<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 6, 1996
Stuart Entertainment, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-10737 84-0402207
---------------- --------------- ------------------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
3211 Nebraska Avenue
Council Bluffs, Iowa 51501
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (712) 323-1488
Not Applicable
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 5. Other Events.
See the Press Release attached hereto as Exhibit 20.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
2 Asset Purchase Agreement, dated as of August
6, 1996, among Stuart Entertainment, Inc.,
Trade Products, Inc. and the Shareholders of
Trade Products, Inc.
20 Press Release
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STUART ENTERTAINMENT, INC.
Date: August 19, 1996 By: /s/Paul C. Tunink
----------------------------------------
Paul C. Tunink, Vice President--Finance,
Treasurer and Chief Financial Officer
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
----------- -------------------
<S> <C>
2 Asset Purchase Agreement, dated as of August 6, 1996, among Stuart Entertainment,
Inc., Trade Products, Inc. and the Shareholders of Trade Products, Inc.
20 Press Release dated April 19, 1996 regarding the Letter of Intent to acquire Trade
Products, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 2
- --------------------------------------------------------------------------------
-------------------------------
ASSET PURCHASE AGREEMENT
-------------------------------
AMONG
STUART ENTERTAINMENT, INC.,
A DELAWARE CORPORATION,
TRADE PRODUCTS, INC.
A WASHINGTON CORPORATION
AND
THE SHAREHOLDERS OF TRADE PRODUCTS, INC.
-------------------------------
DATED AS OF AUGUST 6, 1996
-------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
-------------------------------
TABLE OF CONTENTS
-------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
PURCHASE AND SALE
Section 2.01. Agreement to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.02. Agreement to Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.03. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.04. Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.05. Closing Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE III
CLOSING
Section 3.01. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.02. Items to be Delivered at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
SELLER AND SHAREHOLDERS
Section 4.01. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.02. Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.03. No Interest in Other Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.04. Validity of Contemplated Transactions, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.05. No Third Party Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.06. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.07. Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.08. Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.09. Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.10. Tax and Other Returns and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.11. Books of Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.12. Existing Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.13. Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.14. Condition of Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.15. Compliance with Law; Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.16. Transactions With Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.17. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.18. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.19. Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.20. Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.21. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.22. Employee Benefit Plans and Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.23. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 4.24. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.25. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.26. Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.27. Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.28. Completeness of Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.29. Identification of Fiduciaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.30. Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Section 5.01. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.02. Corporate Power and Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.03. Validity of Contemplated Transactions, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VI
COVENANTS OF THE PARTIES
Section 6.01. Covenants of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.02. Covenants of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.03. Covenants of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VII
CONDITIONS TO THE CLOSING
Section 7.01. Reciprocal Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.02. Conditions to Obligation of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 7.03. Conditions to Obligation of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 8.02. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.03. Procedures for Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.04. Equitable Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.05. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE IX
POST CLOSING MATTERS
Section 9.01. Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 9.02. Discharge of Business Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.03. Maintenance of Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.04. Payments Received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.05. Use of Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.06. UCC Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.07. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.08. Non-Solicitation;Noncompetition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.09. Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 9.10. Dismissal of Lawsuit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 9.11. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE X
TERMINATION
Section 10.01. Grounds for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 10.02. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Brokers' and Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.02. Sales, Transfer and Documentary Taxes, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.03. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.04. Contents of Agreement; Parties in Interest; etc . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.05. Assignment and Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Section 11.06. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.07. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.08. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.09. No Benefit to Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.10. Headings, Gender and "Person." . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.11. Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.12. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.13. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.14. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.15. Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Exhibit A--Form of Assignment and Assumption Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B--Form of Consulting Agreement for Harry Poll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C--Form of Employment Agreement for Ronald G. Rudy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
Exhibit D--Form of Subordinated Promissory Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
Exhibit E--Form of Subordination Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
Exhibit F--Form of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Exhibit G--Form of Lease Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1
Exhibit H--Form of Bill of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H-1
Exhibit I--Form of Opinion of Counsel for Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
Exhibit J--Form of Opinion of Counsel for Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . J-1
</TABLE>
iv
<PAGE> 6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of August 6,
1996, is entered into by and among Stuart Entertainment, Inc., a Delaware
corporation ("Purchaser"), Trade Products, Inc., a Washington corporation
("Seller"), and the undersigned shareholders of Seller ("Shareholders").
Purchaser, Seller and the Shareholders are referred to collectively herein as
the "Parties" and individually as a "Party."
RECITALS
A. Seller is primarily engaged in the business of manufacturing
break-open gaming tickets and also in the manufacture of bingo paper,
promotional games and other related gaming equipment. The Shareholders own, of
record and beneficially, all of Seller's issued and outstanding capital stock.
B. Purchaser is primarily engaged in the business of
manufacturing bingo paper, ink markers and related gaming equipment and
supplies, and desires to purchase all of the assets, properties and business
operations of Seller, except as otherwise set forth herein. All of such
assets, properties and business operations of Seller to be purchased by
Purchaser hereunder are referred to herein as the "Business." Such assets,
properties and business operations of Seller not desired to be purchased by
Purchaser are referred to herein as the "Excluded Assets."
C. Subject only to the limitations and exclusions contained in
this Agreement and on the terms and conditions hereinafter set forth, Seller
desires to sell and Purchaser desires to purchase the Business.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
AGREEMENT
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. (a) The following terms used herein, have
the following meanings:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person; provided that no party
1
<PAGE> 7
to this Agreement shall be deemed to be an Affiliate of any other party to this
Agreement (including, without limitation, Seller) solely by reason of its
ownership of common stock.
"Assignment and Assumption Agreement" means the agreement in the form
of Exhibit A hereto whereby Seller will assign certain liabilities to Purchaser
in accordance with Section 2.04 herein.
"Claim" means any claim of any nature whatsoever, including any
demand, liability, obligation, debt, cause of action, suit, proceeding,
judgment, award, assessment and reassessment.
"Closing Balance Sheets" means the balance sheets of the Business at
September 30, 1996 and at the Closing Date.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the Common Stock, par value $0.01 per share, of
Purchaser.
"Consulting Agreement" means the Consulting Agreement, substantially
in the form of Exhibit B hereto, to be entered into between Purchaser and Harry
Poll on the Closing Date.
"Dollars" means U.S. Dollars unless otherwise specified.
"Employment Agreement" means the employment agreement, substantially
in the form of Exhibit C hereto, to be entered into between Purchaser and
Ronald G. Rudy on the Closing Date.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, codes, plans, injunctions, permits, concessions,
grants, franchises, licenses, agreements and governmental restrictions, now in
effect, relating to human health, the environment or to emissions, discharges
or releases of pollutants, contaminants, Hazardous Substances or wastes into
the environment, including without limitation ambient air, surface water,
ground water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, Hazardous Substances or wastes or the clean-up or
other remediation thereof.
"Environmental Liabilities" means any and all liabilities of or
relating to Seller (including any entity which is, in whole or in part, a
predecessor of Seller), whether vested or unvested, contingent or fixed, actual
or potential, known or unknown, which (i) arise under or relate to matters
covered by Environmental Laws (including without limitation any matters
disclosed or
2
<PAGE> 8
required to be disclosed in the Disclosure Schedule) and (ii) relate to actions
occurring or conditions existing on or prior to the Closing Date.
"Environmental Permits" means all permits, licenses, authorizations,
certificates and approvals of governmental authorities relating to or required
by Environmental Laws and necessary or proper for the business of Seller as
currently conducted.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any entity required to be aggregated with
Seller under Code Section 414(b), (c), (m) or (o) or ERISA Section 4001,
including any trade or business (whether or not incorporated) under common
control with Seller within the meaning of ERISA Section 4001 or Code Section
414(b), (c), (m) or (o).
"GAAP" means generally accepted accounting principles applied on a
consistent basis.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, together with the rules and regulations promulgated
thereunder.
"Hazardous Substances" means any toxic, radioactive, corrosive or
otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics, including, without
limitation, any substance regulated under Environmental Laws.
"Immediate Family Member" means, with respect to any Person, such
Person's spouse, parents, children and siblings.
"Intellectual Property Right(s)" means any trademark, service mark,
trade name and patent (including any registrations or applications for
registration of any of the foregoing).
"Interim Balance Sheet" means the balance sheet of Seller as of March
31, 1996.
"Interim Balance Sheet Date" means March 31, 1996.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For the purposes of this
Agreement, a Person shall be deemed to own subject to a Lien any property or
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such property or asset.
"Material Adverse Effect" means a material adverse effect or effect
which would reasonably be expected to have a Material Adverse Effect on the
condition (financial or otherwise), business, assets or results of operations
of Seller.
3
<PAGE> 9
"1933 Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Note" means the subordinated indebtedness of Purchaser to be
evidenced by a senior subordinated note, substantially the form of Exhibit D
hereto, to be executed by Purchaser in favor of Seller on the Closing Date.
"Person" means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Plan" means an all employee welfare benefit plans within the meaning
of Section 3(1) of ERISA, and all employee pension benefit plans within the
meaning of Section 3(2) of ERISA.
"Subordination Agreement" means the subordination agreement,
substantially in the form of Exhibit E hereto, to be entered into between
Seller and Bank of America National Trust and Savings Association ("Bank of
America"), or any successor, substitute or replacement to Bank of America.
"Warrant" means the Warrant to purchase 300,000 shares of Common
Stock, to be evidenced by a warrant certificate, substantially the form of
Exhibit F hereto, to be issued by Purchaser to Seller on the Closing Date.
(b) Each of the following terms is defined on the page
set forth opposite such term:
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
401(k) Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Adjustment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Bank of America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Closing Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . 11
Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
4
<PAGE> 10
<TABLE>
<S> <C>
Damage Cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Employee Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Existing Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 16
GAAP Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Goods Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Indemnitee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Indemnitor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Indemnity Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Permitted Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Product Liability Claims . . . . . . . . . . . . . . . . . . . . . . . . 10
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Purchaser Indemnitees . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Purchaser's Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Rehired Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Seller Indemnitees . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Seller's Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Seller's Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Services Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Welfare Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
5
<PAGE> 11
ARTICLE II
PURCHASE AND SALE
Section 2.01. AGREEMENT TO SELL. At the Closing hereunder (as
defined in Section 3.01 hereof) and except as otherwise specifically provided
in this Section 2.01, Seller shall grant, sell, convey, assign, transfer and
deliver to Purchaser, upon and subject to the terms and conditions of this
Agreement, all right, title and interest of Seller in and to (a) the Business
as a going concern, (b) the name "Trade Products, Inc.," and any and all
variations thereof, and all goodwill associated therewith, and (c) all of the
assets, properties and rights of Seller constituting the Business or used
therein, of every kind and description, real, personal and mixed, tangible and
intangible, wherever situated (which Business, name, goodwill, assets,
properties and rights are herein sometimes collectively called the "Assets"),
free and clear of all mortgages, liens, pledges, security interests, charges,
claims, restrictions and encumbrances of any nature whatsoever except as
disclosed on Seller's financial statements and except the Permitted Liens as
defined in Section 4.13 hereof.
(a) Included Assets. The Assets shall include without
limitation the following assets, properties and rights of Seller used
directly or indirectly in the conduct of, or generated by or
constituting, the Business, except as otherwise expressly set forth in
Section 2.01(b) hereof:
(i) all improvements and fixtures and all water
lines, rights of way, uses, licenses, easements,
hereditaments, tenements and appurtenances belonging or
appertaining thereto;
(ii) all machinery, equipment, tools, vehicles,
furniture, furnishings, leasehold improvements, goods, and
other tangible personal property;
(iii) all cash or cash equivalents in transit, in
hand or in bank accounts;
(iv) all prepaid items, unbilled costs and fees,
and accounts, notes and other receivables;
(v) all supplies and inventories and office and
other supplies;
(vi) to the extent permitted by applicable law,
all rights under any written or oral contract, agreement,
lease, plan, instrument, registration, license, certificate of
occupancy, other permit or approval of any nature, or other
document, commitment, arrangement, undertaking, practice or
authorization;
(vii) all rights under any patent, trademark,
service mark, trade name or copyright, whether registered or
unregistered, and any applications therefor;
6
<PAGE> 12
(viii) all technologies, methods, formulations, data
bases, trade secrets, know-how, inventions and other
intellectual property used in the Business or under
development;
(ix) all computer software (including
documentation and related object and source codes);
(x) all rights or causes in action arising out of
occurrences before or after the Closing, including without
limitation all rights under express or implied warranties
relating to the Assets;
(xi) the existing deposit of Seller, in the
approximate amount of $370,000, with the Washington State
Department of Labor and Industries;
(xii) all assets and properties reflected on the
Closing Balance Sheet; and
(xiii) all information, files, records, data, plans,
contracts and recorded knowledge, including customer and
supplier lists, related to the foregoing.
(b) Excluded Assets. Notwithstanding the foregoing, the
Assets shall not include any of the following:
(i) the corporate seals, certificates of
incorporation, minute books, stock books, tax returns, books
of account or other records having to do with corporate
organization of Seller;
(ii) the rights which accrue or will accrue to
Seller under this Agreement;
(iii) the rights to any of Seller's claims for any
federal, state, local, or foreign tax refunds other than
refunds for federal, state and local sales, documentary and
other transfer taxes arising out of the sale, use or transfer
of the Assets in accordance herewith;
(iv) the assets, properties or rights set forth on
Schedule 2.01(b), including the rights of Seller in and to
that certain lawsuit titled Trade Products, Inc. v. Batelle
Institute;
(v) that certain agreement between BluePath
Industries and Seller and the technology relating to the
transaction between BluePath Industries and Seller;
(vi) folding machines, as more particularly
described in Schedule 2.01(b);
7
<PAGE> 13
(vii) five automobiles currently owned by Seller
and more particularly described in Schedule 2.01(b);
(viii) notes and accounts receivable from the
Shareholders to Seller as reflected on Schedule 2.01(b); or
(ix) At the Closing, Seller shall retain from the
Assets an amount of cash equal to Seller's good faith estimate
of the State taxes payable by Seller for the period from
January 1, 1996 through the Closing Date. Subsequently, and
in no event later than ten days after their due date, Seller
shall provide Purchaser with a copy of its 1996 State tax
returns and a reconciliation between the actual amounts paid
and the good faith estimate of such amount. In the event the
actual amount paid is less than the good faith estimate, such
difference shall be immediately paid by Seller to Purchaser,
or in the event such actual amount is more than the good faith
estimate, within 10 days of the receipt of the reconciliation
and Seller's State tax returns, Purchaser shall pay such
difference to Seller.
Section 2.02. AGREEMENT TO PURCHASE. At the Closing hereunder,
Purchaser shall purchase the Assets from Seller, upon and subject to the terms
and conditions of this Agreement and in reliance on the representations,
warranties and covenants of Seller and the Shareholders contained herein, in
exchange for the Purchase Price (hereinafter defined in Section 2.03 hereof).
In addition, Purchaser shall assume at the Closing and agree to pay, discharge
or perform, as appropriate, certain liabilities and obligations of Seller only
to the extent and as provided in Section 2.04 of this Agreement. Except as
specifically provided in Section 2.04 hereof, Purchaser shall not assume or be
responsible for any liabilities or obligations of the Business or Seller.
Section 2.03. PURCHASE PRICE. The purchase price for the Assets (the
"Purchase Price") shall consist of the following:
(a) Cash. Twenty-Nine Million Five Hundred Fifty-Five
Thousand Dollars ($29,555,000), to be paid as follows:
(i) $20,455,000 shall be paid to Seller in
immediately available funds by wire transfer to an account
designated by Seller. The account shall be designated by
Seller by notice to Purchaser not later than two business days
prior to the Closing Date (or if not so designated, then by
certified or official bank check payable in next day funds to
the order of Seller in such amount); and
(ii) $9,100,000 shall be paid in immediately
available funds by wire transfer to an account designated by
U.S. Bank of Washington, National Association (the "Bank").
The account shall be designated by Bank by notice to
8
<PAGE> 14
Purchaser not later than two business days prior to the
Closing Date (or if not so designated, then by certified or
official bank check payable in next day funds to the order of
Bank in such amount), in payment of Seller's existing bank
debt.
(b) Warrant. Purchaser shall issue and deliver the
Warrant to purchase 300,000 shares of Common Stock with an exercise
price of $7.75 per share to Seller.
(c) Promissory Note. Purchaser shall deliver the Note in
the principal amount of $7,000,000 to Seller.
(d) Purchase Price Adjustment. The Purchase Price shall
be increased or decreased to the extent Seller's total stockholder
equity, as reflected on Seller's audited financial statements as of
the Closing Date, is greater or less than Seller's total stockholder
equity as reflected on Seller's audited financial statements as of
September 30, 1996.
(e) Allocation of Purchase Price. The Purchase Price and
the liabilities assumed by Purchaser in accordance with Section 2.04
hereof and any non-recourse liabilities to which any Asset is subject
as finally determined shall be allocated among the Assets acquired
hereunder as described on Schedule 2.03(e) hereof. Seller and
Purchaser each hereby covenant and agree that it will not take a
position on any income tax return, before any governmental agency
charged with the collection of any income tax, or in any judicial
proceeding that is in any way inconsistent with the terms of this
Section 2.03(e).
Section 2.04. ASSUMPTION OF LIABILITIES. (a) In addition to paying
the Purchase Price, at the Closing and except as otherwise specifically
provided in this Section 2.04, Purchaser shall assume and agree to pay,
discharge or perform, as appropriate, the following liabilities and obligations
of Seller:
(i) except for existing bank debt, all liabilities and
obligations of Seller in respect of the Business including, but not
limited to, payroll, vacation pay, payroll taxes, sales commissions
and related obligations existing as of the Interim Balance Sheet Date,
but only if and to the extent the same are accrued or reserved for on
the Interim Balance Sheet and remain unpaid and undischarged on the
Closing Date;
(ii) all liabilities and obligations of Seller arising in
the regular and ordinary course of the Business between the Interim
Balance Sheet Date and the Closing Date, to the extent that the same
remain unpaid and undischarged on the Closing Date and are accrued or
reserved for on the Closing Balance Sheet;
(iii) all liabilities and obligations of Seller in respect
of any workers' compensation claims whether or not the same are
accrued or reserved for on the Interim Balance Sheet or on the Closing
Balance Sheet;
9
<PAGE> 15
(iv) all liabilities and obligations of Seller in respect
of the agreements, contracts, commitments and leases which are
specifically identified in any Disclosure Schedule called for by
Section 4.19 hereof or not required to be identified on any such list
in accordance with the provisions of Section 4.19, except that
Purchaser shall not assume or agree to pay, discharge or perform any
(A) liabilities or obligations of the aforesaid
character existing as of the Interim Balance Sheet Date, and
which under GAAP should have been accrued or reserved for on a
balance sheet or the notes thereto as a liability or
obligation, if and to the extent that the same were not
accrued or reserved for on the Interim Balance Sheet;
(B) liabilities or obligations of the aforesaid
character existing as of the Closing Date, and which under
GAAP should have been accrued or reserved for on a balance
sheet or the notes thereto as a liability or obligation, if
and to the extent that the same were not accrued or reserved
for on the Closing Balance Sheet;
(C) liabilities or obligations arising out of any
breach by Seller of any provision of any agreement, contract,
commitment or lease referred to in this paragraph (C),
including but not limited to liabilities or obligations
arising out of Seller's failure to perform any agreement,
contract, commitment or lease in accordance with its terms
prior to the Closing, but excluding any liability arising out
of the assignment to Purchaser of such agreements, contracts,
commitments or leases in violation of the terms thereof to the
extent that the agreement, contract, commitment or lease is
listed on any Disclosure Schedule called for by Section 4.19
hereof; or
(D) Environmental Liabilities; and
(v) any product liability or similar claim for injury to
person or property, regardless of when made or asserted, which arises
out of or is based upon any express or implied representation,
warranty, agreement or guarantee made by Seller, or alleged to have
been made by Seller, or which is imposed or asserted to be imposed by
operation of law, in connection with any service performed or product
manufactured, sold or leased by or on behalf of Seller on or prior to
the Closing, including without limitation any claim relating to any
product delivered in connection with the performance of such service
and any claim seeking recovery for consequential damage, lost revenue
or income (collectively "Product Liability Claims") to the extent that
such Product Liability Claims are covered by and will be paid under
any existing insurance policy to be assigned by Seller to Purchaser
pursuant to this Agreement;
10
<PAGE> 16
(b) In no event, however, shall Purchaser assume or incur any
liability or obligation under this Section 2.04 or otherwise in respect of any
of the following:
(i) except as provided in Section 11.02 herein, any
federal, state or local income or other tax (a) payable with respect
to the business, assets, properties or operations of Seller or
Shareholder or any member of any affiliated group of which either is a
member for any period prior to the Closing Date, or (b) incident to or
arising as a consequence of the negotiation or consummation by Seller
or Shareholder or any member of any affiliated group of which either
is a member of this Agreement and the transactions contemplated
hereby;
(ii) any liability or obligation under or in connection
with the Excluded Assets;
(iii) any liability or obligation of Seller or the
Shareholders arising or incurred in connection with the negotiation,
preparation and execution of this Agreement and the transactions
contemplated hereby and fees and expenses of brokers, finders,
counsel, accountants and other experts; or
(iv) notes and accounts payable from Seller to the
Shareholders as reflected on Schedule 2.04(b).
Section 2.05. CLOSING FINANCIAL STATEMENTS. Not later than 30 days
after the Closing Date, Seller shall prepare the balance sheet of the Business
as of September 30, 1996 and as of the Closing Date, respectively,
(collectively, the "Closing Balance Sheets"), in accordance with GAAP, and
shall deliver the Closing Balance Sheets to Deloitte & Touche, LLP
("Purchaser's Auditors"). As soon as practicable, but in any event not later
than 90 days after the Closing Date, Purchaser's Auditors shall complete an
audit of such Closing Balance Sheets and issue its report thereon (the
"Report") to Seller and Purchaser to the effect that either (a) such balance
sheets present fairly the financial position of the Business as of September
30, 1996 and the Closing Date, respectively, in conformity with GAAP, or (b)
certain adjustments are required in order for the Closing Balance Sheets to be
presented in accordance with GAAP ( the "GAAP Adjustments"). In the event that
Purchaser's Auditors determine that GAAP Adjustments to the Closing Balance
Sheets are required, the Report shall include a statement detailing such
adjustments that it believes need to be recorded by Seller. Purchaser's
Auditors shall permit Coopers & Lybrand, LLP ("Seller's Auditors"), at the
earliest practicable date, to review the Report, including all work papers,
schedules and calculations related thereto, prior to the issuance thereof.
Seller's Auditors shall commence its review of said work papers, schedules and
calculations as soon as practicable after Purchaser's Auditors has completed
its field work.
Any dispute which may arise between Seller and Purchaser as to the
GAAP Adjustments, if any, shall be resolved in the following manner:
11
<PAGE> 17
(a) Seller, if it disputes the GAAP Adjustments, shall
notify Purchaser in writing within 15 days after the issuance of the
Report that Seller disputes the GAAP Adjustments; such notice shall
specify in reasonable detail the nature of the dispute;
(b) during the 15 day period following the date of such
notice, Seller and Purchaser shall attempt to resolve such dispute and
to determine the appropriateness of the GAAP Adjustments; and
(c) if at the end of the 15 day period specified in
subsection (b) above, Seller and Purchaser shall have failed to reach
a written agreement with respect to such dispute, the matter shall be
referred to the Seattle office of Price Waterhouse LLP, independent
certified public accountants (the "Arbitrator"), which shall act as an
arbitrator and shall issue its report as to the Closing Balance Sheets
within sixty (60) days after such dispute is referred to the
Arbitrator. Each of the parties hereto shall bear all costs and
expenses incurred by it in connection with such arbitration, except
that the fees and expenses of the Arbitrator hereunder shall be borne
equally by Seller and Purchaser. This provision for arbitration shall
be specifically enforceable by the parties and the decision of the
Arbitrator in accordance with the provisions hereof shall be final and
binding and there shall be no right of appeal therefrom.
The amount of the Purchase Price adjustment shall be determined in
accordance with Section 2.03(d) hereof on the later of the 15th day after
delivery of the Report pursuant hereto, or the date upon which any dispute
concerning any GAAP Adjustment is resolved (the "Adjustment Date"). Any
increase to the Purchase Price shall be paid by Purchaser to Seller and any
decrease in the Purchase Price shall be paid by Seller to Purchaser, in
immediately available funds, by wire transfer to the bank account designated by
Purchaser or Seller, as the case may be, within five business days (the "Due
Date") of the Adjustment Date; provided, however, that as long as the Note is
outstanding, the first $1,000,000 of any amount payable by Seller to Purchaser
hereunder shall first be satisfied by an offset against the outstanding
principal balance of the Note; provided that if there are outstanding three
Notes, one in favor of each Shareholder, each Shareholder shall have the
principal balance of his Note reduced by an amount equal to his percentage
ownership of the common stock of Seller at Closing multiplied by the amount of
the decrease which may be offset against the Note. If Purchaser or Seller, as
the case may be, fails to make any payment required under this Section 2.05 in
full on the Due Date, Purchaser or Seller, as the case may be, shall pay to the
other interest on the amount outstanding on the Due Date until the actual date
of payment (both dates inclusive) at the rate of 5% over the U.S. Prime Rate
published by the Wall Street Journal on the Due Date to be adjusted on each 6
month anniversary hereof until all payments required to be made under this
Section 2.05 shall be paid in full.
Notwithstanding anything in this Section 2.05 to the contrary, there
shall be no decrease in the Purchase Price for (i) bonuses payable to the
Existing Employees, (the total amount of such bonuses not to exceed $188,000)
of which the pro rata portion of such bonuses will be paid by Seller to the
Existing Employees on or prior to the Closing Date, and (ii) State taxes
payable
12
<PAGE> 18
by Seller shown on Schedule 4.10, 75% of which amount will be accrued on the
balance sheet of the Business as of September 30, 1996.
ARTICLE III
CLOSING
Section 3.01. CLOSING. The closing (the "Closing") of the sale and
purchase of the Assets shall take place at the offices of Kutak Rock, 717
Seventeenth Street, Suite 2900, Denver, Colorado 80202, as soon as possible,
but in no event later than five (5) business days after satisfaction of the
other conditions set forth in Article VII, or on such other date and such other
place as may be mutually agreed upon in writing by Purchaser and Seller.
Section 3.02. ITEMS TO BE DELIVERED AT CLOSING. At the Closing and
subject to the terms and conditions herein contained:
(a) Seller shall deliver to Purchaser the following:
(i) such bills of sale with covenants of
warranty, assignments, endorsements, and other good and
sufficient instruments and documents of conveyance and
transfer, in form reasonably satisfactory to Purchaser and its
counsel, as shall be necessary and effective to transfer and
assign to, and vest in, Purchaser all of Seller's right, title
and interest in and to the Assets in accordance with this
Agreement, including without limitation, (A) good and valid
title in and to all of the Assets owned by Seller, (B) good
and valid leasehold interests in and to all of the Assets
leased by Seller as lessee, and (C) all of Seller's rights
under all agreements, contracts, commitments, leases, plans,
bids, quotations, proposals, instruments and other documents
included in the Assets to which Seller is a party or by which
it has rights on the Closing Date; and
(ii) all of the agreements, contracts,
commitments, leases, plans, bids, quotations, proposals,
instruments, computer programs and software, data bases
whether in the form of computer tapes or otherwise, related
object and source codes, manuals and guidebooks, price books
and price lists, customer and subscriber lists, supplier
lists, sales records, files, correspondences, legal opinions,
rulings issued by governmental entities, original copies of
any and all licenses issued by a governmental entity
(including transmittal letters and other correspondence to or
from each governmental entities issuing such licenses) and
other documents, books, records, papers, files, office
supplies and data belonging to Seller which are part of the
Assets;
(iii) all corporate and other proceedings,
including but not limited to resolutions of Seller's board of
directors and shareholders, authorizing or otherwise connected
with the transactions contemplated hereby, which documents
13
<PAGE> 19
and instruments shall be in form and substance reasonably
satisfactory to Purchaser and Kutak Rock, its counsel, and
Purchaser shall receive all such counterpart originals or
certified or other copies of such documents as it may
reasonably request;
and simultaneously with such delivery, all such steps will be taken as may be
required to put Purchaser in actual possession and operating control of the
Assets and the Business.
(b) Purchaser shall deliver to Seller the following:
(i) the cash portion of the Purchase Price;
(ii) the Note;
(iii) the Warrant; and
(iv) the Assignment and Assumption Agreement
(c) At or prior to the Closing, the parties hereto shall
also deliver to each other the agreements, opinions, certificates and
other documents and instruments referred to in Article VII hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
SELLER AND SHAREHOLDERS
Seller and each of the Shareholders hereby represent and warrant to
Purchaser that, except as set forth on a Disclosure Schedule attached hereto,
each of which exceptions shall specifically identify the relevant subsection
hereof to which it relates and shall be deemed to be representations and
warranties as if made hereunder:
All the representations and warranties contained in this Article IV,
except in Sections 4.04, 4.05, 4.13, 4.16, 4.17, 4.21, 4.22, 4.24(d), 4.25,
4.26, 4.28 and 4.30, unless specifically qualified within such Sections, are
"to the knowledge of Seller, after due inquiry." When used in this context the
phrase "to the knowledge of Seller, after due inquiry" means the actual
conscious awareness of information by either Ronald G. Rudy, Harry Poll or
Harry Wirth (and, with respect to Section 4.06 only, Craig D. Eide) after one
or more of the above-referenced individuals has made due inquiry of management
employees of Seller who, as a result of their responsibilities with Seller,
would be likely to have material information with respect to such
representation or warranty.
Section 4.01. CORPORATE EXISTENCE. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Seller is
14
<PAGE> 20
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction where the conduct of the Business by it requires it to be
so qualified, except for those jurisdictions where failure to be so qualified,
individually or in the aggregate would not have a Material Adverse Effect, all
of which jurisdictions are listed on the Disclosure Schedule.
Section 4.02. CORPORATE EXISTENCE AND POWER. Seller has the
corporate power, authority and legal right to execute, deliver and perform this
Agreement. The execution, delivery and performance of this Agreement by Seller
have been duly authorized by all necessary corporate and shareholder action.
This Agreement has been, and the other agreements, documents and instruments
required to be delivered by Seller or Shareholders in accordance with the
provisions hereof (the "Seller's Documents") will be, duly executed and
delivered on behalf of Seller by duly authorized officers of Seller, and this
Agreement constitutes, and Seller's Documents when executed and delivered will
constitute, the legal, valid and binding obligations of such of Shareholders
and Seller as is a party thereto, enforceable against such party in accordance
with their respective terms except as the same may be limited by bankruptcy,
moratorium, fraudulent conveyance and similar laws affecting creditors rights
generally and to the application of general equitable principles.
Section 4.03. NO INTEREST IN OTHER ENTITIES. Except for interests in
the entities described in the Disclosure Schedule (such entities are
hereinafter referred to as the "Subsidiaries"), no shares of any corporation or
any ownership or other investment interest, either of record, beneficially or
equitably, in any association, partnership, joint venture or other legal entity
are included in the Assets, other than shares of capital stock representing
immaterial, non-controlling interests in publicly traded companies obtained by
Seller in the ordinary course of the Business.
Section 4.04. VALIDITY OF CONTEMPLATED TRANSACTIONS, ETC. Except as
set forth in the Disclosure Schedule and except for (a) applicable requirements
of the HSR Act, and (b) governmental permits, authentications, consents and
approvals which have been obtained or will be obtained on or prior to the
Closing Date, the execution, delivery and performance of this Agreement by each
of the Shareholders and Seller does not and will not violate, conflict with or
result in the breach of any term, condition or provision of, or require the
consent of any other person under, (i) any existing law, ordinance, or
governmental rule or regulation binding upon or applicable to Seller or the
Shareholders, (ii) any judgment, order, writ, injunction, decree or award of
any court, arbitrator or governmental or regulatory official, body or authority
which is applicable to Seller or any of the Shareholders, (iii) the charter
documents of Seller or any securities issued by Seller, or (iv) to the Seller's
knowledge, after due inquiry, any mortgage, indenture, agreement, contract,
commitment, lease, plan or other instrument, document or understanding, oral or
written, to which Seller or any Shareholder is a party, by which Seller or the
Shareholders may have rights or by which any of the Assets may be bound or
affected, or give any party with rights thereunder the right to terminate,
modify, accelerate or otherwise change the existing rights or obligations of
Seller or Shareholder thereunder.
Except for (i) compliance with any applicable requirement of the HSR
Act, and (ii) state gaming laws, to Seller's and the Shareholders' knowledge,
after due inquiry, no authorization,
15
<PAGE> 21
approval or consent of, and no registration or filing with, any governmental or
regulatory official, body or authority is required in connection with the
execution, delivery or performance of this Agreement by Seller or the
Shareholders except where the failure to receive such authorization, approval
or consent or to make such registration or filing would not have a Material
Adverse Effect.
Section 4.05. NO THIRD PARTY OPTIONS. There are no existing
agreements, options, commitments or rights with, of or to any person to acquire
any of Seller's assets, properties or rights included in the Assets or any
interest therein, except for those contracts entered into in the normal course
of business consistent with past practice for the sale of inventory of Seller.
Section 4.06. FINANCIAL STATEMENTS. Seller has delivered to
Purchaser true and complete copies of (a) the balance sheets of Seller at
December 31, 1994 and 1995, and the related statements of income, cash flow and
changes in shareholders equity for the fiscal years then ended, certified by
Seller's Auditors; and (b) the Interim Balance Sheet and related statements of
income and cash flow for the periods then ended (collectively, the "Financial
Statements"). Such Financial Statements, including the related notes, fairly
present, in all material respects the financial position, assets and
liabilities (whether accrued, absolute, contingent or otherwise) of Seller at
the dates indicated and such statements of income, cash flow and changes in
shareholders equity fairly present the results of operations, cash flow and
changes in shareholders equity of Seller for the periods indicated, all of
which have been prepared in accordance with GAAP throughout the periods
involved; provided, however, that the Interim Balance Sheet is subject to
normal year-end adjustments (which will not be material) and lacks footnotes
and other presentation items. The Interim Balance Sheet specifically
identifies the assets and liabilities which, if the Closing had been held on
the Interim Balance Sheet Date, would have been transferred to or assumed by
Purchaser in accordance herewith.
Section 4.07. ACCOUNTS RECEIVABLE. The accounts receivable of Seller
arising from the Business as set forth on the Interim Balance Sheet or arising
since the date thereof are valid and genuine; have arisen solely out of bona
fide sales and deliveries of goods, performance of services and other business
transactions in the ordinary course of business consistent with past practice;
are not subject to valid defenses, set-offs or counterclaims; and are
collectible within the normal course of business consistent with past practices
at the full recorded amount thereof. The reserves accrued on the books of
Seller for doubtful accounts with respect to accounts, notes and other
receivables are in accordance with GAAP and are adequate.
Section 4.08. INVENTORY. All inventory of Seller used in the conduct
of the Business, including without limitation raw materials, work-in process
and finished goods, reflected on the Interim Balance Sheet or acquired since
the date thereof was acquired and has been maintained in the ordinary course of
the Business; is of good and merchantable quality; consists substantially of a
quality, quantity and condition usable, leasable or saleable in the ordinary
course of the Business; is valued at reasonable amounts based on the ordinary
course of business of Seller during the past six months; and is not subject to
any write-down or write-off. Seller is not under
16
<PAGE> 22
any liability or obligation with respect to the return of inventory in the
possession of wholesalers, retailers or other customers.
Section 4.09. ABSENCE OF UNDISCLOSED LIABILITIES. Seller has no
liabilities or obligations with respect to the Business, either direct or
indirect, matured or unmatured or absolute, contingent or otherwise, except:
(a) those liabilities or obligations set forth on the
Interim Balance Sheet and not heretofore paid or discharged;
(b) liabilities arising in the ordinary course of
business under any agreement, contract, commitment, lease or plan
specifically disclosed on the Disclosure Schedules or not required to
be disclosed because of the term or amount involved; and
(c) those liabilities or obligations incurred,
consistently with past business practice, in or as a result of the
normal and ordinary course of business since the Interim Balance Sheet
Date.
For purposes of this Agreement, the term "liabilities" shall include,
without limitation, any direct or indirect indebtedness, guaranty, endorsement,
claim, cost, expense, obligation or responsibility, fixed or unfixed, known or
unknown, asserted or unasserted, choate or inchoate, liquidated or
unliquidated, secured or unsecured.
Section 4.10. TAX AND OTHER RETURNS AND REPORTS. All federal, state,
local and foreign tax returns, reports, statements and other similar filings
required to be filed by Seller (the "Tax Returns") with respect to any federal,
state, local or foreign taxes, assessments, interest, penalties, deficiencies,
fees and other governmental charges or impositions, (including without
limitation all income tax, unemployment compensation, social security, payroll,
sales and use, excise, privilege, property, ad valorem, franchise, license,
school and any other tax or similar governmental charge or imposition under
laws of the United States or any state or municipal or political subdivision
thereof or any foreign country or political subdivision thereof) (the "Taxes")
have been filed with the appropriate governmental agencies in all jurisdictions
in which such Tax Returns are required to be filed, and all such Tax Returns
properly reflect the liabilities of Seller for Taxes for the periods, property
or events covered thereby. All Taxes, including those without limitation which
are called for by the Tax Returns, or heretofore or hereafter claimed to be due
by any taxing authority from Seller, have been properly accrued or paid. The
accruals for Taxes contained in the Interim Balance Sheet are adequate to cover
the tax liabilities of Seller with respect to the Business as of that date and
include adequate provision for all deferred taxes, and nothing has occurred
subsequent to that date to make any of such accruals inadequate. Seller has
not received any notice of assessment or proposed assessment in connection with
any Tax Returns and there are not pending tax examinations of or tax claims
asserted against Seller or any of its assets or properties. Seller has not
extended, or waived the application of, any statute of limitations of any
jurisdiction regarding the assessment or collection of any Taxes. There are no
tax liens (other than any lien for current taxes not yet due and payable) on
the
17
<PAGE> 23
Assets or Business. Seller has no knowledge of any basis for any additional
assessment of any Taxes. Seller has made all deposits required by law to be
made with respect to employees' withholding and other employment taxes,
including without limitation the portion of such deposits relating to taxes
imposed upon Seller.
Section 4.11. BOOKS OF ACCOUNT. The books, records and accounts of
Seller maintained with respect to the Business accurately and fairly reflect,
in reasonable detail, the transactions and the assets and liabilities of Seller
with respect to the Business. Seller has not engaged in any transaction with
respect to the Business, maintained any bank account for the Business or used
any of the funds of Seller in the conduct of the Business except for
transactions, bank accounts and funds which have been and are reflected in the
normally maintained books and records of the business.
Section 4.12. EXISTING CONDITION. Except as set forth on the
Disclosure Schedules, since the Interim Balance Sheet Date, Seller with respect
to the Business has not:
(a) incurred any liabilities, other than liabilities
incurred in the ordinary course of business consistent with past
practice, or discharged or satisfied any Lien, Claim or encumbrance,
or paid any liabilities, other than in the ordinary course of business
consistent with past practice, or failed to pay or discharge when due
any liabilities of which the failure to pay or discharge has caused or
will cause any material damage or risk of material loss to it or any
of its assets or properties. For purposes of this Section 4.12(a),
the payment of $473,200 to Mr. Poll on April 15, 1996 shall be
considered made "in the ordinary course of business;"
(b) sold, encumbered, assigned or transferred any assets
or properties which would have been included in the Assets if the
Closing had been held on the Interim Balance Sheet Date or on any date
since then, except for the sale of inventory in the ordinary course of
business consistent with past practice;
(c) created, incurred, assumed or guaranteed any
indebtedness for money borrowed, or mortgaged, pledged or subjected
any of the Assets to any mortgage, lien, pledge, security interest,
conditional sales contract or other encumbrance of any nature
whatsoever, except for Permitted Liens;
(d) made or suffered any amendment or termination of any
material agreement, contract, commitment, lease or plan to which it is
a party or by which it is bound, or cancelled, modified or waived any
substantial debts or claims held by it or waived any rights of
substantial value, whether or not in the ordinary course of business;
(e) declared, set aside or paid any dividend or made or
agreed to make any other distribution or payment in respect of its
capital shares or redeemed, purchased or otherwise acquired or agreed
to redeem, purchase or acquire any of its capital shares.
Notwithstanding anything to the contrary above, Seller may declare and
pay a cash
18
<PAGE> 24
dividend to the Shareholders for the amount of the Shareholders'
estimated tax payments for Seller's 1996 tax year. The dividend shall
be declared and paid in such amounts and at such times as are
consistent with past practices but in no event shall such dividend be
greater than an amount equal to 39.6% of the Seller's estimated
pre-tax income for the 1996 tax year;
(f) suffered any damage, destruction or loss, whether or
not covered by insurance, (i) materially and adversely affecting the
Assets or prospects or (ii) of any item or items carried on its books
of account individually or in the aggregate at more than $100,000 or
suffered any repeated, recurring or prolonged shortage, cessation or
interruption of supplies or utility or other services required to
conduct its business and operations;
(g) suffered any material adverse change in its business,
operations, assets, properties, prospects or condition (financial or
otherwise);
(h) made commitments or agreements for capital
expenditures or capital additions or betterments exceeding in the
aggregate $100,000 except such as may be involved in ordinary repair,
maintenance or replacement of its assets;
(i) increased the salaries or other compensation of, or
made any advance (excluding advances for ordinary and necessary
business expenses) or loan to, any of its employees or made any
increase in, or any addition to, other benefits to which any of its
employees may be entitled other than in the ordinary course of
business and consistent with past practices;
(j) changed any of the accounting principles followed by
it or the methods of applying such principles; or
(k) entered into any transaction other than in the
ordinary course of business consistent with past practice, other than
as contemplated by this Agreement.
Section 4.13. TITLE TO PROPERTIES. Seller has good, valid and
marketable title to all of its properties and assets, real, personal and mixed,
which would be included in the Assets if the Closing took place on the date
hereof, which it purports to own, including without limitation all properties
and assets reflected in the Interim Balance Sheet (except for inventory sold
since the date thereof in the ordinary course of business consistent with past
practice) free and clear of all mortgages, liens, pledges, security interests,
charges, claims, restrictions and other encumbrances and defects of title of
any nature whatsoever, except for (i) Liens for current real or personal
property taxes not yet due and payable, (ii) Liens disclosed in the Disclosure
Schedules, (iii) worker's, carrier's and materialman's liens, and (iv) Liens
that are immaterial in character, amount, and extent, and which do not detract
from the value or interfere with the present or proposed use of the properties
they affect ("Permitted Liens").
19
<PAGE> 25
Section 4.14. CONDITION OF TANGIBLE ASSETS. All buildings,
structures, facilities, equipment and other material items of tangible property
and assets which would be included in the Assets if the Closing took place on
the date hereof are in good operating condition and repair, subject to normal
wear and maintenance, are usable in the regular and ordinary course of business
and conform to all applicable laws, ordinances, codes, rules and regulations,
and Authorizations relating to their construction, use and operation. No
person other than Seller owns any equipment or other tangible assets or
properties situated on the premises of Seller or necessary to the operation of
the Business, except for leased items disclosed in the Disclosure Schedule and
for items of immaterial value.
Section 4.15. COMPLIANCE WITH LAW; AUTHORIZATIONS. Seller has
complied in all material respects with each, and is not in violation of any,
law, ordinance, or governmental or regulatory rule or regulation, whether
federal, state, local or foreign, to which the Business or Assets is subject
("Regulations"). Seller owns, holds, possesses or lawfully uses in the
operation of the Business all franchises, licenses, permits, easements, rights,
applications, filings, registrations and other authorizations
("Authorizations") which are in any manner necessary for it to conduct the
Business as now or previously conducted or for the ownership and use of the
assets owned or used by Seller in the conduct of the Business, free and clear
of all liens, charges, restrictions and encumbrances and in compliance with all
Regulations except where the failure to have such Authorizations will not have
a Material Adverse Effect. All such Authorizations are listed and described in
the Disclosure Schedule. Seller is not in default, nor has it received any
notice of any claim of default, with respect to any such Authorization. All
such Authorizations are renewable by their terms or in the ordinary course of
business without the need to comply with any special qualification procedures
or to pay any amounts other than routine filing fees. None of such
Authorizations will be adversely affected by consummation of the transactions
contemplated hereby. No shareholder, director, officer, employee or former
employee of Seller or any affiliates of Seller, or any other person, firm or
corporation owns or has any proprietary, financial or other interest (direct or
indirect) in any Authorization which Seller owns, possesses or uses in the
operation of the Business as now or previously conducted. Neither Seller nor
any of the Shareholders has had any gaming license revoked, suspended or denied
or has withdrawn an application with respect to a gaming license.
Section 4.16. TRANSACTIONS WITH AFFILIATES. No shareholder, director
or officer of Seller, or any member of his or her immediate family or any other
of its, his or her Affiliates, owns or has a 5% or more ownership interest in
any corporation or other entity that is or was during the last three years a
party to, or in any property which is or was during the last three years the
subject of, any material contract, agreement or understanding, business
arrangement or relationship with Seller.
Section 4.17. LITIGATION.
(a) No litigation, including any arbitration, public
investigation or other proceeding of or before any court, arbitrator
or governmental or regulatory official, body or authority is pending.
Seller is not a party to or subject to the provisions of any
20
<PAGE> 26
judgment, order, writ, injunction, decree or award of any court,
arbitrator or governmental or regulatory official, body or authority
which may have a Material Adverse Effect.
(b) To the best knowledge of Seller, after due inquiry,
no litigation, including any arbitration, investigation or other
proceeding of or before any court, arbitrator or governmental or
regulatory official, body or authority is threatened in writing
against Seller which could reasonably be expected to have a Material
Adverse Effect.
(c) To the knowledge of Seller, after due inquiry, no
officer, director or key management employee or Immediate Family
Member of an officer, director or key management employee of Seller
has been convicted in a criminal proceeding, is a named subject of a
criminal proceeding which is presently pending (excluding traffic
violations and other minor offenses) or is to the knowledge of Seller
and the Shareholders the subject of a criminal investigation.
Section 4.18. INSURANCE. Seller has furnished to Purchaser a list
of, and true and complete copies of, all insurance policies and fidelity bonds
relating to the Assets, Business, operations, employees, officers or directors
of Seller. There is no claim by Seller or any Subsidiary pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds or in respect of which
such underwriters have reserved their rights. All premiums payable under all
such policies and bonds have been paid timely and Seller has otherwise complied
fully with the terms and conditions of all such policies and bonds except where
the failure to have made payment or to be in full compliance would not
reasonably be expected to result in a Material Adverse Effect. Such policies
of insurance and bonds (or other policies and bonds providing substantially
similar insurance coverage) are in full force and effect. Such policies and
bonds are of the type and in amounts customarily carried by Persons conducting
businesses similar to those of Seller. Seller does not know of any threatened
termination of, premium increase with respect to, or material alteration of
coverage under, any of such policies or bonds. Except as disclosed in the
Disclosure Schedule, Purchaser shall after the Closing be able to assume and to
continue to have coverage under such policies and bonds with respect to events
occurring prior to the Closing.
Section 4.19. CONTRACTS AND COMMITMENTS. Except as set forth in the
Disclosure Schedule, Seller is not a party to any written or oral:
(a) agreement, contract or commitment with any present or
former employee or consultant or for the employment of any person,
including any consultant, who is engaged in the conduct of the
Business involving in any one case $100,000 or more;
(b) agreement, contract or commitment for the future
purchase of, or payment for, supplies or products, or for the
performance of services by a third party which supplies, products or
services are used in the conduct of the Business involving in any one
case $100,000 or more;
21
<PAGE> 27
(c) agreement, contract or commitment to sell or supply
products ("Goods Contracts") or to perform services ("Services
Contracts") in connection with the Business involving in any one case
$100,000 or more;
(d) agreement, contract or commitment relating to the
Business not otherwise listed on the Disclosure Schedule and
continuing over a period of more than six months from the date hereof
or exceeding in any one case $100,000 or more;
(e) distribution, dealer, representative or sales agency
agreement, contract or commitment relating to the Business involving
in any one case $100,000 or more;
(f) lease under which Seller is either lessor or lessee
relating to the Assets or any property at which the Assets are
located;
(g) note, debenture, bond, equipment trust agreement,
letter of credit agreement, loan agreement or other contract or
commitment for the borrowing or lending of money relating to the
Business or agreement or arrangement for a line of credit or
guarantee, pledge or undertaking of the indebtedness of any other
person relating to the Business;
(h) agreement, contract or commitment for any charitable
or political contribution in excess of $10,000 relating to the
Business;
(i) commitment or agreement for any capital expenditure
or leasehold improvement in excess of $100,000 relating to the
Business;
(j) agreement, contract or commitment limiting or
restraining Seller, the Business or any successor thereto from
engaging or competing in any manner or in any business, nor, to
Seller's knowledge, is any employee of Seller engaged in the conduct
of the Business subject to any such agreement, contract or commitment;
or
(k) material agreement, contract or commitment relating
to the Business not made in the ordinary course of business, or any
other material long term commitments or arrangements that require the
commitment of a material portion of Seller's resources.
Each of the agreements, contracts, commitments, leases, plans and
other instruments, documents and undertakings listed in the Disclosure Schedule
in response to this Section, or not required to be listed therein because of
the amount thereof, under which Purchaser is to acquire rights or obligations
hereunder is valid and enforceable in accordance with its terms; Seller is, and
all other parties thereto are, in compliance with the provisions thereof;
Seller is not, and no other party thereto is, in default in the performance,
observance or fulfillment of any material obligation, covenant or condition
contained therein; and no event has occurred which with or without the giving
of notice or lapse of time, or both, would constitute a default thereunder.
Furthermore, no such agreement, contract, commitment, lease, plan or other
instrument,
22
<PAGE> 28
document or undertaking contains any contractual requirement with which there
is a reasonable likelihood Seller or any other party thereto will be unable to
comply. No material written or oral agreement, contract or commitment
described therein requires the consent of any party to its assignment in
connection with the transactions contemplated hereby.
Section 4.20. ADDITIONAL INFORMATION. The Disclosure Schedule
contains accurate lists and summary descriptions of the following:
(a) all inventory, equipment, furniture and fixtures of
Seller included in the Assets as of the Interim Balance Sheet Date,
specifying such items as are owned and such as are leased and, with
respect to the owned property, specifying its aggregate cost or
original value and the net book value as of Interim Balance Sheet Date
and, with respect to the leased property as to which Seller is lessee,
specifying the identity of the lessor, the rental rate and the
unexpired term of the lease;
(b) all real property and interests in real property
owned, leased or otherwise held by Seller in the conduct of the
Business or upon which the Assets are located as of the Interim
Balance Sheet Date, specifying which are owned and which are leased
and, (i) with respect to the owned property, specifying its cost or
original value and the net book value as of the Interim Balance Sheet
Date and reconciling the aggregate value of the assets in such
category to the amount of such category on the Interim Balance Sheet,
and (ii) with respect to the leased property, specifying the identity
of the lessor, the rental rate and the unexpired term of the lease;
(c) the name and address of every bank and other
financial institution in which Seller or its affiliates maintain an
account (whether checking, savings or otherwise), lock box or safe
deposit box for the Business, and the account numbers and names of
persons having signing authority or other access thereto;
(d) the names and titles of and current annual base
salary or hourly rates for all employees of Seller engaged in the
conduct of the Business, together with a statement of the full amount
and nature of any other remuneration, whether in cash or kind, paid to
each such person during the past or current fiscal year or payable to
each such person in the future and the bonuses accrued for, the
vacation and severance benefits to which, each such person is
entitled; and
(e) all names under which Seller has conducted the
Business during the last five years.
Section 4.21. LABOR MATTERS. Seller has not suffered any strike,
slowdown, picketing or work stoppage by any union or other group of employees
affecting the Business and has not received notice of and does not have
knowledge of any threatened strike, slowdown, picketing or work stoppage by any
union or other group of employees affecting the Business. Seller is not a
party to any collective bargaining agreement, no such agreement determines the
terms and
23
<PAGE> 29
conditions of employment of any employee of Seller, no collective bargaining
agent has been certified as a representative of any of the employees of Seller,
and no representation campaign or election is now in progress, or to the
knowledge of Seller, threatened with respect to any of the employees of Seller.
Section 4.22. EMPLOYEE BENEFIT PLANS AND ARRANGEMENTS.
(a) The Disclosure Schedule contains a complete list of
all employee benefit plans ("Plan"), whether formal or informal,
whether or not set forth in writing, and whether covering one person
or more than one person, currently sponsored or maintained by Seller
or sponsored or maintained within the last 5 years. For the purposes
hereof, the term "Plan" refers to all employee welfare benefit plans
within the meaning of Section 3(1) of ERISA, and all employee pension
benefit plans within the meaning of Section 3(2) of ERISA. Each Plan
providing benefits which are funded through a policy of insurance is
indicated by the word "insured" placed by the listing of the Plan in
the Disclosure Schedule.
(b) With respect to each Plan, to the extent applicable:
(i) Each Plan has been maintained and operated in
compliance in all material respects with its terms and with
applicable provisions of ERISA, the Code, all regulations,
rulings and other authority issued thereunder, and all other
applicable governmental laws and regulations, including,
without limitation, all tax rules for which favorable tax
treatment is intended, bonding requirements and requirements
for the filing of applicable reports, documents, and notices
with the Secretary of Labor or the Secretary of the Treasury
and the furnishing of documents to the participants or
beneficiaries of each Plan.
(ii) All contributions required by law or any
applicable collective bargaining agreement to have been made
under any Plan (without regard to any waivers granted under
Code Section 412) to any fund, trust, or account established
thereunder have been made by the applicable due date, or the
deadline for making such contributions has not yet passed.
(iii) Each Plan intended to qualify under Code
Section 401(a) has received a favorable unrevoked
determination letter issued by the IRS as to its qualified
status under the Code, which determination letter may still be
relied upon as to such tax-qualified status, and no
circumstances have occurred that would adversely affect the
tax-qualified status of any such Plan.
(iv) No Plan is or at any time has been subject to
Title IV of ERISA; no condition exists that causes or could
cause Seller to have liability under Title IV of ERISA; and no
condition exists with respect to any Plan that could result in
liability under ERISA Section 4069 or 4212(c) to Seller or,
by virtue of the
24
<PAGE> 30
transactions contemplated hereby, to Purchaser. Each Plan may
be amended and terminated (or has been terminated) to the
extent provided by and in accordance with its terms.
(v) No Plan subject to Part 3 of Subtitle B of
Title I of ERISA or Code Section 412 has incurred any
"accumulated funding deficiency" (as defined therein), whether
or not waived; and all accrued contributions, premiums and
other payments that would be (without regard to the
transactions contemplated hereby), but are not yet, due from
Seller to (or under) any Plan listed on Schedule 4.22(a) have
been adequately and properly reserved for, as disclosed on
Schedule 4.22(a).
(vi) There is no suit, action, dispute, claim,
arbitration or legal, administrative or other proceeding or
governmental investigation pending, or, to the best knowledge
of Seller, threatened, alleging any breach of the terms of any
Plan or of any fiduciary duties thereunder or violation of any
applicable law with respect to any Plan, nor, to the best
knowledge of Seller, any arbitration, proceeding or
investigation.
(vii) Seller and each "party in interest" (as
defined in ERISA Section 3(14)) or "disqualified person" (as
defined in Code Section 4985) with respect to any Plan has
not engaged in a "prohibited transaction" within the meaning
of Code Section 4975 or ERISA Section 406.
(viii) None of the Plans that are "employee welfare
benefit plans" as defined in ERISA Section 3(1) ("Welfare
Benefit Plans") provides for continuing benefits or coverage
for any participant or beneficiary of a participant after such
participant's termination of employment, except to the extent
required by law; provided that any disclosure on Schedule
4.22(a) shall set forth: (i) the number of individuals
currently receiving such continuing benefits of coverage; (ii)
the limit on Seller's liability with respect to such coverage;
(iii) the terms and conditions of such coverage; and (iv) the
maximum number of current employees or independent contractors
of Seller who could become eligible for such continuing
benefits or coverage.
(ix) None of the Welfare Benefit Plans have
violated Code Section 4980B or ERISA Sections 601-609 or
Social Security Act Section 1862(b)(1) with respect to any
Plan that could result in any material liability.
(x) None of the Plans that are Welfare Benefit
Plans are "multiple employer welfare arrangements" within the
meaning of ERISA Section 3(40).
(xi) With respect to the Plans that are Welfare
Benefit Plans and that are self-insured, (i) no claims have
been made pursuant to any such Plan that have not yet been
paid (other than claims which have not yet been paid but are
in the normal course of processing) and no individual has
incurred injury,
25
<PAGE> 31
sickness or other medical condition with respect to which
claims may be made pursuant to any such Plan where the
liability to Seller could in the aggregate with respect to
each such individual exceed $25,000 per year (such disclosure
to include the amount thereof); and (ii) no amounts are
required in connection with any such Plan to be included in
income under Code Section 105(h) (under official regulations
thereof to date).
(xii) Seller does not maintain and does not have
any obligation to contribute to any "voluntary employees'
beneficiary association" within the meaning of Code Section
501(c)(9) or other funding arrangement for the provision of
welfare benefits (such disclosure to include the amount of any
such funding).
(xiii) Neither Seller nor any ERISA Affiliate has,
nor at any time has had, any obligation to contribute to any
"multi-employer plan" as defined in ERISA Section 3(37) and
neither Seller nor any ERISA Affiliate has at any time
withdrawn in any complete or partial withdrawal from any
"multi-employer Plan" as defined in ERISA Section 3(37).
(xiv) With respect to each Plan (other than
insurance contracts and employment contracts which (x) by
their terms have expired and (y) otherwise are no longer in
effect) true, correct, and complete copies of the applicable
following documents have been delivered to Purchaser; (i) all
current Plan documents and related trust documents, and any
amendment thereto; (ii) Forms 5500, financial statements, and
actuarial reports (if any) for the last three Plan years;
(iii) the most recently issued IRS determination letter; (iv)
summary, plan descriptions; and (v) all written material
communications to employees relating to the Plans.
(xv) No event has occurred and no condition
exists, with respect to any Plan, that has subjected Seller or
could subject Purchaser (by virtue of the transactions
contemplated hereby), or any Plan that will be maintained by
Purchaser upon the Closing Date or any other Plan intended to
be qualified under Section 401(a) of the Code to any tax,
fine, penalty or other liability (other than a liability
arising in the normal course to make contributions or
payments, as applicable, when ordinarily due under a Plan that
will be maintained by Purchaser upon the Closing Date), which
are material in the aggregate.
(xvi) Neither Seller nor its ERISA Affiliate
maintains any Plan which provides severance benefits to
current or former employees of or other service providers to
Seller or its ERISA Affiliate.
Section 4.23. INTELLECTUAL PROPERTY.
(a) The Disclosure Schedule contains a list of all
material Intellectual Property Rights owned or licensed and used or
held for use by Seller which are material to Seller
26
<PAGE> 32
taken as a whole, specifying as to each, as applicable: (i) the nature
of such Intellectual Property Rights; (ii) the owner of such
Intellectual Property Rights; and (iii) licenses, sublicenses and
other agreements as to which Seller is a party and pursuant to which
any Person is authorized to use such Intellectual Property Rights,
including the identity of all parties thereto, a description of the
nature and subject matter thereof, the applicable royalty and the term
thereof. The Intellectual Property Rights are owned by, or validly
licensed to, Seller as indicated in the Disclosure Schedule. Seller
(i) has the exclusive right to use such Intellectual Property Rights;
(ii) has not conveyed, assigned or encumbered any Intellectual
Property Rights so as to interfere in any way with the operation of
the Business, and (iii) all registrations and filings necessary to
preserve the rights of Seller in the Intellectual Property Rights have
been made and are in good standing.
(b) Since the Interim Balance Sheet Date Seller has not
been a defendant in any action, suit, investigation or proceeding
relating to, or otherwise has been notified of, any alleged claim or
infringement of any Intellectual Property Rights, and Seller has no
knowledge of any other such infringement by Seller, and Seller has no
knowledge of any continuing infringement by any other Person of any
Intellectual Property Rights. No Intellectual Property Right is
subject to any outstanding judgment, injunction, order, decree or
agreement restricting the use thereof by Seller or restricting the
licensing thereof by Seller to any Person. Seller has not entered
into any agreement to indemnify any other Person against any charge of
infringement of any Intellectual Property Right.
Section 4.24. ENVIRONMENTAL MATTERS.
(a) Except as set forth in the Disclosure Schedule,
Seller has obtained all permits, licenses and other authorizations
which are required in connection with the conduct of the Business
under Regulations relating to pollution or protection of the
environment, including Regulations relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into
the environment (including without limitation ambient air, surface
water, groundwater, or land), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes.
(b) Except as set forth in the Disclosure Schedule,
Seller is in full compliance in the conduct of the Business with all
terms and conditions of the required permits, licenses and
authorizations, and is also in full compliance with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in those
laws or contained in any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
27
<PAGE> 33
(c) Except as set forth in the Disclosure Schedule,
Seller is not aware of, nor has Seller received notice of, any past,
present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans which may interfere with or
prevent compliance or continued compliance with those laws or any
regulations, code, plan, order, decree, judgment, injunction, notice
or demand letter issued, entered, promulgated or approved thereunder,
or which may give rise to any common law or legal liability, or
otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, study or investigation, based on or related to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge, release
or threatened release into the environment, of any pollutant,
contaminant, chemical, or industrial, toxic or hazardous substance or
waste.
(d) Except as set forth in the Disclosure Schedule, there
is no civil, criminal or administrative action, suit, demand, claim,
hearing, notice or demand letter, notice of violation, public
investigation, or proceeding pending or threatened against Seller in
connection with the conduct of the Business relating in any way to
Environmental Laws or any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
(e) There are no Environmental Permits that are
nontransferable or require consent to own and operate the Business and
the Assets.
Section 4.25. REAL PROPERTY.
(a) Seller has good title to, or in the case of leased
property has valid leasehold interests in, all personal property and
assets (whether tangible or intangible) reflected on the Interim
Balance Sheet or acquired after the Interim Balance Sheet Date, except
for property and assets sold since the Interim Balance Sheet Date in
the ordinary course of business consistent with past practices.
Seller has valid and insurable fee simple title to, or in the case of
leased real property have valid leasehold interests in, all real
property reflected on the Interim Balance Sheet or acquired after the
Interim Balance Sheet Date, except for any such real property sold
since the Interim Balance Sheet Date in the ordinary course of
business consistent with past practices. None of such property or
assets (whether real or personal) is subject to any Liens, except:
(i) Liens disclosed on the Interim Balance Sheet;
(ii) Liens for taxes not yet due or being
contested in good faith (and for which adequate accruals or
reserves have been established on the Interim Balance Sheet);
or
(iii) Liens of record which do not materially
detract from the value or materially interfere with any
present use of such property or assets.
28
<PAGE> 34
(b) To the knowledge of Seller, there are no developments
affecting any such property or assets (whether real or personal)
pending or, to the knowledge of Seller threatened, which might
materially detract from the value of such property or assets, or
materially interfere with any present use of any such property or
assets.
(c) The plant and equipment owned by Seller has been
reasonably maintained consistent with standards generally followed in
the industry (giving due account to the age and length of use of same,
ordinary wear and tear excepted) and, to the knowledge of Seller, are
adequate and suitable for their present uses and, in the case of
plants, buildings and other structures (including the roofs thereof),
are structurally sound.
(d) To the knowledge of Seller, all real property
currently has access to (i) public roads or valid easements for such
ingress to and egress from all such real property and (ii) water
supply, storm and sanitary sewer facilities, telephone, gas and
electrical connections, fire protection, drainage and other public
utilities, in each case as is necessary for the conduct of the
Businesses as heretofore conducted by Seller. To the knowledge of
Seller, none of the structures on any such owned or leased real
property encroaches upon real property of another person, and no
structure of any other person substantially encroaches upon any of
such owned or leased real property.
Section 4.26. ASSETS. Except for the Excluded Assets, the property
and assets owned or leased by Seller, or which it otherwise has the right to
use, constitute all of the material property and assets held for use or used in
connection with the Businesses, are generally adequate to conduct the Business
as currently conducted by Seller. The Assets include all rights and property
necessary to the conduct of the Business by Purchaser in the manner it is
presently conducted by Seller and no Excluded Asset hereunder constitutes
property or rights material to the Business.
Section 4.27. RESTRICTIONS. Seller is not a party to any indenture,
agreement, contract, commitment, lease, plan, license, permit, authorization or
other instrument, document or understanding, oral or written, or subject to any
charter or other corporate restriction or any judgment, order, writ,
injunction, decree or award which Materially Adversely Affects or materially
restricts the business, operations, assets, properties, prospects or condition
(financial or otherwise) of the Business as presently conducted.
Section 4.28. COMPLETENESS OF DISCLOSURE. Subject to any applicable
qualifications contained in any certificate, schedule, statement, document or
instrument, no representation or warranty by Seller or the Shareholders in this
Agreement nor any certificate, schedule, statement, document or instrument
furnished or to be furnished to Purchaser pursuant hereto, or in connection
with the negotiation, execution or performance of this Agreement, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact required to be stated herein or therein or necessary to
make any statement herein or therein not misleading.
29
<PAGE> 35
Section 4.29. IDENTIFICATION OF FIDUCIARIES. The Disclosure Schedule
sets forth the names and titles of all current directors and officers of Seller
and of each current trustee, and plan administrator of, and person with
investment or other administrative control over each Plan disclosed in the
Disclosure Schedule relating to Section 4.22, and (B) the names of each trustee
and administrator of, and person with investment or other administrative
control over each Plan which is a plan intended to be qualified under Section
401(a) of the Code, who is currently acting in such capacity or who has acted
in such capacity within the five-year period ending on the Closing Date.
Section 4.30. PURCHASE FOR INVESTMENT.
(a) Seller and the Shareholders have received such
information relating to the business and affairs of Purchaser which
Seller and the Shareholders have requested, and all additional
information which Seller and the Shareholders have considered
necessary to verify the accuracy of the information so received.
Seller and the Shareholders have had the opportunity to ask questions
of and receive answers from Purchaser concerning the terms and
conditions of the transactions contemplated by this Agreement. On the
basis of the foregoing, Seller and the Shareholders are familiar with
the operations, business plans and financial condition of Purchaser.
(b) Seller and the Shareholders understand that Purchaser
proposes to issue and deliver the Warrant and the Note to Seller and
the Shareholders pursuant to this Agreement without compliance with
the registration requirements of the 1933 Act; that for such purpose
Purchaser will rely upon the representations, warranties, covenants
and agreements contained herein; and that such non-compliance with
registration is not permissible unless such representations and
warranties are correct and such covenants and agreements performed.
Seller and the Shareholders are "accredited investors" as such term is
defined in Rule 501 under the 1933 Act.
(c) Seller and the Shareholders understand that, under
existing rules of the Securities and Exchange Commission (the "SEC"),
Seller and the Shareholders may be unable to sell the Warrant or the
Common Stock issuable thereunder or the Note except to the extent that
the Warrant, the Common Stock or the Note may be sold (1) pursuant to
an effective registration statement covering such securities pursuant
to the 1933 Act or (2) in a bona fide private placement to a purchaser
who shall be subject to the same restrictions on any resale or (3)
subject to the restrictions contained in Rule 144 under the 1933 Act.
(d) Seller and the Shareholders have sufficient knowledge
and experience in financial and business matters so as to be capable
of evaluating the merits and risks of its investment in the Warrant
and is capable of bearing the economic risks of such investment.
30
<PAGE> 36
(e) Seller and the Shareholders are purchasing the
Warrant and the Note for investment for their own accounts and not
with a view to, or for sale in connection with, the distribution
thereof within the meaning of the 1933 Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Purchaser hereby represents and warrants to Seller and the
Shareholders that:
Section 5.01. CORPORATE EXISTENCE. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
Section 5.02. CORPORATE POWER AND AUTHORIZATION. Purchaser has the
corporate power, authority and legal right to execute, deliver and perform this
Agreement. The execution, delivery and performance of this Agreement by
Purchaser have been duly authorized by all necessary corporate action. This
Agreement has been duly executed and delivered by Purchaser and constitutes the
legal, valid and binding obligation of Purchaser enforceable against Purchaser
in accordance with its terms except as the same may be limited by bankruptcy,
moratorium, fraudulent conveyance and similar laws affecting creditors rights
generally and to the application of general equitable principles.
Section 5.03. VALIDITY OF CONTEMPLATED TRANSACTIONS, ETC. Except for
(a) applicable requirements of the HSR Act, and (b) governmental permits,
authentications, consents and approvals which have been obtained or will be
obtained on or prior to the Closing Date, the execution, delivery and
performance of this Agreement by Purchaser does not and will not violate,
conflict with or result in the breach of any term, condition or provision of,
or require the consent of any other party to: (a) any existing law, ordinance,
or governmental rule or regulation to which Purchaser is subject; (b) any
judgment, order, writ injunction, decree or award of any court, arbitrator or
governmental or regulatory official, body or authority which is applicable to
Purchaser; (c) the charter documents or Bylaws of, or any securities issued by,
Purchaser; or (d) any mortgage, indenture, agreement, contract, commitment,
lease, plan or other instrument, document or understanding, oral or written, to
which Purchaser is a party or by which Purchaser is otherwise bound.
Except for (i) compliance with any applicable requirement of the HSR
Act, and (ii) state gaming laws, to Purchaser's best knowledge, after due
inquiry, no authorization, approval or consent of, and no registration or
filing with, any governmental or regulatory official, body or authority is
required in connection with the execution, delivery or performance of this
Agreement by Purchaser except where the failure to receive such authorization,
approval or consent or to make such registration or filing would not have a
Material Adverse Effect.
31
<PAGE> 37
ARTICLE VI
COVENANTS OF THE PARTIES
Section 6.01. COVENANTS OF THE PARTIES.
(a) Best Efforts. Subject to the terms and conditions of
this Agreement each of the parties will use its best efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all
things necessary or desirable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement. Each of
the parties agrees to execute and deliver such other documents,
certificates, agreements and other writings and to take such other
actions as may be necessary or desirable in order to consummate or
implement expeditiously the transactions contemplated by this
Agreement.
(b) Certain Filings. Each of the parties shall cooperate
with one another (i) in determining whether any action by or in
respect of, or filing with, any governmental body, agency, official or
authority is required, or any actions, consents, approvals or waivers
are required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated by
this Agreement and (ii) in taking such actions or making any such
filings, furnishing information required in connection therewith and
seeking timely to obtain any such actions, consents, approvals or
waivers.
(c) Access; Cooperation. Through the Closing, Seller
shall make available for inspection by Purchaser or the agents or
representatives of Purchaser, during normal business hours and upon
reasonable notice (i) all premises utilized by Seller in the conduct
of Business, (ii) all books of account, contracts and other documents
relating to or constituting a part of the Assets, (iii) the key
management personnel of Seller, (iv) financial and operating data
relating to the Assets, and (v) such further information with respect
to the Assets, as Purchaser, from time to time, shall reasonably
request, provided that such access shall not unduly interfere with the
normal business operations of Seller.
(d) Notice of Certain Events. If prior to Closing,
either Purchaser, on the one hand, or Seller or Shareholders, on the
other hand, shall acquire knowledge of any fact, law or circumstance
which would be required to be disclosed by such party to avoid a
breach of its representations and warranties contained in this
Agreement, then such party shall immediately disclose such fact, law
or circumstance to the other party.
(e) Exclusivity. Seller will not directly or through
agents, representatives or other affiliated parties (and Shareholders
will not cause or permit any of Seller to), after the date hereof and
prior to closing or termination of this Agreement, whichever is
earlier, (a) solicit, initiate, or encourage the submission of any
proposal or offer from any person relating to any (i) liquidation,
dissolution or recapitalization, (ii) merger or
32
<PAGE> 38
consolidation, (iii) acquisition or purchase of securities or assets,
or (iv) similar transaction or business combination involving Seller,
Shareholders or the Assets or (b) participate in any discussions or
negotiations regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other manner any effort
or attempt by any person to do or seek any of the foregoing.
(f) Public Announcements. The Parties agree to consult
with each other before issuing any press release or making any public
statement with respect to this Agreement or the transactions
contemplated hereby and, except as may be required by applicable law
or any listing agreement with any national securities exchange, will
not issue any such press release or make any such public statement
prior to such consultation.
Section 6.02. COVENANTS OF SELLER.
(a) Conduct of Business Until Closing Date. From the
date of this Agreement and until the Closing Date except with the
prior written consent of Purchaser, Seller shall conduct the Business
in the ordinary course and consistent with past practices and use its
best efforts to preserve intact its business organization and
goodwill, keep available the services of its present officers and key
employees and preserve the goodwill and business relationships with
suppliers, customers and others having business relationships with it.
Without limiting the generality of the foregoing, Seller shall:
(i) refrain from changing, in any material
respect, any of its business policies relating to the
Business;
(ii) maintain and keep the Assets in good repair,
working order and condition consistent with past practices
(except for obsolescence, ordinary wear and tear and damage
due to casualty);
(iii) perform all of its obligations under all
contracts, leases and any and all other agreements relating to
or affecting the Assets except where the failure to so perform
would not have a Material Adverse Effect;
(iv) not cause nor permit to occur any of the
events or occurrences described in Section 4.12 hereof.
(v) notify Purchaser of any changes in the terms
of the insurance policies and binders.
(vi) use its best efforts to maintain in full
force and effect all franchises currently in effect used in
the conduct of the business of the Business.
33
<PAGE> 39
(vii) comply with all laws, ordinances, rules,
regulations and orders applicable to the Business, or Seller's
operations, assets or properties in respect thereof, the
noncompliance with which might materially affect the Business
or the Assets.
(viii) Seller shall make any and all contributions,
premium payments, claim payments or other such payments that
are (a) required by the terms of a Plan, or (b) required to
maintain a Plan in its form as of the date of this Agreement.
(ix) refrain from
(A) taking any action with respect to
the grant of any severance or termination pay to any
employees (except as consistent with current practice
or as currently provided with existing arrangements)
or with respect to any increase of benefits payable
under any severance or termination pay policies or
agreements in effect on the date hereof and
applicable to employees;
(B) entering into, adopting, modifying
or amending, in any material respect, any written
employment, collective bargaining, severance,
consulting, bonus, incentive compensation, deferred
compensation, profit sharing, employee benefit,
welfare benefit or other agreement, plan or
arrangement providing for compensation or benefits to
employees or independent contractors;
(C) increasing in any material respect
the compensation or fringe benefits of any employee
or independent contractors or paying any benefit or
compensation not required by any existing agreement,
plan or arrangement; except, in the case of each of
the foregoing, reasonable actions consistent with
past practices or in accordance with any existing
agreement, plan or arrangement;
(D) taking any action that could be
reasonably anticipated to have a Material Adverse
Effect or that could cause any representation or
warranty set forth in Article IV hereof to be untrue
or any condition to Closing not to be satisfied;
(E) accelerate billings, shipments to
customers, payments from customers, orders from
suppliers or payment of accounts payable or adjust
the level of inventory, except in the ordinary course
of business; or
(F) except with the prior written
consent of Purchaser, which consent shall not be
unreasonably withheld, entering into any agreement,
34
<PAGE> 40
waiver or other arrangement providing for an
extension of time with respect to the filing of any
tax return or the payment or assessment of any tax,
governmental charge, payment or deficiency.
(G) shall not directly or indirectly,
sell or encumber all or any of the Assets, other than
in the ordinary course of business consistent with
past practice, or initiate or participate in any
discussions or negotiations or enter or any agreement
to do any of the foregoing. Seller shall not provide
any confidential information concerning the Business
or the Assets to any third party other than in the
ordinary course of business.
(H) except as specifically contemplated
by this Agreement or as otherwise consented to in
writing by Purchaser, Seller shall not adopt, enter
into, amend in any respect, or terminate, any Plan or
any other employee benefit plan, program or
arrangement of general applicability, except as
required by law.
(b) As directed by Purchaser, Seller shall take all
actions necessary either (i) to assist Purchaser with the transfer of
plan sponsorship with respect to the defined contribution plan
currently maintained by Seller (the "401(k) Plan") or (ii) terminate
the 401(k) Plan and assist Purchaser in accomplishing (1) a
trust-to-trust transfer of assets from the 401(k) Plan, or (2) a
direct rollover of participant accounts from the 401(k) Plan for those
former employees of Seller hired by Purchaser.
(c) If directed by Purchaser, Seller shall take all
actions necessary to assist Purchaser with the transfer of Seller's
group health plan to Purchaser in accordance with Section 6.03(c).
(d) Seller shall deliver to Purchaser its interim
financial statements for its fiscal quarters ended June 30 and
September 30, 1996 as soon as available and in no event later than 30
days after the end of each respective fiscal quarter.
(e) Seller shall promptly disclose to Purchaser any
information contained in its representations and warranties or the
Disclosure Schedules which, because of an event occurring after the
date hereof, is incomplete or is no longer correct as of all times
after the date hereof until the Closing Date; provided, however, that
none of such disclosures shall be deemed to modify, amend, or
supplement the representations and warranties of Seller or the
Disclosure Schedules hereto for the purposes of Article IV hereof,
unless Purchaser shall have consented thereto in writing.
(f) Seller shall use its best efforts to conduct the
Business in such a manner that upon the Closing Date the
representations and warranties of Seller contained in this Agreement
shall be true, except as specifically contemplated by this Agreement,
as though such representations and warranties were made on and as of
such date.
35
<PAGE> 41
Furthermore, Seller and Shareholders shall cooperate with Purchaser
and use their best efforts to cause all of the conditions to the
obligations of Purchaser, Seller and Shareholders under this Agreement
to be satisfied on or prior to the Closing Date.
(g) Seller and Shareholders agree to affirmatively
cooperate with Purchaser in connection with Purchaser's application
for the transfer, renewal or issuance of any permits, licenses,
approvals or other authorizations of or pertaining to the Business or
Purchaser's business and operations or to satisfy any regulatory
requirements involving the Business or to Purchaser's business and
operations.
Section 6.03. COVENANTS OF PURCHASER.
(a) At the election of Purchaser and in Purchaser's sole
determination, Purchaser shall, as soon as practicable after the
Closing Date, take all actions necessary either (i) to accept a
transfer of plan sponsorship with respect to the 401(k) Plan or (ii)
to assist Seller in the termination of the 401(k) Plan and accept (1)
a trust-to-trust transfer of assets from the 401(k) Plan into
Purchaser's defined contribution plan, or (2) a direct rollover of
participant accounts from the 401(k) Plan for those former employees
of Seller hired by Purchaser.
(b) As of the Closing Date, Purchaser shall offer
employment to, and Seller shall use its best efforts to assist
Purchaser in employing as new employees of Purchaser, all persons
employed in the Business as of the Closing Date (the "Employees") on
generally the same terms and conditions and with the same benefits as
similarly situated employees of Purchaser are eligible for or entitled
to. Seller shall terminate effective as of the Closing Date all
employment agreements it has with any of the Employees. Purchaser
shall cause all of Seller's former employees who are rehired by
Purchaser as of the Closing Date (the "Rehired Employees") to be
eligible to participate in the "employee welfare benefit plans" and
"employee pension benefit plans" (within the meaning of ERISA Sections
3(1) and 3(2), respectively) of Purchaser in which similarly situated
employees of Purchaser are generally eligible to participate; provided
that nothing herein shall prevent Purchaser from terminating the
employment of any Rehired Employee at any time or modifying or
terminating any such plan at any time or from time to time.
(c) Although Seller may be responsible for providing
continuation coverage and notice under ERISA Section Section 601-609
("COBRA") for Seller's employees that appear on the certified list
described below, the parties agree that Purchaser shall assume all
such responsibility. In addition, not only shall Purchaser be
responsible for providing COBRA continuation coverage for Seller's
employees who are terminated, who fail to accept employment with
Purchaser, who are subject to a reduction in hours or who are
otherwise subject to a "qualifying event," but also for Seller's
employees who are covered by COBRA continuation coverage as of
Closing. At the election of the Purchaser and in Purchaser's sole
determination, Purchaser shall take all actions
36
<PAGE> 42
necessary to either (i) provide COBRA coverage to such individuals
under Purchaser's health plan, (ii) have Seller's group health plan
transferred to Purchaser, or (iii) provide COBRA coverage to such
individuals through the issuance of individual health insurance
policies. Any coverage provided by Purchaser under subparagraphs (i),
(ii) or (iii) above shall comply with the COBRA continuation
requirements. Seller shall provide to Purchaser a list certified by
Seller and its Chief Financial Officer of the names and addresses of
(i) all individuals who are being provided COBRA coverage as of the
Closing Date, along with the start and end dates for such coverages,
(ii) all individuals who have been terminated within a 30 day period
prior to Closing and whether or not such individuals have been
provided proper notice under COBRA and (iii) all individuals who are
employed at Closing. On or prior to Closing, Seller shall provide
Purchaser with all employees benefit records for all employees and
individuals who are either receiving COBRA continuation benefits or
are eligible to receive COBRA continuation benefits.
(d) Purchaser shall employ or offer employment to the
following employees (the "Existing Employees") of Seller: Mmes. Debra
Shore-Dundas, Lori McLaughlin and Myrna Johnson and Mr. Craig D. Eide
as follows: (i) at their respective total 1995 W-2 compensation level,
in their current capacities for jobs in their current location of
employment; (ii) shall be eligible to participate and to receive
grants of stock options in accordance with the terms and conditions of
Purchaser's performance stock option plan; (iii) employed as "at will"
employees; and (iv) will receive severance pay equal to the total W-2
compensation for the proceeding twelve (12) calendar months if they
are terminated, other than "for cause" (as defined in the Employment
Agreement), within a period of two (2) years following the Closing
Date.
(e) Unless and until the Closing has been consummated,
Purchaser will hold, and shall cause their counsel, independent
certified public accountants, appraisers and investment bankers to
hold in confidence and not use any confidential data or information
made available to Purchaser in connection with this Agreement with
respect to the Business (collectively, the "Confidential Information")
using the same standard of care to protect the Confidential
Information as is used to protect Purchaser's confidential
information; provided, however, that Purchaser may use and include
Confidential Information in connection with the preparation and filing
of any registration statement or periodic report by Purchaser pursuant
to the 1993 Act and the 1934 Act and in a prospectus prepared in
connection with an underwritten public offering. Notwithstanding
anything herein to the contrary, the term "Confidential Information"
and the obligations of non-disclosure, confidentiality and non-use
relating thereto shall not include any information or data which: (i)
is or becomes known to the general public through no action or fault
of Purchaser; (ii) was already known to Purchaser prior to the date of
disclosure hereunder, as evidenced by the written records of Purchaser
provided that disclosure of such written record shall be in compliance
with any obligations of confidentiality to a third party; (iii) is or
becomes known to Purchaser from a third party not having a
confidential relationship with Seller with respect hereto; or (iv) is
developed
37
<PAGE> 43
by employees, agents or consultants of Purchaser independently of and
without reference to any Confidential Information. If the
transactions contemplated by this Agreement are not consummated,
Purchaser agrees that it shall either (i) return or cause to be
returned to Seller, or (ii) destroy all written materials and all
copies thereof that were supplied to Purchaser by Seller and that
contain any such Confidential Information. The confidentiality
obligations of Purchaser in this Section 6.03(e) are subject to the
disclosure obligations of Purchaser under federal and state securities
laws and requirements of any exchange on which the Purchaser's
securities are or may be listed.
ARTICLE VII
CONDITIONS TO THE CLOSING
Section 7.01. RECIPROCAL CONDITIONS PRECEDENT. The obligations of
each of the Parties to consummate the Closing are subject to and shall be
conditioned upon the satisfaction, or waiver (in whole or part) by each, of
each of the following conditions on or prior to the Closing Date:
(a) Any applicable waiting period under the HSR Act
relating to the transactions contemplated hereby shall have expired or
been terminated.
(b) No provision of any applicable law or regulation and
no judgment, injunction, order or decree shall (i) make the
consummation of the transactions contemplated hereby illegal; or (ii)
prohibit the consummation of the Closing.
(c) All actions by or in respect of or filings with any
governmental body, agency, official or authority required to permit
the transactions contemplated hereby or the consummation of the
Closing shall have been taken, made or obtained.
(d) No proceeding challenging this Agreement or the
transactions contemplated hereby or seeking to prohibit, alter,
prevent or materially delay the Closing shall have been instituted by
any Person before any court, arbitrator or governmental body, agency
or official and be pending.
(e) There shall not be any action taken, or any statute,
rule, regulation, injunction, order or decree proposed, enacted,
enforced, promulgated, issued or deemed applicable to the transaction
contemplated hereby, by any court, government or governmental
authority or agency, domestic or foreign, other than the application
of the waiting period provisions of the HSR Act that, in the
reasonable judgment of Purchaser or Seller could, directly or
indirectly, result in any of the consequences referred to above.
38
<PAGE> 44
(f) Messrs. Ronald G. Rudy and Harry Poll shall have
executed and delivered the Employment Agreement and the Consulting
Agreement, respectively.
(g) Seller and Bank of America, or any successor,
substitute or replacement to Bank of America, shall have executed and
delivered the Subordination Agreement.
(h) Purchaser and Partnership Leasing LLC shall have
entered into a 10-year lease, substantially in the form of Exhibit G
hereto, to lease Seller's current facilities at Lynnwood, Washington.
Section 7.02. CONDITIONS TO OBLIGATION OF PURCHASER. The obligation
of Purchaser to consummate the Closing is subject to and shall be conditioned
upon the satisfaction, or waiver (in whole or part), of each of the following
conditions on or prior to the Closing Date:
(a) Seller and the Shareholders shall have performed in
all material respects all of its or their obligations hereunder
required to be performed by it or them on or prior to the Closing
Date.
(b) The representations and warranties of Seller and the
Shareholders contained in this Agreement and in any certificate or
other writing delivered by Seller or the Shareholders pursuant hereto
shall be true at and as of the Closing Date, as if made at and as of
such date with only such exceptions as would not in the aggregate
reasonably be expected to have a Material Adverse Effect.
(c) Purchaser shall have obtained financing for the
transactions contemplated by this Agreement, on terms and conditions
acceptable to Purchaser, and shall have obtained all gaming approvals
or consents, as the case may be, from all state and provincial gaming
licensing agencies required for Purchaser to own and operate the
Business as previously operated or conducted.
(d) There shall not be threatened, instituted or pending
any action or proceeding by any Person before any court or
governmental authority or agency, domestic or foreign, seeking to
restrain or prohibit the ownership or operation by Purchaser or any of
its Affiliates of all or any material portion of the Business or the
Assets or to compel Purchaser to dispose of all or any material
portion of the Business or the Assets or the business or assets of
Purchaser or any of their Affiliates.
(e) Seller shall have received all consents,
authorizations or approvals from the governmental agencies referred to
in Section 4.04, in each case in form and substance reasonably
satisfactory to Purchaser, and no such consent, authorization or
approval shall have been revoked.
39
<PAGE> 45
(f) Purchaser shall have received a copy of resolutions
duly adopted by the Board of Directors of Seller and the Shareholders
authorizing and approving the sale of the Assets and performance by
Seller of its obligations hereunder and the other documents and
instruments to be executed in connection herewith, certified as true
and correct on the Closing Date by Seller's secretary or assistant
secretary.
(g) Purchaser shall have received a certificate from the
Chief Executive Officer and Chief Financial Officer of Seller and from
each of the Shareholders dated as of the Closing Date, certifying in
such detail as Purchaser may reasonably request that the conditions
specified in Sections 7.02(a) and 7.02(b) hereof have been fulfilled
and certifying that Seller has obtained all consents and approvals
required with respect to it or the Business by Section 7.02(e) hereof.
Purchaser hereby acknowledges that the execution of such certificate
shall not create any additional liability for the signatories thereon
in addition to that which arises under the terms of this Agreement.
(h) Whalen & Firestone, LLP, counsel for Seller, shall
have delivered to Purchaser a written opinion, dated the Closing Date,
in the form of Exhibit I hereto.
(i) There shall not be a material adverse change in the
business, operations, assets, properties or condition, financial or
otherwise, of the Business, whether or not arising in the ordinary
course of business, since the Interim Balance Sheet Date.
(j) During the period from April 18, 1996 to the Closing
Date, Seller shall not have entered into any agreement which provides
for the payment of more than $100,000, except for purchases of raw
materials or equipment in the normal course of business, or terminated
any agreement that provides benefit to Seller without the prior
consent of Purchaser.
(k) Seller shall deliver to Purchaser such documents as
are required to dismiss with prejudice that certain lawsuit titled
Trade Products, Inc. v. Stuart Entertainment, Inc. pending in the U.S.
Court of Appeals for the Ninth Circuit (Docket No. 95-35757).
Section 7.03. CONDITIONS TO OBLIGATION OF SELLER. The obligation of
Seller to consummate the Closing is subject to and shall be conditioned upon
the satisfaction, or waiver (in whole or part), of each of the following
conditions on or prior to the Closing Date:
(a) Purchaser shall have performed in all material
respects all of its obligations hereunder required to be performed by
it at or prior to the Closing Date.
(b) The representations and warranties of Purchaser
contained in this Agreement and in any certificate or other writing
delivered by Purchaser pursuant hereto shall be true at and as of the
Closing Date, as if made at and as of such date with only
40
<PAGE> 46
such exceptions as would not in the aggregate reasonably be expected
to have a Material Adverse Effect.
(c) Purchaser shall have received all consents,
authorizations or approvals from governmental agencies referred to in
Section 5.03, in each case in form and substance reasonably
satisfactory to Seller, and no such consent, authorization or approval
shall have been revoked.
(d) Seller shall have received a certificate from
Purchaser dated the Closing Date certifying in such detail as Seller
may reasonably request that the conditions specified in Sections
7.03(a) and 7.03(b) hereof have been fulfilled and certifying that
Seller has obtained all consents and approvals required by Section
7.03(c) hereof. Seller hereby acknowledges that the execution of such
certificate shall not create any additional liability for the
signatories thereon in addition to that which arises under the terms
of this Agreement.
(e) Kutak Rock, counsel for Purchaser, shall have
delivered to Seller a written opinion, dated the Closing Date, in the
form of Exhibit J hereto.
ARTICLE VIII
INDEMNIFICATION
Section 8.01. SURVIVAL. The covenants, agreements, representations
and warranties of the Parties contained in this Agreement or in any certificate
or other writing delivered pursuant hereto or in connection herewith shall
survive the Closing for a period of 18 months after the Closing; provided that
(a) the representations and warranties contained in Section 4.24 shall survive
for a period of five years after the Closing; and (b) the representations and
warranties contained in Section 4.10 shall survive for a period of three years
after the Closing. Notwithstanding the preceding sentence, any covenant,
agreement, representation or warranty in respect of which indemnity may be
sought under this Agreement shall survive the time at which it would otherwise
terminate pursuant to the preceding sentence, if notice of the inaccuracy or
breach thereof giving rise to such right of indemnity shall have been given to
the party against whom such indemnity may be sought prior to such time.
Section 8.02. INDEMNIFICATION.
(a) Seller and the Shareholders hereby indemnify
Purchaser and their respective Affiliates, partners, officers,
directors, employees and agents (the "Purchaser Indemnities") against
and agree to hold them harmless from any and all damage, loss,
liability, claim, assessment, audit, fine, judgment, cost and expense
(including without limitation reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any action,
suit or proceeding) ("Damages") incurred or suffered by Purchaser
Indemnities arising out of (i) any misrepresentation or breach of
41
<PAGE> 47
warranty, covenant or agreement made or to be performed by Seller or
the Shareholders pursuant to this Agreement; (ii) any and all
liabilities and obligations of Seller of any nature whatsoever, except
for the obligations and liabilities of Seller which are specifically
assumed by Purchaser pursuant to this Agreement, provided that the
provisions of this Section 8.02(a)(ii) shall be in full force and
effect for a period of 18 months after the Closing, except that
liabilities and obligations relating to environmental and tax matters
shall be in full force and effect for a period of five years and three
years, respectively, from the date of the Closing.
Seller and Shareholders shall not be liable under this Section
8.02 unless the aggregate amount of Damages with respect to all
matters referred to in this Section 8.02 (determined without regard to
any materiality qualification contained in any representations,
warranty or covenant giving rise to the claim for indemnity hereunder)
exceeds $250,000 and then only to the extent of such excess up to
total of Two Million Dollars ($2,000,000) in Damages (the "Damage
Cap"). Notwithstanding the above the Damage Cap will not apply in the
event that Purchaser incurs or suffers Damages as a result of the
fraudulent acts of Seller or Shareholders.
(b) Purchaser hereby indemnifies Seller and the
Shareholders and their respective Affiliates, partners, officers,
directors, employees and agents (the "Seller Indemnities") against and
agrees to hold them harmless from any and all Damages incurred or
suffered by Seller Indemnities arising out of (i) any
misrepresentation or breach of warranty, covenant or agreement made or
to be performed by Purchaser pursuant to this Agreement; (ii) any and
all Damages incurred or suffered by Seller and the Shareholders from
liabilities and obligations of Seller which have been specifically
assumed by Purchaser; and (iii) from Claims arising from the ownership
and operation of the Business after the Closing Date.
Section 8.03. PROCEDURES FOR INDEMNIFICATION.
(a) The party seeking indemnification hereunder (the
"Indemnitee") shall notify (the "Indemnity Notice") the party against
whom indemnity is sought (the "Indemnitor") promptly; in the case of
third-party claims, such notice shall in any event be given within 20
days of the filing or assertion of any claim against the Indemnitee
stating the nature and basis of such claim; provided, however, that
any delay or failure to notify the Indemnitor of any claim shall not
relieve it from any liability except to the extent that the Indemnitor
demonstrates that the defense of such action is materially prejudiced
by such delay or failure to notify. In the case of third party
claims, the Indemnitor shall, within 10 days of receipt of notice of
such claim, notify the Indemnitee of its intention to assume the
defense of such claim. If the Indemnitor shall assume the defense of
the claim, the Indemnitor shall have the right and obligation (i) to
conduct any proceedings or negotiations in connection therewith and
necessary or appropriate to defend the Indemnitee, (ii) to take all
other required steps or proceedings to settle or defend any such
claims, and (iii) to employ counsel to contest any such claim or
liability
42
<PAGE> 48
in the name of the Indemnitee or otherwise. If defendants in any
action include the Indemnitee and the Indemnitor, and the Indemnitee
shall have been advised by its counsel that there may be legal
defenses available to the Indemnitee which are different from or in
addition to those available to the Indemnitor the Indemnitee shall
have the right to employ its own counsel in such action, and, in such
event, the fees and expenses of such counsel shall be borne by the
Indemnitor. If the Indemnitor shall not assume the defense of any
such claim or litigation resulting therefrom, the Indemnitee may
defend against any such claim or litigation in such manner as it may
deem appropriate and the Indemnitee may settle such claim or
litigation on such terms as it may deem appropriate; provided,
however, that any such settlement shall be subject to the prior
consent of the Indemnitor, which consent shall not be unreasonably
withheld. Within 10 days after final determination with respect to a
third party claim, the Indemnitor shall pay to the Indemnitee the
amount of Damages incurred by Indemnitee in respect of which indemnity
may be sought pursuant to this Section 8.03 In the case of a
non-third party claim, payment of Damages incurred by the Indemnitee
shall be made by the Indemnitor within 10 days after receipt of the
Indemnity Notice by Indemnitor.
(b) As long as the Note is outstanding all payments for
Damages shall first be satisfied by an offset against the outstanding
principal balance of the Note; provided that if there are outstanding
three Notes, one in favor of each Shareholder, each Shareholder shall
have the principal balance of his Note reduced by an amount equal to
his percentage ownership of the common stock of Seller at Closing
multiplied by the total amount of Damages being sought.
(c) A final determination of a disputed claim as to
Damages shall be (i) a judgment of any court determining the validity
of a disputed claim, if no appeal is pending from such judgment or if
the time to appeal therefrom has elapsed, (ii) award of any
arbitration determining the validity of such disputed claim, if there
is not pending any motion to set aside such award or if the time
within which to move to set such award aside has elapsed, (iii) a
written agreement as to the termination of the dispute with respect to
such claim signed by all of the parties thereto or their attorneys,
(iv) a written acknowledgement of the Indemnitor that he or it no
longer disputes the validity of such claim, or (v) such other evidence
of final determination of a disputed claim as shall be acceptable to
the parties.
Section 8.04. EQUITABLE RELIEF. In the event of a breach or
threatened breach by Seller or Mr. Wirth of Section 9.08 hereof regarding
noncompetition and nonsolicitation, Seller and Mr. Wirth hereby consent and
agree that Purchaser shall be entitled to an injunction or similar equitable
relief restraining the breaching party from committing or continuing any such
breach or threatened breach or granting specific performance of any act
required to be performed by Seller or Mr. Wirth under any such provision,
without the necessity of showing any actual damage or that money damages would
not afford an adequate remedy and without the necessity of posting any bond or
other security. Nothing herein shall be construed as prohibiting or limiting
Purchaser from pursuing any other remedies at law or in equity which it may
have.
43
<PAGE> 49
Section 8.05. ARBITRATION.
(a) All disputes under this Article VIII shall be settled
by arbitration in Seattle, Washington, before a single arbitrator
pursuant to the rules of the American Arbitration Association (the
"Association"). Arbitration may be commenced at any time by any party
hereto by giving written notice to each other party to a dispute that
such dispute has been referred to arbitration under this Section 8.05.
The arbitrator shall be selected by the joint agreement of Seller and
Purchaser, but if they do not so agree within 20 days after the date
of the notice referred to above, the selection shall be made pursuant
to the rules from the panels of arbitrators maintained by such
Association. Any award rendered by the arbitrator shall be conclusive
and binding upon the parties hereto; provided, however, that any such
award shall be accompanied by a written opinion of the arbitrator
giving the reasons for the award. This provision for arbitration
shall be specifically enforceable by the parties and the decision of
the arbitrator in accordance herewith shall be final and binding and
there shall be no right of appeal therefrom. Each party shall pay its
own expenses of arbitration and the expenses of the arbitrator shall
be equally shared; provided, however, that if in the opinion of the
arbitrator any claim for indemnification or any defense or objection
thereto was unreasonable, the arbitrator may assess, as part of his
award, all or any part of the arbitration expenses of the other party
(including reasonable attorneys' fees) and of the arbitrator against
the party raising such unreasonable claim, defense or objection.
(b) To the extent that arbitration may not be legally
permitted hereunder and the parties to any dispute hereunder may not
at the time of such dispute mutually agree to submit such dispute to
arbitration any party may commence a civil action in a court of
appropriate jurisdiction to solve disputes hereunder. Nothing
contained in this Section 8.05 shall prevent the parties from settling
any dispute by mutual agreement at any time.
ARTICLE IX
POST CLOSING MATTERS
Section 9.01. EMPLOYEE BENEFITS. Seller shall pay directly to each
employee of the Business that portion of all benefits under any Plan which has
been accrued or reserved for on Seller's financial statements on behalf of that
employee (or is attributable to expenses properly incurred that employee) as of
the Closing Date, and Purchaser shall assume no liability therefore. No
portion of the assets of any plan, fund, program or arrangement, written or
unwritten heretofore sponsored or maintained by Seller (and no amount
attributable to any such plan, fund, program or arrangement) shall be
transferred to Purchaser, and Purchaser shall not be required to continue any
such plan, fund, program or arrangement after the Closing Date unless
specifically agreed to by Purchaser pursuant to this Agreement. The amounts
payable of all benefit arrangements shall be determined with reference to the
date of the event by reason of which such amounts become payable, without
regard to conditions subsequent, and Purchaser shall not be liable for any
claim for insurance, reimbursement or other benefits payable by
44
<PAGE> 50
reason of any event which occurs prior to the Closing Date. All amounts
payable directly to employees, or to any fund, program, arrangement or plan
maintained by Seller therefore shall be paid by Seller within 30 days after the
Closing to the extent that such payment is not inconsistent with terms of such
fund, program, arrangement or plan.
Section 9.02. DISCHARGE OF BUSINESS OBLIGATIONS. From and after the
Closing Date Seller shall pay and discharge, in accordance with past practice
but not less than on a timely basis, all obligations and liabilities incurred
prior to the Closing Date in respect of the Business, its operations or the
assets and properties used therein (except for those expressly assumed by
Purchaser hereunder), including without limitation any liabilities or
obligations to employees, trade creditors and clients of the Business.
Section 9.03. MAINTENANCE OF BOOKS AND RECORDS. Each of Seller and
Purchaser shall preserve until the fifth anniversary of the Closing Date all
records possessed or to be possessed by such party relating to the Assets prior
to the Closing Date. After the Closing Date, where there is a legitimate
purpose, such party shall provide the other parties with access, upon prior
reasonable written request specifying the need therefor, during regular
business hours, to (i) the officers and employees of such party and (ii) the
books of account and records of such party, but, in each case, only to the
extent relating to the Assets prior to the Closing Date, and the other parties
and their representatives shall have the right to make copies of such books and
records; provided, however, that the foregoing right of access shall not be
exercisable in such a manner as to interfere unreasonably with the normal
operations and business of such party; and further, provided, that, as to so
much of such information as constitutes trade secrets or confidential business
information of such party, the requesting party and its officers, directors and
representatives will use due care to not disclose such information except (i)
as required by law, (ii) with the prior written consent of such party, which
consent shall not be unreasonably withheld, or (iii) where such information
becomes available to the public generally, or becomes generally known to
competitors of such party, through source other than the requesting party, its
affiliates or its officers, directors or representatives. Such records may
nevertheless be destroyed by a party if such party sends to the other parties
written notice of its intent to destroy records, specifying with particularity
the contents of the records to be destroyed. Such records may then be
destroyed after the 30th day after such notice is given unless another party
objects to the destruction in which case the party seeking to destroy the
records shall deliver such records to the objecting party.
Section 9.04. PAYMENTS RECEIVED. Seller and Purchaser each agree
that after the Closing they will hold and will promptly transfer and deliver to
the other, from time to time as and when received by them, any cash, checks
with appropriate endorsements (using their best efforts not to convert such
checks into cash), or other property that they may receive on or after the
Closing which properly belongs to the other party, including without limitation
any insurance proceeds, and will account to the other for all such receipts.
From and after the Closing, Purchaser shall have the right and authority to
endorse without recourse the name of Seller on any check or any other evidences
of indebtedness received by Purchaser on account of the Business and the Assets
transferred to Purchaser hereunder.
45
<PAGE> 51
Section 9.05. USE OF NAME. On the Closing Date, Seller and
Shareholders shall file all such documents as may be required to change
Seller's name on that date to another name bearing no similarity to including
but not limited to a name change amendment with the Secretary of State of
Washington and an appropriate name change notice for each state where Seller is
qualified to do business and shall present evidence of such filing to Purchaser
on such date.
Section 9.06. UCC MATTERS. From and after the Closing Date, Seller
will promptly refer all inquiries with respect to ownership of the Assets or
the Business to Purchaser. In addition, Seller will execute such documents and
financing statements as Purchaser may request from time to time to evidence
transfer of the Assets to Purchaser, including any necessary assignments of
financing statements.
Section 9.07. FINANCIAL STATEMENTS. Seller, at Purchaser's expense,
shall provide Purchaser, within 30 days after Purchaser's written request
therefor, with such financial statements relating to the Business or the Assets
as may be required by Rule 3-05 or Article 11 of Regulation S-X promulgated
under the 1933 Act, and the 1934 Act in connection with the preparation and
filing of any registration statement or periodic report by Purchaser pursuant
to the 1933 Act or the 1934 Act, including without limitation unqualified
opinions thereon of independent public accountants and consents thereof as
required by the 1933 Act or the 1934 Act or the rules and regulations
thereunder. Purchaser agrees to indemnify and hold harmless Seller against any
losses, claims, damages, liabilities or expenses, to which Seller may become
subject which arise out of the use or inclusion of the financial statements of
Seller in any registration statement or periodic report filed by Purchaser
pursuant to the 1933 Act or the 1934 Act, other than any losses, claims,
damages, liabilities or expenses arising out of or related to any inaccuracy or
misrepresentation contained in the financial statements provided by Seller to
Purchaser hereunder, and will reimburse Seller for any legal and other expenses
in connection with investigation setting, compromising or paying any such loss,
claim, damage, liability, expense or action.
Section 9.08. NON-SOLICITATION;NONCOMPETITION. Seller and Mr. Wirth
acknowledge and recognize at all times for a period of five years subsequent to
the Closing Date as follows:
(a) That neither Seller nor Mr. Wirth will directly or
indirectly own, manage, operate, finance, join, control or participate
in the ownership, management, organization, financing or control of,
or be connected as an officer, director, employee, partner, principal,
agent, representative, consultant or otherwise with any business or
enterprise engaged in a business the same as or similar to the
business of Purchaser except as a holder of fewer than 5% of the
outstanding shares or other equity interests of a company whose shares
or other equity interests are registered under the 1934 Act; provided,
however, that the restrictions in this subparagraph shall not apply
with respect to either Seller's or Mr. Wirth's ownership of an
interest in a company that is engaged in the business of real estate
development or the building and development of mini-storage units or
bicycle-related products.
46
<PAGE> 52
(b) That neither Seller nor Mr. Wirth will directly or
indirectly induce any employee of the Company or any of its affiliates
to engage in any activity in which either Seller or Mr. Wirth are
prohibited from engaging by this Section 9.08 or to terminate his
employment with Purchaser or any of its affiliates, and will not
directly or indirectly employ or offer employment to any person who
was employed by Purchaser or any of its affiliates unless such person
shall have been terminated without cause or ceased to be employed by
any such entity for a period of at least 12 months.
(c) That neither Seller nor Mr. Wirth will use or permit
its or their name to be used in connection with any business or
enterprise engaged in the business the same as or similar to Purchaser
or its Affiliates or any other business engaged in by Purchaser or any
of its Affiliates.
(d) That neither Seller nor Mr. Wirth will make any
public statement, make any unprovoked statements to regulatory
agencies, nor take any such actions where the primary purpose of such
public statement, unprovoked statement or action is intended to (i)
impair the goodwill or the business reputation of Purchaser or any of
its Affiliates or (ii) benefit a competitor of Purchaser or to be
otherwise detrimental to the material interests of Purchaser.
(e) That neither Seller nor Mr. Wirth will (i) disclose
any customer lists or any part thereof to any person, firm,
corporation, association or other entity for any reason or purpose
whatsoever; (ii) assist in obtaining any of Purchaser's customers for
any other similar business; (iii) encourage any customer to terminate,
change or modify its relationship with Purchaser; or (iv) solicit or
divert or attempt to solicit or divert Purchaser's customers.
(f) Purchaser shall have the right, subject to applicable
law, to inform any other third party that Purchaser reasonably
believes to be, or to be contemplating participating with Seller or
Mr. Wirth or receiving from Seller or Mr. Wirth in violation of this
Agreement and of the rights of Purchaser hereunder, and that
participation by any such third party with Seller or Mr. Wirth in
activities in violation of this Section 9.08 may give rise to claims
by Purchaser against such third party.
The primary purpose of this Section 9.08 is Purchaser's legitimate
interest in protecting its economic welfare and business goodwill. Purchaser,
Seller and Mr. Wirth further agree that this covenant shall in no way be
construed as a mere limitation on competition nor shall it be construed as a
restraint on Seller's or Mr. Wirth's right to engage in a common calling.
It is expressly understood and agreed that although Purchaser, Seller
and Mr. Wirth consider the restrictions contained in this Section 9.08 to be
reasonable, if a final judicial determination is made by a court of competent
jurisdiction that the time or territory or any other restriction contained in
this Section 9.08 is an unenforceable restriction against Seller or Mr. Wirth,
the provisions of this Section 9.08 shall not be rendered void but shall be
deemed
47
<PAGE> 53
amended to apply as to such maximum time and territory and to such maximum
extent as such court may judicially determine or indicate to be enforceable.
Alternatively, if any court of competent jurisdiction finds that any
restriction contained in this Agreement is unenforceable, and such restriction
cannot be amended so as to make it enforceable, such finding shall not affect
the enforceability of any of the other restrictions contained herein.
Section 9.09. THIRD PARTY CONSENTS. To the extent that Seller's
rights under any agreement, contract, commitment, lease, Authorization or other
Asset to be assigned to Purchaser hereunder may not be assigned without the
consent of another person, which consent has not been obtained, this Agreement
shall not constitute an agreement to assign the same if an attempted assignment
would constitute a breach thereof or be unlawful, and Seller, at its expense,
shall use its best efforts to obtain any such required consent(s) as promptly
as possible. If any such consent shall not be obtained or if any attempted
assignment would be ineffective or would impair Purchaser's rights under the
asset in question so that Purchaser would not in effect acquire the benefit of
all such rights, Seller, to the maximum extent permitted by law and the asset,
shall act after the Closing as Purchaser's agent in order to obtain for it the
benefits thereunder and shall cooperate, to the maximum extent permitted by law
and the asset, with Purchaser in any other reasonable arrangement designed to
provide such benefits to Purchaser; provided, that Purchaser hereby agrees to
indemnify Seller and its Affiliates, partners, officers, directors, employees
and agents against and agrees to hold them harmless from any and all Damages
incurred or suffered by them arising out of Seller's actions taken as
Purchaser's agent pursuant to this Section 9.09.
Section 9.10. DISMISSAL OF LAWSUIT. Purchaser will file all such
documents as may be required to dismiss with prejudice that certain lawsuit
titled Trade Products, Inc. vs. Stuart Entertainment, Inc., and all claims
related thereto, pending in the U.S. Court of Appeals for the Ninth Circuit
(Docket No. 95-35757).
Section 9.11. FURTHER ASSURANCES. Seller from time to time after the
Closing, at Purchaser's request, will execute, acknowledge and deliver to
Purchaser such other instruments of conveyance and transfer and will take such
other actions and execute and deliver such other documents, certifications and
further assurances as Purchaser may reasonably require in order to vest more
effectively in Purchaser, or to put Purchaser more fully in possession of, the
Assets or Business, or to better enable Purchaser to complete, perform or
discharge any of the liabilities or obligations assumed by Purchaser at the
Closing pursuant to Section 2.04 hereof. Each of the parties hereto will
cooperate with the other and execute and deliver to the other parties hereto
such other instruments and documents and take such other actions as may be
reasonably requested from time to time by any other party hereto as necessary
to carry out, evidence and confirm the intended purposes of this Agreement.
48
<PAGE> 54
ARTICLE X
TERMINATION
Section 10.01. GROUNDS FOR TERMINATION. Anything herein or elsewhere
to the contrary notwithstanding, this Agreement may be terminated at any time
before the Closing Date only as follows:
(a) by mutual written agreement of Seller and Purchaser;
(b) by Purchaser or Seller, respectively, by reason of
the failure of a condition to Closing under Sections 7.01 and 7.02 as
to Purchaser, and Sections 7.01 and 7.03 as to Seller (unless the
failure of a condition to Closing results primarily from the actions
or intentional inaction of the Party terminating the Agreement).
(c) by Purchaser or Seller if the Closing shall not have
occurred by January 31, 1997, unless such time shall be extended by
the mutual written consent of Purchaser and Seller.
The Party desiring to terminate this Agreement shall give notice of
such termination to the other Party.
Section 10.02. EFFECT OF TERMINATION.
(a) In the event of the termination and abandonment
hereof pursuant to the provisions of Section 10.01, this Agreement
shall become void and have no effect, without any liability on the
part of any of the Parties or their directors or officers or
stockholders in respect of this Agreement. The provisions of Sections
6.03(e) and 11.03 shall survive any termination hereof pursuant to
Section 10.01. Notwithstanding the foregoing, in the event of (i) the
willful failure by either Party to fulfill a condition to the
performance of the obligations of the other Party or (ii) the breach
by the other Party in the performance of such Party's covenants or
agreements hereunder, the Party who has failed to fulfill such
condition or who has breached any such covenants or agreements shall
be fully liable to the other Party for all costs and expenses of the
other Party in connection with the preparation, negotiation, execution
and performance of this Agreement.
(b) Notwithstanding anything to the contrary contained
herein, if Purchaser terminates this Agreement for any reason, other
than as specified below, Purchaser shall pay Seller the sum of Two
Hundred and Fifty Thousand Dollars ($250,000), in immediately
available funds by wire transfer to an account designated by Seller,
as liquidated damages:
(i) that specified in Section 10.01(a) herein;
49
<PAGE> 55
(ii) an event or occurrence which has a
Significant Adverse Effect on the business, operations,
assets, properties or prospects of the Business (for the
purposes of this Section 10.02(b)(ii), "Significant Adverse
Effect" shall mean (A) an event or occurrence which has or is
reasonably expected to have within the period beginning on
June 1, 1996 and ending on the last day of the month
immediately preceding the month in which the Closing occurs,
the effect of (i) reducing total stockholders' equity by an
amount not less than One Million Dollars ($1,000,000); or (ii)
reducing total sales or pre-tax income 30% or more from the
sales or pre-tax income shown in the revised operating budget
of the Seller for such period, which is attached hereto in
Schedule 10.02(b)(ii); or (B) any catastrophic event or
occurrence prior to the Closing that would reasonably be
likely to cause a reduction in total sales or pre-tax income
of 30% or more from the total sales or pre-tax income shown in
Seller's projections for the 1997 calendar year, which are
attached hereto in Schedule 10.02(b)(ii); provided, however,
that the results of any public vote or election relating to
any referendum or initiative specifically described on
Schedule 10.02(b)(ii) hereto shall not be deemed to have a
Significant Adverse Effect; or
(iii) as a direct result of the failure of Seller
or Shareholders to comply, in any material respect, with any
covenant or agreement of Seller or Shareholders in this
Agreement, the failure of Seller or Shareholders to satisfy
any of the conditions precedent to the Closing set forth in
Article VII of this Agreement or the inability or
unwillingness of Seller or Shareholders to consummate the
Closing for any other reason; provided, however, that the
failure of Seller or Shareholders to comply in any material
respect with any covenant or agreement of Seller or
Shareholders in this Agreement or the failure of Seller or
Shareholders to satisfy any condition precedent to the Closing
shall not waive Purchaser's obligation to pay liquidated
damages to Seller to the extent that such failure does not,
with respect to any one or more of such covenants, agreements
or conditions have a Material Adverse Effect on the Business
or the ability of Seller to consummate the transactions
contemplated hereby.
THE PARTIES ACKNOWLEDGE THAT SELLER'S ACTUAL DAMAGES IN THE
EVENT OF TERMINATION BY PURCHASER WOULD BE EXTREMELY DIFFICULT OR
IMPRACTICABLE TO DETERMINE. THEREFORE THE PARTIES ACKNOWLEDGE THAT
THE AMOUNT SET FORTH ABOVE AS LIQUIDATED DAMAGES HAS BEEN AGREED UPON,
AFTER NEGOTIATION, AS THE PARTIES' REASONABLE ESTIMATE OF SELLER'S
DAMAGES AND AS SELLER'S EXCLUSIVE REMEDY AGAINST PURCHASER IN THE
EVENT OF A TERMINATION OF THIS AGREEMENT BY PURCHASER (EXCEPT IN THE
EVENT OF A DEFAULT BY PURCHASER AS PROVIDED IN THE LAST SENTENCE OF
SECTION 10.02(A) ABOVE).
50
<PAGE> 56
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. BROKERS' AND FINDERS' FEES.
(a) Seller represents and warrants to Purchaser that,
except for obligations set forth on the Disclosure Schedule, which
Seller or the Shareholders shall pay out of the proceeds of the
Purchase Price and be solely responsible for, all negotiations
relative to this Agreement have been carried on by it directly without
the intervention of any person, who may be entitled to any brokerage
or finder's fee or other commission in respect of this Agreement or
the consummation of the transactions contemplated hereby, and Seller
agrees to indemnify and hold harmless Purchaser against any and all
claims, losses, liabilities and expenses which may be asserted against
or incurred by it as a result of Seller's dealings, arrangements or
agreements with any such person.
(b) Purchaser represents and warrants that all
negotiations relative to this Agreement have been carried on by it
directly without the intervention of any person who may be entitled to
any brokerage or finder's fee or other commission in respect of this
Agreement or the consummation of the transactions contemplated hereby,
and Purchaser agrees to indemnify and hold harmless Seller against any
and all claims, losses, liabilities and expenses which may be asserted
against or incurred by it as a result of Purchaser's dealings,
arrangements or agreements with or any such person.
Section 11.02. SALES, TRANSFER AND DOCUMENTARY TAXES, ETC. Purchaser
shall pay all federal, state or local sales, documentary and other transfer
taxes, if any, due as a result of the purchase, sale, use or transfer of the
Assets in accordance herewith whether imposed by law on Seller or Purchaser and
Purchaser shall indemnify, reimburse and hold harmless Seller in respect of the
liability for payment of or failure to pay any such sales, documentary and
other transfer taxes or the filing of or failure to file any reports required
in connection therewith.
Section 11.03. EXPENSES. Except as otherwise provided in this
Agreement, Purchaser shall pay its own expenses incidental to the preparation
of this Agreement, the carrying out of the provisions of this Agreement and the
consummation of the transactions contemplated hereby, and the Shareholders
shall pay their own expenses and the expenses of Seller incidental to the
preparation of this Agreement, the carrying out of the provisions of this
Agreement and the consummation of the transactions contemplated hereby.
Section 11.04. CONTENTS OF AGREEMENT; PARTIES IN INTEREST; ETC. This
Agreement sets forth the entire understanding of the parties hereto with
respect to the transactions contemplated hereby. It shall not be amended or
modified except by written instrument duly executed by each of the parties
hereto. Any and all previous agreements and understandings between or among
the parties regarding the subject matter hereof, whether written or oral, are
superseded by this Agreement.
51
<PAGE> 57
Section 11.05. ASSIGNMENT AND BINDING EFFECT. This Agreement may not
be assigned prior to the Closing by any party hereto without the prior written
consent of the other parties. Subject to the foregoing, all of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the successors and assigns of the Shareholders, Seller
and Purchaser.
Section 11.06. WAIVER. Any term or provision of this Agreement may
be waived at any time by the party entitled to the benefit thereof by a written
instrument duly executed by such party.
Section 11.07. NOTICES. Any notice, request, demand, waiver,
consent, approval or other communication which is required or permitted
hereunder shall be in writing and shall be deemed given only if delivered
personally or sent by telegram or by registered or certified mail, postage
prepaid, as follows:
If to Purchaser, to:
Stuart Entertainment, Inc.
3211 Nebraska Avenue
Council Bluffs, Iowa 51501
Attention: President
With a required copy to:
Kutak Rock
717 Seventeenth Street, Suite 2900
Denver, Colorado 80202
Attention: Warren L. Troupe, Esq.
If to Seller or Shareholders, to:
Trade Products, Inc.
2807 Lincoln Way
Lynnwood, Washington 98037
Attention: President
With a required copy to:
Whalen & Firestone, LLP
1221 Second Avenue, Suite 410
Galland Building
Seattle, WA 98101
Attention: Jerome D. Whalen, Esq.
52
<PAGE> 58
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communication will be deemed to have been given as
of the date so delivered, telegraphed or mailed.
Section 11.08. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the internal laws (and not the law of
conflicts) of the State of Washington.
Section 11.09. NO BENEFIT TO OTHERS. The representations,
warranties, covenants and agreements contained in this Agreement are for the
sole benefit of the parties hereto and, in the case of Article VIII hereof, the
other Indemnified Parties, and their heirs, executors, administrators, legal
representatives, successors and assigns, and they shall not be construed as
conferring any rights on any other persons.
Section 11.10. HEADINGS, GENDER AND "PERSON." All section headings
contained in this Agreement are for convenience of reference only, do not form
a part of this Agreement and shall not affect in any way the meaning or
interpretation of this Agreement. Words used herein, regardless of the number
and gender specifically used, shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine, or
neuter, as the context requires.
Section 11.11. SCHEDULES AND EXHIBITS. All Exhibits and Schedules
referred to herein are intended to be and hereby are specifically made a part
of this Agreement.
Section 11.12. SEVERABILITY. Any provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall be ineffective to the
extent of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 11.13. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and any party hereto may execute any such counterpart,
each of which when executed and delivered shall be deemed to be an original and
all of which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered by the parties. It shall
not be necessary in making proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
Section 11.14. CONSTRUCTION. The language used in this Agreement
will be deemed to be the language chosen by the Parties to express their mutual
intent and no rule of strict construction shall be applied against any Party.
Any reference to any federal, provincial, municipal or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The Parties intend that
each representation, warranty and covenant contained herein shall have
independent significance. If
53
<PAGE> 59
any Party has breached any representation, warranty or covenant contained
herein in any respect, the fact that there exists another representation,
warranty or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not breached shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty or covenant.
Section 11.15. CORPORATE ACTION. All waivers by Purchaser and Seller
hereunder shall be authorized by their respective Board of Directors. Any
action by the Board of Directors of Purchaser and Seller shall be evidenced by
the certificate of its Secretary or Assistant Secretary.
54
<PAGE> 60
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officer or person as of the day
and year first above written.
PURCHASER:
STUART ENTERTAINMENT, INC.,
a Delaware corporation
By
-------------------------------------
Albert F. Barber, Vice Chairman
and Chief Executive Officer
Attest:
By
--------------------------------
Title
SELLER:
TRADE PRODUCTS, INC.,
a Washington corporation
By
-------------------------------------
Harry Poll, Chairman and Chief
Executive Officer
Attest:
By
--------------------------------
Title
55
<PAGE> 61
SHAREHOLDERS:
/s/ Harry Poll
---------------------------------------
Harry Poll
/s/ Ronald G. Rudy
---------------------------------------
Ronald G. Rudy
/s/ Harry Wirth
---------------------------------------
Harry Wirth
56
<PAGE> 1
EXHIBIT 20
Contact: Paul Tunink
712-312-1488
FOR IMMEDIATE RELEASE
STUART ENTERTAINMENT, INC. SIGNS ASSET PURCHASE AGREEMENT
TO ACQUIRE TRADE PRODUCTS
COUNCIL BLUFFS, IOWA, August 7, 1996 - Stuart Entertainment, Inc./dba Bingo
King (NASDAQ/STUA) announced today the signing of a definitive agreement to
purchase the assets and assume certain liabilities of Trade Products, Inc. for
$36,555,000, subject to certain post-closing adjustments, payable $29,555,000
in cash, the issuance of a $7 million subordinated note, and warrants to
acquire 300,000 shares of Stuart Entertainment common stock at $7.75 per share.
Trade Products, a privately held company based in Seattle, is the nation's
largest maker and marketer of gaming tickets known as pulltabs, with 1995 sales
of more than $35 million.
The transaction is subject to certain conditions, including the obtaining of
financing and regulatory gaming approvals. The Company intends to finance the
transaction through a combination of debt and equity. The parties expect to
close the transaction in the fourth quarter.
Len Stuart, chairman of Stuart Entertainment, Inc. stated, "Our two companies
have had a long-time mutual respect for each other. I believe the combined
companies will capitalize on new opportunities and optimize the breadth of
available products and services and deliver them more efficiently to our
respective distributor networks and to the ultimate users."
Harry Poll, chairman and chief executive officer of Trade Products, said,
"We're looking forward to completing the transaction and addressing the
enormous potential that we know is possible through this business combination."
Stuart Entertainment, through its Bingo King and Bazaar & Novelty operating
units, has been printing bingo paper since 1971. Bingo paper remains the
cornerstone of Stuart's product line, while it branches out into new products,
such as electronic bingo systems. Trade Products was founded in 1974 and has
focused primarily on gaming tickets. Both companies are recognized innovators
in their respective markets, constantly responding to changing player demand.
Al Barber, vice chairman and chief executive officer of Stuart observed, "Since
we signed the letter of intent in April, we've had an opportunity to more
thoroughly explore the fit between Stuart Entertainment and Trade Products.
Those discussions reaffirmed our belief that this acquisition will be an
outstanding strategic move which will enhance operating efficiencies. In
57
<PAGE> 2
addition, we expect the combination will have an immediate positive impact on
the earnings of the Company."
Stuart Entertainment, Inc. is the world's largest manufacturer of bingo paper,
ink markers and related gaming equipment and supplies, with locations in the
United States, Canada and Mexico. Its subsidiaries include Bazaar & Novelty,
Canada's largest supplier of bingo paper and related supplies, and Video King,
a major supplier of electronic gaming systems, located in Littleton, Colorado.
-END-
58
