EXHIBIT 10.21
AGREEMENT AND PLAN OF MERGER
by and among
International Game Technology,
a Nevada corporation,
as Buyer,
Winter Subsidiary, Inc.,
a Delaware corporation,
as Merger Sub,
WagerWorks, Inc.
a Delaware corporation,
as the Company
and
Xxxx Xxxx and DDJ Capital Management, LLC
as the Stockholders' Representatives
July 26, 2005
Execution Copy
ARTICLE I. DEFINITIONS......................................................................... 2
ARTICLE II. MERGER.............................................................................. 11
2.1 The Merger.......................................................................... 11
2.2 Effective Time...................................................................... 11
2.3 Effects of the Merger............................................................... 11
2.4 Certificate of Incorporation and Bylaws............................................. 11
2.5 Directors and Officers.............................................................. 11
2.6 Additional Actions.................................................................. 12
2.7 Effect on Capital Stock............................................................. 12
2.8 Dissenting Shares................................................................... 13
2.9 Exchange Procedures; Distributions with Respect to Unexchanged Shares; Stock
Transfer Books...................................................................... 14
2.10 No Further Ownership Rights in Company Capital Stock................................ 15
2.11 The Closing......................................................................... 15
ARTICLE III. CERTAIN PAYMENTS AND ADJUSTMENTS.................................................... 15
3.1 Payment of Indebtedness............................................................. 15
3.2 Working Capital Adjustment.......................................................... 15
3.3 Deposit of Escrow Amount............................................................ 17
ARTICLE IV. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANIES............................. 18
4.1 Due Organization, Good Standing and Corporate Power; Copies of Organizational
Documents........................................................................... 18
4.2 Capitalization...................................................................... 19
4.3 Stockholder Approval; Authorization; No Breach...................................... 20
4.4 Financial Statements................................................................ 21
4.5 Events Subsequent to the Latest Balance Sheet....................................... 21
4.6 Title to Assets..................................................................... 23
4.7 Compliance With Laws................................................................ 23
4.8 Tax Matters......................................................................... 24
4.9 Environmental Matters............................................................... 25
4.10 Intellectual Property............................................................... 26
4.11 Real Estate......................................................................... 28
4.12 Litigation.......................................................................... 29
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4.13 Employee Benefits................................................................... 29
4.14 Insurance........................................................................... 31
4.15 Contracts........................................................................... 32
4.16 Employees........................................................................... 34
4.17 Affiliate Transactions.............................................................. 35
4.18 Brokerage........................................................................... 35
4.19 Receivables......................................................................... 36
4.20 Customers and Suppliers............................................................. 36
4.21 Permits and Licenses................................................................ 36
4.22 Warranties.......................................................................... 36
4.23 Bank Accounts....................................................................... 36
4.24 Corporate Records................................................................... 36
4.25 Absence of Certain Business Practices............................................... 37
4.26 Royalty Obligations................................................................. 37
4.27 No Other Agreements to Sell Assets or Stock of the Companies........................ 37
4.28 Disclosure.......................................................................... 37
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB.............................. 37
5.1 Organization, Power and Authorization............................................... 37
5.2 Binding Effect and Noncontravention................................................. 38
5.3 Brokerage........................................................................... 38
5.4 No Litigation....................................................................... 38
ARTICLE VI. PRE-CLOSING COVENANTS............................................................... 39
6.1 Conduct of Business Pending Closing................................................. 39
6.2 Prohibited Actions Pending Closing.................................................. 39
6.3 Access; Documents; Supplemental Information......................................... 41
6.4 No Solicitation..................................................................... 41
6.5 Filings; Other Actions; Notification................................................ 42
6.6 Employee Benefits Matters........................................................... 43
6.7 Stock Options and Warrants.......................................................... 43
6.8 Conversion of Company Preferred Stock and Convertible Notes......................... 45
6.9 Notification of Certain Matters..................................................... 46
6.10 Termination of Stockholders/Affiliate Agreements.................................... 46
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ARTICLE VII. COVENANTS AND OTHER AGREEMENTS...................................................... 46
7.1 Public Announcements................................................................ 46
7.2 Further Assurances.................................................................. 46
7.3 Employee Benefits................................................................... 46
7.4 Indemnification; Tail Coverage...................................................... 47
ARTICLE VIII. SURVIVAL AND INDEMNIFICATION........................................................ 47
8.1 Survival of Representations and Warranties.......................................... 47
8.2 Indemnification Obligations of Equityholders and Management Bonus Recipients........ 47
8.3 Indemnification Obligations of Buyer and Merger Sub................................. 49
8.4 Limitations on Indemnification...................................................... 49
8.5 Indemnification Procedures.......................................................... 50
8.6 Exclusive Remedy.................................................................... 51
ARTICLE IX. CONDITIONS TO THE CLOSING........................................................... 52
9.1 Conditions of Buyer's and Merger Sub's Obligation................................... 52
9.2 Conditions of the Company's Obligation.............................................. 53
ARTICLE X. MISCELLANEOUS....................................................................... 54
10.1 Termination......................................................................... 54
10.2 Consent to Amendments............................................................... 55
10.3 Successors and Assigns.............................................................. 55
10.4 Governing Law; Waiver of Jury Trial; Venue.......................................... 56
10.5 Notices............................................................................. 56
10.6 Schedules and Exhibits.............................................................. 58
10.7 Counterparts........................................................................ 58
10.8 No Third Party Beneficiaries........................................................ 58
10.9 Headings............................................................................ 58
10.10 Entire Agreement.................................................................... 58
10.11 Interpretation...................................................................... 58
10.12 Severability........................................................................ 59
10.13 Construction........................................................................ 59
10.14 Stockholders' Representative........................................................ 59
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LIST OF EXHIBITS*
Exhibit A -- Certificate of Merger
Exhibit B -- Employment Agreement
Exhibit C -- Escrow Agreement
Exhibit D -- Certificate of Incorporation
Exhibit E -- Bylaws
Exhibit F -- Financial Statements
Exhibit G -- Form of Opinion of Legal Counsel
LIST OF ANNEXES*
Schedule I -- Allocation Spreadsheet
Schedule II -- Allocation of Management Bonus Amount
* THE EXHIBITS, ANNEXES AND SCHEDULES TO THIS AGREEMENT HAVE
BEEN INTENTIONALLY OMITTED FROM THIS FILING. INTERNATIONAL GAME
TECHNOLOGY AGREES TO FURNISH SUPPLEMENTALLY TO THE SEC, UPON
REQUEST, A COPY OF ANY OMITTED EXHIBIT
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Execution Copy
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of July
26, 2005, by and among International Game Technology, a Nevada corporation
("Buyer"), Winter Subsidiary, Inc., a Delaware corporation and wholly owned
subsidiary of Buyer ("Merger Sub"), WagerWorks, Inc., a Delaware corporation
(the "Company"), and Xxxx Xxxx and DDJ Capital Management, LLC as the
Stockholders' Representatives. Buyer, Merger Sub, the Company and the
Stockholders' Representatives are sometimes referred to collectively herein as
the "Parties."
RECITALS
WHEREAS, the Boards of Directors of each of Buyer and the Company have
determined that the merger of Merger Sub with and into the Company (the
"Merger"), in accordance with the provisions of the Delaware General Corporation
Law, as amended (the "DGCL"), and subject to the terms and conditions of this
Agreement, is advisable and in the best interests of Buyer, Merger Sub and the
Company and their respective stockholders; and
WHEREAS, the Company is a Delaware corporation and has authorized (i)
44,000,000 shares of common stock, par value $0.001 per share ("Company Common
Stock") and (ii) 19,666,588 shares of preferred stock, par value $0.001 per
share, of which (A) 4,233,128 shares have been designated Series A Preferred
Stock (the "Series A Preferred Stock"), (B) 1,933,460 shares have been
designated Series B Preferred Stock (the "Series B Preferred Stock") and (C)
13,500,000 shares have been designated Series C Preferred Stock (the "Series C
Preferred Stock" and collectively with the Series A Preferred Stock and the
Series B Preferred Stock, the "Company Preferred Stock); and
WHEREAS, the respective Boards of Directors of Buyer, the Company and
Merger Sub and the stockholders of the Company have authorized and adopted this
Agreement and approved the Merger; and
WHEREAS, in order to induce Buyer and Merger Sub to enter into this
Agreement, concurrently herewith, the Company and each of Xxxx Xxxxxxxxxxxx, Xxx
Xxxxxxx and Xxxx Xxxxxxx have entered into Employment and Non-Competition
Agreements in the form attached hereto as Exhibit B (the "Employment
Agreements"), to be effective upon the closing of the transactions contemplated
hereby;
NOW, THEREFORE, in consideration of the representations, warranties, and
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereby
agree as follows:
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ARTICLE I.
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings set
forth below:
"Action" has the meaning set forth in Section 4.12.
"Acquisition Proposal" has the meaning set forth in Section 6.4.
"Adjustment Dispute Notice" has the meaning set forth in Section 3.2(c).
"Affiliate" of any particular Person means any other Person controlling,
controlled by or under common control with such particular Person. For the
purposes of this definition, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person whether through the ownership of voting securities,
contract or otherwise.
"Agreement" has the meaning set forth in the preamble.
"Allocated Excess Amount" has the meaning set forth in Section 3.2(d)(i).
"Applicable Bonus Percentage" means, with respect to each Management Bonus
Recipient, the percentage of the aggregate Management Bonus Amount to which such
person is eligible to receive as specified on Schedule II hereto.
"Applicable Escrow Ownership Percentage" means, with respect to each
Equityholder, the Applicable Ownership Percentage times the quotient obtained by
dividing the Escrow Amount less the Management Bonus Amount by the Escrow
Amount, and with respect to each Management Bonus Recipient, the Applicable
Bonus Percentage times the quotient obtained by dividing the Management Bonus
Amount by the Escrow Amount.
"Applicable Ownership Percentage" means, with respect to each holder of
Company Common Stock as of immediately prior to the Effective Time, and each
holder of a Stock Option, Common Stock Warrant or Preferred Stock Warrant as of
immediately prior to the Effective Time, the percentage obtained by dividing (i)
the sum of (A) the number of shares of Company Common Stock held of record by
such holder as of immediately prior to the Effective Time (after giving effect
to the conversions contemplated by Section 6.8), plus (B) the number of Option
and Warrant Shares with respect to Stock Options, Common Stock Warrants and
Preferred Stock Warrants held of record by such holder as of immediately prior
to the Effective Time, by (ii) the sum of the number of shares of Company Common
Stock outstanding immediately prior to the Effective Time (after giving effect
to the conversions contemplated by Section 6.8 and excluding shares of Company
Capital Stock held in the treasury of the Company, if any) plus the aggregate
number of all Option and Warrant Shares.
"Business" means the business of the Companies, as conducted on the date
of this Agreement, including, without limitation, their operations as a supplier
of content and gambling systems to the online gaming and poker industries.
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"Buyer" has the meaning set forth in the preamble.
"Buyer Indemnitees" has the meaning set forth in Section 8.2.
"Certificate of Merger" means the Certificate of Merger to be entered into
at the Closing by the Company and Merger Sub, and filed with the Delaware
Secretary of State in accordance with the DGCL, substantially in the form
attached hereto as Exhibit A.
"Closing" and "Closing Date" have the respective meanings set forth in
Section 2.11.
"Closing Balance Sheet" has the meaning set forth in Section 3.2(b).
"Closing Net Working Capital Amount" has the meaning set forth in Section
3.2(b).
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock Warrants" has the meaning set forth in Section 6.7(b)(i).
"Companies" means the Company and each of its Subsidiaries.
"Company" has the meaning set forth in the preamble.
"Company Capital Stock" means, collectively, the Company Common Stock and
the Company Preferred Stock.
"Company Common Stock" has the meaning set forth in the recitals.
"Company Preferred Stock" has the meaning set forth in the recitals.
"Current Assets" means, without duplication, all accounts receivable, net
of allowance for doubtful accounts and other current assets of the Company, on a
consolidated basis as of July 31, 2005, in each case determined in accordance
with GAAP and using the same accounting principles, practices and methodologies,
consistently applied, that were used to prepare the December 31, 2004 Balance
Sheet; provided that (i) all amounts received by the Company pursuant to the
exercise of Stock Options, Common Stock Warrants and Preferred Stock Warrants
between August 1, 2005 and the Closing Date shall be included as an addition to
Current Assets, and (ii) the Termination Fee shall not be included in Current
Assets. If, notwithstanding the representation made by the Company in Section
4.23 and the obligations of the Company in Section 6.2(o), all or any portion of
the Termination Fee has been used to fund operations of the Company, reduce or
pay its liabilities, make a distribution to the Company's stockholders, or
otherwise used then an amount equal to the portion of the Termination Fee so
used shall be included in the calculation of Current Assets as a reduction of
Current Assets.
"Current Liabilities" means, without duplication, all accounts payable,
accrued expenses, and other current liabilities of the Company, on a
consolidated basis as of July 31, 2005, in each case determined in accordance
with GAAP and using the same accounting principles, practices and methodologies,
consistently applied, that were used to prepare the December 31, 2004 Balance
Sheet; provided that (i) the portion of the Indebtedness of the Company as of
July 31, 2005
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that is converted into Company Common Stock immediately prior to the Closing
pursuant to Section 6.8(b), shall not be deemed to be Current Liabilities, (ii)
the Termination Fee shall not be included in Current Liabilities, (iii) all
banking, legal and tax advisory and accounting fees and expenses incurred by the
Company prior to the Closing Date in connection with the transactions
contemplated by this Agreement shall be included as an addition to Current
Liabilities, (iv) any out of pocket costs or liabilities incurred by the Company
or its Subsidiaries in connection with obtaining any of the consents referenced
on Schedule 4.3, unless paid or accrued prior to July 31, 2005, shall be
included as an addition to Current Liabilities; (v) software license fees and
deferred revenues shall not be deemed to be Current Liabilities; and (vi) the
Management Bonus Amount shall not be deemed to be a Current Liability.
"December 31, 2004 Balance Sheet" means the consolidated balance sheet of
the Company as of December 31, 2004, as included in the Financial Statements.
"DGCL" has the meaning set forth in the recitals.
"Effective Time" has the meaning set forth in Section 2.2.
"Employee Benefit Plan" means any "employee benefit plan" (as such term is
defined in Section 3(3) of ERISA) and any other written, unwritten, formal or
informal plan, contract, agreement, policy or arrangement providing for
employment, compensation, severance, termination pay, deferred compensation,
bonus, performance awards, stock or stock-related awards, fringe benefits,
disability benefits, supplemental employment benefits, vacation benefits,
retirement benefits, profit-sharing, post-retirement benefits, or other employee
benefits or remuneration of any kind, in each case entered into, maintained or
contributed to by the Company or any of its Subsidiaries, or under which any
employee or former employee (or any of their respective beneficiaries), as such,
has or may in the future have any rights, or with respect to which the Company
or any of its Subsidiaries has or may in the future have any Liability.
"Employment Agreements" has the meaning set forth in the recitals.
"Environmental Laws" means all Legal Requirements relating to
environmental, health or safety matters, including, without limitation, Legal
Requirements governing the use, storage, disposal, generation, treatment,
transportation or remediation of Hazardous Substances.
"Equityholder Indemnitees" has the meaning set forth in Section 8.3.
"Equityholders" means, collectively, each holder of Company Common Stock
as of immediately prior to the Effective Time (after giving effect to the
conversions contemplated by Section 6.8), and each holder of a Stock Option,
Common Stock Warrant or Preferred Stock Warrant as of immediately prior to the
Effective Time, which has an exercise price that is less than the Per Share
Merger Consideration (taking into account the conversion to Company Common Stock
of the Company Preferred Stock issuable upon the exercise of the Preferred Stock
Warrants).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"ERISA Affiliate" shall mean any Person that, together with the Companies,
would be treated as a single employer under Sections 414(b), (c) or (m) of the
Code.
"Escrow Agent" means Union Bank of California, N.A., a national banking
association.
"Escrow Agreement" means the Escrow Agreement to be entered into at the
Closing by Buyer, the Stockholders' Representatives and the Escrow Agent in
substantially the form attached hereto as Exhibit C.
"Escrow Amount" means subject to any increase made in accordance with
Section 3.2, $7,525,000, of which an amount equal to the Management Bonus Amount
shall be, subject to payment of any indemnity claims under ARTICLE VIII, used
for payment of the Management Bonus Amount and $25,000 of which shall be set
aside separately solely to be used to pay for any expenses of the Stockholders'
Representatives and which shall not be used for any other reason, including
payment of any working capital adjustment pursuant to Section 3.2, payment of
any indemnity claims under ARTICLE VIII or otherwise.
"Estimated Balance Sheet" has the meaning set forth in Section 3.2(a).
"Estimated Merger Consideration" means an amount equal to (i) $90,000,000,
plus (ii) the aggregate exercise price of the Stock Options, Common Stock
Warrants and Preferred Stock Warrants (excluding the exercise price of any
Preferred Stock Warrants where such exercise price is greater than or equal to
the Per Share Merger Consideration (taking into account the conversion to
Company Common Stock of the Company Preferred Stock issuable upon the exercise
of the Preferred Stock Warrants)) that are outstanding and unexercised
immediately prior to the Effective Time, plus (iii) the Initial Working Capital
Adjustment Amount, minus (iv) the Series B Preferred Stock Amount, minus (v) the
Management Bonus Amount (plus (i.e. an additional deduction from the Estimated
Merger Consideration) the amount of any payroll or similar taxes that are
payment obligations of the Company with respect thereto).
"Estimated Net Working Capital Amount" has the meaning set forth in
Section 3.2(a).
"Final Net Working Capital Amount" has the meaning set forth in Section
3.2(c).
"Financial Statements" has the meaning set forth in Section 4.4(a).
"Fundamental Representations and Warranties" means the representations and
warranties made by the Company in Section 4.1 (Due Organization, Good Standing
and Corporate Power), Section 4.2 (Capitalization), Section 4.3 (Stockholder
Approval; Authorization), Section 4.8 (Tax Matters), Section 4.13 (Employee
Benefits) and Section 4.18 (Brokerage) of this Agreement.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time consistently applied.
"Gaming Approvals" has the meaning ascribed to it in Section 6.5(a).
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"Gaming Authority" means, collectively, the Alderney Gambling Control
Commission, the Mississippi Gaming Commission, the Nevada Gaming Commission, the
Nevada State Gaming Control Board, the Gambling Commission of the United Kingdom
to be established pursuant to the Gambling Xxx 0000, the National Indian Gaming
Commission and any other tribal or Government Entity that holds regulatory,
licensing or permit authority over gaming activities conducted by any of the
Companies within its jurisdiction.
"Gaming Laws" means, collectively, (a) the Nevada Gaming Control Act, as
codified in Chapter 463 of the Nevada Revised Statutes, as amended from time to
time, together with the regulations of the Nevada Gaming Commission promulgated
thereunder, as amended from time to time, (b) the Mississippi Gaming Control
Act, as codified in Chapter 76 of the Mississippi Code Annotated, as amended
from time to time, together with the regulations of the Mississippi Gaming
Commission promulgated thereunder, as amended from time to time, (c) The
Gambling (Electronic Betting) (Alderney) Ordinance 2002, as amended from time to
time, together with the regulations of the Alderney Gaming Control Commission
promulgated thereunder, as amended from time to time, (d) the Gambling Xxx 0000
of the United Kingdom, as amended from time to time, together with any statutory
instruments passed in connection therewith and the regulations of the Gambling
Commission, as amended from time to time, and (e) all other domestic and foreign
laws and regulations pursuant to which any Gaming Authority possesses
regulatory, licensing or permit authority over gaming activities conducted by
any of the Companies within its jurisdiction.
"Government Entity" means any: (a) nation, principality, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction; (b) federal, state, local, municipal, foreign or other government;
(c) governmental or quasi governmental authority (including any governmental
division, subdivision, department, agency, bureau, branch, office, commission,
council, board, instrumentality, organization, unit, body or entity and any
court or other tribunal); (d) multinational organization or body; or (e) Person
exercising, or entitled to exercise, any executive, legislative, judicial,
administrative, regulatory, police, military or taxing authority. For the
avoidance of doubt, "Government Entity" includes all Gaming Authorities.
"Xxxx-Xxxxx-Xxxxxx Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976, as amended.
"Hazardous Substances" means (a) any and all substances, wastes,
pollutants, contaminants, and materials regulated, or defined or designated as
hazardous, dangerous or toxic, under any Environmental Law; (b) gasoline, diesel
fuel or other petroleum hydrocarbons; (c) PCBs, asbestos, mold or urea
formaldehyde foam insulation; and (d) natural gas, synthetic gas and any
mixtures thereof.
"Indebtedness" means (a) all indebtedness incurred under credit facilities
or other borrowed money from a bank, including all accrued and unpaid interest
thereon, (b) all indebtedness evidenced by a note, bond or debenture, including
all accrued and unpaid interest thereon, and (c) all outstanding payment
obligations under capital leases; provided that, for the avoidance of doubt, the
following shall not be considered "Indebtedness": (i) rent or lease obligations
pursuant to real property leases or automobile leases, (ii) current trade
Liabilities,
6
(iii) letters of credits that have not been drawn down upon, (iv) intracompany
Liabilities and (v) the Termination Fee.
"Indemnification Claim Notice" has the meaning set forth in Section
8.5(a).
"Indemnified Party" has the meaning set forth in Section 8.5(a).
"Indemnifying Party" has the meaning set forth in Section 8.5(a).
"Independent Auditors" has the meaning set forth in Section 3.2(c).
"Initial Working Capital Adjustment Amount" means (i) if the Estimated
Working Capital Amount is greater than zero, a positive number equal to the
excess of the Estimated Working Capital Amount over zero, and (ii) if the
Estimated Working Capital Amount is less than zero, a negative number equal to
the amount by which zero exceeds the Estimated Working Capital Amount.
"Insurance Policies" has the meaning set forth in Section 4.14(a).
"Intellectual Property" means all intellectual property rights, including:
(i) all patents and applications therefor and all reissues, divisions, renewals,
extensions, provisionals, continuations and continuations-in-part thereof
("Patents"); (ii) all inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, research and development, formulas,
process formulations, processes, proprietary information, technology, technical
information, data lists, engineering procedures, standard operating procedures
(including bills of materials) and all documentation relating to any of the
foregoing; (iii) all copyrights, copyrights registrations, rights in databases,
maskwork rights, maskwork registrations, and applications therefor, and all
other rights corresponding thereto throughout the world ("Copyrights"); (iv) all
trade names, logos, domain names, common law trademarks and service marks, brand
names, trademark and service xxxx registrations and applications therefor
("Trademarks"); (v) all software, including all software code recorded on or in
any medium and whether embedded or in object code or source code form (excluding
"shrink wrapped" software which is generally available to the public); (vi) all
documentation of software design including, without limitation, the original
design requirements, flowcharts, software specifications, notations explaining
code, details of modifications, and descriptions and details of known software
errors; (vii) all customer lists, mailing lists, and know-how; and (viii) any
similar or equivalent rights to any of the foregoing, together with the goodwill
and the business appurtenant thereto, all rights derived therefrom and any
claims or causes of action arising out of or related to any infringement or
misappropriation of any of the foregoing.
"Latest Balance Sheet" means the unaudited consolidated balance sheet of
the Company as of May 31, 2005.
"Leased Real Property" has the meaning set forth in Section 4.11(b).
"Legal Requirement" means any law, statute, legislation, constitution,
principle of common law, resolution, ordinance, code, judgment, order, decree,
treaty, rule, regulation, ruling or determination of an arbitrator or Government
Entity, including, without limitation, any law
7
(including Gaming Laws), regulation, ruling applicable to, or the terms of any
license or approval granted by a Government Entity concerning, the Business or
the Companies.
"Letter of Intent" means that certain letter of intent, dated July 5,
2005, between Buyer and the Company.
"Liability" means any debt, guaranty, endorsement, claim, loss, damage,
deficiency, cost, expense, obligation, or liability of a similar nature
(including any unknown, undisclosed, unmatured, unaccrued, unasserted,
contingent, conditional, joint or several liability).
"Lien" means any claim, charge, encumbrance, covenant, security interest,
lien, mortgage, deed of trust, hypothecation, pledge, rights of others,
restriction of any kind, whether imposed by agreement, law, equity or otherwise.
"Loss" means any cost, damage, disbursement, expense, liability, loss,
deficiency, obligation, penalty or settlement of any kind or nature, including
but not limited to, interest or other carrying costs, penalties, legal,
accounting and other professional fees and expenses incurred in the
investigation, collection, prosecution and defense of valid claims and amounts
paid in settlement, that may be imposed on or otherwise incurred or suffered by
the specified person.
"Management Bonus Amount" means $900,000.
"Management Bonus Recipients" means those members of the Company's
management identified on Schedule II receiving payments up to the amounts
specified on Schedule II.
"Material Adverse Effect" means a material adverse change, event,
circumstance or development with respect to, or material adverse effect on, (i)
the business, assets, liabilities, capitalization, condition (financial or
otherwise), results of operations or prospects of the Company and its
Subsidiaries, taken as a whole, (ii) the ability of the Company to consummate
the transactions contemplated by this Agreement or (iii) the ability of Buyer to
operate the business of the Company and each of its Subsidiaries immediately
after the Closing in the same manner as conducted on the date hereof; provided,
however, none of the following in and of itself or themselves shall be deemed to
constitute a Material Adverse Effect: (x) any adverse change, event,
circumstance or development to the extent directly attributable to the
announcement or pendency of the Merger (including cancellations in customer
orders, any reductions in sales, any loss of employees, any disruption in
customer, supplier, distributor, partner or similar relationships or any failure
to renewal any existing contracts); or (y) any adverse change, event,
circumstance or development resulting from or relating to compliance with the
terms of, or the taking of any action required by, this Agreement.
"Material Contracts" has the meaning set forth in Section 4.15(b).
"Merger" has the meaning set forth in the recitals.
"Merger Sub" has the meaning set forth in the preamble.
8
"Net Working Capital Amount" means the Current Assets less the Current
Liabilities of the Company, on a consolidated basis.
"Non Disclosure Agreement" means that certain Non Disclosure Agreement,
dated March 23, 2005, between Buyer and the Company.
"Option and Warrant Shares" means the shares of Company Common Stock
issuable upon the exercise of the Stock Options, Common Stock Warrants and
Preferred Stock Warrants outstanding immediately prior to the Effective Time to
the extent the respective exercise price of each is less than the Per Share
Merger Consideration (taking into account the conversion to Company Common Stock
of the Company Preferred Stock issuable upon the exercise of the Preferred Stock
Warrants). For the purpose of this definition, the number of shares of Company
Common Stock issuable upon the exercise of the Preferred Stock Warrants shall
equal the aggregate number of shares of Company Common Stock that the shares of
Company Preferred Stock (for which the Preferred Stock Warrants are then
exercisable) are then convertible into.
"Party" means any party to this Agreement.
"Per Share Escrow Amount" means the quotient determined by dividing the
Escrow Amount less $900,000 by the sum of (i) the number of shares of Company
Common Stock outstanding immediately prior to the Effective Time (after giving
effect to the conversions contemplated by Section 6.8), plus (ii) the number of
Option and Warrant Shares.
"Per Share Merger Consideration" means the quotient determined by dividing
the Estimated Merger Consideration by the sum of (i) the number of shares of
Company Common Stock outstanding immediately prior to the Effective Time (after
giving effect to the conversions contemplated by Section 6.8), plus (ii) the
number of Option and Warrant Shares.
"Permits" has the meaning set forth in Section 4.21.
"Permitted Liens" means (i) Liens for Taxes or assessments and similar
charges, which are not yet due or delinquent or are being contested in good
faith and by appropriate proceedings, (ii) zoning, building and other similar
restrictions imposed by applicable Legal Requirements, (iii) mechanics'
carriers', workmen's, repairmen's or other similar Liens arising or incurred in
the ordinary course of business and (iv) other Liens, imperfections of title or
encumbrances that do not materially impair the operations of the Business as
presently conducted.
"Person" means an individual, a partnership, a corporation, a firm, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization, an estate, a labor union, a
Government Entity or other legal entity.
"Pre-Closing Taxes" means unpaid Taxes of the Companies from a taxable
period that closes on or before the Closing Date.
"Preferred Stock Warrants" has the meaning set forth in Section
6.7(b)(ii).
"Release" means any release, spill, emission, leaking, pumping, pouring,
injection, escaping, deposit, disposal, discharge, disposal, dumping, leaching
or migration of substances
9
into the indoor or outdoor environment, including the movement of substances
through the air, soil, surface water or groundwater.
"Required Stockholder Approval" has the meaning set forth in Section
4.3(a).
"Series B Preferred Stock Price" means $2.8844 (which is the liquidation
preference of the Series B Preferred Stock as set forth in the Company's Third
Amended and Restated Certificate of Incorporation).
"Series B Preferred Stock Amount" means the product of (i) the number of
shares of Series B Preferred Stock outstanding at the Closing Date multiplied by
(ii) the Series B Preferred Stock Price.
"Stockholders" means the holders of Company Capital Stock.
"Stockholders' Representative" has the meaning set forth in Section 10.14.
"Stock Option Plans" has the meaning set forth in Section 6.7(a).
"Stock Options" has the meaning set forth in Section 6.7(a).
"Straddle Period" means a taxable period that includes (but does not end
on) the Closing Date.
"Straddle Period Taxes" means unpaid Taxes of the Companies arising from a
Straddle Period.
"Subsidiary" means a subsidiary of the Company.
"Surviving Company" has the meaning set forth in Section 2.1.
"Tax" or "Taxes" means any federal, state, local or foreign income, gross
receipts, capital stock, franchise, profits, payroll, employment, withholding,
social security, unemployment, disability, real property, ad valorem/personal
property, stamp, excise, license, occupation, sales, use, transfer,
registration, value added, alternative minimum, estimated or other tax (whether
imposed by way of a withholding or deduction for or on account of tax or
otherwise), including any interest, penalty or addition thereto, whether
disputed or not.
"Tax Returns" means any return, report, information return, election or
other document relating to Taxes (including schedules or any related or
supporting information) and any amendment thereof.
"Termination Fee" means the $4.5 million deposit paid by Buyer pursuant to
the terms of the Letter of Intent.
"Third Party Claim" has the meaning set forth in Section 8.5(a).
"Transaction Documents" means this Agreement, the Escrow Agreement and the
Employment Agreements.
10
"Transferred Company Employee" has the meaning set forth in Section 7.3.
"WARN Act" has the meaning set forth in Section 4.16(c).
"VAT" means the value added tax imposed by the United Kingdom Value Added
Tax Xxx 0000 as amended or any tax or imposition of a similar nature which may
be substituted in its place or any other value added or sales tax applicable in
any other country.
ARTICLE II.
MERGER
2.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the DGCL, Merger Sub shall be merged with
and into the Company at the Effective Time (as defined in Section 2.2).
Following the Merger, the separate corporate existence of Merger Sub shall cease
and the Company shall continue as the Surviving Company (the "Surviving
Company") and shall succeed to and assume all the rights and obligations of the
Company and of Merger Sub in accordance with the DGCL.
2.2 Effective Time. On the Closing Date, the Parties shall execute and
file the Certificate of Merger with the Delaware Secretary of State. The Merger
shall become effective at such time as the Certificate of Merger is duly filed
with the Delaware Secretary of State in accordance with the provisions of
Section 251 of the DGCL, or at such later time as may be stated in the
Certificate of Merger (the date and time of such filing, or such later date or
time as may be set forth therein, being the "Effective Time").
2.3 Effects of the Merger. At and after the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers, licenses, authorizations and franchises of Merger Sub and
the Company shall be vested in the Surviving Company, and all debts, liabilities
and duties of Merger Sub and the Company shall become the debts, liabilities and
duties of the Surviving Company.
2.4 Certificate of Incorporation and Bylaws. At the Effective Time, the
certificate of incorporation and bylaws of the Surviving Company shall be
amended and restated in their entirety to read as set forth on Exhibit D and
Exhibit E, respectively, until thereafter changed or amended as provided therein
or by applicable law.
2.5 Directors and Officers.
(a) Directors. Effective as of the Effective Time, each of the
directors of the Company shall resign from the board of directors of the
Company. The directors of Merger Sub immediately prior to the Effective Time
shall continue as the directors of the Surviving Company at the Effective Time,
until the earlier of their respective resignation or removal or until their
respective successor is duly elected and qualified, as the case may be.
11
(b) Officers. The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Company and shall
hold office until the earlier of their death, resignation or removal.
2.6 Additional Actions. If, at any time after the Effective Time, the
Surviving Company determines or is advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Company its right, title or interest in, to or under any of the rights,
properties or assets of Merger Sub or the Company or otherwise to carry out this
Agreement, the officers and directors of the Surviving Company shall have the
power and authority to execute and deliver, in the name and on behalf of each
constituent corporation, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each constituent
corporation, all such other actions and things as may be necessary or desirable
to vest, perfect or confirm any and all right, title and interest in, to and
under such rights, properties or assets in the Surviving Company or otherwise to
carry out this Agreement.
2.7 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Buyer, Merger Sub, the Company, the
Equityholders or the holders of any shares of capital stock of Merger Sub:
(a) Capital Stock of Merger Sub. Each share of the capital stock of
Merger Sub issued and outstanding immediately prior to the Effective Time shall
be converted into and will become a validly issued, fully paid and
non-assessable outstanding share of common stock of the Surviving Company.
(b) Treasury Stock of the Company. Each share of Company Capital
Stock held in the treasury of the Company shall be canceled without any
conversion thereof and no payment or distribution shall be made with respect
thereto.
(c) Conversion of Series B Preferred Stock. Each issued and
outstanding share of Series B Preferred Stock, including shares of Series B
Preferred Stock issued and outstanding by virtue of the exercise of the
Preferred Stock Warrants on or prior to the Effective Time (other than (i)
shares canceled in accordance with Section 2.7(b) and (ii) Dissenting Shares (as
defined below)), shall be converted into the right to receive, upon surrender of
the certificate representing such share of Series B Preferred Stock, an amount
in cash equal to the Series B Preferred Stock Price.
(d) Conversion of Outstanding Company Common Stock. Each issued and
outstanding share of Company Common Stock including shares issued and
outstanding by virtue of the exercise or conversion of the Stock Options, Common
Stock Warrants, Preferred Stock Warrants and other convertible securities of the
Company that are exercised or converted into Company Common Stock on or prior to
the Effective Time (other than (i) shares canceled in accordance with Section
2.7(b) and (ii) Dissenting Shares) shall be converted into the right to receive,
subject to the adjustment provided in Section 3.2, the Per Share Merger
Consideration. Payment of the Per Share Merger Consideration to holders of
Company Common Stock shall be subject to a holdback by Buyer of the Per Share
Escrow Amount. The aggregate Per Share
12
Escrow Amount withheld by Buyer pursuant to this Section 2.7(d), shall be
deposited with the Escrow Agent by Buyer at the Closing in accordance with
Section 3.3.
(e) After the Effective Time, all shares of Company Capital Stock
shall no longer be outstanding and each holder of a certificate representing any
such shares shall cease to have any rights with respect thereto other than the
right to receive cash in consideration therefor upon the surrender of such
certificate; provided, however, that holders of Dissenting Shares shall have the
rights set forth in Section 2.8.
(f) The Stock Options, Common Stock Warrants and Preferred Stock
Warrants that are not exercised prior to the Closing will be treated as set
forth in Section 6.7.
(g) Attached as Schedule I is a spreadsheet illustrating the
allocation of the Estimated Merger Consideration among the Equityholders (as
well as the Applicable Ownership Percentage and aggregate Per Share Escrow
Amount for each Equityholder) and the allocation of the Series B Preferred Stock
Amount among the holders of Series B Preferred Stock and Preferred Stock
Warrants, assuming that (A) the Initial Working Capital Adjustment Amount is
zero and (B) none of the Stock Options, Common Stock Warrants and Preferred
Stock Warrants outstanding as of the date hereof are exercised on or before the
Closing.
2.8 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
shares of Company Capital Stock that are outstanding immediately prior to the
Effective Time and which are held by Stockholders who shall not have voted in
favor of the Merger or consented thereto in writing and who shall have demanded
properly in writing appraisal for such shares in accordance with Section 262 of
the DGCL (collectively, the "Dissenting Shares") shall not be converted into or
represent the right to receive the Per Share Merger Consideration. Such
Stockholders shall be entitled to receive such consideration as is determined to
be due with respect to such Dissenting Shares in accordance with the provisions
of Section 262, except that all Dissenting Shares held by Stockholders who shall
have failed to perfect or who effectively shall have withdrawn or lost their
rights to appraisal of such shares under Section 262 shall thereupon be deemed
to have been converted into and to have become exchangeable for, as of the
Effective Time, the right to receive (i) with respect to Company Common Stock,
the Per Share Merger Consideration (less the Per Share Escrow Amount, which will
be withheld by Buyer pursuant to Section 2.7(d)), without any interest thereon,
upon surrender, in the manner provided in Section 2.9, of the certificate or
certificates that formerly evidenced such Dissenting Shares, or (ii) with
respect to Series B Preferred Stock, the Series B Preferred Stock Price, without
any interest thereon, upon surrender, in the manner provided in Section 2.9, of
the certificate or certificates that formerly evidenced such Dissenting Shares.
(b) The Company shall give Buyer (i) prompt notice of any demands
for appraisal received by the Company, withdrawals of such demands, and any
other instruments served pursuant to the DGCL and received by the Company and
(ii) the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the DGCL. The Company shall not, except with the
prior written consent of Buyer, make any payment with respect to any demands for
appraisal or offer to settle or settle any such demands.
13
2.9 Exchange Procedures; Distributions with Respect to Unexchanged Shares;
Stock Transfer Books.
(a) As soon as practicable after the Effective Time, but in no event
later than three business days thereafter, Buyer shall send to each Person who
was, at the Effective Time, a holder of record of certificates which represented
outstanding Company Common Stock or Series B Preferred Stock (the
"Certificates") which shares were converted into the right to receive the Per
Share Merger Consideration or Series B Preferred Stock Price, as applicable,
pursuant to Section 2.7, a letter of transmittal which (i) shall specify that
delivery shall be effected and risk of loss and title to such Certificates shall
pass, only upon actual delivery thereof to the Buyer and (ii) shall contain
instructions for use in effecting the surrender of the Certificates. Upon
surrender to the Buyer of Certificates for cancellation, together with such
letter of transmittal duly executed, such holder shall be entitled to receive
(and Buyer shall mail within five business days thereafter) in exchange therefor
the Per Share Merger Consideration (less the Per Share Escrow Amount, which will
be withheld by Buyer pursuant to Section 2.7(d)) or Series B Preferred Stock
Price, as applicable to the shares so surrendered and the Certificates so
surrendered shall then be canceled. Subject to Section 2.9(b), until surrendered
as contemplated by this Section 2.9(a), each Certificate, from and after the
Effective Time, shall be deemed to represent only the right to receive, upon
such surrender, (i) as to Certificates that formerly represented shares of
Company Common Stock, the Per Share Merger Consideration (less the Per Share
Escrow Amount, which will be withheld by Buyer pursuant to Section 2.7(d)), and
(ii) as to Certificates that formerly represented shares of Series B Preferred
Stock, the Series B Preferred Stock Price.
(b) If any portion of the Per Share Merger Consideration or Series B
Preferred Stock Price, as applicable, is to be paid to any Person other than the
registered holder of the Certificate surrendered in exchange therefor, it shall
be a condition to such exchange that such surrendered Certificate shall be
properly endorsed and otherwise in proper form for transfer and such Person
either (i) shall pay to the Buyer any transfer or other taxes required as a
result of the distribution of such cash payment to such Person or (ii) shall
establish to the reasonable satisfaction of the Buyer that such tax has been
paid or is not applicable. Buyer shall be entitled to deduct and withhold from
the consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Capital Stock such amounts as Buyer is required to deduct and
withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by Buyer, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the shares of Company
Capital Stock in respect of which such deduction and withholding was made by
Buyer. All amounts in respect of taxes received or withheld by Buyer shall be
disposed of by Buyer in accordance with the Code or such state, local or foreign
tax law, as applicable.
(c) If any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed and subject to such other conditions
as the Board of Directors of Buyer may impose, Buyer shall issue in exchange for
such lost, stolen or destroyed Certificate the Per Share Merger Consideration or
Series B Preferred Stock Price, as applicable, in respect of such Certificate.
When authorizing such issue of the Per Share Merger Consideration or Series B
Preferred Stock Price, as applicable, in exchange for such Certificate, the
Board of Directors of Buyer (or any
14
authorized officer thereof) may, in its reasonable discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificate to enter into an indemnity agreement, in form and
substance reasonably acceptable to Buyer, against any claim that may be made
against Buyer or the Surviving Company with respect to the Certificate alleged
to have been lost, stolen or destroyed.
(d) At the close of business on the day on which the Effective Time
occurs, the stock transfer books of the Company shall be closed and thereafter
there shall be no further registration of transfers of shares of Company Capital
Stock on the records of the Company. From and after the Effective Time, the
holders of shares of Company Capital Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares except
as otherwise provided herein or by applicable Law.
(e) To the fullest extent permitted by applicable Law, neither Buyer
nor the Company shall be liable to any former holder of Company Capital Stock
for any of the Per Share Merger Consideration or Series B Preferred Stock Price,
as applicable, which is delivered to a public official pursuant to an official
request under any applicable abandoned property, escheat or similar law.
2.10 No Further Ownership Rights in Company Capital Stock. All cash
delivered upon the surrender for exchange of any Certificate in accordance with
the terms hereof shall be deemed to have been paid in full satisfaction of all
rights pertaining to the Company Capital Stock previously represented by such
Certificate.
2.11 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing"), shall take place at 10:00 a.m. California time at the
offices of O'Melveny & Xxxxx LLP, 000 Xxxxxxx Xxxxxx Xxxxx, 00xx Xxxxx, Xxxxxxx
Xxxxx, Xxxxxxxxxx 00000-0000 (or at such other location as the Parties may
agree), on a date to be specified by the Parties, which shall be no later than
the second business day after satisfaction or waiver of the conditions set forth
in Article IX, unless another time, date or place is agreed to by the Parties.
The date and time of the Closing are referred to as the "Closing Date."
ARTICLE III.
CERTAIN PAYMENTS AND ADJUSTMENTS
3.1 Payment of Indebtedness. Buyer shall deliver payment in respect of any
Indebtedness of the Company as of the Closing Date, as set forth in payoff
letters executed and delivered by the holders of such Indebtedness or
obligations, to Buyer and the Company at least two (2) Business Days prior to
the Closing, in form and substance reasonably satisfactory to Buyer.
3.2 Working Capital Adjustment.
(a) At least five (5) business days prior to the Closing Date, the
Company shall deliver to Buyer an estimated balance sheet as of July 31, 2005
and a good faith written estimate of the Net Working Capital Amount as of July
31, 2005. The Company and Buyer shall discuss such draft reports in advance of
the Closing and the Company shall consider in good
15
faith revising such draft reports to reflect Buyer's reasonable comments. The
estimated balance sheet as of July 31, 2005, in the form mutually agreed to by
Buyer and the Company prior to the Closing is referred to herein as the
"Estimated Balance Sheet". The estimate of the Net Working Capital Amount as of
July 31, 2005, in the form mutually agreed to by Buyer and the Company prior to
the Closing is referred to herein as the "Estimated Net Working Capital Amount".
It is a mutual condition to Closing that Buyer and the Company mutually agree on
the Estimated Net Working Capital Amount unless either Buyer or the Company
shall elect for the Escrow Amount to be increased by the difference between
Buyer's reasonable good faith estimate of the Net Working Capital Amount as of
July 31, 2005 and the Company's reasonable good faith estimate of the Net
Working Capital Amount as of July 31, 2005. Buyer and the Stockholders'
Representatives shall cooperate in good faith to resolve any such disagreement
as soon as practicable, with the agreed upon portion of such increased Escrow
Amount to be released from escrow upon a joint written instruction of Buyer and
the Stockholders' Representatives to that effect to the Escrow Agent.
(b) Within forty five (45) days after the Closing Date, the Buyer
will prepare and deliver to the Stockholders' Representatives a balance sheet of
the Company as of the opening of business on July 31, 2005 (the "Closing Balance
Sheet"), including a calculation of the Net Working Capital Amount as of July
31, 2005 (the "Closing Net Working Capital Amount").
(c) The Stockholders' Representatives shall have a period commencing
upon delivery of the Closing Balance Sheet by Buyer and expiring twenty (20)
days after such delivery date to review the Closing Balance Sheet. In the event
the Stockholders' Representatives dispute the determination of the Closing Net
Working Capital Amount, the Stockholders' Representatives shall, within twenty
(20) days after delivery of the Closing Balance Sheet, deliver a notice to Buyer
(the "Adjustment Dispute Notice"), setting forth in reasonable detail the
component or components which are in dispute and the basis of such dispute. If
the Stockholders' Representatives fail to deliver an Adjustment Dispute Notice
to Buyer within twenty (20) days after Buyer's delivery of the Closing Balance
Sheet, then the Equityholders shall be bound by the calculation of the Closing
Net Working Capital Amount that accompanied the Closing Balance Sheet prepared
by the Buyer, and the Closing Net Working Capital Amount shall be deemed to be
the Final Net Working Capital Amount, and any required payments shall be made
pursuant to Section 3.2(d) below based on such Final Net Working Capital Amount.
If the Stockholders' Representatives deliver the Adjustment Dispute Notice
within such twenty (20) day period, then Buyer and the Stockholders'
Representatives will use reasonable efforts to resolve any such dispute within
thirty (30) days after receipt by Buyer of the Adjustment Dispute Notice. If
Buyer and the Stockholders' Representatives fail to resolve any such dispute
within thirty (30) days after receipt by Buyer of the Adjustment Dispute Notice,
they shall submit the dispute to Ernst & Young LLP (the "Independent Auditors")
to review the Closing Net Working Capital Amount, set forth on the Closing
Balance Sheet. Buyer and the Stockholders' Representatives shall make available
to the Independent Auditors all work papers and all other information and
material in their possession relating to the matters in the Adjustment Dispute
Notice. The Independent Auditors shall be instructed to use its commercially
reasonable efforts to deliver its determination as promptly as practicable after
such submission of the dispute to the Independent Auditors. The Parties hereby
expressly agree that the determination of the Independent Auditors shall be
final and binding on the parties (absent
16
fraud or manifest bad faith by the Independent Auditors). The Closing Net
Working Capital Amount on the Closing Balance Sheet as determined by the Buyer
(if not disputed), or as modified (if at all) by agreement of the Buyer and the
Stockholders' Representatives or by decision of the Independent Auditors, shall
be the "Final Net Working Capital Amount". Each Party shall bear its own
expenses and the fees and expenses of its own representatives and experts,
including any separate independent auditor it may engage, in connection with the
preparation, review, dispute (if any) and final determination of the Final Net
Working Capital Amount. The costs, expenses and fees of the Independent Auditors
shall be borne by the Equityholders, on the one hand (to be paid by joint
instruction from the Stockholders' Representatives and Buyer to the Escrow Agent
for release of such sums from the Escrow Account), and Buyer, on the other hand,
based on the percentage which the portion of the contested amount not awarded to
such Party bears to the amount actually contested by such Party. By way of
illustration, if Buyer claims before the Independent Auditors that the Final Net
Working Capital Amount is $1,000,000, and the Stockholders' Representatives
claims before the Independent Auditors that the Final Net Working Capital is
$1,500,000, and if the Independent Auditors ultimately resolve the dispute by
awarding Buyer $300,000 of the $500,000 difference, then the fees, costs and
expenses of the Independent Auditors shall be allocated 60% (i.e., 300,000 /
500,000) to the Equityholders and 40% (i.e., 200,000 / 500,000) to Buyer.
(d) Adjustment Payment.
(i) If the Final Net Working Capital Amount exceeds the
Estimated Net Working Capital Amount, then Buyer shall pay to each
Equityholder an amount equal to the product of (x) the difference between
the Final Net Working Capital Amount minus the Estimated Net Working
Capital Amount, multiplied by (y) such Equityholder's Applicable Ownership
Percentage (such amount to be referred to as an "Allocated Excess
Amount"). Each such Equityholder's Allocated Excess Amount shall be
payable to such Equityholder in cash. Any payment to be made by Buyer to
each such Equityholder pursuant to this Section 3.2(d)(i) shall be made by
wire transfer or delivery of other immediately available funds to an
account designated in writing by such Equityholder, within five (5)
Business Days after the determination of the Final Net Working Capital
Amount.
(ii) If the Final Net Working Capital Amount is less than the
Estimated Net Working Capital Amount, then Buyer and Stockholders'
Representatives shall, within five (5) Business Days after the
determination of the Final Net Working Capital Amount, deliver joint
instructions to the Escrow Agent to release to Buyer from the Escrow
Amount an amount equal to the excess of the Estimated Net Working Capital
Amount over the Final Net Working Capital Amount. Any such amount released
shall be deemed to be recovered from the Escrow Amount in accordance with
each Equityholder's and Management Bonus Recipient's Applicable Escrow
Ownership Percentage.
3.3 Deposit of Escrow Amount. At the Closing, Buyer shall deposit the
aggregate Per Share Escrow Amount withheld by Buyer pursuant to Section 2.7(d)
plus the Management Bonus Amount (aggregating to the Escrow Amount) into escrow
with the Escrow Agent as a fund for payment of indemnification claims, if any,
made by Buyer pursuant to this Agreement,
17
which fund shall be subject to the terms and conditions of the Escrow Agreement.
To the extent not used for such purposes, such funds shall be released for
payment of the Management Bonus Amount to the Management Bonus Recipients (on a
pro rata basis based on their initial percentage interest in the Management
Bonus Amount and after payment to the Company, from the Management Bonus Amount
portion of the Escrow Amount, of any required withholding amounts with respect
to such Management Bonus Amount) and to the Equityholders in accordance with
their respective interests, all as provided in the Escrow Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANIES
The Schedules to this Article IV are arranged in sections and paragraphs
corresponding to the numbered and lettered paragraphs contained in Article IV,
and each disclosure in such Schedules reference the specific section number of
Article IV to which such disclosure applies, provided that disclosure in one
section of Article IV may be deemed to qualify another section of Article IV if
it is reasonably clear, upon a reading of such disclosure without any
independent knowledge on the part of the reader regarding the matter disclosed,
that the disclosure would be expected to apply to such other section. The
Company represents and warrants to Buyer and Merger Sub, as of the date of this
Agreement and as of the Closing, that:
4.1 Due Organization, Good Standing and Corporate Power; Copies of
Organizational Documents.
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and each Subsidiary
is a corporation or other entity duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization. Each of
the Company and the Subsidiaries has the corporate power and authority to own
and lease its properties, to carry on the business presently conducted by it and
to perform the terms of this Agreement and the transactions contemplated hereby.
The Company and each of the Subsidiaries is duly qualified to conduct business
and is in good standing under the laws of its respective jurisdiction where such
qualification is required, other than in such jurisdictions where the failure to
be so qualified would not have a Material Adverse Effect. The jurisdictions in
which the Company and each of the Subsidiaries are qualified is listed on
Schedule 4.1. Schedule 4.1 also sets forth a list of all of the direct and
indirect Subsidiaries of the Company, including their respective jurisdiction of
organization. All of the Subsidiaries are directly or indirectly wholly owned by
the Company. Except as set forth on Schedule 4.1, the Company does not directly
or indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable for any equity or similar interest in, any Person other
than the Subsidiaries.
(b) The Company has previously delivered to Buyer a true and correct
copy of the third amended and restated certificate of incorporation and the
bylaws of the Company, each as amended to date (the "Company Charter
Documents"), as well as, except as set forth on Schedule 4.1(b), a true and
correct copy of the minute books and stock books of the Company and each of its
Subsidiaries, from the inception of the Company or such Subsidiary, as
applicable, containing all proceedings, consents, actions and meetings of
stockholders and the
18
board of directors of each such entity. The Company is not in violation of any
of the provisions of the Company Charter Documents. The Company has previously
delivered or made available to Buyer a true and correct copy of each
Subsidiary's charter and bylaws or equivalent organizational documents, each as
amended to date and in effect as of the date hereof.
4.2 Capitalization.
(a) The authorized capital stock of the Company on the date hereof
consists of (i) 44,000,000 shares of Company Common Stock, $0.001 par value per
share, 10,864,581 of which are issued and outstanding, and (ii) 19,666,588
shares of preferred stock, par value $0.001 per share, of which (A) 4,233,128
shares have been designated Series A Preferred Stock, 3,742,330 of which are
issued and outstanding, (B) 1,933,460 shares have been designated Series B
Preferred Stock, 1,733,460 of which are issued and outstanding and (C)
13,500,000 shares have been designated Series C Preferred Stock, 13,027,619 of
which are issued and outstanding. Schedule 4.2(a) sets forth a list of the
owners of record of all of the issued and outstanding shares of Company
Preferred Stock and Company Common Stock and, in the case of the Company Series
A and Series C Preferred Stock, the number of shares of Company Common Stock
into which such shares of Company Preferred Stock are convertible after giving
effect to all anti-dilution adjustments required to be made in accordance with
the Company Charter Documents and any outstanding contractual obligations
binding on the Company, in each case unless otherwise waived. No dividends have
been declared or accrued on any of the shares of Company Capital Stock.
(b) Except as set forth on Schedule 4.2(b), the Company does not
have outstanding any bonds, debentures, notes or other obligations the holders
of which have the right to vote (or convertible into or exercisable for
securities having the right to vote) with the Stockholders of the Company on any
matter.
(c) Except as set forth on Schedule 4.2(c), there are no outstanding
obligations or rights of the Company to repurchase, redeem or otherwise acquire
any shares of its capital stock or make any investment (in the form of a loan,
capital contribution or otherwise) in any other Person.
(d) All of the issued and outstanding shares of the Company Capital
Stock have been duly authorized and validly issued in accordance with applicable
laws, are fully paid and non-assessable and, except as set forth on Schedule
4.2(d), no preemptive rights exist with respect to the equity issuances of the
Company.
(e) Schedule 4.2(e) contains a list which is complete and accurate
in all respects as of the date hereof, of each outstanding Stock Option, Common
Stock Warrant, Preferred Stock Warrant or other stock based award to purchase or
acquire shares of Company Capital Stock, including whether or not the grant was
made under the Stock Option Plans, the holder, date of grant, exercise price,
type of option, whether the option contains an associated stock appreciation
right, vesting and acceleration provisions and numbers of shares subject
thereto. Except as set forth on Schedule 4.2(e), the Company has not granted any
options, warrants or other rights which are currently outstanding as of the date
hereof, or entered into any currently effective agreements, arrangements or
commitments of any character relating to the
19
issued or unissued capital stock of the Company, or obligating the Company to
issue or sell any shares of capital stock of, or other equity interests in the
Company or any Subsidiary, including any securities directly or indirectly
convertible into or exercisable or exchangeable for any capital stock or other
equity securities of the Company or any Subsidiary. Except as set forth above or
on Schedule 4.2(e), no shares of capital stock of the Company are reserved for
any purpose.
4.3 Stockholder Approval; Authorization; No Breach.
(a) The affirmative vote of the holders of at least (i) a majority
of the outstanding shares of the Company Common Stock and (ii) a majority of the
total number of shares of Company Preferred Stock outstanding, voting as a
class, are the only stockholder votes required for approval of the Merger and
the other transactions contemplated by this Agreement, in accordance with the
provisions of the Company Charter Documents, the DGCL and any other applicable
Legal Requirements (the "Required Stockholder Approval"). The Required
Stockholder Approval has been obtained by the Company as of the date hereof.
(b) The Companies have the power and authority to execute and
deliver each of the Transaction Documents to which any of them is a party, to
consummate the transactions contemplated thereby and to perform their
obligations under the Transaction Documents. The execution, delivery and
performance by the Companies of the Transaction Documents and any other
agreements contemplated thereby and the consummation by the Companies of the
transactions contemplated thereby have been duly authorized by all necessary
actions by the Companies. The Transaction Documents have been duly executed and
delivered by the Companies and constitute valid and legally binding obligations
of the Companies, enforceable against the Companies in accordance with the terms
thereof except that such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or affecting the
enforcement of creditors' rights generally and by principles of equity regarding
the availability of remedies. Upon execution and delivery of such documents, all
Transaction Documents to which any of the Companies is a party will be duly
executed and delivered and, assuming the due and valid authorization, execution
and delivery of each other party to such Transaction Documents, each Transaction
Document to which any of the Companies is a party constitutes a valid and
binding obligation of such entity and is enforceable against such entity in
accordance with its terms, except that such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws relating
to or affecting the enforcement of creditors' rights generally and by principles
of equity regarding the availability of remedies.
(c) Except as set forth on Schedule 4.3(c), the execution, delivery
and performance by the Companies of the Transaction Documents to which any of
them is a party do not and will not (i) violate or require any notice under any
Legal Requirement to which the Companies or any of their assets is subject, or
their organizational documents, (ii) conflict with, result in a breach of,
constitute a material default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any material agreement, contract, lease, license, instrument, or
other material arrangement to which any of the Companies are a party or by which
any of the Companies are bound or to which any of the assets of any of the
Companies are subject, (iii) result in the creation of any Lien on any
20
assets of any of the Companies, or (iv) require any authorization, consent or
approval of, or exemption or other action by or declaration or notice to any
third Person or Government Entity.
4.4 Financial Statements.
(a) Attached hereto as Exhibit F are true, correct and complete
copies of the following financial statements for the Company (collectively, the
"Financial Statements"):
(i) the audited consolidated balance sheet and related
consolidated statements of income, earnings and cash flows of the Company
for the fiscal years ended December 31, 2002, 2003 and 2004; and
(ii) the unaudited consolidated balance sheet and the related
consolidated statements of income, earnings and cash flows of the Company
for the five months ended May 31, 2005.
(b) Each Financial Statement (including any notes thereto) has been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby and fairly presents the financial condition of the
Companies, as of such dates and the results of operations of the Companies for
the periods specified; provided, that the Financial Statements described in
clause (ii) above are subject to the absence of footnotes and other presentation
items.
(c) None of the Companies has any Liability except for (i)
Liabilities set forth or provided for in the Latest Balance Sheet, (ii)
Liabilities that have arisen after the date of the Latest Balance Sheet in the
ordinary course of business consistent with past practice, (iii) Liabilities not
required under GAAP (applied on a consistent basis with that of the preceding
accounting periods) to be reported on the Latest Balance Sheet, (iv) Liabilities
for banking, legal and tax advisory and accounting fees and expenses incurred by
the Company in connection with the transactions contemplated by this Agreement,
(v) Liabilities for banking, legal and tax advisory and accounting fees and
expenses incurred by the Company in connection with its previously anticipated
initial public offering and (vi) the Management Bonus Amount. As of the date
hereof, there is no Indebtedness other than Indebtedness that would be included
in full in the Current Liabilities if such Indebtedness was outstanding on July
31, 2005.
(d) The Company makes and keeps books, records and accounts which,
in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Companies. The Company maintains systems of
internal accounting controls sufficient to provide reasonable assurances that:
(i) the Companies' transactions are executed in accordance with management's
general or specific authorization; (ii) the Companies' transactions are recorded
as necessary to permit the preparation of financial statements in conformity
with GAAP and to maintain accountability for assets; (iii) access to the
Companies' assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for the Companies'
assets is compared with the actual levels at reasonable intervals and
appropriate action is taken with respect to any differences.
4.5 Events Subsequent to the Latest Balance Sheet. Since the date of the
Latest Balance Sheet through the date of this Agreement:
21
(a) there has been no event or occurrence that has had a Material
Adverse Effect; and
(b) other than as set forth on Schedule 4.5(b) and except as
expressly contemplated by this Agreement, none of the Companies has:
(i) incurred any Indebtedness, made any loans or advance to
any Person, or incurred or become subject to any Liabilities (other than
Liabilities incurred in the ordinary course of business consistent with
past practice, Liabilities under contracts entered into in the ordinary
course of business and borrowings from banks (or similar financial
institutions) necessary to meet ordinary course working capital
requirements);
(ii) mortgaged, pledged, subjected to any Lien (other than
Permitted Liens) or sold any of their material assets;
(iii) cancelled or waived any claims or rights of value or
sold, assigned, transferred, leased or licensed any material asset or
material portion of their assets, except in the ordinary course of
business (an asset with a net book value of more than $25,000 or a portion
of assets with an aggregate net book value of more than $75,000 shall for
purposes of this clause be considered material);
(iv) sold, assigned, transferred, leased or licensed, or
entered into any settlement regarding the breach or infringement of, any
Intellectual Property, or modified any rights with respect thereto;
(v) suffered any loss or substantial interruption in use
(whether or not covered by insurance) to their properties or assets in
excess of $50,000, or waived any rights of value;
(vi) issued, sold or transferred any of their capital stock or
other equity securities, securities convertible into or exchangeable for
their capital stock or other equity securities or warrants, options or
other rights to acquire their capital stock or other equity securities, or
any bonds or debt securities;
(vii) made any capital expenditures or commitments therefore
in an aggregate amount greater than $25,000;
(viii) declared, set aside or made any payment or distribution
of cash or other property to stockholders with respect to their capital
stock, or purchased, redeemed or acquired any shares of their capital
stock;
(ix) granted any increase in the compensation of officers,
directors or employees, whether now or hereafter payable, including any
such increase pursuant to any option, bonus, stock purchase, pension,
profit sharing, deferred compensation, retirement payment or other plan,
arrangement, contract or commitment;
(x) made any changes in any employee compensation or benefits,
or in any severance or termination agreement, commitment or transaction,
other than routine
22
salary increases in the ordinary course of business consistent with past
practices for employees whose annual compensation is less than $100,000;
(xi) adopted, amended, modified, or terminated any Employee
Benefit Plan or any incentive compensation, severance, termination,
retention, change in control or similar arrangement or employment
contract;
(xii) hired any new employees at an annual compensation rate
in excess of $100,000 or terminated any such personnel having an annual
salary rate of compensation in excess of $100,000;
(xiii) sold, leased or transferred any interest in any of
their assets to, or entered into any agreement with, any of their
officers, managers or directors or any Affiliate of any of the Companies;
(xiv) amended any of the Companies' organizational documents;
(xv) changed any of their accounting principles or practices
from those set forth in or reflected by the Financial Statements;
(xvi) entered into any Material Contract, or amended,
terminated or otherwise modified any Material Contract, or received any
notice of termination of any Material Contract;
(xvii) entered into any agreement or arrangement with any of
their officers, directors, managers, employees, stockholders, members or
their Affiliates;
(xviii) agreed, whether orally or in writing, to do any of the
foregoing.
4.6 Title to Assets. The Companies have good and marketable title to, or a
valid leasehold interest in, the personal property used in the conduct of the
Business, reflected on the Latest Balance Sheet or acquired since the date
thereof, free and clear of all Liens (except Permitted Liens), except assets
disposed of in the ordinary course of business consistent with past practice
since the date of the Latest Balance Sheet. The personal property owned or used
by the Companies is free from material defects, is in good operating condition
and repair so as to permit the operation of the Business as presently conducted,
and is suitable for the purposes for which it is presently used. Except as set
forth in Schedule 4.6, no personal property used by the Companies in connection
with the Business is held under any lease, security agreement, conditional sales
contract, or other title retention or security arrangement, or is located other
than in the possession of any of the Companies.
4.7 Compliance With Laws.
(a) Each of the Companies have complied and are in compliance with
all applicable Legal Requirements, and during the five (5) year period prior to
the Closing Date, none of the Companies has received any written notice of any
asserted failure to comply with any Legal Requirement. None of the Companies nor
any director or officer of any of the Companies has received any written claim,
demand, notice, complaint, court order or
23
administrative order from any Government Entity in the past three years,
asserting that a license of it or them, as applicable, under any Gaming Laws is
being or may be revoked or suspended.
(b) To the Company's knowledge, to date, no resident of the United
States or Australia has engaged in internet gambling activities on internet
gambling systems provided, licensed or maintained by the Company. The Company
has taken reasonable steps to assure that residents of the United States and
residents of Australia do not engage in internet gambling on internet gambling
systems provided, licensed or maintained by the Company.
4.8 Tax Matters. Except as set forth on Schedule 4.8: (i) the Companies
have timely filed or will file all required Tax Returns and all such Tax Returns
were true, correct and complete; (ii) all Taxes shown as owing by the Companies
on all such Tax Returns have been fully paid or properly accrued; (iii) the
provision for Taxes on the Latest Balance Sheet is sufficient for all accrued
and unpaid Taxes, whether or not due and payable and whether or not disputed, of
the Companies as of the date thereof; (iv) none of the Companies has incurred or
become subject to any material Tax, either individually or in the aggregate,
since the date of the Latest Balance Sheet except for Taxes incurred in the
ordinary course of business consistent with past practices; (v) no deficiency or
proposed adjustment which has not been paid or resolved has been asserted or
assessed by any taxing authority against the Companies; (vi) none of the
Companies has consented to extend the time in which any Tax may be assessed or
collected by any taxing authority; (vii) there are no ongoing or pending Tax
audits by any taxing authority against the Companies, nor is there any
litigation pending or proposed with respect to any Tax liability relating to the
Companies, and none of the Companies has been notified by any taxing authority
that any Tax Return will be examined; (viii) there are no Liens (other than
Permitted Liens) for Taxes upon the assets, properties, earnings or business of
the Companies; (ix) none of the Companies is a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or in the
aggregate, in the payment of any "excess parachute payment" within the meaning
of Section 280G of the Code (or any corresponding provision of state, local or
foreign Tax law) in connection with the Merger; (x) none of the Companies is a
party to or bound by any Tax allocation or sharing agreement; (xi) none of the
Companies has any liability for the Taxes of any Person under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise; (xii)
none of the Companies currently is the beneficiary of any extension of time
within which to pay any Tax or to file any Tax Return; (xiii) the Companies have
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party; (xiv) no property of the Companies
is "tax-exempt use property" within the meaning of Section 168(h) of the Code;
(xv) none of the Companies is a party to any lease made pursuant to former
Section 168(f)(8) of the Internal Revenue Code of 1954; (xvi) the Companies have
disclosed on their consolidated federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Code Section 6662; (xvii) none of the Companies has
been a United States real property holding corporation within the meaning of
Code Section 897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii); (xviii) none of the Companies will be required to include in
income during a taxable period that ends after the Closing Date any income that
economically accrued and was accounted for prior to the Closing Date by reason
of the installment method of accounting, the completed method of accounting or
otherwise; (xix) none of the Companies has engaged in a "reportable
transaction,"
24
as set forth in Treas. Reg. Section 1.6011-4(b), or any transaction that is the
same as or substantially similar to one of the types of transactions that the
IRS has determined to be a tax avoidance transaction and identified by notice,
regulation, or other form of published guidance as a "listed transaction," as
set forth in Treas. Reg. Section 1.6011-4(b)(2); (xx) none of the Companies has,
within the immediately preceding two years, been a "distributing corporation" or
a "controlled corporation" in a transaction subject to Code Section 355(e);
(xxi) the Companies are duly registered for the purposes of any applicable VAT
and have complied with all statutory provisions, regulations, orders and
directions in respect of VAT, and (xxii) no power of attorney has been granted
by the Companies with respect to any matter relating to Taxes which is currently
in force. The Companies have delivered or made available to Buyer correct and
complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by the Companies since
December 31, 2001.
4.9 Environmental Matters.
(a) The Companies have been in the past and currently are in
compliance, in all material respects, with all applicable Environmental Laws.
For purposes of this Section 4.9, the term "Companies" shall include the
Companies and any predecessors of the Companies. No event has occurred or
circumstance exists that (with or without notice or lapse of time) (A) would
constitute or result in a violation by any of the Companies of, or a failure on
any of their parts to comply with in any material respect, any applicable
Environmental Law or (B) would give rise to any obligation on the part of any of
the Companies to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature.
(b) The Companies possess and are in material compliance with, and
have at all times in the past possessed and been in material compliance with,
all permits, licenses, certificates, franchises and other authorizations
relating to the Environmental Laws necessary to conduct the Business.
(c) The Companies' operations have not resulted in any Release of
Hazardous Substances, and no Hazardous Substances are present at levels
requiring investigation or remediation in, on, under or about (i) any real
property currently or in the past owned, leased or operated by the Companies, or
(ii) any other property with respect to which the Companies have disposed or
arranged for the disposal of waste thereon.
(d) The Companies have not manufactured, generated, used,
transported, stored, treated or disposed of or arranged for the disposal of
Hazardous Substances in violation of any Environmental Laws.
(e) The Companies do not own or operate, and have not owned or
operated, any underground storage tanks and no underground tanks are located in,
at, on or under property now owned, leased or operated by the Companies, and, to
the knowledge of the Companies, no underground storage tanks have been located
in, at, on or under property formerly owned, leased or operated by the
Companies.
(f) The Companies do not manufacture, sell or distribute, and have
not manufactured, sold or distributed in the past, materials or products
containing asbestos.
25
(g) The Companies have delivered or made available to Buyer true and
complete copies of all (A) notices received by any of the Companies concerning
any environmental investigation or violation or alleged violation of any
Environmental Law and (B) environmental reports, information and studies
performed by or on behalf of, or otherwise within the possession or control, of
any of the Companies with respect to past or present environmental conditions or
compliance with Environmental Laws at any property presently or formerly owned,
leased or operated by any of the Companies.
(h) None of the Companies nor any of the Companies' present or
formerly owned, leased or operated properties or operations are the subject of
any proceeding, settlement, or contract relating to Environmental Laws or
Hazardous Substances, nor has any investigation been commenced or, to the
knowledge of the Companies, is any proceeding threatened against the Companies
alleging any violation or liability under Environmental Laws and no notice has
been received by any of the Companies alleging any violation of or liability
under any Environmental Laws, or requiring or seeking to impose upon any of the
Companies, any property presently or formerly owned, leased or operated by any
of the Companies, or any operation of any of the Companies, any investigatory or
remedial action or obligation under any Environmental Law.
4.10 Intellectual Property.
(a) Except as set forth in Schedule 4.10(a), the Companies are the
exclusive owners of all right, title and interest in and to (free and clear of
all Liens), or otherwise possess legally enforceable rights to use, all
Intellectual Property (registered and unregistered) used by the Companies in
connection with the Business.
(b) Schedule 4.10(b) sets forth a true and complete list of all
Intellectual Property owned by, or exclusively licensed to, the Companies that
is used in connection with the Business. Each item of registered Intellectual
Property owned by the Companies is in compliance with all formal legal
requirements (including payment of filing, examination and maintenance fees and
proofs of use) and is valid and subsisting. All necessary registration,
maintenance and renewal fees in connection with any registered Intellectual
Property owned by the Companies have been paid and all necessary documents and
certificates in connection with such registered Intellectual Property have been
filed with the relevant patent, copyright, trademark or other authorities in the
United States or foreign jurisdictions, as the case may be, for the purposes of
perfecting, prosecuting and maintaining such registered Intellectual Property.
There are no actions that are required to be taken by any of the Companies
within one hundred eighty (180) days of the date hereof with respect to the
registered Intellectual Property owned by the Companies.
(c) Schedule 4.10(c)(i) identifies each license or sublicense
pursuant to which third party Intellectual Property is licensed to any of the
Companies, excluding licenses for off-the-shelf software licensed for an
aggregate fee of less than $10,000 per year. The Companies have delivered or
made available to Buyer correct and complete copies of all such licenses and
sublicenses, except for licenses for such off-the-shelf software. Each such
license and sublicense is a legal, valid and binding obligation of the Companies
and of each other party to such license or sublicense, and is enforceable
against the Companies, and against each such other party, in
26
accordance with its terms. None of the Companies, nor to the Company's
knowledge, any other party to any such license or sublicense, is in default or
breach or has failed to perform any obligation under such license or sublicense,
and there does not exist any event, condition or omission that would constitute
such a breach or default (whether by lapse of time or notice or both). Except as
set forth in Schedule 4.10(c)(ii), none of the Companies have licensed to or
sublicensed for use by, any third party any Intellectual Property owned by or
licensed to any of the Companies.
(d) To the Company's knowledge, no Person is engaging in any
activity that infringes upon or misappropriates any Intellectual Property owned
or exclusively licensed by any of the Companies. None of the Companies has
entered into any agreement granting any third party the right to bring
infringement actions with respect to, or otherwise to enforce rights with
respect to, any of the Intellectual Property owned or exclusively licensed to
any of the Companies.
(e) Except as set forth in Schedule 4.10(e), none of the Companies
has received any threat, demand or notice of claim from any Person asserting
that the operation of the Business or use of any of the Intellectual Property or
the registration thereof by the Companies constitutes any infringement,
interference, violation, misappropriation, breach or wrongful use of the
intellectual property rights of any other Person, and none of the Companies is a
party to any Action or order restricting in any manner the use, transfer, or
licensing by the Companies of any Intellectual Property, or which affects the
validity, use or enforceability of such Intellectual Property by the Companies.
(f) To the extent that any Intellectual Property has been developed
or created by an employee, independent contractor or other third party, the
Companies have entered into a written assignment agreement with such employee,
independent contractor or third party irrevocably granting exclusive ownership
of all rights in and to such Intellectual Property to the Company or applicable
Subsidiary.
(g) Surviving Company's use of the Company's Intellectual Property
in connection with the operation of the Business in substantially the same
manner as it had been conducted during the last fiscal year and immediately
prior to the date hereof by the Company, will not infringe any third party
rights, including, without limitation, proprietary rights, intellectual property
rights, moral rights and privacy rights; provided, however, that the foregoing
statement as it relates to patents and trademarks is only made to the extent of
the Company's knowledge. Schedule 4.10(g) identifies all agreements pursuant to
which any of the Companies have assumed any obligation or duty to warrant,
indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any
obligation or liability to a third party with respect to the infringement or
misappropriation of any intellectual property right.
(h) Except as set forth on Schedule 4.10(h), the Companies have
complied with all applicable privacy laws and regulations and contractual
obligations regarding the collection, processing, disclosure and use of all
customer, player, vendor and supplier data consisting of personally identifiable
information that is, or is capable of being, associated with specific
individuals and no data sharing agreement, confidentiality agreement or
non-disclosure agreement of any of the Companies prohibits the transfer of
customer, player, vendor or supplier
27
data consisting of personally identifiable information to Buyer. No privacy
policy of any of the Companies prohibits the transfer of customer, player,
vendor or supplier data consisting of personally identifiable information to
Buyer or the further disclosure of such data by Buyer.
(i) The Companies have taken all steps consistent with industry
standards to protect and preserve the confidentiality of all of the Companies'
confidential information. The Companies have and enforce a policy requiring each
employee and consultant of the Companies to execute a proprietary rights and
confidentiality agreement regarding the applicable Companies' confidential
information and proprietary rights, substantially in the form provided to Buyer,
and all current and former employees and consultants of the Companies have
executed such an agreement.
(j) Except as set forth in Schedule 4.10(j)(i), the consummation of
the transactions contemplated hereby will neither violate nor result in the
breach, modification, cancellation, termination, suspension of, or acceleration
of any payments with respect to any contracts, licenses or agreements relating
to Intellectual Property owned or licensed by any of the Companies. Immediately
following the Closing, the Surviving Company will be permitted to exercise all
of the rights of the Company under such contracts, licenses and agreements to
the same extent the Company would have been able to had the transactions
contemplated hereby not occurred and without the payment of any additional
amounts or consideration other than ongoing fees or payments which the Company
would otherwise be required to pay. Except as set forth in Schedule 4.10(j)(ii),
none of the Companies is a party to any non-competition or other similar
restrictive agreement or arrangement relating to any portion of the Business or
service which is part of the Business anywhere in the world. Except as set forth
on Schedule 4.10(j)(ii), there has not been any required change in pricing or
other terms under any of the contracts set forth on Schedule 4.10(j)(ii) as a
result of application of the "most favored nations" provisions in any of the
contracts.
4.11 Real Estate.
(a) None of the Companies owns, or since their respective inception
has owned, any real property.
(b) Schedule 4.11 lists all real property that any of the Companies
leases, subleases or licenses from any other Person (the "Leased Real
Property"). Except as set forth on Schedule 4.11, with respect to each lease,
sublease and license listed on Schedule 4.11, (i) the lease, sublease or license
is in full force and effect, and will remain so immediately following the
Closing, and is the legal, valid, binding, and enforceable obligation of the
Companies, except as such enforceability may be limited by applicable
insolvency, bankruptcy, reorganization, moratorium or other similar laws
affecting creditors' rights generally, and applicable equitable principles
(whether considered in a proceeding at law or in equity), (ii) there is no, and
none of the Companies has received notice of any, default by any of the
Companies, (iii) to the knowledge of the Company, the other parties to each such
lease, sublease and license are not in violation or default thereunder, and (iv)
the Companies have provided or made available to the Buyer a true, correct and
complete copy of each such lease, sublease and license.
28
(c) There are no pending, contemplated or threatened condemnation or
eminent domain proceedings against all or any portion of the Leased Real
Property. There are no (i) public improvements which have been commenced or
completed and for which an assessment may be levied against the Leased Real
Property, or (ii) any planned improvements which may result in any assessment
against the Leased Real Property. None of the Companies has received any written
notice of any violation of any zoning, entitlement, building or other land use
regulations or of any covenants, conditions, restrictions, or easements related
to the Leased Real Property.
(d) All improvements located upon the Leased Real Property are in
good condition and repair such that they may be used and operated as would be
reasonably contemplated in the conduct of the Business and no material deferred
maintenance conditions exist with respect to such improvements.
(e) The Companies have no existing or contingent liabilities in
respect of any leased real property previously occupied by it or in which it
owned or held any interest or in connection with which it acted as guarantee.
4.12 Litigation. Except as set forth on Schedule 4.12, none of the
Companies is involved in any pending proceeding, hearing, investigation,
inquiry, claim, action, suit, arbitration, governmental investigation or other
legal or administrative proceeding (each, an "Action") and, to the knowledge of
the Company, no such Action is threatened against or involving any of the
Companies, or any of their respective assets, at law or in equity, or before or
by any court, arbitrator or Government Entity. None of the Companies is
operating under, or subject to, any judgment, writ, order, injunction, award or
decree of any court, judge, justice or magistrate, including any bankruptcy
court or judge, or any order of or by any Government Entity. No property or
assets of any of the Companies has been taken or expropriated by any federal,
state, municipal or other Government Entity nor has any notice or proceeding
with respect to thereof been given or commenced, nor, to the Company's
knowledge, is there any intent or proposal by any Government Entity to give any
such notice or commence any such proceeding.
4.13 Employee Benefits. Schedule 4.13 lists each Employee Benefit Plan.
(a) Each Employee Benefit Plan has been maintained and administered
in all material respects in accordance with its terms and complies in all
material respects in form and in operation with all applicable Legal
Requirements, including without limitation ERISA and the Code. The reserves
reflected in the Financial Statements for the Liabilities of the Companies under
all Employee Benefit Plans were determined in accordance with GAAP. All
contributions, reserves or premium payments required to be made or accrued as of
the date hereof to the Employee Benefit Plans have been timely made or accrued.
None of the Companies has any Liabilities under any Employee Benefit Plan or
arising out of any action or inaction by any fiduciary (as defined in Section
3(21) of ERISA) or in connection with any Employee Benefit Plan other than for
the payment of benefits pursuant to the terms of the applicable Employee Benefit
Plan.
29
(b) Each Employee Benefit Plan which is intended to be qualified
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code is so qualified and has received a currently
effective favorable determination letter from the Internal Revenue Service to
the effect that each such Employee Benefit Plan and each such trust is qualified
as to form with respect to all requirements of the Code other than those for
which the remedial amendment period under Section 401(b) of the Code has not
expired as of the Closing Date, and nothing has occurred since the date of such
determination that could reasonably be expected to adversely affect the
qualification of each Employee Benefit Plan.
(c) No plan currently or ever in the past maintained, sponsored,
contributed to or required to be contributed to by the Company, any of its
Subsidiaries, or any of their respective current or former ERISA Affiliates is
or ever in the past was (1) a "multiemployer plan" as defined in Section 3(37)
of ERISA, (2) a plan described in Section 413 of the Code, (3) a plan subject to
Title IV of ERISA, (4) a plan subject to the minimum funding standards of
Section 412 of the Code or Section 302 of ERISA, (5) a plan maintained in
connection with any trust described in Section 501(c)(9) of the Code, or (6)
except as set forth on Schedule 4.13(c), a plan that covered or provided
benefits to any person employed outside of the United States (or a beneficiary
of any such person). No Employee Benefit Plan provides, or reflects or
represents any liability to provide, benefits (including, without limitation,
death or medical benefits), whether or not insured, with respect to any former
or current employee, or any spouse or dependent of any such employee, beyond the
employee's retirement or other termination of employment with the Company and
its Subsidiaries other than (1) coverage mandated by Part 6 of Title I of ERISA
or Section 4980B of the Code or analogous state law, (2) retirement or death
benefits under any plan intended to be qualified under Section 401(a) of the
Code, (3) disability benefits that have been fully provided for by insurance
under an Employee Benefit Plan that constitutes an "employee welfare benefit
plan" within the meaning of Section (3)(1) of ERISA, or (4) benefits in the
nature of severance pay with respect to one or more of the employment contracts
set forth on Schedule 4.15.
(d) With respect to each Employee Benefit Plan, except as set forth
on Schedule 4.13(d), the Companies have delivered or made available to Buyer
correct and complete copies of (to the extent applicable): (i) each Employee
Benefit Plan document (including any amendments and any related trust documents)
which implements each such Employee Benefit Plan, (ii) a written description of
any Employee Benefit Plan that is not set forth in a written document, (iii) the
most recent summary plan description together with the summary or summaries of
material modifications thereto, if any, (iv) the three most recent annual
actuarial valuations, if any, (v) all Internal Revenue Service or Department of
Labor determination, opinion, notification and advisory letters, (vi) the three
most recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, (vii) all material correspondence to or
from any Government Entity received in the last three years, (viii) all
discrimination tests for the most recent three plan years, and (ix) all material
written agreements and contracts currently in effect, including (without
limitation) administrative service agreements, group annuity contracts, and
group insurance contracts.
(e) There are no pending, anticipated or threatened claims by or on
behalf of any Employee Benefit Plan, any employee or beneficiary covered under
any Employee Benefit
30
Plan, any Government Entity, or otherwise involving any such Employee Benefit
Plan (other than routine claims for benefits).
(f) There are no nonexempt prohibited transactions within the
meaning of Section 4975 of the Code or Section 406 or 407 of ERISA or any breach
of fiduciary duty under Article IV of ERISA with respect to any Employee Benefit
Plan for which any of the Companies has any Liability. No event or condition
exists which could subject any of the Companies to a civil penalty under Section
502(j) of ERISA or any excise tax related to the Employee Benefit Plans
(including, without limitation, any taxes under Sections 4975, 4976, or 4980B of
the Code) or the loss of a federal tax deduction.
(g) Other than with respect to amounts payable pursuant to Sections
2.7, 3.2(d), 6.7, 6.8 or 8.3 of this Agreement, Schedule 4.13(g) sets forth a
list of amounts which will be required to be paid or payable to or with respect
to any employee or other service provider of the Company or any of its
Subsidiaries following or as a result of the completion of the transactions
contemplated hereby, including under any management bonus or change of control
agreements. Except as set forth on Schedule 4.13(g) or as provided in Section
6.7, the execution of this Agreement and the consummation of the transactions
contemplated by this Agreement (alone or together with any other event which,
standing alone, would not by itself trigger such entitlement or acceleration)
will not (1) entitle any Person to any payment, forgiveness of indebtedness,
vesting, distribution, or increase in benefits under or with respect to any
Employee Benefit Plan, (2) otherwise trigger any acceleration (of vesting or
payment of benefits or otherwise) under or with respect to any Employee Benefit
Plan, or (3) trigger any obligation to fund any Employee Benefit Plan.
(h) Schedule 4.13(h) sets forth a list of all persons who are
current qualified beneficiaries (as defined in Section 4980B of the Code) as of
the date hereof.
(i) The Companies have complied, in all material respects, with all
Laws governing the employment of personnel by U.S. companies and the employment
of non U.S. nationals in the United States, including, but not limited to, the
Immigration and Nationality Act 8 U.S.C. Sections 1101 et seq. and its
implementing regulations.
(j) Each Employee Benefit Plan that constitutes a "nonqualified
deferred compensation plan" (as defined in Code Section 409A(d)(1)) has been
operated since January 1, 2005 in good faith compliance with Code Section 409A
and Internal Revenue Service Notice 2005-1. No such nonqualified deferred
compensation plan has been materially modified (as determined under Notice
2005-1) after October 3, 2004.
4.14 Insurance.
(a) Schedule 4.14 contains a true and complete list and description
of all policies of liability, fire, property, workers compensation,
environmental, directors and officers liability insurance and other forms of
insurance currently in-force that insure the business, operations, or affairs of
the Companies, or affect or relate to the ownership, use, or operation of any
assets of the Companies and that have been issued to any of the Companies
(including without limitation the names and addresses of the insurers, the
annual premium and the
31
expiration dates thereof) (the "Insurance Policies"). The Companies are insured
with reputable insurers against all risks normally insured against by companies
engaged in similar businesses. All Insurance Policies and bonds are in full
force and effect, are valid, outstanding and enforceable, and will remain so
immediately after the Closing. None of the Companies is in default under any
Insurance Policy or bond, and no written notice of cancellation of any Insurance
Policy or bond has been received by any of the Companies. All premiums due and
payable prior to the date hereof with respect to the Insurance Policies have
been paid. None of the Companies has received any notice or other indication
from any insurer or agent of any intent to cancel or not renew any of the
Insurance Policies. The Companies have timely filed claims with their insurers
with respect to all matters and occurrences for which any of the Companies
believes it has coverage. There are no outstanding requirements or
recommendations by any insurance company that issued a policy or by any fire
department or similar organization requiring or recommending any action which
has not been taken. None of the Companies has been refused any insurance with
respect to its assets or operations, and their coverage has not been limited by
any insurance carrier with which they have carried insurance.
(b) No Insurance Policy contains a provision that would permit the
termination, limitation, lapse, exclusion or change in the terms of coverage of
such Insurance Policy (including, without limitation, change in the limits of
liability) by reason of the consummation of the transactions contemplated by
this Agreement.
4.15 Contracts.
(a) Except as expressly contemplated by this Agreement or as set
forth on Schedule 4.15(a), none of the Companies is a party to or bound by any
written or oral contract or agreement:
(i) that involves the performance of services or delivery of
goods or materials by any of the Companies resulting or potentially
resulting in annual revenue to any of the Companies in excess of $75,000;
(ii) that involves the performance of services for or delivery
of goods or materials to any of the Companies resulting or potentially
resulting in annual expenses to any of the Companies in excess of $75,000;
(iii) that is a pension, profit sharing, stock option, bonus,
employee stock purchase, deferred compensation, hospitalization, insurance
or other plan or arrangement providing benefits to their current or former
directors, managers, officers, employees, agents, consultants or such
Person's dependents, beneficiaries or heirs, or any other employee benefit
plan, arrangement or practice, whether formal or informal;
(iv) that is for the employment of any officer, individual
employee or other Person on a full time, part time, consulting or other
basis, including, without limitation, providing for the payment of any
cash or other compensation or benefits upon the consummation of the
transactions contemplated hereby;
(v) that is an agreement, guaranty or indenture relating to
borrowed money or other Indebtedness or the mortgaging or pledging of any
asset with a net book
32
value of more than $25,000 or a portion of assets with an aggregate net
book value of more than $75,000;
(vi) that is an extension of credit by any of the Companies,
except for trade accounts receivable in the ordinary course of business
consistent with past practice;
(vii) that restricts or purports to restrict in any respect
(including, without limitation, as to manner or place) the ability of any
of the Companies to engage in any line of business or compete with any
Person;
(viii) that restricts or purports to restrict in any respect
the right of any of the Companies to sell to or purchase from any other
Person;
(ix) that is a joint venture, partnership or similar agreement
involving a sharing of profits, losses, costs or liabilities by any of the
Companies with any other Person;
(x) that is a lease, rental or occupancy, license, installment
or conditional sale agreement under which any of the Companies is (A)
lessee of or holds or operates any personal property, owned by any other
party, except for any lease of personal property under which the aggregate
annual rental payments do not exceed $25,000 or (B) lesser of or permits
any third party to hold or operate any property, real or personal, owned
or controlled by any of the Companies;
(xi) that are for capital expenditures resulting or
potentially resulting in payments by any of the Companies after the date
hereof in excess of $25,000 in any individual case or $75,000 in the
aggregate;
(xii) that is a licensing agreement or other agreement with
respect to Intellectual Property, including agreements with any current or
former employee, consultant or contractor regarding the appropriation or
the non-disclosure of any Intellectual Property;
(xiii) that is a collective bargaining agreement and other
agreement to or with any labor union, employees' association or other
employee representative of a group of employees;
(xiv) that is a written product or service warranty, guaranty,
or other similar undertaking by any of the Companies;
(xv) that is an agreement obligating any of the Companies to
pay commissions or any other payment based on Business done or to be done
with clients to any Person;
(xvi) that would, as a result of the Merger, bind or in any
way restrict the business of Buyer (other than restrictions that apply
only to the Company or the Subsidiaries and excluding regulatory matters)
or provide the counterparty to any such
33
contract or agreement with rights to any of Buyer's or its subsidiaries'
assets (other than rights that apply only to the Company or the
Subsidiaries); or
(xvii) that grants a currently effective power of attorney to
any Person.
(b) All of the contracts, agreements and instruments set forth or
required to be set forth on Schedule 4.15 (the "Material Contracts") are valid,
binding and enforceable in accordance with their respective terms with respect
to the Companies, except as such enforceability may be limited by (i) applicable
insolvency, bankruptcy, reorganization, moratorium or other similar laws
affecting creditors' rights generally and (ii) applicable equitable principles
(whether considered in a proceeding at law or in equity).
(c) Except as set forth on Schedule 4.15(c), (i) none of the
Companies has received written notice of a breach of any Material Contract, (ii)
to the Company's knowledge, there is no breach, violation, default or
cancellation or anticipated breach, violation, default or cancellation by the
other parties to any Material Contract, (iii) each of the Companies have
performed all of their required obligations under each Material Contract (except
with respect to obligations contemplated by the terms of the Material Contract
to be performed in the future), and (iv) none of the Companies are in violation
or breach of or default under, any Material Contract. The Companies have
provided or made available to Buyer a true, correct and complete copy of each
written Material Contract and a written description of the material terms of
each oral Material Contract.
4.16 Employees.
(a) (i) None of the Companies is a party to any collective
bargaining agreements and there are no labor unions or other organizations
representing any employee of any of the Companies, (ii) there are no labor
unions or other organizations which have filed a petition with the National
Labor Relations Board or any other Government Entity during the three-year
period prior to the date of this Agreement seeking certification as the
collective bargaining representative of any employee of any of the Companies,
(iii) no labor union or organization is engaged in any organizing activity with
respect to any employee of any of the Companies, and (iv) during the three-year
period prior to the date of this Agreement, there has not been, there is not
presently pending or existing, and there is not threatened, any (A) strike,
lockout, slowdown, picketing, or work stoppage with respect to the employees of
any of the Companies or (B) any unfair labor practice charge against any of the
Companies.
(b) Except as set forth on Schedule 4.16(b), each of the Companies
has complied, and are presently in compliance with all statutes, laws,
ordinances, rules or regulations, or any orders, rulings, decrees, judgments or
arbitration awards of any court, arbitrator or any government agency relating to
employment, equal opportunity, nondiscrimination, immigration, wages, hours,
benefits, collective bargaining, the payment of social security and similar
taxes, income tax withholding, occupational safety and health, and/or privacy
rights of employees.
(c) During the three-year period prior to the date of this
Agreement, none of the Companies has been a party to any Action in which either
the Companies was, or is, alleged
34
to have violated any Legal Requirement relating to employment, equal
opportunity, nondiscrimination, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar taxes, occupational
safety and health, and/or privacy rights of employees.
(d) During the three-year period prior to the date of this
Agreement, none of the Companies has effectuated (i) a "plant closing" (as
defined in the Worker Adjustment and Retraining Notification Act (the "WARN
Act") (or any similar state, local or foreign law)) affecting any site of
employment or one or more facilities or operating units within any site of
employment or facility of any of the Companies, (ii) a "mass layoff" (as defined
in the WARN Act (or any similar state, local or foreign law)) affecting any site
of employment or facility of any of the Companies, or (iii) a "Relocation,"
"Termination," or "Mass Layoff" as defined in California Labor Code Section 1400
et seq.
(e) Except as set forth on Schedule 4.16(e), none of the Companies
is a party to any contract, agreement, or arrangement with any employee of any
of the Companies that (i) restricts any of the Companies' right to terminate the
employment with respect to any employee without cause or without a specified
notice period, or (ii) obligates any of the Companies to pay severance to any
employee of any of the Companies upon termination of such employee's employment
with any of the Companies or upon a change in control of either the Companies.
(f) The Company has delivered to Buyer a list containing the name of
each person employed or engaged by any of Companies and the annual salary or
hourly wage rate of each such employee as in effect as of the date hereof.
(g) There are no retired employees, officers, managers or directors
of any of the Companies, or their dependents, receiving benefits or scheduled to
receive benefits from any of the Companies in the future.
4.17 Affiliate Transactions. Except as set forth on Schedule 4.17, no
officer, director, manager, stockholder, member or Affiliate of any of the
Companies (x) is a party to any agreement, contract, commitment or transaction
with any of the Companies or has any interest in, or has any claim or right
against, any property or asset of any of the Companies (other than in either
case with respect to any Company Capital Stock or Stock Options held), (y) owns
or has owned (of record or as a beneficial owner) an equity interest or any
other financial or profit interest in (other than any ownership interest in any
Person whose securities are traded in a public market, constituting less than 1%
of such Person's outstanding capital stock), a Person that has (a) had business
dealings or a material financial interest in any transaction with any of the
Companies (other than with respect to equity or debt financings of the Company)
or (b) engaged in a business competing with any of the Companies with respect to
any line of the products or services of such entity in any market.
4.18 Brokerage. None of the Companies has any Liability to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
35
4.19 Receivables. The accounts receivable of the Companies are bona fide
receivables and represent amounts due with respect to actual, arm's length
transactions entered into in the ordinary course of business. The Company has
delivered to Buyer a complete and accurate aging list of all receivables of the
Companies as of May 31, 2005.
4.20 Customers and Suppliers. The Company has no knowledge of (i) any
termination or cancellation of (or any intent to terminate or cancel) the
business relationship of the Companies with (y) any single customer or any group
of affiliated customers who represented five percent (5%) or more of the
revenues of the business of the Companies during the fiscal year ended December
31, 2004, or (z) any single supplier or any group of affiliated suppliers who
provided five percent (5%) or more of the requirements of the business of the
Companies during the fiscal year ended December 31, 2004, or (ii) any existing
condition, state of facts or circumstances that in the reasonable judgment of
the Company will cause any of the Companies to terminate their relationships
with any customers or suppliers described in clause (i) of this Section 4.20. To
the knowledge of the Company, none of the business or prospective business of
any of the Companies is in any manner dependent upon the making or receipt of
any payments, discounts or other inducements to any officers, directors,
employees, representatives or agents of any customer.
4.21 Permits and Licenses. Schedule 4.21 contains a true and complete list
of all licenses, permits, qualifications, certificates, authorizations,
approvals, privileges, filings, franchises, registrations and similar consents
granted, issued or required by any Government Entity that are necessary for the
operation of the Business and employment of the Company's employees (the
"Permits"). Schedule 4.21 also sets forth for each Permit the next renewal date
and the cost for renewal. All of the Permits are currently effective and valid,
and will remain so upon consummation of the transactions contemplated by this
Agreement, and they are sufficient to enable the Companies to conduct their
business in compliance with all Legal Requirements relating to such Permits. No
event has occurred or circumstances exist which would currently or upon notice
or lapse of time constitute a default under any of the Permits. There is no
threatened suspension, cancellation or invalidation of any Permit.
4.22 Warranties. Except as set forth on Schedule 4.22, the Companies have
not made and do not make any product or service warranties to their customers.
4.23 Bank Accounts. Schedule 4.23 sets forth an accurate list of each
bank, trust company, savings institution or other financial institution with
which any of the Companies has an account or safe deposit box and the names and
identification of all Persons authorized to draw thereon or to have access
thereto. The Termination Fee is maintained by the Company in a segregated
account and has not been drawn upon by the Company (whether to fund operations
of the Company, reduce or pay its liabilities, make a distribution to the
Company's stockholders, or otherwise).
4.24 Corporate Records. True and complete copies of all documents listed
in the Schedules have been provided or made available to Buyer. The minute books
of the Companies accurately reflect all significant actions taken by the
stockholders or board of directors (or any committee thereof) of the Companies,
as applicable. The books of the Companies reflect
36
accurately reflect all issuances and record transfers of the capital stock or
membership interests of the Companies, as applicable.
4.25 Absence of Certain Business Practices. None of the Companies, nor any
predecessor of any of the Companies, nor any of their respective directors,
managers, officers, agents or, to the knowledge of the Company, employees or any
other Person affiliated with or acting for or on behalf of either the Companies
or of any predecessor of any of the Companies has, (a) directly or indirectly,
used any corporate funds for unlawful contributions, gifts, entertainment or
other unlawful expenses relating to political activity, made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns from corporate funds, violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended, or made any
bribe, rebate, payoff, influence payment, kickback or other similar unlawful
payment or (b) agreed to give any gift or similar benefit to any customer,
supplier, governmental employee or other Person which could subject the Business
or Buyer to any damage or penalty in any civil, criminal or governmental
litigation or proceeding.
4.26 Royalty Obligations. Except as set forth in Schedule 4.26, none of
the Companies is obligated to make any royalty or license payment or other
similar type of payment in connection with the provision of its services.
4.27 No Other Agreements to Sell Assets or Stock of the Companies. None of
the Companies nor any of their respective stockholders, officers, directors,
managers or Affiliates has any commitment or legal obligation or Liability to
any other Person or firm, other than as contemplated by the transactions
contemplated hereby, to sell, assign, transfer or effect a sale of any of the
Companies' assets (other than products in the ordinary course of business
consistent with past practice), to sell or effect a sale of the equity
securities of any of the Companies, to effect any merger, acquisition,
consolidation, liquidation, dissolution or other reorganization of any of the
Companies or to enter into any agreement or cause the entering into of an
agreement with respect to any of the foregoing.
4.28 Disclosure. No representation or warranty of the Company in this
Agreement and no statement by the Company in the Schedules to this Article IV is
a misstatement of a material fact or omits to state a material fact necessary to
make the statements herein or therein, in light of the circumstances in which
they were made, not misleading.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
OF BUYER AND MERGER SUB
Buyer and Merger Sub hereby represent and warrant to the Company, as of
the date of this Agreement and as of the Closing, that:
5.1 Organization, Power and Authorization.
(a) Each of Buyer and Merger Sub is a corporation duly incorporated
or organized, as the case may be, validly existing and in good standing under
the laws of the
37
jurisdiction of its incorporation and duly qualified to conduct business where
such qualification is required.
(b) Each of Buyer and Merger Sub has the requisite corporate power
and corporate authority and all material licenses, permits and authorizations
necessary to enter into, deliver and carry out its respective obligations
pursuant to each of the Transaction Documents to which it is a party. Each of
Buyer's and Merger Sub's execution, delivery and performance of each Transaction
Document to which it is a party has been duly authorized by Buyer and Merger
Sub.
(c) Merger Sub has not incurred, directly or indirectly, any
liabilities or obligations, except those incurred in connection with its
organization or with the negotiation of the Transaction Documents and the other
agreements contemplated hereby. Merger Sub has not engaged, directly or
indirectly, in any business or activity of any type or kind, or entered into any
contract with any Person, and is not subject to or bound by any contract,
agreement, arrangement or understanding that is not contemplated by or in
connection with the Transaction Documents and the other agreements contemplated
hereby.
5.2 Binding Effect and Noncontravention.
(a) This Agreement has been, and upon execution and delivery, the
other Transaction Documents to which the Buyer or Merger Sub is a party will be,
duly executed and delivered by the Buyer and Merger Sub.
(b) Each Transaction Document to which Buyer or Merger Sub is a
party constitutes a valid and binding obligation of such entity, enforceable
against such entity in accordance with its terms, except as such enforceability
may be limited by (i) applicable insolvency, bankruptcy, reorganization,
moratorium or other similar laws affecting creditors' rights generally, and (ii)
applicable equitable principles (whether considered in a proceeding at law or in
equity).
(c) The execution, delivery and performance by each of Buyer and/or
Merger Sub of the Transaction Documents to which such entity is a party do not
and will not (i) violate or conflict with any Legal Requirement to which Buyer
or Merger Sub is subject or its respective charter or bylaws, (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any material agreement, contract, lease,
license, instrument, or other material arrangement to which such entity is a
party or by which such entity is bound or to which such entity's assets are
subject, (iii) result in the creation of any Lien on any assets of Buyer or
Merger Sub, or (iv) require any authorization, consent or approval of, or
exemption or other action by or declaration or notice to any third Person or
Government Entity.
5.3 Brokerage. Buyer has no liability or obligation to pay any fees or
commissions to any broker, finder, or investment or commercial banker with
respect to the transactions contemplated by this Agreement for which any
Equityholder could become liable or obligated.
5.4 No Litigation. Neither Buyer nor Merger Sub is subject to any
outstanding injunction, judgment, order or decree, and there is no Action
pending or, to Buyer's or Merger
38
Sub's knowledge, threatened against or involving Buyer or Merger Sub, or its
respective properties or businesses.
ARTICLE VI.
PRE-CLOSING COVENANTS
6.1 Conduct of Business Pending Closing.
From the date hereof until the Closing, the Company shall:
(a) maintain its existence in good standing;
(b) conduct its business in the ordinary and usual manner consistent
with past practices, except as expressly permitted by this Agreement;
(c) maintain business and accounting records consistent with past
practices; and
(d) use commercially reasonable efforts (i) to preserve its business
intact, (ii) to keep available to the Company the services of its present
officers and employees, and (iii) to preserve for the Company the goodwill of
its suppliers, customers and others having business relations with the Company.
6.2 Prohibited Actions Pending Closing.
Unless otherwise provided for herein or otherwise necessary in order to
comply with Legal Requirements or the Company's obligations hereunder or
approved by Buyer in writing, including, without limitation, by electronic mail
(which approval shall not be unreasonably withheld or delayed), from the date
hereof until the Closing, the Company shall operate in the ordinary course of
business consistent with past practice and it shall not, or permit any
Subsidiary to:
(a) except as set forth in Schedule 6.2 amend or otherwise change
the Company Certificate or the bylaws of the Company or the charter documents of
any Subsidiary or any stockholder', investor rights or similar agreement;
(b) issue or sell or authorize for issuance or sale (other than any
issuance of Company Capital Stock upon the exercise of any outstanding option or
warrant to purchase Company Capital Stock disclosed on Schedule 4.2(e) or upon
the conversion of any outstanding Company Preferred Stock disclosed on Schedule
4.2(a), or upon the conversion of any convertible promissory note disclosed on
Schedule 4.2(b), in each case in accordance with the terms of the relevant
instrument evidencing such security), or grant any options or restricted stock
or make other agreements with respect to, any shares of its capital stock or any
other of its securities or modify the terms of existing stock options and
warrants to purchase Company Stock or restricted stock grants which have been
issued under the Company Stock Plan or otherwise;
39
(c) take any action to place or permit the placing of any shares of
Company Capital Stock on the AIM Market of London Stock Exchange plc or
otherwise seek to engage in a public offering of the Company's securities;
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise with respect to any
of its capital stock;
(e) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock except for
repurchases of shares in connection with the termination of any employee or
consultant pursuant to stock option, restricted stock purchase agreements or
stock award agreements, each pursuant to the Company Stock Plan;
(f) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, the financial obligations of any Person, or make any
loans or advances;
(g) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation, partnership,
other business organization or any division thereof or acquire or dispose of any
material amount of assets;
(h) enter into any contract or agreement other than in the ordinary
course of business consistent with past practice;
(i) authorize any capital commitment or capital lease which is in
excess of $50,000 or capital expenditures which are, in the aggregate, in excess
of $100,000;
(j) mortgage, pledge or subject to Lien other than Permitted Liens,
any of its assets or properties or agree to do so other than in the ordinary
course of business consistent with past practice;
(k) enter into or agree to enter into any employment agreement;
(l) increase the compensation payable or to become payable to its
officers or employees, or grant any severance or termination pay to, or enter
into any severance agreement with any director, officer or other employee of any
of the Companies, or establish, adopt, enter into or amend any collective
bargaining, Employee Benefit Plan, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any such director, officer or employee;
(m) take any action to change in any respect its accounting policies
or procedures (including, without limitation, procedures with respect to the
payment of accounts payable and collection of accounts receivables);
(n) make any Tax election or settle or compromise any federal,
state, local or foreign income material Tax liability;
40
(o) use or distribute any portion of the Termination Fee (whether to
fund operations of the Company, reduce or pay its liabilities, make a
distribution to the Company's stockholders, or otherwise);
(p) settle or compromise any pending or threatened suit, action or
claim (other than claims related to accounts receivable of the Company which
were fully reserved in the Latest Balance Sheet) or initiate any litigation
against any third party;
(q) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice, of liabilities reflected or reserved against in
the Latest Balance Sheet or subsequently incurred in the ordinary course of
business consistent with past practice in amounts not in excess of $50,000;
(r) sell, assign, transfer, license or sublicense, pledge or
otherwise encumber any of the Intellectual Property Rights; or
(s) announce an intention, commit or agree to do any of the
foregoing.
6.3 Access; Documents; Supplemental Information.
(a) From and after the date hereof until the Closing, the Company
shall afford (i) to the officers, independent certified public accountants,
counsel and other representatives of Buyer, upon reasonable notice, reasonable
access at all reasonable times to the properties, books and records including
tax returns filed and those in preparation of the Company and the right to
consult with the officers, employees, accountants, counsel and other
representatives of the Company in order that Buyer may have full opportunity to
make such investigations as it shall deem necessary of the operations,
properties, business, financial condition and prospects of the Company, (ii) to
the independent certified public accountants of Buyer, reasonable access at all
reasonable times to the work papers and other records of the accountants
relating to the Company, and (iii) to Buyer and its representatives, such
additional financial and operating data and other information as to the
properties, operations, business, financial condition and prospects of the
Company as Buyer shall from time to time reasonably require.
(b) From the date of this Agreement through and including the
Closing, each party shall furnish to the others, copies of any written notices,
documents, requests, court papers, or other materials received from any
Government Entity with respect to the transactions contemplated by this
Agreement.
6.4 No Solicitation.
The Company shall not, nor shall it authorize or permit any of its
Affiliates or any officer, director, employee, investment banker, attorney or
other adviser or representative of the Company or any of its Affiliates to (a)
solicit, initiate or encourage any Acquisition Proposal (as hereinafter
defined), (b) enter into any agreement with respect to any Acquisition Proposal
or (c) participate in any discussions or negotiations regarding, or furnish to
any Person any information for the purpose of facilitating the making of, or
take any other action to facilitate any inquiries or the making of, any proposal
that constitutes, or may reasonably be expected to lead to, any
41
Acquisition Proposal other than the transactions contemplated hereby. Without
limiting the foregoing, it is understood that any violation of the restrictions
set forth in the immediately preceding sentence by any officer, director,
employee, equity holder, investment banker, attorney, employee, or other advisor
or representative of the Company or any of its Affiliates, whether or not such
Person is purporting to act on behalf of the Company or any of its Affiliates or
otherwise, shall be deemed to be a breach of this Section 6.4 by the Company.
The Company promptly shall advise Buyer of any Acquisition Proposal (including
the terms thereof and the identity of the person making the Acquisition Proposal
except to the extent the Company is prohibited from doing so by any applicable
contractual confidentiality obligations) and inquiries with respect to any
Acquisition Proposal and shall keep Buyer informed on a current basis of the
status of any discussions regarding an Acquisition Proposal. "Acquisition
Proposal" means any proposal for a merger or other business combination
involving the Company or any proposal or offer to acquire in any manner,
directly or indirectly, 10% or more of the equity securities or assets of the
Company. The Company will, and will cause its Affiliates to, immediately cease
any activities, discussions or negotiations existing as of the date of this
Agreement with any Persons (other than Buyer and its representatives) conducted
heretofore with respect to any Acquisition Proposal, and will not pursue,
directly or indirectly, any Acquisition Proposal received on or prior to the
date of this Agreement from any Person (other than Buyer and its
representatives). The Company shall not release any third party from, or waive
any provisions of, any confidentiality or standstill agreement relating to an
Acquisition Proposal to which such party is a party.
6.5 Filings; Other Actions; Notification.
(a) Buyer and the Company shall use all reasonable efforts to file,
as soon as practicable after the date of this Agreement, all notices, reports
and other documents required to be filed with any Gaming Authority with respect
to the Merger and the other transactions contemplated by this Agreement (all of
the foregoing, collectively "Gaming Approvals"), and to submit promptly any
additional information requested by any such Gaming Authority. If Buyer and the
Company determine that a filing under the Xxxx-Xxxxx-Xxxxxx Act is necessary or
appropriate, then the parties will cooperate with each other to make such filing
as promptly as practicable and Buyer will pay the filing fee in connection with
any such Notification and Report Forms to be submitted. Nothing herein shall
require Buyer, in connection with the receipt of any regulatory approval, to
agree to sell or divest any assets or business or agree to restrict in any way
any business conducted by or proposed to be conducted by Buyer, the Surviving
Company or any of their respective subsidiaries.
(b) Each of the Company and Buyer shall (A) give the other party
prompt notice of the commencement or threat of commencement of any Actions by or
before any Government Entity or Gaming Authority with respect to the Merger or
any of the other transactions contemplated by this Agreement, (B) keep the other
party informed as to the status of any such Action or threat, and (C) promptly
inform the other party of any communication to or from any Government Entity
(including any Gaming Authority) regarding the Merger.
(c) Notwithstanding anything herein to the contrary, Buyer shall not
be obligated to take any action which would require the voluntary surrender,
forfeiture or other termination by Buyer of a Gaming Approval then held by Buyer
or any of its subsidiaries.
42
(d) Nothing contained in this Agreement shall give Buyer, directly
or indirectly, the right to control or direct the Companies' operations prior to
the effectiveness of the Merger. Prior to the effectiveness of the merger, the
Companies shall exercise, consistent with the terms and conditions of this
Agreement, complete control and supervision of their operations.
6.6 Employee Benefits Matters.
The Company will adopt, or will cause to be adopted, all necessary
corporate resolutions to terminate the Company 401(k) Retirement Plan, and any
other 401(k) Plan maintained by the Company, effective as of no later than one
day prior to Closing (but such termination may be contingent upon the Closing).
Immediately prior to such termination, the Company will make all necessary
payments to fund the contributions: (i) necessary or required to maintain the
tax-qualified status of the 401(k) Plan; (ii) for elective deferrals made
pursuant to the 401(k) Plan for the period prior to termination; and (iii) for
employer matching contributions (if any) for the period prior to termination. A
401(k) Plan means a qualified plan under Code Section 401(a) sponsored and
maintained by the Company, which includes a qualified cash or deferred
arrangement, as defined in Section 401(k) of the Code. The Company shall provide
Buyer with a copy of resolutions duly adopted by the Company's board of
directors terminating the 401(k) Plan.
6.7 Stock Options and Warrants.
(a) Options. At the Effective Time, each option to purchase shares
of Company Common Stock ("Stock Options") theretofore granted under any stock
option or stock appreciation rights plan, program or arrangement of the Company
or under any stock option award agreement, including, without limitation, the
Company's 2000 Stock Option Plan and related Enterprise Management Incentive
Sub-Plan (the "Stock Option Plans"), whether vested or unvested in accordance
with its terms (including by reason of the transactions contemplated by this
Agreement), shall immediately terminate. Neither the Surviving Company nor Buyer
shall assume any such Stock Option and, except for Buyer's cash payment
obligation pursuant to the following provisions of this Section 6.7(a), from and
after the Effective Time neither the Surviving Company nor Buyer shall otherwise
have any obligation with respect to any Stock Option. Each holder of a Stock
Option (whether or not exercisable) which remains outstanding immediately prior
to the Effective Time and is not otherwise exercised with an exercise price per
share of Company Common Stock less than the Per Share Merger Consideration shall
be entitled to receive from Buyer an amount in cash equal to the number of
shares of Company Common Stock subject to the Stock Option times the difference
between (i) the Per Share Merger Consideration and (ii) the per share exercise
or purchase price of such Stock Option as of the date hereof, which amount shall
be subject to the Per Share Escrow Amount to be withheld (which will be withheld
by Buyer from the payment to be made to such holder pursuant to this Section
6.7(a) and deposited with the Escrow Agent by Buyer at the Closing in accordance
with Section 3.3)). Payment of the amount determined pursuant to the preceding
sentence with respect to each such Stock Option outstanding immediately prior to
the Effective Time shall be made to the holder of the Stock Option or such
Escrow Agent, as applicable, as soon as reasonably practicable (but in no event
later than five business days) after the Effective Time. Buyer and such Escrow
Agent shall be entitled to deduct and withhold from any payment
43
contemplated by this Section 6.7(a) such amounts, if any, as may be required to
be deducted and withheld with respect to the making of such payment under the
Code or any other applicable Legal Requirement. To the extent that any amounts
are so withheld, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Stock Option in respect of
which such deduction and withholding was made. Prior to the Closing Date,
Company shall take such actions or cause such actions to be taken as are
necessary to cause the transactions contemplated by this Section 6.7(a) to be
accomplished.
(b) Warrants.
(i) As soon as practicable following the date of this
Agreement, the Company shall adopt such resolutions, obtain such consent,
and take such other actions as are required to adjust the terms of all
outstanding warrants to purchase shares of Company Common Stock ("Common
Stock Warrants") as is necessary to provide: (A) that the holder of each
Common Stock Warrant outstanding immediately prior to the Effective Time
shall receive in settlement thereof, for each share of Company Common
Stock subject to such Common Stock Warrant, an amount in cash from Buyer
equal to the Per Share Merger Consideration, minus the per share exercise
or purchase price of such Common Stock Warrant as of the date hereof, and
subject to the Per Share Escrow Amount to be withheld (which will be
withheld by Buyer from the payment to be made to such holder pursuant to
this Section 6.7(b)(i) and deposited with the Escrow Agent by Buyer at the
Closing in accordance with Section 3.3)); and (B) that, at the Effective
Time, all outstanding Common Stock Warrants shall immediately terminate,
and there shall be substituted therefor the right to receive cash from
Buyer in accordance with the terms of this Section 6.7(b)(i), and neither
the Surviving Company nor Buyer shall have any further obligation with
respect thereto other than as expressly provided in this Section
6.7(b)(i); provided, however, that all amounts payable pursuant to this
Section 6.7(b)(i) shall be subject to any required tax withholding.
Payment of the amount determined pursuant to this Section 6.7(b)(i) with
respect to each Common Stock Warrant outstanding immediately prior to the
Effective Time shall be made as soon as reasonably practicable (but in no
event later than five business days) after the Effective Time. Buyer and
such Escrow Agent shall be entitled to deduct and withhold from any
payment contemplated by this Section 6.7(b)(i) such amounts, if any, as
may be required to be deducted and withheld with respect to the making of
such payment under the Code or any other applicable Legal Requirement. To
the extent that any amounts are so withheld, such withheld amounts shall
be treated for all purposes of this Agreement as having been paid to the
holder of the Common Stock Warrant in respect of which such deduction and
withholding was made.
(ii) As soon as practicable following the date of this
Agreement, the Company shall adopt such resolutions, obtain such consent,
and take such other actions as are required to adjust the terms of all
outstanding warrants to purchase shares of Company Preferred Stock
("Preferred Stock Warrants") as is necessary to provide: (A) that the
holder of each Preferred Stock Warrant outstanding immediately prior to
the Effective Time (to the extent the respective exercise price of such
Preferred Stock Warrant is less than the Per Share Merger Consideration
(taking into account the conversion to Company Common Stock of the Company
Preferred Stock issuable upon
44
the exercise of the Preferred Stock Warrants)) shall receive in settlement
thereof, for each share of Company Preferred Stock subject to such
Preferred Stock Warrant, an amount in cash from Buyer equal to the
difference between (1) the product of (x) the Per Share Merger
Consideration and (y) the number of shares of Company Common Stock that
each share of the Company Preferred Stock (for which such Preferred Stock
Warrant is then exercisable) is then convertible into, minus (2) the per
share exercise or purchase price of such Preferred Stock Warrant as of the
date hereof, and subject to the Per Share Escrow Amount to be withheld
(which will be withheld by Buyer from the payment to be made to such
holder pursuant to this Section 6.7(b)(ii) and deposited with the Escrow
Agent by Buyer at the Closing in accordance with Section 3.3)); and (B)
that, at the Effective Time, all outstanding Preferred Stock Warrants
shall immediately terminate, and there shall be substituted therefor the
right to receive cash from Buyer in accordance with the terms of this
Section 6.7(b)(ii), and neither the Surviving Company nor Buyer shall have
any further obligation with respect thereto other than as expressly
provided in this Section 6.7(b)(ii); provided, however, that all amounts
payable pursuant to this Section 6.7(b)(ii) shall be subject to any
required tax withholding. Payment of the amount determined pursuant to
this Section 6.7(b)(ii) with respect to each Preferred Stock Warrant
outstanding immediately prior to the Effective Time shall be made as soon
as reasonably practicable (but in no event later than five business days)
after the Effective Time. Buyer and such Escrow Agent shall be entitled to
deduct and withhold from any payment contemplated by this Section
6.7(b)(ii) such amounts, if any, as may be required to be deducted and
withheld with respect to the making of such payment under the Code or any
other applicable Legal Requirement. To the extent that any amounts are so
withheld, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Common Stock Warrant in
respect of which such deduction and withholding was made.
6.8 Conversion of Company Preferred Stock and Convertible Notes.
(a) As soon as practicable following the date of this Agreement, the
Company shall adopt such resolutions, obtain such consent, and take such other
actions as are required to ensure that immediately prior to the Effective Time,
all outstanding shares of Company Preferred Stock (other than the Series B
Preferred Stock, which shall be cancelled at the Closing in exchange for payment
by Buyer of the Series B Preferred Stock Amount) shall have been converted into
Company Common Stock.
(b) As soon as practicable following the date of this Agreement, the
Company shall adopt such resolutions, obtain such consent, and take such other
actions as are required to ensure that immediately prior to the Effective Time,
all convertible securities of the Company not otherwise provided for in Section
6.7 or in Section 6.8(a), shall have been converted into Company Common Stock
such that, at the Effective Time, all outstanding convertible securities of the
Company shall have been fully satisfied and canceled, and neither the Surviving
Company nor Buyer shall have any further obligation with respect thereto other
than payment of the Per Share Merger Consideration with respect to the shares of
Company Common Stock into which such convertible securities were converted.
45
6.9 Notification of Certain Matters. The Company shall give prompt notice
to Buyer, and Buyer shall give prompt notice to the Company, of (a) the
occurrence, or non-occurrence, of any event which would be likely to cause (i)
any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect or (ii) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied; and (iii) any
failure of the Company or Buyer, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided that the delivery of any notice pursuant to this Section 6.9
shall not limit or otherwise affect the remedies available to the party
receiving such notice.
6.10 Termination of Stockholders/Affiliate Agreements. Each of the
agreements specified on Schedule 6.10 shall be terminated by the Company on or
before the Closing at no expense and with no continuing obligations to any of
the Surviving Company, Buyer or Merger Sub.
ARTICLE VII.
COVENANTS AND OTHER AGREEMENTS
The Parties agree as follows with respect to the period following the
Closing:
7.1 Public Announcements. The Company, the Stockholders' Representatives
and Buyer will consult with each other, and to the extent practicable, agree,
before issuing any press release or otherwise making any public statement with
respect to this Agreement or the transactions contemplated hereby, and will not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable Legal Requirement,
including but not limited to the rules of the NYSE or other applicable stock
exchange, in which case reasonable efforts to consult with the other Parties
will be made prior to such release or public statement.
7.2 Further Assurances. From and after the Closing, each of the Parties
shall execute and deliver such further instruments of conveyance and transfer
and take such other action as reasonably may be necessary to further effectuate
the transactions contemplated by this Agreement.
7.3 Employee Benefits. As soon as practical after the Effective Time,
Buyer shall use commercially reasonable efforts to provide the employees of the
Company who are employed by Surviving Company after the Effective Time (each, a
"Transferred Company Employee" and collectively, the "Transferred Company
Employees") with substantially similar employee benefits (excluding cash and
equity based compensation) as those provided to similarly situated employees of
Buyer. Buyer further agrees to: (i) assume each Transferred Company Employee's
accrued and unpaid paid time off from the Company; and (ii) treat the verifiable
service of each Transferred Company Employee with the Company prior to the
Effective Time as service rendered to Buyer for purposes of determining the
Transferred Company Employee's benefits under Buyer's employee benefit policies
(except as to benefit accruals under any defined benefit plan and except as to
any new stock option, restricted stock, or other incentive award) to the same
extent taken into account under the Employee Benefit Plans in which such
employees
46
participated immediately prior to the Effective Time. The foregoing shall not
constitute any commitment, contract, understanding or undertaking, guarantee
(express or implied) on the part of Buyer or the Surviving Company to continue
the employment of any employee of the Company for any term of duration or on any
terms other than those as the Surviving Company may establish.
7.4 Indemnification; Tail Coverage. From the Effective Time until the
sixth anniversary of the Effective Time, Buyer shall cause the Surviving Company
to fulfill and honor, to the extent of the Surviving Company's assets, all
obligations of the Company relating to the limitation of liability and
indemnification of officers and directors pursuant to the Company's certificate
of incorporation and bylaws, as each are in effect immediately prior to the
Effective Time, and pay all amounts due and payable under such provisions. In no
event shall Buyer be obligated to use any of its or any of its affiliates assets
(other than those of the Surviving Company and the Subsidiaries) to satisfy the
obligations set forth in the previous sentence. Concurrent with or promptly
following the Closing, Buyer shall, or shall cause Surviving Company to, pay the
necessary premiums up to $100,000 in the aggregate to extend the reporting
period under the existing (or a similar) director and officer insurance policy
of the Company for claims first made under the policy prior to the sixth
anniversary of the Closing, but only with respect to claims based on
occurrences, events or facts arising on or before the Closing.
ARTICLE VIII.
SURVIVAL AND INDEMNIFICATION
8.1 Survival of Representations and Warranties. All of the representations
and warranties contained herein shall survive the Closing and continue in full
force and effect for a period of twelve months thereafter. No claim for Losses
may be made after twelve months after the Closing; provided, however, that any
matter as to which an Indemnification Claim Notice (as defined in Section 8.5
below) has been given during the twelve month period after the Closing which is
pending or unresolved at the end of the twelve month period after the Closing
shall continue to be covered by this Article VIII until such matter is finally
terminated or otherwise resolved by the Parties or by a court of competent
jurisdiction and any amounts payable hereunder are finally determined and paid.
The rights to indemnification set forth in this Agreement based on the
representations, warranties, covenants and obligations set forth herein shall
not be affected by any investigation conducted, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with any such representation, warranty, covenant
or obligation.
8.2 Indemnification Obligations of Equityholders and Management Bonus
Recipients. Subject to the provisions of Section 8.4 below, each Equityholder
and Management Bonus Recipient shall, severally and not jointly, indemnify,
defend and hold harmless Buyer, Merger Sub, the Surviving Company and each of
their respective successors, assigns, Affiliates, stockholders, members,
officers, managers, directors, employees and agents (collectively, the "Buyer
Indemnitees") from and after the Closing, in respect of any Loss that any Buyer
Indemnitee suffers, sustains, incurs or becomes subject to as a result of,
arising from or by virtue of:
47
(a) the breach of any of the covenants or agreements made by the
Company in this Agreement;
(b) the breach of any of the representations and warranties made by
the Company in this Agreement;
(c) any unpaid Pre-Closing Taxes or Straddle Period Taxes;
(d) the presence of Hazardous Substances at any real property owned,
used or leased by the Company, whether now or in the past, or to which the
Company has sent waste for disposal, or the past or present violation by the
Company of any Environmental Law;
(e) any fees (including costs and expenses) or commissions to any
broker, finder or agent engaged by the Company or any Equityholder;
(f) any Loss of any nature (absolute, accrued, contingent or
otherwise) of the Companies or any ERISA Affiliate of the Companies arising
under or related to any Employee Benefit Plan;
(g) any Loss (which shall include, without limitation, the value to
Buyer or the Company of a tax deduction that could have otherwise been taken)
resulting from or attributable to the application of Code Section 4999 with
respect to any "excess parachute payment" (as that term is defined for purposes
of Section 280G of the Code) under or with respect to any agreement, contract,
arrangement or plan of any of the Companies or to which any of the Companies is
a party;
(h) any Loss (including, without limitation, the benefits pursuant
to any "gross up" obligation) as a result of the application of Section 280G of
the Code to any "excess parachute payment" (as that term is defined for purposes
of Section 280G of the Code);
(i) any United Kingdom income tax deductible under the PAYE system
and/or national insurance contributions (other than secondary national insurance
contributions) that the Company or a Subsidiary is obliged to account for to any
Tax authority in respect of payments made or benefits provided to any employee
of the Company or a Subsidiary together with any interest and/or penalties
payable thereon;
(j) any Loss resulting from the failure to timely make the filings
set forth on Schedule 4.10(b) (including any Loss in the event that the Company
loses the ability to register the referenced trademark with the U.S. Patent and
Trademark Office and any costs incurred to revive such filings); or
(k) any United Kingdom value added tax payable on supplies made from
WagerWorks UK Limited to any of the Subsidiaries incorporated in Alderney,
together with any interest and/or penalty chargeable thereon;
provided, however that Losses shall not include (i) any amounts for which any
Buyer Indemnitees is actually reimbursed under any insurance policy of the
Company or Buyer or (ii)
48
any amounts that have been accrued and included in the Estimated Balance Sheet
or taken into account in the Final Net Working Capital Amount.
8.3 Indemnification Obligations of Buyer and Merger Sub. Subject to the
provisions of Section 8.4 below, Buyer and Merger Sub, jointly and severally,
shall indemnify, defend and hold harmless each Equityholder and its respective
successors, assigns, Affiliates and agents (collectively, the "Equityholder
Indemnitees") from and after the Closing, in respect of any Loss which any
Equityholder Indemnitee suffers, sustains, incurs or becomes subject to as a
result of, arising from or by virtue of:
(a) the breach of any of the covenants or agreements made by Buyer
or Merger Sub in this Agreement;
(b) the breach of any of the representations and warranties made by
Buyer or Merger Sub contained in this Agreement; and
(c) any fees, costs, expenses or commissions to any broker, finder
or agent with respect to the transactions contemplated by this Agreement engaged
by Buyer or Merger Sub;
provided, however that Losses shall not include any amounts for which any
Equityholder Indemnity is actually reimbursed under any insurance policy.
8.4 Limitations on Indemnification.
(a) The Buyer Indemnitees shall not be entitled to assert any claim
for indemnification pursuant to Section 8.2(b) unless and until the aggregate
amount of the Losses suffered by the Buyer Indemnitees exceeds $100,000, in
which case the Buyer Indemnitees shall be entitled to claim indemnity for the
full amount of Losses after deduction of such $100,000; provided, however, that
the foregoing limitation shall not apply to any claim for indemnification with
respect to any breach of any of the Fundamental Representations and Warranties
or any fraud or intentional misrepresentation. By way of clarification, the
limitation set forth in this Section 8.4(a) shall not apply to any claim for
indemnification pursuant to Section 8.2(a) and Sections 8.2 (c) through (k).
(b) Claims against the Escrow Amount (excluding the $25,000 set
aside for payment of Stockholders' Representatives expenses) shall be the sole
and exclusive remedy of the Buyer Indemnitees for any Losses hereunder. The
maximum liability of any Equityholder to the Buyer Indemnitees shall equal such
Equityholder's Applicable Escrow Ownership Percentage of the Escrow Amount (as
measured prior to reduction from any claims for Losses) and less the $25,000 set
aside for payment of Stockholders' Representatives expenses and the maximum
liability of any Management Bonus Recipient shall (apart from his/her potential
liability in his/her capacity as an Equityholder) equal such Management Bonus
Recipient's Applicable Escrow Ownership Percentage of the Escrow Amount (as
measured prior to reduction from any claims for Losses). Portions of the Escrow
Amount distributed to Buyer Indemnitees upon resolution of claims for Losses
shall be deemed to be recovered from the Escrow Amount in accordance with each
Equityholder's and Management Bonus Recipient's Applicable Escrow Ownership
Percentage.
49
(c) The Equityholder Indemnitees shall not be entitled to assert any
claim for indemnification pursuant to Section 8.3(b) unless and until the
aggregate amount of the Losses suffered by the Equityholder Indemnitees exceeds
$100,000 in which case the Equityholder Indemnitees shall be entitled to claim
indemnity for the full amount of Losses after deduction of such $100,000. By way
of clarification, the limitation set forth in this Section 8.4(c) shall not
apply to any claim for indemnification pursuant to Section 8.3(a) and Section
8.3 (c).
(d) The maximum aggregate obligation of Buyer and Merger Sub
pursuant to Section 8.3 shall not exceed an amount equal to the Escrow Amount
less $25,000.
8.5 Indemnification Procedures.
(a) Notice of Third Party Claims. If any third party notifies any
Party of any matter that may give rise to a claim by such Party for
indemnification pursuant to Section 8.2 or 8.3 above (a "Third Party Claim"),
such Party (an "Indemnified Party") must give the Party from whom
indemnification is sought (an "Indemnifying Party") written notice of such
Indemnified Party's claim for indemnification (an "Indemnification Claim
Notice") promptly (and in any event within forty-five (45) days after written
notice of such claim) after the Indemnified Party receives written notice of
such Third Party Claim; provided, however, that the failure of any Indemnified
Party to give notice within such forty-five (45) day period will not affect any
rights to indemnification hereunder except to the extent that the Indemnifying
Party demonstrates actual damage caused by such failure.
(b) Control of Defense; Conditions. The obligations of an
Indemnifying Party under this Article VIII with respect to Losses arising from
any Third Party Claim that are subject to the indemnification provided in
Sections 8.2 or 8.3 above shall be governed by and contingent upon the following
additional terms and conditions:
(i) An Indemnifying Party, at its option, shall be entitled to
assume control of the defense of any Third Party Claim at any time within
thirty (30) days of receiving notice of the Third Party Claim from the
Indemnified Party, and may appoint as lead counsel of such defense any
legal counsel selected by the Indemnifying Party. In order for an
Indemnifying Party to assume control of the defense of any Third Party
Claim, the Indemnifying Party must provide written notice to the
Indemnified Party acknowledging that such Third Party Claim is covered by
the indemnification rights provided in Section 8.2.
(ii) Notwithstanding Section 8.5(b)(i) above, the Indemnified
Party shall be entitled to participate in the defense of such claim and to
employ counsel of its choice for such purpose; provided, that such
employment shall be at the Indemnified Party's own expense unless (A) the
employment thereof has been specifically authorized by the Indemnifying
Party in writing, (B) the Indemnifying Party has failed to assume the
defense and employ counsel in accordance with Section 8.5(b)(i), or (C)
the named parties to any such Third Party Claim (including any impleaded
parties) include both the Indemnifying Party and the Indemnified Party and
the Indemnified Party reasonably believes that there may be one or more
legal defenses available to such Indemnified Party that are different from
or additional to those available to the Indemnifying Party (other
50
than differing interests associated with an Indemnifying Party's
obligation to indemnify), in which cases the fees and expenses of the
Indemnified Party's counsel shall be paid by the Indemnifying Party on a
current basis.
(iii) The Indemnifying Party shall not consent to the entry of
any judgment or enter into any settlement or compromise with respect to
any Third Party Claim without the prior written consent of the Indemnified
Party.
(iv) Notwithstanding the foregoing, if an Indemnified Party
determines in good faith that there is a reasonable probability that a
Third Party Claim (A) seeks non monetary relief or (B) involves criminal
allegations or allegations of violation of any Gaming Laws, the
Indemnified Party may, by notice to the Indemnifying Party, assume the
exclusive right to defend, compromise, or settle such Third Party Claim,
but the Indemnifying Party will not be bound by any determination of a
Third Party Claim so defended or any compromise or settlement effected
without its consent.
(c) Notice of Other Claims. Any Indemnified Party may make a claim
for indemnification pursuant to Sections 8.2 or 8.3 above by providing an
Indemnification Claim Notice to the Indemnifying Party. Such notice must contain
a description of the claim and the nature and amount, if then reasonably
ascertainable, of such Loss. Disputes with respect to claims made by Buyer
Indemnitees shall be resolved as set forth in the Escrow Agreement. Any claims
to be made by the Equityholder Indemnitees must be made by the Stockholders'
Representatives on behalf of the Equityholder Indemnitees and any negotiations
or proceedings with respect to such claims shall be controlled by the
Stockholders' Representatives on behalf of the Equityholders. In the event a
claim is brought by the Stockholders' Representatives on behalf of the
Equityholders, the Stockholders' Representatives and Buyer shall attempt in good
faith to agree upon the rights of the respective parties with respect to the
claim. If no such agreement can be reached within thirty days after the
initiation of such good faith negotiations, either party may submit the dispute
to any court permitted in Section 10.4.
(d) Manner and Characterization of Payment.
(i) Any indemnification obligations of the Equityholders or
the Management Bonus Recipients pursuant to Section 8.2 shall be paid
within ten (10) days after determination thereof by wire transfer or
delivery of other immediately available funds from the Escrow Agent to an
account designated in writing by Buyer.
(ii) Any indemnification obligations of Buyer or Merger Sub
pursuant to Section 8.3 shall be paid within ten (10) days after
determination thereof by wire transfer or delivery of other immediately
available funds to an account designated in writing by the Stockholders'
Representatives for distribution to the Equityholders.
(iii) Any indemnification payments made hereunder shall be
considered, to the extent permissible under applicable law, as adjustments
to the Merger Consideration for all Tax purposes.
8.6 Exclusive Remedy. The foregoing indemnification provisions shall be
the sole and exclusive remedy for all claims for breach of any representation,
warranty, covenant or
51
agreement contained in this Agreement other than claims for fraud or intentional
misrepresentation or a suit for specific performance.
ARTICLE IX.
CONDITIONS TO THE CLOSING
9.1 Conditions of Buyer's and Merger Sub's Obligation. Buyer's and Merger
Sub's obligation to effect the Merger at the Closing is subject to the
satisfaction as of the Closing of the following conditions precedent:
(a) Representations and Warranties; Covenants. Each representation
and warranty set forth in Article IV above shall be true and correct in all
material respects at and as of the Closing as though then made, except to the
extent that such representations and warranties expressly relate to an earlier
date or period, in which case such representations and warranties shall be as of
such earlier date or period, or except which breach has not caused and would not
reasonably be expected to cause, a Material Adverse Effect. The Company shall
have performed and observed in all material respects each covenant or other
obligation required to be performed or observed by them pursuant to the
Transaction Documents prior to the Closing.
(b) Proceedings. There shall not be any injunction, judgment, order,
decree, ruling or charge in effect before any judicial authority or Government
Entity the result of which would prevent or prohibit the consummation of any
transaction pursuant to the Transaction Documents, cause any such transaction to
be rescinded following consummation, or materially adversely affect the
Company's performance of its obligations pursuant to the Transaction Documents,
and no judgment, order, decree, stipulation, injunction or charge having any
such effect shall exist.
(c) Consents and Approvals. The governmental or third-party consents
or approvals listed on Schedule 9.1(c) shall have been obtained and, if the
parties determine that a filing under the Xxxx-Xxxxx-Xxxxxx Act is applicable,
the applicable waiting period (and any extension thereof) under the
Xxxx-Xxxxx-Xxxxxx Act shall have expired or been early terminated.
(d) Dissenting Shares. Holders of 10% or more of the outstanding
shares of Company Capital Stock (calculated on an as converted to Company Common
Stock basis) shall not have demanded or be eligible to demand appraisal of such
holder's shares under DGCL Section 262 by the lapse of the required notice
period thereunder.
(e) The Company's Closing Documents. The Company shall, or shall
cause each appropriate party to, deliver to Buyer the following documents (duly
executed as appropriate):
(i) a certificate of the Company, dated as of the Closing Date
and signed by each of the Chief Executive Officer, President and Chief
Financial Officer of the Company, expressly certifying that the conditions
set forth in Section 9.1(a) and (d) have been met;
(ii) the Escrow Agreement;
52
(iii) the Certificate of Merger;
(iv) certificates dated as of the Closing Date from the
Company, signed by the Secretary of the Company and in form and substance
reasonably satisfactory to Buyer certifying (A) that resolutions in the
form attached to the certificate have been duly adopted by the board of
directors of the Company authorizing the execution of Transaction
Documents to which the Company is a party, (B) that resolutions in the
form attached to the certificate have been duly adopted by the
stockholders of the Company adopting and approving the Merger, (C) the
names and incumbency of its officers who are empowered to execute the
foregoing documents for and on behalf of the Company, and (D) that the
attached copies of the organizational documents of the Company are
complete and correct; and
(v) an opinion of the legal counsel to the Company as to the
matters referred to on Exhibit G (with an abbreviated version of similar
opinions from United Kingdom counsel to the Company as to the Company's
United Kingdom Subsidiary and with an abbreviated version of similar
opinions from Alderney counsel to the Company as to the Company's direct
and indirect Alderney Subsidiaries).
(f) Lien Releases. Buyer shall have received evidence reasonably
satisfactory to Buyer and a "pay-off" letter from each holder of Indebtedness of
any of the Companies stating that any liens, security interests or other
encumbrances (other than Permitted Liens) on the assets of any of the Companies
have been released of record or will be released upon receipt by the creditor
named in the pay-off letter(s) of the amounts specified in the pay-off
letter(s).
(g) Employment Agreements. Each of the employees of the Company who
are counterparties to the Employment Agreements shall have continued in the
employment of the Company through, and be employed by the Company on, the
Effective Time.
Any condition set forth in this Section 9.1 may be waived by Buyer if it
executes a writing so stating prior to the Closing.
9.2 Conditions of the Company's Obligation. The Company's obligation to
effect the Merger at the Closing is subject to the satisfaction as of the
Closing of the following conditions precedent:
(a) Representations and Warranties; Covenants. Each representation
and warranty set forth in Article V above shall be true and correct in all
material respects at and as of the Closing as though then made, except to the
extent that such representations and warranties expressly relate to an earlier
date or period, in which case such representations and warranties shall be as of
such earlier date or period, or except which breach has not caused, and would
not reasonably be expected to cause, a material adverse effect on Buyer's
ability to consummate the Merger and the transactions contemplated hereby. Buyer
shall have performed and observed in all material respects each covenant or
other obligation required to be performed or observed by it pursuant to the
Transaction Documents prior to the Closing.
(b) Proceedings. There shall not be any injunction, judgment, order,
decree, ruling or charge in effect before any judicial authority or Government
Entity the result of which
53
would prevent or prohibit the consummation of any transaction pursuant to the
Transaction Documents, cause any such transaction to be rescinded following
consummation, or materially adversely affect Buyer's performance of its
obligations pursuant to the Transaction Documents, and no judgment, order,
decree, stipulation, injunction or charge having any such effect shall exist.
(c) Consents and Approvals. If the parties determine that a filing
under the Xxxx-Xxxxx-Xxxxxx Act is applicable, the applicable waiting period
(and any extension thereof) under the Xxxx-Xxxxx-Xxxxxx Act shall have expired
or been early terminated.
(d) Buyer's and Merger Sub's Closing Documents. Buyer and Merger Sub
shall have delivered to the Company the following documents:
(i) a certificate of an executive officer of Buyer, dated as
of the Closing Date and signed by an executive officer of Buyer, expressly
certifying that the conditions in Section 9.2(a) have been met;
(ii) the Escrow Agreement; and
(iii) the Certificate of Merger.
Any condition set forth in this Section 9.2 may be waived by the Company
if the Company executes a writing so stating at or prior to the Closing.
ARTICLE X.
MISCELLANEOUS
10.1 Termination. This Agreement may be terminated:
(a) at any time prior to the Closing by mutual written agreement of
Buyer and the Company;
(b) by Buyer, at any time prior to the Closing in the event that the
Company is in breach, in any material respect, of the representations,
warranties or covenants made by the Company in this Agreement (provided, that
such condition is not the result of any breach of any representation, warranty
or covenant of Buyer set forth in this Agreement) and such breach has caused, or
would reasonably be expected to cause, a Material Adverse Effect; provided, that
the Company shall have 30 days to cure such breach following the receipt of
written notice of Buyer's election to terminate;
(c) by the Company, at any time prior to the Closing in the event
that Buyer or Merger Sub is in breach, in any material respect, of the
representations, warranties or covenants made by Buyer or Merger Sub in this
Agreement (provided, that such condition is not the result of any breach of any
covenant representation, warranty or covenant of the Company set forth in this
Agreement) and such breach has caused, or would reasonably be expected to cause,
a material adverse effect on Buyer's ability to consummate the Merger and the
transactions
54
contemplated hereby; provided, that Buyer and Merger Sub shall have 30 days to
cure such breach following the receipt of written notice of the Company's
election to terminate;
(d) by the Company, on the one hand, and Buyer and Merger Sub, on
the other hand, at any time after September 30, 2005, if the Closing shall not
have occurred by such date, unless the failure or delay resulted primarily from
the breach of any representation, warranty, or covenant contained in this
Agreement by the Party initiating such termination; or
(e) by Buyer on or before 5:00 p.m. Nevada time on August 8, 2005 if
Buyer determines that consummation of the transactions contemplated by this
Agreement would adversely impact Buyer's regulatory licenses or Buyer's good
standing with any Government Entity from whom Buyer has licenses.
Any termination of this Agreement pursuant to any of Sections 10.1(b) through
(d), inclusive, shall be effected by written notice from the Company to Buyer
(if the Company is the terminating party) or Buyer to the Company (if Buyer or
Merger Sub is the terminating party), which notice shall specify the basis
therefor. Any termination of this Agreement pursuant to Sections 10.1(b) or (c)
shall not terminate the liability of any Party for any breach or default of any
covenant or other agreement set forth herein which exists at the time of such
termination. In the event of termination of this Agreement by the Company and
Buyer pursuant to Section 10.1(a) or by Buyer pursuant to Section 10.1(b), the
Company shall within two business days of the date of such termination, refund
to Buyer the full amount of the Termination Fee. In the event of termination by
Buyer pursuant to Section 10.1(d) or (e), or by the Company pursuant to Section
10.1(d) to the extent relating to Buyer's inability to obtain proper consent or
approval for its regulatory licenses with any Government Entity from whom Buyer
has licenses, the Company shall be entitled to retain the Termination Fee, which
amount shall be the Company's sole remedy hereunder. Notwithstanding the
foregoing, the Company shall not be entitled to retain the Termination Fee (and
any limitations on the Termination Fee being a sole remedy shall not be
applicable) in the event of termination by Buyer pursuant to Section 10.1(d) and
the inability for the Parties to effect the Closing by September 30, 2005 is due
solely to a failure of any of the conditions set forth in Section 9.1(c) (but
only with respect to a failure to obtain any of the third party consents marked
with an asterisk on Schedule 9.1(c)), Section 9.1(d), Section 9.1(e), Section
9.1(f) or Section 9.1(g). In such event, the Company shall within two business
days of the date of such termination, refund to Buyer the full amount of the
Termination Fee.
10.2 Consent to Amendments. This Agreement may be amended, modified or
supplemented to the fullest extent permitted by law at any time prior to the
Effective Time, and any provisions of this Agreement may be waived, in each case
upon the approval, in writing, executed by the Company, Merger Sub and Buyer;
provided, however, if adversely affected by such amendment, modification or
supplement, such approval shall also include the approval of the Stockholders'
Representatives and the Management Bonus Recipients. No other course of dealing
between or among any of the parties or any delay in exercising any rights
pursuant to this Agreement shall operate as a waiver of any rights of any party.
10.3 Successors and Assigns. Except as otherwise expressly provided in
this Agreement, all covenants and agreements set forth in this Agreement by or
on behalf of the Parties shall bind and inure to the benefit of the respective
successors and permitted assigns of
55
the Parties, whether so expressed or not. Neither this Agreement nor any of the
rights, interests or obligations hereunder may be assigned by the Company
without the prior written consent of Buyer.
10.4 Governing Law; Waiver of Jury Trial; Venue. This Agreement shall be
governed by and construed in accordance with the domestic laws of the State of
Nevada, without giving effect to any choice of law or conflict provision or rule
(whether of the State of Nevada or any other jurisdiction) that would cause the
laws of any jurisdiction other than the State of Nevada to be applied; provided,
however that Delaware law shall be the applicable law for the purpose of the
Merger and the other actions to be taken under this Agreement in accordance with
the DGCL. In furtherance of the foregoing, the internal law of the State of
Nevada shall control the interpretation and construction of this Agreement, even
if under such jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply; provided,
however that Delaware law shall be the applicable law for the purpose of the
Merger and the other actions to be taken under this Agreement in accordance with
the DGCL. Each of the Parties hereto hereby irrevocably waives any and all right
to trial by jury in any legal proceeding arising out of or related to this
Agreement. Each of the Parties hereby irrevocably and unconditionally submits to
the exclusive jurisdiction of the state and federal courts located in Washoe
County, Nevada, for any actions, suits, or proceedings arising out of or
relating to this Agreement and the transactions contemplated hereby (and each of
the Parties agrees not to commence any action, suit or proceeding relating
thereto except in such courts), and further agrees that service of any process,
summons, notice or document by U.S. registered mail to its address set forth
below shall be effective service of process of any action, suit or proceeding
brought against any Party in any such court. Each of the Parties hereby
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby, in such state or federal courts as aforesaid and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
10.5 Notices. All demands, notices, communications and reports provided
for in this Agreement shall be in writing and shall be either sent by facsimile
with confirmation to the number specified below or personally delivered or sent
by reputable overnight courier service (delivery charges prepaid) to any Party
at the address specified below, or at such address, to the attention of such
other Person, and with such other copy, as the recipient Party has specified by
prior written notice to the sending Party pursuant to the provisions of this
Section 10.5.
If to the Company:
WagerWorks, Inc.
0000 Xxxxx Xxxxxx
Xxxxxx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
with copies, which shall not constitute notice to the
Company, to:
56
DLA Xxxxx Xxxxxxx Xxxx Xxxx LLP
0000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Xxxx X. Xxxx, Esq.
Facsimile No.: (000) 000-0000
If to the Stockholders' Representatives:
Xxxx Xxxx
00000 Xxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
and
DDJ Capital Management, LLC
000 Xxxxxx Xxxxxx, Xxxxx X-0
Xxxxxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxx X. XxXxxxxx, Senior Legal Counsel
Facsimile No.: (000) 000-0000
with copies, which shall not constitute notice to the
Stockholders' Representatives, to:
DLA Xxxxx Xxxxxxx Xxxx Xxxx LLP
0000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Xxxx X. Xxxx, Esq.
Facsimile No.: (000) 000-0000
If to Buyer or Merger Sub:
c/o International Game Technology
0000 Xxxxxxxxx Xxxxx
Xxxx, Xxxxxx 00000
Attention: J. Xxxxxxx Xxxxxxxxx, Vice President
Facsimile No.: (000) 000-0000
57
with copies, which shall not constitute notice to Buyer or
Merger Sub, to:
O'Melveny & Xxxxx LLP
000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000-0000
Attention: J. Xxx Xxxxxx, Esq.
Xxxxx X. Xxxxxx, Esq.
Facsimile No.: (000) 000-0000
Any such demand, notice, communication or report shall be deemed to have
been given pursuant to this Agreement when delivered personally, when confirmed
if by facsimile or on the second Business Day after deposit with a reputable
overnight courier service, as the case may be.
10.6 Schedules and Exhibits. The Schedules, Annexes and Exhibits to this
Agreement constitute a part of this Agreement and are incorporated into this
Agreement for all purposes as if fully set forth herein.
10.7 Counterparts. The Parties may execute this Agreement in two or more
counterparts, including facsimile versions (no one of which need contain the
signatures of all parties), each of which shall be an original and all of which
together shall constitute one and the same instrument.
10.8 No Third Party Beneficiaries. Except as otherwise expressly provided
in this Agreement, no Person which is not a Party shall have any right or
obligation pursuant to this Agreement.
10.9 Headings. The headings used in this Agreement are for the purpose of
reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.
10.10 Entire Agreement. Except as otherwise provided in this Agreement or
in the Non Disclosure Agreement, this Agreement sets forth the entire
understanding of the parties relating to the subject matter hereof, and all
prior understandings, whether written or oral (including, but not limited to the
Letter of Intent) are superseded by this Agreement, and all prior
understandings, and all related agreements and understandings are hereby
terminated.
10.11 Interpretation. Unless otherwise expressly provided or unless the
context requires otherwise, (a) all references in this Agreement to Articles,
Sections, Schedules, Annexes and Exhibits shall mean and refer to Articles,
Sections, Schedules, Annexes and Exhibits of this Agreement; (b) all references
to statutes and related regulations shall include all amendments of the same and
any successor or replacement statutes and regulations; (c) words using the
singular or plural number also shall include the plural and singular number,
respectively; (d) references to "hereof", "herein", "hereby" and similar terms
shall refer to this entire Agreement (including the Schedules, Annexes and
Exhibits hereto); (e) references to any Person shall be deemed to mean and
include the successors and permitted assigns of such Person (or, in the case of
a Government Entity, Persons succeeding to the relevant functions of such
Person); (f) masculine gender shall also include the feminine and neutral
genders, and vice versa; and (g) the term "including" shall be deemed to mean
"including, without limitation."
58
10.12 Severability. In case any one or more of the provisions contained
herein for any reason shall be held to be invalid, illegal, or unenforceable in
any respect, such invalidity, illegality, or unenforceability shall not effect
any other provision of this Agreement, but this Agreement shall be construed as
if such invalid, illegal, or unenforceable provision or provisions had never
been contained herein.
10.13 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement.
10.14 Stockholders' Representative. Xxxx Xxxx and DDJ Capital Management,
LLC are hereby appointed to act as the representatives, agents, proxies and
attorneys-in-fact for all Equityholders (the "Stockholders' Representatives")
for all purposes under this Agreement and the Escrow Agreement including,
without limitation, the full power and authority on each Equityholder's behalf
to: (i) receive notices or service of process, (ii) negotiate, determine,
compromise, settle and take any other action permitted or called for by
Equityholders under this Agreement, including but not limited to Section 3.2 and
Article VIII, and (iii) to execute and deliver any amendment or waiver to this
Agreement and the Escrow Agreement in connection therewith. All decisions,
actions or instructions by the Stockholders' Representatives shall be made
jointly by the Stockholders' Representatives and shall constitute a decision,
action or instruction of all Equityholders and shall be binding upon all
Equityholders as it relates to this Agreement, and no Equityholder shall have
the right to object, dissent, protest or otherwise contest the same. The
Stockholders' Representatives shall have no duties or obligations hereunder
except those specifically set forth herein and in the Escrow Agreement and such
duties and obligations shall be determined solely by the express provisions of
this Agreement and the Escrow Agreement. Each Equityholder shall indemnify and
hold harmless the Stockholders' Representatives against all expenses (including
reasonable attorneys' fees), judgments, fines and amounts incurred by the
Stockholders' Representatives in connection with any action, suit or proceeding
to which the Stockholders' Representatives is made a party by reason of the fact
it is or was acting as the Stockholders' Representatives under this Agreement.
Neither the Stockholders' Representatives nor any agent employed by either of
them shall incur any liability to any Equityholder relating to the performance
of its duties hereunder except for actions or omissions constituting fraud or
bad faith. The Stockholders' Representatives shall have no liability in respect
of any action, claim or proceeding brought against the Stockholders'
Representatives by any Equityholder if the Stockholders' Representatives took or
omitted taking any action in good faith. Such agency may be changed by the
holders of a majority in interest of the Escrow Amount from time to time upon
not less than five business days' prior written notice to Buyer. No bond shall
be required of the Stockholders' Representative, and the Stockholders'
Representatives shall receive no compensation for his services. Notices or
communications to or from the Stockholders' Representatives shall constitute
notice to or from each of the Equityholders. The Stockholders' Representatives
may request reasonable access to information about the Company and Buyer and the
reasonable assistance of the Company's and Buyer's officers and employees for
purposes of performing their duties and exercising their rights hereunder,
provided that the Stockholders' Representatives shall treat confidentially and
not disclose any nonpublic information from or about the Company or Buyer to
anyone (except on a
59
need to know basis to individuals who agree to treat such information
confidentially). The Stockholders' Representatives shall have the ability to
seek payment or reimbursement for their out-of-pocket expenses incurred in
connection with the performance of their duties hereunder in any amount up to
$25,000 in accordance with the terms of the Escrow Agreement.
* * * * *
60
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the date first written above.
"BUYER"
International Game Technology,
a Nevada corporation
By: /s/ Xxxxxx X. Xxxxxxxx
----------------------------------
Name: Xxxxxx X. Xxxxxxxx
Its: President and Chief Executive Officer
"MERGER SUB"
Winter Subsidiary, Inc.,
a Delaware corporation
By: /s/ Xxxxxx X. Xxxxxxxx
----------------------------------
Name: Xxxxxx X. Xxxxxxxx
Its: President
"COMPANY"
WagerWorks, Inc.,
a Delaware corporation
By: /s/ Xxxx Xxxxxxxxxxxx
----------------------------------
Name: Xxxx Xxxxxxxxxxxx
Its: CEO
"STOCKHOLDERS' REPRESENTATIVES"
/s/ Xxxx X. Xxxx
----------------------------------------
Xxxx Xxxx
DDJ Capital Management, LLC
By: /s/ Xxxxx X. Xxxxxxxxx
----------------------------------
Name: Xxxxx X. Xxxxxxxxx
Its: Member
S-1
IN WITNESS WHEREOF, each of the undersigned Management Bonus Recipients
hereby acknowledges and agrees that the Management Bonus Amount to which such
person is entitled is subject to payment of any indemnity claims under Article
VIII of the Merger Agreement. The undersigned further acknowledges and agrees
that, in accordance with the Merger Agreement, the Stockholders' Representatives
have the authority, including the authority under Section 10.14 of the Merger
Agreement to make decisions regarding the release of the Escrow Amount
(including the portion thereof representing the Management Bonus Amount) and to
the extent all or a portion of the Management Bonus Amount is used to satisfy
indemnity claims of Buyer, the undersigned shall have no right to the Management
Bonus Amount and no claim therefor against the Company or Buyer.
/s/ Xxxx Xxxxxxxxxxxx
-----------------------------------
Xxxx Xxxxxxxxxxxx
/s/ Xxxx Xxxxxxxx
-----------------------------------
Xxxx Xxxxxxx
/s/ Xxxxxx Xxxxxx
-----------------------------------
Xxxxxx Xxxxxx
/s/ Xxxxx Xxxxxx
-----------------------------------
Xxxxx Xxxxxx
S-2
