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EXHIBIT (6)(4)
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT is made this 31st day of July, 1997, between
GLOBAL ELECTION SYSTEMS, INC., a British Columbia corporation ("Purchaser") and
I-XXXX SYSTEMS, INC., a Nebraska corporation, d/b/a I-XXXX ("Seller").
WHEREAS, Seller has created software programs for use in the election
processing industry (the "Program"), has sourced and assembled certain third
party hardware which together with the Program is known as the Election Precinct
System, and is engaged in the business of licensing the Election Precinct System
for use in connection with governmental elections (the "Business"); and
WHEREAS, Purchaser desires to purchase substantially all of the assets of
Seller and Seller desires to retain the right and license to use the Program as
provided herein.
NOW, THEREFORE, the parties agree as follows:
1. Sale. Seller shall sell the assets of Seller described in this Section
1 (the "Purchased Assets") to Purchaser free and clear of any and all liens,
encumbrances and liabilities, and Purchaser shall purchase the Purchased Assets
from Seller, at Closing. The Purchased Assets are as follows:
(a) The Program, subject to Seller's retained right and license to use
the Program as described in Section 20 of this Agreement.
(b) The equipment and supplies, which are described in Schedule 1,
attached hereto;
(c) All business files, customer lists, customer records and all other
books, files and records, including computer files, relating to the Business and
good will pertaining to or arising out of the Business;
(d) The inventory, if any, associated with the Business ("Inventory")
on the close of business on the day immediately preceding the Closing Date.
Seller shall not be required to have any inventory on hand at the Closing Date
except as required in Schedule 2 attached hereto;
(e) The contracts, licenses, leases, arrangements, and agreements
relating to the Business which are described in Schedule 3 attached hereto
(collectively, the "Contracts"); and
(f) The names "I-Xxxx Systems, Inc." and "I-Xxxx".
Seller retains all right, title and interest in and to all assets of
Seller other than the Purchased Assets.
2. Consideration. Purchaser agrees to pay to Seller, and Seller agrees to
accept from Purchaser, as the entire purchase price for the Purchased Assets and
the noncompetition,
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nonsolicitation, and confidentiality agreements of Seller contained in this
Agreement the following amounts:
(a) One million dollars ($1,000,000.00) cash or its equivalent; and
(b) One million shares of common voting stock of Global Election
Systems, Inc.
3. Payment of Purchase Price. The purchase price for the Purchased Assets
in Section 2 above shall be paid in its entirety at Closing.
4. Allocation of Purchase Price. Purchaser and Seller shall agree on an
allocation of the purchase price among the Purchased Assets within ten (10) days
after the date of Closing.
5. Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall occur as soon as possible after Purchaser receives
Regulatory Approval (as such term is hereinafter defined in this Section 5), but
in no event later than September 1, 1997. Purchaser is, prior to closing,
required to obtain the acceptance of the Toronto Stock Exchange with regard to
notice of this Agreement under Bylaw 19.09 ("Regulatory Approval"). Purchaser
agrees to file with the Toronto Stock Exchange on or before August 5, 1997, all
notices and materials required to obtain the Regulatory Approval, and Purchaser
shall endeavor to obtain the Regulatory Approval as soon thereafter as is
possible. In the event that Regulatory Approval is not obtained by September 1,
1997, this Agreement will terminate and be of no further force and effect.
6. Representations and Warranties of Seller. Seller represents and
warrants to Purchaser, as of the date of this Agreement and as of the Closing
Date, as follows:
(a) Seller is the owner of and has good and marketable title to the
Purchased Assets, free and clear of all debts, liens, security interests, and
encumbrances, except as specifically referred to in Schedule 4, attached, which
encumbrances shall be removed at or prior to Closing;
(b) Seller has not entered into any written vendor or client contracts
relating to the Business which individually have a remaining term of greater
than 90 days or $10,000.00 in obligations, except as specifically referred to in
Schedule 5, attached;
(c) Except as specifically referred to in Schedule 6, attached there
are no (i) actions, suits, claims, investigations or legal administrative or
arbitration proceedings pending or threatened against Seller before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality or (ii) judgments, decrees, injunctions or
orders of any court, governmental department, commission, agency,
instrumentality or arbitrator against Seller or the Purchased Assets;
(d) Seller has timely filed all federal and applicable state and local
tax assessment reports and tax returns of every kind required to be filed by
Seller and has duly paid all taxes and other charges due or claimed to be due by
federal, state or local taxing authorities;
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(e) Seller is a Nebraska corporation, duly organized, validly existing
and in good standing under the laws of its state of incorporation and is duly
qualified to transact business in the State of Nebraska;
(f) Seller has all requisite power and authority to own and operate the
Business as it is currently conducted;
(g) To Seller's knowledge, the Business is not, and has not been,
conducted in violation of any law, ordinance or regulation of any governmental
entity or agency;
(h) To Seller's knowledge, there are no threatened actions,
proceedings, claims, occurrences or developments which could materially
adversely affect the condition (financial or otherwise), assets, liabilities,
business operations, affairs or prospects of the Business;
(i) This Agreement has been duly executed and delivered on behalf of
Seller and constitutes a valid and legally binding agreement enforceable against
Seller in accordance with its terms. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated by this
Agreement have been duly approved by the directors and shareholders of Seller
who are entitled to vote thereon;
(j) Proper and accurate amounts have been withheld by Seller from the
compensation of Seller's employees for all periods in full compliance with the
tax withholding provisions of applicable federal, state and local laws. Proper
and accurate federal, state and local tax returns have been timely filed by
Seller for all periods for which returns were due with respect to employee
income tax and social security withholding and FICA and unemployment taxes, and
the amounts shown thereon to be due and payable have been paid in full. All
payments due from Seller on account of employee health and welfare insurance
have been paid by Seller. Seller will comply with all such withholding and
filing requirements for the period from the date of this Agreement to the
Closing;
(k) Except for Seller's 401(k) Plan, Seller does not maintain or
contribute to any Pension Plan (as defined in Section 3(2) of ERISA or its
successor provisions) or to any Welfare Plan (as defined in Section 3(l) of
ERISA or its successor provisions), nor is Seller presently, nor has it been
within the last six years, a participating employer in any Multiemployer Plan
(as defined in ERISA Section 3(37) or Section 414(f) of the Internal Revenue
Code), affecting, in any case, employees of Seller;
(l) All financial statements which are attached as Schedule 7 delivered
by Seller to Purchaser were prepared on an accrual method of accounting, but
based on historic costs, consistent with past practice, and accurately reflect,
in all material respects, the assets and liabilities, financial condition, and
results of operations of Seller for the periods covered thereby, however, the
book value of the Purchased Assets may be substantially higher than the net
realizable value of the Purchased Assets;
(m) To the best of Seller's knowledge, (i) Seller has all permits,
licenses, franchises and other authorizations necessary to, and has
substantially complied with all laws applicable to, the
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conduct of the Business in the manner in which the Business is currently being
conducted, and all those permits, licenses, franchises and authorizations are
valid and in full force and effect, (ii) Seller has not engaged in any activity
which would cause revocation or suspension of any such permit, license,
franchise or authorization which would result in a material adverse effect on
Seller or operation of the Business, and (iii) Seller has no knowledge of any
action, threat or proceeding looking to or contemplating the revocation or
suspension of any thereof;
(n) To the best of Seller's knowledge, no third party has claimed that
any person employed or affiliated with Seller has violated or may be violating
any conditions of that person's employment, non-competition or non-disclosure
agreement with that third party, or disclosed or may be disclosing or utilized
or may be utilizing any trade secret or proprietary information or documentation
of that third party, or interfered or may be interfering in the employment
relationship between that third party and any of its present or former
employees. Seller has no knowledge that any key employees of Seller intend to
leave or are leaving Seller's employ in order to take part, as an employee or
otherwise, in any business in direct competition with Purchaser;
(o) To the best of Seller's knowledge, the execution and delivery of
this Agreement by Seller does not, and the consummation by Seller of the
transactions contemplated by this Agreement will not: (i) violate any provision
of the Articles of Incorporation or Bylaws of the Seller; (ii) result in any
material breach or acceleration of any material obligation under any instrument,
indenture, note, lien, bond, agreement, contract, mortgage, lease, license or
commitment under which Seller is bound; provided, however, Seller is required to
obtain the consent of Mytec Technologies, Inc. to the assignment of the
Non-Exclusive Reseller Agreement between Seller and Mytec Technologies, Inc. and
Seller shall use its best efforts to obtain such consent prior to Closing; (iii)
require any consent, approval or authorization of any governmental or regulatory
authority; (iv) violate any order, writ, injunction, judgment, decree, statute,
rule or regulation applicable to the Business or any of the Purchased Assets; or
(v) result in the creation or imposition of any lien, charge, restriction, claim
or encumbrance of any nature upon the Purchased Assets or the Business;
(p) Environmental, Health and Safety. To the best of Seller's
knowledge, (i) Seller has complied with all environmental, health and safety
laws, and no action, suit, proceeding, hearing, investigation, charge, complaint
claim, demand or notice has been filed or commenced against it alleging any
failure so to comply; (ii) without limiting the generality of the preceding,
each of Seller and its predecessors and affiliates has obtained and been in
material compliance with all of the terms and conditions of all permits,
licenses and other authorizations which are required under, and has complied
with all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are contained in, all
environmental, health and safety laws; and (iii) none of Seller, its
predecessors and affiliates has any liability for damage to any site, location,
or body of water (surface or subsurface), for any illness of or personal injury
to any employee or other individual or for any reason under any environmental,
health or safety law. To the best of Seller's knowledge, all properties and
equipment used in the Business have been free of asbestos, PCB's, methylene
chloride, 1, 2-trans-dichloroethylene, dioxins, dibenzofurans, and extremely
hazardous substances;
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(q) Product Liability. To the best of Seller's knowledge, Seller has
no material liability arising out of any injury to individuals or property as a
result of the ownership, possession, or use of any product manufactured, sold,
leased, or delivered by Seller;
(r) Liabilities in the Ordinary Course of Business. The liabilities of
Seller assumed by Purchaser and the liabilities to which the Purchased Assets
are subject were incurred by Seller in the ordinary course of business; and
(s) To the best of Seller's knowledge, Seller's development, use, sale
or marketing of the Program does not violate any rights of any other person or
entity and Seller has not received any communication alleging such a violation.
Purchaser acknowledges receipt from Seller of the following patents which were
provided to Seller in connection with a patent search conducted on behalf of the
Seller in June of 1996: Xxxxxxx - 5,412,727; Miyagawa - 5,377,099; Graft III -
5,278,753; Xxxxxxx - 4,764,120; Xxxxx - 4,641,240; Xxxx - 4,578,572; Grace -
4,373,134; Xxxxxxxx - 5,400,248; Xxxxxx - 5,379,212; Xxxx - 4,774,665; Grace -
4,373,134; Wise - 5,218,528; Anno - 5,189,288; Moldovan, Jr. - 4,010,353; Xxxxx
- 3,779,453; and Xxxxxxx - 3,772,793. Seller makes no representation or warranty
regarding the accuracy or completeness of such patent search or that the Program
does not violate any of such patents.
EXCEPT AS PROVIDED IN THIS SECTION 6, SELLER SPECIFICALLY DISCLAIMS ALL
WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. SELLER FURTHER MAKES NO
WARRANTIES, REPRESENTATIONS, CONDITIONS OR GUARANTIES, EXCEPT AS SET FORTH IN
THIS AGREEMENT.
7. Covenants of Seller. Seller covenants and agrees with Purchaser as
follows:
(a) Subject to the terms of the Confidentiality Agreement between
Purchaser and Seller dated December 9, 1996, which Confidentiality Agreement is
hereby incorporated herein by this reference and shall remain in full force and
effect until Closing, Purchaser's counsel, accountants and other representatives
shall have full access during normal business hours from the date of this
Agreement to the Closing to all of the properties, books, contracts, commitments
and records of Seller relating to the Business, and Seller will furnish to
Purchaser during such period all such documents, copies of documents (certified
if required) and information concerning the Business as Purchaser reasonably may
request;
(b) Purchaser's representatives shall during normal business hours from
the date of this Agreement until Closing be entitled to interview any employees
of Seller to discuss potential terms of employment with Purchaser and about the
Business; and
(c) Seller will use its best efforts, until the Closing, to conduct the
Business in a good and prudent manner and only in the ordinary course of
business for purposes of maintaining Seller's Business organization, including
the preservation of the good will of customers and others having business
relations with the Business; provided that Seller shall not be responsible for
any of the acts or omissions of any of the employees of Seller who are hired by
Purchaser prior to the Closing
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pursuant to Section 32 of this Agreement or for any changes in the Business
which result from any of such acts or omissions.
8. Representations and Warranties of Purchaser. Purchaser represents and
warrants to Seller as of the date of this Agreement and as of the Closing Date
as follows:
(a) Purchaser is a British Columbia corporation, duly organized,
validly existing in good standing under the laws of its province of
incorporation;
(b) This Agreement has been duly executed and delivered on behalf of
Purchaser and constitutes a valid and legally binding agreement enforceable
against Purchaser in accordance with its terms. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly approved by its Board of
Directors, and no further corporate action is necessary on the part of Purchaser
to make this Agreement valid and binding on Purchaser in accordance with its
terms;
(c) To the best of Purchaser's knowledge, the execution of this
Agreement does not violate any federal, state, local, or provincial laws or
regulations or violate any provision of or result in the breach of any Agreement
to which Purchaser is a party or by which Purchaser may be bound, or any order,
judgment or decree applicable to Purchaser;
(d) Purchaser acknowledges that (i) the purchase of the Purchased
Assets is based solely upon Purchaser's own inspection and determination as to
the uniqueness and proprietary rights that exist in the Program; (ii) except as
to the express representations and warranties made by Seller in this Agreement,
Purchaser has not relied upon any representations or warranties, express or
implied, that Seller, its employees, agents or representatives may have made;
and (iii) Purchaser is purchasing the Purchased Assets AS IS, WHERE IS, AND WITH
ALL FAULTS;
(e) Purchaser has furnished to Seller copies of the financial
statements of Purchaser included on Schedule 9, attached, (the "Purchaser's
Financial Statements"). The Purchaser's Financial Statements are complete and
correct, have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the respective periods and
fairly present the financial condition of Purchaser as of the respective dates
thereof and the results of operations of Purchaser for the respective periods
covered by the statements of income contained therein;
(f) The shares of Purchaser's common stock to be delivered to Seller by
Purchaser at Closing will be duly authorized, validly issued and outstanding,
fully paid, nonassessable and free and clear of all pledges, liens, encumbrances
and restrictions, except as provided under applicable securities laws, if any.
The certificates representing such shares to be delivered by Purchaser hereunder
will be genuine, and Purchaser has no knowledge of any fact which would impair
the validity thereof;
(g) Except as set forth on Schedule 10, attached, no consent,
authorization, approval, permit or order of or filing with any governmental or
regulatory authority is required under current laws and regulations in
connection with (i) the execution and delivery of this Agreement, or (ii) the
issuance or delivery by Purchaser to Seller of the shares of Purchaser's
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common stock to be delivered pursuant to this Agreement at Closing. The offer,
sale, and issuance to Seller by Purchaser of the Purchaser's common stock to be
delivered pursuant to this Agreement constitute, and will at the Closing
constitute, transactions exempt from the registration and prospectus delivery
requirements of Section 5 of the Securities Act of 1933, as amended (the
"Securities Act") and, subject to the filing of the required notice on Form 20,
the issuance of the shares by Purchaser to Seller will be exempt from the
prospectus requirement of the Securities Act (B.C.) and Purchaser shall have
obtained (or is exempt from the requirement to obtain) all qualifications,
permits, approvals, and other consents required by all applicable state and
provincial laws in Canada governing the offer, sale and issuance of Purchaser's
common stock;
(h) The authorized capital stock of Purchaser consists of 20,000,000
shares of Convertible Voting Preferred Stock, none of which is outstanding, '
and 100,000,000 voting shares of common stock, 14,689,440 shares of which are
issued and outstanding and are duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in Schedule 11, attached, (i) there are no
outstanding subscriptions, options, warrants, calls, contracts, demands,
commitments, convertible securities, or other agreements or arrangements of any
character or nature whatever under which Purchaser is or may be obligated to
issue capital stock or other securities of any kind representing an ownership
interest or contingent ownership interest in Purchaser; (ii) there exist no
voting agreements, registration rights, proxies or repurchase obligations with
respect to the capital stock of Purchaser; (iii) neither the offer nor the
issuance or sale of the Purchaser's common stock to Seller pursuant to this
Agreement does or will constitute an event, under any anti-dilution provisions
of any securities issued or issuable by Purchaser or any agreements with respect
to the issuance of securities by Purchaser, which will either increase the
number of shares issuable pursuant to such provisions or decrease the
consideration per share to be received by Purchaser pursuant to such provisions;
and (iv) no holder of any security of Purchaser is entitled to any preemptive or
similar rights to purchase securities from Purchaser. All outstanding securities
of Purchaser have been issued: (1) in full compliance with the registration and
prospectus delivery requirements of the applicable federal securities statutes
and regulations in the United States and the applicable provincial securities
statutes and regulations in Canada and from the registration and qualification
requirements of all applicable state and provincial securities laws; and (2) in
full compliance with applicable exemptions to such federal, state and provincial
securities laws. Purchaser has filed, or will timely file, all necessary
disclosure documents and reports in connection with its securities and all such
documents and reports contain no untrue statement of material fact or omit to
state a material fact and there has been no material adverse change in the
condition of Purchaser's business since the date its last continuous disclosure
documents were filed; and
(i) The shares of Purchaser's common stock which will be issued to
Seller pursuant to this Agreement shall, at the time of issuance to Seller, be
listed on the Toronto Stock Exchange and, subject to a maximum twelve (12) month
holding period, shall be freely tradeable by Seller on the Toronto Stock
Exchange without any other resale restrictions. Purchaser states that there is
no United States market for the shares and none may develop and Purchaser is
under no obligation to cause a U.S. market to develop. Purchaser covenants that
during such twelve (12) month holding period it shall continue in a timely
fashion to file with the appropriate securities regulatory authorities in
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the Provinces of Canada where Purchaser is a reporting issuer, all continuous
disclosure documents required to be filed.
9. Absence of Brokers. Purchaser and Seller represent to each other that
neither of them have retained or incurred any liability to any other person,
firm or organization for a broker's, finder's or agents fee for services
rendered in connection with the transaction contemplated by this Agreement.
Purchaser agrees to indemnify Seller against and to hold Seller harmless from
any claim made by any person, firm or organization claiming to have been
employed by Purchaser as a broker, finder or agent in connection with the
transaction contemplated by this Agreement. Seller agrees to indemnify Purchaser
against and to hold Purchaser harmless from any claim made by any person, firm
or organization claiming to have been employed by Seller as a broker, finder or
agent in connection with the transaction contemplated by this Agreement.
10. Conditions to Closing.
(a) The obligations of Purchaser under this Agreement are, at the
option of Purchaser, subject to the satisfaction, at or prior to the Closing, of
the following conditions:
(i) All necessary documents and instruments to be delivered to
Purchaser in accordance with the provisions of this Agreement shall have been
delivered to Purchaser;
(ii) The representations and warranties of Seller made in this
Agreement, the Schedules and Exhibits hereto, or in any document or certificate
delivered to Purchaser pursuant to this Agreement, shall be true and correct in
all material respects at the time of the Closing with the same force and effect
as though such representations and warranties were made at the time of the
Closing;
(iii) Seller shall have performed and complied with all agreements,
covenants and conditions on its part required to be performed or complied with
under this Agreement at or prior to the Closing, including, without limitation,
Section 7(c);
(iv) Seller shall have delivered to Purchaser (i) certified copies
of resolutions of the Board of Directors and Shareholders of Seller entitled to
vote thereon approving the transaction contemplated by this Agreement; and (ii)
a certificate from the Nebraska Secretary of State confirming that Seller is in
good standing in the State of Nebraska.
(v) Purchaser shall have entered into an employment agreement
generally on the terms set forth on Exhibit A, attached, with Xxxxxx Xxxxxxxxx.
(b) The obligations of Seller under this Agreement are, at the option
of Seller, subject to the satisfaction, at or prior to the Closing, of the
following conditions:
(i) All necessary documents and instruments to be delivered to
Seller in accordance with the provisions of this Agreement shall have been
delivered to Seller;
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(ii) The representations and warranties of Purchaser made in this
Agreement, the Schedules and Exhibits hereto, or in any document or certificate
delivered to Seller pursuant to this Agreement, shall be true and correct in all
material respects at the time of the Closing with the same force and effect as
though such representations and warranties were made at the time of the Closing.
(iii) Purchaser shall have performed and complied with all
agreements, covenants and conditions on its part required to be performed or
complied with under this Agreement at or prior to the Closing;
(iv) There shall have been no changes, other than changes in the
ordinary course of business, which in the aggregate have had or may have a
materially adverse effect on the operations of Purchaser's business; and
(v) Purchaser shall have delivered to Seller (i) certified copies
of resolutions of the board of Directors of Purchaser approving the transaction
contemplated by this Agreement; and (ii) a certificate from the appropriate
authority confirming that Purchaser is in good standing in the Province of
British Columbia, Canada.
11. Closing Requirements. At the Closing, in addition to any other
documents specifically required to be delivered to Purchaser by Seller pursuant
to this Agreement, Seller also shall deliver to Purchaser a xxxx of sale in a
form reasonably acceptable to Purchaser and Seller, with warranties of
unencumbered title, conveying and transferring to Purchaser the Purchased
Assets.
12. Additional Actions. After the Closing, Seller agrees from time to time
to take such actions and to execute and deliver such documents as may be
reasonably necessary or advisable to confirm the title of Purchaser to any of
the Purchased Assets being acquired by Purchaser from Seller pursuant to this
Agreement. After the Closing, Purchaser agrees from time to time to take such
actions and to execute and deliver such documents as may be reasonably necessary
or advisable to confirm the title of Seller to Purchaser's common stock being
acquired by Seller from Purchaser pursuant to this Agreement and to confirm the
retained rights of Seller in the Program as described in Section 20 of this
Agreement.
13. Indemnification.
(a) Seller agrees to indemnify and hold harmless Purchaser against any
loss, damage or expense (including but not limited to reasonable attorneys'
fees) ("Losses") incurred or sustained by Purchaser as a result of (i) any and
all claims of whatever nature relating to or arising out of Seller's operation
of the Business prior to the Closing, including but not limited to any unpaid
obligations of Seller for such period, but excluding any claims relating to or
arising out of any acts or omissions of the employees of Seller who are hired by
Purchaser pursuant to Section 32 of this Agreement which occur on or after
August 1, 1997; (ii) any breach of this Agreement by Seller; (iii) any material
inaccuracy in or breach of any of the representations or warranties made by
Seller in this Agreement; and (iv) any material inaccuracy or misrepresentation
in any certificate or other document or material instrument delivered by Seller
in accordance with any provision of this Agreement.
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(b) Purchaser agrees to indemnify and hold harmless Seller against
any Losses incurred or sustained by Seller as a result of (i) any and all claims
of whatever nature relating to or arising out of (1) Purchaser's operation of
the Business after the Closing or (2) any acts or omissions of Seller's
employees who are hired by Purchaser pursuant to Section 32 of this Agreement
which occur after August 1, 1997; (ii) any breach of this Agreement by
Purchaser; (iii) any material inaccuracy in or breach of any of the
representations or warranties made by Purchaser in this Agreement; and (iv) any
material inaccuracy or misrepresentation in any certificate or other document or
material instrument delivered by Purchaser in accordance with any provision of
this Agreement.
(c) Notwithstanding any other provision of this Agreement to the
contrary: (i) in no event shall Losses include a party's incidental, punitive or
consequential damages; (ii) no claim for indemnification shall be made against
Seller for any breach of any representation, warranty, covenant or agreement
made by Seller in this Agreement other than the covenant of Seller made in
Section 17 of this Agreement, unless and until the aggregate Losses exceed
$25,000 (the "Deductible"), in which event Purchaser may claim indemnification
for the amount of such Losses in excess of the Deductible; and (iii) the maximum
aggregate amount recoverable from Seller for indemnification pursuant to this
Section 13 is $250,000; provided, however, the foregoing maximum amount shall
not apply with respect to claims arising out of a breach by Seller of the
covenant of Seller made in Section 17 of this Agreement.
(d) If any warranty or representation in this Agreement is found within
twelve months of Closing to be untrue or inaccurate, the party desiring to make
a claim for damages resulting from such breach may do so by delivering to the
breaching party express written notice of the details of such breach and the
intent to make a claim, such notice to be received by the breaching party no
later than twelve months following the date of the Closing. Time is of the
essence for the purpose of this paragraph. The party to whom such a
representation has been made shall request an arbitration conducted under the
rules of the American Arbitration Association (each party to select one
arbitrator and the third arbitrator to be selected by the other two). The
results of the arbitration shall be binding upon all parties. The prevailing
party in such arbitration shall be entitled to recover its costs, including
reasonable attorneys' fees, incurred in the arbitration proceeding from the
non-prevailing party, and an award of such costs and expenses shall be included
in the final judgment entered in the arbitration.
(e) The indemnification obligations set forth in this Section 13 shall
be the sole and exclusive remedy of any party against the other for recovery of
any Losses arising out of, resulting from, or relating to any breach of any
representation, warranty, covenant or agreement contained in this Agreement with
the exception of the covenant of Seller contained in Section 17 of this
Agreement.
14. Risk of Loss. Seller assumes all risk of loss due to fire or other
casualty up to the time of Closing.
15. Liabilities.
(a) Purchaser, as of the date of Closing, expressly assumes and
unconditionally agrees to pay, perform or otherwise discharge as the same shall
become due in accordance with their
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respective terms, any and all liabilities, obligations and commitments of Seller
arising out of the Contracts, but not including any liability, obligation or
commitment of Seller for any breach thereof by Seller occurring prior to the
date of Closing (the "Assumed Liabilities"). Purchaser further agrees to
reimburse Seller for the prepaid expenses of Seller relating to the Business
which are listed on the attached Schedule 12.
(b) Purchaser, except for the Assumed Liabilities, is not assuming and
shall have no responsibility for any debts, obligations or liabilities of
Seller, the responsibility of which shall remain and be discharged by Seller as
they become due. Seller, agrees to indemnify and to hold Purchaser harmless from
any cost or expense arising by reason of Seller's nonpayment of any such debts,
obligations or liabilities. Unless included in the Assumed Liabilities, such
debts, obligations and liabilities shall include, without limitation, the
following:
(i) Any liabilities of Seller relating to current or former
employees of Seller, including but not limited to liability for salary,
severance pay, incentive compensation, stock options or other employee benefits;
(ii) All tax liabilities of any kind which accrued prior to
Closing;
(iii) Any liabilities for claims or adjustments relating to
customer xxxxxxxx, customer warranties or guarantees or payments, which accrued
prior to Closing; and
(iv) Any liabilities arising out of any litigation,
administrative proceeding, arbitration, or other actions for damages which the
basis for such action arose prior to Closing.
16. Taxes. Personal property taxes, if any, with respect to the Business
assets being sold by Seller to Purchaser shall be paid by Purchaser. All sales,
transfer or other taxes, if any, on this transaction are the responsibility of
Purchaser and Seller equally.
17. Covenant Not to Compete. Seller acknowledges that Seller has operated
the Business throughout the Western Hemisphere and that the trade area of the
Business has been the entire Western Hemisphere. Seller agrees that for a period
of sixty (60) months after the Closing Date, within the entire Western
Hemisphere, Seller will not, directly, perform any service for or own any
interest in any election business (whether freestanding or a part of another
business) or manage, work for or consult with any election business nor sell nor
license any election software programs to any election business in competition
with Purchaser during the period of restriction. Purchaser acknowledges that
Seller may create certain software programs which have universal applications,
including the adaptation of the software to the election business. Seller is not
prohibited from licensing such software to governmental institutions who may use
the software in connection with electronic voting systems, provided Seller does
not obtain the certification of the software for such purposes. In the event
Seller breaches any of the covenants contained in this Section, Purchaser shall
be authorized and entitled to seek from any court of competent jurisdiction (1)
a temporary restraining order, (2) preliminary and permanent injunctive relief
(3) an equitable accounting of all profits or benefits arising out of such
breach, and (4) direct, incidental and consequential damages arising from such
breach. Such rights and remedies shall be cumulative and in addition to any
other rights or remedies to which
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Purchaser may be entitled. Any monetary damages shall not be limited to the
amount of consideration paid by Purchaser for the covenant not to compete.
Purchaser's rights under this Section and Sections 18 and 19 of this Agreement
shall not be exclusive, but shall be in addition to any other rights to which
Purchaser may be entitled. If any provisions of this Section relating to the
time period, activity and/or area of restriction shall be declared by a court of
competent jurisdiction to exceed the maximum time periods, activities or areas
which such court deems reasonable and enforceable, then such time period,
activity and/or area of restriction shall be deemed to become and thereafter be
the maximum time period, activity and/or area which such court deems reasonable
and enforceable.
18. Confidential Information. Seller agrees that all of the Business
files, customer lists and records and all other books, files and records are
confidential information and Seller shall treat all such confidential
information as confidential and secret and shall use their best efforts to
protect the secrecy of such confidential information. It is acknowledged by
Purchaser that Seller has informed Purchaser that it has disclosed much of its
confidential information regarding the election business to Computing Devices
Canada, Ltd., under a confidentiality agreement in the form attached hereto as
Exhibit B, and to American Information Systems, Inc., under a confidentiality
agreement in the form attached hereto as Exhibit C. Seller will not, directly or
indirectly, from date hereof disclose any confidential information to others
without the prior written consent of Purchaser. Seller further agrees not to
use, directly or indirectly any confidential information for the benefit of
Seller or any other party. The provisions of this Section shall not be
applicable to (i) information which is a matter of public knowledge, (ii)
information which, after disclosure, becomes public knowledge other than through
a breach of this Agreement or of any other confidentiality or trade secret
agreement or through a violation of any confidential relationship between
Purchaser and any third party, and (iii) information which Seller can prove was
subsequently lawfully obtained by a third party or parties or was independently
developed by a third party or parties.
19. Solicitation of Seller's Employees. For a period of thirty-six (36)
months after the Closing, Seller agrees that Seller will not, directly or
indirectly, employ, solicit for employment, or advise or recommend to any other
person or entity that such other person or entity employ or solicit for
employment, any person employed by Purchaser who within ninety (90) days prior
to the closing Date had been employed by Seller.
20. Reservation of Rights in Program. Seller hereby reserves and retains
the perpetual, irrevocable, indefeasible, non-terminable, non-exclusive,
worldwide, assignable, royalty-free right and license to (i) use, execute,
reproduce, display, perform, sublicense, distribute copies of and prepare
derivative works based upon the Program, and (ii) authorize others to do any or
all of the forgoing; provided, however, Seller agrees that Seller will not, at
any time while Seller is subject to the non-competition agreement of Seller set
forth in Section 17 of this Agreement, use or directly market, license or
sublicense the Program for use in connection with (a) the election industry,
including election administration, ballot design, communication interfaces,
report functions, petitioning, tabulation, and internet voting and other remote
voter tabulation, including home computer, television and military voting or (b)
applications which utilize smart card technology to store any of the following:
voter registration information, standard driver's license information, driving
records, registration or welfare information. Purchaser agrees that Seller shall
own all derivative works, modifications, and enhancements to the Program which
are
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generated, produced or developed by Seller or Seller's employees, agents or
consultants and Seller shall be entitled to obtain and hold in its own name all
copyrights and other intellectual property rights in respect of such derivative
works, modifications, and enhancements including without limitation, all rights
under patent, trade secret and trademark laws.
21. Piggyback Registration. If Purchaser files a registration statement
(other than on Form X-0, Xxxx X-0 or other form not permitting "piggyback" of
shares, and any successor forms) with the SEC while any Registerable Securities
are held by Holders under this Agreement, Purchaser will give all of the then
Holders of Registerable Securities ("Eligible Holders") at least 20 days' prior
written notice of the filing of the registration statement. If requested in
writing by Eligible Holders holding not less than a majority of the Registerable
Securities within 15 days after the mailing of such notice by first-class mail,
postage pre-paid, to the record address of such Eligible Holder, Purchaser will,
one time only, at Purchaser's sole expense (other than the fees of legal counsel
to the Eligible Holders and underwriting discounts applicable to any
Registerable Securities sold), register or qualify all or, at each Eligible
Holder's option, any portion of the Registerable Securities requested by an
Eligible Holder with the registration of the other Purchaser securities being
registered and use its best efforts to cause all such Registerable Securities to
be listed on each securities exchange or over-the-counter market on which
similar securities issued by the Purchaser are then listed and file all required
listing applications and pay all required fees in connection with such listing.
However, if the underwriter of such an offering reasonably determines that
inclusion of the Registerable Securities or any part of them in the proposed
offering is detrimental to the offering, and so advises the Eligible Holders,
the Registerable Securities will not be registered and the Eligible Holders will
be deemed not to have been given notice under this paragraph. To the extent that
the underwriter agrees to include only part of the Registerable Securities,
those Registerable Securities must be allocated on a pro rata basis among the
Eligible Holders on the basis of the number of shares of Registerable Securities
requested to be included in such offering by the Eligible Holders, and the
balance of the Registerable Securities not registered because of the
underwriters' decision will be eligible for one additional piggyback right. The
rights granted to a Holder under this Section 21 to cause Purchaser to register
shares may be transferred or assigned by such Holder to a transferee or assignee
in connection with any transfer or assignment of Registerable Securities,
provided that such transfer or assignment may otherwise be effected in
accordance with applicable securities laws, and prompt written notice of such
transfer or assignment is given to Purchaser. For purposes of this Section 21,
the following terms shall have the following respective meanings:
(a) "Holder" means Seller and any person beneficially owning
Registerable Securities through permitted assignment thereof in
accordance with this Section 21.
(b) "Registerable Securities" means the shares of Purchaser's common
stock which are issued to Seller pursuant to this Agreement and
any shares of Purchaser's common stock issued as a dividend or
other distribution with respect to, or in exchange for or in
replacement of such shares; provided that shares which would
otherwise constitute Registerable Securities shall cease to do so
once they have been sold to the public.
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(c) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration
statement in compliance with the Securities Act of 1933, as
amended, and the declaration or ordering of effectiveness of such
registration statement.
22. Binding Effect. Subject to the terms, provisions, and conditions
hereof, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, successors
and assigns.
23. Notices. Any notice, request, instruction or other document to be
given hereunder to any party shall be in writing, delivered personally, or sent
by registered, certified, overnight or express mail, postage prepaid, as
follows:
Seller: Purchaser:
I-Xxxx Systems, Inc. Global Election Systems, Inc.
0000 X. Xxxxx Xxxx 0000 Xxxxxx Xxxx XX
Xxxxx 000 Xxxxx 000
Xxxxx XX 00000 Xxxxxxxxxxx XX 00000
Attn: Xxxxxx X. Xxxx Attn: Xxxxxx X. Xxx Xxxx, Pres.
Either party may change its address for purposes of this Section by giving
notice to the other in the manner provided herein.
24. Survival. All representations, warranties and covenants made by either
party hereto shall survive the Closing for a period of twelve (12) months after
the Closing except for those set forth in Section 17, which shall survive for a
period of sixty (60) months after the Closing, Sections 18 and 19 which shall
survive for a period of thirty-six (36) months after the Closing, and Section 21
which shall survive until the obligations thereof have been fully satisfied.
25. Entire Agreement. This instrument contains the entire agreement
between the parties with respect to the transactions contemplated hereby and
shall not be changed or terminated except by a written instrument signed by the
parties hereto.
26. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, then the remaining provisions of this
Agreement shall continue in full force and effect and shall be enforceable to
the fullest extend permitted by law.
27. Multiple Counterparts. This Agreement may be executed in any number of
counterparts and all of these counterparts together shall constitute one and the
same Agreement.
28. Additional Provisions. The additional provisions contained in the
Schedules and Exhibits which are attached hereto are by this reference
incorporated herein.
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29. Governing Law. This Agreement shall be governed by the substantive
laws of the State of New Mexico.
30. Expenses of Transaction. Each party to this Agreement shall be
responsible for all legal and accounting expenses incurred by such party in
connection with the transaction set forth in this Agreement.
31. Resale. The Seller understands and acknowledges that the shares
issuable pursuant to Paragraph 2(b) of this Agreement will be subject to certain
resale restrictions under applicable securities legislation and that the
certificates representing such shares will bear the following legends:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING
OF RULE 144A UNDER THE SECURITIES ACT IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE
WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT OR (3) PURSUANT TO
AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES
ACT (IF AVAILABLE) AND (B) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES. DELIVERY OF THIS CERTIFICATE MAY
NOT CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON STOCK
EXCHANGES IN CANADA. NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH
WILL CONSTITUTE "GOOD DELIVERY", MAY BE OBTAINED FROM MONTREAL TRUST
COMPANY OR CANADA UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED
DECLARATION, IN A FORM SATISFACTORY TO MONTREAL TRUST COMPANY OF CANADA,
TO THE EFFECT THAT THE SALE OF THIS SECURITY IS BEING MADE IN COMPLIANCE
WITH RULE 904 OF REGULATION S."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE LISTED ON THE TORONTO
STOCK EXCHANGE; HOWEVER, THE SAID SECURITIES CANNOT BE TRADED THROUGH THE
FACILITIES OF SUCH EXCHANGE SINCE THEY ARE NOT FREELY TRANSFERABLE, AND
CONSEQUENTLY ANY CERTIFICATE REPRESENTING SUCH SECURITIES IS NOT "GOOD
DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON THE TORONTO STOCK EXCHANGE."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A HOLD
PERIOD WHICH EXPIRES AT MIDNIGHT ON THE ____ DAY OF ____, 1998 AND MAY NOT
BE TRADED IN BRITISH COLUMBIA AND ONTARIO UNTIL THE EXPIRY OF THE HOLD
PERIOD EXCEPT AS
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PERMITTED BY THE SECURITIES ACT (BRITISH COLUMBIA), THE SECURITIES ACT
(ONTARIO) AND THE RULES AND REGULATIONS MADE THEREUNDER."
The Seller also acknowledges that It has been advised to consult its own legal
advisors with respect to applicable resale restrictions. The Seller further
understand and acknowledges that there is no United States market for the shares
of the Purchaser and none may develop and the Purchaser is under no obligation
to cause a United States market to develop. Purchaser acknowledges that Seller
intends to distribute the shares of Purchaser's common stock received by Seller
pursuant to this Agreement to its shareholders and Purchaser agrees to cooperate
with Seller in accomplishing such transfer provided that such transfer is
accomplished in compliance with applicable securities laws.
32. Seller's Employees. Effective at 12:01 a.m. on August 1, 1997, the
employees of Seller listed on Schedule 8 attached shall become employees of
Purchaser and will be terminated as employees of Seller. Purchaser, however,
shall, until the Closing, cause such employees to perform for Seller's benefit,
but at no cost to Seller, all of the duties ordinarily performed by such
employees while they were employed by Seller so that the Business can continue
to be operated in the ordinary course. Purchaser acknowledges even though
Purchaser is hiring the employees of Seller prior to the Closing, title to the
Purchased Assets does not transfer to Purchaser pursuant to this Agreement until
the Closing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SELLER: PURCHASER:
I-XXXX SYSTEMS, INC., GLOBAL ELECTION SYSTEMS, INC.,
a Nebraska corporation a British Columbia corporation
By: By: /s/ XXXXXX X. XXX XXXX
-------------------------- --------------------------------
Title: Title: PRESIDENT
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