AGREEMENT AND PLAN OF MERGER
AMONG
COMPU-XXXX, INC.
RUGBY ACQUISITION CORP.
RUGBY NATIONAL CORP.
AND
XXXXXX XXXXXXXXX
As of April 22, 1998
TABLE OF CONTENTS
Page
RECITALS:..........................................................................................................
ARTICLE I
DEFINED TERMS; SCHEDULES..................................................................................
1.1 Defined Terms....................................................................................
1.2 Schedules........................................................................................
ARTICLE II
MERGER.............................................................................................................
2.1 Merger and Surviving Corporations .......................................................................
2.2 Effectiveness of Merger...................................................................................
2.3 Shares of the Constituent and Surviving Corporation.......................................................
2.4 Effect of Merger..........................................................................................
2.5 Further Assurances...............................................................................
2.6 Directors of Surviving Corporation ..............................................................
2.7 Officers of Surviving Corporation ........................................................................
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RUGBY AND
THE RUGBY SHAREHOLDER..............................................................................................
3.1 Valid Existence; Qualification; Lottery Business..........................................................
3.2 Capitalization; Subsidiaries; Affiliated Entities.........................................................
3.3 Consents .................................................................................................
3.4 Authority; Binding Nature of Agreement...........................................................
3.5 Financial Statements.............................................................................
3.6 Liabilities......................................................................................
3.7 Actions Since the Balance Sheet Date.............................................................
3.8 Adverse Developments.............................................................................
3.9 Taxes............................................................................................
3.10 Ownership of Assets; Interest in Assets..........................................................
3.11 Insurance........................................................................................
3.12 Litigation; Compliance with Law..................................................................
3.13 Real Property....................................................................................
3.14 Agreements and Obligations; Performance..........................................................
3.15 Condition of Assets..............................................................................
3.16 Permits and Licenses.............................................................................
3.17 Occupational Heath and Safety and Environmental Matters..........................................
3.18 Intellectual Property............................................................................
3.19 Compensation Information.........................................................................
3.20 Employee Benefit Plans...........................................................................
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3.21 No Breach........................................................................................
3.22 Brokers..........................................................................................
3.23 Employment Relations.............................................................................
3.24 Prior Names and Addresses........................................................................
3.25 Payments.........................................................................................
3.26 Books and Records................................................................................
3.27 Recitals.........................................................................................
3.28 Proxy Statement..................................................................................
3.29 [Intentionally Omitted]..........................................................................
3.30 Projections......................................................................................
3.31 Untrue or Omitted Facts..........................................................................
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPU-XXXX AND RAC...............................................................
4.1 Valid Existence; Qualification...................................................................
4.2 Capitalization...................................................................................
4.3 Consents.........................................................................................
4.4 Corporate Authority; Binding Nature of Agreement.................................................
4.5 SEC Reports......................................................................................
4.6 Financial Statements............................................................................
4.7 Liabilities.....................................................................................
4.8 Actions Since the Balance Sheet Date............................................................
4.9 Adverse Developments............................................................................
4.10 Taxes ......................................................................................
4.11 Ownership of Assets.............................................................................
4.12 Insurance.......................................................................................
4.13 Litigation; Compliance with Law.................................................................
4.14 Real Property...................................................................................
4.15 Agreements and Obligations; Performance.........................................................
4.16 Occupational Health and Safety and Environmental Matters........................................
4.17 Intellectual Property...........................................................................
4.18 Compensation Information........................................................................
4.19 Employee Benefit Plans...........................................................................
4.20 No Breach........................................................................................
4.21 Brokers..........................................................................................
4.22 Employment Relations............................................................................
4.23 Prior Names and Addresses.......................................................................
4.24 Payments........................................................................................
4.25 Books and Records...............................................................................
4.26 Untrue of Omitted Facts.........................................................................
ARTICLE V
PRE-CLOSING COVENANTS..............................................................................................
5.1 Rugby and Rugby Shareholder Covenants............................................................
5.2 Compu-XXXX Covenants.............................................................................
ARTICLE VI
ACQUISITION OF SHARES.............................................................................................
6.1 Investment Intent; Qualification as Purchaser....................................................
6.2 Restrictive Legend...............................................................................
6.3 Certain Risk Factors.............................................................................
ARTICLE VII
CONDITIONS PRECEDENT TO THE
OBLIGATION OF COMPU-XXXX AND RAC TO CLOSE..........................................................................
7.1 Representations and Warranties...................................................................
7.2 Covenants........................................................................................
7.3 Certificate......................................................................................
7.4 Stockholder Approval.............................................................................
7.5 Rugby and Press-Loto Financial Statements........................................................
7.6 Employment Agreement.............................................................................
7.7 Restrictive Covenant Agreement...................................................................
7.8 Fairness Opinion.................................................................................
7.9 "Cold Comfort" Letter............................................................................
7.10 Opinion..........................................................................................
7.11 Escrow Agreement................................................................................
7.12 Loan Agreement...................................................................................
7.13 Satisfactory Due Diligence.......................................................................
7.14 Lottery License .................................................................................
7.15 Press-Loto.......................................................................................
7.16 Material Contracts ..............................................................................
7.17 Election of Xxxx Xxxxxxxxxx as Director and Officer of Rugby.....................................
7.18 Section 4(2) and Regulation D Compliance ........................................................
7.19 No Actions.......................................................................................
7.20 Consent; Permits.................................................................................
7.21 Corporate Actions................................................................................
7.22 Additional Documents.............................................................................
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATION OF RUGBY AND
THE RUGBY SHAREHOLDER TO CLOSE.....................................................................................
8.1 Representations and Warranties...................................................................
8.2 Covenants........................................................................................
8.3 Certificate......................................................................................
8.4 Employment Agreement.............................................................................
8.5 Size of Board; Election of Directors.............................................................
8.6 Resignation of Directors; Divestment of Xxxx X. Xxx..............................................
8.7 No Actions.......................................................................................
8.8 Consents; Permits................................................................................
8.9 Corporate Actions................................................................................
8.10 Additional Documents.............................................................................
ARTICLE IX
TERMINATION AND WAIVER; LIQUIDATED DAMAGES.........................................................................
9.1 Termination......................................................................................
9.2 Waiver...........................................................................................
9.3 Liquidated Damages..............................................................................
ARTICLE X
CLOSING............................................................................................................
10.1 Location; Date...................................................................................
10.2 Items to be Delivered to Compu-XXXX..............................................................
10.3 Items to be Delivered to Rugby and the Rugby Shareholder.........................................
ARTICLE XI
POST-CLOSING MATTERS...............................................................................................
11.1 Further Assurances...............................................................................
11.2 Agreement as to Voting...........................................................................
11.3 Corporate Opportunities..........................................................................
11.4 Chief Executive Officer.........................................................................
11.5 Transfer Restriction............................................................................
ARTICLE XII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.......................................................................
12.1 Survival.........................................................................................
12.2 Indemnification..................................................................................
12.3 Arbitration......................................................................................
12.4 Other Rights and Remedies Not Affected...........................................................
ARTICLE XIII
MISCELLANEOUS PROVISIONS...........................................................................................
13.1 Expenses.........................................................................................
13.2 Confidential Information.........................................................................
13.3 Equitable Relief.................................................................................
13.4 Publicity........................................................................................
13.5 Entire Agreement.................................................................................
13.6 Notices..........................................................................................
13.7 Choice of Law; Severability......................................................................
13.8 Successors and Assigns; No Assignment............................................................
13.9 Counterparts.....................................................................................
13.10 Facsimile Signatures.............................................................................
13.11 Representation by Counsel; Interpretation........................................................
13.12 Headings; Gender.................................................................................
13.13 Effectiveness....................................................................................
ARTICLE XIV
DEFINITIONS........................................................................................................
14.1 Defined Terms....................................................................................
SCHEDULES
3.2(a) Press-Loto Equity Ownership
3.2(b) Press-Loto Investments and Subsidiaries
3.2(c) Rugby Shareholder Investments
3.3 Consents
3.7 Actions Since Rugby Balance Sheet Date
3.10(a) Lottery Contracts
3.10(b) Necessary Assets
3.10(c) Transfer Restrictions on Rugby or Press-Loto Assets
3.11 Insurance
3.13 Real Property
3.14 Rugby / Press-Loto Listed Agreements
3.16 Permits and Licenses
3.18(a) Intellectual Property
3.19 Compensation Arrangements
3.22 Brokers
3.24 Prior Names and Addresses
3.30 Projections
4.2(a) Compu-XXXX Derivative Securities
4.3 Consents
4.8 Actions Since the Compu-XXXX Balance Sheet Date
4.10 Taxes
4.12 Insurance
4.14 Real Property
4.15 Compu-XXXX Listed Agreements
4.17 Intellectual Property
4.18 Compensation Information
4.20 No Breach
4.21 Brokers
4.23 Prior Names and Addresses
5.2 Conduct of Business
8.5 Board Nominees
11.4 Investment Banking Firms
EXHIBITS
R1 Government Decree
R2 Lottery Terms
R3 Lottery License
2.3(a) Preferred Stock
2.3(b) Warrant
7.6 Employment Agreement
7.7 Restrictive Covenant Agreement
7.10 Opinion
7.11 Escrow Agreement
AGREEMENT AND PLAN OF MERGER dated as of April 22, 1998 (the
"Agreement") by and among COMPU-XXXX, INC., a Delaware corporation
("Compu-XXXX"), RUGBY ACQUISITION CORP., a New York corporation and a
wholly-owned subsidiary of Compu-XXXX ("RAC"), RUGBY NATIONAL CORP., a New York
corporation ("Rugby"), and XXXXXX XXXXXXXXX (the "Rugby Shareholder").
Compu-XXXX, RAC, Rugby and the Rugby Shareholder are sometimes collectively
referred to as the "Parties" and individually as a "Party".
RECITALS:
1. The Rugby Shareholder is the sole shareholder of Rugby.
Rugby owns fifty percent (50% ) of the equity, i.e. shares of capital, of
Press-Loto, a company with limited liability organized and existing under, and
pursuant to, the laws of the Russian Federation ("Press-Loto").
2. Pursuant to a decree of the government (the "Government
Decree") of the Russian Federation, dated as of September 13, 1995, a copy of
which is attached hereto as Exhibit R1, the Ministry of Finance of the Russian
Federation (the "Ministry of Finance") was directed to issue a license to the
Union of Journalists of Russia (the "Journalist Union") to organize and hold an
electronic journalist lottery on the territory of Russia (the "Lottery")
starting from 1996.
3. The Terms of Operating the Journalists' Computerized
Lottery (the "Lottery Terms"), a copy of which is attached hereto as Exhibit R2,
was approved by X.X. Xxxxxxx, Deputy Minister of Finance of the Russian
Federation, and Xxxxxxxx X. Xxxxxxxx, Chairman of the Journalist Union, and
provides, among other things, that (i) the exclusive organizer and holder of the
Lottery is the Journalist Union, (ii) the term of the Lottery is 1996-2000,
(iii) the Lottery is a computerized and digital one, (iv) the prize fund of the
Lottery is fifty percent (50%) of the total revenues and (v) the Journalist
Union has authorized Press-Loto to act as the exclusive organizer and holder of
the Lottery.
4. Pursuant to a communication dated December 12, 1997 from
the Ministry of Finance to the Journalist Union, a copy of which is attached
hereto as Exhibit R3, the Journalist Union was granted a license (the "Lottery
License") to operate the Lottery until December 31, 1999 (the "License
Expiration Date").
5. Press-Loto has authorized Rugby, on an exclusive basis, to
take all actions and enter into all contracts and agreements necessary to
organize, implement and operate the Lottery.
6. The Parties contemplate that, following the date hereof,
Rugby will take all actions and enter into all contracts and agreements
necessary to, and will, organize, implement and operate the Lottery in the
Russian Federation pursuant to and under the Lottery License (the "Lottery
Business").
7. Subject to the terms and conditions hereof, the respective
Boards of Directors of Compu-XXXX, RAC and Rugby deem it desirable and in the
best interests of their respective corporations and shareholders that RAC merge
with and into Rugby (the "Merger") in a statutory
merger in accordance with the laws of the State of New York (the "New York
Statute").
NOW, THEREFORE, in consideration of the mutual benefits to be
derived hereby and the representations, warranties, covenants and agreements
herein contained, the Parties agree as follows:
ARTICLE I
DEFINED TERMS; SCHEDULES
1.1 Defined Terms. Capitalized terms used in this Agreement will have the
meanings given such terms in Article XIV hereof or elsewhere in the text of this
Agreement, and variants and derivatives of such terms shall have correlative
meanings.
1.2 Schedules. References to a Schedule will include any applicable disclosure
expressly set forth on the face of any other Schedule if specifically
cross-referenced to such other Schedule. Each Schedule and the information,
agreements and documents expressly listed in each Schedule will be considered a
part of this Agreement as if set forth herein in full and will be deemed to
constitute representations and warranties under this Agreement, limited as set
forth in the applicable provision of this Agreement under which such Schedule is
delivered; provided, however, that the representations and warranties set forth
in this Agreement shall not be affected or deemed qualified, modified or limited
in any respect by the information provided in the Schedules except to the extent
that any qualification, modification or limitation to any representation and
warranty is expressly and conspicuously set forth on the face of such particular
Schedule.
ARTICLE II
MERGER
2.1 Merger and Surviving Corporation.
(a) Pursuant to the New York Statute, RAC shall merge with and into
Rugby, and Rugby shall be the surviving corporation after the Merger (the
"Surviving Corporation") and shall continue to exist as a corporation created
and governed by the laws of the State of New York.
(b) The Certificate of Incorporation of the Surviving Corporation, from
and after the Effective Time (as hereinafter defined), shall be the Certificate
of Incorporation of Rugby.
(c) The By-Laws of the Surviving Corporation, from and after the
Effective Time, shall be the By-Laws of Rugby.
2.2 Effectiveness of Merger. If all of the conditions precedent to the
obligation of each of the Parties hereto as hereinafter set forth shall have
been satisfied or shall have been waived, a
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Certificate of Merger shall be delivered as soon as practicable after the
Closing to the Secretary of State of New York for filing in accordance with the
New York Statute. The Merger shall become effective upon the acceptance of such
filing by the Secretary of State of New York or at such later time as is
specified in the Certificate of Merger, which effective time shall be the
"Effective Time" of the Merger.
2.3 Shares of the Constituent and Surviving Corporations. The manner and basis
of converting and exchanging the shares of Rugby and the status of RAC's shares
shall be as follows:
(a) Subject to the provisions of this Agreement, each common share, no
par value, of Rugby (the "Rugby Common Stock") issued and outstanding
immediately prior to the Effective Time (other than Rugby Common Stock to be
canceled pursuant to Section 2.3(d) hereof) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be canceled and
extinguished and converted into the right to receive, in accordance with Section
2.3(b) hereof, (i) common shares, par value $.01 per share, of Compu-XXXX (the
"Compu-XXXX Common Stock"), (ii) Series A preferred shares, par value $.01 per
share of Compu-XXXX, the rights, preference and designations of which are set
forth in Exhibit 2.3(a) attached hereto (the "Compu- XXXX Preferred Stock"), and
(iii) warrants to purchase Compu-XXXX Common Stock, such warrants to be in or
substantially in the form set forth in Exhibit 2.3(b) attached hereto (the
"Warrants"). The Compu-XXXX Common Stock, the Compu-XXXX Preferred Stock and the
Warrants are collectively referred to as the "Compu-XXXX Securities".
(b) The number of Compu-XXXX Securities to be issued pursuant to
Section 2.3(a) hereof for each share of Rugby Common Stock issued and
outstanding immediately prior to the Effective Time (other than Rugby Common
Stock to be canceled pursuant to Section 2.3(d) hereof) (the "Merger
Consideration") shall be equal to (on the basis of there being 200 shares of
Rugby Common Stock so issued and outstanding) the following: (i) (A) subject to
the provisions of the Escrow Agreement (as hereinafter defined), Eighteen
Thousand Three Hundred Fourteen and Four- Tenths (18,314.4) shares of Compu-XXXX
Common Stock (an aggregate of 3,662,880 shares of Compu-XXXX Common Stock), (B)
Three Thousand Three Hundred Twenty Nine and Eighty Nine One-Hundredths
(3,329.89) shares of Compu-XXXX Preferred Stock (an aggregate of 665,978 shares
of Compu-XXXX Preferred Stock) and (C) Warrants to purchase Six Thousand Six
Hundred Fifty Nine and Seventy Eight One-Hundredths (6,659.78) shares of
Compu-XXXX Common Stock (an aggregate of 1,331,956 shares of Compu-XXXX Common
Stock), and (ii) an additional One Thousand Six Hundred Sixty Four and Nine
Hundred Forty Five One-Thousandths (1,664.945) shares of Compu-XXXX Common Stock
(an aggregate of 332,989 shares of Compu-XXXX Common Stock) (the "Compu-XXXX
Performance Stock") on such date (the "Entitlement Date") that there are at
least five hundred (500) on-line Lottery ticket sale computer terminals being
operated in Russia by Rugby in connection with the Lottery and generating
Lottery revenues; provided, however, that in no event shall any Compu-XXXX
Performance Stock be issuable prior to the Closing Date and no Compu-XXXX
Performance Stock shall be issued in the event the Entitlement Date is on or
after the six month anniversary of the date hereof.
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(c) If any holder of Rugby Common Stock is entitled to receive
fractional shares of Compu-XXXX Common Stock and/or Compu-XXXX Preferred Stock,
and/or Warrants to purchase fractions of shares of Compu-XXXX Common Stock, such
holder instead will be entitled to receive (i) one whole share of Compu-XXXX
Common Stock, and/or Compu-XXXX Preferred Stock and/or a Warrant to purchase one
whole share of Compu-XXXX Common Stock in lieu of such fractional share and/or
Warrant to purchase such fractional share of Compu-XXXX Common Stock if such
holder would have otherwise been entitled to receive or purchase one-half or
more and (ii) otherwise shall not be entitled to receive or purchase any
additional shares or fractional shares.
(d) Any share of Rugby Common Stock held in the treasury of Rugby at
the Effective Time shall be canceled and retired, and no shares or other
securities of Compu-XXXX or RAC shall be issuable with respect thereto.
(e) Each share of Common Stock, par value $.01 per share, of RAC (the
"RAC Common Stock") shall be converted into and become one (1) validly issued,
fully paid and non-assessable share of Rugby Common Stock.
(f) Subject to the provisions hereof, each holder of an outstanding
certificate or certifi xxxxx theretofore representing shares of Rugby Common
Stock, and theretofore surrendered by such holder to Compu-XXXX or its transfer
agent for cancellation, shall be entitled to receive in exchange therefor (i) as
promptly as practicable after the Effective Time, but subject to the provisions
of the Escrow Agreement, certificates representing that holder's proportionate
number of Compu-XXXX Securities, other than the Compu-XXXX Performance Common
Stock, for each share of Rugby Common Stock surrendered, as is specified in
Section 2.3(b) hereof and (ii) as promptly as practicable after the Entitlement
Date, a certificate or certificates representing that holder's proportionate
number of shares of Compu-XXXX Performance Stock for each share of Rugby Common
Stock surrendered, as is specified in Section 2.3(b) hereof. If the Compu-XXXX
Securities (or any portion thereof) are to be delivered to any person other than
the person in whose name the certificate or certificates representing the Rugby
Common Stock surrendered in exchange therefor are registered, in addition to any
other requirements of applicable law, it shall be a condition to such exchange
that the certificate or certificates so surrendered shall be properly endorsed
or otherwise be in proper form for transfer and that the person requesting such
exchange shall pay to Compu-XXXX or its transfer agent any transfer or other
taxes required by reason of the delivery of the Compu-XXXX Securities to a
person other than the registered holder of the certificate or certificates
surrendered, or shall establish to the satisfaction of Compu-XXXX or its
transfer agent that such tax has been paid or is not applicable.
(g) Neither the Compu-XXXX Common Stock nor the Compu-XXXX Preferred
Stock nor the Warrants to be issued pursuant to the Merger, nor the Compu-XXXX
Common Stock issuable upon the exercise of the Warrants, may be sold or
otherwise transferred or disposed of by the holders thereof unless they are
registered under the Securities Act of 1933, as amended (the "Securities Act"),
or unless an exemption from such registration is available. Accordingly, a
restrictive legend will be placed on any instruments, certificates or other
documents evidencing such
4
shares of Compu-XXXX Common Stock, Compu-XXXX Preferred Stock or Warrants in, or
substantially in, the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933. These securities
have been acquired for investment and not for distribution or
resale. They may not be sold, assigned, mortgaged, pledged,
hypothecated or otherwise trans ferred or disposed of without
an effective registration statement for such securities under
the Securities Act of 1933 or an opinion of counsel to the
Company that registration is not required under such Act."
(h) Unless and until outstanding certificates representing shares of
Rugby Common Stock prior to the Effective Time shall be surrendered as provided
in Section 2.3(f) hereof, dividends and other distributions, if any (including,
without limitation, any shares issuable in connection with stock split-ups or
other recapitalizations), payable as of any date subsequent to the Effective
Time or the Entitlement Date, as the case may be, to the holders of record of
shares of Compu-XXXX Common Stock or Compu-XXXX Preferred Stock shall not be
paid to the holders of such certificates, but in the case of each such
certificate which shall be so surrendered, subject to the provisions of the
Escrow Agreement: (i) there shall be paid, upon such surrender, to the record
holder of the certificate for shares of Compu-XXXX Common Stock or Compu-XXXX
Preferred Stock, as the case may be, issued in exchange therefor, the full
amount, without any interest thereon, of the dividends and any other
distributions (including, without limitation, any shares issued in connection
with stock split-ups or other recapitalizations) referred to above which
theretofore became payable with respect to the number of shares of Compu-XXXX
Common Stock or Compu-XXXX Preferred Stock, as the case may be, represented by
such certificate; and (ii) there shall be paid to such record holder, on the
payment date therefor, the amount of any such dividend or other distribution
with respect to such number of shares, if the record date for the determination
of the stockholders entitled to such dividend or other distribution shall be
prior to the surrender of such certificate but the payment date of such dividend
shall be subsequent to such surrender.
(i) Promptly after the Effective Time, Compu-DAWN's transfer agent
shall mail to each holder of certificates that immediately prior to the
Effective Time represented Rugby Common Stock a form of letter of transmittal
and instructions for use in surrendering such certificates and receiving the
applicable Compu-XXXX Securities in exchange therefor.
(j) No holder of the Rugby Common Stock shall have any of the rights of
a stockholder of Compu-XXXX (i) with respect to the Compu-XXXX Securities, other
than the shares of Compu- XXXX Performance Stock, to be issued in the Merger,
until the Effective Time, or (ii) with respect to the shares of Compu-XXXX
Performance Stock, until the Entitlement Date, subject to the terms hereof.
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2.4 Effect of Merger.
(a) Except as herein otherwise specifically set forth, the identity,
existence, purposes, powers, franchises, rights and immunities of Rugby shall
continue unaffected and unimpaired by the Merger, and the corporate identity,
existence, purposes, powers, franchises and immunities of RAC shall be merged
into Rugby, and Rugby, as the Surviving Corporation and a wholly-owned
subsidiary of Compu-XXXX, shall be fully vested therewith. The separate
existence and corporate organization of RAC (except insofar as they may be
continued by statute) shall cease as of the Effective Time.
(b) At the Effective Time:
(i) All rights, privileges, goodwill, franchises and property,
real, personal and mixed, and all debts due on whatever account and all
other things in action, belonging to RAC shall be, and they hereby are,
bargained, conveyed, granted, confirmed, transferred, assigned and set
over to and vested in Rugby as the Surviving Corporation by operation
of law and without further act or deed, and all property and rights,
and all and every other interest of RAC shall be the property, rights
and interests of Rugby as the Surviving Corporation as they were of
RAC;
(ii) No action or proceeding, whether civil or criminal,
pending at the Effective Time by or against either RAC or Rugby, or any
shareholder, officer or director thereof, shall xxxxx or be
discontinued by the Merger, but may be enforced, prosecuted, settled or
compromised as if the Merger had not occurred, or the Surviving
Corporation may be substituted in such action or proceeding in place of
RAC; and
(iii) All rights of employees and creditors and all liens upon
the property of RAC shall be preserved unimpaired, limited to the
property affected by such liens at the Effective Time, and all the
debts, liabilities and duties of RAC shall attach to Rugby as the
Surviving Corporation and shall be enforceable against the Surviving
Corporation to the same extent as if all such debts, liabilities and
duties had been incurred or contracted by it.
2.5 Further Assurances. RAC agrees that, from time to time, as and when
requested by the Surviving Corporation or by its successors and assigns, the
last acting officers of RAC or the cor responding officers of the Surviving
Corporation shall, in the name of RAC, execute and deliver, or cause to be
executed and delivered, at the sole expense of the Surviving Corporation, all
deeds, assignments and other instruments and shall take or cause to be taken all
such other and further actions as the Surviving Corporation may deem necessary
or appropriate in order more fully to vest in and confirm to the Surviving
Corporation title to and possession of all the property, rights, privileges,
immunities, powers, purposes, franchises and all and every other interest of RAC
referred to in Section 2.4 hereof and otherwise to carry out the intent and
purposes of this Agreement.
6
2.6 Directors of Surviving Corporation. The persons comprising the Board of
Directors of the Surviving Corporation, who shall hold office from the Effective
Time in accordance with its ByLaws until the next annual meeting of shareholders
and until their respective successors shall have been elected and shall have
qualified, shall be the directors of Rugby immediately prior to the Effective
Time, subject to the terms hereof.
2.7 Officers of Surviving Corporation. The officers of the Surviving
Corporation, who shall hold office from the Effective Time in accordance with
its By-Laws until the next annual meeting of directors and until their
respective successors shall have been elected or appointed and shall have
qualified, shall be the officers of Rugby immediately prior to the Effective
Time, subject to the terms hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RUGBY AND
THE RUGBY SHAREHOLDER
Rugby and the Rugby Shareholder, jointly and severally, make the
following representations and warranties to Compu-XXXX and RAC, each of which
shall be deemed material, and Compu- XXXX and RAC, in executing, delivering and
consummating this Agreement, have relied upon the correctness and completeness
of each of such representations and warranties:
3.1 Valid Existence; Qualification; Lottery Business.
(a) Rugby is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York. Rugby has the power to carry
on the Lottery Business and to own its assets. Rugby is not required to qualify
to conduct business as a foreign corporation in any jurisdiction in order to own
its assets or to carry on the Lottery Business, and there has not been any claim
by any jurisdiction to the effect that Rugby is required to qualify or otherwise
be authorized to do business as a foreign corporation therein. The copies of
Rugby's Certificate of Incorporation, as amended to date (certified by the
Secretary of State of the State of New York), and Rugby's ByLaws, as amended to
date (certified by the Secretary of Rugby), which have been delivered to
Compu-XXXX, are true and complete copies of those documents as in effect on the
date hereof. The minute books of Rugby contain accurate records of all meetings
of its Board of Directors, any committees thereof and stockholders since its
incorporation, and accurately reflect all transactions referred to therein.
(b) Neither Rugby nor Press-Loto has engaged in any business activities
other than in connection with the Lottery Business.
3.2 Capitalization; Subsidiaries; Affiliated Entities.
(a) The authorized capital stock of Rugby consists of Two Hundred (200)
shares of
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Rugby Common Stock, no par value, all shares of which are presently issued and
outstanding. All of such issued and outstanding shares of Rugby Common Stock are
duly authorized, validly issued, fully paid and nonassessable and are held of
record by the Rugby Shareholder, free and clear of all Liens. Rugby is not
authorized to issue any capital stock other than the Rugby Common Stock, there
are no outstanding securities or evidences of indebtedness ("Derivative
Securities") of Rugby that are convertible into or exchangeable for any shares
of Rugby Common Stock and there are no outstanding subscriptions, options,
warrants, rights, calls or other commitments or agreements to which Rugby or the
Rugby Shareholder is a party or by which it or he is bound calling for the
issuance, transfer, sale or disposition of any shares of Rugby Common Stock or
Derivative Securities of Rugby. At the Closing, Compu-XXXX will acquire good and
marketable title to the Rugby Common Stock, free and clear of all Liens.
(b) Rugby has not made any investments in, and does not own, any of the
capital stock of, or any other equity or proprietary interest in, any other
Person, except that Rugby owns fifty percent (50%) of the equity (i.e., shares
of capital) of Press-Loto, free and clear of all Liens. Press- Loto is a company
with limited liability duly organized and in good standing under the laws of the
Russian Federation and has the power to carry on the Lottery Business and to own
its assets. Press- Loto is not required to qualify to do business as a foreign
business organization in any foreign jurisdiction in order to carry on the
Lottery Business or own its assets, and there has not been any claim by any
jurisdiction to the effect that Press-Loto is required to qualify or otherwise
be authorized to do business as a foreign business organization therein. All of
the outstanding shares of capital of Press-Loto are validly issued, fully paid
and nonassessable and owned by the Persons set forth on Schedule 3.2(a) attached
hereto in the number and percentage amounts set forth next to their respective
names and such shares of capital are free and clear of all Liens. There are no
outstanding securities or evidences of indebtedness convertible into or
exchangeable for shares of capital and there are no subscriptions, options,
warrants, rights, calls, or other commitments or agreements to which Press-Loto,
Rugby, the Rugby Shareholder or any of his affiliates is a party or by which he,
it or any of them is bound, calling for the issuance, transfer, sale or
disposition of any of the shares of capital or other securities of Press-Loto.
The copies of the Charter of the Company with Limited Liability (certified by
the State Registration Chamber, Ministry of Economics of the Russian
Federation), as amended to date, of Press-Loto along with a notarized accurate
English translation thereof, copies of which have heretofore been delivered to
Compu-XXXX, are true and complete copies of those documents as in effect on the
date hereof. The minute books of the founders and the board of directors of
Press-Loto contain accurate records of all meetings of its Members' Meeting,
shareholders and directors, respectively, since its date of establishment, and
accurately reflect all transactions referred to therein. A board of directors of
Press-Loto has been elected and the directors of Press-Loto continue to serve as
such. Except as set forth in Schedule 3.2(b) attached hereto, Press-Loto has not
made any investments in, and does not own, any of the capital stock of, or any
other equity or proprietary interest in, any other Person.
(c) Except as set forth on Schedule 3.2(c) attached hereto, and except
for Rugby, the Rugby Shareholder has not made any investments in, and does not
own, any of the capital stock of, or any other equity or proprietary interest
in, any other Person engaged in any business which is
8
competitive with the Lottery Business.
3.3 Consents. Except as set forth on Schedule 3.3 attached hereto, no consent of
any Body or other Person is required to be received by or on the part of Rugby,
the Rugby Shareholder or Press- Loto to enable either Rugby or the Rugby
Shareholder to enter into and carry out this Agreement and the transactions
contemplated hereby, including, without limitation, the transfer to Compu-XXXX
of all of the right, title and interest in and to the Rugby Common Stock.
3.4 Authority; Binding Nature of Agreement.
(a) Rugby has the corporate power and authority to enter into this
Agreement and carry out its obligations hereunder. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the Board of Directors of Rugby and by the Rugby
Shareholder as the sole shareholder of Rugby, and no other corporate proceedings
on the part of Rugby are necessary to authorize the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby.
(b) The Rugby Shareholder has the power and authority to enter into
this Agreement and to carry out his obligations hereunder.
(c) This Agreement constitutes the valid and binding obligation of each
of Rugby and the Rugby Shareholder and is enforceable against each of them in
accordance with its terms.
3.5 Financial Statements. The Rugby Financial Statements and Press-Loto
Financial Statements to be delivered to Compu-XXXX pursuant to Section 5.1(h)(i)
shall be true and com plete, (ii) shall be in accordance with the Books and
Records of Rugby and Press-Loto, respectively, and (iii) shall fairly present
the financial position of Rugby and Press-Loto as of the Rugby Balance Sheet
Date and Press-Loto Balance Sheet Date, respectively, and the results of their
respective operations for the year ended December 31, 1997. The Press-Loto
Financial Statements shall have been audited (as such term is used in Russia) by
ZAO Marillon Auditors (Ministry of Finance License No. 012980 issued on February
17, 1998), whose report thereon shall be included therein; provided, however,
that, in the event such audited Press-Loto Financial Statements shall not comply
with the requirements set forth in Section 7.5 hereof, the Press-Loto Financial
Statements shall be audited by a "Big Six" accounting firm or other firm
acceptable to Compu-XXXX. In such event, Compu-XXXX shall agree to pay the fees
of such second accounting firm (provided that it shall have approved the
selection of such firm in writing, such approval not to be unreasonably
withheld).
3.6 Liabilities.
(a) As at the Rugby Balance Sheet Date, Rugby had no Liabilities, other
than those Liabilities reflected or reserved against in the Rugby Balance Sheet,
and there was no basis for the assertion against Rugby of any Liability not so
reflected or reserved against therein.
9
(b) As at the Press-Loto Balance Sheet Date, Press-Loto had no
Liabilities, other than those Liabilities reflected or reserved against in the
Press-Loto Balance Sheet, and there was no basis for the assertion against
Press-Loto of any Liability not so reflected or reserved against therein.
3.7 Actions Since the Balance Sheet Date. Except as otherwise expressly provided
or set forth in, or required by, this Agreement, or as set forth in Schedule 3.7
attached hereto, since the Rugby Balance Sheet Date and the Press-Loto Balance
Sheet Date, neither Rugby nor Press-Loto, respectively, has (i) incurred any
material Liability or other Liability not in the ordinary and usual course of
business and consistent with past practice, (ii) made any wage or salary
increases or granted any bonuses; (iii) mortgaged, pledged or subjected to any
Lien any of its assets, or permitted any of its assets to be subjected to any
Lien; (iv) sold, assigned or transferred any of its assets, except in the
ordinary and usual course of business consistent with past practice; (v) changed
its accounting methods, principles or practices; (vi) revalued any of its
assets, including, without limitation, writing down the value of inventory or
writing off notes or accounts receivable; (vii) incurred any damage, destruction
or loss (whether or not covered by insurance) adversely affecting its assets or
business which has had or could be reasonably expected to have a Material
Adverse Effect; (viii) canceled any indebtedness or waived or released any right
or claim; (ix) incurred any material adverse change in employee relations; (x)
amended, canceled or terminated any Contract or Permit or entered into any
Contract or Permit which was not in the ordinary and usual course of business
consistent with past practice; (xi) increased or changed its assumptions
underlying, or methods of calculating, any doubtful account contingency or other
reserves; (xii) paid, discharged or satisfied any Liabilities other than the
payment, discharge or satisfaction in the ordinary and usual course of business
of Liabilities set forth or reserved for on the Rugby Balance Sheet or
Press-Loto Balance Sheet, as the case may be, or thereafter incurred in the
ordinary and usual course of business consistent with past practice; (xiii) made
any capital expenditure, entered into any lease or incurred any obligation to
make any capital expenditure; (xiv) failed to pay or satisfy when due any
Liability; (xv) failed to carry on its business in the ordinary and usual
course, consistent with the past practice, so as to reasonably keep available
the services of its employees, and to preserve its assets and business and the
goodwill of its suppliers, customers, distributors and others having business
relations with it; (xvi) disposed of or allowed the lapse of any Proprietary
Rights or disclosed to any Person any Proprietary Rights not theretofore a
matter of public knowledge; (xvii) issued or sold, or agreed to issue or sell,
any of its capital stock or shares of capital, as the case may be, options,
warrants, rights or calls to purchase such stock or shares, any securities
convertible into or exchangeable for such capital stock, shares of capital or
other corporate securities, or effected any subdivision or other
recapitalization affecting its capital stock or shares of capital, as the case
may be; (xviii) declared, paid or set aside any dividends or other distributions
or payments on its capital stock or shares of capital, as the case may be, or
redeemed or repurchased, or agreed to redeem or repurchase, any shares of its
capital stock or shares of capital, as the case may be; (xix) made any loans or
advances to any Person, or assumed, guaranteed, endorsed or otherwise became
responsible for the obligations of any Person; (xx) incurred any indebtedness
for borrowed money (except as a result of its endorsement, for collection or
deposit, of negotiable instruments received in the ordinary and usual course of
business); or (xxi) other than this Agreement or the transactions contemplated
hereby, entered into any transaction or course of conduct not in the ordinary
and usual course of business and consistent with past practice.
10
3.8 Adverse Developments. Since the Rugby Balance Sheet Date and Press-Loto
Balance Sheet Date, there has been no material adverse change in the assets,
business, operations (financial or otherwise), or prospects of Rugby or
Press-Loto, respectively, there has been no act or omission on the part of
Rugby, Press-Loto or others which would form the basis for the assertion against
Rugby or Press-Loto, respectively, of any material Liability, no other event has
occurred which could be reasonably expected to have a Material Adverse Effect
and neither Rugby nor the Rugby Shareholder knows of any development or
threatened development of a nature which could be reasonably expected to have a
Material Adverse Effect.
3.9 Taxes. All taxes, including, without limitation, income, property, sales,
use, utility, franchise, capital stock, excise, value added, employees'
withholding, social security and unemployment taxes imposed by the United
States, any state, locality or any foreign country including, without
limitation, the Russian Federation, and any and all political subdivisions
thereof and localities therein, or by any other taxing authority, which have or
may become due or payable by Rugby or Press-Loto and all interest and penalties
thereon, whether disputed or not, have been paid in full or adequately provided
for by reserves shown in the Books and Records; all deposits required by law to
be made by Rugby or Press-Loto with respect to estimated income, franchise and
employees' withholding taxes have been duly made; and all tax returns, including
estimated tax returns, required to be filed have been duly and timely filed. No
extension of time for the assessment of deficiencies for any year is in effect.
No deficiency notice is proposed, or, to the knowledge of either Rugby or the
Rugby Shareholder, threatened against Rugby or Press-Loto. The tax returns of
Rugby and Press-Loto have never been audited. No sales or use taxes are required
to be collected in connection with the operation of the Lottery Business or by
Rugby or Press-Loto.
3.10 Ownership of Assets; Interest in Assets.
3.10.1 Assets Generally. Each of Rugby and Press-Loto owns outright,
and has good and marketable title to, all of its assets (including all assets
reflected in the Rugby Balance Sheet and the Press-Loto Balance Sheet,
respectively, except as the same may have been disposed of in the ordinary and
usual course of business consistent with past practice since the Rugby Balance
Sheet Date and the Press-Loto Balance Sheet Date, respectively), free and clear
of all Liens. Without limiting the generality of the foregoing, Rugby is, or
prior to the Closing Date and any loans made pursuant to the Loan Agreement will
be, a party to the Contracts relating to the Lottery and briefly described in
Schedule 3.10.(a) attached hereto (the "Lottery Contracts"). Except for the
Lottery Contracts, no Contracts are required by Rugby or Press-Loto to organize,
implement, and operate the Lottery or otherwise conduct the Lottery Business.
Upon consummation of the transactions contemplated by this Agreement, each of
Rugby and Press-Loto will own its assets, free and clear of all Liens. Except as
set forth on Schedule 3.10 (b) attached hereto, the assets of Rugby and Press-
Loto are sufficient to permit them to organize, implement and operate the
Lottery or otherwise conduct the Lottery Business. Except as set forth on
Schedule 3.10(c) attached hereto, none of the assets of Rugby or Press-Loto are
subject to any restriction with regard to transferability. There are no
Contracts with any Person with respect to the acquisition of any of the assets
of Rugby or Press- Loto or any rights or interests therein.
11
3.10.2 Interest in Assets. The Rugby Shareholder, directly or
indirectly, does not own or have any property or rights, tangible or intangible,
used in or related, directly or indirectly, to the Lottery Business, Rugby or
Press-Loto.
3.11 Insurance. Schedule 3.11 attached hereto sets forth a true and complete
list and brief description of all policies of fire, liability, political and
other forms of insurance held by Rugby and Press-Loto. Except as set forth in
Schedule 3.11, such policies are valid, outstanding and enforceable policies, as
to which premiums have been paid currently, are with reputable insurers believed
by each of Rugby and the Rugby Shareholder to be financially sound and are
consistent with the practices of similar concerns engaged in substantially
similar operations as those currently conducted, and currently contemplated by
the Parties to be conducted, by Rugby and Press-Loto. Except as set forth in
Schedule 3.11, there exists no state of facts, and no event has occurred, which
might reasonably (i) form the basis for any claim against Rugby or Press-Loto
not fully covered by insurance for liability on account of any express or
implied warranty or tortious omission or commission, or (ii) result in any
material increase in insurance premiums.
3.12 Litigation; Compliance with Law. There are no Actions relating to Rugby or
Press-Loto or any of their respective assets or business or the Lottery, the
Lottery License or the Lottery Business pending or, to the knowledge of each of
Rugby and the Rugby Shareholder, threatened, or any order, injunction, award or
decree outstanding, against Rugby or Press-Loto or against or relating to any of
their respective assets or business or the Lottery or the Lottery License; and
there exists no basis for any such Action. Neither Rugby nor Press-Loto is in
violation of any law, regulation, ordinance, order, injunction, decree, award,
or other requirement of any governmental or other regulatory Body, court or
arbitrator relating to its assets, the Lottery, the Lottery License or the
Lottery Business.
3.13 Real Property. Except as set forth on Schedule 3.13 attached hereto,
neither Rugby nor Press-Loto owns or leases, or uses under license or the like,
any real property.
3.14 Agreements and Obligations; Performance. Except for the Lottery Contracts
or as listed and briefly described in Schedule 3.14 attached hereto
(collectively with the Lottery Contracts, the "Rugby/Press-Loto Listed
Agreements"), neither Rugby nor Press-Loto is a party to, or bound by, any: (i)
Contract which involves aggregate payments or receipts in excess of $5,000 that
cannot be terminated at will without penalty or premium or any continuing
Liability; (ii) Contract of any kind with the Rugby Shareholder, any officer,
director, or employee of Rugby or any shareholder, officer, director or employee
of Press-Loto; (iii) Contract which is violation of applicable law; (iv)
Contract for the purchase, sale or lease of any materials, products, supplies or
services which contains, or which commits or will commit it for, a fixed term;
(v) Contract of employment not terminable at will without penalty or premium or
any continuing Liability; (vi) deferred compensation, bonus or incentive plan or
Contract not cancelable at will without penalty or premium or any continuing
obligation or Liability; (vii) management or consulting Contract not terminable
at will without penalty or premium or any continuing Liability; (viii) license
or royalty Contract; (ix) Contract relating to indebtedness for borrowed money;
(x) union or other collective bargaining Contract; (xi)
12
Contract which, by its terms, requires the consent of any party thereto to the
consummation of the transactions contemplated hereby; (xii) Contract containing
covenants limiting the freedom of Rugby or Press-Loto, or any officer or
employee thereof, or the Rugby Shareholder, to engage or compete in any line of
business, or with any Person, in any geographical area; (xiii) Contract or
option relating to the acquisition or sale of any business; (xiv) voting
agreement or similar Contract; (xv) option for the purchase of any asset,
tangible or intangible; (xvi) franchise, license or advertising Contract; (xvii)
Contract with the United States government, any state, local or foreign
government, including, without limitation, the Russian Federation, or any
political subdivision, agency or department thereof; or (xviii) other Contract
which materially affects any of their assets or the Lottery, the Lottery License
or the Lottery Business, whether directly or indirectly, or which was entered
into other than in the ordinary and usual course of business consistent with
past practice. A true and correct copy of each of the written Rugby/Press-Loto
Listed Agreements has been delivered, or made available, to Compu-XXXX. The
Rugby/Press-Loto Listed Agreements are valid, in full force and effect and are
enforceable by Rugby or Press-Loto, as the case may be, in accordance with the
terms thereof. Rugby and Press-Loto have in all material respects each performed
all obligations required to be performed by it to date under all of the
Rugby/Press-Loto Listed Agreements, is not in Default under any of the
Rugby/Press-Loto Listed Agreements and has received no notice of any dispute,
Default or alleged Default thereunder which has not heretofore been cured or
which notice has not heretofore been withdrawn. Neither Rugby nor the Rugby
Shareholder knows of any Default under any of the Rugby/Press-Loto Listed
Agreements by any other party thereto or by any other Person bound thereunder.
3.15 Condition of Assets. All machinery, equipment, vehicles and other assets
used by Rugby or Press-Loto in the conduct of the Lottery Business are in good
operating condition, ordinary wear and tear excepted.
3.16 Permits and Licenses. Schedule 3.16 attached hereto sets forth a true and
complete list of all Permits from all Bodies held by Rugby and/or Press-Loto.
Each of Rugby and Press-Loto has all Permits of all Bodies required to carry on
the Lottery Business; all such Permits are in full force and effect, and, to the
knowledge of each of Rugby and the Rugby Shareholder, no suspension or
cancellation of any of such Permits is threatened; each of Rugby and Press-Loto
is in compliance in all material respects with all requirements, standards and
procedures of the Bodies which have issued such Permits. The Lottery License is
effective until the License Expiration Date; and each of Rugby and the Rugby
Shareholder reasonably believes that the Government Decree will remain in full
force and effect and the Lottery License will be extended for successive periods
of at least two (2) years each commencing from the License Expiration Date
unless the Lottery has been improperly operated. Neither Rugby nor the Rugby
Shareholder has any reason to believe that the Government Decree will be
canceled, repealed, superseded, modified, amended or changed in any way which
would have a Material Adverse Effect on Press-Loto or Rugby. Except as set forth
on Schedule 3.16, no notice to, declaration, filing or registration with, or
Permit from, any Body or any other Person is required to be made or obtained by
Rugby or the Rugby Shareholder in connection with the execution, delivery or
performance of this Agreement and the consummation of the transactions
contemplated hereby.
13
3.17 Occupational Heath and Safety and Environmental Matters. The operations of
the Lottery Business do not, and will not, require, and neither Rugby nor
Press-Loto has any Permits from any Bodies relating to occupational health and
safety or environmental matters to lawfully conduct the Lottery Business. There
is no litigation, investigation or other proceeding pending or, to the knowledge
of each of Rugby and the Rugby Shareholder, threatened or known to be
contemplated by any Body in respect of or relating to the Lottery Business or
the assets of Rugby or Press-Loto with respect to occupational health and safety
or environmental matters. All operations of the Lottery Business have been
conducted in compliance with all, and neither Rugby nor Press-Loto is liable in
any respect for any violation of any, applicable United States federal, state,
local or foreign laws or regulations, including, without limitation, those of
the Russian Federation and its political subdivisions, pertaining to
occupational health and safety and environmental matters, including, without
limitation, those relating to the emission, discharge, storage, release or
disposal of Materials of Environmental Concern into ambient air, surface water,
ground water or land surface or sub-surface strata or otherwise relating to the
manufacture, processing, distribution, use, handling, disposal or transport of
Materials of Environmental Concern. Neither Rugby nor the Rugby Shareholder has
received any notice of a possible claim or citation against or in respect of any
real property owned or leased by Rugby or Press-Loto, or with regard to their
respective assets or the Lottery Business, relating to occupational health and
safety or environmental matters and neither Rugby nor the Rugby Shareholder is
aware of any basis for any such Action.
3.18 Intellectual Property. Schedule 3.18(a) sets forth a true and complete list
and brief description of all Proprietary Rights which are owned by each of Rugby
and Press-Loto or in which, or with regard to which, it has any right or
interest (including, without limitation, the identity of Rugby or Press-Loto,
each application number, serial number or registration number, the class of
goods or services covered and the expiration date for each country in which
Proprietary Right has been registered). Except as set forth in Schedule 3.18(b),
no other Person has any proprietary or other interest in any such Proprietary
Rights and neither Rugby nor Press-Loto is a party to or bound by any Contract
requiring the payment to any Person of any royalty. Neither Rugby nor Press-Loto
is infringing upon any Proprietary Rights or otherwise is violating the rights
of any third party with respect thereto, and no proceedings have been
instituted, and no claim has been received by Rugby, and neither Rugby nor the
Rugby Shareholder is aware of any claim, alleging any such violation. There are
no pending applications with regard to any Proprietary Right. Rugby and
Press-Loto have each taken all reasonable and prudent steps to protect the
Proprietary Rights from infringement by any other Person. No other Person (i)
has the right to use any Trademark of Rugby or Press-Loto either in identical
form or in such near resemblance thereto as to be likely, when applied to the
goods or services of any such Person, to cause confusion with such Trademarks or
to cause a mistake or to deceive, (ii) has notified Rugby or Press-Loto that it
is claiming any ownership of or right to use any Proprietary Rights, or (iii) to
the best of knowledge of each of Rugby and the Rugby Shareholder, is infringing
upon any Proprietary Rights in any way.
3.19 Compensation Information. Schedule 3.19 attached hereto contains a true and
complete list of the names and current salary rates of, bonus commitments to,
and other compensatory
14
arrangements with, all officers and other persons employed and/or retained by
each of Rugby and Press-Loto.
3.20 Employee Benefit Plans.
(a) Rugby does not maintain and has never maintained, nor does Rugby
make or has ever made employer contributions with respect to its employees to,
any "pension" or "welfare" benefit plans (within the respective meanings of
sections 3(2) and 3(1) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and Rugby has no Liability in connection therewith or with
regard thereto.
(b) Press-Loto does not maintain and has never maintained, nor does
Press-Loto make or has ever made employer contributions with respect to its
employees to any pension or welfare benefit plans, and Press-Loto has no
Liability in connection therewith or with regard thereto, which would have a
Material Adverse Effect on Press-Loto or Rugby.
3.21 No Breach. Neither the execution and delivery of this Agreement nor
compliance by Rugby or the Rugby Shareholder with any of the provisions hereof
nor the consummation of the transactions contemplated hereby, will:
(a) violate or conflict with any provision of the Certificate of
Incorporation, By-Laws or other organizational document of Rugby or Press-Loto;
(b) violate or conflict with or, alone or with notice or the passage
of time, or both, result in the breach or termination of, or otherwise give any
party the right to terminate, or declare a Default under, the terms of any
Contract to which Rugby, the Rugby Shareholder or Press-Loto is a party or by
which any of them may be bound, or otherwise violate or conflict with any Permit
of any Body, including, without limitation, the Lottery License;
(c) result in the creation of any Lien upon any of the assets of
Rugby or Press-Loto;
(d) violate any judgment, order, injunction, decree or award against,
or binding upon, Rugby, the Rugby Shareholder or Press-Loto or upon any of the
assets of Rugby or Press-Loto; or
(e) violate any law or regulation of any jurisdiction relating to
Rugby, the Rugby Shareholder, Press-Loto or the Lottery Business.
3.22 Brokers. Except as set forth on Schedule 3.22 attached hereto, neither
Rugby nor the Rugby Shareholder has engaged, consented to, or authorized any
broker, finder, investment banker or other third party to act on its or his
behalf, directly or indirectly, as a broker or finder in connection with the
transactions contemplated by this Agreement. Schedule 3.22 describes the terms
of the agreement with any such broker or finder.
15
3.23 Employment Relations. (a) Each of Rugby and Press-Loto is in compliance
with all United States federal, state, local, foreign, and other applicable
laws, rules and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours, including, without
limitation, laws, rules and regulations of the Russian Federation and its
political subdivisions, and has not engaged in any unfair labor practice which,
in any of the foregoing cases, could have a Material Adverse Effect; (b) there
is not pending, or, to the knowledge of each of Rugby and the Rugby Shareholder,
threatened, any unfair labor practice charge or complaint against Rugby or
Press-Loto by or before the United States federal National Labor Relations Board
or any comparable state, local or foreign agency or authority; (c) there is no
labor strike, dispute, slowdown or stoppage pending or, to the knowledge of each
of Rugby and the Rugby Shareholder, threatened against or involving Rugby or
Press-Loto; (d) neither Rugby nor the Rugby Shareholder is aware of any union
organization effort respecting the employees of Rugby or Press-Loto; (e) no
grievance which might have an adverse effect on Rugby or Press-Loto or the
conduct of the Lottery Business, nor any arbitration proceeding arising out of
or under any collective bargaining agreement, is pending and no claim therefor
has been asserted; (f) no litigation, arbitration, administrative proceeding or
governmental investigation is now pending, and, to the knowledge of each of
Rugby and the Rugby Shareholder, no Person has made any claim or has threatened
litigation, arbitration, administrative proceeding or governmental investigation
against, arising out of any law relating to discrimination against employees or
employment practices; (g) no collective bargaining agreement is currently being
negotiated by Rugby or Press-Loto; and (h) neither Rugby nor Press-Loto has
experienced any material labor difficulties during the last three (3) years.
There has not been, and neither Rugby nor the Rugby Shareholder anticipates, any
material adverse change in relations with employees of Rugby or Press-Loto as a
result of the announcement of the transactions contemplated by this Agreement.
Without limiting the foregoing, Rugby is in compliance with the Immigration
Reform and Control Act of 1986, as amended, and maintain a current Form I-9 as
required by such Act in the personnel file of each employee.
3.24 Prior Names and Addresses. Since inception, neither Rugby nor Press-Loto
has used any business name or had any business address other than its current
name and the business address or as set forth in Schedule 3.24.
3.25 Payments. Neither Rugby, the Rugby Shareholder nor Press-Loto has, directly
or indirectly, paid or delivered any fee, commission or other sum of money or
item or property, however characterized, to any finder, agent, client, customer,
supplier, government official or other Person, in the United States or any other
country in which the Lottery Business is or is contemplated to be conducted,
which is illegal under any federal, state or local laws of the United States
(including, without limitation, the U.S. Foreign Corrupt Practices Act) or such
other country.
3.26 Books and Records. Rugby and Press-Loto have made and kept (and given
Compu-XXXX access to) Books and Records and accounts, which, in reasonable
detail, accurately and fairly reflect the activities of Rugby, Press-Loto and
the Lottery Business. Neither Rugby nor Press-Loto has engaged in any material
transaction, maintained any bank account or used any corporate or company funds
in connection with its business and the Lottery Business except for
transactions, bank accounts and funds which have been and are reflected in the
normally maintained Books and Records of Rugby or Press-Loto.
16
3.27 Recitals. The Recitals numbered 2 through 6 of this Agreement are true
and complete in all respects.
3.28 Proxy Statement. The information to be furnished by Rugby or the Rugby
Shareholder or its representatives for inclusion in Compu-DAWN's proxy
solicitation materials to be utilized in connection with the meeting to obtain
Stockholder Approval (the "Proxy Statement"),when furnished, and at all times to
and including the time of the stockholders' meeting convened to obtain
Stockholder Approval and adjournments thereof, if any, will not contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein contained not misleading.
3.29 [Intentionally Omitted]
3.30 Projections. Based upon other national lotteries, there is a reasonable
basis for the assumptions made in connection with, and as a basis for, the
financial projections which are attached hereto as Schedule 3.30.
3.31 Untrue or Omitted Facts. No representation, warranty or statement by Rugby
or the Rugby Shareholder in this Agreement contains any untrue statement of a
material fact, or omits to state a fact necessary in order to make such
representations, warranties or statements not materially misleading. Without
limiting the generality of the foregoing, there is no fact known to Rugby or the
Rugby Shareholder that has had, or which may be reasonably expected to have, a
Material Adverse Effect that has not been disclosed in this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPU-XXXX AND RAC
Compu-XXXX and RAC, jointly and severally, make the following
representations and warranties to Rugby and the Rugby Shareholder, each of which
shall be deemed material, and Rugby and the Rugby Shareholder, in executing,
delivering and consummating this Agreement, have relied upon the correctness and
completeness of each of such representations and warranties:
4.1 Valid Existence; Qualification. Compu-XXXX is a corporation validly existing
and in good standing under the laws of the State of Delaware. RAC is a
corporation validly existing and in good standing under the laws of the State of
New York. Each of Compu-XXXX and RAC has the power to carry on its business as
now conducted and to own its assets. Compu-XXXX is qualified to do business in
the State of New York, is not required to qualify in any other jurisdiction in
order to own its assets or carry on its business as now conducted, and there has
not been any claim by any other jurisdiction to the effect that Compu-XXXX is
required to qualify or otherwise be authorized to do business as a foreign
corporation therein. The copies of each of Compu-DAWN's and RAC's Certificate of
Incorporation, as amended to date (certified by the Secretaries of State of the
State of Delaware and New York, respectively) and By-Laws, as amended to date
(certified by
17
the Secretaries of Compu-XXXX and RAC, respectively), which have been delivered
to Rugby and the Rugby Shareholder, are true and complete copies of those
documents as in effect on the date hereof.
4.2 Capitalization.
(a) The authorized capital stock of Compu-XXXX consists of twenty
million (20,000,000) shares of Common Stock, $.01 par value per share, of which
two million eight hundred thirty-four thousand two hundred twenty-nine
(2,834,229) shares are issued and outstanding, and one million (1,000,000)
shares of Preferred Stock, $.01 par value per share, none of which are issued
and outstanding. All of such issued and outstanding shares of Common Stock are
duly authorized, validly issued, fully paid and nonassessable. The shares of
Compu-XXXX Common Stock to be issued and delivered as contemplated by Article II
hereof will be duly and validly authorized and, when so issued and delivered,
will be duly and validly issued, fully paid and nonassessable. Except as set
forth on Schedule 4.2(a), there are no outstanding Derivative Securities of
Compu-XXXX that are convertible into or exchangeable for any shares of
Compu-XXXX Common Stock and there are no outstanding subscriptions, options,
warrants, rights, calls or other commitments or agreements to which Compu-XXXX
is a party or by which it is bound calling for the issuance, transfer, sale or
disposition of any shares of Compu-XXXX Common Stock or Derivative Securities.
(b) The authorized capital stock of RAC consist of 200 shares of
Common Stock, par value $.01 per share, all of which are issued and outstanding,
and duly authorized, validly issued, fully paid and nonassessable.
(c) Compu-XXXX has not made any investments in, and does not own, any
of the capital stock of, or any other equity interest in, any other Person.
4.3 Consents. Except for Stockholder Approval or as set forth on Schedule 4.3
attached hereto, no consent of any Body or other Person is required to be
received by or on the part of Compu- XXXX to enable it to enter into and carry
out this Agreement and the transactions contemplated hereby.
4.4 Corporate Authority; Binding Nature of Agreement. Each of Compu-XXXX and RAC
has the corporate power and authority to enter into this Agreement and carry out
their respective obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by the Boards of Directors of Compu- XXXX and RAC and, except
for Stockholder Approval, and no other corporate proceedings on the part of
Compu-XXXX or RAC are necessary to authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby. This
Agreement constitutes the valid and binding obligation of each of Compu-XXXX and
RAC and is enforceable in accordance with its terms.
4.5 SEC Reports. Compu-XXXX has previously delivered to Rugby and the Rugby
18
Shareholder true and complete copies, including exhibits and, as applicable,
amendments thereto, of Compu-DAWN's Annual Report on Form 10-KSB for the year
ended December 31, 1997 (the "SEC Report"). The SEC Report, as of the date
thereof, did not contain any untrue statement of a material fact, or fail to
state any material fact required to be stated therein or necessary to make the
statements made therein not materially misleading.
4.6 Financial Statements. The Compu-XXXX Financial Statements contained in the
SEC Report (i) are true and complete, (ii) are in accordance with the Books and
Records of Compu- XXXX, (iii) fairly present the financial position of
Compu-XXXX as of the Compu-XXXX Balance Sheet Date, and the results of its
operations for the year ended December 31, 1997, (iv) were prepared in
conformity with United States generally accepted accounting principles
consistently applied throughout the periods covered thereby and (v) are in
conformity with Regulation S-B, promulgated by the SEC. The Compu-XXXX Financial
Statements contained in the SEC Report have been audited by Xxxxx Xxxxxx & Xxxxx
LLP certified public accountants, whose report thereon is included therein.
4.7 Liabilities. As at the Compu-XXXX Balance Sheet Date, except as set forth in
the SEC Report, Compu-XXXX had no Liabilities, other than those Liabilities
reflected or reserved against in the Compu-XXXX Balance Sheet, and there was no
basis for the assertion against Compu- XXXX of any Liability not so reflected or
reserved against therein.
4.8 Actions Since the Balance Sheet Date. Except as otherwise expressly provided
or set forth in, or required by, this Agreement, or as set forth in Schedule 4.8
attached hereto, or as set forth in the SEC Report, since the Compu-XXXX Balance
Sheet Date, Compu-XXXX has not (i) incurred any material Liability or other
Liability not in the ordinary and usual course of business and consistent with
past practice, (ii) made any wage or salary increases or granted any bonuses;
(iii) mortgaged, pledged or subjected to any Lien any of its assets, or
permitted any of its assets to be subjected to any Lien; (iv) sold, assigned or
transferred any of its assets, except in the ordinary and usual course of
business consistent with past practice; (v) changed its accounting methods,
principles or practices; (vi) revalued any of its assets, including, without
limitation, writing down the value of inventory or writing off notes or accounts
receivable; (vii) incurred any damage, destruction or loss (whether or not
covered by insurance) adversely affecting its assets or business which has had
or could be reasonably expected to have a Material Adverse Effect; (viii)
canceled any indebtedness or waived or released any right or claim; (ix)
incurred any material adverse change in employee relations; (x) amended,
canceled or terminated any Contract or Permit or entered into any Contract or
Permit which was not in the ordinary and usual course of business consistent
with past practice; (xi) increased or changed its assumptions underlying, or
methods of calculating, any doubtful account contingency or other reserves;
(xii) paid, discharged or satisfied any Liabilities other than the payment,
discharge or satisfaction in the ordinary and usual course of business of
Liabilities set forth or reserved for on the Compu-XXXX Balance Sheet, as the
case may be, or thereafter incurred in the ordinary and usual course of business
consistent with past practice; (xiii) made any capital expenditure, entered into
any lease or incurred any obligation to make any capital expenditure; (xiv)
failed to pay or satisfy when due any Liability; (xv) failed to carry on its
business in the ordinary and
19
usual course, consistent with the past practice, so as to reasonably keep
available the services of its employees, and to preserve its assets and business
and the goodwill of its suppliers, customers, distributors and others having
business relations with it; (xvi) disposed of or allowed the lapse of any
Proprietary Rights or disclosed to any Person any Proprietary Rights not
theretofore a matter of public knowledge; (xvii) issued or sold, or agreed to
issue or sell, any of its capital stock, options, warrants, rights or calls to
purchase such stock, any securities convertible into or exchangeable for such
capital stock or other corporate securities, or effected any subdivision or
other recapitalization affecting its capital stock; (xviii) declared, paid or
set aside any dividends or other distributions or payments on its capital stock,
or redeemed or repurchased, or agreed to redeem or repurchase, any shares of its
capital stock; (xix) made any loans or advances to any Person, or assumed,
guaranteed, endorsed or otherwise became responsible for the obligations of any
Person; (xx) incurred any indebtedness for borrowed money (except as a result of
its endorsement, for collection or deposit, of negotiable instruments received
in the ordinary and usual course of business); or (xxi) other than this
Agreement or the transactions contemplated hereby, entered into any transaction
or course of conduct not in the ordinary and usual course of business and
consistent with past practice.
4.9 Adverse Developments. Except as set forth in the SEC Report, since the
Compu-XXXX Balance Sheet Date, there has been no material adverse change in the
assets, business, operations (financial or otherwise), or prospects of
Compu-XXXX, there has been no act or omission on the part of Compu-XXXX or
others which would form the basis for the assertion against Compu- XXXX, of any
material Liability, no other event has occurred which could be reasonably
expected to have a Material Adverse Effect and Compu-XXXX does not know of any
development or threatened development of a nature which could be reasonably
expected to have a Material Adverse Effect.
4.10 Taxes. All taxes, including, without limitation, income, property, sales,
use, utility, franchise, capital stock, excise, value added, employees'
withholding, social security and unemployment taxes imposed by the United
States, any state, locality or any foreign country, or by any other taxing
authority, which have or may become due or payable by Compu-XXXX and all
interest and penalties thereon, whether disputed or not, have been paid in full
or adequately provided for by reserves shown in the Books and Records; all
deposits required by law to be made by Compu- XXXX with respect to estimated
income, franchise and employees' withholding taxes have been duly made; and all
tax returns, including estimated tax returns, required to be filed have been
duly and timely filed. No extension of time for the assessment of deficiencies
for any year is in effect. No deficiency notice is proposed, or, to the
knowledge of Compu-XXXX, threatened against Compu-XXXX. Except as set forth on
Schedule 4.10, the tax returns of Compu-XXXX have never been audited.
4.11 Ownership of Assets Compu-XXXX owns outright, and has good and marketable
title to, all of its assets (including all assets reflected in the Compu-XXXX
Balance Sheet, except as the same may have been disposed of in the ordinary and
usual course of business consistent with past practice since the Compu-XXXX
Balance Sheet Date), free and clear of all Liens. Except as set forth in the SEC
Report, none of the assets of Compu-XXXX are subject to any restriction with
20
regard to transferability. There are no Contracts with any Person with respect
to the acquisition of any of the assets of Compu-XXXX or any rights or interests
therein.
4.12 Insurance. Schedule 4.12 attached hereto sets forth a true and complete
list and brief description of all policies of fire, liability, political and
other forms of insurance held by Compu- XXXX. Except as set forth in Schedule
4.12, such policies are valid, outstanding and enforceable policies, as to which
premiums have been paid currently, are with reputable insurers believed by
Compu-XXXX to be financially sound and are consistent with the practices of
similar concerns engaged in substantially similar operations as those currently
conducted, and currently contemplated by the Parties to be conducted, by
Compu-XXXX. Except as set forth in Schedule 4.12, there exists no state of
facts, and no event has occurred, which might reasonably (i) form the basis for
any claim against Compu-XXXX not fully covered by insurance for liability on
account of any express or implied warranty or tortious omission or commission,
or (ii) result in any material increase in insurance premiums.
4.13 Litigation; Compliance with Law. There are no Actions relating to
Compu-XXXX or any of its assets or business, pending or, to the knowledge of
each of Compu-XXXX, threatened, or any order, injunction, award or decree
outstanding, against Compu-XXXX or against or relating to any of its assets or
business; and there exists no basis for any such Action. Compu-XXXX is not in
violation of any law, regulation, ordinance, order, injunction, decree, award,
or other requirement of any governmental or other regulatory Body, court or
arbitrator relating to its assets.
4.14 Real Property. Except as set forth on Schedule 4.14 attached hereto,
Compu-XXXX does not own or lease, or use under license or the like, any real
property.
4.15 Agreements and Obligations; Performance. Except for Contracts disclosed by
Compu- XXXX in the SEC Report and/or as exhibits thereto, or as listed and
briefly described in Schedule 4.15 attached hereto (the "Compu-XXXX Listed
Agreements"), Compu-XXXX is not a party to, or is not bound by, any: (i)
Contract which involves aggregate payments or receipts in excess of $5,000 that
cannot be terminated at will without penalty or premium or any continuing
Liability; (ii) Contract of any kind with the Compu-XXXX, any officer, director,
or employee of Rugby or any shareholder, officer, director or employee of
Compu-XXXX; (iii) Contract which is violation of applicable law; (iv) Contract
for the purchase, sale or lease of any materials, products, supplies or services
which contains, or which commits or will commit it for, a fixed term; (v)
Contract of employment not terminable at will without penalty or premium or any
continuing Liability; (vi) deferred compensation, bonus or incentive plan or
Contract not cancelable at will without penalty or premium or any continuing
obligation or Liability; (vii) management or consulting Contract not terminable
at will without penalty or premium or any continuing Liability; (viii) license
or royalty Contract; (ix) Contract relating to indebtedness for borrowed money;
(x) union or other collective bargaining Contract; (xi) Contract which, by its
terms, requires the consent of any party thereto to the consummation of the
transactions contemplated hereby; (xii) Contract containing covenants limiting
the freedom of Compu-XXXX, or any officer or employee thereof, to engage or
compete in any line of business, or with any Person, in any geographical area;
(xiii) Contract or option
21
relating to the acquisition or sale of any business; (xiv) voting agreement or
similar Contract; (xv) option for the purchase of any asset, tangible or
intangible; (xvi) franchise, license or advertising Contract; (xvii) Contract
with the United States government, any state, local or foreign government, or
(xviii) other Contract which materially affects any of its assets, whether
directly or indirectly, or which was entered into other than in the ordinary and
usual course of business consistent with past practice. A true and correct copy
of each of the written Compu-XXXX Listed Agreements has been delivered, or made
available, to Rugby and the Rugby Shareholder. The Listed Agreements are valid,
in full force and effect and are enforceable by Compu-XXXX, as the case may be,
in accordance with the terms thereof. Compu-XXXX has in all material respects
each performed all obligations required to be performed by it to date under all
of the Listed Agreements, is not in Default under any of the Compu-XXXX Listed
Agreements and has received no notice of any dispute, Default or alleged Default
thereunder which has not heretofore been cured or which notice has not
heretofore been withdrawn. Compu-XXXX knows of no Default under any of the
Compu- XXXX Listed Agreements by any other party thereto or by any other Person
bound thereunder.
4.16 Occupational Heath and Safety and Environmental Matters. The current
operations of Compu-XXXX (the "Compu-XXXX Business") do not, and will not,
require, and Compu-XXXX has no, Permits from any Bodies relating to occupational
health and safety or environmental matters to lawfully conduct the Compu-XXXX
Business. There is no litigation, investigation or other proceeding pending or,
to the knowledge of Compu-XXXX, threatened or known to be contemplated by any
Body in respect of or relating to the Compu-XXXX Business or the assets of
Compu-XXXX with respect to occupational health and safety or environmental
matters. All operations of the Compu-XXXX Business have been conducted in
compliance with all, and Compu- XXXX is not liable in any respect for any
violation of any, applicable United States federal, state, local or foreign laws
or regulations, pertaining to occupational health and safety and environmental
matters, including, without limitation, those relating to the emission,
discharge, storage, release or disposal of Materials of Environmental Concern
into ambient air, surface water, ground water or land surface or sub-surface
strata or otherwise relating to the manufacture, processing, distribution, use,
handling, disposal or transport of Materials of Environmental Concern.
Compu-XXXX has not received any notice of a possible claim or citation against
or in respect of any real property leased by Compu-XXXX, or with regard to
assets or the Compu-XXXX Business, relating to occupational health and safety or
environmental matters and Compu-XXXX is not aware of any basis for any such
Action.
4.17 Intellectual Property. Schedule 4.17 attached hereto sets forth a true and
complete list and brief description of all Proprietary Rights which are owned by
Compu-XXXX or in which, or with regard to which, it has any right or interest
(including, without limitation, each application number, serial number or
registration number, the class of goods or services covered and the expiration
date for each country in which Proprietary Right has been registered). Except as
set forth in Schedule 4.17, no other Person has any proprietary or other
interest in any such Proprietary Rights and Compu-XXXX is not a party to or is
not bound by any Contract requiring the payment to any Person of any royalty.
Compu-XXXX is not infringing upon any Proprietary Rights or otherwise is
violating the rights of any third party with respect thereto, and no proceedings
have been instituted,
22
and no claim has been received by Compu-XXXX, and Compu-XXXX is not aware of any
claim, alleging any such violation. There are no pending applications with
regard to any Proprietary Right. Compu-XXXX has taken all reasonable and prudent
steps to protect the Proprietary Rights from infringement by any other Person.
4.18 Compensation Information. Schedule 4.18 attached hereto contains a true and
complete list of the names and current salary rates of, bonus commitments to,
and other compensatory arrangements with, all persons who are currently named
executive officers in the Compu-DAWN's SEC Report.
4.19 Employee Benefit Plans. Compu-XXXX does not maintain and has never
maintained, nor does Compu-XXXX make or has ever made employer contributions
with respect to its employees to, any "pension" or "welfare" benefit plans
(within the respective meanings of sections 3(2) and 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and Rugby has no
Liability in connection therewith or with regard thereto.
4.20 No Breach. Except as set forth on Schedule 4.20 attached hereto, neither
the execution and delivery of this Agreement nor compliance by Compu-XXXX or RAC
with any of the provisions hereof nor the consummation of the transactions
contemplated hereby, will:
(a) violate or conflict with any provision of the Certifi-
cate of Incorporation or By-Laws of Compu-XXXX or RAC;
(b) violate or conflict with, or alone or with notice or
the passage of time, or both, result in the breach or termination of, or other-
wise give any party the right to terminate, or declare a Default under, the
terms of any Contract to which Compu-XXXX or RAC is a party or by which it may
be bound;
(c) result in the creation of any Lien upon any of the
assets of Compu-XXXX or
RAC;
(d) violate any judgment, order, injunction, decree or
award against, or binding upon, Compu-XXXX or RAC or upon any of their respec-
tive assets; or
(e) subject to the accuracy of the representations made by
the Rugby Shareholder in Article VI hereof, violate any law or regulation of any
jurisdiction relating to Compu-XXXX.
4.21 Brokers. Except as set forth on Schedule 4.21 attached hereto, neither
Compu-XXXX nor RAC has engaged, consented to, or authorized any broker, finder,
investment banker or other third party to act on its behalf, directly or
indirectly, as a broker or finder in connection with the transactions
contemplated by this Agreement. Schedule 4.21 describes the terms of the
agreement with any such broker or finder.
4.22 Employment Relations. (a) Compu-XXXX is in compliance with all United
States federal,
00
xxxxx, xxxxx, xxxxxxx, and other applicable laws, rules and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and has not engaged in any unfair labor practice
which, in any of the foregoing cases, could have a Material Adverse Effect; (b)
there is not pending, or, to the knowledge of Compu-XXXX, threatened, any unfair
labor practice charge or complaint against Compu-XXXX by or before the United
States federal National Labor Relations Board or any comparable state, local or
foreign agency or authority; (c) thee is no labor strike, dispute, slowdown or
stoppage pending or, to the knowledge of Compu- XXXX, threatened against or
involving Compu-XXXX; (d) Compu-XXXX is not aware of any union organization
effort respecting the employees of Compu-XXXX; (e) no grievance which might have
an adverse effect on Compu-XXXX or the conduct of the Lottery Business, nor any
arbitration proceeding arising out of or under any collective bargaining
agreement, is pending and no claim therefor has been asserted; (f) no
litigation, arbitration, administrative proceeding or governmental investigation
is now pending, and, to the knowledge of Compu-XXXX, no Person has made any
claim or has threatened litigation, arbitration, administrative proceeding or
governmental investigation against, arising out of any law relating to
discrimination against employees or employment practices; (g) no collective
bargaining agreement is currently being negotiated by Compu-XXXX; and (h)
Compu-XXXX has not experienced any material labor difficulties during the last
three (3) years. There has not been, and Compu-XXXX does not anticipate any
material adverse change in relations with employees of Compu-XXXX as a result of
the announcement of the transactions contemplated by this Agreement. Without
limiting the foregoing, Compu-XXXX is in compliance with the Immigration Reform
and Control Act of 1986, as amended, and maintain a current Form I-9 as required
by such Act in the personnel file of each employee.
4.23 Prior Names and Addresses. Since inception, Compu-XXXX has not used any
business name or had any business address other than its current name and the
business address except as set forth on Schedule 4.23 attached hereto.
4.24 Payments. Compu-XXXX has not directly or indirectly, paid or delivered any
fee, commission or other sum of money or item or property, however
characterized, to any finder, agent, client, customer, supplier, government
official or other Person, in the United States or any other country, which is
illegal under any federal, state or local laws of the United States (including,
without limitation, the U.S. Foreign Corrupt Practices Act) or such other
country.
4.25 Books and Records. Compu-XXXX has made and kept (and given Rugby and the
Rugby Shareholder access to) Books and Records and accounts, which, in
reasonable detail, accurately and fairly reflect the activities of Compu-XXXX.
Compu-XXXX has not engaged in any material transaction, maintained any bank
account or used any corporate or company funds in connection with its business
except for transactions, bank accounts and funds which have been and are
reflected in the normally maintained Books and Records of Compu-XXXX.
4.26 Untrue or Omitted Facts. No representation, warranty or statement by
Compu-XXXX in this Agreement contains any untrue statement of a material fact,
or omits to state a fact necessary in order to make such representations,
warranties or statements not materially misleading. Without
24
limiting the generality of the foregoing, there is no fact known to Compu-XXXX
that has had, or which may be reasonably expected to have, a Material Adverse
Effect that has not been disclosed in this Agreement.
ARTICLE V
PRE-CLOSING COVENANTS
5.1 Rugby and Rugby Shareholder Covenants. Rugby and the Rugby Shareholder,
jointly and severally, hereby covenant that, from and after the date hereof and
until the Closing or earlier termination of this Agreement:
(a) Access. Rugby shall, the Rugby Shareholder shall cause Rugby
to, and Rugby and the Rugby Shareholder shall cause Press-Loto to,
afford to the officers, attorneys, accountants and other authorized
representatives of Compu-XXXX free and full access, during regular
business hours and upon reasonable notice, to all of their Books and
Records, personnel and properties so that Compu-XXXX, at its own
expense, may have full opportunity to make such review, examination
and investigation as Compu-XXXX may desire of Rugby, Press-Loto and
the Lottery Business. Rugby and the Rugby Shareholder shall cause the
employees, accountants, attorneys and other agents and representatives
of Rugby and Press-Loto to cooperate fully with said review,
examination and investigation and to make full disclosure to
Compu-XXXX and its representatives of all material facts affecting
Rugby, Press-Loto and the Lottery Business. Rugby and the Rugby
Shareholder acknowledge and agree that no review, examination or
investigation heretofore or hereafter undertaken by Compu-XXXX or its
representatives shall limit or affect any representation or warranty
made by Rugby or the Rugby Shareholder in, or otherwise relieve Rugby
or the Rugby Shareholder from any liability under, this Agreement.
(b) Conduct of Business. Rugby shall, the Rugby Shareholder shall
cause Rugby to, and Rugby and the Rugby Shareholder shall cause
Press-Loto to, conduct the Lottery Business only in the ordinary and
usual course (and not engage in any business other than the Lottery
Business) and shall make no change in any of its business practices
and policies without the prior written consent of Compu-XXXX. Without
limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement, prior to the Closing, Rugby
shall not, the Rugby Shareholder shall not cause or permit Rugby to,
and Rugby and the Rugby Shareholder shall not cause or permit
Press-Loto to, without the prior written consent of Compu-XXXX:
(i) amend its Certificate of Incorporation, By- Laws,
Charter of the Company with Limited Liability or other
organizational document, as applicable;
(ii) enter into, adopt or amend any bonus, profit sharing,
compensation, severance, termination, stock option, stock
appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase, pension, retirement, deferred
compensation, employment,
25
severance or other employee benefit Contract, trust, plan, fund
or other arrangement for the benefit or welfare of any director,
officer, manager or employee, or (except for normal increases in
the ordinary and usual course of business consistent with past
practice that, in the aggregate, do not result in a material
increase in benefits or compensation expense to Rugby) increase
in any manner the compensation or fringe benefits of any
director, officer, manager or employee or pay any benefit not
required by any plan and arrangement as in effect as of the date
hereof;
(iii) acquire, sell, lease or dispose of any assets outside
the ordinary course of business consistent with past practice or
any assets which in the aggregate are material to the Lottery
Business (except that Rugby may acquire or lease assets in
accordance with the Budget);
(iv) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business
organization or division thereof;
(v) issue any securities or Derivative Securities or
options, warrants or other rights providing for the issuance of
any securities of Rugby or Press-Loto;
(vi) take any other action outside the ordinary and usual
course of business consistent with past practice; or
(vii) adopt any resolution, or enter into or amend any
Contract, with respect to any of the foregoing.
(c) Insurance. Rugby shall, the Rugby Shareholder shall cause
Rugby to, and Rugby and the Rugby Shareholder shall cause Press-Loto
to, obtain, and maintain in force, political risk insurance in the
amount of at least $1,000,000, from a reputable insurance company
reasonably satisfactory to Compu-XXXX, and maintain in force the
insurance policies listed in Schedule 3.11, except to the extent that
they may be replaced with equivalent policies at the same or lower
rates approved by Compu-XXXX. If, in Compu-DAWN's opinion, additional
coverage is necessary to keep adequately insured the properties of
Rugby and/or Press-Loto, Rugby shall, the Rugby Shareholder shall
cause Rugby to, and Rugby and the Rugby Shareholder shall cause
Press-Loto to, obtain (to the extent available) such additional
insurance, at Compu-DAWN's expense, from financially sound and
reputable insurers for a period ending no sooner than the close of
business on the Closing Date; provided that, if the Closing shall fail
to occur, Rugby shall, the Rugby Shareholder shall cause Rugby to, and
Rugby and the Rugby Shareholder shall cause Press-Loto to, promptly
cancel such policies for additional insurance and return to Compu-XXXX
any refunds of premiums paid by Compu-XXXX on account thereof.
(d) Liabilities. Rugby shall not, the Rugby Shareholder shall not
cause or permit Rugby to, and Rugby and the Rugby Shareholder shall
not cause or permit Press-Loto to, incur any Liability, except for
those incurred in the ordinary and usual course of business consistent
with past practice, without the prior written consent of Compu-XXXX;
and Rugby shall not, the Rugby Shareholder shall not cause or permit
Rugby to, and Rugby and the Rugby Shareholder shall not
26
cause or permit Press-Loto to, pay any Liability other than: (i) the
foregoing Liabilities; (ii) Liabilities set forth in the Rugby Balance
Sheet or Press-Loto Balance Sheet, as the case may be; (iii)
Liabilities arising after the Rugby Balance Sheet Date or Press-Loto
Balance Sheet Date in the ordinary and usual course of business
consistent with past practice; and (iv) Liabilities with respect to
which Rugby shall have received the prior written consent of
Compu-XXXX.
(e) Preservation of Business. Rugby shall, the Rugby Shareholder
shall cause Rugby to, and Rugby and the Rugby Shareholder shall cause
Press-Loto to, use its best efforts to preserve intact its business
organization and keep available the services of its present officers,
managers, employees and consultants, maintain good relationships with
customers and suppliers and preserve its goodwill.
(f) No Breach.
(i) Rugby and the Rugby Shareholder will each (A) use its or
his best efforts to assure that all of its or his representations
and warranties contained herein are true and correct as of the
Closing as if repeated at and as of such time, that no Default
shall occur with respect to any of its or his covenants,
representations or warranties contained herein that has not been
cured by the Closing and that all conditions to the obligation of
Compu-XXXX and RAC to enter into and complete the Closing are
satisfied in a timely manner; (B) not voluntarily take any action
or do anything which will cause a Default respecting such
covenants, representations or warranties or would impede the
satisfaction of such conditions; and (C) promptly notify
Compu-XXXX of any event or fact which represents or is likely to
cause such a Default or result in such an impediment.
(ii) Without limiting the generality of the foregoing, each
of Rugby and the Rugby Shareholder agrees to use its or his best
efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things reasonably necessary, proper or
advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement.
(g) Consents. Promptly following the execution of this Agreement,
each of Rugby and the Rugby Shareholder will use its or his best
efforts to, the Rugby Shareholder will cause Rugby to use its best
efforts to, and Rugby and the Rugby Shareholder will cause Press-Loto
to use its best efforts to, obtain consents of all Bodies and other
Persons necessary for the consummation of the transactions
contemplated by this Agreement.
(h) Financial Statements. (i) Rugby will, and the Rugby
Shareholder will cause Rugby to, provide to Compu-XXXX the Rugby
Financial Statements, and Rugby and the Rugby Shareholder will cause
Press-Loto to provide to Compu-XXXX the Press-Loto Financial
Statements; (ii) Rugby will, the Rugby Shareholder will cause Rugby
to, and Rugby and the Rugby Shareholder will cause Press-Loto to,
provide Compu-XXXX with such unaudited financial statements of, and
other financial information with respect to, Rugby and Press-Loto up
to and including the Closing Date as Compu-XXXX may reasonably
request.
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(i) No Negotiations. For so long as this Agreement shall remain
in effect, neither Rugby nor the Rugby Shareholder will, nor will the
Rugby Shareholder cause or permit Rugby to, nor will Rugby or the
Rugby Shareholder cause or permit Press-Loto to, directly or
indirectly, (a) solicit or initiate discussions or engage in
negotiations with any Person ("Potential Offeror") (whether such
negotiations are initiated by them or otherwise), other than
Compu-XXXX, with respect to the possible acquisition, financing or
change of control of Rugby or Press-Loto, whether by way of merger,
acquisition of stock, acquisition of assets, or otherwise (a
"Potential Transaction"); (b) provide any information with respect to
Rugby, Press-Loto or the Lottery Business to any Person, other than
Compu-XXXX, in connection with a Potential Transaction; (c) enter into
any Contract with any Person, other than Compu-XXXX, concerning or
relating to a Potential Transaction; or (d) act in any way in response
to a Potential Transaction. If Rugby or the Rugby Shareholder
receives, or has knowledge that Press-Loto has received, any
unsolicited offer or proposal to enter into negotiations relating to a
Potential Transaction, it or he shall immediately notify Compu-XXXX of
such fact and shall return, or cause to be returned, any such written
offer to such Potential Offeror.
(j) No Consent as Press-Loto Shareholder. Rugby shall not, and
the Rugby Shareholder will not cause or permit Rugby to, consent to
the issuance by Press-Loto of shares of capital or any other equity or
proprietary interest, pursuant to the Press-Loto Shareholders'
Agreement described in Section 7.15(a) hereof or otherwise, without
the prior written consent of Compu-XXXX.
(k) Lottery Contracts. To the extent Rugby has not entered into
any of the Lottery Contracts as of the date hereof, Rugby shall, and
the Rugby Shareholder shall cause Rugby to, enter into the Lottery
Contracts within the time provided in Section 3.10.1 hereof.
5.2 Compu-XXXX Covenants. Compu-XXXX hereby covenants that, from and after the
date hereof and until the Closing or earlier termination of this Agreement:
(a) Access. Compu-XXXX shall afford to the officers, attorneys,
accountants and other authorized representatives of Rugby free and
full access, during regular business hours and upon reasonable notice,
to all of its Books and Records, personnel and properties so that
Rugby, at its own expense, may have full opportunity to make such
review, examination and investigation as it may desire of Compu-XXXX
and its business. Compu-XXXX will cause its employees, accountants,
attorneys and other agents and representatives to cooperate fully with
said review, examination and investigation and to make full disclosure
to Rugby and its representatives of all material facts affecting its
business. Compu-XXXX acknowledges and agrees that no review,
examination or investigation heretofore or hereafter undertaken by
Rugby or its representatives shall limit or affect any representation
or warranty made by Compu-XXXX in, or otherwise relieve Compu-XXXX
from any liability under, this Agreement.
(b) Conduct of Business. Compu-XXXX will conduct its business
only in the ordinary and usual course and make no change in any of its
business practices and policies without
28
the prior written consent of Rugby, except with respect to the Loan
Agreement, operations relating to the Lottery Business and as
otherwise provided in this Agreement. Without limiting the generality
of the foregoing, and except as otherwise expressly provided in this
Agreement or in Schedule 5.2 attached hereto, prior to the Closing,
Compu-XXXX will not, without the prior written consent of Rugby:
(i) amend its Certificate of Incorporation and/or By-Laws;
(ii) enter into, adopt or amend any bonus, profit sharing,
compensation, severance, termination, stock option, stock
appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase, pension, retirement, deferred
compensation, employment, severance or other employee benefit
Contract, trust, plan, fund or other arrangement for the benefit
or welfare of any director, officer or employee, or (except for
normal increases in the ordinary and usual course of business
consistent with past practice that, in the aggregate, do not
result in a material increase in benefits or compensation expense
to Compu-XXXX) increase in any manner the compensation or fringe
benefits of any director, officer or employee or pay any benefit
not required by any plan and arrangement as in effect as of the
date hereof;
(iii) acquire, sell, lease or dispose of any assets outside
the ordinary and usual course of business consistent with past
practice or any assets which in the aggregate are material to
Compu-XXXX;
(iv) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business
organization or division thereof;
(v) issue any securities or Derivative Securities or
options, warrants or other rights providing for the issuance of
any securities of Compu-XXXX except that Compu-XXXX may (I) issue
shares of Common Stock pursuant to outstanding options and
warrants, (II) grant options and/or warrants for the purchase of
up to 100,000 shares of Compu-XXXX Common Stock (provided that
the exercise price thereof is at least equal to fair market
value, as such term is defined in Compu-DAWN's 1996 Stock Option
Plan, at the time of grant) and (III) issue shares of Compu- XXXX
Common Stock pursuant to such options and warrants;
(vi) take any other action outside the ordinary and usual
course of business consistent with past practice; or
(vii) adopt any resolution, or enter into or amend any
Contract, with respect to any of the foregoing.
(c) Preservation of Business. Except as contemplated by this
Agreement, Compu-XXXX will use its best efforts to preserve intact its
business organization and keep available the services of its present
officers, employees and consultants, maintain good relationships with
customers and suppliers and preserve its goodwill.
29
(d) No Breach.
(i) Compu-XXXX will (A) use its best efforts to assure that
all of its represen tations and warranties contained herein are
true and correct as of the Closing as if repeated at and as of
such time, that no Default shall occur with respect to any of its
covenants, representations or warranties contained herein that
has not been cured by the Closing and that all conditions to the
obligation of Rugby and the Rugby Shareholder to enter into and
complete the Closing are satisfied in a timely manner; (B) not
voluntarily take any action or do anything which will cause a
Default respecting such covenants, representations or warranties
or would impede the satisfaction of such conditions; and (C)
promptly notify Rugby and the Rugby Shareholders of any event or
fact which represents or is likely to cause such a Default or
result in such an impediment.
(ii) Without limiting the generality of the foregoing,
Compu-XXXX agrees to use its best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things
reasonably necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the transactions
contemplated by this Agreement by Compu-XXXX and RAC.
(e) Consents. Promptly following the execution of this Agreement,
Compu- XXXX will use its best efforts to obtain consents of all Bodies
and other Persons necessary for the consummation of the transactions
contemplated by this Agreement.
ARTICLE VI
ACQUISITION OF SHARES
6.1 Investment Intent; Qualification as Purchaser
(a) The Rugby Shareholder represents and warrants that the
Compu-XXXX Securities to be acquired pursuant to the terms hereof are
being acquired for his own account, for investment purposes and not
with a view to the distribution thereof. The Rugby Shareholder agrees
that he will not sell, assign, transfer, encumber or otherwise dispose
of any of the Compu-XXXX Securities unless (i) a registration
statement under the Securities Act with respect thereto is in effect
and the prospectus included therein meets the requirements of Section
10 of the Securities Act, or (ii) Compu-XXXX has received a written
opinion of its counsel that, after an investigation of the relevant
facts, such counsel is of the opinion that such proposed sale,
assignment, transfer, encumbrance or disposition does not require
registration under the Securities Act.
(b) The Rugby Shareholder understands that the Compu-XXXX
Securities are not being registered under the Securities Act and must
be held indefinitely unless they are subsequently registered
thereunder or an exemption from such registration is available.
(c) The Rugby Shareholder represents and warrants that he and his
purchaser
30
representative, if any, have reviewed the SEC Report, have been
furnished with all other materials relating to Compu-XXXX that they
have requested and have been afforded the opportunity to ask questions
of Compu-XXXX management with regard to the foregoing. The Rugby
Shareholder acknowledges and agrees that the materials furnished and
answers provided shall not be deemed to modify any representation or
warranty made by Compu-XXXX in this Agreement.
(d) The Rugby Shareholder represents and warrants further that
(i) he is either an "accredited investor," as such term is defined in
Rule 501(a) promulgated by the SEC under the Securities Act, or that
he, alone or with his purchaser representative, if any, has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the acquisition of the
Compu-XXXX Securities contemplated hereby; (ii) he is able to bear the
economic risk of an investment in the Compu-XXXX Securities,
including, without limitation, the risk of the loss of part or all of
his investment and the inability to sell or transfer the Compu-XXXX
Securities for an indefinite period of time; (iii) he has adequate
means of providing for current needs and contingencies and has no need
for liquidity in his investment in the Compu-XXXX Securities; and (iv)
he does not have an overall commitment to investments not readily
marketable that is excessive in proportion to his net worth and an
investment in the Compu-XXXX Securities will not cause such overall
commitment to become excessive. The Rugby Shareholder will execute and
deliver to Compu-XXXX such documents as Compu-XXXX may reasonably
request in order to confirm the accuracy of the foregoing.
(e) The Rugby Shareholder understands that (i) the Compu-XXXX
Securities are not being registered under the Securities Act on the
ground that the issuance thereof is exempt under Section 4(2) of the
Securities Act as a transaction by an issuer not involving any public
offering and (ii) Compu-DAWN's reliance on such exemption is
predicated in part on the foregoing representations and warranties of
the Rugby Shareholder.
6.2 Restrictive Legend. The Compu-XXXX Securities to be issued pursuant to the
Merger may not be sold, assigned, transferred, encumbered or disposed of unless
they are registered under the Securities Act or unless an exemption from such
registration is available. Accordingly, a restrictive legend in, or
substantially in, the following form will be placed on any instrument,
certificate or other document evidencing the Compu-XXXX Securities:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. These
securities have been acquired for investment and not for distribution
or resale. They may not be sold, assigned, mortgaged, pledged,
hypothecated or otherwise transferred or disposed of without an
effective registration statement for such securities under the
Securities Act of 1933, as amended, or an opinion of counsel for the
Company that registration is not required under such Act."
6.3 Certain Risk Factors. The Rugby Shareholder acknowledges that there are
significant risks relating to the acquisition of the Compu-XXXX Securities
including, without limitation, the risks described in the SEC Report.
31
ARTICLE VII
CONDITIONS PRECEDENT TO THE
OBLIGATION OF COMPU-XXXX AND RAC TO CLOSE
The obligation of Compu-XXXX and RAC to consummate the transactions
contemplated hereby is subject to the fulfillment, prior to or at the Closing,
of each of the following conditions, any one or more of which may be waived by
Compu-XXXX (except when the fulfillment of such condition is a requirement of
law):
7.1 Representations and Warranties. All representations and warranties of Rugby
and the Rugby Shareholder contained in this Agreement and in any written
statement (including financial statements), exhibit, certificate, schedule or
other document delivered pursuant hereto shall be true and correct in all
material respects (except to the extent that any such representation and
warranty is already qualified as to materiality, in which case such
representation and warranty shall be true and correct without further
qualification) as at the Closing Date, as if made at the Closing and as of the
Closing Date, except if the Rugby Shareholder transfers any shares of Rugby
Common Stock to third persons, the certificate delivered by Rugby and the Rugby
Shareholders pursuant to Section 7.3 hereof shall also reaffirm the
representations in Section 3.2, qualified as to such transfers, and shall set
forth the names, addresses and number of shares of Rugby Common Stock held by
such persons as of the Closing Date.
7.2 Covenants. Each of Rugby and the Rugby Shareholder shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by it or him prior to or at the
Closing.
7.3 Certificate. Compu-XXXX shall have received a certificate, dated the Closing
Date, signed by the Secretary of Rugby and the Rugby Shareholder, as to the
satisfaction of the conditions contained in Sections 7.1 and 7.2 hereof.
7.4 Stockholder Approval. Stockholder Approval shall have occurred.
7.5 Rugby and Press-Loto Financial Statements. Compu-XXXX shall have received
such historical audited and unaudited financial statements of Rugby and
Press-Loto (including, without limitation, the Rugby Financial Statements and
the Press-Loto Financial Statements) which shall have been prepared in
conformity with United States generally accepted accounting principals
consistently applied throughout the period covered thereby, shall be in
conformity with Regulation S-X promulgated by the SEC and shall be as required
by the rules and regulations of the SEC to be included by Compu-XXXX in a
Current Report on Form 8-K with regard to the transactions contemplated hereby,
including, without limitation, with respect to the audited Rugby Financial
Statements and audited Press-Loto Financial Statements, an unqualified report
thereon by certified public accountants and/or Russian equivalents who are
"independent" within the meaning ascribed to such term in Regulation S-X,
promulgated by the SEC and acceptable to thereunder. The Rugby
32
Financial Statements and Press-Loto Financial Statements shall reflect, in the
aggregate, tangible assets of not less than One Thousand United States Dollars
(USD $1,000) and liabilities of not more than Fifty Thousand United States
Dollars (USD $50,000).
7.6 Employment Agreement. The Rugby Shareholder shall have executed and tendered
to Compu-XXXX an employment agreement in, or substantially in, the form attached
hereto as Exhibit 7.6 (the "Employment Agreement"), pursuant to which, among
other things, the Rugby Shareholder shall serve as the Chairman of the Board and
President of Compu-XXXX and the President of Rugby.
7.7 Restrictive Covenant Agreement. The Rugby Shareholder shall have executed
and tendered to Compu-XXXX a restrictive covenant agreement in, or substantially
in, the form attached hereto as Exhibit 7.7.
7.8 Fairness Opinion. Compu-XXXX shall have received an opinion (the "Fairness
Opinion") from an investment banking firm reasonably satisfactory to it (the
"Investment Banker") to the effect that the transactions contemplated hereby are
fair, from a financial viewpoint, to the stockholders of Compu-XXXX.
7.9 Cold Comfort Letter. Compu-XXXX shall have received a "cold comfort" letter
from a certified public accountant or a Russian equivalent, reasonably
satisfactory to Compu-XXXX, dated the Closing Date, in form and substance
reasonably satisfactory to Compu-XXXX in its good faith sole discretion.
7.10 Opinion.
(a) Compu-XXXX shall have received opinions from counsel reasonably
satisfactory to it (it being understood that Xxxxx X. Xxxxx is satisfactory
to it), dated the date hereof and the Closing Date, to, or substantially
to, the effect set forth in Exhibit 7.10 attached hereto.
(b) Compu-XXXX shall have received an opinion of counsel reasonably
satisfactory to it to the effect that, for federal, state, local and
foreign income tax purposes, neither Rugby nor RAC nor Compu-XXXX shall be
required to recognize any income as a result of, or in connection with, the
Merger.
7.11 Escrow Agreement.
(a) Rugby and the Rugby Shareholder shall have executed and tendered
to Compu- XXXX an escrow agreement (the "Escrow Agreement") in, or
substantially in, the form attached hereto as Exhibit 7.11, providing for,
among other things, the following: (i) a certain portion of the shares of
Compu-XXXX Common Stock issuable to the Rugby Shareholder pursuant to the
Merger, as provided for below (the "Escrowed Shares"), will be placed in
escrow with an escrow agent satisfactory to Compu-XXXX and held in
accordance with the terms set forth below and (ii)
33
2,000,000 of the Escrowed Shares shall be held as security for the
indemnification obligations of the Rugby Shareholder pursuant to Section
12.2.1 hereof for a period of one (1) year from the Closing Date.
(b) The number of Escrowed Shares shall equal the Three Million Six
Hundred Sixty Two Thousand Eight Hundred Eighty (3,662,880) shares of
Compu-XXXX Common Shares provided for in Section 2.3(b) hereof multiplied
by a fraction, the numerator of which (the "Numerator") shall be the
difference between (i) sixty (60) and (ii) the number of whole months from
the Closing Date to December 31, 1999, and the denominator of which shall
be sixty (60).
(c) Notwithstanding the foregoing, in the event, at or prior to the
Closing, Compu- XXXX shall have received an opinion of counsel, from
counsel reasonably satisfactory to it, stating that either (i) the term of
the Lottery License has been renewed or extended to a particular date and
that, as renewed or extended, the Lottery License is in full force and
effect, valid and enforceable in all respects against all Persons or (ii)
upon the filing of a proper application by Press-Loto for a renewal or
extension of the Lottery License and provided that Press-Loto has not
materially violated applicable law in connection therewith, the Lottery
License will be renewed or extended to the particular date set forth in the
opinion and, provided that Press-Loto does not materially violate
applicable law in connection therewith, the Lottery License will remain in
full force and effect, valid and enforceable in all respects against all
Persons until such indicated date (the "License Opinion") then (x) if the
particular date stated in the opinion (the "Extended License Expiration
Date") is prior to the Fifth Anniversary Date of the Closing (the "Fifth
Anniversary Date"), the term "Extended License Expiration Date" shall be
substituted for "December 31, 1999" in paragraph (b) hereof (provided,
however, that if, as a result of such change and the application of
paragraph (b) hereof the number of Escrowed Shares would be reduced to less
than 2,000,000, the number of Escrowed Shares shall be 2,000,000) and (y)
if the Extended License Expiration Date is on or after the Fifth
Anniversary Date, the provisions of the Escrow Agreement relating to clause
(i) of paragraph (a) hereof shall be deleted therefrom and the number of
Escrowed Shares shall be 2,000,000.
7.12 Loan Agreement. No Event of Default (as that term is defined in the Loan
Agreement) shall have occurred under the Loan Agreement.
7.13 Satisfactory Due Diligence. Compu-XXXX shall have completed a due diligence
investigation of Rugby, Press-Loto and the Lottery Business, the results of
which shall be reasonably satisfactory to Compu-XXXX in its good faith sole
reasonable discretion.
7.14 Lottery License. The Lottery License shall be in full force and effect,
valid, and enforceable in all respects against all Persons; Press-Loto shall
have the sole and absolute right to operate and administer the Lottery pursuant
to, and under, the Lottery License; and Rugby or the Rugby Shareholder shall
have delivered evidence reasonably satisfactory to Compu-XXXX that demonstrates
that Press-Loto will have the sole and absolute right to operate and administer
the Lottery pursuant to, and under, the Lottery License for at least two (2)
years following the License Expiration Date. In furtherance of same, Press-Loto
has entered into the Lottery Contracts or may in the future enter into one or
more agreements authorizing others to operate and administer the Lottery on its
behalf.
34
7.15 Press-Loto.
(a)(i) Press-Loto, and the shareholders of Press-Loto (including,
without limitation, Rugby) shall have entered into an agreement in the form
and substance reasonably satisfactory to Compu-XXXX or (ii) Compu-XXXX
shall have received evidence, satisfactory to it, in either case its good
faith sole discretion, to the effect that Press-Loto shall not issue any
shares of capital or any other equity or proprietary interest without the
prior written consent of Rugby.
(b) Xxxxxx Xxxxxxxxx shall have been appointed to, and shall be
serving on, the members' meeting and the board of directors of Press-Loto.
7.16 Material Contracts. Each of Press-Loto and Rugby shall have all necessary
Contracts and relationships in place and in full force and effect necessary to
implement, administer and operate the Lottery Business, including, without
limitation, the Lottery Contracts and the other Listed Agreements.
7.17 Election of Xxxx Xxxxxxxxxx as Director and Officer of Rugby.
(a) The size of the Board of Directors of Rugby shall have been fixed
at two (2), and Xxxx Xxxxxxxxxx ("Xxxxxxxxxx") shall have been elected as a
director thereof.
(b) Honigsfeld shall have been elected as an executive officer of
Rugby.
7.18 Section 4(2) and Regulation D Compliance. The Rugby Shareholder shall have
delivered to Compu-XXXX evidence reasonably satisfactory to Compu-XXXX that his
representations set forth in Article VI hereof are true and complete and that
the issuance by Compu-XXXX of the Compu-XXXX Securities pursuant to the Merger
will be in conformity with the requirements of Section 4(2) of the Securities
Act and Rule 506 promulgated hereunder.
7.19 No Actions. No Action shall have been instituted by a Person other than a
Party, directly or indirectly, and be continuing before a court or before or by
any Body, or shall have been threatened and be unresolved, to restrain or
prevent, or obtain any material amount of damages in respect of, the carrying
out of the transactions contemplated hereby, or which might materially affect
the right of Compu-XXXX to own the Rugby Common Stock after the Closing Date, or
which might have a Material Adverse Effect thereon.
7.20 Consents; Permits. Rugby, the Rugby Shareholder, Press-Loto and Compu-XXXX
shall have obtained all consents, licenses and other Permits of Bodies and other
Persons necessary for the performance by each of them of all of their respective
obligations under this Agreement, including, without limitation, the Merger as
contemplated hereby, and such other consents, if any, to prevent the occurrence
of a Default under any Contract to which Rugby, the Rugby Shareholder or Press-
Loto is a party or is otherwise bound, and further including, without
limitation, the approval by Nasdaq to the issuance of the Compu-XXXX Securities
pursuant to the Merger.
7.21 Corporate Actions. All actions necessary to authorize the execution,
delivery and
35
performance of this Agreement by Rugby and the Rugby Shareholder and the
consummation of the transactions contemplated hereby shall have been duly and
validly taken and each of Rugby and the Rugby Shareholder shall have full power
and right to consummate the transactions contemplated by this Agreement.
7.22 Additional Documents. Rugby and the Rugby Shareholder shall have delivered
all such certified resolutions, certificates and documents with respect to Rugby
and Press-Loto and the transactions contemplated hereby as Compu-XXXX or its
counsel may have reasonably requested.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATION OF RUGBY AND
THE RUGBY SHAREHOLDER TO CLOSE
The obligation of Rugby and the Rugby Shareholder to consummate the
transactions contemplated hereby is subject to the fulfillment, prior to or at
the Closing, of each of the following conditions, any one or more of which may
be waived by Rugby and the Rugby Shareholder (except when the fulfillment of
such condition is a requirement of law):
8.1 Representations and Warranties. All representations and warranties of
Compu-XXXX contained in this Agreement and in any written statement (including
financial statements), exhibit, certificate, schedule or other document
delivered pursuant hereto shall be true and correct in all material respects
(except to the extent that any such representation and warranty is already
qualified as to materiality, in which case such representation and warranty
shall be true and correct without further qualification) as at the Closing Date,
as if made at the Closing and as of the Closing Date.
8.2 Covenants. Compu-XXXX shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by it prior to or at the Closing.
8.3 Certificate. Rugby and the Rugby Shareholder shall have received a
certificate, dated the Closing Date, signed by the Chairman of the Board or
Chief Executive Officer of Compu-XXXX, as to the satisfaction of the conditions
contained in Sections 8.1 and 8.2 hereof.
8.4 Employment Agreement. Compu-XXXX shall have executed and tendered to the
Rugby Shareholder the Employment Agreement in, or substantially in, the form
attached hereto as Exhibit 7.6.
8.5 Size of Board; Election as Directors. The size of the Board of Directors of
Compu-XXXX shall have been fixed at seven (7) and the Rugby Shareholder and
those persons set forth on Schedule 8.5 attached hereto, subject to their
qualification and consent to so serve, shall have been elected as members
thereof.
36
8.6 Resignation of Directors; Divestment of Xxxx X. Xxx.
(a) Xxxx X. Xxx ("Xxx"), shall have resigned as a director and an
officer of Compu- XXXX.
(b) Xxxxx Xxxxx, Xxxxxx Xxxxxxx and Xxxxxxx Xxxxxxxx shall have
resigned as directors and officers of Compu-XXXX, unless no individual has
been nominated to fill the vacancy arising from their respective
resignations.
(c) Lew shall have divested himself all of the shares of Compu-XXXX
Common Stock owned by him as of the date hereof, except for up to 100,000
shares of Compu-XXXX Common Stock.
8.7 Tax Opinion. The Rugby Shareholder shall have received an opinion of counsel
reasonably satisfactory to him to the effect that, for federal, state and local
income tax purposes, he shall not be required to recognize any income as a
result of, or in connection with, the Merger (other than as a result of, or in
connection with, his Employment Agreement).
8.8 No Actions. No Action shall have been instituted by a Person other than a
Party, directly or indirectly, and be continuing before a court or before or by
a Body, or shall have been threatened and be unresolved, to restrain or prevent,
or obtain any material amount of damages in respect of, the carrying out of the
transactions contemplated hereby, or which might materially affect the right of
the holders of the Rugby Common Stock to own the Compu-XXXX Securities after the
Closing Date, or which might have a materially adverse effect thereon.
8.9 Consents; Permits. Compu-XXXX and RAC shall have obtained all consents,
licenses and other Permits of Bodies and other Persons necessary for the
performance by them of all of their respective obligations under this Agreement,
including, without limitation, the issuance of the Compu-XXXX Securities as
contemplated by the Merger, and such other consents, if any, to prevent the
occurrence of a Default under any Contract to which Compu-XXXX is a party or
otherwise bound and further including, without limitation, the approval by
Nasdaq to the issuance of the Compu-XXXX Securities pursuant to the Merger.
8.10 Corporate Actions. All actions necessary to authorize the execution,
delivery and performance of this Agreement by Compu-XXXX and RAC and the
consummation of the transactions contemplated hereby shall have been duly and
validly taken, and Compu-XXXX and RAC shall have full power and right to
consummate the transactions contemplated by this Agreement.
8.11 Additional Documents. Compu-XXXX and RAC shall have delivered all such
certified resolutions, certificates and documents with respect to Compu-XXXX and
RAC and the transactions contemplated hereby as Rugby, the Rugby Shareholder or
their counsel may have reasonably requested.
37
ARTICLE IX
TERMINATION AND WAIVER; LIQUIDATED DAMAGES
9.1 Termination. Anything herein or elsewhere to the contrary notwithstanding,
this Agreement may be terminated and the transactions provided for herein
abandoned at any time prior to the filing of the Certificate of Merger with the
Secretary of State of New York, whether before or after Stockholder Approval:
(a) By mutual consent of the Boards of Directors of Compu-XXXX, RAC
and Rugby;
(b) By Compu-XXXX and RAC if any of the conditions set forth in
Article VII hereof shall not have been fulfilled on or prior to August 31,
1998, or shall become incapable of fulfillment, in each case except as such
shall have been the result, directly or indirectly, of any action or
inaction by Compu-XXXX or RAC, and shall not have been waived (provided,
however, that, with respect to the condition set forth in Section 7.13
hereof, Compu-XXXX shall have notified Rugby on or prior to the date of the
definitive Proxy Statement that the results of its due diligence
investigation are not satisfactory to it in its good faith sole reasonable
discretion); or
(c) By Rugby and the Rugby Shareholder if any of the conditions set
forth in Article VIII hereof shall not have been fulfilled on or prior to
August 31, 1998, or shall have become incapable of fulfillment, in each
case except as such shall have been the result, directly or indirectly, of
any action or inaction by Rugby or the Rugby Shareholder, whether in his
capacity as a shareholder or otherwise, and shall not have been waived.
If this Agreement is terminated as described above, this
Agreement shall be of no further force and effect, without any liability or
obligation on the part of any of the parties except for any liability which may
arise pursuant to Sections 13.1 and 13.2 hereof or as a result of a Party's
willful failure to consummate the transactions contemplated hereby or for any
breach of any representation, warranty or covenant herein.
9.2 Waiver. Any condition to the performance of the Parties which legally may be
waived on or prior to the Closing Date may be waived at any time by the Party
entitled to the benefit thereof by action taken or authorized by an instrument
in writing executed by the relevant Party or Parties. The failure of any Party
at any time or times to require performance of any provision hereof shall in no
manner affect the right of such Party at a later time to enforce the same. No
waiver by any Party of the breach of any term, covenant, representation or
warranty contained in this Agreement as a condition to such Party's obligations
hereunder shall release or affect any liability resulting from such breach, and
no waiver of any nature, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or construed as a further or continuing waiver
of any such condition or of any breach of any other term, covenant,
representation or warranty of this Agreement.
9.3 Liquidated Damages. The parties agree that, in the event Compu-XXXX shall
fail to
38
consummate the transactions contemplated hereby notwithstanding the timely
satisfaction of each and every condition to its obligation to close, then, as
liquidated damages and as the sole and exclusive remedy of the Rugby Shareholder
for such default and for any and all other liabilities of Compu-XXXX and RAC
arising under or in connection with this Agreement, Compu-XXXX shall forgive all
amounts due to it under the Loan Agreement (not to exceed $1,000,000) and, to
the extent that less than $1,000,000 has been loaned to Rugby pursuant to the
Loan Agreement, shall pay such difference to Rugby promptly.
ARTICLE X
CLOSING
10.1 Location; Date. The closing (the "Closing") provided for herein shall take
place at the offices of Certilman Balin Xxxxx & Xxxxx, LLP, 00 Xxxxxxx Xxxxxx,
Xxxx Xxxxxx, Xxx Xxxx 00000 at 10:00 a.m. on the third business day after
Stockholder Approval or, if, as of such date, either or both Parties shall not
be obligated to close and shall not have waived such closing condition(s),
subject to the provisions of Article IX hereof, on the third business day after
such later date as such Parties shall be obligated to close or shall have waived
such closing condition(s), or at such time and place as may be mutually agreed
to by the Parties. Such date is referred to in this Agreement as the "Closing
Date."
10.2 Items to be Delivered to Compu-XXXX. At the Closing, Rugby or the Rugby
Shareholder, as the case may be, will deliver or cause to be delivered to
Compu-XXXX:
(a) the Certificate of Merger required by Section 2.2 hereof;
(b) the certificate required by Section 7.3 hereof;
(c) the Employment Agreement required by Section 7.6 hereof;
(d) the Restrictive Covenant Agreement required by Section 7.7 hereof;
(e) the "cold comfort" letter required by Section 7.9 hereof;
(f) the Escrow Agreement required by Section 7.11 hereof;
(g) certified copies of all corporate actions required by Section 7.21
hereof; and
(h) such other certified resolutions, documents and certificates as
are required to be delivered to Compu-XXXX pursuant to the provisions of
this Agreement or which otherwise confirm that all of the conditions
precedent to the obligation of Compu- XXXX and RAC to close have been
satisfied.
39
10.3 Items to be Delivered to Rugby and the Rugby Shareholder. At the Closing,
Compu- XXXX or RAC, as the case may be, will deliver or cause to be delivered to
Rugby or the Rugby Shareholder, as the case may be:
(a) the Certificate of Merger required by Section 2.2 hereof;
(b) the certificate required by Section 8.3 hereof;
(c) the Employment Agreement required by Section 8.4 hereof;
(d) certified copies of all corporate action required by Section 8.10
hereof; and
(e) such other certified resolutions, documents and certificates as
are required to be delivered by Compu-XXXX or RAC pursuant to the
provisions of this Agreement or otherwise confirm that all of the
conditions precedent to the obligations of Rugby and the Rugby Shareholder
to close have been satisfied.
ARTICLE XI
POST-CLOSING MATTERS
11.1 Further Assurances. On and after the Closing Date, the Parties shall take
all such further actions and execute and deliver all such further instruments
and documents as may be necessary or appropriate to carry out the transactions
contemplated by this Agreement.
11.2 Agreement as to Voting. During the five (5) year period following the
Closing, the Rugby Shareholder agrees to vote his voting shares of stock of
Compu-XXXX in favor of Honigsfeld as a director of Compu-XXXX provided that
Honigsfeld remains in the employ of Compu-XXXX.
11.3 Corporate Opportunities. Following the Closing Date and for so long as the
Rugby Shareholder is an officer or director of Compu-XXXX or Rugby or any other
affiliate thereof engaged in the Lottery business, or he or any of his
affiliates, directly or indirectly, beneficially owns any securities of
Compu-XXXX, all business opportunities relating to the lottery industry anywhere
in the world presented to the Rugby Shareholder or any affiliate thereof
("Lottery Opportunities") will be deemed to be a corporate opportunity of Rugby
and such opportunity will be presented to Rugby to either act upon or decline to
act upon within a reasonable period of time. The Rugby Shareholder acknowledges
and agrees further that, following the Closing, any and all Lottery
Opportunities presented to the Rugby Shareholder or any affiliate thereof prior
to the date hereof or during the period prior to the Closing will be offered to
Rugby upon the same terms and conditions as offered to the Rugby Shareholder or
his affiliate.
11.4 Chief Executive Officer. Honigsfeld agrees that, in the event that,
following the Closing and prior to the third anniversary of the Closing Date,
Compu-XXXX desires to terminate Honigsfeld as Chief Executive Officer of
Compu-XXXX other than for cause (as defined in the Restated and
40
Amended Employment Agreement, dated as of October 1, 1996, between Compu-XXXX
and Honigsfeld) (the "Honigsfeld Employment Agreement"), Honigsfeld will not
contest such termination if in the reasonable written judgment of an investment
banking firm listed on Schedule 11.4 attached hereto, his replacement is
qualified with respect to securities markets, corporate finance and investor
relations. The foregoing is not intended to modify any of the rights and
obligations of Compu-XXXX and Xxxxxxxxxx under the Honigsfeld Employment
Agreement, except that Honigsfeld agrees that, if the notice of termination of
his employment is given at least six (6) months after the Closing Date and, at
the end of the calendar month immediately preceding the date of notice of his
termination of employment, the number of operating lottery terminals (combined
for V2000 and V3000) is less than one-half (1/2) of the number indicated on
Schedule 3.30 attached hereto (with "Month 1" meaning the first full calendar
month following the Closing Date, and so forth), then, provided that the notice
of termination is given during the thirty (30) day period following the end of
(a) such six (6) month period or (b) any subsequent six (6) month period, and
the effective date of termination is at least ninety (90) days following the
date of notice, only one-half (1/2) of the base salary and other benefits
otherwise due to him under the termination provisions of his Employment
Agreement (exclusive of bonuses based upon future performance) shall be payable
to him and such amount shall be payable in equal monthly installments over the
three (3) year period following termination of employment. Compu-XXXX and
Xxxxxxxxxx agree further that Honigsfeld shall be under no duty to mitigate
damages payable to him pursuant to his Employment Agreement in connection with a
termination other than for cause and Compu-XXXX shall not have any right to
offset any amounts payable to, or otherwise receivable by, Honigsfeld against
amounts due him pursuant to his Employment Agreement.
11.5 Transfer Restriction. The Rugby Shareholder agrees that none of the
Compu-XXXX Securities owned by the Rugby Shareholder may be sold, disposed of,
or otherwise transferred publicly, and no option for the public sale of such
Compu-XXXX Securities may be granted, directly or indirectly, at any time
(either pursuant to Rule 144 promulgated under the Securities Act, or
otherwise), for a period of at least one (1) year, commencing on the date
hereof, but not ending before July 31, 1999, without the written consent of
Compu-XXXX, which consent shall be subject to any necessary approval of The
Nasdaq Stock Market, Inc. Private sales and gifts of such Compu- XXXX Securities
may be made upon the condition that the transferees and donees thereof agree in
writing to be bound by the foregoing restriction with respect to the Compu-XXXX
Securities covered by such sales and gifts in like manner as it applies to the
Rugby Shareholder.
ARTICLE XII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
12.1 Survival. The parties agree that their respective representations and
warranties contained in this Agreement shall survive the Closing for a period of
one (1) year, except that the representations and warranties set forth in
Sections 3.1 through 3.4, 3.10, 3.16, 3.21, 4.1 through 4.4 and 4.6 shall
continue for an indefinite duration and the representations and warranties set
forth in Sections 3.9, 3.12 and 3.17 shall survive until the expiration of the
applicable statute of limitations period.
41
12.2 Indemnification.
12.2.1 General Indemnification Obligation of the Rugby Shareholder.
From and after the Closing, the Rugby Shareholder will reimburse, indemnify and
hold harmless Compu-XXXX and Rugby (in each case, an "Indemnified Compu-XXXX
Party") against and in respect of:
(a) any and all damages, losses, deficiencies, liabilities, costs and
expenses incurred or suffered by any Indemnified Compu-XXXX Party that
result from, relate to or arise out of:
(i) any misrepresentation, breach of warranty or nonfulfillment
of any agreement or covenant on the part of Rugby and/or the Rugby
Shareholder under this Agreement, or from any misrepresentation in or
omission from any certificate, schedule, statement, document or
instrument furnished to Compu-XXXX pursuant hereto; provided however,
the Rugby Shareholder's indemnification obligation hereunder for
breach of warranty shall be limited to Two Million (2,000,000) of the
Escrowed Shares; and
(ii) any untrue statement or omission of a material fact in the
Proxy Statement which was based upon information furnished by either
Rugby, the Rugby Shareholder or Press-Loto, which was knowingly false
to the Rugby Shareholder.
(b) any and all Actions, assessments, audits, fines, judgments, costs
and other expenses (including, without limitation, reasonable legal fees)
incident to any of the foregoing or to the enforcement of this Section
12.2.1, except with respect to a breach of warranty for which the Rugby
Shareholder's indemnification obligation hereunder shall be limited to Two
Million (2,000,000) of the Escrowed Shares.
12.2.2 General Indemnification Obligation of Compu-XXXX. From and after
the Closing, Compu-XXXX will reimburse, indemnify and hold harmless the Rugby
Shareholder against and in respect of:
(a) any and all damages, losses, deficiencies, liabilities, costs and
expenses incurred or suffered by the Rugby Shareholder that result from,
relate to or arise out of any misrepresentation, breach of warranty or
non-fulfillment of any agreement or covenant on the part of Compu-XXXX
under this Agreement, or from any misrepresentation in or omission from any
certificate, schedule, statement, document or instrument furnished to Rugby
or the Rugby Shareholder pursuant hereto; and
(b) any and all Actions, assessments, audits, fines, judgments, costs
and other expenses (including, without limitation, reasonable legal fees)
incident to any of the foregoing or to the enforcement of this Section
12.2.2.
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Any indemnification obligation of Compu-XXXX under this
Agreement shall be satisfied solely through the issuance of additional shares of
Compu-XXXX Common Stock to the holders of Rugby Common Stock having a Fair
Market Value equal to such indemnification amount. For purposes hereof, Fair
Market Value shall mean the closing selling price for Compu-DAWN's Common Stock
on the day immediately preceding the Closing Date.
12.2.3 Method of Asserting Claims, Etc.
(a) In the event that any claim or demand for which the Rugby
Shareholder would be liable to an Indemnified Compu-XXXX Party hereunder is
asserted against or sought to be collected from an Indemnified Compu-XXXX
Party by a third party, Compu-XXXX shall notify the Rugby Shareholder of
such claim or demand, specifying the nature of such claim or demand and the
amount or the estimated amount thereof to the extent then feasible (which
estimate shall not be conclusive of the final amount of such claim and
demand) (the "Claim Notice"). The Rugby Shareholder shall thereupon, at his
sole cost and expense, defend the Indemnified Compu-XXXX Party against such
claim or demand with counsel reasonably satisfactory to Compu-XXXX.
(b) The Rugby Shareholder shall not, without the prior written consent
of the Indemnified Compu-XXXX Party, consent to the entry of any judgment
against the Indemnified Compu-XXXX Party or enter into any settlement or
compromise which does not include, as an unconditional term thereof (i.e.,
there being no requirement that the Indemnified Compu-XXXX Party pay any
amount of money or give any other consideration), the giving by the
claimant or plaintiff to the Indemnified Compu-XXXX Party of a release, in
form and substance reasonably satisfactory to the Indemnified Compu-XXXX
Party, as the case may be, from all liability in respect of such claim or
litigation. If any Indemnified Compu-XXXX Party desires to participate in,
but not control, any such defense or settlement, it may do so at its sole
cost and expense. If, in the reasonable opinion of the Indemnified
Compu-XXXX Party, any such claim or demand or the litigation or resolution
of any such claim or demand involves an issue or matter which could have a
materially adverse effect on the business, operations, assets, properties
or prospects of the Indemnified Compu-XXXX Party or its affiliates, then
the Indemnified Compu-XXXX Party shall have the right to control the
defense or settlement of any such claim or demand and its costs and
expenses shall be included as part of the indemnification obligation of the
Rugby Shareholder hereunder; provided, however, that the Indemnified
Compu-XXXX Party shall not settle any such claim or demand without the
prior written consent of the Rugby Shareholder, which consent shall not be
unreasonably withheld or delayed. If the Indemnified Compu-XXXX Party
should elect to exercise such right, the Rugby Shareholder shall have the
right to participate in, but not control, the defense or settlement of such
claim or demand at his sole cost and expense.
(c) Notwithstanding anything hereinabove to the contrary, the
Indemnified Compu-XXXX Party shall have the right to employ separate
counsel (including local counsel), and the Rugby Shareholder shall bear the
reasonable fees, costs and expenses of such separate counsel (and local
counsel) if (i) the use of counsel chosen by the Rugby Shareholder to
represent the Indemnified Compu-XXXX Party would present such counsel with
a conflict of interest, (ii) the
43
actual or potential defendants in, or targets of, any such action include
both the Indemnified Compu- XXXX Party and the Rugby Shareholder and the
Indemnified Compu-XXXX Party shall have reasonably concluded that there may
be legal defenses available to it which are different from or additional to
those available to the Rugby Shareholder, (iii) the Rugby Shareholder shall
not have employed counsel reasonably satisfactory to the Indemnified
Compu-XXXX Party to represent the Indemnified Compu-XXXX Party within a
reasonable time after notice of the institution of such Action or (iv) the
Rugby Shareholder shall authorize the Indemnified Compu-XXXX Party to
employ separate counsel at the expense of the Rugby Shareholder.
(d) In the event Compu-XXXX should have a claim against the Rugby
Shareholder hereunder that does not involve a claim or demand being
asserted against or sought to be collected from it by a third party,
Compu-XXXX shall send a Claim Notice with respect to such claim to the
Rugby Shareholder. If the Rugby Shareholder disputes his liability with
respect to such claim or demand, such dispute shall be resolved in
accordance with Section 12.3 hereof; if the Rugby Shareholder does not
notify Compu-XXXX, within twenty (20) days from receipt of notice of a
claim, that he disputes such claim, the amount of such claim shall be
conclusively deemed a liability of the Rugby Shareholder hereunder.
(e) All claims for indemnification by the Rugby Shareholder under this
Agreement shall be asserted and resolved under the procedures set forth
hereinabove by substituting in the appropriate place "the Rugby
Shareholder" for "the Indemnified Compu-XXXX Party" or "Compu-XXXX", as the
case may be.
12.2.4 Compu-XXXX Performance Stock. In order to provide security for
the indemnification rights of any Indemnified Compu-XXXX Party under this
Article XII and to provide for an adjustment in the Merger Consideration, the
parties agree that the number of shares of Compu-XXXX Performance Stock to be
issued and delivered following the Entitlement Date to the holders of Rugby
Common Stock immediately prior to the Effective time, as contemplated by Section
2.3(b) hereof, shall be subject to the indemnification obligation of the Rugby
Shareholders under this Article XII. Compu-XXXX, in its discretion, may
determine whether to be paid cash or to withhold shares of Compu-XXXX
Performance Stock, or both, in fulfillment of any of the indemnification
obligations of the Rugby Shareholders. In the event Compu-XXXX determines to
withhold shares of Compu-XXXX Performance Stock, the number of shares of
Compu-XXXX Performance Stock to be withheld shall be such as shall have a Fair
Market Value equal to an amount up to such indemnification amount. The foregoing
is not intended to be a limitation of any and all other rights Compu-XXXX may
have for indemnification hereunder.
12.2.5 Escrow Agreement. In order to provide further security for the
indemnification rights of any Indemnified Compu-XXXX Party under this Article
XII, 2,000,000 of the Escrowed Shares shall be held in escrow and disposed of as
provided in the Escrow Agreement as described in Section 7.11 hereof.
44
12.3 Arbitration.
(a) All disputes under this Article XII, as well as with respect to
Section 7.13 hereof, shall be settled by binding arbitration pursuant to
the rules of the American Arbitration Association. Arbitration may be
commenced at any time by any party hereto giving written notice to each
other party to a dispute of its demand for arbitration, which demand shall
set forth the name and address of its arbitrator. Within twenty (20) days
of such notice, the other party shall select its arbitrator and so notify
the demanding party. Within twenty (20) days thereafter, the two
arbitrators so selected shall select the third arbitrator. In default of
either side naming its arbitrator as aforesaid or in default of the
selection of the third arbitrator as aforesaid, the American Arbitration
Association shall designate such arbitrator upon the application of either
party. The arbitration proceeding shall take place at a mutually agreeable
location in Nassau County, New York or such other location as agreed to by
the parties. The dispute shall be heard by the arbitrators within thirty
(30) days after selection of the third arbitrator. The decision of the
arbitrators shall be rendered within thirty (30) days after the hearing.
Each party shall pay its own expenses of arbitration and the expenses of
the arbitrators shall be equally shared; provided, however, that if, in the
opinion of the majority of the arbitrators, any claim for indemnification
or any defense or objection thereto was unreasonable, the arbitrators may
assess, as part of their award, all or any part of the arbitration expenses
of the other party (including reasonable attorneys' fees) and of the
arbitrators against the party raising such unreasonable claim, defense or
objection.
(b) To the extent that arbitration may not be legally permitted
hereunder and the parties to any dispute hereunder may not at the time of
such dispute mutually agree to submit such dispute to arbitration, any
party may commence a civil Action in a court of appropriate jurisdiction to
resolve disputes hereunder.
(c) The decision of a majority of the arbitrators shall be final,
binding and conclusive, shall be specifically enforceable, and judgment may
be entered upon it in accordance with applicable law in the appropriate
court in the State of New York with no right of appeal therefrom.
12.4 Other Rights and Remedies Not Affected. The indemnification rights of the
parties under this Article XII are independent of, and in addition to, such
rights and remedies as the parties may have at law or in equity or otherwise for
any misrepresentation, breach of warranty or failure to fulfill any agreement or
covenant hereunder on the part of any party hereto, including without limitation
the right to seek specific performance, rescission or restitution, none of which
rights or remedies shall be affected or diminished hereby.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 Expenses. Each of the Parties shall bear its own expenses in connection
herewith; provided,
45
however, that the Parties acknowledge and agree that, if any Party (the
"Breaching Party") fails to consummate the transactions set forth in the
Agreement notwithstanding that all conditions to such Party's obligation to
close are fulfilled or otherwise breaches this Agreement prior to Closing, and
the Closing does not occur, each Breaching Party, jointly and severally, shall
reimburse each other Party for all out-of-pocket expenses incurred in connection
with the preparation, negotiation, execution and performance of this Agreement
and the contemplated Merger and the consummation of the transactions
contemplated hereby, including, without limitation, the preparation, filing and
distribution of the Proxy Statement and undertaking the proxy solicitation
process in connection with seeking Stockholder Approval, and all fees and
expenses incurred in connection with the obtaining of, or seeking to obtain, the
Fairness Opinion, including, without limitation, fees and expenses payable to
attorneys, accountants, consultants, advisors and investment bankers.
13.2 Confidential Information. All information that a disclosing party furnishes
in connection with the transactions contemplated hereby (the "Information") will
be kept confidential, will be used solely in connection with the contemplated
transactions and will not, without prior written consent of the disclosing
party, be used or disclosed, directly or indirectly, in any manner whatsoever,
in whole or in part.
Notwithstanding anything hereinabove to the contrary, the obligations
imposed upon the parties herein shall not apply to Information:
(a) which is publicly available prior to the date hereof; or
(b) which hereafter becomes available to the public through no
wrongful act of the receiving party; or
(c) which was in the possession of the receiving party prior to the
commencement of negotiations between the parties with regard to the
transactions contemplated hereby and not subject to an existing agreement
of confidence between the parties; or
(d) which is received from a third party without restriction, not in
violation of an agreement of confidence and without breach of this
Agreement;
(e) which is independently developed by the receiving party; or
(f) which is disclosed pursuant to a requirement or request of a
government agency, arbitrator or court.
Upon the request of a disclosing party, which made at any time
following any termination of this Agreement in accordance with the terms hereof,
the receiving party will redeliver to the disclosing party any and all written
Information furnished to the receiving party and will not retain any copies
thereof.
46
13.3 Equitable Relief. The parties agree that the remedy at law for any breach
or threatened breach of the provisions of Section 13.2 will be inadequate and
the aggrieved party shall be entitled to injunctive relief to compel the
breaching party to perform or refrain from action required or prohibited
thereunder.
13.4 Publicity. Neither Compu-XXXX, on the one hand, nor Rugby and the Rugby
Shareholder, on the other hand, will issue any report, statement, release or
other public announcement pertaining to the matters contemplated by this
Agreement or otherwise disclose the terms hereof without the prior written
consent of the other. Notwithstanding the foregoing, Compu-XXXX is permitted to
make any disclosures or public announcements of the transactions contemplated
hereby and/or the terms thereof without the prior written consent and approval
of Rugby or the Rugby Shareholder if it shall determine that such disclosure is
required in order for Compu-XXXX to comply with applicable securities laws and
regulations.
13.5 Entire Agreement. This Agreement, including the schedules and exhibits
attached hereto, which are a part hereof, constitutes the entire agreement of
the parties with respect to the subject matter hereof. The representations,
warranties, covenants and agreements set forth in this Agreement and in the
financial statements, schedules or exhibits delivered pursuant hereto constitute
all the representations, warranties, covenants and agreements of the parties and
upon which the parties have relied, shall not be deemed waived or otherwise
affected by any investigation made by any party hereto and, except as may be
specifically provided herein, no change, modification, amendment, addition or
termination of this Agreement or any part thereof shall be valid unless in
writing and signed by or on behalf of the party to be charged therewith.
13.6 Notices. Any and all notices or other communications or deliveries required
or permitted to be given or made pursuant to any of the provisions of this
Agreement shall be deemed to have been duly given or made for all purposes when
in writing and hand delivered or sent by certified or registered mail, return
receipt requested and postage prepaid, overnight mail, nationally recognized
overnight courier or telecopier as follows:
If to Compu-XXXX or RAC, at:
00 Xxxxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxx
Attention: Chief Executive Officer
Telecopier Number: (000) 000-0000
With a copy to:
Certilman Balin Xxxxx & Xxxxx, LLP
00 Xxxxxxx Xxxxxx
Xxxx Xxxxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxxx, Esq. and Xxxxx X. Xxxxx, Esq.
Telecopier Number: (000) 000-0000
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If to Rugby or the Rugby Shareholder, at:
Xxxxxx Xxxxxxxxx
000 Xxxxxxx Xxxx
Xxxxx 00
Xxxxxxx, Xxx Xxxx 00000
Telecopier Number: (000) 000-0000
With a copy to:
Xxxx X. Xxxxxxxx, Esq.
000 Xxxxxxx Xxxxxxxx
Xxxxxxx, Xxx Xxxx 00000
Telecopier Number: (000) 000-0000
and
Xxxx & Xxxxxx
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxx, Esq.
Telecopier Number: (000) 000-0000
or at such other address as any party may specify by notice given to the other
party in accordance with this Section 13.6.
13.7 Choice of Law; Severability. This Agreement shall be governed by, and
interpreted and construed in accordance with, the laws of the State of New York,
excluding choice of law principles thereof. In the event any clause, section or
part of this Agreement shall be held or declared to be void, illegal or invalid
for any reason, all other clauses, sections or parts of this Agreement which can
be effected without such void, illegal or invalid clause, section or part shall
nevertheless continue in full force and effect.
13.8 Successors and Assigns; No Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns; provided, however, that neither Rugby nor the Rugby Shareholder nor
Compu-XXXX may assign any of its rights or delegate any of its duties under this
Agreement without the prior written consent of the other; provided further,
however, that RAC may assign all of its rights and delegate any of its duties to
a corporation which is a wholly-owned subsidiary of Compu-XXXX, and the Rugby
Shareholder may transfer a number of shares of Rugby Common Shares not to exceed
a number which is one (1) less than the number of shares of Rugby Common Stock
which constitutes the requisite majority of shares to take any action of the
Rugby shareholders pursuant to the New York Business Corporation law, the
Certificate of Incorporation or By-Laws of Rugby, and/or any agreement among
Rugby's shareholders.
48
13.9 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, and all of which taken together shall
constitute one and the same instrument.
13.10 Facsimile Signatures. Signatures hereon which are transmitted via
facsimile shall be deemed original signatures.
13.11 Representation by Counsel; Interpretation. Rugby and the Rugby Shareholder
acknowledge that it and he have been represented by counsel in connection with
this Agreement and the transactions contemplated hereby. Accordingly, any rule
or law or any legal decision that would require the interpretation of any
claimed ambiguities in this Agreement against the party that drafted it has no
application and is expressly waived by Rugby and the Rugby Shareholder. The
provisions of this Agreement shall be interpreted in a reasonable manner to give
effect to the intent of the parties hereto.
13.12 Headings; Gender. The headings, captions and/or use of a particular gender
under sections of this Agreement are for convenience of reference only and do
not in any way modify, interpret or construe the intent of the parties or affect
any of the provisions of this Agreement.
13.13 Effectiveness. This Agreement shall take effect as of the date hereof;
provided it has been fully executed and delivered by all parties.
ARTICLE XIV
DEFINITIONS
14.1 Defined Terms. As used herein, the terms below shall have the following
meanings. Any of such terms, unless the context otherwise requires, may be used
in the singular or plural, depending upon the reference.
"Action" shall mean any action, claim, suit, demand,
litigation, governmental or other proceeding, labor dispute, arbitral action,
governmental audit, inquiry, investigation, criminal prosecution, investigation
or unfair labor practice charge or complaint.
"Agreement" shall have the meaning ascribed to it in the
heading of this Agreement.
"Body" shall mean a federal, state, local, and foreign
governmental, political subdivision of such foreign governmental body, or other
regulatory body.
"Books and Records" shall mean all books, ledgers, files,
reports, plans, drawings, records and lists, including, without limitation, all
computer programs and other software, of every kind relating to an entity's
business, operations, assets, liabilities, personnel, customers and suppliers.
49
"Breaching Party" shall have the meaning ascribed to it in
Section 13.1 hereof.
"Claim Notice" shall have the meaning ascribed to it in Section
12.2.3(a) hereof.
"Closing" shall have the meaning ascribed to it in Section 10.1
hereof.
"Closing Date" shall have the meaning ascribed to it in Section
10.1 hereof.
"Compu-XXXX" shall have the meaning ascribed to in the heading of
this Agreement.
"Compu-XXXX Balance Sheet" shall mean the balance sheet of
Compu-XXXX as of the Balance Sheet Date which is included as part of the
Compu-XXXX Financial Statements.
"Compu-XXXX Balance Sheet Date" shall mean December 31, 1997.
"Compu-XXXX Business" shall have the meaning as ascribed to it
in Section 4.16 hereof.
"Compu-XXXX Common Stock" shall have the meaning ascribed to
it in Section 2.3(a) hereof.
"Compu-XXXX Financial Statements" shall mean the financial
statements of Compu-XXXX as of the Compu-XXXX Balance Sheet Date and for the
year ended December 31, 1997, contained in the SEC Reports.
"Compu-XXXX Listed Agreements" shall have the meaning ascribed
to it in Section 4.15 hereof.
"Compu-XXXX Performance Stock" shall have the meaning ascribed
to it in Section 2.3(b) hereof.
"Compu-XXXX Preferred Stock" shall have the meaning ascribed
to it in Section 2.3(a) hereof.
"Compu-XXXX Securities" shall have the meaning ascribed to it in
Section 2.3(a) hereof.
"Contract" shall mean any agreement, contract, note, lease,
evidence of indebtedness, purchase order, letter of credit, indenture, security
or pledge agreement, franchise agreement, undertaking, covenant not to compete,
employment agreement, license, instrument, obligation, commitment, course of
dealing or practice, understanding or arrangement, whether written or oral, to
which a particular Person is a party or is otherwise bound.
50
"Copyrights" shall mean registered copyrights, copyright
applications and unregistered copyrights.
"Default" shall mean any breach, default and/or other
violation, and/or the occurrence of any event that with or without the passage
of time or the giving of notice or both would constitute a breach, default or
other violation, under, or give any Person the right to accelerate, terminate or
renegotiate, any Contract.
"Derivative Securities" shall have the meaning ascribed to it in
Section 3.2(a) hereof.
"Employment Agreement" shall have the meaning ascribed to it in
Section 7.6 hereof.
"Entitlement Date" shall have the meaning ascribed to it in
Section 2.3(b) hereof.
"ERISA" shall have the meaning ascribed to it in Section 3.20
hereof.
"Escrow Agreement" shall have the meaning ascribed to it in
Section 7.11 hereof.
"Escrowed Shares" shall have the meaning ascribed to it in
Section 7.11 hereof.
"Extended License Expiration Date" shall have the meaning
ascribed to it in Section 7.11(c) hereof.
"Fair Market Value" shall have the meaning ascribed to it in
Section 12.2.2 hereof.
"Fairness Opinion" shall have the meaning ascribed to it in
Section 7.8 hereof.
"Fifth Anniversary Date" shall have the meaning ascribed to it in
Section 7.11(c) hereof.
"Government Decree" shall have the meaning ascribed to it in the
Recitals hereof.
"Honigsfeld" shall have the meaning ascribed to it in Section
7.17 hereof.
"Honigsfeld Employment Agreement" shall have the meaning ascribed
to it in Section 11.4 hereof.
"Indemnified Compu-XXXX Party" shall have the meaning ascribed to
it in Section 12.2.1 hereof.
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"Information" shall have the meaning ascribed to it in Section
13.2 hereof.
"Investment Banker" shall have the meaning ascribed to it in
Section 7.8 hereof.
"Journalist Union" shall have the meaning ascribed to it in the
Recitals hereof.
"Lew" shall have the meaning ascribed to it in Section 8.6
hereof.
"Liability" shall mean any direct or indirect liability,
obligation, indebtedness, obligation, commitment, expense, claim, deficiency,
guaranty or endorsement of or by any Person of any type, whether accrued,
absolute, contingent, matured, unmatured or otherwise.
"License Expiration Date" shall have the meaning ascribed to it
in the Recitals hereof.
"License Opinion" shall have the meaning ascribed to it in
Section 7.11(c) hereof.
"Lien" shall mean any claim, lien, pledge, option, charge,
restriction, easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other title
retention agreement or lease in the nature thereof.
"Loan Agreement" shall mean that certain Loan and Security
Agreement of even date herewith between Compu-XXXX and Rugby.
"Lottery" shall have the meaning ascribed to it in the Recitals
hereof.
"Lottery Business" shall have the meaning ascribed to it in the
Recitals hereof.
"Lottery Contracts" shall have the meaning ascribed to it in
Section 3.10.1 hereof.
"Lottery License" shall have the meaning ascribed to it in the
Recitals hereof.
"Lottery Opportunities" shall have the meaning ascribed to it
in Section 11.3 hereof.
"Lottery Terms" shall have the meaning ascribed to it in the
Recitals hereof.
"Material Adverse Effect" shall mean any material adverse
effect on the business, properties, operations, assets, liabilities, condition
(financial or otherwise), or prospects of Compu- XXXX, on the one hand, or Rugby
and Press-Loto, on the other hand.
52
"Materials of Environmental Concern" shall mean pollutants,
contaminants, hazardous or noxious or toxic materials or wastes.
"Merger" shall have the meaning ascribed to it in the Recitals
hereof.
"Merger Consideration" shall have the meaning ascribed to it
in Section 2.3(b) hereof.
"Ministry of Finance" shall have the meaning ascribed to it in
the Recitals hereof.
"New York Statute" shall have the meaning ascribed to it in
the Recitals hereof.
"Numerator" shall have the meaning ascribed to it in Section
7.11(b) hereof.
"Party" shall have the meaning ascribed to in the heading of
this Agreement.
"Patents" shall mean all patents, patent applications,
registered designs and registered design applications.
"Permits" shall mean all licenses, permits, franchises,
approvals, authorizations, consents, decrees or orders of, or filings with, any
and all Bodies.
"Person" shall mean and include an individual, a partnership,
a joint venture, a corporation, a limited liability company, a limited liability
partnership, a trust, an unincorporated organization, any other business
organization and a government or other department or agency thereof.
"Potential Offeror" shall have the meaning ascribed to it in
Section 5.1(i) hereof.
"Potential Transaction" shall have the meaning ascribed to it
in Section 5.1(i) hereof.
"Press-Loto" shall have the meaning ascribed to it in the
Recitals hereof.
"Press-Loto Balance Sheet" shall mean the balance sheet of
Press-Loto as of the Press-Loto Balance Sheet Date which is included as part of
the Press-Loto Financial Statements.
"Press-Loto Balance Sheet Date" shall mean December 31, 1997.
"Press-Loto Financial Statements" shall mean the Financial
Statements of Press- Loto as of the Press-Loto Balance Sheet Date and for the
year ended December 31, 1997.
"Proprietary Rights" shall mean Copyrights, Patents, Trade-
marks, other technology
53
rights and licenses, computer software (including, without limitation, any
source or object codes thereof or documentation relating thereto), trade
secrets, franchises, inventions, designs, specifications, plans, drawings, data
bases, know-how, domain names, world wide web addresses and other intellectual
property rights used or under development.
"Proxy Statement" shall mean the proxy statement prepared by
Compu-XXXX in connection with its seeking to obtain Stockholder Approval.
"RAC" shall have the meaning ascribed to in the heading of
this Agreement.
"Restrictive Covenant Agreement" shall have the meaning
ascribed to it in Section 7.7 hereof.
"Rugby" shall have the meaning ascribed to in the heading of
this Agreement.
"Rugby Balance Sheet" shall mean the balance sheet of Rugby as
of the Rugby Balance Sheet Date which is included as part of the Rugby Financial
Statements.
"Rugby Balance Sheet Date" shall mean December 31, 1997.
"Rugby Common Stock" shall have the meaning ascribed to it in
Section 2.3(a) hereof.
"Rugby/Press-Loto Listed Agreements" shall have the meaning
ascribed to it in Section 3.14 hereof.
"Rugby Shareholder" shall have the meaning ascribed to in the
heading of this Agreement.
"Rugby Financial Statements" shall mean the Financial
Statements of Rugby as of the Rugby Balance Sheet Date and for the year ended
December 31, 1997.
"SEC" shall mean the United States Securities and Exchange
Commission.
"SEC Report" shall have the meaning ascribed to it in Section
4.5 hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Stockholder Approval" shall mean approval by the stockholders
of Compu- XXXX (or, if determined by the Board of Directors of Compu-XXXX in
good faith that the approval of the noncontrolling stockholders of Compu-XXXX is
required in order for the Board of Directors to fulfill its duties,
responsibilities and obligations to the Compu-XXXX stockholders under the
Delaware General Corporation Law and the rules of the Nasdaq Stock Market, then,
by
54
the noncontrolling stockholders of Compu-XXXX) of (i) this Agreement and the
transactions contemplated hereby; (ii) an amendment to the Certificate of
Incorporation of Compu-XXXX pursuant to which the staggered nature of the Board
of Directors is eliminated and the number of authorized shares of (a) Common
Stock of Compu-XXXX is increased to 60,000,000 and (b) Preferred Stock of
Compu-XXXX is increased to 2,000,0000; and (iii) an amendment to Compu- DAWN's
1996 Stock Option Plan pursuant to which the number of shares of Common Stock
authorized to be issued thereunder is increased to 6,000,000.
"Surviving Corporation" shall have the meaning ascribed to it
in Section 2.1 hereof.
"Trademarks" shall mean registered trademarks, registered
service marks, trademark and service xxxx applications and unregistered
trademarks and service marks.
"Warrants" shall have the meaning ascribed to it in Section
2.3(a) hereof.
55
WITNESS the execution of this Agreement as of the date first above
written.
COMPU-XXXX, INC.
By: /s/ Xxxx Xxxxxxxxxx
______________________________
Xxxx Xxxxxxxxxx, President
RUGBY ACQUISITION CORP.
By: /s/ Xxxx Xxxxxxxxxx
______________________________
Xxxx Xxxxxxxxxx, Chairman of the Board
RUGBY NATIONAL CORP.
By: /s/ Xxxxxx Xxxxxxxxx
______________________________
Xxxxxx Xxxxxxxxx, President
/s/ Xxxxxx Xxxxxxxxx
-------------------------------
XXXXXX XXXXXXXXX, individually
Agreed as to Section 11.4
/s/ Xxxx Xxxxxxxxxx
-------------------------------
XXXX XXXXXXXXXX, individually
56
