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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the
transition period from ___________ to ___________
Commission File Number: 0-11532
VENTURE CATALYST INCORPORATED
(Exact name of small business issuer as specified in its charter)
Utah 33-0618806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16868 Via Del Campo Court, Suite 200, San Diego, California 92127
(Address of principal executive offices)
Issuer's telephone number: (858) 385-1000
Not Applicable
------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: as of May 5, 2000,
6,117,459 shares of common stock, $.001 par value per share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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VENTURE CATALYST INCORPORATED
FORM 10-QSB
FOR THE PERIOD ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited):
Consolidated Balance Sheets -
March 31, 2000 and June 30, 1999 ....................... 3
Consolidated Statements of Operations -
Three months ended March 31, 2000 and 1999 ............. 4
Nine months ended March 31, 2000 and 1999 .............. 5
Consolidated Statements of Cash Flows -
Nine months ended March 31, 2000 and 1999 .............. 6
Notes to Interim Consolidated Financial Statements ..... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION ..................... 17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ...................... 29
SIGNATURES .......................................................... 30
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VENTURE CATALYST INCORPORATED
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND JUNE 30, 1999
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 5,465,254 $ 9,285,928
Accounts receivable, net ........................................ 703,076 344,059
Prepaid expenses and other current assets ....................... 717,575 127,935
Due from Barona Casino - expansion project ...................... 6,300,146 3,190,146
------------ -----------
Total current assets .................................... 13,186,051 12,948,068
NON-CURRENT ASSETS:
Restricted cash and other investments ........................... 2,053,569 2,144,393
Employee and other receivables, net ............................. 154,130 265,134
Property, plant and equipment, net .............................. 1,041,049 1,073,111
Deferred contract costs, net .................................... 2,682,031 3,184,915
Available-for-sale securities, net .............................. 3,129,705 --
Deferred taxes, net ............................................. 649,814 171,070
Goodwill and other intangibles, net ............................. 5,521,683 3,424,179
Deposits and other assets ....................................... 178,301 422,984
------------ -----------
Total non-current assets ................................ 15,410,281 10,685,785
------------ -----------
Total assets ............................................ $ 28,596,332 $23,633,853
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Advances of future consulting fees -- Barona Casino ............. $ 1,756,369 $ 2,603,457
Current portion of long-term debt ............................... 1,566,667 400,000
Accounts payable and accrued expenses ........................... 1,354,170 1,440,349
Deferred revenues ............................................... 63,404 125,072
Deferred tax liability .......................................... 1,035,241 --
Income taxes payable ............................................ -- 386,745
------------ -----------
Total current liabilities ............................... 5,775,851 4,955,623
LONG-TERM DEBT, LESS CURRENT PORTION .............................. 8,333,333 9,900,000
------------ -----------
Total liabilities ....................................... 14,109,184 14,855,623
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value, 100,000,000 shares
authorized, 6,100,259 and 4,753,786 shares issued and
outstanding as of March 31, 2000 and June 30, 1999 .............. 6,100 4,754
Additional paid in capital ...................................... 9,665,490 1,297,808
Retained earnings ............................................... 5,983,940 7,475,668
Accumulated unrealized holding gains, net of deferred taxes ..... 1,115,577 --
Deferred compensation ........................................... (2,283,960) --
------------ -----------
Total shareholders' equity .............................. 14,487,148 8,778,230
------------ -----------
Total liabilities and shareholders' equity .............. $ 28,596,332 $23,633,853
============ ===========
</TABLE>
3
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VENTURE CATALYST INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
REVENUES:
Client Services .......................................... $ 3,493,665 $ 4,089,587
OPERATING EXPENSES:
Cost of revenues ......................................... 1,134,799 990,103
General operating and administrative expenses ............ 1,941,685 1,235,953
Amortization of intangible assets and stock-based
compensation ............................................. 549,023 278,918
----------- -----------
3,625,507 2,504,974
----------- -----------
Operating (loss) income ....................................... (131,843) 1,584,613
OTHER INCOME AND (EXPENSE):
Interest income .......................................... 118,528 128,114
Interest expense ......................................... (237,840) (187,500)
----------- -----------
(119,312) (59,386)
----------- -----------
(Loss) income before income taxes ............................. (251,155) 1,525,227
Income tax provision .......................................... 362,364 685,000
----------- -----------
Net (loss) income from continuing operations .................. (613,519) 840,227
Discontinued operations, net of taxes ($1,000 expense and
$220,000 benefit, respectively) ............................... 19,444 (141,460)
----------- -----------
Net (loss) income ............................................. $ (594,075) $ 698,768
----------- -----------
Net (loss) income per share - basic ........................... $ (.11) $ .15
=========== ===========
Net (loss) income per share - diluted ......................... $ (.11) $ .14
=========== ===========
Shares used in the computation of net income/loss
per share - basic ........................................ 5,464,690 4,747,194
=========== ===========
Shares used in the computation of net income/loss
per share - diluted ...................................... 5,464,690 5,167,685
=========== ===========
</TABLE>
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VENTURE CATALYST INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
REVENUES:
Client services ........................................... $ 9,252,126 $ 10,758,888
OPERATING EXPENSES:
Cost of revenues .......................................... 3,921,141 3,063,853
General operating and administrative expenses ............. 5,373,979 4,455,700
Amortization of intangible assets and stock-based
compensation .............................................. 1,105,565 737,007
------------ ------------
10,400,685 8,256,560
------------ ------------
Operating (loss) income ........................................ (1,148,559) 2,502,327
OTHER INCOME AND (EXPENSE):
Interest income ........................................... 386,794 477,103
Interest expense .......................................... (671,173) (520,833)
------------ ------------
(284,379) (43,730)
------------ ------------
(Loss) income before income taxes .............................. (1,432,939) 2,458,597
Income tax (benefit) provision ................................. (64,250) 1,807,000
------------ ------------
Net (loss) income from continuing operations ................... (1,368,689) 651,597
Discontinued operations, net of taxes ($5,750 expense and
$1,210,000 benefit, respectively) .............................. (123,038) (762,493)
------------ ------------
Net (loss) ............................. ....................... $ (1,491,726) $ (110,894)
============ ============
Net (loss) per share - basic ................................... $ (.30) $ (.02)
============ ============
Net (loss) per share - diluted ................................. $ (.30) $ (.02)
============ ============
Shares used in the computation of net income/loss
per share - basic ......................................... 4,995,549 4,556,764
============ ============
Shares used in the computation of net income/loss
per share - diluted ....................................... 4,995,549 4,556,764
============ ============
</TABLE>
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VENTURE CATALYST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Net cash (used in) operating activities:
Net loss ..................................................... $(1,491,726) $ (110,894)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................. 1,084,880 945,042
Provision for bad debts ................................... 128,834 173,181
Write-off of asset classified as other asset .............. 80,000 --
Deferred taxes ............................................ (278,232) (40,000)
Amortization of stock based compensation .................. 376,494 82,149
Due from Barona Casino - expansion project ................ (3,110,000) (2,440,146)
Equity received for services .............................. (143,398) --
Changes in operating assets and liabilities ............... (2,085,592) (424,902)
----------- -----------
Net cash (used in) operating activities .......................... (5,438,742) (1,815,570)
----------- -----------
Cash flows (used in) provided by investing activities:
Cash paid for acquisitions ................................... (341,005) (742,530)
Purchase of other intangible assets .......................... (100,000) --
Purchase of available-for-sale securities .................... (1,036,000) --
Payment of restricted investment ............................. 100,000 --
Maturity of short-term investments, net of purchases ......... -- 1,225,553
Purchase of furniture and equipment .......................... (211,422) (266,643)
Payments of loans ............................................ 17,670 12,486
----------- -----------
Net cash (used in) provided by investing activities .............. (1,570,757) 228,866
----------- -----------
Cash flows provided by (used in) financing activities:
Payments of long term debt ................................... (400,000) (400,000)
Proceeds from exercise of stock options ...................... 3,588,825 242,413
----------- -----------
Net cash provided by (used in) financing activities ............... 3,188,825 (157,587)
----------- -----------
Decrease in cash .................................................. (3,820,674) (1,744,291)
Cash, beginning of period ......................................... 9,285,928 9,205,502
----------- -----------
Cash, end of period ............................................... $ 5,465,254 $ 7,461,211
=========== ===========
Supplemental disclosures of cash flow information:
Interest expense paid ........................................ $ 712,686 $ 532,655
=========== ===========
Income taxes paid ............................................ $ 1,032,500 $ 606,000
=========== ===========
Non-cash investing and financing activities:
Acquisitions:
Fair value of tangible assets acquired ..................... $ 204,435 $ 244,226
Goodwill ................................................... 2,327,018 3,732,094
Liabilities assumed ........................................ (136,448) (188,790)
Stock issued (239,442 and 750,000 shares, respectively) .... (2,054,000) (3,045,000)
----------- -----------
Cash paid .................................................. $ 341,005 $ 742,530
=========== ===========
</TABLE>
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VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
1. THE COMPANY.
Venture Catalyst Incorporated, a Utah corporation formerly known as Inland
Entertainment Corporation (the "Company" or "Venture Catalyst"), provides
venture services to support and facilitate the development of emerging
businesses. We act as an entrepreneur's ally in organizing, capitalizing and
growing businesses at a faster rate. We offer comprehensive web development
services, investor relations, public relations, marketing, strategic planning,
executive recruitment, infrastructure, state-of-the-art incubation facilities,
and professional and technical expertise. Our objective is to work with
entrepreneurs during all stages of their financial growth. In connection with
the implementation of our strategy, we do, from time to time, make investments,
or take all or a portion of our fees, in securities of our clients.
The Company has provided many of these services to the Barona Group of Capitan
Grande Band of Mission Indians (the "Barona Tribe") since 1991. We currently
provide consulting services to the Barona Tribe in connection with the Barona
Tribe's operation of the Barona Casino and development of the Barona Valley
Ranch, which includes a championship golf course and a proposed resort hotel.
The Barona Casino and Barona Valley Ranch is located north of Lakeside,
California, in eastern San Diego County.
In August 1998, we acquired Cyberworks, Inc. ("Cyberworks"), a web-site
development and Internet marketing company to expand our Internet services.
Cyberworks is a wholly-owned subsidiary of the Company. Cyberworks' services
include full service web-site development, strategic consulting for interactive
and online business development and custom Internet applications. Cyberworks
portfolio includes more than 350 local, national and international clients, in a
wide array of industries.
In July 1999, the Company expanded its services to include broader consulting
services to emerging and Internet businesses, to further grow its client base.
We provide our spectrum of services to public and private companies. In
connection with this expansion, we acquired the assets of Typhoon Capital
Consultants, LLC ("Typhoon"), an investor relations and Internet consulting
firm.
In January 2000, we acquired all of the outstanding shares of capital stock of
webinc., Inc. ("webinc"), a recently-organized corporation whose business plan
focused on consulting, incubation and venture capital-related services to
start-up and early stage companies focusing on Internet infrastructure and
technology. The operations of webinc have been merged into Venture Catalyst.
On March 24, 2000 we acquired CTInteractive Incorporated ("CTI"), a full-service
technology management firm. CTI's services include business application
development, network management, web-development and hosting, and hardware sales
and service. CTI provides its services to a broad spectrum of clients, from
large corporations to emerging businesses.
Previously, we operated in four business segments: (a) Indian Gaming
Consulting; (b) Web-site Development Services; (c) Emerging and Internet
Business Consulting; and (d) Internet Gaming Consulting. During the quarter, in
connection with our overall plan to leverage our service capabilities and expand
our client base, the Company changed the way it manages its business and
restructured its operations and organization into service groups that were
combined into one business segment. All services, including our wholly-owned
subsidiaries Cyberworks and CTI, were consolidated into the client services
business segment, and are reported under "Client Services".
7
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VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
2. DISCONTINUED OPERATIONS.
In March 1998, the Company established a wholly-owned subsidiary, Worldwide
Media Holdings N.V., a Curacao, Netherland Antilles corporation ("WMH"). WMH was
formed to provide comprehensive marketing, advertising, technical and
distribution services for Internet related gaming businesses. In February 2000
the Board of Directors of the Company adopted a plan to discontinue the Internet
Gaming Consulting business, and is in the process of winding down the operations
of that business and liquidating WMH. There will be no additional losses related
to the disposal of the business, as all remaining assets at March 31, 2000 are
cash and receivables, carried at their net realizable value. The Company does
not expect to generate material income or losses from operations during the
disposition period, which should be completed during the fourth quarter of
fiscal 2000.
During the three and nine months ended March 31, 2000, the Internet Gaming
Consulting business realized net revenues of $93,946 and $315,456, respectively,
and income/(loss), net of taxes, of $19,444 and ($123,038), respectively.
During the three and nine months ended March 31, 1999, the Internet Gaming
Consulting business realized net revenues of $117,599 and $289,638,
respectively, and losses, net of taxes, of ($141,460) and ($762,493),
respectively.
3. PRESENTATION OF INTERIM CONSOLIDATED FINANCIAL INFORMATION.
The accompanying interim unaudited consolidated financial statements have been
prepared by Venture Catalyst Incorporated and its subsidiaries Cyberworks, CTI
and WMH in conformity with generally accepted accounting principles for interim
financial information and with the rules and regulations of the U.S. Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
regulations. The interim unaudited consolidated financial statements reflect all
normal, recurring adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation. The interim unaudited
consolidated financial statements should be read in conjunction with the
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1999.
Current and future financial statements may not be directly comparable to the
Company's historical financial statements. The results of operations for the
interim period are not necessarily indicative of the results to be expected for
the full year.
4. BARONA CONSULTING AGREEMENT.
The Company has provided services to the Barona Tribe since 1991. The Company
provides consulting services in accordance with the terms and conditions of an
Amended and Restated Consulting Agreement (the "Amended and Restated Consulting
Agreement"). During February 1998, the Company and the Barona Tribe executed
Modification #1 to the Amended and Restated Consulting Agreement (the
"Modification") which extended the term for providing consulting services by an
additional 60 months. Unless otherwise stated herein, the Amended and Restated
Consulting Agreement, as amended by the Modification, shall be referred to
herein as the "Barona Consulting Agreement." The Barona Consulting Agreement
expires in March 2004.
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VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
In March 1996, the Barona Tribe submitted the Initial Consulting Agreement (a
predecessor agreement to the Amended and Restated Consulting Agreement) to the
National Indian Gaming Commission (the "NIGC"). In May 1996, the NIGC determined
that the Initial Consulting Agreement was not a management agreement and,
therefore, not subject to NIGC approval, and forwarded such agreement to the
Bureau of Indian Affairs (the "BIA"). In July 1997, the BIA reviewed the Initial
Consulting Agreement and determined that no further action by it with respect to
such agreement was required. The NIGC conducted an investigation of the past
relationship between the Barona Tribe and the Company that resulted in a January
1997 settlement agreement.
In January 1997, the Company submitted the Amended and Restated Consulting
Agreement to the NIGC. In April 1997, the Company received a letter from the
NIGC questioning whether the Amended and Restated Consulting Agreement was in
fact a management contract. The letter stated that additional review would be
necessary to make such a determination. In March 1999, the NIGC started a
preliminary review of the relationship between the Barona Tribe and the Company,
which has included a review of the Barona Consulting Agreement. In September
1999, the Company submitted the Modification to the NIGC. This review is
currently pending.
The Company believes that the Barona Consulting Agreement is not a management
contract, based on (a) the May 1996 and July 1997 determinations of the NIGC and
BIA, respectively, with respect to the Initial Consulting Agreement, (b) the
NIGC's findings in the January 1997 settlement agreement and (c) the nature of
the relationship between the Barona Tribe and the Company. However, there is no
assurance that the NIGC will determine that the Barona Consulting Agreement is
not a management contract. The failure of the NIGC to determine that the Barona
Consulting Agreement is not a management contract could have a material adverse
effect on the business and financial condition of the Company. If the NIGC
concludes that the Barona Consulting Agreement is not a management agreement,
the NIGC will forward such Agreement to the BIA for its review. If the BIA
determines that its approval is required, there can be no assurance that the BIA
will approve the Barona Consulting Agreement, and such failure to approve such
Agreement may have a material adverse effect on the business and financial
condition of the Company.
5. TRIBAL-STATE COMPACTS.
BARONA COMPACT. In 1998, a Tribal-State Compact was signed between the State of
California and the Barona Tribe (the "Barona Compact"), which was approved by
the U.S. Secretary of Interior.
The initial term of the Barona Compact ends on January 1, 2009. The Barona Tribe
has the option to renew the Barona Compact for two additional five (5) year
terms upon written notice of renewal to the Governor prior to the termination
date. Such options may be denied if the Barona Tribe has been found to have
engaged in unauthorized Class III gaming on two or more occasions or to have
committed violations of the terms of the Barona Compact on five or more
occasions.
Rather than the electronic machines currently in play at the Barona Casino, the
Barona Compact permits the following two varieties of Indian Lottery Games: (a)
Indian Video Lottery Match Game and (b) Indian Video Lottery Scratcher Game. The
Barona Tribe is allowed to operate 1,057 machines, but has been allocated only
199 machines. The balance of machines must be licensed from other Federally
recognized tribes for an annual fee of $5,000 per machine.
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VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
Pursuant to an informal agreement with the California Division of Gaming Control
(the "Gaming Control Division"), the Barona Tribe has been permitted to continue
to operate its current 1,057 electronic gaming devices at the Barona Casino for
an indefinite period of time. With the consent of the Gaming Control Division,
of the 1,057 electronic devices being operated at the Barona Casino, 8 are
prototypes of the gaming machines prescribed by the Barona Compact. At the
present time, there are no such gaming machines available to any compacted
Indian tribe in California other than for testing purposes. Based upon the
limited testing, there is insufficient data to determine whether these
compact-defined devices will produce an income stream comparable to those
machines currently in play at the Barona Casino.
BARONA COMPACT II. On September 10, 1999, the Governor of the State of
California entered into tribal-state compacts with 57 Federally recognized
Indian tribes, including the Barona Tribe (the "Barona Compact II"). Such
compacts are subject to ratification by the California legislature, passage of
California State Constitutional Amendment 11 ("SCA 11") and approval by the U.S.
Secretary of the Interior. On September 10, 1999, the California Legislature
voted to ratify each of the above-referenced compacts including the Barona
Compact II. In March 2000, the people of California approved the passage of SCA
11. In May 2000, the Barona Compact II was approved by the U.S. Secretary of
Interior, subject only to publication in the Federal Register. There is no
assurance when this approval will be published. The Barona Compact II replaces
the Barona Compact. Until publication, the Barona Compact shall remain in
effect.
The Barona Compact II, which expires on December 31,2020, significantly expands
the permissible scope of Indian gaming beyond that permitted under the Barona
Compact. Pursuant to the Barona Compact II, the scope of permissible gaming
activities includes the operation of "gaming devices," including slot machines
and various other electronic video games, all of which may be "house" banked;
any banking or percentage card game; and games authorized under the California
State Lottery. In addition, the Barona Compact II does not restrict the Barona
Tribe from operating Class III gaming in a hotel and does not restrict any card
games from being played in the same room as Class III gaming devices.
The Barona Tribe has been permitted to keep its 1,057 gaming devices. The Barona
Tribe may acquire licenses to use gaming devices in excess of 1,057, but in no
event may the Barona Tribe operate more than 2,000 gaming devices. The Barona
Tribe may acquire and maintain a license to operate a gaming device by paying to
the State of California on a quarterly basis the following amounts:
<TABLE>
<CAPTION>
Number of Fee Per Device
Licensed Devices: Per Annum:
------------- ------
<S> <C> <C>
1 - 350 $ 0
351 - 750 $ 900
751 - 1,250 $ 1,950
1,251 - 2,000 $ 4,350
</TABLE>
Pursuant to the terms of the Barona Compact II, licenses to use gaming devices
shall be awarded pursuant to a formula set forth in such compact.
In addition to the licensing fees, the Barona Tribe will be required to make
contributions to a state fund at the conclusion of the first calendar quarter
following the second anniversary date of the effective date of the Barona
Compact II. The Barona Tribe will make the contribution according to a formula
based on the number of gaming devices in operation at September 1, 1999 and will
be in a range from 0 to 13% of the gaming device's net winnings.
10
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VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
Key employees, primary management officials, certain vendors, anyone with an
interest in the casino and anyone who has significant influence over gaming
operations, including tribal members, must apply for a license from the Tribe
and are subject to a determination of suitability by the state gaming agency.
Findings of suitability are granted for two years.
The Barona Compact II requires the Barona Tribe to carry public liability
insurance with initial limits of $5,000,000 for personal injury and property
damage claims. The Barona Tribe is not required to generally waive its sovereign
immunity, but may not invoke sovereign immunity up to the $5,000,000 liability
insurance limits. In no event will the Barona Tribe be required to waive its
sovereign immunity except to the extent of liability insurance.
The Barona Tribe or the State of California may bring an action in Federal
court, after providing a 60-day written notice of an opportunity to cure any
alleged breach of the Barona Compact II, for a declaration that the party has
materially breached such Compact. Upon issuance of such a declaration, the
complaining party may unilaterally terminate the Barona Compact II upon service
of written notice on the other party. In the event a Federal court determines
that it lacks jurisdiction over such an action, the action may be brought in the
superior court for the county in which the Barona Casino is located.
6. DUE FROM BARONA CASINO - EXPANSION PROJECT.
The Barona Casino has commenced an approximately $150 million expansion project.
The Company has assisted and is continuing to assist the Barona Tribe in
obtaining outside financing for the project. Prior to the time that the Barona
Tribe obtains all such financing, the Company is sharing in funding the
expansion costs with the Barona Casino. The Company expects to advance
approximately $8,300,000 as an unsecured, non-interest-bearing advance to the
Barona Casino. As of March 31, 2000, the Company has advanced $6,300,146; these
advances have been, and will be, accounted for as a receivable from the Barona
Casino to the Company. In January 2000, the Barona Tribe obtained approximately
$19 million in outside financing, from the issuance of Federally Tax-Exempt
Bonds. Payment of the receivable is expected to occur when the Barona Tribe
obtains all outside financing, which is expected to be sometime in calendar year
2000, unless the Company is in a cash position that would allow for the Barona
Casino to retain the advanced funds for use in its operations during the
expansion. If the advances are not repaid when the Barona Tribe obtains all
outside financing, they would be payable to the Company on demand.
7. ACQUISITIONS.
In August 1998, the Company acquired all of the outstanding shares of capital
stock of Cyberworks in exchange for 750,000 shares of its common stock and
$500,000 in cash, in a transaction valued, exclusive of acquisition costs, at
$3,560,000. Cyberworks is being operated as a wholly-owned subsidiary of the
Company. The acquisition was accounted for as a purchase and the accounts of
Cyberworks have been included in the accompanying financial statements since
August 27, 1998. The excess of the total acquisition cost over the fair value of
net assets acquired ("goodwill") was approximately $3,732,000 and is being
amortized on a straight-line basis over 10 years.
In July 1999, the Company purchased $100,000 in assets from Typhoon. The excess
of the acquisition cost over the fair value of net assets acquired ("other
intangible assets") was approximately $77,000 and is being amortized on a
straight-line basis over 3 years.
11
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VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
In January 2000, the Company acquired all of the outstanding shares of capital
stock of webinc in exchange for 6,884 shares of stock and $20,000 in cash, in a
transaction valued, exclusive of acquisition costs, at $74,000. The operations
of webinc have been merged into and will continue within the operations of
Venture Catalyst. The acquisition was accounted for as a purchase and the
accounts of webinc have been included in the accompanying financial statements
since January 2000. The excess of the total acquisition cost over the fair value
of net assets acquired ("goodwill") was approximately $127,000 and is being
amortized on a straight-line basis over 2 years.
On March 24, 2000 the Company acquired all of the outstanding shares of capital
stock of CTI, a full-service technology management firm, in exchange for 232,558
shares of common stock and $300,000 in cash, in a transaction valued, exclusive
of acquisition costs, at $2,300,000. CTI is being operated as a wholly-owned
subsidiary of the Company. The acquisition was accounted for as a purchase and
the accounts of CTI have been included in the accompanying financial statements
since March 24, 2000. The excess of the total acquisition cost over the fair
value of net assets acquired ("goodwill") was approximately $2,200,000 and is
being amortized on a straight-line basis over 5 years.
Goodwill and other intangible assets net of amortization as of March 31, 2000
was $5,521,683 and amortization expense of $306,706 has been recorded for fiscal
2000 through March 31, 2000. On an ongoing basis, the Company will review the
valuation and recoverability of the unamortized goodwill and other intangible
assets and will expense all or any portion of the unamortized amounts determined
necessary for fair statement.
8. CASH AND CASH EQUIVALENTS
For purposes of the balance sheet and the statement of cash flows, cash
equivalents include time deposits and all highly liquid debt instruments with
original maturities of three months or less. The Company's cash equivalents
consist primarily of commercial paper, banker's acceptances, and U.S. treasury
securities with maturities ranging from one month to three months. At March 31,
2000 the amount held in U.S treasury securities was $998,628.
9. RESTRICTED CASH AND OTHER INVESTMENTS.
From June 1996 to May 1997, the Company provided consulting services to the
Klamath and Modoc Tribes and the Yahooskin Band of Snake Indians (collectively,
the "Klamath Tribes"). The Klamath Tribes constructed the Kla-Mo-Ya Casino near
Chiloquin, in south central Oregon, a gaming facility funded by revenue bonds
issued by the Klamath Tribes. In connection with such bond financing, the
Company has a net investment of $394,569 in revenue bonds with a principal face
amount of $400,000. In addition, as a condition of the bond financing, the
Company agreed to hold the bonds for a five-year period. Pre-opening costs and
expenses of approximately $1.5 million were financed by loans made pursuant to a
third-party bank credit agreement with the Klamath Tribes. The Company pledged
to such bank a certificate of deposit for $1,518,000 as collateral for such
loans. If the Klamath Tribes are unable to pay its obligations, the Company may
lose all or a portion of its investment in the revenue bonds it purchased and
its certificate of deposit pledged as collateral for bank loans to the Klamath
Tribes. During fiscal 2000 the Klamath Tribes redeemed bonds held by the Company
with a face amount of $100,000. The Klamath Tribes have made all required
interest payments during fiscal 2000 on the bonds held by the Company.
12
<PAGE> 13
VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
Additionally, the Company issued an irrevocable letter of credit for $133,000 to
satisfy the terms of its corporate office lease agreement. Such letter of credit
will automatically renew on an annual basis until October 31, 2002 unless
canceled by the lessor.
10. AVAILABLE-FOR-SALE SECURITIES.
At March 31, 2000, available-for-sale securities consist of equity securities
carried at fair value and based on quoted market prices. Additionally, the
Company holds equity securities of companies for which no established trading
market existed at March 31, 2000. These securities are stated at cost that does
not exceed the estimated net realizable value. Available-for-sale securities
with quoted market prices on March 31, 2000 consist of investments in:
- - CraftClick.com Inc.
- - Ultrexx Corporation
- - Entertainment Boulevard, Inc.
- - TheBigHub.com, Inc.
- - WorldNet Resource Group
Collectively, these securities had a market value of $2,593,705 at March 31,
2000. Available-for-sale securities with no established market prices at March
31, 2000 consist of investments in:
- - KINeSYS Pharmaceutical
- - Mediacycle, Inc. ("spun.com")
- - Invigo, Inc.
- - companyfinance.com, Inc.
- - Bullet Point News Inc.
- - Watchnet, Inc.
These investments are stated at cost, which was $536,000 at March 31, 2000. An
unrealized holding gain of $1,115,576, net of deferred income taxes of $834,732,
has been reflected in the equity section of the consolidated balance sheet based
on the change in market value of the available-for-sale securities from dates of
acquisition to March 31, 2000. See Note 13.
13
<PAGE> 14
VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
11. SEGMENT REPORTING.
Previously, Venture Catalyst Incorporated operated in four reportable
segments: (a) Indian Gaming Consulting; (b) Web-site Development services; (c)
Emerging and Internet Business Consulting; and (d) Internet Gaming Consulting.
During the quarter, in connection with our overall plan to leverage our service
capabilities and expand our client base, the Company changed the way it manages
its business and restructured its operations and organization into service
groups that were combined into one reportable segment. All service groups,
including the wholly-owned subsidiaries Cyberworks and CTI, were consolidated
into the client services business segment, and will be reported under "Client
Services". Additionally, starting with the quarter ended March 31, 2000, the
Company will separate corporate operating and administrative costs (overhead)
from the segment operating income and loss calculations which, in past
reports, were allocated to the various reportable segments. Prior period results
have been restated to reflect these changes. The operations of the "Vegas At
Home" portal site are reported under the "other" segment.
During the quarter the Company decided to discontinue its Internet Gaming
Consulting business, therefore the operations of that business have been
reported as discontinued operations and are not included in the segment
reporting. See Note 2.
Information on segments and reconciliation to income, before income taxes and
discontinued operations, for the three months ended March 31, 2000 and 1999 are
as follows:
<TABLE>
<CAPTION>
VENTURE CATALYST CONSOLIDATED
SERVICES OTHER ADJUSTMENTS TOTALS
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
For the three months ended March 31, 2000:
Revenues (external) $ 3,493,665 $ 3,493,665
Revenues (intersegment) 56,369 (56,369)
Segment operating income (loss) 1,890,314 (50,186) (926) 1,839,201
Corporate operating and administrative costs 2,090,356
-----------
Operating (loss) from continuing operations $ (251,155)
===========
For the three months ended March 31, 1999:
Revenues (external) $ 4,089,587 $ 4,089,587
Revenues (intersegment) 21,665 (21,655)
Segment operating income (loss) 2,697,019 (8,805) 2,688,214
Corporate operating and administrative costs 1,162,987
---------
Operating income from continuing operations $ 1,525,227
===========
</TABLE>
14
<PAGE> 15
VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
Information on segments and reconciliation to income, before income taxes and
discontinued operations, for the nine months ended March 31, 2000 and 1999 are
as follows:
<TABLE>
<CAPTION>
VENTURE CATALYST CONSOLIDATED
SERVICES OTHER ADJUSTMENTS TOTALS
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
For the three months ended March 31, 2000:
Revenues (external) $ 9,252,126 $ 9,252,126
Revenues (intersegment) 87,649 (87,649)
Segment operating income (loss) 4,182,743 (209,582) (10,791) 3,962,370
Corporate operating and administrative costs 5,395,309
------------
Operating (loss) from continuing operations $ (1,432,939)
============
For the three months ended March 31, 1999:
Revenues (external) $ 10,758,888 $ 10,758,888
Revenues (intersegment) 530,053 (530,053)
Segment operating income (loss) 7,189,196 (474,303) 6,714,893
Corporate operating and administrative costs 4,256,296
------------
Operating income from continuing operations $ 2,458,597
============
</TABLE>
12. NET INCOME (LOSS) PER SHARE.
Below is the reconciliation of the components of the calculation of basic and
diluted net income (loss) per share for the time periods indicated:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------------------- -------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) available to common shareholders ($ 594,075) $ 698,768 ($1,491,726) ($ 110,894)
=========== =========== =========== ===========
Weighted average shares outstanding-- basic 5,464,690 4,747,194 4,995,549 4,556,764
Effect of stock options -- 420,491 -- --
----------- ----------- ----------- -----------
Weighted average shares outstanding -- diluted 5,464,690 5,167,685 4,995,549 4,556,764
=========== =========== =========== ===========
</TABLE>
At March 31, 2000, options to purchase 7,488,409 shares of the Company's common
stock, at prices ranging from $1.00 to $12.50 per share, were not included in
the computation of diluted EPS because they were anti-dilutive for that purpose.
The options, which expire on various future dates through March 2010, were still
outstanding at March 31, 2000.
15
<PAGE> 16
VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
13. COMPREHENSIVE INCOME.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
-------------------------- -----------------------------
2000 1999 2000 1999
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net income (loss) ($594,075) $698,768 ($1,491,726) ($110,894)
Net unrealized holding gains 869,541 -- 1,115,576 --
--------- -------- ----------- ---------
Comprehensive income (loss) $ 275,466 $698,768 ($ 376,150) ($110,894)
========= ======== =========== =========
</TABLE>
14. STOCK OPTIONS.
The following table summarizes stock option activity under the 1994 Plan, the
1995 Plan and the 1996 Plan (collectively the "Plans") for the nine months ended
March 31, 2000:
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------------------------
OPTIONS OPTION PRICE
OUTSTANDING PER SHARE
---------- ------------
<S> <C> <C>
Outstanding at beginning of year 5,516,200 $1.00-$4.13
Granted 3,613,500 $2.56-$12.50
Exercised (1,107,031) $2.50-$4.13
Cancelled (534,200) $2.75-$4.13
----------
Outstanding at end of year 7,488,409 $1.00-$12.50
----------
</TABLE>
15. SUBSEQUENT EVENTS.
In April 2000, the Company and the two note holders announced an agreement that
$3,069,265 of current and future corporate indebtedness will be exchanged for
equity prior to its maturity subject to the execution of definitive agreements
and customary closing conditions. Under terms agreed to, a total of 579,105
shares of Venture Catalyst restricted stock and warrants to acquire an
additional 144,775 shares of common stock at $5.894 per share will be issued to
retire the debt. Of the approximately $3,000,000 being retired, $589,517
represents principal that is classified as current portion of long-term debt and
$2,000,000 represents principal that is classified as long-term debt at March
31, 2000. The remaining amount of $479,748 represents accrued interest on the
debt being retired of $360,534 and interest of $119,214 that would have accrued
on the remaining portion of long-term debt held from the date of conversion
through September 2000. The transaction will result in a non-cash loss of
approximately $525,000, attributable to the value of the warrants and interest
that would have accrued on the remaining portion of long-term debt held from the
date of conversion through September 2000.
In May 2000, the Company announced that it was acquiring 1,227,403 shares of
Predict It, Inc. (OTC BB: PRITE) from existing shareholders of Predict It. This
represents approximately 10.2% of Predict It's outstanding common stock, as
reported in their public filings. The Company agreed to issue 310,249 of its
restricted shares for the Predict It stock. The purchase price of $1,400,000 was
calculated using a five-day moving average closing price for each Company's
respective stock. The securities acquired will be classified as
available-for-sale securities.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
Venture Catalyst Incorporated provides venture services to support and
facilitate the development of emerging businesses. We act as an entrepreneur's
ally in organizing, capitalizing and growing businesses at a faster rate. We
offer comprehensive web development services, investor relations, public
relations, marketing, strategic planning, executive recruitment, infrastructure,
state-of-the-art incubation facilities, and professional and technical
expertise. The Company has offices in San Diego, Orange County and Santa Monica.
Previously, we operated in four business segments: (a) Indian Gaming
Consulting; (b) Web-site Development Services; (c) Emerging and Internet
Business Consulting; and (d) Internet Gaming Consulting. During the quarter, in
connection with our overall plan to leverage our service capabilities and expand
our client base, the Company changed the way it manages its business and
restructured its operations and organization into service groups that were
combined into one business segment. All services, including our wholly-owned
subsidiaries Cyberworks, Inc. ("Cyberworks"), and CTInteractive Incorporated
("CTI"), were consolidated into the client services business segment, and are
reported under "Client Services". Additionally, during the quarter we decided to
discontinue our Internet Gaming Consulting Business and liquidate our
wholly-owned subsidiary Worldwide Media Holdings, N.V. ("WMH"). The operations
of that business segment are reported as "Discontinued Operations".
CLIENT SERVICES
We provide to clients in a wide array of industries various consulting and
professional services, including: investor relations, public and governmental
relations, marketing, operations, multimedia, graphics design, strategic
business planning, venture capital sourcing, web-site development and hosting,
business application development, network management, and hardware sales and
service. To this spectrum we recently added incubator services. Our objective is
to work with entrepreneurs during all stages of their financial growth. In
connection with the implementation of our strategy, we do, from time to time,
make investments, or take all or a portion of our fees, in securities of our
clients.
The Company has provided many of these services to the Barona Group of Capitan
Grande Band of Mission Indians (the "Barona Tribe") since 1991. We currently
provide consulting services to the Barona Tribe in connection with the Barona
Tribe's operation of the Barona Casino and development of the Barona Valley
Ranch, which includes a championship golf course and a proposed resort hotel.
Our services are provided under the terms of the Amended and Restated Consulting
Agreement, as amended by Modification #1 (the "Consulting Agreement") which
expires in March 2004. The consulting fees paid to us are based upon a net
profit formula that includes the Barona Casino's income and expenses.
Accordingly, although gross revenues of the Barona Casino may increase, the
Company's consulting revenue may not correspondingly increase because expenses
at the Barona Casino also may increase.
From February 1992 through March 1996, the Company provided casino management
services at the Barona Casino pursuant to a management agreement with the Barona
Tribe. During that same period, all of the funds to purchase or construct the
fixed assets at the Barona Casino, such as buildings, equipment and capital
improvements, were contributed by the Company. In the aggregate, we contributed
approximately $13,000,000 over the period. Due in part to our investment in the
Barona Casino, the value of the Barona Casino has increased, which is expected
to enhance the fees that may be earned by the Company over the life of its
relationship with the Barona Tribe. We treat these investments as intangible
assets, which are recorded as "deferred contract costs" and are being amortized
over the remaining life of the Consulting Agreement. However, if the
recoverability of these assets are determined not to be probable, the Company
will expense the unamortized portion.
17
<PAGE> 18
By 1996, the Barona Casino became financially self-sufficient and our
relationship with the Barona Tribe evolved from manager of the Barona Casino to
consultant to the Barona Tribe, which is managing the Barona Casino. Since our
transition from manager to consultant, there have been only two categories of
investments by us in the Barona Casino. The first category relates to
commitments made to the Barona Tribe, while we were acting as manager, pursuant
to a management agreement, of approximately $550,000. The second category
relates to an NIGC settlement between the Company and the Barona Tribe.
Commencing in November 1996, we agreed to contribute $2,000,000 to construct a
new road and entrance to the Barona Casino. As of March 31, 2000, we had paid
$1,600,000 of the $2,000,000 commitment.
At this time, we have no plans to contribute funds other than those committed to
the Barona Casino or the Barona Tribe. However, we will continue to assist the
Barona Casino from time to time in obtaining third party outside financing. See
the discussion below under the caption "Liquidity and Capital Resources"
relating to our advance of funds to the Barona Casino in connection with the
current expansion project.
In 1998, a Tribal-State Compact was entered into between the State of California
and the Barona Tribe (the "Barona Compact"), which was approved by the U.S.
Secretary of the Interior (the "Secretary"). The Secretary's approval of the
Barona Compact was published in the Federal Register on October 22, 1998.
On September 10, 1999 the Governor of the State of California entered into new
Tribal-State Compacts with over 50 Federally recognized Indian tribes, including
the Barona Tribe (the "Barona Compact II"). These compacts permit Federally
recognized Indian tribes to engage in broader forms of Class III gaming,
including slot machines and electronic video games, house-banked card games,
percentage games and any games the California Constitution authorizes the
California lottery to offer. Additionally, on September 10, 1999, the California
legislature ratified these compacts and approved State Constitutional Amendment
11 ("SCA 11"), a proposed amendment to the California Constitution which would
significantly expand the scope of Indian gaming in the State of California. In
March 2000, the California voters approved SCA 11. The compacts were submitted
to the Secretary for approval. In May 2000, the Barona Compact II was approved
by the Secretary, subject only to publication in the Federal Register. The
Barona Compact II replaces the Barona Compact. Until publication, the Barona
Compact will remain in effect. We believe the Barona Compact and the Barona
Compact II ended a significant amount of uncertainty and concern about the
future of gaming activities at the Barona Casino.
In August 1998, we acquired Cyberworks, a web-site development and Internet
marketing Company to expand our Internet services, including those of WMH.
Cyberworks is a wholly-owned subsidiary of the Company. Cyberworks' services
include full service web-site development, strategic consulting for interactive
and online business development and custom Internet applications. Cyberworks
portfolio includes more than 350 local, national and international clients, in a
wide array of industries.
In July 1999, the Company expanded its services to include broader consulting
services to emerging and Internet businesses, to further grow its client base.
We provide our spectrum of services to public and private companies. In
connection with this expansion, we acquired the assets of Typhoon Capital
Consultants, LLC ("Typhoon"), an investor relations and Internet consulting
firm.
In January 2000, as part of our growth strategy, we acquired all of the
outstanding shares of capital stock of webinc., Inc. ("webinc"), a
recently-organized corporation whose business plan focused on consulting,
incubation and venture capital-related services to start-up and early stage
companies focusing on Internet infrastructure and technology. The operations of
webinc have been merged into Venture Catalyst.
18
<PAGE> 19
On March 24, 2000, we acquired CTI, a full-service technology management firm.
CTI's services include business application development, network management,
web-development and hosting, and hardware sales and service. CTI provides its
services to a broad spectrum of clients, from large corporations to emerging
businesses.
We have made, and will make, significant investments in personnel and resources
to allow Client Services to grow and to better position us to leverage
our financial resources and expertise. We plan to grow our services business
internally and through acquisitions. Additionally, we will continue to build our
portfolio of clients, which may involve acquiring additional security positions
in exchange for both cash and services, to the extent management deems
appropriate to carry out the Company's strategic plans. We are continually
evaluating and negotiating potential acquisitions and investments, none of which
may come to fruition or may not be material to our business as a whole. There
can be no assurance as to the completion or success of any acquisition or
investment.
GAMING PORTAL SITE ("VEGAS AT HOME")
In July 1999, as an adjunct to our Internet Gaming Consulting business, we
launched the "Vegas At Home" portal web-site to provide both the gaming industry
and its patrons with an online central location containing a variety of gaming
related products, merchandise, information and links to most significant
traditional casinos. We are in the process of creating an updated Vegas At Home
portal site and have temporarily shut down the existing site. The new site is
expected to be re-launched mid calendar year 2000. The operations of the "Vegas
At Home" business enterprise are currently being reported in the "other"
segment.
DISCONTINUED OPERATIONS
In March 1998, we established WMH, a Netherland Antilles corporation, to
leverage our gaming business expertise. WMH offered comprehensive marketing,
advertising, technical and distribution services for Internet related gaming
businesses. In February 2000, our Board of Directors adopted a plan to
discontinue the Internet Gaming Consulting business and is in the process of
shutting down and liquidating WMH. Internet Gaming Consulting has not produced a
material portion of our revenues and was not profitable. We believe the
resources committed to such business will be more effectively used in our other
business.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1999.
REVENUE. Consolidated revenues from continuing operations decreased 14.6% to
$3,493,665 for the three months ended March 31, 2000 from $4,089,587 for the
three months ended March 31, 1999.
Revenues for services provided to the Barona Tribe decreased 31.5% to $2,453,000
from $3,582,000 earned during the same quarter last year. The decrease is a
result of significantly higher human resource, marketing and operational
expenses at the Barona Casino, primarily due to the ongoing expansion project,
partially offset by increased revenues earned by the Barona Casino.
Revenues for services provided to clients other than the Barona Tribe in the
three months ended March 31, 2000 were $1,040,665, compared to $507,587 earned
during the same quarter last year. The increase was primarily due to: (a) an
increase in the scope of services offered (b) an increase in services performed
to additional and existing clients; and (c) an increase in the amount of
services performed at higher rates.
19
<PAGE> 20
COST OF REVENUES. Cost of revenues of continuing operations increased 14.6% to
$1,134,799 for the three months ended March 31, 2000 from $990,103 during the
same period last year. The increase was primarily attributable to increases in:
(a) compensation and benefits, resulting from an increase in the number of
employees in connection with the expanded services offered by the Company and
increased payroll costs for existing employees; (b) consulting fees incurred in
connection with the development and operation of the "Vegas At Home" portal
site; and (c) consulting fees incurred in connection with its performance of
services to emerging business clients. These increases were partially offset by
a decrease in client relation expenses, which included the purchase of an
ambulance for the Barona Tribe during the same quarter last year.
GENERAL OPERATING AND ADMINISTRATIVE EXPENSES. General operating and
administrative expenses for continuing operations increased 57.1% to $1,941,685
for the three months ended March 31, 2000 from $1,235,953 during the same period
last year. The increase was primarily attributable to increases in: (a)
compensation and benefits, resulting from the increase in the number of
employees, and increased payroll costs for existing employees; (b) consulting
fees incurred in connection with general corporate activities; (c) political
contributions; and (d) printing costs, attributable to the name and stock symbol
change. These increases were partially off-set by decreases in general
accounting services incurred by the Company, and special event costs resulting
from marketing efforts of the company for its services.
AMORTIZATION OF INTANGIBLE ASSETS AND STOCK BASED COMPENSATION. Amortization of
intangible assets and stock based compensation for continuing operations
increased 96.8% to $549,023 for the three months ended March 31, 2000 from
$278,918 for the three months ended March 31, 1999 primarily as a result of: (a)
an increase in stock based compensation related to options granted to
consultants and advisory panel members; (b) continued vesting of options for a
former officer and director of the company who is now a consultant; and (c) for
discounted options granted to four employees in connection with their
employment. It is anticipated that amortization of intangible assets and stock
based compensation, which are non-cash expenses, will continue to be significant
as the Company pursues its long-term strategic plan.
OTHER INCOME AND EXPENSE. For the three months ended March 31, 2000, interest
income was $118,528 compared to $128,114 for the three months ended March 31,
1999. This decrease was due to lower balances in the Company's investments and
cash equivalents during the quarter.
Interest expense increased to $237,840 for the three months ended March 31, 2000
from $187,500 for the three months ended March 31, 1999 as a result of an
increase in notes payable to two shareholders, including a former director of
the Company, in connection with the 1996 repurchase of shares of the Company's
common stock held by them.
INCOME TAX PROVISION. For the three months ended March 31, 2000, the Company
recorded an income tax provision for continuing operations of $362,364, a
decrease of $322,636 from the $685,000 income tax provision recorded for the
three months ended March 31, 1999. The decrease was a result of lower taxable
income during the quarter, compared to the same quarter in fiscal 1999. Although
the Company had operating losses for the quarter, many expenses are not
deductible for tax purposes. The decrease is partially offset by an increase to
the provision during the period due to an adjustment to the Company's method of
recording income tax provision, which now includes anticipated effective tax
rates for the year, versus adjustments made for quarterly results only.
DISCONTINUED OPERATIONS. Operating results of the Internet Gaming Consulting
segment through March 31, 2000, have been included in net results from
discontinued operations for the periods reported.
During the three months ended March 31, 2000, the Internet Gaming Consulting
business realized revenues of $93,946 and income, net of taxes, of $19,444,
compared to revenues of $117,599 and losses, net of taxes, of $141,460, for the
three months ended March 31, 1999.
20
<PAGE> 21
NINE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THE NINE MONTHS ENDED MARCH 31,
1999.
REVENUE. Consolidated revenues from continuing operations decreased 14.0% to
$9,252,126 for the nine months ended March 31, 2000 from $10,758,888 for the
nine months ended March 31, 1999.
Revenues for services provided to the Barona Tribe decreased 31.4% to $6,674,000
from $9,733,000 earned during the same period last year. The decrease is a
result of significantly higher human resources, marketing and operational
expenses at the Barona Casino, primarily due to the ongoing expansion project,
partially offset by increased revenues earned by the Barona Casino.
Revenues for services provided to clients other than the Barona Tribe in the
nine months ended March 31, 2000 were $2,578,126 compared to $1,025,888 earned
during the same period last year. The increase was primarily due to: (a) nine
months of fees earned during fiscal 2000, as opposed to approximately seven
months of fees earned during fiscal 1999 by Cyberworks, a wholly-owned
subsidiary; (b) an increase in the scope of services offered; (c) an increase in
services performed to additional and existing clients; and (d) an increase in
the amount of services performed at higher rates.
COST OF REVENUES. Cost of revenues for continuing operations increased 28.0% to
$3,921,141 for the nine months ended March 31, 2000, from $3,063,853 during the
same period last year. The increase was primarily attributable to increases in:
(a) compensation and benefits, resulting primarily from an increase in the
number of employees in connection with the expanded services offered by the
Company, increased payroll costs for existing employees and the inclusion of
nine months of Cyberworks results, versus only approximately seven months in the
comparable period; (b) expenses incurred in connection with the development and
operation of the "Vegas At Home" portal site; (c) client relation expenses,
which included a contribution for the design and construction of a Native
American museum on the Barona Reservation; and (d) consulting fees incurred in
connection with its performance of services to the Barona Tribe. These increases
were partially offset by a significant decrease in political contributions made
during fiscal 2000 compared to fiscal 1999.
GENERAL OPERATING AND ADMINISTRATIVE EXPENSES. General operating and
administrative expenses for continuing operations increased 20.6% to $5,373,979
for the nine months ended March 31, 2000 from $4,455,700 for the nine months
ended March 31, 1999. The increase was primarily attributable to increases in:
(a) compensation and benefits, resulting from the increase in the number of
employees and increased payroll costs for existing employees; (b) consulting
fees incurred in connection with general corporate activities; (c) legal
services incurred by the Company, and (d) the write-off of an investment
classified as other assets. These increases were partially off-set by decreases
in bad debt allowances established for loans and accounts receivable and general
accounting services incurred by the Company.
AMORTIZATION OF INTANGIBLE ASSETS AND STOCK BASED COMPENSATION. Amortization of
intangible assets and stock based compensation for continuing operations
increased 50.0% to $1,105,565 for the nine months ended March 31, 2000 from
$737,007 for the nine months ended March 31, 1999 as a result of: (a) an
increase in stock based compensation related to options granted to consultants
and advisory panel members, continued vesting of options for a former officer
and director of the company who is now a consultant, and for discounted options
granted to four employees in connection with their employment; and (b) an
increase in the amortization of goodwill and other intangible assets in
connection with the acquisition of Cyberworks and the asset purchase from
Typhoon. It is anticipated that amortization of intangible assets and stock
based compensation, which are non-cash expenses, will continue to be significant
as the Company pursues its long-term strategic plan.
OTHER INCOME AND EXPENSE. For the nine months ended March 31, 2000, interest
income was $386,794 compared to $477,103 for the nine months ended March 31,
1999. This decrease was due to lower balances in the Company's investments and
cash equivalents during the period.
21
<PAGE> 22
Interest expense increased to $671,173 for the nine months ended March 31, 2000
from $520,833 for the nine months ended March 31, 1999 primarily as a result of
an increase in notes payable to two shareholders, including a former director of
the Company, in connection with the 1996 repurchase of shares of the Company's
common stock.
INCOME TAX BENEFIT / PROVISION. For the nine months ended March 31, 2000, the
Company recorded an income tax benefit for continuing operations of
approximately $64,250, a decrease of $1,871,250 from the $1,807,000 income tax
provision recorded for the nine months ended March 31, 1999. The decrease was
primarily due to the tax loss during fiscal 2000, compared to taxable income
during the comparable period in fiscal 1999. The decrease is partially offset by
an increase to the provision during the period due to an adjustment to the
Company's method of recording income tax provision, which now includes
anticipated effective tax rates for the year, versus adjustments made for actual
year to date results only.
DISCONTINUED OPERATIONS. Operating results of the Internet Gaming Consulting
segment through March 31, 2000, have been included in net results from
discontinued operations for the periods reported.
During the nine months ended March 31, 2000, the Internet Gaming Consulting
business realized revenues of $315,456, and a loss, net of taxes, of
$123,038, compared to revenues of $289,638 and a loss, net of taxes, of
$762,493, for the nine months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity at March 31, 2000 consisted of
unrestricted cash of $5,465,254 and future revenues generated from operations.
The Company believes that these sources of liquidity will be sufficient to meet
the Company's operating and capital requirements for the foreseeable future.
The Company's cash position decreased by $3,820,674 to $5,465,254 from the June
30, 1999 balance of $9,285,928. This decrease was a result of cash flows used in
operating activities of $5,438,742 and cash flows used in investing activities
of approximately $1,570,757, partially offset by cash flows provided by
financing activities of $3,188,825 during the period.
Cash flows used in operating activities include: (a) a net loss of $1,491,726;
(b) $3,110,000 in advances to the Barona Casino for the Barona Casino
expansion project; (c) timing differences between revenues earned and recognized
of approximately $985,000; (d) estimated income tax payments made during the
year of approximately $977,000; and (e) approximately $143,000 in securities
received for services in lieu of cash.
Cash flows provided by operating activities include: (a) depreciation on
property and equipment and amortization of intangible assets and goodwill of
approximately $1,085,000; (b) the amortization of stock based compensation costs
of approximately $376,000; (c) establishment of bad debt reserves of
approximately $129,000 for third-party loans; and (d) a write-off of other
assets of $80,000.
Cash flows used in investing activities include: (a) purchases of $1,036,000 in
available-for-sale securities; (b) cash payments made in connection with the
acquisitions of CTI and webinc of approximately $341,000; (c) net investments in
fixed assets of approximately $211,000; and (d) a cash payment of $100,000 for
the purchase of assets from Typhoon. Cash flows provided by investing activities
include the payment to the Company of $100,000 for a portion of the Klamath
bonds redeemed during the fiscal year by the issuer, which were classified as
"restricted cash and other investments".
Cash flows used in financing activities include a $400,000 payment on long-term
debt related to the NIGC settlement discussed above. Cash flows provided by
financing activities include approximately $3,589,000 in proceeds from the
exercise of stock options.
22
<PAGE> 23
With respect to the current project to expand the Barona Casino, the Company,
the Barona Tribe and the Barona Casino will share in funding the expansion costs
incurred prior to obtaining all outside financing. The Company expects to
advance approximately $8,300,000 as an unsecured, non-interest-bearing advance
to the Barona Casino. As of March 31, 2000, the Company had advanced $6,300,146.
These advances have been, and any future advances will be, accounted for as a
receivable from the Barona Casino to the Company. In January 2000, the Barona
Tribe obtained approximately $19 million in outside financing, from the issuance
of Federally Tax-Exempt Bonds (discussed below). Payment of the receivable is
expected to occur when the Barona Tribe obtains all outside financing, which is
anticipated to be sometime in calendar year 2000, unless the Company is in a
cash position that would allow for the Barona Casino to retain the advanced
funds for use in its operations during the expansion. If the advances are not
repaid when the Barona Tribe obtains all outside financing, they would be
payable to the Company on demand.
In January 2000, the Barona Tribe completed a placement of Federally Tax-Exempt
Limited General Obligation Bonds in the principal amount of $18,890,000 (the
"Tax-Exempt Bond Financing"). The principal use of the bond proceeds is to build
a public golf course and related facilities. This project is a part of the $150
million Barona Casino expansion project. In connection with the Tax-Exempt Bond
Financing, the Company entered into a Consulting Fee Subordination Agreement
pursuant to which no consulting fee earned under the Barona Consulting Agreement
shall be paid to the Company so long as the Company has received notice from the
trustee for the benefit of the bondholders of an event of default for which
there is a payment default under the indenture and such default shall be
continuing or the Company shall have been notified that any levied Government
Service Tax remains unpaid in whole or in part.
In 1992, there was a one-time advance of future fees under the Consulting
Agreement with the Barona Tribe of approximately $2,500,000. At the beginning of
the management relationship in 1992 between the Barona Tribe and the Company,
the Barona Tribe was not in a financial position to make required investments in
the Barona Casino. The Company invested approximately $2,500,000 into the Casino
that was accounted for as revenue to the Barona Casino and expensed by the
Company due to the uncertainty of recovery. The amount was not accounted for as
a deferred contract cost (similar to those investments discussed above). As the
Barona Casino became profitable between 1992 and 1994, $2,500,000 of the initial
profits of the Barona Casino were distributed to the Company and were recorded
on its books as an obligation called "advances of future consulting fees." The
Barona Casino established a corresponding receivable. Sometime prior to when the
consulting relationship ends, the Company and the Barona Tribe will discuss how
to handle this balance. Depending on the outcome, if the obligation is forgiven
by the Barona Tribe, the Company may have an additional source of liquidity in
the sense that a debt may not need to be repaid; however, if the balance reverts
back to the Barona Casino or the Barona Tribe, the Company may have a debt to
repay. There is no indication how this issue will ultimately be resolved. All
other transactions between the two parties are being treated independently. The
remaining difference of the March 31, 2000 balance in advances of future
consulting fees of $1,756,369 and the $2,500,000 is due primarily to timing
differences between consulting revenues earned and recognized but not yet paid
and the actual payment of the consulting revenues. Consulting fees are typically
paid in the month subsequent to the month in which services were performed.
In September 1996, the Company entered into a Stock Purchase and Settlement and
Release Agreement (the "Stock Purchase Agreement") with two shareholders,
including a former director. The terms of the Stock Purchase Agreement included
(a) the payment of $200,000 to such shareholders, (b) the issuance of two
unsecured promissory notes in the aggregate principal amount of $3,500,000, with
interest at the rate of 10% per annum, payments of interest only for the first
three years, followed by three equal annual installments of principal repayment,
with interest on the remaining balance commencing September 30, 1997, (c) a
contingent obligation (the "Initial Contingent Obligations") to issue an
aggregate principal amount of $9,856,488 in unsecured promissory notes to such
shareholders including $2,000,000 in principal amount of notes each year for
four years and $1,856,488 in principal amount of notes to be issued in a fifth
year, each note with interest at 10%, payment of interest only for three years,
followed by three equal annual installments of principal plus interest on the
remaining principal balance, and (d) another contingent obligation (the "Second
Contingent Obligation") to issue an additional aggregate principal amount of
23
<PAGE> 24
$3,000,000 in unsecured promissory notes (or cash, if the Company has closed a
firm commitment underwritten public offering of securities of not less than $35
million prior to the contingencies being met).
The Initial Contingent Obligations are contingent upon the Company's retained
earnings balance, with certain adjustments, being at least $4,000,000 for the
fiscal year ending immediately prior to the date the notes are to be issued. The
test is to be made each year for eight successive years that commenced with the
fiscal year ended June 30, 1997. The Second Contingent Obligation is subject to
the following conditions: (a) the Barona Tribe enters into a Class III Gaming
Compact (the "Compact") with the State of California which permits the operation
of video gaming machines at the Barona Casino in San Diego County; (b) at the
time that the Barona Tribe enters into the Compact, the Company has a consulting
agreement or similar contractual arrangement with the Barona Tribe; and (c)
consulting fees paid to the Company by the Barona Tribe relating to the Barona
Casino for any consecutive 12-month period within five years after the Barona
Tribe has entered into the Compact, equals or exceeds one and one-half times the
consulting fees for the fiscal year ended June 30, 1996. The Company intends to
record as the additional cost of the repurchase of its common stock, each
contingent obligation as each contingency or condition is met. All payments
pursuant to the Stock Purchase Agreement are further subject to compliance with
certain state law provisions and the Company's Articles of Incorporation
concerning repurchase transactions. The Initial Contingent Obligation has been
met for the first three test periods.
The Company's debt in connection with this stock repurchase is $9,500,000 as of
March 31, 2000. In addition, if all contingent obligations are met, a maximum of
$6,856,488 of aggregate additional consideration may still have to be repaid
under the Stock Purchase Agreement. Management believes that future revenues
generated from operations and unrestricted cash will be sufficient to service
and repay the aggregate amount of this debt.
In April 2000, the Company and the two note holders announced an agreement that
$3,069,265 of current and future corporate indebtedness will be exchanged for
equity prior to its maturity subject to the execution of definitive agreements
and customary closing conditions. Under terms agreed to, a total of 579,105
shares of Venture Catalyst restricted stock and warrants to acquire an
additional 144,775 shares of common stock at $5.894 per share will be issued to
retire the debt. Of the approximately $3,000,000 being retired, $589,517
represents principal on the initial $3,500,000 of notes issued in September
1996, which would have been payable on September 30, 2000. $2,000,000 represents
principal on the notes issued in September 1999, which would have incurred
payments of interest only for the first three years, commencing September 30,
2000, followed by three equal annual installments of principal repayment, with
interest on the remaining balance. The remaining amount of $479,748 represents
accrued and future interest on the debt being retired and other long term debt,
which would have been payable in September 2000.
Restricted cash and other investments of approximately $2,054,000 include; (a)
an irrevocable letter of credit for $133,000 to satisfy the terms of the
corporate lease agreement that will automatically renew on an annual basis until
October 31, 2002, unless canceled by the lessor; (b) an $8,000 certificate of
deposit pledged as collateral in connection with a loan to a Barona Tribal
member; and (c) funds in the amount of $1,912,569 which have been invested or
pledged as security for amounts borrowed by third parties in connection with the
construction of the Kla-Mo-Ya Casino, a gaming facility near Chiloquin, in south
central Oregon. From June 1996 to May 1997, the Company provided consulting
services to the Klamath and Modoc Tribes and the Yahooskin Band of Snake Indians
(collectively, the "Klamath Tribes"). The Klamath Tribes issued revenue bonds to
fund the construction of the Kla-Mo-Ya Casino. In connection with such bond
financing, the Company has a net investment of $394,569 in revenue bonds with a
principal face amount of $400,000. In addition, as a condition of the bond
financing, the Company agreed to hold the bonds for a five-year period.
Pre-opening costs and expenses of approximately $1.5 million were financed by
loans made pursuant to a third-party bank credit agreement with the Klamath
Tribes. The Company pledged a certificate of deposit for $1,518,000 as
collateral for such loans. If the Klamath Tribes are unable to pay its
obligations, the Company may lose all or a portion of its investment in the
revenue bonds it purchased and its certificate of deposit pledged as collateral
for bank loans to the Klamath Tribes. During
24
<PAGE> 25
the quarter ended December 31, 2000, the Klamath Tribes redeemed bonds held by
the company with a face amount of $100,000. The Klamath Tribes have made all
required interest payments during the fiscal year on the bonds held by the
company.
The Company has invested in the securities of several companies and plans to
continue to invest in the securities of other companies, in connection with our
venture/incubation service strategy. The aggregate amount invested will depend
on our available cash, our ability to successfully exchange services for
securities, and our ability to identify potential investment candidates. We plan
to invest up to $2,000,000 (not inclusive of realized or unrealized holding
gains or losses) in the securities of other companies during fiscal 2000, but
have no formal obligation to do so. As of March 31, 2000, we have acquired
approximately $1,179,000 in securities from other companies in exchange for cash
and services.
FORWARD-LOOKING STATEMENTS AND CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Included in this Management's Discussion and Analysis of Financial Condition and
Results of Operations, and in the Notes to the Interim Consolidated Financial
Statements, are certain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 reflecting the Company's
current expectations. Although the Company believes that its expectations are
based on reasonable assumptions, there can be no assurance that the Company's
financial goals or expectations will be realized. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. Numerous
factors may affect the Company's actual results and may cause results to differ
materially from those expressed in forward-looking statements made by or on
behalf of the Company. The Company assumes no obligation to update or revise any
such forward-looking statements or the factors listed below to reflect events or
circumstances that may arise after this Report is filed, and that may have an
effect on the Company's overall performance.
- DEPENDENCY ON REVENUES FROM THE BARONA CASINO
The Company derives the majority of its revenue from services provided
to the Barona Tribe. For the fiscal year ended June 30, 1999, and the
nine months ended March 31, 2000, revenues from services to the Barona
Tribe declined as a percentage of sales. While we are continuing to take
steps to diversify our business activities and resulting revenues,
including our current plan to acquire, invest in and provide services
for emerging businesses, those activities are not yet producing
significant revenues. Accordingly, any material reduction in fees
payable to the Company by the Barona Tribe could have a material adverse
affect on the business and financial condition of the Company. In
connection with the Barona Casino's $150 million expansion project, the
Barona Casino has incurred, and expects to continue to incur,
significantly higher expenses. As a result, the consulting revenues paid
to us during the expansion project may decrease.
- THE BARONA CONSULTING AGREEMENT
Appropriate regulatory authorities have not yet approved the Barona
Consulting Agreement. If the Consulting Agreement is not approved or is
significantly modified from the standpoint of consulting revenue, such
action would have a material adverse effect on the business and
financial condition of the Company.
25
<PAGE> 26
- LIMITED RECOURSE AGAINST TRIBES AND TRIBAL ASSETS
In general, Native American tribes do not make any equity investments in
the construction, development or equipment of casinos. We have made, and
may make, advances or loans (including guarantees of indebtedness) to
tribes for the construction, development, equipment and operation of
casinos for which we may act as a consultant or manager. These amounts
are not conventional indebtedness loans subject to customary mortgages
or security. If these casinos do not generate sufficient cash flow to
repay such indebtedness, our loans may not be repaid. Our principal
recourse for collection of indebtedness from a tribe or money damages
for breach or wrongful termination of a contract is from revenues, if
any, from casino operations. We have agreed to, and in the future may
agree to, subordinate the repayment of a tribe's indebtedness and
payment of other fees due to us from a tribe to other obligations of the
tribe, such as indebtedness to a commercial lender. Accordingly, in the
event of a default by a tribe, a tribe's indebtedness to us may not be
repaid, if at all, until any senior creditors have been repaid in full.
As of March 31, 2000 we have advanced approximately $6,300,000 to the
Barona Casino in connection with the ongoing expansion project. We have
committed to advance up to another $2,000,000 to the Barona Casino, if
needed, until all outside financing is obtained. These advances are
scheduled to be repaid when the $150 million bond financing is
completed. In addition, as noted above, the consulting fees earned by
the Company are now subject to a Subordination Agreement relating to the
Tax-Exempt Bond Financing. We also have approximately $1,900,000 in the
form of cash pledged as a guarantee for and bonds issued by the
Klamath Tribes. We have agreed to hold the bonds for a period of five
years. If a default occurs, it would have a material adverse effect on
the business and financial condition of the Company.
- VOLATILITY OF AVAILABLE-FOR-SALE SECURITIES
The Company's assets are, and will be, partially comprised of securities
of other publicly and non-publicly traded companies, and include
positions in equity securities that have experienced significant
volatility in their stock prices. We expect the number of, and our
investment in, these assets to increase in the future. The market price
and valuations of the securities that we hold in other companies may
fluctuate due to reported results of those companies, market conditions
and other conditions over which we have no control. We do not currently
attempt to reduce or eliminate our market exposure on these securities.
An adverse change in the price of securities we hold would result in a
material decrease in the fair value of our available-for-sale
securities, which could have a material adverse impact on the business
and financial condition of the Company.
- SOME OF OUR VENTURE SERVICES ACTIVITIES HAVE A LIMITED OPERATING
HISTORY
Certain of our venture services for emerging businesses have been
offered for less than a year. Because of our short operating history in
these activities, we are unable to provide you with significant data
upon which you can evaluate our prospects. We cannot be certain that our
expanded business strategy or the business strategies of our clients
will be successful. Because we provide services to and have interests in
early stage companies and emerging businesses and have only recently
expanded our business strategy, we are exposed to not only the business
risks of our clients but also to the risks of our own business
activities.
- RISKS OF BEING DEEMED AN INVESTMENT COMPANY
We may incur significant costs to avoid investment company status and
may suffer other adverse consequences if we are deemed to be an
investment company under the United States Investment Company Act of
1940, as amended (the "1940 Act"). A company may be deemed to be an
investment company if it owns investment securities with a value
exceeding 40% of its total assets, subject to certain exclusions.
Investment companies are subject to registration under, and compliance
with, the 1940 Act unless a particular exclusion or SEC safe harbor
applies. If we were deemed to be an investment
26
<PAGE> 27
company, we would become subject to the requirements of the 1940 Act. As
a consequence, we would be prohibited from engaging in business or
issuing our securities as we have in the past and might be subject to
civil and criminal penalties for non-compliance. In addition, certain of
our contracts might be voidable. Such repercussions from being deemed an
investment company could have a material adverse affect on the Company's
operating results and financial condition.
Specifically, if we are deemed to be, and are required to register as,
an investment company, we will be forced to comply with substantive
requirements under the 1940 Act, including:
- limitations on our ability to borrow;
- limitations on our capital structure;
- restrictions on acquisitions of interests in portfolio and/or
affiliated companies;
- prohibitions on transactions with affiliates;
- restrictions on specific investments; and
- compliance with reporting, record keeping, voting, proxy disclosure
and other rules and regulations.
If we were forced to comply with the rules and regulations of the 1940
Act, our operations would significantly change, and we would be
prevented from successfully executing our business strategy.
In addition, to avoid regulation under the 1940 Act and related SEC
rules, we may need to sell assets which we would otherwise want to
retain and may be unable to sell assets which we would otherwise want to
sell. In addition, we may be forced to acquire additional, or retain
existing, income-generating or loss-generating assets which we would not
otherwise have acquired or retained and may need to forego opportunities
to acquire interests in attractive companies that would benefit our
business. If we were forced to sell, buy or retain assets in this
manner, we would be prevented from successfully executing our business
strategy.
Although investment securities currently comprise less than 40% of our
assets, fluctuations in the value of these securities or of our other
assets may cause this limit to be exceeded. This would require us to
attempt to reduce our investment securities as a percentage of our total
assets. This can be attempted in a number of ways, including the
disposition of investment securities and the acquisition of
non-investment security assets. If we sell investment securities, we may
sell them sooner than we otherwise would. These sales may be at
depressed prices and we may never realize anticipated benefits from, or
may incur losses on, these investments. Some investments may not be sold
due to contractual or legal restrictions or the inability to locate a
suitable buyer. Moreover, we may incur tax liabilities when we sell
assets. We may also be unable to purchase additional investment
securities that may be important to our operating strategy. If we decide
to acquire non-investment security assets, we may not be able to
identify and acquire suitable assets and businesses.
- VOLATILITY OF OUR STOCK PRICE
The trading price of the Company's common stock has been, and will
likely continue to be, subject to wide fluctuations because of
regulatory developments, performance of our public clients in which we
own equity securities, quarterly variations in the Company's operating
results, announcements of new services or business activities by the
Company or its competitors, general market fluctuations, and other
events and factors. These factors, coupled with the small public float,
have in the past, and could in the future, result in wide fluctuations
in the market trading price.
- YEAR 2000 READINESS DISCLOSURE
As of February 2000, the Company had completed all year 2000 readiness
work. Our most significant customer, the Barona Casino has not
experienced any major incidents related to Year 2000 issues.
27
<PAGE> 28
However, it is possible that the full impact of the date change has not
been fully recognized. We believe that any such problems are likely to
be minor and correctable. We will continue to monitor all systems for
Year 2000 related concerns. As of March 31, 2000, total costs relating
to our compliance efforts, based upon management's best estimates, were
55 man-hours of the Company's personnel and $3,400. Costs for Year 2000
compliance will continue to be expensed as incurred and are not expected
to have a material impact on the Company's consolidated results of
operations
The information set forth above under this caption "Year 2000 Readiness
Disclosure" relates to the Company's efforts to address the Year 2000
concerns regarding our (a) operations; (b) services, products and
technologies sold to third parties; and (c) major suppliers and
customers. Such statements are intended as Year 2000 Statements and Year
2000 Readiness Disclosures and are subject to the Year 2000 Information
Readiness Act.
28
<PAGE> 29
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The Exhibits listed below are hereby filed with the U.S.
Securities and Exchange Commission (the "Commission") as part of this Quarterly
Report on Form 10-QSB.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<S> <C>
2.1 Stock Purchase Agreement dated as of January 28, 2000 by and
among Ken King, Tom Green, Mary Anne Fuchs, Cameron Irrejon and
Venture Catalyst Incorporated.
2.2 Stock Purchase Agreement dated as of January 28, 2000 by and
among Venture Catalyst Incorporated, Stephen M. Dirks and
webinc., Inc.
2.3 Agreement and Plan of Reorganization among Venture Catalyst
Incorporated, Venture Acquisition Corporation, CTInteractive,
Inc., and Donald Scott Campbell dated as of March 23, 2000.
10.1 Consulting Agreement dated February 25, 2000 between Venture
Catalyst Incorporated and G. Fritz Opel.
10.2 Settlement and Release Agreement dated February 25, 2000 between
Venture Catalyst Incorporated and G. Fritz Opel.
10.3 Consulting Fee Subordination Agreement dated as of January 13,
2000 among State Street Bank and Trust Company of California,
National Association, Venture Catalyst Incorporated and the
Barona Group of Capitan Grande Band of Mission Indians.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K. During the Company's third quarter ended March 31,
2000, the Company filed no Current Reports on Form 8-K with the Commission.
29
<PAGE> 30
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VENTURE CATALYST INCORPORATED,
a Utah Corporation
Date: May 15, 2000 By: /S/ L. DONALD SPEER, II
-----------------------------------
L. Donald Speer, II
Chairman of the Board and Chief Executive
Officer
(Authorized Signatory, Principal Executive
Officer)
Date: May 15, 2000 By: /S/ KEVIN MCINTOSH
-----------------------------------
Kevin McIntosh
Vice President, Chief Financial Officer,
and Treasurer
(Authorized Signatory, Principal Financial
Officer)
30
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<S> <C>
2.1 Stock Purchase Agreement dated as of January 28, 2000 by and
among Ken King, Tom Green, Mary Anne Fuchs, Cameron Irrejon and
Venture Catalyst Incorporated.
2.2 Stock Purchase Agreement dated as of January 28, 2000 by and
among Venture Catalyst Incorporated, Stephen M. Dirks and
webinc., Inc.
2.3 Agreement and Plan of Reorganization among Venture Catalyst
Incorporated, Venture Acquisition Corporation, CTInteractive,
Inc., and Donald Scott Campbell dated as of March 23, 2000.
10.1 Consulting Agreement dated February 25, 2000 between Venture
Catalyst Incorporated and G. Fritz Opel.
10.2 Settlement and Release Agreement dated February 25, 2000 between
Venture Catalyst Incorporated and G. Fritz Opel.
10.3 Consulting Fee Subordination Agreement dated as of January 13,
2000 among State Street Bank and Trust Company of California,
National Association, Venture Catalyst Incorporated and the
Barona Group of Capitan Grande Band of Mission Indians.
27 Financial Data Schedule.
</TABLE>
31
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
Dated as of January 28, 2000
By and Among
KEN KING
TOM GREEN
MARY ANNE FUCHS
and
CARMEN ERREJON
and
VENTURE CATALYST INCORPORATED
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 GENERAL ...................................................... 1
1.1 Closing Date ........................................ 1
1.2 Sale and Purchase of Group Shares ................... 1
1.3 Purchase Price ...................................... 1
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLERS .................... 2
2.1 Authorization ....................................... 2
2.2 Consents; No Conflict ............................... 2
2.3 Title to Group Shares ............................... 2
2.4 No Obligation to Sell Group Shares .................. 2
2.5 Proceedings ......................................... 3
2.6 No Finders or Brokers ............................... 3
2.7 Investment Representations and Warranties ........... 3
2.8 Spousal Consent ..................................... 5
2.9 Accuracy of Information Furnished by Sellers ........ 5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PURCHASER .................. 5
3.1 Organization ........................................ 5
3.2 VCAT Shares ......................................... 5
3.3 Authorization ....................................... 5
3.4 Investment Intent ................................... 5
3.5 No Finders or Brokers ............................... 5
3.6 Consents ............................................ 6
ARTICLE 4 COVENANTS .................................................... 6
4.1 Waiver and Acknowledgment by Sellers ................ 6
ARTICLE 5 CONDITIONS OF CLOSING ........................................ 6
5.1 Conditions of Obligations of Purchaser .............. 6
(a) Certificates and Instruments of Transfer ..... 6
(b) Directors' and Officers' Resignations ........ 6
(c) Closing of Companion Transaction ............. 7
5.2 Conditions of Obligations of Sellers ................ 7
(a) Purchase Price ............................... 7
ARTICLE 6 INDEMNIFICATION .............................................. 7
6.1 Indemnification by Sellers .......................... 7
6.2 Indemnification by Purchaser ........................ 8
6.3 Survival of Representations and Warranties; Reliance 8
ARTICLE 7 MISCELLANEOUS ................................................ 9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
7.1 Further Actions ..................................... 9
7.2 Expenses ............................................ 9
7.3 Entire Agreement .................................... 9
7.4 Descriptive Headings ................................ 9
7.5 Notices ............................................. 9
7.6 Governing Law ....................................... 10
7.7 Assignability ....................................... 10
7.8 Waivers and Amendments .............................. 11
7.9 Public Announcements ................................ 11
7.10 Severability ....................................... 11
7.11 Venue .............................................. 11
7.12 Counterparts ....................................... 11
SPOUSAL CONSENT ........................................................ 14
EXHIBIT A .............................................................. 15
APPENDIX ............................................................... 16
</TABLE>
<PAGE> 4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is dated as of January 28, 2000
(this "Agreement"), by and among VENTURE CATALYST INCORPORATED, a Utah
corporation ("Purchaser"), and each of KENNETH KING, TOM GREEN, CARMEN ERREJON,
and MARY ANNE FUCHS (each, a "Seller" and collectively, the "Sellers").
Capitalized terms not otherwise defined have the meanings set forth in the
Appendix hereto.
WITNESSETH:
WHEREAS, Sellers collectively hold 630,000 shares of common
stock, $.01 par value per share (the "Company Common Stock" or the "Group
Shares"), of Webinc, Inc., a Delaware corporation (the "Company"), representing
approximately 24% of the total issued and outstanding shares of Company Common
Stock, and each Seller is the record and beneficial owner of that number of
Group Shares set forth opposite his or her name on Exhibit A hereto; and
WHEREAS, Sellers desire to sell to Purchaser, and Purchaser
desires to purchase from Sellers, all of the Group Shares upon the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the mutual benefits to be
derived and the representations and warranties, conditions and promises herein
contained, and intending to be legally bound hereby, the parties hereto hereby
agree as follows:
ARTICLE 1
GENERAL
1.1 Closing Date. The closing for the consummation of the
purchase and sale contemplated by this Agreement (the "Closing") shall, unless
another date or place is agreed to in writing by Seller and Purchaser, take
place on January 28, 2000, at the offices of Paul, Hastings, Janofsky & Walker
LLP, at 695 Town Center Drive, Seventeenth Floor, Costa Mesa, California, or, if
later, the date on which each condition set forth in Article 5 hereof is
satisfied or waived (the "Closing Date").
1.2 Sale and Purchase of Group Shares. At the Closing, Sellers
shall sell, transfer, assign and deliver unto Purchaser and its successors and
assigns forever, and Purchaser shall purchase from Sellers, the Group Shares for
the purchase price hereinafter set forth. At the Closing, (a) Sellers shall
deliver to Purchaser certificates representing the Group Shares, accompanied by
executed stock powers in blank, with all required stock transfer tax stamps
affixed, in form and substance reasonably satisfactory to Purchaser and its
counsel, and (b) Purchaser shall instruct Purchaser's Transfer Agent to deliver
certificates evidencing the VCAT Shares to Sellers no later than five (5)
business days after the Closing.
1.3 Purchase Price. In consideration for the Group Shares,
Purchaser shall issue to Sellers collectively that number of shares of common
stock of Purchaser, par value, $.001 per share, equal to Fifty Four Thousand
Dollars ($54,000.00) divided by the Fair Market
<PAGE> 5
Value (the "VCAT Shares" or the "VCAT Group Shares"), allocated among Sellers as
described on Exhibit A hereto. As used herein, "Fair Market Value" shall mean
the average of the closing sale prices (or last bid prices if no closing sale
prices are reported) of shares of Purchaser's common stock as reported on The
Nasdaq Stock Market, Inc. for the ten (10) trading days immediately preceding
the date of this Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller hereby represents and warrants to Purchaser, on
behalf of himself or herself individually, as of the date hereof, as follows:
2.1 Authorization. Seller has the right, power and authority to
enter into this Agreement, and as such this Agreement has been duly executed and
delivered by Seller and is a valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, except as such enforceability may
be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws, now or hereafter in effect, relating to or limiting creditors'
rights generally, and (b) general principles of equity (whether considered in an
action in equity or at law).
2.2 Consents; No Conflict. The execution, delivery and
performance by Seller of this Agreement (a) do not require the consent of or
notice to any governmental or regulatory authority or any other third party; (b)
will not conflict with or result in a violation of any law, ordinance,
regulation, ruling, judgment, order or injunction of any court or governmental
instrumentality to which Seller is subject or by which Seller or any of his or
her assets or properties are bound; (c) will not conflict with, constitute
grounds for termination of, result in a breach of, constitute a default under,
require any notice under, or accelerate or permit the acceleration of any
performance required by the terms of any agreement, instrument, license or
permit to which Seller is a party or by which Seller or any of his or her
properties are bound, including any promissory note or security arrangement; and
(d) will not create any Encumbrance upon any of the Group Shares owned by
Seller.
2.3 Title to Group Shares. Seller is the record and beneficial
owner of that number of the Group Shares set forth opposite his or her name on
Exhibit A hereto, free and clear of all Encumbrances, and does not hold his or
her Group Shares as trustee or nominee for any person or entity. No person
except Seller has any interest in the Group Shares held by Seller, except to the
extent that Seller's spouse may have a community interest in Seller's Group
Shares. The delivery to Purchaser at Closing of certificates evidencing Seller's
Group Shares will convey and transfer to Purchaser good, complete and marketable
title to such Group Shares, free and clear of restrictions or conditions to
transfer or assignment (other than restrictions on transfer imposed by Federal
or state securities laws) and free and clear of all defects of title or
Encumbrances.
2.4 No Obligation to Sell Group Shares. Except for the
transactions contemplated by this Agreement, Seller has no legal obligation,
absolute or contingent, to any other Person to sell his or her interest in the
Company, or to enter into any agreement with respect thereto.
2.5 Proceedings.
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<PAGE> 6
(a) There are no suits, actions, other legal proceedings
or controversies, or, to Seller's knowledge, governmental investigations,
pending against Seller, and having to do with the Company or Seller's holdings
in the Company, or as to which Seller has received any claim or assertion. There
are no facts which are reasonably likely to lead to any additional investigation
being conducted or to any other suit, action or legal proceeding.
(b) There is no suit, action or proceeding or
investigation threatened against or affecting Seller that is likely to prevent
or materially delay the ability of Seller to consummate the transactions
contemplated by this Agreement, nor is there any judgment, decree, injunction,
ruling or order of any Governmental Entity or arbitrator outstanding against
Seller having, or which in the future could have, any such effect.
2.6 No Finders or Brokers. Seller has not entered into any
agreement, arrangement or understanding with any Person which could result in
the obligation to pay any finder's fee, brokerage commission, advisory fee or
similar payment in connection with the transactions contemplated hereby.
2.7 Investment Representations and Warranties.
(a) Seller is an "accredited investor," as that term is defined in
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act").
(b) Seller understands that no U.S. Federal or state agency has passed
on, or made any recommendation or endorsement of the VCAT Shares.
(c) Seller acknowledges that, in making the decision to accept the VCAT
Shares, Seller has relied solely upon independent investigations made by him or
her and not upon any representations made by Purchaser with respect to the VCAT
Shares, except for the representations and warranties contained in this
Agreement, except that Seller has received, reviewed and relied upon (i)
Purchaser's Annual Report to Stockholders for the year ended December 31, 1998,
(ii) copies of Purchaser's report on Form 10-K for the year ended December 31,
1998, (iii) Purchaser's definitive Proxy Statement dated April 29, 1999, (iv)
Purchaser's Quarterly Reports for the Quarters Ended March 31, 1999, June 30,
1999 and September 30, 1999, and (v) Purchaser's Current Reports on Form 8-K
dated March 12, 1998 and May 18, 1998, each filed by Purchaser pursuant to the
Securities Exchange Act of 1934.
(d) Seller understands that the VCAT Shares are being offered and sold
to Seller in reliance on specific exemptions from or non-application of the
registration requirements of U.S. Federal and state securities laws and that
Purchaser is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of Seller set forth
herein in order to determine the applicability of such exemptions and the
suitability of Seller to acquire the VCAT Shares.
(e) Seller is acquiring the VCAT Shares for investment for Seller's own
account, not as nominee or agent, and not with a view to the resale or
distribution of any part thereof, within the meaning of the Securities Act, and
has no present intention of selling, granting any participation in, or otherwise
distributing the same within the meaning of the Securities Act. By executing
this Agreement, Seller further represents that he or she does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to
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<PAGE> 7
such person or to any third person with respect to any of the VCAT Shares.
(f) Seller has had an opportunity to ask questions and receive answers
from Purchaser regarding the terms and conditions of the offering of the VCAT
Shares and Seller has received the information they requested regarding the
business and affairs of Purchaser.
(g) Seller has the financial ability to bear the economic risk of its
investment in the VCAT Shares, has adequate means of providing for his or her
current needs and foreseeable future contingencies and has no need for liquidity
with respect to investment in the VCAT Shares.
(h) Seller acknowledges that Seller has such knowledge and experience in
financial or business matters that he or she is capable of evaluating the merits
and risks of the investment.
(i) Seller understands that the VCAT Shares are characterized as
"restricted securities" under the U.S. Federal securities laws inasmuch as they
are being acquired from Purchaser in a transaction not involving a public
offering and that under such laws and applicable regulations such securities may
be resold without registration under the Securities Act only in certain limited
circumstances. In this connection, Seller represents that Seller is familiar
with Rule 144 promulgated under the Securities Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
(j) Without in any way limiting the representations set forth above or
restricting the Sellers' ability to utilize Rule 144, Seller further agrees not
to make any disposition of all or any portion of the VCAT Shares unless and
until:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) (x) Seller shall have notified Purchaser of the proposed
disposition and shall have furnished Purchaser with a detailed statement of the
circumstances surrounding the proposed disposition, and (y) if requested by
Purchaser, Seller shall have furnished Purchaser with an opinion of counsel,
reasonably satisfactory to Purchaser, that such disposition will not require
registration of the VCAT Shares under the Securities Act.
(k) Seller knows of no public solicitation or advertisement in
connection with the offer or sale of the VCAT Shares.
(l) Seller acknowledges that the certificates representing the Shares
shall contain the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
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<PAGE> 8
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF THE SECURITIES ACT AND THE SECURITIES LAWS OF ANY
STATE.
2.8 Spousal Consent. If Seller is married and not legally
separated, the person signing the Spousal Consent to this Agreement as Seller's
spouse is Seller's spouse.
2.9 Accuracy of Information Furnished by Sellers. No
representation or warranty set forth in this Article 2 or in any agreement,
certificate, schedule or exhibit executed and delivered by Sellers pursuant to
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to each Seller as
follows:
3.1 Organization. Purchaser is a duly organized corporation,
validly existing and in good standing under the laws of the State of Utah and
has the corporate power and authority to perform its obligations under this
Agreement.
3.2 VCAT Shares. Upon issuance to Sellers pursuant to the terms
of this Agreement, the VCAT Shares will be validly issued, fully paid and
non-assessable shares of Purchaser.
3.3 Authorization. The execution and delivery of this Agreement
by Purchaser and the performance of its obligations hereunder have been duly
authorized by the directors of Purchaser and no other corporate action or
approval by Purchaser is necessary for the execution, delivery or performance of
this Agreement by Purchaser. This Agreement has been duly executed and delivered
by Purchaser, and is a valid and binding obligation of Purchaser, enforceable
against it in accordance with its terms, except as such enforceability may be
limited by (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws, now or hereafter in effect, relating to or limiting creditors'
rights generally, and (b) general principles of equity (whether considered in an
action in equity or at law).
3.4 Investment Intent. Purchaser is acquiring Company Common
Stock for investment purposes, and not with a view to the resale or distribution
thereof; Purchaser has the knowledge and sophistication to purchase Company
Common Stock; Purchaser has had access to all information regarding the Company
that it has requested and has had or will have prior to the Closing the
opportunity to ask questions regarding the Company, its operations and such
other matters that Purchaser has deemed material to its investment decision; and
Purchaser will not dispose of Company Common Stock without compliance with all
applicable Federal and state securities laws.
3.5 No Finders or Brokers. Purchaser has not entered into any
agreement, arrangement or understanding with any Person which could result in
the obligation to pay any
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<PAGE> 9
finder's fee, brokerage commission, advisory fee or similar payment in
connection with this Agreement or the transactions contemplated hereby.
3.6 Consents. No consent, approval or authorization of, or
declaration, filing or registration with, any Governmental Entity is required to
be made or obtained by Purchaser in connection with the execution, delivery and
performance by Purchaser of this Agreement and the consummation of the
transactions contemplated hereby, or the continued operation of Purchaser's
business; except that in connection with the issuance of the VCAT Shares to
Sellers, Purchaser (a) must file a Nasdaq National Market Notification Form for
Listing of Additional Shares with The Nasdaq Stock Market, Inc., and (b) will,
if necessary, make certain filings or take other actions required under Federal
and state securities laws.
ARTICLE 4
COVENANTS
4.1 Waiver and Acknowledgment by Sellers. Sellers acknowledge
that concurrently with the transactions contemplated by this Agreement,
Purchaser is acquiring from Stephen M. Dirks Company Common Stock representing
76% of the total issued and outstanding capital stock of the Company, in
exchange for $20,000 cash pursuant to a Stock Purchase Agreement of even date
herewith. Each Seller (a) acknowledges that the per share consideration for
shares of Company Common Stock held by Mr. Dirks is different from the per share
price of Company Common Stock held by the Seller and has no objection, and (b)
hereby waives his/her right to request that Purchaser acquire the Group Shares
owned by such Seller in exchange for cash, rather than for that number of the
VCAT Shares set forth opposite such Seller's name on Exhibit A hereto.
ARTICLE 5
CONDITIONS OF CLOSING
5.1 Conditions of Obligations of Purchaser. The obligation of
Purchaser to consummate the purchase of the Group Shares pursuant to this
Agreement is subject to the satisfaction of the following conditions, any of
which may be waived by Purchaser:
(a) Certificates and Instruments of Transfer. Sellers
shall have delivered to Purchaser certificates representing the Group Shares,
accompanied by executed stock powers in blank, with all required stock transfer
tax stamps affixed. All certificates, instruments and documents delivered by
Sellers in connection with the transactions contemplated hereby and necessary to
evidence such transactions shall be in form and substance reasonably
satisfactory to Purchaser and its counsel.
(b) Directors' and Officers' Resignations. Sellers shall
have delivered to Purchaser resignations of all directors and officers of the
Company, effective as of the Closing Date and in form and substance reasonably
satisfactory to Purchaser and its counsel.
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<PAGE> 10
(c) Closing of Companion Transaction. The closing of
transactions contemplated by that certain Stock Purchase Agreement, dated of
even date herewith, by and among Purchaser, the Company, and Stephen M. Dirks,
shall have occurred.
5.2 Conditions of Obligations of Sellers. The obligations of
Sellers to consummate the sale and purchase under this Agreement are subject to
the satisfaction of the following conditions, each of which may be waived by
Sellers:
(a) Purchase Price. Purchaser's Transfer Agent shall have
been instructed to deliver certificates evidencing the VCAT Shares to Sellers
pursuant to Section 1.2 of this Agreement.
ARTICLE 6
INDEMNIFICATION
6.1 Indemnification by Sellers.
(a) Subject to the provisions of Sections 6.1(b) and 6.3
hereof, Sellers shall severally indemnify Purchaser and its Affiliates,
including, without limitation, the Company, and each of their respective
stockholders, officers, directors, employees and representatives (each a "VCAT
Indemnitee") against, and hold each VCAT Indemnitee harmless from, any and all
loss, damage, liability, payment, and obligation, and all expenses, including
without limitation reasonable legal fees, all calculated on a net after tax
basis (collectively "Losses"), incurred, suffered, sustained or required to be
paid, directly or indirectly, by, or sought to be imposed upon, such VCAT
Indemnitee after the Closing Date resulting from, related to or arising out of
any inaccuracy in, or breach of, any of the representations, warranties or
covenants made by Seller in or pursuant to this Agreement or in any agreement,
document or instrument executed and delivered pursuant hereto or in connection
with the Closing of the transactions contemplated hereunder.
(b) Each VCAT Indemnitee shall promptly give written
notice to Sellers of the assertion by any Person of any claim, action, suit or
proceeding with respect to which Sellers are obligated to provide
indemnification hereunder; provided, however, that the rights of a VCAT
Indemnitee to be indemnified hereunder shall only be affected by the failure to
give such notice if and to the extent such failure prejudices Sellers in the
defense of such third party claim. Amounts due with respect to Losses covered by
this Section 6.1 shall be paid promptly after delivery of reasonably documented
written notice of the amount of Losses incurred. Sellers shall have the right,
but not the obligation, to contest, defend or litigate, and to retain counsel of
their choice in connection with, any claim, action, suit or proceeding by any
third party alleged or asserted against a VCAT Indemnitee that is subject to
indemnification by Sellers hereunder, and the cost and expense thereof shall be
subject to the indemnification obligations of Sellers hereunder; provided, that
each VCAT Indemnitee shall have the right and option to participate in, but not
control, the defense of such action at its own expense; and provided, further,
that, (i) if Sellers elect not to defend any such action or (ii) if a VCAT
Indemnitee shall have defenses not available to Sellers and if counsel to VCAT
shall advise in a written opinion that common representation is not appropriate,
then, in each case, such VCAT Indemnitee shall be entitled, at its option
through counsel of its choice, reasonably approved by Sellers, such approval not
to be unreasonably withheld, but at Sellers' expense, to assume and
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<PAGE> 11
control the defense of such action. Neither Sellers, on the one hand, nor any
VCAT Indemnitee, on the other hand, shall be entitled to settle or compromise
any such claim, action, suit or proceeding without the prior written consent of
such VCAT Indemnitee or Sellers, as the case may be, which consent shall not be
unreasonably withheld and provided, further, that if such VCAT Indemnitee
unreasonably refuses to approve any settlement of an action or a proceeding
which involves only the payment of money and the VCAT Indemnitee's position in
such action or a proceeding is subsequently not sustained, such VCAT Indemnitee
shall be solely responsible for Losses in excess of those which would have been
incurred had such claim been settled on the terms acceptable to Sellers.
6.2 Indemnification by Purchaser.
(a) Subject to the provisions of Section 6.3 hereof,
Purchaser shall indemnify Sellers against, and hold Sellers harmless from, any
and all Losses incurred, suffered, sustained or required to be paid, directly or
indirectly, by or sought to be imposed upon, Sellers resulting from, related to
or arising out of any inaccuracy in or breach of any of the representations,
warranties or covenants made by Purchaser in or pursuant to this Agreement or in
any agreement, document or instrument executed and delivered pursuant hereto or
in connection with the Closing of the transactions contemplated hereunder.
(b) Sellers shall promptly give written notice to
Purchaser of the assertion by any Person of any claim, action, suit or
proceeding with respect to which Purchaser is obligated to provide
indemnification hereunder; provided, however, that the rights of Sellers to be
indemnified hereunder shall only be affected by the failure to give such notice
if and to the extent such failure prejudices Purchaser in the defense of such
third party claim. Amounts due with respect to Losses covered by this Section
6.2 shall be paid promptly after delivery of reasonably documented written
notice of the amount of Losses incurred. Purchaser shall have the right, but not
the obligation, to contest, defend or litigate, and to retain counsel of its
choice in connection with, any claim, action, suit or proceeding by any third
party alleged or asserted against Sellers that is subject to indemnification by
Purchaser hereunder, and the cost and expense thereof shall be subject to the
indemnification obligations of Purchaser hereunder; provided, that Sellers shall
have the right and option to participate in, but not control, the defense of
such action at their own expense; and provided, further, that (i) if Purchaser
elects not to defend any such action or (ii) if Sellers shall have defenses not
available to Purchaser and if counsel to Sellers shall in a written opinion
advise that common representation is not appropriate, then Sellers shall be
entitled, at their option through counsel of their choice, approved by
Purchaser, such approval not to be unreasonably withheld, but at Purchaser's
expense, to assume and control the defense of such action. Neither Sellers, on
one hand, nor Purchaser, on the other hand, shall be entitled to settle or
compromise any such claim, action, suit or proceeding without the prior written
consent of such Sellers or Purchaser, as the case may be, which consent shall
not be unreasonably withheld and provided further if Sellers unreasonably refuse
to approve any settlement of an action or proceeding which involves only the
payment of money and Sellers' position in such action or proceeding is
subsequently not sustained, Sellers shall be solely responsible for Losses in
excess of those which would have been incurred had such claim been settled on
the terms acceptable to Purchaser.
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<PAGE> 12
6.3 Survival of Representations and Warranties; Reliance. All
representations and warranties contained herein or made pursuant hereto by
Sellers shall survive the Closing until the third anniversary of the Closing,
except that the representations and warranties in Section 2.3 (Title to Group
Shares) shall survive without limit. The expiration of any representation and
warranty shall not affect any claim for indemnification made prior to the date
of such expiration and shall not affect Sellers' obligations under Section
6.3(b). The representations and warranties of Purchaser shall survive the
Closing until expiration of the applicable statute of limitations.
ARTICLE 7
MISCELLANEOUS
7.1 Further Actions. From time to time, as and when requested by
the other party, Sellers and Purchaser shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as the requesting party may
reasonably deem necessary or desirable to carry out the intent and purposes of
this Agreement, to transfer, assign and deliver to Purchaser effective as of the
Closing, and its successors and assigns, the Group Shares (or to evidence the
foregoing) and to consummate and give effect to the other transactions,
covenants and agreements contemplated hereby.
7.2 Expenses. Except as otherwise specifically provided herein,
Sellers and Purchaser shall each bear their own legal fees and other costs and
expenses with respect to the negotiation, execution and delivery of this
Agreement and the consummation of the transactions hereunder. Purchaser shall
pay all sales, transfer and documentary taxes and other expenses incident to the
transfer of the Group Shares and the issuance of the VCAT Shares. If any action
in law or in equity is necessary to enforce or interpret the terms of this
Agreement, the parties shall each bear their respective attorneys' fees, costs
and all other related expenses unless otherwise specifically awarded by the
court.
7.3 Entire Agreement. This Agreement, which includes the
Appendix, the Spousal Consents and the Exhibits hereto and the other documents,
agreements and instruments executed and delivered pursuant to this Agreement,
contains the entire agreement between the parties hereto with respect to the
transactions contemplated by this Agreement and supersedes all prior
arrangements or understandings with respect thereto.
7.4 Descriptive Headings. The descriptive headings of this
Agreement are for convenience only and shall not control or affect the meaning
or construction of any provision of this Agreement.
7.5 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if (a)
delivered personally or (b) sent by registered or certified mail, postage
prepaid, or (c) sent by overnight courier with a nationally recognized courier,
or (d) via facsimile confirmed in writing in any of the foregoing manners, as
follows:
If to Sellers: (See Exhibit A Attached)
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<PAGE> 13
[If to the Company: webinc., Inc.
c/o Venture Catalyst Incorporated
Attention: L. Donald Speer, II
16868 Via Del Campo Court, Suite 200
San Diego, CA 92127
Facsimile: (858) 385-1001
If to Purchaser: Venture Catalyst Incorporated
Attention: L. Donald Speer, II
16868 Via Del Campo Court, Suite 200
San Diego, CA 92127
Facsimile: (858) 385-1001
with a copy to: Paul, Hastings, Janofsky & Walker LLP
Attention: John F. Della Grotta, Esq.
Seventeenth Floor
695 Town Center Drive
Costa Mesa, California 92626-1924
Facsimile: 714 979-1921
If sent by mail, notice shall be considered delivered five (5) business days
after the date of mailing, and if sent by any other means set forth above,
notice shall be considered delivered upon receipt thereof. Any party may by
notice to the other parties change the address to which notice or other
communications to it are to be delivered or mailed.
7.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California (other than the
choice of law principles thereof). Any action, suit or other proceeding
initiated by Sellers or Purchaser against any other party under or in connection
with this Agreement may be brought in any Federal or state court in the State of
California, as the party bringing such action, suit or proceeding shall elect,
having jurisdiction over the subject matter thereof. Sellers and Purchaser
hereby submit themselves to the jurisdiction of any such court and agree that
service of process on them in any such action, suit or proceeding may be
effected by the means by which notices are to be given to it under this
Agreement. The parties hereto waive trial by jury in any action instituted
hereunder.
7.7 Assignability. This Agreement shall not be assignable by any
party without the written consent of the other parties and any such purported
assignment by any party without such consent shall be void, except that:
(a) any or all rights of Purchaser to receive the
performance of the obligations of Sellers hereunder (but not the obligations of
Purchaser to Sellers hereunder) and rights to assert claims against Sellers in
respect of any inaccuracy in or breach of any representations, warranties or
covenants of Sellers hereunder, may be assigned by Purchaser to a direct or
indirect subsidiary of Purchaser, and
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<PAGE> 14
(b) Purchaser may assign to any bank, insurance company or
other financial institution providing financing or extending credit to Purchaser
or the Company any or all of its rights to assert claims against Sellers in
respect of any inaccuracy in or breach of representations, warranties or
covenants under this Agreement, but any assignee of such rights under clause (a)
or clause (b) shall take such rights subject to any defenses, counterclaims and
rights of set-off to which Sellers might be entitled under this Agreement. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns.
7.8 Waivers and Amendments. Any waiver of any term or condition
of this Agreement, or any amendment or supplementation of this Agreement, shall
be effective only if in writing and signed by all parties. A waiver of any
breach or failure to enforce any of the terms or conditions of this Agreement
shall not in any way affect, limit or waive a party's rights hereunder at any
time to enforce strict compliance thereafter with every term or condition of
this Agreement.
7.9 Public Announcements. Sellers will consult with Purchaser
before issuing any press release or otherwise making any public statements or
public filings with respect to the transactions contemplated by this Agreement
and no Seller shall issue any such press release or make any such public
statement or public filings without the prior approval of Purchaser both as to
the making of such release or statement and as to the form and content thereof,
except to the extent that such party is advised by counsel, in good faith, that
such release or statement or filing is required as a matter of law (a "Required
Release"); and as to such Required Releases, Seller shall each give Purchaser,
to the extent practicable, at least three (3) business days advance notice of
such Required Releases and the opportunity to provide comments to Seller[s]
prior to issuing any such Required Release.
7.10 Severability. If any term or provision of this Agreement
shall, in any jurisdiction, be invalid or unenforceable, such term or provision
shall be ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable such term or
provision in any other jurisdiction, or affecting any other provision of this
Agreement.
7.11 Venue. In connection with any action brought pursuant to or
arising out of this Agreement, the parties hereby irrevocably and
unconditionally consent to submit to the exclusive jurisdiction of the courts of
the State of California, County of San Diego, and/or the United States District
Court for the Southern District of California for any actions, suits,
controversies or proceedings arising out of or relating to this Agreement and
the transactions contemplated hereby (and the parties agree not to commence any
action, suit or proceeding relating thereto except in such courts), and further
agree that service of any process, summons, notice or document by U.S.
registered mail to the respective addresses set forth above shall be effective
service of process for any action, suit or proceeding brought against the
parties in any such court. The parties hereby irrevocably and unconditionally
waive any objection to the laying of venue of any action, suit, controversies or
proceeding arising out of this Agreement or the transactions contemplated
hereby, in the courts of the State of California, County of San Diego and/or the
United States District Court for the Southern District of California, and hereby
further irrevocably and unconditionally waive and agree not to plead or claim in
any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient or improper forum.
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7.12 Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement. Facsimile signatures shall be treated as if they were originals.
[SIGNATURES ON FOLLOWING PAGE]
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed and delivered
this Agreement as of the date first above written.
"Purchaser"
VENTURE CATALYST INCORPORATED,
a Utah corporation
By: /S/ L. DONALD SPEER, II
----------------------------------------
Name: L. Donald Speer, II
Title: President
"Sellers"
/S/ KEN KING
-------------------------------
KEN KING
/S/ TOM GREEN
-------------------------------
TOM GREEN
/S/ MARY ANNE FUCHS
-------------------------------
MARY ANNE FUCHS
/S/ CARMEN ERREJON
-------------------------------
CARMEN ERREJON
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<PAGE> 1
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
DATED AS OF JANUARY 28, 2000
BY AND AMONG
STEPHEN M. DIRKS
AND
WEBINC., INC.
AND
VENTURE CATALYST INCORPORATED
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE 1 GENERAL............................................................... 1
1.1 Sale and Purchase of Dirks Shares............................................ 1
1.2 Purchase Price............................................................... 1
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLER AND
COMPANY............................................................... 2
2.1 Organization................................................................. 2
2.2 Authorization................................................................ 2
2.3 No Conflict. ............................................................... 2
2.4 Capitalization; Subsidiaries................................................. 3
2.5 Title to Dirks Shares ....................................................... 3
2.6 Financial Statements......................................................... 3
2.7 Absence of Certain Facts or Events........................................... 4
2.8 Property, Leases and Liens................................................... 5
2.9 Contracts and Commitments.................................................... 5
2.10 Permits and Authorizations................................................... 6
2.11 No Violations................................................................ 6
2.12 Proceedings.................................................................. 7
2.13 Insurance.................................................................... 7
2.14 Proprietary Information and Rights........................................... 7
2.15 Employee Benefits............................................................ 7
2.16 Employment Laws.............................................................. 8
2.17 Environmental Laws........................................................... 8
2.18 Taxes........................................................................ 9
2.19 No Unlawful Contributions.................................................... 9
2.20 No Insider Transactions...................................................... 10
2.21 Accounts Receivable; Customers............................................... 10
2.22 Bank Accounts................................................................ 10
2.23 Delivery of Documents........................................................ 10
2.24 No Finders or Brokers........................................................ 10
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PURCHASER .......................... 10
3.1 Organization................................................................. 11
3.2 Authorization................................................................ 11
3.3 No Conflict.................................................................. 11
3.4 Investment Intent............................................................ 11
3.5 No Finders or Brokers........................................................ 11
3.6 Consents..................................................................... 12
3.7 Compliance with Law.......................................................... 12
ARTICLE 4 COVENANTS............................................................. 12
4.1 Confidentiality.............................................................. 12
4.2 Operation in Ordinary Course................................................. 13
4.3 Fulfillment of Conditions.................................................... 13
</TABLE>
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<TABLE>
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4.4 Employment by Purchaser; Non-Competition Agreement........................... 13
4.5 Transfer of Business Rights to Company....................................... 13
4.6 Post-Closing Access by Seller................................................ 13
4.7 Bank Accounts................................................................ 14
ARTICLE 5 CONDITIONS OF CLOSING................................................. 14
5.1 Conditions of Obligations of Purchaser....................................... 14
(a) Representations and Warranties; Performance of Obligations............ 14
(b) Certificates and Deliveries by Seller and Company..................... 14
(c) No Injunction......................................................... 14
(d) Certificates and Instruments of Transfer.............................. 14
(e) Non-Competition Agreement............................................. 15
(f) Transfer of Business Rights........................................... 15
(g) Due Diligence......................................................... 15
(h) No Material Adverse Change............................................ 15
(i) Closing of Companion Transaction...................................... 15
(j) Directors' and Officers' Resignations................................. 15
5.2 Conditions of Obligations of Seller.......................................... 15
(a) Representations and Warranties; Performance of Obligations............ 15
(b) No Injunction......................................................... 15
(c) Purchase Price........................................................ 15
ARTICLE 6 CLOSING DATE AND TERMINATION OF AGREEMENT............................. 16
6.1 Closing Date................................................................. 16
ARTICLE 7 INDEMNIFICATION....................................................... 16
7.1 Indemnification by Seller.................................................... 16
7.2 Indemnification by Purchaser................................................. 17
7.3 Indemnity and Other Agreements Concerning Taxes and Environmental Matters.... 18
7.4 General Indemnification by Seller............................................ 18
7.5 Survival of Representations and Warranties; Reliance......................... 18
ARTICLE 8 MISCELLANEOUS......................................................... 19
8.1 Further Actions.............................................................. 19
8.2 Expenses..................................................................... 19
8.3 Entire Agreement............................................................. 19
8.4 Descriptive Headings......................................................... 19
8.5 Notices...................................................................... 19
8.6 Governing Law................................................................ 20
8.7 Assignability................................................................ 20
8.8 Waivers and Amendments....................................................... 21
8.9 Public Announcements......................................................... 21
8.10 Severability................................................................. 21
8.11 Jurisdiction for Legal Actions............................................... 21
8.12 Counterparts................................................................. 22
</TABLE>
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<TABLE>
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APPENDIX A Definitions................................................................... 1
EXHIBIT 1 Non-Competition Agreement
</TABLE>
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<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is dated as of January 28, 2000
(this "Agreement") by and among VENTURE CATALYST INCORPORATED, a Utah
corporation ("Purchaser"), and Stephen M. Dirks (the "Seller"), and WEBINC.,
INC., a Delaware corporation ("Company"). Capitalized terms not otherwise
defined have the meanings set forth in the Appendix.
WITNESSETH:
WHEREAS, Seller is the record and beneficial owner of 2,000,000
shares of common stock, $.01 par value per share (the "Company Common Stock"),
of Company, representing approximately 76% of the total issued and outstanding
shares of Company Common Stock (the "Dirks Shares");
WHEREAS, Seller desires to sell to Purchaser, and Purchaser
desires to purchase from Seller, all of the Dirks Shares upon the terms and
conditions set forth below;
WHEREAS, Company expects to benefit from the consummation of the
transactions contemplated hereby and, to induce Purchaser to enter into this
Agreement, agrees to be bound by the terms and provisions in this Agreement.
NOW, THEREFORE, in consideration of the mutual benefits to be
derived and the representations and warranties, conditions and promises herein
contained, and intending to be legally bound hereby, the parties hereto hereby
agree as follows:
ARTICLE 1
GENERAL
1.1 Sale and Purchase of Dirks Shares. At the Closing, Seller
shall sell, transfer, assign and deliver unto Purchaser and its successors and
assigns forever, and Purchaser shall purchase, the Dirks Shares for the purchase
price hereinafter set forth.
1.2 Purchase Price. In consideration for the Dirks Shares,
Purchaser shall pay to Seller at the Closing Twenty Thousand Dollars ($20,000)
in cash, payable either in the form of a company check or via wire transfer to
an account specified by Seller, at Purchaser's option (the "Purchase Price").
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<PAGE> 6
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER AND COMPANY
Company and the Seller jointly and severally represent and
warrant to Purchaser, as of the date hereof or as otherwise set forth in such
representation or exhibit hereto, as follows:
2.1 Organization. Company is a duly organized corporation,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power and authority to conduct its business as it is
presently being conducted and to own and lease its properties and assets.
Company is duly qualified to do business as a foreign corporation in California,
and is in good standing in such jurisdiction. Company is qualified to do
business in all jurisdictions in which such qualification is necessary under the
applicable law as a result of the conduct of Company's business, except where
the failure to be so qualified would not have a material adverse effect on
Company's business, property, or financial condition.
2.2 Authorization. The execution and delivery of this Agreement
by Com pany and the performance of its obligations hereunder have been duly
authorized by the directors and the stockholders of Company and no other
corporate action or approval by Company is necessary for the execution, delivery
or performance of this Agreement by Company. This Agreement has been duly
executed and delivered by Company and Seller and is a valid and binding
obligation of each of Company and Seller, enforceable against each of them in
accordance with its terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or
hereafter in effect, relating to or limiting creditors' rights generally and (b)
general principles of equity (whether considered in an action in equity or at
law).
2.3 No Conflict. Neither the execution and delivery of this
Agreement by Company or Seller nor the consummation of the transactions
contemplated hereunder nor the fulfillment by Company or Seller of any of its
terms will:
(a) conflict with or result in a breach by Company or
Seller of, or constitute a default under, or create an event that, with the
giving of notice or the lapse of time, or both, would be a default under or
breach of, or give a right to terminate or cancel under, any of the terms,
conditions or provisions of (i) any indenture, mortgage, lease, deed of trust,
pledge, loan or credit agreement involving $5,000 or more, or any other material
contract, arrangement or agreement to which Company or Seller is a party or to
which any material portion of the assets of Company is subject, (ii) the
Certificate of Incorporation or Bylaws of Company, or (iii) any judgment, order,
writ, injunction, decree or demand of any Governmental Entity which materially
affects Seller or Company, or is likely to adversely affect the Company's
ability to conduct its business or own or convey its assets;
(b) result in the creation or imposition of any lien,
charge or Encumbrance of any nature whatsoever upon any material assets of
Company or which materially affects the Company's ability to conduct its
business as conducted prior to the date of this Agreement; or
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<PAGE> 7
(c) cause a loss or adverse modification of any permit,
license, or other authorization granted by a Governmental Entity to or otherwise
held by Company.
Except for this Agreement, neither Seller nor Company has any legal obligation,
absolute or contingent, to any other Person to sell any capital stock or other
ownership interest in the Company, or the business or any material assets of
Company or to effect any merger, consolidation or other reorganization of
Company or to enter into any agreement with respect thereto.
2.4 Capitalization; Subsidiaries.
(a) Company's authorized capital stock consists of
10,000,000 shares of Company Common Stock, of which 2,630,000 shares are issued
and outstanding. All outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid and non-assessable. There are no
outstanding options, warrants or other rights to acquire, or any securities or
obligations convertible into or exchangeable for, any shares of the capital
stock of Company which have been issued or granted by or are binding upon Seller
or Company or other Person.
(b) The Company owns 50% of level21.com, Inc., a Delaware
corporation. As of the date of this Agreement, level21.com, Inc. (i) has no
employees, (ii) has no real or personal property, (iii) has not entered into any
contracts, either acting for itself or as guarantor on behalf of another Person,
and (iv) has conducted no business. The Company has no Subsidiaries other than
level21.com, Inc.
(c) Company has provided to Purchaser complete and correct
copies of (i) the Certificate of Incorporation and the Bylaws of the Company, as
amended, (ii) copies of Company's corporate minutes, and (iii) the Certificate
of Incorporation and Bylaws of level21.com, Inc.
2.5 Title to Dirks Shares. Seller is the record and beneficial
owner of all of the Dirks Shares, free and clear of all Encumbrances. The
delivery to Purchaser at Closing of certificates evidencing the Dirks Shares
will convey and transfer to Purchaser good, complete and marketable title to 76%
of the capital stock of the Company, free and clear of restrictions or
conditions to transfer or assignment (other than restrictions on transfer
imposed by federal or state securities laws) and free and clear of all defects
of title or Encumbrances.
2.6 Financial Statements.
(a) Company has delivered to Purchaser its unaudited
balance sheet and related statements of income and expenses, retained earnings,
and cash flow, for the five months ended December 31, 1999, and the two weeks
ended January 15, 2000 (the "Financial Statements"). The Financial Statements
(i) present fairly in all material respects the financial position and results
of operations and cash flows of Company as of the dates and for the periods then
ended, (ii) are in agreement with the books and records of Company in all
material respects, and (iii) contain and reflect adequate reserves for all
reasonably anticipated losses, costs and expenses.
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<PAGE> 8
(b) The Financial Statements do not contain any items of
special or nonrecurring income or any other income not earned or otherwise
realized in the ordinary course of business except as expressly specified
therein, and such financial statements include all material adjustments, which
consist only of normal recurring accruals, necessary for such fair presentation.
(c) Company has no direct or indirect liabilities or
obligations, either accrued, contingent or otherwise, which, individually or in
the aggregate, are material to Company or involve a transaction value exceeding
$1,000, and which have not been reflected in the Financial Statements. There are
no facts, circumstances or claims known to Company or to Seller which the
Company or Seller has recognized as reasonably likely to give rise to any
material claims against or liabilities or obligations of Company.
(d) Company has, in accordance with good business
practices, maintained complete and accurate books and records, including
financial records which fairly present its financial condition in all material
respects and records of all its material corporate transactions or proceedings
or has otherwise made such written disclosures to Purchaser as are reasonably
necessary to make such a presentation.
(e) As of the Closing Date, the total liabilities of
Company, as set forth on the Financial Statements, are equal to $32,837.72.
2.7 Absence of Certain Facts or Events. Since December 31, 1999
there has not been:
(a) any material adverse change in (i) the financial
condition of Company from that shown on the December 31, 1999 balance sheet, or
(ii) the results of operations of Company from that shown in the statements of
operations and cash flows of Company for the period ended on such date;
(b) any damage, destruction or loss to the tangible or, to
the best of Seller's knowledge, intangible assets of Company, whether covered by
insurance or not, involving losses or assets in excess of $1,000;
(c) any hiring of new key employees or officers, any
amendment to or entering into of any employment agreements or any increase in
the compensation payable or to become payable by Company to any employee,
officer or director, or any increase in the coverage or benefits under any
bonus, insurance, pension or other Benefit Plan (excluding annual length-
of-service and similar adjustments to the benefits of individual participants);
(d) any issuance of capital stock of Company or options or
rights to acquire capital stock of Company, any redemption or repurchase of
outstanding shares of capital stock of Company, any declaration, setting aside
or payment of any dividend or distribution thereon, any stock split or reverse
stock split, any merger of Company with any Person, any purchase or other
acquisition by Company of capital stock or other interest in any other Person,
any purchase or other acquisition by Company of all or substantially all of the
business or assets
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<PAGE> 9
of any other Person, any transfer or sale of a substantial portion of the
Company's business or assets to any Person, any transaction between Company and
Seller or his Affiliates, or any agreement to take any such actions;
(e) any sale, assignment, modification or transfer of any
contractual rights, claims or other assets of Company valued at more than $2,000
individually, or more than $10,000 in the aggregate;
(f) any mortgage, pledge, or other lien placed on Company
assets to secure debt, or any other Encumbrance placed on assets of the Company
which would prevent or materially limit the use, modification or sale of an
asset valued at $10,000 or more;
(g) the incurrence of any obligation or liability of
Company as a result of borrowed money, or any capital expenditure, or any
commitment to borrow money entered into by Company, or any increase in any loans
made or agreed to be made by Company;
(h) any failure to pay or perform any obligation of
Company involving more than $5,000 as, when and to the extent due other than
pursuant to a good faith defense or right of setoff;
(i) any intentional or, to the knowledge of Seller or the
Company, other waiver of any rights of substantial value to Company or any
amendment or termination of the charter or bylaws of Company or any modification
of, or claims of any breach under, any agreement to which Company is a party
which materially adversely affects, or is reasonably likely to materially
adversely affect, the Company's results of operations, prospects or financial
condition;
(j) any material transaction entered into or consummated
by Company, except in the ordinary course of business consistent with past
practice;
(k) any material addition to or modification of the
Benefit Plans of Company or other arrangements or practices affecting personnel
of Company; or
(l) any Tax election or the settlement or compromise of
any Tax claims.
2.8 Property, Leases and Liens. Company has no items of owned or
leased real or personal property, and is not a guarantor on any lease or sales
contract or other financing arrangement with respect to real or personal
property.
2.9 Contracts and Commitments.
(a) Company has no (i) collective bargaining agreements,
or any agreements or policies that contain or include any severance pay
liabilities or obligations; (ii) employment, consulting or similar agreement,
contract or commitment which is not terminable without penalty or cost by
Company on notice of thirty (30) days or less or contains
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<PAGE> 10
an obligation of Company to pay and/or accrue more than $25,000 per year; (iii)
agreement of guaranty or indemnification; (iv) agreement, contract or commitment
limiting the freedom of Company to engage in any line of business or compete
with any Person; (v) agreement, contract or commitment relating to capital
expenditures in excess of $5,000; (vi) agreement, contract or commitment
relating to the acquisition of assets of, or any interest in, any business
enterprise; or (vii) other agreement, contract or commitment (with customers or
other Persons) which involves $5,000 or more and is not cancelable without
penalty or cost within sixty (60) days.
(b) (i) Company is not in violation of, nor has Company
received any claim that it has breached, any of the terms or conditions of any
agreement, contract or commitment to which it is a party (the "Contracts"), and
(ii) there are no facts or conditions which have occurred or are, based on facts
presently known to exist, anticipated which, through the passage of time or the
giving of notice, or both, would constitute a default under any Contract giving
rise to a right to cancel or a claim for damages in excess of $10,000 or would
cause the acceleration of any obligation of any party thereto or the creation of
an Encumbrance which is reasonably likely to materially limit the use,
modification or sale of any asset of Company valued at more than $10,000.
2.10 Permits and Authorizations.
(a) Seller and Company have disclosed to Purchaser each
license, permit, grant or other authorization of a Governmental Entity held by
Company or pursuant to which Company conducts its business or holds any of its
assets (herein collectively called "Authorizations"). All Authorizations are in
full force and effect and constitute all Authorizations required to permit
Company to operate its assets and conduct its business following the Closing
Date as such assets and business are presently operated and conducted. The
consummation of the transactions contemplated by this Agreement will not require
any transfer, renewal or notice with respect to any Authorizations. Company has
no proposed or pending applications for Authorizations, and no applications for
variances from compliance with such Authorizations.
(b) There are no Authorizations which by their terms
directly or indirectly limit the term of possession or operation of any material
assets of the Company, or which pertain to environmental discharge.
(c) Neither Company nor Seller has been notified or
presently is aware of any factual basis that would give it any reason to believe
any of the Authorizations will not in the ordinary course be renewed upon its
expiration.
(d) To the knowledge of Company and Seller, Company has
received no claim or assertion, written or otherwise, that it has breached any
of the terms or conditions of any Authorizations in such manner (i) as would
permit any other Person to cancel, terminate or materially amend any
Authorization necessary to permit the continued operation of the Company as
presently conducted or (ii) that is reasonably likely to result in a penalty or
fee of more than $5,000.
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2.11 No Violations.
(a) Company is not in violation of any applicable law,
statute, order, rule or regulation promulgated or judgment entered (or, with
respect to rules and regulations of administrative agencies, known by Company or
Seller to be proposed) by any Governmental Entity in a manner which is
reasonably likely to have a Material Adverse Effect or result in the imposition
of penalties in excess of $5,000.
(b) No consent, approval or authorization of, or
declaration, filing or registration with, any Governmental Entity is required to
be made or obtained by Seller or Company in connection with the execution,
delivery and performance by Seller and Company of this Agreement and the
consummation of the transactions contemplated hereby, or the continued operation
of Company's business.
(c) As of the date of this Agreement, Seller is not
married, and no consent or approval, including a spousal consent, is required to
be made or obtained by Seller from any other individual in connection with the
execution, delivery and performance by Seller of this Agreement and the
consummation of the transactions contemplated hereby.
2.12 Proceedings.
(a) There are no suits, actions, other legal proceedings
or controversies, or, to Seller's or Company's knowledge, governmental
investigations, pending against Seller (and having to do with the Company or the
Seller's holdings in the Company) or Company or as to which either Seller or the
Company has received any claim or assertion. There are no facts which are
reasonably likely to lead to any additional investigation being conducted or to
any other suit, action or legal proceeding.
(b) There is no suit, action or proceeding or
investigation threatened against or affecting Company that is likely to prevent
or materially delay the ability of Company to consummate the transactions
contemplated by this Agreement or to carry on its business as now conducted, nor
is there any judgment, decree, injunction, ruling or order of any Governmental
Entity or arbitrator outstanding against Company having, or which in the future
could have, any such effect.
2.13 Insurance. Company has no insurance policies under which it
is an insured or a beneficiary or for which it is liable to pay premiums,
including directors' and officers' liability insurance, key man life insurance,
or general liability coverage. To the knowledge of Company and Seller, there is
no fact or condition the disclosure of which will result in an inability of
Company to obtain such insurance, or any other types of coverage as required by
law.
2.14 Proprietary Information and Rights. Seller and Company have
accurately disclosed to Purchaser all patents, patent applications, patent and
know-how licenses, trademarks (registered or unregistered), service marks,
trademark registrations and applications, trade names, fictitious business
names, computer software, domain names, and other intellectual property rights
(collectively, "Business Rights") used by Company, and disclosed the identity of
each
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<PAGE> 12
other Person which owns any right, title or interest in and to the Business
Rights. To Seller's and Company's knowledge, no Business Rights conflict with,
infringe on or otherwise violate any rights of others, or require payments to be
made to any Person, or are subject to any pending or overtly threatened
litigation or other adverse claims or infringement by other Persons. To the
knowledge of Company or Seller, there has been no claim, in writing or
otherwise, of infringement by Company of any domestic or foreign patents,
trademarks, service marks or copyrights of any other Person.
2.15 Employee Benefits.
(a) Company has no "employee benefit plans" (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended), and no other benefit arrangements, including, but not limited to,
profit-sharing, deferred compensation, bonus, stock option, stock purchase,
vacation pay, holiday pay, retirement plans, medical or other compensation or
benefit arrangements maintained by Company for the benefit of its employees (or
former employees) and/or their beneficiaries.
(b) There is no contract, agreement, or benefit
arrangement covering any employee of Company which, individually or
collectively, could give rise to the payment of any amount which would
constitute an "excess parachute payment" within the meaning of Section 280G of
the Internal Revenue Code (the "Code").
2.16 Employment Laws.
(a) Company is in compliance in all material respects with
all federal, state or other applicable laws respecting employment and employment
practices, and has not received notice of, and is not engaged in, any unfair
labor practice.
(b) No unfair labor practice complaint against Company is
pending before any government agency, including the National Labor Relations
Board.
(c) There are no material claims, grievances or
arbitration proceedings, workers' compensation proceedings, labor disputes,
governmental investigations, or administrative proceedings of any kind pending
or, to the best knowledge of Company and Seller, threatened against or relating
to Company, its employees or employment practices.
(d) Company's contracts, if any, with temporary personnel
agencies represent bona-fide, arms-length agreements and the personnel provided
by such agencies are not Company's employees for purposes of any federal, state
or local laws.
2.17 Environmental Laws.
(a) For the purposes of this Section 2.17, the following
terms shall have the following meanings:
"Environmental Law" means any applicable federal, state or local
statute, law, ordinance, rule or regulation of the United States and
any other jurisdiction within the United States
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now effective and any order, to which the Company is a party or is
otherwise directly bound, of the United States or other jurisdiction
within the United States now effective relating to: (i) pollution or
protection of the environment, including natural resources; (ii)
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances; or (ii)
exposure of persons, including employees, to Hazardous Substances;
"Hazardous Substances" means any substance, whether liquid, solid or
gas (i) listed, identified or designated as hazardous or toxic under
any Environmental Law, (ii)-which, applying criteria specified in any
Environmental Law, is hazardous or toxic, or (iii) the use or
disposal of which is regulated under Environmental Law.
(b) The assets and the business of Company have been operated in
compliance in all material respects with all applicable Environmental Laws, and
the Company has complied, in all material respects, with all limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables which are contained in, any Environmental Law.
(c) To the Knowledge of Company, Company has not discharged,
released or emitted into the air, water, surface, water, ground water, land
surface or subsurface strata or transported to or from the property of Company
any Hazardous Substances except in compliance in all material respects with
Environmental Law and except for incidental release of Hazardous Substances in
amounts or concentrations which would not be expected to give rise to any claims
or liabilities against Company under any Environmental Law.
(d) Company has not received any written notification from a
governmental agency that there is any violation of any Environmental Law with
respect to the business and properties of Company, nor has Company received any
written notification from a governmental agency pursuant to Section 104, 106 or
107 of the Comprehensive Environmental Response Compensation and Liability Act,
as amended.
(e) Company has not assumed, contractually or by operation of
law, any liabilities or obligations under any Environmental Laws.
2.18 Taxes. (i) all federal, state, foreign and local Tax returns
and Tax reports (including information returns) required to be filed by Company
have been filed with the appropriate Governmental Entities in all jurisdictions
in which such returns and reports are required to be filed, and all such returns
and reports are, in all material respects, complete, accurate and in accordance
with all legal requirements applicable thereto; (ii) all federal, state, foreign
and material local income, profits, franchise, sales, use, occupation, property,
excise, withholding and other Taxes, duties, charges and assessments (including
interest and penalties) due from Company, (A) have been fully paid or adequately
provided for on the books and financial statements of Company or (B) have been
fully disclosed to Purchaser and are being contested in good faith by
appropriate proceedings; (iii) the Company has not received any written notice
or inquiry from the Internal Revenue Service or any other taxing authority in
connection with any of the returns and reports referred to in the foregoing
clause (i) of any pending or threatened examination or audit; (iv) no extensions
or waivers of statutes of limitation
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have been given or requested with respect to Company, and (v) deficiencies
asserted or assessments made as a result of examination by any taxing
authorities have been fully paid or fully reflected on the books of Company.
Company has not made an election under Section 341(f) of the Code.
2.19 No Unlawful Contributions. Neither the Company nor any
director or officer, or, to the knowledge of any of the shareholders or
directors of the Company, any agent or employee or other Person associated with
or acting on behalf of Company, has made or used any Company funds to make any
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity, made any direct or indirect unlawful payments to
officials or employees of any Governmental Entity from Company funds; failed to
file any reports required with respect to lawful contributions; established or
maintained any unlawful or unrecorded fund of Company monies or other assets;
made any intentionally false or fictitious entries on the books or records of
Company; or made or received any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment.
2.20 No Insider Transactions. Neither Seller nor any Affiliate
(including any member of Seller's "immediate family", as such term is defined
under Rule 16a-1(e) of the Securities Exchange Act of 1934) of any such Persons,
or any trust, partnership or corporation in which any of such Persons has an
interest, has, directly or indirectly, (a) any interest (other than as a holder
of not more than 3% of the issued and outstanding securities of a corporation
whose securities are traded on a national securities exchange or the Nasdaq
Stock Market) in any Person which furnishes or sells, services or products which
Company furnishes or sells, (b) any interest (other than as a holder of not more
than 3% of the issued and outstanding securities of a corporation whose
securities are traded on a national securities exchange or the Nasdaq Stock
Market) in any Person which purchases from or sells or furnishes to Company any
goods or services, (c) a beneficial interest in any contract, commitment,
agreement or understanding to which Company is a party or by which it may be
bound or affected; or (d) any interest or claim against Company or any of its
assets which could result in a claim against Company or could materially and
adversely affect Company's assets, Company's title to or its right to use its
assets, or Company's right to conduct its business following the Closing. None
of the assets of Company include any receivables from any officer, director,
shareholder or employee of Company.
2.21 Accounts Receivable; Customers. The accounts receivable
reflected on the Financial Statements, or thereafter acquired by Company through
the Closing Date were earned by performance in the ordinary course of business
and are not subject to any material dispute.
2.22 Bank Accounts. Seller and Company have provided Purchaser
with a complete list of all bank accounts, safe deposit boxes, money market
funds, certificates of deposit, stocks, bonds, notes and other securities owned
directly or indirectly, beneficially or of record, by Company and identified all
persons authorized to sign on such accounts.
2.23 Delivery of Documents. Seller and Company have delivered to
Purchaser true and correct copies of all documents, and any and all amendments
to any such documents, referred to in this Agreement.
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2.24 No Finders or Brokers. Neither Seller nor Company nor any of
their Affiliates has entered into any agreement, arrangement or understanding
with any Person which could result in the obligation to pay any finder's fee,
brokerage commission, advisory fee or similar payment in connection with the
transactions contemplated hereby.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
3.1 Organization. Purchaser is a duly organized corporation,
validly existing and in good standing under the laws of the State of Utah and
has the corporate power and authority to perform its obligations under this
Agreement.
3.2 Authorization. The execution and delivery of this Agreement
by Purchaser and the performance of its obligations hereunder have been duly
authorized by the directors of Purchaser and no other corporate action or
approval by Purchaser is necessary for the execution, delivery or performance of
this Agreement by Purchaser. This Agreement has been duly executed and delivered
by Purchaser, and is a valid and binding obligation of Purchaser, enforceable
against it in accordance with its terms, except as such enforceability may be
limited by (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws, now or hereafter in effect, relating to or limiting creditors'
rights generally, and (b) general principles of equity (whether considered in an
action in equity or at law).
3.3 No Conflict. Neither the execution and delivery of this
Agreement by Purchaser nor the consummation of the transactions contemplated
hereunder nor the fulfillment by Purchaser of any of its terms will:
(a) conflict with or result in a breach by Purchaser of,
or constitute a default by it under, or create an event that, with the giving of
notice or the lapse of time, or both, would be a default under or breach of, any
of the terms, conditions or provisions of (i) any indenture, mortgage, lease,
deed of trust, pledge, loan or credit agreement or any other material contract,
arrangement or agreement to which Purchaser is a party or to which a material
portion of its assets is subject, (ii) Articles of Incorporation or Bylaws of
Purchaser, or (iii) any judgment, order, writ, injunction, decree or demand of
any Governmental Entity which materially affects Purchaser or which materially
affects the Purchaser's ability to conduct its business;
(b) result in the creation or imposition of any lien,
charge or Encumbrance of any nature whatsoever upon any material portion of the
assets of Purchaser or which materially affects the Purchaser's ability to
conduct its business as conducted prior to the date of this Agreement; or
(c) cause a loss or adverse modification of any permit,
license, or other authorization granted by any Governmental Entity to or
otherwise necessary or materially useful to Purchaser's business.
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3.4 Investment Intent. Purchaser is acquiring Company Common
Stock for investment purposes, and not with a view to the resale or distribution
thereof; Purchaser has the knowledge and sophistication to purchase the Company
Common Stock; Purchaser has had access to all information regarding Company that
it has requested and has had or will have prior to the Closing the opportunity
to ask questions regarding Company, its operations and such other matters that
Purchaser has deemed material to its investment decision; and Purchaser will not
dispose of Company Common Stock without compliance with all applicable federal
and state securities laws.
3.5 No Finders or Brokers. Purchaser has not entered into any
agreement, arrangement or understanding with any Person which could result in
the obligation to pay any finder's fee, brokerage commission, advisory fee or
similar payment in connection with this Agreement or the transactions
contemplated hereby.
3.6 Consents. No consent, approval or authorization of, or
declaration, filing or registration with, any Governmental Entity is required to
be made or obtained by Purchaser in connection with the execution, delivery and
performance by Purchaser of this Agreement and the consummation of the
transactions contemplated hereby, or the continued operation of Purchaser's
business.
3.7 Compliance with Law. Purchaser is in compliance in all
material respects with all applicable statutes, rules, regulations, orders and
restrictions of governmental authorities having jurisdiction over the conduct of
its business.
ARTICLE 4
COVENANTS
4.1 Confidentiality.
(a) Purchaser shall treat in confidence all non-public
documents, materials and other information which Purchaser shall have obtained
regarding Company during the course of the negotiations leading to the
transactions contemplated hereby, the investigation of Company and the
preparation of this Agreement. However, nothing contained herein shall prohibit
Purchaser hereto from:
(1) using such documents, materials and other information in
connection with any action or proceeding brought or any claim
asserted by Seller or Company hereto in respect of any breach of
any representation, warranty or covenant made in or pursuant to
this Agreement, or
(2) supplying or filing such documents, materials or other
information to or with any Governmental Entity or other Person
which Purchaser and Seller deem reasonably necessary in
connection with the obtaining of any consent, waiver, amendment,
modification, approval, authorization, permit or
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license which may be necessary to effectuate this Agreement and
to consummate the transactions contemplated hereby, provided
that to the extent feasible Purchaser shall require such
Governmental Entity or Person to maintain the confidentiality of
all information supplied by Purchaser.
In addition, Purchaser will comply with the provisions of
any confidentiality agreements of which it has been informed by the Company or
Seller relating to any information provided to the Company by, or prepared or
obtained by the Company for or relating to, any client or customer of the
Company.
(b) From and after the date hereof, Seller and Company
shall treat, and shall cause each of their Affiliates to treat, in confidence
all documents, materials and other information regarding Purchaser or Company or
their respective Affiliates which are in their possession or control.
(c) These confidentiality provisions shall survive the
termination of this Agreement.
4.2 Operation in Ordinary Course. Since January ____, 2000,
Company has operated only in a manner consistent with its present and historical
practice and Company and Seller have each used its best efforts to preserve
intact its business organization, keep available the services of its officers,
directors and employees, and maintain satisfactory relationships with other
persons having relationships with Company. Any changes in the operations of
Company, or the relationships of other parties with Company, which have had a
material impact upon the business of Company have been disclosed pursuant to
Section 2.7, unless Purchaser has otherwise consented to such action or event in
writing. Company and Seller have disclosed to Purchaser any fact, condition or
state of events which modifies in any material respect the representations and
warranties of Company and Seller in this Agreement. Purchaser has disclosed to
Company and Seller any fact, condition or state of events which modifies in any
material respect the representations and warranties of Purchaser in this
Agreement.
4.3 Fulfillment of Conditions.
(a) Seller has used all reasonable efforts, and Seller has
caused Company to use all reasonable efforts, to perform, comply with and
fulfill all obligations, covenants and conditions required by this Agreement to
be performed, complied with or fulfilled by Seller or Company prior to or as of
the Closing Date. Purchaser has used all reasonable efforts to perform, comply
with and fulfill all obligations, covenants and conditions required by this
Agreement to be performed, complied with or fulfilled by Purchaser prior to or
as of the Closing Date.
(b) Seller has used all reasonable efforts, and has caused
Company to use all reasonable efforts, to secure all necessary consents,
waivers, permits, approvals, licenses and Authorizations and has made, and has
caused Company to make, all necessary filings in order to enable Seller or
Company to consummate the transactions contemplated hereby. Purchaser has used
all reasonable efforts to secure all necessary consents, waivers, permits,
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approvals, licenses and Authorizations and has made all necessary filings in
order to enable Purchaser to consummate the transactions contemplated hereby.
4.4 Employment by Purchaser; Non-Competition Agreement. Following
the Closing, Purchaser shall employ Seller as its Vice President of Corporate
Development, and in connection with such employment, Seller shall execute and
deliver to Purchaser a Non-Competition Agreement substantially in the form
attached hereto as Exhibit 1.
4.5 Transfer of Business Rights to Company. On or before the
Closing Date, Seller has executed all documents and taken all other measures
required to transfer to Company all Business Rights used by Company but held in
Seller's name, including, but not limited to, (i) all right and title to the
trademark application Serial Number 75-739835 for "webinc", filed on June 30,
1999; and (ii) the internet domain names "webincubate.com" and
"webincubate.net".
4.6 Post-Closing Access by Seller. After the Closing, Purchaser
shall cooperate with Seller to the extent reasonably requested by Seller, and
shall make available to Seller all financial, insurance, Tax and other
information (including reasonable access to books and records) of Company with
respect to any fiscal period of Company ending on or prior to the Closing Date
to the extent required by Seller in connection with (a) any audit or other
investigation by any taxing authority, or (b) the prosecution or defense of any
Tax claims or related litigation that might give rise to indemnification
payments hereunder, or the preparation by Seller of Tax returns or any other
reports or submissions to any Governmental Entity required to be made by Seller
with respect to Company; provided that such cooperation and availability of
information may be done in a manner so as to not unreasonably interfere with
normal business of Company. Purchaser shall cause Company to preserve all such
information, including without limitation, the books and records of Company, for
at least three (3) years after the Closing Date at no cost to Seller.
4.7 Bank Accounts. Seller shall, on or prior to the Closing Date,
cause Company to cancel the authority of each Person who is authorized to draw
checks on any of the bank accounts maintained by Company, and Seller shall
submit evidence satisfactory to Purchaser of such cancellation.
ARTICLE 5
CONDITIONS OF CLOSING
5.1 Conditions of Obligations of Purchaser. The obligation of
Purchaser to consummate the purchase of the Dirks Shares pursuant to this
Agreement is subject to the satisfaction of the following conditions, any of
which may be waived by Purchaser:
(a) Representations and Warranties; Performance of
Obligations. The representations and warranties of Seller and Company set forth
in Article 2 hereof and in all agreements, documents and instruments executed
and delivered pursuant hereto or in connection with the Closing shall have been
and be true and correct in all material respects as of the date
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<PAGE> 19
hereof. Seller and Company shall have performed in all material respects the
agreements and obligations necessary to be performed by them under this
Agreement prior to the Closing Date.
(b) Certificates and Deliveries by Seller and Company.
Purchaser shall have received (i) copies of Company's Certificate of
Incorporation, including all amendments thereto, certified by the Secretary of
State of Delaware, (ii) a certificate from the Secretary of State of Delaware,
and from the proper official in each State in which Company is qualified to do
business, certifying that Company is in good standing in such State, (iii) a
certificate as to the tax status of Company from the appropriate official in
Delaware, and each State in which Company is qualified to do business, and (iv)
a copy of the Bylaws, including all amendments thereto, of Company.
(c) No Injunction. No preliminary or permanent injunction
or order that would prohibit or restrain the consummation of the transactions
contemplated hereunder shall be in effect and no Governmental Entity or other
Person shall have commenced or threatened to commence an action or proceeding
seeking to enjoin the consummation of such transactions or to impose liability
on the parties hereto in connection therewith.
(d) Certificates and Instruments of Transfer. Seller shall
have delivered to Purchaser certificates representing the Dirks Shares,
accompanied by executed stock powers, with all required stock transfer tax
stamps affixed. All certificates, instruments and documents delivered by Seller
in connection with the transactions contemplated hereby and necessary to
evidence such transactions shall be in form and substance reasonably
satisfactory to Purchaser and its counsel.
(e) Non-Competition Agreement. Purchaser shall have
received the Non-Competition Agreement, executed by Seller.
(f) Transfer of Business Rights. Purchaser shall have
received evidence acceptable to Purchaser and its counsel that Seller has
transferred the Business Rights to Company as set forth in Section 4.6 above.
(g) Due Diligence. Purchaser shall have completed prior to
Closing a due diligence investigation of the business, operations, condition
(financial and otherwise) and prospects of Company, and the results of such
investigation shall be satisfactory to Purchaser in its sole discretion.
(h) No Material Adverse Change. Purchaser shall be
satisfied in its reasonable discretion, after review of the Financial Statements
and the results of its due diligence review, that there has been no material
adverse change in the business, operations, or condition (financial or
otherwise) of Company since December 31, 1999.
(i) Closing of Companion Transaction. The closing of the
transactions contemplated by the Stock Purchase Agreement dated of even date
herewith, by and among the Purchaser and the other Shareholders of the Company,
shall have occurred.
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(j) Directors' and Officers' Resignations. Seller shall
have delivered to Purchaser resignations of all directors and officers of the
Company, effective as of the Closing Date and in form and substance reasonably
satisfactory to Purchaser and its counsel.
5.2 Conditions of Obligations of Seller. The obligations of
Seller to consummate the sale and purchase under this Agreement are subject to
the satisfaction of the following conditions, each of which may be waived by
Seller:
(a) Representations and Warranties; Performance of
Obligations. The representations and warranties of Purchaser set forth in
Article 3 hereof and in all agreements, documents and instruments executed and
delivered pursuant hereto or in connection with the Closing shall have been and
be true and correct in all material respects as of the Closing Date. Purchaser
shall have performed in all material respects the agreements and obligations
necessary to be performed by it under this Agreement prior to the Closing Date.
(b) No Injunction. No preliminary or permanent injunction
or order that would prohibit or restrain the consummation of the transactions
contemplated hereunder shall be in effect and no Governmental Entity or other
Person shall have commenced or threatened to commence an action or proceeding
seeking to enjoin the consummation of such transactions or to impose liability
on the parties hereto in connection therewith.
(c) Purchase Price. Seller shall have received the
Purchase Price as provided in Section 1.2.
ARTICLE 6
CLOSING DATE AND TERMINATION OF AGREEMENT
6.1 Closing Date. The closing for the consummation of the
purchase and sale contemplated by this Agreement (the "Closing") shall, unless
another date or place is agreed to in writing by Seller and Purchaser, take
place on January 28, 2000 at the offices of Paul, Hastings, Janofsky & Walker
LLP, at 695 Town Center Drive, Seventeenth Floor, Costa Mesa, California, or, if
later, the date on which each condition set forth in Article 5 is satisfied or
waived (the "Closing Date").
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification by Seller.
(a) Subject to the provisions of Sections 7.1(b) and 7.4
below, Seller shall indemnify Purchaser and its Affiliates including, without
limitation, Company, and each of their respective stockholders, officers,
directors, employees and representatives (each a
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"Purchaser Indemnitee") against, and hold each Purchaser Indemnitee harmless
from, any and all loss, damage, liability, payment, and obligation, and all
expenses, including without limitation reasonable legal fees, all calculated on
a net after tax basis (collectively "Losses"), incurred, suffered, sustained or
required to be paid, directly or indirectly, by, or sought to be imposed upon,
such Purchaser Indemnitee after the Closing Date resulting from, related to or
arising out of any inaccuracy in, or breach of, any of the representations,
warranties or covenants made by Seller or Company in or pursuant to this
Agreement or in any agreement, document or instrument executed and delivered
pursuant hereto or in connection with the Closing of the transactions
contemplated hereunder.
(b) Each Purchaser Indemnitee shall promptly give written
notice to Seller of the assertion by any Person of any claim, action, suit or
proceeding with respect to which Seller is obligated to provide indemnification
hereunder; provided, however, that the rights of a Purchaser Indemnitee to be
indemnified hereunder shall only be affected by the failure to give such notice
if and to the extent such failure prejudices Seller in the defense of such third
party claim. Amounts due with respect to Losses covered by this Section 7.1
shall be paid promptly after delivery of reasonably documented written notice of
the amount of Losses incurred. Seller shall have the right, but not the
obligation, to contest, defend or litigate, and to retain counsel of his choice
in connection with, any claim, action, suit or proceeding by any third party
alleged or asserted against a Purchaser Indemnitee that is subject to
indemnification by Seller hereunder, and the cost and expense thereof shall be
subject to the indemnification obligations of Seller hereunder; provided, that
each Purchaser Indemnitee shall have the right and option to participate in, but
not control, the defense of such action at its own expense; and provided,
further, that, (i) if Seller elects not to defend any such action or (ii) if a
Purchaser Indemnitee shall have defenses not available to Seller and if counsel
to Purchaser shall advise in a written opinion that common representation is not
appropriate, then, in each case, such Purchaser Indemnitee shall be entitled, at
its option through counsel of its choice, reasonably approved by Seller, such
approval not to be unreasonably withheld, but at Seller's expense, to assume and
control the defense of such action. Neither Seller, on the one hand, nor any
Purchaser Indemnitee, on the other hand, shall be entitled to settle or
compromise any such claim, action, suit or proceeding without the prior written
consent of such Purchaser Indemnitee or the Seller as the case may be, which
consent shall not be unreasonably withheld and provided further if Purchaser
unreasonably refuses to approve any settlement of an action or proceeding which
involves only the payment of money, and the Purchaser Indemnitee's position in
such an action or a proceeding is subsequently not sustained, such Purchaser
Indemnitee shall be solely responsible for Losses in excess of those which would
have been incurred had such claim been settled on the terms acceptable to
Seller.
7.2 Indemnification by Purchaser.
(a) Subject to the provisions of Section 7.2(c) and 7.4
below, Purchaser shall indemnify Seller against, and hold Seller harmless from,
any and all Losses incurred, suffered, sustained or required to be paid,
directly or indirectly, by or sought to be imposed upon, Seller resulting from,
related to or arising out of any inaccuracy in or breach of any of the
representations, warranties or covenants made by Purchaser in or pursuant to
this Agreement or in any agreement, document or instrument executed and
delivered pursuant hereto or in connection with the Closing of the transactions
contemplated hereunder.
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(b) Seller shall promptly give written notice to Purchaser
of the assertion by any Person of any claim, action, suit or proceeding with
respect to which Purchaser is obligated to provide indemnification hereunder;
provided, however, that the rights of Seller to be indemnified hereunder shall
only be affected by the failure to give such notice if and to the extent such
failure prejudices Purchaser in the defense of such third party claim. Amounts
due with respect to Losses covered by this Section 7.2 shall be paid promptly
after delivery of reasonably documented written notice of the amount of Losses
incurred. Purchaser shall have the right, but not the obligation, to contest,
defend or litigate, and to retain counsel of its choice in connection with, any
claim, action, suit or proceeding by any third party alleged or asserted against
Seller that is subject to indemnification by Purchaser hereunder, and the cost
and expense thereof shall be subject to the indemnification obligations of
Purchaser hereunder; provided, that Seller shall have the right and option to
participate in, but not control, the defense of such action at his own expense;
and provided, further, that (i) if Purchaser elects not to defend any such
action or (ii) if Seller shall have defenses not available to Purchaser and if
counsel to Seller shall in a written opinion advise that common representation
is not appropriate, then Seller shall be entitled, at their option through
counsel of its choice, approved by Purchaser, such approval not to be
unreasonably withheld, but at Purchaser's expense, to assume and control the
defense of such action. Neither Seller, on one hand, nor Purchaser, on the other
hand, shall be entitled to settle or compromise any such claim, action, suit or
proceeding without the prior written consent of such Seller or Purchaser, as the
case may be, which consent shall not be unreasonably withheld and provided
further if Seller unreasonably refuses to approve any settlement of an action or
proceeding which involves only the payment of money, and Seller's position in
such action or proceeding is subsequently not sustained, Seller shall be solely
responsible for Losses in excess of those which would have been incurred had
such claim been settled on the terms acceptable to Purchaser.
7.3 Indemnity and Other Agreements Concerning Taxes and
Environmental Matters.
(a) Seller shall indemnify the Purchaser Indemnitees, from
and against any liability for taxes based upon or arising out of matters prior
to the Closing. Purchaser and Company shall indemnify Seller from and against
all Tax liability based upon or arising from matters following the Closing.
Purchaser and its accountants shall assume responsibility for the preparation of
all returns and reports of the Company, including those which are due in
connection with periods ended prior to the Closing Date, but which were not
required to be filed prior to the Closing Date.
(b) Seller shall indemnify Purchaser Indemnitees against
all Losses arising from any violations or liabilities under any Environmental
Laws arising from acts, omissions, conditions, or circumstances occurring prior
to Closing and caused by Seller or Company.
7.4 General Indemnification by Seller. Seller shall indemnify,
protect, defend and hold harmless Purchaser and Company from and against any and
all claims, demands, actions, obligations, losses, liabilities, damages, costs
and expenses, including, without limitation, attorneys' fees and accountants'
fees, incurred by or asserted against Purchaser or
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Company in connection with any claim or cause of action related to or arising
out of the conduct of the business of Company prior to the Closing Date.
7.5 Survival of Representations and Warranties; Reliance.
(a) All representations and warranties contained herein or
made pursuant hereto by Seller shall survive the Closing hereunder until the
third anniversary of the Closing, except that the representations and warranties
(i) in Section 2.4 (Capitalization; No Subsidiaries) and 2.5 (Title to Dirks
Shares)shall survive without limit, (ii) in Section 2.18 (Taxes) shall survive
the Closing until the expiration of the applicable statute of limitations and
(iii) in Section 2.17 (Environmental Laws) shall survive until the expiration of
the applicable statutes of limitations during which claims may be brought
against Purchaser or Company. The expiration of any representation and warranty
shall not affect any claim for indemnification made prior to the date of such
expiration and shall not affect Seller's obligations under Section 7.3(b). The
representations and warranties of Purchaser shall survive the Closing until
expiration of the applicable statute of limitations.
(b) The representations and warranties made by any party
in this Agreement or in any agreement, certificate, or exhibit delivered in
connection with this Agreement may be fully and completely relied upon by each
other party unless the party seeking to avoid such representation or warranty
can demonstrate by conclusive evidence that the investigation made by or on
behalf of such other party actually revealed or disclosed the inaccuracy in
question.
ARTICLE 8
MISCELLANEOUS
8.1 Further Actions. From time to time, as and when requested by
the other party, Seller and Purchaser shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as the requesting party may
reasonably deem necessary or desirable to carry out the intent and purposes of
this Agreement, to transfer, assign and deliver to Purchaser effective as of the
Closing, and its successors and assigns, the Dirks Shares (or to evidence the
foregoing) and to consummate and give effect to the other transactions,
covenants and agreements contemplated hereby.
8.2 Expenses. Purchaser shall pay the first $5,000 of the legal
fees incurred by Company and Seller in connection with the transactions
contemplated by this Agreement. Thereafter, Seller and Purchaser shall each bear
their own legal fees and other costs and expenses with respect to the
negotiation, execution and delivery of this Agreement and the consummation of
the transactions hereunder. Purchaser shall pay all sales, transfer and
documentary taxes and other expenses incident to the transfer of the Dirks
Shares. If any action in law or in equity is necessary to enforce or interpret
the terms of this Agreement, the parties shall each bear their
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respective attorneys' fees, costs and all other related expenses unless
otherwise specifically awarded by the court.
8.3 Entire Agreement. This Agreement, which includes the Appendix
and the Exhibits hereto and the other documents, agreements and instruments
executed and delivered pursuant to this Agreement, contain the entire agreement
between the parties hereto with respect to the transactions contemplated by this
Agreement and supersede all prior arrangements or understandings with respect
thereto.
8.4 Descriptive Headings. The descriptive headings of this
Agreement are for convenience only and shall not control or affect the meaning
or construction of any provision of this Agreement.
8.5 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if (a)
delivered personally or (b) sent by registered or certified mail, postage
prepaid, or (c) sent by overnight courier with a nationally recognized courier,
or (d) via facsimile confirmed in writing in any of the foregoing manners, as
follows:
If to Seller: Stephen M. Dirks
648 Marine Street
La Jolla, CA 92037
Facsimile: (858) 454-1457
If to Company: webinc., Inc.
c/o Venture Catalyst Incorporated
Attention: L. Donald Speer, II
16868 Via Del Campo Court, Suite 200
San Diego, CA 92127
Facsimile: (858) 385-1001
with a copy to: Paul, Hastings, Janofsky & Walker LLP
Attention: John F. Della Grotta
Seventeenth Floor
695 Town Center Drive
Costa Mesa, California 92626-1924
Facsimile: 714 979-1921
If to Purchaser: Venture Catalyst Incorporated
Attention: L. Donald Speer, II
16868 Via Del Campo Court, Suite 200
San Diego, CA 92127
Facsimile: (858) 385-1001
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<PAGE> 25
with a copy to: Paul, Hastings, Janofsky & Walker LLP
Attention: John F. Della Grotta
Seventeenth Floor
695 Town Center Drive
Costa Mesa, California 92626-1924
Facsimile: 714 979-1921
If sent by mail, notice shall be considered delivered five (5) business days
after the date of mailing, and if sent by any other means set forth above,
notice shall be considered delivered upon receipt thereof. Any party may by
notice to the other parties change the address to which notice or other
communications to it are to be delivered or mailed.
8.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California (other than the
choice of law principles thereof). Any action, suit or other proceeding
initiated by Seller or Purchaser against any other party under or in connection
with this Agreement may be brought in any Federal or state court in the State of
California, as the party bringing such action, suit or proceeding shall elect,
having jurisdiction over the subject matter thereof. Seller and Purchaser hereby
submit themselves to the jurisdiction of any such court and agree that service
of process on them in any such action, suit or proceeding may be effected by the
means by which notices are to be given to it under this Agreement.
8.7 Assignability. This Agreement shall not be assignable by any
party without the written consent of the other parties and any such purported
assignment by any party without such consent shall be void, except that:
(a) any or all rights of Purchaser to receive the
performance of the obligations of Seller hereunder (but not the obligations of
Purchaser to Seller hereunder) and rights to assert claims against Seller in
respect of any inaccuracy in or breach of any representations, warranties or
covenants of Seller hereunder, may be assigned by Purchaser to a direct or
indirect subsidiary of Purchaser, and
(b) Purchaser may assign to any bank, insurance company or
other financial institution providing financing or extending credit to Purchaser
or Company any or all of its rights to assert claims against Seller in respect
of any inaccuracy in or breach of representations, warranties or covenants
under this Agreement, but any assignee of such rights under clause (a) or clause
(b) shall take such rights subject to any defenses, counterclaims and rights of
set-off to which Seller might be entitled under this Agreement. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns.
8.8 Waivers and Amendments. Any waiver of any term or condition
of this Agreement, or any amendment or supplementation of this Agreement, shall
be effective only if in writing and signed by both parties. A waiver of any
breach or failure to enforce any of the terms or conditions of this Agreement
shall not in any way affect, limit or waive a party's rights hereunder at any
time to enforce strict compliance thereafter with every term or condition of
this Agreement.
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8.9 Public Announcements. Seller will consult with Purchaser
before issuing any press release or otherwise making any public statements or
public filings with respect to the transactions contemplated by this Agreement,
and Seller shall not issue any such press release or make any such public
statement or public filings without the prior approval of Purchaser both as to
the making of such release or statement and as to the form and content thereof,
except to the extent that such party is advised by counsel, in good faith, that
such release or statement or filing is required as a matter of law (a "Required
Release"); and as to such Required Releases, Seller shall give Purchaser, to the
extent practicable, at least three (3) business days advance notice of such
Required Releases and the opportunity to provide comments to Seller prior to
issuing any such Required Release.
8.10 Severability. If any term or provision of this Agreement
shall, in any jurisdiction, be invalid or unenforceable, such term or provision
shall be ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable such term or
provision in any other jurisdiction, or affecting any other provision of this
Agreement.
8.11 Jurisdiction for Legal Actions. In connection with any
action brought pursuant to or arising out of this Agreement, the parties hereby
irrevocably and unconditionally consent to submit to the exclusive jurisdiction
of the courts of the State of California, County of San Diego, and/or the United
States District Court for the Southern District of California for any actions,
suits, controversies or proceedings arising out of or relating to this Agreement
and the transactions contemplated hereby (and the parties agree not to commence
any action, suit or proceeding relating thereto except in such courts), and
further agree that service of any process, summons, notice or document by U.S.
registered mail to the respective addresses set forth above shall be effective
service of process for any action, suit or proceeding brought against the
parties in any such court. The parties hereby irrevocably and unconditionally
waive any objection to the laying of venue of any action, suit, controversies or
proceeding arising out of this Agreement or the transactions contemplated
hereby, in the courts of the State of California, County of San Diego and/or the
United States District Court for the Southern District of California, hereby
further irrevocably and unconditionally waive and agree not to plead or claim in
any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient or improper forum, and hereby further
irrevocably and unconditionally waive trial by jury in any action hereunder.
8.12 Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement. Facsimile signatures shall be treated as if they were originals.
[SIGNATURES ON FOLLOWING PAGE]
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed and delivered
this Agreement as of the date first above written.
"Purchaser"
VENTURE CATALYST INCORPORATED,
a Utah corporation
By: /S/ L. DONALD SPEER, II
--------------------------------------
Name: L. Donald Speer, II
Title: President
"Company"
WEBINC., INC.,
a Delaware corporation
By: /S/ STEPHEN M. DIRKS
--------------------------------------
Name: Stephen M. Dirks
Title: President
"Seller"
/S/ STEPHEN M. DIRKS
----------------------------------------
STEPHEN M. DIRKS
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EXHIBIT 2.3
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
VENTURE CATALYST INCORPORATED,
VENTURE ACQUISITION CORPORATION,
CTINTERACTIVE, INC.
AND
DONALD SCOTT CAMPBELL
DATED AS OF MARCH 23, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE 1 PLAN OF REORGANIZATION................................................ 1
1.1 The Merger............................................................ 1
1.2 Conversion of CTInteractive Shares.................................... 2
1.3 Conversion of Acquisition Corp. Shares................................ 2
1.4 Effects of the Merger................................................. 3
1.5 Bylaws of CTInteractive............................................... 3
1.6 Directors and Officers................................................ 3
1.7 Further Assurances.................................................... 3
1.8 Securities Law Issues................................................. 3
1.9 Tax-Free Reorganization............................................... 3
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE
SHAREHOLDER........................................................... 4
2.1 Due Execution......................................................... 4
2.2 The CTInteractive Common.............................................. 4
2.3 No Conflict........................................................... 4
2.4 Consents.............................................................. 5
2.5 Actions and Proceedings, etc.......................................... 5
2.6 Investment Representations and Warranties............................. 5
2.7 Gaming Restrictions................................................... 8
2.8 Stop Transfer Instructions; No Requirements to Transfer............... 8
2.9 Accuracy of Documents and Information................................. 8
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
AND CTINTERACTIVE..................................................... 9
3.1 Organization, Good Standing and Qualification......................... 9
3.2 Authority............................................................. 9
3.3 Consents.............................................................. 9
3.4 Capitalization........................................................ 10
3.5 Subsidiaries.......................................................... 10
3.6 No Conflict........................................................... 10
3.7 Financial Statements.................................................. 11
3.8 Absence of Undisclosed Liabilities.................................... 12
3.9 Tax Returns and Payments.............................................. 12
3.10 Absence of Certain Changes or Events.................................. 13
3.11 Accounts Receivable................................................... 14
3.12 Interests in Real Property............................................ 14
3.13 Personal Property..................................................... 15
3.14 Intangible Property Rights............................................ 15
3.15 Title to Assets....................................................... 16
3.16 Litigation............................................................ 16
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3.17 Contracts and Permits................................................. 17
3.18 Existing Employment Contracts......................................... 18
3.19 Interest in Customers, Suppliers and Competitors...................... 18
3.20 Personnel Identification and Compensation............................. 19
3.21 Powers of Attorney and Suretyships.................................... 19
3.22 Employees............................................................. 19
3.23 Labor Relations....................................................... 20
3.24 Insurance............................................................. 20
3.25 Compliance with Laws.................................................. 20
3.26 Corporate Documents................................................... 21
3.27 Credit Cards.......................................................... 21
3.28 Bank Accounts......................................................... 21
3.29 Environmental Matters................................................. 21
3.30 Customers and Suppliers............................................... 21
3.31 Unlawful Payment...................................................... 22
3.32 Restrictive Covenants................................................. 22
3.33 Insolvency............................................................ 22
3.34 Books and Records..................................................... 22
3.35 Accuracy of Documents and Information................................. 23
3.36 Disclosure............................................................ 23
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF VCAT................................ 23
4.1 Corporate Existence and Authority..................................... 23
4.2 No Conflict........................................................... 24
4.3 Consents.............................................................. 24
4.4 Binding Obligations................................................... 24
4.5 Representations....................................................... 24
4.6 Capital Stock......................................................... 24
4.7 Corporate Documents................................................... 25
4.8 Financial Statements.................................................. 25
4.9 Absence of Undisclosed Liabilities.................................... 26
4.10 Status of VCAT's Shares of Common Stock............................. 26
4.11 Governmental Proceedings.............................................. 26
4.12 Intellectual Property................................................. 26
4.13 Absence of Certain Changes or Events.................................. 27
4.14 Compliance with Laws.................................................. 27
4.15 Accuracy of Documents and Information................................. 27
ARTICLE 5 CTINTERACTIVE PRECLOSING COVENANTS ................................... 28
5.1 Advice of Changes..................................................... 28
5.2 Maintenance of Business............................................... 28
5.3 Conduct of Business................................................... 28
5.4 Certain Agreements.................................................... 30
</TABLE>
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5.5 Regulatory Approvals.................................................. 30
5.6 Necessary Consents.................................................... 30
5.7 Litigation............................................................ 31
5.8 No Other Negotiations................................................. 31
5.9 Access to Information................................................. 31
5.10 Satisfaction of Conditions Precedent.................................. 31
5.11 Blue Sky Laws......................................................... 31
5.12 Notification of Employee Problems..................................... 32
ARTICLE 6 VCAT PRECLOSING COVENANTS............................................. 32
6.1 Regulatory Approvals.................................................. 32
6.2 Satisfaction of Conditions Precedent.................................. 32
6.3 Blue Sky Laws......................................................... 32
6.4 Advice of Changes..................................................... 32
6.5 Litigation............................................................ 32
ARTICLE 7 CLOSING MATTERS ...................................................... 33
7.1 The Closing........................................................... 33
7.2 Exchange of Certificates.............................................. 33
7.3 Delivery of Cash Consideration........................................ 34
ARTICLE 8 CONDITIONS TO OBLIGATIONS OF CTINTERACTIVE............................ 34
8.1 Accuracy of Representations and Warranties............................ 34
8.2 Covenants............................................................. 34
8.3 Compliance with Law................................................... 34
8.4 Government Consents................................................... 34
8.5 Documents............................................................. 34
8.6 No Litigation......................................................... 34
8.7 Satisfactory Form of Legal and Accounting Matters..................... 35
8.8 Employment Agreements................................................. 35
8.9 Requisite Approvals................................................... 35
ARTICLE 9 CONDITIONS TO OBLIGATIONS OF VCAT..................................... 35
9.1 Accuracy of Representations and Warranties............................ 35
9.2 Covenants............................................................. 35
9.3 Absence of Material Adverse Change.................................... 35
9.4 Compliance with Law................................................... 36
9.5 Government Consents................................................... 36
9.6 Documents............................................................. 36
9.7 No Litigation......................................................... 36
9.8 Requisite Approvals................................................... 36
9.9 Employment and Noncompetition Agreements.............................. 36
9.10 Termination of Rights................................................. 36
</TABLE>
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9.11 Resignation of Directors.............................................. 36
9.12 Satisfactory Form of Legal and Accounting Matters..................... 36
9.13 CTInteractive Options................................................. 37
ARTICLE 10 TERMINATION OF AGREEMENT.............................................. 37
10.1 Termination........................................................... 37
10.2 Certain Continuing Obligations........................................ 37
ARTICLE 11 INDEMNIFICATION....................................................... 38
11.1 Indemnification by CTInteractive and the Shareholder.................. 38
11.2 Indemnification by VCAT............................................... 38
11.3 Notice of Claim....................................................... 38
11.4 Defense............................................................... 39
11.5 Duration of the Parties Obligations................................... 39
11.6 Limitations on Amount -- CTInteractive and the Shareholder............ 40
ARTICLE 12 DEFINITIONS AND ACCOUNTING ........................................... 40
12.1 Certain Defined Terms................................................. 40
12.2 Accounting Terms...................................................... 41
ARTICLE 13 MISCELLANEOUS......................................................... 42
13.1 Governing Law; Venue.................................................. 42
13.2 Assignment; Binding Upon Successors and Assigns....................... 42
13.3 Severability.......................................................... 42
13.4 Counterparts.......................................................... 42
13.5 Other Remedies........................................................ 43
13.6 Amendment and Waivers................................................. 43
13.7 No Waiver............................................................. 43
13.8 Expenses.............................................................. 43
13.9 Finder's or Broker's Fees............................................. 43
13.10 Notices............................................................... 43
13.11 Construction of Agreement............................................. 44
13.12 No Joint Venture...................................................... 44
13.13 Further Assurances.................................................... 45
13.14 Absence of Third Party Beneficiary Rights............................. 45
13.15 Public Announcement................................................... 45
13.16 Confidentiality....................................................... 45
13.17 Entire Agreement...................................................... 46
INDEX TO SCHEDULES AND EXHIBITS...................................................... 48
</TABLE>
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<PAGE> 6
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is entered
into as of March 23, 2000, by and among Venture Catalyst Incorporated, a Utah
corporation ("VCAT"), Venture Acquisition Corporation, a Utah corporation and a
wholly-owned subsidiary of VCAT ("Acquisition Corp."), CTInteractive, Inc., a
California corporation ("CTInteractive"), and Donald Scott Campbell, the sole
shareholder of CTInteractive (the "Shareholder").
RECITALS
A. The parties intend that, subject to the terms and conditions
hereinafter set forth, Acquisition Corp. will merge with and into CTInteractive
in a reverse triangular merger (the "Merger"), with CTInteractive to be the
surviving corporation of the Merger, all pursuant to the terms and conditions of
this Agreement, the Articles of Merger substantially in the form of Exhibit A
(the "Articles of Merger"), the Agreement of Merger substantially in the form of
Exhibit B (the "Agreement of Merger") and the applicable provisions of the laws
of the states of Utah and California. Upon the effectiveness of the Merger, all
the outstanding common stock, no par value per share, of CTInteractive
("CTInteractive Common") will be converted into common stock, par value $.001
per share, of VCAT ("VCAT Common"), and the right to receive cash in the manner
and on the basis determined herein and as provided in the Articles of Merger and
the Agreement of Merger.
B. It is intended by the parties hereto that the Merger shall constitute
a reorganization within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Code"), by virtue of the provisions of
Section 368(a)(2)(E) of the Code.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
PLAN OF REORGANIZATION
1.1 The Merger. The Agreement of Merger and the Articles of Merger will
be filed with the Secretary of State of the State of California and the State of
Utah's Division of Corporations and Commercial Code, on the Closing Date (as
defined in Section 7.1 below). The effective date of the Merger as specified in
the Articles of Merger and the Agreement of Merger (the "Effective Date") will
occur on or before March __, 2000, or on such other date as the parties hereto
may mutually agree upon. Subject to the terms and conditions of this Agreement,
the Articles of Merger and the Agreement of Merger, Acquisition Corp. will be
merged with and into CTInteractive in a statutory merger pursuant to the
Articles of Merger and the Agreement of Merger and in accordance with applicable
provisions of Utah and California laws.
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<PAGE> 7
1.2 Conversion of CTInteractive Shares. At the Effective Date, by virtue
of the Merger and without any action on the part of VCAT, Acquisition Corp.,
CTInteractive or any holder of CTInteractive Common:
(a) each share of CTInteractive Common outstanding immediately
prior to the Effective Date, shall automatically be converted into and become a
right to receive a pro rata portion of:
(i) cash in the amount of Three Hundred Thousand Dollars
($300,000) ("Cash Consideration");
(ii) that number of shares of VCAT Common equal to Two
Million Dollars ($2,000,000) less the value of the Restricted Shares (as defined
below), divided by the VCAT Stock Value ("Stock Consideration").
(the Cash Consideration and Stock Consideration are collectively referred to as
the "Merger Consideration"); and
(b) all shares of CTInteractive Common held at the Effective Date
as treasury shares or by a subsidiary of CTInteractive shall be canceled and no
payment shall be made with respect thereto.
As used herein, "VCAT Stock Value" means the average of the closing
prices of shares of VCAT Common as reported on The Nasdaq Stock Market, Inc. for
the five (5) trading days immediately preceding the Closing Date. As used
herein, "Restricted Shares" means shares of VCAT Common received by the
following employees of CTInteractive (collectively, "Key Employees") at the
Closing Date as follows: (i) Michael L. Scott, 6,250 Restricted Shares, (ii)
Henry E.C. Bellew, 4,166 Restricted Shares, (iii) Brad A. Kaytor, 4,166
Restricted Shares, (iv) Janet Lauterjung, 4,166 Restricted Shares, (v) Kim P.
McKeen, 2,084 Restricted Shares, (vi) Duane Peck, 2,084 Restricted Shares, and
(vii) Erin Maureen Tavano, 2,084 Restricted Shares; provided, however, that to
the extent the issuance of the Restricted Shares requires the approval of VCAT's
shareholders under the Rules of The Nasdaq Stock Market, Inc., (x) such shares
shall be proportionately decreased or not issued, and (y) the cash component of
the Merger Consideration shall accordingly be increased by the value of the
Restricted Shares decreased or eliminated. The total Merger Consideration
detailed in this Section 1.2 shall not be reduced as a result of such a
proportionate decrease or non-issuance.
1.3 Conversion of Acquisition Corp. Shares. Each share of Acquisition
Corp. common stock, $.001 par value ("Acquisition Corp. Common"), that is issued
and outstanding immediately prior to the Effective Date will, by virtue of the
Merger and without further action on the part of the sole shareholder of
Acquisition Corp., be converted into and become one (1) share of CTInteractive
Common that is issued and outstanding immediately after the Effective Date, and
the shares of CTInteractive Common into which the shares of Acquisition Corp.
Common are so converted shall be the only shares of CTInteractive Common that
are issued and outstanding immediately after the Effective Date.
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1.4 Effects of the Merger. At the Effective Date: (a) the separate
existence of Acquisition Corp. will cease and Acquisition Corp. will be merged
with and into CTInteractive and CTInteractive will be the surviving corporation
pursuant to the terms of the Articles of Merger and the Agreement of Merger; (b)
the Articles of Incorporation of CTInteractive will be amended to read as set
forth in Exhibit F as the Articles of Incorporation of the surviving
corporation; (c) each share of CTInteractive Common outstanding immediately
prior to the Effective Date will be converted as provided in this Article 1; (d)
each share of Acquisition Corp. Common outstanding immediately prior to the
Effective Date will be converted as provided in this Article 1; and (e) the
Merger will, at and after the Effective Date, have all of the effects provided
by applicable law.
1.5 Bylaws of CTInteractive. At the Effective Date, the Bylaws of
CTInteractive will be amended and restated in their entirety to read as set
forth on Exhibit G as the Bylaws of the surviving corporation.
1.6 Directors and Officers. At the Effective Date: (a) the directors of
CTInteractive as the surviving corporation shall be: L Donald Speer, II, Sanjay
Sabnani and the Shareholder; and (b) the officers of CTInteractive as the
surviving corporation shall be: Sanjay Sabnani, Chairman and Chief Executive
Officer, the Shareholder, President and Chief Operating Officer, Andrew B. Laub,
Chief Financial Officer, and Christopher Wm. Voisin, Secretary.
1.7 Further Assurances. CTInteractive agrees that if, at any time after
the Effective Date, VCAT considers or is advised that any further deeds,
assignments or assurances are reasonably necessary or desirable to vest, perfect
or confirm in VCAT title to any property or rights of CTInteractive as provided
herein, VCAT and any of its officers are hereby authorized by CTInteractive to
execute and deliver all such proper deeds, assignments and assurances and do all
other things necessary or desirable to vest, perfect or confirm title to such
property or rights in VCAT and otherwise to carry out the purposes of this
Agreement, in the name of CTInteractive or otherwise.
1.8 Securities Law Issues. Based in part on the representations of the
Shareholder made in Section 2.6 below, the VCAT Common to be issued in the
Merger will be issued pursuant to an exemption from registration under Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act") and/or
Regulation D promulgated under the Securities Act and applicable state
securities laws.
1.9 Tax-Free Reorganization. It is intended by the parties hereto that
the Merger shall constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code, by virtue of the provisions of Section 368(a)(2)(E) of
the Code.
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<PAGE> 9
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDER
In order to induce VCAT and Acquisition Corp. to enter into this
Agreement, the Shareholder hereby makes the representations and warranties set
forth below, which representations and warranties shall be deemed to continue in
full force and effect until the time of the Closing and thereafter as set forth
herein.
2.1 Due Execution. This Agreement has been duly executed and delivered
by the Shareholder and this Agreement constitutes a legal, valid and binding
obligation of the Shareholder, enforceable against the Shareholder in accordance
with its terms, except as such enforceability may be subject to or limited by
(a) bankruptcy, insolvency, moratorium, fraudulent conveyance or other similar
laws relating to the rights of creditors generally, (b) limitations imposed by
law or equitable principles upon the availability of specific performance,
injunctive relief or other equitable remedies, and (c) concepts of materiality.
2.2 The CTInteractive Common. The Shareholder has good and valid title
to the CTInteractive Common being sold hereunder, free and clear of any liens,
claims, encumbrances, security interests, options, charges and restrictions of
any kind. Upon delivery to VCAT at the Closing of certificates representing the
CTInteractive Common being sold hereunder by the Shareholder duly endorsed by
the Shareholder for transfer to VCAT, and upon the Shareholder's receipt of the
Merger Consideration, good and valid title to such CTInteractive Common will
pass to VCAT, free and clear of any liens, claims, encumbrances, security
interests, options, pledges, equities, rights of first refusal, charges, claims
and restrictions of any kind. Other than this Agreement, the CTInteractive
Common being sold by the Shareholder hereunder is not subject to any other
contract, agreement, arrangement, commitment or understanding, including any
such agreement, arrangement, commitment or understanding restricting or
otherwise relating to the voting, dividend rights or disposition of the
CTInteractive Common.
2.3 No Conflict. Except as stated in Schedule 2.3, the execution and
delivery of this Agreement does not, and the performance of this Agreement and
the consummation of the transactions contemplated hereby in accordance with the
terms, conditions and provisions hereof will not result in a material breach or
violation of, or be in conflict with, or constitute (with or without the giving
of notice or the passage of time or both) a default under (a) to the best of the
Shareholder's Knowledge, any statute, law, ordinance, rule or regulation
(including, without limitation, all laws regulating franchises) applicable to
the Shareholder; (b) to the best of the Shareholder's Knowledge, the terms,
conditions or provisions of any lease, license, promissory note, conditional
sales contract, commitment, indenture, mortgage, deed of trust, partnership
agreement, contract, instrument, or arrangement (whether or not in writing) to
which the Shareholder is a party or by which the Shareholder is bound; or (c)
any permit, license, order, judgment or decree of any court, arbitrator or
governmental authority by which the Shareholder is bound.
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<PAGE> 10
2.4 Consents. To the best of the Shareholder's Knowledge, no consent,
permit, approval, order, authorization of, or filing with or notice to, any
federal, state, local, or foreign governmental department, commission, board,
bureau, agency, instrumentality or authority or any person (whether or not
governmental in character) has been or is required to be obtained, made or given
by the Shareholder in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby or the
fulfillment of or the compliance with the terms, conditions and provisions
hereof, except as set forth in Schedule 2.4 to this Agreement.
2.5 Actions and Proceedings, etc. There are no (a) outstanding
judgments, orders, writs, preliminary or permanent injunctions or other decrees
of any court, administrative agency, governmental authority or instrumentality
or arbitration tribunal against the Shareholder which have or could reasonably
have a Material Adverse Effect on the ability of the Shareholder to consummate
the transactions contemplated hereby or (b) actions, suits, claims or legal,
administrative or arbitration proceedings or investigations pending or
threatened against the Shareholder, which have or could reasonably have a
Material Adverse Effect on the ability of the Shareholder to consummate the
transactions contemplated hereby.
2.6 Investment Representations and Warranties. The Shareholder
understands and represents and warrants to, and agrees with, VCAT that:
(a) The Shareholder understands that the terms of the Merger have
not been reviewed by the U.S. Securities and Exchange Commission (the "SEC") or
state securities authorities nor has such federal or state securities agencies
passed on, or made any recommendation or endorsement of the VCAT Common.
(b) The Shareholder acknowledges that, in making the decision to
accept the VCAT Common as part of the Merger Consideration, he has relied solely
upon independent investigations made by him and not upon any representations
made by VCAT with respect to VCAT or the VCAT Common, except for the
representations and warranties in this Agreement, except that the Shareholder
has received, reviewed and relied upon (a) VCAT's Annual Report to Stockholders
for the year ended June 30, 1999, (b) copies of VCAT's report on Form 10-KSB for
the year ended June 30, 1999, VCAT's reports on Form 10-QSB for the quarters
ended September 30, 1999 and December 31, 1999, and VCAT's definitive Proxy
Statement dated October 28, 1999, each filed by VCAT pursuant to the Exchange
Act, and all other filings, including filings on Form 8-K, by VCAT under the
Exchange Act since September 30, 1999, which, together with any filings by VCAT
under the Exchange Act after the date hereof and prior to the Closing, are
defined as "Exchange Act Reports", and (c) any unaudited financial statements of
VCAT provided to the Shareholder.
(c) The Shareholder acknowledges and understands that the VCAT
Common received by the Shareholder pursuant to the Merger has not been
registered under the Securities Act and constitutes "restricted securities"
under Rule 144(d) of the Securities Act, and will be issued in reliance on the
exemptions for non-public offerings provided by Section 4(2) of the Securities
Act, which exemption depends upon, among other things, the representations made
and information furnished by the Shareholder, including the bona fide nature of
the Shareholder's investment intent as expressed herein. The Shareholder also
understands that VCAT is relying upon the truth and accuracy of the
representations,
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warranties, agreements, acknowledgments and understandings of the Shareholder
set forth herein in order to determine the applicability of such exemptions and
the suitability of the Shareholder to acquire the VCAT Common.
(d) The Shareholder acknowledges that the shares of VCAT Common
issued in connection with the Merger may not be resold publicly for a period of
one year under Rule 144 unless the shares are registered with the SEC. The
Shareholder accepts the risks of holding such shares indefinitely and the other
risks set forth in the Exchange Act Reports. The Shareholder, together with his
advisors, is capable of assessing the risks of an investment in VCAT Common and
is fully aware of the economic risks thereof. The Shareholder acknowledges that
VCAT's operating results have in the past and may in the current period and in
future periods not meet the expectations of securities analysts and that failure
to meet such expectations would be likely to have a Material Adverse Effect on
the trading price of VCAT Common.
(e) The Shareholder is receiving the shares of VCAT Common in the
Merger for investment for such Shareholder's own account only, not as a nominee
or agent, and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act, and the
Shareholder has no present intention of selling, granting any participation in,
or otherwise distributing the same within the meaning of the Securities Act. By
executing this Agreement, the Shareholder further represents that it does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to such person or to any third person with
respect to any of the shares of the VCAT Common. The Shareholder has no current
plan or intention to engage in a sale, exchange, transfer, distribution,
redemption or reduction in any way of the Shareholder's risk of ownership by
short sale or otherwise, or other disposition, directly or indirectly, of any of
the VCAT Common to be received by Shareholder in the Merger.
(f) The Shareholder recognizes that VCAT has made available to
him the opportunity to examine such additional documents from VCAT and to ask
questions of, and receive full answers from, VCAT concerning, among other
things, VCAT, its financial condition, its management, its prior activities and
any other information which the Shareholder considers relevant or appropriate in
connection with entering into this Agreement. The Shareholder further represents
that the oral information provided by VCAT's management, if any, has been
consistent with the information set forth in the Exchange Act Reports. The
Shareholder represents that it has had an opportunity to ask questions and
receive answers from VCAT regarding the terms of the Merger in which the VCAT
Common will be issued and that he has received the information he requested
regarding the business and affairs of VCAT.
(g) The Shareholder acknowledges that he (1) is able to bear the
economic risk of his investment in the VCAT Common, (2) is able to hold the VCAT
Common for an indefinite period of time, (3) can afford a complete loss of his
investment in the VCAT Common; (4) has adequate means of providing for his
current needs and possible personal contingencies and has no need for liquidity
in this investment, and (e) has such knowledge and experience in financial or
business matters that he is capable of evaluating the merits and risks of the
investment in the VCAT Common.
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<PAGE> 12
(h) Without in any way limiting the representations set forth
above, the Shareholder further agrees not to make any disposition of all or any
portion of the VCAT Common or unless and until:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) (a) The Shareholder shall have notified VCAT of the
proposed disposition and shall have furnished VCAT with a detailed statement of
the circumstances surrounding the proposed disposition, and (b) if requested by
VCAT, the Shareholder shall have furnished VCAT with an opinion of counsel, at
VCAT's reasonable expense and reasonably satisfactory to VCAT, that such
disposition will not require registration of such shares under the Securities
Act.
(i) The Shareholder represents that at no time was he presented
with or solicited by any general mailing, leaflet, public promotional meeting,
newspaper or magazine article, radio or television advertisement, or any other
form of general advertising or general solicitation in connection with the
Merger.
(j) The Shareholder acknowledges that the certificates
representing the VCAT Common shall contain the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
REGISTERED OR QUALIFIED UNDER ANY OTHER SECURITIES LAW; THEY HAVE
BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT AND MAY NOT BE
PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER SUCH ACT AND ANY APPLICABLE SECURITIES
LAWS, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE
AND VCAT CATALYST INCORPORATED ("VCAT") SHALL HAVE RECEIVED, AT
THE EXPENSE OF THE HOLDER HEREOF, EVIDENCE OF THE EXEMPTION
REASONABLY SATISFACTORY TO VCAT (WHICH MAY INCLUDE, AMONG OTHER
THINGS, AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO VCAT)."
(k) All information that Shareholder provides to VCAT hereunder
concerning such Shareholder's financial position and knowledge of financial and
business matters is correct and complete as of the date set forth above.
2.7 Gaming Restrictions. The Shareholder acknowledges that he has read
and understands Article X of VCAT's Amended and Restated Articles of
Incorporation, as
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amended ("Article X"), relating to the additional requirements imposed upon
certain persons, including the Shareholder, who are or will be significant
shareholders of VCAT. A copy of Article X is attached hereto as Schedule 2.7.
The Shareholder hereby agrees that his signature on this Agreement also shall
constitute his written agreement to be bound by the provisions of Article X.
2.8 Stop Transfer Instructions; No Requirements to Transfer. The
Shareholder agrees that, in order to ensure compliance with the restrictions
referred to herein, VCAT may issue appropriate "stop transfer" instructions to
its transfer agent. VCAT shall not be required (a) to transfer or have
transferred on its books any VCAT Common that has been sold or otherwise
transferred in violation of any of the provisions of this Agreement or (b) to
treat as owner of such VCAT Common or to accord the right to vote or pay
dividends to any purchaser or other transferee to whom such VCAT Common shall
have been so transferred in violation of any provision of this Agreement. VCAT
agrees that such stop transfer instructions and legends will be promptly removed
if the provisions of the Securities Act and VCAT's charter documents are
complied with.
2.9 Accuracy of Documents and Information. The copies of all
instruments, agreements, other documents and written information delivered to
VCAT by or on behalf of the Shareholder, pursuant to this Article 2, are and
will be complete and correct in all material respects as of the date hereof and
as of the Closing Date. The representations and warranties made by the
Shareholder in this Article 2, or in other written materials furnished to VCAT
pursuant to the representations and warranties in this Article 2 or in
connection with the transactions contemplated by this Article 2, taken as a
whole, do not, to the best of the Shareholder's Knowledge, contain any untrue
statement of material fact and do not omit any material fact necessary to make
the statements or facts contained herein or therein not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDER AND CTINTERACTIVE
In order to induce VCAT and Acquisition Corp. to enter into this
Agreement, the Shareholder and CTInteractive hereby, jointly and severally, each
make the representations and warranties set forth below, which representations
and warranties shall be deemed to continue in full force and effect until the
time of the Closing and thereafter as set forth herein.
3.1 Organization, Good Standing and Qualification. CTInteractive is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all necessary power and authority to own and
lease its properties and assets and to conduct its businesses as now owned and
presently operated by it. To the best of the Shareholder's Knowledge, neither
the nature of its business, nor the character or location of properties or
assets owned or leased by CTInteractive, has made or makes necessary licensing
or qualification by CTInteractive in any jurisdiction other than its respective
jurisdiction of organization.
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<PAGE> 14
3.2 Authority. CTInteractive has full corporate power, authority and
legal right to enter into and perform its obligations under this Agreement and
all agreements to which CTInteractive is or will be a party that are required to
be executed pursuant to this Agreement (the "CTInteractive Ancillary
Agreements"), and to consummate the transactions contemplated hereby and
thereby. This Agreement and the CTInteractive Ancillary Agreements have been
duly and validly approved by the CTInteractive Board of Directors and
shareholders, as required by applicable law. This Agreement and the
CTInteractive Ancillary Agreements constitute legal, valid and binding
obligations of CTInteractive enforceable against CTInteractive; provided,
however, that the CTInteractive Ancillary Agreements will not be effective until
the earlier of the Effective Date or the date provided for therein in accordance
with their respective terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws, or by equitable principles, relating to or limiting the
rights of creditors generally, (b) limitations imposed by law or equitable
principles upon the availability of specific performance, injunctive relief or
other equitable remedies, and (c) concepts of materiality.
3.3 Consents. To the best of the Shareholder's Knowledge, no filing,
authorization or approval, governmental or otherwise, is necessary to enable
CTInteractive to enter into, and to perform its obligations under, this
Agreement and the CTInteractive Ancillary Agreements, except for (a) the filing
of the Articles of Merger and the Agreement of Merger with the Secretaries of
State of the States of Utah and California, respectively, the filing of such
officers' certificates and other documents as are required to effectuate the
Merger under Utah and California law and the filing of appropriate documents
with the relevant authorities of the states other than California in which
CTInteractive is qualified to do business, if any, (b) such filings as may be
required to comply with federal and state securities laws, (c) consents required
under contracts disclosed in Schedule 3.3 and (d) the approval of the
Shareholder.
3.4 Capitalization.
(a) Authorized/Outstanding Capital Stock. The authorized capital
stock of CTInteractive consists of 100,000 shares of CTInteractive Common. 1,000
shares of CTInteractive Common are issued and outstanding as of this date and as
of the Closing Date, of which the Shareholder holds of record and beneficially
all 1,000 shares of CTInteractive Common. The Shareholder holds good and
marketable title to such CTInteractive shares, free and clear of all liens,
agreements, voting trusts, proxies and other arrangements or restrictions of any
kind whatsoever. No shares of Preferred Stock are authorized, issued or
outstanding. All issued and outstanding shares of CTInteractive Common have been
duly authorized and validly issued, are fully paid and nonassessable, are not
subject to any right of rescission and have been offered, issued, sold and
delivered by CTInteractive in compliance with all registration or qualification
requirements (or applicable exemptions therefrom) of applicable federal and
state securities laws.
(b) Options/Rights. There are no stock appreciation rights,
options, warrants, calls, rights, commitments, conversion privileges or
preemptive or other rights or agreements outstanding to purchase or otherwise
acquire any of CTInteractive's authorized
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<PAGE> 15
but unissued capital stock or any securities or debt convertible into or
exchangeable for shares of CTInteractive Common or obligating CTInteractive to
grant, extend or enter into such option, warrant, call, commitment, conversion
privileges or preemptive or other right or agreement. There is no liability for
dividends accrued but unpaid. There are no voting agreements, registration
rights, rights of first refusal or other restrictions (other than normal
restrictions on transfer under applicable federal and state securities laws)
applicable to any of CTInteractive' outstanding securities.
3.5 Subsidiaries. CTInteractive does not have any subsidiaries or any
equity interest, direct or indirect, in any corporation, partnership, joint
venture or other business entity.
3.6 No Conflict. Except as stated in Schedule 3.6, the execution and
delivery of this Agreement or any of the CTInteractive Ancillary Agreements do
not, and the performance of this Agreement or any of the CTInteractive Ancillary
Agreements and the consummation of the transactions contemplated hereby and
thereby in accordance with their respective terms, conditions and provisions
will not (a) to the best of the Shareholder's Knowledge, accelerate the maturity
of, or give any person any rights under, or the right to rescind, or otherwise
modify, any obligation, indebtedness, license, agreement or instrument to which
CTInteractive is a party or by which CTInteractive or any of its properties or
assets is bound, (b) to the best of the Shareholder's Knowledge, result in the
creation of any lien, encumbrance or charge upon any of the properties or assets
of CTInteractive or (c) result in a breach or violation of, or be in conflict
with, or constitute (with or without the giving of notice or the passage of time
or both) a default under (i) to the best of the Shareholder's Knowledge, any
statute, law, ordinance, rule or regulation (including, without limitation, all
laws regulating franchises) applicable to CTInteractive or any of its properties
or assets; (ii) the terms, conditions or provisions of the articles of
incorporation or any other charter documents of CTInteractive, or, to the best
of the Shareholder's Knowledge, any lease, license, promissory note, conditional
sales contract, commitment, indenture, mortgage, deed of trust, partnership
agreement or other agreement, contract, instrument or arrangement or other
undertaking (whether or not in writing) to which CTInteractive is a party or by
which CTInteractive, or any of its properties or assets, is bound; or (iii) any
permit, license, order, judgment or decree of any court, arbitrator or
governmental authority by which CTInteractive, or any of its properties or
assets, is bound.
3.7 Financial Statements.
(a) The Shareholder and CTInteractive have caused to be delivered
to VCAT true and complete copies of the financial statements of CTInteractive
for the years ending December 31, 1997, December 31, 1998 and December 31, 1999,
prepared in accordance with IRS record keeping requirements (together the
"CTInteractive Financial Statements"). The CTInteractive Financial Statements:
(i) are in agreement with the books and records of CTInteractive; and (ii)
present fairly and accurately the assets, liabilities and financial position of
CTInteractive at the respective dates of the balance sheets included in the
financial statements, and the results of operations and changes in financial
position and shareholders' equity thereof for the respective periods covered
thereby. The Shareholder and CTInteractive have made available to VCAT and its
agents and representatives for inspection
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<PAGE> 16
true and correct copies of the accountants' working papers and other materials
utilized in preparing the financial statements.
(b) The accounting and other books and records of CTInteractive
have been properly prepared and accurately present and reflect in accordance
with IRS record keeping requirements all the transactions entered into by
CTInteractive or to which it has been a party and there are at the date hereof
no material inaccuracies or discrepancies contained or reflected in any of the
said books and records, and as of the dates thereof they respectively give and
reflect a fair view of the financial position of CTInteractive and of its
respective fixed, current and contingent assets and liabilities, and debtors and
creditors.
(c) Except as set forth on Schedule 3.7, in relation to all
debentures, acceptance credits, overdrafts, loans or other financial facilities
outstanding or available to CTInteractive (referred to in this clause as
"facilities"): material details of all facilities have been disclosed and there
have been delivered to VCAT accurate copies of all material documents, if any,
relating to the facilities; there has been no material contravention of, or
non-compliance with, any material provision of any of such documents; no steps
for the early repayment of any indebtedness relating to the facilities have been
taken or, to the best of the Shareholder's Knowledge, threatened; there are no
circumstances whereby the continuation of any of the facilities are likely to be
prejudiced, or which may give rise to any alteration in the material terms and
conditions of any of the facilities; to the best of the Shareholder's Knowledge,
none of the facilities is dependent on the guarantee or indemnity of, or any
security provided by, a third party other than the Shareholder, and the
Shareholder has no reason to anticipate that as a result of anything
contemplated in this Agreement or any of the CTInteractive Ancillary Agreements,
any of the facilities might be terminated or mature prior to its stated
maturity.
3.8 Absence of Undisclosed Liabilities. To the best of the Shareholder's
Knowledge, as of December 31, 1999 (the "Balance Sheet Date"), CTInteractive did
not have and was not subject to any material liability, indebtedness, claim,
obligation or responsibility, fixed or contingent, liquidated or unliquidated,
secured or unsecured, or otherwise, which was not either:
(a) specifically included in the full amount as a liability or
adequately and specifically reserved for or against in the full amount
in the CTInteractive Financial Statements; or
(b) fully and specifically set forth in Schedule 3.8.
To the best of the Shareholder's Knowledge, since the Balance Sheet
Date, CTInteractive has not incurred or become subject to any material
liability, indebtedness, claim, obligation or responsibility, fixed or
contingent, liquidated or unliquidated, secured or unsecured, or otherwise,
other than those incurred since the Balance Sheet Date in the ordinary course of
business consistent with past practice.
3.9 Tax Returns and Payments. To the best of the Shareholder's and
CTInteractive's Knowledge, CTInteractive has filed all federal, state, local and
foreign tax and material information returns required to be filed prior to the
date hereof, has paid all
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<PAGE> 17
taxes required to be paid in respect of all periods prior to the date hereof for
which returns have been filed, has made all necessary estimated tax payments,
and has no liability for taxes in excess of the amount so paid, except to the
extent adequate reserves have been established in the CTInteractive Financial
Statements, and true, correct and complete copies of all such tax and
information returns have been provided or made available by CTInteractive to
VCAT. CTInteractive is not delinquent in the payment of any tax or in the filing
of any tax returns, and no deficiencies for any tax have been threatened,
claimed, proposed or assessed which have not been settled or paid. No tax return
of CTInteractive has ever been audited by the Internal Revenue Service or any
state taxing agency or authority. For the purposes of this Section 3.9, the
terms "tax" and "taxes" include all federal, state, local and foreign income,
gains, franchise, excise, property, sales, use, employment, license, payroll,
occupation, recording, value added or transfer taxes, governmental charges,
fees, levies or assessments (whether payable directly or by withholding), and,
with respect to such taxes, any estimated tax, interest and penalties or
additions to tax and interest on such penalties and additions to tax. Since its
inception, CTInteractive has made an election under the Code and state income
tax laws to be treated as an S Corporation. Such election will remain valid
through the Closing Date. All taxes arising by reason of such election
(including, but not limited to, the corporate level built in gain and capital
gain taxes described in Section 1374 of the Code or a predecessor section of the
Code) have been or will be paid by the Shareholder no matter when assessed.
CTInteractive has no current or deferred federal income tax liabilities, save
for those which are necessary for a tax clearance certificate from the State of
California necessary to obtain a California Certificate of Merger, and will not
as a result of the Merger become liable for any income tax not adequately
reserved against on the CTInteractive' Financial Statements. CTInteractive has
not filed a consent pursuant to Section 341(f) of the Code. If CTInteractive
were to become subject to an audit by the Internal Revenue Service or any state
taxing agency or authority for tax years or periods prior to the Effective Date
(including, but not limited to, any short tax year resulting from the Merger),
the Shareholder will use all reasonable efforts to resolve all such audits in a
manner consistent with the intentions of CTInteractive and VCAT as expressed in
this Agreement.
3.10 Absence of Certain Changes or Events. Since the Balance Sheet Date
and except as specifically authorized hereunder or as set forth in Schedule
3.10:
(a) CTInteractive has not entered into any transaction other
than in the ordinary course of business, consistent with past practice;
(b) there have been no changes in the financial condition,
results of operations, assets, liabilities, prospects or CTInteractive
other than changes in the ordinary course of business, consistent with
past practice which in the aggregate have not had a Material Adverse
Effect, nor any event or circumstance which could reasonably be expected
to result in any such changes and, without limiting the foregoing, there
has not been any damage, destruction or loss, whether or not covered by
insurance, affecting any of the assets or properties of CTInteractive
amounting to more than $10,000 in the aggregate;
(c) CTInteractive has not (i) increased or decreased any of the
rates of compensation payable or to become payable to any employee,
agent or consultant,
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or granted, made or accrued any bonus, percentage compensation, service
award or other like benefit to or to the credit of any such employee,
agent or consultant; (ii) entered into or amended any bonus, incentive
compensation, deferred compensation, profit sharing, retirement,
pension, group insurance or other benefit plan or any employment or
consulting agreement; (iii) created or otherwise become liable with
respect to any indebtedness for money borrowed or purchase money
indebtedness, except in the ordinary course of businesses consistent
with past practice; (iv) amended its Articles of Incorporation or any
other charter documents; (v) issued, purchased or disposed of or
contracted to issue, purchase, or dispose of any of its capital stock or
any options, warrants or rights with respect thereto or interests
therein; (vi) entered into, assumed, modified or terminated any
contract, liability or obligation, except in the ordinary course of
business, consistent with past practice or settled, discharged or waived
any right or claim without adequate consideration; (vii) sold, leased or
otherwise disposed of or encumbered in any way any assets, except for
sales in the ordinary course of business, consistent with past practice;
(viii) acquired any property or asset, except in the ordinary course of
business, consistent with past practice; (ix) directly or indirectly
declared or paid any non-cash dividend or distribution with respect to
its capital stock, (x) entered into any transaction with the Shareholder
or any Affiliate of the Shareholder, except in the ordinary course of
business consistent with past practice; or (xi) agreed to take any
action specified in (i)-(x) hereof.
3.11 Accounts Receivable. The accounts receivable and other receivables
of CTInteractive shown on the CTInteractive Financial Statements, and the
accounts receivable and other receivables arising since the Balance Sheet Date,
are valid and binding obligations of the debtors requiring no further
performance by CTInteractive, and, subject to such reserves as have been
disclosed in writing to VCAT, the Shareholder believes that as of the date of
this Agreement they are collectible in the ordinary course of business in
amounts not materially less than the aggregate amount thereof carried on the
books of CTInteractive.
3.12 Interests in Real Property. CTInteractive does not own any real
property. Schedule 3.12 sets forth a true and complete list of each parcel of
real property leased by CTInteractive. A true and complete copy of each lease
listed on Schedule 3.12 has been provided to VCAT. All of such leases are valid
and enforceable, and there does not exist any default under any of such leases,
or any event which, with the giving of notice or passage of time, or both, would
constitute a default under any of such leases. There are no circumstances known
to the Shareholder or CTInteractive which are likely to give rise to any dispute
in relation to any of such real properties with any governmental or local
authority, superior lessor, tenant or licensee or with the owner or occupier of
any adjoining or neighboring property or any other party. CTInteractive has
complied in all material respects with all legislation, statutory requirements,
governmental or other orders, rules, directives or instruments affecting or
pertaining to the use, occupation or enjoyment of such properties. Neither the
Shareholder nor CTInteractive have received any notice or are aware of any
breach of any covenants, restrictions, stipulations, conditions and other terms
affecting such real properties or are aware of any circumstances which would
entitle or require any person to exercise any powers of entry and taking
possession or which would otherwise terminate
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or restrict the continued possession or occupation of such real properties. Such
real properties:
(a) are not subject to any covenants, obligations, restrictions
or conditions which are of any unusual or onerous nature or which would
affect the use or continued use of the properties by the relevant owners
for the purpose or to the extent or in the manner now used;
(b) do not enjoy any right, easement or privilege, the
withdrawal or cessation of which would adversely affect the use or
continued use of any of such real properties by the relevant owners for
the purpose for or to the extent to or in the manner in which it is now
used;
(c) are not affected by any of the following matters: (i) any
closing order, demolition order or clearance order; (ii) any order or
proposal publicly advertised or of which written notice has been
received for the compulsory acquisition or requisition of the whole or
any part thereof or the discontinuance of any use or the removal of any
building; or (iii) any agreement with any public body or authority
regulating the use or development thereof except as stated in the lease
agreement;
and neither the Shareholder nor CTInteractive are aware of any intention on the
part of the relevant authorities to issue any such order or notice, or any
matter which gives rise to the issue of any such order or notice. As at the date
hereof, there is no agreement to sell or part with the possession of or let or
license or grant any option over or otherwise dispose of any interest in such
properties or any part thereof. All of such real property interests and
improvements, the furniture, fixtures and equipment relating thereto, and the
operation of the businesses of CTInteractive thereon, conform to any and all
applicable health, fire, safety, zoning and building laws, ordinances and
regulations. Except as set forth on Schedule 3.12, all buildings, structures and
fixtures used by CTInteractive in the conduct of its business are located on the
parcels of real property listed in Schedule 3.12 and are in good operating
condition and repair, ordinary wear and tear excepted.
3.13 Personal Property. All assets used in the conduct of the business
of CTInteractive are either owned by CTInteractive, or leased or rented by
CTInteractive, (a) in transactions with non-Affiliates of the Shareholder, or
(b) on terms no more or less favorable than would have been obtained in arms
length transactions. Schedule 3.13 sets forth, current as of the date hereof, a
true, complete and correct list of each of the assets (other than real property)
having a book value of $25,000 or more included in the CTInteractive Financial
Statements or otherwise used in the conduct of the business of CTInteractive.
The book value of any assets that are not included on such list does not, in the
aggregate, exceed $25,000, as of the date hereof. Except as set forth on
Schedule 3.13, CTInteractive has good title, free and clear of all title defects
and objections, security interests, liens and encumbrances, including, without
limitation, leases, chattel mortgages, conditional sales contracts, collateral
security arrangements and other title or interest retaining arrangements, to any
inventory, furniture, machinery, equipment, and other personal property
reflected on the CTInteractive Financial Statements, except for acquisitions,
sales and dispositions in the normal course of business since the Balance Sheet
Date as
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contemplated by this Agreement. All material personal property of CTInteractive
is in good operating condition and repair, ordinary wear and tear excepted.
3.14 Intangible Property Rights. Schedule 3.14 is a true and complete
list of all licenses, patents, copyrights, trademarks, service marks, service
names, trade names, trade secrets or other proprietary information
(collectively, the "Intellectual Property") owned by CTInteractive or in which
they have rights. CTInteractive owns or possesses such rights in all
Intellectual Property as are necessary or adequate for the conduct of its
businesses. To the best of the Shareholder's Knowledge, CTInteractive is not
infringing and has not infringed upon any patent, trademark, trademark right,
service mark, service name, trade name, trade secret or proprietary information
owned or held by any other person or entity, and, except as set forth in
Schedule 3.14, there is no material claim or action by any other person or
entity pending or threatened alleging that CTInteractive is infringing upon any
patent, trademark, trademark right, service mark, service name, trade name,
trade secret or proprietary information owned or held by any other person or
entity, nor is there any reasonable basis for any such claim or action by any
person. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
material breach of any instrument or agreement governing any Intellectual
Property (the "CTInteractive IP Rights Agreements"), will not cause the
forfeiture or termination or give rise to a right of forfeiture or termination
of any Intellectual Property or materially impair the right of CTInteractive to
use, sell or license any Intellectual Property or portion thereof. There are no
royalties, honoraria, fees or other payments payable by CTInteractive to any
person by reason of the ownership, use, license, sale or disposition of the
Intellectual Property (other than as set forth in the CTInteractive IP Rights
Agreements listed in Schedule 3.14). To the best of the Shareholder's Knowledge,
neither the manufacture, marketing, license, sale or intended use of any product
currently licensed or sold by CTInteractive or currently under development by
CTInteractive violates any license or agreement between CTInteractive and any
third party. CTInteractive has taken reasonable and practicable steps designed
to safeguard and maintain the secrecy and confidentiality of, and its
proprietary rights in, all material Intellectual Property. All officers,
employees and consultants of CTInteractive have executed and delivered to
CTInteractive an agreement regarding the protection of proprietary information
and the assignment to CTInteractive of all intellectual property rights arising
from the services performed for CTInteractive by such persons.
3.15 Title to Assets. Except as set forth in Schedule 3.12 or 3.13,
CTInteractive is the owner and has good and marketable title to all its assets
and interests in assets, whether real, personal, mixed, tangible or intangible,
which constitute all the material assets and interests in assets that are used
in its business and that are necessary for the conduct and operation of its
business as presently conducted. Except as set forth in Schedule 3.12 or 3.13,
all these assets are free and clear of mortgages, liens, pledges, charges,
encumbrances, equities, claims, easements, rights of way, covenants, conditions
or restrictions, except for: (i) those reflected on the CTInteractive Financial
Statements; and (ii) liens for current taxes not yet due and payable.
CTInteractive is in possession of all premises leased to it from others. Except
as set forth on Schedule 3.15, neither any officer, director, employee or
Affiliate of CTInteractive, nor any spouse or child of any of these persons,
owns, or has any
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<PAGE> 21
interest, directly or indirectly, in any of the real or personal property owned
by or leased to CTInteractive.
3.16 Litigation. Schedule 3.16 identifies all claims, suits, litigation,
actions, arbitrations, governmental investigations and legal, administrative or
other proceedings or controversies, at law or in equity or otherwise, to which
CTInteractive, or any of its officers, directors, employees, stockholders or
agents or assets, is a party or which is threatened against any such persons or
assets which affects or may reasonably be expected to affect the financial
condition, liabilities, Permits or Contracts (as defined in Section 3.17),
assets, shareholders' equity, properties (including the value or usefulness
thereof), sales, net income, operations, prospects or businesses of
CTInteractive. The matters set forth in Schedule 3.16, if decided adversely,
will not, individually or in the aggregate, reasonably be expected to result in
a Material Adverse Effect. To the best of the Shareholder's Knowledge,
CTInteractive is not subject to any order, judgment, decree or governmental
restriction which adversely affects its financial condition, liabilities,
Permits or Contracts, assets, shareholders' equity, properties, sales, net
income, operations, prospects or businesses or which would prevent the
transactions contemplated by this Agreement. To the best of the Shareholder's
Knowledge, and except as disclosed in Schedule 3.16, CTInteractive has not been
and is not in violation of, and has not received any formal or informal notice
of violation of, any law or order, writ, injunction or decree of any U.S.
federal, state, municipal, or local court or other governmental department,
commission, board, bureau, agency or instrumentality which would, individually
or in the aggregate, reasonably be expected to result in a Material Adverse
Effect. There is no basis for any Person, firm, corporation or entity to assert
a claim against CTInteractive or VCAT as successor in intent to CTInteractive
based upon: (a) ownership or rights to ownership of any shares of CTInteractive
Common, (b) any rights as a CTInteractive securities holder, including, without
limitation, any option or other right to acquire any CTInteractive securities,
any preemptive rights or any rights to notice or to vote, or (c) any rights
under any agreement between CTInteractive and the Shareholder or former
CTInteractive securities holder, if any, in such holder's capacity as such.
3.17 Contracts and Permits. Schedule 3.17 describes all (a) currently
effective or applied for (as designated in Schedule 3.17) licenses, franchises,
permits, easements, certificates, consents, rights, privileges, and
authorizations necessary or advisable to the conduct of the business of
CTInteractive (collectively, the "Permits"), and (b) currently effective
contracts, instruments, arrangements or agreements, oral or written (other than
leases disclosed on other schedules delivered pursuant to this Agreement), to
which CTInteractive is a party or by which its properties are bound which: (i)
involve the payment by CTInteractive of more than $25,000 per annum; (ii) have a
duration of more than one year; (iii) are not terminable at the option of
CTInteractive by less than 30 days' notice, without the payment of any penalty;
(iv) is with any officer, director, shareholder, Affiliate or other employee of
CTInteractive; (v) are with a bank or other lender; (vi) grant exclusive sales,
purchase or distribution rights to any person; or (vii) have been entered into
other than in the ordinary course of business (collectively, the "Contracts").
The Shareholder and CTInteractive have provided to VCAT true copies, or
summaries, of each Permit and Contract. Unless so stated on Schedule 3.17,
CTInteractive has not been and is not in material breach or default of any
Permit or Contract and no event exists which, with the giving of notice or
passage of time, or both, would constitute a material breach or default of
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<PAGE> 22
any of the Permits or Contracts. All of the Permits and Contracts are in full
force and effect and are not subject to cancellation, termination, or
modification for any reason related to the consummation of the transactions
contemplated in this Agreement or otherwise. To the best of the Shareholder's
Knowledge, no other party to any Permit or Contract intends to revoke, alter, or
not to perform its obligations under such Permit or Contract. Except as set
forth on Schedule 3.17, CTInteractive is not a party to any agreement in which
any of the directors or Affiliates of CTInteractive has a material interest
(directly or indirectly). Except as set forth on Schedule 3.17, there is no
contract which is likely or estimated to give rise to a loss to CTInteractive
exceeding in the aggregate $25,000. Except as set forth on Schedule 3.17, there
is no contract involving or which may involve obligations on CTInteractive or
the need for expenditure by CTInteractive of a nature or magnitude which cannot
be fulfilled, or performed without undue or unusual expenditure of money or
effort.
3.18 Existing Employment Contracts. Schedule 3.18 sets forth a list and
full description of all employment contracts and collective bargaining
agreements, and all pension, bonus, retirement, profit-sharing, stock option, or
other agreements or arrangements, oral or written, providing for employee
remuneration or benefits (including, without limitation, all vacation,
termination, severance and leave policies and obligations) to which
CTInteractive is a party or by which CTInteractive is bound (collectively,
"Employee Plans"). Except as disclosed in Schedule 3.18, for each Employee Plan
which is not fully funded, CTInteractive has established reserves on its books
to provide for the benefits earned and other liabilities accrued under each such
Employee Plan through the Closing Date in amounts sufficient to fully provide
for such benefits and liabilities; these reserves have been determined in the
same manner as such reserves have been determined for the prior year. True and
correct copies of all Employee Plans and records disclosing the costs of
providing benefits under, and paying liabilities of, each Employee Plan for the
past three years have been provided to VCAT. No employee of CTInteractive is in
material violation of any term of any employment contract, patent disclosure
agreement or noncompetition agreement or any other contract or agreement, or any
restrictive covenant, relating to the right of any such employee to be employed
by CTInteractive or to use trade secrets or proprietary information of others,
and the employment of any employee of CTInteractive does not subject
CTInteractive to any liability to any third party.
Except as set forth in Schedule 3.18, CTInteractive is not a
party to any (a) agreement with any executive officer or other key employee of
CTInteractive (i) the benefits of which are contingent, or the terms of which
are materially altered, upon the occurrence of a transaction involving
CTInteractive in the nature of any of the transactions contemplated by this
Agreement, the Articles of Merger and the Agreement of Merger, (ii) providing
any term of employment or compensation guarantee or (iii) providing severance
benefits or other benefits after the termination of employment of such employee
regardless of the reason for such termination of employment, or (b) agreement or
plan, including, without limitation, any stock option plan, stock appreciation
rights plan or stock purchase plan, any of the benefits of which will be
materially increased, or the vesting of benefits of which will be materially
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement, the Articles of Merger and the Agreement of Merger or the value of
any of the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement, the Articles of Merger and the
Agreement of Merger. CTInteractive is not
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<PAGE> 23
obligated to make any excess parachute payment, as defined in Section 280G(b)(1)
of the Code, nor will any excess parachute payment be deemed to have occurred as
a result of or arising out of the Merger to the extent Section 280G of the Code
is applicable to CTInteractive.
3.19 Interest in Customers, Suppliers and Competitors. Except as
disclosed and described in Schedule 3.19 (and including direct employee
compensation disclosed to VCAT and not in arrears), to the best of the
Shareholder's Knowledge, neither the Shareholder nor CTInteractive, nor any
officer, director or Affiliate of CTInteractive, nor any spouse or child of any
of them, has any material direct or indirect interest in any competitor,
contractor, supplier or customer of CTInteractive, or in any person with whom
CTInteractive is doing business or is leasing or buying property or services. No
person who is an officer, director or shareholder of CTInteractive, or any
member of any officer's, director's or shareholder's immediate family, is
directly or indirectly interested in any material contract or informal
arrangement with CTInteractive, including, but not limited to, any loan
arrangements, except for compensation for services as an officer, director or
employee of CTInteractive as listed in Schedule 3.18. None of such officers,
directors, shareholders or family members has any material interest in any
property, real or personal, tangible or intangible, including, without
limitation, inventions, patents, copyrights, trademarks, trade names or trade
secrets, used in the business of CTInteractive, except for the normal rights of
a shareholder.
3.20 Personnel Identification and Compensation. VCAT has been provided
with a written list of the names of all officers, directors, employees, and
agents of CTInteractive who receive an annual salary in excess of $24,000 per
annum, stating the rates of compensation payable to each of them. Except as
listed on such list, no other person, except accountants, auditors, attorneys,
and independent contractors which are not material to CTInteractive's ongoing
business, regularly performs compensable services CTInteractive.
3.21 Powers of Attorney and Suretyships. Except as described in Schedule
3.21, CTInteractive presently has no outstanding powers of attorney or
guarantees, and no material obligations or liabilities, whether actual, accrued,
accruing or contingent, as guarantor, surety, co-signor, endorser (other than
checks endorsed for presentation in the ordinary course of business), co-maker,
indemnitor or otherwise in respect of the obligation of any person, corporation,
partnership, joint venture, association, organization or other entity.
3.22 Employees.
(a) Other than as set forth in Schedule 3.22, CTInteractive is
not a party to:
(i) any payment in connection with retirement, death or
disability to any person who is or has been a director, officer or employee of
CTInteractive or a relative or dependent or such a person other than pursuant to
any such agreement, arrangement, scheme or fund to which CTInteractive is
required by law to be a party;
(ii) any profit sharing plan or other employee benefit plan for
the payment to employees or directors of bonuses or incentive payments or the
like or of any
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<PAGE> 24
non-cash compensation, including but not limited to grants of options, rights,
warrants, convertible securities and the like; or
(iii) any obligation or ex-gratia arrangement to pay
pensions, gratuities, retirement benefits, periodical sums or any compensation
to any person other than pursuant to any such agreement, arrangement, scheme or
fund to which CTInteractive is required by law to be a party.
(b) CTInteractive is under no obligation (whether actual or
contingent) to any former employee whether for breach of any contract of
service, for compensation for wrongful dismissal or for unfair dismissal or for
payment of any salaries, wages, pension, gratuities, bonuses or otherwise
howsoever or whatsoever and no tax, levy, contribution or payment in respect to
any former employee whether to any governmental authority, pension fund, scheme
or trust or otherwise howsoever or whatsoever will be outstanding or disputed.
3.23 Labor Relations. Except as described in Schedule 3.23, there are no
agreements with, or pending petitions for recognition of, any labor union or
association as the bargaining agent or representative for all of CTInteractive'
employees; no such petitions have been pending at any time within three years of
the date of this Agreement and there has been no organizing effort by any union
or other group seeking to represent any employees of CTInteractive as their
bargaining agent or representative at any time within three years of the date of
this Agreement; no claim has been, nor could be, made that any collective
bargaining agreement set forth on Schedule 3.23 should be applicable to any
employees of CTInteractive not expressly covered by the terms of such
agreements; and there are no labor strikes, work stoppages or other labor
troubles, now pending, or threatened, against CTInteractive, nor have there been
any such labor strikes, work stoppages or other labor troubles, at any time
within the two (2) years preceding the date of this Agreement. To the best of
the Shareholder's Knowledge, except as described on Schedule 3.23, there have
been no grievances filed, nor claims of unfair labor practices, made, against
CTInteractive at any time within the past three years.
3.24 Insurance. Schedule 3.24 includes a list of all insurance policies
in force with respect to CTInteractive showing for each such policy: (a) the
owner; (b) the coverage of such policy; (c) the amount of premium properly
allocable to such policy; (d) the name of the insurer; and (e) the termination
date of the policy. All policies listed on Schedule 3.24 are in full force and
effect and are "claims made" policies. All the conditions of such insurance have
been performed and observed and nothing has been done or omitted to be done
which could make any such insurance void or voidable. All premiums in respect of
such insurance which may have become due have been duly paid. To the best of the
Shareholder's Knowledge, there are no claims outstanding, pending or threatened
against CTInteractive which are not covered by insurance. The Shareholder and
CTInteractive have provided VCAT with complete copies, or summaries, of all
policies listed on Schedule 3.24. Such insurance policies provide coverage
reasonable for the business conducted by CTInteractive and are sufficient for
compliance with all applicable laws or leases or other agreements to which
CTInteractive is a party.
3.25 Compliance with Laws. To the best of the Shareholder's Knowledge,
except as described in Schedule 3.25, CTInteractive has not been and currently
is not in violation
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<PAGE> 25
of any applicable U.S. federal, state, or local statutes, laws and regulations
(including, without limitation, any applicable building, zoning, or other law,
ordinance, or regulation) affecting any of its properties or the conduct or
operation of its business.
3.26 Corporate Documents.
(a) The Shareholder and CTInteractive have furnished to VCAT for
its examination: (i) true and correct copies of articles of incorporation,
bylaws and any other charter documents, including any amendments thereto, of
CTInteractive and (ii) except as described in Schedule 3.26, the statutory
books, minute books and stock transfer registers of CTInteractive which contain
all records concerning all proceedings, consents, actions and meetings of the
shareholders and boards of directors of CTInteractive and issuances of shares,
debentures and other securities thereof.
(b) CTInteractive has complied with its articles of incorporation
and Bylaws in all respects, and none of the business, activities, agreements,
commitments or rights of CTInteractive is ultra vires or unauthorized.
3.27 Credit Cards. Schedule 3.27 contains a true and complete list of
all credit cards issued or caused to be issued by or on behalf of CTInteractive
to any person, firm or entity which CTInteractive is or may be liable for
charges or payments. The Shareholder and CTInteractive shall cause to be
delivered to VCAT on or before the Closing Date all of such credit cards as VCAT
may designate.
3.28 Bank Accounts. Schedule 3.28 contains a true and complete list of
the name of each bank, savings and loan association or other financial
institution in which CTInteractive has any type of account or safe deposit box,
the account name and number of each such account or safe deposit box and the
names of all persons authorized to draw thereon or have access thereto.
3.29 Environmental Matters.
(a) Except as provided in Schedule 3.29, CTInteractive and every
person for whose default CTInteractive may be vicariously liable have, to the
best of the Shareholder's Knowledge, complied with all applicable legislation,
licences, consents and permissions relating to environmental matters.
(b) Except as provided in Schedule 3.29, neither CTInteractive
nor any person for whose default CTInteractive may be vicariously liable is the
subject of any actions, claims or proceedings relating to environmental matters
and, to the best of the Shareholder's Knowledge, no such action, claim or
proceeding is threatened against or expected by CTInteractive or any such
person.
3.30 Customers and Suppliers. Schedule 3.30(a) lists each customer of
CTInteractive which accounted for more than 5% of CTInteractive' revenues for
the twelve months ended December 31, 1999. There has not been any material
adverse change in the business relationship between CTInteractive and any of its
respective customers listed in Schedule 3.30(a) or CTInteractive's suppliers,
nor have there been any material disputes or
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<PAGE> 26
controversies between CTInteractive and any of their respective customers listed
in Schedule 3.30(a) or CTInteractive's suppliers, nor is there any event or
circumstance which could reasonably form the basis for any such material dispute
or controversy. Except as noted on Schedule 3.30(b), to the best of the
Shareholder's Knowledge, the business relationships with customers, suppliers,
employees and other persons with regard to CTInteractive will not be
prejudicially affected by the execution or completion of this Agreement.
3.31 Unlawful Payment. To the best of the Shareholder's Knowledge,
neither CTInteractive nor any officer, director, shareholder, employee, agent or
representative of CTInteractive has made, directly or indirectly, with respect
to the business of any company, any illegal political or illegal charitable
contributions, payments from corporate funds not recorded on the books and
records of the companies, payments from corporate funds that were falsely
recorded on the books and records of the companies, payments from corporate
funds to governmental officials in their individual capacities for the purpose
of affecting their action or the action of the government they represent to
obtain favorable treatment in securing businesses or licenses or to obtain
special concessions, or payments to any officers, employees or agents of a
customer or supplier for the purpose of influencing their action or inaction or
the action or inaction of any other officer, employee or agent of such customer
or supplier.
3.32 Restrictive Covenants. Except as described on Schedule 3.32,
CTInteractive is not bound by any agreement, contract or covenant limiting its
freedom to compete in any line of business or with any person or other entity in
any geographic area.
3.33 Insolvency.
(a) No receiver has been appointed of the whole or any part of
CTInteractive's assets or undertaking and no order has been made or petition
presented or resolution passed for the winding up of CTInteractive.
(b) CTInteractive has not stopped payment nor is it insolvent or
unable to pay its debts within the meaning of the United States Bankruptcy Code.
(c) No unsatisfied judgment is outstanding against CTInteractive.
3.34 Books and Records. The books, records and accounts of CTInteractive
(a) are in all material respects true and complete, (b) have been maintained in
accordance with reasonable business practices on a basis consistent with prior
years, (c) are stated in reasonable detail and accurately and fairly reflect the
transactions and dispositions of the assets of CTInteractive and (d) accurately
and fairly reflect the basis for the CTInteractive Financial Statements.
CTInteractive has devised and maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (a) transactions are executed
in accordance with management's general or specific authorization; (b)
transactions are recorded as necessary (i) to permit preparation of financial
statements in conformity with IRS record keeping requirements, and (ii) to
maintain accountability for assets, and (c) the amount recorded for assets on
the books and records of CTInteractive is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
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<PAGE> 27
3.35 Accuracy of Documents and Information. The copies of all
instruments, agreements, other documents and written information delivered to
VCAT by or on behalf of CTInteractive or the Shareholder or any of their
respective representatives pursuant to this Agreement, are and will be complete
and correct in all material respects as of the date hereof and as of the Closing
Date. The representations and warranties made by CTInteractive and the
Shareholder in this Agreement, or in other written materials furnished to VCAT
hereunder or in connection with the transactions contemplated hereby, taken as a
whole, do not contain any untrue statement of material fact and do not omit any
material fact necessary to make the statements or facts contained herein or
therein not misleading.
3.36 Disclosure.
(a) None of the documents or information provided to VCAT by the
Shareholder and CTInteractive or any agent or employee of CTInteractive in the
course of VCAT's due diligence investigation and the negotiation of this
Agreement and Articles 2 and 3 of this Agreement and the Disclosure Schedules,
contain any untrue statement of any material fact or, to the best of the
Shareholder's Knowledge, omit to state a material fact necessary in order to
make the statements contained in this Agreement or in such documents,
information or Disclosure Schedules not misleading. There is no fact which
materially adversely affects the business, prospects, condition, affairs or
operations of CTInteractive, any of properties or assets of CTInteractive which
has not been set forth in this Agreement or in such documents, information or
Disclosure Schedules.
(b) Notwithstanding anything to the contrary in this Agreement,
(i) no investigation by VCAT shall affect the representations and warranties of
the Shareholder or CTInteractive under this Agreement or contained in any
document, certificate or other writing furnished or to be furnished to VCAT in
connection with the transactions contemplated hereby and (ii) such
representations and warranties shall not be affected or deemed waived by reason
of the fact that VCAT knew or should have known that any of the same is or might
be inaccurate in any respect.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF VCAT
In order to induce the Shareholder and CTInteractive to enter
into this Agreement, VCAT hereby makes the representations and warranties set
forth below, which representations and warranties shall be deemed to continue in
full force and effect until the time of the Closing and thereafter as set forth
herein:
4.1 Corporate Existence and Authority. VCAT is a corporation duly
incorporated, validly existing, and in good standing under the laws of the State
of Utah. VCAT has full power, authority and legal right to enter into and
perform its obligations under this Agreement, and all agreements to which VCAT
is or will be a party that are required to be executed pursuant to this
Agreement (the "VCAT Ancillary Agreements") and to consummate the transactions
contemplated hereby.
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<PAGE> 28
4.2 No Conflict. The execution and delivery of this Agreement do not,
and the performance of this Agreement and the consummation of the transactions
contemplated hereby in accordance with the terms, conditions and provisions
hereof will not result in a breach or violation of, or in conflict with, or
constitute (with or without the giving of notice or the passage of time or both)
a default under:
(a) to the best of VCAT's Knowledge, any statute, law, ordinance,
rule or regulation applicable to VCAT, or
(b) the terms, conditions or provisions of the articles of
incorporation or bylaws or other organizational documents of VCAT, or, to the
best of VCAT's Knowledge, any lease, license, promissory note, conditional sales
contract, commitment, indenture, mortgage, deed of trust, partnership agreement
or other agreement, contract, instrument, or arrangement (whether or not in
writing) to which VCAT is a party or by which VCAT or its properties, is or may
be bound, or
(c) any permit, license, order, judgment or decree of any court,
arbitrator or governmental authority by which VCAT or its properties is or may
be bound.
4.3 Consents. To the best of VCAT's Knowledge, no consent, permit,
approval, order, authorization of, or filing with or notice to, any federal,
state, local or foreign governmental department, commission, board, bureau,
agency, instrumentality or authority or any person (whether or not governmental
in character) has been or is required to be obtained, made or given by VCAT in
connection with the execution and delivery of this Agreement and the VCAT
Ancillary Agreements or the consummation of the transactions contemplated hereby
or thereby or the fulfillment of or the compliance with the terms, conditions
and provisions hereof or thereof, except as set forth in Schedule 4.3 to this
Agreement.
4.4 Binding Obligations. This Agreement and the VCAT Ancillary
Agreements are, or when executed by VCAT will be, valid and binding obligations
of VCAT, enforceable against VCAT in accordance with their respective terms,
except as to the effect, if any, of (a) applicable bankruptcy and other similar
laws affecting the rights of creditors generally, and (b) rules of law governing
specific performance, injunctive relief and other equitable remedies; provided,
however, that the Articles of Merger, the Agreement of Merger and the VCAT
Ancillary Agreements will not be effective until the Effective Date.
4.5 Representations. The representations and warranties made by VCAT in
this Agreement, the VCAT Ancillary Agreements or in other written materials
furnished to the Shareholder and CTInteractive hereunder or in connection with
the transactions contemplated hereby, when taken together, do not, to the best
of VCAT's Knowledge, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements contained
herein or therein not misleading.
4.6 Capital Stock. The authorized capital stock of VCAT consists of
100,000,000 shares of VCAT Common, $.001 par value per share. Except as set
forth on Schedule 4.6 hereto, on the date hereof there are no outstanding
warrants, options, "phantom" stock rights, agreements, convertible or
exchangeable securities or other commitments (other than this
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<PAGE> 29
Agreement and other agreements related thereto) pursuant to which VCAT is or may
become obligated to issue, sell, purchase or redeem any shares of capital stock
or other securities of VCAT.
4.7 Corporate Documents.
(a) VCAT has furnished to the Shareholder for his examination:
(a) true and correct copies of the Articles of Incorporation and Bylaws,
including any amendments thereto, of VCAT, (b) the minute books of VCAT which
contain all records concerning all proceedings, consents, actions and meetings
of the shareholders and board of directors of VCAT and (c) all information
required to be filed with the SEC by VCAT or provided to the SEC in accordance
with the rules and regulations of the Commission since December 31, 1999
(together with any such filings or information supplied to the SEC after the
date of this Agreement and prior to the Closing, the "SEC Filings").
(b) VCAT has complied with its Articles of Incorporation and
Bylaws in all material respects, and none of the business, activities,
agreements, commitments or rights of VCAT is ultra vires or unauthorized.
(c) Compliance has been made with all other legal requirements
concerning VCAT and all issues of shares, debentures or other securities thereof
and the stock transfer records and minute books of VCAT are up to date and
contain true, full and accurate records of all matters required to be dealt with
therein, and all annual or other reports required to be filed under the Utah
Business Corporations Act have been filed and all legal requirements relating to
the formation and organization of VCAT and the issue of shares and other
securities have been complied with, except where noncompliance would not result
in a Material Adverse Effect.
(d) To the best of VCAT's Knowledge, all documents required by
the SEC or by any legislation in other relevant jurisdictions to be filed or
registered in respect of VCAT, and in connection with the transactions
contemplated hereby, have been duly filed or registered, and all fees payable in
connection with such documents have been paid.
4.8 Financial Statements. Grant Thornton LLP, which has examined and
expressed its opinion on certain financial statements of VCAT filed as part of
the SEC Filings (the "VCAT's Financial Statements"), are independent public
accountants within the meaning of the Securities Act; VCAT's Financial
Statements, together with the notes, forming part of the SEC Filings, comply in
all material respects with the requirements of the Securities Act and have been
prepared and fairly and accurately present the financial condition, the results
of operations and changes in financial position of VCAT at the respective dates
and for the respective periods indicated, in accordance with GAAP throughout
such periods; and the financial and statistical information and data set forth
in the SEC Filings is fairly presented and prepared on a basis consistent with
such VCAT's Financial Statements and the books and records of VCAT, as the case
may be.
4.9 Absence of Undisclosed Liabilities. To the best of VCAT's Knowledge,
as of December 31, 1999 (the "VCAT's Balance Sheet Date"), VCAT did not have and
was not subject to any material liability, indebtedness, claim, obligation or
responsibility, fixed or
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<PAGE> 30
contingent, liquidated or unliquidated, secured or unsecured, or otherwise,
which was not either:
(a) specifically included in the full amount as a liability or
adequately and specifically reserved for or against in the full amount in VCAT's
Financial Statements included in its SEC Filings; or
(b) fully and specifically set forth in Schedule 4.9.
To the best of VCAT's Knowledge, except as set forth on Schedule
4.9, since VCAT's Balance Sheet Date, VCAT has not incurred or become subject to
any material liability, indebtedness, claim, obligation or responsibility, fixed
or contingent, liquidated or unliquidated, secured or unsecured, or otherwise,
other than those incurred since VCAT's Balance Sheet Date in the ordinary course
of business of VCAT consistent with past practice.
4.10 Status of VCAT's Shares of Common Stock. All of the outstanding
shares of VCAT Common have been issued in compliance with all applicable state
and federal securities laws and are duly authorized and validly issued, fully
paid and nonassessable and free of preemptive rights, contractual rights to
purchase and similar rights except as set forth in the SEC Filings; the VCAT
Common to be issued and sold by VCAT have been duly authorized and, upon
delivery to the Shareholder in accordance with the terms hereof, will have been
validly issued and fully paid and will be nonassessable and free of preemptive
rights, contractual rights to purchase and similar rights; and the capital stock
of VCAT, including the VCAT Common and, on March 22, 2000, the number of shares
of VCAT Common outstanding, was __________.
4.11 Governmental Proceedings. There is no legal or governmental
proceeding pending or, to the best of VCAT's Knowledge, threatened or
contemplated to which VCAT is a party or of which the business or property of
VCAT is the subject which is not disclosed in the SEC Filings and which might
result in a judgment or decree having a Material Adverse Effect, and there is no
contract or document of a character required to be described in the SEC Filings
or to be filed as an exhibit to the SEC Filings which is not described or filed
as required.
4.12 Intellectual Property. Except as described in the SEC Filings, VCAT
owns or possesses adequate rights, or can obtain such rights on terms which
would not be materially adverse to VCAT, which protect VCAT's acts necessary for
the conduct of its business as described in the SEC Filings. To the best of
VCAT's Knowledge, and except as described in the SEC Filings, VCAT is not
infringing and has not infringed upon any patent, trademark, trademark right,
service mark, service name, trade name, trade secret or proprietary information
owned or held by any other person or entity, and there is no material claim or
action by any other person or entity pending or threatened alleging that VCAT is
infringing upon any patent, trademark, trademark right, service mark, service
name, trade name, trade secret or proprietary information owned or held by any
other person or entity which would have a Material Adverse Effect, nor is there
any reasonable basis for any such claim or action by any person.
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4.13 Absence of Certain Changes or Events. Since VCAT's Balance Sheet
Date and except as specifically authorized hereunder or as set forth in Schedule
4.13:
(a) VCAT has not entered into any transaction other than in the
ordinary course of business, consistent with past practice;
(b) there have been no changes in the financial condition,
results of operations, assets, liabilities, prospects or business of VCAT other
than changes in the ordinary course of business, consistent with past practice
which in the aggregate have not been materially adverse to VCAT, nor any event
or circumstance which could reasonably be expected to result in any such changes
and, without limiting the foregoing, there has not been any material damage,
destruction or loss, whether or not covered by insurance, affecting any of the
assets or properties of VCAT;
(c) VCAT has not (1) created or otherwise become liable with
respect to any indebtedness for money borrowed or purchase money indebtedness,
except in the ordinary course of business consistent with past practice; (2)
amended VCAT's Certificate of Incorporation or Bylaws; (3) issued, purchased or
disposed of or contracted to issue, purchase, or dispose of any of its capital
stock or any options, warrants or rights with respect thereto or interests
therein; (4) entered into, assumed, modified or terminated any contract,
liability or obligation, except in the ordinary course of business, consistent
with past practice or settled, discharged or waived any right or claim without
adequate consideration; (5) sold, leased or otherwise disposed of or encumbered
in any way any assets, except for sales in the ordinary course of business,
consistent with past practice; (6) directly or indirectly declared or paid any
non-cash dividend or distribution with respect to the capital stock of VCAT; or
(7) agreed to take any action specified in (1)-(6) hereof.
4.14 Compliance with Laws. To the best of VCAT's Knowledge and except as
described in Schedule 4.14, VCAT has not been and currently is not in violation
of any applicable foreign, federal, state, or local statutes, laws and
regulations (including, without limitation, any applicable building, zoning, or
other law, ordinance, or regulation) affecting any of its properties or the
conduct or operation of its business.
4.15 Accuracy of Documents and Information. The copies of all
instruments, agreements, other documents and written information delivered to
the Shareholder by or on behalf of VCAT or any of its representatives pursuant
to this Agreement are and will be complete and correct in all material respects
as of the date hereof and as of the Closing Date. The representations and
warranties made by VCAT in this Agreement, or in other written materials
furnished to the Shareholder hereunder or in connection with the transactions
contemplated hereby, taken as a whole, do not, to the best of VCAT's Knowledge,
contain any untrue statement of material fact and do not omit any material fact
necessary to make the statements or facts contained herein or therein not
misleading.
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ARTICLE 5
CTINTERACTIVE PRECLOSING COVENANTS
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During the period from the date of this Agreement until the
Effective Date, the Shareholder and CTInteractive, jointly and severally,
covenant and agree with VCAT as follows:
5.1 Advice of Changes. CTInteractive and the Shareholder will promptly
advise VCAT in writing, (a) of any event occurring subsequent to the date of
this Agreement that would render any representation or warranty of CTInteractive
or the Shareholder contained in this Agreement, if made on or as of the date of
such event or the Closing Date (as defined in Section 7.1 hereof), untrue or
inaccurate in any material respect and (b) of any material adverse change in
CTInteractive' financial condition, properties, assets, liabilities, business,
results of operations or prospects.
5.2 Maintenance of Business. The parties hereto understand and
acknowledge that it is their intent to work closely together during the period
from the date hereof until the Closing Date (as defined in Section 7.1 hereof).
If CTInteractive or the Shareholder become aware of a material deterioration in
the relationship with any material customer, supplier or key employee, such
person will promptly bring such information to the attention of VCAT in writing
and, if requested by VCAT, will exert all reasonable efforts to restore the
relationship.
5.3 Conduct of Business. CTInteractive will not, and the Shareholder
shall take all necessary action to ensure that CTInteractive does not, without
the prior written consent of the Chairman of the Board and Chief Executive
Officer or the Executive Vice President, Chief Financial Officer of VCAT, not to
be unreasonably withheld:
(a) borrow any money;
(b) enter into any transaction not in the ordinary course of
business or enter into any transaction or make any commitment involving an
expense of CTInteractive or capital expenditure by CTInteractive in excess of
$10,000, unless such transaction is already listed in the disclosure schedule;
(c) encumber or permit to be encumbered any of its assets except
in the ordinary course of its business consistent with past practice and to an
extent which is not material;
(d) dispose of any of its material assets except in the ordinary
course of business consistent with past practice;
(e) enter into any material lease or contract for the purchase or
sale of any property, real or personal, tangible or intangible, except in the
ordinary course of business consistent with past practice or enter into any
agreement of the types described in Section 3.17;
(f) fail to maintain its equipment and other assets in good
working condition and repair according to the standards it has maintained to the
date of this Agreement, subject only to ordinary wear and tear;
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(g) pay any bonus, royalty, increased salary or special
remuneration to any officer, employee or consultant (except pursuant to existing
arrangements heretofore disclosed in writing to VCAT ) or enter into any new
employment or consulting agreement with any such person, or enter into any new
agreement or plan of the type described in Section 3.18;
(h) change accounting methods;
(i) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital stock, or redeem or otherwise acquire any of
its capital stock, except as set forth on Schedule 5.3(i);
(j) amend or terminate any contract, agreement or license to
which it is a party except those amended or terminated in the ordinary course of
business, consistent with past practice, and which are not material in amount or
effect;
(k) lend any amount to any person or entity, other than advances
for travel and expenses which are incurred in the ordinary course of business
consistent with past practice, not material in amount, which travel and expenses
shall be documented by receipts for the claimed amounts;
(l) guarantee or act as a surety for any obligation except for
the endorsement of checks and other negotiable instruments in the ordinary
course of business, consistent with past practice which are not material in
amount;
(m) waive or release any material right or claim except in the
ordinary course of business, consistent with past practice;
(n) issue or sell any shares of its capital stock of any class or
any other of its securities, or issue or create any warrants, obligations,
subscriptions, options, convertible securities, stock appreciation rights or
other commitments to issue shares of capital stock, or accelerate the vesting of
any outstanding option or other security;
(o) split or combine the outstanding shares of its capital stock
of any class or enter into any recapitalization affecting the number of
outstanding shares of its capital stock of any class or affecting any other of
its securities;
(p) except for the Merger, merge, consolidate or reorganize with,
or acquire any entity;
(q) except as required to effect the Merger, amend its Articles
of Incorporation or Bylaws;
(r) agree to any audit assessment by any tax authority or file
any federal or state income or franchise tax return unless copies of such
returns have been delivered to VCAT for its review prior to filing;
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(s) license any of CTInteractive's technology or any of the
Intellectual Property of CTInteractive, except in the ordinary course of
business consistent with past practice;
(t) change any insurance coverage or issue any certificates of
insurance;
(u) terminate the employment of any employee listed in Schedule
3.18; or
(v) agree to do any of the things described in the preceding
clauses 5.3(a) through 5.3(u).
5.4 Certain Agreements. CTInteractive and the Shareholder will cause all
present employees and consultants of CTInteractive who have not previously
executed CTInteractive's forms of assignments of copyright and other
intellectual property rights to CTInteractive to execute such forms, copies of
which are attached hereto as Exhibit H.
5.5 Regulatory Approvals. CTInteractive and, if necessary, the
Shareholder, will execute and file, or join in the execution and filing, of any
application or other document that may be necessary in order to obtain the
authorization, approval or consent of any governmental body, federal, state,
local or foreign, which may be reasonably required, or which VCAT may reasonably
request, in connection with the consummation of the transactions provided for in
this Agreement. CTInteractive and the Shareholder will use all reasonable
efforts to obtain or assist VCAT in obtaining all such authorizations, approvals
and consents.
5.6 Necessary Consents. CTInteractive and the Shareholder will use their
respective best efforts to obtain such written consents and take such other
actions as may be necessary or appropriate for CTInteractive, in addition to
those set forth in Section 5.5, to facilitate and allow the consummation of the
transactions provided for herein and to facilitate and allow VCAT to carry on
CTInteractive' business after the Closing Date (as defined in Section 7.1
hereof).
5.7 Litigation. CTInteractive and the Shareholder will notify VCAT in
writing promptly after learning of any action, suit, proceeding or investigation
by or before any court, board or governmental agency, initiated by or against
CTInteractive or threatened against it.
5.8 No Other Negotiations. From the date hereof until the termination of
this Agreement (provided such termination is not in breach of this Agreement) or
the consummation of the Merger, CTInteractive and the Shareholder will not, and
will not authorize any officer, director, employee or affiliate of CTInteractive
or the Shareholder, or any other person, on its behalf, directly or indirectly,
to (a) solicit, facilitate, discuss or encourage any offer, inquiry or proposal
received from any party other than VCAT, concerning the possible disposition of
all or any substantial portion of CTInteractive's business, assets or capital
stock by merger, sale or any other means or to otherwise solicit, facilitate,
discuss or encourage any such disposition (other than the Merger), or (b)
provide any confidential information to or negotiate with any third party other
than VCAT in connection with any offer, inquiry or proposal concerning any such
disposition.
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CTInteractive and the Shareholder will immediately notify VCAT of any such
offer, inquiry or proposal.
5.9 Access to Information. Until the Closing Date (as defined in Section
7.1 hereof) and subject to the terms and conditions hereof relating to the
confidentiality and use of confidential and proprietary information,
CTInteractive and the Shareholder will provide VCAT and its agents with
reasonable access to the files, books, records and offices of CTInteractive,
including, without limitation, any and all information relating to CTInteractive
taxes, material commitments, material contracts, leases, licenses, real,
personal and intangible property, and financial condition, and specifically
including, without limitation, access to CTInteractive source code reasonably
necessary for VCAT to complete its diligence review of the CTInteractive
products and technology. CTInteractive will cause its accountants to cooperate
with VCAT and its agents in making available all financial information
reasonably requested, including without limitation the right to examine all
working papers pertaining to all financial statements prepared or audited by
such accountants.
5.10 Satisfaction of Conditions Precedent. CTInteractive and the
Shareholder will use all reasonable efforts to satisfy or cause to be satisfied
all the conditions precedent which are set forth in Article 9, and CTInteractive
and the Shareholder will use all reasonable efforts to cause the transactions
provided for in this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all consents and authorizations of third
parties and to make all filings with, and give all notices to, third parties
that may be necessary or reasonably required on its part in order to effect the
transactions provided for herein.
5.11 Blue Sky Laws. CTInteractive and the Shareholder shall use their
respective best efforts to assist VCAT to the extent necessary to comply with
the securities and Blue Sky laws of all jurisdictions applicable in connection
with the Merger.
5.12 Notification of Employee Problems. CTInteractive and the
Shareholder will promptly notify VCAT if any of CTInteractive' officers becomes
aware that any of the employees listed in Schedule 3.18 intends to leave its
employ.
ARTICLE 6
VCAT PRECLOSING COVENANTS
During the period from the date of this Agreement until the Effective
Date, VCAT covenants to and agrees with CTInteractive as follows:
6.1 Regulatory Approvals. VCAT will execute and file, or join in the
execution and filing, of any application or other document that may be necessary
in order to obtain the authorization, approval or consent of any governmental
body, federal, state, local or foreign, which may be reasonably required, or
which CTInteractive may reasonably request, in connection with the consummation
of the transactions provided for in this Agreement. VCAT will use all reasonable
efforts to obtain all such authorizations, approvals and consents.
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6.2 Satisfaction of Conditions Precedent. VCAT will use all reasonable
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Article 8, and VCAT will use all reasonable efforts to cause
the transactions provided for in this Agreement to be consummated, and, without
limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on its
part in order to effect the transactions provided for herein.
6.3 Blue Sky Laws. VCAT shall use its best efforts to assist
CTInteractive to the extent necessary to comply with the securities and Blue Sky
laws of all jurisdictions applicable in connection with the Merger.
6.4 Advice of Changes. VCAT will promptly advise CTInteractive in
writing, (a) of any event occurring subsequent to the date of this Agreement
that would render any representation or warranty of VCAT contained in this
Agreement, if made on or as of the date of such event or the Closing Date (as
defined in Section 7.1 hereof), untrue or inaccurate in any material respect and
(b) of any material adverse change in VCAT's financial condition, properties,
assets, liabilities, business, results of operations or prospects.
6.5 Litigation. VCAT will notify CTInteractive in writing promptly after
learning of any action, suit, proceeding or investigation by or before any
court, board or governmental agency, initiated by or against VCAT or threatened
against it.
ARTICLE 7
CLOSING MATTERS
7.1 The Closing. Subject to termination of this Agreement as provided in
Article 10 below, the closing of the transactions provided for herein (the
"Closing") will take place at the offices of Paul Hastings Janofsky & Walker
LLP, 695 Town Center Drive, Costa Mesa, California 92626 at 10:00 a.m., Pacific
Time on or before March 24, 2000, or, if all conditions to Closing have not been
satisfied or waived by such date, such other place, time and date as
CTInteractive and VCAT may mutually select (the "Closing Date"). Concurrently
with the Closing, the Articles of Merger, the Agreement of Merger and such
officers' certificates or other documents as may be required to effectuate the
Merger will be filed in the offices of the California Secretary of State and the
Utah Division of Corporations and Commercial Code, as appropriate. Accordingly,
the Effective Date of the Merger will be the Closing Date.
7.2 Exchange of Certificates.
(a) As of the Effective Date, all shares of CTInteractive Common
that are outstanding immediately prior thereto will, by virtue of the Merger and
without further action, cease to exist, and all such shares will be converted
into the right to receive from VCAT the number of shares of VCAT Common and cash
determined as set forth in Article 1 hereof.
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(b) At and after the Effective Date, each certificate
representing outstanding shares of CTInteractive Common will represent the
number of shares of VCAT Common into which such shares of CTInteractive Common
have been converted, and such shares of VCAT Common will be deemed registered
with the transfer agent of VCAT in the name of the holder of such certificate.
As soon as practicable after the Effective Date, the Shareholder will surrender
(a) the certificates for such shares (the "CTInteractive Certificates") to VCAT
for cancellation or (b) an affidavit of lost certificate in a form reasonably
satisfactory to VCAT. Promptly following the Effective Date and receipt of the
CTInteractive Certificates, VCAT will cause its transfer agent to issue to such
surrendering holder certificate(s) for the number of shares of VCAT Common to
which such holder is entitled pursuant to Article 1 hereof, and, to the extent
it has not already done so, VCAT will distribute any cash payable under Section
1.2.
(c) All shares of VCAT Common delivered upon the surrender of
CTInteractive Certificates in accordance with the terms hereof will be delivered
to the registered holder. After the Effective Date, there will be no further
registration of transfers of the shares of CTInteractive Common on the stock
transfer books of CTInteractive.
(d) Until CTInteractive Certificates representing CTInteractive
Common outstanding prior to the Merger are surrendered pursuant to this Section
7, such certificates will be deemed, for all purposes, to evidence ownership of
(a) the number of shares of VCAT Common into which the shares of CTInteractive
Common will have been converted, and (b) the right to receive that certain
amount of cash into which the shares of CTInteractive Common will have been
converted.
7.3 Delivery of Cash Consideration. On the Closing Date, VCAT shall
deliver to the Shareholder, in a form reasonably acceptable to the Shareholder,
the Cash Consideration, and the Shareholder shall deliver to VCAT any address or
wire transfer information necessary to effectuate such delivery of Cash
Consideration.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF CTINTERACTIVE
CTInteractive's obligations hereunder are subject to the
fulfillment or satisfaction, on and as of the Closing, of each of the following
conditions (any one or more of which may be waived by CTInteractive, but only in
a writing signed on behalf of CTInteractive by its President or Chief Financial
Officer):
8.1 Accuracy of Representations and Warranties. The representations and
warranties of VCAT set forth in Article 4 shall, to the best of VCAT's
Knowledge, be true and accurate in every material respect on and as of the
Closing Date with the same force and effect as if they had been made at the
Closing, and CTInteractive shall have received a certificate to such effect
executed on behalf of VCAT by its authorized officer.
8.2 Covenants. VCAT shall have performed and complied in all material
respects with all of its covenants contained in Article 6 on or before the
Closing Date, and
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CTInteractive shall have received a certificate to such effect executed on
behalf of VCAT by its authorized officer.
8.3 Compliance with Law. There shall be no order, decree, or ruling by
any court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
8.4 Government Consents. There shall have been obtained at or prior to
the Closing Date such permits or authorizations, and there shall have been taken
such other actions, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, including but not limited to satisfaction of all
requirements under applicable federal and state securities laws.
8.5 Documents. CTInteractive shall have received all written consents,
assignments, waivers, authorizations or other certificates reasonably deemed
necessary by CTInteractive' legal counsel to consummate the transactions
provided for herein.
8.6 No Litigation. No litigation or proceeding shall be pending which
will have the probable effect of enjoining or preventing the consummation of any
of the transactions provided for in this Agreement. No litigation or proceeding
shall be pending which could reasonably be expected to have a material adverse
effect on the financial condition or results of operations of VCAT that has not
been previously disclosed to CTInteractive herein.
8.7 Satisfactory Form of Legal and Accounting Matters. The form, scope
and substance of all legal and accounting matters contemplated hereby and all
closing documents and other papers delivered hereunder shall be reasonably
acceptable to CTInteractive's counsel.
8.8 Employment Agreements. VCAT shall have entered into an Employment
Agreement with the Shareholder, and an At-will Employment Letter with each of
the Key Employees in substantially the form attached hereto as Exhibit C, and
Exhibit D, respectively, which will become effective upon the Effective Date of
the Merger.
8.9 Requisite Approvals. The principal terms of this Agreement, the
Articles of Merger and the Agreement of Merger shall have been approved and
adopted by the Board of Directors of VCAT and Acquisition Corp. and unanimously
approved and adopted by the written consent or vote of the sole shareholder of
Acquisition Corp.
ARTICLE 9
CONDITIONS TO OBLIGATIONS OF VCAT
The obligations of VCAT hereunder are subject to the fulfillment
or satisfaction on, and as of the Closing, of each of the following conditions
(any one or more of which may be waived by VCAT, but only in a writing signed on
behalf of VCAT by its
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Chairman of the Board and Chief Executive Officer or Executive Vice
President-Chief Financial Officer):
9.1 Accuracy of Representations and Warranties. The representations and
warranties of the Shareholder and CTInteractive set forth in Articles 2 and 3
shall, to the best of the Shareholder's Knowledge, be true and complete in all
material respects as of the Closing with the same force and effect as if they
had been made at the Closing, and VCAT shall have received a certificate to such
effect executed on behalf of CTInteractive by its President.
9.2 Covenants. CTInteractive and the Shareholder shall have performed
and complied in all material respects with all of their covenants contained in
Article 5 on or before the Closing and VCAT shall have received a certificate to
such effect signed on behalf of CTInteractive by its President and the
Shareholder.
9.3 Absence of Material Adverse Change. There shall not have been, in
the reasonable judgment of the Board of Directors of VCAT, any change which
could be expected to have a Material Adverse Effect on the financial condition
or results of operations of CTInteractive.
9.4 Compliance with Law. There shall be no order, decree, or ruling by
any court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions provided
for in this Agreement.
9.5 Government Consents. There shall have been obtained at or prior to
the Closing Date such permits or authorizations, and there shall have been taken
such other action, as may be required to consummate the Merger by any regulatory
authority having jurisdiction over the parties and the actions herein proposed
to be taken, including but not limited to satisfaction of all requirements under
applicable federal and state securities laws.
9.6 Documents. VCAT shall have received all written consents,
assignments, waivers, authorizations or other certificates reasonably deemed
necessary by VCAT's legal counsel to provide for the continuation in full force
and effect of any and all material contracts and leases of CTInteractive, except
as disclosed in CTInteractive' Disclosure Schedules, and for VCAT to consummate
the transactions contemplated hereby.
9.7 No Litigation. No litigation or proceeding shall be pending which
will have the probable effect of enjoining or preventing the consummation of any
of the transactions provided for in this Agreement. No litigation or proceeding
shall be pending which could reasonably be expected to have a Material Adverse
Effect on the financial condition or results of operations of CTInteractive that
has not been previously disclosed to VCAT herein.
9.8 Requisite Approvals. The principal terms of this Agreement, the
Articles of Merger and the Agreement of Merger shall have been approved and
adopted by the Board of Directors of CTInteractive and unanimously approved and
adopted by the written consent or vote of the Shareholder.
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9.9 Employment and Noncompetition Agreements. The Shareholder shall have
executed and delivered to VCAT an Employment Agreement and a Noncompetition
Agreement substantially in the form attached hereto as Exhibits C and E, and
each of the Key Employees shall have executed and delivered to VCAT an At-will
Employment Letter substantially in the form attached hereto as Exhibit D, which
agreements will become effective upon the Effective Date of the Merger.
9.10 Termination of Rights. Any registration rights, rights of refusal,
rights to any liquidation preference, or redemption rights of any person
relating to the shares of capital stock on CTInteractive shall have been
terminated or waived as of the Closing.
9.11 Resignation of Directors. The directors of CTInteractive in office
immediately prior to the Effective Date of the Merger shall have resigned as
directors of CTInteractive effective as of the Effective Date of the Merger.
9.12 Satisfactory Form of Legal and Accounting Matters. The form, scope
and substance of all legal and accounting matters contemplated hereby and all
closing documents and other papers delivered hereunder shall be reasonably
acceptable to VCAT's counsel.
9.13 CTInteractive Options. All outstanding options to purchase the
capital stock of CTInteractive and all other rights, warrants and other
convertible securities to purchase the capital stock of CTInteractive
outstanding as of the Closing Date shall be canceled.
ARTICLE 10
TERMINATION OF AGREEMENT
10.1 Termination. This Agreement may be terminated at any time prior to
the Closing, whether before or after approval of the Merger by the Shareholder
of CTInteractive:
(a) by the mutual written consent of VCAT and CTInteractive;
(b) Unless otherwise specifically provided herein or agreed in
writing by VCAT and CTInteractive, upon notice by either party, this
Agreement will be terminated if all the conditions to Closing have not
been satisfied or waived on or before March 31, 2000 (the "Final Date")
other than as a result of a breach of this Agreement by the terminating
party;
(c) by CTInteractive, if there has been a material breach by
VCAT of any representation, warranty, covenant or agreement set forth in
this Agreement on the part of VCAT, or if any representation of VCAT
will have become untrue, in either case which has or can reasonably be
expected to have a Material Adverse Effect on VCAT and which VCAT fails
to cure within a reasonable time, not to exceed thirty (30) days, after
written notice thereof (except that no cure period will be provided for
a breach by VCAT which by its nature cannot be cured);
(d) by VCAT, if there has been a material breach by
CTInteractive of any representation, warranty, covenant or agreement set
forth in this Agreement on the
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part of CTInteractive, or if any representation of CTInteractive will
have become untrue, in either case which has or can reasonably be
expected to have a Material Adverse Effect on CTInteractive and which
CTInteractive fails to cure within a reasonable time not to exceed
thirty (30) days after written notice thereof (except that no cure
period will be provided for a breach by CTInteractive which by its
nature cannot be cured); or
(e) by either party, if a permanent injunction or other order by
any Federal or state court which would make illegal or otherwise
restrain or prohibit the consummation of the Merger will have been
issued and will have become final and nonappealable.
Any termination of this Agreement under this Section 10.1 will be effective by
the delivery of written notice of the terminating party to the other party
hereto.
10.2 Certain Continuing Obligations. Following any termination of this
Agreement pursuant to this Article 10, the parties hereto will continue to
perform their respective obligations under Article 13 but will not be required
to continue to perform their other covenants under this Agreement.
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification by CTInteractive and the Shareholder. CTInteractive
and the Shareholder shall jointly and severally indemnify, defend and hold
harmless VCAT and its officers, directors, attorneys, and agents and its
successors and assigns against and in respect of any and all losses, damages,
claims, obligations, demands, actions, suits, proceedings, assessments,
liabilities, judgments, recoveries and deficiencies, costs and expenses
(including, without limitation, reasonable attorneys' fees and costs and
expenses incurred in investigating, preparing, defending against or prosecuting
any litigation, claim, proceeding or demand), all on an after-tax basis, less
any amounts actually paid as insurance reimbursement, of any kind or character
(collectively, a "Loss"), which arise out of, result from, or relate to any
breach of, or failure by the Shareholder or CTInteractive fully to perform, or
any inaccuracy in, any of the representations, warranties, covenants or
agreements of the Shareholder or CTInteractive in this Agreement (whether known
or unknown at Closing), or in any Schedule, Exhibit, certificate, list, or other
document furnished or to be furnished by the Shareholder or CTInteractive under
this Agreement. The Shareholder shall have the right to assist in the defense
and to select its own counsel for such defense, as noted in Section 11.4 of this
Agreement.
11.2 Indemnification by VCAT. VCAT shall indemnify, defend and hold
harmless the Shareholder, in each capacity in which he has served CTInteractive,
and his attorneys and agents and his successors and assigns against and in
respect of any and all Losses, which arise out of, result from, or relate to any
breach of, or failure by VCAT fully to perform, or any inaccuracy in, any of the
representations, warranties, covenants or agreements of VCAT in this Agreement
(whether known or unknown at Closing), or in any Schedule, Exhibit, certified
list or other document furnished or to be furnished by VCAT under this
Agreement.
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VCAT shall have the right to assist in the defense and to select its own counsel
for such defense, as noted in Section 11.4 of this Agreement.
11.3 Notice of Claim. Whenever VCAT or the Shareholder learns of or
discovers any matter which may give rise to a claim for indemnification (the
"Claim") against any other party under this Article 11 (the "Indemnity
Obligor"), VCAT or the Shareholder, as the indemnified party (the "Indemnified
Party"), shall give notice to the Indemnity Obligor of the Claim. With respect
to Claims which are the subject of actions, suits, or proceedings threatened or
asserted in writing by any third party (a "Third Party Claim"), the Indemnified
Party shall, within 15 days following receipt of such Third Party Claim,
promptly notify the Indemnity Obligor in writing of any Claim for recovery,
specifying in reasonable detail the nature of the Loss and the amount of the
liability estimated to arise therefrom. If the Indemnified Party does not so
notify the Indemnity Obligor within 15 days of its discovery of a Third Party
Claim, such Claim shall be barred only to the extent that the Indemnity Obligor
is prejudiced by such failure to notify. The Indemnified Party shall provide to
the Indemnity Obligor as promptly as practicable thereafter all information and
documentation reasonably requested by the Indemnity Obligor to verify the Claim
asserted.
11.4 Defense. If the facts relating to a Loss arise out a Third Party
Claim, or if there is any claim against a third party available by virtue of the
circumstances of the Loss, the Indemnity Obligor may, by giving written notice
to the Indemnified Party within 15 days following its receipt of the notice of
such claim, elect to assume the defense or the prosecution thereof, including
the employment of counsel or accountants, reasonably satisfactory to the
Indemnified Party, at its cost and expense; provided, however, that during the
interim the Indemnified Party shall use its best efforts to take all action (not
including settlement) reasonably necessary to protect against further damage or
loss with respect to the Loss. The Indemnified Party shall have the right to
employ counsel separate from counsel employed by the Indemnity Obligor in any
such action and to participate therein, but the fees and expenses of such
counsel shall be at the Indemnified Party's own expense, unless (a) the
employment thereof has been specifically authorized by the Indemnity Obligor,
(b) such Indemnified Party has been advised by counsel reasonably satisfactory
to the Indemnity Obligor that there may be one or more legal defenses available
to it which are different from or additional to those available to the Indemnity
Obligor and in the reasonable judgment of such counsel it is advisable for such
Indemnified Party to employ separate counsel, or (c) the Indemnity Obligor has
failed to assume the defense of such action and employ counsel reasonably
satisfactory to the Indemnified Party. Whether or not the Indemnity Obligor
chooses to defend or prosecute such claim, all the parties hereto shall
cooperate in the defense or prosecution thereof and shall furnish such records,
information and testimony and shall attend such conferences, discovery
proceedings and trial as may be reasonably requested in connection therewith.
The Indemnity Obligor shall not be liable for any settlement of any such claim
effected without its prior written consent. In the event of payment by the
Indemnity Obligor to the Indemnified Party in connection with any Loss arising
out of a Third Party Claim, the Indemnity Obligor shall be subrogated to and
shall stand in the place of the Indemnified Party as to any events or
circumstances in respect of which the Indemnified Party may have any right or
claim against such third party relating to such indemnified matter. The
Indemnified Party shall cooperate with the Indemnity Obligor in prosecuting any
subrogated claim. The Indemnity Obligor will take no action in
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connection with any claim that would adversely affect the Indemnified Party
without the consent of the Indemnified Party.
11.5 Duration of the Parties Obligations. The Indemnity Obligor's
indemnification obligations under this Agreement shall survive the Closing and
shall terminate as follows: (a) with respect to claims for indemnity arising as
a result of a breach of the representations and warranties contained in Sections
2.1 through and including 2.7, 3.1, 3.3, 3.4, 3.5, 3.9, 4.1, 4.3, 4.4, 4.6 and
5.8, and claims for indemnity involving any action, suit or proceeding
threatened or asserted in writing by any third party against VCAT or the
Shareholder which arise out of, result from or are attributable to any breach
of, or failure by VCAT, on the one hand, or CTInteractive or the Shareholder, on
the other hand, to materially perform, or any inaccuracy in any of the
representations, warranties, covenants or agreements of VCAT, on the one hand,
or CTInteractive or the Shareholder, on the other hand, in this Agreement or in
any schedule, exhibit, certificate, list or other document furnished by VCAT, on
the one hand, or CTInteractive or the Shareholder, on the other hand, under this
Agreement, they shall continue and not terminate and (b) with respect to all
other claims for indemnity, after one (1) year from the Closing Date.
11.6 Limitations on Amount -- CTInteractive and the Shareholder.
CTInteractive and the Shareholder will have no liability (for indemnification or
otherwise) under Section 11.1 until the total of all amounts that would be
subject to claims for indemnification with respect to such matters exceeds One
Hundred Thousand Dollars ($100,000), in which event CTInteractive and the
Shareholder shall be jointly and severally liable only to the extent such amount
exceeds One Hundred Thousand Dollars ($100,000). However, this Section will not
apply in the case of fraud or misrepresentation or an intentional breach of or
default under any provision of this Agreement on the part of CTInteractive or
the Shareholder.
ARTICLE 12
DEFINITIONS AND ACCOUNTING
12.1 Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Affiliate" (and, with a correlative meaning, "Affiliated") shall
mean, with respect to any Person, any other Person that directly, or through one
or more intermediaries, controls or is controlled by or is under common control
with such first Person, and, if such a Person is an individual, any member of
the immediate family of such individual and any trust whose principal
beneficiary is such individual or one or more members of such immediate family
and any Person who is controlled by any such member or trust. As used in this
definition, "control" (including, with correlative meanings, "controlled by" and
"under common control with") shall mean possession, directly or indirectly, of
power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise), and "immediate family" shall mean parents, spouse and
children.
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"Disclosure Schedules" means the document prepared by
CTInteractive delivered to VCAT and containing those schedules containing
certain disclosures, if any, referred to within the Agreement.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, or
any similar federal statute, and the rules and regulations of the Securities and
Exchange Commission (or of any other U.S. federal Agency then administering the
Exchange Act) thereunder, all as the same shall be in effect at the time.
"Knowledge" - An individual will be deemed to have "Knowledge" of
a particular fact or other matter if such individual is actually aware of such
fact or other matter. A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is
serving, or who has at any time served, as a director, officer, partner,
executor, or trustee of such Person (or in any similar capacity) has Knowledge
of such fact or other matter.
"Material Adverse Effect" means a material adverse effect on the
business, operations, condition or prospects (financial or otherwise) of
CTInteractive or VCAT, as the context warrants.
"Person" means an individual, corporation, partnership, joint
venture, association, joint stock company, trust, estate of a deceased natural
person, foundation, fund, institution, society, union or club or unincorporated
organization, or a government or any agency or political subdivision thereof.
"Securities Act" means the U.S. Securities Act of 1933, as
amended, or any similar U.S. federal statute, and the rules and regulations of
the U.S. Securities and Exchange Commission (or of any other Federal agency then
administering the Securities Act) thereunder, all as the same shall be in effect
at the time.
12.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with IRS record keeping requirements and
all other financial data submitted pursuant to this Agreement shall be prepared
and calculated in accordance with such requirements.
ARTICLE 13
MISCELLANEOUS
13.1 Governing Law; Venue. The internal laws of the State of California
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto. The parties hereby irrevocably
and unconditionally consent to submit to the exclusive jurisdiction of the
courts of the State of California, County of Los Angeles and/or the United
States District Court for the Central District of California for any actions,
suits, controversies or proceedings arising out of or relating to this agreement
and the transactions contemplated hereby (and the parties agree not to commence
any action, suit or proceeding relating thereto except in such courts), and
further agree that service of any
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process, summons, notice or document by U.S. registered mail to the respective
addresses set forth above shall be effective service of process for any action,
suit or proceeding brought against the parties in any such court. The parties
hereby irrevocably and unconditionally waive any objection to the laying of
venue of any action, suit, controversies or proceeding arising out of this
agreement or the transactions contemplated hereby, in the courts of the State of
California, County of Los Angeles and/or the United States District Court for
the Central District of California, and hereby further irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any
such action, suit or proceeding brought in any such court has been brought in an
inconvenient or improper forum.
13.2 Assignment; Binding Upon Successors and Assigns. Neither party
hereto may assign any of its rights or obligations hereunder without the prior
written consent of the other party hereto. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
13.3 Severability. If any provision of this Agreement, or the
application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Agreement and 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
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 the void or unenforceable provision.
13.4 Counterparts. This Agreement may be executed in counterparts, each
of which will be an original as regards any party whose name appears thereon and
all of which together will constitute one and the same instrument. This
Agreement will become binding when one or more counterparts hereof, individually
or taken together, bear the signatures of all parties reflected hereon as
signatories.
13.5 Other Remedies. Except as otherwise provided herein, 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 on such party,
and the exercise of any one remedy will not preclude the exercise of any other.
13.6 Amendment and Waivers. Any term or provision of this Agreement may
be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof or default in the performance hereof will
not be deemed to constitute a waiver of any other default or any succeeding
breach or default. This Agreement may be amended by the parties hereto at any
time before or after approval of the Shareholder.
13.7 No Waiver. The failure of any party to enforce any of the
provisions hereof will not be construed to be a waiver of the right of such
party thereafter to enforce such provisions. The waiver by any party of the
right to enforce any of the provisions hereof on any occasion will not be
construed to be a waiver of the right of such party to enforce such provision on
any other occasion.
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13.8 Expenses. Each party will bear its respective expenses and fees of
its own accountants, attorneys, investment bankers and other professionals
incurred with respect to this Agreement and the transactions contemplated
hereby. If the Merger is consummated, the Shareholder will pay at or immediately
before the Closing the accounting and attorneys' fees and expenses and other
fees and expenses incurred by CTInteractive and the Shareholder in connection
with the Merger, and neither VCAT nor CTInteractive will be responsible for such
fees and expenses.
13.9 Finder's or Broker's Fees. The Shareholder and CTInteractive each
represent to VCAT that it has not made any arrangement or had any dealings
whereby CTInteractive or VCAT could become subject, absolutely or contingently,
to a claim for any brokerage commission or finder's fee. VCAT represents to the
Shareholder and CTInteractive that VCAT has not and will not pay any brokerage
commission or finder's fee in respect of the consideration to be paid under this
Agreement, and VCAT has not made any arrangement or had any dealings whereby the
Shareholder, or CTInteractive could become subject, absolutely or contingently,
to a claim for any brokerage commission or finder's fee. The Shareholder and
CTInteractive on the one hand, and VCAT, on the other hand, each agree to
indemnify and hold harmless the other against any and all claims, demands,
losses, costs, expenses, obligations, liabilities, damages, recoveries, and
deficiencies, including interest, penalties, and reasonable attorneys fees,
incurred or suffered by reason of any brokerage commission or finder's fee
alleged to be payable because of any act, omission or statement of the
indemnifying party.
13.10 Notices. Any notice or other communication required or permitted
to be given under this Agreement will be in writing, will be delivered
personally or by mail or express delivery, postage prepaid, and will be deemed
given upon actual delivery or, if mailed by registered or certified mail, on the
third business day following deposit in the mails, addressed as follows:
If to either the
Shareholder
or CTInteractive: CTInteractive, Inc.
901 Wilshire Blvd. #340
Santa Monica, California 90405
Fax: (310) 899-9030
Attention: Donald Scott Campbell, President
With a copy to: Berman, Mausner & Resser
4727 Wilshire Boulevard, Suite 500
Los Angeles, California 90010-3874
Fax: (323) 965-1919
Attention: Jon Dean, Esq.
If to VCAT: Venture Catalyst Incorporated
16868 Via Del Campo Court #200
San Diego, CA 92127
Fax: (619) 716-2101
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<PAGE> 48
Attention: Kevin McIntosh,
Chief Financial Officer
With a copy to: Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive
Seventeenth Floor
Costa Mesa, California 92626-1924
Fax: (714) 979-1921
Attention: John F. Della Grotta, Esq.
or to such other address as the party in question may have furnished to the
other party by written notice given in accordance with this Section 13.10.
13.11 Construction of Agreement. A reference to an article, section or
exhibit will mean an article or section in, or an exhibit to, this Agreement,
unless otherwise explicitly set forth. The titles and headings in this Agreement
are for reference purposes only and will not in any manner limit the
construction of this Agreement. For the purposes of such construction, this
Agreement will be considered as a whole.
13.12 No Joint Venture. Nothing contained in this Agreement will be
deemed or construed as creating a joint venture or partnership between the
parties hereto. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party will have the
power to control the activities and operations of any other, and the parties'
status is, and at all times, will continue to be, that of independent
contractors with respect to each other. No party will have any power or
authority to bind or commit any other. No party will hold itself out as having
any authority or relationship in contravention of this Section.
13.13 Further Assurances. Each party agrees to cooperate fully with the
other party and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
the other party to evidence and reflect the transactions provided for herein and
to carry into effect the intent of this Agreement.
13.14 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, partner or employee of any party hereto or any other person
or entity, unless specifically provided otherwise herein, and, except as so
provided, all provisions hereof will be personal solely between the parties to
this Agreement.
13.15 Public Announcement. VCAT and CTInteractive will issue a press
release approved by both parties announcing the Merger as soon as practicable
following the execution of this Agreement. Thereafter, VCAT may issue such press
releases, and make such other disclosures regarding the Merger, as it determines
to be required or appropriate under applicable securities laws or NASD for
Nasdaq Stock Market rules. CTInteractive will not make any other public
announcement or disclosure of the transactions contemplated by this Agreement.
CTInteractive will take all reasonable precautions to prevent any trading in the
securities of VCAT by officers, directors, employees and agents of CTInteractive
having
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knowledge of any material information regarding VCAT provided hereunder until
the information in question has been publicly disclosed.
13.16 Confidentiality. Except as expressly authorized by VCAT in
writing, CTInteractive will not directly or indirectly divulge to any person or
entity or use any VCAT Confidential Information, except as required for the
performance of its duties under this Agreement. Except as expressly authorized
by CTInteractive in writing, VCAT will not directly or indirectly divulge to any
person or entity or use any CTInteractive Confidential Information, except as
required for the performance of its duties under this Agreement. As used herein,
"VCAT Confidential Information" consists of (a) any information designated by
VCAT as confidential whether developed by VCAT or disclosed to VCAT by a third
party, (b) the source code to any VCAT software and any trade secrets relating
to any of the foregoing, and (c) any information relating to VCAT 's product
plans, product designs, product costs, product prices, product names, finances,
marketing plans, business opportunities, personnel, research development or
know-how. As used herein, "CTInteractive Confidential Information" consists of
(x) any information designated by CTInteractive as confidential whether
developed by CTInteractive or disclosed to CTInteractive by a third party, (y)
the source code to any CTInteractive software, and any trade secrets related to
any of the foregoing, and (z) any information relating to CTInteractive product
plans, product designs, product costs, product prices, product names, finances,
marketing plan, business opportunities, personnel, research, development or
know-how. "VCAT Confidential Information" and "CTInteractive Confidential
Information" also include the terms and conditions of this Agreement, except as
disclosed in accordance with Section 13.15 above. The foregoing restriction will
apply to information about a party whether or not it was obtained from such
party's employees, acquired or developed by the other party during such other
party's performance under this Agreement, or otherwise learned. The foregoing
restrictions will not apply to information that (i) has become publicly known
through no wrongful act of the receiving party, (ii) has been rightfully
received from a third party authorized by the party which is the owner, creator
or compiler to make such disclosure without restriction, (iii) has been approved
or released by written authorization of the party which is the owner, creator or
compiler, or (iv) is being or has theretofore been disclosed pursuant to a valid
court order after a reasonable attempt has been made to notify the party which
is the owner, creator or compiler.
13.17 Entire Agreement. This Agreement, the exhibits hereto, the VCAT
Ancillary Agreements, the CTInteractive Ancillary Agreements and the
accompanying letter from VCAT regarding CTInteractive employees constitute the
entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect to the subject matter hereof. The express terms
hereof control and supersede any course of performance or usage of trade
inconsistent with any of the terms hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
VENTURE CATALYST INCORPORATED
a Utah corporation
By: /S/ L. DONALD SPEER, II
-------------------------------------
L. Donald Speer, II,
Chairman of the Board and
Chief Executive Officer
VENTURE ACQUISITION CORPORATION,
a Utah corporation
By: /S/ SANJAY SABNANI
-------------------------------------
Sanjay Sabnani
President
CTINTERACTIVE, INC.,
a California corporation
By: /S/ DONALD SCOTT CAMPBELL
-------------------------------------
Donald Scott Campbell, President
SHAREHOLDER
By: /S/ DONALD SCOTT CAMPBELL
-------------------------------------
Donald Scott Campbell
SIGNATURE PAGE TO AGREEMENT AND
PLAN OF REORGANIZATION
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EXHIBIT 10.1
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into as
of this 25th day of February, 2000 by and between VENTURE CATALYST INCORPORATED,
a Utah corporation (the "Company") and G. FRITZ OPEL ("Consultant").
1. SCOPE OF AGREEMENT. The Company hereby retains Consultant and Consultant
hereby agrees to render the services as indicated on Exhibit A hereto (the
"Services") upon the terms and conditions hereinafter set forth. Unless
otherwise instructed, Consultant shall be responsible to and report to L. Donald
Speer, II, Chief Executive Officer for the Company, during the term of this
Agreement.
2. TERM OF ENGAGEMENT. Consultant shall be engaged by the Company for a
period of one (1) year from the date hereof (the "Consultation Period"), unless
sooner terminated as provided herein.
3. INDEPENDENT CONTRACTOR. Consultant represents that Consultant is an
independent contractor and not the agent, employee or servant of the Company.
Consultant further agrees to hold the Company free and harmless from any and all
claims arising from any negligent act or omission related to services performed
by Consultant pursuant to this Agreement. Consultant shall not be entitled to
any benefits from the Company as a result of this Agreement and Consultant shall
have no authority to obligate or incur on behalf of the Company any expense,
liability or obligation, or enter into any contract on behalf of the Company
without the consent of the Company.
4. COVENANT NOT TO COMPETE. During the term of this Agreement (including
any modification or extension thereof) and for a period of one (1) year
thereafter (the "Non-compete Period"), Consultant shall not, without the prior
written consent of the Chief Executive Officer and Chairman of the Board of the
Company, (i) participate in any business enterprise or provide consulting
services to any company or business either directly or indirectly in competition
with the Company as the business of the Company currently is and may be
conducted during the Non-compete Period, or (ii) provide consulting services to
any of the Company's current or past Indian gaming clients located outside the
counties of San Diego, Orange and Los Angeles, State of California. In addition,
during the term of this Agreement (including any modification or extension
thereof) and for a period of three (3) years thereafter, Consultant shall not,
without the prior written consent of the Chief Executive Officer and Chairman of
the Board of the Company, provide consulting services to any Indian gaming
property located in the counties of San Diego, Orange and Los Angeles, State of
California.
<PAGE> 2
This covenant not to compete shall not preclude the ownership or
acquisition of securities in any enterprise or the exercise of rights
appurtenant thereto, provided that such securities are listed on a national
securities exchange or are regularly quoted in an established over-the-counter
market and, provided further, that the securities so owned or acquired comprise
less than 5% percent of the total outstanding voting securities of such
enterprise and do not give Consultant any meaningful voice in the management or
operation of such enterprise.
The Company and Consultant agree that this Agreement shall not be
interpreted or construed to alter or effect in any material manner the
contractual relationship among the Company, the Barona Group of Capitan Grande
Band of Mission Indians and the Barona Casino.
5. COMPENSATION. In consideration for his performance of the Services
hereunder, Consultant shall receive a monthly consulting fee as follows:
(a) One Thousand Three Hundred Eighty-Eight Dollars and Eighty Eight Cents
($1,388.88), for the month of February 2000;
(b) Fifteen Thousand Three Hundred Nineteen Dollars and Six Cents
($15,319.06), for the month of March 2000;
(c) Sixteen Thousand Six Hundred Eighty-Seven Dollars and Seventy-Three
Cents ($16,687.73), for the month of April 2000; and
(d) Commencing May 1, 2000, Company shall pay Consultant as follows: (i) a
minimum base fee of $2,500.00 per month, said fee to be credited at a
rate of $250.00 per hour, against Consultant's first ten hours of
services rendered (base hours), (ii) all reasonable pre-approved
expenses, and (iii) $250.00 per hour for services rendered in excess of
Consultant's base hours. All services rendered in excess of the base
hours must be pre-approved by the Company in writing.
In addition, the Company shall pay (i) Consultant's automobile payment
for the month of March 2000 (approx. $1,368.68), and (ii) Consultant's
automobile insurance premiums through April 30, 2000 (approx. $403.00 per
month).
6. OFFICE SPACE. During the term of this Agreement (including any
modification or extension thereof), the Company shall provide the Consultant
with office space commensurate with Consultant's responsibilities and
obligations under this Agreement.
7. ACCESS TO WORK PRODUCT. The Company shall have access at all reasonable
times to all work product generated by Consultant pursuant to this Agreement
("Work Products"), including all information acquired by Consultant with respect
to potential investment and acquisition candidates, and all work products
generated by Consultant which are in any way based upon or derived from such
information, and all such Work
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<PAGE> 3
Products shall be the property of the Company. Consultant shall turn over to the
Company all Work Products upon completion of the same, and shall, upon the
Company's request, provide progress reports with respect to work in process.
8. COMPLIANCE WITH LAWS. Consultant represents and warrants that all work
performed by Consultant pursuant to this Agreement shall be performed in
compliance with all applicable laws, rules, and regulations applicable thereto.
9. NONDISCLOSURE AND OWNERSHIP OF PROPRIETARY INFORMATION.
(a) PROPRIETARY INFORMATION. Consultant hereby acknowledges that
Consultant may make use of, acquire, create, develop or add to certain
confidential and/or proprietary information regarding the Company and its
business (whether in existence prior to, as of or after the date hereof,
collectively, "Proprietary Information"), which Proprietary Information shall
include, without limitation, all of the following materials and information
(whether or not reduced to writing and whether or not patentable or protected by
copyright): techniques, inventions, processes, formulae, programs, technical
data, "know-how," procedures, manuals, confidential reports and communications,
business plans, marketing methods, plans or methods of the Company for licensing
products and services, product sales or cost information, new product ideas or
improvements, new packaging ideas or improvements, research and development
programs, identities or lists of suppliers, vendors, or other customers,
financial information and financial projections of the Company of any nature
whatsoever, or any other trade secrets or confidential or proprietary
information relating to the Company and/or its business, and all other
information protected by the Uniform Trade Secrets Act as in effect in the State
of California. Consultant (i) shall hold all such Proprietary Information in the
strictest confidence, (ii) shall cause its employees and agents to hold all such
Proprietary Information in the strictest confidence, and (iii) agrees not to
use, copy, or otherwise replicate any Proprietary Information. Furthermore,
Consultant acknowledges and agrees that any disclosure of Proprietary
Information by Consultant in violation of this Agreement would be detrimental to
the Company and likely to cause the Company irreparable harm. Consultant further
acknowledges that the right to maintain the Proprietary Information, the right
to preserve the goodwill of the Company and the right to the benefit of any
relationships that develop between Consultant and the clients, suppliers and
employees of the Company by virtue of this Agreement with the Company constitute
proprietary rights of the Company, which the Company is entitled to protect and
which shall be included in the definition of "Proprietary Information".
Notwithstanding the foregoing, Proprietary Information shall not include
information that:
(i) at the time of disclosure, is generally available to,
and known by, the public; or
(ii) becomes public through no action of Consultant or any
employee or agent of Consultant; or
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<PAGE> 4
(iii) is received from a third party lawfully in possession of
the information and under no obligation to keep the
information confidential; or
(iv) is required to be disclosed by a court of competent
jurisdiction or other competent authority.
(b) OWNERSHIP. Consultant acknowledges and agrees that all right, title
and interest in and to any Proprietary Information shall be and shall remain the
exclusive property of the Company. Without limiting the foregoing, Consultant
shall assign to the Company any and all right, title and interest which
Consultant may have in all Proprietary Information made, developed or conceived
of in whole or in part by Consultant during its engagement hereof. Consultant
agrees to make all necessary disclosures and execute, acknowledge and deliver
all instruments and perform all acts reasonably requested by the Company to
effectuate the assignment provided for in the previous sentence.
(c) RETURN OF INFORMATION. Upon the termination of this Agreement for
any reason or upon request of the Company, all Proprietary Information,
intellectual property, discoveries and trade secrets, together with all copies
of the same, shall be returned to the Company.
10. REPRESENTATIONS AND WARRANTIES. Consultant represents and warrants that
all work and materials or portions thereof delivered to the Company by
Consultant in connection with the Services shall be original, shall be solely of
Consultant's authorship and design and shall not infringe upon the rights of any
other person or party.
11. INDEMNITY. Consultant hereby agrees to indemnify and hold harmless the
Company and its managers, directors, officers, employees and all other persons
which directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with the Company (collectively,
"Company's Indemnified Parties") from, and to reimburse the Company and
Company's Indemnified Parties for, any and all losses, damages, liabilities,
claims, fees, costs and expenses of any kind related thereto (including, without
limitation, any and all reasonable legal fees) actually incurred or suffered by
Company's Indemnified Parties arising out of, based upon or resulting from any
breach of any representation, warranty, covenant or obligation of Consultant
contained in this Agreement.
12. TERMINATION OF ENGAGEMENT. This Agreement and Consultant's engagement by
the Company shall terminate on the earliest of the following events to occur:
(a) At the expiration of the period set forth in Section 2 hereof;
(b) Thirty (30) days after a party has received written notice from the
other party of the other party's election, in its sole discretion, to terminate
this Agreement;
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(c) Death of Consultant, liquidation or dissolution of the business of
Consultant or the Company, or the transfer of all or substantially all the
assets or business of Consultant or the Company; or
(d) Five (5) days after a party ("Breaching Party") has received written
notice from the other party ("Nonbreaching Party") of the Breaching Party's
material breach of this Agreement; provided, however, that if such material
breach is capable of being cured, this Agreement shall not terminate if the
Breaching Party cures such breach within ten (10) days of receiving such notice.
Upon termination hereunder, the obligations and covenants of the parties
under this Agreement shall be of no further force and effect, except that the
provisions of Sections 7, 8, 9, 10, 11 and 14 shall survive the termination of
this Agreement, and any consulting fees earned by Consultant and/or expenses
incurred prior to the date of termination of this Agreement and pursuant to the
terms of this Agreement, shall be paid and/or reimbursed by the Company.
13. NOTICES. All notices under this Agreement shall be in writing and shall
be deemed to have been duly given on the date of service if served personally,
or within five days after mailing by first class registered or certified mail,
postage prepaid, and properly addressed, or upon receipt if sent by telegraph or
telephonic facsimile transmission to the party to whom notice is to be given, as
follows:
To Consultant: G. Fritz Opel
11205 Gatemore Way
San Diego, California 92131
Fax: (619) 239-5601
To the Company: Venture Catalyst Incorporated
16868 Del Campo Court, Suite 200
San Diego, California 92127
Fax: (858) 385-1001
Attn: Chief Financial Officer
with a copy to: Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive, 17th Floor
Costa Mesa, California 92626
Attention: John F. Della Grotta, Esq.
Fax: (714) 979-1921
Either party to this Agreement may change its address for notice
purposes by complying with the procedures set forth in this Section 13.
5
<PAGE> 6
14. EQUITABLE RELIEF. Consultant recognizes that the Company is relying for
its protection upon the existence and validity of the provisions set forth in
this Agreement and that monetary damages would not be an adequate remedy for the
Company if Consultant violated any of these provisions. Therefore, Consultant
agrees that in addition to any other rights or remedies it may have, the Company
shall have the right to equitable relief by way of injunction, accounting for
earnings or otherwise, for the violation of any provision of this Agreement.
Consultant agrees that the restrictions set forth in this Agreement are
reasonable and that such restrictions will not prevent Consultant from earning a
livelihood upon expiration or termination of this Agreement for any reason.
15. EXPENSES. If any legal action is brought by any party for the
enforcement of this Agreement the prevailing party shall be entitled to recover
from the non-prevailing party its reasonable attorneys' fees and other costs and
expenses incurred in connection therewith in addition to any other relief to
which it might be entitled.
16. EFFECT OF AGREEMENT. This Agreement, along with the Settlement and
Release Agreement between the Company and Consultant dated as of the date
hereof, constitutes the entire agreement between the Company and Consultant with
respect to the subject hereof, and fully supersedes any prior agreements or
understandings with respect thereto, whether written or oral, including, without
limitation, all prior discussions between the Company and Consultant regarding
the provision of services by Consultant to the Company or arising out of any
contemplated transaction between Consultant and the Company. The parties hereto
acknowledge that no representations, inducements, promises or agreements, oral
or otherwise, have been made by any party, or anyone acting on behalf of any
party, which are not embodied herein, and that no other agreement, statement or
promise not contained in this Agreement shall be valid or binding on either
party. No provision of this Agreement shall be deemed waived, amended or
modified by any party, unless in writing and signed by the parties hereto.
17. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
principles of conflicts of laws.
18. JURISDICTION FOR LEGAL ACTIONS. In connection with any action brought
pursuant to or arising out of this Agreement, the parties hereby irrevocably and
unconditionally consent to submit to the exclusive jurisdiction of the courts of
the State of California, County of San Diego, and/or the United States District
Court for the Southern District of California for any actions, suits,
controversies or proceedings arising out of or relating to this Agreement and
the transactions contemplated hereby (and the parties agree not to commence any
action, suit or proceeding relating thereto except in such courts), and further
agree that service of any process, summons, notice or document by U.S.
registered mail to the respective addresses set forth above shall be effective
service of process for any action, suit or proceeding brought against the
parties in any such court. The parties hereby irrevocably and unconditionally
waive any objection to the laying of
6
<PAGE> 7
venue of any action, suit, controversies or proceeding arising out of this
Agreement or the transactions contemplated hereby, in the courts of the State of
California, County of San Diego and/or the United States District Court for the
Southern District of California, and hereby further irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any
such action, suit or proceeding brought in any such court has been brought in an
inconvenient or improper forum.
19. ATTORNEYS' FEES AND COSTS. If any action in law or in equity is
necessary to enforce or interpret the terms of this Agreement, the parties shall
each bear their respective attorneys' fees, costs and all other related expenses
unless otherwise specifically awarded by the court.
20. MISCELLANEOUS.
(a) Any provision of this Agreement which is rendered unenforceable by a
court of competent jurisdiction shall be ineffective only to the extent of such
prohibition or invalidity and shall not invalidate or otherwise render
ineffective any or all of the remaining provisions of this Agreement.
(b) Any assignment by Consultant of the services or work to be performed
under this Agreement, in whole or in part, or any other interests hereunder,
voluntarily, involuntarily or by operation of law, without the Company's written
consent, shall be void.
(c) No modification, amendment or waiver of any provision of this
Agreement shall be effective unless the same shall be in a written instrument
signed by the parties hereto.
(d) This Agreement may be executed in counterparts, which when taken
together will be deemed to constitute one document. Facsimile signatures shall
be treated as originals for this purpose.
7
<PAGE> 8
[SIGNATURE PAGE TO CONSULTING AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
"Company"
VENTURE CATALYST INCORPORATED
(a Utah corporation)
By: /S/ L. DONALD SPEER, II
-------------------------------
Name: L. DONALD SPEER, II
-----------------------------
Title: CEO
----------------------------
"Consultant"
G. FRITZ OPEL
/S/ G. FRITZ OPEL
-----------------
8
<PAGE> 9
EXHIBIT A
Consultant agrees to provide the following services to the Company:
(a) provide assistance and advice with the marketing, advertising media
buys and branding of the Barona Casino and Barona Valley Ranch;
(b) provide assistance and advice to the Barona Group of Capitan Grande
Band of Mission Indians (Barona Tribe) concerning marketing, advertising and
media matters as may be requested;
(c) provide such additional assistance and advice and consulting
services as may be reasonably requested by the Company; and
(d) continue to serve as a member of the Board of Directors of KINeSYS
Pharmaceuticals, Inc. as the Company's representative.
Consultant shall be available for up to ten (10) hours per month to
provide the requested services to the Company. For these purposes, Consultant
shall be deemed to be "available" if he is accessible by telephone or electronic
mail.
9
<PAGE> 1
EXHIBIT 10.2
SETTLEMENT AND RELEASE AGREEMENT
This Settlement and Release Agreement (this "Agreement") is hereby
entered into by and between G. Fritz Opel, an individual (the "Executive"), and
Venture Catalyst Incorporated, formerly known as Inland Entertainment
Corporation, a Utah corporation (the "Company").
RECITALS
WHEREAS, the Executive has been employed by the Company on an at-will
basis since May 1, 1995, most recently serving as Executive Vice President and a
Director of the Company; and
WHEREAS, the Executive and the Company have determined that it is in
their mutual best interests that the Executive resign from his positions as
Executive Vice President and a Director of the Company, and all other positions
that he holds with the Company and any other subsidiary or related entity of the
Company.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises contained herein
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereby agree as follows:
1. Unconditional Resignation. The Executive hereby voluntarily,
unconditionally and irrevocably resigns as an employee, an officer and a
director (including a member of any committees of the Board of Directors) of the
Company and any other subsidiary or related entity of the Company, effective as
of February 25, 2000 (the "Resignation Date"). The Company hereby accepts such
resignation and the Executive is relieved of all duties effective as of the
Resignation Date. Concurrently with the execution of this Agreement, the
Executive shall execute a separate letter of resignation in a form acceptable to
the Company.
2. Compensation, Expenses, Vacation Pay and Other Benefits Through
the Resignation Date. The Executive acknowledges and agrees that the Company has
paid the Executive his current base salary through the Resignation Date and the
Executive does not have any accrued or unused vacation pay earned through the
Resignation Date. The Executive acknowledges and agrees that the payment of the
foregoing salary through the Resignation Date constitutes full payment of any
and all monies (including, but not limited to, any bonus amounts) that he earned
or that is owed to him during his employment by the Company through the
Resignation Date.
<PAGE> 2
3. Company Property. With the exception of the computer equipment
referenced in Section 6(b) herein, on the Resignation Date, the Executive shall
return to the Company all property of the Company in the Executive's possession.
In addition, (i) by no later than March 1, 2000, the Executive shall relinquish
his membership in the Del Mar Country Club, and (ii) the Executive's
automobile-related benefits shall be discontinued as of the Resignation Date.
4. COBRA Benefits. The Executive (or any of his eligible dependents)
may elect to continue to participate in any of the Company's group health
insurance plans pursuant to COBRA, 29 U.S.C. Section 1161, et seq. Nothing in
this Agreement is intended to alter the terms of COBRA in any way and those
terms shall remain applicable in all respects.
5. Continuation of Benefits After the Resignation Date. Except as
expressly provided in this Agreement or in the plan documents governing the
Company's employee benefit plans, as of the Resignation Date, the Executive will
no longer be eligible for, receive, accrue, or participate in any other benefits
or benefit plans provided by the Company, including, without limitation,
medical, dental and life insurance benefits, a car allowance and the Company's
401(k) retirement plan; provided, however, that health care coverage for the
Executive and the Executive's dependents may be continued under COBRA for as
long as the Executive is eligible for such coverage and so long as the Executive
pays the required premiums.
6. Severance Benefits After the Resignation Date. Notwithstanding
his voluntary resignation, the Company shall provide, as severance benefits, the
following benefits to the Executive after the expiration of the date that the
period of revocation under Section 11(c) of this Agreement has lapsed without
exercise and after the Executive's spouse executes the Spousal Consent in the
form presented to the Executive by the Company (the "Settlement Date").
(a) Health Insurance Premiums. If the Executive (or any of his
eligible dependents) elects to continue to participate in any of the Company's
group health insurance plans pursuant to COBRA, 29 U.S.C. Section 1161, et seq.,
the Company shall reimburse the Executive, following the Settlement Date, for
the premiums paid by the Executive for such COBRA coverage commencing on the
Resignation Date through April 30, 2000.
(b) Computer Equipment. The Company shall allow the Executive to
continue to use, at the Executive's home, the computer equipment consisting of a
Compaq computer system and a Hewlett-Packard printer.
<PAGE> 3
(c) Option Agreements Amendments. Each stock option agreement
heretofore granted to the Executive under the Company's stock-based compensation
plans shall, to the extent legally permissible, be amended to provide (i) that
the options granted thereunder shall continue to be exercisable and shall
continue to vest according to the vesting schedules set forth therein as though
the Executive was still employed by the Company during the time that the
Executive is performing consulting services for the Company pursuant to the
Consulting Agreement (as defined herein), and (ii) for a period to exercise all
vested options (including options which will have vested on or before the
termination of the Executive's engagement as a consultant to the Company) until
and including three months after the termination of the Consulting Agreement.
The payments and benefits set forth in this Section 6 are, from and
after the Settlement Date, the Executive's only right to compensation from the
Company and any of its parents, direct or indirect subsidiaries, divisions or
related entities (collectively referred to herein as the "Company and its
Related Entities").
7. Consulting Agreement. The Company and the Executive shall enter
into a consulting agreement dated as of the date hereof (the "Consulting
Agreement"), whereby the Company shall retain the Executive as a consultant upon
the terms and conditions set forth therein.
8. General Release by the Executive. The Executive, for himself and
his heirs, executors, administrators, assigns, affiliates, successors and agents
(collectively, the "Executive's Affiliates") hereby fully and without limitation
releases and forever discharges the Company and its Related Entities and its and
their agents, representatives, shareholders, owners, officers, directors,
employees, consultants, attorneys, auditors, accountants, investigators,
affiliates, successors and assigns (collectively with the Company, the
"Releasees"), both individually and collectively, from any and all rights,
claims, demands, liabilities, actions, causes of action, damages, losses, costs,
expenses and compensation, of whatever nature whatsoever, known or unknown,
fixed or contingent ("Claims"), which the Executive or any of the Executive's
Affiliates has or may have or may claim to have against the Releasees by reason
of any matter, cause, or thing whatsoever, from the beginning of time to the
date hereof, including, without limiting the generality of the foregoing, any
Claims arising out of, based upon, or relating to the recruitment, hire,
employment, relocation, remuneration, investigation, or termination of the
Executive by any of the Releasees, the Executive's tenure as a Director of any
of the Releasees, any agreement or compensation arrangement between the
Executive and any of the Releasees, or any act or occurrence in connection with
any actual, existing, proposed, prospective or claimed ownership interest of any
nature of the Executive or the Executive's affiliates in equity capital or
rights in equity capital or other securities of any of the Releasees to the
maximum extent permitted by law.
<PAGE> 4
The Executive specifically and expressly releases any Claims arising out
of or based on the California Fair Employment and Housing Act, as amended; Title
VII of the Civil Rights Act of 1964, as amended; the Americans With Disabilities
Act; the National Labor Relations Act, as amended; the Equal Pay Act; ERISA; any
provision of the California Labor Code; California common law of fraud,
misrepresentation, negligence, defamation, infliction of emotional distress, any
breach of contract or covenant claim, any tort claim, any violation of public
policy or wrongful termination; state or Federal wage and hour laws; or any
other state or Federal law, rule, or regulation dealing with the employment
relationship.
The Executive is aware of California Civil Code Section 1542, which
provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
With full awareness and understanding of the above provision, the Executive
hereby waives any rights he may have under California Civil Code Section 1542.
9. Release of Federal Age Discrimination Claims by the Executive.
The Executive hereby knowingly and voluntarily waives and releases all rights
and claims, known or unknown, arising under the Age Discrimination In Employment
Act of 1967, as amended, which he might otherwise have had against the Company
or any of the Releasees regarding any actions which occurred prior to the
effective date of this Agreement.
10. Breach of Release. The Executive agrees that if he hereafter
commences, joins in, or in any manner seeks relief through any suit arising out
of, based upon, or relating to any of the Claims released by the Executive
hereunder, or in any manner asserts against any of the Releasees any of the
Claims released by the Executive hereunder, the Executive shall pay to such
Releasee(s), as the case may be, in addition to any other damages caused to such
Releasee, as the case may be, all attorneys' fees incurred in defending or
otherwise responding to said suit or claim.
11. Rights Under the Older Workers Benefit Protection Act. In
accordance with the Older Workers Benefit Protection Act of 1990, the Executive
is aware of the following:
<PAGE> 5
(a) The Executive has the right to consult with an attorney before
signing this Agreement and is hereby advised by the Company to do so;
(b) The Executive has twenty-one (21) days from February 25, 2000,
to consider this Agreement; and
(c) The Executive has seven (7) days after signing this Agreement
to revoke Sections 6 and 9 of this Agreement (which must be revoked in their
entirety and as a group), and such Sections of this Agreement (as a group) will
not be effective until that revocation period has expired without exercise. The
Executive agrees that in order to exercise his right to revoke this Agreement
within such seven (7) day period, he must do so in a signed writing delivered to
the Company's Chief Executive Officer before the close of business on the
seventh calendar day after the Resignation Date. If the Executive does not
revoke the above-referenced Sections of this Agreement, the General Releases set
forth in Section 8 herein shall have as their new effective date the date that
the period of revocation under Section 11(c) of this Agreement has lapsed.
12. Confidentiality of Agreement. The Executive acknowledges that
this Agreement and certain related agreements may have to be disclosed in the
Company's reports filed with the U.S. Securities and Exchange Commission. Except
as may be required by law, neither the Executive, his attorney, nor any person
acting by, through, under or in concert with them, shall disclose any of the
terms of or facts relating to this Agreement (other than to state that the
Company has filed this Agreement and/or agreements related thereto as public
documents) or the negotiation thereof to any individual or entity, except for
disclosures made among the Executive, his attorney, spouse, children or tax
advisors. The Executive further agrees that under no circumstances will he
induce, encourage, solicit or assist any other person or entity to file or
pursue any proceeding of any kind against the Releasees.
13. Proprietary Information. The Executive acknowledges that certain
information, observations, and data obtained by him during the course of or
related to his employment with the Company and its Related Entities (including,
without limitation, certain financial information, shareholder information,
product design information, business plans, marketing plans or proposals,
personnel information, customer lists and other customer information) are the
sole property of the Company and its Related Entities and constitute trade
secrets of the Company and its Related Entities. The Executive agrees to
promptly return all files, customer lists, financial information and other
property of the Company and its Related Entities that are in the Executive's
possession or control without making copies thereof. The Executive further
agrees that he will not disclose to any person or use any such information,
observations or data without the written consent of the Company's Board of
Directors. If the Executive is served with a deposition subpoena or other legal
process calling for the disclosure of such information, or if he is contacted by
any third person requesting such information, he will immediately notify the
<PAGE> 6
Company's Chief Financial Officer and will fully cooperate with the Company in
minimizing the disclosure thereof.
14. Unfair Competition. In addition to the provisions under the
Consulting Agreement in its form on this February 25, 2000 or as amended and
restated:
(a) The Executive agrees not to (whether as an employee, director,
owner, stockholder, consultant, limited or general partner, or otherwise), for
himself or for any other person or entity, engage in any unfair competition with
the Company and its Related Entities.
(b) The Executive also covenants and agrees not to intentionally
interfere with, disrupt, or attempt to disrupt, the relationship, contractual or
otherwise, between the Company, any of its Related Entities and any of its/their
customers, employees or suppliers, including, but not limited to, the Barona
Group of Capitan Grande Band of Mission Indians, the Barona Casino and any of
the Company's current or past Indian gaming clients, as of the Resignation Date.
In addition, and notwithstanding anything to the contrary herein, the Executive
also covenants and agrees that his association with any Indian gaming operation,
enterprise or business, including, but not limited to, providing of consulting
services thereto, are expressly subject to the terms and conditions of the
Consulting Agreement.
(c) The Company and the Executive agree that neither this
Agreement nor the Consulting Agreement shall be interpreted or construed to
alter or effect in any material manner the contractual relationship among the
Company, the Barona Group of Capitan Grande Band of Mission Indians and the
Barona Casino.
(d) The Executive acknowledges that any unfair competition or
unauthorized use of trade secret or proprietary information belonging to the
Company and its Related Entities, or any violation of Sections 12 through 14 of
this Agreement, will result in irreparable harm to the Company and/or its
Related Entities and will give rise to an immediate action by the Company and
its Related Entities for injunctive relief.
15. Cooperation Clause.
(a) The Executive agrees to cooperate with the Company and its
Related Entities and its or their counsel (i) in any investigations (including
internal investigations) and audits of the Company's or any of its Related
Entities' management's current and past conduct and business and accounting
practices and (ii) in the Company's defense of, or other participation in, any
administrative, judicial, or other proceeding arising from any charge, complaint
or other action which has been or may be filed relating to the period during
which the Executive was engaged in employment with the Company and/or its
Related Entities. Except as required by law or authorized in advance by the
Company's Board of Directors, the Executive will not communicate, directly or
<PAGE> 7
indirectly, with any third party concerning the management or governance of the
Company and/or its Related Entities, the operations of the Company and/or its
Related Entities, the legal positions taken by the Company and/or its Related
Entities, or the financial status of the Company and/or its Related Entities.
The Executive shall direct inquiries from third parties on these issues to the
Company. The Executive acknowledges that any violation of this Section 15 will
result in irreparable harm to the Company and its Related Entities and will give
rise to an immediate action by the Company and/or its Related Entities for
injunctive relief.
(b) The Executive will not seek or accept employment by the
Company or its Related Entities at any time and if he does so, his application
need not be considered.
16. Non-disparagement; Employment Reference. The Executive agrees not
to disparage or otherwise publish or communicate derogatory statements or
opinions about the Company and/or its Related Entities, its/their respective
management, products and services to any third party for a period of three (3)
years after the Resignation Date. It shall not be a breach of this Section 16
for the Executive to testify truthfully in any judicial or administrative
proceeding, or to make factually accurate statements in legal or public filings.
If any prospective employers contact the Human Resources Director of the Company
concerning the Executive, they will be told that the Executive was employed by
the Company from May 1, 1995 until he voluntarily resigned as of the Resignation
Date.
17. Remedies for Breach. Notwithstanding anything to the contrary
herein, if the Executive breaches his obligations under this Agreement, in
addition to whatever other rights the Company and/or its Related Entities may
have, the Executive shall forfeit his right to receive any further payments or
benefits under this Agreement.
18. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, without giving effect to
principles of conflict of laws. The Company and the Executive each hereby agrees
that all actions or proceedings arising directly or indirectly hereunder,
whether instituted by the Executive or the Company, shall be litigated in courts
having situs within the State of California, County of San Diego and the
Executive and the Company each hereby expressly consents to the jurisdiction of
any local, state or Federal court located within said state and county, and
consent that any service of process in such action or proceeding may be made by
personal service upon the Executive or the Company wherever the Executive or the
Company may be located, respectively, or by certified or registered mail
directed to the Executive or the Company at his/its last known address. The
Executive and the Company each hereby waives trial by jury, any objection based
on forum non conveniens, and any objection to venue of any action instituted
hereunder.
<PAGE> 8
19. Attorneys' Fees. In any action, litigation or proceeding between
the parties arising out of or in relation to this Agreement, each party shall
bear its own costs and expenses, including reasonable attorneys' fees.
20. Non-Admission of Liability. The Executive and the Company each
understands and agrees that neither the payment of any sum of money nor the
execution of this Agreement by the parties will constitute or be construed as an
admission of any liability whatsoever by any party.
21. Withholding Taxes; Tax Reporting. The Company may, if required in
its reasonable judgment, withhold from any amounts payable under this Agreement
all such Federal, state, city and other taxes, and may file with appropriate
governmental authorities all such information returns or other reports with
respect to the tax consequences attendant to any amounts payable under this
Agreement, as may, in its reasonable judgment, be required by law.
22. Severability. If any one or more of the provisions contained
herein (or parts thereof), or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity and enforceability of any such provision in every other respect and of
the remaining provisions hereof will not be in any way impaired or affected, it
being intended that all of the rights and privileges shall be enforceable to the
fullest extent permitted by law.
23. Entire Agreement. This Agreement represents the sole and entire
agreement among the parties and, except as expressly stated herein, supersedes
all prior agreements, negotiations and discussions between the Executive and the
Company with respect to the subject matters contained herein. 24. Waiver. No
waiver by one party hereto at any time of any breach of, or compliance with, any
condition or provision of this Agreement to be performed by the other party
hereto may be deemed a waiver of similar or dissimilar provisions or conditions
at the same time or at any prior or subsequent time.
25. Amendment. This Agreement may be modified or amended only if such
modification or amendment is agreed to in writing and signed by duly authorized
representatives of the parties hereto, which writing expressly states the intent
of the parties to modify this Agreement.
26. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original as against any
party that has signed it, but all of which together will constitute one and the
same instrument.
<PAGE> 9
27. Assignment. This Agreement inures to the benefit of and is
binding upon the Company and its successors and assigns, but the Executive's
rights under this Agreement are not assignable.
28. Notice. All notices, requests, demands, claims and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) if personally delivered; (b) if sent by telecopy or facsimile; or
(c) if mailed by overnight or by first class, certified or registered mail,
postage prepaid, return receipt requested, and properly addressed as follows:
If to the Executive, to:
G. Fritz Opel
11205 Gatemore Way
San Diego, California 92131
Fax: (619) 239-5601
If to the Company, to:
Venture Catalyst Incorporated
16868 Via Del Campo Court, Suite 200
San Diego, California 92127
Attn: Chief Financial Officer
Fax: (858) 385-1001
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive, 17th Floor
Costa Mesa, California 92626
Attn: John F. Della Grotta, Esq.
Fax: (714) 979-1921
Such addresses may be changed, from time to time, by means of a notice given in
the manner provided above. Notice will conclusively be deemed to have been given
when personally delivered (including, but not limited to, by messenger or
courier); or if given by mail, on the date of delivery, if given by Federal
Express or other similar overnight service or on the third day after being sent
by first class, certified or registered mail; or if given by telecopy or
facsimile machine, when confirmation of transmission is indicated by the
sender's machine. Notices, requests, demands and other communications delivered
to legal counsel of any party hereto, whether or not such counsel shall consist
of in-house or outside counsel, shall not constitute duly given notice to any
party hereto.
<PAGE> 10
29. Miscellaneous Provisions.
(a) The parties represent that they have read this Agreement and
fully understand all of its terms; that they have conferred with their
attorneys, or have knowingly and voluntarily chosen not to confer with their
attorneys about this Agreement; that they have executed this Agreement without
coercion or duress of any kind; and that they understand any rights that they
have or may have and sign this Agreement with full knowledge of any such rights.
(b) The language in all parts of this Agreement must be in all
cases construed simply according to its fair meaning and not strictly for or
against any party. Whenever the context requires, all words used in the singular
must be construed to have been used in the plural, and vice versa, and each
gender must include any other gender. The captions of the Sections of this
Agreement are for convenience only and must not affect the construction or
interpretation of any of the provision herein.
(c) Each provision of this Agreement to be performed by a party
hereto is both a covenant and condition, and is a material consideration for the
other party's performance hereunder, and any breach thereof by the party will be
a material default hereunder. All rights, remedies, undertakings, obligations,
options, covenants, conditions and agreements contained in this Agreement are
cumulative and no one of them is exclusive of any other. Time is of the essence
in the performance of this Agreement.
(d) Each party acknowledges that no representation, statement or
promise made by the other party, or by the agent or attorney of such other
party, has been relied on by him or it in entering into this Agreement.
(e) Each party understands that the facts with respect to which
this Agreement is entered into may be materially different from those the
parties now believe to be true. Each party accepts and assumes this risk and
agrees that this Agreement and the release in it shall remain in full force and
effect, and legally binding, notwithstanding the discovery or existence of any
additional or different facts, or of any claims with respect to those facts.
(f) Unless expressly set forth otherwise, all references herein to
a "day" are deemed to be a reference to a calendar day. All references to
"business day" mean any day of the year other than a Saturday, Sunday or a
public or bank holiday in San Diego, California. Unless expressly stated
otherwise, cross-references herein refer to provisions within this Agreement and
are not references to the overall transaction or to any other document.
10
<PAGE> 11
(g) Each party to this Agreement will cooperate fully in the
execution of any and all other documents and in the completion of any additional
actions that may be necessary or appropriate to give full force and effect to
the terms and intent of this Agreement.
30. Approval of Board of Directors. This Agreement was approved by
the Compensation Committee of the Company's Board of Directors at a special
meeting held on February 25, 2000.
THE EXECUTIVE AND THE COMPANY EACH ACKNOWLEDGES THAT HE/IT HAS READ THIS
AGREEMENT, UNDERSTANDS IT AND IS VOLUNTARILY ENTERING INTO IT. THE EXECUTIVE
ACKNOWLEDGES AND UNDERSTANDS THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN
AND UNKNOWN CLAIMS.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the dates indicated below.
VENTURE CATALYST INCORPORATED,
a Utah corporation
Dated: February 25, 2000 By: /S/ L. DONALD SPEER, II
-----------------------------------
L. Donald Speer, II
Chairman of the Board and Chief
Executive Officer
EXECUTIVE
Dated: February 25, 2000 By: /S/ G. FRITZ OPEL
-------------------------------------
G. Fritz Opel
<PAGE> 12
SPOUSAL CONSENT
I, Jeri Opel, have read the Settlement and Release Agreement (the
"Agreement") entered into by and between Venture Catalyst Incorporated and G.
Fritz Opel, understand the contents of the Agreement, and do hereby consent to
the Agreement. I have been advised to consult with counsel of my choosing in
connection with this Spousal Consent and have been given ample opportunity to do
so. If I have not consulted with counsel in connection with this Spousal
Consent, I have knowingly and willingly elected not to do so.
Spouse
Dated: February 25, 2000 /S/ JERI OPEL
--------------
Jeri Opel
<PAGE> 1
EXHIBIT 10.3
FINAL EXECUTION DRAFT
CONSULTING FEE SUBORDINATION AGREEMENT
This CONSULTING FEE SUBORDINATION AGREEMENT (as amended,
supplemented or otherwise modified from time to time, this "AGREEMENT") is made
as of January 13, 2000, by and among STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, NATIONAL ASSOCIATION, a national banking association, organized and
existing under the laws of the United States, as trustee (in such capacity,
together with its successors and assigns, the "TRUSTEE"), for the benefit of
itself and the holders of the Bonds (as defined below), VENTURE CATALYST
INCORPORATED (formerly Inland Entertainment Corporation and prior thereto Inland
Casino Corporation), a Utah corporation (the "CONSULTANT"), and the BARONA GROUP
OF CAPITAN GRANDE BAND OF MISSION INDIANS, also known as the Barona Capitan
Grande Band of Diegueno Mission Indians of the Barona Reservation, and also
known as the Barona Band of Mission Indians, a federally recognized Indian
tribal entity (the "TRIBE").
RECITALS
A. The Tribe intends to enter into a Private Placement Agreement (the
"PLACEMENT AGREEMENT") with respect to the sale of $18,890,000 in aggregate
principal amount of Limited General Obligation Bonds (Federally Tax-Exempt)
Series 2000 (and together with any new bonds issued in replacement of and
exchange therefor, the "BONDS").
B. The Tribe shall issue the Bonds pursuant to that certain Indenture
dated as of January 1, 2000 (as amended, supplemented or otherwise modified from
time to time, the "INDENTURE"), by and between the Tribe and the Trustee, and is
permitted under the Indenture to issue Additional Bonds. All terms used and not
otherwise defined herein shall have the meanings given to them in the Indenture.
C. The Consultant and the Tribe are parties to that certain Amended and
Restated Consulting Agreement entered into as of April 29, 1996 (effective as of
March 27, 1996, as amended by Modification No. 1 dated as of February 17, 1998,
and as further amended, supplemented or otherwise modified from time to time,
the "CONSULTING AGREEMENT"), pursuant to which the Tribe pays the Consultant a
Consulting Fee (as defined in the Consulting Agreement) in consideration of the
Consultant's services relating to the Barona Casino.
D. It is a condition to the consummation of the sale of the Bonds
pursuant to the Placement Agreement that the parties hereto have agreed to enter
into this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
provisions set forth herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Trustee, the
Consultant and the Tribe agree as follows:
<PAGE> 2
1. Subordination to Tax Exempt Debt. Consultant shall be entitled
to be paid all amounts from time to time owing to Consultant from the Tribe
under the Consulting Agreement, provided, however, that notwithstanding any
provision of the Consulting Agreement, no Consulting Fee now or hereafter due
(the "SUBORDINATED OBLIGATIONS") shall be paid so long as Consultant has
received notice of an Event of Default under the Indenture for which there is a
payment default and such default shall be continuing or the Trustee shall have
notified the Consultant that any levied Government Service Tax remains unpaid in
whole or in part (a "DEFAULT"). The Tribe hereby agrees that it shall promptly
notify the Consultant of the occurrence of any Default and when the Default has
been cured or waived. Should any direct or indirect payment be made to the
Consultant upon or with respect to the Subordinated Obligations after the
Consultant's receipt of a notice of Default (without a subsequent notice that
the Default has been cured or waived), the Consultant shall forthwith deliver
the same to the Trustee for application to all unpaid levied Government Service
Taxes or, if all outstanding Bonds or Additional Bonds shall have been declared
due and owing because of an Event of Default, for application of any amounts due
on the Tax Exempt Debt. After such notice to the Consultant and until amounts so
paid have been delivered to the Trustee, any such payments to the Consultant
shall be held in trust by the Consultant for the benefit of the Trustee.
"TAX EXEMPT DEBT" means (a) all indebtedness, liabilities and
obligations of every kind or nature, absolute or contingent, now existing or
hereafter arising, of the Tribe, its successors and assigns, under the
Indenture, the Bonds, Additional Bonds, any Financing Documents or any other
documents, instruments or agreements executed in connection with any of the
foregoing (the foregoing, collectively, the "TRANSACTION DOCUMENTS"), owing to
the Trustee or any holder of Bonds or Additional Bonds and their successors and
assigns and any Person who extends credit to the Tribe for the purpose of
refunding any such indebtedness, liabilities or obligations, including without
limitation the principal of, and interest on (including any interest accruing
after the commencement of any bankruptcy, insolvency or similar proceeding with
respect to the Tribe and any interest which would have accrued but for the
commencement of any such proceeding whether or not allowed as a claim in that
proceeding), and all premiums, fees, charges and expenses arising under or in
connection with the Indenture, the Bonds, Additional Bonds or any other
Transaction Document; and (b) any modifications, amendments, refundings,
renewals or extensions of any indebtedness or obligation described in clause (a)
above. Except as and to the extent provided herein, the Consultant will not ask,
demand, sue for, take or receive from the Tribe, by set-off or in any other
manner, direct or indirect payment (whether in cash or property), of the whole
or any part of the Subordinated Obligations, or any transfer of any property in
payment of or as security therefor, so long as there exists an Event of Default
under the Indenture.
2. Distributions in Liquidation and Bankruptcy. In the event of
any distribution, division or application, partial or complete, voluntary or
involuntary, by operation of law or otherwise, of all or any part of the assets
of the Tribe or the proceeds thereof (including any assets now or hereafter
securing any Subordinated Obligations) to creditors of the Tribe or upon any
indebtedness of the Tribe, by reason of the liquidation, dissolution or other
winding up, partial or complete, of the Tribe, or any receivership, insolvency
or bankruptcy proceeding, or assignment for the benefit of creditors or
marshalling of assets, or any proceeding by or against the Tribe for any relief
under any bankruptcy or insolvency law or laws relating to the relief of
2
<PAGE> 3
debtors, readjustment of indebtedness, arrangements, reorganizations,
compositions or extensions, or sale of all or substantially all of the assets of
Tribe, then and in any such event:
(a) The holders of Tax Exempt Debt shall be entitled to
receive payment in full in cash of all Tax Exempt Debt before the
Consultant shall be entitled to receive any payment or other
distributions on, or with respect to, the Subordinated Obligations;
(b) Any payment or distribution of any kind or character,
whether in cash, securities or other property, which but for these
provisions would be payable or deliverable upon or with respect to the
Subordinated Obligations shall instead be paid or delivered directly to
the Trustee for the benefit of the holders of the Tax Exempt Debt for
application on the Tax Exempt Debt, whether then due or not due, until
the Tax Exempt Debt shall have first been fully and indefeasibly paid in
cash;
(c) The Consultant hereby irrevocably authorizes and
empowers the Trustee, and appoints the Trustee as attorney-in-fact, so
long as any amount due or payable on the Tax Exempt Debt remains unpaid,
to demand, sue for, collect and receive every such payment or
distribution, and to the extent the Consultant fails to do so within
five business days of the due date thereof, to file and vote claims (in
bankruptcy proceedings or otherwise) and take such other actions, in the
Trustee's own name or otherwise, as the Trustee may deem necessary or
advisable for the enforcement of these provisions. The Consultant shall
duly and promptly take such action as may be reasonably requested by the
Trustee to assist in the collection of the Subordinated Obligations for
the account of any holder of the Tax Exempt Debt, and to file
appropriate proofs of claim with respect to the Subordinated Obligations
and to vote the same, and to execute and deliver to the Trustee on
demand such powers of attorney, proofs of claim, assignments of claim or
other instruments as may be reasonably requested by the Trustee to
enable the Trustee or any other holder of the Tax Exempt Debt to enforce
any and all claims upon or with respect to the Subordinated Obligations
and to collect and receive any and all payments or distributions which
may be payable or deliverable at any time upon or with respect to the
Subordinated Obligations. In addition, the Consultant shall take no
action (whether oral, written or otherwise) in contravention of any
action of the Trustee duly taken and permitted hereunder. Such
appointment as attorney-in-fact pursuant to this Section 2(c) is
irrevocable and coupled with an interest until payment in full and
complete performance of all the Tax Exempt Debt. The Trustee may appoint
a substitute attorney-in-fact. The Consultant ratifies all actions taken
by the attorney-in-fact but, nevertheless, if the Trustee requests, the
Consultant will specifically ratify any action taken by the
attorney-in-fact by executing and delivering to the attorney-in-fact or
to any entity designated by the attorney-in-fact all documents necessary
to effect such ratification; and
(d) Each of the parties hereby agrees that it shall be
bound by the terms and provisions hereof, notwithstanding the
confirmation of a plan of reorganization of the Tribe under Section
1129(b) of the Bankruptcy Code.
3
<PAGE> 4
3. Permitted Payments. Subject to the provisions of Sections 1
and 2 of this Agreement, the Tribe may pay to the Consultant and the Consultant
may accept payment of amounts due under the Consulting Agreement.
4. No Acceleration or Exercise of Remedies. So long as any of the
Tax Exempt Debt remains unpaid, the Consultant will not (a) cause any portion of
the Subordinated Obligations to become due prior to the due date for such
Subordinated Obligations as set forth in the Consulting Agreement; (b) accept
any payment, prepayment or defeasance of any portion of the Subordinated
Obligations prior to the due date for such Subordinated Obligations as set forth
in the Consulting Agreement or in violation of this Agreement; (c) modify or
alter in any way the provisions of the Consulting Agreement if the effect of
such is to accelerate the payments of Subordinated Obligations due thereon; or
(d) exercise any remedies with respect to the Subordinated Obligations or any
collateral at any time securing payment or performance thereof unless and until,
in each such case, all of the Tax Exempt Debt shall have been indefeasibly paid
in full in cash, or the Trustee shall have otherwise consented in writing.
5. Bankruptcy. Until the Tax Exempt Debt shall have been
indefeasibly paid in full in cash, the Consultant will not, without the prior
consent of the Trustee, commence, or join with any other person in commencing,
any proceeding against any Person with respect to the Subordinated Obligations
under any bankruptcy, reorganization, readjustment of debt, dissolution,
receivership, liquidation or insolvency law or statute now or hereafter in
effect in any jurisdiction.
6. Continuing Subordination. The subordination effected by these
provisions is a continuing subordination and may not be modified or terminated
by the Consultant or any other holder of any Subordinated Obligations until all
of the Tax Exempt Debt shall have been indefeasibly paid in full in cash. At any
time and from time to time, without consent of or notice to the Consultant or
any other holder of Subordinated Obligations, and without impairing or affecting
the obligations of any of them hereunder:
(a) The time for the Tribe's performance of, or compliance
with, any of its agreements contained in the Indenture, the Bonds,
Additional Bonds or the other Transaction Documents, or any other
agreement, instrument or document relating to the Tax Exempt Debt, may
be modified or extended or such performance or compliance may be waived;
(b) The Trustee may exercise or refrain from exercising
any rights under the Indenture, the Bonds, Additional Bonds or the other
Transaction Documents, or any other agreement, instrument or document
relating to the Tax Exempt Debt;
(c) The Indenture, the Bonds, the Additional Bonds or the
other Transaction Documents, or any other agreement, instrument or
document relating to the Tax Exempt Debt, may be revised, amended or
otherwise modified for the purpose of adding or changing any provisions
thereof (including, but not limited to, an increase in the interest
charges), or changing in any manner the rights of the Trustee or the
Tribe;
4
<PAGE> 5
(d) Payment of the Tax Exempt Debt or any portion thereof
may be extended or refunded or any notes evidencing such Tax Exempt Debt
may be renewed in whole or in part;
(e) The maturity of the Tax Exempt Debt may be
accelerated, and any collateral security therefor or any other rights of
the Trustee may be exchanged, sold, surrendered, released or otherwise
dealt with in accordance with the terms of any present or future
agreement with the Tribe and any other agreement of subordination (and
the debt covered thereby) may be surrendered, released or discharged, or
the terms thereof modified or otherwise dealt with in any manner;
(f) Any person liable in any manner for payment of the Tax
Exempt Debt may be released by holders of Tax Exempt Debt; and
(g) Notwithstanding the occurrence of any of the
foregoing, these subordination provisions shall remain in full force and
effect with respect to the Tax Exempt Debt, as the same shall have been
extended, renewed, modified or refunded.
7. Waivers. The Consultant hereby waives, and agrees not to
assert (a) any right, now or hereafter existing, to require the Trustee to
proceed against or exhaust any collateral at any time securing the Tax Exempt
Debt, or to marshal any assets in favor of the Consultant or any other holder of
any Subordinated Obligations; (b) any notice of the issuance of Tax Exempt Debt,
it being understood advances may be made under the Indenture, or any other
agreement, document or instrument now or hereafter relating to the Tax Exempt
Debt, without notice to or authorization of the Consultant in reliance upon
these subordination provisions.
It is not the intent of this Agreement to cause the Consultant to
become a surety. However, in the event this Agreement may cause the Consultant
to be deemed a surety, the following provisions apply; provided, however, that
nothing contained herein shall be deemed to be a guarantee by the Consultant of
any obligations for the payment of principal and interest of the Tribe under the
Indenture. The Consultant hereby waives and relinquishes all rights and remedies
accorded by applicable law to sureties or guarantors and agrees not to assert or
take advantage of any such rights or remedies, including, without limitation,
(a) any right to require the Trustee or any of holders of the Bonds or
Additional Bonds (each a "BENEFITED PARTY") to proceed against the Tribe or any
other Person or to proceed against or exhaust any security held by a Benefited
Party at any time or to pursue any other remedy in the power of a Benefited
Party before proceeding against the Consultant with respect to the Subordinated
Obligations or other person, (b) the defense of the statute of limitations in
any action with respect to the Subordinated Obligations hereunder or in any
action for the collection or performance of the Subordinated Obligations, (c)
any defense that may arise by reason of the incapacity, lack of authority, death
or disability of any person or the failure of a Benefited Party to file or
enforce a claim against the estate (in administration, bankruptcy or any other
proceeding) of any person, (d) appraisal, valuation, stay, extension,
marshalling of assets, redemption, exemption, demand, presentment, protest and
notice of any kind, including, without limitation, notice of the existence,
creation or incurring of any new or additional indebtedness or obligation or of
any action or non-action on the part of a Benefited Party, the Tribe, any
endorser, guarantor or creditor of the Tribe or on the
5
<PAGE> 6
part of any person under this or any other instrument or document in connection
with any obligation or evidence of indebtedness held by a Benefited Party as
collateral or in connection with the Subordinated Obligations, (e) any defense
based upon an election of remedies by a Benefited Party, including, without
limitation, an election to proceed by non-judicial rather than judicial
foreclosure, which destroys or otherwise impairs the subrogation rights of the
Consultant, the right of the Consultant to proceed against the Tribe or any
other person for reimbursement, or both, (f) any defense based upon any statute
or rule of law which provides that the obligation of a surety must be neither
larger in amount nor in other respects more burdensome than that of the
principal, (g) any duty on the part of a Benefited Party to disclose to the
Consultant any facts a Benefited Party may now or hereafter know about the Tribe
or any other person, regardless of whether a Benefited Party has reason to
believe that any such facts materially increase the risk beyond that which the
Consultant intends to assume, or has reason to believe that such facts are
unknown to the Consultant, or has a reasonable opportunity to communicate such
facts to the Consultant, because the Consultant acknowledges that the Consultant
is fully responsible for being and keeping informed of the financial condition
of the Tribe, of any other person and of all circumstances bearing on the risk
of non-payment of any Subordinated Obligations, (h) any defense arising because
of the election of a Benefited Party, in any proceeding instituted under the
Federal Bankruptcy Code, of the application of Section 1111(b)(2) of the Federal
Bankruptcy Code, (i) any defense based upon any borrowing or grant of a security
interest under Section 364 of the Federal Bankruptcy Code, (j) any claim or
other rights which it may now or hereafter acquire against the Tribe or any
other Person that arises from the existence of performance obligations under the
Indenture, the Bonds, Additional Bonds or any Financing Document, including,
without limitation, any right of subrogation or reimbursement. Notwithstanding
the foregoing, nothing in this Section 7 shall be deemed to impair the rights
otherwise expressly given to the Consultant in any of the Transaction Documents.
No failure or delay on the Trustee's part in exercising any power, right or
privilege under this Agreement shall impair or waive any such power, right or
privilege. The Consultant acknowledges and agrees that any nonrecourse or
exculpation provided for in the Indenture, the Bonds or any Financing Document,
or any other provision of this Indenture, the Bonds, Additional Bonds or any
Financing Document, limiting the Benefited Parties' recourse to specific
collateral, or limiting the Benefited Parties' right to enforce a deficiency
judgment against the Tribe, shall have absolutely no application to the
Consultant's or the Tribe's liability under the Indenture, the Bonds, Additional
Bonds or any Financing Documents.
8. Lien Subordination. Any lien, security interest, encumbrance,
charge or claim of the Consultant on any assets or property of the Tribe or any
proceeds or revenues therefrom which the Consultant may have at any time as
security for any Subordinated Obligations shall be, and hereby is, subordinated
to all liens, security interests, or encumbrances now or hereafter granted to
the Trustee by the Tribe or by law with respect to any Tax Exempt Debt,
notwithstanding the date or order of attachment or perfection of any such lien,
security interest, encumbrance or claim or charge or the provision of any
applicable law. Until all holders of Tax Exempt Debt have received payment in
full in cash, if necessary, the Consultant agrees that it will not assert or
seek to enforce against the Tribe the Subordinated Obligations or any interest
of the Consultant in any collateral securing the Subordinated Obligations and
that the Trustee may dispose of any or all of the collateral for the Tax Exempt
Debt free of any and all liens, including,
6
<PAGE> 7
but not limited to, liens created in favor of the Consultant, through judicial
or non-judicial proceedings, in accordance with applicable law including taking
title, after five (5) days written notice to the Consultant. The Consultant
hereby acknowledges that such notice if given five (5) days prior to such
disposition of any of all of the collateral for the Tax Exempt Debt is
sufficient and commercially reasonable. The Consultant hereby agrees that any
such sale or other disposition of so much of the collateral for the Tax Exempt
Debt as is necessary to satisfy in full in cash all of the Tax Exempt Debt shall
be free and clear of any security interest granted to the Consultant; provided
that the entire proceeds (after deducting reasonable expenses of sale) are
applied in reduction of the Tax Exempt Debt. Upon the Trustee's request, the
Consultant shall execute and deliver any releases or other documents and
agreements that the Trustee in its reasonable discretion deems necessary to
dispose of the collateral for the Tax Exempt Debt free of the Consultant's
interest in same. The Consultant retains all of its rights as a junior creditor
with respect to the surplus, if any, arising from any such disposition of the
collateral for the Tax Exempt Debt.
9. Subrogation. The Consultant hereby subordinates all rights of
subrogation to the rights of the holders of the Bonds and Additional Bonds to
receive payments or distributions, and any rights of subrogation to any
collateral for the Tax Exempt Debt, until the Tax Exempt Debt shall have been
indefeasibly paid in full in cash. Upon such payment in full, the Consultant
shall be subrogated to all rights of the holders of the Bonds and Additional
Bonds.
10. Subordination Not Impaired by the Tribe. No right of any
holder of the Bonds or Additional Bonds to enforce the subordination of the
Subordinated Obligations shall be impaired by any act or failure to act by the
Tribe or by its failure to comply with these provisions.
11. No Third Party Beneficiaries. This Agreement is not intended
to give or confer any rights to any Person other than the holders of the Tax
Exempt Debt. No other party, including the Tribe, is intended to be a third
party beneficiary of this Agreement.
12. Legend on Note. If any portion of the Subordinated
Obligations is evidenced by a promissory note, stock certificate or other
instrument, the Consultant agrees to promptly add a legend thereto stating that
the rights of any holder thereof are subject to this Agreement.
13. Representations and Warranties. The Consultant hereby
represents and warrants that (a) the execution and delivery of this Agreement
and the performance by the Consultant of its obligations hereunder have received
all necessary approvals and do not and will not contravene or conflict with any
provision of law or of any indenture, instrument or other agreement to which the
Consultant is a party or by which it or its property may be bound or affected or
result in or require the creation or imposition of any mortgage, Lien, pledge,
security interest, charge or other encumbrance in, upon or of any of its
properties or assets under any such indenture, instrument or other agreement,
(b) the Consultant has full power, authority and legal right to make and perform
this Agreement, (c) the Consultant has not assigned or transferred any
indebtedness owing by the Tribe or any of the collateral for the Subordinated
Obligations and that the Consultant will not assign or transfer same, (d) this
Agreement is the legal, valid and binding obligation of the Consultant,
enforceable against the Consultant in accordance with its terms, and (e) the
Subordinated Obligations are not subject to any other subordination agreement.
7
<PAGE> 8
14. No Waiver. No failure on the part of the Trustee to exercise,
no delay in exercising, and no course of dealing with respect to, any right or
remedy hereunder will operate as a waiver thereof; nor will any single or
partial exercise of any right or remedy hereunder preclude any other or further
exercise thereof or the exercise of any other right or remedy. This Agreement
may not be amended or modified except by written agreement of the Trustee, the
Consultant, and the Tribe, and no consent or waiver hereunder shall be valid
unless in writing and signed by the Trustee.
15. Successors and Assigns. This Agreement, and the terms,
covenants and conditions hereof, shall be binding upon and inure to the benefit
of the parties hereto, and their respective successors and assigns.
16. GOVERNING LAW. THIS AGREEMENT WILL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT
REFERENCE TO CHOICE OF LAW PRINCIPLES.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
18. Severability. The invalidity, illegality or unenforceability
in any jurisdiction of any provision in or obligation under this Agreement shall
not affect or impair the validity, legality or enforceability of the remaining
provisions or obligations under this Agreement or of such provision or
obligation in any other jurisdiction.
8
<PAGE> 9
IN WITNESS WHEREOF, this Consulting Fee Subordination Agreement
has been duly executed as of the day and year first above written.
VENTURE CATALYST CORPORATION, a Utah
corporation
By: /S/ ANDREW B. LAUB
-------------------------------
Name: Andrew Laub
-----------------------------
Title: Executive Vice President
----------------------------
[Signature Page to Consulting Fee Subordination Agreement]
<PAGE> 10
STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, NATIONAL ASSOCIATION, a
national banking association, as Trustee
By: /S/ JONI D'AMICO
-------------------------------
Name: Joni D'Amico
-----------------------------
Title: Vice President
----------------------------
[Signature Page to Consulting Fee Subordination Agreement]
<PAGE> 11
BARONA GROUP OF CAPITAN GRANDE BAND
OF MISSION INDIANS, ALSO KNOWN AS
THE BARONA CAPITAN GRANDE BAND OF
DIEGUENO MISSION INDIANS OF THE
BARONA RESERVATION, AND ALSO KNOWN
AS THE BARONA BAND OF MISSION
INDIANS, a federally recognized
Indian tribal entity
By: /S/ CLIFFORD M. LACHAPPA
-------------------------------
Clifford M. LaChappa
Chairman
[Signature Page to Consulting Fee Subordination Agreement]
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,465,254
<SECURITIES> 0
<RECEIVABLES> 703,076
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,186,051
<PP&E> 1,892,266
<DEPRECIATION> 851,217
<TOTAL-ASSETS> 28,596,332
<CURRENT-LIABILITIES> 5,775,851
<BONDS> 8,333,333
0
0
<COMMON> 6,100
<OTHER-SE> 14,481,048
<TOTAL-LIABILITY-AND-EQUITY> 28,596,332
<SALES> 0
<TOTAL-REVENUES> 3,493,665
<CGS> 1,134,799
<TOTAL-COSTS> 2,490,708
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 120,576
<INTEREST-EXPENSE> 237,840
<INCOME-PRETAX> 251,155
<INCOME-TAX> 362,364
<INCOME-CONTINUING> 613,519
<DISCONTINUED> 19,444
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (594,075)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
</TABLE>
