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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 1, 1997
STUART ENTERTAINMENT, INC.
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(Exact name of registrant as specified in its charter)
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Delaware 0-10737 84-0402207
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(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
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3211 Nebraska Avenue
Council Bluffs, Iowa 51501
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (712) 323-1488
Not Applicable
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(Former name or former address, if changed since last report)
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Item 5. Other Events.
See the Press Release attached hereto as Exhibit 20.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
10 Asset Purchase Agreement dated as of July 1, 1997 by
and between Stuart Entertainment, Inc. and Power
Bingo Corp.
20 Press Release dated July 7, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STUART ENTERTAINMENT, INC.
Date: July 25, 1997 By: /s/ Timothy R. Stuart
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Timothy R. Stuart, President
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EXHIBIT INDEX
Exhibit No. Exhibit Description
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10 Asset Purchase Agreement dated as of July 1, 1997 by and
between Stuart Entertainment, Inc. and Power Bingo Corp.
20 Press Release dated July 7, 1997.
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EXHIBIT 10
Asset Purchase Agreement dated as of July 1, 1997 by and
between Stuart Entertainment, Inc. and
Power Bingo Corp.
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ASSET PURCHASE AGREEMENT
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Between
STUART ENTERTAINMENT, INC.
a Delaware corporation
and
POWER BINGO CORP.
a Nevada corporation
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Dated as of July 1, 1997
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
PURCHASE AND SALE
Section 2.01. Purchase and Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.02. Agreement to Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.03. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.04. Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.05. Intellectual Property Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III
CLOSING
Section 3.01. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.02. Items to be Delivered at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
SELLER
Section 4.01. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.02. Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.03. No Interest in Other Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.04. Validity of Contemplated Transactions, etc. . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.05. No Third Party Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.06. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.07. Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.08. Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.09. Tax and Other Returns and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.10. Books of Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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Section 4.11. Existing Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.12. Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.13. Condition of Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.14. Compliance with Law; Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.15. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.16. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.17. Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.18. Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.19. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.20. Employee Benefit Plans and Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.21. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.22. Real Property and Environmental Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.23. Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.24. Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.25. Completeness of Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.26. No Third-Party Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.27. Personal Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.28. Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.29. No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Section 5.01. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.02. Corporate Power and Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.03. Validity of Contemplated Transactions, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.04. No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.05. No Notice of Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.06. Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.07 Completeness of Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE VI
COVENANTS OF THE PARTIES
Section 6.01. Covenants of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.02. Covenants of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.03. Covenants of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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ARTICLE VII
CONDITIONS TO THE CLOSING
Section 7.01. Reciprocal Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.02. Conditions to Obligation of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.03. Conditions to Obligation of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.02. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.03. Procedures for Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.04. Equitable Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE IX
POST CLOSING MATTERS
Section 9.01. Discharge of Purchased Assets Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 9.02. Maintenance of Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 9.03. Payments Received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.04. Use of Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.05. UCC Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.06. Non-Solicitation; Noncompetition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.07. Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.08. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.09. Customer Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE X
TERMINATION
Section 10.01. Grounds for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 10.02. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Sales, Transfer and Documentary Taxes, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.02. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.03. Contents of Agreement; Parties in Interest; etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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Section 11.04. Assignment and Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.05. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.06. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.07. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.08. No Benefit to Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.09. Headings, Gender and "Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.10. Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.11. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.12. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.13. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.14. Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.15. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Exhibit A 1996 Distribution Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B Assignment and Assumption Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C Consulting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
Exhibit D Noncompetition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
Exhibit E Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
Exhibit F Form of Opinion of Counsel for Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Exhibit G Form of Opinion of Counsel for Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), effective as of June
30, 1997 is entered into by and between Stuart Entertainment, Inc., a Delaware
corporation ("Purchaser") and Power Bingo Corp., a Nevada corporation
("Seller"). Purchaser and Seller are referred to collectively herein as the
"Parties" and individually as a "Party."
RECITALS
A. Seller is primarily engaged in the business of manufacturing
and marketing its proprietary product, namely a handheld electronic bingo unit
and associated equipment.
B. Purchaser and Seller entered into that certain agreement dated
April 6, 1996, a copy of which is attached hereto as Exhibit A ("Previous
Agreement") regarding the manufacture and marketing of Seller's product in
certain geographic areas. As defined and identified below, all of the assets,
properties and business operations of Seller to be purchased by Purchaser
hereunder are referred to herein as the "Purchased Assets." 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 Purchased Assets.
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
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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 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. For purposes of
this definition, "control" means the possession, directly or indirectly, of the
power to direct the management or operations of such person.
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"Assignment and Assumption Agreement" means the assignment and
assumption agreement substantially in the form of Exhibit B attached hereto, to
be entered into between the Parties on the Closing Date.
"Assumed Liabilities" means those liabilities of Seller assumed by
Purchaser as set forth in Section 2.04.
"Business" means the business being conducted as of the date hereof by
the Seller.
"Business Balance Sheet" means the balance sheet of Seller at March
31, 1997.
"Claim" means any claim by any third party of any nature whatsoever,
including any demand, liability, obligation, debt, cause of action, suit,
proceeding, judgment, award, assessment and reassessment.
"Closing Date" means the date of the Closing, as set forth in Section
3.01.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consulting Agreement" means the Consulting Agreement, substantially
in the form of Exhibit C hereto, to be entered into between Purchaser and David
Facciani on the Closing Date.
"Disclosure Schedule" means any and all schedules attached hereto,
which describe assets or liabilities, or exceptions, changes or additions to
the representations and disclosures, or terms, herein.
"Distribution Agreements" means those agreements assumed by Purchaser
listed on Schedule 2.04.
"Distributors" means the parties to the Distribution Agreements.
"Dollars" means U.S. Dollars unless otherwise specified.
"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 required to be disclosed in
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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.
"Excluded Assets" means the assets listed on Schedule 2.01-B.
"Excluded Liabilities" means all liabilities of Seller not assigned to
and assumed by Purchaser.
"Gross Income" shall have the meaning set forth in Section 2.02.
"Hazardous Substances" means any regulated substance, including 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 regulated substance 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).
"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.
"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.
"Noncompetition Agreement" means the Noncompetition Agreement
substantially in the form of Exhibit D, to be entered into between Purchaser
and David Facciani on the Closing Date.
"Permitted Liens" shall have the meaning set forth in Section 4.12.
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"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.
"Product" means and includes Seller's proprietary electronic handheld
bingo devices, associated equipment, the same or similar devices manufactured
by or at the direction of Purchaser after the Closing Date, and all handheld
electronic bingo devices which are improvements or derivations thereto.
"Property Rights" means those rights acquired by David Facciani and
Barney Fried from Y-Square Ltd. pursuant to that certain agreement dated March
21, 1994, relating to U.S. Patents and Patent Applications referenced in said
agreement, which rights have subsequently been transferred to Seller.
"Purchased Assets" means the assets described in Section 2.01(a).
"Purchase Price" shall have the meaning set forth in Section 2.03.
"Security Agreement" means that security agreement, in substantially
the form of Exhibit E, to be executed by Purchaser on the Closing Date.
ARTICLE II
PURCHASE AND SALE
Section 2.01. PURCHASE AND SALE OF ASSETS. At the Closing hereunder
(as defined in Section 3.01 hereof) and except as otherwise specifically
provided in this Section 2.01, Seller shall, effective as of June 30, 1997,
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 the Purchased Assets.
(a) Purchased Assets. The Purchased Assets, which are
specifically set forth on Schedule 2.01-A, 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) of this Agreement:
(i) all machinery, equipment, tools, vehicles,
furniture, furnishings, leasehold improvements, goods, and other tangible
personal property;
(ii) all supplies and inventories and office and
other supplies on the premises as of the Closing Date (other than office
supplies at premises where Purchaser is not assuming lease obligations) or
listed in Seller's financial statements;
(iii) 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;
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(iv) all rights under any patent, trademark,
service mark, trade name or copyright, whether registered or unregistered, and
any applications therefor, including U.S. Patent No. Des. 353,631, including
the right to own and use the name "Power Bingo" and all variations thereof and
Seller's rights in and to the Property Rights;
(v) all technologies, methods, formulations, data
bases, trade secrets, know-how, inventions and other intellectual property used
in the Business or under development;
(vi) all computer software (including documentation
and related object and source codes);
(vii) Seller's right, title and interest to all
rights or causes in action arising out of occurrences after the Closing
relating to the Purchased Assets, including without limitation all rights under
express or implied warranties, except for those causes of action listed on
Schedule 2.01-B;
(viii) all information, files, records, data, plans,
contracts and recorded knowledge, including customer and supplier lists, in the
possession of Seller, related to the foregoing;
(ix) Seller will designate on Schedule 2.01-A
which of the Purchased Assets are owned and which are leased.
(b) Excluded Assets. The Excluded Assets shall be those
assets listed on Schedule 2.01-B.
Section 2.02. AGREEMENT TO PURCHASE. At the Closing
hereunder, Purchaser shall purchase the Purchased Assets, upon and subject to
the terms and conditions of this Agreement and in reliance on the
representations, warranties and covenants of Seller contained herein, in
exchange for the Purchase Price. In addition, at the Closing, Purchaser shall
assume and agree to pay, discharge or perform the Assumed Liabilities.
Section 2.03. PURCHASE PRICE. The purchase price for the Purchased
Assets (the "Purchase Price") shall consist of the following:
(a) Two million one hundred thousand dollars
($2,250,000), payable to Seller as follows:
(i) $1,100,000 shall be paid to Seller on the
Closing Date 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);
(ii) on the Closing Date, Purchaser shall forgive
a $100,000 promissory note with Seller dated March 7, 1997, together with all
interest due thereon;
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(iii) $600,000 shall be paid to Seller on or before
January 15, 1998;
(iv) $450,000 shall be paid to Seller on or before
April 15, 1998; and
(b) As an additional consideration, Purchaser shall pay
or do the following:
(i) For each of the first twelve calendar months
following the month in which the Closing Date occurs, Purchaser shall pay to
Seller for each calendar month a sum equal to:
(A) 15% of the Gross Income (as
hereinafter defined) in each calendar month in which the Gross Income is less
than $500,000; or
(B) $75,000 plus 10% of the amount by
which Gross Income exceeds $500,000 in any calendar month in which the Gross
Income exceeds $500,000.
(ii) An amount equal to the greater of (a) eight
times the sum of the amounts payable to Seller in (b)(i) above for the tenth,
eleventh and twelfth full calendar months after the Closing Date or (b)
$1,000,000. As an example, assume Seller is paid the sums of $40,000, $45,000
and $50,000 for the tenth, eleventh and twelfth full calendar months,
respectively, under (b)(i) above. Purchaser would pay to Seller the total
$1,080,000 (eight times $135,000) as the amount due under this subparagraph
(b)(ii).
(iii) All amounts payable under subsection (b)(i)
above, shall be paid within 30 days after the end of the calendar month in
which such Gross Income is earned. The amount payable in (b)(ii) shall be
calculated by Purchaser no later than 90 days after the end of the twelfth full
calendar month following the Closing Date. The amount owing shall then be paid
by Purchaser to Seller in four quarterly payments with the first payment paid
within 90 days after the end of the twelfth full calendar month following the
Closing Date. Interest shall be payable at 12 percent per annum commencing no
later than the 45th day following the close of such twelfth month. Each
subsequent payment will be made within ninety days of when the prior payment is
payable.
(iv) At any time within 180 days following the
twelfth full calendar month after the Closing Date, Purchaser may exercise an
option in lieu of making the payment described in (b)(ii) above to continue to
make monthly payments under the formula of subsection (b)(i) for a period equal
to the lesser of (a) 72 additional months, or (b) until such time upon written
notice to Seller, Purchaser shall pay to Seller a sum paid and calculated in
accordance with (b)(ii) above based on the Gross Income of the Purchased Assets
for the three full calendar months after receipt of such notice. If Purchaser
shall not timely exercise such option, the option shall automatically expire.
For purposes of this Agreement, "Gross Income" shall be defined as (a)
all revenues earned by Purchaser (less a reasonable reserve for bad debt not to
exceed 3%) from the rental or lease of Product, less any customary payments to
distributors and bona fide agents in the form of commissions, finders fees,
such customary payments not to exceed 30% and (b) all amounts received by
Purchaser under the Distribution Agreements. Purchaser will pay to Seller the
difference between the bad debt reserve and actual receipts, if actual receipts
exceed 97% of Gross Income.
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In the event Purchaser acquires another manufacturer or distributor of
handheld electronic bingo units, functionally similar (whether or not
identical) to the Product ("Acquired Entity"), or agrees to distribute any
handheld devices similar to the Product, or Purchaser makes any other handheld
electronic bingo device functionally similar to the Product, then the income
derived by Purchaser from any and all activities shall be included in the
calculation of Gross Income. Notwithstanding the foregoing, payments by
customers of any Acquired Entity who where customers of the Acquired Entity on
or before the date of its acquisition by Purchaser shall be excluded from the
calculation of Gross Income.
Seller shall have the right to conduct an audit of the books and
records of Purchaser used in the calculation of Gross Income. Such audit shall
be conducted on Purchaser's premises during normal business hours on no less
than ten (10) days advance written notice. In the event that as a result of
such audit, the Parties agree (or in the absence of such agreement, by decision
of an arbitrator pursuant to Section 11.15 hereof), Purchaser's actual payments
to Seller were less than the amount determined by such audit (such calculated
shortfall shall be defined as the "Discrepancy"), then Purchaser shall pay
Seller the Discrepancy. In the event Purchaser's actual payments to Seller
were less than 95% of the amount determined by such audit, Purchaser shall
additionally pay Seller all reasonable costs of such audit.
Purchaser shall use its best efforts to place the handheld units from
which Gross Income is derived, at a minimum price of $2.50 per use ("Minimum
Rate"), except in those circumstances where (a) Seller agrees to such lower
price for a particular installation, or (b) such lower price is necessary to
meet the prices of competing units at a particular installation. In the event
Purchaser places a unit at less than the Minimum Rate, absent the circumstances
outlined above, then Gross Income for such units shall be calculated as if the
Minimum Rate had been charged.
Purchaser's independent public accounting firm shall, as part of
Purchaser's normal annual audit, perform such procedures and samplings as may
be agreed upon by Purchaser and Seller in order to assess for its accuracy the
calculation of Gross Income by Purchaser. In the event that such agreed upon
procedures and samplings are at a significant incremental cost to Purchaser,
then Seller shall reimburse Purchaser for one-half of such cost. During such
time as this Section 2.03(b) is in effect, Purchaser shall provide Seller a
copy of its annual report upon Seller's request.
(v) Purchaser shall cancel any outstanding
invoices from Purchaser to Seller for the purchase of Product and reflect such
cancellation on its books.
(c) In the event that Purchaser receives notice from a
state, provincial or federal gaming authority, that one or more of its gaming
licenses may be adversely affected by its continued payments to Seller under
paragraph (b)(i) and (b)(ii) above, Purchaser may upon written notice to
Seller, specify its concern and Purchaser may terminate its obligation to make
continuing payments under (b)(i) and (b)(ii) hereof if Seller does not cure the
notice, by obligating itself to making a final payment of $1,200,000 in
addition to any prior payments made or then owing, which shall excuse the
Seller from making any further payments pursuant to paragraph (b)(i) and (b(ii)
above. Purchaser shall have the option to make such payment as a lump sum no
later than 30 days after such
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notice or shall make 12 consecutive equal monthly payments commencing on a date
no later than 30 days after such notice with interest at 12% per annum. In the
event the parties can cure any such adverse effect by excluding the revenue
from that jurisdiction from the definition of Gross Revenue and the Seller
agrees to such exclusion in writing, then the Purchaser's obligation to
continue to make payments under (b)(i), (b)(ii) and (b)(iv), as the case may
be, shall continue.
(d) Seller may assign its right to the Purchase Price to
a single entity; provided that such entity agrees in writing to be bound by all
of Purchaser's rights with respect to the payments to be made hereunder
including, but not limited to, Section 2.03(d) and Section 8.03(b). In
addition, such assignee must also represent in writing to Purchaser that (i) it
has not been convicted in a criminal proceeding, is not a named subject of a
criminal proceeding which is presently pending (excluding traffic violations
and other minor offenses) or is the subject of a criminal investigation, and
(ii) there will be no further assignment of the payments under this Agreement.
Notwithstanding the foregoing, Seller may direct Purchaser to make payments due
to Seller under Section 2.03(a) to third parties.
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 fully pay, discharge or perform, as
appropriate, the liabilities and obligations of Seller set forth on Schedule
2.04 attached hereto and any product liability or similar claim for injury to
person or property on or after Closing and 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").
(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 11.01 herein,
any federal, state or local income or other tax (a) payable with respect to the
business, assets, properties or operations of Seller 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 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 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;
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(iv) liabilities or obligations accruing on or
prior to the Closing Date arising out of any breach by Seller of any provision
of any agreement, contract, commitment or lease referred to in this paragraph
(iv), 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 4.17 hereof; or
(v) Environmental Liabilities.
Section 2.05. INTELLECTUAL PROTECTION. Upon receipt of written
authorization from Purchaser and upon such terms contained in the
authorization, the Seller or Distributors shall have the right to enforce the
Intellectual Property Rights assumed by Purchaser pursuant to Seller's April 1,
1995 agreement from Alan R. Hecht.
ARTICLE III
CLOSING
Section 3.01. CLOSING. The closing (the "Closing") of the sale and
purchase of the Purchased Assets shall take place at the offices of Seller,
located at 3858 Carson Street, Suite 127, Torrance, California or such other
location as may be mutually agreed upon by Seller and Purchaser, at such time
as may be mutually agreed upon by Seller and Purchaser but, in any event, no
later than July 3, 1997.
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) as necessary by law or contractual
obligations, a signed bill of sale for personal property, 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 effect the transfer and assign
to, and to vest in, Purchaser all of Seller's right, title and interest in and
to the Purchased Assets in accordance with this Agreement, including without
limitation, (A) good and valid title in and to all of the Purchased Assets
owned by Seller, (B) good and valid leasehold interests in and to all of the
Purchased Assets leased by Seller as lessee, based upon the lessor's
representations and the delivery of executed leases, and (C) all of Seller's
rights under all agreements, contracts, commitments, leases, plans, bids,
quotations, proposals, instruments and other documents included in the
Purchased Assets to which Seller is a party or by which it has rights on the
Closing Date; and
(ii) copies of 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,
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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 Purchased Assets;
(iii) copies of all corporate proceedings
authorizing or otherwise connected with the transactions contemplated hereby,
which documents and instruments shall be in form and substance reasonably
satisfactory to Purchaser and Morrison & Foerster LLP, its counsel, and
Purchaser shall receive all such counterpart originals or certified or other
copies of such documents as it may reasonably request;
(iv) a signed assignment to Purchaser of that
certain License Agreement with Allen Hecht dated April 1, 1995;
(v) a signed assignment to Purchaser of those
certain License and intellectual property rights under Seller's agreement with
Bingo Card Minder Corporation, dated February 26, 1997;
(vi) signed counterparts of this Agreement;
(vii) signed counterparts of the Noncompetition
Agreement;
(viii) a signed counterpart of the Assignment and
Assumption Agreement; and
(ix) a signed counterpart of the Consulting
Agreement.
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
Purchased Assets.
(b) Purchaser shall deliver to Seller the following:
(i) the cash portion of the Purchase Price due at
Closing;
(ii) a signed counterpart of the Consulting
Agreement;
(iii) a signed counterpart of the Assignment and
Assumption Agreement;
(iv) the signed counterparts of this Agreement,
together with an original certified resolution of Purchaser's board of
directors approving this Agreement, and the transactions contemplated thereby;
(v) the signed Security Agreement; and
(vi) a signed counterpart of the Noncompetition
Agreement.
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(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
Seller hereby represents and warrants 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:
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 duly qualified to do business and
is in good standing as a foreign corporation in California. The failure of the
Company to be so qualified in any other jurisdiction would not individually or
in the aggregate have a Material Adverse Effect on the Business.
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 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 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 Schedule 4.03 (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 Purchased Assets, other than shares of capital stock
representing non-controlling interests of less than 5% of the outstanding stock
of publicly traded companies obtained by Seller.
Section 4.04. VALIDITY OF CONTEMPLATED TRANSACTIONS, ETC. Except as
set forth in the Disclosure Schedule and except for 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 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) to Seller's knowledge,
any existing law, ordinance, or governmental rule or regulation binding upon or
applicable to Seller, (ii) any judgment, order, writ, injunction, decree or
award of any court,
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arbitrator or governmental or regulatory official, body or authority which is
applicable to Seller where service of process has been properly made on Seller
or has not been resisted, (iii) the charter documents of Seller or any
securities issued by Seller, or (iv) to Purchased Assets, any mortgage,
indenture, agreement, contract, commitment, lease, plan or other instrument,
document or understanding, oral or written, to which Seller is a party, by
which Seller may have rights or by which any of the Purchased 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 thereunder.
To Seller's knowledge 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 Seller, 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
purchase the Purchased Assets.
Section 4.06. FINANCIAL STATEMENTS. Seller has delivered to
Purchaser true and complete copies of (a) the balance sheets of Seller at
December 31, 1995 and 1996, and the related statements of income, cash flow and
changes in shareholder equity for the fiscal years then ended, unaudited but
compiled by Seller's independent public accounting firm; (b) the balance sheet
as of March 31, 1997, as compiled by Seller's independent public accounting
firm, consistent with past practice (collectively, the "Financial Statements").
The Financial Statements, including the related notes, present substantially,
and 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 shareholder
equity fairly present the results of operations, cash flow and changes in
shareholder equity of Seller for the periods indicated.
Section 4.07. 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 Business Balance Sheet or acquired since
the date thereof was acquired and has been maintained in the ordinary course of
the Business.
Section 4.08. ABSENCE OF UNDISCLOSED LIABILITIES. To Seller's
knowledge, and as relates to the Purchased Assets, Seller has no liabilities or
obligations with respect to the Purchased Assets, either direct or indirect,
matured or unmatured or absolute, contingent or otherwise, except:
(a) liabilities arising in the ordinary course of
business under any agreement, contract, commitment, lease or plan specifically
disclosed on the Disclosure Schedules; or
(b) those liabilities or obligations incurred,
consistently with past business practice, in or as a result of the ordinary
course of business since the Business 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
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responsibility, fixed or unfixed, known or unknown, asserted or unasserted,
choate or inchoate, liquidated or unliquidated, secured or unsecured.
Section 4.09. TAX AND OTHER RETURNS AND REPORTS. To Seller's
knowledge, 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, without limitation, those 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 paid. 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 Purchased Assets,
and 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 4.10. BOOKS OF ACCOUNT. The books, records and accounts of
Seller maintained with respect to the Purchased Assets accurately and fairly
reflect, in material respects, the transactions and the assets and liabilities
of Seller with respect to the Purchased Assets. Seller has not engaged in any
transaction with respect to the Purchased Assets, maintained any bank account
for the Purchased Assets or used any of the funds of Seller in the conduct of
the Purchased Assets except for transactions, bank accounts and funds which
have been and are reflected in the normally maintained books and records of the
Business.
Section 4.11. EXISTING CONDITION. Except as set forth on the
Disclosure Schedules, and has occurred in the ordinary course of business,
since the Business Balance Sheet Date, Seller with respect to the Purchased
Assets has not:
(a) incurred any liabilities, or discharged or satisfied
any Lien, Claim or encumbrance, or paid any liabilities, or failed to pay or
discharge when due any material 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.
(b) sold, encumbered, assigned or transferred any assets
or properties which would have been included in the Purchased Assets if the
Closing had been held on the Interim Balance Sheet Date or on any date since
then;
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(c) created, incurred, assumed or guaranteed any
indebtedness for money borrowed, or mortgaged, pledged or subjected any of the
Purchased Assets to any mortgage, lien, pledge, security interest, conditional
sales contract or other encumbrance of any nature whatsoever, except for
Permitted Liens (defined in Section 4.12 below);
(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 canceled, modified or waived any substantial debts
or claims held by it or waived any rights of substantial value;
(e) suffered any material adverse change in its business,
operations, assets, properties, prospects or condition (financial or
otherwise); or
(f) entered into any transaction other than as
contemplated by this Agreement.
Section 4.12. TITLE TO PROPERTIES. Except as disclosed on Schedule
4.12, Seller has good, valid and marketable title to all of its properties and
assets, real, personal and mixed, which it owns and are included in the
Purchased Assets, 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, and (iii) 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").
Section 4.13. CONDITION OF TANGIBLE ASSETS. All facilities,
equipment and other material items of tangible property and assets which are
included in the Purchased Assets are in good operating condition and repair,
subject to normal wear and tear, are useable in the regular and ordinary course
of business as conducted by Seller and prior to the Closing and, to Seller's
knowledge, conform in all material respects 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 necessary to the operation of
the Purchased Assets, except for leased items disclosed in the Disclosure
Schedule and for items of immaterial value.
Section 4.14. COMPLIANCE WITH LAW; AUTHORIZATIONS. Except as set
forth on Schedule 4.14, Seller has not received notice and is not aware of any
material violation of any law, ordinance, or governmental or regulatory rule or
regulation, whether federal, state, local or foreign, to which the Business or
Purchased Assets are subject ("Regulations"), and has no actual knowledge that
it is in violation of any Regulations. Seller, to its actual knowledge, 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 conducted or for the
ownership and use of the assets owned or used by Seller in the conduct of the
Business, 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 has not received any notice of any claim of
default, with respect to any such Authorization. Seller has not had any gaming
license revoked, suspended or denied or has withdrawn an application with
respect to a gaming license, except as disclosed.
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Section 4.15. LITIGATION.
(a) Except as listed on Schedule 4.15, 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 against Seller. Seller is not a party to or subject to
the provisions of any 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 Affect on the Purchased Assets or the
Business.
(b) To Seller's knowledge, 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 Affect.
Section 4.16. INSURANCE. Seller has furnished to Purchaser a list
of, and true and complete copies of, all insurance policies and any fidelity
bonds relating to the Purchased Assets. To Seller's knowledge, there is no
claim by Seller 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, except as disclosed in the action (or in connection with such action),
known as Power Bingo Corp. v. American International Group. All premiums
payable under all such policies and bonds have been paid and Seller has
otherwise complied with the material 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 on the Purchased Assets. To Seller's knowledge, such policies of
insurance and bonds (or other policies and bonds providing substantially
similar insurance coverage) are in full force and effect. Seller has not
received notice of any threatened termination of, premium increase with respect
to, or material alteration of coverage under, any of such policies or bonds.
Section 4.17. 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 Purchased Assets involving
in any one case $40,000 or more;
(b) except for the Previous Agreement, any 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 Purchased Assets involving
in any one case $40,000 or more;
(c) agreement, contract or commitment relating to the
Purchased Assets 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 $40,000 or more;
(d) distribution, dealer, representative or
representative or sales agency agreement, contract or commitment relating to
the Purchased Assets involving in any one case $40,000 or more;
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(e) licenses, sublicenses and other similar agreements
relating to the Intellectual Property Rights of Seller, where Seller stands as
a Licensor or Licensee as the case may be;
(f) lease under which Seller is either lessor or lessee
relating to the Assets or any property at which the Assets are located, except
for those leases in the ordinary course of business;
(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 Purchased Assets or agreement
or arrangement for a line of credit or guarantee, pledge or undertaking of the
indebtedness of any other person relating to the Purchased Assets;
(h) commitment or agreement for any capital expenditure
in excess of $40,000 relating to the Purchased Assets;
(i) agreement, contract or commitment limiting or
restraining Seller, the Purchased Assets 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 Purchased Assets subject
to any such agreement, contract or commitment; or
(j) material agreement, contract or commitment relating
to the Purchased Assets 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
Schedules 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, to Seller's knowledge no such agreement, contract,
commitment, lease, plan or other instrument, 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 4.18. ADDITIONAL INFORMATION. The Disclosure Schedule
contains lists or summary descriptions of each of the following:
(a) all inventory, equipment, furniture and fixtures of
Seller included in the Purchased Assets as of the Business Balance Sheet Date,
specifying such items as are owned and such as are leased and, with respect to
the owned property 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;
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(b) the names and titles of and current annual base
salary, hourly rates, or compensation for all employees, consultants and
contractors engaged in the conduct of the Purchased Assets, 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
(c) all names under which Seller has conducted the
Business during the last five years.
Section 4.19. LABOR MATTERS. Seller has not suffered any strike,
slowdown, picketing or work stoppage by any union or other group of employees
affecting the Purchased Assets and has not received notice of and does not have
actual knowledge of any threatened strike, slowdown, picketing or work stoppage
by any union or other group of employees affecting the Purchased Assets.
Seller is not a party to any collective bargaining agreement, no such agreement
determines the terms and 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 4.20. EMPLOYEE BENEFIT PLANS AND ARRANGEMENTS. Schedule 4.20
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.
Section 4.21. 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 taken as a whole. 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 Purchased Assets, 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) To Seller's knowledge, Seller is not a defendant and
has not been served or resisted service in any pending action, suit,
investigation or proceeding relating to, or otherwise has been notified of, any
alleged claim or infringement of any Intellectual Property Rights, except for
claims made by Advanced Gaming Technology, which is described in with
specifically on Schedule 4.21(b) to Purchaser. Seller has no actual knowledge
of any other such infringement by Seller, and Seller has no actual knowledge of
any continuing infringement by any other Person of any Intellectual Property
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Rights. To Seller's actual knowledge, 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 Purchaser.
Section 4.22. REAL PROPERTY AND ENVIRONMENTAL LIABILITIES.
(a) Seller has valid leasehold interests in all leased
real property comprising the Purchased Assets. None of such leasehold
interests are subject to any Liens, except:
(i) Liens disclosed on the Statements or
Disclosure Schedules; or
(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) Permitted Liens.
(b) To the knowledge of Seller, there are no developments
affecting the Purchased Assets 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.
Section 4.23. 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 Business, are generally adequate to conduct the Business as
currently conducted by Seller.
Section 4.24. 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 Purchased Assets as presently conducted.
Section 4.25. COMPLETENESS OF DISCLOSURE. Subject to any applicable
qualifications contained in any Disclosure Schedule, certificate, schedule,
statement, document or instrument, no representation or warranty by Seller in
Article 4 of this Agreement, nor any certificate, schedule, statement, document
or instrument furnished or to be furnished to Purchaser pursuant hereto,
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.
Section 4.26. NO THIRD-PARTY OPTIONs. There are no existing
agreements, options, commitments or rights with or to any person to purchase
the Purchased Assets.
Section 4.27. PERSONAL BACKGROUND. The personal background history
of David Facciani attached hereto as Disclosure Schedule 4.27 is true and
correct as of the date of execution and as of the date of Closing.
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Section 4.28. KNOWLEDGE. The phrase "to Seller's knowledge," means
to Seller's actual knowledge or the actual and conscious awareness by David
Facciani.
Section 4.29. NO BROKERS. All negotiations relative to this
Agreement have been carried on by Seller 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.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Purchaser hereby represents and warrants to Seller 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
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.
Section 5.04. NO BROKERS. All negotiations relative to this
Agreement have been carried on by Purchaser 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.
Section 5.05. NO NOTICE OF VIOLATION. Purchaser represents and
warrants that it has not received notice from any gaming agency of any
potential gaming law violation that would trigger the
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provisions of Section 2.03(c). As of the Closing, Purchaser does not have
notice from a third party of any facts which would provide the basis for a
claim by Purchaser under Article VIII.
Section 5.06. DISCLOSURE SCHEDULES. Purchaser has received and
reviewed each of the written agreements identified by date and by party on the
Disclosure Schedules.
Section 5.07. COMPLETENESS OF DISCLOSURE. Subject to any applicable
qualifications contained in any certificate, schedule, statement, document or
instrument, no representation or warranty by Purchaser in Article 5 of this
Agreement, nor any certificate, schedule, statement, document or instrument
furnished or to be furnished to Seller pursuant hereto, 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.
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 (ii) all books of
account, contracts and other documents relating to or constituting a part of
the Purchased Assets, (iii) the key management personnel of Seller, (iv)
financial and operating data relating to the Purchased Assets, and (v) such
further information with respect to the Purchased Assets, as Purchaser, from
time to time, shall reasonably request, provided that such access shall not
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, on the other hand, shall acquire
knowledge of any fact, law or circumstance which
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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 President 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
consolidation, (iii) acquisition or purchase of securities or assets, or (iv)
similar transaction or business combination involving Seller or the Purchased
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, except that Seller may repurchase stock from its shareholders or
otherwise resolve claims with its shareholders.
(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 through 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 Purchased Assets in
good repair, working order and condition consistent with past practices and
current use (except for obsolescence, ordinary wear and tear and damage due to
casualty);
(iii) perform, in all material respects, all of its
obligations under all contracts, leases and any and all other agreements
relating to or affecting the Purchased 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) comply, in all material respects, with all
laws, ordinances, rules, regulations and orders applicable to the Business, or
Seller's operations, assets or properties in respect
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thereof, the noncompliance with which might materially affect the Business or
the Purchased Assets, consistent with past practices;
(vi) refrain from
(A) directly or indirectly, selling or
encumbering all or any of the Purchased Assets, other than in the ordinary
course of business, 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 Purchased Assets
to any third party other than in the ordinary course of business;
(B) 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;
(C) except with the prior written
consent of Purchaser, which consent shall not be unreasonably withheld,
entering into any agreement, 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;
(D) shall not directly or indirectly,
sell or encumber all or any of the Purchased 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 Purchased Assets to any third party other than in the ordinary course of
business.
(b) 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. Furthermore, Seller shall
cooperate with Purchaser and use its best efforts to cause all of the
conditions to the obligations of Purchaser and Seller under this Agreement to
be satisfied on or prior to the Closing Date.
(c) Seller shall be responsible for providing
continuation coverage and notice under ERISA Section Section 601-609 ("COBRA")
for Seller's employees or consultants that do not accept employment with
Seller. The Parties agree that Seller
shall assume all such responsibility.
(d) Seller agrees 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.
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Section 6.03. COVENANTS OF PURCHASER.
(a) No later than 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, those persons employed in the Business
as of the Closing Date listed on Schedule 6.03 (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; provided, however that
the first 30 days of such employment may be through a temporary agency for
administrative purposes. Seller shall terminate effective as of the Closing
Date all employment or consulting agreements it has with any of Employees.
(b) 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 Purchased Assets
(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) can be conclusively proven to have been known to
Purchaser prior to the execution of the Parties' Letter of Intent, 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 respect hereto; or (iv) is
developed 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(c) 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) 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.
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(b) 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.
(c) 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, that, in the reasonable judgment of Purchaser or Seller could,
directly or indirectly, result in any of the consequences referred to above.
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 by Seller, or waiver by Purchaser (in whole or part), of
each of the following conditions on or prior to the Closing Date:
(a) Seller shall have performed in all material respects
all of its obligations hereunder required to be performed by it prior to the
Closing Date.
(b) The representations and warranties of Seller
contained in this Agreement and in any certificate or other writing delivered
by Seller 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 received a copy of resolutions
duly adopted by the Board of Directors of Seller authorizing and approving the
sale of the Purchased 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.
(d) Purchaser shall have received a certificate from the
Chief Executive Officer of Seller 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. Purchaser hereby
acknowledges that the execution of such certificate shall not create additional
liability for the signatories therein in addition to that which arises out of
the terms of this Agreement.
(e) Doty & Sundheim, counsel for Seller, shall have
delivered to Purchaser a written opinion, dated the Closing Date, in the form
of Exhibit F hereto.
(f) There shall not be a material adverse change in the
business, operations, assets, properties or condition, financial or otherwise,
of the Purchased Assets, whether or not arising in the ordinary course of
business, since the Interim Balance Sheet Date.
(g) Purchaser shall have received the Noncompetition
Agreement signed by David Facciani.
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(h) Purchaser shall have received the Assignment and
Assumption Agreement signed by Seller.
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 such exceptions as would not in the
aggregate reasonably be expected to have a Material Adverse Effect.
(c) 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). 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.
(d) Morrison & Foerster LLP, counsel for Purchaser, shall
have delivered to Seller a written opinion, dated the Closing Date, in the form
of Exhibit G hereto.
(e) Seller shall have received the Security Agreement
signed by Purchaser.
(f) Seller shall have received the Noncompetition
Agreement signed by Purchaser.
(g) Seller shall have received the Consulting Agreement
signed by Purchaser.
(h) Seller shall have received the Assignment and
Assumption Agreement signed by Purchaser.
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 one (1) year after the Closing ("Survival
Period"). 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 the end of the
Survival Period, provided that the Party giving
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notice must commence indemnification or arbitration proceedings within 90 days
of giving notice of the claim.
Section 8.02. INDEMNIFICATION.
(a) Seller hereby indemnifies 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 warranty of Seller, or breach of
covenant or agreement made or to be performed by Seller 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
one (1) year after the Closing.
Seller 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 exceeds $50,000 (the "Floor") and then only to the extent of such
excess up to a total of $550,000 ("Damage Cap"). Notwithstanding the above,
the Damage Cap will not apply in the event that Purchaser incurs or suffers
Damage as a result of the fraudulent acts of Seller and further provided that
the Floor will not apply to Damages with respect to Section 4.29. Further, any
Damages that may be suffered by Purchaser as a result of the fraudulent acts of
Seller or as breach of Section 4.29 will not be subject to or included in the
calculations as to whether Seller has met its obligations under the Damage Cap.
This Article VIII shall serve as Purchaser's sole remedy for any
breach of Seller's covenants, agreements, representations or warranties
contained in Article IV and Sections 6.02(a) and (b).
(b) Purchaser hereby indemnifies Seller and its
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 from and after Closing Date by Seller Indemnities from
liabilities and obligations of Seller which have been specifically assumed by
Purchaser; and (iii) from Claims arising out of or in any manner connected to
the Purchased Assets or Assumed Liabilities that are caused by any actions or
inaction by the Purchaser 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
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<PAGE> 33
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 with Indemnitees' consent,
which shall not be unreasonably withheld, and (iii) to employ counsel to
contest any such claim or liability in the name of the Indemnitee or otherwise.
If the Indemnitee concludes that a potential conflict exists, whether or not
Indemnitor and Indemnitee are both parties, 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 provided that the
Indemnitor has not disputed the amount of or substance of the claim described
in the Indemnity Notice. In the case of a non-third party claim, and subject
to the provisions of Section 8.03(b) hereof, payment of Damages incurred by the
Indemnitee shall be made by the Indemnitor within 10 days after receipt of the
Indemnity Notice by Indemnitor, provided that the Indemnitor has not disputed
the amount of or substance of the claim described in the Indemnity Notice.
(b) If Seller has not disputed the amount or substance of
the claim described in the Indemnity Notice, and as long as the obligations of
Purchaser to make payments to Seller under this Agreement are outstanding, all
payments for Damages may, at the option of Purchaser be satisfied by an offset
against the outstanding obligations, if any, in favor of Seller.
(c) A final determination of the validity of a disputed
claim shall be (i) a judgment of any court determining the validity of a
disputed claim, if no appeal is pending from such judgment and 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 and 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 the validity of such claim signed by all of the parties thereto
or their attorneys, (iv) a written acknowledgment 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 approved by the Parties.
The final determination of the amount of Damages to be indemnified, including
attorney's fees and costs, will be by agreement of the parties or by decision
of the arbitrator under Article XI.
(d) In the event the Indemnitee is covered by insurance
for a loss which is the subject of indemnification, the Indemnitor shall be
entitled to a credit against the Indemnitor's obligation in the amount of the
actual amount of insurance proceeds received by Indemnitee. The
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<PAGE> 34
amount of any such offset shall be remitted to the Indemnitor. Nothing in this
Section 8.03(d)(iv) shall act to delay the payment of Damages hereunder.
Section 8.04. EQUITABLE RELIEF. In the event of a breach or
threatened breach by Seller of Section 9.06 hereof regarding noncompetition and
nonsolicitation, Seller hereby consents and agrees 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
under any such provision, if Purchaser can make a legally sufficient showing of
entitlement thereto, but without the necessity of showing any actual damage or
that money damages would not afford an adequate remedy. Nothing herein shall
be construed as prohibiting or limiting Purchaser from pursuing any other
remedies at law or in equity which it may have. The provisions of this Section
8.04 shall not be deemed to waive any requirement for a bond or other security
nor to constitute an acknowledgment of any requirement for a bond or other
security.
ARTICLE IX
POST CLOSING MATTERS
Section 9.01. DISCHARGE OF PURCHASED ASSETS OBLIGATIONS. From and
after the Closing Date Seller shall pay and discharge, in accordance with past
practice, all obligations and liabilities incurred prior to and on the Closing
Date in respect of the Purchased Assets, 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 Purchased Assets.
Section 9.02. 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 Purchased
Assets prior to the Closing Date. In the event Purchaser exercises its payment
option under Section 2.03(b)(iv), it shall maintain such records until the
eighth anniversary of 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 only to the extent
relating to the Purchased Assets and Product including the location of Product,
the amount of Product manufactured or in use, and other records relating to the
calculation of Gross Income, 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
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<PAGE> 35
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 9.03. 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, whether pursuant to this
Agreement, the Previous Agreement or otherwise, 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
Purchased Assets transferred to Purchaser hereunder.
Section 9.04. USE OF NAME. Within ninety (90) days of the Closing
Date, Seller 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
Nevada 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 9.05. UCC MATTERS. From and after the Closing Date, Seller
will promptly refer all inquiries with respect to ownership of the Purchased
Assets 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 Purchased Assets to Purchaser, including any necessary
assignments of financing statements.
Section 9.06. NON-SOLICITATION; NONCOMPETITION. Seller acknowledges
and recognizes at all times for a period of five years subsequent to the
Closing Date:
(a) That Seller will not 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 Seller as of the Closing Date, 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.
(b) That Seller will not directly or indirectly induce
any employee of the Company or any of its affiliates to engage in any activity
in which Seller is prohibited from engaging by this Section 9.06 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 Seller will not use or permit its or his name to
be used in connection with any business or enterprise engaged in the business
the same as or similar to Seller's Business.
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<PAGE> 36
(d) That Seller will not 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 Seller will not (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 receiving from Seller in
violation of this Agreement and of the rights of Purchaser hereunder, and that
participation by any such third party with Seller in activities in violation of
this Section 9.06 may give rise to claims by Purchaser against such third
party.
The primary purpose of this Section 9.06 is Purchaser's legitimate
interest in protecting its economic welfare and business goodwill. Purchaser
and Seller 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 right to engage in a common calling.
It is expressly understood and agreed that although the Parties
consider the restrictions contained in this Section 9.06 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 9.06
is an unenforceable restriction against Seller, the provisions of this Section
9.06 shall not be rendered void but shall be deemed 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 9.07. THIRD PARTY CONSENTS. To the extent that Seller's
rights under any agreement, contract, commitment, lease, Authorization or other
Purchased 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, shareholders, representatives, employees and agents
against and
30
<PAGE> 37
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 9.07.
Section 9.08. FURTHER ASSURANCES 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.
Section 9.09. CUSTOMER PAYMENTS. All customer payments received by
Purchaser after the Closing Date will be applied first to Seller's account
receivable under the Previous Agreement, regardless of how designated by the
customer, and shall be promptly paid by Purchaser to Seller.
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 July 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. 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(b) and 11.02
shall survive indefinitely any termination hereof pursuant to Section 10.01.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. 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
Purchased Assets in accordance herewith whether imposed by law on Seller or
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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 11.02. EXPENSES. Except as otherwise provided in this
Agreement, Purchaser and Seller 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.
Section 11.03. 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.
Section 11.04. 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 assigns, or successors and assigns of Seller and
Purchaser.
Section 11.05. 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 11.06. 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 by nationally recognized courier or sent via facsimile, or by
registered or certified mail, postage prepaid, as follows:
If to Purchaser, to:
Stuart Entertainment, Inc.
3211 Nebraska Avenue
Council Bluffs, IA 51501
Attention: President
Telephone: (712) 323-1488
Facsimile: (712) 323-3215
With a required copy to:
Morrison & Foerster LLP
370 17th Street
Suite 5200
Denver, CO 80202
Attention: Warren L. Troupe, Esq.
Telephone: (303) 592-1500
Facsimile: (303) 592-1510
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If to Seller, to:
Power Bingo Corporation
4335 South Industrial Road
Suite 430
Las Vegas, Nevada 89103
Attention: President
Telephone: (702) 597-5050
Facsimile: (702) 736-7987
With a required copy to:
David M. Fried
214 Grant Avenue
Suite 400
San Francisco, CA 94108
Telephone: (415) 248-3880
Facsimile: (415) 986-1730
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, upon confirmation of facsimile or five (5) days after
mailing.
Section 11.07. 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 California.
Section 11.08. 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 11.09. 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 11.10. SCHEDULES AND EXHIBITS. All Exhibits and Schedules
referred to herein are intended to be and hereby are specifically made a part
of this Agreement. Disclosure of information by Seller on any one Schedule
shall be deemed full and complete disclosure by Seller of such information on
all other Schedules and Exhibits and for all other purposes under this
Agreement.
Section 11.11. 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
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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 11.12. COUNTERPARTS. Signatures on this Agreement may be
communicated by facsimile transmission and shall be binding upon the parties
transmitting the same by facsimile transmission. Counterparts with original
signatures shall be provided to the other party within five (5) days after the
applicable facsimile transmission, provided, however, that the failure to
provide the original counterpart shall have no effect on the validity or the
binding nature of the Agreement. If executed in counterparts, the Agreement
will be as effective as if simultaneously executed.
Section 11.13. 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.
Section 11.14. 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.
Section 11.15. ARBITRATION. All disputes under this Agreement, shall
be settled by arbitration before a single arbitrator in Los Angeles, California
pursuant to the commercial 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 11.15. The arbitrator shall be
selected by the joint agreement of Seller and Purchaser, as appropriate, 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 or any
defense was substantially unjustified, 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 claim, defense or objection.
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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: /s/ Timothy R. Stuart
-------------------------------------
Timothy R. Stuart, President
SELLER:
POWER BINGO CORP.,
a Nevada corporation
By: /s/ David Facciani
-------------------------------------
David Facciani, President
35
<PAGE> 1
EXHIBIT 20
Press Release dated July 7, 1997
<PAGE> 2
STUART ENTERTAINMENT, INC.
STUART ENTERTAINMENT ACQUIRES POWER BINGO
COUNCIL BLUFFS, Iowa, July 7, 1997 -- Stuart Entertainment, Inc./dba Bingo King
(Nasdaq: STUA) completed the acquisition of substantially all the assets of
Power Bingo Corp., the market leader in handheld electronic bingo units.
"This transaction recognizes the increasingly important role electronic bingo
plays in the bingo industry and for Stuart Entertainment," said Al Barber,
Stuart's vice chairman and chief executive officer. He pointed out that Stuart
also recently reached an agreement to collaborate with Melange Computer
Services Inc. to provide a point-of-sale system for installations of Power
Bingo and Stuart's fixed-based electronic gaming equipment (System 12) in the
Native American casinos in which Melange specializes.
"Electronic bingo represents the next major bingo milestone, and it's certainly
a key avenue of growth for our company. The Power Bingo acquisition and the
collaboration with Melange add value to our electronic line. In addition, with
Power Bingo we are adding a known quantity to our business mix. Both players
and bingo hall operators have given Power Bingo's products an enthusiastic
reception, and we look forward to building on that market acceptance," Barber
said.
Stuart has been distributing a handheld unit called Power Bingo King under a
marketing agreement initiated last year with Nevada- based Power Bingo. "We
have seen firsthand how appealing the electronic product is when it is
integrated with the traditional paper-based game," noted Tim Stuart, president
and chief operating officer. "Bingo halls across North America have installed
more than 15,000 of our units, with California and Oklahoma proving to be
particularly good markets so far. We see significant near-term opportunities
in Florida as well as in Texas and Pennsylvania."
The price of the acquisition will be paid in cash and is currently expected to
be approximately $3.5 million to $4.0 million, depending on the performance of
the units in specified periods following its purchase by Stuart. Power Bingo's
principal owner, David Facciani will become a consultant to Stuart
Entertainment and most of his employees will also be joining Stuart.
"We are excited about the potential for our product and for our role in helping
Stuart achieve its growth strategies," Facciani said. "As the recognized
leader in bingo and bingo-related products, Stuart and its extensive
distribution system offer outstanding opportunities for our product to reach
wider markets and play a major role in how electronics help shape the future of
our industry. We're delighted to add our expertise in this segment of the
bingo business to Stuart's pace-setting activities."
-more-
<PAGE> 3
Electronic components represent an important growth segment for bingo, both to
expand the options for current players and to broaden the game's audience.
Players have responded enthusiastically to the added dimension of allowing up
to 200 electronic game cards alongside their paper game, and bingo hall
operators increasingly depend on electronic components both to attract players
and to help them manage their business. Besides the handheld units, Stuart's
technologically advanced electronic product line includes its fixed-base System
12 technology, which also can be programmed for video keno, slots and poker
where regulations permit.
Stuart Entertainment, Inc. is the world's largest manufacturer of bingo paper,
pulltab tickets 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, Video
King, a major supplier of electronic gaming systems, located in Littleton,
Colorado and Trade Products, a leader in pulltab production, located in
Lynnwood, Washington.
# # #
