EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
AMONG
POWERHOUSE TECHNOLOGIES, INC.,
IGT ONLINE ENTERTAINMENT SYSTEMS, INC.
AND
SCIENTIFIC GAMES CORPORATION
DATED AS OF
SEPTEMBER 11, 2003
TABLE OF CONTENTS
PAGE
ARTICLE I PURCHASE AND SALE OF THE SHARES............................................................1
1.1 Purchase and Sale of the Shares................................................................1
1.2 Consideration for the Shares...................................................................1
1.3 Closing........................................................................................1
1.4 Post-Closing Adjustments.......................................................................2
1.5 Closing Balance Sheet..........................................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER...................................................4
2.1 Organization; Subsidiaries.....................................................................4
2.2 Authority; Enforceability......................................................................4
2.3 Ownership of Capital Stock.....................................................................5
2.4 No Breach......................................................................................5
2.5 Brokers........................................................................................6
2.6 Financial Statement; Liabilities...............................................................6
2.7 Consents.......................................................................................6
2.8 Actions and Proceedings........................................................................7
2.9 Taxes and Tax Returns..........................................................................7
2.10 Title to Property; Condition...................................................................8
2.11 Intellectual Property..........................................................................9
2.12 Compliance with Legal Requirements; Permits...................................................11
2.13 Employment Matters............................................................................11
2.14 Environmental Matters.........................................................................13
2.15 Permits.......................................................................................13
2.16 Contracts.....................................................................................14
2.17 Affiliate Transactions........................................................................15
2.18 Insurance.....................................................................................16
2.19 Bank Accounts.................................................................................16
2.20 Accounts Receivable...........................................................................17
2.21 Books and Records.............................................................................17
2.22 Absence of Certain Business Practices.........................................................17
2.23 Restrictions on Business Activities...........................................................17
2.24 Suppliers and Customers.......................................................................17
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TABLE OF CONTENTS
(CONTINUED)
PAGE
2.25 No Other Representations or Warranties........................................................17
2.26 Investigations................................................................................18
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER...............................................18
3.1 Organization; Authority and Enforceability....................................................18
3.2 No Breach.....................................................................................18
3.3 Consents......................................................................................19
3.4 Brokers.......................................................................................19
3.5 Actions and Proceedings.......................................................................19
3.6 Acquisition of Shares.........................................................................19
3.7 Adequate Financing............................................................................19
ARTICLE IV COVENANTS OF SELLER.......................................................................20
4.1 Conduct of Business...........................................................................20
4.2 Access and Confidentiality....................................................................22
ARTICLE V ADDITIONAL AGREEMENTS.....................................................................23
5.1 Further Actions...............................................................................23
5.2 Certain Notifications.........................................................................23
5.3 Tax Matters...................................................................................23
5.4 Employee and Employee Benefit Matters.........................................................26
5.5 Contribution of Assets; Cancellation of Obligations...........................................27
5.6 Audited Financials............................................................................27
5.7 Press Releases; Public Announcements..........................................................27
5.8 Name of Company...............................................................................28
5.9 Noncompetition................................................................................28
5.10 Financing.....................................................................................29
5.11 ISRA Compliance...............................................................................29
5.12 Intellectual Property and Other Agreements....................................................30
ARTICLE VI CONDITIONS PRECEDENT TO CLOSING...........................................................30
6.1 Conditions Precedent to Obligations of Purchaser..............................................30
6.2 Conditions Precedent to Obligations of Seller.................................................32
ARTICLE VII TERMINATION...............................................................................33
7.1 Grounds for Termination.......................................................................33
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TABLE OF CONTENTS
(CONTINUED)
PAGE
7.2 Effect of Termination.........................................................................33
7.3 Termination Fee...............................................................................34
ARTICLE VIII MISCELLANEOUS.............................................................................34
8.1 Survival of Representations and Warranties....................................................34
8.2 Costs and Expenses............................................................................34
8.3 Notices.......................................................................................34
8.4 Counterparts..................................................................................36
8.5 Entire Agreement..............................................................................36
8.6 Governing Law.................................................................................36
8.7 No Third Party Rights; Assignment.............................................................36
8.8 Waivers and Amendments........................................................................36
8.9 Interpretation................................................................................37
8.10 Agreement to Indemnify........................................................................37
8.11 Conditions of Indemnification.................................................................38
8.12 Amount of Indemnification.....................................................................39
8.13 Severability..................................................................................39
8.14 Failure or Indulgence Not Waiver; Remedies Cumulative.........................................39
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INDEX OF DEFINED TERMS
The following terms have the respective meanings specified in the
indicated Sections of the Agreement:
TERM AGREEMENT SECTION
---- -----------------
Adjusted Purchase Price 1.2
Affiliate 2.17(c)
Agreement Recitals
Allocation Schedule 5.3(i)
Associate 2.17(c)
Business 5.9(a)
CERCLA 2.14
Claims 8.10(b)
Closing 1.3(a)
Closing Balance Sheet 1.5(a)
Closing Date 1.3(a)
Code 2.13(b)
Company Recitals
Company Benefit Plans 2.13(b)
Company Intellectual Property 2.11(d)
Confidentiality Agreement 4.2
Consent 2.7
Contracts 2.4(b)
Copyrights 2.11(a)
Damages 8.10(a)
Dispute Notice 1.5(b)
Domain Names 2.11(a)
Effective Additional Contracts 1.2
Environmental Laws 2.14
ERISA 2.13(b)
ERISA Affiliate 2.13(b)
Expiration Date 8.1
Financial Statements 2.6(a)
GAAP 1.4
Governmental Authority 2.4(c)
Hazardous Materials 2.14
HSR Act 2.7
IGT 5.5(b)
Independent Accounting Firm 1.5(b)
Initial Purchase Price 1.2
Intellectual Property 2.11(a)
IP Agreements 5.12(a)
Judgments 2.4(c)
Laws 2.4(c)
Liability, Liabilities 2.6(b)
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TERM AGREEMENT SECTION
---- -----------------
License 2.11(c)
License Agreement 8.5
Liens 1.1
Material Adverse Effect 2.4
Material Contracts 2.16(a)
Patents 2.11(a)
Permits 2.4(b)
Permitted Encumbrances 2.10(b)
Post-Closing Adjustment 1.4
Proceeding(s) 2.8
Protocol License 5.12(b)
PTO 2.11(f)
Purchaser Recitals
Purchaser Benefit Plans 5.4(a)
Purchaser Claims 8.10(a)
Purchaser Disclosure Schedule Article III
Purchaser Group 8.10(a)
Purchaser Indemnification Cap 8.10(b)
Purchaser Indemnification Deductible 8.10(b)
Purchaser Representations 4.2
Purchaser's Auditor 1.5(a)
Releases 2.14
Section 338(h)(10) Elections 5.3(i)
Section 5.12 Agreements 5.12(d)
Seller Recitals
Seller Benefit Plans 5.4(c)
Seller Claims 8.10(b)
Seller Disclosure Schedule Article II
Seller Group 8.10(b)
Seller Indemnification Cap 8.10(a)
Seller Indemnification Deductible 8.10(a)
Seller's Auditor 1.5(a)
Shares Recitals
Software 2.11(a)
Target Working Capital 1.4
Tax Returns 2.9(a)
Taxes 2.9(a)
Termination Fee 7.3
TM Agreement 5.12(a)
Trademarks 2.11(a)
Trade Secrets 2.11(a)
VLC 5.5(a)
VLC Services 5.12(c)
VLC Services Contract 5.12(d)
WARN 5.4(d)
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Working Capital 1.4
Working Capital Calculation Statement 1.5(a)
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STOCK PURCHASE AGREEMENT ("AGREEMENT"), dated as of September 11, 2003,
among Powerhouse Technologies, Inc., a corporation organized under the laws of
Delaware ("SELLER"), IGT Online Entertainment Systems, Inc., a corporation
organized under the laws of Delaware (the "COMPANY"), and
Scientific Games
Corporation, a corporation organized under the laws of Delaware ("PURCHASER").
WHEREAS, Seller is the record and beneficial owner of all of the
outstanding shares of capital stock of the Company (the "SHARES");
WHEREAS, Seller desires to sell and Purchaser desires to purchase the
Shares;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and undertakings contained or referred to in
this Agreement, the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
1.1 PURCHASE AND SALE OF THE SHARES. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing (as defined in Section
1.3(a) below), Seller shall sell to Purchaser, and Purchaser shall purchase from
Seller, all of Seller's right, title and interest in and to the Shares, free and
clear of all liens, mortgages, charges, security interests, burdens,
encumbrances or other restrictions or limitations of any nature whatsoever
("LIENS").
1.2 CONSIDERATION FOR THE SHARES. The aggregate consideration to be
paid by Purchaser for the Shares shall be One Hundred Forty Three Million
Dollars ($143,000,000) (the "INITIAL PURCHASE PRICE"), plus or minus the Post
Closing Adjustment (as defined below) (the Initial Purchase Price as so adjusted
being the "ADJUSTED PURCHASE PRICE"); provided, however, that the Initial
Purchase Price shall be reduced to (i) One Hundred Forty Two Million Dollars
($142,000,000) if the Closing Date (as defined below) occurs after December 1,
2003, (ii) One Hundred Forty One Million Dollars ($141,000,000) if the Closing
Date occurs after January 1, 2004, and (iii) One Hundred Forty Million Dollars
($140,000,000) if the Closing Date occurs after February 1, 2004. The payment of
the Initial Purchase Price and any Post Closing Adjustment shall be made in cash
by wire transfer of immediately available funds to an account designated in
writing by the Seller or the Purchaser in the case of a Post Closing Adjustment
payable to the Purchaser. Any Post Closing Adjustment shall be paid at the time
set forth in Section 1.4.
1.3 CLOSING.
(a) The closing of the transactions contemplated in this Agreement (the
"CLOSING") shall be held at 10:00 a.m. at the offices of O'Melveny & Xxxxx LLP,
00 Xxxxxxxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx, xx the second business day after each
of the conditions set forth in Article VI of this Agreement (other than those
conditions that are to be satisfied only at the Closing) shall have been
fulfilled or waived in accordance herewith, or at such other time, date or place
as the parties hereto may agree. The date on which the Closing occurs is
referred to as the "CLOSING DATE."
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(b) At the Closing (i) the parties shall exchange the documents
referred to in Article VI; (ii) Seller shall deliver to Purchaser certificates
for all of the Shares, duly endorsed for transfer or accompanied by duly
executed stock powers or stock transfer forms sufficient to convey to Purchaser
title to the Shares; and (iii) Purchaser shall pay to Seller the Initial
Purchase Price by wire transfer of immediately available funds, to an account
identified by Seller to Purchaser in writing no later than two (2) business days
prior to the Closing.
1.4 POST-CLOSING ADJUSTMENTS. The Initial Purchase Price is based on
the Company having Working Capital (as defined below) of $0 (the "TARGET WORKING
CAPITAL"). Any difference between the Target Working Capital and the Working
Capital shall be an adjustment to the Initial Purchase Price (the "POST-CLOSING
ADJUSTMENT"). The Adjusted Purchase Price shall be the Initial Purchase Price
adjusted by the Post-Closing Adjustment, in the following manner: in the event
that the Working Capital is greater than the Target Working Capital, the
Adjusted Purchase Price shall be equal to the Initial Purchase Price plus the
Post-Closing Adjustment, and Purchaser shall pay the amount of the Post-Closing
Adjustment to Seller and in the event that the Working Capital is less than the
Target Working Capital, the Adjusted Purchase Price shall be equal to the
Initial Purchase Price minus the Post-Closing Adjustment, and Seller shall pay
the amount of the Post-Closing Adjustment to Purchaser, in each case calculated
in accordance with the provisions of Section 1.5 of this Agreement. Any such
payments shall be made within two (2) business days following agreement by
Purchaser and Seller on the Working Capital Calculation Statement (as defined in
Section 1.5). "WORKING CAPITAL" means the Company's current assets (excluding
any current asset for which a current liability was incurred to acquire such
asset provided such current liability is excluded from current liabilities in
the calculation of Working Capital) minus its current liabilities (excluding any
current Liability representing capital lease obligations or indebtedness
incurred to finance capital expenditures identified on Section 4.1 of the Seller
Disclosure Schedule) as of the Closing Date determined in accordance with United
States generally accepted accounting principles ("GAAP"). For purposes of the
calculation of Working Capital hereunder, the remaining balance (as calculated
in accordance with GAAP) as of the Closing Date of the accrued lease
restructuring reserve reflected on the balance sheet of the Company as of July
31, 2003 shall be treated as a current liability.
1.5 CLOSING BALANCE SHEET.
(a) The Purchaser shall cause to be prepared the balance sheet of the
Company as of the Closing Date (the "CLOSING BALANCE Sheet"). No later than the
later of (i) sixty (60) days following the Closing Date and (ii) ten (10) days
following the Purchaser's receipt of the audited financial statements as of and
for the twelve (12) month period ended September 27, 2003, Purchaser shall
deliver the Closing Balance Sheet to Seller, which Closing Balance Sheet shall
be prepared and presented consistent with GAAP, applied on a consistent basis
with the preparation of the Financial Statements (as defined in Section 2.6),
and which shall be accompanied by a statement documenting the calculation of the
Working Capital ("WORKING CAPITAL CALCULATION STATEMENT"). The Closing Balance
Sheet and Working Capital Calculation Statement may be reviewed, at the option
of Seller, by Deloitte & Touche LLP, independent public accountants of Seller
("SELLER'S AUDITOR"), who will be afforded full access to all books and records
of the Company.
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(b) Unless Seller disputes the Closing Balance Sheet or the Working
Capital Calculation Statement pursuant to this Section 1.5(b), the Closing
Balance Sheet and the Working Capital Calculation Statement delivered by
Purchaser to Seller shall be final, binding and conclusive on Seller and
Purchaser. Seller may dispute any item shown on the Closing Balance Sheet or the
Working Capital Calculation Statement by sending written notice (a "DISPUTE
NOTICE") to Purchaser within thirty (30) days of the receipt of the Closing
Balance Sheet and Working Capital Calculation Statement. The Dispute Notice
shall identify each disputed item on the Closing Balance Sheet or the Working
Capital Calculation Statement, as applicable, specify the amount of such dispute
and set forth the basis for such dispute. In the event of such a dispute, Seller
and Purchaser shall attempt in good faith to resolve their differences, and any
resolution by them as to any disputed items shall be final, binding and
conclusive on Seller and Purchaser. If Seller and Purchaser are unable to reach
a resolution of all of their differences within thirty (30) days after Seller
delivers the Dispute Notice to Seller, then Seller and Purchaser shall promptly
submit any remaining disputed items to PricewaterhouseCoopers or any other
accounting firm of international reputation mutually acceptable to Seller and
Purchaser (the "INDEPENDENT ACCOUNTING FIRM"). If any remaining disputed items
are submitted to the Independent Accounting Firm for resolution (i) each party
will furnish to the Independent Accounting Firm such workpapers and other
documents and information relating to the remaining disputed items as the
Independent Accounting Firm may request and are available to such party, and
each party will be afforded the opportunity to present to the Independent
Accounting Firm any material relating to the disputed items and to discuss the
resolution of the disputed items with the Independent Accounting Firm; (ii) each
party will use its good faith best efforts to work with the other parties and
the Independent Accounting Firm to resolve the disputed items within forty-five
(45) days after the submission of the disputed items to the Independent
Accounting Firm; (iii) the determination by the Independent Accounting Firm, as
set forth in a written notice to Seller and Purchaser, shall be final, binding
and conclusive on Seller and Purchaser; and (iv) the fees and disbursements of
the Independent Accounting Firm shall be allocated between Seller and Purchaser
so that Seller pays for the percentage of such fees and disbursements equal to
the ratio that the amount of the disputed items submitted to the Independent
Accounting Firm that is unsuccessfully disputed by Seller (as finally determined
by the Independent Accounting Firm) bears to the total amount of all disputed
items submitted to the Independent Accounting Firm, and Purchaser shall pay the
balance of such fees and disbursements.
(c) The Closing Balance Sheet and the Working Capital Calculation
Statement shall be deemed to be final, binding and conclusive on Seller and
Purchaser upon the earliest of (i) the failure of Seller to notify Purchaser of
a dispute within thirty (30) days after the receipt of the Closing Balance Sheet
and the Working Capital Calculation Statement; (ii) the resolution of all
disputes by Seller and Purchaser; and (iii) the resolution of all disputes by
the Independent Accounting Firm.
(d) Seller and Purchaser shall use commercially reasonable efforts to
cause the Independent Firm to render its decision as soon as is reasonably
practicable, including, without limitation, prompt compliance with all
reasonable requests by the Independent Firm for information, papers, books,
records and the like; provided that Seller and Purchaser agree that the purpose
of retention of the Independent Firm shall not include the conduct of its own
independent audit of the Closing Balance Sheet, but rather shall be limited to
resolving the issues
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presented to it and matters related thereto. All decisions of the Independent
Firm with respect to the Closing Balance Sheet and the Working Capital
Calculation Statement shall be final and binding upon both Seller and Purchaser.
(e) The payment of any adjustment to the Initial Purchase Price
required to be made pursuant to this Section 1.5 shall be made by Purchaser or
Seller, as applicable, in immediately available funds by wire transfer to an
account or accounts specified in writing by Purchaser or Seller within two (2)
business days after the final and binding Closing Balance Sheet and Working
Capital Calculation Statement become available.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
The disclosure schedule delivered by Seller to Purchaser on or before
the date of this Agreement (the "SELLER DISCLOSURE SCHEDULE") shall be arranged
in paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article II and the disclosure in any paragraph shall qualify other
paragraphs in this Article II only to the extent that it is reasonably apparent
from a reading of such disclosure that it also qualifies or applies to such
other paragraphs. Seller represents and warrants to Purchaser that on the date
hereof and as of the Closing Date (except in the case of any representation or
warranty that by its terms is made as of a specified date, which shall be
accurate only as of such specified date):
2.1 ORGANIZATION; SUBSIDIARIES. Each of Seller and the Company is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation. The Company is duly qualified, licensed or
admitted to do business and is in good standing in those jurisdictions specified
in Section 2.1 of the Seller Disclosure Schedule, which are the only
jurisdictions in which the ownership, use or leasing of its assets and
properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary, except where a failure to be so qualified,
licensed or admitted would not have a Material Adverse Effect (as defined in
Section 2.4 below). Prior to the execution of this Agreement, Seller has
delivered to Purchaser true and complete copies of the stock register, minutes,
articles of incorporation and bylaws, or other comparable organizational
documents of the Company, as in effect on the date hereof. The Company does not
own beneficially, directly or indirectly, any equity securities or similar
interests of any corporation, association, joint-stock company, limited
liability company, business trust or unincorporated organization, or any
interest in any partnership or joint venture of any kind.
2.2 AUTHORITY; ENFORCEABILITY. Each of Seller and the Company has the
corporate power and authority to enter into this Agreement and to carry out its
respective obligations hereunder. The execution and delivery of this Agreement
and the consummation of the transactions provided for hereby have been duly
authorized by the Board of Directors of each of Seller and the Company and no
other corporate proceeding on the part of Seller or the Company is necessary to
authorize the execution or delivery of this Agreement or the consummation of any
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by each of Seller and the Company and, assuming due authorization,
execution and delivery by Purchaser, constitutes a legal, valid and binding
obligation of each of Seller and the Company, enforceable against each of them
in accordance with its terms, except as such enforceability may
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be limited by bankruptcy, insolvency, reorganization, moratorium and similar
laws relating to or affecting creditors generally and by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or law).
2.3 OWNERSHIP OF CAPITAL STOCK.
(a) The authorized capital stock of the Company consists of 3,000
shares of common stock, $0.01 par value per share, of which 100 shares are
currently issued and outstanding. The Shares constitute all of the outstanding
shares of capital stock of the Company. All of the Shares (i) are duly
authorized, validly issued, fully paid and nonassessable and (ii) are, and when
issued were, free of preemptive rights. Seller owns beneficially and of record,
and has good and marketable title to, all of the Shares, free and clear of all
Liens. At the Closing, Seller shall transfer to, and Purchaser will own, the
Shares free and clear of any and all Liens.
(b) There are not authorized or outstanding any subscriptions, options,
conversion rights, warrants or other agreements, securities or commitments of
any nature whatsoever (whether oral or written) obligating the Company to issue,
deliver or sell, or cause to be issued, delivered or sold, any authorized or
outstanding shares of the capital stock, or any securities convertible into or
exchangeable for shares of capital stock, of the Company or obligating the
Company to grant, extend or enter into any such agreement or commitment. The
Shares were issued in compliance with the certificate of incorporation and
by-laws of the Company and in compliance with all applicable federal and state
securities laws and were not issued in violation of the rights of any third
party or entity.
2.4 NO BREACH. Neither the execution and delivery of this Agreement nor
the performance by Seller of its obligations hereunder nor the consummation of
the transactions provided for hereby does or will except as set forth in Section
2.4 of the Seller Disclosure Schedule:
(a) conflict with or violate any provision of the articles of
incorporation or bylaws of Seller or the Company;
(b) violate, conflict with or result in any breach of, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give rise to rights of termination, acceleration, amendment
or cancellation of, or result in the creation of a lien or encumbrance on
(including a right to purchase) any of the properties or assets of the Company
pursuant to, any contracts, agreements, commitments, undertakings, leases,
licenses, mortgages, bonds, notes or other instruments ("CONTRACTS") or any
permits, authorizations, approvals, registrations, easements, consents,
certificates, orders, approvals or licenses granted by or obtained from any
governmental, administrative or regulatory authority ("PERMITS") to which Seller
or the Company is a party or by which either of them or any of their respective
properties or assets are bound; or
(c) conflict with or constitute a violation by Seller or the Company of
any laws, rules or regulations ("LAWS") of any governmental, administrative or
regulatory authority ("GOVERNMENTAL AUTHORITY") or any judgments, orders,
rulings or awards ("JUDGMENTS") of any court, arbitrator or other judicial
authority or any Governmental Authority,
5
except in the case of (b) or (c) for any such matters that would not, either
individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), business, liabilities, assets or results of
operations of the Company or on the ability of Seller to perform its obligations
under this Agreement (a "MATERIAL ADVERSE EFFECT").
2.5 BROKERS. No person has acted directly or indirectly as a broker,
finder, consultant, intermediary or financial advisor for Seller or the Company
in connection with the transactions contemplated hereby and no person is
entitled to any fee or commission or like payment from Seller or the Company in
respect thereof based in any way on any agreement, arrangement or understanding
made by or on behalf of Seller or the Company.
2.6 FINANCIAL STATEMENT; LIABILITIES.
(a) Seller has delivered to Purchaser copies of the unaudited balance
sheet and statement of income of the Company at and for (i) the nine months
ended September 30, 2002, (b) the quarter ended December 30, 2002, and (iii) the
seven months ended July 31, 2003 (the "FINANCIAL STATEMENTS"). The Financial
Statements fairly present in conformity with GAAP, applied on a consistent
basis, the financial condition of the Company as of their respective dates and
the results of its operations and changes in financial condition for the
respective periods covered thereby.
(b) As of July 31, 2003, the Company did not have any material
liabilities, debts or obligations of any nature (whether absolute, accrued,
contingent or otherwise) required by GAAP to be reflected in its financial
statements (collectively, "LIABILITIES" and individually, a "LIABILITY"), that
were not reflected or reserved against in the balance sheet of the Company as of
July 31, 2003. Since July 31, 2003, the Company has not incurred any Liability
except (i) Liabilities which would be reflected as current Liabilities on the
Closing Balance Sheet, (ii) Liabilities permitted to be incurred pursuant to
Section 4.1, and (iii) Liabilities incurred in the ordinary course of business
consistent with past practices and which are not material to the financial
condition of the Company.
(c) Since July 31, 2003, the Company has conducted its business only in
the ordinary and usual course in substantially the same manner as previously
conducted, has not taken any of the actions described in subparagraphs (e)
through (r) of Section 4.1 of this Agreement and has not undergone or suffered
any change in its financial condition or results of operations that has had a
Material Adverse Effect.
2.7 CONSENTS. Except as set forth in Section 2.7 of the Seller
Disclosure Schedule, no consent, waiver, approval, authorization, registration,
license or declaration of or by, or filing with, any Governmental Authority or
any third party (a "CONSENT") is required to be made or obtained by Seller or
the Company in connection with the execution and delivery of this Agreement or
the consummation of any of the transactions provided for hereby, except for (a)
the filing with the Federal Trade Commission and the Antitrust Division of the
Department of Justice of a premerger notification and report form by Seller
under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 0000 (xxx "XXX XXX"),
(x) the required gaming and lottery approvals set forth in Section 2.7 of the
Seller Disclosure Schedule, and (c) such other consents,
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approvals, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made would not have a Material Adverse
Effect.
2.8 ACTIONS AND PROCEEDINGS. Except as set forth in Section 2.8 of the
Seller Disclosure Schedule, there is no action, suit, claim or legal,
administrative, arbitration or other alternative dispute resolution proceeding
or investigation (each, a "PROCEEDING" and collectively, "PROCEEDINGS") pending
or, to the best knowledge of the Company or Seller, threatened against the
Company that would reasonably be expected to have a Material Adverse Effect. All
Proceedings pending against the Company as of the date hereof are set forth in
Section 2.8 of the Seller Disclosure Schedule. Except as set forth in Section
2.8 of the Seller Disclosure Schedule, no Proceedings have been pending against
the Company within the last two years seeking liquidated damages in connection
with any lottery contracts and within the last two years the Company has not
paid or been ordered to pay any such damages to any party in connection with any
such Proceedings or otherwise.
2.9 TAXES AND TAX RETURNS. Except as set forth in Section 2.9 of the
Seller Disclosure Schedule:
(a) (i) The Company has filed on a timely basis all returns, forms,
declarations, information returns or statements and reports in respect of Taxes
("TAX RETURNS") for which the Company was liable, taking into account all
validly obtained extensions to file such Tax Returns, and all such Tax Returns
are true, correct and complete in all material respects; (ii) all material Taxes
required to be paid by the Company or for which the Company was liable that were
due and payable prior to the date hereof have been paid, and the most recent
Financial Statements reflect adequate reserves in accordance with GAAP for all
Taxes accrued but not yet payable by the Company for all taxable periods and
portions thereof through the date of such Financial Statements; (iii) there are
no actual, pending or, to the knowledge of the Company or Seller, threatened
federal, state, local or foreign audits, claims, proceedings, litigations or
investigations relating to Taxes for which the Company may become liable; (iv)
no deficiencies for any Taxes have been asserted or assessed against the Company
that have not been resolved or paid in full; (v) the Company has not executed
any waivers or extensions of any applicable statute of limitations to assess any
Taxes; (vi) there are no private letter rulings in respect of any Taxes pending
between the Company or Seller and any taxing authority regarding the Company;
(vii) all material elections with respect to Taxes made by the Company or by
Seller on behalf of the Company as of the date hereof are set forth in Section
2.9 of the Seller Disclosure Schedule and (viii) the Company is not a party to
any joint venture, partnership or other arrangement which could be treated as a
partnership for federal income tax purposes. "TAXES" means all federal, state,
local or foreign income, gross receipts, transfer, windfall profits, severance,
property, production, sales, use, license, excise, franchise, employment,
withholding, unemployment, payroll, occupation, premium, environmental
(including taxes under 459A of the code), customs duties, capital stock,
profits, social security, disability, estimated, alternative or add-on minimum
tax or similar taxes of any kind, including any interest, additions or penalties
with respect thereto and any interest in respect of such additions or penalties
and includes any liability for Taxes, as defined above, imposed pursuant to
Treasury Regulation ss.1.1502-6 or any similar provision of state, local, or
foreign law.
7
(b) There is no contract or intercompany account system in existence
under which the Company has an obligation to contribute to the payment of any
portion of any Taxes determined on a consolidated or unitary basis with respect
to the affiliated group of corporations of which Seller is the parent. The
Company is not liable for Taxes of any other person or entity (other than as a
result of being a member of the consolidated group of which Seller is the
parent), and is not currently under any contractual obligation to indemnify any
other person or entity with respect to Taxes, or a party to any tax sharing
agreement or any other agreement providing for payments by the Company with
respect to Taxes. To the knowledge of Seller, there are no outstanding powers of
attorney enabling any party to represent the Company with respect to Tax
matters.
(c) There are no Liens for Taxes upon the assets of the Company, except
for statutory Liens for current Taxes not yet due and payable.
(d) The Company is not 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 law).
(e) The Company will not be required to include any item of income in,
or exclude any item of deduction from, taxable income for any taxable period (or
portion thereof) ending after the Closing Date, as a result of any (A) change in
method of accounting for a taxable period ending on or prior to the Closing
Date; (B) "closing agreement" as described in Section 7121 of the Code (or any
corresponding or similar provision of state, local or foreign income Tax law)
executed on or prior to the Closing Date; (C) installment sale or open
transaction disposition made on or prior to the Closing Date; or (D) prepaid
amount received on or prior to the Closing Date.
(f) The Company has not entered into any sale leaseback or any
leveraged lease transactions.
(g) The Company has no outstanding obligations the interest on which
(including any original issue discount as defined by Section 1273 of the Code)
is not deductible, in whole or in part, for tax purposes.
(h) Section 2.9 of the Seller Disclosure Schedule contains a complete
and accurate list of all jurisdictions in which the Company is required to file
any Tax Returns, and, to the knowledge of Seller, no claim has been made by a
taxing authority in a jurisdiction where the Company does not currently file
Tax Returns that the Company is or may be subject to taxation by such
jurisdiction.
2.10 TITLE TO PROPERTY; CONDITION.
(a) The Company owns no real property. Section 2.10 of the Seller
Disclosure Schedule contains a complete list as of the date hereof by address of
all real property leased, operated or used by the Company, indicating the nature
of the Company's interest therein. No condemnation, expropriation, eminent
domain or similar proceeding affecting all or
8
any material portion of any such real property is pending or, to the knowledge
of the Company or Seller, threatened.
(b) Except as set forth in Section 2.10(b) of the Seller Disclosure
Schedule, the Company has good title to, or a valid leasehold or other interest
in, all of the material properties and assets, real and personal, tangible and
intangible (other than Intellectual Property), it owns, or purports to own,
leases or uses in its business, including those reflected in its books and
records, free and clear of any and all Liens, except for Permitted Encumbrances.
Except as set forth in Section 2.10(b) of the Seller Disclosure Schedule, none
of such properties or assets (other than Intellectual Property) is subject to
any sublease, sublicense or other agreement pursuant to which the Company has
granted to any other person or entity any right to the use, occupancy or
enjoyment of such property or any portion thereof. "PERMITTED ENCUMBRANCES"
means any Liens that (i) are listed in Section 2.10(b) of the Seller Disclosure
Schedule, (ii) Liens for taxes not yet due and payable, (iii) statutory liens or
other liens imposed by law, incurred in the ordinary course of business, and
securing payment of obligations which are not yet delinquent or (iv) other Liens
which do not materially impair the value of the property subject to the Lien or
the use of the property subject to the Lien in the ordinary conduct of the
business of the Company. The Company has made available to Purchaser a copy of
all of its material real property and personal property leases as of the date
hereof.
(c) The material properties and assets owned, leased or used by the
Company in the conduct or operation of its business are in good operating
condition and repair, subject to normal wear and tear, and are suitable for the
purposes for which they are presently used. The properties and assets (other
than Intellectual Property) owned by or licensed or leased to the Company
constitute all of the properties and assets (other than Intellectual Property)
currently used in the conduct and operation of the business as currently
conducted.
2.11 INTELLECTUAL PROPERTY.
(a) The "INTELLECTUAL PROPERTY" means:
(i) all domestic and foreign copyright interests in any original
work of authorship, whether registered or unregistered, including but
not limited to all copyright registrations or foreign equivalent, and
all applications for registration or foreign equivalent ("COPYRIGHTS");
(ii) all domestic and foreign patents, provisional patent
applications, and patent applications ("PATENTS");
(iii) all domestic and foreign trademarks, trade dress, service
marks, trade names, logos, and all trademark registrations and
applications for registration related to such trademarks (including,
but not limited to intent to use applications) ("TRADEMARKS");
(iv) all domain name registrations ("DOMAIN NAMES");
9
(v) any trade secrets, formula, design, device, technology,
know-how, research and development information, invention (whether
patentable or not patentable), process or composition ("TRADE
SECRETS"); and
(vi) any computer programs, software programs or databases
("SOFTWARE").
(b) Section 2.11(b) of the Seller Disclosure Schedule lists (i) all
registered Trademarks, and all pending applications for Trademarks, owned by the
Company or to be transferred to the Company pursuant to Section 5.5 hereof on or
prior to the Closing Date; (ii) all registered Copyrights, and all pending
applications for Copyrights, owned by the Company or to be transferred to the
Company pursuant to Section 5.5 on or prior to the Closing Date; and (iii) all
Domain Names owned by the Company. The Company owns no Patents.
(c) Section 2.11(c) of the Seller Disclosure Schedule lists all (i)
licenses by the Company to any person or entity of any Intellectual Property;
and (ii) all licenses by any other person or entity to the Company of any
Intellectual Property (except with respect to off-the-shelf software) (each a
"LICENSE"). Each License identified in Section 2.11(c) of the Seller Disclosure
Schedule is a valid and binding obligation of the Company enforceable in
accordance with its terms. With respect to each License, there is no material
default (or event that with the giving of notice or passage of time would
constitute a material default) by the Company, or to the knowledge of the
Company or Seller, the other party thereto. There are no pending and, to the
knowledge of the Company or Seller, no threatened claims or Proceedings with
respect to any License.
(d) To the knowledge of the Company and Seller, the Company owns or
possesses licenses or other rights to use, all Intellectual Property used to
conduct the business and operations of the Company as conducted as of the date
hereof (the "COMPANY INTELLECTUAL PROPERTY"); provided, however, that, except as
expressly provided in Section 5.8 hereof, neither Purchaser nor the Company
shall have any rights to use the name of the Company or any Domain Names of the
Company after the Closing Date.
(e) Except as disclosed in Section 2.11(e) of the Seller Disclosure
Schedule, to the knowledge of the Company or Seller, the Company has not been
alleged to have, nor has Company, infringed upon or misappropriated any
Intellectual Property of another person or entity. There are no pending, and to
the knowledge of the Company or Seller, threatened claims or Proceedings
contesting or challenging the Company Intellectual Property, or the Company's
use of the Intellectual Property owned by another person or entity. To the
Knowledge of the Company or Seller, no third party is infringing upon,
misappropriating, or otherwise violating the Company's rights to the Company
Intellectual Property.
(f) To the knowledge of the Company or Seller, all registered
Trademarks, and pending applications for Trademarks with the United States
Patent and Trademark Office ("PTO") or any other country's trademark office, of
the Company are currently in compliance with all procedural requirements
(including the filing of affidavits of use and renewal applications as
applicable).
10
(g) To the knowledge of the Company or Seller, all registered
Copyrights and pending applications for Copyrights of the Company are currently
in compliance with all procedural requirements.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS; PERMITS. The Company is
currently conducting its businesses in compliance with, and is not in conflict
with, or in default or violation of, any applicable Laws, Judgments and Permits,
except to the extent such conflict, default or violation would not reasonably be
expected to have a Material Adverse Effect.
2.13 EMPLOYMENT MATTERS.
(a) Section 2.13(a) of the Seller Disclosure Schedule sets forth all
currently effective consulting, employment, independent contractor, leased
employee and severance agreements of the Company with any present or former
director, officer, employee or consultant, other than agreements terminable by
the Company at will without material expense or liability to the Company (except
for payments required by applicable Laws or in accordance with customary
severance practices of the Company). No employees of the Company are covered by
a collective bargaining agreement. Section 2.13(a) of the Seller Disclosure
Schedule also sets forth an accurate and complete list of all severance plans,
policies and agreements of the Company as applicable to any employee of the
Company as in effect as of the date hereof.
(b) Section 2.13(b) of the Seller Disclosure Schedule sets forth a list
of each "employee welfare benefit plan" (as defined in Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
"employee pension benefit plan" (as defined in Section 3(2) of ERISA) and each
other bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance and other similar fringe or employee benefit
plans, programs, agreements or arrangements, as amended, modified or
supplemented, that currently is, or at any time since December 30, 2001 was,
maintained, sponsored, contributed to, or required to be contributed to, by the
Company or by any entity or trade or business, whether or not incorporated,
which, with the Company, constitutes a group described in Sections 414(b), (c),
(m) or (o) of the Internal Revenue Code of 1986, as amended (the "CODE") (an
"ERISA AFFILIATE") under which any present or former employee of the Company is
or may become entitled to benefits or with respect to which the Company could
reasonably be expected to have any material liability (collectively, the
"COMPANY BENEFIT PLANS"). Each of the Company Benefit Plans is administered in
material compliance with its terms and Laws, including ERISA and the Code.
(c) Seller has made available to Purchaser copies of the agreements
listed in Section 2.13(a) of the Seller Disclosure Schedule and copies of the
plan documents evidencing the Company Benefit Plans listed in Schedule 2.13(b)
of the Seller Disclosure Schedule.
(d) No Company Benefit Plan is subject to Title IV or Section 302 of
ERISA or Section 412 of the Code.
(e) No transaction or event has occurred with respect to any Company
Benefit Plan that could subject the Company to a tax under Chapter 43 of the
Code or to a penalty under Part 5 of Subtitle B of Title I of ERISA.
11
(f) All contributions required to be made by the Company and its ERISA
Affiliates to any Company Benefit Plan before the Closing Date have been or will
be timely made before the Closing Date. Neither the Company nor any of its ERISA
Affiliates has failed to make any contribution or payment to any Company Benefit
Plan that has resulted in the imposition of a lien or the posting of a bond or
other security under ERISA or the Code.
(g) No Company Benefit Plan is a "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA and the Company has not incurred,
directly or indirectly, any liability to any multiemployer plan that remains
unsatisfied, and no facts exist under which any such liability would reasonably
be expected to be incurred by the Company.
(h) No Company Benefit Plan promises or provides medical or other
welfare benefits to any director, officer, employee or consultant (or any of
their beneficiaries) after their service with the Company terminates, other than
as required by Section 4980B of the Code or Part 6 of Subtitle B of Title I of
ERISA, or any similar state laws.
(i) With respect to each Company Benefit Plan, (i) neither the Company
nor any other party in interest or disqualified person (as defined in Section
3(14) of ERISA and Section 4975 of the Code), has engaged in a transaction which
reasonably would subject the Company, directly or indirectly, to a material tax,
material penalty or other material liability for prohibited transactions under
ERISA or Section 4975 of the Code and (ii) neither the Company, nor any
fiduciary of any Company Benefit Plan has breached any of the responsibilities
or obligations imposed upon fiduciaries under Title I of ERISA, except for such
breach which would not reasonably be expected to result in any material
liability to the Company.
(j) Each Company Benefit Plan which is intended to be qualified under
Section 401(a) of the Code is the subject of a favorable determination letter
from the Internal Revenue Service, and nothing has occurred which reasonably
would result in the disqualification of any such plan.
(k) All contributions required to be made by the Company with respect
to any Company Benefit Plan have been made or accrued on the Company's financial
statements on or before their due dates (including any extensions thereof).
(l) Other than routine claims for benefits made in the ordinary course
of the operation of the Company Benefit Plans, there are no pending or, to the
knowledge of the Company or Seller, threatened claims, investigations or causes
of action with respect to any Company Benefit Plan, whether made by a
participant or beneficiary of such a plan, a governmental agency or otherwise,
against the Company, any Company director, officer or employee, any Company
Benefit Plan or any fiduciary of a Company Benefit Plan that would reasonably be
expected to result in a material liability to the Company.
(m) No leased employees perform services for the Company. There are no
complaints, charges or claims against the Company pending or, to the knowledge
of the Company or Seller, threatened to be brought by or filed with any
Governmental Authority based on, arising out of, in connection with or otherwise
relating to the classification of any individual by the Company as an
independent contractor or "leased employee" (within the meaning of
12
Section 414(n) of the Code) rather than as an employee and, to the knowledge of
the Company or Seller, no conditions exist under which the Company reasonably
would be expected to incur any such liability.
2.14 ENVIRONMENTAL MATTERS. Except to the extent that any of the
following would not reasonably be expected to have a Material Adverse Effect:
(a) the Company complies with all Laws, orders, permits, conditions,
requirements and agreements relating to (i) the protection of the environment,
(ii) human health or safety or (iii) the storage, treatment, disposal,
transportation or other handing of hazardous or toxic substances, petroleum and
its fractions, byproducts and derivatives, solid and hazardous wastes, asbestos,
polychlorinated biphenyls, pollutants or contaminants (collectively, "HAZARDOUS
MATERIALS") (collectively, "ENVIRONMENTAL LAWS," including without limitation,
as amended, Clean Water Act, Clean Air Act, Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), Solid Waste Disposal Act,
Resource Conservation and Recovery Act, Industrial Site Recovery Act and related
or analogous state and local laws or other requirements and common law) and is
in compliance with all licenses, permits and other authorizations required under
any Environmental Law; (b) there is no claim pending or threatened against the
Company, alleging liability or noncompliance under any Environmental Law; (c)
there have not been any releases on, under or from any property or facility now
owned, leased or otherwise used, occupied or operated by the Company of any
Hazardous Materials in such form or quantity as to make the Company liable under
any Environmental Law ("RELEASES"), nor, to the knowledge of Seller or the
Company, have there been any Releases on, under or from any property previously
owned, leased or otherwise used, occupied or operated by the Company; (d)
neither Seller nor the Company has received written notice that it has been
identified as a "Potentially Responsible Party" pursuant to CERCLA or any
analogous state or local Environmental Law based upon the Company having
arranged for the transportation and/or disposal of any Hazardous Materials to a
site or facility other than one owned or operated by the Company; (e) Seller has
heretofore delivered to Purchaser copies of all environmental audits or
inspection reports for any facilities leased, owned or operated by the Company;
and (f) the standard industrial classification for the Company's facility
located in Clifton, New Jersey is 7999.
2.15 PERMITS. Section 2.15 of the Seller Disclosure Schedule contains,
as of the date hereof, a true and complete list of all Permits used in and
material to the business or operations of the Company, setting forth the owner,
the function and the expiration and renewal date of each. Except as disclosed in
Section 2.15 of the Seller Disclosure Schedule:
(i) the Company owns or validly holds all material Permits that
are necessary to conduct its operations as they are currently being
conducted or proposed to be conducted;
(ii) each Permit listed in Section 2.15 of the Seller Disclosure
Schedule is valid, binding and in full force and effect; and
(iii) the Company is not in default and has not received any
notice that it is in default (or with the lapse of time would be in
default), and, to the knowledge of the Company or Seller, no event has
occurred that with notice (or with lapse of time) would cause the
Company to be in default, under any such Permit.
13
2.16 CONTRACTS. Section 2.16(a) of the Seller Disclosure Schedule sets
forth, as of the date of this Agreement, a true, correct and complete list of
each of the following Contracts to which the Company is a party or by which the
Company or its assets or properties are bound:
(i) (a) each employment Contract providing for severance or a
fixed term of employment in respect of services performed by any
employee of the Company, (b) each management, consulting, retainer or
other similar type of Contract under which services are provided by any
person or entity to the Company providing for compensation in excess of
$250,000 per annum, (c) each Contract for other services provided by
any other person to the Company which requires payment by the Company
of more than $250,000 per annum, and which is not terminable by the
Company on not more than forty-five (45) days' notice without penalty,
and (d) each Contract for the provision of services or the purchase or
sale of inventory by the Company which involves the receipt or payment
by the Company of more than $250,000 per annum, other than contracts
for the provision of services or the purchase or sale of inventory by
the Company that are entered into in the ordinary course of business
consistent with past practice and that are terminable by the Company on
not more than forty-five (45) days' notice without penalty;
(ii) each Contract that restricts the ability of the Company to
compete with any business or in any location or to solicit clients,
employees or other service providers;
(iii) each on-line or other lottery Contract;
(iv) each Contract with any Affiliate or Associate (as defined
below);
(v) each lease (as lessor, lessee, sublessor or sublessee) of any
tangible personal property requiring annual payments in excess of
$250,000, and which is not terminable by the Company on not more than
six (6) months' notice without penalty;
(vi) each note, bond, factoring agreement, indenture or other
evidence of indebtedness that has been issued or assumed, and each
guaranty (including "take-or-pay" and "keepwell" arrangements) of any
evidence of indebtedness or other obligation, or of the net worth, of
any person, in each case involving an aggregate amount in excess of
$250,000;
(vii) each mortgage, deed of trust, security agreement, purchase
money agreement, conditional sales contract or capital lease or other
Contract that creates a Lien on any material property or asset;
(viii) each partnership or joint venture Contract;
(ix) each Contract containing restrictions with respect to the
payment of dividends or other distributions in respect of the Shares;
14
(x) each Contract containing a change of control or acceleration
of performance provision that would be triggered by the closing of the
transactions contemplated by this Agreement;
(xi) each broker's, finder's or other similar retainer agreement
or engagement letter delivered or entered into in connection with the
transactions contemplated by this Agreement;
(xii) each Contract or option for the purchase or sale of real
property;
(xiii) each Contract for the purchase of raw materials, supplies,
or equipment or for any other capital expenditure which the Company
reasonably anticipates will involve the annual payment of more than
$250,000 after the date hereof;
(xiv) each Contract for the sale of products or services of its
business which the Company reasonably anticipates will involve the
annual payment of more than $250,000; or
(xv) any Tax sharing arrangement with any entity or person
pursuant to which Purchaser will have to make any payments based on the
transactions contemplated by this Agreement (the Contracts listed in
(i)-(xv) above, together with the Contracts listed on Schedule 5.5,
being collectively the "MATERIAL CONTRACTS").
(b) Each of the Material Contracts constitutes a valid and binding
obligation of the Company, enforceable in accordance with its terms (subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
application relating to or affecting creditors' rights and to general equity
principles). The Company is not in material breach or default (with or without
the lapse of time or the giving of notice, or both) under any of the Material
Contracts. No condition exists or has occurred which, with or without the lapse
of time or the giving of notice, or both, would constitute a material default or
accelerate the maturity of, or otherwise modify, any of the Material Contracts,
and no material default by any other party to any of the Material Contracts is
known by the Company. All of the Material Contracts are in full force and
effect. True, correct and complete copies of each of the Material Contracts have
been made available to Purchaser by Seller or the Company.
2.17 AFFILIATE TRANSACTIONS.
(a) Except as set forth in Section 2.17 of the Seller Disclosure
Schedule, as of the date of this Agreement, (i) there are no intercompany
liabilities or existing agreements between the Company, on the one hand, and
Seller, any officer, director, Affiliate or Associate (each as defined below) of
Seller or any Associate of any such officer, director or Affiliate (other than
the Company), on the other and (ii) the Company does not beneficially own,
directly or indirectly, any investment assets of Seller or of any such officer,
director, Affiliate or Associate. Except as set forth in Section 2.17 the Seller
Disclosure Schedule, each of the liabilities listed thereon was incurred or
engaged in, as the case may be, on an arm's-length basis. Except as set forth in
Section 2.17 the Seller Disclosure Schedule, since July 31, 2003, all
settlements of intercompany liabilities between the Company, on the one hand,
and Seller or any such officer, director, Affiliate or Associate, on the other
hand, have been made, and all allocations of
15
intercompany expenses have been applied, in the ordinary course of business
consistent with past practice.
(b) Except for (i) employment relationships between the Company and
employees of the Company, (ii) remuneration by the Company for services rendered
as an officer, director, employee or manager, and (iii) as set forth in Section
2.17(b) of the Seller Disclosure Schedule, since January 1, 2002, the Company
has not, in the ordinary course of business or otherwise, directly or
indirectly, purchased, leased or otherwise acquired any property or obtained any
services from, or sold, leased or otherwise disposed of any property or
furnished any services to, any officer, director or employee of the Company.
(c) For purposes of this Agreement, "AFFILIATE" means, with respect to
any person, any other person controlling, controlled by or under common control
with such person, with "control" for such purpose meaning 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 or voting interests, by contract or otherwise. For purposes of this
Agreement, "ASSOCIATE" means, with respect to any person, any corporation or
other business organization of which such person is an officer, director or
partner or is the beneficial owner, directly or indirectly, of ten percent (10%)
or more of any class of equity securities, any trust or estate in which such
person has a substantial beneficial interest, or as to which such person serves
as a trustee or in a similar capacity and any relative or spouse of such person,
or any relative of such spouse, who has the same home as such person.
2.18 INSURANCE. Section 2.18 of the Seller Disclosure Schedule
contains, as of the date hereof, an accurate and complete list of all policies
of fire, liability, workmen's compensation, title and other forms of insurance
owned, held by or applicable to the Company (or its assets or business), and
Seller has heretofore delivered to Purchaser a true and complete copy of all
current policies. All such policies are in full force and effect, all premiums
with respect thereto covering all periods up to and including the Closing Date
have been paid, and no notice of cancellation or termination has been received
with respect to any such policy. Such policies are sufficient for compliance
with (i) all requirements of Law and (ii) all Contracts to which the Company is
a party, and are valid, outstanding and enforceable policies. Such insurance
policies provide types and amounts of insurance customarily obtained by
businesses similar to the business of the Company. Except as set forth in
Section 2.18 of the Seller Disclosure Schedule, the Company has not been refused
any insurance with respect to its assets or operations, and its coverage has not
been limited by any insurance carrier to which it has applied for any such
insurance or with which it has carried insurance, during the last three (3)
years. There are no material pending claims with respect to the Company or its
properties or assets under any such insurance policy.
2.19 BANK ACCOUNTS. Section 2.19 of the Seller Disclosure Schedule sets
forth as of the date hereof the names and locations of each bank or other
financial institution at which the Company has an account (giving the account
numbers), lock box or safe deposit box and the names of all Persons authorized
to draw thereon or have access thereto, and the names of all Persons, if any,
now holding powers of attorney or comparable delegation of authority from the
Company and a summary statement thereof.
16
2.20 ACCOUNTS RECEIVABLE. Section 2.20 of the Seller Disclosure
Schedule contains a true and accurate aging schedule as of September 11, 2003 of
all accounts receivable of the Company and all loans and advances to third
parties. All accounts receivable of the Company represent valid obligations to
the Company arising from bona-fide transactions in the ordinary course of
business. To the knowledge of the Company and Seller, all accounts receivable of
the Company are collectible in the ordinary course of business and are not
subject to any offset, defense or counterclaim, except to the extent of the
reserves therefor established in accordance with GAAP in the books and records
of the Company.
2.21 BOOKS AND RECORDS. The books of account, stock books and other
records of or pertaining to the Company that have been delivered or otherwise
made available to Purchaser are true and complete in all material respects.
Except as disclosed in Section 2.21 of the Seller Disclosure Schedule, since
December 30, 2001 the minute books of the Company contain records, true, correct
and complete in all material respects, as applicable, of all meetings held of,
and corporate action taken by, the stockholders, the board of directors and
committees of the board of directors of the Company. At the Closing, all of
those books and records, including the corporate seal of the Company, will be
delivered to Purchaser.
2.22 ABSENCE OF CERTAIN BUSINESS PRACTICES. Except as disclosed in
Section 2.22 of the Seller Disclosure Schedule, since December 30, 2001, neither
the Company nor any director, officer, agent or employee of Company, or any
other Person associated with or acting for or on behalf of Company, has directly
or indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback or other payment to any Person, private or public, whether in
money, property or services (i) to obtain favorable treatment in securing
business, (ii) to pay for favorable treatment for business secured, (iii) to
obtain special concessions or for special concessions already obtained, for or
in respect of the Company or any Affiliate of Company, or (iv) otherwise in
violation of any Law; or (b) established or maintained any fund or asset not
recorded in the books and records of the Company.
2.23 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no judgment, order,
decree, writ or injunction binding upon the Company that materially prohibits
or impairs the conduct of the Company's business as currently conducted.
2.24 SUPPLIERS AND CUSTOMERS. Except as disclosed in Section 2.24 of
the Seller Disclosure Schedule, neither the Company nor Seller has any knowledge
of any facts indicating that any of the material suppliers or customers of the
Company has terminated or notified the Company in writing that it intends to
terminate its business relationship with the Company or to decrease materially
the products purchased from or supplied to the Company.
2.25 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties of Seller expressly contained in this Agreement
or in any certificate of Seller delivered at the Closing, neither Seller, nor
the Company nor any other person acting for either of them makes any other
representation or warranty, express or implied, and Seller hereby disclaims any
such representation or warranty, with respect to the execution, delivery or
performance by Seller of this Agreement notwithstanding the delivery or
disclosure to Purchaser or any of its Affiliates or any other person of any
documentation or other information by Seller
17
or the Company or any of their respective representatives or any other person
with respect to any of such matters.
2.26 INVESTIGATIONS. There are no pending or, to the knowledge of the
Company or Seller, threatened investigations concerning the suitability of any
employee, officer or director of the Company by any lottery authority.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The disclosure schedule delivered by Purchaser to Seller on or before
the date of this Agreement (the "PURCHASER DISCLOSURE SCHEDULE") shall be
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article III and the disclosure in any paragraph shall qualify
other paragraphs in this Article III only to the extent that it is reasonably
apparent from a reading of such disclosure that it also qualifies or applies to
such other paragraphs. Purchaser represents and warrants to Seller that on the
date hereof and as of the Closing Date (except in the case of any representation
or warranty that by its terms is made as of a specified date, which shall only
be accurate as of such specified date):
3.1 ORGANIZATION; AUTHORITY AND ENFORCEABILITY. Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation. Purchaser has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation of
the transactions provided for hereby have been duly authorized by the Board of
Directors of Purchaser and no other corporate proceeding on the part of
Purchaser is necessary to authorize the execution or delivery of this Agreement
or the consummation of any of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Purchaser and, assuming due
authorization, execution and delivery by Seller and the Company, constitutes a
legal, valid and binding obligation of Purchaser, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws relating to
or affecting creditors generally and by general equitable principles (regardless
of whether such enforceability is considered in a proceeding in equity or law).
3.2 NO BREACH. Except as disclosed in Section 3.2 of the Purchaser
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the performance by Purchaser of its obligations hereunder nor the consummation
of the transactions provided for hereby does or will:
(a) conflict with or violate any provision of the certificate of
incorporation, bylaws or any other governing document of Purchaser;
(b) violate, conflict with or result in the breach or termination of,
or constitute a default, event of default (or an event which with notice, lapse
of time, or both, would constitute a default or event of default), under the
terms of, any Contracts or Permits to which Purchaser is a party or by which it
or any of its properties or assets are bound; or
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(c) conflict with or constitute a violation by Purchaser of any Laws or
Judgments,
except in the case of (b) or (c) for any such matters that would not, either
individually or in the aggregate, have a material adverse effect on the
financial condition or results of operations of Purchaser or on ability of
Purchaser to perform its obligations under this Agreement.
3.3 CONSENTS. Except as disclosed in Section 3.3 of the Purchaser
Disclosure Schedule, no Consent is required to be made or obtained by Purchaser
in connection with the execution, delivery or enforceability of this Agreement
or the consummation of any of the transactions provided for hereby, except for:
(a) the filing with the Federal Trade Commission and the Antitrust Division of
the Department of Justice of a premerger notification and report form by
Purchaser under the HSR Act, (b) any required gaming or lottery approvals, (c)
the filing with Secretary of State of the State of Delaware of any documents
relating to the transfer of ownership of Shares and (d) such other consents,
approvals, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made would not have a material adverse effect
on the financial condition or results of operations of Purchaser or on the
ability of Purchaser to perform its obligations under this Agreement.
3.4 BROKERS. Except as set forth in Section 3.4 of the Purchaser
Disclosure Schedule, no person has acted directly or indirectly as a broker,
finder, consultant, intermediary or financial advisor for Purchaser in
connection with the transactions contemplated hereby and no person is entitled
to any fee or commission or like payment from Purchaser in respect thereof based
in any way on any agreement, arrangement or understanding made by or on behalf
of Purchaser.
3.5 ACTIONS AND PROCEEDINGS. There is no Proceeding pending or, to the
knowledge of Purchaser, threatened against Purchaser or any of its Affiliates
that questions the validity of this Agreement or any action taken or to be taken
by Purchaser in connection with, or which seeks to enjoin or obtain monetary
damages in respect of, the consummation of the transactions contemplated hereby,
or which would reasonably be expected to impair materially Purchaser's ability
to effect the Closing.
3.6 ACQUISITION OF SHARES. Purchaser acknowledges that the Shares have
not been registered under the Securities Act of 1933, as amended, or under any
state securities laws and represents that the Shares are being acquired by
Purchaser for its own account and not with a view to or in connection with any
disposition thereof in violation of the Securities Act of 1933, as amended, or
the rules and regulations thereunder, or any applicable state securities or
"blue sky" laws. Purchaser is an "Accredited Investor" as such term is defined
in Rule 501 of the Securities Act of 1933, as amended.
3.7 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties of Purchaser expressly contained in this
Agreement or any certificate of Purchaser delivered at the Closing, neither
Purchaser nor any other person acting for Purchaser makes any other
representation or warranty, express or implied, and Purchaser hereby disclaims
any such representation or warranty, with respect to the execution, delivery or
performance by Purchaser of this Agreement notwithstanding the delivery or
disclosure to Seller or any of its Affiliates or
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any other person of any documentation or other information by Purchaser or any
of Purchaser's representatives or any other person with respect to any of such
matters.
ARTICLE IV
COVENANTS OF SELLER
4.1 CONDUCT OF BUSINESS. During the period from the date of this
Agreement to the Closing, except as specifically contemplated by this Agreement,
including the Seller Disclosure Schedule, or as otherwise consented to in
writing by Purchaser, Seller will cause the Company to:
(a) carry on its business only in the ordinary course in substantially
the same manner as heretofore conducted;
(b) use commercially reasonable efforts to (i) preserve intact the
present business organization and reputation of the Company, (ii) keep available
(subject to dismissals, voluntary departures and retirements in the ordinary
course of business consistent with past practice) the services of the present
officers, employees and consultants of the Company, (iii) maintain the assets
and properties of the Company in good working order and condition, ordinary wear
and tear excepted, (iv) maintain the present relationship with, and goodwill of,
customers, suppliers, and other persons to whom the Company sells goods or
provides services or with whom the Company otherwise has significant business
relationships and (v) continue all current sales, marketing and promotional
activities relating to the business and operations of the Company;
(c) except to the extent required by applicable law, cause the books
and records of the Company to be maintained in the usual, regular and ordinary
manner;
(d) use commercially reasonable efforts to maintain in full force and
effect until the Closing substantially the same levels of coverage of insurance
on the Company's properties and assets as are currently in effect;
(e) not amend its articles of incorporation or bylaws (except as
specifically contemplated by Section 5.8);
(f) not, except after consultation with Purchaser, amend, terminate or
otherwise alter any lottery or supplier contract or waive any of the Company's
rights thereunder other than as specifically contemplated by this Agreement or
as set forth in Section 4.1 of the Seller Disclosure Schedule, provided, that in
no event shall the Company take any action described in this Section 4.1(f) to
the extent such action would materially and adversely affect the Company's
rights or obligations under such contract;
(g) not (i) acquire, by merger, consolidation, purchase of stock or
assets or otherwise, any corporation, partnership, association or other business
organization or any interest therein; (ii) assume, guarantee or endorse, or
otherwise as an accommodation become responsible for, the obligations of any
person, or make any loans or advances, except in any such case in the ordinary
course of business; or (iii) authorize any capital expenditures or purchases of
fixed assets, except for capital expenditures or purchases which are set forth
on Section 4.1 of the
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Seller Disclosure Schedule or are, in the aggregate, not in excess of $250,000,
and except for the repair or replacement of damaged assets from the proceeds of
insurance with respect thereto; or (iv) enter into or materially amend any
contract, agreement, commitment or arrangement to effect any of the matters
prohibited by this Section 4.1(g);
(h) not alter its outstanding capital stock or declare, set aside, make
or pay any dividend or other distribution of assets in respect of its capital
stock other than cash, or purchase or redeem any shares of its capital stock;
(i) not issue, sell, pledge, dispose of or encumber, or authorize or
agree to issue, sell, dispose of or encumber, any of its capital stock or any
options, warrants or other rights to purchase any such shares or any securities
convertible into or exchangeable for such shares;
(j) not incur, other than in the ordinary course of business consistent
with past practice and other than intercompany indebtedness, any indebtedness
for borrowed money (including through the issuance of debt securities) except
indebtedness incurred to finance the capital expenditures set forth on Section
4.1 of the Seller Disclosure Schedule (provided that (i) the terms of any such
indebtedness provided by a non-Affiliate of the Company shall be subject to the
prior approval of the Purchaser, such approval not to be unreasonably withheld
or delayed and (ii) the interest rate on any such indebtedness provided by an
Affiliate of the Company shall not exceed six percent (6%)), or vary in any
material manner the terms of any material existing indebtedness;
(k) except to the extent required by applicable law, not permit any
material change in (i) any pricing, investment, accounting, financial reporting,
inventory, credit, allowance or tax practice or policy of the Company, (ii) any
method of calculating any bad debt, contingency or other reserve of the Company
for accounting, financial reporting or tax purposes, (iii) its accounting
procedures or practices unless mandated by GAAP or (iv) the fiscal year of the
Company;
(l) not make or change any Tax election, file any amended Tax Return,
change its Tax accounting period, adopt or change any method of Tax accounting,
enter into any closing agreement, compromise or settle any Tax claim or
assessment, surrender any right to claim a Tax refund, consent to any extension
or waiver of the limitations period applicable to any Tax claim or assessment,
or take or omit to take any other required action relating to Taxes without the
written consent of Purchaser, which shall not be unreasonably withheld;
(m) not violate, breach or default under in any material respect, or
take or fail to take any action that (with or without notice or lapse of time or
both) would constitute a material violation or breach of, or default under, any
term or provision of any Permit or Consent held or used by the Company or any
Company Agreement to which the Company is a party or by which any of its assets
and properties is bound;
(n) not sell, pledge or dispose of, or incur any Lien (other than a
Permitted Encumbrance) on, any assets and properties of the Company, other than
in the ordinary course of business consistent with past practice;
21
(o) not write off or write down any of its assets and properties, other
than in the ordinary course of business consistent with past practice;
(p) not (i) increase the compensation or severance payable or to become
payable to its directors, officers or employees, except for increases in salary
or wages of employees of the Company in the ordinary course of business; (ii)
grant any severance or termination pay to any director, officer or employee of
the Company (except to make payments required to be made under obligations
existing on the date hereof in accordance with the terms of such obligations);
(iii) enter into any employment or severance agreement with respect to which the
total annual compensation or the aggregated severance payments exceed $100,000
with any prospective officer or employee of the Company; (iv) enter into or
modify any agreement with any director of the Company; (v) establish, adopt,
enter into or amend any collective bargaining agreement, Company Benefit Plan,
trust, fund, policy or arrangement for the benefit of any current or former
directors, officers or employees or any of their beneficiaries, except, in each
case of this clause (v), (x) as may be required by law or (y) as would not
result in a material increase in the cost of maintaining such collective
bargaining agreement, Company Benefit Plan, trust, fund, policy or arrangement
and would not otherwise impose any material restraint on the business or
operations of the Company;
(q) not make any loan to any director, officer, employee or independent
contractor of the Company, with the exception of advances for expenses in the
ordinary course of business;
(r) not enter into any new lottery contract if such contract taken as a
whole over its term would reasonably be expected to be significantly financially
detrimental to the Company;
(s) not enter into any new Contract (other than any Contract otherwise
permitted under this Section 4.1) which involves annual payments in excess of
$250,000 per annum; or
(t) not agree to take any of the actions set forth in the foregoing
subparagraphs (e) through (s).
4.2 ACCESS AND CONFIDENTIALITY. During the period from the date of this
Agreement to the Closing, Seller shall permit Purchaser and its officers,
employees, accountants, counsel and other representatives (collectively, the
"PURCHASER REPRESENTATIVES") during normal business hours full access to the
books, records, facilities, properties, assets and operations of the Company;
provided that such access is reasonable and shall not interfere with the normal
business and operations of the Company. Seller shall arrange for Purchaser and
its representatives to discuss with appropriate officers, employees and
representatives (including its attorneys and counsel) of the Company such
matters related to the business of the Company and the transactions provided for
herein as Purchaser may reasonably request. In addition, to the extent any books
and records of the Company are maintained on behalf of the Company by an
Affiliate of the Company, Seller shall provide access to such books and records
and permit Purchaser and the Purchaser Representatives to discuss such books and
records with the officers, employees or representatives of such Affiliate;
provided that such access is reasonable and shall
22
not interfere with the normal business and operations of such Affiliate.
Purchaser will hold, and will cause its respective officers, employees,
accountants, counsel, financial advisers and other representatives and
affiliates to hold, any confidential information confidential in accordance with
the Confidentiality Agreement, dated March 14, 2003 (the "CONFIDENTIALITY
AGREEMENT"), by and between Purchaser and Seller. Purchaser shall, and shall
cause the Company to, cooperate with Seller and its Affiliates and outside
accountants in providing all information and access to books and records
reasonably necessary for Seller to prepare and deliver the audited financial
statements for the twelve month period ended September 27, 2003.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 FURTHER ACTIONS. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its commercially reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, and to assist and cooperate with each other in doing, all things
necessary, proper or advisable under all applicable Laws to consummate and make
effective the transactions contemplated by this Agreement, including cooperating
in responding to any inquiries from regulatory authorities. Subject to the terms
and conditions herein provided, Seller and Purchaser will, and will cause each
of their respective affiliates to, (a) use their commercially reasonable efforts
to obtain all Consents or Permits necessary or advisable to consummate and make
effective the transactions contemplated by this Agreement, and (b) use their
commercially reasonable efforts to cause each of the conditions precedent to the
respective obligations provided for in Article VI to be satisfied. In case at
any time after the date hereof any further action is necessary or desirable to
carry out the purposes of this Agreement and the transactions contemplated
hereby, the proper officers or directors of Seller, the Company or Purchaser, as
the case may be, shall use commercially reasonable efforts to take all such
necessary action. The foregoing covenant shall not include any obligation by
Purchaser to agree to divest, abandon, license or take similar action with
respect to any material assets (tangible or intangible) of the Company or
Purchaser or any of its subsidiaries.
5.2 CERTAIN NOTIFICATIONS. At all times prior to the Closing Date, each
of Seller and Purchaser shall promptly notify the other in writing of the
occurrence of any event which will or may result in the failure of any of the
conditions contained in Article VI to be satisfied.
5.3 TAX MATTERS.
(a) SELLER LIABILITY FOR TAXES. Seller shall be liable for and
indemnify Purchaser for all Taxes imposed on the Company for (i) any taxable
year or period that ends on or before the Closing Date and (ii) with respect to
any taxable year or period beginning before and ending after the Closing Date,
the portion of such taxable year or period ending on and including the Closing
Date; PROVIDED, HOWEVER, that Seller shall not be liable for the Taxes described
in Section 5.3(b) below. Seller shall be entitled to any refund of Taxes of the
Company received for such periods for which it is liable.
(b) PURCHASER LIABILITY FOR TAXES. Purchaser shall be liable for and
indemnify Seller for the Taxes of the Company other than those described in
Section 5.3(a) for (i) any taxable year or period that begins after the Closing
Date and (ii) with respect to any taxable year or period beginning before and
ending after the Closing Date, the portion of such taxable year
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or period beginning after the Closing Date. Purchaser shall be entitled to any
refund of Taxes of the Company received for such periods for which it is liable.
(c) SHORT TAXABLE YEAR. For purposes of Sections 5.3(a) and (b),
whenever it is necessary to determine the liability for Taxes of the Company for
a portion of a taxable year or period that begins before and ends after the
Closing Date, the amount of liabilities for Taxes of the Company for the portion
of such taxable year or period ending on, and the portion of such taxable year
or period beginning after, the Closing Date shall be determined, to the extent
possible, on the basis of an interim closing of the books as of the close of
business on the Closing Date; PROVIDED, HOWEVER, that in the case of any Taxes
calculated on an annual basis, and only to the extent not practicable to apply
the interim closing of the books method, the amount of such liabilities for such
Taxes for the applicable portion of such taxable year or period shall be equal
to the amount of all such Taxes for such taxable year or period multiplied by a
fraction, the numerator of which shall be the number of days from the beginning
of such taxable year or period through the Closing Date, and the denominator of
which shall be the number of days in such taxable year or period. For purposes
of the foregoing sentence, if a taxable year or period is undefined with respect
to any real or personal property Tax that is billed annually, then such Tax
shall be deemed due and payable for the calendar year in which the Tax is due
and payable.
(d) ADJUSTMENT TO PURCHASE PRICE. Any payment by Purchaser or Seller
under this Section 5.3 or Section 8.10 shall be treated as an adjustment to the
Purchase Price.
(e) TAX RETURNS. Seller shall file or cause to be filed when due all
Tax Returns that are required to be filed by or with respect to the Company for
taxable years or periods ending on or before the Closing Date and shall timely
pay any Taxes due in respect of such Tax Returns. Purchaser shall file or cause
to be filed when due all Tax Returns that are required to be filed by or with
respect to the Company for taxable years or periods ending after the Closing
Date, and shall timely pay any Taxes due in respect of such Tax Returns;
PROVIDED, HOWEVER, that to the extent Seller is liable for all or a part of the
Taxes shown on such Tax Returns, (i) at least 30 days prior to the due date for
filing any such Tax Return (taking into account any applicable extensions),
Purchaser shall furnish Seller with a completed copy of any such Tax Returns for
Seller's review and comment and (ii) no such Tax Returns shall be filed with any
taxing authority without Seller's prior written consent, such consent not to be
unreasonably withheld. Any Tax Return described in this Section 5.3(e) shall be
prepared on a basis consistent with the past practices of the Company and in a
manner that does not distort taxable income (E.G., by deferring income or
accelerating deductions). Seller shall pay to Purchaser the Taxes for which
Seller is liable pursuant to Section 5.3(a) but which are payable with respect
to Tax Returns to be filed by Purchaser pursuant to this section within ten days
prior to the due date for the filing of such Tax Returns. Purchaser shall pay to
Seller the Taxes for which Purchaser is liable pursuant to Section 5.3(b) but
which are payable with respect to Tax Returns to be filed by Seller pursuant to
this section within ten days prior to the due date for the filing of such Tax
Returns.
(f) CONTESTS. Purchaser shall promptly notify Seller in writing upon
receipt by Purchaser or the Company of written notice of any pending or
threatened federal, state, local or foreign income or franchise tax audits or
assessments which may materially affect the tax
24
liabilities of the Company for which Seller would be required to indemnify
Purchaser pursuant to Section 5.3(a). Seller shall have the sole right to
represent the Company's interests in any tax audit or administrative or court
proceeding relating to taxable periods ending on or before the Closing Date, and
to employ counsel of its choice at its own expense. Seller shall not be entitled
to settle, either administratively or after the commencement of litigation, any
claim for Taxes that would adversely affect the liability for Taxes of Purchaser
or the Company for any period after the Closing Date without the prior written
consent of Purchaser; provided that such consent shall not be unreasonably
withheld or delayed and shall not be necessary to the extent that Seller has
indemnified Purchaser against the effect of any such settlement.
Seller shall be entitled to participate, at its own expense, in the
defense of any claim for Taxes for a year or period that includes and ends after
the Closing Date that may be the subject of indemnification by Seller pursuant
to Section 5.3(a) and if the entire amount of such tax claim is subject to
indemnification by Seller pursuant to Section 5.3(a), with the written consent
of Purchaser (which shall not be unreasonably withheld or delayed), and at
Seller's sole expense, Seller may assume the entire defense of such tax claim.
Neither Purchaser nor the Company may agree to settle any Tax claim for the
portion of the year or period ending prior to or on the Closing Date which may
be the subject of indemnification by Seller under Section 5.3(a) without the
prior written consent of Seller; provided that such consent shall not be
unreasonably withheld or delayed.
(g) ASSISTANCE AND COOPERATION. After the Closing Date, each of Seller
and Purchaser shall:
(i) assist (and cause their respective affiliates to assist) the
other party in preparing any Tax Returns or reports which such other
party is responsible for preparing and filing in accordance with this
Section 5.3;
(ii) cooperate fully in preparing for any audits of, or disputes
with taxing authorities regarding, any Tax Returns of the Company;
(iii) make available to the other and to any taxing authority as
reasonably requested all information, records, and documents relating
to Taxes of the Company;
(iv) provide timely notice to the other in writing of any pending
or threatened tax audits or assessments of the Company for taxable
periods for which the other may have a liability under this Section
5.3; and
(v) furnish the other with copies of all correspondence received
from any taxing authority in connection with any tax audit or
information request with respect to any such taxable period.
(h) TAX SHARING AGREEMENTS. Seller shall cause the provisions of any
Tax sharing agreement between Seller or any of its Affiliates (other than the
Company) and the Company to be terminated on or before the Closing Date.
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(i) SECTION 338(H)(10) ELECTION. Seller and Purchaser agree that they
shall make a joint election under Section 338(h)(10) of the Code, and any
corresponding elections permitted under state or local law ("SECTION 338(H)(10)
ELECTIONS"), with respect to the purchase of the Shares. Seller shall prepare an
allocation schedule (the "ALLOCATION SCHEDULE") allocating the portion of the
Purchase Price allocated to the Shares and the liabilities of the Company among
the assets of the Company in accordance with Section 338 of the Code and the
regulations issued thereunder, and shall submit such Allocation Schedule to
Purchaser for its review and comment no later than twenty (20) days prior to the
Closing Date. Purchaser and Seller shall use their best efforts to mutually
agree upon a final Allocation Schedule prior to the Closing. If Purchaser and
Seller have not agreed to a final Allocation Schedule by thirty (30) days after
the Closing, the matter will be referred to Deloitte & Touche for resolution,
and its determination will be binding on all parties. Each of Seller, Purchaser
and the Company will file all Tax Returns and reports, including Internal
Revenue Service Form 8023, in a manner consistent with the Allocation Schedule
and will not take any position for purposes of any Taxes respecting the
allocation of the Purchase Price and the liabilities of the Company which is
inconsistent with the Allocation Schedule.
5.4 EMPLOYEE AND EMPLOYEE BENEFIT MATTERS.
(a) From and after the Closing Date, Purchaser shall cause all of the
employees of the Company to be eligible to participate in such employee
compensation and benefit plans, programs, policies and arrangements that are
made available to similarly situated employees of Purchaser and its subsidiaries
(the "PURCHASER BENEFIT PLANS"). From and after the Closing Date, the Company
shall cause all of the Purchaser Benefit Plans to provide that (i) all service
of the Company's officers and employees completed prior to the Closing Date with
Seller or the Company will be recognized under such Purchaser Benefit Plan as if
it were service with Purchaser for purposes of eligibility to participate or any
applicable waiting periods in Purchaser Benefit Plans and vesting of benefits
thereunder, (ii) any exclusions for pre-existing conditions (to the extent such
condition was covered under the Company Benefit Plan prior to the Closing Date)
shall be waived with respect to such officers and employees and their eligible
dependents under Purchaser Benefit Plans that are "welfare benefit plans" (as
defined in section 3(1) of ERISA) and (iii) all co-payments, deductibles and
similar amounts and costs incurred by any such officer or employee under a
comparable plan, agreement or arrangement of Seller or the Company during the
plan year in which the Closing occurs shall be recognized under the applicable
Purchaser Benefit Plan. The foregoing shall not constitute any commitment,
contract, understanding, undertaking or guarantee (express or implied) on the
part of Purchaser to maintain or establish any Purchaser Benefit Plan or on the
part of Purchaser or the Company to continue the employment of any employee of
the Company for any duration.
(b) From and after the Closing, Purchaser shall cause the Company to
honor, pay and perform all of its covenants and obligations under, and in
accordance with the existing terms of, all employment, severance, termination
and similar agreements identified in Section 2.13 of the Seller Disclosure
Schedule between the Company and any officer, director or employee thereof.
(c) Effective as of the Closing Date, the participation of all
directors, officers and employees of the Company in the compensation and benefit
plans, programs, policies and
26
arrangements of Seller (the "SELLER BENEFIT PLANS") shall cease and the Company
shall execute and deliver such resolutions of its Board of Directors and other
documents as Seller deems reasonably necessary or appropriate for the Company to
withdraw as a participating employer in the Seller Benefit Plans. Seller shall
remain responsible and liable for payment of all medical, dental, vision and
other health claims incurred by any Company employee prior to the Closing Date
under a Seller Benefit Plan. Purchaser (or the applicable Purchaser Benefit
Plans) shall be responsible for all covered medical, dental, vision and health
claims incurred by any Company employee on or after the Closing Date. For
purposes of this paragraph (c), a claim is deemed to have been incurred when the
medical or other service giving rise to the claim is performed.
(d) During the sixty (60) days following the Closing, Purchaser shall
not cause or allow the Company to take any action or series of actions with
respect to employees of the Company which action, or series of actions, would
constitute either a "Plant Closing" or "Mass Layoff" under the Worker Adjustment
Retraining Notification Act, 29 U.S.C. Section 2101 et seq. ("WARN") and/or any
applicable state law governing layoff notification. Purchaser shall defend,
indemnify, and hold harmless Seller from and against any losses, liabilities,
claims, or causes of action, including but not limited to defense costs and
attorneys' fees, arising from or in any way connected with such action or series
of actions taken by the Company during such period.
5.5 CONTRIBUTION OF ASSETS; CANCELLATION OF OBLIGATIONS.
(a) As soon as practicable following the execution of this Agreement
and in any event prior to the Closing Date, Seller shall cause its subsidiary,
Video Lottery Consultants, Inc. ("VLC"), to assign and transfer, to the Company,
without additional consideration therefor and free and clear of any Liens, the
video control systems contracts and assets set forth on Section 5.5 of the
Seller Disclosure Schedule hereto.
(b) As of the Closing Date, all amounts or payments due to Seller,
International Game Technology ("IGT"), or any of its subsidiaries (other than
the Company), from the Company shall have been canceled and be of no further
force and effect; provided, however, that any intercompany loans made by IGT to
the Company to finance capital expenditures set forth on Section 4.1 of the
Seller Disclosure Schedule shall not be cancelled but shall be repaid by
Purchaser on the Closing Date.
5.6 AUDITED FINANCIALS. Seller shall cause to be prepared and delivered
to Purchaser as soon as practicable but in any event prior to the Closing Date,
audited financials of the Company for the nine months ended September 28, 2002
and reviewed financials of the Company for the six months ended June 30, 2003
and June 30, 2002. In addition, Seller shall cause to be prepared and delivered
to Purchaser, no later than sixty (60) days after the Closing Date, audited
financials of the Company for the twelve months ended September 27, 2003. Seller
shall pay all costs and expenses related to the audits and reviews; provided,
however, that if this Agreement is terminated by Purchaser other than in
accordance with Section 7.1 or by Seller pursuant to Section 7.1(b) then
Purchaser shall reimburse Seller for the costs and expenses related to such
audits and reviews.
27
5.7 PRESS RELEASES; PUBLIC ANNOUNCEMENTS. Purchaser and Seller will
consult with each other as to the form, substance and timing of the initial
public disclosure of matters related to this Agreement, or any of the
transactions contemplated hereby, and no public disclosure will be made by one
without the consent of the other, which consent will not be unreasonably
withheld or delayed; provided that each of Purchaser and Seller may make such
disclosures as are necessary to comply with any requirement of law after making
good faith efforts under the circumstances to consult in advance with the other.
5.8 NAME OF COMPANY AND USE. Purchaser and Seller agree Purchaser shall
acquire no rights to the name International Game Technology or IGT or any use
thereof including without limitation the use of any Domain Names listed on
Section 5.8 of the Seller Disclosure Schedule. Concurrently with the Closing
Date the name of the Company shall be changed to exclude any reference to IGT.
Seller hereby grants to the Company the right to use the name "IGT Online
Entertainment Systems, Inc." for (a) 90 days with respect to equipment and
inventory labeled with the name IGT Online Entertainment Systems, Inc., and (b)
30 days with respect to forms, packaging and other items containing the name IGT
Online Entertainment Systems, Inc.; provided that the Company shall not after
the Closing Date hold itself out to be affiliated with IGT or use any
promotional or marketing materials containing the name IGT Online Entertainment
Systems, Inc.
5.9 NONCOMPETITION.
(a) For a period of three (3) years from the Closing Date, Seller shall
not, and shall cause its officers, directors, employees, subsidiaries,
Affiliates, successors and assigns not to, directly or indirectly, in any state
or territory of the United States or any country in the world, conduct or
license any other party to conduct any business that designs, manufactures,
installs, operates or sells or bids to do any of the foregoing to any
governmental, administrative or regulatory authority or agency, or to any
lottery sanctioned or licensed by any of the foregoing, (i) on-line lottery
systems, products or games (including Keno-like monitor games) or (ii) instant
lottery systems, products or games (the "BUSINESS"), including, without
limitation, as a stockholder, consultant, partner, owner, lender, licensor,
principal, member, officer, employee or otherwise, of any entity that is
conducting the Business.
(b) The restrictions set forth in Section 5.9(a) shall in no event
apply to:
(i) Seller, or any of its existing or future Affiliates,
conducting, or licensing any other party to conduct, any business that
designs, manufactures, installs, operates, sells or leases gaming
machines or products or video lottery terminals (including, without
limitation, electronic instant ticket terminals);
(ii) the making of loans or advances of any nature by Seller or
any of its existing or future Affiliates, in the ordinary course of
business, to purchasers and operators, including proposed operators, of
lottery systems and the acquisition by Seller or any of its existing or
future Affiliates of an interest in a lottery operator through the
enforcement or other collection of such loans provided that Seller and
any such Affiliate shall thereafter use commercially reasonable efforts
to divest itself of the acquired lottery operations as promptly as
practicable;
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(iii) the acquisition by Seller or any of its existing or future
Affiliates of a person or a business whose operations or that of any of
its Affiliates would otherwise violate the restrictions set forth in
Section 5.9(a), provided that the offending operations represented less
than 25% of the acquired person's or business revenues during the
twelve (12) complete months preceding the acquisition and Seller and
any such Affiliate shall thereafter use commercially reasonable efforts
to divest itself of the acquired lottery operations as promptly as
practicable;
(iv) any entity (including such entities' Affiliates before and
after such acquisition) that acquires, whether by merger,
consolidation, acquisition of substantially all its assets or otherwise
IGT, provided that the shareholders of IGT immediately prior to the
acquisition own less than fifty percent (50%) of the surviving entity
immediately following such transaction; and
(v) the ownership by Seller or any of its Affiliates of (a) an
ownership interest in Purchaser or (b) not more than five percent (5%)
of the outstanding equity securities of any entity that would otherwise
violate the provisions of Section 5.9(a), if such stock is listed on a
national securities exchange or regularly traded on the NASDAQ Stock
Market or in the Over-the-Counter market by a member of a national
securities exchange.
(c) In addition, for a period of two (2) years from the Closing Date,
Seller agrees that neither Seller nor any of its Affiliates will bid on any
governmental, administrative or regulatory authority or agency proposed video
lottery central monitoring system contract in Delaware, New Mexico, South Dakota
or Quebec or for the Atlantic Lottery Corporation.
(d) Seller and Purchaser agree that the period of time and the
geographic areas applicable to the covenants contained in this Section 5.9 are
reasonable in light of (i) the business conducted by Seller prior to the Closing
Date, and (ii) Seller's knowledge of the Business, including but not limited to
the manner and processes of the conduct of the Business.
(e) If any such period or such area should be adjudged in excess of
that permitted by Law in any judicial proceeding, then the period of time shall
be reduced by such number of years or such areas shall be reduced by elimination
of such portion of such area, or both, as deemed in excess of that permitted by
Law so that this Section 5.9 may be enforced in such area and during such period
of time as are adjudged permitted by Law, provided that such period or area
shall not be so reduced in any area where the period or area originally
specified is permitted by Law.
5.10 FINANCING. Purchaser shall use its good faith best efforts to
obtain financing in an amount sufficient to enable Purchaser to consummate the
purchase of the Shares in accordance with this Agreement.
5.11 ISRA COMPLIANCE. Seller shall use its commercially reasonable
efforts to obtain a letter of non-applicability with respect to the transactions
contemplated by this Agreement issued by the New Jersey Department of
Environmental Protection pursuant to the Industrial Site
29
Recovery Act, NJSA ss. 13:1K-6 et seq. and NJAC ss. 7:26B-2.2 prior to the
Closing Date and, upon receipt thereof, deliver a copy thereof to Purchaser.
5.12 INTELLECTUAL PROPERTY AND OTHER AGREEMENTS.
(a) Seller and Purchaser contemplate that Intellectual Property owned
or licensed by Seller and its Affiliates that is necessary to conduct the
business of the Company as it is currently conducted or necessary to perform the
contracts to be assigned to the Company by VLC pursuant to Section 5.5 of this
Agreement will be licensed, sublicensed, or assigned and transferred (in some
instances, subject to licenses back to Seller and its Affiliates) (collectively
the "IP AGREEMENTS"), to the Company on terms mutually satisfactory to Seller
and Purchaser prior to the Closing. The parties also contemplate that IGT will
license certain trademarks (the "TM AGREEMENT") for limited use to the Company
prior to the Closing.
(b) Seller and Purchaser agree that for a period of five years after
the Closing Date, the Company shall license to IGT its protocol and any updates
or changes to that protocol for (i) machines for interfacing with cluster
controllers used in lotteries (currently commonly referred to as F4 Protocol)
and (ii) systems (currently commonly referred to as the OES Protocol); such
license to include such technical documentation and information as is necessary
to permit an interface with a lottery's wide area monitoring system (the
"PROTOCOL LICENSE").
(c) Seller and Purchaser contemplate that VLC will provide certain
services to the Company from after the Closing Date in connection with the
contracts assigned to the Company by VLC pursuant to Section 5.5 hereof (the
"VLC SERVICES CONTRACT").
(d) Each of the parties hereto undertakes to, or cause its applicable
Affiliates to, negotiate in good faith to agree upon and enter into the IP
Agreements, the TM Agreement, the Protocol License Agreement and the VLC
Services Agreement (collectively, the "SECTION 5.12 AGREEMENTS") within 30 days
of the date of this Agreement.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER. The obligations
of Purchaser to purchase the Shares at the Closing are subject to the
satisfaction at or prior to the Closing of each of the following conditions
(unless satisfaction of any such condition is expressly waived by Purchaser):
(a) The representations and warranties of Seller contained in Article
II shall be accurate in all material respects as of the date hereof and as of
the Closing Date as though restated on and as of such date (except in the case
of any representation or warranty that by its terms is made as of a date
specified therein, which shall be accurate in all material respects as of such
date);
(b) Seller shall have performed and complied with, in all material
respects, all agreements required by this Agreement to be performed or complied
with by it prior to or at the Closing;
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(c) No Proceeding by any Governmental Authority shall be pending which
seeks to prohibit or declare illegal the transactions contemplated by this
Agreement and no Law or Judgment shall be in effect having any such result;
(d) All Consents and notices listed on Section 6.1(d) of the Seller
Disclosure Schedule shall have been obtained or made, as applicable, and all
waiting periods specified under applicable Laws and all extensions thereof, the
passing of which is necessary for such consummation, including without
limitation, the waiting period under the HSR Act, shall have expired or been
terminated;
(e) Seller shall have delivered certificates for the Shares duly
endorsed for transfer or accompanied by duly executed stock powers or stock
transfer forms sufficient to convey to Purchaser title to the Shares;
(f) Purchaser shall have received from Seller a certificate, signed by
an appropriate officer of Seller, as to the satisfaction of the conditions set
forth in paragraphs (a), (b) and (c) of this Section 6.1;
(g) The Section 5.12 Agreements shall have been executed and delivered;
(h) Purchaser shall have received evidence reasonably satisfactory to
it that all of the assignments and transfers required pursuant to Section 5.5
shall have been made in accordance with that provision;
(i) IGT shall have delivered to Purchaser a guaranty of the Seller's
obligations under Sections 1.4, 5.3(a) and 8.10 hereof in the form attached
hereto as Exhibit A;
(j) Purchaser shall have received the resignations of those officers
and directors of the Company listed on Section 6.1(j) of the Seller Disclosure
Schedule;
(k) The funds necessary to pay the Initial Purchase Price shall have
been obtained by Purchaser on terms reasonably acceptable to Purchaser;
(l) Purchaser shall have received a true and complete copy of the
certificate of incorporation, as amended, of the Company, a true and complete
copy of the by-laws, as amended, of the Company, and resolutions of the Board of
Directors of the Company authorizing and approving this Agreement and the other
agreements and transaction contemplated hereby, each certified by the Secretary
of the Company; and
(m) The Contracts between the Company and VLC listed on Section 2.17 of
the Seller Disclosure Schedule shall have been terminated and Purchaser shall
have received evidence of such termination.
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations of
Seller to sell the Shares at the Closing are subject to the satisfaction at or
prior to the Closing of each of the following conditions (unless satisfaction of
any such condition is expressly waived by Seller):
31
(a) The representations and warranties of Purchaser contained in
Article III shall be accurate in all material respects as of the date hereof and
as of the Closing Date as though restated on and as of such date (except in the
case of any representation or warranty that by its terms is made as of a date
specified therein, which shall be accurate in all material respects as of such
date);
(b) Purchaser shall have performed and complied with, in all material
respects, all agreements required by this Agreement to be performed or complied
with by it prior to or at the Closing;
(c) No Proceeding by any Governmental Authority shall be pending which
seeks to prohibit or declare illegal the transactions contemplated by this
Agreement and no Law or Judgment shall be in effect having any such result;
(d) All Consents the granting of which is required for the consummation
of the transactions contemplated by this Agreement and all waiting periods
specified under applicable Laws and all extensions thereof, the passing of which
is necessary for such consummation, including without limitation, the waiting
period under HSR Act, shall have expired or been terminated;
(e) Purchaser shall have delivered the Initial Purchase Price and any
Additional Purchase Price Adjustments to Seller as provided in Section 1.3;
(f) Seller shall have received from Purchaser a certificate, signed by
an appropriate officer of Purchaser, as to the satisfaction of the conditions
set forth in paragraphs (a) and (b) of this Section 6.2;
(g) Seller, IGT and their subsidiaries (other than the Company) shall
have received written releases in form and substance reasonably satisfactory to
Seller releasing them from all obligations and liabilities (whether contingent
or otherwise) in connection with (i) the performance bonds, letters of credit
and guarantees set forth on Schedule 6.2(g), and (ii) any guarantees of
obligations of the Company under any capital leases or other financing
agreements relating to the financing of the capital expenditures set forth on
Section 4.1 of the Seller Disclosure Schedule;
(h) Seller shall have received a true and complete copy of the
certificate of incorporation, as amended, of the Purchaser, a true and complete
copy of the by-laws, as amended, of the Purchaser, and resolutions of the Board
of Directors of the Purchaser authorizing and approving this Agreement and the
other agreements and transaction contemplated hereby, each certified by the
Secretary of the Purchaser;
(i) To the extent IGT has made any intercompany loans to the Company to
finance the capital expenditures on Section 4.1 of the Seller Disclosure
Schedule, Purchaser shall have repaid such loans in full; and
(j) The Section 5.12 Agreements shall have been executed and delivered.
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ARTICLE VII
TERMINATION
7.1 GROUNDS FOR TERMINATION. This Agreement may be terminated at any
time prior to the Closing Date:
(a) By the written agreement of each of Purchaser and Seller;
(b) By Seller (provided that Seller is not then in material breach of
any representation, warranty, covenant or other agreement contained herein),
upon a material breach of any representation, warranty, covenant or agreement on
the part of Purchaser set forth in this Agreement, or if any representation or
warranty of Purchaser shall have become untrue, in either case such that the
conditions set forth in Section 6.2(a) or Section 6.2(b), as the case may be,
would be incapable of being satisfied by March 31, 2004;
(c) By Purchaser (provided that Purchaser is not then in material
breach of any representation, warranty, covenant or other agreement contained
herein), upon a material breach of any representation, warranty, covenant or
agreement on the part of Seller set forth in this Agreement, or if any
representation or warranty of the Seller shall have become untrue, in either
case such that the conditions set forth in Section 6.1(a) or Section 6.1(b), as
the case may be, would be incapable of being satisfied by March 31, 2004;
(d) By either Purchaser or Seller if any permanent injunction or
Proceeding by any Governmental Authority of competent jurisdiction enjoining,
denying approval of or otherwise prohibiting consummation of any of the
transactions contemplated by the Agreement becomes final and nonappealable;
(e) By either Purchaser or Seller if the Closing shall not have
occurred on or prior to March 31, 2004, unless the failure to consummate the
transactions contemplated hereby is the result of a breach of covenant set forth
in this Agreement or a material breach of any representation or warranty set
forth in this Agreement by the party seeking to terminate this Agreement; or
(f) By either Purchaser or Seller subsequent to October 12, 2003, if
the Section 5.12 Agreements have not been executed and delivered on or prior to
the date of termination.
7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Seller, the Company or Purchaser or their
respective officers or directors, except as set forth in Section 4.2, Section
5.6, Section 5.7, Section 7.3, and Article VIII which shall survive termination
and except that such termination shall not relieve a party from liability as a
result of the willful breach by such party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
7.3 TERMINATION FEE. Purchaser shall pay to Seller by wire transfer
Three Million Dollars ($3,000,000) (the "TERMINATION FEE") if this Agreement is
terminated by Purchaser or Seller pursuant to Section 7.1(e) and at the time of
such termination the conditions specified in
33
Section 6.1(k) to the obligations of Purchaser shall not have been satisfied or
waived. In the event that (i) this Agreement is terminated in the circumstances
described in this Section 7.3 and (ii) Purchaser is not otherwise in willful
breach of any provision of this Agreement at the time of such termination, the
Termination Fee shall be Seller's sole remedy under this Agreement. The parties
agree that the agreements contained in this Section 7.3 are an integral part of
the transactions contemplated by this Agreement. If Purchaser fails to pay to
Seller the Termination Fee promptly after it becomes payable, Purchaser shall
pay the costs and expenses (including legal fees and expenses) in connection
with any action, including the filing of any lawsuit or other legal action,
taken to collect payment, together with interest on the amount of any unpaid fee
at the publicly announced prime rate of Bank of America from the date such fee
was first due.
ARTICLE VIII
MISCELLANEOUS
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by either party pursuant to this Agreement shall survive and
continue in full force and effect until March 31, 2005, except that the
representations and warranties in Section 2.9 (Taxes and Tax Returns) and 2.14
(Environmental Matters) shall survive until the expiration of the applicable
statute of limitations with respect thereto, and the representations and
warranties in 2.2 (Authority; Enforceability) and 2.3 (Ownership of Capital
Stock) shall survive indefinitely. Any claim for a breach of a representation
and warranty must be asserted in writing by the expiration date for such
representation and warranty set forth in this Section 8.1 (the "EXPIRATION
DATE"). None of such representations and warranties shall survive the
termination of this Agreement pursuant to Section 7.1. Each party hereto shall
be entitled to rely on any such representation or warranty regardless of any
inquiry or investigation made by or on behalf of such party. Notwithstanding the
foregoing, any representation or warranty in respect of which indemnity may be
sought hereunder shall survive the time at which it would otherwise terminate
pursuant to this Section 8.1 if notice of the breach thereof shall have been
given to the party against whom such indemnity may be sought prior to the
Expiration Date of the applicable survival period. Knowledge of any breach by
the non-breaching party shall not be a defense against, or otherwise effect, the
breaching party's indemnification obligations hereunder. The covenants and
agreements of each party pursuant to this Agreement shall survive the Closing
indefinitely unless a shorter period of performance is specified with respect to
such covenant or agreement.
8.2 COSTS AND EXPENSES. Whether or not the transactions contemplated by
this Agreement are consummated, each of the parties to this Agreement shall bear
its own expenses incurred in connection with the negotiation, preparation,
execution and closing of this Agreement and the transactions provided for
hereby, except as otherwise provided in Section 5.6.
8.3 NOTICES. All notices or other communications required or permitted
by this Agreement shall be effective upon receipt and shall be in writing and
delivered personally or by overnight courier, or sent by facsimile, as follows:
34
If to Purchaser, to:
Scientific Games Corporation
000 Xxxxxxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxxxx
Fax: (000) 000-0000
with copies to:
Scientific Games International, Inc.
0000 Xxxxxxxxx Xxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Attn: C. Xxxx Xxxxxx, Xx.
Fax: (000) 000-0000
and to:
Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx X. Xxxxx
Fax: (000) 000-0000
If to Seller, to:
International Game Technology
0000 Xxxxxxxxx Xxxxx
Xxxx, Xxxxxx 00000
Attn: Xxxx Xxxx Xxxxx
General Counsel
Fax: (775) 000- 0000
with a copy to:
O'Melveny & Xxxxx LLP
000 Xxxxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Attn: J. Xxx Xxxxxx
Fax: (000) 000-0000
or to such other address as hereafter shall be furnished as provided in this
Section 8.3 by any of the parties hereto to the other parties hereto.
35
8.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single instrument.
8.5 ENTIRE AGREEMENT. This Agreement (including the Seller Disclosure
Schedule, the Purchaser Disclosure Schedule, the License Agreement and the
Confidentiality Agreement) sets forth the entire understanding and agreement
between the parties as to the matters covered herein and supersedes and replaces
any prior understanding, agreement or statement of intent, in each case, written
or oral, of any and every nature with respect thereto. Purchaser acknowledges
hereby that it has conducted its own independent review and analysis of the
Company and its business and that it has been provided access to the properties,
records and personnel of the Company for this purpose. In entering into this
Agreement, Purchaser has relied solely upon its own investigation and analysis
and the representations and warranties set forth in this Agreement and
acknowledges that neither Seller nor any of its affiliates, directors, officers,
employees, agents, representatives or advisors makes any representation or
warranty, either express or implied, as to the accuracy or completeness of (and
agrees that none of such persons shall have any liability or responsibility to
it in respect of) any of the information provided or made available to Purchaser
or its agents or representatives, except as and only to the extent expressly
provided for in this Agreement.
8.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY
THE LAWS OF THE STATE OF
NEW YORK, INCLUDING VALIDITY, INTERPRETATION AND
EFFECT, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
8.7 NO THIRD PARTY RIGHTS; ASSIGNMENT. This Agreement is intended to be
solely for the benefit of the parties hereto and is not intended to confer any
benefits upon, or create any rights in favor of, any person other than the
parties hereto and shall not be assignable without the prior written consent of
the other parties; provided, however, that Purchaser may assign any of its
rights hereunder without the written consent of the other parties to one or more
Affiliates of Purchaser that assume the obligations of Purchaser hereunder
pursuant to a written assumption agreement in form and substance reasonably
satisfactory to Seller, but no such assignment shall relieve Purchaser of any
such obligations. Any attempted assignment in violation of this Section 8.7
shall be null, void and of no force or effect whatsoever.
8.8 WAIVERS AND AMENDMENTS. No modification of or amendment to this
Agreement shall be valid unless in a writing signed by the parties hereto
referring specifically to this Agreement and stating the parties' intention to
modify or amend the same. No waiver by any party of any term, provision,
condition, covenant, agreement, representation or warranty contained in this
Agreement (or any breach thereof) shall be effective unless it is in writing
executed by the parties hereto. No waiver shall be deemed or construed as a
further or continuing waiver of any such term, provision, condition, covenant,
agreement, representation or warranty (or breach thereof) on any other occasion
or as a waiver of any other term, provision, condition, covenant, agreement,
representation or warranty (or of the breach of any other term, provision,
condition, covenant, agreement, representation or warranty) contained in this
Agreement on the same or any other occasion.
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8.9 INTERPRETATION. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" and "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
8.10 AGREEMENT TO INDEMNIFY.
(a) Subject to the terms and conditions of Sections 8.10, 8.11 and
8.12, Seller hereby agrees to indemnify, defend and hold harmless Purchaser and
any parent, subsidiary or Affiliate of any thereof and their respective
officers, directors, employees, agents and representatives and persons claiming
by and through any of them, and their respective heirs, personal
representatives, legatees, successors and assigns (the "PURCHASER GROUP"), for,
from and against all demands, claims, actions, causes of action, assessments,
losses, damages, liabilities, costs and expenses, including, without limitation,
interest, penalties and reasonable attorneys' fees and expenses (collectively,
"DAMAGES"), directly or indirectly asserted against, resulting to, imposed upon
or incurred by the Purchaser Group or any member thereof, at any time after the
Closing Date and prior to the Expiration Date, by reason of or resulting from
(i) any breach of any representation or warranty of Seller contained in or made
pursuant to this Agreement or any other agreement or document executed or
delivered in connection herewith or (ii) a failure by the Company (prior to the
Closing Date) or Seller to perform or comply with any covenant or agreement of
Seller or the Company contained herein (collectively, "PURCHASER Claims");
provided, however, that the Purchaser Group shall be entitled to indemnification
hereunder only when the aggregate of all such Purchaser Claims exceeds $250,000
(the "SELLER INDEMNIFICATION DEDUCTIBLE"), and then only for the amount of such
excess. In no event shall the Purchaser Group be entitled to indemnification
hereunder for an amount, in the aggregate, in excess of $15,000,000 (the "SELLER
INDEMNIFICATION CAP").
(b) Subject to the terms and conditions of Sections 8.10, 8.11 and
8.12, Purchaser hereby agrees to indemnify, defend and hold harmless Seller and
any parent, subsidiary or Affiliate of any thereof and their respective
officers, directors, employees, agents and representatives and persons claiming
by and through any of them, and their respective heirs, personal
representatives, legatees, successors and assigns (the "SELLER GROUP"), from and
against all Damages, directly or indirectly asserted against, resulting to,
imposed upon or incurred by the Seller Group or any member thereof, at any time
after the Closing Date and prior to the Expiration Date, by reason of or
resulting from (i) any breach of any representation or warranty of Purchaser
contained in or made pursuant to this Agreement or any other agreement or
document executed or delivered in connection herewith or (ii) a failure by
Purchaser or the Company (after the Closing Date) to perform or comply with any
covenant or agreement of Purchaser or the Company contained herein
(collectively, "SELLER CLAIMS," and, together with Purchaser Claims, "CLAIMS");
provided, however, that the Seller Group shall be entitled to indemnification
hereunder only when the aggregate of all such Seller Claims exceeds $250,000
(the "PURCHASER INDEMNIFICATION DEDUCTIBLE"), and then only for the amount of
such excess. In no event shall the Seller Group be entitled to indemnification
hereunder for an amount, in the aggregate, in excess of $15,000,000 (the
"PURCHASER INDEMNIFICATION CAP").
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8.11 CONDITIONS OF INDEMNIFICATION.
(a) ASSUMPTION OF DEFENSE. An indemnified party shall promptly give
notice to each indemnifying party after obtaining knowledge of any matter as to
which recovery may be sought against such indemnifying party because of the
indemnity set forth above; provided, however, that failure promptly to give any
such notice shall not affect the indemnification provided under Section 8.10,
except to the extent such indemnifying party shall have been actually and
materially prejudiced as a result of such failure. If such indemnity claim shall
arise from an action or claim of a third party, the indemnifying party shall be
entitled to assume the defense of any such claim or any proceeding resulting
from such claim; provided that the indemnifying party has acknowledged in
writing to the indemnified party that it will be obligated to indemnify the
indemnified party with respect to such claim in accordance with this Agreement.
If an indemnifying party assumes the defense of such third-party claim, such
indemnifying party shall have full and complete control over the conduct of such
proceeding on behalf of the indemnified party and shall, subject to the
provisions of this Section 8.11, have the right to decide all matters of
procedure, strategy, substance and settlement relating to such proceeding;
provided, however, that any counsel chosen by such indemnifying party to conduct
such defense shall be reasonably satisfactory to the indemnified party. The
indemnified party may participate in such proceeding and retain separate
co-counsel at its sole cost and expense; provided that if the named parties to
the action or proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and the indemnified party has been
advised in writing by counsel that there may be one or more legal defenses
available to the indemnified party that are different from or additional to
those available to the indemnifying party, then the indemnified party will be
entitled to separate counsel of its own choosing, at the reasonable expense of
indemnified party. The indemnifying party will not without the written consent
of the indemnified party, such consent not to be unreasonably withheld or
delayed, consent to the entry of any judgment or enter into any settlement with
respect to the matter which does not include a provision whereby the plaintiff
or the claimant in the matter releases the indemnified party from all liability
with respect thereto. Failure by an indemnifying party to notify the indemnified
party of its election to defend any such claim or proceeding by a third party
within thirty (30) days after notice thereof shall have been given to such
indemnifying party by the indemnified party shall be deemed a waiver by such
indemnifying party of its right to defend such claim or action.
(b) NON-ASSUMPTION OF DEFENSE. If no indemnifying party elects to
assume the defense of any such third-party claim or proceeding resulting
therefrom within thirty (30) days after notice thereof, the indemnified party
(upon delivering notice to the indemnifying party) shall have the right to
undertake the defense of such claim or litigation in such manner as it may deem
appropriate and, in such event, subject to Section 8.10, the indemnifying party
or parties shall be entitled to be reimbursed by the indemnified party for all
reasonable out-of-pocket costs and expenses, legal or otherwise, incurred by the
indemnified party and its Affiliates in connection with the defense against such
claim or proceeding if and when the indemnified party or parties are finally
determined to be entitled to indemnification for such claim under this
Agreement. Any counsel chosen by such indemnified party to conduct such defense
shall be reasonably satisfactory to the indemnifying party or parties, and only
one counsel shall be retained to represent all indemnified parties in an action
(except that if litigation is pending in more than one jurisdiction with respect
to an action, one such counsel may be retained in each
38
jurisdiction in which such litigation is pending and except if representation of
all indemnified parties by the same counsel would create a conflict). The
indemnified party may participate in such proceeding and retain separate
co-counsel at its sole cost and expense. No indemnified party shall settle or
compromise any such claim without the written consent of the indemnifying party,
which consent shall not be unreasonably withheld or delayed.
(c) INDEMNIFIED PARTY'S COOPERATION AS TO PROCEEDINGS. The indemnified
party will cooperate in all reasonable respects with any indemnifying party and
its representatives (including its attorneys) in the conduct of any proceeding
as to which such indemnifying party assumes the defense. The parties will
cooperate with each other in any notifications to insurers.
(d) CERTAIN CLAIMS. Anything in this Section 8.11 to the contrary
notwithstanding, (i) if there is a reasonable probability that a Claim may
materially and adversely affect an indemnified party other than as a result of
money damages or other money payments, such indemnified party shall have the
right to defend, at its own cost and expense, and to compromise or settle such
Claim with the consent of the indemnifying party, and (ii) the indemnifying
party shall not, without the written consent of the indemnified party, settle or
compromise any Claim or consent to the entry of any judgment which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of
such Claim.
8.12 AMOUNT OF INDEMNIFICATION. In addition to the limitations set
forth in Section 8.10 and 8.11 above, any indemnification hereunder shall be
calculated after deduction of or for (i) amounts actually paid to the
indemnified party or, if such indemnified party is Purchaser, to the Company,
under any insurance policies in respect of the Damages, net of any costs
incurred by the indemnified party to obtain such amount or as a result of
receiving such amount; and (ii) any net tax benefit to the indemnified party, or
in the event the indemnified party is the Company, the Company, to the extent
actually realized by such party as a direct result of such Damages, net of any
tax costs incurred by the indemnified party or the Company as the result of the
receipt of indemnification payments hereunder, including the present value,
determined by discounting at the applicable federal rate, of the costs arising
from a reduction in the tax basis of the assets.
8.13 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon a determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
8.14 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure
or delay on the part of any party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or
39
agreement herein, nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or of any other right. All rights
and remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
[SIGNATURES ON FOLLOWING PAGE.]
40
IN WITNESS WHEREOF, this Agreement has been executed and delivered as
of the date first written above.
"SELLER"
POWERHOUSE TECHNOLOGIES, INC.
By:
-----------------------------------
Name:
Title:
"COMPANY"
IGT ONLINE ENTERTAINMENT SYSTEMS, INC.
By:
-----------------------------------
Name:
Title:
"PURCHASER"
SCIENTIFIC GAMES CORPORATION
By:
-----------------------------------
Name:
Title:
S-1
EXHIBIT A
FORM OF GUARANTY
The undersigned is delivering this Guaranty in accordance with the
provisions of Section 6.1(i) of that certain
Stock Purchase Agreement, dated as
of September 11, 2003 (the "PURCHASE AGREEMENT"), by and among POWERHOUSE
TECHNOLOGIES, INC. (the "Seller"), IGT ONLINE ENTERTAINMENT SYSTEMS, INC. (the
"COMPANY") and
SCIENTIFIC GAMES CORPORATION (the "PURCHASER"). The undersigned
hereby unconditionally and irrevocably guarantees the payment of all obligations
of Seller to Purchaser under Sections 1.4, 5.3(a) and 8.10 of the Purchase
Agreement. This Guaranty is a guaranty of payment and performance and not of
collection. Upon any default by Seller in its payment obligations to Purchaser
under Sections 1.4, 5.3(a) and 8.10 of the Purchase Agreement, Purchaser may
proceed directly and at once against the undersigned guarantor to collect and
recover the full amount due under Sections 1.4, 5.3(a) and 8.10 of the Purchase
Agreement, or any portion thereof, without proceeding first against Seller. The
undersigned hereby waives and agrees not to assert or to take advantage of (a)
any right to require Purchaser to proceed against Seller or any other person or
to proceed against or exhaust any security held by it or to pursue any other
remedy in its power before proceeding against the undersigned guarantor; (b) any
defense that may arise by reason of the failure of Purchaser to file or enforce
a claim against Seller (either in administration, bankruptcy or any other
proceedings); (c) any requirement for demand, protest or notice of any kind; or
(d) any defense based upon an election of remedies by Purchaser which destroys
or impairs the subrogation rights of the undersigned or the right of the
undersigned to proceed against Seller for reimbursement. Without limiting the
generality of the foregoing, the undersigned expressly waives, to the extent
permitted by law, any defenses or benefits that may be derived from or afforded
by law which limit the liability of or exonerate guarantors or sureties, or
which may conflict with the terms of this Guaranty.
This Guaranty shall be governed by, and construed and enforced in
accordance with, the laws of the State of
New York.
EXECUTED as of the ___ day of ________, 200[3].
INTERNATIONAL GAME TECHNOLOGY
By:______________________________________
Title:___________________________________
