution, development or similar rights of
any type or scope with respect to any products or technology except as
previously disclosed to Parent in writing;
(e) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the Contracts
set forth or described in the Disclosure Schedule;
(f) Commence or settle any litigation;
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(g) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of the Company, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares
of the capital stock of the Company (or options, warrants or other rights
exercisable therefor);
(h) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of the Company's capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating the Company to issue or purchase any
such shares or other convertible securities.
(i) Cause or permit any amendments to the Company's Articles (or
Certificate) of Incorporation or Bylaws;
(j) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire
any assets which are material, individually or in the aggregate, to the
Company's business;
(k) Sell, lease, license or otherwise dispose of any of its
properties or assets, except as previously disclosed to Parent in writing;
(l) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others except as disclosed in the Disclosure Schedule;
(m) Grant any loans to others or purchase debt securities of others
or amend the terms of any outstanding loan agreement;
(n) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to
standard written agreements outstanding on the date hereof and disclosed in
the Disclosure Schedule;
(o) Adopt any employee benefit plan, or enter into any employment
contract, pay or agree to pay any special bonus or special remuneration to
any director or employee, or increase the salaries or wage rates of its
employees;
(p) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
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(q) Pay, discharge or satisfy, in an amount in excess of $10,000 in
any one case or $25,000 in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in the Current Balance
Sheet;
(r) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to
any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(s) Enter into any strategic alliance, joint marketing arrangement
or agreement, or joint venture;
(t) Other than as specifically requested in writing by Parent,
accelerate the vesting schedule of any of the outstanding Company Options or
Company Capital Stock;
(u) Hire any employee except in replacement of a terminated
employee or except as reasonably necessary consistent with the needs of the
business of the Company; not terminate the employment of any management level
or other key employee; or
(v) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (u) above, or any other action
that would prevent the Company from performing or cause the Company not to
perform its covenants hereunder.
4.2 CONDUCT OF BUSINESS OF PARENT. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing, the Parent agrees that it shall, and shall cause it
subsidiaries to, conduct its business in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted. Without
limiting the foregoing, and except as expressly contemplated by this
Agreement, the Parent shall not, without the prior written consent of the
Company, (i) declare, set aside or pay any dividends on or make any other
distributions in respect of its capital stock, or split, combine or
reclassify any of its capital stock; (ii) amend its Articles of Incorporation
or (iii) enter into any transaction or series of transactions which would be
required to be reported on Form 8-K.
4.3 NO SOLICITATION. Until the earlier of the Closing or the date of
termination of this Agreement pursuant to the provisions of Section 8.1
hereof, neither the Company nor any of the Stockholders or Indemnitors (nor
will the Company nor any of the Stockholders or Indemnitors permit any of its
officers, directors, agents, representatives or affiliates to) directly or
indirectly, take any of the following actions with any party other than
Parent and its designees: (a) solicit, encourage, initiate or participate in
any negotiations or discussions with respect to, any offer or proposal to
acquire all, substantially all or a significant portion of the Company's
business, properties or technologies or any portion of the Company's capital
stock (whether or not outstanding) whether by merger , purchase of assets,
tender offer or otherwise, or effect any such transaction, (b) disclose any
information not customarily disclosed to any person concerning the
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Company's business, technologies or properties or afford to any person or
entity access to its properties, technologies, books or records, (c) assist
or cooperate with any person to make any proposal to purchase all or any part
of the Company's capital stock or assets, (d) enter into any agreement with
any person providing for the acquisition of all or any significant portion of
the Company (whether by way of merger, purchase of assets, tender offer or
otherwise) or (e) solicit, initiate, participate or continue in any
negotiation or discussion with respect to any offer or proposal to acquire
all, substantially all or a significant portion of the business, properties
or technologies or any portion of capital stock of any other entity whether
by merger, purchase of assets, tender offer or otherwise, or effect any such
transaction. In addition to the foregoing, if the Company or any of the
Stockholders receives, prior to the Closing or the termination of this
Agreement, any offer, proposal, or request relating to any of the above, the
Company or the Stockholders, as applicable, shall immediately notify Parent
thereof, including information as to the identity of the offeror or the party
making any such offer or proposal and the terms thereof in reasonable detail,
and such other information related thereto as Parent may reasonably request.
The parties hereto agree that irreparable damage would occur in the event
that the provisions of this Section 4.3 were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed by
the parties that Parent shall be entitled to seek an injunction or
injunctions to prevent breaches of the provisions of this Section 4.3 and to
enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which Parent may be entitled at law or in equity.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PARENT REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time to time the
Parent shall determine to register any of its equity securities, either for
its own account or the account of a security holder or holders, other than
(i) a registration relating solely to employee benefit plans, (ii) a
registration relating solely to a Rule 145 transaction, or (iii) a
registration in which the only equity security being registered is Common
Stock issuable upon conversion of convertible debt securities which are also
being registered, the Parent will:
(i) Promptly give to Siblings written notice thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within twenty (20) days after receipt of
such written notice from the Parent, by Siblings.
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(b) UNDERWRITING. If the registration of which the Parent gives
notice is for a registered public offering involving an underwriting, the
Parent shall so advise Siblings as a part of the written notice given
pursuant to Section 5.2(a)(i). In such event the right of Siblings to
registration pursuant to this Section 5.2 shall be conditioned upon Siblings'
participation in such underwriting, and the inclusion of the Siblings Shares
in the underwriting shall be limited to the extent provided herein.
Siblings shall (together with the Parent and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Parent. Notwithstanding any other
provision of this Section 5.1, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may exclude some or all of the
Siblings Shares from such registration. The Parent shall so advise Siblings
of the number of Siblings Shares that may be included in the registration and
underwriting.
If Siblings disapproves of the terms of any such underwriting, it
may elect to withdraw therefrom by written notice to the Parent and the
managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
(c) RIGHT TO TERMINATE REGISTRATION. The Parent shall have the
right to terminate or withdraw any registration initiated by it under this
Section 5.1 prior to the effectiveness of such registration whether or not
Siblings has elected to include securities in such registration.
5.2 REGISTRATION ON FORM S-3.
(a) If Siblings requests that the Parent file a registration
statement on Form S-3 (or any successor form to Form S-3) for a public
offering of Siblings Shares, the reasonably anticipated aggregate price to
the public of which, net of underwriting discounts and commissions, would
exceed $1,500,000, and the Parent is a registrant entitled to use Form S-3 to
register the Siblings Shares for such an offering, the Parent shall use its
best efforts to cause such Siblings Shares to be registered for the offering
on such form and to cause such Siblings Shares to be qualified in such
jurisdictions as Siblings may reasonably request; provided, however, that the
Parent shall not be required to effect more than one registration in the
aggregate on behalf of Siblings pursuant to this Section 5.2 per year. The
Parent shall inform other holders of Parent securities of the proposed
registration and offer them the opportunity to participate. In the event the
registration is proposed to be part of an underwritten public offering, the
substantive provisions of Section 5.1(b) shall be applicable to each such
registration initiated under this Section 5.2. The Parent may include other
shares of Common Stock in any of the registrations provided for in this
Section 5.2, provided that such inclusion will not interfere with the
marketing (including the price to the public) of the Siblings Shares to be
registered by Siblings.
(b) Notwithstanding the foregoing, the Parent shall not be
obligated to take any action pursuant to this Section 5.2:
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(i) in any particular jurisdiction in which the Parent would
be required to execute a general consent to service of process in effecting
such registration, qualification or compliance unless the Parent is already
subject to service in such jurisdiction and except as may be required by the
Securities Act;
(ii) following the period starting with the date sixty (60)
days prior to the Parent's estimated date of filing of, and ending on the
date six (6) months immediately following, the effective date of any
registration statement pertaining to securities of the Parent (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Parent is actively employing in
good faith all reasonable efforts to cause such registration statement to
become effective; or
(iii) if the Parent shall furnish to Siblings a certificate
signed by the Chief Executive Officer of the Parent stating that in the good
faith judgment of the Chief Executive Officer it would be detrimental to the
Parent or its stockholders for registration statements to be filed in the
near future, then the Parent's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed ninety
(90) days from the receipt of the request to file such registration statement
by Siblings, provided that the Parent may not exercise this deferral right
more than once per twelve (12) month period.
5.3 EXPENSES OF REGISTRATION. All registration expenses, including
without limitation all Federal and "blue sky" registration, filing and
qualification fees, printers' and accounting fees, and fees and disbursements
of counsel for Parent, incurred in connection with the registration pursuant
to Sections 5.1 and 5.2 shall be borne by Parent. All Selling Expenses, as
defined below, shall be borne by the persons who sell the shares generating
said Selling Expenses. "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of Siblings Shares
pursuant to this Agreement, together with the fees of any counsel to the
selling shareholders.
5.4 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Parent pursuant to this
Agreement, the Parent will keep Siblings advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof. The Parent will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least ninety
(90) days or until the distribution described in the registration statement
has been completed, whichever first occurs;
(b) Furnish to Siblings and to the underwriters of the securities
being registered such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other documents
as such underwriters may reasonably request in order to facilitate the public
offering of such securities.
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5.5 INDEMNIFICATION.
(a) PARENT'S INDEMNIFICATION OF SIBLINGS. Parent will indemnify
Siblings with respect to which registration of the Siblings Shares has been
effected pursuant to this Agreement, and each underwriter thereof, if any,
and each person who controls such underwriter, against all claims, losses,
damages or liabilities (or actions in respect thereof) suffered or incurred
by any of them, to the extent such claims, losses, damages or liabilities
arise out of or are based upon any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus or any related
Registration Statement incident to any such Registration, or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by Parent of any rule or regulation promulgated under the
Securities Act applicable to Parent and relating to actions or inaction
required of Parent in connection with any such registration; and Parent will
reimburse Siblings, each such underwriter and each person who controls
Siblings or such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action; provided, however, that the indemnity contained
in this Section 5.5 shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability or action if settlement is effected without
the consent of the Parent (which consent shall not unreasonably be withheld);
and provided, further, that the Parent will not be liable in any such case to
the extent that any such claim, loss, damage, liability or expense arises out
of or is based upon any untrue statement or omission based upon written
information furnished to Parent by Siblings, such underwriter, controlling
person or other indemnified person and stated to be for use in connection
with the offering of securities of Parent.
5.6 SIBLINGS' INDEMNIFICATION OF PARENT. Siblings will indemnify Parent,
each of its directors and officers, each person who controls the Parent
within the meaning of the Securities Act, and each other Stockholder, against
all claims, losses, damages and liabilities (or actions in respect thereof)
suffered or incurred by any of them and arising out of or based upon any
untrue statement (or alleged untrue statement) of a material fact contained
in such Registration Statement or related prospectus, or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by Siblings of any rule or regulation promulgated under the
Securities Act applicable to Siblings and relating to action or inaction
required of Siblings in connection with the registration of the Siblings
Shares pursuant to such Registration Statement; and will reimburse Parent,
such other Stockholders, such directors, officers, partners, persons,
underwriters and controlling persons for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such Registration Statement or
prospectus in reliance upon and in conformity with written information
furnished to Parent by Siblings and stated to be specifically for use in
connection with the offering of securities of Parent.
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5.7 ACCESS TO INFORMATION. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Closing to (a) all of
the Company's properties, books, contracts, commitments and records, (b) all
other information concerning the business, properties and personnel (subject
to restrictions imposed by applicable law) of the Company as Parent may
reasonably request and (c) all key employees of the Company as identified by
Parent. The Company agrees to provide to Parent and its accountants, counsel
and other representatives copies of internal financial statements (including
by returns and supporting documentation) promptly upon request. No
information or knowledge obtained in any investigation pursuant to this
Section 5.7 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties
to consummate the Acquisition. Notwithstanding the foregoing, in accordance
with the terms of that certain Confidential Disclosure Agreement, dated
November 9, 1998, neither the Company nor Parent are required to furnish the
other with information regarding the Litigation.
5.8 CONFIDENTIALITY. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 5.7, or
pursuant to the negotiation and execution of this Agreement or the
effectuation of the transaction contemplated hereby shall be governed by the
terms of the Confidential Disclosure Agreements, dated February 12, 1998,
from Parent to the Company, and dated October 29, 1997, from the Company to
Parent and November 9, 1998.
5.9 EXPENSES.
(a) (i) All fees and expenses incurred by Parent in connection with
the Acquisition including, without limitation, all legal, accounting,
financial advisory, consulting and all other fees and expenses of third
parties in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby, shall
be the obligation of Parent and (ii) all fees and expenses incurred by the
Company, Indemnitors and the Stockholders in connection with the Acquisition
including, without limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties other than the
Ladenburg Fee, as defined below ("Third Party Expenses") in connection with
the negotiation and effectuation of the terms and conditions of this
Agreement and the transactions contemplated hereby, prior to the execution of
this Agreement shall be the obligation of the Company and after the execution
of this Agreement shall be the obligation of the Stockholders provided,
however, that in the event the Acquisition is not consummated such Third
Party Expenses shall be the obligation of the Company.
(b) In the event that the Acquisition is consummated, Parent agrees
to pay the lesser of the investment banking fees incurred by the Company
and/or the Stockholders in connection with the Acquisition or $500,000 of the
Company's investment banking fees to Ladenburg (the "Ladenburg Fee"), and the
Company and the Stockholders agree that Parent shall have full recourse to
the Escrow Fund for payments to Ladenburg in excess of $500,000.
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5.10 PUBLIC DISCLOSURE. Upon execution of this Agreement, Parent shall
issue a press release reasonably acceptable to the Company. Unless otherwise
required by law, prior to the Closing, no disclosure (whether or not in
response to an inquiry) of the subject matter of this Agreement shall be made
by Parent, the Company or any Stockholders. Under no circumstances will the
Company (or any of its respective officers, directors, employees, affiliates
or agents), or any Stockholder discuss or disclose the existence or terms of
this Agreement, or the transaction contemplated hereby, with or to any third
party other than such legal, accounting and financial advisors of such party
who have a need to know such information solely for purposes of assisting
such party in connection with this Agreement or the transactions contemplated
hereby. Notwithstanding the foregoing, the Company and the Stockholders, but
only after consultation with Parent, may at any time make public disclosure
if it is advised by legal counsel that such disclosure is required under
applicable law or regulatory authority.
5.11 CONSENTS. The Company shall use its best efforts to obtain the
consents, waivers, assignments and approvals under any of the Contracts as
may be required in connection with the Acquisition (all of such consents,
waivers and approvals are set forth in the Disclosure Schedule) so as to
preserve all rights of, and benefits to, the Company thereunder.
5.12 FIRPTA COMPLIANCE. On the Closing Date, the Company shall deliver
to Parent a properly executed statement in a form reasonably acceptable to
Parent for purposes of satisfying Parent's obligations under Treasury
Regulation Section 1.1445-2(c)(3).
5.13 REASONABLE EFFORTS. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do
promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents
and approvals and to effect all necessary registrations and filings and to
remove any injunctions or other impediments or delays, legal or otherwise, in
order to consummate and make effective the transactions contemplated by this
Agreement for the purpose of securing to the parties hereto the benefits
contemplated by this Agreement.
5.14 NOTIFICATION OF CERTAIN MATTERS. Each party shall give prompt
notice to each other party of (i) the occurrence or non-occurrence of any
event, the occurrence or non-occurrence of which is likely to cause any
representation or warranty of such party contained in this Agreement to be
untrue or inaccurate at or prior to the Closing and (ii) any failure of such
party, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.14 shall not limit or
otherwise affect any remedies available to the party receiving such notice.
No disclosure by the Company or the Stockholders pursuant to this Section
5.14, however, shall be deemed to amend or supplement the Disclosure Schedule
or prevent or cure any misrepresentations, breach of warranty or breach of
covenant.
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5.15 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary
or desirable for effecting completely the consummation of this Agreement and
the transactions contemplated hereby.
5.16 CERTAIN POST-CLOSING MATTERS.
(a) Parent agrees to cause the Company to repay to GN $3,709,879.67
plus interest accruing at the rate of 7.0% per annum between the Closing and
the date of payment with respect to GN's loans to the Company within 10 days
after the Closing. Upon such payment GN will confirm in writing that all of
GN's loans to the Company are satisfied in full and GN shall release all
security interests in the Company's assets.
(b) Parent agrees to use commercially reasonable efforts to obtain
the release of the personal guaranties of GN, KN and JL from obligations with
respect to [the Tokai equipment lease and the Company's credit cards.]
(c) Parent agrees within 10 days after the Closing either (i) to
repay the Company's loans with Nevada Banking Company and terminate the
agreement with Nevada Banking Company, or (ii) to obtain the release of all
Stockholders guaranties to Nevada Banking Company, including the release of
any collateral securing such guaranties.
5.17 NON-COMPETITION AGREEMENTS. Each of GN, KN and JL shall deliver to
Parent concurrently with the execution of this Agreement an executed
Non-Competition Agreement in the form attached hereto as Exhibit B. Each of
GN, KN and JL covenants that he shall comply with the Non-Competition
Agreement.
5.18 EMPLOYMENT AGREEMENTS. Each of GN, KN and JL shall deliver to
Parent concurrently with the execution of this Agreement an executed
Employment Agreement in the form attached hereto as Exhibits D-1, D-2 and
D-3, respectively.
5.19 NASDAQ LISTING. Parent agrees to authorize for listing on the
Nasdaq National Market the shares of Parent Common Stock issuable, in
connection with the Acquisition, upon official notice of issuance.
5.20 PARENT RIGHT OF FIRST REFUSAL. At any time before the third
anniversary of the Closing a Stockholder, or any of such Stockholder's
"affiliates" or "associates" (as those terms are defined in Rule 405
promulgated under the Securities Act of 1933, as amended) ("Selling
Stockholder") proposes to sell, transfer the voting rights in, or otherwise
transfer for value in excess of 150,000 Siblings Shares in a transaction or
series of related transactions or in excess of 600,000 Siblings Shares in a
twelve month period (the "Offered Securities") to any person or group of
persons (the "Proposed Transferee") in one or more related transactions,
Selling Stockholder shall first offer to sell the Offered Securities to
Parent at the same price and on the same terms in a writing delivered to the
Parent (the "Parent Offer"), which Parent Offer shall remain open and
irrevocable for a period of five (5) days after delivery (the "Parent Offer
Period").
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(a) NOTICE OF PARENT ACCEPTANCE. Notice of Parent's election to
accept, in whole or in part, a Parent Offer shall be made by a writing signed
by an officer of Parent specifying the portion of the Offered Securities that
Parent elects to purchase, delivered to the Selling Stockholder prior to the
expiration of the Parent Offer Period (the "Parent Acceptance Notice").
(b) CLOSING. The closing of the purchase by Parent of some or all
of the Offered Securities upon the terms and conditions specified in the
Parent Offer shall occur within three (3) business days of receipt by the
Selling Stockholder of the Parent Acceptance Notice and shall be subject to
the preparation, execution and delivery of a purchase agreement reasonably
satisfactory to the Parent and the Selling Stockholder, as the case may be,
and their respective counsel; provided, however, that the Selling Shareholder
shall not be required to make any representations or warranties in such
purchase agreement except with respect to such Selling Shareholder's
authority to enter into such agreement and its ownership of the Offered
Shares.
(c) LEGEND. Each certificate representing Siblings Shares now owned
by the Stockholders shall be endorsed with the following legend:
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS OF AN AGREEMENT BY AND BETWEEN THE
STOCKHOLDER AND THE CORPORATION. COPIES OF THE APPLICABLE PORTIONS OF SUCH
AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION."
(d) LEGEND REMOVAL. The legend referred to in Section 5.20(c) shall
be removed upon termination of this Agreement in accordance with the
provisions of Article VIII.
5.21 LIMITATION ON AGGREGATE SALES. Siblings agrees that, for a period
of six months after the Closing, such stockholder will not sell more than
200,000 Siblings Shares without the prior written consent of Parent.
5.22 LITIGATION BETWEEN THE PARTIES. On the date of execution of this
Agreement, Ball shall dismiss with prejudice any lawsuit or other proceeding
against Golf.
5.23 COMPANY EMPLOYEES. Parent agrees, with respect to employees
employed by the Company immediately prior to the Closing who continue as
employees of Parent following the Closing, as follows: (a) such continuing
employees will be deemed to have begun their employment with Parent on the
date they began employment with the Company for the purposes of vacation
time, and severance and profit sharing eligibility with participation in
profit sharing to begin May 1, 1999, (b) such continuing employees will be
deemed to have begun their employment with Parent on the date they began
employment with the Company for the purposes of health insurance and 401(k)
plan participation to the extent permitted thereunder, (c) such continuing
employees will be integrated into Parent's compensation and bonus structure
consistent with their responsibilities and experience as determined by
Parent, and (d) such continuing employees will be eligible for participation
in
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Parent's stock option program consistent with their responsibilities and
experience as determined by Parent. The exact timing of implementation of the
foregoing will be determined by Parent.
ARTICLE VI
CONDITIONS TO THE ACQUISITION
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE ACQUISITION.
The respective obligations of the Stockholders and Parent to effect the
Acquisition shall be subject to the satisfaction at or prior to the Closing
of the following conditions:
(a) NO ORDER. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the
Acquisition illegal or otherwise prohibiting consummation of the Acquisition.
(b) COMBINED BOARD. Parent shall have appointed three designees of
the Company to Parent's Board of Directors as follows: KN shall be appointed
as a Class I director, JL shall be appointed as a Class II director and GN
shall be appointed as a Class III director.
6.2 CONDITIONS TO OBLIGATIONS OF COMPANY AND THE STOCKHOLDERS. The
obligations of the Company and the Stockholders to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived, in writing, exclusively by the Stockholders:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations
and warranties of Parent in this Agreement shall be true and correct in all
material respects on and as of the Closing as though such representations and
warranties were made on and as of such time and each of Parent shall have
performed and complied in all material respects with all covenants and
obligations of this Agreement required to be performed and complied with by
it as of the Closing.
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Acquisition shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; nor shall there be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Acquisition, which makes the
consummation of the Acquisition illegal.
(c) CLAIMS. There shall not have occurred any claims (whether or
not asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or may have a Parent
Material Adverse Effect. There shall be no BONA FIDE action, suit, claim or
proceeding of any nature pending, or overtly threatened, against the Parent,
Sub
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or the Company, their respective properties or any of their officers or
directors, arising out of, or in any way connected with, the Acquisition or
the other transactions contemplated by the terms of this Agreement, that
would materially and adversely affect the consummation of the transactions
contemplated hereby or have a Company or Parent Material Adverse Effect.
(d) LEGAL OPINION. The Company and Stockholders shall have received
a legal opinion from Wilson Sonsini Goodrich & Rosati, legal counsel to
Parent, substantially in the form of Exhibit F hereto.
(e) NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
Parent Material Adverse Effect since the date of this Agreement.
(f) CERTIFICATE OF THE PARENT. Company shall have been provided
with a certificate executed on behalf of Parent by an authorized officer to
the effect that, as of the Closing:
(i) all representations and warranties made by Parent and Sub
in this Agreement are true and correct in all material respects on and as of
the Closing as though such representations and warranties were made on and as
of such time; and
(ii) all covenants and obligations of this Agreement to be
performed by Parent on or before such date have been so performed in all
material respects.
6.3 CONDITIONS TO THE OBLIGATIONS OF PARENT. The obligations of Parent
to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by Parent:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations
and warranties of the Company, the Stockholders and the Indemnitors in this
Agreement shall be true and correct in all material respects on and as of the
Closing as though such representations and warranties were made on and as of
the Closing and the Company, the Stockholders and the Indemnitors shall have
performed and complied in all material respects with all covenants and
obligations of this Agreement required to be performed and complied with by
them as of the Closing.
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Acquisition shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; nor shall there be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Acquisition, which makes the
consummation of the Acquisition illegal.
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(c) CLAIMS. There shall not have occurred any claims (whether or
not asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or may have a Company
Material Adverse Effect. There shall be no BONA FIDE action, suit, claim or
proceeding of any nature pending, or overtly threatened, against the Parent,
Sub or the Company, their respective properties or any of their officers or
directors, arising out of, or in any way connected with, the Acquisition or
the other transactions contemplated by the terms of this Agreement, that
would materially and adversely affect the consummation of the transactions
contemplated hereby or have a Company or Parent Material Adverse Effect.
(d) THIRD PARTY CONSENTS. Any and all consents, waivers,
assignments and approvals listed in Sections 2.5 and 2.6 of the Disclosure
Schedule shall have been obtained.
(e) LEGAL OPINION. Parent shall have received a legal opinion from
Gibson, Dunn & Crutcher LLP, legal counsel to the Company, substantially in
the form of Exhibit E hereto.
(f) NO MATERIAL ADVERSE CHANGES. There shall not have occurred any
Company Material Adverse Effect since the date of this Agreement.
(g) CERTIFICATE OF THE COMPANY AND STOCKHOLDERS. Parent shall have
been provided with a certificate executed by the Stockholders and executed on
behalf of the Company by an authorized officer to the effect that, as of the
Closing:
(i) all representations and warranties made by the Company and
the Stockholders in this Agreement are true and correct in all material
respects on and as of the Closing as though such representations and
warranties were made on and as of such time;
(ii) all covenants and obligations of this Agreement to be
performed by the Company on or before such date have been so performed in all
material respects; and
(iii) the provisions set forth in Sections 6.3 have been
satisfied.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS;
INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Regardless of
any investigation by any party hereto, the Company's, Indemnitors', the
Stockholders' and Parent's representations, warranties and covenants in this
Agreement or in any instrument delivered pursuant to this Agreement shall
terminate on the second anniversary of the Closing Date, except: (i) to the
extent a Claim Notice (as defined below) has been submitted prior to such
date; (ii) claims based on fraud; (iii) claims based on the representations
and warranties contained in Sections 2.3, 2.4 and 2.10; and (iv) claims based
on breach of any Related Agreement.
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7.2 INDEMNIFICATION.
(a) Subject to the terms and conditions of this Article VII, the
Indemnitors agree jointly and severally to indemnify and hold Parent and its
officers, directors, agents, affiliates and representatives (collectively,
the "Indemnitees"), from and in respect of, and hold the Indemnitees harmless
against, any and all damages, fines, penalties, losses, liabilities,
judgments, deficiencies, deficits in Tangible Net Worth as described in
Section 1.4 above, and expenses (including without limitation amounts paid in
settlement, interest, court costs, costs of investigators, reasonable fees
and expense of attorneys and accountants and other expenses of litigation),
offset or reduced by the amount of any insurance proceeds or tax benefits
actually received by Parent in respect of any of the foregoing, incurred or
suffered by any of the Indemnitees ("Damages") resulting from, relating to or
in connection with (i) any misrepresentation, breach of representation or
warranty or failure to perform any covenant or agreement of the Company or
the Stockholders or the Indemnitors contained in this Agreement or any
inaccuracy in any schedule or certificate delivered by the Company or the
Shareholders or the Indemnitors pursuant to this Agreement, (ii) any Damages
relating to a Tangible Net Worth shortfall as determined in accordance with
Section 1.4 of the Agreement, (iii) any Damages relating to a breach of the
Non-Competition Agreements (iv) payments to Ladenburg in excess of the
amounts specified in Section 5.9 and (v) any Damages relating to those
Special Matters agreed to in writing by Parent and the Company at the
closing. In the event that on or prior to the date that is one (1) year from
the Closing, any of the Key Employees (as defined below) shall have
voluntarily terminated their employment with Parent (or one of its
affiliates) without Good Reason, or if Parent shall terminate the employment
of any Key Employee for cause Parent shall be entitled to Damages in the
amount of $300,000 as liquidated damages and shall be entitled immediately to
receive such amount from the Escrow Fund. For purposes of this Section 7.2(a)
"Key Employees" shall mean those employees identified in writing by Parent
and the Company, and "Good Reason" shall mean a substantial reduction in such
Key Employee's responsibilities or compensation, or a relocation of such Key
Employee's primary place of work to a location other than the Carson
City-Stateline, Nevada area, or the Tempe, Arizona area. Notwithstanding the
first sentence of this Section 7.2(a), (i) each Indemnitor and each
Stockholder shall be severally and not jointly liable for claims based on
such party's representations and warranties contained in Section 2.4(b), and
(ii) each Indemnitor and each Stockholder shall be severally and not jointly
liable for claims based on breach of any Related Agreement by such party;
provided, that GN and KN shall be jointly and severally liable for claims
against Siblings described in clauses (i) and (ii).
(b) To secure the indemnification obligations of the Indemnitors to
the Indemnitees, the Escrow Fund will be deposited with the Escrow Agent in
accordance with Section 1.3 hereof and the Escrow Agreement. To further
secure the indemnification obligations of the Indemnitors to the Indemnities,
Parent shall have the right to offset indemnified claims against payment of
up to 20% of the JL Deferred Cash (the "JL Offset Amount")
(c) Each Indemnitor acknowledges that its indemnification
obligations hereunder are solely in his capacity as a former shareholder or
beneficial owner of shares of the Company, and, accordingly, the
indemnification obligations in this Article VII shall not entitle any current
or former
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officer, director or employee of the Company to any indemnification from the
Company pursuant to the Articles of Incorporation, or any agreement with the
Company (notwithstanding any insurance policy).
7.3 METHOD OF ASSERTING CLAIMS. Parent shall give prompt written notice
(the "Claim Notice") to the agent for the Indemnitors (the "Securityholder
Agent") as identified in Section 7.5 below, and the Escrow Agent of any claim
or event known to it which gives rise or may give rise to a claim for
indemnification hereunder (an "Indemnifiable Claim") as provided in the
Escrow Agreement.
7.4 INDEMNIFICATION LIABILITY LIMITATIONS.
(a) The maximum aggregate liability of the Indemnitors for Damages
shall be limited to the Maximum Liability Amount (as defined below), except
(i) for claims based on fraud, (ii) for breaches of the representations and
warranties contained in Sections 2.3 and 2.4 in which case the Indemnitors
shall be liable for the total amount of such Damages, and (iii) for breaches
of the representations and warranties contained in Section 2.10 in which case
the Indemnitors shall be liable for Damages as described in Section 7.4(e).
The "Maximum Liability Amount" shall initially equal the First Liability
Amount. The "First Liability Amount" shall mean an amount equal to the sum of
(i) the product of the number of Siblings Escrow Shares multiplied by the
Parent Share Deemed Value (as defined below), plus (ii) the Siblings Escrow
Cash, plus (iii) the JL Escrow Cash, plus (iv) 20% of the JL Deferred Cash.
The "Parent Share Deemed Value" shall mean the last reported sale price of
the Parent Common Stock at the most recent close of daily trading prior to
the Closing as reported by the Nasdaq Stock Market.
(b) Twelve months after the Closing Date the Maximum Liability
Amount will be reduced to an amount equal to the sum of (i) 50% of the First
Liability Amount and (ii) the estimated liability (as set forth on the
applicable Claim Notice) of all unresolved claims submitted prior to twelve
months after the Closing Date.
(c) Eighteen months after the Closing Date the Maximum Liability
Amount will be reduced to an amount equal to the sum of (i) 25% of the First
Liability Amount and (ii) the estimated liability (as set forth on the
applicable Claim Notice) of all unresolved claims submitted prior to eighteen
months after the Closing Date.
(d) The Stockholders shall not be liable under this Article VII unless
Indemnity Amounts (as determined pursuant to the Escrow Agreement) totaling in
excess of $250,000 (the "Basket Amount") have been determined in which case
Parent shall be entitled to recover all Indemnity Amounts; provided, however,
Indemnity Amounts with respect to (i) the adjustment for a shortfall in the
Tangible Net Worth of the Company in accordance with Section 1.4, (ii) payments
to Ladenburg in excess of $500,000, (iii) Damages payable with respect to the
termination of Key Employees pursuant to Section 7.2(a), (iv) claims based on
fraud, (v) breaches of the representations and warranties contained in Sections
2.3 and 2.4, and (vi) those Special Matters identified in
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Schedule 7.2 as excluded from the Basket Amount, shall be paid without regard
to the Basket Amount.
(e) The maximum liability of the Indemnitors for Damages based on
breach of the representations and warranties contained in Section 2.10 shall
be the First Liability Amount minus the Indemnity Amounts (as defined in the
Escrow Agreement) paid to Parent. Indemnity Amounts with respect to Section
2.10 ("Tax Indemnity Amounts") shall be subject to Section 7.4(d) and the
Basket Amount until the second anniversary of the Closing Date, and to a
special basket amount (the "Tax Basket") thereafter, as follows. The Tax
Basket shall equal $250,000 less the total amount of Tax Indemnity Amounts
which have not been paid at the second anniversary of the Closing Date due to
the operation of Section 7.4(d). After the second anniversary of the Closing
Date, the Stockholders shall not be liable under this Article VII for Damages
based on breach of the representations and warranties contained in Section
2.10 until additional Tax Indemnity Amounts total in excess of the Tax Basket
in which case Parent shall be entitled to recover all Tax Indemnity Amounts.
For example, if Tax Indemnity Amount A is determined to be $100,000 prior to
the second anniversary of the Closing Date and there are no other Indemnity
Amounts determined, then Parent will not be entitled to recover Tax Indemnity
Amount A, and the Tax Basket following the second anniversary of the Closing
Date will be $150,000. In the same case, if following the second anniversary
of the Closing Date, Tax Indemnity Amount B is determined to be $75,000,
Parent will not be entitled to recovery, but if Tax Amount C is then
determined to be $100,000, Parent will be entitle to recover the entire
amount of Tax Indemnity Amount A, Tax Indemnity Amount B, and Tax Indemnity
Amount C.
(f) Nothing in this Article VII shall limit, in any manner (whether
by time, amount, procedure or otherwise), any remedy at law or in equity to
which Parent may be entitled as a result of actual fraud or willful
misrepresentation or misconduct by the Company or Stockholders.
(g) The indemnification obligations of the Indemnitors hereunder
shall be the sole and exclusive obligations of the Indemnitors (as beneficial
owners of the Company) with respect to any Damages under this Agreement and
no former shareholder, optionholder, warrantholder, officer, director or
employee of the Company other than the Indemnitors shall have any other
personal liability to Parent or Sub in connection with this Agreement
following the Closing.
7.5 SECURITYHOLDER AGENT OF THE STOCKHOLDERS; POWER OF ATTORNEY. In the
event that the Acquisition is closed, GN shall be appointed as the
Securityholder Agent for each Stockholder of the Company and for each
Indemnitor.
7.6 THIRD-PARTY CLAIMS. In the event Parent becomes aware of a
third-party claim which Parent believes may result in a demand against the
Escrow Fund, Parent shall notify the Securityholder Agent of such claim, and
the Securityholder Agent and the Shareholders of the Company shall be
entitled, at their expense, to participate in any defense of such claim.
Parent shall have the right in its sole discretion to settle any such claim;
provided, however, that except with the consent of the Securityholder Agent,
no settlement of any such claim with third-party claimants shall be
determinative of the amount or validity of any claim against the Escrow Fund.
In the event that
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the Securityholder Agent has consented to any such settlement, the
Securityholder Agent shall have no power or authority to object under any
provision of this Article VII to the amount of any claim by Parent against
the Escrow Fund with respect to such settlement.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8.2, this Agreement may be
terminated and the Acquisition abandoned at any time prior to the Closing:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Closing has not occurred
by March 31, 1999, provided, however, that the right to terminate this
Agreement under this Section 8.1(b)(i) shall not be available to any party
whose action or failure to act has been a principal cause of or resulted in
the failure of the Acquisition to occur on or before such date and such
action or failure to act constitutes a breach of this Agreement; (ii) there
shall be a final nonappealable order of a federal or state court in effect
preventing consummation of the Acquisition; or (iii) there shall be any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Acquisition by any Governmental Entity that would make
consummation of the Acquisition illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable
to the Acquisition by any Governmental Entity, which would: (i) prohibit
Parent's ownership or operation of any portion of the business of the Company
or (ii) compel Parent or the Company to dispose of or hold separate all or a
portion of the business or assets of the Company or Parent as a result of the
Acquisition;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement
on the part of the Company or the Stockholders and such breach has not been
cured within ten (10) calendar days after written notice to the Company;
provided, however, that, no cure period shall be required for a breach which
by its nature cannot be cured;
(e) by the Company if neither it nor any Stockholder is in material
breach of their respective obligations under this Agreement and there has
been a material breach of any representation, warranty, covenant or agreement
contained in this Agreement on the part of Parent and such breach has not
been cured within ten (10) calendar days after written notice to Parent;
provided, however, that no cure period shall be required for a breach which
by its nature cannot be cured; or
(f) by Parent if an event having a Company Material Adverse Effect
shall have occurred after the date of this Agreement.
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(g) by the Company or the Stockholders if an event having a Parent
Material Adverse Effect shall have occurred after the date of this Agreement.
8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and
there shall be no liability or obligation on the part of Parent, or the
Company, or their respective officers, directors or stockholders, provided
that each party shall remain liable for any breaches of this Agreement prior
to its termination; provided further that, the provisions of Sections 5.8,
5.9(a) and 5.10, Article IX and this Section 8.2 shall remain in full force
and effect and survive any termination of this Agreement.
8.3 AMENDMENT. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of Parent,
the Company and the Stockholders.
8.4 EXTENSION; WAIVER. At any time prior to the Closing, Parent and the
Stockholders may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii) waive
any inaccuracies in the representations and warranties made to such party
contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail
(return receipt requested) or sent via facsimile (with acknowledgment of
complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice), provided,
however, that notices sent by mail will not be deemed given until received:
(a) if to Parent, to:
Gametech International, Inc.
2209 West First Street
Suite 113
Tempe, AZ 85281-7245
Attention: Chief Executive Officer
Telephone No.: (602) 804-1101
Facsimile No: (602) 804-1403
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with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Blair W. Stewart, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to the Company, to
Bingo Technologies Corporation
Post Office Box 5367
295 Highway 50, Suite 20
Stateline, NV 89449
Attention: John A. Larsen
Telephone No.: (800) 487-8510
Facsimile No.: (702) 586-4573
with a copy to:
Gibson, Dunn & Crutcher LLP
1530 Page Mill Road
Palo Alto, California 94304
Attention: Lawrence Calof, Esq.
Telephone No.: (650) 849-5331
Facsimile No.: (650) 849-5333
(c) if to the Stockholders or Indemnitors, to:
Siblings Partners, L.P.
Post Office Box 859
Zephyr Cove, NV 89448
Gerald R. Novotny
2118 The Back Road
Glenbrook, NV 89413
Telephone No.: (702) 749-5242
Facsimile No.: (702) 586-4515
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Keith A. Novotny
310 Paiute Drive
Zephyr Cove, NV 89448
Telephone No.: (702) 588-9581
Facsimile No.: (702) 586-4515
John A. Larsen
17308 200th Avenue NE
Woodenville, WA 98072
Telephone No.: (425) 788-7540
Facsimile No.: (702) 586-4573
(d) If to the Escrow Agent, to:
US Bank Trust, N.A.
Global Escrow Depository Services #SANF0527
One California Street, 4th Floor
San Francisco, CA 94111
Attention: Ann Gadsby
Telephone No.: (415) 273-4532
Facsimile No.: (415) 273-4593
9.2 INTERPRETATION. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the Exhibits hereto,
the Confidential Disclosure Agreements, dated February 12, 1998, October 29,
1997 and November 9, 1998, between the Company and Parent and the documents
and instruments and other agreements among the parties hereto referenced
herein: (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and
understandings both written and oral, among the parties with respect to the
subject matter hereof; (b) are not intended to confer upon any other person
any rights or remedies hereunder; and (c) shall not be assigned (other than
by operation of law), except that Parent may assign its rights and delegate
its obligations hereunder to its affiliates, provided, however, that an
assignment to an affiliate shall not relieve Parent of its obligations
hereunder.
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9.5 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or unenforceable
provision.
9.6 OTHER REMEDIES. Any and all remedies herein expressly conferred upon
a party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by law or equity upon such party, and the exercise by a
party of any one remedy will not preclude the exercise of any other remedy.
9.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction and venue of any court within Maricopa County, State of Arizona,
in connection with any matter based upon or arising out of this Agreement or
the matters contemplated herein, agrees that process may be served upon them
in any manner authorized by the laws of the State of Arizona for such persons
and waives and covenants not to assert or plead any objection which they
might otherwise have to such jurisdiction, venue and such process.
9.8 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
9.9 ATTORNEYS FEES. If any action or other proceeding relating to the
enforcement of any provision of this Agreement is brought by any party
hereto, the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs and disbursements (in addition to any other relief to
which the prevailing party may be entitled).
9.10 THIRD PARTY BENEFICIARIES. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person or entity other than the parties hereto.
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IN WITNESS WHEREOF, Parent, the Company, the Indemnitors, and the
Stockholders have caused this Agreement to be signed, all as of the date
first written above.
GAMETECH INTERNATIONAL, INC. BINGO TECHNOLOGIES
CORPORATION
By: /s/ Todd S. Myhre By: /s/ Gerald R. Novotny
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Name: Todd S. Myhre Name: Gerald R. Novotny
Title: Chief Executive Officer Title: Chairman
STOCKHOLDERS:
SIBLINGS PARTNERS, L.P.
By: /s/ Gerald R. Novotny
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Title: General Partner
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/s/ John A. Larsen
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John A. Larsen
INDEMNITORS
/s/ Gerald R. Novotny
-----------------------------------
Gerald R. Novotny
/s/ Keith A. Novotny
-----------------------------------
Keith A. Novotny
/s/ John A. Larsen
-----------------------------------
John A. Larsen
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
<PAGE>
PRESS RELEASE
GameTech Discusses Recent Acquisition
FEBRUARY 10, 1999, TEMPE, ARIZONA GameTech International, Inc. NASDAQ -
(GMTC) today announced additional information concerning its recent
acquisition of Bingo Technologies Corporation which had been GameTech's
largest competitor. Bingo Technologies is headquartered in Northern Nevada
with service and sales locations throughout the U.S.
The combined company has the largest installed base of electronic bingo units
in the world with over 32,000 portable units and 5,500 fixed units generating
revenue. GameTech has also gained access to new markets as Bingo
Technologies has products placed in 12 additional states in which GameTech
had not operated. GameTech's strong sales network will grow by 30 additional
distributors and 11 added sales reps. Total employees for the combined
company is approximately 200 people. The combined company had unaudited 1998
revenues of over $34M with an estimated EBITDA of $10.5M, excluding a
one-time write-off relative to TSBN.
The joining of the two companies also resulted in the dismissal with
prejudice of the pending patent law suit between the two firms.
GameTech Chief Executive Officer, Todd S. Myhre, stated "This acquisition
provides GameTech with a much more extensive sales network and the immediate
capability to sell into several new markets. Our ability to offer the TED
portable and the AllTrak management and accounting software products, along
with GameTech's successful Portable, Diamond and Diamond Plus Fixed Units,
allows us to provide significantly increased value added to a wider range of
customers."
GameTech International, Inc., is a leader in the electronic bingo field,
specializing in hand held bingo units, fixed base units and superior customer
service. Corporate headquarters are located at 2209 West 1st Street, Suite
113, Tempe Arizona 85281.
The statements contained in this press release that are not historical facts
are forward-looking statements that are based on management's estimates,
assumptions and projections using the available information. The Company
cautions that actual results for earnings could differ materially from
current expectations due to a number of factors. Additionally, the Company
cautions that the potential benefits of the Bingo Technologies acquisition
may or may not be achieved. Additional information on these risk factors that
could potentially affect the Company's financial results may be found in
documents filed by the Company with the Securities and Exchange Commission.
<PAGE>
PRESS RELEASE
GAMETECH INTERNATIONAL, INC. ANNOUNCES ACQUISITION OF BINGO TECHNOLOGIES
CORPORATION
TEMPE, ARIZONA--FEBRUARY 8, 1999-- GameTech International, Inc. (NASDAQ:
GMTC) announced today that it completed the acquisition of all of the
outstanding capital stock of Bingo Technologies Corporation, a privately-held
company specializing in electronic bingo systems, pursuant to a Stock
Purchase Agreement with the stockholders of Bingo Technologies.
Under the terms of the Stock Purchase Agreement, GameTech issued
1,866,938 shares of Common Stock and paid an aggregate of $8,817,994 in cash
and $4,624,333 in unsecured promissory notes as consideration for the sale of
all outstanding stock of Bingo Technologies. Of these amounts, $1,952,211
and 373,387 shares were placed into escrow to secure certain indemnification
obligations of the Bingo Technologies shareholders. In addition, GameTech
entered into executive employment agreements and noncompetition agreements
with Gerald Novotny, Keith Novotny and John Larsen, the Chairman and Chief
Executive Officer, Chief Operating Officer and President, respectively, of
Bingo Technologies. Gerald Novotny, Keith Novotny and John Larsen have also
joined the Board of Directors of GameTech.
The acquisition of Bingo Technologies further expands GameTech's
presence in the electronic bingo market and will facilitate development and
expansion into new market areas. In addition, the acquisition builds on the
foundation of GameTech's core strengths of leadership in portable and fixed
unit electronic bingo products by adding complementary products that will
allow GameTech to offer one of the most complete and fully integrated
product lines in the industry.
GameTech Chairman of the Board, Richard T. Fedor, stated "With today's
news, GameTech further demonstrates its vision and commitment to deliver
world-class electronic bingo systems and solutions to the marketplace.
GameTech is in a prime position to provide a full range of products to our
customers coupled with our ongoing commitment to service excellence."
"I believe that Bingo Technologies and GameTech represent an excellent
fit in terms of products, markets and infrastructure," said Gerald R.
Novotny, Chairman and Chief Executive Officer of Bingo Technologies. "The
combination should enable one of the most comprehensive ranges of electronic
bingo products to be made available to Bingo Technologies' and GameTech's
customers in all markets."
GameTech International, Inc. is a publicly traded corporation involved
in the design, development, marketing and distribution of interactive gaming
systems. Corporate headquarters are located at 2209 West 1st St., Suite 113,
Tempe, Arizona 85281.
The above news release contains forward-looking statements regarding the
impact of the acquisition on GameTech's business, future market demand and
acceptance of GameTech's products and development of new business and
products of the combined company which involve risks and uncertainties.
GameTech's actual results may vary materially from the results discussed in
the forward-looking statements. Factors that may cause such a difference
include those risks surrounding timely development, production and continued
and increased market acceptance of the combined company's products,
GameTech's ability to successfully combine the operations of the two
companies, the ability of the combined company to compete in the highly
competitive marketplace and the other risks detailed from time to time in
GameTech's periodic reports with the Securities and Exchange Commission.
