EXHIBIT 2.1
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ASSET PURCHASE AGREEMENT
AMONG
eGAMES, INC.
AND
CINEMAWARE, INC.
AND
XXXX XXXXXXX-XXXXXXX
OCTOBER 6, 2005
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TABLE OF CONTENTS
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ARTICLE I - Definitions...................................................1
ARTICLE II - PURCHASE AND SALE OF ASSETS..................................5
2.1 Purchase and Sale of Assets..........................................5
(a) Personal Property..............................................5
(b) Contract Rights................................................6
(c) Intellectual Property..........................................6
(d) Governmental Licenses, Permits and Approvals...................6
(e) Books and Records..............................................6
(f) Goodwill.......................................................6
2.2 Excluded Assets.....................................................6
2.3 Purchase Price......................................................7
2.4 Payment of Purchase Price...........................................7
2.5 Closing.............................................................7
2.6 Ad Valorem Tax Adjustment...........................................8
2.7 Allocation of Purchase Price........................................8
2.8 Assumed Liabilities.................................................8
2.9 Retained Liabilities................................................9
ARTICLE III - Representations and Warranties of Seller....................9
3.1 Organization and Good Standing......................................9
3.2 Authorization and Effect of Agreement...............................9
3.3 No Restrictions Against Sale of the Assets.........................10
3.4 Financial Statements...............................................10
3.5 Operation of the Business Since December 31, 2004..................10
3.6 Title to Assets; Licenses..........................................11
3.7 No Litigation......................................................11
3.8 Income and Other Taxes.............................................12
3.9 Employee Benefit Matters...........................................12
3.10 Governmental Approvals.............................................13
3.11 Assumed Contracts..................................................13
3.12 Employee and Labor Matters.........................................14
3.13 Principal Customers and Suppliers..................................14
3.14 Compliance with Law................................................14
3.15 Product Warranties.................................................15
3.16 Intellectual Property..............................................15
(a) Title.........................................................15
(b) Development...................................................15
(c) Transfer......................................................15
(d) No Infringement...............................................15
(e) Licensing Arrangements........................................16
(f) No Intellectual Property Litigation or Disputes...............16
(g) Due Registration, Etc.........................................16
(h) Use of Name and Xxxx..........................................17
(i) Protection of Information.....................................17
(j) Effect of Agreement...........................................17
3.17 Operation of the Business..........................................17
3.18 Brokers' Fees......................................................17
3.19 Disclosure.........................................................17
3.20 Transactions with Affiliates.......................................18
3.21 Capitalization of Seller...........................................18
3.22 No Liquidation or Winding-Up; Fairness of Consideration............18
3.23 Unregistered Securities............................................18
3.24 Risk of Loss.......................................................19
3.25 Investment Experience..............................................19
3.26 Disclosure.........................................................19
ARTICLE IV - Representations and Warranties of Purchaser.................19
4.1 Organization and Good Standing.....................................19
4.2 Execution and Delivery.............................................20
4.3 No Conflicts.......................................................20
4.4 Compliance with Law................................................20
4.5 No restrictions Against Purchase of the Assets.....................20
4.6 SEC Filings........................................................20
4.7 Absence of Material Adverse Change.................................21
4.8 No Litigation......................................................21
4.9 Valid Issuance of Stock Consideration..............................21
4.10 Capitalization of Purchaser........................................21
ARTICLE V - Additional Covenants.........................................21
5.1 Covenants of Seller................................................21
5.2 Covenants of Purchaser.............................................22
5.3 Expenses...........................................................22
5.4 Further Assurances.................................................22
5.5 Inconsistent Action................................................22
5.6 Employee Matters...................................................22
5.7 Assignments; Consents..............................................23
5.8 Sufficiency of Assets..............................................23
5.9 Waiver.............................................................24
5.10 Tax Assessment and Audits..........................................24
5.11 Restrictions on Transfer...........................................24
5.12 Legend.............................................................24
5.13 Prohibition on Short Sales.........................................25
ARTICLE VI - Conditions Precedent to Closing.............................25
6.1 Conditions of Purchaser............................................25
6.2 Conditions of Seller...............................................26
ARTICLE VII - Indemnification............................................27
7.1 Survival ..........................................................27
7.2 Indemnification....................................................27
7.3 Procedures.........................................................27
7.4 Third Party Claims.................................................28
7.5 Indemnification Exclusive..........................................29
ARTICLE VIII - General Provisions........................................29
8.1 Notices............................................................29
8.2 Severability.......................................................30
8.3 Entire Agreement...................................................30
8.4 Successors and Assigns.............................................30
8.5 Counterparts.......................................................30
8.6 Recitals, Schedules, Exhibits and Annexes..........................30
8.7 Construction.......................................................31
8.8 Governing Law......................................................31
8.9 Passage of Title and Risk of Loss..................................31
8.10 Bulk Sales.........................................................31
8.11 Records............................................................31
8.12 Arbitration........................................................31
INDEX OF EXHIBITS
Exhibit A Escrow Agreement
Exhibit B Noncompetition Agreement
Exhibit B-1 Noncompetition Agreement (Xxxxxxx)
Exhibit C $.50 Per Share Warrant
Exhibit C-1 $.75 Per Share Warrant
Exhibit D Seller's Counsel's Opinion
INDEX OF SCHEDULES
Schedule 3.6(a) - Liens
Schedule 3.6(b) - Licenses
Schedule 3.6(d) - Other Persons Who have rights/interests in Assets
Schedule 3.7 - Litigation
Schedule 3.9 - Employee Plans
Schedule 3.10(a) - Approvals
Schedule 3.10(b) - Exceptions to Transferability of Approvals
Schedule 3.11(a) - Assumed Contracts
Schedule 3.11(b) - Exceptions to enforceability/validity of Assumed Contracts
Schedule 3.12(a) - Labor Agreements
Schedule 3.12(a) and (b) - Obligations to continue employment/consultant
arrangements
Schedule 3.15 - Product Warranties
Schedule 3.16(a) - Intellectual Property
Schedule 3.1(c) - Exceptions to Transfer of Intellectual Property
Schedule 3.16(d) - Notice of Infringement
Schedule 3.16(e) - Licensing Arrangements
Schedule 3.16(f) - Intellectual Property Litigation or Disputes
Schedule 3.16(g) - Exceptions to Registration of Intellectual Property
Schedule 3.16(h) - Exceptions to use of Name and Xxxx
Schedule 3.17 - Operation of Business
Schedule 3.20 - Transactions with Affiliates
Schedule 3.21 - Capitalization of Seller
Schedule 4.5 - Restrictions Against Purchase of Assets
Schedule 5.6(a) - Employment of Xxxx Xxxxxxx-Xxxxxxx by eGames
ASSET PURCHASE AGREEMENT
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THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into as of
October 6, 2005 among eGAMES, INC., a Pennsylvania corporation ("Purchaser"),
CINEMAWARE, INC., a California corporation ("Seller"), and XXXX XXXXXXX-XXXXXXX,
the principal shareholder of Seller ("Shareholder").
RECITALS
A. Seller is presently engaged in the business of designing,
developing, distributing and selling interactive entertainment software products
for game platforms and the Internet.
B. Seller desires to Transfer (as hereinafter defined) to Purchaser,
and Purchaser desires to purchase from Seller, all of the assets owned or held
for use by Seller or used by Seller in connection with acquiring, designing,
developing, distributing, promoting and/or selling interactive entertainment
software products for various game platforms and the Internet (referred to
herein as the "Products" or the "Business"), other than the Excluded Assets (as
hereinafter defined), on the terms and subject to the conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
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Unless otherwise defined herein or the context otherwise requires, the
terms defined in this Article I shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined. Unless otherwise indicated, any reference
herein to a Section, Article, Exhibit or Schedule shall mean the applicable
section, article, annex or schedule of or to this Agreement. All accounting
terms used in this Agreement not defined in this Article I shall, except as
otherwise provided for herein, be construed in accordance with generally
accepted accounting principles, consistently applied.
"Action" shall mean any actual or threatened claim, action, suit,
arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by
or before any Person, Governmental Entity or arbitrator and any appeal from any
of the foregoing.
"Affiliate" of a Person shall mean any Person that directly or
indirectly controls, is controlled by, or is under common control with, the
indicated Person.
"Agreement" shall mean this Asset Purchase Agreement, together with all
Schedules and Exhibits hereto.
"Approvals" shall have the meaning given to such term in Section 2.1(d)
hereof.
"Assets" shall have the meaning given to such term in Section 2.1
hereof.
"Assumed Contract" shall have the meaning given to such term in Section
2.8(a) hereof.
"Assumed Liabilities" shall have the meaning given to such term in
Section 2.8 hereof.
"Balance Sheet Date" shall have the meaning given to such term in
Section 3.5 hereof.
"Business" shall have the meaning given to such term in the preamble of
this Agreement.
"Claim" shall have the meaning given to such term in Section 7.3
hereof.
"Claim Notice" shall have the meaning given to such term in Section 7.3
hereof.
"Closing" shall have the meaning given to such term in Section 2.5
hereof.
"Closing Date" shall have the meaning given to such term in Section 2.5
hereof.
"Closing Stock Payment" shall have the meaning given to such term in
Section 2.4(a) hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Contracts" shall have the meaning given to such term in Section 2.1(b)
hereof.
"Damages" shall mean any and all losses, liabilities, obligations,
costs, expenses, damages or judgments of any kind or nature whatsoever
(including reasonable attorneys', accountants' and experts' fees, disbursements
of counsel, and other costs and expenses incurred pursuing indemnification
claims under Article IX hereof).
"eGames Stock" shall have the meaning given to such term in Section 2.3
hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"ERISA Affiliate" shall mean any Person which is (or at any relevant
time was) a member of a controlled group of corporations within the meaning of
Code Section 414(b), all trades or businesses under common control within the
meaning of Code Section 414(c), and all affiliated service groups within the
meaning of Code Section 414(m), of which Seller is (or at any relevant time was)
a member.
"Escrow Account" shall have the meaning given to such term in Section
2.4(b) hereof.
"Escrow Agent" shall have the meaning given to such term in Section
2.4(b) hereof.
"Escrow Agreement" shall have the meaning given to such term in Section
2.4(b) hereof.
"Escrow Stock" shall have the meaning given to such term in Section
2.4(b) hereof.
"Exchange Act" shall have the meaning given to such term in Section 4.3
hereof.
"Excluded Assets" shall have the meaning given to such term in Section
2.2 hereof.
"$.50 Per Share Warrant" shall have the meaning given to such term in
Section 2.3 hereof and shall be in the form attached hereto as Exhibit C.
"Financial Statements" shall have the meaning given to such term in
Section 3.4(a) hereof.
"Governmental Entity" shall mean any local, state, federal or foreign
(i) court, (ii) government or (iii) governmental department, commission,
instrumentality, board, agency or authority, including, without limitation, the
IRS and other taxing authorities.
"Intellectual Property" shall have the meaning given to such term in
Section 2.1(c).
"Knowledge" shall mean (a) knowledge of any of the senior management of
Seller, including Xxxx Xxxxxxx, and (b) the knowledge that any of such persons
would be reasonably expected to have after making inquiry of those persons
employed by such party who would reasonably be expected to have knowledge of the
issue in question.
"Legal Requirement" shall mean any statute, law, ordinance, rule,
regulation, permit, order, writ, judgment, injunction, decree or award issued,
enacted or promulgated by any Governmental Entity or any arbitrator.
"Lien" shall mean all liens (including judgment and mechanics' liens,
regardless of whether liquidated), mortgages, assessments, security interests,
easements, claims, pledges, trusts (constructive or other), deeds of trust,
options or other charges, encumbrances or restrictions.
"Material Adverse Effect" shall mean any event, change or effect that
is (or could reasonably be expected to be) materially adverse to the Assets or
the Business or to Purchaser's ability to continue to operate the Business as
operated prior to the Closing.
"Noncompetition Agreements" shall mean the Noncompetition Agreements in
the forms attached hereto as Exhibit B and Exhibit B-1.
"Ordinary Course" shall mean, when used with reference to Seller, the
ordinary and normal course of the operation of the Business, consistent with
past practices.
"Owned Tangible Personal Property" shall have the meaning given to such
term in Section 2.1(a) hereof.
"Pennsylvania Law" shall mean the Pennsylvania Business Corporation
Law.
"Person" shall mean all natural persons, corporations, business trusts,
associations, companies, partnerships and joint ventures.
"Plan" shall mean any employee benefit plan within the meaning of
Section 3(3) of ERISA and any other written or oral employee plan (other than
arrangements merely involving the payment of wages) which are or at any time
have been established, maintained, or contributed to by Seller or any ERISA
Affiliate for the benefit of current or former employees, with respect to which
Seller or an ERISA Affiliate has or may in the future have any liability or
obligation to contribute or make payments of any kind.
"Products" shall have the meaning given to such term in the preamble of
this Agreement.
"Purchase Price" shall have the meaning given to such term in Section
2.3 hereof.
"Purchaser's Financial Statements" shall have the meaning given to such
term in Section 4.6(b) hereof.
"Retained Liabilities" shall have the meaning given to such term in
Section 2.9 hereof.
"Rule 144" shall have the meaning given to such term in Section 5.11
hereof.
"SEC" shall have the meaning given to such term in Section 4.6 hereof.
"SEC Filings" shall have the meaning given to such term in Section 4.6
hereof.
"$.75 Per Share Warrant" shall have the meaning given to such term in
Section 2.3 hereof and shall be in the form attached hereto as Exhibit C-1.
"Shareholder" shall have the meaning given to such term in the preamble
of this Agreement.
"Stock Consideration" shall have the meaning given to such term in
Section 2.3 hereof.
"Subsidiary of a Person" shall mean any corporation, partnership,
limited liability company, association or other business entity at least 50% of
the outstanding voting power of which is at the time owned or controlled
directly or indirectly by such Person or by one or more of such subsidiary
entities, or both.
"Tax" shall mean all taxes, including without limitation all Federal,
state, local or foreign income, gross receipts, license, payroll, unemployment,
excise, severance, stamp, occupation, premium, windfall profits, environmental
(including, without limitation, taxes under Code Section 59A), customs duties,
capital stock, franchise, profits, withholding, social security (or similar),
employment, disability, real property, personal property, ad valorem, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated tax or other tax, assessment or charge of any kind whatsoever, and any
interest, fine, penalty or addition thereto, whether disputed or not.
"Tax Return" shall mean any return, declaration, report, claim for
refund or information, or statement relating to Taxes, and any exhibit,
schedule, attachment or amendment thereto.
"Third Party Claim" shall have the meaning given to such term in
Section 7.3 hereof.
"Transfer" shall have the meaning given to such term in Section 2.1
hereof.
"Warrant Consideration" shall have the meaning given to such term in
Section 2.3 hereof.
ARTICLE II
PURCHASE AND SALE OF ASSETS
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2.1 Purchase and Sale of Assets. On the terms and subject to the
conditions hereof, at the Closing, Seller will sell, transfer, grant, convey,
assign and deliver ("Transfer") to Purchaser, and Purchaser will purchase and
accept from Seller, the rights, properties and assets owned by Seller in
connection with the operation or conduct of the Business as of the date hereof,
or acquired by Seller in connection with the operation of the Business between
the date hereof and the Closing Date, including, but not limited to, the rights,
properties and assets described in this Section 2.1 (collectively the "Assets"):
(a) Personal Property. The software, files, books and
records, and all other tangible personal property owned by Seller in connection
with the operation of the Business as of the date hereof or acquired by Seller
in connection with the operation of the Business between the date hereof and the
Closing Date, including those items listed or described on Schedule 2.1(a),
except for property excluded under Section 2.2 (collectively, the "Owned
Tangible Personal Property");
(b) Contract Rights. All rights and incidents of interest
of Seller existing as of the date hereof or acquired by Seller between the date
hereof and the Closing Date in, to or under all licenses, leases, agreements,
customer orders, contracts, written or verbal (including product warranty
claims, rebates and indemnity or other rights of action against any person
arising out of acts, omissions or occurrences before, at or after the Closing),
prepaid items, deposits and refunds relating to the Business, including those
items listed on Schedule 2.1(a) (collectively, the "Contracts");
(c) Intellectual Property. The entire right, title and
interest of Seller existing as of the date hereof or acquired by Seller between
the date hereof and the Closing Date in connection with the operation of the
Business or used by Seller in connection with the operation of the Business in,
to or under (i) all United States, international and foreign patents and
applications therefor and all reissues, divisions, renewals, extensions,
provisionals, continuations and continuations-in-part thereof, (ii) all
software, licenses, artwork, drawings and renderings, inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and customer
lists, and all documentation relating to any of the foregoing, (iii) all
copyrights, copyright registrations and applications therefor, and all other
rights corresponding thereto throughout the world, (iv) all industrial designs
and any registrations and applications therefor, (v) all trade names, logos,
common law trademarks and service marks, trademark and service xxxx
registrations and applications therefor, (vi) all databases and data collections
and all rights therein, (vii) Seller's list of customer prospects pertaining to
the Business, (viii) all moral and economic rights of authors, musicians,
composers and inventors, however denominated, and (ix) any similar or equivalent
rights to any of the foregoing (as applicable) (collectively, the "Intellectual
Property");
(d) Governmental Licenses, Permits and Approvals. To the
extent transferable, all rights and incidents of interest of Seller existing as
of the date hereof or acquired by Seller between the date hereof and the Closing
Date in, to or under all licenses, permits and authorizations (collectively, the
"Approvals") issued or requested to be issued by any Governmental Entity or
other board or agency (e.g. the Entertainment Software Rating Board) in
connection with the operation of the Business;
(e) Books and Records. Copies of all books, records,
ledgers, files, documents, correspondence, studies, reports and other documents
of Seller relating to the Business or the Assets; and
(f) Goodwill. The goodwill of the Business.
2.2 Excluded Assets. Notwithstanding anything contained in this
Agreement to the contrary, the following rights, properties and assets
(collectively, the "Excluded Assets") will not be included in the Assets: any
and all rights to future royalties that may be payable under (i) the May 28,
2004 agreement between Seller and Zoo Digital Publishing Ltd. relating to
exclusive distribution rights in certain territories for the Game Boy Advance
versions of Defender of the Crown and (ii) the April 8, 2004 agreement between
Bethesda Softworks LLC and Seller relating to a casino title for PS2 and Xbox
developed by Seller for Bethesda Softworks LLC.
2.3 Purchase Price. Purchaser will pay for the Assets and Business an
aggregate purchase price of (i) such number of shares of restricted common stock
of Purchaser (the "eGames Stock") equal to $300,000 divided by the average
closing "ask" quotation of a share of eGames Stock on the OTC BB for (i) the
five (5) trading days prior to the date of this Agreement and (ii) the five (5)
trading days ending one trading day prior to the Closing, but in no event less
than 600,000 shares or more than 855,000 shares (the "Stock Consideration"),
(ii) a warrant for the purchase of 150,000 shares of Purchaser's common stock at
an exercise price of $.50 per share (the "$.50 Per Share Warrant") and (iii) a
warrant for the purchase of 150,000 shares of Purchaser's common stock at an
exercise price of $.75 per share (the "$.75 Per Share Warrant"; together with
the $.50 Per Share Warrant, the "Warrant Consideration" and, together with the
Stock Consideration, the "Purchase Price").
2.4 Payment of Purchase Price. At the Closing (as defined in
Section 2.5):
(a) Purchaser shall pay to Seller two-thirds of the Stock
Consideration (the "Closing Stock Payment"), plus the Warrant Consideration.
(b) Purchaser shall deposit into an escrow account (the
"Escrow Account") the remaining one-third of the Stock Consideration (the
"Escrow Stock"), to be held and disbursed by Xxxxxx United Bank (or if Xxxxxx
United Bank is unable to serve, by another party appointed by the parties), as
escrow agent (the "Escrow Agent"). The Escrow Stock shall be held by the Escrow
Agent pursuant to an escrow agreement (the "Escrow Agreement"), in the form of
Exhibit A. The Escrow Stock will be subject to set-off for any indemnification
claims arising during the one-year period commencing on the date hereof.
The Escrow Agreement shall terminate one year after the date hereof, unless
there are any unresolved indemnification claims on such date pursuant to which
Purchaser may be entitled to all or a portion of the Escrow Stock. In the event
of any such unresolved claims or disputes, the Escrow Agreement will continue in
force, but any portion of the Escrow Stock which exceeds the amount for which a
claim has been made or a dispute exists shall be released to Seller. Seller's
liability for the claims identified in this Section 2.4(b), or any other claims
of Purchaser hereunder, shall not be limited to the Escrow Stock.
2.5 Closing. The purchase and sale of the Assets and the consummation
of the other transactions contemplated by this Agreement (the "Closing") shall
occur at 10:00 a.m., local time, on October 13, 2005 at the offices of
Purchaser or at such other time or on such other date as shall be agreed by
Seller and Purchaser upon fulfillment of all conditions precedent to the
Closing, such hour and date being herein generally referred to as the "Closing
Date." At the Closing:
(a) Seller shall deliver or cause to be delivered to
Purchaser, against payment by Purchaser to Seller of the Closing Payment:
(i) all of the agreements, documents, certificates and
instruments required to be delivered by Seller pursuant to Section 6.1 hereof.
(b) Purchaser shall deliver or cause to be delivered to
Seller against delivery of the agreements, documents, certificates and
instruments required to be delivered by Seller pursuant to Section 6.1:
(i) a certificate representing the Closing Stock
Payment;
(ii) the $.50 Per Share Warrant;
(iii) the $.75 Per Share Warrant; and
(iv) all of the documents, if any, required to be
delivered by Purchaser pursuant to Section 6.2 hereof.
2.6 Ad Valorem Tax Adjustment. All ad valorem Taxes imposed by any
taxing authority upon the Assets will be prorated between Seller and Purchaser
as of the Closing Date based on the most current available tax rates and
assessed values (such prorations to be adjusted when final rates and assessed
values are established). All such Taxes attributable to the period up to the
Closing Date and which remain unpaid as of the Closing Date shall be deducted
from the Purchase Price. All such Taxes, if any, attributable to the period
following the Closing Date and which have been paid by Seller prior to the
Closing Date shall be added to the Purchase Price. All adjustments to the
Purchase Price will be calculated as of 11:59 p.m. on the Closing Date.
2.7 Allocation of Purchase Price. The Purchase Price represents the
amount agreed upon by Purchaser and Seller to be the aggregate fair market value
of the Assets. Purchaser and Seller have agreed that the Purchase Price will be
allocated in accordance with Section 1060 of the Code on the basis of the actual
results of operations of Seller through the Closing Date. Purchaser and Seller
will allocate the Purchase Price to the Assets in such manner consistently for
all purposes, including in connection with all federal, foreign, state, local
and other Tax Returns and reports prepared and filed by or for either of
Purchaser or Seller.
2.8 Assumed Liabilities. On the terms and subject to the conditions
hereof, as of the Closing, Purchaser will assume only and thereafter in due
course pay, perform and discharge the following, and only the following,
liabilities and obligations of Seller (the "Assumed Liabilities"):
(a) all liabilities and obligations of Seller arising
under the terms of the Contracts that are included in the Assets and listed or
described on Schedule 3.11(a) (the "Assumed Contracts"), but only to the extent
such liabilities and obligations arise after the Closing Date (and are not based
on events occurring on or prior to the Closing Date) under the terms of such
Assumed Contracts, provided, however, that Purchaser will not assume or be
responsible for any such liabilities or obligations which arise under or in
relation to any Plan or from any breach or default by Seller under any Contract,
all of which liabilities and obligations will constitute Retained Liabilities
(as defined in Section 2.9);
(b) the obligation to provide customer support and
service through Seller's website as it relates to the Intellectual Property
purchased by Purchaser; and
(c) such liabilities and obligations as are listed on
Schedule 2.8(c).
2.9 Retained Liabilities. Except as provided in Section 2.8, Seller
will retain, and Purchaser will not assume or be responsible or liable with
respect to, any liabilities or obligations of Seller or its Affiliates or their
respective predecessors-in-interest, whether or not arising out of or relating
to the operation of the Business or associated with or arising from any of the
Assets or any other rights, properties or assets used in or associated with the
Business at any time, and whether fixed or contingent, direct or indirect, or
known or unknown, including, but not limited to, liabilities relating to
warranties and service obligations relating to the operation of the Business by
the Seller, liabilities for Taxes relating to the sale of the Assets and
liabilities with respect to any of Seller's employees (collectively the
"Retained Liabilities"). Except for the Assumed Liabilities, Seller agrees to
pay or discharge when due any and all liabilities of Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER
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Seller and Shareholder, jointly and severally, hereby represent and
warrant to, and covenant and agree with, Purchaser that as of the date hereof
and as of the Closing Date:
3.1 Organization and Good Standing.
(a) Seller has been duly organized and is existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation with full power and authority (corporate and other) to own and
lease its assets and properties and to conduct its business and the operation of
the Business as currently conducted. Seller has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under the
laws of each jurisdiction set forth on Schedule 3.1(a), such jurisdictions
comprising all jurisdictions in which Seller owns or leases any property, or
conducts any business, so as to require such qualification, except where any
failure to qualify would not have a Material Adverse Effect, as defined in
Article I.
(b) Except as set forth in Schedule 3.1(b), Seller has no
Subsidiary nor owns or controls, or has any other equity investment or other
interest in, directly or indirectly, any corporation, joint venture,
partnership, association or other entity.
3.2 Authorization and Effect of Agreement. Seller has the requisite
corporate power to execute and deliver this Agreement and, subject to obtaining
the approval of Seller's stockholders in accordance with applicable California
law, to perform the transactions contemplated hereby to be performed by Seller.
The execution and delivery by Seller of this Agreement and the performance by
Seller of the transactions contemplated hereby to be performed by Seller have
been duly and validly authorized by all necessary action on the part of Seller's
board of directors and no other corporate proceedings on the part of Seller are
necessary to authorize this Agreement and to consummate the transactions
contemplated hereby (other than the approval of this Agreement by Seller's
stockholders as required under applicable California law) and, if applicable,
holders of Seller's indebtedness. This Agreement has been duly executed and
delivered by Seller and, assuming the due execution and delivery of this
Agreement by Purchaser, constitutes a valid and binding obligation of Seller
enforceable in accordance with its terms.
3.3 No Restrictions Against Sale of the Assets. Except as listed or
described on Schedule 3.3, the execution and delivery of this Agreement by
Seller does not, and the performance by Seller of the transactions contemplated
hereby to be performed by it will not, conflict with, or result in any violation
of, or constitute a default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, (a) the certificate of
incorporation or bylaws of Seller, (b) any Legal Requirement to which Seller or
any of the Assets is subject, (c) any Contract or other material agreement,
instrument or obligation of Seller, or (d) any licenses of Seller. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity or any Person is required to be obtained or made
by or with respect to Seller under any Legal Requirement in connection with the
execution and delivery of this Agreement by Seller or the performance by Seller
of the transactions contemplated hereby to be performed by it.
3.4 Financial Statements.
(a) Schedule 3.4 hereto contains true and complete copies
of the unaudited balance sheets of Seller at December 31, 2003 and 2004, and the
related unaudited income statement for the years then ended (collectively, the
"Financial Statements").
(b) The Financial Statements fairly present, in all
material respects, the financial condition of the Seller and the Business as of
the dates indicated therein and the results of operations and changes in
financial position of the Seller and the Business for the periods specified
therein, have been prepared in conformity with Seller's past practices applied
on a consistent basis during the periods covered thereby and prior periods.
(c) The Seller has no liabilities or obligations which
would be required under Seller's past practices to be reflected on a balance
sheet of the Seller as of the date of this Agreement, except for liabilities and
obligations (i) incurred or arising in the ordinary course of business since
June 30, 2005, (ii) incurred or arising other than in the ordinary course of
business since June 30, 2005 and not, individually or in the aggregate,
material, or (iii) described on Schedule 3.4(c).
3.5 Operation of the Business Since December 31, 2004. Except as
described on Schedule 3.5, since December 31, 2004 (the "Balance Sheet Date"),
Seller has conducted the operation of the Business in the Ordinary Course, and,
other than has been disclosed to Purchaser on Schedule 3.5, no change has
occurred which materially and adversely affects the Assets or the condition
(financial or otherwise), results of operations or prospects of the Business,
nor, to Seller's knowledge, have any events occurred nor do there exist any
circumstances which might reasonably be expected to result, either before or
after the Closing Date, in any such change.
3.6 Title to Assets; Licenses.
(a) Seller has, and at Closing will have, good,
marketable and exclusive title to all of the Assets reflected on the Balance
Sheet as owned by Seller and all of the Assets acquired by Seller since the
Balance Sheet Date, in each case free and clear of all Liens except as set forth
on Schedule 3.6(a). Seller has the valid and enforceable power and unqualified
right to use and Transfer to Purchaser, the Assets.
(b) Schedule 3.6(b) contains a list of all licenses
relating to the Business under which Seller is the licensee, together with (i)
the nature of each of the licensed Assets, (ii) the termination date of each
such license, (iii) the name of the licensor, (iv) all payments made or required
to be made for the fiscal years ended December 31, 2003 and December 31, 2004,
and (v) all prepaid payments made thereunder. All licenses pursuant to which
Seller licenses property from others are valid, subsisting in full force and
effect in accordance with their respective terms, and there is not, under any
license, any existing default or event of default (or event that, with notice or
passage of time, or both, would constitute a default, or would constitute a
basis of force majeure or other claim of excusable delay or nonperformance).
Seller has the valid and enforceable right to use and Transfer to Purchaser
Seller's rights in and to the licensed Assets. True and complete copies of all
licenses listed on Schedule 3.6(b) have been delivered to Purchaser heretofore.
Except as set forth on Schedule 3.6(b), no such license will require the consent
of the licensor to, or as a result of, the consummation of the transactions
contemplated by this Agreement.
(c) The delivery to Purchaser at Closing of the
instruments of Transfer contemplated by this Agreement will vest in Purchaser
good, marketable and exclusive title to the Assets, free and clear of all Liens,
except for Liens listed or described on Schedule 3.6(a).
(d) Except as set forth in Schedule 3.6(d), no Person,
other than Seller, has any rights or interests in the Assets or the Business.
(e) The Assets include all of the assets, property and
rights, tangible or intangible, required by Purchaser to operate the Business,
as currently operated, and to produce, sell, distribute, maintain, design,
enhance and license, and design and develop derivatives of, the Products, or
derivatives thereof.
3.7 No Litigation. Except as set forth on Schedule 3.7, to Seller's
Knowledge, there is no outstanding judgment, order, decree, award, stipulation
or injunction of any Person, Governmental Entity or arbitrator against or Action
pending or, to Seller's Knowledge, threatened, against Seller relating to or
affecting the Business or the Assets or affecting Seller's ability to perform
its obligations under this Agreement or under any agreement or instrument
contemplated by this Agreement. Any Action for defective or allegedly defective
products or workmanship pending or threatened against Seller, and the details of
such Action, are described on Schedule 3.7.
3.8 Income and Other Taxes. Except as set forth on Schedule 3.8:
(a) All Tax Returns required to be filed through and
including the date hereof in connection with the operations of the Seller's
business are true, complete and correct in all respects and have been properly
and timely filed. Seller has not requested any extension of time within which to
file any Tax Return, which Tax Return has not since been filed. No Liens have
been imposed on or asserted against any of the Assets as a result of or in
connection with any failure to pay any Taxes;
(b) All Taxes required to be paid or withheld and
deposited through and including the date hereof in connection with the Business
have been duly and timely paid or deposited by Seller. Seller has properly
withheld or collected all amounts required by law for income Taxes and
employment Taxes relating to its employees, creditors, independent contractors
and other third parties, and for sales Taxes on sales, and has properly and
timely remitted such withheld or collected amounts to the appropriate
Governmental Entity. Seller has no liabilities for any Taxes for any taxable
period ending prior to or coincident with the Closing Date; and
(c) No Tax Return of Seller is currently being audited or
is the subject of other Action by any Governmental Entity. Seller has not
received any notice from any Governmental Entity of any pending examination or
any proposed deficiency, addition, assessment, demand for payment or adjustment
relating to or affecting Seller, the Business or the Assets and Seller has no
reason to believe that any Governmental Entity may assess (or threaten to
assess) any Taxes for any periods ending on or prior to the Closing Date.
3.9 Employee Benefit Matters. Schedule 3.9 contains a complete list
of all Plans. Each Plan and related trust, annuity, or other funding agreement
complies and has been maintained in compliance with all applicable Legal
Requirements. Purchaser is not assuming, and shall not be subject to, any
liabilities or obligations to Seller's employees as a result of the consummation
of the transactions contemplated by this Agreement. All contributions, premiums,
and other payments, including, without limitation, employer contributions and
employee salary reduction contributions, have been paid when due or accrued in
accordance with the past custom and practice of Seller and any ERISA Affiliate.
There are no pending or, to Seller's Knowledge, threatened Actions (other than
routine claims for benefits) asserted or instituted against any Plan or the
assets of any Plan, or against Seller, or ERISA Affiliate, trustee,
administrator, or fiduciary of such Plan, and Seller has no knowledge of any
facts that could form the basis of any such Action. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will constitute a termination of employment or other event entitling any
Person to any additional or other benefits, or that would otherwise modify
benefits or the vesting of benefits, provided under any Plan. No event has
occurred which could subject Seller or any ERISA Affiliate to any material
liability (i) under any Legal Requirement relating to any Plan, or (ii)
resulting from any obligation of Seller or an ERISA Affiliate to indemnify any
Person against liability incurred with respect to or in connection with any
Plan.
3.10 Governmental Approvals.
(a) Seller possesses, and is operating in compliance
with, all Approvals material to the operation of the Business. Schedule 3.10(a)
contains a true and complete list of all Approvals. Each Approval has been
lawfully and validly issued, and no proceeding is pending or, to Seller's
Knowledge, threatened looking toward the revocation, suspension or limitation of
any Approval. Each of the Approvals is in full force and effect, and Seller is
in compliance with all of the provisions of the Approvals.
(b) Except as set forth on Schedule 3.10(b), each of the
Approvals (i) is assignable by Seller to Purchaser as contemplated by the
Agreement and (ii) will be transferred to Purchaser by Seller's delivery to
Purchaser at Closing of the instruments of Transfer contemplated by this
Agreement and will thereafter remain in full force and effect. Except as set
forth on Schedule 3.10(b), no notice to or consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity or other third party is required to be obtained or made in connection
with the Transfer to Purchaser of the Approvals.
(c) The Approvals are all of the rights and
authorizations required by Legal Requirements for the operation of the Business.
All of the Approvals are owned or held by Seller free and clear of all Liens or
other encumbrances of any nature whatsoever.
(d) To Seller's Knowledge, Seller or Purchaser would be
able to renew all such Approvals by the terms thereof or in the ordinary course
of business without the need to comply with any special qualifications
procedures or to pay any amounts other than regular fees prescribed by law.
3.11 Assumed Contracts.
(a) Schedule 3.11(a) contains a true and complete list
and description of all Assumed Contracts, other than the Plans. True and
complete copies of all such Assumed Contracts have been delivered to Purchaser
heretofore.
(b) Except as described on Schedule 3.11(b), to Seller's
Knowledge:
(i) each Assumed Contract is legal, valid, binding,
enforceable and in full force and effect;
(ii) no event or condition has occurred or become
known to Seller or is alleged to have occurred that constitutes or, with notice
or the passage of time, or both, would constitute a default or a basis of force
majeure or other claim of excusable delay, termination, nonperformance or
accelerated or increased rights by Seller or any other Person under any of the
Assumed Contracts;
(iii) no person with whom Seller has a Assumed
Contract is in default thereunder or has failed to perform fully thereunder by
reason of force majeure or other claim of excusable delay, termination or
nonperformance thereunder;
(iv) none of the Assumed Contracts currently is subject
to renegotiation, either in whole or in part;
(v) no consent of any third party is required under any
Assumed Contract as a result of or in connection with, and the enforceability
of any Assumed Contract will not be affected in any manner by, the execution,
delivery and performance of this Agreement; and
(vi) no Assumed Contract has materially impaired or
will materially impair the ability of Seller to perform its obligations under
this Agreement.
3.12 Employee and Labor Matters.
(a) Schedule 3.12(a) contains a true and complete list of
all labor, collective bargaining, union and similar agreements under or by which
Seller is obligated, and true and complete copies of all such agreements have
been delivered to Purchaser heretofore.
(b) Except as set forth on Schedules 3.12(a) and 3.12(b),
to Seller's Knowledge neither Purchaser nor Seller will have any responsibility
for continuing any person in the employ (or retaining any person as a
consultant) from and after the Closing or have any liability for any severance
payments to or similar arrangements with any such Person.
(c) There is not occurring or, to Seller's Knowledge,
threatened, any strike, slow down, picket, work stoppage or other concerted
action by any union or other group of employees or other persons against Seller
or its products. Except for activities by the unions that are parties to any of
the agreements listed on Schedule 3.12(a) with respect to the existing members
of such unions, to Seller's knowledge, no union or other labor organization has
attempted to organize any of the employees of Seller engaged in the Business.
(d) Seller has complied with all Legal Requirements
relating to employment and labor, and, to Seller's Knowledge, no facts or
circumstances exist that could provide a reasonable basis for a claim of
wrongful termination by any current or former employee of Seller engaged in the
Business.
3.13 Principal Customers and Suppliers. Intentionally omitted.
3.14 Compliance with Law. Through and including the date hereof,
Seller (i) has not violated or operated the Business in violation of, and has
not used the Assets in violation of, any Legal Requirement, (ii) to Seller's
Knowledge, has not been alleged to be in violation of any Legal Requirement,
and (iii) has not received any notice of any alleged violation of, or any
citation for noncompliance with, any Legal Requirement.
3.15 Product Warranties. Except as set forth in Schedule 3.15 and
except for warranties with respect to Seller's ownership of the Intellectual
Property, (a) there are no warranties express or implied, written or oral, with
respect to the Business and (b) there are no pending or threatened claims with
respect to any such warranty, and Seller has no liability with respect to any
such warranty, whether known or unknown, absolute, accrued, contingent or
otherwise and whether due or to become due.
3.16 Intellectual Property.
(a) Title. Schedule 3.16(a) contains a complete and
correct list of all Intellectual Property that is owned by Seller and primarily
related to, used in, held for use in connection with, or necessary for the
conduct of, or otherwise material to the Business (the "Owned Intellectual
Property"). Seller owns or has the right to use pursuant to license, sublicense,
agreement or permission all Intellectual Property, including all Intellectual
Property Rights, free and clear of any Liens (except as set forth on Schedule
3.6(a)) and free from any requirement of any past, present or future royalty
payments, license fees, charges or other payments, or conditions or restrictions
whatsoever. The Intellectual Property comprises all of the Intellectual Property
and Intellectual Property Rights used in and/or necessary to the conduct and
operation of the Business as now being conducted by Seller or is currently
contemplated to be conducted.
(b) Development. Other than "shrink-wrap" and similar
widely available binary code and commercial end-user licenses, to the extent
that any Intellectual Property has been developed or created independently or
jointly by any Person other than Seller for which Seller has, directly or
indirectly, paid, Seller has a written agreement with such Person with respect
thereto, and Seller thereby has obtained ownership of, and is the exclusive
owner of, all such Intellectual Property and associated Intellectual Property
Rights by operation of law or by valid assignment. None of the Intellectual
Property was developed by or on behalf of or using grants or any other subsidies
of any governmental entity.
(c) Transfer. Except as set forth on Schedule 3.16(c),
immediately after the Closing, Purchaser will own all of the Owned Intellectual
Property and will have a right to use all other Intellectual Property, free and
clear of any Liens (except as set forth on Schedule 3.6(a)) and on the same
terms and conditions as in effect prior to the Closing.
(d) No Infringement. The operation of the Business does not,
and will not, when conducted by Purchaser, infringe or otherwise conflict with
any rights of any Person in respect of any Intellectual Property. Except as set
forth on Schedule 3.16(d), Seller has not received any notice from any Person
claiming that such operation or any act, product, technology or service of
Seller infringes or misappropriates the Intellectual Property of any Person (nor
does Seller have knowledge of any claims or any basis therefor). There have been
no assertions to Seller by any Persons relating to the invalidity or
unenforceability of any Intellectual Property. To Seller's Knowledge, none of
the Intellectual Property is being infringed or otherwise used or available for
use, by any other Person.
(e) Licensing Arrangements. Schedule 3.16(e) sets forth all
agreements, arrangements or laws (i) pursuant to which Seller has licensed
Intellectual Property to, or the use of Intellectual Property is otherwise
permitted (through non-assertion, settlement or similar agreements or otherwise)
by, any other Person and (ii) pursuant to which Seller has had Intellectual
Property licensed to it, or has otherwise been permitted to use Intellectual
Property (through non-assertion, settlement or similar agreements or otherwise).
All of the agreements or arrangements set forth on Schedule 3.16(e)(x) are in
full force and effect in accordance with their terms and no default exists
thereunder by Seller, or to Seller's Knowledge, by any other party thereto, (y)
are free and clear of all Liens, and (z) do not contain any change in control or
other terms or conditions that will become applicable or inapplicable as a
result of the consummation of the transactions contemplated by this Agreement.
The consummation of the transactions contemplated by this Agreement will neither
violate nor result in the breach, modification, cancellation, termination or
suspension of such arrangements and agreements. Seller has delivered to
Purchaser true and complete copies of all licenses and arrangements (including
amendments) set forth on Schedule 3.16(e). All royalties, license fees, charges
and other amounts payable by, on behalf of, to, or for the account of, the
Seller in respect of any Intellectual Property are disclosed in the Financial
Statements.
(f) No Intellectual Property Litigation or Disputes. No claim
or demand of any Person has been made nor is there any proceeding that is
pending, or to Seller's Knowledge threatened, nor is there a reasonable basis
therefor, which (i) challenges the rights of Seller in respect of any
Intellectual Property, (ii) asserts that Seller is infringing or otherwise in
conflict with, or is, except as set forth in Schedule 3.16(f), required to pay
any royalty, license fee, charge or other amount with regard to, any
Intellectual Property, or (iii) claims that any default exists under any
agreement or arrangement listed on Schedule 3.16(f). None of the Intellectual
Property is subject to any outstanding order, ruling, decree, judgment or
stipulation by or with any court, arbitrator, or administrative agency, or has
been the subject of any litigation within the last five years, whether or not
resolved in favor of Seller. Except as set forth in Schedule 3.16(f), there are
no contracts, licenses or agreements between Seller and any other Person with
respect to the Intellectual Property under which there is any dispute regarding
the scope of such agreement or performances under such agreement, including with
respect to any payments to be made or received by Seller thereunder.
(g) Due Registration, Etc. To the extent deemed necessary or
appropriate by Seller, the Owned Intellectual Property has been duly registered
with, filed in or issued by, as the case may be, the United States Patent and
Trademark Office, United States Copyright Office or such other filing offices,
domestic or foreign, and Seller has taken such other reasonable steps to ensure
full protection under any applicable laws or regulations, and such
registrations, filings, issuances and other actions remain in full force and
effect. Seller has no knowledge of any necessary steps to protect the
Intellectual Property which have not been taken, which if not taken would
jeopardize Seller's Rights to the Intellectual Property. In each case in which
Seller has acquired any Intellectual Property related to the Business from any
Person, Seller has obtained a valid and enforceable assignment sufficient to
irrevocably transfer all rights in such Intellectual Property to Seller and, to
the maximum extent provided for by, and in accordance with, applicable laws and
regulations, Seller has recorded each such assignment with the relevant
governmental authorities, including the PTO, the U.S. Copyright Office, or
respective equivalents in any relevant foreign jurisdiction, as the case may be.
(h) Use of Name and Xxxx. Except as set forth in Schedule
3.16(h), there are, and immediately after the Closing will be, no contractual
restriction or limitations pursuant to any orders, decisions, injunctions,
judgments, awards or decrees of any Governmental Authority on the Purchaser's
right to use the names and marks in the conduct of the Business as presently
carried on by Seller or as such Business may be extended by Purchaser.
(i) Protection of Information. Seller has taken reasonable
steps to protect Seller's rights in Seller's confidential information and trade
secrets that it wishes to protect or any trade secrets or confidential
information of third parties provided to Seller relating to the Business, and,
without limiting the foregoing, Seller has provided Purchaser with the offer
letters delivered to past employees of Seller. Seller has not had such employees
execute a formal confidential information agreement but has received no claims
from any employee of ownership in Seller's developed Products.
(j) Effect of Agreement. Neither this Agreement nor the
transactions contemplated by this Agreement, including the assignment to
Purchaser expressly, by operation of law or otherwise of any contracts or
agreements, will result in (i) Purchaser or Seller granting to any third party
any right to or with respect to any Intellectual Property owned by, or licensed
to, any of them, (ii) Purchaser being bound by, or subject to, any
non-competition or other material restriction on the operation or scope of its
businesses, or (iii) Purchaser being obligated to pay any royalties or other
material amounts to any third party in excess of those payable by Purchaser, in
the absence of this Agreement or the transaction contemplated hereby.
3.17 Operation of the Business. Except as set forth in Schedule 3.17,
(a) Seller has operated the Business only through Seller and not through any
other divisions or any direct or indirect subsidiary or affiliate of Seller and
(b) no part of the operation of the Business is operated by or through any
entity other than Seller.
3.18 Brokers' Fees. No broker, finder or similar agent has been
employed by or on behalf of Seller in connection with this Agreement or the
transactions contemplated hereby, and Seller has not entered into any agreement
or understanding of any kind with any person or entity for the payment of any
brokerage commission, finder's fee or any similar compensation in connection
with this Agreement or the transactions contemplated hereby.
3.19 Disclosure. No representation or warranty of Seller in this
Agreement and no information contained in any Schedule or other writing
delivered pursuant to this Agreement or at the Closing contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact required to make the statements herein or therein not misleading.
3.20 Transactions with Affiliates. Except as set forth on Schedule
3.20, there are no written or oral contracts or agreements between Seller and
its Affiliates relating to the Business.
3.21 Capitalization of Seller. The authorized capital stock of Seller
consists of 90,000,000 shares of common stock, of which 20,000,000 shares are
issued and outstanding, and 50,000,000 shares of Preferred Stock, 34,162,953 of
which are issued and outstanding. Additional Seller Common Stock is issuable
upon the exercise of (i) conversion rights of Preferred Stock, (ii) warrants
associated with the purchase of Preferred Stock, and (iii) conversion rights
associated with the Series A Debentures. Schedule 3.21 sets forth the names of
the holders of the Preferred Stock, options (other than employee options),
warrants and other rights exercisable for, or convertible into, shares of
Seller's capital stock and the number of shares of Seller's capital stock so
issuable.
3.22 No Liquidation or Winding-Up; Fairness of Consideration.
(a) No order has been made or petition presented, or
resolution passed for the winding-up or liquidation of Seller and there is not
outstanding: (i) any petition or order for the winding-up of Seller; (ii) any
appointment of a receiver over the whole or part of the undertaking of assets of
Seller; (iii) any petition or order for administration of Seller; (iv) any
voluntary arrangement between Seller and any of its creditors; (v) any distress
or execution or other process levied in respect of Seller which remains
undischarged; or (vi) any unfulfilled or unsatisfied judgment or court order
against Seller relating to the Business or the Assets.
(b) There are no circumstances which would entitle any Person
to present a petition for the winding-up or administration of Seller or to
appoint a receiver over the whole or any part of the Assets of Seller.
(c) Seller is not deemed unable to pay its debts within the
meaning of applicable law.
(d) Neither the execution and delivery of this Agreement nor
the performance of the transactions contemplated hereby will result in a
transfer which is fraudulent under California Code ss.3439 et seq.
(e) The operations of Seller have not been terminated.
(f) The consideration paid by Purchaser under this Agreement
for the Assets represents reasonably equivalent value for the Assets. Seller is
not entering into this Agreement with the intent to defraud, delay or hinder its
creditors and the consummation of the transactions contemplated by this
Agreement will not have any such effect.
3.23 Unregistered Securities. Seller understands that none of the
shares of Purchaser Common Stock issued as the Stock Consideration or issuable
pursuant to the Warrant Consideration has been registered under the Securities
Act of 1933 (the "Securities Act") or any state securities laws in reliance on
exemptions for private offerings; the shares of Purchaser Common Stock issued as
the Stock Consideration or issuable pursuant to the Warrant Consideration cannot
be resold or otherwise disposed of unless they are subsequently registered under
the Securities Act and applicable state securities laws or an exemption from
registration is available; the shares of Purchaser Common Stock issued as the
Stock Consideration or issuable pursuant to the Warrant Consideration will not
be, and Seller will have no rights to require that such shares of Purchaser
Common Stock be, registered under the Securities Act or any state securities
laws; there is no assurance that a public market for such shares of Purchaser
Common Stock will exist in the future; Seller may have to hold such shares of
Purchaser Common Stock indefinitely and it may not be possible for Seller to
liquidate its investment in Purchaser. None of Purchaser, its agents or
employees, or any other person, has represented, guaranteed or warranted to
Seller, expressly or by implication, the approximate or exact length of time
that Seller will be required to remain as owner of the shares of Purchaser
Common Stock.
3.24 Risk of Loss. Seller understands that its acquisition of the
shares of Purchaser Common Stock is a speculative investment which involves a
high degree of risk of loss, including the potential loss of its entire
investment in Purchaser.
3.25 Investment Experience. Seller is able to fend for itself,
can bear the economic risk of the investment and has such knowledge and
experience in financial or business matters, including investments in securities
that are restricted as to their transferability, that it is capable of
evaluating the merits and risks of the investment in the Purchaser Common Stock
and of making an informed investment decision. Seller has had prior business or
personal relationships with Purchaser or its officers or directors, by reason of
which it has the capacity to protect its interest in connection with the
investment.
3.26 Disclosure. All documents, records and other materials pertaining
to an investment in Purchaser, including the SEC Filings, which were requested
by Seller, have been made available or delivered to Seller. Seller has reviewed
and understands this Agreement and any Exhibits hereto and the SEC Filings,
including but not limited to the risk factors set forth in Purchaser's Annual
Report on Form 10-KSB for the fiscal year ended June 30, 2004, Quarterly Report
on Form 10-QSB for the fiscal quarter ended March 31, 2005, and additional
disclosures since March 31, 2005, and has had an opportunity to ask questions of
and receive answers from representatives of Purchaser concerning the terms and
conditions of the issuance of the shares of Purchaser Common Stock and the
financial condition and prospects of Purchaser, and to obtain any additional
information necessary to verify the accuracy of the information herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser hereby represents and warrants to, and covenants and agrees
with, Seller that:
4.1 Organization and Good Standing. Purchaser has been duly organized
and is existing as a corporation in good standing under the laws of the
Commonwealth of Pennsylvania with full corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby.
4.2 Execution and Delivery. This Agreement has been duly authorized by
all necessary corporate action on the part of Purchaser, has been duly executed
and delivered by Purchaser and constitutes the legal, valid and binding
agreement of Purchaser enforceable against Purchaser in accordance with its
terms.
4.3 No Conflicts. The execution, delivery and performance of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby will not conflict with or result in the violation of, or
result in any violation of, or constitute a default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material benefit
under, (a) the Articles of Incorporation or Bylaws of Purchaser, (b) any Legal
Requirement to which Purchaser is subject or (c) any instrument to which
Purchaser is a party. No consent, approval, order or authorization is required
in connection with the execution and delivery of this Agreement by Purchaser or
the performance of Purchaser of the transactions contemplated hereby to be
performed by it, except for applicable requirements, if any, of the Securities
Act, the Securities Exchange Act of 1934 (the "Exchange Act") and state
securities laws; provided that, all representations made to Purchaser by Seller
in this Agreement are assumed for purposes of this representation and warranty
to be accurate and complete.
4.4 Compliance with Law. Through and including the date hereof,
Purchaser (i) to Purchaser's knowledge, has not been alleged to be in violation
of any Legal Requirement, and (ii) has not received any notice of any alleged
violation of, or any citation for noncompliance with, any Legal Requirement.
4.5 No Restrictions Against Purchase of Assets. Except as listed or
described on Schedule 4.5, the execution and delivery of this Agreement by
Purchaser does not and the performance by Seller of the transactions
contemplated hereby to be performed by it will not, conflict with, or result in
any violation of, or constitute a default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, (a) the
articles of incorporation or bylaws of Purchaser, (b) any Legal Requirement to
which Purchaser is subject, (c) any material agreement of Purchaser, or (d) any
material licenses of Purchaser. No consent, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity is required
to be obtained or made by or with respect to Purchaser under any Legal
Requirement in connection with the execution and delivery of this Agreement by
Purchaser or the performance by Purchaser of the transactions contemplated
hereby to be performed by it.
4.6 SEC Filings. Purchaser has filed all forms, reports and documents
required to be filed with the Securities and Exchange Commission ("SEC") since
June 30, 2005 and has provided to Seller its (i) Annual Report on Form 10-KSB
for the fiscal year ended June 30, 2004, (ii) Quarterly Report on Form 10-QSB
for the fiscal quarter ended March 31, 2005 and (iii) its proxy statement
relating to its annual meeting of shareholders held on December 8, 2004
(collectively, the "SEC Filings"). The SEC Filings were prepared in accordance
with the requirements of the Exchange Act and did not at the time they were
filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
4.7 Absence of Material Adverse Change. Since June 30, 2005, no
change has occurred which materially and adversely affects the business of
Purchaser, nor do there exist any circumstances which might reasonably be
expected to result, either before or after the Closing Date, in any such change.
4.8 No Litigation. There is no outstanding judgment, order, decree,
award, stipulation or injunction of any Governmental Entity or arbitrator
against or any Action pending against Purchaser relating to the business of
Purchaser or affecting Purchaser's ability to perform its obligations under this
Agreement or under any agreement or instrument contemplated by this Agreement.
4.9 Valid Issuance of Stock Consideration. The shares of Purchaser
Common Stock issued as the Stock Consideration and issuable pursuant to the
Warrant Consideration, when issued, sold and delivered to Seller, in accordance
with the terms hereof, for the consideration described herein, will be duly
authorized and validly issued, fully paid and nonassessable. Subject to the
accuracy of the representations and warranties of Seller contained in Sections
3.23 through 3.26 hereof, the offer, issuance and sale by Purchaser to Seller of
the shares of Purchaser Common Stock issued as the Stock Consideration and
issuable pursuant to the Warrant Consideration is exempt from the registration
requirements of the Securities Act and applicable state securities laws.
4.10 Capitalization of Purchaser. The authorized capital stock of
Purchaser consists of 40,000,000 shares of Purchaser Common Stock, of which
11,138,654 shares are issued and 10,906,754 are outstanding, and 10,000,000
shares of Preferred Stock, none of which are issued and outstanding. An
additional 1,479,666 shares of Purchaser Common Stock are issuable upon the
exercise of outstanding options and warrants.
ARTICLE V
ADDITIONAL COVENANTS
--------------------
5.1 Covenants of Seller and Shareholder. Seller and Shareholder
jointly and severally agree to:
(a) use their best efforts to obtain (and to cooperate with
Purchaser in obtaining) any consent, authorization or approval of, or exemption
by, any Person required to be obtained or made by Seller in connection with the
transactions contemplated by this Agreement; and
(b) use their best efforts to bring about the satisfaction of
the conditions precedent to Closing set forth in Article VI of this Agreement;
5.2 Covenants of Purchaser. Purchaser agrees to use its best efforts
to bring about the satisfaction of the conditions precedent to Closing set forth
in Section 6.2 of this Agreement.
5.3 Expenses. All costs and expenses (including, without limitation,
all legal fees and expenses and fees and expenses of any brokers, finders or
similar agents) incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring the same.
5.4 Further Assurances.
(a) Subject to the terms and conditions of this Agreement,
each of the parties hereto agrees to use its best efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable Legal Requirements, to consummate and make
effective the transactions contemplated by this Agreement.
(b) If at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, Seller,
Shareholder and Purchaser, and the proper officers or directors of Seller and
Purchaser, as the case may be, shall take or cause to be taken all such
necessary or convenient action and execute, and deliver and file, or cause to be
executed, delivered and filed, all necessary or convenient documentation.
5.5 Inconsistent Action. Neither Seller nor Shareholder shall take or
cause or suffer to be taken, any action that would cause any of the
representations or warranties of Seller and Shareholder in this Agreement to be
untrue, incorrect, incomplete or misleading.
5.6 Employee Matters.
(a) Seller acknowledges and agrees that after the Closing (a)
except as set forth on Schedule 5.6(a), neither Purchaser nor Seller shall be
required to employ or retain any employee of Seller or any other Person, and (b)
Purchaser, in its sole and absolute discretion, may hire all, some, or none of
the Employees.
(b) Except to the extent expressly included in Assumed
Liabilities or in another paragraph of this Section 5.6, Purchaser does not, and
shall not, assume or be responsible for any obligation or liability arising out
of any employment relationship of Seller, and without limiting the foregoing,
Purchaser shall have no liability or obligation in connection with current or
former employees or agents of Seller or any dependent or beneficiary of any of
them by reason of their relationship to Seller. Without limiting the foregoing,
Seller shall remain liable for, and shall pay on or before the Closing, the
following in connection with current or former employees or agents of Seller (or
any dependent or beneficiary of them):
(i) unpaid wages, salaries or other compensation;
(ii) contributions to or payments under employee benefit
plans, programs, policies, arrangements or understandings;
(iii) accrued, but unused, holiday, sick leave and
severance pay, if any;
(iv) liabilities or obligations under any collective
bargaining agreement or bargaining relationship;
or
(v) claims, demands, administrative proceedings or suits
arising out of, or in connection with, alleged unlawful employment practices of
Seller.
(c) Seller shall remain responsible for all liabilities and
obligations in connection with claims for post-employment medical, vision and
dental benefits that may be required under IRC Section 4980B made by or in
respect of any employee of Seller whose employment terminated on or prior to the
Closing Date and any "qualified beneficiary" (within the meaning of IRC Section
4980B) of any such employee who is receiving post-employment medical and dental
benefits or whose "qualifying event" (within the meaning of IRC Section 4980B)
entitling such individual to such benefits occurred on or before the Closing
Date.
5.7 Assignments; Consents. To the extent that the assignment of any
Contract, license or other agreement or arrangement or any claim, right or
benefit arising thereunder or resulting therefrom is not permitted without the
consent of a third party, this Agreement shall constitute an agreement to assign
such Contract, license or other agreement or arrangement, subject only to such
consent; and any transfer or assignment to Purchaser by Seller of any interest
under any such Contract, license or other agreement or arrangement that requires
the consent of a third party shall be made subject to such consent or approval
being obtained. In the event any such consent or approval is not obtained on or
prior to the Closing Date, Seller shall continue to use its best efforts to
obtain any such approval or consent after the Closing Date until such time as
such consent or approval has been obtained, and Seller will cooperate with
Purchaser in any lawful and economically feasible arrangement to provide that
Purchaser shall receive the interest of Seller in the benefits under any such
Contract, license or other agreement or arrangement, including performance by
Seller, as agent, if economically feasible, provided that Purchaser shall
undertake to pay or satisfy the corresponding liabilities for the enjoyment of
such benefit to the extent Purchaser would have been responsible therefor
hereunder if such consent or approval had been obtained. Seller shall pay and
discharge, and shall indemnify and hold Purchaser harmless from and against, any
and all out-of-pocket costs of seeking to obtain or obtaining any such consent
or approval whether before or after the Closing Date. Nothing in this Section
5.7 shall be deemed a waiver by Purchaser of its right to have received on or
before the Closing an effective assignment of all of the Assets nor shall this
Section 5.7 be deemed to constitute an agreement to exclude from Purchaser any
of the Assets described under Section 2.1.
5.8 Sufficiency of Assets. Following the Closing, if Purchaser
determines that Seller has failed to Transfer to Purchaser any assets,
properties or rights, tangible or intangible, except for the Excluded Assets,
necessary for Purchaser to operate the Business as currently operated, and to
produce, sell, distribute, maintain, design, enhance and license, and design and
develop derivatives of, the Products, or derivatives thereof, Seller shall
promptly take all actions as shall be necessary, or otherwise reasonably
requested by Purchaser, to transfer such assets, properties and rights to
Purchaser.
5.9 Waiver. Any term or provision of this Agreement may be waived in
writing at any time by the party or parties entitled to the benefits thereof.
Any waiver effected pursuant to this Section 5.9 shall be binding upon all
parties hereto. No failure to exercise and no delay in exercising any right,
power or privilege shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude the exercise of any
other right, power or privilege. No waiver of any breach of any covenant or
agreement hereunder shall be deemed a waiver of any preceding or subsequent
breach of the same or any other covenant or agreement. The rights and remedies
of each party under this Agreement are in addition to all other rights and
remedies, at law or in equity, that such party may have against the other
parties.
5.10 Tax Assessments and Audits. Seller shall furnish promptly to
Purchaser a copy of all notices of proposed assessment or similar notices or
reports that are received from any taxing authority and which relate to the
Business or the Assets for periods ending on or prior to the Closing Date.
5.11 Restrictions on Transfer. Seller agrees that it will not sell or
otherwise transfer any of the shares of Purchaser Common Stock issued as the
Stock Consideration or issuable pursuant to the Warrant Consideration to any
Person who is not an "accredited investor" as defined under Rule 501 promulgated
under the Securities Act, without an exemption from registration under the
Securities Act, and that Seller fully understands and agrees that Seller must
bear the economic risk of the purchase because, among other reasons, none of the
shares of Purchaser Common Stock issued as the Stock Consideration or issuable
pursuant to the Warrant Consideration have been registered under the Securities
Act or under the securities laws of any state and, therefore, cannot be resold,
pledged, assigned or otherwise disposed of unless subsequently registered under
the Securities Act and under the applicable securities laws of such states or an
exemption from such registration is available. In particular, Seller is aware
that the shares are "restricted securities," as such term is defined in Rule 144
promulgated under the Securities Act ("Rule 144"), and may not be sold pursuant
to Rule 144 unless all of the conditions of Rule 144 are met. Seller also
understands that Purchaser is under no obligation to register any of the shares
of Purchaser Common Stock on Seller's behalf or to assist Seller in complying
with any exemption from registration under the Securities Act or applicable
state securities laws. Seller further understands that sales or transfers of the
shares of Purchaser Common Stock are further restricted by state securities laws
and the provisions of this Agreement.
5.12 Legend. Seller understands and agrees that the certificates for
the shares of the Purchaser Common Stock issued as the Stock Consideration or
issuable pursuant to the Warrant Consideration shall bear the following legend,
or a similar legend to the same effect, until (i) the shares shall have been
registered under the Securities Act and effectively been disposed of in
accordance with a registration statement that has been declared effective; or
(ii) in the opinion of counsel for Purchaser such shares may be sold without
registration under the Securities Act and any applicable "Blue Sky" or state
securities laws:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ALL
SUCH SECURITIES ARE SUBJECT TO RESTRICTIONS ON THE TRANSFERABILITY AS SET FORTH
IN THIS CERTIFICATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL, REASONABLY
ACCEPTABLE TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE,
TRANSFER, OR DISPOSITION MAY BE EFFECTUATED WITHOUT REGISTRATION UNDER THE ACT."
5.13 Prohibition on Short Sales. Seller, its Affiliates and Seller's
and its Affiliates' respective officers, directors, shareholders, employees and
agents agree that they will not, during the period following the execution of
this Agreement and prior to the Closing, directly or indirectly sell any equity
security, including derivatives of Purchaser if he, she or it (i) does not own
the security sold or (ii) if he, she or it owns the security, does not deliver
it against such sale (a "short sale against the box") within twenty days
thereafter, or does not within five days after such sale deposit it in the mails
or other usual channels of transportation. Seller, its Affiliates and Seller's
and its Affiliates' respective officers, directors, shareholders, employees and
agents also agree, during such period, not to engage in short sales or any
transaction involving a collar with respect to Purchaser's shares. A short sale,
as defined in this Agreement, means any transaction whereby one may benefit from
a decline in the Purchaser's stock price.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
-------------------------------
6.1 Conditions of Purchaser. Notwithstanding any other provision of
this Agreement, the obligations of Purchaser to consummate the transactions
contemplated hereby shall be subject to the satisfaction, at or prior to the
date hereof, of the following conditions:
(a) There shall not be instituted and pending or threatened
any Action before any Governmental Entity (i) challenging or otherwise seeking
to restrain or prohibit the consummation of the transactions contemplated hereby
or (ii) seeking to prohibit the direct or indirect ownership or operation by
Purchaser of all or a material portion of the Business or Assets, or to compel
Purchaser or Seller to dispose of or hold separate all or a material portion of
the Business or Assets of Seller or Purchaser;
(b) The representations and warranties of Seller in this
Agreement shall be true and correct as of the date of this Agreement and shall
be true and correct in all material respects (or in all respects in the case of
any representation or warranty subject to a materiality qualification) on and as
of the date hereof, except for those representations and warranties which
address matters only as of a particular date (which shall be true and correct as
of such date) and Seller shall have complied with all covenants and agreements
and satisfied all conditions on Seller's part in this Agreement or any Ancillary
Agreement to be performed or satisfied on or prior to the date hereof, and
Seller shall have provided Purchaser with a certificate with respect to the
foregoing signed by an authorized officer of Seller;
(c) Purchaser shall have received from counsel for Seller, a
written opinion dated the date hereof and addressed to Purchaser, in
substantially the form attached as Exhibit D hereto;
(d) Purchaser shall have received from the President of
Seller a certificate dated the date hereof to the effect that the conditions set
forth in Section 6.1(b) have been satisfied and that Seller's Board of Directors
and the stockholders of Seller have approved the Agreement and the transactions
contemplated hereby;
(e) Purchaser will have received such bills of sale,
assignments, certificates of title and other instruments of transfer (the
"Transfer Documents") duly executed by Seller, in such forms and covering such
matters as Purchaser may reasonably request, Transferring the Assets to
Purchaser;
(f) Seller and Shareholder shall each have entered into and
delivered to Purchaser the Noncompetition Agreements.
(g) Purchaser shall have concluded (through its
representatives, accountants, counsel and other experts) an investigation of the
condition (financial and other), results of operations, properties, assets,
prospects and operations of the Business and shall be satisfied, in its sole
discretion, with the results thereof;
(h) All corporate and other proceedings and actions taken in
connection with the transactions contemplated hereby and all certificates,
opinions, agreements, instruments, releases and documents referenced herein or
incident to the transactions contemplated hereby shall be in form and substance
satisfactory to Purchaser and its counsel;
(i) All consents and assignments from third parties,
including from any Governmental Entity or other Person, relating to the
Contracts or the conduct and operation of the Business as currently conducted
and operated, shall have been obtained;
(j) No act, event or condition shall have occurred after the
date hereof which Purchaser determines has had or could have a Material Adverse
Effect on the Business or the Assets;
(k) The Board of Directors and stockholders of Seller shall
have authorized and approved this Agreement and the transactions contemplated
hereby;
(l) Seller, Purchaser and the Escrow Agent shall have entered
into the Escrow Agreement.
6.2 Conditions of Seller. Notwithstanding any other provision of this
Agreement, and except as set forth below, the obligations of Seller to
consummate the transactions contemplated hereby shall be subject to the
satisfaction, at or prior to the date hereof, of the conditions set forth in
subsections (a) and (l) of Section 6.1 of this Agreement, and the condition that
the representations and warranties of Purchaser in this Agreement shall be true
and correct as of the date hereof in all material respects (or in all respects
in the case of any representations or warranty subject to a materiality
qualification) and Purchaser shall have complied with all covenants and
agreements and satisfied all conditions on its part to be performed or satisfied
on or prior to the date hereof, and Purchaser shall have provided Seller with a
certificate with respect to the foregoing signed by an authorized officer of
Purchaser.
ARTICLE VII
INDEMNIFICATION
---------------
7.1 Survival. Notwithstanding any investigation conducted at any time
with regard thereto by or on behalf of Purchaser, the representations and
warranties of Seller hereto contained in this Agreement or in any Exhibit or
Schedule hereto shall survive the Closing and the consummation of the
transactions contemplated hereby (and any examination or investigation by or on
behalf of any party hereto); provided, however, that (i) the representations and
warranties contained in Sections 3.1, 3.3 and 3.6, and the related claims for
indemnification, shall survive until the fifth anniversary of the Closing Date;
(ii) the representations and warranties contained in Section 3.8, and the
related claims for indemnification, shall survive until sixty (60) days after
the expiration of the applicable statute of limitations, and (iii) all other
representations and warranties, and related claims for indemnification, shall
survive until the second anniversary of the Closing Date. The termination of the
representations and warranties provided herein shall not affect the rights of a
party in respect of any claim made by Purchaser prior to the expiration of the
applicable survival period. The agreements and covenants contained in this
Agreement shall survive the Closing Date indefinitely or in accordance with
their terms, if any.
7.2 Indemnification. Seller and Shareholder jointly and severally
covenant and agree to defend, indemnify and hold harmless Purchaser, its
officers, directors, shareholders, accountants, attorneys and agents from and
against any Damages arising out of or resulting from: (i) any inaccuracy in or
breach of any representation or warranty made by Seller or Shareholder in this
Agreement or in any writing delivered pursuant to this Agreement or at the
Closing; (ii) the failure of Seller or Shareholder to perform or observe fully
any covenant, agreement or provision to be performed or observed by Seller or
Shareholder pursuant to this Agreement; or (iii) Purchaser's waiver of any
applicable bulk sales laws. Notwithstanding anything contained in this Section
7.2, Purchaser hereby agrees that Shareholder's indemnity obligations under this
Agreement shall be limited to (i) Claims that relate to matters arising after
the formation of Seller on February 29, 2000 and that relate solely to the
matters covered by Sections 3.6, 3.16 and 3.22 hereof, and (ii) an aggregate of
$75,000 in Damages.
7.3 Procedures. If Purchaser seeks indemnification under this Article
VII, it shall give notice ("Claim Notice") to Seller and Shareholder of the
basis of the claim (the "Claim") (i) within a reasonable time after discovery of
the facts and (ii) in any event, within the time periods set forth in Section
7.1, provided that the failure to give such notice shall not relieve Seller of
any liability hereunder except to the extent that Seller and Shareholder are
materially adversely prejudiced by such failure. Seller shall give notice to
Purchaser within thirty (30) days after receipt of the notice requested by this
Section 7.3 advising whether it (i) acknowledges its obligation to indemnify
Purchaser or (ii) disputes its obligation to indemnify Purchaser. If Seller
acknowledges its indemnification obligation with respect to the Claim, and (i)
such Claim is based upon an asserted liability or obligation to a person or
entity that is not a party to this Agreement (a "Third Party Claim"), Seller
shall have the right to defend or settle such Third Party Claim or (ii) if such
Claim is not a Third Party Claim, Purchaser shall be entitled to immediate
satisfaction of such Claim. If Seller does not notify Purchaser within fifteen
(15) business days following receipt of notice of a Claim that is not a Third
Party Claim that it disputes such Claim, such Claim shall be deemed a liability
of Seller and Seller shall pay the amount of the Claim on demand by Purchaser,
or in the case of any notice in which the amount of the Claim is estimated, on
such later date when the amount of the Claim is finally determined. If Seller
disputes the Claim in a timely manner as set forth herein, Seller and Purchaser
shall proceed in good faith to negotiate a resolution of the dispute, or, if
necessary, to resolution of the dispute in a manner determined by the parties or
by any other means elected by Purchaser.
7.4 Third Party Claims.
(a) Seller and Shareholder shall have thirty (30) days after
receipt of the Claim Notice to undertake, conduct and control, through counsel
satisfactory to Purchaser, and at Seller's expense, the settlement or defense of
a Third Party Claim, and Purchaser shall cooperate with Seller and Shareholder
in connection therewith, provided that (i) Seller shall permit Purchaser to
participate in such settlement or defense through counsel chosen by Purchaser,
provided that the fees and expenses of such counsel shall not be borne by
Seller, and (ii) neither Seller nor Shareholder shall settle any Third Party
Claim without Purchaser's consent. So long as Seller and Shareholder are
vigorously contesting any such Third Party Claim in good faith, Purchaser shall
not pay or settle such claim without Seller's and Shareholder's consent, which
consent shall not be unreasonably withheld, conditioned or delayed.
Notwithstanding the foregoing, if Seller assumes control of such defense, and
there exists a conflict of interest between the interests of Seller and those of
Purchaser with respect to such Third Party Claim as determined by Purchaser in
the exercise of its reasonable business judgment, Purchaser may retain counsel
satisfactory to it and the reasonable fees and expenses of such counsel to
Purchaser shall be paid by Seller.
(b) If Seller does not notify Purchaser within thirty days
after receipt of the Claim Notice that it elects to undertake the defense of the
Third Party Claim described therein, Purchaser shall have the right to contest,
settle or compromise the Third Party Claim in the exercise of its reasonable
discretion, on behalf of and for the account and risk of Seller; provided that
Purchaser shall notify Seller of any compromise or settlement of any such Third
Party Claim.
(c) Seller shall not be entitled to assume the defense for
any Third Party Claim (and shall be liable for the reasonable fees and expenses
incurred by Purchaser in defending such claim) if the Third Party Claim seeks an
order, injunction or other equitable relief or relief for other than money
damages against Purchaser which Purchaser determines, after conferring with its
counsel, cannot be separated from any related claim for money damages and which,
if successful, would adversely affect the Assets or the Business, properties or
prospects of the Business.
7.5 Indemnification Exclusive. Except as provided herein, the
foregoing indemnification provisions shall be the sole and exclusive remedy
after the Closing Date for money damages available to Purchaser for breach of
any representations, warranties or covenants contained herein, but shall not
limit any other remedy to which Purchaser may be entitled. Nothing in this
Agreement shall be construed as limiting in any way the remedies that may be
available to Purchaser in the event of fraud relating to the representations,
warranties or covenants made by Seller in this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
------------------
8.1 Notices. All notices and other communications under or in
connection with this Agreement shall be in writing and shall be deemed given (a)
if delivered personally (including by overnight express or messenger), upon
delivery, (b) if delivered by registered or certified mail (return receipt
requested), upon the earlier of actual delivery or three days after being
mailed, or (c) if given by telecopy, upon confirmation of transmission by
telecopy, in each case to the parties at the following addresses:
(a) If to the Purchaser, addressed to:
eGames, Inc.
0000 Xxxxx Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxxxx 00000-0000
Attention: President and Chief Executive Officer
Facsimile: (000) 000-0000
With a copy to:
XxXxxxxxxx, Keen & Xxxxxxx
Radnor Court, Suite 160
000 X. Xxxxxx-Xxxxxxx Xxxx
Xxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxx, Esquire
Facsimile: (000) 000-0000
(b) If to Seller, addressed to:
Xxxxx Xxxxxx
c/o W. Xxxxxxx Xxxxxx, Esquire
The City Hotel
000 Xxxxx Xxxxxxxxxx Xxxxxx, Xxxxx X
Xxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
(c) If to Shareholder, addressed to:
Xxxx Xxxxxxx-Xxxxxxx
W. Xxxxxxx Xxxxxx, Esquire
The City Hotel
000 Xxxxx Xxxxxxxxxx Xxxxxx, Xxxxx X
Xxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
With a copy to:
W. Xxxxxxx Xxxxxx, Esquire
The City Hotel
000 Xxxxx Xxxxxxxxxx Xxxxxx, Xxxxx X
Xxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
8.2 Severability. If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable such term or provision in any
other jurisdiction, the remaining terms and provisions of this Agreement or the
application of such terms and provisions to circumstances other than those as to
which it is held invalid or enforceable.
8.3 Entire Agreement. This Agreement, including the annexes and
schedules attached hereto and other documents referred to herein, contains the
entire understanding of the parties hereto in respect of its subject matter and
supersedes all prior and contemporaneous agreements and understandings, oral and
written, between the parties with respect to such subject matter.
8.4 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of Purchaser, Seller and Shareholder and their respective
successors, heirs and assigns; provided, however, that Seller shall not directly
or indirectly transfer or assign any of Seller's rights or obligations hereunder
in whole or in part without the prior written consent of Purchaser. Subject to
the foregoing, this Agreement is not intended to benefit, and shall not run to
the benefit of or be enforceable by, any other person or entity other than the
parties hereto and their permitted successors and assigns.
8.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same Agreement.
8.6 Recitals, Schedules, Exhibits and Annexes. The recitals,
schedules, exhibits and annexes to this Agreement are incorporated herein and,
by this reference, made a part hereof as if fully set forth at length herein.
8.7 Construction.
(a) The article, section and subsection headings used herein
are inserted for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
(b) As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural, shall be deemed to include the others
whenever and wherever the context so requires.
(c) For the purposes of this Agreement, unless the context
clearly requires, "or" is not exclusive.
8.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts)
of the Commonwealth of Pennsylvania.
8.9 Passage of Title and Risk of Loss. Legal title, equitable title
and risk of loss with respect to the Assets will not pass to Purchaser until
such Assets are Transferred at the Closing, which transfer, once it has
occurred, will be deemed effective for tax, accounting and other computational
purposes as of 11:59 P.M. (Eastern Time) on the Closing Date.
8.10 Bulk Sales. Purchaser hereby waives compliance by Seller with the
provisions of the bulk sales laws of any jurisdiction, if applicable, provided
that Seller agrees to indemnify Purchaser for claims of creditors of Seller with
respect to liabilities not expressly assumed by Purchaser pursuant to this
Agreement.
8.11 Records. Notwithstanding Section 2.1(e), Seller shall deliver to
Purchaser copies of any financial, tax and personnel records pertaining to the
Assets and Business and retain all originals, and Seller shall give Purchaser
reasonable access to any original records for inspection and copying upon
reasonable prior notice during regular business hours. Seller shall maintain all
such original records at its expense for a period of at least six years after
the Closing Date, and prior to any destruction thereafter, shall give at least
90 days prior written notice to Purchaser, which may take possession of the
original records designated for destruction, and any failure to do so before the
expiration of such 90-day notice shall be deemed Purchaser's authorization to
carry out such destruction. Purchaser shall permit Seller to have reasonable
access to the records of Seller delivered to Purchaser pursuant to section
2.1(e) for inspection or copying upon reasonable prior notice during regular
business hours for use in the defense of any litigation, tax audit or if it is
necessary for Seller to consult such records of which Seller does not have
copies.
8.12 Arbitration. Except for any claims under this Agreement that may
only be enforced by a court of equity, including this Section 8.12, in the event
of any dispute between Purchaser, Seller and Shareholder pursuant to this
Agreement, which Purchaser, Seller and Shareholder are unable to resolve, such
dispute shall be settled by arbitration to be held in Philadelphia, Pennsylvania
in accordance with the rules of the American Arbitration Association then
obtaining, and the rules of civil procedure of the Commonwealth of Pennsylvania
as to discovery issues shall also apply. The determination of the arbitrator(s)
shall be delivered in writing to Purchaser, Seller and/or Shareholder, and shall
be final, binding and conclusive upon all the parties. The award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, or has caused this Agreement to be executed on its behalf by a
representative duly authorized, all as of the date first above set forth.
PURCHASER:
eGAMES, INC.
By: /s/ Xxxxxx X. Xxxxx
Name: Xxxxxx X. Xxxxx
Title:President and CEO
SELLER:
CINEMAWARE, INC.
By: /s/ Xxxx Xxxxxxx-Xxxxxxx
Name: Xxxx Xxxxxxx-Xxxxxxx
Title:President
SHAREHOLDER:
/s/ Xxxx Xxxxxxx-Xxxxxxx
Xxxx Xxxxxxx-Xxxxxxx
