SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): December 22, 1998
TAKE-TWO INTERACTIVE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-29230 51-0350842
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
575 Broadway, New York, New York 10012
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212)941-2988
Not Applicable
Former name or former address, if changed since last report
Item 5. Other Events
Acquisition of Talonsoft, Inc.
In December 1998, we acquired all of the outstanding capital stock of
Talonsoft, Inc. ("Talonsoft"), a corporation engaged in the business of
developing software games. We issued an aggregate of 1,033,336 shares of Common
Stock to the shareholders of Talonsoft, granted certain registration rights with
respect to 258,334 of such shares and entered into employment agreements with
John Davidson and James Rose, former shareholders of Talonsoft.
The source of the consideration paid was authorized but unissued shares of
Common Stock, and the amount of consideration paid was determined by
arm's-length negotiations.
Acquisition of L.D.A. Distribution Limited and Joytech Europe Limited
In February 1999, we acquired all of the outstanding capital stock of
L.D.A. Distribution Limited ("LDA") and its subsidiary, Joytech Europe Limited,
a company incorporated in the United Kingdom. We paid (pound)200,000 and issued
580,000 shares of Common Stock, subject to decrease under certain circumstances.
We granted certain registration rights with respect to 270,000 shares.
The source of the consideration paid was cash on hand and authorized but
unissued shares of Common Stock. The amount of consideration paid was determined
by arm's-length negotiations.
Purchase of Partnership Interest in Gathering of Developers I, Ltd.
In February 1999, we purchased a 19.9% class A limited partnership interest
in Gathering of Developers I, Ltd. ("Gathering"). We agreed to make a capital
contribution to Gathering in the aggregate amount of $4 million, payable in six
equal monthly installments of $667,000. The general partner and each class B
limited partner of Gathering granted us an option to purchase their interests,
exercisable on two separate occasions during the six-month periods ending April
30, 2001 and 2002. In consideration of the option grant, we issued to the
general partner and the class B limited partners 125,000 shares of Common Stock.
We also granted to the general partner and class B limited partners an option to
purchase our class A limited partnership interest, exercisable during the
six-month period ending April 30, 2003.
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Distribution Agreement with Gathering
In February 1999, we entered into a distribution agreement (the
"Agreement") with Gathering of Developers I, Ltd. ("Gathering") amending our May
1998 agreement with Gathering. Gathering granted the Company (i) the exclusive
right to distribute in the United States and Canada all products designed by
Gathering to operate on PC platforms and scheduled to be released by May 31,
2003; (ii) the exclusive right to publish in Europe all products designed by
Gathering to operate on PC platforms and scheduled to be released by May 31,
2003; (iii) until recoupment of the advances described below, rights of first
and last refusal for the exclusive worldwide publishing rights to any console
version of products for which Gathering has publishing rights; and (iv) after
recoupment of such advances, the rights of first and last refusal for publishing
rights to any console port of any product for which Gathering has publishing
rights and which was originally published by or on behalf of Gathering on the PC
or other non-console platform.
The agreement obligates us to pay Gathering recoupable advances of
$12,500,000. The agreement is terminable by us with respect to a particular
title in the event Gathering fails to deliver a title 60 days after its delivery
date specified in the agreement or Gathering otherwise materially breaches the
agreement. In any such event, Gathering is obligated to pay us the un-recouped
portion of the advance attributable to a particular title. In addition,
Gathering may terminate the agreement with respect to a particular title in the
event we materially breach the agreement and, upon any subsequent two material
breaches, may terminate the entire agreement.
Loan Agreement
In February 1999, Jack of All Games, Inc. ("Jack"), our wholly-owned
subsidiary, entered into a line of credit agreement with NationsBank, N.A.
("Nationsbank") which provides for borrowings of up to $35,000,000 through
September 30, 1999 and $45,000,000 thereafter. Advances under the line of credit
are based on a borrowing formula equal to the lesser of (i) the borrowing limit
in effect at the time (i.e., $35,000,000 or $45,000,000) or (ii) 80% of eligible
accounts receivable, plus 50% of eligible inventory. Interest accrues on such
advances at NationsBank's prime rate plus .5% and is payable monthly. Borrowings
under the line of credit are secured by all of Jack's accounts, inventory,
equipment, general intangibles, securities and other personal property. In
addition to certain financial covenants, the loan agreement limits or prohibits
us from declaring or paying cash dividends, merging or consolidating with
another corporation, selling assets (other than in the ordinary course of
business), creating liens and incurring additional indebtedness. The line of
credit expires on February 28, 2001.
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Item 7(c) Exhibits.
Exhibit 1 - Agreement and Plan of Merger dated December 22,
1998 among the Company, the Subsidiary, Talonsoft and the
shareholders of Talonsoft.
Exhibit 2 - Agreement for the Sale and Purchase of Share
Capital dated February 3, 1999 between the Company and the
shareholders of LDA.
Exhibit 3 - Securities Purchase Agreement dated February 8,
1999 by and among the Company T2 Developer, Inc., Gathering of
Developers, Inc., Gathering and the limited partners of
Gathering.
Exhibit 4 - Option Agreement dated February 8, 1999 between
the Company, T2 Developer, Inc., Gathering, Gathering of
Developers, Inc., and the limited partners of Gathering.
Exhibit 5 - Amended Distribution Agreement, dated as of
February 8, 1999, by and between the Company and Gathering,
PopTop Software, Inc., Terminal Reality, Inc., and Apogee
Software, Inc./3D Realms.
Exhibit 6 - Revolving Credit Agreement, dated February 16,
1999 by and among Jack of All Games, Inc. NationsBank, N.A.,
The Provident Bank, and NationsBank, N.A., as Agent.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 23, 1999
TAKE-TWO INTERACTIVE SOFTWARE, INC.
By /s/ Ryan A. Brant
-----------------------------------
Name: Ryan A. Brant
Title: Chairman
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AGREEMENT AND PLAN OF MERGER
by and among
TAKE-TWO INTERACTIVE SOFTWARE, INC.,
(a Delaware corporation)
TALONSOFT, INC.,
(a Delaware corporation)
TALONSOFT, INC.,
(a Maryland corporation)
JOHN DAVIDSON,
GRETA DAVIDSON,
JAMES ROSE,
and
BARBARA ROSE
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December 22, 1998
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TABLE OF CONTENTS
Page
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1. The Merger ...................................................... 1
1.1. The Merger ............................................ 1
1.2. Effective Date ........................................ 2
1.3. Effect of the Merger .................................. 2
1.4. Certificate of Incorporation; By-Laws ................. 2
1.5. Directors and Officers of Surviving Corporation ....... 2
1.6. Conversion of Securities .............................. 3
2. Representations and Warranties as to Talonsoft .................. 3
2.1. Organization, Standing and Power ...................... 3
2.2. Capitalization ........................................ 4
2.3. Ownership of Talonsoft Common Stock ................... 4
2.4. Interests in Other Entities ........................... 5
2.5. Authority ............................................. 5
2.6. Noncontravention ...................................... 6
2.7. Financial Statements .................................. 6
2.8. Absence of Undisclosed Liabilities .................... 7
2.9. Guaranties ............................................ 7
2.10. Accounts and Notes Receivable ......................... 7
2.11. Absence of Changes .................................... 7
2.12. Litigation ............................................ 8
2.13. No Violation of Law ................................... 8
2.14. Properties ............................................ 8
2.15. Intangibles/Inventions ................................ 9
2.16. Systems and Software .................................. 9
2.17. Tax Matters ........................................... 10
2.18. Insurance ............................................. 11
2.19. Banks; Powers of Attorney ............................. 11
2.20. Employee Arrangements ................................. 11
2.21. ERISA ................................................. 12
2.22. Environmental Matters ................................. 12
2.23. Business Practices and Commitments .................... 12
2.24. Certain Business Matters .............................. 13
2.25. Certain Contracts ..................................... 13
2.26. Customers and Suppliers ............................... 14
2.27. Approvals/Consents .................................... 14
2.28. Information as to Talonsoft ........................... 14
2.29. Pooling of Interests .................................. 14
2.30. Securities Act Representation ......................... 15
3. Representations and Warranties as to TTIS and
Subsidiary ..................................................... 15
3.1. Organization, Standing and Power ...................... 15
3.2. Interests in Other Entities ........................... 16
3.3. Capitalization ........................................ 16
3.4. Authority ............................................. 16
3.5. Securities and Exchange Commission Filings;
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Financial Statements .................................. 17
3.6. Stock Issuable in Merger .............................. 18
3.7. Absence of Changes .................................... 18
3.8. Information as to TTIS and Subsidiary ................. 18
4. Indemnification ................................................. 18
4.1. Indemnification by Talonsoft and the
Shareholders .......................................... 18
4.2. Indemnification by TTIS and Subsidiary ................ 19
4.3. Third Party Claims .................................... 19
4.4. Litigation ............................................ 20
4.5. Assistance ............................................ 20
5. Covenants ....................................................... 20
5.1. Investigation ......................................... 20
5.2. [Intentionally Omitted] ............................... 21
5.3. Consummation of Transaction ........................... 21
5.4. Cooperation/Further Assurances ........................ 21
5.5. Accuracy of Representations ........................... 22
5.6. Notification of Certain Matters ....................... 22
5.7. Broker ................................................ 22
5.8. No Solicitation of Transactions ....................... 22
5.9. Prohibited Conduct .................................... 23
5.10. Tax-Free Reorganization ............................... 25
5.11. Pooling of Interests .................................. 25
5.12. Payment of Taxes Upon Merger .......................... 25
5.13. Stock Options ......................................... 25
5.14. Employment Agreements ................................. 26
5.15. Registration Rights Agreement ......................... 26
5.16. Business Plan ......................................... 26
6. Conditions of Merger ............................................ 26
6.1. Conditions to Obligations of TTIS and Subsidiary
to Effect the Merger .................................. 26
(a) Accuracy of Representations and Warranties .... 26
(b) Performance of Agreements ..................... 26
(c) Results of Investigation ...................... 27
(d) Board Authorization ........................... 27
(e) Pooling of Interests .......................... 27
(f) Tax Free Reorganization ....................... 27
(g) Affiliate Letters ............................. 27
(h) Financing Arrangements ........................ 27
(i) Minimum Net Assets ............................ 27
(j) Opinion of Counsel for Talonsoft .............. 27
(k) Litigation .................................... 27
(l) Consents and Approvals ........................ 28
(m) Date of Consummation .......................... 28
(n) Validity of Transactions ...................... 28
(o) No Material Adverse Change .................... 28
(p) Employment Agreements ......................... 28
(q) Closing Certificate ........................... 28
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6.2. Conditions to Obligations of Talonsoft and the
Shareholders to Effect the Merger ..................... 29
(a) Accuracy of Representations and Warranties .... 29
(b) Performance of Agreements ..................... 29
(c) Board Authorization ........................... 29
(d) Litigation .................................... 29
(e) Consents and Approvals ........................ 29
(f) Date of Consummation .......................... 30
(g) Validity of Transactions ...................... 30
(h) Stock Options ................................. 30
(i) Employment Agreements ......................... 30
(i) Registration Rights Agreement ................. 30
(k) Closing Certificate ........................... 30
7. The Closing ..................................................... 30
7.1. Deliveries by TTIS and Subsidiary at the Closing ...... 30
7.2. Deliveries by Talonsoft and/or the Shareholders at
the Closing ........................................... 31
7.3. Other Deliveries ...................................... 32
8. Termination, Amendment and Waiver ............................... 32
8.1. Termination ........................................... 32
8.2. Effect of Termination ................................. 33
8.3. Fees and Expenses ..................................... 33
8.4. Waiver ................................................ 33
9. Survival of Representations and Warranties ...................... 33
10. General Provisions .............................................. 33
10.1. Notices ............................................... 33
10.2. Severability .......................................... 34
10.3. Entire Agreement ...................................... 34
10.4. Amendment ............................................. 35
10.5. No Assignment ......................................... 35
10.6. Governing Law ......................................... 35
10.7. Counterparts .......................................... 35
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of December 22, 1998 (the
"Agreement"), among Take-Two Interactive Software, Inc., a Delaware corporation
("TTIS"); Talonsoft, Inc., a Delaware corporation and a wholly-owned subsidiary
of TTIS ("Subsidiary"); Talonsoft, Inc., a Maryland corporation ("Talonsoft");
John Davidson ("John"), Greta Davidson ("Greta"), James Rose ("James") and
Barbara Rose ("Barbara"). John, Greta, James and Barbara are sometimes referred
to as the "Shareholders."
W I T N E S S E T H :
WHEREAS, Talonsoft is in the business of developing and publishing computer
software (the "Business"); and
WHEREAS, TTIS desires to acquire all of the outstanding capital stock of
Talonsoft; and
WHEREAS, the Board of Directors of TTIS, the Board of Directors of
Subsidiary, TTIS as the sole shareholder of Subsidiary, and the Board of
Directors of Talonsoft and the Shareholders have: (a) determined that it is in
the best interests of their respective companies for Talonsoft to to be merged
with and into the Subsidiary upon the terms and subject to the conditions set
forth herein; and (b) approved the merger of Talonsoft with and into the
Subsidiary (the "Merger") in accordance with the Delaware General Corporation
Law of the State of Delaware ("Delaware Law") and the General Corporation Law of
the State of Maryland ("Maryland Law"), and upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto do hereby agree as follows:
1. The Merger.
1.1. The Merger. At the Effective Date (as defined in Subsection 1.2), and
subject to and upon the terms and conditions of this Agreement, Delaware Law and
Maryland Law, Talonsoft shall be merged with and into the Subsidiary, the
separate corporate existence of Talonsoft shall cease, and the Subsidiary shall
continue as the surviving corporation, operating as a wholly-owned subsidiary of
TTIS. The Subsidiary, as the surviving corporation after the Merger, is
hereinafter sometimes referred to as the "Surviving Corporation."
1.2. Effective Date. As promptly as practicable after the satisfaction or
waiver of the conditions set forth in Section 6, unless this Agreement shall
have been terminated and the transactions contemplated herein shall have been
abandoned pursuant to Section 8.1, Subsidiary and Talonsoft shall cause the
Merger to be consummated by filing a Certificate of Merger (the "Certificate of
Merger") with the Secretaries of State of the States of Delaware and Maryland in
the form of Exhibit A and making such other filings as may be required by the
Delaware Law and the Maryland Law, in such form as required by and executed in
accordance with such laws (the time of the last of such filings to be made being
the "Effective Date").
1.3. Effect of the Merger. At the Effective Date, the effect of the Merger
shall be as provided in the applicable provisions of Delaware Law and Maryland
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Date, all the rights, privileges, powers, franchises and all
property (real, personal and mixed) of Talonsoft and all debts due Talonsoft
shall vest in the Subsidiary, and all debts, liabilities, obligations and duties
of Talonsoft shall become the debts, liabilities, obligations and duties of the
Subsidiary.
1.4. Certificate of Incorporation; By-Laws.
(a) The Certificate of Incorporation of the Subsidiary, as in effect
immediately prior to the Effective Date (annexed hereto as Exhibit B), as
amended to provide for a name change to Talonsoft, Inc., shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law or such Certificate of Incorporation.
(b) The By-Laws of the Subsidiary, as in effect immediately prior to the
Effective Date (annexed hereto as Exhibit C), shall be the By-Laws of the
Surviving Corporation until thereafter amended as provided by law or by the
Certificate of Incorporation of the Surviving Corporation or the By-Laws of the
Surviving Corporation.
1.5. Directors and Officers of Surviving Corporation.
(a) Ryan Brant, Anthony Williams and Barbara Ras, the directors of the
Subsidiary, and John Davidson, shall, at the Effective Date, be the duly
appointed directors of the Surviving Corporation, to hold office in accordance
with applicable law, the Certificate of Incorporation and By-Laws of the
Surviving Corporation until resignation, removal or replacement.
(b) Each of John Davidson and James Rose shall, at the Effective Date, be
duly nominated and appointed as
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Chief Executive Officer and President, respectively, of the Surviving
Corporation, and shall constitute the initial officers of the Surviving
Corporation, in each case to serve at the pleasure of the Board of Directors of
the Surviving Corporation until their respective resignation, removal or
placement.
1.6. Conversion of Securities. At the Effective Date, by virtue of the
Merger and without any action on the part of TTIS, Subsidiary, Talonsoft or the
Shareholders:
(a) The outstanding shares of Talonsoft Common Stock (as defined in
Section 2.2 hereof) shall be converted into an aggregate of 1,033,336
shares of Common Stock, $.01 par value per share, of TTIS ("TTIS Common
Stock") (hereafter referred to as the "Share Consideration"), to be
distributed to the Shareholders, pro rata, as set forth in Schedule 1.6(a).
(b) Any warrant or option convertible or exchangeable into Talonsoft
Common Stock shall be cancelled and extinguished without any conversion
thereof and no payment shall be made with respect thereto.
(c) Each share of the common stock, par value $.01 per share, of the
Subsidiary issued and outstanding at the Effective Date shall remain
outstanding and unchanged.
(d) From and after the Effective Date, the holders of certificates
evidencing ownership of shares of Talonsoft Common Stock shall cease to
have any rights with respect to the shares of Talonsoft Common Stock.
(e) No fractional shares of TTIS Common Stock shall be issued in
connection with the Merger.
2. Representations and Warranties as to Talonsoft. Each of the Shareholders
and Talonsoft, jointly and severally, represents and warrants to TTIS and
Subsidiary as follows:
2.1. Organization, Standing and Power. Talonsoft is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland, with full corporate power and corporate authority to (i) own, lease
and operate its properties, (ii) carry on the Business as currently conducted by
it and (iii) execute and deliver, and perform its obligations under this
Agreement and each other agreement and instrument to be executed and delivered
by it pursuant hereto. Except as set forth on Schedule 2.1, there are no states
or jurisdictions in which the character and location of any of the properties
owned or leased by Talonsoft, or the conduct of the Business makes it necessary
for Talonsoft to qualify to do business as a foreign corporation. True and
complete copies of the Certificate of Incorporation of Talonsoft and all
amendments
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thereof, and of the By-Laws of Talonsoft, as amended to date, have heretofore
been furnished to TTIS. Talonsoft's minute books contain complete and accurate
records of all meetings and other corporate actions of Talonsoft's stockholders
and Board of Directors (including committees of its Board of Directors).
2.2. Capitalization. (a) The authorized capital stock of Talonsoft consists
of: 1000 shares of common stock, par value $1.00 per share (the "Talonsoft
Common Stock"), of which 100 shares of Talonsoft Common Stock are outstanding.
All of the Talonsoft Common Stock is duly authorized, validly issued, fully paid
and nonassessable. Schedule 2.2 sets forth a true and complete list of the
holders of all outstanding shares of Talonsoft Common Stock, and the holders of
all outstanding options and warrants issued by Talonsoft, which shares, options
and warrants are held by them in the amounts set forth on Schedule 2.2. Except
as contemplated by the Merger and except as set forth on Schedule 2.2, there are
no options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of Talonsoft or
obligating Talonsoft to issue or sell any shares of capital stock of or other
equity interests in Talonsoft. There is no personal liability, and there are no
preemptive rights with regard to the capital stock of Talonsoft, and no
right-of-first refusal or similar catch-up rights with regard to such capital
stock. Except as set forth on Schedule 2.2 and except for the transactions
contemplated by this Agreement, there are no outstanding contractual obligations
or other commitments or arrangements of Talonsoft to (A) repurchase, redeem or
otherwise acquire any shares of Talonsoft Common Stock (or any interest therein)
or (B) to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any other entity, or (C) issue or
distribute to any person any capital stock of Talonsoft, or (D) issue or
distribute to holders of any of the capital stock of Talonsoft any evidences of
indebtedness or assets of Talonsoft. All of the outstanding securities of
Talonsoft have been issued and sold by Talonsoft in full compliance with
applicable federal and state securities laws.
2.3. Ownership of Talonsoft Common Stock. The Shareholders have good and
marketable title to all of the issued and outstanding shares of Talonsoft Common
Stock, free and clear of any and all liens, adverse claims, security interests,
pledges, mortgages, charges and encumbrances of any nature whatsoever ("Liens"),
and on the Closing Date (as defined in Section 7 hereof) will own all of the
Talonsoft Common Stock, free and clear of any and all Liens, including, but not
limited to, any claims by any present or former stockholders of Talonsoft.
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2.4. Interests in Other Entities.
(a) Schedule 2.4 sets forth a true and complete list of all direct or
indirect subsidiaries of Talonsoft, together with the jurisdiction of
incorporation of each such subsidiary and the percentage of each such
subsidiary's outstanding capital stock owned by Talonsoft.
(b) None of the Shareholders (individually or jointly) own, directly or
indirectly, of record or beneficially, any shares of voting stock or other
equity securities of any other corporation engaged in the same or similar
business to that business engaged in by Talonsoft at the Effective Date (other
than not more than one percent (1%) of the publicly-traded capital stock of
corporations engaged in such business held solely for investment purposes); (i)
have any ownership interest, direct or indirect, of record or beneficially, in
any unincorporated entity engaged in the same or similar business to that
business engaged in by Talonsoft at the Effective Date; and (ii) have any
obligation, direct or indirect, present or contingent, (A) to purchase or
subscribe for any interest in, advance or loan monies to, or in any way make
investments in, any other person or entity engaged in the same or similar
business to that business engaged in by Talonsoft at the Effective Date, or (B)
to share any profits or capital investments or both from a entity engaged in the
same or similar business to that business engaged in by Talonsoft at the
Effective Date.
2.5. Authority. The execution and delivery by Talonsoft of this Agreement
and of all of the agreements to be executed and delivered by Talonsoft pursuant
hereto (collectively, the "Talonsoft Documents"), the performance by Talonsoft
of its obligations hereunder and thereunder, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action on the part of Talonsoft
(including, but not limited to, the unanimous consents of the Board of Directors
of Talonsoft and of the Shareholders) and Talonsoft has all necessary corporate
power and corporate authority with respect thereto. The Shareholders are
individuals having all necessary capacity, power and authority to execute and
deliver this Agreement and such other agreements to be executed and delivered by
either of them pursuant hereto (collectively, the "Shareholder Documents") and
to consummate the transactions contemplated hereby and thereby. This Agreement
is, and when executed and delivered by Talonsoft and the Shareholders, each of
the other agreements to be delivered by either or both of them pursuant hereto
will be, the valid and binding obligations of Talonsoft and the Shareholders, to
the extent they are parties thereto, in accordance with their respective terms,
except as the same may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting the rights of creditors generally and subject
to the
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rules of law governing (and all limitations on) specific performance, injunctive
relief, and other equitable remedies.
2.6. Noncontravention. Except as set forth on Schedule 2.6, neither the
execution and delivery by Talonsoft or the Shareholders of this Agreement or of
any other Talonsoft Documents or Shareholder Documents to be executed and
delivered by either or both of them, nor the consummation of any of the
transactions contemplated hereby or thereby, nor the performance by either or
both of them of any of their respective obligations hereunder or thereunder,
will (nor with the giving of notice or the lapse of time or both would) (a)
conflict with or result in a breach of any provision of the Certificate of
Incorporation, ByLaws or other constituent documents of Talonsoft, each as
amended to date, or (b) give rise to a default, or any right of termination,
cancellation or acceleration, or otherwise be in conflict with or result in a
loss of contractual benefits to any of them, under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation to which either or both of them is a party or by
which either or both of them or any of their respective assets may be bound, or
require any consent, approval or notice under the terms of any such document or
instrument, or (c) violate any order, writ, injunction, decree, law, statute,
rule or regulation of any court or governmental authority which is applicable to
either or both of them, or (d) result in the creation or imposition of any lien,
adverse claim, restriction, charge or encumbrance upon any of the assets of
Talonsoft (the "Assets") or the Talonsoft Common Stock, or (e) interfere with or
otherwise adversely affect the ability of Talonsoft to carry on the Business
after the Effective Date on substantially the same basis as is now conducted by
Talonsoft.
2.7. Financial Statements. Talonsoft has heretofore delivered to each of
TTIS and Subsidiary (a) its financial statements consisting of the unaudited
balance sheets at December 31, 1995, 1996 and 1997, and the related statements
of income and stockholders' equity for the three years then ended, which have
been compiled by S.E. Smith & Company, LLP, independent certified public
accountants, and (b) its unaudited balance sheet at September 30, 1998 (the
"Balance Sheet") statements of income and stockholders' equity for the nine
months ended September 30, 1998 (collectively, the "Talonsoft Financial
Statements"). The Talonsoft Financial Statements were prepared in accordance
with generally accepted accounting principles ("GAAP"), consistently applied,
and present fairly the financial position of Talonsoft as at the dates thereof
and the results of operations for the periods and the cash flow indicated. The
books and records of Talonsoft are complete and correct, have been maintained in
accordance with good business practices, and accurately reflect the basis for
the financial condition, results of operations and cash flow of Talonsoft as set
forth in the Talonsoft Financial Statements.
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2.8. Absence of Undisclosed Liabilities. Talonsoft has no liabilities or
obligations of any nature whatsoever, whether accrued, matured, unmatured,
absolute, contingent, direct or indirect or otherwise, which have not been (a)
in the case of liabilities and obligations of a type customarily reflected on a
corporate balance sheet, prepared in accordance with GAAP, set forth on the
Balance Sheet, or (b) incurred in the ordinary course of business since
September 30, 1998, or (c) in the case of other types of liabilities and
obligations, described in Schedule 2.8, or (d) incurred, consistent with past
practice, in the ordinary course of business of Talonsoft (in the case of
liabilities and obligations of the type referred to in clause (a) above).
2.9. Guaranties. Schedule 2.9 hereto is a complete and accurate list and
summary description of all written guaranties currently in effect heretofore
issued by the Shareholders to any bank or other lender in connection with any
credit facilities extended by such creditors to Talonsoft or issued by the
Shareholders in connection with any other contracts or agreements (collectively,
the "Guaranties"), including the name of such creditor and the amount of the
indebtedness, together with any interest and fees currently owing and expected
to be outstanding as of the Effective Date.
2.10. Accounts and Notes Receivable/Inventories.
(a) Schedule 2.10 hereto is a complete and accurate list of the accounts
and notes receivable as of October 30, 1998, which are good and collectible in
the ordinary course of business at the aggregate recorded amounts thereof, less
the respective amount of the allowances for doubtful accounts and notes
receivable, if any, reflected thereon, and are not subject to offsets other than
in the ordinary course of business. The accounts and notes receivable of
Talonsoft which were added after October 30, 1998 are good and collectible in
the ordinary course of business, less the respective amount of the allowances
for doubtful accounts and notes receivable, if any, reflected thereon (which
allowances were established on a basis consistent with prior practice), and are
not subject to offsets.
(b) The inventories reflected on the Balance Sheet consist of items of a
quality and quantity usable or saleable in the ordinary course of business,
except for obsolete materials, slow-moving items, materials of below standard
quality and not readily marketable items, all of which have been (i) written
down to net realizable value or (ii) adequately reserved against on the books
and records of Talonsoft. All inventories are stated at the lower of cost or
market.
2.11. Absence of Changes. Since September 30, 1998, there have not been (a)
any adverse change (other than as is normal in the ordinary course of business)
in the condition
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(financial or otherwise), assets, liabilities, business, prospects, results of
operations or cash flows of Talonsoft (including, without limitation, any such
adverse change resulting from damage, destruction or other casualty loss,
whether or not covered by insurance), (b) any waivers by Talonsoft of any right,
or cancellation of any debt or claim, of substantial value, (c) any
declarations, set asides or payments of any dividend or other distributions or
payments in respect of the Talonsoft Common Stock, or (d) any changes in the
accounting principles or methods which are utilized by Talonsoft.
2.12. Litigation. Except as set forth in Schedule 2.12, there are no
claims, suits or actions, or administrative, arbitration or other proceedings or
governmental investigations, pending or, to the best knowledge of Talonsoft and
the Shareholders, threatened, against or relating to Talonsoft or the
Shareholders, the transactions contemplated hereby or any of the Assets. There
are no judgments, orders, stipulations, injunctions, decrees or awards in effect
which relate to Talonsoft, this Agreement, the transactions contemplated, the
Business or any of the Assets, the effect of which is (a) to limit, restrict,
regulate, enjoin or prohibit any business practice of Talonsoft in any area, or
the acquisition by Talonsoft of any properties, assets or businesses, or (b)
otherwise materially adverse to the Business, any of the Assets or Talonsoft
Common Stock.
2.13. No Violation of Law. Talonsoft is not engaging in any activity or
omitting to take any action as a result of which it is in violation of any law,
rule, regulation, zoning or other ordinance, statute, order, injunction or
decree, or any other requirement of any court or governmental or administrative
body or agency, applicable to Talonsoft, the Business or any of the Assets,
including, but not limited to, those relating to: occupational safety and health
matters; issues of environmental and ecological protection (e.g., the use,
storage, handling, transport or disposal of pollutants, contaminants or
hazardous or toxic materials or wastes, and the exposure of persons thereto);
business practices and operations; labor practices; employee benefits; and
zoning and other land use laws and regulations.
2.14. Properties. All plants, structures and equipment which are utilized
in the Business, or are material to the condition (financial or otherwise) of
Talonsoft are owned or leased by Talonsoft, are free and clear of all Liens, are
in good operating condition and repair (ordinary wear and tear excepted), and
are adequate and suitable for the purposes for which they are used. Schedule
2.14 sets forth all (a) real property which is owned, leased (whether as lessor
or lessee) or subject to contract or commitment of purchase or sale or lease
(whether as lessor or lessee) by Talonsoft, or which is subject to a title
retention or conditional sales agreement or other security
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device, and (b) tangible personal property which is owned, leased (whether as
lessor or lessee) or subject to contract or commitment of purchase or sale or
lease (whether as lessor or lessee) by Talonsoft.
2.15. Intangibles/Inventions. Schedule 2.15 identifies (by a summary
description) the Intangibles (as defined below) the ownership thereof and, if
applicable, Talonsoft's authority for use of the same, which Schedule is
complete and correct and encompasses: (A) all United States and foreign patents,
trademark and trade name registrations, trademarks and trade names, brandmarks
and brand name registrations, servicemarks and servicemark registrations,
assumed names and copyrights and copyright registrations, owned in whole or in
part or used by Talonsoft, and all applications therefor (collectively, the
"Marks"), (B) all inventions, discoveries, improvements, processes, formulae,
technology, know-how, processes and other intellectual property, proprietary
rights and trade secrets relating to the Business (collectively, the
"Inventions") and (C) all licenses and other agreements to which Talonsoft is a
party or otherwise bound which relate to any of the Intangibles or the
Inventions or Talonsoft's use thereof in connection with the Business
(collectively, the "Licenses, and together with the Marks and the Inventions,
the "Intangibles"). No violations of the terms of any of the aforesaid licenses
and/or agreements have occurred. Except as disclosed on Schedule 2.15, (A)
Talonsoft owns or is authorized to use in connection with the Business all of
the Intangibles; (B) no proceedings have been instituted, are pending, or to the
best knowledge of Talonsoft and the Shareholders, are threatened which challenge
the rights of Talonsoft with respect to the Intangibles or its use thereof in
connection with the Business and/or the Assets or the validity thereof and,
there is no valid basis for any such proceedings; (C) neither Talonsoft's
ownership of the Intangibles nor their use thereof in connection with the
Business and/or the Assets violates any laws, statutes, ordinances or
regulations, or has at any time infringed upon or violated any rights of others,
or is being infringed by others; (D) none of the Intangibles, or Talonsoft's use
thereof in connection with the Business and/or the Assets is subject to any
outstanding order, decree, judgment, stipulation or any lien, security interest
or other encumbrance; and (E) Talonsoft has not granted any license to third
parties with regard to its Intangibles.
2.16. Systems and Software. Talonsoft owns or has the right to use pursuant
to lease, license, sublicense, agreement, or permission all computer hardware,
software and information systems necessary for the operation of its business as
presently conducted (collectively, "Systems"). Each System owned or used by
Talonsoft immediately prior to the Effective Date will be owned or available for
use by Talonsoft on identical terms and conditions immediately subsequent to the
Effective Date. With respect to each System owned by a third party and
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used by Talonsoft pursuant to lease, license, sublicense, agreement or
permission: (a) the lease, license, sublicense, agreement or permission covering
the System is legal, valid, binding, enforceable, and in full force and effect;
(b) the lease, license, sublicense, agreement or permission will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the Effective Date; (c) no party to any such lease, license,
sublicense, agreement or permission is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach or
default, and permit termination, modification or acceleration thereunder; (d) no
party to any such lease, license, sublicense, agreement or permission has
repudiated any provision thereof; (e) Talonsoft has not granted any sublicense,
sublease or similar right with respect to any such lease, license, sublicense,
agreement or permission; (f) Talonsoft's use and continued use of such Systems
does not and will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any intellectual property rights of third
parties as a result of the continued operation of the Business.
2.17. Tax Matters.
(a) Talonsoft has filed with the appropriate governmental agencies all tax
returns and reports required to be filed by it, and has paid in full or
contested in good faith or made adequate provision for the payment of, Taxes (as
defined herein) shown to be due or claimed to be due on such tax returns and
reports. The provisions for Taxes which are set forth on the Balance Sheet are
adequate for all accrued and unpaid taxes of Talonsoft as of September 30, 1998,
whether (i) incurred in respect of or measured by income of Talonsoft for any
periods prior to the close of business on that date, or (ii) arising out of
transactions entered into, or any state of facts existing, on or prior to such
date. Talonsoft has duly withheld all payroll taxes, FICA and other federal,
state and local taxes and other items requiring to be withheld by it from
employer wages, and has duly deposited the same in trust for or paid over to the
proper taxing authorities. Talonsoft has not executed or filed with any taxing
authority any agreement extending the periods for the assessment or collection
of any Taxes, and is not a party to any pending or, to the best knowledge of
Talonsoft and the Shareholders, threatened, action or proceeding by any
governmental authority for the assessment or collection of Taxes. Within the
past three years, the United States federal income tax returns of Talonsoft have
not been examined by the Internal Revenue Service ("the IRS"), nor has any
states taxing authority examined any merchandize, personal property, sales or
use tax returns of Talonsoft.
(b) Talonsoft (i) has not agreed to or been required to make any adjustment
pursuant to Section 481(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), (ii) has
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no knowledge that the IRS or any other taxing authority has proposed any such
adjustment or change in accounting method, and (iii) has no application pending
with any governmental authority requesting permission for any change in
accounting method.
(c) As used herein, the term "Taxes" means all federal, state, county,
local and other taxes and governmental assessments, including but not limited to
income taxes, estimated taxes, withholding taxes, excise taxes, ad valorem
taxes, payroll related taxes (including but not limited to premiums for worker's
compensation insurance and statutory disability insurance), employment taxes,
franchise taxes and import duties, together with any related liabilities,
penalties, fines, additions to tax or interest.
2.18. Insurance. Schedule 2.18 is a complete and correct list and summary
description of all contracts and policies of insurance relating to any of the
Assets, the Business or the Shareholders in which Talonsoft is an insured party,
beneficiary or loss payable payee. Such policies are in full force and effect,
all premiums due and payable with respect thereto have been paid, and no notice
of cancellation or termination has been received by Talonsoft with respect to
any such policy.
2.19. Banks; Powers of Attorney. Schedule 2.19 is a complete and correct
list showing (a) the names of each bank in which Talonsoft has an account or
safe deposit box and the names of all persons authorized to draw thereon or who
have access thereto, and (b) the names of all persons, if any, holding powers of
attorney from Talonsoft.
2.20. Employee Arrangements. Schedule 2.20 is a complete and correct list
and summary description of all (a) union, collective bargaining, employment,
management, termination and consulting agreements to which Talonsoft is a party
or otherwise bound, and (b) compensation plans and arrangements; bonus and
incentive plans and arrangements; deferred compensation plans and arrangements;
pension and retirement plans and arrangements; profit-sharing and thrift plans
and arrangements; stock purchase and stock option plans and arrangements;
hospitalization and other life, health or disability insurance or reimbursement
programs; holiday, sick leave, severance, vacation, tuition reimbursement,
personal loan and product purchase discount policies and arrangements; and other
plans or arrangements providing for benefits for employees of Talonsoft. Said
Schedule also lists the names and compensation of all employees of Talonsoft
whose earnings during the last fiscal year were $10,000 or more (including
bonuses and other incentive compensation), and all employees who are expected to
receive at least said amount in respect of the current fiscal year.
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2.21. ERISA. Talonsoft neither maintains nor is obligated to contribute to
an "employee pension benefit plan" as such term is defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
Talonsoft "welfare benefit plan", as such term is defined in Section 3(1) of
ERISA.
2.22. Environmental Matters. Talonsoft has obtained and is in compliance
with the terms and conditions of all required permits, licenses, registrations
and other authorizations required under Environmental Laws (as hereinafter
defined). No asbestos in a friable condition, equipment containing
polychlorinated biphenyls, leaking underground or above-ground storage tanks are
contained in or located at any facility currently, or was contained or located
at any facility previously owned, leased or controlled by Talonsoft. Talonsoft
has not released, discharged or disposed of on, under or about any facility
currently or previously owned, leased or controlled by Talonsoft, any Hazardous
Substance (as hereinafter defined), and to the best knowledge of Talonsoft and
the Shareholders, no third party has released, discharged or disposed of on,
under or about any facility currently or previously owned, leased or controlled
by Talonsoft, and Hazardous Substances (as hereinafter defined). Talonsoft is in
compliance with all applicable Environmental Laws. Talonsoft has fully disclosed
to TTIS all past and present noncompliance with, or liability under,
Environmental Laws, and all past discharges, emissions, leaks, releases or
disposals by it of any substance or waste regulated under or defined by
Environmental Laws that have formed or could reasonably be expected to form the
basis of any claim, action, suit, proceeding, hearing or investigation under any
applicable Environmental Laws. Talonsoft has not received notice of any past or
present events, conditions, circumstances, activities, practices, incidents,
actions or plans of Talonsoft that have resulted in or threaten to result in any
common law or legal liability, or otherwise form the basis of any claim, action,
suit, proceeding, hearing or investigation under, any applicable Environmental
Laws. For purposes of this Section 2.22, (a) "Environmental Laws: mean
applicable federal, state, local and foreign laws, regulations and codes
relating in any respect to pollution or protection of the environment and (b)
"Hazardous Substances" means any toxic, caustic or otherwise dangerous substance
(whether or not regulated under federal, state or local environmental statutes,
rules, ordinances, or orders), including (i) "hazardous substance" as defined in
42 U.S.C. Section 9601, and (ii) petroleum products, derivatives, byproducts and
other hydrocarbons.
2.23. Business Practices and Commitments. Set forth on Schedule 2.23 is a
description of and a list and the amount of all of Talonsoft's outstanding
obligations with respect to (i) Talonsoft's rebate and volume discount practice
and obligations, (ii) Talonsoft's allowance and customer return
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practice and obligations, (iii) Talonsoft's co-op advertising and other
promotional practices, and (iv) Talonsoft's warranty practice and obligations as
each of the foregoing relate to the customers and suppliers of Talonsoft.
2.24. Certain Business Matters. Except as is set forth in Schedule 2.24,
(a) Talonsoft is not a party to or bound by any development, publishing,
distributorship, dealership, sales agency, franchise or similar agreement which
relates to the development, sale or distribution of any of the products and
services of the Business, (b) Talonsoft has no sole-source supplier of
significant goods or services (other than utilities) with respect to which
practical alternative sources are not available on comparable terms and
conditions, (c) there are no pending or, to the best knowledge of Talonsoft and
the Shareholders, threatened labor negotiations, work stoppages or work
slowdowns involving or affecting the Business, and no union representation
questions exist, and there are no organizing activities, in respect of any of
the employees of Talonsoft, (d) the product and service warranties given by
Talonsoft or by which it is bound (complete and correct copies or descriptions
of which have heretofore been delivered by Talonsoft to TTIS) entail no greater
obligations than are customary in the Business, (e) neither Talonsoft nor the
Shareholders is a party to or bound by any agreement which limits its or his, as
the case may be, freedom to compete in any line of business or with any person,
or which is otherwise materially burdensome to Talonsoft or the Shareholders,
and (f) Talonsoft is not a party to or bound by any agreement in which any
officer, director or stockholder of Talonsoft (or any affiliate of any such
person) has, or had when made, a direct or indirect material interest. Talonsoft
has not granted any overlapping or conflicting rights to third parties with
respect to any of its agreements.
2.25. Certain Contracts. Schedule 2.25 is a complete and correct list of
all material contracts, commitments, obligations and understandings which are
not set forth in any other Schedule delivered hereunder and to which Talonsoft
is a party or otherwise bound, except for (a) purchase orders from vendors or
customers and (b) each of those which (i) were made in the ordinary course of
business and (ii) either (A) are terminable by Talonsoft (and will be terminable
by Talonsoft) without liability, expense or other obligation on 30 days' notice
or less, or (B) may be anticipated to involve aggregate payments to or by
Talonsoft of $5,000 (or the equivalent) or less calculated over the full term
thereof, and (C) are not otherwise material to the Business. Complete and
correct copies of all contracts, commitments, obligations and undertakings set
forth on any of the Schedules delivered pursuant to this Agreement have been
furnished by Talonsoft to TTIS. Except as expressly stated on any of such
Schedules, (1) each of agreements listed on Schedule 2.25 is in full force and
effect, no person or entity which is a party thereto or otherwise bound thereby
is in
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material default thereunder, and no event, occurrence, condition or act exists
which does (or which with the giving of notice or the lapse of time or both
would) give rise to a material default or right of cancellation, acceleration or
loss of contractual benefits thereunder; (2) there has been no threatened
cancellations thereof, and there are no outstanding disputes thereunder; (3)
none of them is materially burdensome to Talonsoft; and (4) each of them is
fully assignable without the consent, approval, order or any waiver by, or any
other action of or with any individual or individuals, without the payment of
any penalty, the incurrence of any additional debt, liability or obligation of
any nature whatsoever or the change of any term.
2.26. Customers and Suppliers. Schedule 2.26 sets forth a complete and
correct list, as of September 30, 1998, of (a) the 20 largest customers of the
Business and the amount for which each such customer was invoiced, and (b) the
20 largest suppliers (including developers) of the Business and the amount of
goods and services purchased from each such supplier. There are no (i)
threatened cancellations by the aforesaid customers or suppliers with respect to
the Business, (ii) outstanding disputes by such customers or suppliers with
Talonsoft and the Business, or (iii) any adverse changes in the business
relationship between the Business and any such customer or supplier. The
aforesaid suppliers and customers will continue their respective relationships
with the Business after the Closing Date on substantially the same basis as now
exists.
2.27. Approvals/Consents. Except as set forth on Schedule 2.27, Talonsoft
currently holds all governmental and administrative consents, permits,
appointments, approvals, licenses, certificates and franchises which are
necessary for the operation of the Business, all of which are in full force and
effect and are transferable pursuant to the transaction contemplated hereby
without the payment of any penalty, the incurrence of any additional debt,
liability or obligation of any nature whatsoever or the change of any term.
Schedule 2.27 is a complete and correct list of all such governmental and
administrative consents, permits, appointments, approvals, licenses,
certificates and franchises. No material violations of the terms thereof have
heretofore occurred or are known by the Shareholders to exist as of the date of
this Agreement.
2.28. Information as to Talonsoft. None of the representations or
warranties made by the Shareholders in this Agreement is, or contained in any of
the Talonsoft Documents to be executed and delivered hereto will be, false or
misleading with respect to any material fact, or omits to state any material
fact necessary in order to make the statements therein contained not misleading.
2.29. Pooling of Interests. Each of the parties hereto intends that the
Merger be accounted for under the pooling
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of interests methods under the requirements of APB No. 16 of the AICPA, as
amended by the SFAS Board and the related interpretations of the AICPA, the SFAS
Board and the rules and regulations of the Securities and Exchange Commission.
Neither Talonsoft nor the Shareholders has, through the date of this Agreement,
taken or agreed to take any action which would impair the ability of Talonsoft
to account for the business combination to be effected by the Merger as a
pooling of interests. Except as set forth on Schedule 2.29:
(a) Neither Talonsoft nor the Shareholders own or will have, since the
date two years prior to the Effective Date, owned any shares of TTIS Common
Stock, nor shall Talonsoft have been a subsidiary or a division of another
entity since the date two years prior to the Effective Date, except that
John Davidson owns 2,000 shares of TTIS Common Stock.
(b) Talonsoft has no equity investments or rights to purchase equity
investments of any kind in TTIS other than as pursuant to this Agreement
and the other agreements referenced herein; and
(c) Talonsoft has not disposed of a significant amount of assets other
than in the ordinary course of business since the date two years prior to
the Effective Date.
The equity transactions and the capital stock transactions for Talonsoft
and for each Shareholder since the date two years prior to the date hereof are
set forth on Schedule 2.29.
2.30. Securities Act Representation. Each Shareholder is acquiring the TTIS
Common Stock solely for investment purposes, with no intention of distributing
or reselling any such stock or any interest therein. Each Shareholder is aware
that the TTIS Common Stock will not be registered under the Securities Act of
1933, as amended (the "Securities Act"), and that neither the TTIS Common Stock
nor any interest therein may be sold, pledged, or otherwise transferred unless
the TTIS Common Stock is registered under the Securities Act or qualifies for an
exemption under the Securities Act.
3. Representations and Warranties as to TTIS and Subsidiary. TTIS and
Subsidiary, jointly and severally, represent and warrant to Talonsoft and the
Shareholders as follows:
3.1. Organization, Standing and Power. Each of TTIS and Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and Delaware, the laws of the jurisdiction of its
respective incorporation, with full corporate power and corporate authority to
(i) own, lease and operate its properties, (ii)
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carry on its business as currently conducted by it and (iii) execute and
deliver, and perform under this Agreement and each other agreement and
instrument to be executed and delivered by it pursuant hereto.
3.2. Interests in Other Entities. Schedule 3.2 sets forth a true and
complete list of all direct or indirect subsidiaries of TTIS (other than the
Subsidiary) that are material to the financial condition of TTIS and its
subsidiaries, together with the jurisdiction of incorporation of each such
subsidiary and the percentage of each such subsidiary's outstanding capital
stock owned by TTIS or another of TTIS's subsidiaries. Each of such subsidiaries
are duly organized corporations, validly existing and in good standing under the
laws of the jurisdiction of its respective incorporation (as well as all
applicable foreign jurisdictions necessary to its business operations) and have
the requisite corporate power and authority and governmental authority to own,
operate or lease the properties that each purports to own, operate or lease and
to carry on its business as it is now being conducted.
3.3. Capitalization.
(a) The authorized capital stock of TTIS consists of 50,000,000 shares of
TTIS Common Stock and 5,317,000 shares of Preferred Stock, par value $.01 per
share. As of the date hereof, (i) 17,038,636 shares of TTIS Common Stock are
issued and outstanding, all of which are duly authorized, validly issued, fully
paid and nonassessable, (ii) 2,810,284 (net of forfeitures) shares of TTIS
Common Stock are issuable upon exercise of options (plan and non-plan) and (iii)
913,164 shares of TTIS Common Stock are reserved for future issuance upon
exercise of outstanding common stock purchase warrants. No shares of Preferred
Stock are outstanding.
(b) The outstanding shares of capital stock of each of the subsidiaries of
TTIS, including the Subsidiary, are duly authorized, validly issued, fully paid
and nonassessable, and, except as set forth on Schedule 3.3, such shares are
owned by TTIS, directly or indirectly, free and clear of all security interests,
liens, adverse claims, pledges, agreements, limitations on TTIS's voting rights,
charges and other encumbrances of any nature whatsoever. Except as noted on
Schedule 3.3, there are no options, warrants or similar right outstanding with
respect to shares of capital stock of the Subsidiary.
3.4. Authority. The execution and delivery by TTIS and Subsidiary of this
Agreement and of each agreement to be executed and delivered by either of them
pursuant hereto (collectively, the "TTIS Documents"), the performance by each of
them of its obligations hereunder and thereunder, and the consummation of the
transactions contemplated hereby and thereby,
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have been duly and validly authorized by all necessary corporate action on the
part of TTIS and Subsidiary, and TTIS and Subsidiary have all necessary
corporate power and corporate authority with respect thereto. This Agreement is,
and when executed and delivered by TTIS and Subsidiary each other TTIS Document
will be, the valid and binding obligation of TTIS or Subsidiary, as the case may
be to the extent it is a party thereto, in accordance with the respective terms,
thereof, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the rights of creditors
generally and subject to the rules of law governing (and all limitations on)
specific performance, injunctive relief, and other equitable remedies.
3.5. Securities and Exchange Commission Filings; Financial Statements.
(a) TTIS has filed on EDGAR all forms, reports, statements and
documents required to be filed with the Securities and Exchange Commission
("SEC") (collectively, the "SEC Reports"), each of which has complied in
form in all material respects with the applicable requirements of the
Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as applicable, each as in effect on the date so filed.
None of such reports (including but not limited to any financial statements
or schedules included or incorporated by reference therein) filed by TTIS,
when filed (except to the extent revised or superseded by a subsequent
filing with the SEC) contained any untrue statement of a material fact.
(b) Each of the consolidated financial statements contained in the SEC
Reports has been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except as may otherwise be indicated in the notes thereto) and each
presents fairly, in all material respects, the consolidated financial
position of TTIS and its subsidiaries as at the respective dates thereof
and the consolidated results of its operations and cash flow position for
the periods indicated.
(c) Except as and to the extent set forth on the balance sheet of TTIS
and its subsidiaries as at July 31, 1998, including the notes thereto, and
TTIS and its subsidiaries taken as a whole, do not have any liabilities or
obligations, whether or not accrued, contingent or otherwise, that would be
required to be included on a balance sheet prepared in accordance with
GAAP, except for liabilities or obligations incurred in the ordinary course
of business since July 31, 1998, none of which would, individually or in
the aggregate, have a material adverse effect on the financial condition,
or results of the operations or cash flows of TTIS and its subsidiaries, on
a consolidated basis.
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3.6. Stock Issuable in Merger. The Share Consideration, when issued, will
be duly authorized and validly issued, fully paid and non-assessable, will be
delivered hereunder free and clear of any liens, adverse claims, security
interests, pledges, mortgages, charges and encumbrances of any nature
whatsoever, except that the shares of TTIS Common Stock constituting the Share
Consideration will be "restricted securities", as such term is defined in the
rules and regulations of the SEC promulgated under the Securities Act, and will
be subject to restrictions on transfers pursuant to such rules and regulations.
3.7. Absence of Changes. Since July 31, 1998, there have not been (a) any
material adverse change (other than as is normal in the ordinary course of
business, in the condition (financial or otherwise), assets, liabilities,
business, prospects, results of operations or cash flows of TTIS and Subsidiary
(including, without limitation, any such adverse change resulting from damage,
destruction or other casualty loss, whether or not covered by insurance), (b)
any waivers by TTIS or Subsidiary of any right, or cancellation of any debt or
claim, of substantial value, (c) any declarations, set asides or payments of any
dividend or other distributions or payments in respect of the TTIS Common Stock,
or (d) any changes in the accounting principles or methods which are utilized by
TTIS or Subsidiary.
3.8. Information as to TTIS and Subsidiary. None of the representations or
warranties made by TTIS or Subsidiary in this Agreement, or contained in any of
the TTIS Documents, to be executed and delivered hereto, is or will be, false or
misleading with respect to any material fact, or omits to state any material
fact necessary in order to make the statements therein contained not misleading.
4. Indemnification.
4.1. Indemnification by Talonsoft and the Shareholders. Each of Talonsoft
(before the Effective Date) and the Shareholders, jointly and severally, hereby
indemnifies and agrees to defend and hold harmless each of TTIS and Subsidiary
from and against any and all losses, obligations, deficiencies, liabilities,
claims, damages, costs and expenses (including, without limitation, the amount
of any settlement entered into pursuant hereto, and all reasonable legal and
other expenses incurred in connection with the investigation, prosecution or
defense of any matter indemnified pursuant hereto) which either of them may
sustain, suffer or incur and which arise out of, are caused by, relate to, or
result or occur from or in connection any misrepresentation of a fact contained
in any representation of Talonsoft and/or the Shareholders contained in, or the
breach by Talonsoft, or the Shareholders of any warranty or covenant made by any
one or all of them in, any Talonsoft Document and/or any Shareholder Document.
The foregoing indemnification shall
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also apply to direct claims by TTIS and/or Subsidiary against the Shareholders.
4.2. Indemnification by TTIS and Subsidiary. Each of TTIS and Subsidiary,
jointly and severally, indemnifies and agrees to defend and hold harmless each
of Talonsoft (before the Effective Date) and the Shareholders from and against
any and all losses, obligations, deficiencies, liabilities, claims, damages,
costs and expenses (including, without limitation, the amount of any settlement
entered into pursuant hereto, and all reasonable legal and other expenses
incurred in connection with the investigation, prosecution or defense of any
matter indemnified pursuant hereto), which it or he may sustain, suffer or incur
and which arise out of, are caused by, relate to, or result or occur from or in
connection with any misrepresentation of a fact contained in any representation
of TTIS and/or Subsidiary contained in, or the breach by TTIS or Subsidiary of
any warranty or covenant made by either or both of them in, any TTIS Document.
The foregoing indemnification shall also apply to direct claims by Talonsoft or
the Shareholders against TTIS and/or Subsidiary.
4.3. Third Party Claims. If a claim by a third party is made against any
party or parties hereto and the party or parties against whom said claim is made
intends to seek indemnification with respect thereto under Subsections 4.1 or
4.2, the party or parties seeking such indemnification shall promptly notify the
indemnifying party or parties, in writing, of such claim; provided, however,
that the failure to give such notice shall not affect the rights of the
indemnified party or parties hereunder except to the extent that such failure
materially and adversely affects the indemnifying party or parties due to the
inability to timely defend such action. The indemnifying party or parties shall
have 10 business days after said notice is given to elect, by written notice
given to the indemnified party or parties, to undertake, conduct and control,
through counsel of their own choosing (subject to the consent of the indemnified
party or parties, such consent not to be unreasonably withheld) and at their
sole risk and expense, the good faith settlement or defense of such claim, and
the indemnified party or parties shall cooperate with the indemnifying parties
in connection therewith; provided: (a) all settlements require the prior
reasonable consultation with the indemnified party and the prior written consent
of the indemnified party, which consent shall not be unreasonably withheld, and
(b) the indemnified party or parties shall be entitled to participate in such
settlement or defense through counsel chosen by the indemnified party or
parties, provided that the fees and expenses of such counsel shall be borne by
the indemnified party or parties. So long as the indemnifying party or parties
are contesting any such claim in good faith, the indemnified party or parties
shall not pay or settle any such claim; provided, however, that notwithstanding
the foregoing, the indemnified party or parties shall have the right to pay or
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settle any such claim at any time, provided that in such event they shall waive
any right of indemnification therefor by the indemnifying party or parties. If
the indemnifying party or parties do not make a timely election to undertake the
good faith defense or settlement of the claim as aforesaid, or if the
indemnifying parties fail to proceed with the good faith defense or settlement
of the matter after making such election, then, in either such event, the
indemnified party or parties shall have the right to contest, settle or
compromise (provided that all settlements or compromises require the prior
reasonable consultation with the indemnifying party and the prior written
consent of the indemnifying party, which consent shall not be unreasonably
withheld) the claim at their exclusive discretion, at the risk and expense of
the indemnifying parties.
4.4. Limitation. In no event shall the maximum liability of the
Shareholders under Section 4 exceed the Share Consideration.
4.5. Assistance. Regardless of which party is controlling the defense of
any claim, each party shall act in good faith and shall provide reasonable
documents and cooperation to the party handling the defense.
5. Covenants
5.1. Investigation.
(a) Between the date hereof and the Closing Date, TTIS and/or Subsidiary,
on the one hand, and Talonsoft and the Shareholders, on the other hand, may,
directly and through their representatives, make such investigation of each
other corporate party and their respective businesses and assets of the other
corporate party or parties as each deems necessary or advisable (the entity
and/or its representatives making such investigation being the "Investigating
Party"), but such investigation shall not affect any of the representations and
warranties contained herein or in any instrument or document delivered pursuant
hereto. In furtherance of the foregoing, the Investigating Party shall have
reasonable access, during normal business hours after the date hereof, to all
properties, books, contracts, commitments and records of each other, and shall
furnish to the other and their representatives such financial and operating data
and other information as may from time to time be reasonably requested relating
to the transactions contemplated by this Agreement. Each of TTIS and Subsidiary,
on the one hand, and Talonsoft and the Shareholders, on the other, and the
respective management, employees, accountants and attorneys of the corporate
parties shall cooperate fully with the Investigating Party in connection with
such investigation.
(b) The parties hereto hereby agree that all confidential information of a
party to which an Investigating
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Party obtains access shall be deemed "Confidential Information." As used in this
Section, the term "Confidential Information" shall mean any and all information
(verbal and written) relating to the Business, including, but not limited to,
information relating to: identity and description of goods and services used;
purchasing; costs; pricing; sources; machinery and equipment; technology;
research, test procedures and results; customers and prospects; marketing; and
selling and servicing;
(c) After the Effective Date each of the Shareholders agrees not to, at any
time, directly or indirectly, use, communicate, disclose or disseminate any
Confidential Information in any manner whatsoever except such disclosures which
are necessary to comply with their duties as officers of the Surviving
Corporation.
5.2. [Intentionally Omitted]
5.3. Consummation of Transaction. Each of the parties hereto hereby agrees
to use its best efforts to cause all conditions precedent to his or its
obligations (and to the obligations of the other parties hereto to consummate
the transactions contemplated hereby) to be satisfied, including, but not
limited to, using all reasonable efforts to obtain all required (if so required
by this Agreement) consents, waivers, amendments, modifications, approvals,
authorizations, novations and licenses; provided, however, that nothing herein
contained shall be deemed to modify any of the absolute obligations imposed upon
any of the parties hereto under this Agreement or any agreement executed and
delivered pursuant hereto.
5.4. Cooperation/Further Assurances.
(a) Each of the parties hereto hereby agrees to fully cooperate with the
other parties hereto in preparing and filing any notices, applications, reports
and other instruments and documents which are required by, or which are
desirable in the reasonable opinion of any of the parties hereto, or their
respective legal counsel, in respect of, any statute, rule, regulation or order
of any governmental or administrative body in connection with the transactions
contemplated by this Agreement.
(b) Each of the parties hereto hereby further agrees to execute,
acknowledge, deliver, file and/or record, or cause such other parties to the
extent permitted by law to execute, acknowledge, deliver, file and/or record
such other documents as may be required by this Agreement and as TTIS and/or
Subsidiary, on the one hand, and/or Talonsoft and/or the Shareholders, on the
other, or their respective legal counsel may reasonably require in order to
document and carry out the transactions contemplated by this Agreement.
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5.5. Accuracy of Representations. Each party hereto agrees that prior to
the Effective Date he or it will enter into no transaction and take no action,
and will use his or its best efforts to prevent the occurrence of any event (but
excluding events which occur in the ordinary course of business and events over
which such party has no control), which would result in any of his or its
representations, warranties or covenants contained in this Agreement or in any
agreement, document or instrument executed and delivered by him or it pursuant
hereto not to be true and correct, or not to be performed as contemplated, at
and as of the time immediately after the occurrence of such transaction or
event.
5.6. Notification of Certain Matters. Talonsoft and the Shareholders shall
give prompt notice to TTIS and Subsidiary, and TTIS or Subsidiary shall give
prompt notice to Talonsoft and the Shareholders, as the case may be, of (a) the
occurrence, or nonoccurrence, or any event the occurrence, or nonoccurrence, of
which would be likely to cause any representation contained in this Agreement to
be untrue or inaccurate in any material respect at or prior to the Effective
Date and (b) any material failure of Talonsoft and/or the Shareholders, on the
one hand, and of TTIS and/or Subsidiary, on the other, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by him or
it hereunder; provided, however, that the delivery of any notice pursuant to
this Subsection 5.6 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
5.7. Broker. Each of TTIS, Subsidiary, Talonsoft, and the Shareholders
represents and warrants to the other parties that no broker or finder was
engaged or dealt with in connection with any of the transactions contemplated by
this Agreement other than Bengur Bryan & Company, Inc. ("Bengur Bryan"), and
each of the parties shall indemnify and hold the other harmless from and against
any and all claims or liabilities asserted by or on behalf of any alleged broker
or finder other than Bengur Bryan for broker's fees, finder's fees, commissions
or like payments.
5.8. No Solicitation of Transactions. Prior to the earlier of the Effective
Date or the termination of this Agreement, neither Talonsoft nor any of the
Shareholders will, directly or indirectly, through any director, officer,
employee, investment banker, financial advisor, attorney, accountant or other
agent or representative of Talonsoft otherwise, solicit, initiate or encourage
the submission of proposals or offers from any person relating to any
acquisition or purchase of all or (other than in the ordinary course of
business) any portion of the Talonsoft Common Stock, Assets or Business of, or
any equity interest in, Talonsoft, or any business combination with Talonsoft
(other than the Merger contemplated hereby) and other than with TTIS and/or
Subsidiary, participate in any negotiations
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regarding, or furnish to any other person any information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing. Talonsoft and the Shareholders shall immediately cease and cause to
be terminated any existing discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing (other than in respect
of the transaction contemplated hereby). Talonsoft and the Shareholders shall
promptly notify TTIS if any such proposal or offer, or any inquiry or contact
with any person with respect thereto, is made and shall, in any such notice to
TTIS, indicate in reasonable detail the identity of the offeror and the terms
and conditions of any proposal or offer.
5.9. Prohibited Conduct. Each of Talonsoft and the Shareholders, jointly
and severally, covenants and agrees that, during the period from the date hereof
to the Effective Date, except pursuant to the terms hereof or unless TTIS shall
otherwise agree in writing, the Business shall be conducted only, and Talonsoft
shall not take any action except, in the ordinary course of business and in a
manner consistent with past practice and in compliance with applicable laws; and
Talonsoft shall use its best efforts to preserve intact its Assets, the Business
and the business organization of Talonsoft, to keep available the services of
the present officers, employees and consultants of Talonsoft, and to preserve
the present relationships of Talonsoft with customers, suppliers and other
persons with whom Talonsoft has business relations. By way of illustration, and
not limitation, neither Talonsoft nor the Shareholders shall, between the date
of this Agreement and the Effective Date, directly or indirectly, do or propose
or commit to do, any of the following without the prior written consent of TTIS:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of the Talonsoft Common Stock, or (ii)
split, combine or reclassify any of the Talonsoft Common Stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of the Talonsoft Common Stock, or otherwise;
(b) authorize for issuance, issue, deliver, sell or agree to commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise), pledge or otherwise encumber, any shares of Talonsoft Common
Stock, any other voting securities or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, voting
securities convertible securities or any other securities or equity
equivalents;
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(c) (i) increase the compensation payable or to become payable to any
officer, director, employees or consultant of Talonsoft, except pursuant to
the terms of contracts, policies or benefit arrangements in effect on the
date hereof, or (ii) grant any severance or termination pay to, or enter
into any employment or severance agreement with, any director, officer,
other employee or consultant of Talonsoft, except pursuant to the terms of
contracts, policies and benefit arrangements in effect on the date hereof,
or (iii) establish, adopt, enter into or amend any collective bargaining
(other than in accordance with past practice), bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
directors, officers, employees or consultants of Talonsoft;
(d) amend the Certificate of Incorporation, By-Laws or other
comparable charter or organizational documents of Talonsoft or alter
through merger, liquidation, reorganization, restructuring, or in any other
fashion, the corporate structure or ownership of Talonsoft;
(e) acquire, or agree to acquire, (i) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of, or
by any other manner, any business or corporation, partnership, joint
venture, association or other business organization or division thereof, or
(ii) any assets that are material, individually or in the aggregate, to
Talonsoft, except purchases consistent with past practice;
(f) sell, lease, license, mortgage or otherwise encumber or subject to
any lien, security interest, pledge or encumbrance or otherwise dispose of
any of the Assets, except sales in the ordinary course of business
consistent with past practice;
(g) permit Talonsoft to incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of
Talonsoft, guarantee any debt securities of another person, or enter into
any arrangement having the economic effect of any of the foregoing, except
for short-term borrowings incurred in the ordinary course of business
consistent with past practice, or (ii) permit the Shareholders to issue any
guaranties of any indebtedness of Talonsoft;
(h) except in the ordinary course of business, enter into any
agreement, contract, commitment, involving a commitment on the part of
Talonsoft to purchase, sell, lease or otherwise dispose of assets or
require payment by Talonsoft in excess of $5,000;
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(i) make any capital expenditures;
(j) adopt a plan of complete or partial liquidation of Talonsoft or
resolutions providing for or authorizing such a liquidation or the
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization of Talonsoft;
(k) cause Talonsoft to recognize any labor union (unless legally
required to do so) or enter into or amend any collective bargaining
agreement;
(l) change any accounting principles used by Talonsoft, unless
required by the Financial Accounting Standards Board;
(m) make any tax election of, or settle, compromise any income tax
liability of, or file any federal income tax return prior to the last day
(including extensions) prescribed by law, in the case of any of the
foregoing, material to the business, financial condition or results of the
operations of Talonsoft;
(n) settle or compromise any litigation in which Talonsoft is a
defendant (whether or not commenced prior to the date of this Agreement) or
settle, pay or compromise any claims not required to be paid, which
payments are individually in an amount in excess of $5,000 and in the
aggregate in an amount in excess of $10,000; and
(o) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.10. Tax-Free Reorganization. Each of the parties hereto agree to use all
reasonable efforts to cause the Merger to be treated as a reorganization within
the meaning of Section 368(a) of the Code.
5.11. Pooling of Interests. Neither Talonsoft nor the Shareholders shall
take any action which would affect the likelihood of treating, for financial
reporting purposes, the Merger as a "pooling of interests."
5.12. Payment of Taxes Upon Merger. The Shareholders shall be responsible
for, and shall pay, any and all sales, use, purchase, transfer and similar taxes
(real estate or otherwise), and any and all filing, recording, registration and
similar fees, arising out of the transfer of Talonsoft Common Stock pursuant to
the Merger.
5.13. Stock Options. At the Effective Date, TTIS shall reserve an
additional 100,000 shares of previously authorized TTIS Common Stock for the
granting of stock options to
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key employees of the Surviving Corporation after the Effective Date, as to be
mutually determined by the Chief Executive Officer of the Surviving Corporation
and the Compensation Committee of TTIS.
5.14. Employment Agreements. At the Effective Date, each of John Davidson
and James Rose shall enter into an employment agreement with the Surviving
Corporation in the form of Exhibits D and E hereto, respectively (the
"Employment Agreements").
5.15. Registration Rights Agreement. At the Closing, TTIS shall enter into
a registration rights agreement with the Shareholders, substantially in the form
attached hereto as Exhibit F (the "Registration Rights Agreement"), with respect
to a portion of the Share Consideration.
5.16. Business Plan. Talonsoft shall prepare a plan of operation mutually
agreeable to the parties with respect to the combination of business operations
of the Surviving Corporation and Alliance Inventory Management Systems, Inc., a
wholly-owned subsidiary of TTIS. Any such plan of operation shall provide, in
part, that Baltimore, Maryland shall be the principal place of business for the
Surviving Corporation for the next four (4) years.
6. Conditions of Merger.
6.1. Conditions to Obligations of TTIS and Subsidiary to Effect the Merger.
The respective obligations of TTIS and Subsidiary to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Date of the following
conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of each of Talonsoft and the Shareholders contained in any
Shareholders Document or Talonsoft Document delivered by either or both of
them shall have been true when made, and, in addition, shall be true in all
material respects on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date.
(b) Performance of Agreements. Each of Talonsoft and the Shareholders,
as the case may be, shall have performed, observed and complied in all
material respects with all of their obligations, covenants and agreements,
and shall have satisfied or fulfilled in all material respects conditions
contained in any Shareholders Document or Talonsoft Document and required
to be performed, observed or complied with, or to be satisfied or
fulfilled, by Talonsoft or the Shareholders at or prior to the Effective
Date.
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(c) Results of Investigation. TTIS and Subsidiary shall be satisfied
with the results of any investigation of the business and affairs of
Talonsoft undertaken by them pursuant to Subsection 5.1 hereof, including,
without limitation, satisfaction that the transaction would be "accretive"
to the Earnings Per Share (fully diluted basis) of TTIS for the 1998 and
1999 fiscal years.
(d) Board Authorization. Approval by the Board of Directors and the
shareholders of Talonsoft with respect to the execution and delivery of,
and the performance by Talonsoft of its obligations under, this Agreement
and the transactions contemplated hereunder.
(e) Pooling of Interests. TTSI shall have received confirmation from
S.E. Smith & Company, LLP and PriceWaterhouseCoopers, LLP that the Merger
will be treated, for financial reporting purposes, as a pooling of
interests.
(f) Tax Free Reorganization. TTIS shall have received confirmation
from each of S.E. Smith & Company, LLP and PriceWaterhouseCoopers, LLP, to
the effect that the Merger will be treated for federal income tax purposes
as a tax-free reorganization within the meaning of Section 368(a) of the
Code.
(g) Affiliate Letters. TTIS shall have received a letter in
substantially the form annexed hereto as Exhibit G from each of Talonsoft,
its officers and directors, the holders of Talonsoft Common Stock (or other
securities of Talonsoft) and any of its other "affiliates" within the
meaning of Rule 145 of the Securities Act.
(h) Financing Arrangements. On or before the Closing, the lender(s)
providing the financing arrangements with respect to on-going operations of
Talonsoft (and the Surviving Corporation following the Merger) shall
confirm that all conditions precedent to such financing have been complied
with and satisfied in all respects and that Talonsoft (and the Surviving
Corporation) shall have received sufficient funds thereunder to continue
operating the Business subsequent to the Merger.
(i) Minimum Net Assets. Talonsoft shall have a tangible net worth of
at least $900,000 as of the Closing Date.
(j) Opinion of Counsel for Talonsoft. TTIS and Subsidiary shall have
received an opinion of Howard, Butler & Melfa, counsel for Talonsoft and
the Shareholders, dated the Closing Date, in substantially the form of
Exhibit H hereto.
(k) Litigation. No order of any court or administrative agency shall
be in effect which restrains or
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prohibits the transactions contemplated hereby, and no claim, suit, action,
inquiry, investigation or proceeding in which it will be, or it is, sought
to restrain, prohibit or change the terms of or obtain damages or other
relief in connection with this Agreement or any of the transactions
contemplated hereby, shall have been instituted or threatened by any person
or entity, and which, in the reasonable judgment of TTIS (based on the
likelihood of success and material consequences of such claim, suit,
action, inquiry or proceeding), makes it inadvisable to proceed with the
consummation of such transactions.
(l) Consents and Approvals. All consents, waivers, approvals, licenses
and authorizations by third parties and governmental and administrative
authorities (and all amendments or modifications to existing agreements
with third parties) (the "Consents") including, without limitation, all
Consents from the primary lending institutions of each of Talonsoft and
TTIS, required as a precondition to the performance by Talonsoft and the
Shareholders of their respective obligations hereunder and under any
agreement delivered pursuant hereto, or which in TTIS's reasonable judgment
are necessary to continue unimpaired, subsequent to the Effective Date, any
rights in and to the Assets and/or the Business which could be impaired by
the Merger, shall have been duly obtained and shall be in full force and
effect.
(m) Date of Consummation. The Merger shall have been consummated on or
prior to December 31, 1998, or such later date as the parties shall agree
by a written instrument signed by all of them.
(n) Validity of Transactions. The validity of all transactions
contemplated hereby, as well as the form and substance of all agreements,
instruments, opinions, certificates and other documents delivered by
Talonsoft and the Shareholders pursuant hereto, shall be satisfactory in
all material respects to TTIS and its counsel.
(o) No Material Adverse Change. Except as otherwise provided by this
Agreement, there shall not have occurred after the date hereof, in the
reasonable judgment of TTIS, a material adverse change in the financial or
business condition of Talonsoft.
(p) Employment Agreements. Each of John Davidson and James Rose shall
have executed and delivered their respective Employment Agreements.
(q) Closing Certificate. Each of the Shareholders shall have furnished
TTIS and Subsidiary with certificates, all dated the Closing Date, to the
effect that all the representations and warranties of Talonsoft and the
Shareholders are true and complete and all covenants to be
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performed by Talonsoft or the Shareholders at or as of the Closing have
been performed and conditions to be satisfied at or as of the Closing have
been waived or satisfied.
6.2. Conditions to Obligations of Talonsoft and the Shareholders to Effect
the Merger. The obligations of Talonsoft and the Shareholders to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Date of
the following conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of TTIS and Subsidiary contained in any TTIS Documents
delivered by either TTIS or Subsidiary or both of them shall have been true
when made, and, in addition, shall be true in all material respects, on and
as of the Closing Date with the same force and effect as though made on and
as of the Closing Date.
(b) Performance of Agreements. Each of TTIS and Subsidiary shall have
performed, observed and complied, in all material respects, with all
obligations, covenants and agreements, and shall have satisfied or
fulfilled in all material respects all conditions contained in any TTIS
Document and required to be performed, observed or complied with, or
satisfied or fulfilled, by either or both of them at or prior to the
Closing Date.
(c) Board Authorization. Approval by the TTIS Board of the execution
and delivery of, and the performance by TTIS of its obligations under, this
Agreement and the transactions contemplated thereunder.
(d) Litigation. No order of any court or administrative agency shall
be in effect which restrains or prohibits the transactions contemplated
hereby, and no claim, suit, action, inquiry, investigation or proceeding in
which it will be, or it is, sought to restrain, prohibit or change the
terms of or obtain damages or other relief in connection with this
Agreement or any of the transactions contemplated hereby shall have been
instituted or threatened by any person or entity, and which in the
reasonable judgment of the Shareholders (based on the likelihood of success
and material consequences of such claim, suit, action, inquiry or
proceeding), makes it inadvisable to proceed with the consummation of such
transactions.
(e) Consents and Approvals. All consents, waivers, approvals, licenses
and authorizations by third parties and governmental and administrative
authorities (and all amendments and modifications to existing agreements
with third parties) required as a precondition to the performance by TTIS
and Subsidiary of their respective obligations hereunder and under any
agreement delivered pursuant hereto, shall have been duly obtained and
shall be in full force and effect.
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(f) Date of Consummation. The Merger shall have been consummated on or
prior to December 31, 1998, or such later date as the parties shall agree
by a written instrument signed by all of them.
(g) Validity of Transactions. The validity of all transactions
contemplated hereby, as well as the form and substance of all agreements,
instruments, opinions, certificates and other documents delivered by TTIS
and Subsidiary pursuant hereto, shall be satisfactory in all material
respects to the Shareholders and its counsel.
(h) Stock Options. TTIS shall have authorized the issuance of options
to purchase up to an aggregate of 100,000 shares of the TTIS Common Stock
to key employees of the Surviving Corporation.
(i) Employment Agreements. The Surviving Corporation shall have
executed and delivered to each of John Davidson and James Rose their
respective Employment Agreements.
(j) Registration Rights Agreement. TTIS shall have entered into the
Registration Rights Agreement.
(k) Closing Certificate. Each of TTIS and Subsidiary shall have
furnished Talonsoft with certificates, each executed by their respective
presidents, dated the Closing Date, to the effect that all the
representations and warranties of TTIS or Subsidiary, as the case may be,
are true and complete in all material respects and all covenants to be
performed by each of TTIS or Subsidiary, as the case may be, at or as of
the Closing have been performed in all material respects and conditions to
be satisfied at or as of the Closing have been waived or satisfied in all
material respects.
7. The Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8, the closing of the Merger (the "Closing") will take place at the offices of
Tenzer Greenblatt LLP as promptly as practicable (and in any event within five
business days) after satisfaction or waiver of the conditions set forth in
Section 6 but in no event later than December 31, 1998 (the "Closing Date"); or
such later date as shall have been fixed by a written instrument signed by the
parties.
7.1. Deliveries by TTIS and Subsidiary at the Closing. At the Closing, TTIS
and Subsidiary shall deliver the following:
(a) stock certificate(s), representing the Share Consideration
registered in the names of the Shareholders;
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(b) copies of (i) resolutions adopted by the TTIS Board authorizing
TTIS to execute and deliver the TTIS Documents to which it is a party, to
perform its obligations thereunder and to effect the Merger upon the terms
and subject to the conditions set forth therein, and (ii) resolutions
adopted by the board of directors of the Subsidiary, and the written
consent of the sole shareholder, authorizing Subsidiary to execute and
deliver the Subsidiary Documents to which it is a party, to perform its
obligations thereunder and to effect the Merger upon the terms and subject
to the conditions set forth therein, duly certified by the Secretaries or
Assistant Secretaries of TTIS and the Subsidiary, respectively;
(c) certificates of the Secretary or Assistant Secretary of each of
TTIS and Subsidiary certifying as to the incumbency and specimen signatures
of the officers of TTIS and Subsidiary executing the TTIS Documents on
behalf of such corporation;
(d) confirmation, in the form of satisfactory to the parties hereto,
from the States of Delaware and Maryland that the Certificate of Merger of
the Subsidiary with and into Talonsoft has been filed with such Secretaries
of State; together with a copy of the executed form of such agreement;
(e) the Registration Rights Agreement duly executed by TTIS.
7.2. Deliveries by Talonsoft and/or the Shareholders at the Closing. At the
Closing, Talonsoft and/or the Shareholders, as applicable, shall deliver to TTIS
and/or Subsidiary, as the case may be, the following:
(a) stock certificate(s) representing the Talonsoft Common Stock, duly
executed by the Shareholders;
(b) a copy of the resolutions of the Board of Directors of Talonsoft,
and the written consent of the Shareholders, authorizing Talonsoft to
execute and deliver the Talonsoft Documents, to perform its obligations
thereunder and to effect the Merger upon the terms and conditions
thereunder, duly certified by the Secretary or assistant Secretary of
Talonsoft;
(c) certificates of the Secretary or Assistant Secretary of Talonsoft
certifying as to the incumbency and specimen signatures of the officers of
Talonsoft executing the Talonsoft Documents on behalf of such corporation;
(d) the Employment Agreements, duly executed by John Davidson and
James Rose; and
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(e) the Registration Rights Agreement duly executed by the
Shareholders.
7.3. Other Deliveries. In addition, the parties shall execute and deliver
such other documents as may be required by this Agreement and as either of them
or their respective counsel may reasonably require in order to document and
carry out the transactions contemplated by this Agreement.
8. Termination, Amendment and Waiver.
8.1. Termination. This Agreement may be terminated at any time prior to the
Effective Date:
(a) By mutual consent of the Boards of Directors of TTIS, Subsidiary
and Talonsoft; or
(b) By TTIS and Subsidiary, on the one hand, or Talonsoft and the
Shareholders, on the other hand, if any of the conditions precedent with
respect to the other party, as set forth in Sections 6.1 and 6.2,
respectively, have not been satisfied or waived on or before the Effective
Date.
(c) By TTIS and Subsidiary, on the one hand, or Talonsoft and the
Shareholders, on the other hand, if (i) the Merger shall not have been
consummated by December 31, 1998, or such later date as the parties shall
have fixed by written instrument signed by the parties hereto; provided,
however, that the right to terminate this Agreement under this Subsection
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of
the Effective Date to occur on or before such date or (ii) a court of
competent jurisdiction or governmental, regulatory or administrative agency
or commission shall have issued an order, decree or ruling or taken any
other action (which order, decree, ruling or other action the parties
hereto shall use their reasonable efforts to vacate), in each case
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement.
(d) By TTIS and Subsidiary, on the one hand, or by Talonsoft and the
Shareholders, on the other hand, if, in the reasonable judgment of TTIS and
Subsidiary or Talonsoft and the Shareholders, as the case may be, (and
provided such parties are not then in material breach of their respective
obligations hereunder), it shall have been determined that the transaction
contemplated by this Agreement has become inadvisable or impracticable by
reason of the institution or threat by state, local or federal governmental
authorities or by any other person of material litigation or proceedings
against TTIS or Talonsoft.
-32-
(e) By TTIS and Subsidiary, on the one hand, or Talonsoft and the
Shareholders, on the other hand, if, in the reasonable judgment of TTIS and
Subsidiary or Talonsoft or the Shareholders, as the case may be (and
provided such parties are not then in material breach of their respective
obligations hereunder), it shall be determined that the business or assets
or financial condition of the other unrelated corporate party hereto has
been materially and adversely affected since September 30, 1998, whether by
reason of changes, developments or operations in the normal course of
business or otherwise.
8.2. Effect of Termination. In the event of the termination of this
Agreement as provided in this Section 8, this Agreement shall, forthwith become
null and void and there shall be no liability on the part of any party hereto
and nothing herein shall relieve any party from liability for any wilful breach
hereof. Such termination shall not, however, affect the obligations of the
parties with respect to any Confidential Information in accordance with Section
5.1 hereof.
8.3. Fees and Expenses. TTIS and the Subsidiary shall bear all expenses in
connection with the transactions contemplated hereby.
8.4. Waiver. At any time prior to the Effective Date, any party hereto may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any of the agreements or conditions contained herein.
Any such extension or waiver shall be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
9. Survival of Representations and Warranties.
Each of the parties hereto hereby agrees that: (i) representations and
warranties made by or on behalf of him or it in this Agreement or in any
document or instrument delivered pursuant hereto with respect to tax matters,
environmental compliance and ERISA matters shall survive the respective statutes
of limitations for such matters; and (ii) all other representations or
warranties made herein shall survive the Closing Date for a period of two (2)
years after the Effective Date.
10. General Provisions.
10.1. Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the earlier of the date delivered or mailed if delivered personally, by
overnight courier or mailed by express, registered or certified mail (postage
prepaid, return receipt requested) or by
-33-
facsimile transmittal, confirmed by express, certified or registered mail, to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice, except that notices of changes of address
shall be effective upon receipt):
If to TTIS or Subsidiary: Take-Two Interactive Software, Inc.
575 Broadway
New York, New York 10012
Attn: Ryan A. Brant
Chief Executive Officer
with a copy to: Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Kenneth Selterman, Esq.
If to Talonsoft or
the Shareholders: Talonsoft, Inc.
White Marsh Business Center I
Suite F
5020 Campbell Boulevard
Baltimore, Maryland 21236
Attn: John Davidson
Chief Financial Officer
with a copy to: Howard Butler & Melfa P.A.
401 Allegheny Avenue
Towson, Maryland 21204
Attn: William N. Butler, Esq.
10.2. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the greatest extent possible.
10.3. Entire Agreement. This Agreement and the agreements referred to
herein constitute the entire agreement, and supersede all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
-34-
10.4. Amendment. This Agreement may not be amended except by an instrument
in writing signed by each of the parties hereto.
10.5. No Assignment. This Agreement shall not be assigned by operation of
law or otherwise, and any assignment shall be null and void.
10.6. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York without regard to its choice
of law principles. Each of TTIS, Subsidiary, Talonsoft and the Shareholders
hereby irrevocably and unconditionally consents to submit to the jurisdiction of
the courts of the State of New York and of the United States located in the
County of New York, State of New York for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such courts), waives
any objection to the laying of venue of any such litigation in such courts and
agrees not to plead or claim that such litigation brought in any such courts has
been brought in an inconvenient forum.
10.7. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, each of Take-Two Interactive Software, Inc.,
Subsidiary, Talonsoft, Inc., by their respective officers thereunto duly
authorized, the Shareholders, individually, have caused this Agreement to be
executed as of the date first written above.
TAKE-TWO INTERACTIVE SOFTWARE, INC.
By: /s/ Ryan A. Brant
----------------------------------
Ryan A. Brant
Chief Executive Officer
TALONSOFT, INC. (Delaware)
By: /s/ Ryan A. Brant
----------------------------------
Ryan A. Brant
President
TALONSOFT, INC. (Maryland)
By: /s/ John Davidson
----------------------------------
Name: John Davidson
Title: Chief Financial Officer
/s/ John Davidson
---------------------------------------
JOHN DAVIDSON
/s/ Greta Davidson
---------------------------------------
GRETA DAVIDSON
/s/ James Rose
---------------------------------------
JAMES ROSE
/s/ Barbara Rose
---------------------------------------
BARBARA ROSE
-36-
DATED 1999
---------------------------------
TAKE TWO INTERACTIVE SOFTWARE, INC
- and -
THE SELLERS
AGREEMENT
for the sale and purchase of
the share capital L.D.A.
Distribution Limited and such shares in the
capital of Joytech Limited not held by the
Company
HARBOTTLE & LEWIS
Hanover House
14 Hanover Square
London W1R 0BE
INDEX
1. Interpretation........................................................1
2. Agreement for Sale....................................................1
3. Consideration for Shares..............................................2
4. Conditions and Completion.............................................4
5. Rescission............................................................5
6. Representations Warranties and Undertakings...........................7
7. Limitations..........................................................10
8. Restrictions on Sellers .............................................14
9. Obligations of Buyer.................................................21
10. Effect of Completion.................................................22
11. Costs, Expenses and Insurance........................................22
12. Notices..............................................................22
13. Entire Agreement/Variation...........................................22
14. Counterparts.........................................................23
15. Announcements........................................................24
16. General..............................................................24
17. Provision of Group Business Information..............................25
18. Governing Law and Jurisdiction.......................................25
SCHEDULE 1....................................................................27
The Sellers
SCHEDULE 2....................................................................28
Particulars of the Company
SCHEDULE 3....................................................................32
Representations, Warranties and Undertakings
SCHEDULE 4....................................................................61
(The Property)
SCHEDULE 5....................................................................62
Particulars of Inter-Company Loans, Guarantees etc
SCHEDULE 6....................................................................63
Completion Arrangements
SCHEDULE 7....................................................................65
Escrow Agreement
SCHEDULE 8......................................................................
Completion Accounts
SCHEDULE 9....................................................................68
Interpretation
THIS AGREEMENT is made on 1999
BETWEEN:
(1) The shareholders listed in Schedule 1 ("the Sellers");
(2) TAKE-TWO INTERACTIVE SOFTWARE, INC a Delaware company having its office
at 575 Broadway, New York, New York 10012 ("the Buyer" which expression
shall, where consistent with the context used and to the extent
permitted, include its successors in title and assigns).
WHEREAS:
(A) The Sellers are and at Completion will be the legal and beneficial owners
of the entire issued share capital of LDA and all of the issued share
capital of Joytech not legally and beneficially owned by LDA.
(B) The particulars of the Company and the Subsidiaries are set out in
Schedule 2.
(C) The Sellers have induced the Buyer to enter into this Agreement by the
Sellers making the representations and agreeing to warrant and undertake
in the terms of Clause 6 and Schedule 3 and the Buyer has induced the
Sellers to enter into this Agreement by the Buyer agreeing to warrant and
undertake to the Sellers in the terms of Clause 5.
IT IS AGREED as follows:-
1. Interpretation
1.1 In this Agreement and its Schedules the words and expressions defined in
paragraph 1 of Schedule 9 shall, unless inconsistent with the context,
have the meanings set out in such paragraph.
1.2 This Agreement and its Schedules will be construed and interpreted in
accordance with Schedule 9.
1.3 The Schedules form part of this Agreement and will be of full force and
effect as though expressly set out in the body of this Agreement.
1.4 References to any English legal term or concept (including without
limitation any action, remedy, method of judicial procedure, legal
document, statute, court, official or any other legal concept) will in
respect of any jurisdiction other than England be construed as references
to the term or concept which most nearly corresponds to it in that
jurisdiction.
2. Agreement for Sale
- 1 -
2.1 Subject to the terms of this Agreement each of the Sellers with full
title guarantee shall sell to the Buyer and the Buyer shall purchase the
Shares free from all options, claims and Security Interests with effect
from Completion and together with all rights attached or accruing to them
at Completion.
2.2 Each of the Sellers waives irrevocably any and all rights of pre-emption
in respect of the sale and purchase of the Shares or any of them pursuant
to Clause 2.1.
3. Consideration for Shares
3.1 Subject to Clause 3.4, the total consideration for the sale of the Shares
shall be (i) the payment by the Buyer to the Sellers of (pound)200,000
(allocated in the proportions set out next to each of the Sellers names
in Schedule 1) and payable in 10 equal monthly instalments beginning 5
days after Completion; and (ii) the issue by the Buyer to the Sellers (in
the proportions set out next to each of the Seller's names in Schedule 1)
of 580,000 unregistered shares par value $0.01 of the common stock of the
Buyer (as may be adjusted in accordance with Clauses 3.4 to 3.7 below)
(the "Consideration Shares") to be issued within 5 Business Days
following final determination or agreement of the amount of the Net Asset
Value (as defined below) provided that any Consideration Shares payable
to Interactive Development shall be issued to an escrow agent (the
"Escrow Agent") in accordance with an escrow agreement with regard to
which the parties shall jointly approach six reputable institutions and
shall accept the terms of such institutions as is closest to the form set
out in Schedule 10 (subject to such institution accepting an obligation
to sell the relevant shares on reasonable terms) (the "Escrow
Agreement")to be entered into by the Buyer, Interactive Development and
the Escrow Agent following final determination of any adjustment to the
total consideration in accordance with Clause 3.4 to 3.7 below.
3.2 The proportion of the total consideration to which each Seller is
entitled shall be that proportion set opposite such Seller's name in
Schedule 1.
3.3 The Buyer shall be entitled to set off, or (pending the determination of
the relevant amount) withhold any amounts payable by it after Completion
to the Sellers (save for the (pound)200,000 payable in accordance with
Clause 3.1(i)) against (a) the amount of any Bona Fide Claims by the
Buyer under any Transaction Document and (b) any other sum due to the
Buyer or its Associates by the Sellers or their Associates.
3.4 In the event that Net Asset Value (as defined below) is less than
(pound)850,000 the number of Consideration Shares shall be 580,000 less
such number ("X") calculated in accordance with the following formula:
X = (850,000 - Net Asset Value (as defined below));
-----------------------------------------------
Y
where;
- 2 -
Y = Completion Price converted into sterling at the Conversion Rate.
For the avoidance of doubt there shall be no adjustment to the number of
Consideration Shares in the event that the Net Asset Value exceeds
(pound)850,000.
3.5 For these purposes "Net Asset Value" shall mean the amount paid up or
credited as paid up on the issued share capital of the Company plus the
consolidated reserves of the Company and the other Group Companies plus
the consolidated retained earnings of the Company and the other Group
Companies (or less the amount standing to the debit of the consolidated
profit and loss account of the Company and the Group Companies, as the
case may be) less any amount included in the above which is attributable
to minority interests, goodwill and/or other intangibles in each case as
at the Completion Accounts Date and determined in accordance with this
Clause 3.
3.6 For the purpose of establishing the amount of the Net Asset Value:-
3.6.1 The Sellers shall procure that as soon as practicable following
Completion (and in any event within 30 days) draft Completion
Accounts are prepared in accordance with the principles set out in
Schedule 8 and (to the extent not inconsistent with such
principles) all relevant SSAPs and generally accepted United
Kingdom accountancy principles.
3.6.2 Forthwith following preparation of the draft Completion Accounts
the Sellers shall deliver to the Buyer and to the Buyer's
Accountants a copy of the draft Completion Accounts.
3.6.3 Following receipt of the draft Completion Accounts the Buyer and
the Buyer's Accountants shall be entitled to examine these with a
view to agreeing the calculation of the Net Asset Value. Such
calculation of the Sellers' shall be final and binding upon the
parties to this Agreement unless, prior to the expiry of 60 days
following their delivery to the Buyer, the Buyer serves notice on
the Sellers stating that it wishes to dispute the same giving (so
far as practical and possible) its grounds for wishing to do so
and incorporating any adjustment which the Buyer would wish to be
made to the draft Completion Accounts and its (or the Buyer's
Accountants') own calculation of the Net Asset Value.
3.6.4 If a dispute is raised by the Buyer as to the draft Completion
Accounts or the Net Asset Value, and such dispute is not settled
by agreement between the Buyer and the Sellers within 30 days
after the Buyer notifies the Sellers of the dispute pursuant to
sub-Clause 3.6.3 above, then either the Sellers or the Buyer may
instruct an independent firm of chartered accountants (the
"Independent Accountants") (acting as experts and not as
arbitrators) appointed by agreement or in default of agreement by
the President of the Institute of Chartered Accountants of England
and Wales to determine the dispute in question within 30 days of
such instruction and the determination of such firm (whose costs
shall be borne as such firm shall direct or (in default of
direction) equally by the Buyer on
- 3 -
the one hand and the Sellers on the other hand) shall (in the
absence of fraud or manifest error) be final and binding on the
parties in all circumstances and:
(a) each of the parties shall on request promptly supply to the
Sellers' Accountants, the Buyer's Accountants and the
Independent Accountants (as appropriate) all such
assistance, documents and information as they may
respectively require for the purpose of the determination
pursuant to Clause 3.6.4 as appropriate and the parties
shall use all reasonable endeavours to procure the due and
prompt determination; and
(b) for the avoidance of doubt, the provisions of Clause 7 and
the Disclosure Letter shall in no way affect the adjustment
to the number of the Consideration Shares pursuant to
Clause 3.4 - 3.7.
3.7 Within five Business Days following final determination or agreement of
the amount of the Net Asset Value, the Buyer shall in accordance with
Clause 3.1 issue to the Sellers (or to the Escrow Agent as the case may
be) the Consideration Shares as may be adjusted in accordance with Clause
3.5 provided that, where there shall be a dispute as to the Net Asset
Value and the amount disputed is a specific amount, the number of
Consideration Shares that would therefore be unaffected by the final
determination shall be issued as soon as reasonably practicable following
the establishing of the maximum difference of opinion between the Sellers
and the Buyer as to the Net Asset Value.
3.8 The Buyer, Lee Guinchard and David Gillard agree that immediately prior
to the issue of the Consideration Shares in accordance with Clause 3.7
they shall enter into a Registration Rights Agreement in the agreed terms
in respect of 65% (sixty-five per cent) of the Consideration Shares
issued to Lee Guinchard and David Gillard.
4. Completion
4.1 Completion shall take place immediately after signing this Agreement at
the offices of the Buyer's Solicitors. At Completion each of the parties
shall fulfil the obligations imposed upon it by Schedule 6. To the extent
that the parties do not fulfil the obligations set out in Schedule 6 on
Completion they shall use their best endeavours to do so as soon as
practicable following Completion.
4.2 The Buyer shall not be obliged to complete this Agreement unless each
Seller complies fully with the requirements of Schedule 6 so far as they
relate to the Seller in question and, for the avoidance of doubt, the
Buyer shall not be obliged to complete this Agreement unless the purchase
of all the Shares is completed simultaneously in accordance with this
Agreement.
4.3 The Sellers shall not be obliged to sell their Shares to the Buyer unless
the Buyer fulfils its material obligations pursuant to Schedule 6.
- 4 -
4.4 The Sellers shall (and shall procure that all other necessary parties
shall) on, and at all times after, Completion execute and do all such
deeds, documents, acts and things as the Buyer shall reasonably require
at or after Completion for assigning to or vesting in the Buyer or its
nominees the full beneficial ownership of, and legal title to, the
Shares, and for giving full effect to this Agreement.
4.5 The Sellers shall procure that prior to Completion:
4.5.1 all amounts owing (whether due for payment of not) to the Group by
any of the Sellers or any of the officers of the Company or the
Sellers or any Associate of the Sellers or such officers or any of
them respectively shall have been paid or repaid provided that,
without prejudice to the foregoing, to the extent that any such
amounts owing have not been paid, these shall continue to be due
and payable on demand on and after Completion;
4.5.2 guarantees, indemnities, mortgages, sureties or security
arrangements of any kind given by or binding on the Group
(including any assets of the Group) in respect of any liabilities
or obligations (actual or contingent) of any of the Sellers or any
of such officers or any such Associate shall have been fully and
effectively released without any provision or consideration for
such release by the Group; and
4.5.3 the Group shall be released, without payment by or other cost to
the Group, from all debts and obligations of any kind owed or
outstanding to and from all guarantees, indemnities, mortgages and
surety and security arrangements of any kind given by the Group in
favour of, and all rights of subrogation arising against any of
the Group from, any of the Sellers or any such officers or any
such Associate;
and shall indemnify and keep the Buyer indemnified (as trustee for itself
and on behalf of the Group Companies) from and against any failure so to
procure and from any Liability pending such release.
5. Buyer Warranties
5.1 The Buyer represents and warrants to, and agrees with, the Sellers, as of
the date hereof:
5.1.1 The Buyer is a corporation duly organised, validly existing and in
good standing under the laws of the jurisdiction of the state of
Delaware and has all requisite power and authority to own, lease
and operate its properties and to carry on its businesses as now
being conducted and is duly qualified to do business and is in
good standing in each jurisdiction where the failure to be so
qualified would have a material adverse effect on the Buyer and
its subsidiaries. The Buyer shall deliver to the Sellers within 5
days of this Agreement complete and correct copies of its
certificate of incorporation and bylaws as amended to the date
hereof.
5.1.2 As of the date hereof the authorised capital stock of the Buyer
consists of
- 5 -
50,000,000 shares of Common Stock, par value $.01 per share
("Common Stock"), and 5,000,000 shares of Preferred Stock, par
value $0.0 per share. At the close of business on 1 February ,
1999, 18,425,924 shares of Common Stock were outstanding.
The shares of Common Stock to be issued to the Sellers pursuant to
this agreement, when issued in accordance with the documents to be
executed and delivered by the Buyer in connection with this
agreement, will be duly authorised, validly issued, fully paid and
nonassessable and issued in compliance with applicable federal and
state securities laws.
5.1.3 The Buyer has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of this
agreement, and the consummation of the transactions contemplated
thereby, have been duly authorised by all necessary corporate
action on the part of the Buyer. This agreement has been duly
executed and delivered by the Buyer and constitutes a valid and
binding obligation of the Buyer enforceable against the Buyer in
accordance with its terms except as enforcement may be limited by
bankruptcy, insolvency, or other similar laws affecting the
enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific
performance, is subject to the discretion of the court before
which any proceeding therefor may be brought. The execution and
delivery of this Agreement do not, and the consummation of the
transactions contemplated thereby will not, conflict with or
result in any violation of, or default under, or give rise to a
right of termination, cancellation or acceleration of any
obligation or to loss of a material benefit under any provision of
the certificate of incorporation or by-laws of the Buyer. No
consent, approval, order or authorisation of, or registration,
declaration or filing with, any federal, state or local
government, or any agency or instrumentality thereof, is required
by or with respect to the Buyer in connection with the execution
and delivery of this Agreement by the Buyer or the consummation by
the Buyer of the transactions contemplated thereby except for
consents, approvals, orders or authorisations which have been
obtained or in respect of which the failure to obtain would not
have a material adverse effect on the Buyer.
5.1.4 The Buyer has filed all required forms, reports and documents with
the Securities and Exchange Commission (the "SEC") since 1 January
1998, each of which has complied in all material respects with all
applicable requirements of the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended, each as in
effect on the dates such forms, reports and documents were filed.
The Buyer will therefore deliver to the Sellers within 5 days of
this Agreement in the form filed with the SEC (including any
amendments thereto), all reports or registration statements filed
by the Buyer with the SEC (including any amendments thereto),
since 1 January 1998 (the "Buyer SEC Reports"). None of such
forms, reports or documents including, without limitation, any
financial statements or schedules included or incorporated by
reference therein (but excluding exhibits), contained, when filed,
any untrue statement of a material fact
- 6 -
or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make
the statement therein, in light of the circumstances under which
they were made, not misleading.
5.1.5 The consolidated financial statements of the Buyer included in the
Purchaser SEC Reports comply as to form in all material respects
with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto and fairly
present, in conformity with US generally accepted accounting
principles applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial
position of the Buyer and its consolidated subsidiaries as of the
dates thereof and their position for the periods ended (subject,
in the case of the unaudited interim financial statements, to
normal year- end adjustments).
During the period commencing on 1 November 1998 and ending on the
date hereof the Buyer is not aware that any event, fact,
condition, circumstance or other development has occurred which
has had or could be reasonably expected to have a material adverse
effect on the results of operations of the Buyer for that period.
5.2 The representations and warranties made in this Clause 5 shall survive
the execution and delivery of this Agreement for a period of one year.
6. Representations Warranties and Undertakings
6.1 The Sellers jointly and severally represent, warrant and undertake
(except in relation to the warranties set out in paragraphs 1.2, 1.4,
1.6, 11.3, 11.4, 11.5, 11.6 and 11.7 of Schedule 3 in relation to which
Lee Guinchard, David Gillard and Interactive Development each severally
represents, warrants and undertakes as to each of themselves only) to the
Buyer:-
6.1.1 in the terms of Schedule 3;
6.1.2 that upon any event occurring or matter arising which results in
any of the Warranties being unfulfilled, untrue, misleading or
inaccurate in any respect at Completion or any breach or
non-fulfilment of any of the undertakings, agreements or
obligations of the Sellers or any of them contained in this
Agreement the Sellers will as soon as reasonably practicable
thereafter notify the Buyer of the same and give details of and,
where requested, investigate fully all relevant circumstances.
6.2 The Warranties contained in this Agreement will each remain in full force
and effect beyond and notwithstanding Completion and are each made
without prejudice to any of the others. Subject to Clause 7, no provision
of this Agreement will limit the extent or application of any Warranty
and although those contained in Schedule 3 are given subject to matters
fairly disclosed in the Disclosure Letter no other information relating
to any Group Company of which the Buyer or any of its advisers has
knowledge (actual or constructive) will prejudice any claim made by the
Buyer under any such Warranties or
- 7 -
operate to reduce any amounts recoverable. Each disclosure in the
Disclosure Letter shall (if it refers to any separate document) identify
such document with a copy of the relevant document being attached to the
Disclosure Letter; any disclosure which fails to comply with the
foregoing requirement in any respect shall not be effective and the
matters stated therein shall be deemed not to be disclosed so that the
Warranties shall continue to have full effect without qualification in
any respect by such disclosure. Notwithstanding the above or any other
provision of this Agreement:-
6.2.1 the Warranties contained in paragraph 1 of Schedule 3 shall not be
or be capable of being qualified or discharged by the Disclosure
Letter, Clause 7 or in any other way; and
6.2.2 the Warranties shall not be or be capable of being qualified or
discharged by the Disclosure Letter, Clause 7 or in any other way
insofar as any Claim arises as a consequence of the fraud or
wilful or negligent misconduct or concealment of the Sellers.
6.3 Subject to the provisions of Clause 7, without restricting the rights of
the Buyer or its ability to claim damages on any basis, provided that the
Buyer agrees to use reasonable endeavours to mitigate its loss in so far
as if such Claim had been brought as a breach of warranty, the amount of
any Claim may be determined as and be deemed to be and the Sellers shall
at all times indemnify and keep fully and effectively indemnified the
Buyer (for itself and at its option on behalf of the Group and its
officers, employees, directors, shareholders, advisors and agents (other
than the Sellers)) from and in respect of:-
6.3.1 the amount of all loss, damage or Liability (and all costs,
charges, interest, fines, penalties and expenses reasonably
incurred in relation to the same (including without limitation all
reasonable expenses of investigations and legal fees and expenses
on a solicitor and own client basis)) suffered by the Buyers Group
and/or the amount of any depletion or diminution in the value of
any assets of the Group in each case suffered or incurred by
Buyers Group as a result of the subject matter of such Claim; or
6.3.2 the amount by which any assets or liabilities of the Group are
respectively less or more than they would have been had the
relevant statement in Schedule 3 been true and not misleading; or
6.3.3 the amount of any decrease in the value of the Shares and of any
other loss or damage suffered or incurred by the Buyer in
consequence of or in relation to the subject matter of such Claim.
6.4 Save as otherwise provided herein and save as regards matters already
disclosed in the Disclosure Letter the rights and remedies of the Buyer
in respect of any breach of the Warranties shall not be affected by
Completion (save that the Agreement shall not be capable of rescission
after Completion), by any investigation made by it or on its behalf into
the affairs of the Company, by its rescinding or failing to rescind this
Agreement or
- 8 -
by any other event or matter whatsoever. The Buyer hereby warrants and
undertakes to the Sellers that as at the date of this Agreement, it has
not been notified of any matter that it is aware will constitute a breach
of Warranty or claim pursuant to the Deed.
6.5 The accuracy of information supplied by the Group or any of its employees
or agents to the Sellers or their professional advisers prior to
Completion in connection with matters disclosed to the Buyer in the
Disclosure Letter will not be deemed to have been represented, warranted
or guaranteed by the Group and the Sellers hereby waive any and all
claims against the Group or against any of its employees (other than the
Executive Sellers) in respect thereof and assign to the Buyer any rights,
remedies or claims which they may have in respect of any
misrepresentations in, or omission from, any information or advice
supplied or given by any Group Company or its respective officers or
employees and on which reliance has been placed in giving the Warranties
and preparing the Disclosure Letter and the Deed.
6.6 Any liability of the Sellers to the Buyer under this Agreement (including
its Schedules and documents referred to in this Agreement) may be
released compounded or compromised in whole or in part by the Buyer
without in any way prejudicing or affecting its rights against the other
Sellers.
6.7 The Sellers agree that each of the Warranties will apply in relation to
each of the Group Companies as if all references to the Company are to
and include each Group Company.
6.8 If any of the Shares purchased by the Buyer shall at any time be sold or
transferred to any Connected Company (as defined in Clause 16.5), the
benefit of each of the Warranties may be assigned to the purchaser or
transferee of those Shares who shall accordingly be entitled to enforce
each of the Warranties against the Sellers as he were named in this
Agreement as the Buyer provided that if such assignee is to cease to be a
Connected Company it should first assign back to the benefit of the
Warranties to the Buyer or another Connected Company.
6.9 The Sellers will at all times indemnify and hold the Buyer (for itself
and on behalf of the Group and its officers, shareholders, directors,
employees, shareholders and advisors and agents (other than the Sellers))
fully and effectively indemnified against any and all loss, damage or
Liability (and all reasonable costs charges interest fines penalties and
expenses in connection with any such loss damage or liability, including
without limitation, all expenses of investigations and legal fees and
expenses on a solicitor and own-client basis) whether or not foreseeable,
contemplated or avoidable suffered as a result of or in connection with
the following:-
(a) the Company's occupation of the property at 12 Firbank Way,
Chartwell Business Park, Leighton Buzzard, Bedfordshire LU7 8FL to
the extent that any such liability of the Group in respect of such
occupation is not satisfied by the landlord for such property
Chartmore Estates Limited being able to exercise its rights in
respect of the retention of (pound)5000 currently being held by
it;
- 9 -
(b) any claim made by Sony Computer Entertainment Europe Limited
("Sony") or any subsidiary or holding company of Sony in relation
to any product sold by or for the Group and in existence at
Completion or any element of such products;
(c) in respect of the indemnity provided by the Group to DSG Limited
dated 25 January 1999;
(d) in respect of any dispute between any member of the Group and the
Federation of International Football Associations (or any agent,
affiliate or other authorised representative thereof) with regard
to any memory cards produced by any member of the Group and
bearing World Cup '98 marks, to the extent that the aggregate
liability of the Group in respect of such dispute exceeds
(pound)15000;
(e) the Company not having obtained or secured compliance with any
consent required by the terms of its agreement with Jordan Grand
Prix Limited dated 3 November 1996;
(f) the Company not having obtained or complied with any consent
required by the terms of its lease with Chartmoor Estates Limited
relating to 2 Chartmoor Road and dated 28 August 1998; and
(g) the Company having failed to comply with any of the conditions
required by the terms of its arrangement with GE Capital
Commercial Finance or that arrangement (as set out in a letter
addressed to Lee Guinchard from Trevor Deacon of GE Capital
Commercial Finance dated 19 November 1998) otherwise not having
come into full force and effect.
The provisions of Clauses 7.9-7.11 (inclusive) shall mutatis mutandis
apply to the provisions of this Clause 6.9.
7. Limitations
7.1 The liability of the Sellers in respect of any Claim shall be limited as
follows:
(a) no liability shall arise unless the loss thereby sustained
(together with (i) the aggregate amount of losses sustained or
arising from previous or concurrent Claims (if any); and (ii) any
claims under the Deed (if any) shall exceed (pound)50,000, in
which case any and all such sums shall be liable to be met in
full;
(b) the aggregate liability of the Sellers under the Warranties and
the Deed in respect of all or any Claims against the Sellers
together with any claim or liability pursuant to Clause 6.9 above
and any claims under the Deed shall not exceed the total value of
the Consideration Shares (at the Completion Price) (which shall
exclude the amount of all reasonable costs, charges and expenses
properly incurred by the Buyer in connection with the making or
enforcement of such claims up to (pound)200,000);
- 10 -
(c) no Claim shall be made by the Buyer or the Company (other than in
respect of (a) those Warranties in sub-paragraphs 1.1 - 1.6 and
1.8 of Schedule 3 or (b) fraud or wilful misconduct or
concealment), unless written notice specifying in reasonable
detail the grounds on which such Claim is based (and so far as
practicable the amount claimed) has been given by the Buyer to the
Sellers on or before:
(i) the date falling 6 months after the date of the second set
of audited accounts for the Group following Completion, in
respect of any breach or alleged breach of the Warranties
(other than those relating to Taxation or set out in (iii)
below) or, if earlier, 31 January 2001; and
(ii) the later of the seventh anniversary of Completion or the
expiry of the relevant statutory period for claims by the
relevant tax authority applicable to non-UK resident
companies, in respect of any breach or alleged breach of
any Warranties relating to Taxation; and
(iii) 4 years from the Completion Date in respect of any breach
or alleged breach of the Warranties set out in paragraphs
7.4 and 7.7 of Schedule 3.
(such dates being the "Claim Dates") and any Claim which has been
made or shall be made before the Claim Date shall (if it has not
been previously satisfied, settled or withdrawn) be deemed to have
been withdrawn and shall become fully barred and unenforceable on
the expiry of the period of six months commencing on the receipt
by the Sellers of notice of the Claim pursuant to Clause 7.1(c)
unless proceedings in respect thereof shall have been commenced
against the Sellers and for this purpose proceedings shall not be
deemed to have been commenced unless they shall have been issued
and served upon the Sellers.
7.2 Notwithstanding Clause 7.1 above, the liability of Interactive
Development shall be limited to the value of the proportion of the
Consideration Shares (at the Completion Price) issued or to be issued to
Interactive Development (or the Escrow Agent) in accordance with this
Agreement set out below:
For Claims made in the following Liability
Number of Years after Completion
up to 1 100%
1-2 70%
2-3 40%
3-7 10%
For the avoidance of doubt, the Buyer shall be entitled to claim against
the remaining Sellers for any part of any Claim (up to the maximum set
out in Clause 7.1 above) which is not recoverable from Interactive
Development in accordance with this Clause 7.2.
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7.3 Interactive Development undertakes that it will not without the written
consent of the Buyer make any distribution, loan or transfer out of the
Consideration Shares paid to it pursuant to this Agreement at any time
after notice shall have been received by it of a Claim or Claims or any
claim or claims under the Deed by the Buyer without first setting aside
and retaining an amount of cash equal to the amount of such Claim or
claim under the Deed or the Buyer's bona fide estimate thereof provided
that such provision shall cease to apply if, within 60 days of notifying
Interactive Development of such Claim or claim under the Deed the Buyer
shall have fulfilled the requirements to make such Claim or claim under
the Deed a Bona Fide Claim.
7.4 Where any loss could give rise to more than one Claim, the Buyer shall
not be entitled to recover more than once for the same loss, so that, in
calculating the amount payable in respect of any claim for breach of any
of the Warranties or any claim under the Deed, account shall be taken of
any amount paid under the Warranties and/or the Deed in respect of the
same loss.
7.5 Subject to the provision of Clause 7.6, the Sellers shall not be liable
for any Claim (other than a claim under the Tax Warranties) if and to the
extent that:
(a) a specific allowance, provision or reserve in respect of any
liability the subject of the Claim was made or taken into account,
or payment or discharge of which was taken into account, in the
Completion Accounts;
(b) any provision for Taxation in the Completion Accounts is an over
provision;
(c) any liability included in the Completion Accounts has been
unconditionally and irrevocably discharged or satisfied below the
amount attributed to it or included in respect of it in the
Completion Accounts;
(d) it is attributable to:
(i) a failure or omission on the part of any Group Company
after Completion to make any claim election, surrender or
disclaimer or the failure or omission after Completion to
give any notice or consent to do any other thing the
making, giving or doing of which in each case was taken
into account in computing the provision or reserve for
Taxation in the Completion Accounts provided that such
failure or omission is otherwise than in the ordinary
course of business of the relevant Group Company or the
Buyer and at the time of such failure or omission the Buyer
was aware or ought reasonably to have been aware that such
failure or omission would give rise to a Claim and provided
that any such action would not unduly prejudice the Buyer
or the Group Company; or
(ii) any claim, election , surrender or disclaimer made or
notice or consent given or any other thing done after
Completion by any Group Company or the Buyer or any person
connected with them (otherwise than in the
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ordinary course of business of the relevant Group Company
or the Buyer) provided that the Buyer was aware or ought
reasonably to have been aware that such claim, election,
surrender or disclaimer made or notice or consent given or
other thing done would give rise to such Claim and provided
that any such action would not unduly prejudice the Buyer
or the Group Company;
(e) it arises as a result of:
(i) the retrospective imposition of Taxation or any increase in
rates of Taxation in each case occurring after Completion
or the withdrawal after Completion of any published
concession or general practice previously made by a Tax
Authority or by a change in the law after Completion
(whether retrospectively or not);
(ii) any change (without the written consent of the Sellers
(such consent not to be unreasonably withheld or delayed))
after Completion in the bases upon which the accounts of
any Group Company are prepared or any change in accounting
or taxation practice, policies or principles provided that
the Buyer was aware or ought reasonably to have been aware
that such change would result in such Claim arising and not
making such change does not unduly prejudice the Buyer or
any Group Company; or
(iii) any change (without the written consent of the Sellers
(such consent not to be unreasonably withheld or delayed))
after Completion in the date to which any Group Company
makes up its Accounts provided that the Buyer was aware or
ought reasonably to have been aware that such change would
result in such Claim arising and not making such change
does not unduly prejudice the Buyer or any Group Company;
(f) the Buyer recovers the proceeds of any insurance policy in respect
of any relevant loss or damage suffered by it (without damage,
loss, liability, expense or prejudice to the Buyer or any Group
Company) under the terms of such insurance policy in force at
Completion;
(g) the liabilities under it is contingent or future in which case the
Sellers shall not be liable to recompense the Buyer until such
time as the Buyer shall actually have suffered loss or incurred
the liability in question.
7.6 The provisions of Clause 3.1 of Clause 3 (Exclusions & Limitations), 5
(Payments received by the Buyer or a Group Company), 6 (Over-provisions
and corresponding savings), 7 (Conduct of Claims) and 11 (Date of
Payment) of the Deed shall apply to claims made under the Taxation
Warranties as if the terms were specifically set out herein and as if
references under the Deed to the "Covenantors" and "Liability to
Taxation" were references to the "Sellers" and "Claim" respectively under
this Agreement.
- 13 -
7.7 Where the subject matter of the Claim is capable of remedy without Loss,
liability or prejudice to the Buyer's Group, the Sellers shall not be
liable for the Claim if and to the extent that the breach or default is
remedied by them to the reasonable satisfaction of the Buyer within 30
days of receipt by them of the notification of the Claim pursuant to
subclause 7.1(c).
7.8 If the Sellers make any payment ("Payment") in relation to any Claim
(other than a claim under the Tax Warranties) and the Buyer (or the
Company or any company in the Buyer's group) subsequently receives from a
third party any amount or benefit directly as a result of and which would
not have been received but for the circumstances giving rise to, the
subject matter of that Claim, with the result that, if such payment or
benefit had been received prior to the Payment, would have reduced the
amount of the Payment by an amount (the "Reduction") the Buyer shall,
once it or the Company has received such amount or benefit, as soon as
reasonably practicable repay or procure the repayment to the Sellers of
the amount of the lesser of (a) the Reduction (b) such receipt and (c)
the amount paid by the Sellers in relation to such Claim (after deducting
an amount equal to the reasonable costs of the Buyer or the Company
incurred in recovering such sum).
7.9 No party shall have any claim or right of recovery for any breach of a
representation or warranty or covenant or agreement unless written notice
is given in good faith by that party to the other party of the
representation, warranty, covenant or agreement pursuant to which the
claim is made or right of recovery is sought, setting forth in reasonable
detail the specific breach of the representation, warranty, covenant or
agreement, the amount of the claim being made and the basis for that
amount.
7.10.1 Without prejudice to the provisions of Clause 7.1(c) a party seeking
indemnification or making a claim under this Agreement (an "indemnified
party") shall give prompt notice to the party from or against whom
indemnification is sought or the claim is made (the "indemnifying party")
of the assertion of any claim, or the commencement of any action, or
proceeding, in respect of which such indemnity or the claim may be sought
under this Agreement and will give the indemnifying party such
information with respect to such claims as the indemnifying part may
reasonably request, but no failure to give such notice shall relieve the
indemnifying part of any liability under this Agreement (except to the
extent the indemnifying part has suffered actual prejudice as a direct
result of such failure).
7.10.2 The indemnifying party may, at its expense, participate in or assume the
defence of any such action, or proceeding. Notwithstanding the
indemnifying party's election to appoint counsel to represent the
indemnifying party in an action, the indemnified party shall have the
right to employ separate counsel (including local counsel), and, the
indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the indemnifying party shall
not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time after
notice of the institution of such action or (iii) the indemnifying party
shall authorise the indemnified party to employ separate
- 14 -
counsel at the expense of the indemnifying party. Whether or not the
indemnifying party chooses to defend or prosecute any claim involving a
third party, all the parties shall at the indemnifying party's cost
reasonably cooperate in the defence or prosecution thereof and shall
furnish such records, information and testimony, and attend at the
indemnifying party's cost such conferences, discovery proceedings,
hearings, trials and appeals, as may be reasonably requested in
connection therewith.
7.10.3 Notwithstanding anything to the contrary in this clause, an indemnifying
party's rights pursuant to this clause are subject to the following:-
(a) No failure by the indemnified party to give any notice under this
Clause 7.10 shall relieve the indemnifying party of any liability
under this Agreement.
(b) An indemnifying party may not exercise its rights pursuant to this
clause unless it admits in writing that the claim is one in
respect of which the indemnified party is entitled to be
indemnified under this Agreement, or, in any event, if the claim
(i) is reasonably likely to result in imprisonment of the
indemnified party, (ii) is reasonably likely to result in a
criminal penalty or fine against the indemnified party the
consequences of which would be reasonably likely to have a
material adverse effect on the indemnified party unrelated to the
size of such penalty or fine, or (iii) is reasonably likely to
result in an equitable remedy which would materially impair the
indemnified party's ability to exercise its rights under this
Agreement, or impair Buyer's right to operate the Companies. The
indemnifying party shall take no action pursuant to this clause
and the Buyer and the Group shall not be obliged to take any
action pursuant to this clause which has any prejudicial effect on
the Buyer or the Group.
The Sellers shall not and have no authority to (i) settle or compromise
any claim by or against the Group without the Buyer's prior written
consent or (ii) take any action, or make any omission which would cause
the officers of the Buyer, or any of the Group to be in breach of their
fiduciary duties or which would cause the Buyer or any of the Group or
any of their respective officers or employees to be in breach of any law
or regulation.
7.11 For any Claim or claim under the Deed or pursuant to Clause 6.9 satisfied
within 1 year following the date of issue of the Consideration Shares a
Seller shall at its option be entitled to settle such Claim or claim
under the Deed or pursuant to Clause 6.9 by the transfer to the Buyer of
Consideration Shares. Each Consideration Share so transferred shall
discharge an amount of a Claim or claim under the Deed or pursuant to
Clause 9 equal to its value at the Completion Price at the Conversion
Rate.
8. Restrictions on Sellers
8.1 As regards the service agreements proposed to be entered into between
Take-Two Interactive Software Europe Limited ("Take-Two Europe") and the
Executive Sellers severally at Completion:
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8.1.1 the Executive Sellers hereby acknowledge that:
(a) it is a term of this Agreement that the said service
agreements are being entered into for the purpose of (inter
alia) protecting the goodwill of the Group; and
(b) accordingly if any Executive Seller shall voluntarily leave
the employment of Take-Two Europe (or such other company in
the Buyer's Group to which his employment is transferred
subsequent to Completion) (the "Employer Company") within 3
years from Completion or if Two-Two Europe or the Employer
Company shall be entitled summarily to determine such
service agreement, the Company and the Buyer will suffer
loss;
8.1.2 if any Executive Seller shall leave the employment of Take Two
Europe prior to the expiry of 6 months from the date of
Completion, such Executive Seller severally undertakes to repay to
the Buyer an amount equal to(pound)726,650; if he shall leave such
employment thereafter the amount repayable shall reduce by
(pound)40,667 for each complete calendar month that he is so
employed after the expiry of the initial 6 month period (which sum
represents the agreed proportion of the total consideration
payable hereunder which is attributable to goodwill), such amount
to be payable within one calendar month after the termination of
the Executive Seller's employment;
8.1.3 nothing in this Clause shall require the Executive Sellers or any
of them to make any payment to the Buyer in circumstances in
which:
(a) the Buyer shall terminate the said service agreement
without good cause; or
(b) the Buyer shall fail to fulfil its material obligations
under this Agreement or any other Transaction Document in
any material respect; or
(c) Take-Two Europe or the Employer Company shall
constructively dismiss the Executive Seller without having
good cause to do so; or
(d) the Executive Seller shall by reason of death, illness or
injury be unable to perform his obligations under the said
service agreement in circumstances which would entitle
Take-Two Europe or the Employer Company to terminate the
same.
8.2 For the purposes of this Clause the following words and expressions shall
have the following meanings:
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"Customer" any person, firm or company who at any
time during the period of two years
immediately prior to the relevant Event
Date was a customer, client or licensee
of the Company or any Relevant Associate
being a person, firm or company with
whom the relevant Seller personally
dealt on behalf of the Company or any
Relevant Associate during the said
period of two years or for whose account
the relevant Seller had overall
responsibility;
"Distribution Business" the business of the marketing,
purchasing, sale, licensing and
distribution of interactive
entertainment software and hardware
products (but excluding the Peripherals
Business);
"the Event Dates" the Completion Date and/or the
Termination Date;
"Key Person" a person who is or was at any time
whilst the relevant Seller was employed
by or a shareholder of the Company:
(a) employed or engaged as an
employee, director or consultant of the
Group or any Relevant Associate; and
(b) a person with whom the relevant
Seller personally dealt during his
employment by or the time he held shares
in the Company; and/or
(c) employed in the capacity of
manager, marketing or sales executive or
in a more senior capacity or who is
reasonably likely to be in possession of
any Confidential Information.
"Period" the period commencing on each of the
Event Dates and ending on the date being
(in the case of the Completion Date)
four years later and (in the case of the
Termination Date) one year from the
Termination Date, save that the purposes
of Clause 8.3.5, such period shall
continue indefinitely;
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"Peripherals Business" the business of the marketing,
purchasing, sale, licensing and
distribution of interactive
entertainment hardware peripherals
(including, without limitation, joypads,
joysticks, steering wheels and memory
cards);
"Prospective Customer" any person, firm or company who has been
engaged in negotiations with the Company
or any Relevant Associate with a view to
purchasing or contracting in relation to
services or goods supplied by the
Company or any Relevant Associate in the
period of 12 months prior to the
relevant Event Date being a person, firm
or company with whom the relevant Seller
personally dealt on behalf of the
Company or any Relevant Associate during
the said period of 12 months or for
whose account the relevant Seller had
overall responsibility;
"Relevant Associate" any member of the Group and/or an
Associate of the Group from time to
time;
"Restricted Business" that part or parts of the Distribution
and/or the Peripherals Business which
competes or compete or is or are about
to compete with that part or parts of
the business of the Company or any
Relevant Associate with which the
relevant Seller was materially involved
or concerned or for which the relevant
Seller was responsible within a two year
period prior to the relevant Event Date;
"Services and/or Goods" any services and/or goods of a kind
supplied by the Company or any Relevant
Associate in the period of two years
immediately prior to the relevant Event
Date and with the supply of which the
relevant Seller was concerned during the
said two year period;
"Supplier" any person, firm or company who at any
time during the period of two years
immediately prior to the relevant Event
Date was a supplier, licensor developer
of the Company or any Relevant Associate
being a person, firm or company with
whom the relevant Seller personally
dealt on behalf of the Group or any
Relevant Associate during the said
period of two years or for whose account
the relevant Seller had overall
responsibility;
- 18 -
"the Termination Date" the date on which the relevant Executive
Seller's employment with the Company or
any Relevant Associate terminates.
"Territory" means, in relation to Distribution
Business, the UK and France and, in
relation to the Peripherals Business,
Europe.
8.3 Each Seller severally agrees with the Buyer that (other than with regard
to their employment with any member of the Buyer's Group pursuant to
their service agreements), without prejudice to any other duty imposed by
law or equity, neither such Seller nor any Associate of such Seller will
without the prior written consent of the Buyer (which consent will be
withheld only in so far as may be reasonably necessary to protect the
legitimate interests of the Buyer, the Company or the Group Business)
either by himself, his employees or agents or otherwise howsoever, on his
own account or in conjunction with or as principal, partner, director,
employee, consultant or agent or otherwise on behalf of any other person
for the Period, directly or indirectly:
8.3.1 carry on or assist with or be concerned or interested in the
carrying on of a Restricted Business in the Territory;
8.3.2 in competition with that part or parts of the Company or any
Relevant Associate with which the relevant Seller was involved,
concerned or responsible within a two year period prior to the
relevant Event Date, supply (or procure or assist the supply of)
any Services and/or Goods to any Customer or any Prospective
Customer;
8.3.3 in competition with that part or parts of the Company or any
Relevant Associate with which the relevant Seller was involved,
concerned or responsible within a two year period prior to the
relevant Event Date, canvass or solicit the custom of (or procure
or assist the canvassing or soliciting of the custom of) any
Customer or any Prospective Customer in respect of any Services
and/or Goods;
8.3.4 in competition with the Company or any Relevant Associate:
(a) offer employment to or employ or offer or conclude contract
for services with, canvass or solicit the employment or
engagement of any Key Person; or
(b) procure or assist any third party so to offer, employ,
engage or solicit any Key Person (whether or not such
person would commit any breach of his contract with the
Company or any Relevant Associate) unless such Key Person
had ceased to be employed or engaged by the Company or any
Relevant Associate (as the case may be) more than 3 months
previously;
8.3.5 interfere or seek to interfere with the continuance of supplies to
the Company or
- 19 -
any Relevant Associate by any Supplier or do or say anything
likely or calculated to lead any person, firm or company to
withdraw from or cease to continue offering to the Company or any
Relevant Associate any goods, services or rights enjoyed by it.
8.4 Each of the Sellers severally agrees with the Buyer that he will not at
any time after either of the Event Dates, whether by himself, his
employees or agents or otherwise howsoever:
8.4.1 engage in any trade or business or be associated with any person
firm or company or permit any person engaged in any trade or
business using the names "LDA" or "Joytech" other trading names
owned or used by the Group or any mark or style thereof or any
name, make, style similar thereto;
8.4.2 in the course of carrying on any trade or business, claim,
represent or otherwise indicate any present association with the
Group or for the purpose of obtaining or retaining any business or
custom claim, represent or otherwise indicate any past association
with the Group;
8.4.3 without the consent of the relevant Company use whether on his own
behalf or on behalf of any third party or divulge to any third
party any Confidential Information;
8.4.4 do or say anything with the intention of harming the reputation of
the Group or any Group Company or do anything which could be
anticipated to lead to any person or Undertaking ceasing to do
business with any Group Company; or
8.4.5 induce, procure or assist any member of the Retained Group to
carry out or undertake any of those activities referred to in
Clause 8.3 or 8.4.
8.5 If the Group shall have obtained any Confidential Information from any
third party under an agreement including any restriction on disclosure
known to him, each of the Sellers severally agrees with the Buyer that he
will not at any time without the consent of the Buyer infringe such
restrictions.
8.6 Each of the Sellers severally agrees with the Buyer that the restrictive
covenants herein contained are reasonable and necessary for the
protection of the value of the Shares and the Company and each of the
Sellers agrees that having regard to that fact those covenants do not
work harshly on him.
8.7 While the restrictions aforesaid are considered by the parties to be
reasonable in all the circumstances, it is agreed that if any such
restrictions taken together shall be adjudged to go beyond what is
reasonable in all the circumstances for the protection of the interests
of the Buyer but would be adjudged reasonable if part or parts of the
wording thereof were deleted or amended or qualified or the periods
thereof were reduced or the range of products or area dealt with were
thereby reduced in scope, then the relevant restriction or restrictions
shall apply with such modification or modifications as may be necessary
to
- 20 -
make it or them valid and effective.
8.8 Each of the Sellers hereby severally agrees with the Buyer at the request
of either of the Companies to enter into a direct agreement or
undertaking with any company or companies in the Group whereby he will
accept restrictions and provisions corresponding to the restrictions and
provisions herein contained (or such of them as may be appropriate in the
circumstances) in relation to such products and services and such area
and for such period as such company or companies may reasonably require
for the protection of its or their legitimate interests.
8.9 Without prejudice to any other rights or remedies that the Buyer may
have, the Sellers severally acknowledge and agree that damages alone
would not be an adequate remedy for any breach by any of the Sellers of
the provisions of this clause and that, accordingly, the Buyer shall be
entitled without proof of special damage to the remedies of injunction,
specific performance and other equitable relief for any threatened or
actual breach of the provisions of this clause by any of the Sellers.
8.10 Each of the obligations on the Sellers contained in the above provisions
of this Clause constitutes an entirely separate and independent
restriction on the Sellers notwithstanding that they may be contained in
the same sub-clause, paragraph, sentence or phrase.
8.11 This Clause shall not preclude the Sellers from holding or acquiring
directly or indirectly not more that 1% in nominal value of the issued
shares or other securities of any class of any other company which are
listed or dealt in on any recognised stock exchange and held by way of
bona fide investment only.
9. Obligations of Buyer
9.1 The Buyer agrees that it shall use all reasonable endeavours to obtain
the release of the Sellers (at the Seller's expense) from the guarantee
obligations details of which are set out below (the "Guarantees") as soon
as reasonably practicable following Completion provided that the Sellers
shall provide all reasonable assistance to the Buyer in obtaining such
release:
Guarantee by Lee Guinchard to National Westminster Bank Plc in respect of
(pound)50,000 owed by the Companies to National Westminster Bank Plc.
9.2 The Buyer indemnifies and shall at all times keep fully indemnified the
Sellers from and in respect of all liability arising after Completion
under the Guarantees.
9.3 The Buyer agrees that on or before March 31, 1999 it shall procure that
the Company shall repay a sum not to exceed (pound)260,000 (plus interest
not to exceed (pound)5000) to Banque Nationale Paris ("BNP") in respect
of the loan to the Company by BNP.
9.4 The Buyer shall procure that Lee Guinchard and David Gillard shall be
appointed to the board of directors of Take-Two Europe.
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9.5 The Buyer agrees that it shall use reasonable endeavours to transfer the
employment of David Gillard to its subsidiary Take Two Interactive
Software France SA within a reasonable time of completion on the same
terms as the service agreement in the agreed terms.
9.6 The Buyer agrees that within a reasonable time of Completion, it shall
grant options to the following persons in the numbers set out next to
their names, on the terms of the Option Agreement in the agreed terms at
an exercise price of market value on 30 March 1999:
Lee Guinchard 50,000
Daniel Gillard 50,000
Matthew Lamprell 15,000
Roy Newcombe 5,000
Paul Hooper 3,000
Christophe Frilley 3,000
Spencer Guinchard 3,000
10. Effect of Completion
Any provision of this Agreement and any other documents referred to in it
which is capable of being performed after but which has not been
performed at or before Completion and all Warranties and covenants and
other undertakings contained in or entered into pursuant to this
agreement shall remain in full force and effect notwithstanding
Completion.
11. Costs, Expenses and Insurance
11.1 All costs and expenses incurred by or on behalf of the parties to this
Agreement in connection with this Agreement or any of the documents to be
executed pursuant to this Agreement will be borne solely by the party who
incurs them (and for the avoidance of doubt, any fees, charges,
disbursements or other remuneration payable in respect of the Completion
Accounts or this Agreement:
(a) to the Buyer's Accountants or the Buyer's Solicitors shall be
borne by the Buyer; and
(b) to the Sellers' Accountant or the Seller's Solicitors shall be
borne by the Seller)
11.2 For 90 days following Completion the Sellers shall take such steps as are
reasonably available to them to maintain in good standing all insurance
policies relating to the Group Companies, details of which are given in
the Disclosure Letter. The Buyer shall be responsible for making new
insurance arrangements for the Group Companies as soon as reasonably
practicable after Completion and undertakes to pay on demand (against
evidence thereof) to the Sellers all costs properly attributable to
keeping the said insurance arrangements in force after Completion.
- 22 -
12. Notices
12.1 To be effective all notices consents approvals requests or other
communications relating to this Agreement must be in writing but may be
delivered personally or sent by first class prepaid (airmail if overseas)
recorded delivery post or facsimile (with a confirmation copy sent by
post) to the party to be served at its address as stated in this
Agreement or to that party's facsimile transmission number at that
address or as notified from time to time;
and if to the Buyer to:-
Take Two Interactive Software Europe Limited
Hogarth House
29-31 Sheet Street
Windsor
Berkshire
SL4 1BY
For the attention of: Kelly Sumner
and if to the Sellers to the respective addresses set out in Schedule 1.
12.2 A communication will be deemed to have been served as follows:-
12.2.1 if personally delivered or by overnight mail at the time of
delivery;
12.2.2 if posted at the expiration of two days (three days if overseas)
(excluding days which are not Business Days) after the envelope
containing the communication was delivered into the custody of the
postal authorities;
12.2.3 if sent by facsimile at the expiration of one day (excluding a
Business Day) after the facsimile was transmitted.
12.3 In proving service it will be sufficient to prove that the personal
delivery was made or that the envelope containing the communication was
properly addressed as a pre-paid first class (airmail if overseas)
recorded delivery letter or that the facsimile was properly addressed and
sent.
13. Entire Agreement/Variation
13.1 This Agreement (together with any Transaction Documents) constitutes the
entire agreement and understanding between the parties and supersedes any
previous agreement, arrangement or understanding between the parties in
relation to the subject matter of this Agreement.
- 23 -
13.2 No variation of this Agreement shall be effective unless made in writing
and signed by or on behalf of each party.
14. Counterparts
This Agreement may be executed in any number of counterparts all of which
together shall constitute a single instrument.
15. Announcements
Unless specifically otherwise agreed in writing or required by law, no
public announcement shall be made in respect of the subject matter of
this Agreement and the parties shall co-operate with respect to any such
public announcement.
16. General
16.1 The termination of this Agreement for whatever cause shall not prejudice
or affect the rights or remedies of either party against the other in
respect of any antecedent breach of this Agreement and shall not
prejudice the rights or remedies of either party in respect of any sums
or sum of money owed or owing from one party to the other.
16.2 No failure or delay by either party in exercising any right, power or
privilege under this Agreement shall operate as a waiver thereof nor
shall any single or partial exercise by either party of any right, power
or privilege preclude any further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided
are cumulative and not exclusive of and are without prejudice to any
rights or remedies available under law or otherwise.
16.3 No breach of any provision of this Agreement shall be waived or
discharged except with the express written consent of the parties.
16.4 If any term or provision in this Agreement shall be held to be illegal or
unenforceable, in whole or in part, under any enactment or rule of law,
such term or provision or part shall to that extent be deemed not to form
part of this Agreement but the enforceability of the remainder of this
Agreement shall not be affected. The parties further agree to replace
such void or unenforceable provision of this Agreement with valid and
enforceable provisions that will achieve, to the greatest extent
possible, the economic, business and other purposes of the illegal or
unenforceable term or provision.
16.5 Subject to the express provisions of this Agreement, neither party may
assign the benefit of this Agreement in whole or in part without the
prior written consent of the other Provided That the Buyer may upon
giving written notice to the Sellers, assign the benefit of this
Agreement to any Connected Company. For the purposes of this sub-clause
"Connected Company" will mean any Subsidiary Undertaking, Parent
Undertaking or Associate of the Buyer or any Subsidiary Undertaking of
such Parent Undertaking or Associate. If that assignee (or in the case of
a series of assignments the ultimate assignee)
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ceases to be a Connected Company, the rights held by the relevant
assignee shall lapse unless they are reassigned within 14 days to the
Buyer or any other person or Undertaking at that time a Connected
Company.
16.6 Notwithstanding any other provisions of this Agreement no provision of
any Transaction Document of such a nature so as to cause it to be
registered under the Restrictive Trade Practices Act of 1976 shall take
effect unless and until such time as appropriate notice of that provision
shall have been furnished to the Director General of the Office of Fair
Trading and notified in relation to Article 85 of the Treaty of Rome. The
parties shall use all reasonable endeavours to procure the furnishing of
such notice at the Buyer's cost as soon as possible after the signing of
this Agreement.
16.7 If the Sellers or the Buyer default in the payment when due of any sum
payable under this Agreement or the Deed (whether determined by agreement
or pursuant to an order of the Court or otherwise) the liability of the
Sellers or the Buyer (as the case may be) shall be increased to include
interest on such sum from the date when such payment was due until the
date of actual payment (as well after as before judgment) at a rate per
annum of 2 per cent above the base rate from time to time of National
Westminster Bank Plc. Such interest shall accrue from day to day.
17. Provision of Group Business Information
17.1 During the period of six years after Completion and without prejudice to
any of the Warranties:-
17.1.1 if any Group Business Information Required for the Group Business
of the Company or other member of the Group is not in the
possession of the Buyer or readily discoverable by the Buyer but
is in the possession or under the control of or available to any
Seller, the Sellers shall procure that such Group Business
Information is provided to the Buyer promptly on request; and
17.1.2 if any Books or Records of any Seller or any other member of the
Retained Group contain Group Business Information which should be
provided to the Buyer, the Sellers shall procure that copies of
such Books or Records are given to the Buyer promptly on request.
17.2 For the purposes of this clause and this Agreement generally, "Required
for the Group Business" means any Intellectual Property or Group Business
Information of the Company or any other member of the Group which is or
has in the last 6 years been used in the business of the Company or any
other member of the Group or if it will be needed by the Company or any
other member of the Group to carry on its business in the same manner as
it is presently carried on or to fulfil any of its present contracts,
plans or projects in relation to the business of the Company or that
member of the Group or to comply with any law applicable in relation to
the business of the Company or that member of the Group or if it is
vested in any of the Buyers and its retention by any Buyer after
Completion of this agreement would be damaging or detrimental to the
business of the
- 25 -
Company or any member of the Group.
18. Governing Law and Jurisdiction
18.1 This Agreement and the Transaction Documents save as expressly stated
otherwise shall be governed by and construed in accordance with English
law and the parties irrevocably submit to the non-exclusive jurisdiction
of the English courts as regards any claim, dispute or matter ensuing in
relation to this Agreement and the Transaction Documents.
18.2 Each of the Sellers and the Buyer hereby irrevocably designate, appoint
and empower (in the case of the Sellers) the Sellers' Solicitors and (in
the case of the Buyer) the Buyer's Solicitors as its agent to receive for
and on its behalf service of process in any legal action, matter or
proceedings with respect to this Agreement service on whom shall be
deemed completed whether or not received by the Sellers or the Buyer as
the case may be. Each party shall inform the other in writing of any
change in the address of its process agents within 28 days. If such
process agents cease to have an address in England, the relevant party
irrevocably agrees to appoint new process agents acceptable to the other
party and deliver to it within 14 days a copy of a written acceptance of
appointment by its new process agents. Nothing contained in this
Agreement shall however affect the right to serve process in any other
manner permitted by law or the right to bring proceedings in any other
jurisdiction for the purposes of the enforcement or execution of any
judgment or other settlement in any other courts.
IN WITNESS of which this Agreement has been duly executed the day and year first
above written.
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SIGNED by LEE GUINCHARD ) /s/ Lee Guinchard
in the presence of: )
/s/ Sabastian Belcher
SIGNED by DAVID GILLARD ) /s/ David Gillard
in the presence of: )
/s/ Sabastian Belcher
SIGNED by LEE GUINCHARD ) /s/ Lee Guinchard
as authorised signatory for )
INTERACTIVE DEVELOPMENT )
in the presence of: )
/s/ Sabastian Belcher
SIGNED by KELLY SUUNER ) /s/ Kelly Sumner
for and on behalf of )
TAKE TWO INTERACTIVE )
SOFTWARE, INC )
in the presence of: )
/s/ Sabastian Belcher
- 27 -
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of the 8th day of February 1999 by
and among T2 DEVELOPER, INC., a Delaware corporation ("Buyer") and wholly-owned
subsidiary of TAKE-TWO INTERACTIVE SOFTWARE, INC., a Delaware corporation
("T2"); GATHERING OF DEVELOPERS I, LTD., a Texas limited partnership (the
"Partnership"); and GATHERING OF DEVELOPERS, INC., a Texas corporation
("Gathering").
WITNESSETH:
WHEREAS, the Partnership was duly organized in January 1998 pursuant to an
Agreement of Limited Partnership dated January 29, 1998 (the "Partnership
Agreement") to engage in the business of developing, publishing and marketing
interactive software games (the "Business"); and
WHEREAS, Gathering is the sole general partner of the Partnership
(hereinafter referred to as the "General Partner"); and
WHEREAS, Harry A. Miller and Michael S. Wilson (the "Shareholders") own all
of the issued and outstanding capital stock of the General Partner; and
WHEREAS, the limited partners of the Partnership as of the date hereof set
forth on Exhibit A (individually, a "Limited Partner" and collectively, the
"Limited Partners") are the owners of all of the issued and outstanding limited
partnership interests of the Partnership (the "Limited Partnership Interests");
and
WHEREAS, simultaneously with the execution of this Agreement, the General
Partner and each of the Limited Partners desire to amend and restate the
Partnership Agreement (the "Amended and Restated Partnership Agreement") to
among other things (i) admit Buyer as a special Limited Partner (hereinafter
sometimes referred to as the "Class A Limited Partner"); (ii) issue a Class A
Limited Partnership Interest (the "Class A Interest") representing a fixed,
non-dilutable (except in accordance with the terms of the Partnership Agreement)
19.9% economic limited partner interest of the Partnership; and (iii)
reclassify: (a) the Limited Partners as Class B Limited Partners (hereinafter
referred to as the "Class B Limited Partners") and (b) the Limited Partnership
Interests currently held by the Class B Limited Partners as Class B Limited
Partnership Interests (hereinafter referred to as the "Class B Interests"). The
Class A Interests and the Class B Interests are sometimes collectively referred
to herein as the "Partnership Interests." A copy of the Amended and Restated
Partnership Agreement attached hereto as Exhibit B and incorporated by reference
herein is made an integral part hereof; and
WHEREAS, in connection with the transactions contemplated by this
Agreement, the Partnership and T2 desire to amend the terms of the Software
Distribution Agreement (the "Distribution Agreement") dated as of May 27, 1998,
by and between the Partnership and T2 and the Heads of Agreement ("Heads of
Agreement"), dated as of April 6, 1998, by and among the Partnership, T2,
Terminal Reality, Inc., Apogee Software, Inc., PopTop Software, Inc. and
Take-Two Interactive Software Europe, Ltd. (collectively, the "Distribution
Agreements") in the form and substance attached hereto as Exhibit C which is
incorporated by reference herein and made an integral part hereof (the "Amended
Distribution Agreement").
NOW, THEREFORE, in consideration of and in reliance upon the covenants,
conditions, representations and warranties herein contained, the parties hereto
hereby agree as follows:
1. Preamble. It is expressly agreed by the parties that the preamble is an
integral part of this agreement and its terms are incorporated herein.
2. Purchase and Sale of Class A Interests. Subject to the terms and
conditions set forth in this Agreement and in reliance upon the representations,
warranties, covenants and conditions herein contained, on the Closing Date (as
defined in Section 7 hereof) the Partnership shall issue, sell, convey, assign,
transfer and deliver to Buyer the Class A Interest, free and clear of any and
all Liens (as defined in subparagraph 8.5 hereof) and Buyer shall be admitted as
a Class A Limited Partner in accordance with the terms of the Amended and
Restated Partnership Agreement.
3. Purchase Price. In consideration for the issuance of the Class A
Interest, T2 shall cause the Class A Limited Partner to make an aggregate
capital contribution of $4 million to the Partnership (the "Capital
Contribution") in accordance with Section 4 hereof.
4. Payment of Purchase Price. Subject to the terms and conditions of the
Amended and Restated Partnership Agreement and Amended Distribution Agreement,
the Capital Contribution shall be made as follows: One installment of $667,000
to be paid in cash on the Closing Date and thereafter in 5 equal monthly
installments of $667,000 to be paid on the first day of each month, commencing
on March 1, 1999. The Class A Limited Partner's obligation to make the Capital
Contribution is subject to the Partnership complying with the material
provisions of the Amended Distribution Agreements. In the event there is a
default with respect to such material obligations and such default is not cured
within 60 days of written notice from T2 to Gathering, the Class A Limited
Partner may elect, at its option, to discontinue payment of the Capital
Contribution hereunder, at which time the Capital Contribution shall be deemed
paid to the extent of the damage directly caused by such default by the
Partnership subject to the limitations contained in the Amended Distribution
Agreement. In the event that the Class A Limited Partner fails to make all or
any part of any payment of the Capital Contribution when due hereunder and if
such default occurs and remains uncured for a period of 45 days after such
payment is due (each such event, a "Payment Default"), then, the General Partner
at its sole election and as its exclusive remedy with respect to a default in
the payment of the Capital Contribution, may either (i) decrease pro rata the
Class A Limited Partner's Class A Interest to be equivalent in proportion and
value with the portion of the Capital Contribution paid prior to
-2-
the date of such uncured default and no more Capital Contribution shall be due
hereunder, or (ii) the Class A Limited Partner shall immediately become a Class
B Limited Partner of the Partnership and the remaining balance of the Capital
Contribution shall be immediately due and payable.
5. Director Designees. For a period of five years following the date
hereof, the General Partner will, upon the written request of the Class A
Limited Partner, elect two designees of the Class A Limited Partner to the
General Partner's Board of Directors (the "Board"), and compensate and reimburse
such director designees in the same manner as it compensates and reimburses
directors of the General Partner. The General Partner will deliver to the Class
A Limited Partner, on the Closing Date, the agreements of the Shareholders to
vote their shares for the election of the designees.
6. Further Assurances. Each of the Class A Limited Partner and T2, on the
one hand, and the General Partner and the Partnership, on the other hand, hereby
agree that it shall from time to time after the Closing Date, at its sole cost
and expense, take any and all actions, and execute, acknowledge, deliver, file
and/or record any and all documents and instruments, as any other party may
reasonably request in order to more fully perfect the rights which are intended
to be granted hereunder. The Partnership and the General Partner hereby agree
not to (without the written consent of T2) assign, transfer or otherwise pledge,
encumber or place a lien against, or intentionally breach the terms of, the
Partnership's Publishing and Development Agreements with the Class B Limited
Partners.
7. Closing. The closing of the transactions provided for herein (the
"Closing") shall take place on February 8th, 1999, at the offices of Tenzer
Greenblatt LLP, 405 Lexington Avenue, New York, NY 10174, or at such other
place, time and date and in such manner as may hereafter be mutually agreed upon
by the parties (such time and date of Closing being hereinafter called the
"Closing Date"). At the Closing: (i) each of the Partnership and the General
Partner shall deliver (a) the Amended and Restated Partnership Agreement, (b)
the Amended Distribution Agreement, (c) certificates representing the Class A
Interest issued in the name of the Class A Limited Partner, (d) the agreement of
the Shareholders set forth in Section 5, and (e) an opinion of Thompson &
Knight, P.C., counsel for the Partnership, dated the Closing Date, in the form
attached hereto as Exhibit D; and (ii) each of T2 and the Class A Limited
Partner shall deliver (a) the Amended Distribution Agreement, (b) the Amended
and Restated Partnership Agreement, (c) an opinion of Tenzer Greenblatt LLP,
counsel for each of T2 and the Class A Limited Partner, dated the Closing Date,
in the form attached hereto as Exhibit E; and (d) the initial payment of the
purchase price for the Class A Interest of $666,667 in immediately available
funds.
8. Representations and Warranties as to the Partnership. The General
Partner hereby represents and warrants to the Class A Limited Partner as
follows:
-3-
8.1. Organization, Standing and Power.
The Partnership is a limited partnership duly formed, validly existing and
in good standing under the laws of the State of Texas, with full partnership
power and authority to own, lease and operate its properties and to carry on its
business as presently conducted by it. There are no states or jurisdictions in
which the character and location of any of the properties owned or leased by the
Partnership, or the conduct of its business, makes it necessary for it to
qualify to do business as a foreign limited partnership except where the failure
to do so would not have a material adverse effect on the Partnership. The
General Partner is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas. The Partnership Agreement and all
amendments thereof, have been furnished to the Class A Limited Partner and are
true, complete and correct.
8.2. Capitalization.
(a) All issued Class B Interests have been duly and validly issued and,
subject to applicable law, are fully paid and nonassessable. Except as set forth
in Schedule 8.2, there are no outstanding options, warrants, rights, puts,
calls, commitments, conversion rights, plans or other agreements of any
character to which the Partnership or the General Partner is a party or
otherwise bound which provide for the acquisition, disposition or issuance of
any Class B Interests, or authorized and unissued partnership interests of the
Partnership. Except as provided under applicable law, there is no personal
liability, and there are no preemptive or similar rights, attached to the Class
B Interests. Set forth on Schedule A, is a complete and correct list of the
names, addresses and record ownership of all of the partners of the Partnership.
The Partnership has no knowledge that any of the Class B Interests have been
assigned or transferred other than the proposed transfer involving Strategic
Marketing Partners to an affiliate thereof.
(b) The Class A Interest is duly and validly issued and, subject to
applicable law and the terms of this Agreement and the Amended and Restated
Partnership Agreement, fully paid and nonassessable. Except as set forth on
Schedule 8.2 there are no outstanding options, warrants, rights, puts, calls,
commitments, conversion rights, plans or other agreements of any character to
which the Partnership or the General Partner is a party or otherwise bound which
provide for the acquisition, disposition or issuance of any Class A Interest.
Except as provided under applicable law, there is no personal liability, and
there are no preemptive or similar rights, attached to the Class A Interest. The
Class A Interest will be issued free and clear of any and all Liens (as defined
below).
8.3. Interests in Other Entities.
Other than the publishing agreements of the Partnership and as set forth on
Schedule 8.3, neither the Partnership nor the General Partner (A) owns, directly
or indirectly, of record or beneficially, any shares of voting stock or other
equity securities of any corporation, (B) has any ownership interest, direct or
indirect, of record or beneficially, in any unincorporated entity, or (C) have
any obligation, direct or indirect, present or contingent, (1) to purchase or
-4-
subscribe for any interest in, advance or loan monies to, or in any way make
investments in, any person or entity, or (2) to share any profits or capital
investments or both.
8.4. Authority.
The execution and delivery by each of the Partnership and the General
Partner of this Agreement, the Amended Distribution Agreement and the Amended
and Restated Partnership Agreement and of all of the other agreements to be
executed and delivered by it pursuant hereto, the performance by it of its
obligations hereunder and thereunder, and the consummation by it of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary action on the part of the Partnership and the
General Partner, and each of the Partnership and the General Partner has all
necessary power with respect thereto. This Agreement is, and when executed and
delivered by the Partnership and the General Partner and each of the other
agreements to be delivered by any or all of them pursuant hereto will be, the
valid and binding obligations of the Partnership and the General Partner in
accordance with its terms.
8.5. Noncontravention.
Except as set forth on Schedule 8.5, neither the execution and delivery by
each of the Partnership and the General Partner of this Agreement, the Amended
Distribution Agreement, the Amended and Restated Partnership Agreement or of any
agreement to be executed and delivered by it pursuant hereto, nor the
consummation of any of the transactions contemplated hereby or thereby, nor the
performance by each of the Partnership and the General Partner of any of its
obligations hereunder or thereunder, will (nor with the giving of notice or the
lapse of time or both would) (A) give rise to a default, or any right of
termination, cancellation or acceleration, or otherwise be in conflict with or
result in a loss of contractual benefits to the Partnership, under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which it is a party or by which
the Partnership or the General Partner or any of the assets of the Partnership
(the "Partnership Assets") may be bound, or require any consent, approval or
notice under the terms of any such document or instrument, or (B) violate any
order, writ, injunction, decree, law, statute, rule or regulation of any court
or governmental or administrative authority which is applicable to the
Partnership, the General Partner or any of the Partnership Assets where such
violation would have a material adverse effect on the Partnership or the General
Partner, or (C) result in the creation or imposition of any lien, security
interest, pledge, mortgage, easement, leasehold, assessment, covenant,
restriction, reservation, conditional sales, prior assignment, or other
encumbrance of any nature whatsoever other than those created by T2 or its
affiliate ("Liens") upon any material Partnership Assets, or (D) materially
interfere with or otherwise materially adversely affect the operation of the
Business after the Closing Date.
8.6. Financial Statements.
The financial statements of the Partnership (the "Partnership Financial
Statements") are attached hereto as Exhibit F. The Partnership Financial
Statements consist of the unaudited balance sheets at December 31, 1998, and the
related statements of income for the twelve months
-5-
then ended (collectively, the "Partnership Financial Statements"). The
Partnership Financial Statements present fairly the financial position of the
Partnership as at the dates thereof and the results of operations for the
periods indicated in all material respects. The books and records of the
Partnership are complete and correct, have been maintained in accordance with
good business practices, and accurately reflect the basis for the financial
condition, results of operations of the Partnership as set forth in the
Partnership Financial Statements.
8.7. Absence of Undisclosed Liabilities.
The Partnership has no material liabilities or obligations of any nature
whatsoever, whether accrued, absolute, contingent or otherwise, which have not
been (i) accrued in the December 31, 1998 balance sheet of the Partnership in
the case of liabilities and obligations of a type customarily reflected on a
partnership balance sheet, or (ii) described in any of the Schedules delivered
pursuant hereto or omitted from said Schedules in accordance with the terms of
this Agreement, in the case of other types of contingent and other liabilities
and obligations, or (iii) incurred, consistent with past practice, in the
ordinary course of business since November 30, 1998, where applicable.
8.8. Litigation.
Other than as set forth in Schedule 8.8 there are no claims, suits,
actions, arbitration, investigations, inquiries or other proceeding before any
governmental agency, court or tribunal, domestic or foreign, or before any
private arbitration tribunal, pending or, to the best knowledge of the
Partnership, threatened, against or relating to the Partnership, the Business or
any of the Partnership Assets; nor to the best knowledge of the Partnership, is
there any basis for any such claim, suit, action, arbitration, investigation,
inquiry or other proceeding. Except for the settlement agreement between the
Partnership, T2 and The 3DO Company, there are no judgments, orders,
stipulations, injunctions, decrees or awards in effect in any proceeding
involving the Partnership as a party, the effect of which is (A) to limit,
restrict, regulate, enjoin or prohibit any business practice in any area, or the
acquisition of any properties, assets or businesses, or (B) otherwise materially
adverse to the Business or any of the Partnership Assets.
8.9. No Violation of Law.
To the best knowledge of the Partnership, the Partnership has not engaged
or is not engaging in any activity or omitting to take any action as a result of
which (A) it is in violation of any law, rule, regulation, zoning or other
ordinance, statute, order, injunction or decree, or any other requirement of any
court or governmental or administrative body or agency, applicable to the
Partnership, including, but not limited to, those relating to: occupational
safety and health; environmental and ecological protection (e.g., the use,
storage, handling, transport or disposal of pollutants, contaminants pesticides
or hazardous or toxic materials or wastes, and the exposure of persons thereto);
business practices and operations; labor practices; employee benefits; and
zoning and other land use, and (B) the Partnership, the Business and/or any of
the Partnership Assets have been or may be materially adversely affected.
-6-
8.10. Intellectual Property.
Schedule 8.10 is a complete and correct list of all (A) United States and
foreign patents, trademark and trade name registrations, trademarks and trade
names, brandmarks and brand name registrations, servicemarks and servicemark
registrations, assumed names and copyrights and copyright registrations, owned
in whole or in part by the Partnership, and all applications therefor, (B)
inventions, discoveries, improvements, processes, formulae, proprietary rights
and trade secrets relating to the Business which have been so identified by the
Partnership in the normal conduct of its business, and (C) licenses and other
agreements to which the Partnership is a party or otherwise bound which relate
to any of the foregoing. Except as expressly set forth in said Schedule 8.10,
(A) the Partnership owns or has the right to use all of the foregoing ; (B) no
proceedings have been instituted, are pending or are threatened, which challenge
the rights of the Partnership in respect thereto or the validity thereof and, to
the best knowledge of the Partnership, there is no valid basis for any such
proceedings; (C) none of the aforesaid violates any laws, statutes, ordinances
or regulations, or has at any time infringed upon or violated any rights of
others, or is being infringed by others; and (D) none of the aforesaid is
subject to any outstanding order, decree, judgment, stipulation or charge. To
the best knowledge of the Partnership, all of the labelling and packaging for
the Partnership's products have complied with all applicable federal, state and
local laws in all material respects.
8.11. Tax Matters.
The Partnership has filed with the appropriate governmental agencies all
tax and informational returns and reports required to be filed by it prior to
the Closing, and has paid in full or made adequate provision for the payment of,
all taxes, interest, penalties, assessments and deficiencies shown to be due or
claimed to be due on such tax returns and reports.
8.12. Insurance.
Attached hereto as Schedule 8.12 is a complete and correct list of all
policies of insurance relating to any of the Partnership's assets or the
Business in which the Partnership is an insured party, beneficiary or loss
payable payee. Such policies are in full force and effect, all premiums due and
payable with respect thereto have been paid, and no notice of cancellation or
termination has been received by the Partnership with respect to any such
policy. The Partnership has not sustained any material loss or interference with
its business from fire, storm, explosion, flood or other casualty, whether or
not covered by insurance, or from any labor dispute or court of governmental
action, order or decree.
8.13. Certain Contracts.
Schedule 8.13 is a complete and correct list of all material contracts,
commitments, indentures, mortgages, obligations, agreements and understandings
to which the Partnership is a party or otherwise bound (including all of the
Partnership's Publishing Agreements and Development Agreements with the Class B
Limited Partners); for purposes of this Section 8.13, the term "material" means
contracts providing for payments to or by the Partnership to or by third
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parties in an amount greater than $100,000, a complete list and copies thereof,
if requested, of which have been furnished to Buyer. Except as set forth on
Schedule 8.13, all material contracts, commitments, indentures, mortgages,
obligations, agreements and undertakings set forth on any of the Schedules
delivered pursuant to this Agreement (A) are in full force and effect, no person
or entity which is a party thereto or otherwise bound thereby is in default
thereunder, and, no event, occurrence, condition or act exists which does (or
which with the giving of notice or the lapse of time or both would) give rise to
a default or right of cancellation, acceleration or loss of material contractual
benefits thereunder; and (B) there has been no threatened cancellations thereof,
and there are no outstanding disputes thereunder. To the best knowledge of the
Partnership, none of the material provisions of such contracts, instruments or
agreements violates any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court having jurisdiction over the
Partnership, the Business or the Partnership Assets.
8.14. Information as to the Partnership.
None of the representations or warranties, as qualified therein, made by
the General Partner or the Partnership in this Agreement or in any agreement
executed and delivered by it pursuant hereto are false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements therein contained not misleading.
9. Representations and Warranties as to the Class A Limited Partner.
Each of T2 and the Class A Limited Partner jointly and severally represents
and warrants to the Partnership and the General Partner as follows:
9.1. Organization, Standing and Power.
The Class A Limited Partner is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its properties and to
carry on its business as presently conducted by it.
9.2. Authority.
The execution and delivery by each of T2 and the Class A Limited Partner of
this Agreement, the Amended and Restated Partnership Agreement, and of each
agreement to be executed and delivered by it pursuant hereto, the compliance by
each of T2 and the Class A Limited Partner with the provisions hereof and
thereof, and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary corporate action
on the part of each of T2 and the Class A Limited Partner, and each of T2 and
the Class A Limited Partner has all necessary corporate power with respect
thereto. Each of this Agreement, the Amended and Restated Partnership Agreement,
and each other agreement to be executed and delivered by it pursuant hereto will
be, is, and when executed and delivered by each of T2 and the Class A Limited
Partner, will be the valid and binding obligation of each of T2 and the Class A
Limited Partner in accordance with its terms. Neither the execution and delivery
by T2 and the Class A Limited Partner of this Agreement, the Amended and
Restated Partnership
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Agreement or of any of the aforementioned other agreements, nor the consummation
of the transactions contemplated hereby or thereby, nor the compliance by T2 and
the Class A Limited Partner with the provisions hereof and thereof, will (nor
with the giving of notice or the lapse of time or both, would) conflict with or
result in a violation of any provision of the Certificate of Incorporation or
By-laws of either T2 or the Class A Limited Partner, or in the breach of any
material agreement to which either T2 or the Class A Limited Partner is a party
or otherwise bound.
10. Investment Intent.
Each of T2 and the Class A Limited Partner hereby jointly and severally
represents and warrants to Gathering and the Partnership that each of T2 and the
Class A Limited Partner is (i) an "accredited investor" who has had the
opportunity to ask questions concerning the partnership and is purchasing the
Class A Interest for investment purposes only and not with a view toward the
distribution thereof; and (ii) an expert in the industry and business of the
Partnership and understands the risks associated therewith and has entered into
this Agreement based upon such expertise and the representations and warranties
contained herein. The certificate representing the Class A Interest shall bear a
legend substantially similar to the following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"),
and may not be offered or sold except (i) pursuant to an effective
registration statement under the Act; (ii) pursuant to an
exemption provided for under the Act; or (iii) upon the delivery
by the holder to the Partnership of an opinion of counsel,
reasonably satisfactory to counsel for the Partnership, stating
that an exemption from registration under such Act is available."
T2 and the Class A Limited Partner, by acceptance of the Class A Interest,
covenants and agrees that the Class A Interest is being acquired as an
investment and not with a view to the distribution thereof and the Class A
Interest may not be transferred unless such securities are either registered
under the Act and any applicable state securities law or an exemption from such
registration is available. T2 and the Class A Limited Partner agree to execute
any documents which may be reasonably required by counsel to the Partnership to
comply with the provisions of the Act and applicable state securities laws.
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11. Indemnification.
11.1. Indemnification by the General Partner and the Partnership.
The General Partner and the Partnership hereby, jointly and severally,
indemnify and hold the Class A Limited Partner and T2 and each of their
respective officers, directors, agents, stockholders and controlling persons
harmless from and against any and all losses, obligations, deficiencies,
liabilities, claims, damages, costs and expenses (including, without limitation,
the amount of any settlement entered into pursuant hereto, and all reasonable
legal and other expenses incurred in connection with the investigation,
prosecution or defense of any matter indemnified pursuant hereto) which any of
them may sustain, suffer or incur and which arise out of, are caused by, relate
to, or result or occur from or in connection with the breach by the Partnership
and the General Partner of any representation, warranty or covenant made by it
in this Agreement or in any agreement or instrument executed and delivered
pursuant hereto.
11.2. Indemnification by Class A Limited Partner and T2.
Each of T2 and the Class A Limited Partner hereby, jointly and severally,
indemnifies and holds the General Partner and the Partnership and each of their
respective officers, directors, agents, partners, employees and controlling
persons harmless from and against any and all losses, obligations, deficiencies,
liabilities, claims, damages, costs and expenses (including, without limitation,
the amount of any settlement entered into pursuant hereto, and all reasonable
legal and other expenses incurred in connection with the investigation,
prosecution or defense of any matter indemnified pursuant hereto), which any of
them may sustain, suffer or incur and which arise out of, are caused by, relate
to, or result or occur from or in connection with the breach by T2 or the Class
A Limited Partner of any representation, warranty or covenant made by it in this
Agreement or in any agreement or instrument executed and delivered pursuant
hereto.
11.3. Third Party Claims.
If a claim by a third party is made against any party or parties hereto and
the party or parties against whom said claim is made intends to seek
indemnification with respect thereto under this Section 11, the party or parties
seeking such indemnification shall promptly notify the indemnifying party or
parties, in writing, of such claim; provided, however, that the failure to give
such notice shall not affect the rights of the indemnified party or parties
hereunder unless such failure materially and adversely affects the indemnifying
party or parties. The indemnifying party or parties shall have twenty (20) days
after said notice is given to elect, by written notice given to the indemnified
party or parties, to undertake, conduct and control, through counsel of their
own choosing (subject to the consent of the indemnified party or parties, such
consent not to be unreasonably withheld) and at their sole risk and expense, the
good faith settlement or defense of such claim, and the indemnified party or
parties shall cooperate with the indemnifying parties in connection therewith;
provided: (i) in the case of the General Partner as the indemnifying parties,
they shall not thereby permit to exist any lien, encumbrance or other adverse
charge upon any of the Partnership's Assets, Buyer or the Business, and (ii) the
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indemnified parties shall be entitled to participate in such settlement or
defense through counsel chosen by the indemnified parties, provided that the
fees and expenses of such counsel shall be borne by the indemnified parties. So
long as the indemnifying parties are contesting any such claim in good faith,
the indemnified parties shall not pay or settle any such claim; provided,
however, that notwithstanding the foregoing, the indemnified parties shall have
the right to pay or settle any such claim at any time, provided that in such
event they shall waive any right of indemnification therefor by the indemnifying
parties. If the indemnifying parties do not make a timely election to undertake
the good faith defense or settlement of the claim as aforesaid, or if the
indemnifying parties fail to proceed with the good faith defense or settlement
of the matter after making such election, then, in either such event, the
indemnified parties shall have the right to contest, settle or compromise the
claim at their exclusive discretion, at the risk and expense of the indemnifying
parties to the full extent set forth in subparagraph 11.1 or 11.2 hereof, as the
case may be.
12. Miscellaneous Provisions.
12.1. Survival of Representations and Warranties.
Each of the parties hereto agrees that all representations and warranties
made by or on behalf of it in this Agreement, or in any document or instrument
delivered pursuant hereto shall survive the Closing Date for a period of two
years, and thereafter expire and thereafter no party hereto or any shareholder,
director, officer, employee, or affiliate of such party shall be under any
liability with respect to any such representation or warranty; provided,
however, that with respect to any claim for a breach of any representation or
warranty made before the expiration of such two year period, such representation
or warranty shall be deemed to survive and the breaching party shall continue to
have liability thereunder in accordance with the terms of this Agreement.
12.2. Expenses.
Except as otherwise provided in this Agreement, each of the parties hereto
shall pay his or its own costs and expenses in connection with this Agreement
and the transactions contemplated hereby.
12.3. Brokers.
Each of T2 and Buyer, on the one hand, and the Partnership and Gathering,
on the other jointly and severally represents and warrants to the other that no
broker or finder (other than Concordia Capital/Frost Berman, Frost Capital
Europe, Bengur Bryan and Martin Zacarias/Argus Capital, the fees of which are
the responsibility of the Partnership) was engaged or dealt with in connection
with any of the transactions contemplated by this Agreement, and each of the
parties shall indemnify and hold the other harmless from and against any and all
claims or liabilities asserted by or on behalf of any alleged broker or finder
for broker's fees, finder's fees, commissions or like payments.
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12.4. Tax Advisors.
Each of T2 and Buyer, on the one hand, and the Partnership and Gathering on
the other hand, jointly and severally, represent and warrant to the other
parties hereto that it has consulted with its respective tax advisors with
respect to the transactions contemplated in this Agreement.
12.5. Execution in Counterparts.
This Agreement may be executed in one or more counterparts by mail, courier
or facsimile, and by the different parties hereto in separate counterparts, each
of which shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement, and shall become effective when one or
more counterparts has been signed by each of the parties hereto and delivered to
each of the other parties hereto.
12.6. Notices.
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given or made as of the earlier
of the date delivered or mailed if delivered personally by overnight courier or
mailed by express, registered or certified mail, (postage prepaid, return
receipt requested), or by facsimile transmittal, confirmed by express, certified
or registered mail, as follows:
If to T2 or Buyer, to: Take-Two Interactive Software, Inc.
575 Broadway
New York, New York
Attn: Ryan Brant
Copy to: Tenzer Greenblatt LLP
405 Lexington Avenue
New York, NY 10174
Attn: Barry S. Rutcofsky, Esq.
If to the Partnership
or the General Partner: Gathering of Developers, Inc.
2700 Fairmount
Dallas, Texas 75201
Attn: General Partner
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Copy to: Thompson & Knight, P.C.
1700 Pacific Avenue, Ste. 3300
Dallas, Texas 75201
Attn: J. Holt Foster, III, Esq.
or to such other address as any party shall have designated by like notice to
the other parties hereto (except that a notice of change of address shall only
be effective upon receipt).
12.7. Governing Law.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without regard to its choice
of law principles, with a forum and venue of New York County, New York.
12.8. Amendment.
This Agreement may only be amended by a written instrument executed by each
of the parties hereto.
12.9. Entire Agreement.
This Agreement (together with the other agreements and documents being
delivered pursuant to or in connection with this Agreement) constitutes the
entire agreement of the parties hereto with respect to the subject matter
hereof, and supersedes all prior agreements and understandings of the parties,
oral and written, with respect to the subject matter hereof.
12.10. Assignment.
Neither this Agreement nor any rights, interests or obligations hereunder
may be assigned (by operation of law or otherwise) by any party hereto without
the prior written consent of all of the parties hereto.
12.11. Binding Effect; Benefits.
This Agreement shall inure to the benefit of, and shall be binding upon,
the parties hereto and their respective heirs, legal representatives, successors
and permitted assigns. Nothing herein contained, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns, any rights or
remedies under or by reason of this Agreement.
12.12. Waiver, etc.
The failure of any of the parties hereto to at any time enforce any of the
provisions of this Agreement shall not be deemed or construed to be a waiver of
any such provision, nor to in any way affect the validity of this Agreement or
any provision hereof or the right of any
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of the parties hereto to thereafter enforce each and every provision of this
Agreement. No waiver of any breach of any of the provisions of this Agreement
shall be effective unless set forth in a written instrument executed by the
party or parties against whom or which enforcement of such waiver is sought; and
no waiver of any such breach shall be construed or deemed to be a waiver of any
other or subsequent breach.
12.13. Severability.
Any provision of this Agreement which is held by a court of competent
jurisdiction to be prohibited or unenforceable in any jurisdiction(s) shall be,
as to such jurisdiction(s), ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
12.14. Announcements.
Each of the parties shall hereto consult with each other prior to the
issuance of any press release or otherwise divulging the existence of this
Agreement, its contents, or the transactions contemplated hereby, and none of
the parties hereto shall issue any such press release or make any such statement
prior to such consultation, except as may be required by applicable law or the
applicable rules or regulations of NASDAQ or any other stock exchange.
12.15. Schedules.
The Schedules delivered pursuant to this Agreement are an integral part
hereof. Each such Schedule shall be in writing and shall indicate the
subparagraph pursuant to which it is being delivered.
12.16. Tax Matters.
The parties agree to allocate the taxable income, gain, loss, deductions
and credits of the Partnership for the 1999 taxable year between the existing
Partners (consisting of the Class B Limited Partners and the General Partner)
and Buyer on a pro rata basis, based on the ratio of (a) number of days in the
year after Buyer became a Partner in the Partnership, over (b) the total number
of days in the taxable year.
[Signature page to follow.]
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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
T2 DEVELOPER, INC.
By: /s/ Ryan Brant
----------------------------------------
Ryan Brant, Chief Executive Officer
TAKE-TWO INTERACTIVE SOFTWARE, INC.
By: /s/ Ryan Brant
----------------------------------------
Ryan Brant, Chief Executive Officer
GATHERING OF DEVELOPERS I, LTD.
By: Gathering of Developers, Inc. (a Texas
corporation)
its General Partner
By: /s/ Michael S. Wilson
----------------------------------------
Michael S. Wilson
Chief Executive Officer
GATHERING OF DEVELOPERS, INC.
By: /s/ Michael S. Wilson
----------------------------------------
Michael S. Wilson
Chief Executive Officer
-15-
OPTION AGREEMENT
OPTION AGREEMENT dated as of the 8th day of February 1999 by and among T2
DEVELOPER, INC., a Delaware corporation (the "Class A Limited Partner");
TAKE-TWO INTERACTIVE SOFTWARE, INC., a Delaware corporation ("T2"); GATHERING OF
DEVELOPERS, INC., a Texas corporation ("Gathering"); and each limited partner of
Gathering of Developers I, Ltd., a Texas limited partnership (the "Partnership")
set forth on Schedule A (individually, a "Class B Limited Partner" and
collectively, the "Class B Limited Partners").
WITNESSETH:
WHEREAS, Gathering is the sole general partner of the Partnership
(hereinafter referred to as the "General Partner"); and
WHEREAS, the Class B Limited Partners are the owners of all of the issued
and outstanding limited partnership interests of the Partnership, other than
those interests held by T2, the Class A Limited Partner or any affiliate of
either or any heirs, transferees or heirs thereof (the "Class B Limited
Interests"); and
WHEREAS, the Class B Limited Partners, Gathering and the Class A Limited
Partners have amended and restated the Agreement of Limited Partnership of the
Partnership (the "Amended and Restated Partnership Agreement"); and
WHEREAS, the General Partner and the Class B Limited Partners desire to
grant to the Class A Limited Partner the option to purchase the General
Partner's and each Class B Limited Partner's respective interests in the
Partnership (collectively, the "Partnership Interests"); and
WHEREAS, the Class A Limited Partner desires to grant to the Class B
Limited Partners and the General Partner the option to purchase the Class A
Limited Partner's interest in the Partnership in the event the Class A Limited
Partner does not exercise its option to acquire the Partnership Interests;
NOW, THEREFORE, in consideration of and in reliance upon the covenants,
conditions, representations and warranties herein contained herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
recognized, the parties hereto hereby agree as follows:
1. Purchase Option.
1.1. The General Partner and each Class B Limited Partner agrees that
during the period commencing October 31, 2000 and expiring April 30, 2001 (the
"First Option Period"), the Class A Limited Partner shall have the right and
option to purchase all, but not less than all, of the Partnership Interests held
by the General Partner and each of the Class B Limited Partners (the "Purchase
Option") at an exercise price equal to the greater of (i) $16 million or
(ii) 80% of the product obtained by multiplying 12.5 by the Partnership's EBIT
(as defined below) for the twelve months ending July 31, 2000.
1.2. In the event that the Class A Limited Partner has not exercised the
Purchase Option during the First Option period, then during the period
commencing October 31, 2001 and expiring April 30, 2002 (the "Second Option
Period"; and together with the First Option Period, the "Option Period"), the
Class A Limited Partner shall have the right and option to exercise the Purchase
Option at an exercise price equal to the greater of (i) $21 million or (ii) 80%
of the product obtained by multiplying 17.5 by the Partnership's EBIT (as
defined below) for the twelve months ending July 31, 2001.
1.3. In the event that the Class A Limited Partner has not exercised either
Purchase Option during the Option Period, then during the period commencing
October 31, 2002 and expiring April 30, 2003, the General Partner and the Class
B Limited Partners shall have the right and option but not the obligation (the
"B Option") to purchase all, but not less than all, of the interests in the
Partnership held by the Class A Limited Partner, T2 or any affiliate of either
or any transferee, successor or heir thereof, or any equity holdings into which
such interest have been converted or other holdings for which they have been
exchanged (collectively, the "Class A Interest") from the Class A Limited
Partner at an exercise price equal to the greater of (i) any unrecouped Advances
(as defined in the Letter of Amendment to the Distribution Agreement between the
Partnership, T2 (or an affiliate thereof) and other parties thereto, dated
February 8, 1999) together with interest thereon at 12% per annum, which
interest shall accrue from the date of the Advance plus the product obtained by
multiplying 3 by the capital contribution of the Class A Limited Partner made to
the Partnership, on or prior to October 31, 2002 or (ii) 20% of the product
obtained by multiplying 17.5 by the Partnership's EBIT (as defined below) for
the twelve months ending July 31, 2002. The General Partner and the Class B
Limited Partners shall agree among themselves as to what portion of the Class A
Interest, if any, will be purchased by the General Partner and each Class B
Limited Partner.
1.4. For purposes hereof, the term "EBIT" shall mean earnings of the
Partnership before interest and income (federal and state) taxes computed in
accordance with generally accepted accounting principles ("GAAP"), derived from
the audited financial statements prepared by the Partnership's then independent
certified public accountants.
1.5. The General Partner and each Class B Limited Partner hereby agrees
that during the Option Period, he or it will not sell, transfer, encumber,
hypothecate, pledge or otherwise dispose of ("Transfer") any Partnership
Interests to any entity or party other than a party to this Agreement. The
General Partner and each Class B Limited Partner agrees that transferees and
newly admitted limited partners shall agree to be bound by the terms of this
Agreement as a condition to admission to the Partnership. The Class A Limited
Partner hereby agrees that it will not Transfer any of the Class A Interest
prior to the earlier to occur of (i) its consummation of the Purchase Option or
(ii) May 1, 2003, except to a party to this Agreement.
1.6. The Class A Limited Partner may exercise the Purchase Option at any
time during the Option Period by delivering to the General Partner (as agent for
the Class B Limited
-2-
Partners) written notice of the Class A Limited Partner's intent to exercise the
Purchase Option, the applicable exercise price and a written calculation of the
exercise price. Upon receipt of such notice by the General Partner, the Class B
Limited Partners and the General Partner will have ten days to review the
information provided by the Class A Limited Partner in its notice. If neither
the General Partner nor any Class B Limited Partner notifies the Class A Limited
Partner in writing prior to 5:00 p.m. New York time on the tenth day after the
General Partner's receipt of the Class A Limited Partner's notice, that it
objects to the calculation of the exercise price, then the General Partner and
each Class B Limited Partner shall be deemed to have agreed to such calculation,
whereupon, subsequent to payment to the Class B Limited Partners of the exercise
price, all right, title and interest to the Partnership Interests subject to the
Purchase Option shall vest in possession of the Class A Limited Partner without
any further act or deed.
1.7. In the event of a dispute as to the exercise price, then the parties
shall promptly submit the calculation to the independent auditors identified in
paragraph 1.4 for their calculation, which shall be binding upon the parties.
Payment of the exercise price shall be made within 30 days of such final
calculation made by such auditors.
1.8. Upon exercise of the Purchase Option, the General Partner and each of
the Class B Limited Partners shall severally, but not jointly, with respect to
themselves, represent and warrant that good title to the Partnership Interests
is being transferred free and clear of all Liens (as defined below) and the
Class B Limited Partners shall reaffirm their respective Development and
Publishing Agreements then in place with the Partnership (collectively, the
"Development and Publishing Agreements") with the limited liability company or
other corporate entity to which the Partnership is converted (the "LLC"). The
General Partner and each Class B Limited Partner shall deliver any documents
reasonably necessary to effect such transfer of interests, and the reaffirmation
of the Development and Publishing Agreements with the LLC. The Class A Limited
Partner, General Partner and each Class B Limited Partner shall be responsible
for the payment of taxes applicable to him or it, if any, with respect to the
transfer of Partnership Interests.
1.9. The General Partner and the Class B Limited Partners may exercise the
B Option during the period set forth in Section 1.3 above by delivering the
applicable exercise price together with a written calculation of the exercise
price and of its intention to exercise its option to the Class A Limited
Partner. The Class A Limited Partner may object to such calculation, and any
dispute regarding the calculation shall be resolved, in the same manner as is
provided above with respect to exercise of the Purchase Options. Upon exercise
of the B Option, the Class A Limited Partner shall represent in writing to the
General Partner and each Class B Limited Partner exercising the B Option that
good title to the Class A Interest is being transferred free and clear of all
Liens. The Class A Limited Partner, Class B Limited Partner and the General
Partner shall each be responsible for the payment of such party's taxes
applicable to it, if any, with respect to the transfer of the Class A Interest.
If the Class A Limited Partner does not object to the calculation of the
exercise price, or upon resolution of any dispute in accordance with this
Section 1.9, all right and title to the Class A Interest shall vest in
possession of the General Partner without any further act or deed.
-3-
1.10. The closing of the transactions contemplated in this Section 1 shall
take place as soon as practicable after receipt of the notice specified in
Sections 1.6, or 1.9, or final resolution of any dispute regarding the exercise
price, at the offices of Tenzer Greenblatt LLP, at 405 Lexington Avenue, New
York, New York, 10174, or at such other place as the parties may agree. Payments
made pursuant to this Section 1 shall be made in cash, payable by wire transfer
of immediately available funds.
1.11. Upon the exercise of either of the Purchase Options or the B Option,
neither T2 or any affiliate thereof will have any right to recoup any of the
Recoupment or other advance due under the Amended Distribution Agreements (as
defined in the Amended and Restated Partnership Agreement) and such Recoupment
shall automatically and immediately be deemed paid in full.
2. Shares. In consideration of the grant of the Purchase Option, T2 shall
issue to the General Partner and the Class B Limited Partners, pro rata, on the
date first set forth above an aggregate of 125,000 shares of T2 common stock
(the "Common Stock"), $.01 par value per share.
3. Representations and Warranties. The General Partner and each Class B
Limited Partner hereby severally represents and warrants, with respect to itself
or himself, to the Class A Limited Partner and T2 as follows:
3.1. Standing and Capacity.
Such party has the right, power, legal capacity and authority to enter into
this Agreement, the Amended and Restated Partnership Agreement and each of the
other agreements to be executed and delivered by it or him pursuant hereto and
to carry out his or its respective obligations hereunder and thereunder. This
Agreement constitutes, and each agreement to be executed and delivered by such
party pursuant hereto are the valid and binding obligation of such party
enforceable against such party, to the extent it is a party thereto in
accordance with their respective terms.
3.2. Authority.
The execution and delivery by such party of this Agreement, the Amended and
Restated Partnership Agreement and of all of the agreements to be executed and
delivered by it or him pursuant hereto, the performance by it or him of its or
his obligations hereunder and thereunder, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary action on the part of such party.
-4-
3.3. Ownership of the Partnership Interests.
Such party is the record and beneficial owner of the Partnership Interests
issued in such party's name with good and marketable title to such Partnership
Interests, free and clear of any liens, charges, rights, pledges, claims and
encumbrances of any nature whatsoever ("Liens"), other than the Purchase Option,
the B Option granted hereby and as disclosed in Section 8.2 of the Securities
Purchase Agreement (as defined in the Amended and Restated Partnership
Agreement). All such Partnership Interests have been duly authorized and validly
issued and, subject to applicable law, are fully paid and nonassessable. Other
than the Purchase Options and the B Option granted hereby, there are no
outstanding options, warrants, rights, puts, calls, commitments, conversion
rights, plans or other agreements of any character to which such party is a
party or otherwise bound which provide for the acquisition, disposition or
issuance of any issued but not outstanding, outstanding, or authorized and
unissued Partnership Interests.
3.4. Noncontravention.
Neither the execution and delivery by such party of this Agreement, the
Amended and Restated Partnership Agreement or of any other agreement to be
executed and delivered pursuant hereto, nor the consummation of any of the
transactions contemplated hereby or thereby, nor the performance by any such
party of any of its obligations hereunder or thereunder, will (nor with the
giving of notice or the lapse of time or both would) (A) give rise to a default,
or any right of termination, cancellation or acceleration, or otherwise be in
conflict with or result in a loss of contractual benefits to such party under
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, agreement or other material instrument or obligation to which such
party is a party or by which it may be bound, or require any consent, approval
or notice under the terms of any such document or instrument, or (B) violate any
order, writ, injunction, decree, law, statute, rule or regulation of any court
or governmental authority which is applicable to the Partnership or such party
except where such violation would not have a material adverse effect on the
Partnership, the General Partner or such party or (C) result in the creation or
imposition of any Liens upon any of the Partnership Interests held by such party
or the Partnership's Assets.
3.5. Information as to the General Partner and Class B Limited Partners.
None of the representations or warranties made in this Agreement or in any
agreement executed and delivered by or on behalf of such party pursuant hereto
are false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein contained not
misleading.
4. Representations and Warranties. Each of T2 and the Class A Limited
Partner represents and warrants to the General Partner and the Class B Limited
Partners as follows:
4.1. Standing and Capacity.
-5-
Such party has the right, power, legal capacity and authority to enter into
this Agreement, the Amended and Restated Partnership Agreement and each of the
other agreements to be executed and delivered by it pursuant hereto and to carry
out its respective obligations hereunder and thereunder. This Agreement
constitutes, and each agreement to be executed and delivered by such party
pursuant hereto are the valid and binding obligation of such party enforceable
against such party, to the extent it is a party thereto in accordance with their
respective terms.
4.2. Authority.
The execution and delivery by such party of this Agreement, the Amended and
Restated Partnership Agreement and of all of the agreements to be executed and
delivered by it pursuant hereto, the performance by it of its obligations
hereunder and thereunder, and the consummation of the transactions contemplated
hereby and thereby, have been duly and validly authorized by all necessary
action on the part of such party.
4.3. Noncontravention.
Neither the execution and delivery by T2 or the Class A Limited Partner of
this Agreement, the Amended and Restated Partnership Agreement or of any other
agreement to be executed and delivered pursuant hereto, nor the consummation of
any of the transactions contemplated hereby or thereby, nor the performance by
any such party of any of its obligations hereunder or thereunder, will (nor with
the giving of notice or the lapse of time or both would) (A) give rise to a
default, or any right of termination, cancellation or acceleration, or otherwise
be in conflict with or result in a loss of contractual benefits to such party
under the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, agreement or other material instrument or obligation to
which such party is a party or by which it may be bound, or require any consent,
approval or notice under the terms of any such document or instrument, or (B)
violate any order, writ, injunction, decree, law, statute, rule or regulation of
any court or governmental authority which is applicable to the Partnership or
such party except where such violation would not have a material adverse effect
on the Partnership, the General Partner or such party.
5. Miscellaneous Provisions.
5.1. Execution in Counterparts.
This Agreement may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which shall be deemed
to be an original but all of which taken together shall constitute one and the
same agreement, and shall become effective when one or more counterparts has
been signed by each of the parties hereto and delivered to each of the other
parties hereto.
-6-
5.2. Notices.
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given or made as of the date
delivered if delivered personally by overnight courier or mailed by express,
registered or certified mail, (postage prepaid, return receipt requested), or by
facsimile transmittal, confirmed by express, certified or registered mail, as
follows:
If to T2 or the
Class A Limited Partner to: Take-Two Interactive Software, Inc.
575 Broadway
New York, New York
Attn: Ryan Brant
Copy to: Tenzer Greenblatt LLP
405 Lexington Avenue
New York, NY 10174
Attn: Barry S. Rutcofsky, Esq.
If to the Partnership,
the General Partner or
the Class B Limited Partners: Gathering of Developers I, Inc.
2700 Fairmount Street
Dallas, Texas 75201
Attn: General Partner
Copy to: Thompson & Knight
1700 Pacific Avenue, Ste. 3300
Dallas, Texas 75201
Attn: J. Holt Foster, III, Esq.
or to such other address as any party shall have designated by like notice to
the other parties hereto (except that a notice of change of address shall only
be effective upon receipt).
5.3. Governing Law.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without regard to its choice
of law principles with a forum and venue of New York County, New York.
5.4. Amendment.
This Agreement may only be amended by a written instrument executed by each
of the parties hereto.
-7-
5.5. Entire Agreement.
This Agreement (together with the other agreements and documents being
delivered pursuant to or in connection with this Agreement) constitutes the
entire agreement of the parties hereto with respect to the subject matter
hereof, and supersedes all prior agreements and understandings of the parties,
oral and written, with respect to the subject matter hereof.
5.6. Assignment.
Neither this Agreement nor any rights, interests or obligations hereunder
may be assigned (by operation of law or otherwise) by any party hereto without
the prior written consent of all of the parties hereto.
5.7. Binding Effect; Benefits.
This Agreement shall inure to the benefit of, and shall be binding upon,
the parties hereto and their respective heirs, legal representatives, successors
and permitted assigns. Nothing herein contained, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns, any rights or
remedies under or by reason of this Agreement.
5.8. Waiver, etc.
The failure of any of the parties hereto to at any time enforce any of the
provisions of this Agreement shall not be deemed or construed to be a waiver of
any such provision, nor to in any way affect the validity of this Agreement or
any provision hereof or the right of any of the parties hereto to thereafter
enforce each and every provision of this Agreement. No waiver of any breach of
any of the provisions of this Agreement shall be effective unless set forth in a
written instrument executed by the party or parties against whom or which
enforcement of such waiver is sought; and no waiver of any such breach shall be
construed or deemed to be a waiver of any other or subsequent breach.
5.9. Severability.
Any provision of this Agreement which is held by a court of competent
jurisdiction to be prohibited or unenforceable in any jurisdiction(s) shall be,
as to such jurisdiction(s), ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
-8-
5.10. Announcements.
Each of the parties shall hereto consult with each other prior to the
issuance of any press release or otherwise divulging the existence of this
Agreement, its contents, or the transactions contemplated hereby, and none of
the parties hereto shall issue any such press release or make any such statement
prior to such consultation, except as may be required by applicable law or the
applicable rules or regulations of NASDAQ or any other stock exchange.
5.11. Announcements.
Capitalized terms used herein shall have the meanings as assigned to such
terms herein and shall not necessarily have the definitions as assigned to such
terms in the Partnership Agreement.
[Signature page to follow.]
-9-
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto as of the date first above written.
T2 DEVELOPER, INC.
By: /s/ Ryan Brant
-------------------------------
Ryan Brant,
Chief Executieve Officer
TAKE-TWO INTERACTIVE SOFTWARE, INC.
By: /s/ Ryan Brant
-------------------------------
Ryan Brant,
Chief Executive Officer
GATHERING OF DEVELOPERS I, LTD.
By: Gathering of Developers, Inc.
(a Texas corporation)
its General Partner
By: /s/ Michael S. Wilson
-------------------------------
Michael S. Wilson,
Chief Executive Officer
GATHERING OF DEVELOPERS, INC.
By: /s/ Michael S. Wilson
-------------------------------
Michael S. Wilson,
Chief Executive Officer
LIMITED PARTNERS:
/s/ Michael S. Wilson
-----------------------------------
Michael S. Wilson
-10-
/s/ Harry A. Miller, IV
-------------------------------------
Harry A. Miller, IV
/s/ Binu Philip
-------------------------------------
Binu Philip
/s/ Allan Blum
-------------------------------------
Allan Blum
/s/ J. Holt Foster, III
-------------------------------------
J. Holt Foster, III
/s/ Jim E. Bloom
-------------------------------------
Jim E. Bloom
/s/ Eric Stults
-------------------------------------
Eric Stults
/s/ Doug Myres
-------------------------------------
Doug Myres
APOGEE SOFTWARE, LTD./3D REALMS, INC.
By: /s/ Scott Miller
----------------------------------
Scott Miller,
Partner
POPTOP SOFTWARE, INC.
By: /s/ Phil Steinmeyer
----------------------------------
Phil Steinmeyer,
President
-11-
STRATEGIC MARKETING PARTNERS, INC.
By: /s/ W.C. Mitschrich
--------------------------------
W.C. Mitschrich,
President
RITUAL ENTERTAINMENT, INC.
By: /s/ Mark Dochtermann
--------------------------------
Mark Dochtermann,
President
TERMINAL REALITY, INC.
By: /s/ Brett Combs
--------------------------------
Brett Combs,
Vice President
EPIC MEGAGAMES, INC.
By: /s/ Nigel Kent
--------------------------------
Nigel Kent,
President
EDGE OF REALITY, INC.
By: /s/ Robert B. Cohen
--------------------------------
Robert B. Cohen,
Chief Executive Officer
-12-
February 8, 1999
Gathering of Developers I, Ltd.
2700 Fairmount
Dallas, Texas 75201
Gentlemen:
WHEREAS, Take-Two Interactive Software, Inc. ("T2") and Gathering of
Developers I, Ltd. ("Gathering") have previously entered into that certain
Software Distribution Agreement dated as of May 27, 1998 (the "Distribution
Agreement") and Gathering has entered into that Heads of Agreement among
Terminal Reality, Inc., Apogee Software, Inc., Poptop Software, Inc. and
Take-Two Interactive Software Europe, Ltd., ("T2 Europe") dated as of April 6,
1998 (the "T2 Europe Agreement", together with the Distribution Agreement,
referred to herein as the "T2 Agreements"); and
WHEREAS, each of the parties to the T2 Agreements desires to provide for
this agreement (this "Amendment") to serve as a short form amendment to each of
the Distribution Agreement and the T2 Europe Agreement;
NOW, THEREFORE, in consideration of and in reliance upon the covenants,
conditions, representations and warranties contained herein and in each of the
T2 Agreements and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. (a) T2 agrees to make or has made, in part, a recoupable, non-refundable
advance to Gathering of an aggregate of $12.5 million (the "Advance") which has
been paid or shall be payable as follows: (i) $1,467,000 paid prior to the date
hereof (receipt of which is hereby acknowledged by Gathering) (Schedule A sets
forth a list of games to be published by Gathering); (ii) $1,867,000 payable in
immediately available funds upon execution of this Amendment; (iii) 5 equal
monthly installments of $584,000, each to be paid on the first day of each
calendar month immediately following execution of this Agreement commencing on
March 1, 1999; and (iv) 5 equal monthly installments of $1,250,000, each to be
paid on the first day of each calendar month immediately following execution of
this Agreement commencing on August 1, 1999. The Advance shall be recoupable at
a rate of 100% from and only from any monies (other than Advances or Second
Advances due hereunder or payments made pursuant to Section 15) due and owing to
Gathering by T2 or an affiliate thereof under the Distribution Agreement, the T2
Europe Agreement, and the Console Agreements (as hereinafter defined), until the
Advance has been recouped in full by T2 and/or T2 Europe and/or an affiliate
thereof ("Recoupment").
(b) The amount of the Advance actually paid to Gathering by T2 or an
affiliate thereof shall be secured by a first priority security interest (the
"Security Interest") in all of Gathering's assets (provided, however, that
(except as set forth below), no security interest is being granted in those
certain Amended and Restated Agreements Regarding Rights to Computer Games
between Gathering and the parties thereto (the "Development Agreements")),
including without limitation, Gathering's right, title and interest in all
Publishing Agreements ("Publishing Agreements") between Gathering and its
limited partners (the "Developers") in effect, as of the date hereof or which
are executed after the date hereof, which relate to interactive software and
video games published or scheduled to be published (the "Release Schedule";
attached hereto as Exhibit B) (as such Release Schedule shall be amended from
time to time when software and video games are approved by Gathering for
development) by Gathering on or before May 31, 2003 (the "Subject Software"),
including the Subject Software listed on Schedule B; provided, however, that to
the extent that a Publishing Agreement has not been entered into for a Subject
Software, the Advance shall be secured by a Security Interest in the Development
Agreements, only with respect to the Subject Software listed opposite such
Developer's name on Schedule C; provided, further, that with respect to such
Subject Software listed on Schedule C, upon execution by Gathering and the
Developer thereof of a Publishing Agreement therefor, the Security Interest held
by T2 or an affiliate thereof shall immediately and automatically be released
and terminate (but the Security Interest in the Publishing Agreement shall
survive). No Advances shall be required to be paid hereunder by T2 after April
1, 1999, unless and until Gathering has obtained executed Publishing Agreements
from each of the Developers listed on Schedule C on or before April 1, 1999 and
when such Publishing Agreements are executed all unpaid and previously due
Advances shall immediately be paid by T2 and future Advances shall be paid by T2
in accordance with the terms of this Amendment.
(c) Gathering hereby agrees to promptly furnish T2 with an amended Release
Schedule on the first day of each calendar quarter.
(d) Notwithstanding anything to the contrary in this Amendment or the T2
Agreements or the Console Agreements, upon Recoupment in full by T2 and/or its
affiliates of the Advance, with respect to any assets, property or other rights
of Gathering or any security interest granted herein or therein to T2 and/or any
affiliate thereof, shall terminate.
2. The definition of Game Titles in the Distribution Agreement is amended
to include "All other Subject Software for the PC platform (not including
add-ons, level packs or any mission pack)."
-2-
3. For each of the PC games scheduled to be published by or on behalf of
Gathering on or before May 31, 2003, after the twentieth (20th) PC game is
published by or on behalf of Gathering, provided Recoupment has occurred,
Gathering shall have the option but not the obligation (to be exercised in
writing within 15 days of the execution of the subject Publishing Agreement) to
cause T2 or an affiliate thereof to pay to Gathering a non-refundable fully
recoupable advance (each such Advance being a "Second Advance") of immediately
available funds payable as follows: (i) $250,000 immediately upon execution by
Gathering and the Developer of such game of the Publishing Agreement related
thereto; (ii) $250,000 within three months of such execution; and (iii) $250,000
within 9 months after the execution of the subject Agreement. The Second Advance
will be recoupable at the rate of 100% from and only from any royalties (other
than Advances or payments made pursuant to Section 15 due hereunder) due and
owing to the Gathering by T2 or any affiliate thereof under the Distribution
Agreement, the T2 Europe Agreement and the Console Agreements. In no event shall
the amount of the Second Advance exceed the actual amount of the advance paid by
Gathering for such game.
4. The T2 Europe Agreement is amended to provide that the term of the
agreement shall extend until May 31, 2003 and that the T2 Europe Agreement shall
apply to all Subject Software for the PC platform (not including add-ons, level
packs or any mission pack).
5. T2 is granted the right of first and last refusal for exclusive,
worldwide publishing rights for any console version of any Subject Software
(i.e., Nintendo, PlayStation, Dreamcast) for which Gathering has the publishing
rights. T2's right of first and last refusal shall exist only until Recoupment
and thereafter shall only be (i) a right of first refusal for all Subject
Software originally published on a console platform by or on behalf of Gathering
(as compared to ports of games originally published on the PC platform); and
(ii) a right of first and last refusal for publishing rights with respect to any
console port of any Subject Software published by or on behalf of Gathering
originally published on the PC or other non-console platform. Notwithstanding
anything to the contrary in this Section, (i) any refusal right granted
hereunder must be exercised in writing within fifteen days of written notice by
Gathering of a bona fide third party offer or shall automatically be deemed to
have been waived by T2 with respect to each game; (ii) with respect to each game
title, in the event that T2 does not exercise its publishing right, any
subsequent offer to publish such game that is accepted by Gathering must, with
respect to the royalty rate, advances, marketing budget and advertising budget
for such game, be on terms which are, in the aggregate, no less favorable to
Gathering than those offered in writing to Gathering by T2; and (iii) any
refusal right granted pursuant to this Section shall only be with respect to
console games published by Gathering and which are scheduled for release prior
to May 31, 2003 (pursuant to the most current release
-3-
schedule or release schedule which is subsequently developed). Notwithstanding
anything to the contrary in this Amendment, or either of the T2 Agreements or
the Console Agreements, except as set forth in Section 6.5 of the Amended and
Restated Agreement of Limited Partnership, neither T2 nor any affiliate thereof
shall have a right to publish and/or distribute any part of any game that
Gathering does not publish or distribute.
6. Subject to the terms of this Amendment, Publishing rights for Duke Nuke
'Em (Dreamcast version only), Max Payne, Railroad Tycoon II, Kiss Psycho Circus,
Jazz JackRabbit (color gameboy port only) and Mud Monsters console are governed
by separate agreements (collectively, the "Console Agreements").
7. For purposes of the T2 Europe Agreement, with respect to calculating
"Gross Margin Revenue" for each Game unit, any deduction from the market retail
price (exclusive of deductions for reasonable VAT and DDC (as defined in the T2
Europe Agreement)) of each Game unit shall in no event exceed $7.00 per unit of
such Game.
8. Gathering shall have the right and option, but not the obligation, to
publish in North and South America, on an exclusive basis each and any of the PC
games developed by or on behalf of T2 or its affiliates (other than Mission
Studios and Talonsoft) and which are scheduled to be published on or before May
31, 2003, pursuant to the most current release schedule or release schedule
which is subsequently developed. With respect to each such PC title published by
Gathering pursuant to this Section, the parties shall enter into a standard form
publishing agreement which will provide, inter alia that (i) Gathering shall
receive a 40% of net monies (calculated after credit for all returns, credits
and payment of T2's distribution fee payable in accordance with Distribution
Agreement) generated as a result of the sale of each unit of such title; (ii)
Gathering shall be responsible for paying all reasonable advertising costs and
manufacturing costs in the territory and related thereto, which Gathering in its
good faith and sole discretion deems necessary to publish such game; and (iii)
T2 shall pay for all distribution and development costs and expenses and any
developer advances or royalties due with respect to such title and assume all
liabilities related thereto. Gathering's option right must be exercised in
writing within fifteen days of written request by T2 or shall automatically be
deemed to have been waived by Gathering.
9. The advances due prior to the date hereof under the Distribution
Agreement and the T2 Europe Agreement are included in the Advance set forth in
Section 1. The advance payments made or to be made under the Console Agreements
(other than the advance payments due to be made under the Console Agreements
relating to Duke Nuke 'Em and Mud Monsters) are included in the Advance set
forth in Section 1.
-4-
10. In the event that T2 fails to make a payment of all or any portion of
any payment of the Advance or any Second Advance when such payment is due under
any of the T2 Agreements, the Console Agreements or this Amendment and if such
default remains uncured for a period of 45 days (each such default, a "Payment
Default") then Gathering shall notify T2 of such failure and shall identify the
game title or titles to which such payment relates.
As a result:
(a) with respect to each game title that is so identified and for which
Gathering has paid to the developer of such game at least 50% of the development
advances due to such developer pursuant to the Publishing Agreement/Development
Agreement between such developer and Gathering, then T2 (or the breaching
affiliate thereof) shall have until 120 days prior to the date that such game is
scheduled, as of the date of the breach, to be commercially released to cure
such breach. In the event that such default is not cured as set forth above, (i)
such game shall no longer be deemed subject to the terms of this Amendment or
any of the T2 Agreements or the Console Agreements or any ancillary documents
related thereto (including, without limitation, any Security Interest related
thereto provided that the Security Interest shall attach to the proceeds
realized by Gathering from the sale or transfer of such rights to a third
party); and (ii) if the game is published or distributed by a third party and
the advances paid by Gathering relating to such game are not recovered by
Gathering from such third party, then an amount of the unrecouped portion of the
Advance or Second Advance equal to such unrecouped portion of the advance paid
to such developer by Gathering shall be deemed to have been recouped in full by
T2 or its affiliates. Notwithstanding anything to the contrary contained in this
Amendment, or either of the T2 Agreements or the Console Agreements, (a) if the
game is so published or distributed by a third party and Gathering does receive
payments from such third party, then T2 (or its affiliates) shall be entitled to
recoup an amount of the unrecouped portion of the Advance or the Second Advance
equal to the development advances paid by Gathering to the developer of such
game and which are so recovered by Gathering from such third party or, (b) if
Gathering publishes the game, T2 shall be entitled to recoup as recoupment of
the unrecouped portion of the Advance and the Second Advance the entire advance
paid by the Gathering for such game.
(b) With respect to each game title that is so identified and for which
Gathering has paid to the developer of such game less than 50% of the
development advances due to such developer pursuant to the Publishing
Agreement/Development Agreement between such developer and Gathering, then T2
(or the breaching affiliate thereof) shall have 45 days from the date that such
payment was due to cure such breach, in full, and if not cured (i) such game
shall no longer be deemed subject to the terms of this Amendment, any of the T2
Agreements or the Console Agreements
-5-
or any ancillary documents related thereto (including, without limitation, any
Security Interest related thereto); and (ii) if the game is published or
distributed by a third party or the advances relating to such games are not
recovered by Gathering, then the portion of the Advance allocated by Gathering
to such game and paid to such developer by Gathering shall be deemed to have
been recouped in full by T2 or its affiliates. Notwithstanding anything to the
contrary in this Amendment, or either of the T2 Agreements or the Console
Agreements, (a) if the game is so published or distributed by a third party and
Gathering does receive payments from such third party, then T2 (or its
affiliates) shall be entitled to recoup the unrecouped portion of the Advance or
the Second Advance equal to the development advances paid by Gathering to the
developers for such game and which are so recovered by Gathering from such third
party or, (b) if the Gathering publishes the game, T2 shall be entitled to
recoup the entire advance paid by the Gathering as a recoupment of the
unrecouped portion of the Advance or the Second Advance.
(c) If Gathering shall receive a notice of default or termination from a
developer it shall forward such notice immediately to T2. In addition, with
respect to a Publishing Agreement for Subject Software entered into after the
date hereof, Gathering shall include a provision in the Publishing Agreement
with each Developer providing that such Developer shall provide any such default
or termination notice to T2 directly at 575 Broadway, New York, NY 10012,
Attention: Ryan Brant, as set forth on Schedule D attached hereto.
(d) Notwithstanding any provisions of Section 10 (a) or (b) to the
contrary, in the event of a default by T2, T2 Europe or an affiliate thereof in
paying any portion of the Advance due hereunder or under any of the T2
Agreements or the Console Agreements and T2 and/or Gathering receive a
termination or default notice from a developer, T2 shall have the right to pay a
portion of the Advance which may be due, as long as payment is made prior to the
date on which T2's right in such game would otherwise terminate under paragraphs
10(a) or 10(b) above, and direct Gathering to pay to the developer the necessary
payments to cure such default or notice of termination. If such partial payments
are made and they are sufficient to cure the payment default by Gathering to the
Developer, then such game shall still be subject to all of T2's rights
hereunder, including, without limitation, the right to publish and/or distribute
such game, the right to recoup the portion of the Advance allocable to such game
and the right to retain a security interest in the Publishing Agreement relating
to such game.
11. T2 agrees that the reporting standards attached hereto as Exhibit A
shall be incorporated as promptly as possible, but in no event later than
February 15, 1999, and such reports shall be made available to Gathering as
Gathering may, from time to time request.
-6-
12. Gathering shall have the right to advertise, market, distribute, sell
or otherwise use ("Use") its products through OEM/Bundling sales, internet
direct sales, catalogs and hobby stores and such Use shall, by definition, be
deemed not to be in violation of any rights granted by or on behalf of Gathering
or its affiliates pursuant to either of the T2 Agreements, this Amendment or the
Console Agreements. With respect to the T2 Europe Agreement or the Console
Agreements, T2 neither has nor shall have any OEM bundling rights, provided,
however, that, until Recoupment, Gathering agrees it shall not publish or
authorize others to publish or distribute any games subject to the terms hereof
in an OEM "bundle", prior to the 90th day after the release of such game by T2,
without the prior consent of T2 or an affiliate thereof, such consent not to be
unreasonably withheld. In the event that Gathering does not receive from T2 or
an affiliate thereof written rejection of a specific request by Gathering to
license an OEM/Bundle, such consent automatically shall be deemed to have been
given by T2.
13. In the event of any bankruptcy, insolvency, liquidation or
reorganization of Gathering (a "Transition Event"),
(a) With respect to each game title to be distributed and/or published
pursuant to this Amendment or any of the T2 Agreements or Console
Agreements and for which Gathering has paid to the developer of such game
at least 50% of the development advances due to such developer pursuant to
the Publishing Agreement/Development Agreement between such developer and
Gathering; T2 or an affiliate thereof and the developer thereof shall be
obligated to publish such title (and be subject to the benefits and
obligations (as more fully set forth below) of such agreement) in
accordance with the terms and conditions as set forth in the Publishing
Agreement/Development Agreement (each such agreement, an "Assumed
Agreement") pertaining to such game between Gathering and such developer in
effect immediately prior to such Transition Event; provided, however, with
respect to games which have already been shipped commercially, T2 shall
only be obligated to fulfill and shall only assume Gathering's obligations
under the Assumed Agreement to be performed after the date on which T2
assumes the Assumed Agreement (i.e., T2 or its affiliates shall not assume
and shall not be liable for the payment of royalties or other amounts with
respect to any sales of games made prior to the date of T2 or its
affiliates assumption, except to the extent that T2 or its affiliate
actually receive proceeds from such sales) except for an aggregate of
$750,000 which T2 will make available to Developers on a pro rata basis
(based on advances due to such Developers) for past due advances not paid
by Gathering on games subject to Assumed Agreements; provided, further that
if the game to which the Assumed Agreement relates has not yet been shipped
commercially, then T2 shall have the option to assume the Assumed Agreement
(to be exercised within the later of 15 days of the Transition Event or
decision by the Court having jurisdiction over the Gathering to permit T2's
exercise of such right), and in the
-7-
event of such assumption T2 shall be obligated to assume all of Gathering's
obligations past, present, and future pursuant to the Assumed Agreement;
provided, further, that T2 shall not incur any liabilities to the developer
for payments received by Gathering and not remitted by Gathering to the
developer or the remittance of royalties to the developer for territories
in which a third party (other than a T2 affiliate) has entered into a
publishing or distribution agreement for such game with Gathering;
(b) with respect to each game title to be distributed and/or published
pursuant to this Amendment or any of the T2 Agreements or the Console
Agreements and for which Gathering has paid to the developer of such game
less than 50% of the development advances due to such developer pursuant to
the publishing agreement between such developer and Gathering, such
developer shall be free to distribute/publish such game through any means
it deems necessary and such game shall no longer be subject to the terms of
this Amendment or any of the of the T2 Agreements or the Console Agreements
or any ancillary documents (including any security interest therein)
related thereto; provided, however, that until Recoupment such developer
pays to T2 or an affiliate thereof an amount equal to the unrecouped,
non-refundable advance against royalties that has been paid by Gathering to
the developer of such game pursuant to the Publishing Agreement pertaining
to such game and only to the extent necessary to achieve Recoupment or
recoupment of a Second Advance for such game and upon such payment, any
security interest held by T2 or an affiliate thereof relating to any
agreement between the developer of such game and Gathering pertaining to
such game shall automatically and immediately be released; and
(c) In the event of a Transition Event, T2 and its affiliates right to
Recoupment or its right to recoup a Second Advance shall be limited with
respect to each game subject to an Assumed Agreement to the unrecouped
advance made by Gathering to the Developer under the Assumed Agreement and
such game shall not be cross-collateralized with any other game.
14. Except as set forth herein, each of the T2 Agreements and the Console
Agreements shall remain in full force and effect. In the event that there is a
conflict between this Amendment and any of the T2 Agreements or the Console
Agreements, this Amendment shall control. This Amendment together with the T2
Agreements and the Console Agreements constitute the entire agreement of the
parties hereto with respect to the subject matter thereof, and supersedes all
prior agreements and understandings of the parties, oral and written, with
respect to the subject matter thereof and can only be amended by a written
instrument executed by each of the parties hereto.
15. If Gathering is, pursuant to its Publishing Agreements responsible for
paying manufacturing costs or costs of goods sold, T2 shall upon request of
Gathering advance not to
-8-
exceed $5.00 per unit or $1 million in the aggregate per product, unless
mutually agreed to. Any agreement by T2 to advance such costs shall be evidenced
by a separate written agreement. All such manufactured goods and cost of goods
sold shall be 100% recoupable with a priority over recoupment of the Advance.
16. Any lawsuit, arbitration or other dispute relating to or arising out of
either of the T2 Agreements, the Console Agreements or this Amendment shall be
resolved in accordance with the laws of the State of Texas, with a forum and
venue of Dallas County, Texas.
17. Notwithstanding anything to the contrary in this Amendment, the T2
Agreements or Console Agreements, in the event that any payment or notice to be
made to, by or on behalf of Gathering to or by either of T2, T2 Europe or an
affiliate of either, the giving of such notice or payment of such obligation by,
to or on behalf of Gathering to or by T2 or any affiliate thereof shall be
deemed proper notice or full payment of such obligation to Gathering on the one
hand, or T2 or any other T2 affiliate, on the other hand.
18. Notwithstanding anything to the contrary in any of the T2 Agreements or
the Console Agreements, with respect to any game to be published and/or
distributed pursuant thereto, in the event that Gathering notifies T2 or an
affiliate thereof that the anticipated release date for such game shall be later
than expected at least 60 days prior to the release date anticipated for such
game, Gathering shall not be deemed to be in default of any of the terms,
conditions or other obligations as set forth in the agreements pertaining to
such game. The Delivery Date for any game subject to the T2 Europe Agreement
shall be deemed to be 60 days after such game is delivered under the
Distribution Agreement unless otherwise agreed to by the parties.
19. Notwithstanding anything to the contrary in any agreements between
Gathering, on the one hand, and T2 or an affiliate thereof, on the other hand,
upon the payment of the exercise price of the B Option to T2 or an affiliate
thereof pursuant to the terms of that certain Option Agreement dated February 8,
1999, by and between T2 and Gathering, any rights of T2 or any affiliate thereof
to recoup any of the Recoupment or any Second Advance, the Advance or other
advances due under this Amendment or any of the T2 Agreements or Console
Agreements shall immediately and automatically be terminated and such payments
shall be deemed to have been made in full.
20. T2 Europe agrees to make available to Gathering office space and office
facilities as shall be reasonably requested by Gathering. T2 agrees in the event
it forms a subsidiary or
-9-
advisory board for the purpose of overseeing development of PC games it shall
appoint a representative of Gathering as a member of the board of directors of
such subsidiary or to the advisory board.
21. IN NO EVENT SHALL ANY PARTY HERETO OR ANY OF THEIR RESPECTIVE
AFFILIATES BE LIABLE TO ANY OTHER PARTY HERETO FOR ANY CONSEQUENTIAL DAMAGES,
LOSS OF PROFITS, LOSS OF BUSINESS OPPORTUNITY, INCIDENTAL DAMAGES OR ANY SIMILAR
DAMAGES AS A RESULT OF ANY DEFAULT HEREUNDER. NO REMEDIES SET FORTH HEREIN SHALL
BE DEEMED TO BE EXCLUSIVE AND THE NON-BREACHING PARTY SHALL BE FREE TO PURSUE
ANY AND ALL REMEDIES UNDER APPLICABLE LAW AND SUBJECT TO THIS SECTION 21. IN NO
EVENT SHALL ANY PARTY'S LIABILITY FOR DAMAGES HEREUNDER EXCEED THE TOTAL AMOUNT
OF THE ADVANCES AND THE SECOND ADVANCES.
IN WITNESS WHEREOF, this Amendment has been executed and delivered by the
parties hereto as of the date first written above.
TAKE TWO INTERACTIVE SOFTWARE, INC.
By: /s/ Ryan Brant
----------------------------------
Name: Ryan Brant,
Title: Chief Executive Officer
TAKE TWO INTERACTIVE SOFTWARE
EUROPE, LTD
By: /s/ Ryan Brant
----------------------------------
Name: Ryan Brant
Title: Chief Executive Officer
GATHERING OF DEVELOPERS I, LTD.
By: Gathering of Developers, Inc.
(a Texas corporation)
its General Partner
By: /s/ Michael S. Wilson
----------------------------
Michael S. Wilson,
Chief Executive Officer
POPTOP SOFTWARE, INC.
By: /s/ Phil Steinmeyer
----------------------------------
Name: Phil Steinmeyer,
Title: President
-10-
TERMINAL REALITY, INC.
By: /s/ Brett Combs
----------------------------------
Name: Brett Combs,
Title: Vice President
APOGEE SOFTWARE, INC./
3D REALMS
By: /s/ Scott Miller
----------------------------------
Name: Scott Miller,
Title: President
-11-
- --------------------------------------------------------------------------------
REVOLVING CREDIT AGREEMENT
dated as of February 16, 1999,
by and among
JACK OF ALL GAMES, INC.,
NATIONSBANK, N.A.,
THE PROVIDENT BANK,
and
NATIONSBANK, N.A., as Agent
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
SECTION 1
DEFINITIONS
1.1 Definitions...........................................................2
1.2 Other General Terms..................................................16
SECTION 2
REVOLVING CREDIT FACILITY
2.1 Revolving Credit Loans...............................................18
2.2 Notice and Manner of Borrowing.......................................19
2.3 Swingline Loans......................................................20
2.4 Notes................................................................23
2.5 Termination and Optional Reduction of Commitments....................25
2.6 Interest.............................................................25
2.7 Fees.................................................................26
2.8 Purpose..............................................................27
2.9 Prepayments..........................................................27
2.10 Payments and Computations............................................27
SECTION 3
LETTER OF CREDIT
3.1 Letter of Credit Facility............................................29
3.2 Documentation........................................................30
3.3 Fees.................................................................31
3.4 Reimbursement Obligations............................................31
3.5 Expiration of Letters of Credit......................................31
3.6 Participation of Lenders Other Than NationsBank......................32
SECTION 4
REPRESENTATIONS
4.1 Subsidiaries.........................................................35
4.2 Organization and Existence...........................................36
4.3 Authority............................................................36
4.4 Binding Agreements...................................................37
4.5 Litigation...........................................................37
4.6 No Conflicting Agreements............................................37
4.7 Financial Condition..................................................38
4.8 Ownership of Property................................................38
4.9 Intellectual Property................................................39
4.10 Employee Benefit Pension Plans.......................................39
4.11 Taxes................................................................40
i
4.12 Compliance with Environmental and Other Laws.........................40
4.13 Employee Relations...................................................41
4.14 Investment Company Act; Public Utility Holding
Company Act; Federal Power Act.......................................41
4.15 No Defaults..........................................................41
4.16 Federal Regulations..................................................42
4.17 Accuracy of Information..............................................42
4.18 Year 2000 Compliance.................................................42
4.19 Survival of Representations and Warranties, Etc......................43
SECTION 5
CONDITIONS TO LOANS
5.1 Conditions to Initial Loan...........................................44
5.2 Conditions to Each Loan..............................................47
SECTION 6
AFFIRMATIVE COVENANTS
6.1 Financial Statements of Company......................................49
6.2 Financial Statements of Guarantor....................................51
6.3 Borrowing Base and Related Information...............................52
6.4 Collateral Audits; Other Inspections.................................53
6.5 Year 2000 Compliance.................................................53
6.6 Taxes................................................................54
6.7 Payment of Obligations...............................................54
6.8 Insurance............................................................54
6.9 Corporate Existence..................................................55
6.10 Licenses and Permits.................................................55
6.11 Properties...........................................................55
6.12 Employee Benefit Pension Plans.......................................56
6.13 Business Continuation................................................56
6.14 Compliance with Environmental Laws...................................56
6.15 Compliance with Other Applicable Laws................................56
6.16 GAAP.................................................................57
6.17 Landlord Lien Waivers................................................57
SECTION 7
FINANCIAL COVENANTS
7.1 Tangible Net Worth...................................................58
7.2 Funded Debt to EBITDA Ratio..........................................58
7.3 EBITDA to Interest Expense Ratio.....................................58
SECTION 8
NEGATIVE COVENANTS
ii
8.1 Additional Borrowing.................................................58
8.2 Mortgages and Pledges................................................59
8.3 Merger, Consolidation, or Sale of Assets.............................61
8.4 Contingent Liabilities...............................................61
8.5 Loans................................................................61
8.6 Investments..........................................................62
8.7 Dividends and Purchases of Stock.....................................62
8.8 Sale and Leaseback...................................................62
8.9 Use of Proceeds......................................................62
8.10 Dissolution..........................................................63
8.11 Conduct of Business..................................................63
8.12 Affiliate Transactions...............................................63
SECTION 9
EVENTS OF DEFAULT
9 Events of Default....................................................60
SECTION 10
SET-OFFS AND SHARING OF PAYMENTS
10.1 Right of Set-off; Adjustments........................................68
SECTION 11
THE AGENT
11.1 Appointment, Powers, and Immunities..................................69
11.2 Reliance By Agent....................................................71
11.3 Defaults.............................................................71
11.4 Rights as Lender.....................................................72
11.5 Indemnification......................................................72
11.6 Non-Reliance on Agent and Other Lenders..............................73
11.7 Resignation of Agent.................................................74
SECTION 12
MISCELLANEOUS PROVISIONS
12.1 Expenses; Indemnification............................................74
12.2 Several Obligations of Lenders.......................................76
12.3 Cumulative Rights and No Waiver......................................76
12.4 Amendments and Waivers...............................................76
12.5 Notices..............................................................77
12.6 Applicable Law.......................................................78
12.7 Survivorship.........................................................78
12.8 Execution in Counterparts............................................78
iii
12.9 Headings.............................................................79
12.10 Arbitration..........................................................79
12.11 Entire Agreement.....................................................80
EXHIBITS
A - NOTICE OF BORROWING
B - REVOLVING CREDIT NOTE
C - SWINGLINE NOTE
D - SECURITY AGREEMENT
E - GUARANTY AGREEMENT
F - AUTOBORROW SERVICE AGREEMENT
G - BORROWING BASE CERTIFICATE
H - COMMERCIAL L/C APPLICATION
I - STANDBY L/C APPLICATION
iv
THIS REVOLVING CREDIT AGREEMENT is made as of this 16th day of February,
1999, by and among JACK OF ALL GAMES, INC. (the "Company"), a New York
corporation, with an office located at 14-20B 129th Street, College Point, New
York 11356, NATIONSBANK, N.A. ("NationsBank"), a national banking association,
with an office located at 1111 East Main Street, Richmond, Virginia 23219, THE
PROVIDENT BANK ("Provident"), an Ohio banking corporation, with an office
located at One East Fourth Street, Cincinnati, Ohio 45202 (NationsBank and
Provident are referred to hereinafter individually as a "Lender" and
collectively as the "Lenders"), and NATIONSBANK, N.A., as agent for the Lenders
(in such capacity, the "Agent").
The Company has applied to the Lenders for a revolving credit facility of
up to $35,000,000 through and including September 30, 1999, and up to
$45,000,000 thereafter, the proceeds of which will be used by the Company to
refinance existing indebtedness, for working capital and for other general
corporate purposes. The Company has also applied to NationsBank for (1) a
swingline facility of up to $3,000,000, the proceeds of which will be used by
the Company for daily, short-term borrowing needs, and (2) a letter of credit
subfacility under which NationsBank will issue (and each Lender will participate
in) letters of credit for the account of the Company. Upon the terms and subject
to the conditions contained herein, the Lenders are willing to make such a
revolving credit facility and NationsBank is willing to make such a swingline
facility and letter of credit subfacility available to the Company.
ACCORDINGLY, the Company, the Lenders and the Agent agree as follows:
SECTION 1
DEFINITIONS
1.1 Definitions. The following terms when used in this Agreement shall have
the meanings assigned to them below:
"Accounts Receivable" means all of the Company's accounts, accounts
receivable and receivables arising from the sale of goods and/or the providing
of services by the Company or its predecessors in the ordinary course of
business.
"Advance" means an advance of Revolving Credit Loans made by the Lenders to
the Company under the Revolving Credit Facility as provided in Section 2.1
and/or an advance of Swingline Loans made by NationsBank to the Company under
the Swingline Facility as provided in Section 2.3, as the context may require.
"Affiliate" means, as to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by or is under common control
with such Person.
"Agent" means NationsBank, N.A. in its capacity as agent for the Lenders
hereunder.
"Agent's Account" means the account maintained by the Agent at NationsBank,
N.A. for the purposes of this Agreement or such other account as may be
specified by the Agent.
"Aggregate Revolving Credit Commitment" means the sum of the Revolving
Credit Commitments, as they may be reduced from time to time pursuant to Section
2.5. As of the Closing Date, the Aggregate Revolving Credit Commitment equals
(i) $35,000,000 from and including the Closing Date through and including
September 30, 1999, and (ii) $45,000,000 thereafter.
"Agreement" means this Revolving Credit Agreement, as it may be extended
from time to time and as it may be amended from time to time by written
agreement, in each case as herein provided.
"Applicable Margin" (i) means .50% through and including the first day of
the month following receipt by the Agent of financial statements of the Company
pursuant to Section 6.1(a) as of and for the period ending January 31, 1999, and
(ii) thereafter will be determined by reference to the Funded Debt to EBITDA
Ratio in accordance with the following table:
Funded Debt to EBITDA Ratio Applicable Margin
--------------------------- -----------------
Higher than 3.0 to 1 .50%
Equal to or lower than 3.0 to 1 .25%
but higher than 2.0 to 1
Equal to or lower than 2.0 to 1 0%
The Applicable Margin will be automatically adjusted as of the first day of the
month following receipt by the Agent of financial statements of the Company
pursuant to Section 6.1(a), Section 6.1(b) or Section 6.1(c) demonstrating to
the Agent's reasonable satisfaction that there has been a change in the Funded
Debt to EBITDA Ratio for two (2) consecutive fiscal quarters of the Company
which would cause a change in the Applicable Margin in accordance with the
preceding table. Any such change will apply to the Loans outstanding on such
effective date or made on or after such date.
"AutoBorrow Service Agreement" means an AutoBorrow Service Agreement
between the Company and NationsBank, substantially in the form of Exhibit F
attached hereto with the blanks therein appropriately completed.
2
"Borrowing Base Certificate" means a certificate, substantially in the form
of Exhibit G attached hereto with the blanks therein appropriately completed,
listing the Net Eligible Accounts Receivable, the Eligible Inventory and the
Collateral Loan Value as of the last day of the most recently ended accounting
month of the Company and showing changes therein from the most recent Borrowing
Base Certificate previously delivered to the Lenders, the amount of the
outstanding Revolving Credit Loans and the amount of the unused Aggregate
Revolving Credit Commitment.
"Borrowing Base Percentage" means, for any period, the ratio, expressed as
a percentage, of (i) the sum of the average daily aggregate outstanding
principal amount of Revolving Credit Loans and Swingline Loans during such
period and the average daily amount of outstanding L/C Obligations during such
period, to (ii) the average daily Collateral Loan Value during such period (with
the Collateral Loan Value for a day being equal to the Collateral Loan Value
listed on the Borrowing Base Certificate most recently delivered to the
Lenders).
"Business Day" means any day, other than a Saturday, Sunday or legal
holiday, on which banks in Richmond, Virginia and Charlotte, North Carolina are
open for the conduct of their commercial banking business.
"Capital Lease" means any lease which, in accordance with GAAP, should be
capitalized on the balance sheet of the lessee.
"Capital Lease Obligations" means the aggregate amount which, in accordance
with GAAP, should be reported as a liability on the balance sheet of a Person
with respect to Capital Leases.
"Closing Date" means the earlier of the date on which the initial Advance
under the Revolving Credit Facility or the Swingline Facility is made and the
date on which the initial Letter of Credit is issued hereunder.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute, including the rules or regulations promulgated
thereunder, in each case as in effect from time to time. References to sections
of the Code shall be construed to also refer to any successor sections.
"Collateral Loan Value" means, at any date, the sum of (i) eighty percent
(80%) of Net Eligible Accounts Receivable as of such date, and (ii) the lesser
of (x) fifty percent (50%) of Eligible Inventory as of such date, and (y)
$18,000,000.
3
"Commercial L/C Application" shall have the meaning assigned thereto in
Section 3.2(a).
"Company" means Jack of All Games, Inc., a New York corporation, in its
capacity as borrower hereunder.
"Default" means any event, act or condition which, with the giving of
notice or lapse of time, or both, would constitute an Event of Default.
"Dividend Payment Date" shall have the meaning assigned thereto in Section
8.7.
"Dollars" or "$" means, unless otherwise qualified, dollars in lawful
currency of the United States.
"EBITDA" means, for any period and without duplication, the sum of (i) Net
Income for such period, and (ii) the aggregate amount deducted in determining
Net Income for such period with respect to interest, taxes, depreciation and
amortization.
"EBITDA to Interest Expense Ratio" means the ratio of (i) the difference
between (x) EBITDA for the four-quarter period ending on the date of measurement
and (y) the aggregate amount of dividends and other distributions paid by the
Company to the Guarantor and any other stockholders of the Company during such
four-quarter period, to (ii) Interest Expense for such four-quarter period;
provided, however, that (i) for purposes of measuring this ratio for the
four-quarter period ending January 31, 1999, EBITDA and Interest Expense for the
one-quarter period ending January 31, 1999, will be used and will be annualized
by multiplying such EBITDA and Interest Expense by four, (ii) for purposes of
measuring this ratio for the four-quarter period ending April 30, 1999, EBITDA
and Interest Expense for the two-quarter period ending April 30, 1999, will be
used and will be annualized by multiplying such EBITDA and Interest Expense by
two, and (iii) for purposes of measuring this ratio for the four-quarter period
ending July 31, 1999, EBITDA and Interest Expense for the three-quarter period
ending July 31, 1999, will be used and will be annualized by multiplying such
EBITDA and Interest Expense by 1.33.
"Eligible Inventory" means, except as provided below, all Inventory, valued
at book value. Eligible Inventory shall not include (i) work in process and
supplies, (ii) Inventory financed by NationsCredit Commercial Corporation and
other Inventory in which the Agent as agent for the Lenders does not have a
first priority, perfected security interest (including, without limitation,
Inventory in which any other lender has a security interest of higher priority
than the security interest of the Agent as agent for the Lenders), (iii)
Inventory on consignment, (iv) repossessed Inventory, (v) obsolete Inventory,
(vi) Inventory that is not in good condition or that fails to meet government
standards, and (vii) other Inventory that either Lender determines to be
ineligible based on the application of commercially reasonable underwriting
standards.
4
"Environmental Laws" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations and orders of courts or Governmental Authorities, relating to
the protection of human health or the environment, including, but not limited
to, requirements pertaining to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation, handling, reporting, licensing,
permitting, investigation or remediation of Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute, including the rules and
regulations promulgated thereunder, in each case as in effect from time to time.
References to sections of ERISA will be construed to also refer to any successor
sections.
"Event of Default" shall have the meaning assigned thereto in Section 9.
"Federal Funds Rate" means, for any date, the simple interest rate per
annum (rounded upwards, if necessary to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (a) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day, and (b) if no such rate is so published on such
next succeeding Business Day, the Federal Funds Rate for such day shall be the
average rate charged to the Agent (in its individual capacity) on such day on
such transactions as reasonably determined by the Agent.
"Funded Debt" means, at any date and without duplication, the sum of (i)
all indebtedness for borrowed money of the Company, including, without
limitation, all indebtedness of the Company evidenced by bonds, debentures,
notes and other similar instruments, (ii) all obligations of the Company to pay
the deferred purchase price of property or services, other than accounts payable
and accrued expenses arising in the ordinary course of business, (iii) all
Capital Lease Obligations of the Company and (iv) all indebtedness of any other
Person secured by any security interest in or other lien on any asset of the
Company or guaranteed by the Company.
"Funded Debt to EBITDA Ratio" means the ratio of Funded Debt as of the date
of measurement to EBITDA for the four-quarter period ending on such date;
provided, however, that (i) for purposes of measuring this ratio for the
four-quarter period ending January 31, 1999, EBITDA for the one-quarter period
ending January 31, 1999, will be used and will be annualized by multiplying such
EBITDA by four, (ii) for purposes of measuring this ratio for the four-quarter
period ending April 30, 1999, EBITDA for the two-quarter period ending April 30,
1999, will be used and will be annualized by multiplying such EBITDA by two, and
(iii) for purposes of measuring this ratio for the four-quarter period ending
July 31, 1999, EBITDA for the three-quarter period ending July 31, 1999, will be
used and will be annualized by multiplying such EBITDA by 1.33.
5
"GAAP" means generally accepted accounting principles, as recognized from
time to time by the Accounting Principles Board of the American Institute of
Certified Public Accountants and the Financial Accounting Standards Board,
consistently applied and maintained on a consistent basis throughout the period
indicated and consistent with the prior financial practice of the applicable
Person(s).
"Governmental Authority" means any government or political subdivision or
any court, agency, authority, department, commission, board, bureau or
instrumentality thereof.
"Guarantor" means Take-Two Interactive Software, Inc., a Delaware
corporation, and the owner of 100% of the issued and outstanding capital stock
of the Company.
"Guaranty" means the Guaranty Agreement dated February 16, 1999,
substantially in the form of Exhibit E attached hereto with the blanks therein
appropriately completed, pursuant to which the Guarantor has unconditionally
guaranteed all obligations of the Company to the Lenders and the Agent.
"Hazardous Materials" means any substances or materials (i) which are or
become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law, (ii) which are
toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise harmful to human health or the environment and are or
become regulated by any Governmental Authority having jurisdiction over the
matter, (iii) the presence of which requires investigation or remediation under
any Environmental Law, (iv) the discharge or emission or release of which
requires a permit or license under any Environmental Law, (v) which are found by
a court of competent jurisdiction or by any Governmental Authority having
jurisdiction over the matter to constitute a nuisance, a trespass or pose a
health or safety hazard to persons or neighboring properties, (vi) which consist
of underground or aboveground storage tanks, whether empty, filled or partially
filled with any substance of the type listed in any other part of this
definition, or (vii) which contain asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived
substances or waste, crude oil, nuclear fuel, natural gas or synthetic gas.
"Interest Expense" means, for any period, the interest expense of the
Company (including, without limitation, the portion of any obligations under
Capital Leases of the Company allocable to interest expense) determined in
accordance with GAAP for such period.
"Inventory" means all of the inventory of the Company, including all raw
materials, work in process and finished goods of every kind and character.
"Issuance Fee" means one-eighth of one percent (1/8 of 1%).
6
"Issuing Lender" means NationsBank, N.A., in its capacity as issuer of the
Letters of Credit hereunder.
"L/C Application" means a Commercial L/C Application or a Standby L/C
Application.
"L/C Fee" means one and one-half percent (1-1/2%) per annum.
"L/C Obligations" means, at any time, an amount equal to the sum of (i) the
aggregate undrawn and unexpired amount of the then outstanding Letters of
Credit, and (ii) the aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to Section 3.4.
"Lenders" means NationsBank and Provident.
"Letters of Credit" shall have the meaning assigned thereto in Section 3.1.
"Loan Documents" means this Agreement, the Revolving Credit Notes, the
Swingline Note, the Security Agreement, the Guaranty, the L/C Applications, the
Letters of Credit and each other document, agreement and instrument executed and
delivered by the Company, the Guarantor or any of their respective Subsidiaries
in connection with this Agreement or otherwise referred to herein or
contemplated hereby, all as they may be amended, restated, supplemented or
otherwise modified from time to time.
"Loans" means the Revolving Credit Loans and the Swingline Loans.
"Material Adverse Effect" means a material adverse effect upon (i) the
business, assets, properties, liabilities, condition (financial or otherwise),
results of operations or business prospects of the Company or the Guarantor,
(ii) the ability of the Company or the Guarantor to perform any obligation under
this Agreement or any other Loan Document to which it is a party, (iii) the
legality, validity, binding effect or enforceability of any Loan Document, or
(iv) the ability of the Lenders and the Agent to enforce any rights or remedies
under or in connection with any Loan Document.
"Merger Transactions" means (i) the merger of Jack of All Games, Inc., an
Ohio corporation, with and into Alliance Inventory Management, Inc., a New York
corporation, as described in the Certificate of Merger of Jack of All Games,
Inc. and Alliance Inventory Management,, Inc. dated February 1, 1999, with
Alliance Inventory Management, Inc. as the surviving corporation, and (2) the
change of Alliance Inventory Management, Inc.'s name to Jack of All Games, Inc.
7
"NationsBank" means NationsBank, N.A., a national banking association, and
its successors.
"Net Eligible Accounts Receivable" means, except as provided below, all
Accounts Receivable with respect to which the Company's right to receive payment
is absolute and not contingent upon the fulfillment of any condition whatsoever.
Net Eligible Accounts Receivable shall not include: (i) in the case of Accounts
Receivable which are not covered by the Company's receivables insurance, any
such Account Receivable which remains unpaid more than ninety (90) days past the
date of the applicable invoice, (ii) in the case of Accounts Receivable which
are covered by the Company's receivables insurance, any such Account Receivable
which remains unpaid more than sixty (60) days past its due date (based on a due
date of not more than sixty (60) days past the date of the applicable invoice),
(iii) the portion of any Account Receivable with respect to which there exists a
right of set-off or counterclaim, a defense or a discount (other than a regular
discount allowed in the ordinary course of the Company's business to promote
prompt payment) or with respect to which a set-off, counterclaim or defense has
been asserted, (iv) any Account Receivable which arises out of a contract or
order which by its terms forbids or makes void or unenforceable any assignment
by the Company to the Agent as agent for the Lenders, (v) any Account Receivable
which represents an obligation of an account debtor when fifty percent (50%) or
more of the Accounts Receivable owing from such account debtor remain unpaid
more than ninety (90) days past the date of the applicable invoice, (vi) any
Account Receivable arising from a "sale on approval," "sale or return,"
"consignment" or any other repurchase or return agreement, (vii) the portion of
the total amount of Accounts Receivable owing from any particular account debtor
which exceeds fifty percent (50%) of the aggregate amount of Accounts
Receivable, (viii) any Account Receivable with respect to which either Lender is
not or does not continue to be satisfied with the credit standing of the
applicable account debtor in relation to the amount of credit extended, (ix) any
Account Receivable owing from any Affiliate, director, officer or employee of
the Company, (x) any Account Receivable owing from an account debtor which is
not incorporated or otherwise organized under the laws of one of the states of
the United States or one of the provinces of Canada in the case of an entity or
who is not a resident of the United States or Canada in the case of an
individual (provided that not more than $1,500,000 of Accounts Receivable owing
from Canadian account debtors may be included in Net Eligible Accounts
Receivable at any given time), and (xi) any other Account Receivable that either
Lender determines to be ineligible based on the application of commercially
reasonable underwriting standards.
"Net Income" means, for any period, the net income (or net loss) of the
Company determined in accordance with GAAP for such period.
"Notes" means the Revolving Credit Notes and the Swingline Note.
8
"Notice of Borrowing" means a notice, substantially in the form of Exhibit
A attached hereto with the blanks therein appropriately completed, required
under Section 2.2 in connection with each Advance of Revolving Credit Loans.
"PBGC" means the Pension Benefit Guaranty Corporation as created under
ERISA, or any successor thereto under ERISA.
"Permitted Investments" means (i) cash, (ii) cash equivalents, (iii)
certificates of deposit issued by banks that are members of the Federal Reserve
System and have total assets of not less than $1,000,000,000, (iv) direct
obligations of the United States of America, (v) obligations of agencies of the
United States Government if the payment of all principal and interest thereof is
guaranteed by the United States of America, and (vi) stock or other ownership
interests in Subsidiaries.
"Person" means an individual, corporation, limited liability company,
partnership, association, trust, business trust, joint venture, joint stock
company, pool, syndicate, sole proprietorship, unincorporated organization,
Governmental Authority or any other form of entity or group thereof.
"Prime Rate" means the rate which NationsBank establishes from time to time
as its prime rate, with any change of interest resulting from a change in the
Prime Rate being effective on the effective date of each change therein. The
Company acknowledges and agrees that the Prime Rate is a reference used in
determining interest rates on certain loans by NationsBank and is not intended
to be the lowest rate of interest charged on any extension of credit to any
customer.
"Provident" means The Provident Bank, an Ohio banking corporation, and its
successors.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System of the United States, as it may be amended from time to time.
"Required Lenders" means NationsBank and Provident.
"Revolving Credit Commitment" means (i) in the case of NationsBank,
$21,000,000 from and including the Closing Date through and including September
30, 1999, and $27,000,000 thereafter, and (ii) in the case of Provident,
$14,000,000 from and including the Closing Date through and including September
30, 1999, and $18,000,000 thereafter, in each case as the same may be reduced
from time to time pursuant to Section 2.5.
9
"Revolving Credit Commitment Percentage" means, (i) in the case of
NationsBank, sixty percent (60%), and (ii) in the case of Provident, forty
percent (40%).
"Revolving Credit Facility" means the revolving credit facility established
pursuant to Section 2.
"Revolving Credit Loans" shall have the meaning assigned thereto in Section
2.1.
"Revolving Credit Notes" shall have the meaning assigned thereto in Section
2.4(a).
"Revolving Credit Termination Date" means February 28, 2001.
"Security Agreement" means the Security Agreement dated February 16, 1999,
between the Company and the Agent as agent for the Lenders, substantially in the
form of Exhibit D attached hereto with the blanks therein appropriately
completed, pursuant to which the Company has granted the Agent as agent for the
Lenders a security interest in all of the Company's accounts, inventory,
equipment, general intangibles, securities and other personal property to secure
all obligations of the Company to the Lenders and the Agent.
"Standby L/C Application" shall have the meaning assigned thereto in
Section 3.2(b).
"Subsidiary" means, as to any Person, any corporation, partnership, limited
liability company or other entity of which more than fifty percent (50%) of the
outstanding capital stock or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other managers of such
corporation, partnership, limited liability company or other entity is at the
time, directly or indirectly, owned by such Person (irrespective of whether, at
the time, capital stock or other ownership interests of any other class or
classes of such corporation or other entity shall have or might have voting
power by reason of the happening of any contingency).
"Swingline Commitment" means Three Million Dollars ($3,000,000.00).
"Swingline Facility" means the swingline facility established pursuant to
Section 2.3.
"Swingline Loans" shall have the meaning assigned thereto in Section
2.3(a).
"Swingline Note" shall have the meaning assigned thereto in Section 2.4(b).
10
"Tangible Net Worth" means, at any date, the amount by which the total
tangible assets of the Company exceeds the total liabilities of the Company;
provided that, in calculating Tangible Net Worth, there will be excluded from
total tangible assets (i) goodwill, including any amounts, howsoever designated,
representing the excess of the purchase price paid for stock or assets acquired
over the book value assigned thereto, (ii) patents, trademarks, service marks,
trade names and copyrights, (iii) all amounts due to the Company from any
Affiliate, director, officer or employee or member of any of their immediate
families, and (iv) all other assets which would be classified as intangible
assets in accordance with GAAP.
"Unused Commitment Fee Percentage" means .125%.
"Written" or "in writing" means any form of written communication,
including communication by means of telefacsimile, telex, telecopier, telegraph
or cable.
1.2 Other General Terms. (a) Section References, Etc. Unless otherwise
specified, a reference in this Agreement to a particular section, subsection,
schedule or exhibit is a reference to that section, subsection, schedule or
exhibit of this Agreement. Wherever from the context it appears appropriate,
each term stated in either the singular or the plural will include the singular
and plural.
(b) Defined Terms. Unless otherwise specified, all capitalized terms
defined in this Agreement will have the defined meanings when used in this
Agreement, the Notes, the Security Agreement, the Guaranty and the other Loan
Documents or any certificate, report or other document made or delivered
pursuant to this Agreement.
(c) Other References. The words "hereof," "herein," and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
(d) Accounting Terms. Except as otherwise expressly provided herein, all
accounting terms not specifically defined or specified herein shall have the
meanings generally attributed to such terms under GAAP as in effect on the
Closing Date. In the event that changes in GAAP shall be mandated by the
Financial Accounting Standards Board, or any similar accounting body of
comparable standing, or shall be recommended by the Company's or the Guarantor's
certified public accountants, to the extent that such changes would modify any
accounting terms used herein or in any other Loan Document or the interpretation
or computation thereof, such changes shall be followed in defining such
accounting terms only from and after the date the Company and the Required
Lenders shall have amended this Agreement to the extent necessary to reflect any
such changes in the financial covenants and other terms and conditions of this
Agreement.
11
SECTION 2
REVOLVING CREDIT FACILITY
2.1 Revolving Credit Loans. (a) Upon the terms and subject to the
conditions contained in this Agreement, each Lender severally and not jointly
agrees to make loans (herein referred to collectively as the "Revolving Credit
Loans") to the Company, at any time and from time to time on or after the date
of this Agreement and prior to the Revolving Credit Termination Date; provided
that the aggregate principal amount of all outstanding Revolving Credit Loans
does not at any time exceed the lesser of (i) the Aggregate Revolving Credit
Commitment, and (ii) the Collateral Loan Value (as shown on the Borrowing Base
Certificate most recently delivered to the Lenders), in either case minus the
sum of the aggregate principal amount of all outstanding Swingline Loans and the
L/C Obligations; and provided further that the aggregate principal amount of all
outstanding Revolving Credit Loans from any Lender does not at any time exceed
the lesser of (i) the Revolving Credit Commitment of such Lender, and (ii) such
Lender's Revolving Credit Commitment Percentage of the Collateral Loan Value (as
shown on the Borrowing Base Certificate most recently delivered to the Lenders),
in either case minus such Lender's Revolving Credit Commitment Percentage of the
sum of the aggregate principal amount of all outstanding Swingline Loans and the
L/C Obligations. Within such limits, the Company may borrow, repay and reborrow
hereunder on or after the date of this Agreement and prior to the Revolving
Credit Termination Date, subject to the terms, provisions and limitations set
forth herein.
(b) Each Advance of Revolving Credit Loans will be made ratably by the
Lenders in accordance with their respective Revolving Credit Commitment
Percentages; provided, however, that the failure of any Lender to make any
Revolving Credit Loan will not in itself relieve any other Lender of its
obligation to lend hereunder.
2.2 Notice and Manner of Borrowing. (a) The Company will deliver to the
Agent a Notice of Borrowing in connection with each requested Advance of
Revolving Credit Loans (which Notice of Borrowing may be given by telecopy,
telex or telegraph, or by telephone, if immediately confirmed by a written
Notice of Borrowing), as early as reasonably possible and in any event prior to
11:30 a.m., Charlotte, North Carolina time, on the proposed borrowing date. Each
Notice of Borrowing will specify the proposed borrowing date, which will be a
Business Day, and the aggregate amount of requested Revolving Credit Loans,
which will be in an aggregate principal amount of $1,000,000 or an integral
multiple of $500,000 in excess thereof.
(b) Upon receipt of a Notice of Borrowing, the Agent will promptly notify
each Lender by telephone, telex, or telecopy of the contents thereof, including
the amount of such Lender's Revolving Credit Commitment Percentage of the
requested Revolving Credit Loans. If a Notice of Borrowing is received by the
Agent prior to 11:30 a.m., Charlotte, North Carolina time, the Agent will
provide such notice to each Lender not later than 1:00 p.m., Charlotte, North
Carolina time, on the day on which such notice is received. Subject to the
satisfaction of all conditions precedent thereto as set forth herein, each
Lender will, not later than 3:00 p.m.,
12
Charlotte, North Carolina time, on the date specified in the Notice of
Borrowing, deposit to the Agent's Account, in federal or other immediately
available funds, such Lender's Revolving Credit Commitment Percentage of the
requested Revolving Credit Loans. Unless the Agent shall have received prior
notice from a Lender (by telephone or otherwise, such notice to be promptly
confirmed by telex, telecopy or other writing) that such Lender will not make
available such Lender's Revolving Credit Commitment Percentage of the requested
Revolving Credit Loans, the Agent may assume that such Lender has made its
portion of the requested Revolving Credit Loans available to the Agent on the
requested funding date in accordance with this Section 2.2(b), and the Agent
may, in reliance upon such assumption, make available to the Company on such
date a corresponding amount. If and to the extent such Lender shall not have
made its portion of the requested Revolving Credit Loans available to the Agent,
such Lender and the Company severally agree to repay to the Agent forthwith on
demand (but without duplication) such corresponding amount together with
interest thereon for each day from the date such amount is made available to the
Company until the date such amount is repaid to the Agent (i) with respect to
the Company, at the interest rate applicable at the time to the Revolving Credit
Loans, or (ii) with respect to the Lender, at the Federal Funds Rate, with such
rate to change as of the date of each change in the Federal Funds Rate. Such
payment by the Company, however, will be without prejudice to its rights against
such Lender. If such Lender shall repay to the Agent such corresponding amount
together with interest, such amount so repaid shall constitute such Lender's
portion of the applicable Revolving Credit Loans for purposes of this Agreement,
which Revolving Credit Loans shall be deemed to have been made by such Lender on
the borrowing date applicable thereto, but without prejudice to the Company's
rights against such Lender.
2.3 Swingline Loans. (a) Upon the terms and subject to the conditions
contained in this Agreement, NationsBank agrees to make loans (herein referred
to collectively as the "Swingline Loans") to the Company at any time and from
time to time on or after the date of this Agreement and prior to the Revolving
Credit Termination Date; provided that the aggregate principal amount of all
outstanding Swingline Loans does not at any time exceed the lesser of (i) the
Swingline Commitment, and (ii) the lesser of (x) the Aggregate Revolving Credit
Commitment, and (y) the Collateral Loan Value (as shown on the Borrowing Base
Certificate most recently delivered to the Lenders), in each case minus the sum
of the aggregate principal amount of all outstanding Revolving Credit Loans and
the L/C Obligations. Within such limits, the Company may borrow, repay and
reborrow under this Section 2.3(a) on or after the date of this Agreement and
prior to the Revolving Credit Termination Date, subject to the terms, provisions
and limitations set forth herein. If NationsBank has received written notice
from a Lender that a Default or an Event of Default has occurred, no Swingline
Loans will be made while such Default or Event of Default is continuing.
(b) On any Business Day, NationsBank may, in its sole discretion, give
notice to the Lenders (other than NationsBank) and the Agent that the
outstanding Swingline Loans will be repaid with the proceeds of an Advance under
the Revolving Credit Facility (provided that such notice will be deemed to have
been automatically given upon the occurrence of an Event of Default), and
NationsBank will in any event not less often than once every two (2) weeks repay
13
the outstanding Swingline Loans with an Advance under the Revolving Credit
Facility, in which case an Advance of Revolving Credit Loans will be made on the
immediately succeeding Business Day by all of the Lenders ratably based upon
each Lender's Revolving Credit Commitment Percentage, and the proceeds thereof
will be applied directly to repay NationsBank for such outstanding Swingline
Loans. Each Lender hereby irrevocably agrees to make Revolving Credit Loans upon
one (1) Business Day's notice in the amount and in the manner specified in the
preceding sentence and on the date specified in writing by the Agent
notwithstanding (i) that the amount of such borrowing may not comply with the
minimum borrowing amounts otherwise required hereunder, (ii) whether any
conditions specified in Section 5 are then satisfied, (iii) whether a Default or
Event of Default has occurred and is continuing, and (iv) any reduction in the
Aggregate Revolving Credit Commitment after any such Swingline Loans were made.
In the event that any Advance under the Revolving Credit Facility pursuant to
this Section 2.3(b) cannot for any reason be made on the date otherwise required
above (including, without limitation, as a result of the commencement of any
bankruptcy or insolvency proceeding with respect to the Company), each Lender
(other than NationsBank) hereby agrees that it will forthwith purchase from
NationsBank (without recourse or warranty) a participation in the outstanding
Swingline Loans as shall be necessary to cause the Lenders to share in such
Swingline Loans ratably based upon their respective Revolving Credit Commitment
Percentages, provided that all interest payable on the Swingline Loans shall be
for the account of NationsBank until the date the respective participations are
purchased and, to the extent attributable to the participations, interest shall
be payable to the Lenders purchasing such participations from and after such
date of purchase.
(c) Unless there is an AutoBorrow Service Agreement in effect between the
Company and NationsBank (in which case it will govern the mechanics of Advances
under the Swingline Facility), whenever the Company desires an Advance under the
Swingline Facility, it shall deliver to NationsBank irrevocable notice thereof
(which notice may be in writing, including by telecopy, telex or telegraph, or
by telephone, if immediately confirmed in writing, substantially in the form of
a Notice of Borrowing) not later than 3:00 p.m., Charlotte, North Carolina time,
on the proposed borrowing date. Such notice will specify the proposed borrowing
date, which will be a Business Day, and the principal amount of Swingline Loans
requested.
2.4 Notes. (a) The obligation of the Company to repay the Revolving Credit
Loans will be evidenced by the Company's revolving credit notes (the "Revolving
Credit Notes") payable to the order of each of the Lenders at the office of the
Agent at 101 N. Tryon Street, 15th Floor, Charlotte, North Carolina 28255, or
such other place as the Agent may from time to time designate, each of which
will be substantially in the form of Exhibit B attached hereto with the blanks
therein appropriately completed, dated as of the date of this Agreement and
payable on the Revolving Credit Termination Date, on which date the entire
unpaid principal balance of the Revolving Credit Notes and all interest accrued
thereon will be due and payable in full. Each Lender is hereby authorized to
record on its Revolving Credit Note or on its internal records the amount and
date of each Advance of Revolving Credit Loans made by it and the date and
amount of each repayment of principal of Revolving Credit Loans made to it;
provided that the failure
14
to make any such notation or any error therein will not affect the Company's
obligation with respect to such Revolving Credit Loans. Absent manifest error,
the information so recorded by a Lender will be prima facie evidence of the
amount owed.
(b) The obligation of the Company to repay the Swingline Loans will be
evidenced by the Company's swingline note (the "Swingline Note") payable to the
order of NationsBank at its office at 1111 East Main Street, Richmond, Virginia
23219, or such other place as NationsBank may from time to time designate,
substantially in the form of Exhibit C attached hereto with the blanks therein
appropriately completed, dated as of the date of this Agreement and payable on
the Revolving Credit Termination Date, on which date the entire unpaid principal
balance of the Swingline Note and all accrued interest thereon will be due and
payable in full. NationsBank is hereby authorized to record on the Swingline
Note or on its internal records the amount and date of each Swingline Loan made
by it and the date and amount of each repayment of principal of Swingline Loans
made to it; provided that the failure to make any such notation or any error
therein will not affect the Company's obligation with respect to the Swingline
Loans. Absent manifest error, the information so recorded by NationsBank will be
prima facie evidence of the amount owed.
2.5 Termination and Optional Reduction of Commitments. (a) The Revolving
Credit Commitment of each Lender and the Swingline Commitment will terminate on
the Revolving Credit Termination Date and the aggregate unpaid principal amount
of all Revolving Credit Loans and Swingline Loans, together with all accrued and
unpaid interest thereon, and all other amounts payable under this Agreement and
the other Loan Document with respect to the Loans will be paid by the Company to
the Agent for the account of the Lenders, the Issuing Lender or the Agent, as
the case may be, on such date.
(b) The Company may, at any time upon at least three (3) Business Days'
prior written notice to the Agent, terminate the Revolving Credit Commitments of
the Lenders or ratably reduce the respective Revolving Credit Commitments of the
Lenders to an amount not less than the sum of the aggregate principal amount of
the Loans then outstanding (after giving effect to any contemporaneous
prepayment thereof) and the L/C Obligations, without penalty or premium;
provided that the aggregate amount of any such reduction shall be in the amount
of $5,000,000 or an integral multiple of $1,000,000 in excess thereof. Such
notice of termination or reduction may be in writing including by telecopy,
telex or telegraph, or by telephone if promptly confirmed in writing. From the
effective date of any such termination or reduction, the obligation of the
Company to pay the unused commitment fee under Section 2.7(b) will thereupon
correspondingly be reduced.
(c) The Company agrees to pay to the Agent for the ratable benefit of the
Lenders a prepayment fee equal to one percent (1%) of the Aggregate Revolving
Credit Commitment immediately prior to the effective date of termination in the
event that the Company terminates the Revolving Credit Commitments of the
Lenders under Section 2.5(b) above or otherwise prior
15
to the Revolving Credit Termination Date.
2.6 Interest. (a) The Revolving Credit Loans will bear interest at the
Prime Rate plus the Applicable Margin, with such rate to change on the effective
date of each change in the Prime Rate and on the effective date of each change
in the Applicable Margin.
(b) The Swingline Loans will bear interest at the Prime Rate plus the
Applicable Margin, with such rate to change on the effective date of each change
in the Prime Rate and on the effective date of each change in the Applicable
Margin.
(c) Interest on the Loans will be computed on the basis of the actual
number of days elapsed over a year of 360 days. Accrued interest on the
Revolving Credit Loans will be due and payable on the first day of each month,
when the Revolving Credit Loans are paid in full, and on the Revolving Credit
Termination Date; and accrued interest on the Swingline Loans will be due and
payable on the first day of each month and on the Revolving Credit Termination
Date.
(d) Any principal amount which is not paid when due and, to the extent
permitted by applicable law, any installment of interest which is not paid when
due will, at the option of either Lender, bear interest at a rate two percent
(2%) per annum above the otherwise applicable rate.
2.7 Fees. (a) On or before the Closing Date, the Company will pay to the
Agent for the ratable benefit of the Lenders a commitment fee with respect to
the Revolving Credit Facility equal to $175,000, which commitment fee will be
fully earned by the Lenders and non-refundable once paid.
(b) The Company will also pay to the Agent for the ratable benefit of the
Lenders, on March 31, 1999, and quarterly in arrears thereafter on the last day
of each calendar quarter occurring prior to the Revolving Credit Termination
Date and on the Revolving Credit Termination Date, an unused commitment fee with
respect to the Revolving Credit Facility. Each installment of such unused
commitment fee will be equal to the product of (i) the Unused Commitment Fee
Percentage, multiplied by (ii) the daily average amount during the fiscal
quarter or other applicable period then ending by which (x) the Aggregate
Revolving Credit Commitment exceeded (y) the sum of the aggregate principal
amount of all outstanding Revolving Credit Loans and the L/C Obligations,
multiplied by (iii) a fraction, the numerator of which is the number of days in
the fiscal quarter or other applicable period then ending and the denominator of
which is 360.
(c) The Company will also pay to the Agent for its own account, on the
Closing Date and on each anniversary of the Closing Date occurring prior to the
Revolving Credit Termination Date, an annual agent's fee equal to $13,500.
16
2.8 Purpose. The Company will use the proceeds of Advances under the
Revolving Credit Facility to refinance existing indebtedness owing to
NationsBank and Provident, for working capital and for other general corporate
purposes, and the Company will use the proceeds of Advances under the Swingline
Facility for its daily, short-term borrowing needs.
2.9 Prepayments. (a) Mandatory. If, at any time, the aggregate principal
amount of all outstanding Revolving Credit Loans exceeds the lesser of (i) the
Aggregate Revolving Credit Commitment, and (ii) the Collateral Loan Value (as
shown on the Borrowing Base Certificate most recently delivered to the Lenders),
in either case minus the sum of the aggregate principal amount of all
outstanding Swingline Loans and the L/C Obligations, the Company will
immediately prepay the Revolving Credit Loans, without premium or penalty, in an
amount sufficient to eliminate such excess, with any such prepayment to be
applied ratably to reduce each Lender's Revolving Credit Loans based on such
Lender's Revolving Credit Commitment Percentage.
(b) Voluntary. The Company may prepay all or any part of the Revolving
Credit Loans or the Swingline Loans at any time and from time to time without
premium or penalty, with any such prepayment of the Revolving Credit Loans to be
applied ratably to reduce each Lender's Revolving Credit Loans based on such
Lender's Revolving Credit Commitment Percentage.
2.10 Payments and Computations. (a) Each payment of principal, interest and
fees hereunder and under the Notes (including, without limitation, each
reimbursement payment and other payment of principal, interest and fees with
respect to any Letter of Credit) will be made not later than 11:30 a.m.,
Charlotte, North Carolina time, on the day when due, in federal or other
immediately available funds, without setoff, deduction or counterclaim, by
payment of such funds to the Agent's Account for the account of the Lenders, the
Issuing Lender or the Agent, as the case may be. Amounts received after 11:30
a.m., Charlotte, North Carolina time, on any day shall be deemed received on the
next succeeding Business Day with interest continuing to accrue for the ratable
benefit of the Lenders until the payment is made. With respect to any such
payment received for the account of the Lenders, the Agent will promptly
thereafter cause to be wire transferred ratably to each Lender like funds for
the account of such Lender in the amount thereof on the day such funds are
deemed received by the Agent. Whenever any payment to be made under this
Agreement or any Note (including, without limitation, each reimbursement payment
and other payment of principal, interest and fees with respect to any Letter of
Credit) shall be stated to be due on a day other than a Business Day, such
payment will be made on the next succeeding Business Day with interest
continuing to accrue for the ratable benefit of the Lenders until the payment is
made.
(b) If at any time funds are received by and available to the Agent which
are not sufficient to pay fully all amounts of principal, interest and fees then
due hereunder, such funds will be applied (i) first, to pay interest and fees
then due hereunder, ratably among the parties
17
entitled thereto in accordance with the amounts of interest and fees then due to
such parties, and (ii) second, to pay principal then due hereunder, ratably
among the parties entitled thereto in accordance with the amounts of principal
then due to such parties.
(c) Unless the Agent shall have received notice from the Company prior to
the date on which any payment is due to the Agent for the account of the Lenders
hereunder that the Company will not make such payment, the Agent may assume that
the Company has made such payment on such date in accordance herewith and may,
in reliance upon such assumption, distribute to the Lenders the amount due. In
such event, if the Company has not in fact made such payment, then each of the
Lenders severally agrees to repay to the Agent forthwith on demand the amount so
distributed to such Lender with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to the Agent, at the Federal Funds Rate, with such rate to change as of
the date of each change in the Federal Funds Rate.
(d) If any Lender shall fail to make any payment required to be made by it
under this Agreement, the Agent may, in its discretion (notwithstanding any
contrary provision hereof), apply any amounts thereafter received by the Agent
for the account of such Lender to satisfy such Lender's obligations under this
Agreement until all such unsatisfied obligations are fully paid.
SECTION 3 LETTER OF CREDIT
3.1 Letter of Credit Facility. Upon the terms and subject to the conditions
contained in this Agreement and in the applicable L/C Applications, including,
without limitation, the agreements of the other Lenders contained in Section
3.6, the Issuing Lender agrees to issue irrevocable letters of credit (herein
referred to collectively as the "Letters of Credit") for the account of the
Company, at any time and from time to time on or after the date of this
Agreement and prior to the Revolving Credit Termination Date, in an aggregate
stated amount which, when added to the aggregate unpaid reimbursement
obligations then outstanding under the L/C Applications, will not exceed at any
time outstanding the lesser of (i) the Aggregate Revolving Credit Commitment,
and (ii) the Collateral Loan Value (as shown on the Borrowing Base Certificate
most recently delivered to the Lenders), in each case minus the aggregate
principal amount of all outstanding Revolving Credit Loans and all outstanding
Swingline Loans.
3.2 Documentation. (a) Not less than one (1) Business Day prior to the date
a commercial Letter of Credit is to be issued for its account, the Company will
complete, execute and deliver to the Issuing Lender (with a copy to each other
Lender) an Application and Agreement for Commercial Letter of Credit (each, a
"Commercial L/C Application"), each substantially in the form of Exhibit H
attached hereto with the blanks therein appropriately completed, and such other
documents as the Issuing Lender may reasonably require in connection therewith.
Each commercial Letter of Credit issued by the Issuing Lender will be subject to
the terms and conditions of the Commercial L/C Application pursuant to which it
is issued as well
18
as the terms and conditions of this Agreement. In the event of a conflict
between the provisions of a Commercial L/C Application and the provisions of
this Agreement, the provisions of this Agreement will govern.
(b) Not less than one (1) Business Day prior to the date a standby Letter
of Credit is to be issued for its account, the Company will complete, execute
and deliver to the Issuing Lender (with a copy to each other Lender) an
Application and Agreement for Standby Letter of Credit (each, a "Standby L/C
Application"), each substantially in the form of Exhibit I attached hereto with
the blanks therein appropriately completed, and such other documents as the
Issuing Lender may reasonably require in connection therewith. Each standby
Letter of Credit issued by the Issuing Lender will be subject to the terms and
conditions of the Standby L/C Application pursuant to which it is issued as well
as the terms and conditions of this Agreement. In the event of a conflict
between the provisions of a Standby L/C Application and the provisions of this
Agreement, the provisions of this Agreement will govern.
3.3 Fees. For each Letter of Credit issued under the terms of this
Agreement, the Company will pay to the Issuing Lender at the time of issuance an
Issuance Fee and a L/C Fee based on the stated amount and term of the Letter of
Credit. Such fees will be fully earned at the time such Letter of Credit is
issued and nonrefundable. The Company will also pay the Issuing Lender when due
its customary administrative fees as they may be established or altered from
time to time for issuing Letters of Credit and for honoring drafts thereunder
and, if applicable, for transferring, amending or extending such Letters of
Credit. Nothing contained herein, however, shall obligate the Issuing Lender to
transfer, amend or extend beyond its original maturity date any Letter of
Credit.
3.4 Reimbursement Obligations. The Company will pay to the Issuing Lender
promptly upon demand any and all amounts paid by the Issuing Lender under any
Letter of Credit, as provided in the applicable L/C Application, together with
interest on such amount from the date such amount was paid by the Issuing Lender
to the date it receives payment in federal or other immediately available funds,
at the Prime Rate plus the Applicable Margin, with such rate to change as of the
effective date of each change in the Prime Rate and the effective date of each
change in the Applicable Margin. Such interest shall be computed for the actual
number of days elapsed over a year of 360 days.
3.5 Expiration of Letters of Credit. Unless all of the Lenders otherwise
agree, each commercial Letter of Credit issued under the provisions of this
Agreement shall expire not later than six (6) months after its date of issuance,
each standby Letter of Credit issued under the provisions of this Agreement
shall expire not later than one (1) year after its date of issuance and no
Letter of Credit shall expire after the Revolving Credit Termination Date.
19
3.6 Participation of Lenders Other Than NationsBank. (a) The Issuing Lender
hereby irrevocably sells and assigns to each other Lender, and each other Lender
hereby irrevocably acquires from the Issuing Lender, a risk participation in the
Letter of Credit facility established pursuant to this Section 3 and in each
Letter of Credit issued hereunder, and a participation in all collateral
securing the L/C Obligations, equal in each case to such other Lender's
Revolving Credit Commitment Percentage.
(b) Upon receiving written notice from the Issuing Lender that a
beneficiary has presented a request for a drawing under a Letter of Credit
(which the Issuing Lender has determined in its sole discretion to honor) which
notice specifies the amount of the requested drawing and that the Company may
not then borrow such amount under Section 2 of this Agreement, each other Lender
agrees to pay to the Issuing Lender, in immediately available funds, its
Revolving Credit Commitment Percentage of that amount by which such drawing
exceeds the amount the Company may borrow under Section 2. If a Lender receives
such a notice from the Issuing Lender at or before 2:00 p.m., Charlotte, North
Carolina time, on the day on which the drawing is to be paid to the beneficiary,
such Lender will pay its Revolving Credit Commitment Percentage of such amount
to the Issuing Lender prior to the close of business on the day the drawing is
paid. If a Lender receives such a notice from the Issuing Lender after 2:00
p.m., Charlotte, North Carolina time, such Lender will pay its Revolving Credit
Commitment Percentage of such amount to the Issuing Lender on the Business Day
next following the day on which the notice is received. Notwithstanding anything
to the contrary contained in this Section 3.6(b), no Lender shall have any
obligation to pay to the Issuing Lender any portion of any drawing under a
Letter of Credit if such Letter of Credit was issued by the Issuing Lender after
the Issuing Lender had actual knowledge of the occurrence and continuation of an
Event of Default and if such Letter of Credit was issued without the prior
written consent of all the Lenders; provided that, if a Lender does not pay its
Revolving Credit Commitment Percentage of any drawing honored under any such
Letter of Credit, such Lender shall not be entitled to receive any percentage of
any L/C Fee paid by the Company with respect thereto, and, upon demand of the
Issuing Lender, such Lender will immediately return to the Issuing Lender any
such L/C Fee previously received by such Lender.
(c) If any Lender fails to pay its Revolving Credit Commitment Percentage
of any drawing honored under a Letter of Credit when and as due under Section
3.6(b), such Lender also agrees to pay interest thereon, from and including the
day on which its Revolving Credit Commitment Percentage was due under Section
3.6(b) to but excluding the day its Revolving Credit Commitment Percentage is
actually paid to the Issuing Lender in immediately available funds, at a rate
equal to the Federal Funds Rate, with such rate to change as of the date of each
change in the Federal Funds Rate.
(d) The obligations of a Lender to pay its Revolving Credit Commitment
Percentage of each drawing honored under a Letter of Credit as provided in
Section 3.6(b) and to pay interest thereon as provided in Section 3.6(c) are
absolute, unconditional and continuing obligations except as provided in the
next sentence; and, except as provided in Section 3.6(b) and
20
in the next sentence, all payments required to be made by each Lender other than
the Issuing Lender hereunder will be made without offset, counterclaim or
deduction of any nature for any reason whatsoever, including, without
limitation, any belief by such Lender that a request for a drawing under a
Letter of Credit should not have been honored. Notwithstanding anything to the
contrary contained in this Section 3.6(d), each Lender other than the Issuing
Lender shall have the right to offset against amounts owed to the Issuing Lender
hereunder any amounts owed by the Issuing Lender to such Lender under Section
3.6(e) and/or 3.6(f) which have not been paid to such Lender in violation of the
terms of this Agreement at the time such Lender's payment to the Issuing Lender
is due.
(e) If and when the Issuing Lender receives from the Company any payment in
immediately available funds which has been designated (by invoice reference or
otherwise) by the Company as, or which the Issuing Lender has otherwise
determined to be, a reimbursement for a drawing honored under a Letter of
Credit, or which has been designated (by invoice reference or otherwise) by the
Company as, or which the Issuing Lender has otherwise determined to be, a
payment of interest with respect to such a drawing, if another Lender previously
paid to the Issuing Lender its Revolving Credit Commitment Percentage of such
drawing, the Issuing Lender will pay to such Lender its Revolving Credit
Commitment Percentage of such payment so long as such Lender has not defaulted
in any of its obligations to the Issuing Lender hereunder. If the Issuing Lender
receives such a payment at or before 2:00 p.m., Charlotte, North Carolina time
on a day, it will pay to each such Lender its Revolving Credit Commitment
Percentage of such payment prior to the close of business on such day. If the
Issuing Lender receives such a payment after 2:00 p.m., Charlotte, North
Carolina time on a day, it will pay to each such Lender its Revolving Credit
Commitment Percentage on the next Business Day.
(f) If and when the Issuing Lender receives from the Company any payment in
immediately available funds which has been designated (by invoice reference or
otherwise) by the Company as, or which the Issuing Lender has otherwise
determined to be, a L/C Fee due under Section 3.3 with respect to a Letter of
Credit issued hereunder, the Issuing Lender will, subject to the last sentence
of Section 3.6(b), pay to each other Lender its Revolving Credit Commitment
Percentage thereof so long as such other Lender has not defaulted in any of its
obligations to the Issuing Lender hereunder. If the Issuing Lender receives such
L/C Fee at or before 2:00 p.m., Charlotte, North Carolina time on a day, it will
pay to each such Lender its Revolving Credit Commitment Percentage of such L/C
Fee prior to the close of business on such day. If the Issuing Lender receives
such L/C Fee after 2:00 p.m., Charlotte, North Carolina time on a day, it will
pay to each such Lender its Revolving Credit Commitment Percentage on the next
Business Day. The Issuing Lender shall have no obligation to pay to any other
Lender any portion of any Issuance Fee or any administrative fee charged to the
Company for issuing any Letter of Credit, honoring drafts thereunder or
transferring, amending or extending any Letter of Credit.
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SECTION 4
REPRESENTATIONS
In order to induce the Lenders and the Agent to enter into this Agreement,
the Lenders to make the Revolving Credit Loans, NationsBank to make the
Swingline Loans and the Issuing Lender to issue (and the other Lenders to
participate in) the Letters of Credit, the Company represents and warrants to
the Lenders and the Agent (which representations and warranties will survive the
execution of the Notes, the making of the Loans and the issuance of the Letters
of Credit) that:
4.1 Subsidiaries. The Company has no Subsidiaries.
4.2 Organization and Existence. Each of the Company and the Guarantor (i)
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) has all requisite corporate or other
power and authority and all licenses and permits necessary to own or lease and
operate its properties and to carry on its business as now being conducted and
as hereafter proposed to be conducted unless its failure to have any license or
permit could not reasonably be expected, in any particular case or in the
aggregate, to have a Material Adverse Effect, and (iii) is duly qualified and
authorized to do business and is in good standing in each jurisdiction in which
the character of its properties or the nature of its business requires such
qualification or authorization unless its failure to qualify or be authorized
could not reasonably be expected, in any particular case or in the aggregate, to
have a Material Adverse Effect.
4.3 Authority. The Company has full corporate power and authority to enter
into this Agreement and the other Loan Documents to which it is a party, to make
the borrowings hereunder, to execute and deliver the Notes and to incur the
obligations provided for herein and therein, all of which have been duly
authorized by all necessary corporate action. The Guarantor has full corporate
power and authority to execute and deliver the Guaranty and to incur the
obligations provided for therein, all of which have been duly authorized by all
necessary corporate action. Other than those that have previously been obtained,
no consent or approval of stockholders or consent or approval of, notice to or
filing with any Governmental Authority is required as a condition to the
validity or enforceability of this Agreement, any Note, the Security Agreement,
the Guaranty or any of the other Loan Documents.
4.4 Binding Agreements. This Agreement constitutes, and each of the Notes
and each of the other Loan Document to which the Company is a party when
executed and delivered pursuant hereto for value received will constitute, the
valid and legally binding obligations of the Company enforceable in accordance
with their respective terms, except to the extent such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization and moratorium laws
and similar laws relating generally to the enforcement of creditors' rights. The
Guaranty when executed and delivered by the Guarantor pursuant hereto for value
received will
22
constitute the valid and legally binding obligation of the Guarantor enforceable
in accordance with its terms, except to the extent such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization and moratorium laws
and similar laws relating generally to the enforcement of creditors' rights.
4.5 Litigation. There are no proceedings pending or, to the knowledge of
the Company, threatened before any court or administrative agency that could
reasonably be expected, in any particular case or in the aggregate, to have a
Material Adverse Effect.
4.6 No Conflicting Agreements. There is no charter, bylaw or preference
stock provision of the Company and no provision of any existing mortgage,
indenture, contract or agreement binding on the Company or affecting its
property that would conflict with or in any way prevent the execution, delivery
or carrying out of the terms of this Agreement, any of the Notes or any of the
other Loan Documents to which the Company is a party. There is no charter, bylaw
or preference stock provision of the Guarantor and no provision of any existing
mortgage, indenture, contract or agreement binding on the Guarantor or affecting
its property that would conflict with or in any way prevent the execution,
delivery or carrying out of the terms of the Guaranty.
4.7 Financial Condition. The audited consolidated balance sheet of the
Guarantor and its Subsidiaries as of October 31, 1998, the related consolidated
statements of income, retained earnings and cash flows for the period then
ended, and the consolidating schedules included therewith, certified by Price
Waterhouse Coopers, heretofore delivered to each Lender, are complete and
correct in all material respects and fairly present the consolidated financial
condition of the Guarantor and its Subsidiaries and the results of their
operations and changes in their financial position as of the date and for the
period referred to therein and have been prepared in accordance with GAAP. There
are no material liabilities, direct or indirect, fixed or contingent, of the
Guarantor or the Company as of the dates of such balance sheet that are not
reflected therein or in the notes thereto. There has been no material adverse
change in the financial condition or operations of the Guarantor or the Company
since the dates of such balance sheet, and there has been no other material
adverse change in the Guarantor or the Company.
4.8 Ownership of Property. Each of the Company and the Guarantor has good
and valid fee simple or leasehold interests in all land and other real estate,
and has good and valid title to all other properties and assets it purports to
own, including those referred to in the financial statements referred to in
Section 4.7, except for defects in title which could not reasonably be expected,
in any particular case or in the aggregate, to have a Material Adverse Effect.
Each of the Company and the Guarantor enjoys undisturbed possession to the
extent required under all leases to which it is a party necessary in any
material respect for the operation of its business or properties. All such
leases are valid and subsisting and are in full force and effect and, to the
knowledge of the Company, no default or event of default exists thereunder.
23
4.9 Intellectual Property. Without limiting the generality of Section 4.8,
each of the Company and the Guarantor owns and possesses rights to use all
franchises, licenses, copyrights, copyright applications, patents, patent rights
or licenses, patent applications, trademarks, trademark rights, trade names,
trade name rights, copyrights and other intellectual property rights which are
required to conduct its business, except in cases in which a failure to own or
possess any such rights could not reasonably be expected, in any particular case
or in the aggregate, to have a Material Adverse Effect. To the knowledge of the
Company, no event has occurred which permits, or after notice or lapse of time,
or both, would permit, the revocation or termination of any such rights, and, to
the knowledge of the Company, except as described on Schedule 4.9 attached
hereto, neither the Company nor the Guarantor is liable to any Person for
infringement under any applicable law with respect to any such rights as a
result of its business operations, except in cases in which any such revocation,
termination or liability could not reasonably be expected, in any particular
case or in the aggregate, to have a Material Adverse Effect.
4.10 Employee Benefit Pension Plans. No fact, including, but not limited
to, any Reportable Event as defined in Section 4043 of ERISA, exists in
connection with any employee benefit plan of the Company or the Guarantor
covered by ERISA (including any plan of any member of a controlled group of
corporations and all trades and businesses (whether or not incorporated) under
common control which, together with the Company or the Guarantor, are treated as
a single employer, under Section 414 of the Code), which could constitute
grounds for the termination of any such plan by the PBGC or for the appointment
of any trustee to administer such plan by the appropriate United States District
Court.
4.11 Taxes. Each of the Company and the Guarantor has filed or caused to be
filed all tax returns which are required to be filed by it pursuant to
applicable law. Each of the Company and the Guarantor has paid, or made
provisions for the payment of, all taxes, assessments, fees and other
governmental charges which have or may have become due pursuant to those returns
or otherwise, or pursuant to any assessment received by it, except such taxes
that are being contested in good faith and by appropriate proceedings and as to
which adequate reserves (determined in accordance with GAAP) have been provided,
and no tax liens have been filed. To the knowledge of the Company, no claims are
being asserted against the Company or the Guarantor with respect to any such
taxes, fees or other charges, except such claims that are being contested in
good faith and by appropriate proceedings and as to which adequate reserves
(determined in accordance with GAAP) have been provided.
4.12 Compliance with Environmental and Other Laws. Each of the Company and
the Guarantor is in compliance with all applicable laws, including but not
limited to all Environmental Laws, the failure to comply with which could
reasonably be expected, in any particular case or in the aggregate, to have a
Material Adverse Effect. To the knowledge of the Company, there are no past or
present events, conditions, circumstances, activities, practices, incidents,
actions or plans which could reasonably be expected to interfere with or prevent
continued compliance in all material respects, or which could reasonably be
expected to give rise to any common law or statutory liability, under, relating
to or in connection with any
24
Environmental Law, or otherwise form the basis of any claim, action, suit,
proceeding, hearing or investigation under applicable law based on or related to
the manufacture, processing, distribution, use, treatment, storage, transport or
handling, or the release or threatened release into the environment, of any
Hazardous Material with respect to the Company or the Guarantor or their
respective businesses which could reasonably be expected, in any particular case
or in the aggregate, to have a Material Adverse Effect.
4.13 Employee Relations. As of the Closing Date, neither the Company nor
the Guarantor is a party to any collective bargaining agreement nor has any
labor union been recognized as the representative of any employees of the
Company or the Guarantor. Neither the Company nor the Guarantor is aware of any
pending, threatened or contemplated strikes, work stoppages or other collective
labor disputes involving its employees.
4.14 Investment Company Act; Public Utility Holding Company Act; Federal
Power Act. Neither the Company nor the Guarantor is required to register under
the provisions of the Investment Company Act of 1940, as amended, and neither
the entering into or performance by the Company of this Agreement or any other
Loan Documents, or the issuance of the Revolving Credit Notes or the Swingline
Note, violates any provisions of such Act or requires any consent, approval or
authorization of, or registration with, any Governmental Authority pursuant to
any of the provisions of such Act. The Company is not (i) a "holding company" or
a "subsidiary company" of a "holding company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or (ii) a "public
utility," as such term is defined in the Federal Power Act, as amended.
4.15 No Defaults. Neither the Company nor the Guarantor is in default in
the payment of the principal of or any interest on any indebtedness for borrowed
money and, to the knowledge of the Company, neither the Company nor the
Guarantor is otherwise in default under any instrument under or subject to which
any such indebtedness for borrowed money has been incurred, and, to the
knowledge of the Company, no event has occurred under the provisions of any such
instrument which, with the giving of notice or the lapse of time, or both, would
constitute an event of default thereunder.
4.16 Federal Regulations. No part of the proceeds of any of the Loans has
been or will be used by the Company for "purchasing" or "carrying" any "margin
stock" within the respective meanings of each of the quoted terms under
Regulation U or for any other purpose which violates the provisions of the
Regulations of the Board of Governors of the Federal Reserve System. If
requested by the any Lender or the Agent, the Company will furnish to the
Lenders and the Agent a statement to the foregoing effect in conformity with the
requirements of Federal Reserve Form U-1 referred to in Regulation U.
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4.17 Accuracy of Information. No information, exhibit or report furnished
by the Company or the Guarantor to any of the Lenders or the Agent in connection
with the negotiation of this Agreement or any of the other Loan Documents
contains any material misstatement of fact or omits to state any material fact
necessary to make the statement contained therein, in light of the circumstances
under which such statement was made, not misleading, and the Company has no
knowledge of any fact that the Company has not disclosed to the Lenders and the
Agent in writing that could reasonably be expected to result in a Material
Adverse Effect.
4.18 Year 2000 Compliance. (a) Each of the Company and the Guarantor has
(i) begun analyzing its operations and those of its Subsidiaries and Affiliates
that could be adversely affected by failure to become Year 2000 compliant (that
is, that computer applications, imbedded microchips and other systems will be
able to perform date-sensitive functions prior to and after December 31, 1999);
and (ii) developed a plan for becoming Year 2000 compliant in a timely manner,
the implementation of which is on schedule in all material respects. Each of the
Company and the Guarantor reasonably believes that it will become Year 2000
compliant for its operations and those of its Subsidiaries and Affiliates on a
timely basis except to the extent that a failure to do so could not reasonably
be expected to have a Material Adverse Effect.
(b) Each of the Company and the Guarantor reasonably believes any suppliers
and vendors that are material to its operations and those of its Subsidiaries
and Affiliates will be Year 2000 compliant for their own computer applications
except to the extent that a failure to do so could not reasonably be expected to
have a Material Adverse Effect.
4.19 Survival of Representations and Warranties, Etc. All representations
and warranties set forth in this Section 4 and all representations and
warranties contained in any certificate or any of the other Loan Documents
(including but not limited to any such representation or warranty made in or in
connection with any amendment thereto) shall constitute representations and
warranties made under this Agreement. All representations and warranties made
under this Agreement shall be made or deemed to be made at and as of the Closing
Date (except to the extent expressly made as of a specific date), shall survive
the Closing Date, shall be deemed to be made at and as of the date each Advance
is made and each Letter of Credit is issued hereunder and shall not be waived by
the execution and delivery of this Agreement, any investigation made by or on
behalf of the Lenders, or any of them, or the Agent or any extension of credit
hereunder.
SECTION 5
CONDITIONS TO LOANS
5.1 Conditions to Initial Loan. The obligation of the Lenders to make the
initial Advance under the Revolving Credit Facility, the obligation of
NationsBank to make the initial Advance under the Swingline Facility and the
obligation of the Issuing Lender to issue the initial Letter of Credit are
subject to each of the following conditions precedent, or if any such condition
26
is waived by the Lenders as a condition to the making of such initial extensions
of credit, such condition shall, at the option of the Lenders, be a condition to
the making of each subsequent extension of credit hereunder:
(a) Approval of Lenders. All legal matters incident to this Agreement,
including without limitation all documents and opinions, shall be satisfactory
to each Lender, the Agent and counsel to the Agent.
(b) Certificates, Evidence of Corporate Action by Company, Etc. The Company
shall have delivered to each Lender such closing and officer's certificates as
may be reasonably requested by either Lender or the Agent, along with a
certified copy of the Company's articles of incorporation and bylaws, an
incumbency certificate relating to its officer(s) who will be executing on its
behalf this Agreement and the other Loan Documents to which the Company is a
party, a certified copy of the resolutions of its board of directors authorizing
and approving the transactions described herein (and any other papers evidencing
corporate action taken by the Company relating to this Agreement), and good
standing or subsistence certificates related to the Company of recent date from
the applicable Governmental Authorities.
(c) Certificates, Evidence of Corporate Action by Guarantor, Etc. The
Guarantor shall have delivered to each Lender such closing and officer's
certificates as may be reasonably requested by either Lender or the Agent, along
with a certified copy of its articles of incorporation and bylaws, an incumbency
certificate relating to its officer(s) who will be executing on its behalf the
Guaranty, a certified copy of the resolutions of its board of directors
authorizing and approving the Guaranty and the transactions described therein
(and all other papers evidencing corporate action taken by the Guarantor
relating to the Guaranty), and good standing or subsistence certificates
relating to the Guarantor of recent date from the applicable Governmental
Authorities.
(d) Opinion of Counsel. The Company shall have delivered to each Lender a
favorable opinion of counsel or opinions of counsel for the Company and the
Guarantor, dated as of the date of this Agreement and satisfactory in form and
substance to each Lender and the Agent.
(e) Notes. The Company shall have executed and delivered to each Lender its
Revolving Credit Note, and the Company shall have executed and delivered to
NationsBank the Swingline Note.
(f) Security Agreement. The Company shall have executed and delivered to
each Lender an original counterpart of the Security Agreement, and the Company
shall have executed and delivered to the Agent financing statements in form
satisfactory to the Lenders and the Agent.
27
(g) UCC Search Reports. The Company shall have delivered to each Lender
uniform commercial code search reports addressed to and acceptable to the Agent
covering the Company (and its two predecessor companies, Jack of All Games,
Inc., an Ohio corporation, and Alliance Inventory Management, Inc.), for each
filing office in which a financing statement in favor of the Agent as agent for
the Lenders is being filed to perfect the security interests granted to the
Agent for the benefit of the Lenders in the Security Agreement and for each
filing office otherwise specified by either Lender, which show only such
financing statements as are acceptable to the Lenders and the Agent.
(h) Guaranty. The Guarantor shall have executed and delivered to each
Lender an original counterpart of the Guaranty.
(i) Initial Collateral Audit. NationsBank's Commercial Credit Services
Department shall have conducted an audit of the Inventory, Accounts Receivable,
books and records and procedures of the Company (and its predecessors), and the
result of such audit shall have been satisfactory to each Lender.
(j) Borrowing Base Certificate. The Company shall have prepared and
delivered to each Lender a Borrowing Base Certificate as of the end of December
1998, properly completed and signed by an authorized officer of the Company, a
listing of Accounts Receivable as of the end of such month aged from date of
invoice and an Inventory accounting as of the end of such month.
(k) Evidence of Insurance. The Company shall have delivered to each Lender
evidence that the Company has in place receivables insurance with respect to the
Accounts Receivable which is reasonably satisfactory to the Lenders. The Company
shall also have delivered to the Lenders evidence satisfactory to the Lenders
that all other insurance required by the terms of this Agreement and the other
Loan Documents is in full force and effect.
(l) Merger Transactions. The Merger Transactions shall have been completed
and consummated to the satisfaction of each Lender.
(m) Other Documents. The Company and the Guarantor shall have delivered to
each Lender such other documents and information as may have been reasonably
requested by either Lender or the Agent.
5.2 Conditions to Each Loan. The obligation of the Lenders to make each
Advance under the Revolving Credit Facility (including, without limitation the
first such Advance), the obligation of NationsBank to make each Advance under
the Swingline Facility (including, without limitation, the first such Advance)
and the obligation of the Issuing Lender to issue each Letter of Credit
(including, without limitation, the first such Letter of Credit) are subject to
each of the
28
following additional conditions precedent:
(a) Notices. With respect to any Advance under the Revolving Credit
Facility, the Company shall have provided the Agent with a Notice of Borrowing
as required by Section 2.2; with respect to any Advance under the Swingline
Facility, the Company shall have provided to NationsBank a notice as required by
Section 2.3(c); and, with respect to each Letter of Credit, the Company shall
have provided to the Issuing Lender the L/C Application and other documents as
required by Section 3.2.
(b) Compliance. Each of the Company and the Guarantor shall have complied
and shall then be in compliance in each case in all material respects with all
of the terms, covenants and conditions of this Agreement and the other Loan
Documents to which it is a party.
(c) No Event of Default, Etc. No Default shall have occurred and be
continuing, no Event of Default shall exist, and no Default or Event of Default
would result from the making of such Advance.
(d) Representations and Warranties. The representations and warranties
contained in Section 4 shall, except to the extent that they relate solely to an
earlier date, be true in all material respects with the same effect as though
such representations and warranties had been made at the time of the making of
such Advance or advance, as applicable.
(e) No Injunction, Etc. No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any
Governmental Authority to enjoin, restrain or prohibit, or to obtain substantial
damages with respect to, or which is related to or arises out of, this Agreement
or any of the other Loan Documents or the consummation of the transactions
contemplated hereby or thereby, or which in either Lender's sole discretion,
would make it inadvisable to make such Advance or advance, as applicable.
(f) No Material Adverse Effect. No event shall have occurred that has had
or will have a Material Adverse Effect.
SECTION 6
AFFIRMATIVE COVENANTS
So long as the Company may borrow under the Revolving Credit Facility or
the Swingline Facility or request that the Issuing Lender issue Letters of
Credit or any Letter of Credit is outstanding and until payment in full of the
Loans and payment and performance of all other obligations of the Company
hereunder and under the other Loan Documents:
29
6.1 Financial Statements of Company. The Company will furnish to each
Lender:
(a) as soon as available, but in no event more than sixty (60) days after
the end of each of the Company's fiscal quarters (other than the Company's
fiscal quarter ending April 30, 1999, which is addressed in Section 6.1(b)
below), a balance sheet of the Company as of the end of such quarter and an
income statement of the Company to the end of such quarter, each in reasonable
detail and in form and substance reasonably satisfactory to each Lender,
prepared in accordance with GAAP and certified by the chief financial officer of
the Company; with each such quarterly financial statements to be accompanied by
a compliance certificate, in form and detail reasonably satisfactory to each
Lender and signed by the chief financial officer of the Company, which provides
a detailed calculation of the financial covenants contained herein as of the
applicable fiscal quarter end and a statement as to whether the Company and the
Guarantor are in compliance in all material respects with all of the terms and
conditions of this Agreement and the other Loan Documents;
(b) as soon as available, but in no event more than sixty (60) days after
the end of the Company's fiscal quarter ending April 30, 1999, financial
statements of the Company in reasonable detail and in form and substance
reasonably satisfactory to each Lender, prepared in accordance with GAAP and
reviewed by certified public accountants reasonably satisfactory to each Lender,
which financial statements shall include a balance sheet as of April 30, 1999,
statements of income and retained earnings for the six-month period ending April
30, 1999, and a statement of cash flows for such six-month period; with such
financial statements to be accompanied by a compliance certificate, in form and
detail reasonably satisfactory to each Lender and signed by the chief financial
officer of the Company, which provides a detailed calculation of the financial
covenants contained herein as of April 30, 1999, and a statement as to whether
the Company and the Guarantor are in compliance in all material respects with
all of the terms and conditions of this Agreement and the other Loan Documents;
(c) as soon as available, but in no event more than one hundred five (105)
days after the end of each of the Company's fiscal years, a copy of the annual
financial statements of the Company in reasonable detail and in form and
substance reasonably satisfactory to each Lender, prepared in accordance with
GAAP and audited by certified public accountants reasonably satisfactory to each
Lender, which financial statements shall include a balance sheet of the Company
as of the end of such fiscal year, statements of income and retained earnings of
the Company for such fiscal year, a statement of cash flows for the Company for
such fiscal year, and all normal and reasonable financial notes; with each such
annual financial statements to be accompanied by a compliance certificate, in
form and detail reasonably satisfactory to each Lender and signed by the chief
financial officer of the Company, which provides a detailed calculation of the
financial covenants contained herein as of the applicable fiscal year end and a
statement as to whether the Company and the Guarantor are in compliance in all
material respects with all of the terms and conditions of this Agreement and the
other Loan Documents;
30
(d) promptly upon receipt thereof, a copy of each other written report
submitted to the Company by independent accountants in connection with any
annual, interim or special audit made by them of the books of the Company;
(e) as soon as possible, but in no event more than five (5) days after an
executive officer of the Company obtains knowledge of a Default or an Event of
Default, a certificate of the chief financial officer of the Company setting
forth the details of such Default or Event of Default and the action the Company
has taken or proposes to take with respect thereto;
(f) as soon as possible, but in no event more than five (5) days after an
executive officer of the Company obtains actual knowledge of any actual,
potential or contingent liability of the Company in excess of $100,000 which is
not incurred in the ordinary course of business, a certificate of the chief
financial officer of the Company describing the details of such liability and
the action the Company has taken or proposes to take with respect thereto; and
(g) with reasonable promptness, such additional information, reports and
statements concerning the Company or any of its businesses or properties as
either Lender or the Agent may from time to time reasonably request.
6.2 Financial Statements of Guarantor. The Company will cause the Guarantor
to furnish to each Lender:
(a) as soon as available, but in no event more than fifty (50) days after
the end of each of the Guarantor's fiscal quarters, the quarterly report of the
Guarantor for such fiscal quarter on Form 10-Q filed with the Securities and
Exchange Commission;
(b) as soon as available, but in no event more than one hundred five (105)
days after the end of each of the Guarantor's fiscal years, a copy of the annual
consolidated and consolidating financial statements of the Guarantor and its
Subsidiaries in reasonable detail and in form and substance satisfactory to each
Lender, which consolidated financial statements shall be prepared in accordance
with GAAP and audited by certified public accountants reasonably satisfactory to
each Lender, which financial statements shall include consolidated and
consolidating balance sheets of the Guarantor and its Subsidiaries as of the end
of such fiscal year, consolidated and consolidating statements of income and
retained earnings of the Guarantor and its Subsidiaries for such fiscal year,
consolidated and consolidating statements of cash flows for the Guarantor and
its Subsidiaries for such fiscal year, and all normal and reasonable financial
notes;
31
(c) promptly upon receipt thereof, a copy of each other written report
submitted to the Guarantor or any of its Subsidiaries by independent accountants
in connection with any annual, interim or special audit made by them of the
books of the Guarantor or any of its Subsidiaries; and
(d) with reasonable promptness, such additional information, reports and
statements concerning the Guarantor, any of its Subsidiaries or any of their
respective businesses or properties as either Lender or the Agent may from time
to time reasonably request.
6.3 Borrowing Base and Related Information. The Company will furnish to
each Lender:
(a) as soon as available, but in no event more than fifteen (15) days after
the end of each month, a listing of Accounts Receivable as of the end of the
preceding month aged from date of invoice, and in form and substance
satisfactory to each Lender;
(b) as soon as available, but in no event more than fifteen (15) days after
the end of each month, a Borrowing Base Certificate appropriately completed as
of the end of the preceding month; and
(c) as soon as available, but in no event more than fifteen (15) days after
the end of each fiscal quarter of the Company, an Inventory accounting as of the
end of the preceding quarter in form and substance satisfactory to each Lender.
6.4 Collateral Audits; Other Inspections. (a) The Company will permit
NationsBank and Provident to conduct, at the Company's expense, audits of the
Inventory, Accounts Receivable, books and records and procedures of the Company;
provided that, prior to the occurrence of an Event of Default, (i) audits which
are at the Company's expense shall be limited to two per year for each of
NationsBank and Provident, and (ii) audits shall be conducted at such times and
otherwise in such a manner so as not to unreasonably disrupt the business or
operations of the Company. In addition, the Company will permit each Lender and
its representatives to inspect its books and records and to discuss its affairs
with its officers upon reasonable notice and during normal business hours.
(b) Each Lender agrees to provide a copy of each collateral audit it
conducts to the other Lender.
32
6.5 Year 2000 Compliance. The Company will promptly notify the Lenders and
the Agent in the event it determines that any computer application which is
material to the operations of the Company or any of its Subsidiaries or
Affiliates or any of their respective material vendors or suppliers will not be
fully Year 2000 compliant on a timely basis, except to the extent that such
failure could not reasonably be expected to have a Material Adverse Effect.
6.6 Taxes. The Company will pay and discharge, and cause each of its
Subsidiaries to pay and discharge, all taxes, assessments, and governmental
charges upon it, its income, and its properties prior to the date on which
penalties are attached thereto, unless and to the extent only that (i) such
taxes, assessments, and governmental charges are being contested by the Company
or such Subsidiary, as the case may be, in good faith and by appropriate
proceedings, and (ii) the Company or such Subsidiary, as the case may be, has
established on its books adequate reserves with respect to such tax, assessment
or charge so contested in accordance with GAAP.
6.7 Payment of Obligations. The Company will pay and discharge, and cause
each of its Subsidiaries to pay and discharge, at or before their maturity all
indebtedness for borrowed money and other material obligations and liabilities
of the Company and its Subsidiaries, except when (i) the same may be contested
by the Company or such Subsidiary, as the case may be, in good faith and by
appropriate proceedings, and (ii) the Company or such Subsidiary, as the case
may be, has established on its books adequate reserves with respect to such
indebtedness, obligation or liability in accordance with GAAP.
6.8 Insurance. The Company will maintain receivables insurance with respect
to the Accounts Receivable which is reasonably satisfactory to the Lenders. In
addition, the Company will maintain, and cause each of its Subsidiaries to
maintain, adequate other insurance, including, without limitation, casualty and
business interruption insurance, with responsible companies reasonably
satisfactory to the Agent in such amounts and against such risks as are
reasonably acceptable to each Lender.
6.9 Corporate Existence. Except to the extent otherwise permitted by
Section 8.3, the Company will maintain, and cause each of its Subsidiaries to
maintain, its corporate existence in good standing.
6.10 Licenses and Permits. The Company will maintain, and cause each of its
Subsidiaries to maintain, all permits, licenses, authorizations, approvals and
intellectual property required to own and operate the businesses and properties
of the Company and its Subsidiaries, except where a failure to maintain any such
permit, license, authorization, approval or intellectual property could not
reasonably be expected, in a particular case or in the aggregate, to have a
Material Adverse Effect.
33
6.11 Properties. The Company will maintain, preserve, and protect, and
cause each of its Subsidiaries to maintain, preserve and protect, all franchises
and trade names and preserve all the remainder of its property used or useful in
the conduct of its business and keep the same in good repair, working order, and
condition (ordinary wear and tear and insured casualty loss excepted), and from
time to time make or cause to be made all needful and proper repairs, renewals,
replacements, betterments, and improvements thereto so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times, and permit each Lender and its agents to enter upon and inspect such
properties during normal business hours upon reasonable notice; provided,
however, that nothing contained in this Section 6.11 shall prohibit the Company
or any of its Subsidiaries from selling or disposing of property in the ordinary
course of business which the Company or any such Subsidiary determines in its
reasonable business judgment to be obsolete, surplus or no longer useful in the
conduct of its business.
6.12 Employee Benefit Pension Plans. The Company will promptly during each
year, pay, and cause each of its Subsidiaries to pay, contributions that in the
judgment of the chief financial officer of the Company, after reasonable inquiry
are believed adequate to meet at least the minimum funding standards set forth
in Sections 302 through 305 of ERISA with respect to each employee benefit
pension plan of the Company or any of its Subsidiaries, if any, covered by ERISA
(including any plan of any member of a controlled group of corporations and all
trades and businesses (whether or not incorporated) under common control which,
together with the Company or any such Subsidiary, are treated as a single
employer, under Section 414 of the Code); file, and cause each of its
Subsidiaries to file, each annual report required to be filed pursuant to
Section 103 of ERISA in connection with each such plan for each year; and notify
each Lender within ten (10) days of the occurrence of a Reportable Event (as
defined in Section 4043 of ERISA) that might constitute grounds for termination
of any such plan by the PBGC or for the appointment by the appropriate United
States District Court of a trustee to administer any such plan.
6.13 Business Continuation. The Company will continue, and cause each of
its Subsidiaries to continue, to operate its business substantially as currently
operated.
6.14 Compliance with Environmental Laws. The Company will comply, and cause
each of its Subsidiaries to comply, in all material respects with all
Environmental Laws.
6.15 Compliance with Other Applicable Laws. The Company will comply, and
cause each of its Subsidiaries to comply, with all other applicable laws, rules,
regulations and orders of any Governmental Authority having jurisdiction over
it, except where a failure to comply could not reasonably be expected, in any
particular case or in the aggregate, to have a Material Adverse Effect.
34
6.16 GAAP. The Company will maintain, and cause each of its Subsidiaries to
maintain, its books and records in accordance with GAAP.
6.17 Landlord Lien Waivers; Post-Closing UCC Searches. On or before the
date which is sixty (60) days after the Closing Date, (a) the Company will
execute and deliver, and will cause each applicable landlord to execute and
deliver, to each Lender and the Agent landlord lien waivers, in form and
substance reasonably satisfactory to the Lenders and the Agent, relating to the
leased premises of the Company specified by the Required Lenders, along with
evidence satisfactory to the Agent that each such landlord lien waiver has been
properly recorded in the appropriate recording office, and (b) the Company will
deliver to each Lender follow-up uniform commercial code search reports
addressed to and acceptable to the Agent covering the Company (and its two
predecessor companies), for each filing office in which a financing statement in
favor of the Agent as agent for the Lenders has been filed, which show the
filing of such financing statements in favor of the Agent and only such other
financing statements as are acceptable to the Lenders and the Agent.
SECTION 7
FINANCIAL COVENANTS
So long as the Company may borrow under the Revolving Credit Facility or
the Swingline Facility or request that the Issuing Lender issue Letters of
Credit or any Letter of Credit is outstanding and until payment in full of all
of the Loans and payment and performance of all other obligations of the Company
hereunder and under the other Loan Documents:
7.1 Tangible Net Worth. The Company will maintain Tangible Net Worth,
measured as of the end of each fiscal quarter of the Company, of not less than
(i) $11,000,000 at any time from and including the Closing Date, through and
including January 30, 1999, (ii) $12,000,000 at any time from and including
January 31, 1999, through and including April 29, 1999, (iii) $12,500,000 at any
time from and including April 30, 1999, through and including July 30, 1999,
(iv) $13,500,000 at any time from and including July 31, 1999, through and
including October 30, 1999, and (v) $15,000,000 at all times thereafter.
7.2 Funded Debt to EBITDA Ratio. The Company will not permit the Funded
Debt to EBITDA Ratio, measured as of the end of each fiscal quarter of the
Company, to exceed 3.25 to 1 at any time.
7.3 EBITDA to Interest Expense Ratio. The Company will not permit the
EBITDA to Interest Expense Ratio, measured as of the end of each fiscal quarter
of the Company, to be less than 3.0 to 1 at any time.
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SECTION 8
NEGATIVE COVENANTS
So long as the Company may borrow under the Revolving Credit Facility or
the Swingline Facility or request that the Issuing Lender issue Letters of
Credit or any Letter of Credit is outstanding and until payment in full of all
of the Loans and payment and performance of all other obligations of the Company
hereunder and under the other Loan Documents, without the prior written consent
of the Required Lenders:
8.1 Additional Borrowing. The Company will not create, incur, assume, or
suffer to exist, or permit any of its Subsidiaries to create, incur, assume or
suffer to exist, in any manner any indebtedness for borrowed money, deferred
payment obligation for the purchase of assets, or other indebtedness, except (i)
indebtedness owing to the Lenders under this Agreement, (ii) the Swingline
Loans, (iii) indebtedness existing on the date of this Agreement which is
described on Schedule 8.1 attached hereto, and indebtedness constituting the
renewal or refinancing of any such indebtedness as long as the principal amount
thereof is not increased, (iv) accounts payable and accrued expenses arising in
the ordinary course of business and payable on customary terms, (v) purchase
money indebtedness and Capital Lease Obligations which do not exceed $500,000 in
the aggregate at any time outstanding, (vi) indebtedness owing to NationsCredit
Commercial Corporation incurred to finance the purchase of inventory by the
Company or any of its Subsidiaries which does not exceed $1,500,000 in the
aggregate at any time outstanding, and (vii) additional indebtedness (including
guaranteed indebtedness and other contingent liabilities) of the Company and its
Subsidiaries which does not exceed $100,000 in the aggregate at any time
outstanding.
8.2 Mortgages and Pledges. The Company will not create, incur, assume, or
suffer to exist, or permit any of its Subsidiaries to create, incur, assume or
suffer to exist, any mortgage, pledge, lien, or other encumbrance of any kind
upon, or any security interest in, any of its property or assets, whether now
owned or hereafter acquired, except (i) liens for taxes not yet delinquent or
being contested in good faith and by appropriate proceedings, (ii) pledges or
deposits in connection with workers' compensation, unemployment insurance, or
other social security obligations or to secure public or statutory obligations,
(iii) mechanic's, worker's, materialman's, landlord's, carrier's, or other like
liens arising in the ordinary course of business with respect to obligations
that are not due or that are being contested in good faith and by appropriate
proceedings, (iv) mortgages, pledges, liens, and encumbrances in favor of the
Agent and the Lenders securing indebtedness owing to the Lenders under this
Agreement, (v) mortgages and security interests which are described on Schedule
8.2 attached hereto and extensions, renewals and replacements of any such
mortgage or security interest as long as the amount secured thereby is not
increased, (vi) zoning restrictions, easements, licenses, restrictions on the
use of real property or minor irregularities in the title thereto, which do not,
in the opinion of the Company, materially impair the use of such property in the
operation of the business of the Company or such Subsidiary, as the case may be,
or the value of such property for the purposes
36
of such business, (vii) mortgages and security interests on property and assets
securing indebtedness or Capital Lease Obligations which is or are permitted by
Section 8.1(v) or Section 8.1(vi) and which is or are incurred to finance the
acquisition of such property or assets; provided that (A) each such mortgage or
security interest is created substantially simultaneously with the acquisition
of the related property or assets, (B) each such mortgage or security interest
does not at any time encumber any property or assets other than the related
property or assets financed by such indebtedness or Capital Lease Obligations,
(C) the principal amount of indebtedness or Capital Lease Obligations secured by
each such mortgage or security interest is not increased, and (D) the principal
amount of indebtedness or Capital Lease Obligations secured by each such
mortgage or security interest at no time exceeds 100% of the original purchase
price of the related property or assets at the time acquired, and (viii)
mortgages and security interests on property and assets existing at the time the
Company or any Subsidiary of the Company acquires such property or assets (and
not created in contemplation thereof) as long as the outstanding principal
amount of the indebtedness secured thereby is not increased after the Company or
such Subsidiary acquires the related property or assets.
8.3 Merger, Consolidation, or Sale of Assets. The Company will not enter
into any merger, consolidation or similar combination with, or acquire all or
substantially all of the assets of, any other Person, or sell, transfer, lease,
assign, or otherwise dispose of (in one transaction or a series of transactions)
all or any material part of its assets, or form or acquire any Subsidiary, or
permit any of its Subsidiaries to do so, except (i) the Company may merge with
any corporation provided (a) the Company is the surviving corporation, and (b)
immediately prior to and after giving effect to such merger no Default or Event
of Default exists or would exist, (ii) any Subsidiary of the Company may merge
or consolidate with the Company (provided that the Company is the surviving
corporation) or with any other Subsidiary of the Company, and (iii) any
Subsidiary of the Company may sell, transfer, lease or assign any of its assets
to the Company or any other Subsidiary of the Company.
8.4 Contingent Liabilities. The Company will not assume, guarantee, endorse
or otherwise become surety for or upon the obligation of any Person, except by
the endorsement of negotiable instruments for deposit or collection in the
ordinary course of business and except for contractual indemnifications incurred
in the ordinary course of business, or permit any Subsidiary to do so.
8.5 Loans. The Company will not make, or permit any Subsidiary to make, any
loans or advances to any Person, except loans and advances made by the Company
and its Subsidiaries which do not exceed $100,000 in the aggregate at any time
outstanding.
8.6 Investments. The Company will not purchase or acquire the obligations
or stock of, or any other interest in, any Person, other than Permitted
Investments, or permit any of its Subsidiaries to do so.
37
8.7 Dividends and Purchases of Stock. The Company will not declare or pay
any dividends (other than dividends payable in capital stock of the Company) on
any shares of any class of its capital stock, or apply any of its property or
assets to the purchase, redemption or other retirement of, or set apart any sum
for the payment of any dividends on, or for the purchase, redemption or other
retirement of, or make any other distribution by reduction of capital or
otherwise in respect of, any shares of any class of capital stock of the Company
or purchase, redeem or otherwise acquire for value any warrant for the purchase
of any shares of its capital stock; provided, however, that the Company may pay
a dividend on any date after October 31, 1999 (a "Dividend Payment Date"), if,
but only if, (i) the Borrowing Base Percentage for the six (6) month period
immediately preceding the applicable Dividend Payment Date is seventy percent
(70%) or less, and (ii) the payment of the dividend would not cause or otherwise
result in a Default or an Event of Default.
8.8 Sale and Leaseback. The Company will not directly or indirectly enter
into any arrangement whereby the Company shall sell or transfer any of its fixed
assets then owned by it and shall thereupon or within one year thereafter rent
or lease the assets so sold or transferred, or permit any of its Subsidiaries to
do so.
8.9 Use of Proceeds. The Company will not use all or any part of the
proceeds of any of the Loans for the purpose of purchasing or carrying any
margin stock, as that term is defined in Regulation U, or otherwise in violation
of any other Regulation of the Board of Governors of the Federal Reserve System.
8.10 Dissolution. Neither the Company nor any of its Subsidiaries will
dissolve or liquidate in whole or in part.
8.11 Conduct of Business. The Company will not engage, or permit any of its
Subsidiaries to engage, in any business other than the businesses the Company is
engaged in as of the Closing Date and businesses reasonably related thereto.
8.12 Affiliate Transactions. The Company will not enter into, or permit any
of its Subsidiaries to enter into, any transaction with an Affiliate, or sell,
transfer, lease, assign or otherwise dispose of, or permit any of its
Subsidiaries to sell, transfer, lease, assign or otherwise dispose of, any of
its properties or assets to an Affiliate, other than on terms and conditions
substantially as favorable to the Company or such Subsidiary, as the case may
be, as could be obtained by the Company or such Subsidiary at the time in a
comparable arm's-length transaction with a Person other than an Affiliate,
except as expressly permitted by any other provision of this Agreement.
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SECTION 9
EVENTS OF DEFAULT
If one or more of the following events of default (each, an "Event of
Default") shall occur:
9.1 Default shall be made by the Company in the payment of any interest due
on any of the Loans or any of the L/C Obligations, when such interest is due and
payable, and such default shall continue unremedied for a period of ten (10)
days; or
9.2 Default shall be made by the Company in the payment of any installment
or other payment of principal of any of the Loans or in the payment of any L/C
Obligations, when and as the same becomes due and payable, whether at the stated
maturity thereof, by mandatory prepayment, by acceleration, demand or otherwise,
and such default shall continue unremedied for a period of ten (10) days; or
9.3 Default shall be made by the Company in the due observance or
performance of any covenant or agreement contained in Section 7, and such
default shall continue for a period of thirty (30) days; or
9.4 Default shall be made by the Company in the due observance or
performance of any other term, covenant, or agreement contained in this
Agreement, and such default shall continue unremedied for a period of thirty
(30) days after the sending of written notice of such default to the Company by
the Agent; or
9.5 Any representation or warranty made by the Company herein or any
statement or representation made in any certificate, report, or opinion
delivered pursuant hereto shall prove to have been incorrect in any material
respect when made; or
9.6 The Company or the Guarantor shall be generally not paying its debts as
such debts become due, shall become insolvent or unable to meet its obligations
as they mature, shall make an assignment for the benefit of creditors, shall
consent to the appointment of a trustee or a receiver, or shall admit in writing
its inability to pay its debts as they mature; or
9.7 A trustee, receiver or custodian shall be appointed for the Company,
the Guarantor or for a substantial part of either of their respective
properties; or
9.8 Any case in bankruptcy shall be commenced, or any reorganization,
arrangement, insolvency, or liquidation proceedings shall be instituted, by or
against the Company or the Guarantor and, if commenced or instituted against the
Company or the Guarantor, be consented
39
to by the Company or the Guarantor, as the case may be, or remain undismissed
for a period of forty-five (45) days; or
9.9 Any default shall be made in the performance of any other obligation
incurred in connection with any indebtedness for borrowed money of the Company
or the Guarantor aggregating $250,000 or more, if the effect of such default is
to permit the holder of such indebtedness (or a trustee on behalf of such
holder) to cause it to become due prior to its stated maturity or to do so with
the giving of notice, or any such indebtedness becomes due prior to its stated
maturity or shall not be paid when due; or
9.10 One or more final judgments for the payment of money aggregating in
excess of $250,000 which is or are not adequately insured or indemnified against
shall be rendered at any time against the Company or the Guarantor and the same
shall remain undischarged for a period of thirty (30) days during which time
execution shall not be effectively stayed; or
9.11 Any substantial part of the properties of the Company or the Guarantor
shall be sequestered or attached and shall not have been returned to the
possession of the Company or the Guarantor, as the case may be, or released from
such attachment within forty-five (45) days; or
9.12 The occurrence of a Reportable Event as defined in Section 4043 of
ERISA which might constitute grounds for termination of any employee benefit
plan of the Company, the Guarantor or any of their respective Subsidiaries
covered by ERISA by the PBGC or grounds for the appointment by the appropriate
United States District Court of a trustee to administer any such plan; or
9.13 A default or an event of default shall have occurred under the
Security Agreement, the Guaranty or any of the other Loan Documents (including,
without limitation, a default under the Guaranty caused by the Guarantor's
failure to maintain the financial covenant contained therein); provided,
however, that no such default shall constitute an Event of Default hereunder if
the default is remedied to the Lenders' satisfaction within any applicable grace
or cure period; or
9.14 The Guarantor shall cease to own 100% of the capital stock of the
Company; or Ryan Brant and/or Larry Muller shall cease to be involved in the
senior management of the Company and within thirty (30) days thereafter the
Company has not replaced them or him with an officer or officers reasonably
satisfactory to each of the Lenders; or
9.15 Any person or group of persons (within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, as amended), other than any person or group
of persons who on the date of this Agreement each owns, legally or beneficially,
500,000 or more shares of the Guarantor's Stock, shall obtain ownership or
control in one or more series of transactions of more
40
than twenty-five percent (25%) of the common stock and twenty-five percent (25%)
of the voting power of the Guarantor entitled to vote in the election of members
of the board of directors of the Guarantor; or
9.16 The Guarantor shall deny its liability under the Guaranty or take any
action to terminate its liability thereunder, or any event shall have occurred
or condition shall exist which in the reasonable opinion of either Lender might
result in the Lenders not being able to enforce the obligations of the Guarantor
under the Guaranty, unless the Guarantor reaffirms its obligations under the
Guaranty in writing in a manner satisfactory to each Lender and its counsel
within five (5) Business Days of its receipt of a written request from the Agent
or a Lender to do so; then; (A) upon the occurrence of an Event of Default
described in Section 9.8 relating to the Company, (i) the Revolving Credit
Commitment and the Swingline Commitment, the obligation of the Lenders to make
any further advances under the Revolving Credit Facility, the obligation of
NationsBank to make any further advances under the Swingline Facility and the
obligation of the Issuing Lender to issue any further Letters of Credit shall
automatically and immediately terminate, (ii) the entire outstanding principal
balance of the Revolving Credit Notes and the Swingline Note and all accrued
interest thereon and all other amounts payable by the Company to the Lenders,
the Issuing Lender and the Agent shall automatically and immediately become due
and payable without presentment, demand, protest or any notice of any kind, or
any other action by or on behalf of the Lenders, the Issuing Lender or the
Agent, all of which are hereby waived, anything contained herein or in the Notes
to the contrary notwithstanding, and (iii) the Lenders, the Issuing Lender and
the Agent may proceed to enforce payment of the Notes and to exercise any and
all of its rights hereunder, under the Notes, under the other Loan Documents or
otherwise available to the Lenders, the Issuing Lender, the Agent or any of
them; and (B) at any time after the occurrence of any Event of Default (other
than an Event of Default described in Section 9.8 relating to the Company), the
Agent may, if it deems appropriate, and the Agent shall, if requested to do so
by either Lender, by written notice to the Company, take any or all of the
following actions, at the same or different times: (i) terminate forthwith the
Revolving Credit Commitment and the Swingline Commitment, the obligation of the
Lenders to make any further advances under the Revolving Credit Facility, the
obligation of NationsBank to make any further advances under the Swingline
Facility and the obligation of the Issuing Lender to issue any further Letters
of Credit, (ii) declare the Revolving Credit Notes, the Swingline Note and/or
all other amounts payable by the Company to the Lenders, the Issuing Lender and
the Agent to be forthwith due and payable, whereupon the applicable Note or
Notes and all such other amounts shall be forthwith due and payable, both as to
principal and interest, without presentment, demand, protest, or any other
notice of any kind, all of which are hereby expressly waived, anything contained
herein or in the Notes to the contrary notwithstanding, and/or (iii) proceed to
enforce payment of the Notes and to exercise any and all of the rights of the
Lenders, the Issuing Lender and the Agent hereunder, under the Notes, under the
other Loan Documents or otherwise available to the Lenders, the Issuing Lender,
the Agent or any of them.
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SECTION 10
SET-OFFS AND SHARING OF PAYMENTS
10.1 Right of Set-off; Adjustments. (a) Upon the occurrence and during the
continuance of any Event of Default, each Lender (and each of its Affiliates) is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by such Lender (or any of its Affiliates) to or for the credit or
the account of the Company against any and all of the obligations of the Company
now or hereafter existing under this Agreement and the Note or Notes held by
such Lender, irrespective of whether such Lender shall have made any demand
under this Agreement or such Note or Notes and although such obligations may be
unmatured. Each Lender agrees promptly to notify the Company after any such
set-off and application made by such Lender; provided, however, that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender under this Section 10.1 are in addition
to other rights and remedies (including, without limitation, other rights of
set-off) that such Lender may have.
(b) If any Lender (a "benefited Lender") shall at any time receive any
payment of all or part of the Revolving Credit Loans owing to it, or interest
thereon, or receive any collateral with respect thereto (whether voluntarily or
involuntarily, by set-off, or otherwise), in a greater proportion than any such
payment to or collateral received by any other Lender, if any, with respect to
such other Lender's Revolving Credit Loans owing to it, or interest thereon,
such benefited Lender shall purchase for cash from the other Lenders a
participating interest in such portion of each such other Lender's Revolving
Credit Loans owing to it, or shall provide such other Lenders with the benefits
of any such collateral, or the proceeds thereof, as shall be necessary to cause
such benefited Lender to share the excess payment or benefits of such collateral
or proceeds ratably with each of the Lenders; provided, however, that if all or
any portion of such excess payment or benefits is thereafter recovered from such
benefited Lender, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest. The
Company agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section 10.1 may, to the fullest extent permitted by law,
exercise all of its rights of payment (including the right of set-off) with
respect to such participation as fully as if such purchasing Lender were the
direct creditor of the Company in the amount of such participation.
SECTION 11
THE AGENT
11.1 Appointment, Powers, and Immunities. Each Lender hereby irrevocably
appoints and authorizes the Agent to act as its agent under this Agreement and
the other Loan
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Documents with such powers and discretion as are specifically delegated to the
Agent by the terms of this Agreement and the other Loan Documents, together with
such other powers as are reasonably incidental thereto. The Agent (which term as
used in this sentence and in Section 11.5 and the first sentence of Section 11.6
shall include its Affiliates and its own and its Affiliates' officers,
directors, employees, and agents): (a) shall not have any duties or
responsibilities except those expressly set forth in this Agreement and shall
not be a trustee or fiduciary for any Lender; (b) shall not be responsible to
the Lenders, or any of them, for any recital, statement, representation, or
warranty (whether written or oral) made in or in connection with any Loan
Document or any certificate or other document referred to or provided for in, or
received by any of them under, any Loan Document, or for the value, validity,
effectiveness, genuineness, enforceability, or sufficiency of any Loan Document,
or any other document referred to or provided for therein or for any failure by
the Company or any other Person to perform any of its obligations thereunder;
(c) shall not be responsible for or have any duty to ascertain, inquire into, or
verify the performance or observance of any covenants or agreements by the
Company or any other Person or the satisfaction of any condition or to inspect
the property (including the books and records) of the Company or any of its
Subsidiaries or Affiliates or any other Person; (d) shall not be required to
initiate or conduct any litigation or collection proceedings under any Loan
Document except as specifically provided in such Loan Document; and (e) shall
not be responsible for any action taken or omitted to be taken by it under or in
connection with any Loan Document, except for its own gross negligence or
willful misconduct. The Agent may employ agents and attorneys-in-fact and shall
not be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care.
11.2 Reliance By Agent. The Agent shall be entitled to rely upon any
certification, notice, instrument, writing, or other communication (including,
without limitation, any thereof by telephone or telecopy) believed by it to be
genuine and correct and to have been signed, sent or made by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel
(including counsel for the Company), independent accountants, and other experts
selected by the Agent. The Agent may deem and treat the payee of any Note as the
holder thereof for all purposes hereof. As to any matters not expressly provided
for by this Agreement, the Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Required Lenders, and such instructions shall be
binding on all of the Lenders; provided, however, that the Agent shall not be
required to take any action that exposes the Agent to personal liability or that
is contrary to any Loan Document or applicable law unless it shall first be
indemnified to its satisfaction by the Lenders against any and all liability and
expense which may be incurred by it by reason of taking any such action.
11.3 Defaults. The Agent shall not be deemed to have knowledge or notice of
the occurrence of a Default or Event of Default unless the Agent has received
written notice from a Lender or the Company specifying such Default or Event of
Default and stating that such notice is a "Notice of Default". In the event that
the Agent receives such a notice of the occurrence of a Default or Event of
Default or the Agent otherwise has actual knowledge of the occurrence of
43
a Default or an Event of Default, the Agent shall give prompt notice thereof to
the Lenders. The Agent shall (subject to Section 11.2) take such action with
respect to such Default or Event of Default as shall reasonably be directed by
the Required Lenders, provided that, unless and until the Agent shall have
received such directions, the Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interest of the Lenders.
11.4 Rights as Lender. With respect to its Revolving Credit Commitment and
the Loans made by it, NationsBank (and any successor acting as Agent) in its
capacity as a Lender hereunder shall have the same rights and powers hereunder
as any other Lender and may exercise the same as though it were not acting as
the Agent, and the term "Lender" or "Lenders" shall, unless the context
otherwise indicates, include the Agent in its individual capacity. The Agent
(and any successor acting as Agent) and its Affiliates may (without having to
account therefor to any Lender) accept deposits from, lend money to, make
investments in, provide services to, and generally engage in any kind of
lending, trust, or other business with the Company or any of its Subsidiaries or
Affiliates as if it were not acting as Agent, and the Agent (and any successor
acting as Agent) and its Affiliates may accept fees and other consideration from
the Company or any of its Subsidiaries or Affiliates for services in connection
with this Agreement or otherwise without having to account for the same to the
Lenders.
11.5 Indemnification. The Lenders agree ratably in accordance with their
respective Revolving Credit Commitment Percentages (to the extent not reimbursed
under Section 12.1, but without limiting the obligations of the Company under
such Section 12.1) to indemnify and hold harmless the Agent and each of its
Subsidiaries and Affiliates and their respective officers, directors, employees,
agents, and advisors (each, an "Indemnified Party") from and against any and all
claims, damages, losses, liabilities, costs, and expenses (including, without
limitation, reasonable attorneys' fees) that may be incurred by or asserted or
awarded against any Indemnified Party, in each case arising out of or in
connection with or by reason of (including, without limitation, in connection
with any investigation, litigation, or proceeding or preparation of defense in
connection therewith) the Loan Documents, any of the transactions contemplated
herein or the actual or proposed use of the proceeds of the Loans, except to the
extent such claim, damage, loss, liability, cost, or expense is found in a
final, non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful misconduct.
In the case of an investigation, litigation or other proceeding to which the
indemnity in this Section 11.5 applies, such indemnity shall be effective
whether or not such investigation, litigation or proceeding is brought by the
Company, its directors, shareholders or creditors or an Indemnified Party and
whether any other Person or any Indemnified Party is otherwise a party thereto
and whether or not the transactions contemplated hereby are consummated.
11.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it
has, independently and without reliance on the Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of the
44
Company and its own decision to enter into this Agreement and that it will,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under the Loan Documents. Except for notices, reports, and other documents and
information expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the affairs, financial
condition, or business of the Company, the Guarantor or any of their respective
Subsidiaries or Affiliates that may come into the possession of the Agent or any
of its Affiliates.
11.7 Resignation of Agent. The Agent may resign at any time by giving
written notice to the Lenders and the Company. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Required Lenders and shall
have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent which shall be a commercial bank
organized under the laws of the United States of America or any state thereof
having combined capital and surplus of at least $100,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor, such successor
shall thereupon succeed to and become vested with all the rights, powers,
discretion, privileges, and duties of the retiring Agent, and the retiring Agent
shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation hereunder as Agent, the provisions of this Section
11 shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Agent.
SECTION 12
MISCELLANEOUS PROVISIONS
12.1 Expenses; Indemnification. (a) The Company agrees to pay on demand all
reasonable costs and expenses of the Agent and each Lender in connection with
the syndication, preparation, execution, delivery, administration, modification,
and amendment of this Agreement, the other Loan Documents, and the other
documents to be delivered hereunder; including, without limitation, the
reasonable fees and expenses of counsel for the Agent and each Lender with
respect thereto and with respect to advising the Agent and each Lender as to its
rights and responsibilities under the Loan Documents. The Company further agrees
to pay on demand all costs and expenses of the Lenders, the Issuing Lender and
the Agent, if any (including, without limitation, reasonable attorneys' fees and
expenses), in connection with the enforcement (whether through negotiations,
legal proceedings, or otherwise) of the Loan Documents and the other documents
to be delivered hereunder or in connection with the Loans made hereunder.
(b) The Company agrees to indemnify and hold harmless each Lender, the
Issuing Lender and the Agent and each of their respective Affiliates and their
respective officers, directors, employees, agents, and advisors (each, an
"Indemnified Party") from and against any and all claims, damages, losses,
liabilities, costs, and expenses (including, without limitation,
45
reasonable attorneys' fees) that may be incurred by or asserted or awarded
against any Indemnified Party, in each case arising out of or in connection with
or by reason of (including, without limitation, in connection with any
investigation, litigation, or proceeding or preparation of defense in connection
therewith) the Loan Documents, any of the transactions contemplated herein or
the actual or proposed use of the proceeds of the Loans, except to the extent
such claim, damage, loss, liability, cost, or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct. In the
case of an investigation, litigation or other proceeding to which the indemnity
in this Section 12.1(b) applies, such indemnity shall be effective whether or
not such investigation, litigation or proceeding is brought by the Company, its
directors, shareholders or creditors or an Indemnified Party or any other
Person, whether or not any Indemnified Party is otherwise a party thereto and
whether or not the transactions contemplated hereby are consummated. The Company
agrees not to assert any claim against any Lender, the Issuing Lender, the
Agent, any of their respective Affiliates, or any of their respective directors,
officers, employees, attorneys, agents, and advisers, on any theory of
liability, for special, indirect, consequential, or punitive damages arising out
of or otherwise relating to the Loan Documents, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of the Loans
and waives any such claim it may now or hereafter have.
12.2 Several Obligations of Lenders. The obligation of each Lender to make
the Revolving Credit Loans provided for herein is several, and no Lender shall
be liable in the event that any other Lender fails to make any Revolving Credit
Loan it has agreed to make hereunder.
12.3 Cumulative Rights and No Waiver. Each and every right granted to the
Lenders, or any of them, the Issuing Lender or the Agent hereunder or under any
other document delivered hereunder or in connection herewith, or allowed them or
any of them by law or equity, shall be cumulative and may be exercised from time
to time. No failure on the part of the Lenders, or any of them, the Issuing
Lender or the Agent to exercise, and no delay in exercising, any right shall
operate as a waiver thereof, nor shall any single or partial exercise by the
Lenders, or any of them, the Issuing Lender or the Agent of any right preclude
any other or future exercise thereof or the exercise of any other right.
12.4 Amendments and Waivers. Any provision of this Agreement or any other
Loan Document may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Company and the Required Lenders.
12.5 Notices. All notices, requests and other communications to any party
hereunder will be in writing and will be given to such party at its address or
telefacsimile number set forth below or such other address or telefacsimile
number as such party may hereafter specify in writing for this purpose by notice
to the other parties:
46
If to the Company:
Jack of All Games, Inc.
c/o Take-Two Interactive Software, Inc.
575 Broadway, 6th Floor
New York, New York 10019
Attention: Larry Muller
Telefacsimile: (212) 941-2997
with a copy to:
Barry S. Rutcofsky, Esquire
Tenzer Greenblatt LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Telefacsimile: (212) 885-5001
If to the Agent:
NationsBank, N.A.
Independence Center
101 N. Tryon Street - 15th Floor
Charlotte, North Carolina 28255
Attention: Angela Berry
Telephone: (704) 386-8958
Telefacsimile: (704) 388-9436
with a copy to:
Jeffrey M. Gill, Esquire
Mays & Valentine, L.L.P.
1111 East Main Street
Richmond, Virginia 23219
Telefacsimile: (804) 697-1339
If to any Lender, at the address shown opposite its name on the signature pages.
Each such notice, request or other communication will be effective (i) if given
by telefacsimile, when receipt is confirmed by telephone, (ii) if given by mail,
three (3) Business Days after it is deposited in the U.S. mail with first class
postage prepaid, addressed as provided above, or (iii) if given by any other
means, when delivered at the applicable address as provided above.
47
12.6 Applicable Law. This Agreement and the Notes shall be construed in
accordance with and governed by the laws of the Commonwealth of Virginia.
12.7 Survivorship. All covenants, agreements, representations and
warranties made herein and in the certificates delivered pursuant hereto shall
survive the making of the Loans, the execution and delivery of the Notes and the
issuance of the Letters of Credit and shall continue in full force and effect so
long as the Company may borrow or request the issuance of Letters of Credit
hereunder or any portion of the Notes or any obligation hereunder or under any
other Loan Document is outstanding and unpaid. Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party, and all covenants, promises and agreements
by or on behalf of the Company which are contained in this Agreement shall bind
the successors and assigns of the Company and inure to the benefit of the
successors and assigns of the Lenders, the Issuing Lender and the Agent. The
Company shall not have the right to assign any of its rights or obligations
hereunder
12.8 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same
instrument.
12.9 Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
12.10 Arbitration. Any controversy or claim between or among the parties
hereto including but not limited to those arising out of or relating to this
Agreement or any related agreements or instruments, including any claim based on
or arising from an alleged tort, shall be determined by binding arbitration in
accordance with the Federal Arbitration Act (or if not applicable, applicable
state law), the rules of practice and procedure for the arbitration of
commercial disputes of Judicial Arbitration and Mediation Services,
Inc./Endispute (J.A.M.S.), and the "special rules" set forth below. In the event
of any inconsistency, the special rules shall control. Judgment upon any
arbitration award may be entered in any court having jurisdiction. Any party to
this Agreement may bring an action, including a summary or expedited proceeding,
to compel arbitration of any controversy or claim to which this Agreement
applies in any court having jurisdiction over such action.
The arbitration shall be conducted in Richmond, Virginia and administered
by J.A.M.S. who will appoint an arbitrator; if J.A.M.S. is unable or legally
precluded from administering the arbitration, then the American Arbitration
Association will serve. All arbitration hearings will be commenced within ninety
(90) days of the demand for arbitration; further, the arbitrator shall only,
upon a showing of cause, be permitted to extend the commencement of such hearing
for up to an additional sixty (60) days.
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Nothing in this Agreement shall be deemed to (i) limit the applicability of
any otherwise applicable statute of limitation or repose or any waivers
contained in this agreement; or (ii) be a waiver by the Lenders of the
protection afforded to them by 12 U.S.C. Sec. 91 or any substantially equivalent
state law; or (iii) limit the right of the Lenders (a) to exercise self help
remedies such as (but not limited to) setoff, or (b) to foreclose against any
real or personal property collateral, or (c) to obtain from a court provisional
or ancillary remedies such as (but not limited to) injunctive relief, writ of
possession or the appointment of a receiver. The Lenders may exercise such self
help rights, foreclose upon such property, or obtain such provisional or
ancillary remedies before, during or after the pendency of any arbitration
proceeding brought pursuant to this Agreement. Neither this exercise of self
help remedies nor the institution or maintenance of an action for foreclosure or
provisional or ancillary remedies shall constitute a waiver of the right of any
party, including the claimant in any such action, to arbitrate the merits of the
controversy or claim occasioning resort to such remedies.
12.11 Entire Agreement. This Agreement and the other Loan Documents
constitute the entire agreement of the Company, the Lenders and the Agent with
respect to the subject matter hereof and supersede all prior or contemporaneous
agreements, whether oral or written.
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IN WITNESS WHEREOF, the Company, the Agent and the Lenders have caused this
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written. JACK OF ALL GAMES, INC.
By: /s/ Larry Muller
--------------------------------------------
Its: Vice President/Chief Financial Officer
NATIONSBANK, N.A., as Agent
By: /s/ Austin Welder
--------------------------------------------
Its: Vice President
Address for notices: NATIONSBANK, N.A., as Lender
NationsBank, N.A.
1111 East Main Street
Richmond, Virginia 23219 By: /s/ Austin Welder
Attention: Austin B. Welder -------------------------------
Telefacsimile: (804) 788-3432 Its: Vice President
Address for notices: THE PROVIDENT BANK
The Provident Bank
One East Fourth Street
Cincinnati, Ohio 45202 By: /s/ John Rentz
Attention: John D. Rentz -------------------------------
Telefacsimile: (513) 579-2201 Its: Vice President