View:
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): July 29, 1997
TAKE-TWO INTERACTIVE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-29230 11-3299195
(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 2. Acquisition and Disposition of Assets
A. Acquisition of GameTek (UK) Limited, Alternative Reality
Technologies, Inc. and Certain Assets of GameTek (FL), Inc.
On July 29, 1997, the Company acquired all of the outstanding capital stock
of GameTek (UK) Limited ("GameTek") and Alternative Reality Technologies, Inc.
from GameTek (FL), Inc. ("GameTek (FL)"). GameTek is in the business of
distributing computer software games in Europe and other international markets
and ART is a developer of computer software games. In addition, the Company
acquired certain software games from GameTek (FL), including Dark Colony, The
Quivering and The Reap. The acquisitions were effectuated pursuant to an Asset
and Stock Purchase Agreement dated July 29, 1997 by and among the Company,
GameTek, ART and GameTek (FL).
The consideration for the acquisition consisted of (i) the payment of
$50,000 in cash, (ii) the issuance of 406,553 restricted shares of Common Stock
of the Company, (iii) the issuance of an unsecured promissory note of the
Company in the principal amount of $500,000 to GameTek (FL)'s secured creditor,
which provides for the payment of principal in two equal annual installments of
$250,000 on July 29, 1998 and July 29, 1999 and bears interest at a rate of 8%
per annum, payable quarterly, (iv) the issuance of a promissory note in the
principal amount of $200,000 payable to GameTek (FL) together with accrued
interest on September 15, 1997 and (v) a tax refund of approximately 250,000
pounds sterling owed to GameTek in respect of fiscal 1994 and fiscal 1995. The
Company was directed to pay a portion of the consideration directly to Ocean
Bank, GameTek, Inc.'s secured creditor.
Subject to certain limitations and exclusions, the Company agreed to
include the Common Stock issued in connection with the acquisition in a
Registration Statement on Form S-3 to be filed under the Securities Act of 1993,
as amended, in April 1998, and granted certain "piggyback" registration rights
with respect to such Common Stock.
Simultaneously with the consummation of the acquisition, GameTek entered
into an employment agreement with Mr. Kelly Sumner, an executive officer of
GameTek, pursuant to which Mr. Sumner agreed to continue his employment with
GameTek as President/Managing Director for a three-year term. The agreement
provides that Mr. Sumner is entitled to an annual salary of 100,000 pounds
sterling, plus an annual bonus equal to 7.5% of the net pre-tax profits of
GameTek. Mr. Sumner also agreed not to engage in any business which is a
competitor of GameTek in either England or Wales during the term of the
employment agreement and for a period of six months after termination of his
employment with GameTek (or an affiliate or subsidiary of GameTek).
-2-
The Company also entered into two distribution agreements with GameTek,
Inc., the parent of GameTek (FL), pursuant to which GameTek, Inc. granted to the
Company the right to distribute computer software and related imagery for use on
the Nintendo Gameboy portable console (the "Gameboy Distribution Agreement") and
the Wheel of Fortune and Jeopardy! games for use on the N64 console game system
(the "Jeopardy Distribution Agreement").
Pursuant to the terms of the Gameboy Distribution Agreement, the Company
was granted the exclusive right to sell and distribute Wheel of Fortune --
German Edition, Pinball Deluxe, Race Days and Humans in certain European
Economic Community countries for a period commencing on July 29, 1997 and ending
on the third anniversary of the release of the first computer software game, but
in no event later than July 28, 2001. In consideration for such rights, the
Company has agreed to pay to GameTek, Inc. (i) the aggregate cost to GameTek,
Inc. of manufacturing, shipping and insuring the games, (ii) $.15 per game unit
and (iii) the aggregate of all royalties payable by GameTek, Inc. to third
parties in respect of each such game. Upon expiration of the Gameboy
Distribution Agreement, provided such termination was not as a result of a
breach or default by the Company, the Company is permitted to continue to sell
existing inventories for a six-month period, subject to the terms and conditions
of such agreement.
Pursuant to the terms of the Jeopardy Distribution Agreement, the Company
was granted the exclusive worldwide right to sell and distribute Wheel of
Fortune and Jeopardy! for use on the Nintendo N64 game system for a period
commencing on July 29, 1997 and ending on the August 31, 1998; provided that in
the event GameTek, Inc. is able to obtain an extension of its license for Wheel
of Fortune and Jeopardy!, then the term shall extend through the last day of any
such extension. In consideration for such rights, the Company agreed to pay to
GameTek, Inc. (i) the total cost charged to GameTek, Inc. by Nintendo for the
manufacture of each game (plus, to the extent not included in the foregoing, the
cost of insurance and transportation charges, import duties, custom fees and
similar charges incurred in shipping the games), (ii) a per game unit royalty
payment (the "GameTek Share") and (iii) the aggregate of all royalties payable
by GameTek, Inc. to third parties in respect of each such game. The Company also
agreed to pay to GameTek, Inc. a minimum aggregate GameTek Share with respect to
the first two game titles released, subject to certain reductions and set-offs,
$450,000 of which was paid upon the execution of the agreement. Such amounts may
be recouped in the event GameTek, Inc. is unable to obtain an extension of its
license for Wheel of Fortune and Jeopardy! or the Company's incurring more than
$150,000 in advertising, marketing, promotion and sales support for the
software. In addition, in the event the Company elects to terminate the Jeopardy
Distribution Agreement as a result of GameTek, Inc.'s breach with respect to a
specific game or games, GameTek, Inc. is
-3-
required to repay to the Company any unrecouped portion of the minimum aggregate
GameTek Share allocable to such game. The Company may also require GameTek, Inc.
to purchase from the Company any remaining inventory with respect to such game.
Upon expiration of the Jeopardy Distribution Agreement, provided such
termination was not as a result of a breach or default by the Company, the
Company is permitted to sell existing inventories for a six-month period,
subject to the terms and conditions of such agreement.
B. Acquisition of Inventory Management Systems, Inc. and
Creative Alliance Group, Inc.
On July 31, 1997, the Company acquired all of the outstanding capital stock
of Inventory Management Systems, Inc. ("IMSI") and Creative Alliance Group, Inc.
("CAG"). Pursuant to Agreements and Plans of Merger (the "Merger Agreements"),
by and among the Company, Take-Two Acquisition Corp., a wholly-owned subsidiary
of the Company (the "Subsidiary"), IMSI, CAG, David Clark, Karen Clark, Terry
Phillips, Cathy Phillips and Russell Howard (the "Stockholders"), each of IMSI
an CAG were merged with and into the Subsidiary and all of the outstanding
shares of common stock of each of IMSI and CAG were converted into an aggregate
of 900,000 shares (the "Shares") of restricted Common Stock of the Company (the
"Merger"). IMSI and CAG are engaged in the wholesale distribution of interactive
software games. The Company intends to account for the acquisition of IMSI and
CAG as a pooling transaction.
Simultaneously with the consummation of the Merger, the Subsidiary entered
into a three-year employment agreement with Mr. Clark and entered into a
three-year consulting agreement with Mr. Phillips. Pursuant to such agreements,
each of Messrs. Clark and Phillips are entitled to receive 6% of earnings before
interest and taxes generated by the Subsidiary up to $500,000 and 9% of earnings
before interest and income taxes in excess of $500,000. Mr. Clark is also
entitled to receive a base salary of $120,000 per annum pursuant to his
employment agreement. The Company also entered into a Registration Rights
Agreement with the Stockholders pursuant to which the Company agreed to grant
certain "piggyback" registration rights with respect to up to 250,000 of the
Shares.
The source of the consideration paid in each of the foregoing transactions
was authorized but unissued shares of Common Stock of the Company and cash on
hand. The amount of consideration paid by the Company in connection with the
transactions was determined by arms'-length negotiations.
The descriptions of the agreements described herein are qualified in their
entirety by reference to such agreements which are attached as exhibits to this
Report and which are incorporated herein by reference.
-4-
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(a) Financial Statements of the Business Acquired.
Audited financial statements relating to the acquisitions will be filed by
amendment within 60 days of the date this Report was required to be filed.
(b) Pro Forma Financial Information and Exhibits.
Pro Forma financial information relating to the acquisitions will be filed
by amendment within 60 days of the date this report was required to be filed.
(c) Exhibits
Exhibit 1 - Asset and Stock Purchase Agreement dated July 29,
1997 by and among the Company, GameTek, ART and GameTek (FL).
Exhibit 2 - Promissory Note dated July 29, 1997 in the
principal amount of $500,000.
Exhibit 3 - Promissory Noted dated July 29, 1997 in the
principal amount of $200,000.
Exhibit 4 - Employment Agreement between GameTek and Kelly
Sumner.
Exhibit 5 - Gameboy Distribution Agreement.
Exhibit 6 - Jeopardy Distribution Agreement*.
Exhibit 7 - Agreement and Plan of Merger dated July 10, 1997
by and among the Company, the Subsidiary, IMSI, David Clark,
Karen Clark, Terry Phillips and Cathy
Phillips.
Exhibit 8 - Agreement and Plan of Merger dated July 31, 1997
by and among the Company, the Subsidiary, CAG, David Clark,
Terry Phillips and Russell Howard.
Exhibit 9 - Employment Agreement between the
Subsidiary and David Clark.
Exhibit 10 - Consulting Agreement between the
Subsidiary and Terry Phillips.
Exhibit 11 - Registration Rights Agreement by and among the
Company, David Clark, Karen Clark, Terry Phillips, Cathy
Phillips and Russell Howard.
-5-
Exhibit 12 -- Registration Rights Agreement by and among the
Company and GameTek, Inc.
* Pursuant to Rule 24b-2 promulgated under the Securities and Exchange Act of
1934, as amended, confidential treatment has been requested for certain
portions of this agreement. Such confidential information has been (i)
omitted from this agreement, (ii) marked with asterisks (**) and (iii)
filed separately with the Securities and Exchange Commission.
-6-
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: August 13, 1997
TAKE-TWO INTERACTIVE SOFTWARE, INC.
By /s/ Ryan A. Brant
-----------------
Name: Ryan A. Brant
Title: Chairman
-7-
ASSET AND STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of the 29th day of July 1997, by and among GameTek (UK)
Limited ("GameTek"), a United Kingdom corporation, Alternative Reality
Technologies, Inc. ("ART"), a Florida corporation (GameTek and ART are sometimes
hereinafter collectively referred to as "Sellers"), GameTek (FL), Inc., a
Florida corporation (the "Stockholder") and Take Two Interactive Software, Inc.
("Buyer").
W I T N E S S E T H :
WHEREAS, the Stockholder is the owner of all of the issued and outstanding
Common Stock of the Sellers; and
WHEREAS, the Stockholder is also the owner of certain assets which the
Buyer wishes to purchase; and
WHEREAS, the Sellers are engaged in the business of creating, developing
and/or distributing computer software games (the "Business"); and
WHEREAS, the Stockholder wishes to sell to Buyer, and Buyer wishes to
purchase from Stockholder, all of Stockholder's right, title and interest in (i)
PC CD software games known as Dark Colony, Quarantine and Road Warrior (the
"Existing Titles"), (ii) the PC CD software games known as Guardians of Justice,
the Reap and all other software programs and PC CD games being developed in
GameTek's office (the "UK Titles") and (iii) all of the outstanding capital
stock of the Sellers (the "Stock").
WHEREAS, simultaneously herewith Buyer and Stockholder are entering into a
distribution agreement (the "Gameboy Distribution Agreement"), a copy of which
is annexed hereto as Exhibit A pursuant to which Buyer shall receive the
European distribution rights to all Gameboy Titles currently published by the
Stockholder (the "Gameboy Titles").
WHEREAS, simultaneously herewith, Buyer and Stockholder are entering into a
distribution agreement (the "Jeopardy Distribution Agreement"), a copy of which
is annexed hereto as Exhibit A-1 (the Jeopardy Distribution Agreement and the
Gameboy Distribution Agreement are hereinafter sometimes referred to
collectively as the "Distribution Agreements").
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. Purchase and Sale Agreement.
1.1 Agreement of Purchase and Sale. Subject to the terms and
conditions set forth in this Agreement and in reliance upon the
representations, warranties, covenants and conditions herein contained,
Stockholder is (a) selling, conveying, assigning, transferring and
delivering to Buyer, and Buyer is purchasing from Stockholder, the
Purchased Assets (as defined in subparagraph 1.2 hereof), free and clear of
any and all liens, claims, charges or encumbrances of any nature whatsoever
other than those created by third party agreements set forth on Schedule
1.3 and those that are reflected on or referred to in the financial
statements identified in section 4.6 hereof (collectively, the "Permitted
Encumbrances").
1.2 Purchased Assets. As used in this Agreement, the term "Purchased
Assets" means (i) all of Stockholder's rights, title and interest in the
Existing Titles, and (ii) all of Stockholder's rights, title and interest
in the UK Titles; (the Existing Titles, and the UK Titles are sometimes
hereinafter collectively referred to as the "Software Assets"); and (iii)
the Stock. Schedule 1.2 contains a complete list of all Existing Titles and
all UK Titles. The transfer of the Existing Titles and the UK Titles (and
the term "Purchased Assets") includes all of Stockholder's right, title and
interest in all forms of expression and media, including but not limited to
the source code, object code, flowcharts, block diagrams, and all related
documentation; and all trade secrets, know-how, inventions (whether or not
patentable), proprietary rights and intellectual property contained
therein, including, without limitation, all copyrights, trademarks and
patents and all applications therefor, goodwill, all right, title, interest
and benefit of Stockholder in, to, and under, and subject to, all
agreements, contracts and licenses entered into by Stockholder, or having
Stockholder as a beneficiary, and pertaining to the Existing Title and UK
Titles and all System Documentation and End User Documentation (as
hereinafter defined).
1.3 Assumed Liabilities. Subject to the terms and conditions set forth
in this Agreement and in reliance upon the representations, warranties,
covenants and conditions herein contained, Buyer is assuming, and shall
only assume all obligations of Sellers, Stockholder and/or the entities
listed on Schedule 1.3 as Stockholder's affiliates (the "Affiliates") under
the third-party agreements relating to the Existing Titles and the UK
Titles, all of which agreements are listed on Schedule 1.3 (the "Assumed
Agreements") (the assumed liabilities set forth above are collectively
referred to hereinafter as the "Assumed Liabilities"). All of Stockholders
liabilities and obligations which are not being assumed by Buyer pursuant
hereto are hereinafter collectively called the "Retained Liabilities".
1.4 Purchase Price. The purchase price for the Purchased Assets
consists of the following: (a) $50,000, (b) 406,553 shares (the "Stock
Consideration") of the common stock of
-2-
the Buyer, (c) two unsecured promissory notes in the principal amounts of
$500,000 and $200,000, respectively (the "Promissory Notes") of Buyer, in
the form annexed hereto as Exhibit B-1 and B-2, (d) the assumption by Buyer
of all of the Assumed Liabilities pursuant to the Assumption and Assignment
Agreement attached hereto as Exhibit C and (e) the tax refund, if any,
referred to in Section 3.7 (the aggregate of (a), (b), (c), (d) and (e) is
collectively referred to hereinafter as the "Purchase Price").
2. Closing.
2.1 Closing Date. This Agreement shall be executed, and the closing of
the sale and purchase provided for herein (the "Closing") shall take place
at 10 a.m., New York time, at the offices of Tenzer Greenblatt LLP, 405
Lexington Avenue, 23rd Floor, New York, New York 10174 on the date hereof
(such time and date of Closing being hereinafter called the "Closing
Date").
2.2 Action by Buyer. Simultaneously herewith, Buyer is delivering or
causing to be delivered to Stockholder (in addition to the documents and
instruments to be delivered by it pursuant to paragraph 3 hereof), (a) on
account of the Purchase Price (i) $50,000, (ii) the Promissory Notes, (iii)
certificates representing the Stock Consideration registered as directed by
the Stockholder and (b) an opinion of Tenzer Greenblatt LLP, counsel to the
Buyer, dated the Closing Date, in substantially the form annexed hereto as
Exhibit D and (c) the Assumption and Assignment Agreement.
2.3 Action by Stockholder. Simultaneously herewith, Stockholder is
delivering to Buyer (in addition to the documents and instruments to be
delivered by it pursuant to paragraph 3 hereof): (i) a duly executed Bill
of Sale and Assignment in substantially the form attached hereto as Exhibit
E with respect to the Software Assets, (ii) all such patent, trademark,
trade name and copyright assignments (in the form attached hereto as
Exhibit F), (iii) the Distribution Agreements, (iv) an opinion of Ackerman,
Levine & Cullen, LLP, counsel for Stockholder and Sellers, dated the
Closing Date, in substantially the form of Exhibit G hereto and (v) all
third party consents and governmental and administrative approvals, as are,
in the opinion of Buyer, necessary or appropriate in order to convey,
transfer and assign to and vest in Buyer good and marketable right, title
and interest in and to the Purchased Assets free and clear of all liens,
security interests, claims, charges and encumbrances of any nature
whatsoever, except for consents or approvals required under any agreement
set forth in Schedule 1.3 and indicated thereon the Permitted Encumbrances,
and (vi) certificates representing the Stock with stock powers duly
executed in blank. Simultaneously herewith, Stockholder is delivering (i)
the entire inventory of copies of the Existing Titles and the UK Titles in
object form, consisting of disks together with all improvements,
-3-
corrections, modifications, updates enhancements or other changes; (2) a
master copy of the software (in both source and object code format of the
Existing Titles and the UK Titles), in a form suitable for copying (to the
extent such masters exist); and (3) all existing System Documentation and
User Documentation. System Documentation means all documentation used in
the development and updating of the Existing and U.K. Titles, including but
not limited to, design or development specifications, error reports, and
related correspondence and memoranda. User Documentation means the end-user
instruction manual that usually accompanies the Existing Titles and UK
Titles instructing end users in the use of the Existing Titles and UK
Titles in both printed and electronic form.
3. Additional Covenants.
3.1 Further Assurances. Stockholder hereby agrees that it shall from
time to time after the Closing Date, at Buyer's sole cost and expense, take
any and all actions, and execute, acknowledge, deliver, file and/or record
any and all documents and instruments, as Buyer may reasonably request, in
order to more fully perfect the rights which are intended to be granted to
Buyer hereunder.
3.2 Payment of Taxes Upon Transfer of Purchased Assets. Stockholder
shall be responsible for, and shall pay, any and all sales, use, purchase,
transfer and similar taxes, and any and all filing, recording, registration
and similar fees, arising out of the transactions contemplated by this
Agreement.
3.3 Survival of Representations and Warranties. Each of the parties
hereto hereby 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 and the consummation of the
transactions contemplated hereby for a period of eighteen (18) months,
provided, however, that the representations and warranties set forth in
Section 4.13 (taxes), Section 4.4 (authority) and Section 4.8 (assets free
and clear) shall continue until the expiration of the applicable statute of
limitations.
3.4 Books and Records. Stockholder shall, for a period of at least
three years following the Closing Date, maintain and make available to
Buyer and its representatives for inspection and reproduction, during
regular business hours, all books and records relating to Sellers, the
Purchased Assets, the Business or the Assumed Liabilities which are not
included among the Purchased Assets and which are retained by the
Stockholder. Buyer shall, for a period of at least three years following
the Closing Date, maintain and make available to Stockholder and its
representatives for inspection and reproduction, during regular business
hours upon reasonable notice, all books and records relating to Sellers,
which are included among the Purchased Assets or delivered to or left in
the possession of Sellers, but
-4-
only insofar as said books and records relate to periods ending on or prior
to the Closing Date.
3.5 Employment Agreement. Simultaneously herewith, Kelly Sumner is
delivering to GameTek an Employment Agreement in the form annexed hereto as
Exhibit I.
3.6 Discharge of Liens. Stockholder or Sellers have caused all liens,
claims, charges and encumbrances upon any of the Purchased Assets or any of
the assets of either Seller that are not reflected or referred to in the
latest financial statements referred to in Section 4.6 hereof or that did
not arise after the date thereof in the ordinary course of business, to be
terminated or otherwise discharged at or prior to the Closing other than
the Permitted Encumbrances.
3.7 Cancellation of Intercompany Indebtedness. On or prior to the
Closing Date, each of Stockholder and any Affiliate shall cause all
intercompany indebtedness due from Sellers to Stockholder and any Affiliate
to be converted into equity. Any tax refunds due to and received by either
GameTek or ART in respect of periods prior to the Closing Date which are
not reflected on the balance sheet of Sellers previously furnished to Buyer
shall be paid to Stockholder as an additional payment of Purchase Price
including, without limitation, the tax refund of approximately 250,000
pounds sterling owed to GameTek in respect of fiscal 1994 and fiscal 1995.
Buyer, Sellers and Stockholder shall cooperate with each other and use
their reasonable best efforts to obtain such refund and cause the same to
be paid to Stockholder promptly.
3.8 Liabilities. Subsequent to the Closing Date, Stockholder
shall pay, discharge and perform the Retained Liabilities in due course and
Sellers shall pay, discharge and perform Seller's Liabilities (as
hereinafter defined) in due course. Seller's Liabilities shall mean all
obligations and liabilities of Sellers existing as of the date hereof
whether matured, unmatured or contingent, known or unknown.
3.9 Registration Rights. Simultaneously herewith, Buyer and
Stockholder are executing and delivering a registration rights agreement in
substantially the form annexed hereto as Exhibit J (the "Registration
Rights Agreement").
3.10 Certificate of Stockholder. Simultaneously herewith, Stockholder
is delivering a certificate of the Secretary of Stockholder stating that
the sale of all of the Stock and the Purchased Assets has been approved by
the directors of Stockholder and annexing true and correct copies of the
minutes approving the execution and delivery of the Agreement and the
consummation of the transactions contemplated thereby.
3.11 Certificate of Buyer. Simultaneously herewith, Buyer is
delivering a certificate by its Secretary stating that the acquisition of
the Purchased Assets and the issuance of the Promissory Notes and Stock
Consideration has been approved by the shareholders of Buyer and annexing a
true and correct copy of the Buyer's minutes approving such acquisition.
-5-
3.12 Use of Name. Promptly after the execution hereof, and at its cost
and expense, Buyer shall change the corporate name of each of each of the
Sellers and GameTek Deutschland GmbH to a name bearing no resemblance to
either Alternative Reality Technologies, Inc., GameTek (UK) Limited or
GameTek Deutschland GmbH, the rights to which are being retained by
Stockholder; provided, however, that the Buyer may continue to use the
GameTek and ART names in connection with the disposition of existing
finished goods inventory of games subject to existing purchase orders for
finished goods inventory.
3.13 Cooperation. 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 opinion of any of the
parties hereto, in respect of any statute, rule, regulation or order of any
governmental or administrative body in connection with the transactions
contemplated hereby, including, without limitation, the execution and
filing of any financial reports or tax returns which are delinquent as of
the Closing Date.
4. Representations and Warranties as to Seller and Stockholder. Sellers and
the Stockholder hereby severally and not jointly represent and warrant to Buyer
as follows:
4.1 Organization, Standing and Power. Each of the Stockholder, GameTek
and ART is a corporation duly organized, validly existing and in good
standing under the laws of Florida, the United Kingdom and Florida,
respectively, with full corporate power and authority to own, lease and
operate its respective properties and to carry on its respective 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
either of GameTek or ART, or the conduct of its respective business, makes
it necessary for it to qualify to do business as a foreign corporation and
where it has not so qualified, except for those jurisdictions in which the
failure to so qualify would not have a materially adverse effect on the
business or operations of such entity. Copies of the Certificate of
Incorporation of each of Stockholder, GameTek and ART and all amendments
thereof, and of the By-laws of each of Stockholder, GameTek and ART, as
amended to date, have been furnished to Buyer and are complete and correct.
GameTek's and ART's respective minute books heretofore exhibited to Buyer
contain complete and accurate records of all meetings and other corporate
actions of their respective stockholders and Board of Directors (including
committees of its Board of Directors).
4.2 Capitalization. The authorized capital stock of GameTek consists
of 1,677,756 shares of Common Stock, par value one pound sterling per
share, of which 1,050,601 shares are issued and outstanding. The authorized
capital stock of ART consists of 200 shares of Common Stock, par value
$0.01 per
-6-
share, of which 100 shares are issued and outstanding. Stockholder owns all
of the Stock of the Sellers and has good and valid title to the Stock, free
and clear of any and all liens, claims, charges and encumbrances of any
nature whatsoever. The Stock has not been assigned, transferred,
hypothecated or otherwise encumbered. There are no outstanding options,
warrants, rights, calls, commitments, conversion rights, puts, plans or
other agreements of any character to which Stockholder or the Sellers are a
party or otherwise bound which provide for the acquisition or disposition
of any of the Stock or any of the securities of either Seller. All of the
Stock has been duly and validly issued and is fully paid and nonassessable.
4.3 Interests in Other Entities. Neither GameTek nor ART (A) own,
directly or indirectly, of record or beneficially, any shares of voting
stock or other equity securities of any other corporation except that
GameTek Deutschland GmbH is a wholly owned subsidiary of GameTek, (B) have
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 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 other
than those set forth on Schedule 4.3 annexed hereto.
4.4 Authority. The execution and delivery by Stockholder, GameTek and
ART of this Agreement and of all of the agreements to be executed and
delivered by each of them pursuant hereto (including, without limitation,
the Distribution Agreements), the performance by each of them of its
respective 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
Stockholder, GameTek and ART (including, but not limited to, the unanimous
consent of their respective stockholders, if required, and Boards of
Directors) and each of Stockholder, GameTek and ART has all necessary power
with respect thereto. This Agreement is, and when executed and delivered by
Stockholder and the Sellers (to the extent that they are parties thereto)
each of the other agreements to be delivered by any or all of them pursuant
hereto will be, the valid and binding obligation of Stockholder, GameTek
and ART (to the extent that they are parties thereto) in accordance with
its terms.
4.5 Noncontravention. Neither the execution and delivery by
Stockholder and/or the Sellers of this Agreement or of any agreement to be
executed and delivered by Stockholder and/or the Sellers pursuant hereto,
nor the consummation of any of the transactions contemplated hereby or
thereby, nor the performance by Stockholder or the Sellers of their
respective obligations, as the case may be, hereunder or thereunder, will
(nor with the giving of notice or the lapse of time or both
-7-
would) (a) conflict with or result in a breach of any provision of the
Certificate of Incorporation or By-laws of the Stockholder or the Sellers,
or (b) except as set forth on Schedule 1.3, 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 Sellers
or, with respect to the UK Titles, the Existing Titles or the GameBoy
Titles (collectively the "Titles"), 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
Sellers or the Stockholder may be bound or to which the Titles may be
subject, or require any consent, approval or notice under the terms of any
such document or instrument, or (c) except as set forth on Schedule 1.3,
violate any order, writ, injunction, decree, law, statute, rule or
regulation of any court or governmental authority which is applicable to
Stockholder with respect to the UK Titles, the Existing Titles or the
GameBoy Titles, or the Sellers, or (d) except as set forth on Schedule 1.3,
result in the creation or imposition of any lien, claim, charge,
restriction or encumbrance upon any of the properties or assets of the
Sellers, or, with respect to the UK Titles, the Existing Titles or the
GameBoy Titles or (e) except as set forth on Schedule 1.3, give any
individual or entity a legally enforceable claim against Buyer,
Stockholder, Sellers or the Stock.
4.6 Financial Statements. Attached to Schedule 4.6 are copies of
GameTek's and ART's respective unaudited balance sheets as of June 15, 1997
(the "Balance Sheets"). Said Balance Sheets fairly present the financial
position of each of GameTek and ART as at the dates thereof and each is
true and correct in all material respects. Notwithstanding the foregoing or
any other provision hereof to the contrary, neither Stockholder nor Sellers
make any representation or warranty of any kind regarding the
collectability of any account receivable or note receivable reflected on
the Balance Sheets, the availability to any person or entity of any
set-offs, contras, counterclaims, rights of recoupment or similar claims to
any portion thereof, or with respect to the likelihood or amount of future
product returns or claims for price protection, discounts, allowances or
similar claims in respect of products sold prior to the Closing hereunder,
or with respect to the inventory shown thereon except as provided in
Section 4.11 below. Except as set forth on Schedule 4.6, the books and
records of each of GameTek and ART are in all material respects complete
and correct, have been maintained in accordance with good business
practices, and accurately reflect the basis for the financial condition of
each of GameTek and ART as set forth in the aforementioned financial
statements.
4.7 Absence of Undisclosed Liabilities. Subject to the penultimate
sentence of Section 4.6, and except for Permitted Encumbrances, Sellers
have no liabilities or
-8-
obligations of any nature whatsoever, whether accrued, absolute, contingent
or otherwise which have not been (i) in the case of liabilities and
obligations of a type customarily reflected on a corporate balance sheet
prepared in accordance with generally accepted accounting principles, set
forth on the balance sheet described in subparagraph 4.6 above or (ii) in
the case of other types of liabilities and obligations, described in any of
the Schedules delivered pursuant hereto or omitted from said Schedules in
accordance with the terms of this Agreement, or (iii) incurred, consistent
with past practice, in the ordinary course of business since June 15, 1997
(in the case of liabilities and obligations of the type referred to in
clause (i) above).
4.8 Properties. (a) Stockholder has good and valid title to all of the
Purchased Assets, free and clear of all mortgages, liens, pledges, claims,
charges or encumbrances of any nature whatsoever ("Liens"), except for
Permitted Encumbrances and for those which are described on Schedule 4.8
hereto.
(b) Except as set forth on Schedule 4.8 and except for Permitted
Encumbrances, each Seller has good and valid title to all of the properties
and assets, reflected on the Balance Sheet as owned by it or thereafter
acquired, except properties or assets sold or otherwise disposed of in the
ordinary course of business, free and clear of any and all Liens except for
Permitted Encumbrances and Liens not yet due and payable or being contested
in good faith by appropriate proceedings. All plants, structures and
equipment which are utilized in the Sellers' Businesses, or are material to
the condition (financial or otherwise) of either Seller are owned or leased
by either Seller. Schedule 4.8 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
either Seller, or which is subject to a title retention or conditional
sales agreement or other security 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 either Seller.
(c) Except as otherwise provided herein or in any third party
agreement identified in Schedule 1.3, Buyer shall receive, pursuant to this
Agreement as of the Closing Date, complete and exclusive right, title and
interest in and to all tangible and intangible property rights existing in
the Existing Titles and UK Titles.
(d) Except as otherwise provided herein or in any third party
agreement identified in Schedule 1.3, Stockholder has developed the
Existing Titles and UK Titles entirely through its own efforts for its own
account.
-9-
(e) To the best of Stockholder's knowledge, except as otherwise
provided herein or in any third party agreement identified in Schedule 1.3,
the Existing Titles and UK Titles do not infringe any patent, copyright or
trade secret of any third party.
(f) Except as otherwise provided herein or in any third party
agreement identified in Schedule 1.3, all personnel, including employees,
agents, consultants, and contractors, who have contributed to or
participated in the conception and development of the Existing Titles and
UK Titles either (1) have been party to a work-for-hire relationship with
Stockholder that has accorded Stockholder full, effective and exclusive
original ownership of all tangible and intangible property arising with
respect to the Existing Titles and UK Titles or (2) have executed
appropriate instruments of assignment in favor of Stockholder as assignee
that have conveyed to Stockholder full, effective and exclusive ownership
of all tangible and intangible property thereby arising with respect to the
Existing Titles and UK Titles.
4.9 Litigation. Other than as set forth in Schedule 4.9 annexed
hereto, there are no suits or actions, or administrative, arbitration or
other proceedings or governmental investigations, pending or, to the best
of the knowledge of Stockholder or Sellers, threatened, against or relating
to Sellers, the Business or any of the Purchased Assets. There are no
judgments, orders, stipulations, injunctions, decrees or awards in effect
which relate to Sellers, the Business or any of the Purchased Assets, 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 Purchased Assets.
4.10 No Violation of Law. Sellers and/or Stockholder, as the case may
be, are not engaging in any activity or omitting to take any action as a
result of which (A) they are 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 Sellers, the Business or any of the Purchased Assets,
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 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) Seller, the Business and/or any of the
Purchased Assets have been or will be materially and adversely affected.
4.11 Inventories. To the best knowledge of Stockholder and Sellers,
the inventories reflected on the Balance
-10-
Sheets and thereafter added 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 written down to net
realizable value or adequately reserved against on the books and records of
GameTek, ART, or GameTek Deutschland GmbH, respectively.
4.12 Intellectual Property. Annexed hereto as Schedule 4.12 is a list
containing 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 or used by Sellers or with respect
to the Software Assets, and all applications therefor, (B) inventions,
discoveries, improvements, processes, formulae, proprietary rights and
trade secrets required for the development of the Software Assets and
sequels thereof, and (C) licenses and other agreements to which Sellers or
Stockholder (with respect to the Purchased Assets) are a party to or
otherwise bound which relate to any of the foregoing. Except as expressly
set forth in the documents listed in Schedule 4.8, (A) Sellers or
Stockholder owns or has the right to use all of the foregoing; (B) no
proceedings have been instituted, are pending or, to the best of the
knowledge of Sellers and Stockholder are threatened, which challenge the
rights of Sellers or Stockholder in respect thereto or the validity
thereof; and (C) to the best of the knowledge of Sellers and Stockholder,
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) to the best knowledge of
Sellers and Stockholder, none of the aforesaid is subject to any
outstanding order, decree, judgment, stipulation or charge. The foregoing
sentence notwithstanding, Buyer acknowledges that the title Dark Colony is
subject to an existing distribution agreement with Strategic Simulations,
Inc. and that the GameBoy Titles are subject to a distribution agreement
with Microware, Inc., copies of which have been provided to Buyer. To the
extent owned by Stockholder or Sellers, the Existing Titles and UK Titles
are fully eligible for protection under applicable copyright law and has
not been forfeited to te public domain; and that the source code and system
specifications for the Existing Titles and UK Titles have been maintained
in confidence.
4.13 Tax Matters. GameTek and ART, respectively, have filed with the
appropriate governmental agencies all tax returns and reports required to
be filed by it, 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,
except that ART has not yet filed tax returns for the fiscal year ending
July 31, 1996. The provision for income and other taxes which is set forth
on the balance sheets referred to in subparagraph 4.6
-11-
above, together with any available tax receivable or loss carryforward or
other tax credit, are adequate for all accrued and unpaid income taxes of
Sellers as of June 15, 1997, whether (A) incurred in respect of or measured
by income of Sellers for any periods prior to the close of business on that
date, or (B) arising out of transactions entered into, or any state of
facts existing on or prior to that date. To the best knowledge of
Stockholder and Sellers, Sellers have not executed or filed with any taxing
authority any agreement extending the period for the assessment or
collection of any income or other taxes, and is not a party to any pending
or, to the best of the knowledge of Sellers, threatened, action or
proceeding by any governmental authority for the assessment or collection
of income or other taxes. The United States federal income tax returns of
Seller have not been examined by the Internal Revenue Service ("the IRS").
Seller has paid all V.A.T. and other taxes due with respect to periods
prior to the Closing to the extent due and payable on or before the date
hereof. Buyer, Sellers and Stockholder will cooperate with each other in
the filing of all required tax returns of Sellers for all periods ending on
or prior to Closing.
4.14 Insurance. To the best knowledge of Stockholder and Sellers,
annexed hereto as Schedule 4.14 is a list containing a complete and correct
list and summary description of all policies of insurance relating to any
of the Purchased Assets, the Business or in which Sellers or Stockholder 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 Sellers or Stockholder with respect to any such policy.
4.15 Banks; Powers of Attorney. Schedule 4.15 is a complete and
correct list showing (i) the names of each bank in which Sellers have an
account or safe deposit box and the names of all persons authorized to draw
thereon or who have access thereto, and (ii) the names of all persons, if
any, holding powers of attorney from Sellers or Stockholder with respect to
the Software Assets.
4.16 Employee Arrangements. To the best knowledge of Stockholder and
Sellers, Schedule 4.16 is a complete and correct list and summary
description of all (i) union, collective bargaining, employment,
management, termination and consulting agreements to which Sellers are a
party or otherwise bound, and (ii) 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
-12-
reimbursement, personal loan and product purchase discount policies and
arrangements; and other plans or arrangements providing for benefits for
employees of Sellers. Said Schedule also lists the names and compensation
of all employees of Seller whose earnings during the last fiscal year was
U.S.$50,000 or more (including bonuses and other incentive compensation),
and all employees who are expected to receive at least said amount in
respect of the present year.
4.17 Certain Business Matters. Except as is set forth in Schedule 4.17
neither Sellers nor the Purchased Assets are (a) a party to or bound by any
distributorship, dealership, sales agency, franchise or similar agreement
which relates to the sale or distribution of the Purchased Assets, (b) to
the best knowledge of Sellers and Stockholder, there are no pending, or to
the best of the knowledge of Sellers threatened, labor negotiations, work
stoppages or work slowdowns involving or affecting the Sellers' businesses,
and, to the best of the knowledge of Sellers, no union representation
questions exist, and there are no organizing activities, in respect of any
of the employees of Sellers, or (c) to the best knowledge of Sellers and
Stockholder, the product warranties given by Sellers, or Stockholder with
respect to the Existing Titles, or by which they are bound (complete and
correct copies or descriptions of which have heretofore been delivered by
Sellers and Stockholder to Buyer) entail no greater obligations than are
customary in the businesses of Sellers and Stockholder.
4.18 Certain Contracts. To the best knowledge of Sellers and
Stockholder, set forth on Schedule 4.18 is a complete and correct list of
all contracts, commitments, obligations and understandings which are not
set forth in any other Schedule delivered hereunder and to which the
Sellers are a party or otherwise bound, except for each of those which (a)
was made in the ordinary course of business, and (b) either (i) is
terminable by Sellers will be terminable by Buyer) without liability,
expense or other obligation on thirty (30) days' notice or less, or (ii)
may be anticipated to involve aggregate payments to or by Sellers or
Stockholder of $5,000 (or the equivalent) or less calculated over the full
term thereof, and (c) is not otherwise material to the Sellers' businesses.
Also set forth on Schedule 4.18 is a complete and correct list of
contracts, commitments, obligations and undertakings to which the Existing
Titles and UK Titles are subject. Except as set forth in the immediately
preceding sentence, there are no agreements or arrangements in effect with
respect to the marketing, distribution, licensing or promotion of the
Existing Titles and UK Titles by any independent salesperson, distributor,
sublicensor or other remarketer or sales organization. To the best
knowledge of Stockholder and Sellers, 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
Sellers and Stockholder to Buyer or have been made available for Buyer's
inspection at
-13-
Seller's offices, and except as expressly stated on the Schedule on which
they are set forth to the best of Seller's knowledge, (a) each of them is
in full force and effect, no person or entity which is a party thereto or
otherwise bound thereby is in default thereunder, and, to the best of the
knowledge of Sellers and Stockholder, 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 contractual benefits thereunder; (b) there has been
no threatened cancellations thereof, and there are no outstanding disputes
thereunder; except, in any of the foregoing cases, where such default,
cancellation or the like (i) would not have a materially adverse effect on
the Business, the Sellers or the value of the Purchased Assets or (ii)
results from the change of control, transfer, sale and assignment effected
by the terms of the agreements identified on Schedule 1.3 by reason of the
Closing under this Agreement.
4.19 Approvals. Set forth on Schedule 4.19 hereto, is a complete and
correct list of all governmental and administrative consents, permits,
appointments, approvals, licenses, certificates and franchises which, to
Stockholder's knowledge, are necessary for the operation of the Sellers'
businesses, all of which have been obtained by Sellers and are in full
force and effect.
4.20 Business Practices and Commitments. Intentionally Omitted.
4.21 Brokers. No agent, broker, person, or firm acting on behalf of
Sellers or Stockholder, or under their respective authority, is or will be
entitled to a financial advisory fee, brokerage commission or other like
payment in connection with any of the transactions contemplated hereby
except for the fee payable by Stockholder to Tanner & Company.
4.22 Customers and Suppliers. Stockholder has previously provided to
Buyer, to the best of Stockholder's knowledge, a complete and correct list
setting forth, for each of GameTek and ART, for the twelve months ended
July 31, 1996 and July 31, 1997 (projected), (a) the 10 largest customers
of each Seller's businesses and the amount for which each such customer was
invoiced, and (b) the 10 largest suppliers of each Seller's businesses and
the amount of goods and services purchased from each such supplier. To the
Stockholder's knowledge, the aforesaid suppliers and customers will
continue their respective relationships with the Sellers after the Closing
Date on substantially the same basis as now exists.
4.23 Information as to Sellers and Stockholder. None of the
representations or warranties made by Sellers or Stockholder in this
Agreement or in any agreement executed and delivered by or on behalf of any
of them pursuant hereto are false or misleading with respect to any
material fact, or omit to
-14-
state any material fact necessary in order to make the statements therein
contained not misleading.
4.24 Nature of Securities. Stockholder understands that as of the date
hereof (a) the Stock Consideration has not been registered under the
Securities Act of 1933, as amended (the "Act"), based upon an exemption
from such registration requirements; (b) the Stock Consideration to be
received is "restricted securities," as said term is defined in Rule 144 of
the General Rules and Regulations promulgated under the Act; (c) the Stock
Consideration to be received may not be sold or otherwise transferred
unless it has first been registered under the Act and applicable state
securities laws or an exemption from the registration provisions of the Act
and applicable state securities laws are available with respect to the
proposed sale or transfer; (d) the certificates evidencing the Stock
Consideration will bear a legend to the effect that the transfer thereof is
restricted; and (e) stop transfer instructions will be placed with the
transfer agent for the Stock Consideration.
4.25 Investment Representations. (i) Stockholder or its
representatives have received and carefully reviewed Buyer's registration
statement on Form SB-2 as declared effective by the Securities and Exchange
Commission (the "SEC") on April 14, 1997 and most recent Form 10-QSB, and
except for the foregoing and the representations and warranties contained
herein, Stockholder has not been furnished with any other materials or
literature relating to the Buyer or the Stock Consideration; (ii)
Stockholder or its representatives have had a reasonable opportunity to ask
questions of and receive answers from Buyer concerning Buyer and the Stock
Consideration.
4.26 As used herein, the terms "to the best of Stockholder's
knowledge", "to the best of Sellers' knowledge" or words of similar import
shall mean only the actual knowledge of J. William Blue, Jr., Robert L.
Underwood III, J. Thomas Reuterdahl or Max Rudminat.
5. Representations and Warranties as to Buyer. Buyer hereby represents and
warrants to Stockholder as follows:
5.1 Organization, Standing and Power. Buyer 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.
5.2 Authority. The execution and delivery by Buyer of this Agreement
and of each agreement, document and instrument to be executed and delivered
by it pursuant hereto, the compliance by Buyer with the provisions hereof
and thereof, and the consummation of the transactions contemplated hereby
and
-15-
thereby, have been duly and validly authorized by all necessary corporate
action on the part of Buyer, and Buyer has all necessary corporate power
with respect thereto. This Agreement is, and when executed and delivered by
Buyer each other agreement to be executed and delivered by it pursuant
hereto will be, the valid and binding obligation of Buyer in accordance
with its terms. Neither the execution and delivery by Buyer of this
Agreement or of any of the aforementioned other agreements, nor the
consummation of the transactions contemplated hereby or thereby, nor the
compliance by Buyer 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 Buyer, or in the breach of any material agreement to which
Buyer is a party or otherwise bound.
5.3 Securities and Exchange Commission Filings; Financial Statements.
Buyer has filed all forms, reports, statements and documents required to be
filed with the SEC since April 14, 1997, (collectively, the "SEC Reports"),
each of which has complied in all material respects with the applicable
requirements of the Act or the Exchange Act of 1934, as amended (the
"Exchange Act"), as applicable, each as in effect on the date so filed.
Buyer has delivered to the Stockholder, in the form filed with the SEC
(including any amendments thereto), (A) its Quarterly Report on Form 10-QSB
for the quarter ended April 30, 1997 (the "April 30 10-QSB") and (B) its
Prospectus dated April 14, 1997. None of such forms, reports or documents
(including but not limited to any financial statements or schedules
included or incorporated by reference therein) filed by the Buyer, when
filed (except to the extent revised or superseded by a subsequent filing
with the SEC) contained any untrue statement of a material fact or omitted
to state a material fact required to be stated or incorporated by reference
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements included in such forms were prepared in accordance with
generally accepted accounting principles consistently applied, and fairly
present the financial position of Buyer as at the dates thereof and its
results of operations for the periods indicated, except that any unaudited
financial statements are subject to normal reoccurring adjustments which
might be required as a result of year-end audits.
5.4 Capitalization. The authorized capital stock of Buyer consists of
15,000,000 shares of Common Stock and 5,000,317 shares of Preferred stock,
par value $.01 per share, of which, as of the date hereof, 7,847,455 shares
of Common Stock and 317 shares of preferred stock are issued and
outstanding. All issued shares of Buyer's Common Stock have been duly and
validly issued and are fully paid and nonassessable. Except as set forth in
the SEC Reports or the other documents specifically set forth in Schedule
5.4, there are no outstanding options, warrants, rights, puts, calls,
commitments, conversion rights,
-16-
plans or other agreements of any character to which Buyer 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
shares of Buyer Common Stock or preferred stock. There is no personal
liability, and there are no preemptive or similar rights, attached to
Buyer's Common Stock.
5.5 Absence of Changes. Since January 31, 1997, there have not been
(i) any material adverse changes in the condition (financial or otherwise),
assets, liabilities, business, prospects, or results of operations of Buyer
(including, without limitation, any such adverse change resulting from
damage, destruction or other casualty loss, whether or not covered by
insurance), (ii) any declarations, setting asides or payments of any
dividend or other distribution or payments in respect of the capital stock
of Buyer, or (iii) any changes in the accounting principles or methods
which are utilized by Buyer.
5.6 Litigation. Except as set forth in the SEC Reports, there are no
material suits or actions, or administrative, arbitration or other
proceedings or governmental investigations, pending or, to the best of the
knowledge of Buyer threatened, against or relating to Buyer. Except as set
forth in SEC Reports there are no material judgments, orders, stipulations,
injunctions, decrees or awards in effect which relate to Buyer, Buyer's
business or any of its assets, 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 to have a material adverse effect on the condition (financial or
otherwise), assets, liabilities, business, prospects or results of
operations of Buyer.
5.7 Information as to Buyer. None of the representations or warranties
made by Buyer in this Agreement or in any agreement executed and delivered
by or on behalf of 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.
6. Representations and Warranties as to Stock Consideration. Buyer
represents and warrants to the Stockholder that the Stock Consideration, when
issued, will be, (i) duly authorized and validly issued, fully paid and
non-assessable, (ii) delivered hereunder free and clear of any security
interests, pledges, mortgages, claims, liens and encumbrances of any kind
whatsoever except that the Stock Consideration will be "restricted securities"
as such term is defined in the rules and regulations of the Securities Exchange
Commission and will be subject to restrictions on transfers pursuant to such
rules and regulations and State laws, and (iii) issued in compliance with all
applicable federal and state securities laws.
-17-
7. Indemnification.
7.1 Indemnification by Sellers and Stockholder. Sellers and
Stockholder hereby jointly and severally agree to indemnify and hold Buyer
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 Buyer may sustain, suffer or incur and which arise out of,
are caused by, relate to, or result or occur from or in connection with (i)
the Retained Liabilities, (ii) the noncompliance with any applicable bulk
transfer laws of any jurisdiction, or (iii) the breach by Sellers or
Stockholder of any representation, warranty or covenant made by it in this
Agreement or in any agreement or instrument executed and delivered pursuant
hereto.
7.2 Indemnification by Buyer. Buyer hereby agrees to indemnify and
hold Stockholder and its affiliates, other than Sellers, 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, prosecutor
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 (i) the Assumed Liabilities,
(ii) the breach by Buyer of any representation, warranty or covenant made
by it in this Agreement or in any agreement or instrument executed and
delivered pursuant hereto or (iii) Seller's Liabilities.
7.3 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 paragraph 7, 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 ten 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 Sellers and/or
Stockholder as the indemnifying party or parties, it or they shall not
thereby
-18-
permit to exist any lien, encumbrance or other adverse change upon any of
the Purchased Assets, Buyers or the Business, and (ii) 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 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 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 the claim at their exclusive
discretion, at the risk and expense of the indemnifying parties to the full
extent set forth in subparagraph 7.1 or 7.2 hereof, as the case may be.
7.4 Limitations Upon Indemnification. Buyer shall not have any right
to indemnification under this paragraph 7 or otherwise to recover damages
against Stockholder based upon the breach of a representation or warranty
by Sellers or Stockholder unless and until the amount of its claims is in
excess of $100,000.00 (the "Retained Indemnification") in the aggregate.
The obligation of Stockholder to indemnify or pay damages to Buyer for any
breach of representation or warranty shall apply only to the excess of the
aggregate amount of all such claims over $100,000.00. Buyer shall not be
entitled to assert as a defense, counterclaim or set-off against any
portion of the Purchase Price any claim for indemnification or damages, it
being the intention of the parties that Buyer's obligation to pay the
Purchase Price and perform under the Promissory Notes and the Registration
Rights Agreement be absolute and unconditional and that any claim for
indemnification or damages should be asserted by Buyer in a separate
action.
8. Miscellaneous Provisions.
8.1 Expenses. Except as otherwise provided in this Agreement,
Stockholder, on the one hand, shall pay its and Sellers' costs and expenses
and Buyer shall pay its own costs and expenses in connection with this
Agreement and the transactions contemplated hereby.
8.2 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
-19-
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.
8.3 Notices. All notices, requests, demands and other communications
given hereunder shall be in writing and shall be deemed to have been duly
given: (i) on the date of delivery, if delivered personally or by
messenger, (ii) on the first business day following the date of timely
deposit with Federal Express or other nationally recognized overnight
courier service, if sent by such courier specifying next day delivery,
(iii) upon receipt of confirmation of transmission, if transmitted by
telecopier; and (iv) on the third business day after mailing, if mailed by
registered or certified mail (postage prepaid, return receipt requested);
provided, however, that a notice of change of address or telecopier number
shall not be deemed to have been given until actually received by the
addressee. All such notices, requests, demands and other communications
shall be addressed as set forth below or to such other address or
telecopier number as either party hereto may designate to the other party
hereto by like notice (except that a notice of change of address shall only
be effective upon receipt):
If to Buyer, to: Take Two Interactive Software
575 Broadway
New York, New York 10012
Attn: Ryan A. Brant
Copy to: Tenzer Greenblatt LLP
23rd Floor
405 Lexington Avenue
New York, New York 10174
Attn: Barry S. Rutcofsky
If to Stockholder, to: GameTek (FL), Inc.
c/o J. William Blue, Jr., Esq.
The Northern Blue Law Firm
100 Europa Drive
Suite 550
Chapel Hill, North Carolina
27515-2208
-20-
Copy to: Ackerman, Levine & Cullen, LLP
175 Great Neck Road
Great Neck, New York 11021
Attn: Leslie Levine, Esq.
If to ART, to: Alternative Reality
Technologies, Inc.
c/o J. William Blue, Jr., Esq.
The Northern Blue Law Firm
100 Europa Drive
Suite 550
Chapel Hill, North Carolina
27515-2208
If to GameTek, to: GameTek (UK) Limited
c/o J. William Blue, Jr., Esq.
The Northern Blue Law Firm
100 Europa Drive
Suite 550
Chapel Hill, North Carolina
27515-2208
8.4 Amendment. This Agreement may only be amended by a written
instrument executed by each of the parties hereto.
8.5 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, other than the Confidentiality Agreement which shall
remain in full force and effect.
8.6 Applicable Law. This Agreement shall be governed by the laws of
the State of New York applicable to contracts made and to be wholly
performed therein.
8.7 Headings. The headings contained herein are for the sole purpose
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this
Agreement.
8.8 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.
8.9 Binding Effect; Benefits. This Agreement shall inure to the
benefit of, and shall be binding upon, the
-21-
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.
8.10 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.
8.11 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.
-22-
8.12 Announcements. No party hereto shall issue any press release or
otherwise make any public statement with respect to the existence of this
Agreement or the transactions contemplated hereby without the prior
approval of the other parties hereto, except as may be required by
applicable law or the applicable rules or regulations of any stock exchange
(upon reasonable prior written notice to the other party).
8.13 Schedules. The Schedules delivered pursuant to this Agreement are
an integral part hereof. Each such Schedule shall be in writing, shall
indicate the subparagraph pursuant to which it is being delivered, and
shall be initialled by the delivering party.
-23-
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
Attest: TAKE TWO INTERACTIVE
SOFTWARE, INC.
By: /s/ Ryan A. Brant
---------------------------------
President
________________________________
Secretary
Attest: GAMETEK (FL), INC.
By: /s/ Robert L. Underwood
---------------------------------
Authorized Signer
________________________________
Secretary
Attest: GAMETEK (UK), INC.
By: /s/ Kelly Sumner
---------------------------------
President
________________________________
Secretary
Attest: ALTERNATIVE REALITY
TECHNOLOGIES, INC.
By: /s/ Robert L. Underwood
---------------------------------
________________________________ Vice President
Secretary
SIGNATURE PAGE TO
ASSET AND STOCK PURCHASE AGREEMENT
AMONG GAMETEK (UK), LIMITED, GAMETEK (FL), INC,
ALTERNATIVE REALITY TECHNOLOGIES, INC. AND
TAKE TWO INTERACTIVE SOFTWARE, INC.
-i-
TABLE OF CONTENTS
-----------------
Page
----
1. Purchase and Sale Agreement............................................. 2
1.1 Agreement of Purchase and Sale................................ 2
1.2 Purchased Assets.............................................. 2
1.3 Assumed Liabilities........................................... 3
1.4 Purchase Price................................................ 4
2. Closing................................................................. 4
2.1 Closing Date.................................................. 4
2.2 Action by Buyer............................................... 4
2.3 Action by Stockholder......................................... 5
3. Additional Covenants.................................................... 6
3.1 Further Assurances............................................ 6
3.2 Confidentiality............................................... 6
3.3 Payment of Taxes Upon Transfer of Purchased
Assets.................................................... 6
3.4 Survival of Representations and Warranties.................... 6
3.5 Books and Records............................................. 7
3.6 Distribution and/or License Agreement......................... 7
3.7 Employment Agreement.......................................... 8
3.8 Discharge of Liens............................................ 8
3.9 Cancellation of Intercompany Indebtedness..................... 8
3.10 Retained Liabilities......................................... 8
3.11 Registration Rights.......................................... 8
4. Representations and Warranties as to Seller and
Stockholder........................................................ 9
4.1 Organization, Standing and Power.............................. 9
4.2 Capitalization................................................ 9
4.3 Interests in Other Entities................................... 10
4.4 Authority..................................................... 11
4.5 Noncontravention.............................................. 11
4.6 Financial Statements.......................................... 12
4.7 Absence of Undisclosed Liabilities............................ 13
4.8 Properties.................................................... 14
4.9 Litigation.................................................... 16
4.10 No Violation of Law.......................................... 16
4.12 Use of Name.................................................. 17
4.13 Intellectual Property........................................ 17
4.14 Tax Matters.................................................. 18
4.15 Insurance.................................................... 19
4.16 Banks; Powers of Attorney.................................... 20
4.17 Employee Arrangements........................................ 20
4.18 Certain Business Matters..................................... 21
4.19 Certain Contracts............................................ 21
4.20 Approvals.................................................... 22
4.21 Business Practices and Commitments........................... 23
4.22 Brokers...................................................... 23
-ii-
Page
----
4.23 Customers and Suppliers...................................... 23
4.24 Information as to Sellers and Stockholder.................... 24
4.25 Nature of Securities......................................... 24
4.26 Investment Representations................................... 25
4.27 .......................................................... 25
5. Representations and Warranties as to Buyer.............................. 25
5.1 Organization, Standing and Power.............................. 25
5.2 Authority..................................................... 26
5.3 Securities a
nd Exchange Commission Filings;
Financial Statements...................................... 26
5.4 Capitalization................................................ 27
5.5 Absence of Changes............................................ 28
5.6 Litigation.................................................... 28
5.7 Information as to Buyer....................................... 29
6. Representations and Warranties.......................................... 29
7. Indemnification......................................................... 30
7.1 Indemnification by Sellers and Stockholder.................... 30
7.2 Indemnification by Buyer...................................... 30
7.3 Third Party Claims............................................ 31
7.4 Limitations Upon Indemnification.............................. 32
7.6 Validity of Transactions...................................... 33
7.7 .......................................................... 33
7.8 Performance of Agreements..................................... 34
7.9 .......................................................... 34
7.10 Expenses..................................................... 34
7.11 Execution in Counterparts.................................... 34
7.12 Notices...................................................... 34
7.13 Amendment.................................................... 36
7.14 Entire Agreement............................................. 36
7.15 Applicable Law............................................... 36
7.16 Headings..................................................... 36
7.17 Assignment................................................... 37
7.18 Binding Effect; Benefits..................................... 37
7.19 Waiver, etc.................................................. 37
7.20 Severability................................................. 38
7.21 Announcements................................................ 38
7.22 Schedules.................................................... 38
-iii-
NEGOTIABLE PROMISSORY NOTE
$500,000 July 29, 1997
New York, New York
FOR VALUE RECEIVED, the undersigned, Take Two Interactive Software, Inc., a
Delaware corporation ("Payor"), having its executive office and principal place
of business at 575 Broadway, New York, New York 10012, hereby promises to pay to
the order of Ocean Bank ("Holder"), having an address at 780 N.W. 42nd Avenue,
Miami, Florida 33126, at Holder's address set forth above (or at such other
place as Holder may from time to time hereafter direct by notice in writing to
Payor), the principal sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000.00)(the
"Principal Amount"), together with accrued interest thereon as set forth in
section 1.2 below, in such coin or currency of the United States of America as
at the time shall be legal tender for the payment of public and private debts.
1. Interest and Payment.
1.1. The Principal Amount is payable in two (2) equal annual installments
of $250,000 (each an "Installment Payment") the first of which is due and
payable on July 29, 1998 and the second of which is due and payable on July 29,
1999 (the "Final Payment Date").
1.2. The principal unpaid amount of this Note outstanding from time to time
shall bear interest at a per annum rate equal to eight percent (8%).
1.3. Interest accrued on the unpaid principal amount of this Note shall be
payable quarterly commencing October 31, 1997 and on each January 31, April 30,
July 31 and October 31 thereafter until the Final Payment Date, at which time
all outstanding amounts due hereunder shall be paid in full. Any amount not paid
when due shall bear interest at the lesser of twelve percent (12%) per annum or
the maximum rate allowed by law from the original due date until paid.
1.4. In the event that the date for the payment of any amount payable under
this Note falls due on a Saturday, Sunday or public holiday under the laws of
the State of New York the time for payment of such amount shall be extended to
the next succeeding business day and interest shall continue to accrue on any
principal amount so affected until the payment thereof on such extended due
date.
1.5. This Note may be prepaid at any time, in whole or in part by Payor.
All prepayments on this Note shall be applied first to discharge all accrued and
unpaid interest due on the
unpaid principal balance hereof and the remainder shall be applied to unpaid
installments of principal in inverse order of maturity.
2. Events of Default. If any of the following events (each an "Event of
Default") occurs:
2.1. Payor makes an assignment for the benefit of creditors, or files
with a court of competent jurisdiction an application for appointment of a
receiver or similar official with respect to it or any substantial part of
its assets, or Payor files a petition seeking relief under any provision of
the Federal Bankruptcy Code or any other federal or state statute now or
hereafter in effect affording relief to debtors, or any such application or
petition is filed against Payor, which application or petition is not
dismissed or withdrawn within ninety (90) days from the date of its filing;
or
2.2. Payor fails to make any payment hereunder within ten (10) after
Payor receives notice of failure to make any such payment;
then, upon the occurrence of any such Event of Default and at any time
thereafter as long as such Event of Default is continuing, the holder of this
Note shall have the right (at such holder's option) to declare the principal of,
accrued unpaid interest on, and all other amounts payable under this Note to be
forthwith due and payable, whereupon all such amounts shall be immediately due
and payable to the holder of this Note (the "Acceleration Date").
3. Unconditional Obligation; Fees, Waivers, Other.
3.1. If Holder shall institute a legal action to enforce the collection of
any amount of principal of and/or interest on this Note, then in addition to the
then unpaid principal of, and accrued unpaid interest on, this Note, Payor shall
pay all costs and expenses incurred by Holder in connection therewith,
including, without limitation, reasonable attorneys' fees and disbursements.
3.2. No forbearance, indulgence, delay or failure to exercise any right or
remedy with respect to this Note shall operate as a waiver or as an acquiescence
in any default, nor shall any single or partial exercise of any right or remedy
preclude any other or further exercise thereof or the exercise of any other
right or remedy.
3.3. This Note may not be modified or discharged (other than by payment)
except by a writing duly executed by Payor and Holder.
-2-
3.4. The obligation of Payor to pay all amounts owing under this Note is
absolute and unconditional and is not and shall not be subject to any offset,
deduction, counterclaim, contra, defense (other than a defense of complete and
indefeasible payment of the amounts claimed to be owing) or right of recoupment
of any kind or nature whatsoever, however denominated or asserted.
4. Miscellaneous.
4.1. The headings of the various paragraphs of this Note are for
convenience of reference only and shall in no way modify any of the terms or
provisions of this Note.
4.2. All notices, requests, demands and other communications given
hereunder shall be in writing and shall be deemed to have been duly given: (a)
on the date of delivery, if delivered personally or by messenger, (b) on the
first business day following the date of timely deposit with Federal Express or
other nationally recognized overnight courier service, if sent by such courier
specifying next day delivery, (c) upon receipt of confirmation of transmission,
if transmitted by telecopier; and (d) on the third business day after mailing,
if mailed by registered or certified mail (postage prepaid, return receipt
requested); provided, however, that a notice of change of address or telecopier
number shall not be deemed to have been given until actually received by the
addressee. All such notices, requests, demands and other communications shall be
addressed to the indicated party at the address set forth in the preamble or to
such other address or telecopier number as either party hereto may designate to
the other party hereto by like notice.
4.3. This Note and the obligations of Payor and the rights of Holder shall
be governed by and construed in accordance with the substantive laws of the
State of New York without giving effect to the choice of laws rules thereof.
4.4. If any provision hereof is invalid or unenforceable, the other
provisions hereof shall remain in full force and effect. The provisions of this
Note shall be binding upon and inure to the benefit of the heirs, personal
representatives, successors and assigns of the Payor.
4.5. Whenever the context requires or permits, the singular shall include
the plural, the plural shall include the singular and the masculine, feminine
and neuter shall be freely interchangeable.
4.6. Payor hereby irrevocably waives demand, diligence, presentment for
payment and protest, notice of extension, dishonor, maturity and protest and
other notices of any kind or nature whatsoever.
IN WITNESS WHEREOF, the undersigned has executed this note as of the date
first above written.
-3-
TAKE TWO INTERACTIVE SOFTWARE, INC.
By: /s/ Ryan Brant
---------------------------------
Name: Ryan Brant
Title: CEO
-4-
NEGOTIABLE PROMISSORY NOTE
$200,000 July 29, 1997
New York, New York
FOR VALUE RECEIVED, the undersigned, Take Two Interactive Software, Inc., a
Delaware corporation ("Payor"), having its executive office and principal place
of business at 575 Broadway, New York, New York 10012, hereby promises to pay to
the order of GameTek (FL), Inc. ("Holder"), a Florida corporation having an
address at 4411 Chapel Hill Boulevard, Durham, North Carolina 27717, at Holder's
address set forth above (or at such other place as Holder may from time to time
hereafter direct by notice in writing to Payor), the principal sum of TWO
HUNDRED THOUSAND DOLLARS ($200,000.00) (the "Principal Amount"), together with
accrued interest thereon as set forth in section 1.2 below, in such coin or
currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts.
1. Interest and Payment.
1.1. The Principal Amount is payable in full on September 15, 1997,
together with interest accrued through the date of payment.
1.2. Interest accrued on the unpaid principal amount of this Note
shall be payable together with the outstanding principal on September 15,
1997, at which time all outstanding amounts due hereunder shall be paid in
full. Any amount not paid when due shall bear interest at the lesser of
twelve percent (12%) per annum or the maximum rate allowed by law from the
original due date until paid.
1.3. In the event that the date for the payment of any amount payable
under this Note falls due on a Saturday, Sunday or public holiday under the
laws of the State of New York the time for payment of such amount shall be
extended to the next succeeding business day and interest shall continue to
accrue on any principal amount so affected until the payment thereof on
such extended due date.
1.4. This Note may be prepaid at any time, in whole or in part by
Payor. All prepayments on this Note shall be applied first to discharge all
accrued and unpaid interest due on the unpaid principal balance hereof and
the remainder shall be applied to unpaid installments of principal in
inverse order of maturity.
2. Events of Default. If any of the following events (each an "Event of
Default") occurs:
2.1. Payor makes an assignment for the benefit of creditors, or files
with a court of competent jurisdiction an application for appointment of a
receiver or similar official with respect to it or any substantial part of
its assets, or Payor files a petition seeking relief under any provision of
the Federal Bankruptcy Code or any other federal or state statute now or
hereafter in effect affording relief to debtors, or any such application or
petition is filed against Payor, which application or petition is not
dismissed or withdrawn within ninety (90) days from the date of its filing;
or
2.2. Payor fails to make any payment hereunder within ten (10) after
Payor receives notice of failure to make any such payment;
then, upon the occurrence of any such Event of Default and at any time
thereafter as long as such Event of Default is continuing, the holder of
this Note shall have the right (at such holder's option) to declare the
principal of, accrued unpaid interest on, and all other amounts payable
under this Note to be forthwith due and payable, whereupon all such amounts
shall be immediately due and payable to the holder of this Note (the
"Acceleration Date").
3. Unconditional Obligation; Fees, Waivers, Other.
3.1. If Holder shall institute a legal action to enforce the
collection of any amount of principal of and/or interest on this Note, then
in addition to the then unpaid principal of, and accrued unpaid interest
on, this Note, Payor shall pay all costs and expenses incurred by Holder in
connection therewith, including, without limitation, reasonable attorneys'
fees and disbursements.
3.2. No forbearance, indulgence, delay or failure to exercise any
right or remedy with respect to this Note shall operate as a waiver or as
an acquiescence in any default, nor shall any single or partial exercise of
any right or remedy preclude any other or further exercise thereof or the
exercise of any other right or remedy.
3.3. This Note may not be modified or discharged (other than by
payment) except by a writing duly executed by Payor and Holder.
3.4. The obligation of Payor to pay all amounts owing under this Note
is absolute and unconditional and is not and shall not be subject to any
offset, deduction, counterclaim, contra, defense (other than a defense of
complete and indefeasible payment of the amounts claimed to be owing) or
right of recoupment of any kind or nature whatsoever, however denominated
or asserted.
4. Miscellaneous.
-2-
4.1. The headings of the various paragraphs of this Note are for
convenience of reference only and shall in no way modify any of the terms
or provisions of this Note.
4.2. All notices, requests, demands and other communications given
hereunder shall be in writing and shall be deemed to have been duly given:
(a) on the date of delivery, if delivered personally or by messenger, (b)
on the first business day following the date of timely deposit with Federal
Express or other nationally recognized overnight courier service, if sent
by such courier specifying next day delivery, (c) upon receipt of
confirmation of transmission, if transmitted by telecopier; and (d) on the
third business day after mailing, if mailed by registered or certified mail
(postage prepaid, return receipt requested); provided, however, that a
notice of change of address or telecopier number shall not be deemed to
have been given until actually received by the addressee. All such notices,
requests, demands and other communications shall be addressed to the
indicated party at the address set forth in the preamble or to such other
address or telecopier number as either party hereto may designate to the
other party hereto by like notice.
4.3. This Note and the obligations of Payor and the rights of Holder
shall be governed by and construed in accordance with the substantive laws
of the State of New York without giving effect to the choice of laws rules
thereof.
4.4. If any provision hereof is invalid or unenforceable, the other
provisions hereof shall remain in full force and effect. The provisions of
this Note shall be binding upon and inure to the benefit of the heirs,
personal representatives, successors and assigns of the Payor.
4.5. Whenever the context requires or permits, the singular shall
include the plural, the plural shall include the singular and the
masculine, feminine and neuter shall be freely interchangeable.
4.6. Payor hereby irrevocably waives demand, diligence, presentment
for payment and protest, notice of extension, dishonor, maturity and
protest and other notices of any kind or nature whatsoever.
IN WITNESS WHEREOF, the undersigned has executed this note as of the date
first above written.
TAKE TWO INTERACTIVE SOFTWARE, INC.
By: /s/ Ryan Brant
-----------------------------------
Name: Ryan Brant
Title: CEO
-3-
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 29th July 1997 ("the Effective Date") BETWEEN
(1) GAME-TEK UK LIMITED whose registered office is situate at
("the Employer") and
(2) KELLY GALVIN SUMNER residing at "Chimneys" 27 Oatlands Close
Weybridge Surrey KT13 9EE ("the Employee").
W I T N E S S E T H:
WHEREAS the Employer desires to confirm the employment of the Employee as
an executive officer of the Employer which commenced on the 29th July 1997, and
to that end the Employer and the Employee desire to enter into this Agreement.
However, the date of the commencement of the Employee's period of continuous
employment is the 16th April 1993. This is because previous employment with the
Employer from the 16th April 1993 to the date hereof counts as part of the
Employee's period of continuous employment with the Employer.
NOW THEREFORE in consideration of the premises and of the mutual promises
and covenants contained herein, the Employer and the Employee hereby agree as
follows:
1. Duties. Commencing on the 29th July 1997 Employer hereby employs the
Employee as the President/Managing Director of the Employer to perform such
executive duties as are consistent with the office of President/Managing
Director and in such other senior executive capacity as the Employer may from
time to time reasonably require including service as an executive officer and/or
director of one or more of any associated company of the Employer which is for
the time being a subsidiary or a holding company of the Employer or a subsidiary
(other than the Employer) of the holding company of the Employer. "Subsidiary"
and "holding company" in this context having the same meanings as in Section 736
of the Companies
Act 1985 (as amended). The Employer agrees that during the term of this
Agreement the Employee's title shall not be changed to any lesser title nor
shall his duties and responsibilities be materially diminished without his
consent nor shall he be required to live and work outside England except with
his consent and except for travelling on business in the proper performance of
his duties hereunder. The Employee covenants and agrees to devote, during normal
business hours, substantially his entire time, professional efforts and skills
collectively to the performance of such duties except insofar as the same are
require for the performance of the Consultancy Agreement between Game-Tek Inc.
and the Employee dated 24th July 1997 PROVIDED HOWEVER that the Employee shall
be permitted to make passive investments in companies or other entities whose
business activities are unrelated to and not competitive with the business of
the Employer or any associated company as hereinbefore defined so long as such
investments do not require any of his business time.
2. Compensation/Salary and Benefits. In consideration of his services
during the Term (as hereinafter defined) the Employee shall be paid
compensation/salary and benefits by the Employer as follows:-
(a) Salary. For all services to be rendered by the Employee to the
Employer or any associated companies herein defined including services as
an officer and director of the Employer, if asked to serve in such
capacities, the Employer agrees to pay to the Employee an annual salary
("the Salary") at the rate of One Hundred Thousand British Pounds Sterling
((pound)100,000) during each year of the Term or part thereof. The Salary
shall be reviewed annually and may, but need not be, increased in the sole
discretion of the Board of Directors. The Salary shall be paid in
fortnightly installments.
-2-
(b) Bonus. The Employer agrees to pay to the Employee an annual bonus
("the Bonus") in respect of each fiscal year of the Employer during the
Term in an amount equal to seven and a half per cent (7.5%) of the Net
Pre-Tax Profits (as hereinafter defined) of the Employer for each such year
or part thereof on a pro rata basis equal to the number of days during each
such fiscal year during which the Employee shall be employed by the
Employer hereunder if the Employee is employed for less than the entire
fiscal year.
For the purposes of this Agreement "Net Pre-Tax Profits" shall be the net
pre-tax profits of the Employer as determined by independent auditors retained
by the Employer who shall make such determination in accordance with generally
accepted accounting principles (in England and Wales) consistently applied to
the Employer from the date of this Agreement and who shall in making such
determination of net pre-tax profits for the purposes of this Agreement:-
(i) deduct from the relevant amount of net profit any gains on sales
of assets (other than in the ordinary course of business);
(ii) add back to net profit any amount paid by the Employer or any
associated company as the case may be during such period as a bonus to the
Employee or any other of their employees in respect of the prior year's net
pre-tax profit.
The Employee's Bonus shall be paid to him at the same time as other
executive employees of the Employer receive their respective bonuses and as soon
as practicable following the close of the Employer's fiscal year but in any
event no later than three months thereafter.
3. Sickness Subject to the Employee producing medical certificates
satisfactory to the Employer, Salary shall not cease to be payable by reason
only of the
-3-
Employee's incapacity for work due to sickness or accident during a period not
exceeding One Hundred and Twenty (120) consecutive working days in aggregate in
any twelve consecutive months (after which period Salary shall be paid only in
the absolute discretion of the Employer) but any such Salary shall include any
sums which the Employer is obliged to pay to the Employee by way of statutory
sick pay. The Employer may reduce the Salary during the Employee's incapacity by
an amount equal to the benefit (excluding any lump sum benefit) which the
Employee would be entitled to claim during such incapacity under the Social
Securities Acts (whether or not such benefit is claimed by the Employee).
4. Pension There is not in force a Contracting Out Certificate under the
Pension Schemes Act 1993.
5. Reimbursement of Expenses: Benefits The Employee shall be reimbursed by
the Employer for all reasonable business expenses incurred by him in connection
with the discharge by the Employee of his duties hereunder, upon presentation of
such documentation substantiating the incurring of such expenses as may be
reasonably required by, and in accordance with expense reimbursement policies
established by the Employer. The Employee shall be entitled to participate in
all employee benefit programmes made available by the Employer to all of its
executive officers. In addition, the Employer will meet the cost of a lease car
for the Employee up to Five Hundred British Pounds Sterling ((pound)500) per
month plus all the expenses of running the same including fuel, vehicle
taxation, insurance, repairs and maintenance and will provide for the Employee
at the Employer's expense death in service benefit up to an agreed amount and
medical insurance cover up to an agreed amount, and the employee shall be
entitled to four weeks paid vacation days in each year of the Term, plus one
additional paid vacation day for each full year of service to the Company not to
exceed five (5)
-4-
weeks paid vacation in any year, the amount of such vacation to be pro rated in
any year of the Term during which the Employee is employed hereunder for less
than the entire year. Unused vacation days may not be carried forward to future
periods of the Term and will not be compensated.
6. Term: Termination by Either Party This Agreement shall commence as of
29th July 1997 and PROVIDED THAT three months notice in writing in advance shall
have been served by either the Employer or the Employee on the other to
terminate this Agreement at 28th July 2000, failing which this Agreement shall
continue until terminated by either party in the case of the Employer on six (6)
months notice in writing and in the case of the Employee on three months notice
in writing unless earlier terminated as provided in Section 7 hereof "the
Term").
7. Termination of Employment
(a) The Employee's employment hereunder shall terminate upon his death.
(b) The Employer may terminate the Employee's employment hereunder in the
event the Employee shall have been unable for one hundred and twenty (120) or
more consecutive working days due to illness, accident other physical or mental
incapacity to perform his duties hereunder.
(c) The Employer may terminate the Employee's employment hereunder for
cause which shall mean:
(i) the Employee having been convicted of any criminal or civil acts
prejudicial to the Employer whether or not committed in the course of his
employment;
-5-
(ii) wilful misconduct by the Employee in the discharge of his duties
hereunder involving the misuse or misappropriation of the Employer's funds
or property;
(iii) the wilful neglect, failure or refusal of the Employee
substantially to perform the services lawfully required to be performed by
him hereunder (not including any failure resulting from illness, accident
or other physical or mental incapacity);
(iv) conduct constituting a violation of the law relating to
harassment or discrimination against any person or,
(v) any other breach by the Employee of a material term of this
Agreement if the Employee fails to remedy such breach within fifteen (15)
days following the Employee's receipt of written notice and demand to cure
such breach.
(d) The Employee may terminate this Agreement on thirty (30) days written
notice if the Employer fails, after written notice and demand to cure any breach
of or to perform within thirty (30) days of such notice and demand, any material
obligation of the Employer hereunder.
8. Effect of Termination
(a) Except as otherwise expressly set forth in this Section 8 and
notwithstanding any provision of this Agreement to the contrary:
(i) the Employee's right to receive the Salary provided for in Section
2 shall cease prospectively upon the effective date of any termination of
his employment hereunder ("the Termination Date") except as otherwise
herein provided;
-6-
(ii) the Employee shall be paid any unpaid Bonus up to the Termination
Date and,
(iii) any share options which remain unexercised at the Termination
Date shall expire.
(b) Upon the termination of the Employee's employment hereunder pursuant to
Section 7(a) the Employee's estate shall be entitled to receive and the Employer
shall pay to such estate, an amount equal to the full Salary provided for in
Section 2(a) for a period of three months from the Termination Date plus the
amount of the Bonus that otherwise would have been payable with respect to the
fiscal year in which the Employee's employment is terminated ("the Termination
Year") multiplied (in the case of the Bonus) by a fraction the numerator of
which is the number of days in the Termination Year to and including the
Termination Date and the denominator of which is three hundred and sixty-five
(365) plus all other benefits to be provided hereunder. In addition, all share
options shall be exercisable by the Employee's estate in accordance with the
terms of any Incentive Stock Option Scheme.
(c) Upon the termination of the Employee's employment hereunder without
cause pursuant to Section 7(b):
(i) the Employee shall be entitled to receive and the Employer shall
pay to the Employee an amount equal to his Salary for a period of six
months from the Termination Date plus the amount of the Bonus that
otherwise would have been payable with respect to the fiscal year of the
Employer in which the Termination Date falls, multiplied by a fraction the
numerator of which is the sum of days in such year to and including the
Termination Date the denominator of which is thee hundred and sixty-five
(365), less in the case of a termination by reason of the Employee's
disability,
-7-
any amounts received by the Employee in respect of disability insurance
maintained by the Employer and,
(ii) any share options available for exercise by the Employee at the
Termination Date under any Incentive Stock Option Scheme shall be
exercisable by him within a period of six (6) months from the Termination
Date.
(d) Upon termination of the Employee's employment hereunder pursuant to
Section 7(c) the Employee shall only be entitled to receive his Salary accrued
up to the Termination Date. Any rights the Employee might otherwise have had
with respect to any unpaid Bonus shall bc forfeit and all unexercised Share
Options shall expire.
(e) Upon termination of the Employee's employment hereunder pursuant to
Section 7(d) the Employee may recover any damages occasioned by the Employer's
conduct as may be permitted by law but in any event shall receive his Salary
until the end of the Term gross of tax so far as permitted by law plus the Bonus
which he would otherwise have received until the end of the Term plus the right
to exercise all unexercised Share Options plus compensation for the loss of any
other benefits to which the Employee is entitled under this Agreement
9. Change of Control Upon the happening of any Change of Control in the
constitution of the Employer which shall bring about a termination of this
Agreement the Employee shall be entitled to receive a bonus in addition to any
other amounts owing to him hereunder or any other rights and benefits hereunder
or at law in an amount equal to six (6) month's salary gross of tax insofar as
the law permits payable within thirty (30) days following the event bringing
about the Change of Control.
10. Covenant Relating to Employment and Not to Compete
-8-
(a) The Employee acknowledges that his services are of a particular
significance to the Employer that his position with the Employer will give him a
close knowledge of its policies and trade secrets and that the Employer is in a
creative and competitive business. Accordingly, the Employee hereby covenants
that from and after the date hereof until six (6) months after the end of the
stated Term or six (6) months from earlier termination whichever shall apply,
unless this Agreement shall be terminated by the Employee pursuant to Section
7(d), the Employee shall not be except as provided in this Agreement, directly
or indirectly, alone or as a partner, officer, director, consultant, lender,
agent or representative of any other entity engage anywhere in England and Wales
in any business competitive with the business of the Employer. In the event of
any termination or expiration of this Agreement, except in the event of
termination by the Employee as aforesaid, the Employee covenants, represents and
agrees that for a period of six (6) months after such termination or expiration:
(i) he shall not, directly or indirectly, either for the Employee's
own benefit or for the benefit of any other person, firm or corporation
whatsoever, solicit or divert the services of any persons employed by the
Employer or any of its subsidiaries or affiliates at any time within six
(6) months of such termination or expiration and
(ii) he shall not, directly or indirectly, either for the Employee's
own benefit or for the benefit of any other person, firm or corporation
whatsoever, do any act or thing to cause or induce any interference with or
interruption of any of the relationships of the Employer or any of its
subsidiaries or affiliates with any of their licensors, licensees,
customers, suppliers, employees and/or consultants then existing or with
which such relationship existed at any time within six (6) months of such
termination or expiration.
-9-
Notwithstanding the foregoing, such covenant not to compete shall be of no
further force or effect if the Employee's employment hereunder is terminated by
reason of the Employer's filing for bankruptcy, making an assignment for the
benefit of creditors, seeking liquidation, dissolution, re-organisation or other
similar relief or having such relief sought against it and ceasing operations
and being liquidated as a result thereof. The provisions of this Section 10 and
of Section 11 shall survive any termination or expiration of this Agreement.
11. Disclosure: Return of Employer Data Except as the Employer may
otherwise permit or direct in writing or as may be necessary or appropriate to
carry out his duties hereunder, the Employee will not disclose, during the Term
or thereafter, any confidential information, knowledge or data (other than
information, knowledge or data which is or becomes publicly known or part of the
public domain (other than as a result of the Employee's breach of any legal or
contractual duty of confidentiality owed to the Employer or which is acquired by
the Employee from or disclosed to the Employee by a third party not in breach of
any legal or contractual duty owed to the Employer concerning the Employer or
any of its subsidiaries or affiliates which the Employee may obtain during his
employment) except to the extent that such disclosure is required by law or to
comply with legal process duly served. At the request of the Employer during the
Term or thereafter the Employee will immediately return to the Employer any
books, contracts, records, documents, products and other data of the Employer in
the Employee's possession including all copies thereof or extracts therefrom.
12. Notices Any notice under this Agreement may be given personally to the
Employee or to the secretary of the Employer (as the case may be) or may be
posted to the Employer (for the attention of its secretary) to its registered
office for the time being or to the Employee either to the address given above
or to his last known address. Any such notice sent
-10-
by post shall be deemed to be served forty-eight hours after it is posted and in
proving such service it shall be sufficient to prove that the notice was
properly addressed and put in the post. Any addressee may alter the address to
which communications are to be sent by giving notice of such change of address
in conformity with the provisions of this Section 10 for giving notice.
13. Disciplinary and Grievance Procedure
(a) There are no disciplinary rules in force in relation to the Employee
who is expected at all times to conduct himself in a manner consistent with his
senior status.
(b) If the Employee has a grievance relating to his employment he should
first apply to the Chief Executive/President of Take Two Interactive Software
Inc. If the matter is not then settled the Employee should write to the Board of
Take Two Interactive Software Inc. setting ut full details of the matters. The
decision of the Board shall be final. For this purpose "the Board" means the
Board of Directors from time to time of Take Two Interactive Software Inc. or
any duly authorized committee or member of such Board.
14. Successors and Assigns Neither this Agreement nor any rights hereunder
shall be assignable or otherwise subject to charge by either party without the
prior written consent of the other having first been obtained. Any attempted or
purported assignment without such required consent shall be void and a material
breach of this Agreement. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
legal representatives, successors and permitted assigns.
15. Waiver and Amendments No waiver of any of the provisions hereof shall
be effective unless in writing and signed by the part to be charged with such
waiver. No waiver shall be deemed a continuing waiver or a waiver in respect of
any subsequent or other breach
-11-
or default, unless expressly so stated in writing. This Agreement shall not be
modified or amended except by a further written document signed by the Employee
and the Employer.
16. Entire Agreement. This Agreement constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, negotiations, representation and understanding, written or
oral, among the parties hereto. No termination of this Agreement or any part
hereof shall be valid unless in writing and signed by the parties hereof.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with English law and each of the parties hereby submits to the
exclusive jurisdiction of the English courts to settle any disputes which may
arise out of or in connection with this Agreement.
18. Headings. The headings of the sections in this Agreement are inserted
for convenience only and shall not control or affect the meaning or
constructions of any of the provisions of this Agreement.
IN WITNESS whereof the parties hereto have duly executed this Agreement as
of the day and year first above written.
/s/ Ryan Brant
- -----------------------------------------
Chairman
for and on behalf of Game-Tek UK Limited
/s/ Kelly G. Sumner
- -------------------
Kelly Galvin Sumner
-12-
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of July 29, 1997, between Take Two Interactive
Software, Inc., a Delaware corporation with offices at 575 Broadway, New York,
New York 10012 (collectively, "Distributor") and GameTek, Inc., a Delaware
Corporation with offices at 3 Harbor Drive, Suite 110, Sausalito, California
94965 ("GameTek").
W I T N E S S E T H :
WHEREAS, GameTek owns or controls the rights in and to the Game Titles
(defined below), and desires to enter into this agreement providing for
Distributor's distribution of Software Devices (defined below) embodying the
Game Titles;
WHEREAS, Distributor is engaged in the business of
distributing, marketing, selling, advertising and otherwise exploiting Software
Devices and desires to distribute the Software Devices embodying the Game Titles
on the terms provided herein;
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS:
Capitalized terms used herein, but not otherwise defined herein, shall have
the meanings set forth below:
1.1 "Basic Term" means the period commencing on the date on which such
party hereto has executed and delivered to the other party hereto a copy of this
Agreement, and ending on the third (3rd) anniversary of the release of the first
Game Title authorized to be released hereunder but not later than four (4) years
from the date hereof; provided, however, that the Basic Term shall terminate
sooner as to any particular Game Title on the date on which GameTek's rights
with respect to such Game Title terminate, if they terminate prior to such third
anniversary date.
1.2 "Bug" means a repeatable phenomenon of unintended events or actions
during the running of a Software Device under normal conditions that results in:
(a) the software component of such Software Device being unable to
perform repeatedly and without interruption in the manner in which such
Software Device is commonly intended to be used; or
(b) the destruction or corruption of the data embodied in such
Software Device.
1.3 "Distributed Product" or "Distributed Products" means Software Devices
embodying a Game Title and playable on the Game Machine.
1.4 "Documentation" means the technical documentation for each Game.
1.5 "Exploitation Period" with respect to any Game Title means the date
commencing on the Effective Date and ending on the expiration of the Basic Term
with respect to such Game Title.
1.6 "Game Machine" means the Nintendo Gameboy portable console game system.
1.7 "Game Title" or "Game Titles" means, individually or collectively, as
the context requires, the Gameboy software games developed by or on behalf of
GameTek that are set forth on Schedule "A".
1.8 "Manual" means a document that describes in reasonable detail in the
English language (and any other languages in which such documents exist) the
operation and functions of the computer software and contains instructions for
using the Distributed Products.
1.9 "SKU" or "sku" means stock keeping unit.
1.10 "Software Device" means any device on or by which computer software
and its associated visual images, with or without sound, may be embodied or
recorded for later operation, manipulation or communication to users and which
are designed for use with the Game Machine.
1.11 "Territory" means such countries in the European Economic Community as
constituted on the date hereof in which GameTek has the right to market and sell
Distributed Products.
1.12 "Third Party Royalties" means, with respect to any unit of any Game
Title distributed hereunder, the aggregate of all royalties payable by GameTek
to third parties in respect of the sale or other disposition of such unit.
2. RIGHTS AND OBLIGATIONS OF Distributor:
- 2 -
Subject to the terms and conditions hereof, GameTek hereby grants to
Distributor, and Distributor hereby accepts and agrees to perform and discharge,
the following rights and obligations, which shall be deemed exclusive within the
Territory during the Basic Term:
2.1 Distribution Rights and Obligations.
(a) GameTek hereby engages Distributor, and Distributor hereby agrees
to be engaged by GameTek, as GameTek's sole and exclusive seller and
distributor of Distributed Products throughout the Territory during the
Exploitation Period. During the Exploitation Period for each Game Title,
Distributor shall distribute such Distributed Products through all usual
and customary wholesale channels, and Distributor shall order and maintain
inventories of appropriate quantities of Distributed Products with respect
to each Game Title as shall be reasonably necessary to meet anticipated
demand.
(b) Distributor shall have the right to use, publish and permit others
to use and publish GameTek's name, and, subject to any contractual
restrictions of which GameTek advises Distributor prior to such use or
publication, any names of or trademarks associated with, or embodied in,
any Game Title or reproduction or simulation thereof, the script, speech,
images, characters, characterizations, designs, graphics, art work and
other characteristics associated with each Game Title, and the name of each
Game Title (collectively, the "Marks"), in connection with the sale,
advertising, distribution and exploitation thereof. Prior to commencing
distribution of any Distributed Products in any country in the Territory,
Distributor shall verify the existence of GameTek's rights to distribute
such products in such country, the obligations and conditions to which such
rights are subject, and the extent, if any, of Third Party Royalties
payable in respect of such distribution. Distributor shall comply with the
provisions of the agreements with such third parties to the extent
Distributor is apprised of such provisions by GameTek, insofar as they
relate to Distributor's distribution of Distributed Products hereunder.
(c) Distributor shall have the right, solely for advertising,
publicity and promotional purposes, to perform and display the Distributed
Products publicly, and to permit the public performance thereof, but only
in a manner consistent with ordinary custom and practice in the industry
for the promotion of products similar to the Game Titles.
(d) Distributor shall have the right to use all artwork, textual
material and other materials furnished to Distributor by GameTek in
connection with the Distributed Products, including advertising, packaging
and wrapping materials (collectively, "Packaging and Promotional
Materials"), to the extent created by or on behalf of GameTek in connection
with Distributed Products.
- 3 -
(e) All rights in and to the Game Titles, Packaging and Promotional
Materials and/or Marks not expressly granted to Distributor herein are
reserved to GameTek.
2.2 Intellectual Property Rights.
(a) As between GameTek and Distributor, GameTek retains all copyright,
patent, trade secret, trade mark and trade name rights in and to the
distributed products, including all packaging, designs, logos, slogans,
advertising materials and promotional materials and in all other materials
delivered by GameTek to Distributor (collectively, "GameTek Property"), and
Distributor will not have or acquire any right, title or interest therein
or thereto under any circumstance whatsoever except for the specific rights
granted herein. Distributor shall not, during the Basic Term or at any time
thereafter, take any action that materially adversely affects, GameTek's
ownership of or rights in the GameTek Property or the validity thereof, nor
shall Distributor apply for any registration or file any document or take
any action that would adversely affect GameTek's ownership of or rights in
the GameTek Property or knowingly aid or abet anyone else in doing so, or
use or authorize the use of any trademark, trade name or word, symbol or
combination thereof or other designation identical with or confusingly
similar to the trademarks and/or trade names that constitute part of the
GameTek Property. Distributor will not alter, remove, obscure, erase or
deface any proprietary rights notices contained on or incorporated in any
SKU or the packaging of any SKU. If Distributor is called upon or required
to produce any packaging, advertising and promotional materials for a Game
Title, Distributor will include thereon such proprietary rights notices as
may be designated and approved by GameTek.
(b) Promptly upon request, Distributor will provide GameTek with a
template for Distributor's logo and legend for inclusion on any packaging,
advertising or promotional materials produced in connection with any Game
Title, which template shall be reasonably acceptable to GameTek. GameTek
will include Distributor's logo and legend, as incorporated in any such
approved template, on all such packaging materials with respect to Game
Titles.
3. MANUFACTURING; PRICING.
3.1 GameTek represents that, prior to the delivery of any Game Title
hereunder, it shall have designed and have the sole rights to, or obtained from
third parties all rights to the design of, the computer software and all
documentation relating to such Game Title, to the extent necessary for same to
be manufactured into Distributed Products and distributed by Distributor
pursuant to this Agreement, and operated and perceived through the Game Machines
and otherwise used by end-users.
- 4 -
3.2 Distributor shall notify GameTek from time to time reasonably in
advance of any required delivery date of the number of units that Distributor
wishes GameTek to have manufactured in order to enable Distributor to fulfill
its distribution requirements for each Game Title. Each such notification shall
be accompanied by (i) a wire transfer of funds sufficient, either to an account
designated by GameTek or directly to Nintendo of Japan, Inc. ("Nintendo"), to
enable GameTek to pay for the manufacture and shipment into the destination
country of the Distributed Products so ordered and to insure such Distributed
Products through delivery to Distributor, or, if requested by GameTek, (ii) the
provision of an irrevocable documentary letter of credit in favor of GameTek in
form satisfactory to GameTek, for the full amount of the manufacturing and
shipping cost of the goods ordered as well as the cost of insuring such goods in
transit. The aggregate of such manufacturing, shipping and insurance costs is
referred to herein as "GameTek's Cost". Promptly after its receipt of such order
and funds or letter of credit, GameTek shall arrange with Nintendo for the
manufacture and shipment of such Distributed Products, including the posting of
requisite letters of credit in favor of the manufacturer, and for the
appropriate insurance thereon. The balance, if any, of GameTek's Cost, shall be
payable by Distributor to GameTek ten (10) days after receipt of such unit by
the Distributor. GameTek will cooperate, at Distributor's cost and expense, with
Distributor's efforts to establish an agreement with Nintendo for Distributor's
direct payment to Nintendo of GameTek's Cost. If such an agreement is reached it
may include provision for direct shipment by Nintendo of Distributed Products to
Distributor provided that Nintendo simultaneously furnishes GameTek with a
duplicate of all invoices, packing and shipping documentation relating to such
shipment.
3.4. The purchase price payable to GameTek by Distributor for each unit of
Distributed Product shall be GameTek's Cost plus (i) the amount of any
applicable Third Party Royalty and (ii) $0.15 (such Third Party Royalty and
$0.15 per unit being referred to as the "GameTek Share"). GameTek's Share shall
be payable by Distributor to GameTek ten (10) days after receipt of such unit by
the Distributor. Transportation from GameTek's warehouse in the destination
country to Distributor or its customers shall be arranged and paid for by
Distributor. GameTek will cooperate, at Distributor's cost and expense, with
Distributor's efforts to establish agreement with payees of Third Party
Royalties for Distributor's direct payment of such royalties to such payees
3.5 Distributor shall be responsible, at its sole cost and expense, for the
marketing, promotion and advertising of each Game Title, including co-operative
advertising credits, shelf or "slot" fees and any similar discounts, credits or
payments, provided that the amount to be spent thereon and the manner in which
such expenditures shall be made shall be determined exclusively by Distributor
in the exercise of its reasonable business judgment.
- 5 -
3.6 To the extent that Distributor has paid the GameTek Share in respect of
any game that is subsequently physically returned by the customer to
Distributor, Distributor shall have the right to recoup the amount of the
GameTek Share previously paid by it to GameTek in respect of such unit from the
GameTek Share payable in respect of any units sold after such return. Except to
the extent specified herein, the GameTek Share paid in respect of any unit sold
hereunder shall be non-refundable.
4. PACKAGING, TESTING, ETC.
4.1 GameTek will place the machine, medium and other operating requirements
(such as minimum memory capacity) on the front outside of each Distributed
Product, and will shrink-wrap all Distributed Product and will incorporate into
the design of the packaging all relevant bar code information.
4.2. GameTek shall use its reasonable best efforts to ensure that each
Distributed Product shall be free of Bugs. Each party shall immediately notify
the other party in writing if it discovers any Bugs or other defects in any
Distributed Products.
4.3. All packaging for the Distributed Products shall contain credit to
Distributor as distributor, GameTek as publisher and to appropriate third
parties. The forms of such credits with respect to Distributor and GameTek shall
be substantially in the forms of such credits as appear on units of such
products as previously distributed by or for GameTek or as GameTek may otherwise
advise Distributor prior to Distributor's order for such product. The credits
related to such third parties shall be in such form, substance and scope as to
comply with GameTek's contractual obligations relating thereto.
4.4 All title and other ownership rights to each Distributed Product
incorporating a Game Title shall vest in Distributor at such time as Distributor
shall have paid to GameTek the full purchase price thereof. Distributor shall
bear the risk of loss of any such Distributed Product from and after the moment
at which such Distributed Product is shipped from the manufacturer's facility.
4.5 Distributor shall use its reasonable best efforts, consistent with
standard industry custom and practice, to sell and to distribute the Distributed
Products throughout the Territory during the Basic Term, subject to the terms to
this Agreement.
5. TERMINATION OF RIGHTS; PAYMENTS.
- 6 -
5.1 All payments owing to GameTek hereunder shall be made by wire transfer
of immediately available funds to an account specified by GameTek in a notice
given to Distributor at least two (2) business days prior to the due date of
such payment. Unless and to the extent expressly provided otherwise in this
Agreement, each party hereto shall bear all costs and expenses incurred in
connection with the performance of its obligations hereunder, without any right
of contribution from the other party hereto.
6. ACCOUNTINGS: RIGHT OF INSPECTION; LATE PAYMENT.
6.1 Distributor shall provide GameTek with an accounting of all sales of
Distributed Product and all returns credited under Section 3.6 at least
quarterly during the Basic Term and following the end of any sell-off period.
6.2 Distributor shall maintain, throughout the term of this Agreement and
for three years thereafter, at its principal executive offices complete and
accurate books of account concerning sales of the Distributed Products
hereunder. Upon two business days' prior written notice, GameTek, or its agents
on its behalf, may examine Distributor's books and records relating to the sale
of the Distributed Products in order to verify the accuracy thereof, during
Distributor's normal business hours; provided that GameTek may not conduct more
than one such audit in any six month period.
6.3 If Distributor fails or refuses to pay any amount owing to GameTek
hereunder when due, then Distributor shall reimburse GameTek for any collection
expenses it may incur and the amount not timely paid, including any such
collection expenses, shall bear interest at a rate per annum equal to 3% over
the prime rate announced from time to time by Citibank, N.A., accruing from the
first date on which such monies were due and owing.
7. REPRESENTATIONS AND WARRANTIES:
7.1 Distributor hereby warrants and represents that:
(i) This Agreement has been duly authorized, executed and delivered by
Distributor; Distributor has the full power and authority to enter into
this Agreement and to perform its obligations hereunder and is free to
enter into this Agreement; this Agreement constitutes the valid and binding
obligation of Distributor, enforceable in accordance with its terms; and
the making of this Agreement by Distributor does not violate any agreement,
right or obligation existing between Distributor on the one hand, and any
other person, firm or corporation, on the other hand;
- 7 -
(ii) No consents of any third parties are required for Distributor to
enter into this Agreement; and
(iii) Distributor shall devote substantially the same degree of
diligence, effort, resources and care to the performance of its obligations
hereunder as it devotes to the distribution of its proprietary products or
to the performance of its current contractual obligations to third parties
with respect to similar products.
7.2 GameTek hereby represents and warrants that:
(i) This Agreement has been duly authorized, executed and delivered by
GameTek; GameTek has the full power and authority to enter into this
Agreement and to perform its obligations hereunder and is free to enter
into this Agreement; this Agreement constitutes the valid and binding
obligation of GameTek, enforceable in accordance with its terms; the making
of this Agreement by GameTek does not violate any agreement, right or
obligation existing between GameTek on the one hand, and any other person,
firm or corporation, on the other hand, nor is any third party consent
required for GameTek to enter into this Agreement; and GameTek has not
heretofore granted such rights to the Game Titles to any other person,
party or company for use in connection with the Distributed Products;
(ii) Neither the computer software, nor the documentation incorporated
in any Game Title, nor the Game Title itself distributed by Distributor
hereunder, or any part of any character, object, sound or music embodied
therein infringes or shall infringe upon any common law or statutory rights
of any third party including, without limitation, contractual rights,
patents, copyrights, trade secrets, rights of privacy, or other
intellectual property rights. The Distributed Products will be free of
material defects in materials and workmanship.
7.3 Distributor shall make no warranties or representations of any kind
with respect to the Distributed Products to any purchaser end-user thereof,
whether express or implied. To the extent permitted by applicable law, GameTek's
warranty set forth in the last sentence of Section 7.2(iii) above, is the only
warranty, express or implied, that GameTek will make to any third party with
respect to the Distributed Products (such warranty to be limited to ninety (90)
days from the date of purchase) and all other implied warranties including but
not limited to the implied warranties of merchantability and fitness for a
particular purpose are hereby disclaimed. Any product recalls shall be GameTek's
sole responsibility.
8. INDEMNIFICATION; INSURANCE.
8.1 Distributor shall indemnify GameTek, its subsidiaries, parents and
affiliates and their respective officers, directors, employees and agents (the
"GameTek Parties") and undertakes to defend the GameTek Parties, and hold the
GameTek Parties
- 8 -
harmless from any actions, claims, suits, proceedings, loss, liability, cost,
expense (including reasonable attorney's fees) or damage suffered by any of them
arising out of or connected in any way with any acts, omissions by Distributor
or its agents in the performance of its duties hereunder or any breach by
Distributor of its representations, warranties or agreements herein made,
including without limitation the reasonable costs of any direct claim by GameTek
against Distributor by reason of the foregoing. GameTek shall not settle any
such third party claim or proceeding without Distributor's prior written
consent, which shall not be unreasonably withheld or delayed. Distributor shall
have the right, at its expense, to participate in the defense thereof with
counsel of its choice, provided further that GameTek shall have the right at all
times, in its sole discretion, to retain or resume control of the conduct
thereof. Distributor shall provide GameTek with any assistance that GameTek
reasonably requests in connection therewith.
8.2 GameTek shall indemnify Distributor, its subsidiaries, parents and
affiliates and their respective officers, directors, employees and agents (the
"Distributor Parties") and undertakes to defend the Distributor Parties and hold
the Distributor Parties harmless from any actions, claims, suits, proceedings,
loss, liability, cost, expense (including reasonable attorney's fees) or damage
suffered by any of them arising out of or connected in any way with any acts,
omissions by GameTek or its agents in the performance of its duties hereunder or
breach by GameTek of its representations, warranties and agreements herein made,
including without limitation the reasonable costs of any direct claim by
Distributor against GameTek by reason of the foregoing. Distributor shall
promptly notify GameTek of any such third party claim or proceeding and shall
not settle any such claim without GameTek's prior written consent, which shall
not be unreasonably withheld or delayed. GameTek shall have the right, at
GameTek's expense, to participate in the defense thereof with counsel of
GameTek's choice, provided that Distributor shall have the right at all times,
in Distributor's sole discretion, to retain or resume control of the conduct
thereof. GameTek shall provide Distributor with any assistance that Distributor
reasonably requests in connection therewith.
8.3 (a) Distributor shall obtain and maintain at its own expense, product
liability and errors and omissions insurance from a recognized and qualified
insurance company naming GameTek as insured in the amount of at least $1 million
per occurrence and $3 million in the aggregate against any claims, suits, loss
or damage arising out of any personal injury or property damage arising out of
the Distributed Products. Such policy shall not be subject to cancellation or
material amendment except after thirty (30) days prior written notice to
GameTek. GameTek will be named as an additional insured on such policy. As proof
of such insurance, a fully paid certificate of insurance will be submitted to
GameTek by Distributor on or before the execution of this Agreement.
- 9 -
(b) GameTek shall obtain and maintain at its own expense, product
liability and errors and omissions insurance from a recognized and
qualified insurance company naming Distributor as insured in the amount of
at least $1 million per occurrence and $3 million in the aggregate against
any claims, suits, loss or damage arising out of any personal injury or
property damage. Such policy shall not be subject to cancellation or
material amendment except after thirty (30) days prior written notice to
Distributor. Distributor will be named as an additional insured on such
policy. As proof of such insurance, a fully paid certificate of insurance
will be submitted to Distributor by GameTek on or before the execution of
this Agreement.
9. EXPIRATION OR TERMINATION OF AGREEMENT:
9.1 In the event that GameTek materially breaches this Agreement with
respect to a Game Title hereunder and such breach is not cured within thirty
(30) days after receipt of notice from Distributor of such breach, then, without
in any way limiting any of Distributor's other rights and remedies in such
event, and notwithstanding any provision to the contrary contained herein,
Distributor shall have the right at its sole election to terminate this
Agreement with respect to the affected Game Title to which GameTek's material
breach relates, upon written notice to GameTek.
9.2 In the event Distributor fails to render any accounting or pay any
monies owing to GameTek hereunder within ten (10) days of the date on which due
(subject to reasonable events of force majeure), or if Distributor otherwise
materially breaches this Agreement with respect to a Game Title hereunder and
such breach is not cured within sixty (60) days after receipt of notice from
GameTek of such breach, then without in any way limiting any of GameTek's other
rights and remedies in such event, and notwithstanding any provision to the
contrary contained herein, GameTek shall have the right at its sole election to
terminate this Agreement.
9.3 If either party to this Agreement files a petition in bankruptcy or is
adjudged a bankrupt, or if a petition in bankruptcy is filed against such party
and is not dismissed with prejudice within ninety (90) days (the "bankrupt or
insolvent party"), the other party shall have the right to terminate this
Agreement, upon written notice to the bankrupt or insolvent party.
9.4 Upon any expiration or termination of this Agreement, all rights
granted to Distributor herein shall immediately revert to GameTek, with the
consequences described below. If the expiration or termination relates to less
than all Game Titles covered hereby, then the provisions of this Section 10.4
shall relate only to such affected Game Titles:
- 10 -
(i) Distributor shall continue to satisfy all of its payment
obligations then or at any time thereafter becoming due and payable;
(ii) GameTek shall thereafter be free to distribute or authorize
others to distribute the affected Game Titles;
(iii) Distributor shall not thereafter advertise, distribute or sell
Distributed Products incorporating the affected Game Titles, and will cease
all display, advertising and use of related GameTek Property, except that
Distributor may, if the termination of this Agreement was not by GameTek as
a result of a breach or default by Distributor, sell off existing
inventories of such Distributed Products in the Territory on a
non-exclusive basis for a period of six (6) months, subject to all the
other terms and conditions hereof. If this Agreement is terminated by
GameTek by reason of a breach or default by Distributor, the Distributor
shall, at GameTek's option, list all such inventory and provide GameTek
with evidence thereof satisfactory to GameTek, or ship such inventory
(payment to be made by GameTek C.O.D. on receipt of such shipment) at
Distributor's expense to a location specified by GameTek. Distributor shall
deliver to GameTek a complete and accurate statement indicating the number,
description and whereabouts of all units of such Distributed Products in
Distributor's inventory as of the date of such expiration of the applicable
Exploitation Period; and
(iv) After the expiration of the above referenced sell-off period,
Distributor shall return to GameTek all materials furnished to Distributor
by GameTek hereunder with respect to the affected Game Titles or, at
GameTek's election, give evidence satisfactory to GameTek of their
destruction.
9.5 Notwithstanding any contrary provision contained herein but subject to
Distributor's exclusive rights with respect to Distributed Products in the
Territory during the Basic Term, each of the parties acknowledges and agrees
that during the term of this Agreement and thereafter each party shall be free
to market, sell, distribute, license or sublicense or otherwise deal in or
exploit any software titles, whether for use on personal computers or game
console systems, including titles that may be competitive with the Game Titles,
without any liability or obligation to the other party by reason thereof.
10. NOTICES:
All notices, statements and/or payments to be given to the parties
hereunder shall be addressed to the parties at the addresses set forth on the
first page hereof or at such other address as the parties shall designate in
writing from time to time. All notices shall be in writing and shall either be
served by personal delivery (to
- 11 -
an officer of each company), mail, or facsimile (if confirmed by mail or
personal delivery of the hard copy), all charges prepaid. Except as otherwise
provided herein, such notices shall be deemed given when personally delivered,
all charges prepaid, or on the date five (5) days following the date of mailing,
except that notices of change of address shall be effective only after the
actual receipt thereof. Copies of all notices to Distributor should be sent to
Distributor, Attention: Office of the President, with a copy to Tenzer
Greenblatt, LLP, 405 Lexington Avenue, New York, New York 10174-0208, Attention:
Barry S. Rutcofsky, Esq. Copies of all notices to GameTek should be sent to
GameTek, Attention: Office of the President, and to Ackerman, Levine & Cullen,
LLP, 175 Great Neck Road, Great Neck, New York 11021, Attention: Leslie J.
Levine, Esq.
11. MISCELLANEOUS:
11.1 Distributor shall have the right, at its election, to assign any of
its rights or obligations hereunder, in whole or in part, to any subsidiary,
affiliated, or related company, or to any person, firm or corporation owning or
acquiring all or substantially all of Distributor's stock or assets, provided
that any such assignment by Distributor shall not relieve Distributor of its
obligations hereunder, and provided further, that the assignee shall acknowledge
to GameTek in writing that such assignment is subject to, and the assignee
agrees to be bound by, the terms and conditions of this Agreement.
11.2 The entire understanding between the parties hereto relating to the
subject matter hereof is contained herein. There are no representations,
warranties, terms, conditions, undertakings or collateral agreements, express or
implied, between the parties other than as expressly set forth in this
Agreement. This Agreement cannot be changed, modified, amended or terminated
except by an instrument in writing executed by both Distributor and GameTek. The
Schedules annexed hereto constitute a part of this agreement. The headings and
captions used herein are inserted for convenience of reference only and shall
not affect the construction or interpretation of this Agreement. This Agreement
shall not be deemed effective, final or binding upon Distributor or GameTek
until signed by each of them. Only the final, executed Agreement is admissible
as the written agreement between the parties and prior drafts, if any,
incorporating revisions or original language may not be used, and shall not be
admissible as evidence for any purpose in any litigation that may arise between
the parties. This Agreement shall be deemed to have been drafted by all the
parties hereto, since all parties were assisted by their counsel in reviewing
and agreeing thereto, and no ambiguity shall be resolved against any party by
virtue of its participation in the drafting of this Agreement.
- 12 -
11.3 No waiver, modification or cancellation of any term or condition of
this Agreement shall be effective unless executed in writing by the party
charged therewith. No written waiver shall excuse the performance of any act
other than those specifically referred to therein and shall not be deemed or
construed to be a waiver of such terms or conditions for the future or any
subsequent breach thereof. Except as otherwise provided in this Agreement, all
rights and remedies herein or otherwise shall be cumulative and none of them
shall be in limitation of any other right or remedy.
11.4 This Agreement does not constitute and shall not be construed as
constituting a partnership, joint venture, sublicense or agency relationship
between Distributor and GameTek. Neither Distributor nor GameTek shall have any
right to obligate or bind the other in any manner whatsoever, and nothing herein
contained shall give or is intended to give any rights of any kind to any third
persons.
11.5 Any claim, dispute or disagreement between the parties arising out of
or relating to this Agreement or the transactions or relationships contemplated
hereby shall be resolved by arbitration under the Commercial Arbitration Rules
of the American Arbitration Association, as in effect from time to time before a
single arbitrator in New York County, New York. The decision of the arbitrator
shall be in writing, shall include an award of reasonable attorneys' fees to the
prevailing party, and either party may enter judgment thereon in any court of
competent jurisdiction. Notwithstanding the foregoing, in the event of any
breach or threatened breach by either party of the provisions of this Agreement,
the aggrieved party may seek and obtain a temporary restraining order,
preliminary injunction or other equitable relief restraining such breach or
threatened breach from any court of competent jurisdiction.
11.6 This Agreement shall be governed by the laws of the State of New York
applicable to contracts made to be wholly performed in the State of New York
(without regard to choice of law). Subject to the provisions of Section 11.5
hereof, any action, suit or proceeding may be brought in any of the courts of
the State of New York , in New York County, or any of the federal courts within
the Southern District of New York. Each of the parties hereto irrevocably
submits to the personal jurisdiction of such courts in connection with any such
action, suit or proceeding. In any action, suit or proceeding arising out of or
relating to this Agreement or the transactions or relationships contemplated
hereby (including any arbitration proceeding) the prevailing party will be
entitled to recover court costs and reasonable fees of attorneys, accountants
and expert witnesses incurred by such a party in connection with such action.
Any process in any action or proceeding commenced in such courts may, among
other methods, be served upon GameTek or Distributor, as applicable, by
delivering or mailing the same, via registered or certified mail, return receipt
requested, addressed to GameTek or Distributor, as applicable, at the addresses
set forth in the first page hereof or such other address as the parties, as
applicable, may designate pursuant to Section 10 hereof. Any such service by
delivery or mail shall be
- 13 -
deemed to have the same force and effect as personal service within the State of
New York.
11.7 Except as may otherwise be provided herein, neither party shall be
deemed to be in breach of any of its obligations hereunder unless and until it
shall have been given specific written notice by certified or registered mail,
return receipt requested, of the nature of such breach and it shall have failed
to cure such breach within thirty (30) days (five days in the case of a payment
default) after receipt of such written notice.
11.8 If any provision of this Agreement is or becomes or is deemed invalid,
illegal or unenforceable under the applicable laws or regulations of any
jurisdiction, such provision will be deemed amended to conform to such laws or
regulations if such amendment can be effected without materially altering the
intention of the parties; otherwise it shall be stricken and the remainder of
this Agreement shall remain in full force and effect.
11.9 Wherever the approval or consent of a party is required hereunder,
such approval or consent shall be in writing and shall not be unreasonably
withheld or delayed.
12. CONFIDENTIAL INFORMATION; NON-SOLICITATION
12.1 Each party hereto shall keep in confidence and not disclose to any
third party, without the written permission of the other party, the proprietary
information of such other party disclosed under or pursuant to this Agreement.
This requirement of confidentiality shall not apply to information that is (a)
in the public domain through no wrongful act of the receiving party; (b)
rightfully received by the receiving party from a third party who is not bound
by a restriction of nondisclosure; (c) already in the receiving party's
possession without restriction as to disclosure; or (d) required to be disclosed
by applicable rules and regulations of government agencies or judicial bodies.
This obligation of confidentiality shall survive termination of this Agreement.
- 14 -
IN WITNESS WHEREOF, the parties hereto have signed this agreement as of the
day and year first above written.
TAKE TWO INTERACTIVE SOFTWARE,
INC.
By: /s/ Ryan Brant
-------------------------------
Its: CEO
-------------------------------
Date: 7/29/97
-------------------------------
GAMETEK, INC.
By: /s/ Robert L. Underwood
---------------------------------
Its: Authorized Signer
-------------------------------
Date: July 29, 1997
------------------------------
72328
[Signature page to GameTek/Take Two Gameboy Distribution Agreement]
- 15 -
PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE ACT OF
1934, AS AMENDED, CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PROVISIONS OF THIS AGREEMENT. SUCH CONFIDENTIAL INFORMATION HAS BEEN (i) OMITTED
FROM THIS VERSION OF THE AGREEMENT, (ii) MARKED WITH ASTERISKS (**) TO INDICATE
SUCH DELETIONS AND (iii) FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of July 29, 1997, between Take Two Interactive
Software, Inc., a New York corporation having offices at 575 Broadway, New York,
NY 10012 ("Take Two") and GameTek, Inc., a Delaware Corporation with offices at
3 Harbor Drive, Suite 110, Sausalito, California 94965 ("GameTek").
W I T N E S S E T H :
WHEREAS, GameTek owns or controls the rights in and to the Game Titles
(defined below), and desires to enter into this agreement providing for Take
Two's distribution of Software Devices (defined below) embodying the Game
Titles;
WHEREAS, Take Two is engaged in the business of distributing, marketing,
selling, advertising and otherwise exploiting Software Devices and desires to
distribute the Software Devices embodying the Game Titles on the terms provided
herein;
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS:
Capitalized terms used herein, but not otherwise defined herein, shall have
the meanings set forth below:
1.1 "Basic Term" means the period commencing on the date on which such
party hereto has executed and delivered to the other party hereto a copy of this
Agreement, and ending on August 31, 1998; provided, however, that if GameTek is
able to obtain from Califon Productions, Inc. or its affiliates ("Califon") an
extension of its license for "Wheel of Fortune" and "Jeopardy!", then the Basic
Term shall extend through the last day of such extension.
1.2 "Bug" means a repeatable phenomenon of unintended events or actions
during the running of a Software Device under normal conditions that results in:
(a) the software component of such Software Device being unable to
perform repeatedly and without interruption in the manner in which such
Software Device is commonly intended to be used; or
(b) the destruction or corruption of the data embodied in such
Software Device.
1.3 "Distributed Product" or "Distributed Products" means Software Devices
embodying a Game Title and playable on the Game Machine.
1.4 "Documentation" means the technical documentation for each Game.
1.5 "Exploitation Period" with respect to any Game Title means the date
commencing on the date hereof and ending on the expiration of the Basic Term
with respect to such Game Title.
1.6 "Game Machine" means the Nintendo N64 console game system.
1.7 "Game Title" or "Game Titles" means, individually or collectively, as
the context requires, the computer software games developed by or on behalf of
GameTek that are set forth on Schedule "A" .
1.8 "Manual" means a document that describes in reasonable detail in the
English language the operation and functions of the computer software and
contains instructions for using the Distributed Products.
1.9 "SKU" or "sku" means stock keeping unit.
1.10 "Software Device" means any device on or by which computer software
and its associated visual images, with or without sound, may be embodied or
recorded for later operation, manipulation or communication to users and which
are designed for use with the Game Machine.
1.11 "Territory" means the world.
1.12 "Third Party Royalties" means, with respect to any unit of any Game
Title distributed by Take Two hereunder, the aggregate of all royalties payable
by GameTek to Califon Productions, Inc., Vanna White, and Alex Trebek or their
respective successors or assigns in respect of the sale or other disposition of
such unit. Attached as Schedule A hereto is a description of the amount of each
such Third Party Royalty.
2. RIGHTS AND OBLIGATIONS OF Take Two:
Subject to the terms and conditions hereof, GameTek hereby grants to Take
Two, and Take Two hereby accepts and agrees to perform and discharge, the
following rights and obligations, which shall be deemed exclusive within the
Territory during the Basic Term:
2.1 Distribution Rights and Obligations.
- 2 -
(a) GameTek hereby engages Take Two, and Take Two hereby agrees to be
engaged by GameTek, as GameTek's sole and exclusive seller and distributor
of Distributed Products throughout the Territory during the Exploitation
Period. During the Exploitation Period for each Game Title, Take Two may
distribute such Distributed Products through all available wholesale
channels, and Take Two shall order and maintain inventories of appropriate
quantities of Distributed Products with respect to each Game Title as shall
be reasonably necessary to meet anticipated demand.
(b) Take Two shall have the right to use, publish and permit others to
use and publish GameTek's name, and, subject to obtaining the prior
approval of the relevant intellectual property licensor (i.e., Califon
Productions, Inc., Vanna White and Alex Trebek), any names of or trademarks
associated with, or embodied in, any Game Title or reproduction or
simulation thereof, the script, speech, images, characters,
characterizations, designs, graphics, art work and other characteristics
(including the name, voice and likeness of Vanna White and Alex Trebek)
associated with each Game Title, and the name of each Game Title
(collectively, the "Marks"), in connection with the sale, advertising,
distribution and exploitation thereof.
(c) Take Two shall have the right, solely for advertising, publicity
and promotional purposes, to perform and display the Distributed Products
publicly, and to permit the public performance thereof, but only in a
manner consistent with ordinary custom and practice in the industry for the
promotion of products similar to the Game Titles.
(d) GameTek shall furnish to Take Two in camera ready form, and Take
Two shall have the right to use, all artwork, textual material and other
materials prepared by GameTek in connection with the Distributed Products,
including advertising, packaging and wrapping materials (collectively,
"Packaging and Promotional Materials"), to the extent created by or on
behalf of GameTek in connection with Distributed Products.
(e) All rights in and to the Game Titles, Packaging and Promotional
Materials and/or Marks not expressly granted to Take Two herein are
reserved to GameTek.
2.2 Intellectual Property Rights.
(a) As between GameTek and Take Two, GameTek retains all copyright,
patent, trade secret, trade mark and trade name rights in and to the
Distributed Products, including all packaging, designs, logos, slogans,
advertising materials and promotional materials and in all other materials
delivered by GameTek to Take Two (collectively, "GameTek Property"), and
Take Two will not have or acquire any right, title or interest therein or
thereto under any circumstance whatsoever except for the specific rights
granted herein. Take Two shall not, during the Basic Term or at any time
thereafter, take any action that attacks, or that otherwise reasonably may
be expected to adversely affect or derogate from, GameTek's ownership of or
rights in the GameTek Property or the validity thereof, nor shall Take Two
apply for any registration or file any document or take any action that
would adversely affect GameTek's ownership of or rights in the GameTek
Property or aid or abet anyone else in doing so, or use or authorize the
use of any trademark, trade name or word, symbol or combination thereof or
other designation identical with or confusingly
- 3 -
similar to the trademarks and/or trade names that constitute part of the
GameTek Property. Take Two will not alter, remove, obscure, erase or deface
any proprietary rights notices contained on or incorporated in any SKU or
the packaging of any SKU. If Take Two is called upon or required to produce
any packaging, advertising and promotional materials for a Game Title, Take
Two will include thereon such proprietary rights notices as may be
designated and approved by GameTek.
(b) Promptly upon request, Take Two will provide GameTek with a
template for Take Two's logo and legend for inclusion on any packaging,
advertising, game manuals or promotional materials produced in connection
with any Game Title, which template shall be reasonably acceptable to
GameTek. GameTek will include Take Two's logo and legend, as incorporated
in any such approved template, on all such packaging, advertising and
promotional materials with respect to Game Titles. Prior to the use of any
such materials, GameTek will provide samples thereof to Take Two for Take
Two approval, which shall not be unreasonably withheld or delayed. Such
materials will be deemed approved by Take Two unless, within fifteen (15)
days following the submission thereof to Take Two, Take Two shall notify
GameTek in writing of any objection it may have thereto, specifying the
reasons for such objection in reasonable detail and describing how such
objections may be remedied in order to render the submitted materials
acceptable to Take Two.
3. MANUFACTURING; PRICING.
3.1 GameTek represents that, prior to the delivery of any Game Title
hereunder, it shall have designed the computer software and all documentation
relating to such Game Title, to the extent necessary for same to be manufactured
into Distributed Products and distributed by Take Two pursuant to this
Agreement, and operated and perceived through the Game Machines. The Distributed
Products shall consist of standard four (4) megabyte cartridges.
3.2 Take Two shall notify GameTek from time to time reasonably in advance
of any required delivery date of the number of units that Take Two wishes
GameTek to have manufactured in order to enable Take Two to fulfill its
distribution requirements for each Game Title. Each such notification shall be
accompanied by (i) a wire transfer of funds, either (at Take Two's option) to an
account designated by GameTek or directly to Nintendo of America ("Nintendo") on
behalf of GameTek, sufficient to enable GameTek to pay for the manufacture of
the Distributed Products so ordered or, if requested by GameTek, (ii) the
provision of an irrevocable documentary letter of credit in favor of Nintendo on
behalf of GameTek in form satisfactory to Nintendo, for the full amount of the
manufacturing cost of the goods ordered. In any event, Take Two shall arrange
and pay for shipment of the goods from Japan (including all customs duties and
similar charges) and for insuring the goods through delivery to Take Two or its
customers, as applicable. Promptly and in no event later than two (2) business
days after its receipt of such order and funds or letter of credit, GameTek
shall arrange with Nintendo for the manufacture of such Distributed Products,
including the posting of requisite letters of credit in favor of the
manufacturer.
- 4 -
3.3 GameTek shall deliver to Nintendo the preliminary and final code for
each Game Title in accordance with the delivery schedule set forth in Schedule
"A" annexed hereto and shall use its reasonable best efforts to obtain in a
timely manner all necessary approvals from Nintendo.
3.4. The purchase price payable by Take Two hereunder for each unit of
Distributed Product shall be the sum of (i) the total cost charged to GameTek by
Nintendo for the manufacture of the product, plus (ii) to the extent not
included in (i) above or otherwise paid by Take Two directly, all insurance and
transportation charges, import duties, custom fees and similar charges incurred
in shipping the unit into its warehouse in the United States, (the sum of the
amounts described in clauses (i) and (ii) being referred to collectively as
"GameTek's Cost of Goods") plus (iii) all Third Party Royalties payable in
respect of the sale or other disposition of such unit, plus (iv) $(**) (such
$(**) per unit being referred to as the "GameTek Share"). Transportation to Take
Two or its customers shall be arranged and paid for by Take Two. The portion of
the purchase price constituting GameTek's Cost of Goods shall be paid by Take
Two as provided in Section 3.2 hereof. The portion of such purchase price
consisting of Third-Party Royalties shall be paid by Take Two to GameTek within
thirty days after the end of each calendar month by wire transfer of immediately
available funds into an account designated by GameTek in writing to Take Two
commencing with the first sale by Take Two of Distributed Products. GameTek's
Share in respect of any of the first (**) units sold hereunder shall be
payable in accordance with the payment schedule set forth in Section 5.1(a).
GameTek's Share in respect of any units in excess of (**) units shall only
accrue and become payable upon (i) the collection by Take Two of all receivables
from the sale of at least (**) and (ii) upon collection of the proceeds of
sale of the relevant units in excess of (**). Payment of GameTek's Share with
respect to units in excess of (**) shall be made within 30 days of the close
of the month in which the GameTek Share is earned with respect to such units.
Notwithstanding the foregoing, in the event that the Guaranty (as hereinafter
defined) is reduced pursuant to the provisions of Sections 5.1(a) or (c) hereof,
the (**) units referred to above in this paragraph shall be proportionately
reduced.
3.5 Take Two shall be responsible, at its sole cost and expense, for the
marketing, promotion and advertising of each Game Title, including co-operative
advertising credits, shelf or "slot" fees and any similar discounts, credits or
payments, provided that the amount to be spent thereon and the manner in which
such expenditures shall be made shall be determined exclusively by Take Two in
the exercise of its reasonable business judgment.
3.6 If any customer returns a unit on which Take Two has paid the GameTek
Share (including returns for defects or "Bugs"), then Take Two shall have the
right to recoup the amount of the GameTek Share and the Third Party Royalties
previously paid by Take Two in respect of such unit from any other monies
payable to GameTek hereunder. Except as otherwise provided in Section 7.4
hereof, if Take Two grants any customer price protection or a markdown of
inventory in respect of any Distributed Product, an amount equal to 50% of the
dollar value of any such price protection or markdown of inventory actually
granted to such customer will be recoupable by Take Two out of monies otherwise
payable to GameTek hereunder if, but only if, GameTek has authorized such price
protection or markdown in a writing that specifies the account name, inventory
quantity to be adjusted in price, and the per
- 5 -
unit and aggregate price adjustment being authorized. GameTek shall not
unreasonably withhold or delay its consent to any such price protection or mark
down. If and to the extent Take Two is unable to recoup any amounts owing by
GameTek by reason of the provisions of this Section 3.6 within ninety (90) days
after such amount first becomes due, then Take Two may notify GameTek of such
fact and demand that GameTek pay the unrecouped amount. GameTek shall pay such
unrecouped amount promptly after receipt of such demand for payment, but only to
the extent that such payment does not reduce the aggregate amount of the GameTek
Share received and retained by GameTek hereunder to below $(**) (or such lesser
amount to which the Guaranty may reduced as provided in Sections 5.1(a) and (c)
hereof). For purposes of clarity, it is the express intention of the parties
that returns, price protection and markdowns shall not reduce the aggregate
amount of the GameTek Share paid to and retained by GameTek in respect of the
Guaranty to less than $(**) (or such lesser amount to which the Guaranty may be
reduced as provided in Sections 5.1(a) (c) hereof).
4. PACKAGING, TESTING, ETC.:TRANSLATIONS
4.1 GameTek will place the game machine, medium and other operating
requirements (such as minimum memory capacity) on the front outside of each
Distributed Product, and will shrink-wrap all Distributed Product and will
incorporate into the design of the packaging all relevant bar code information.
4.2. GameTek shall use its reasonable best efforts to ensure that each
Distributed Product shall, in each different configuration in which such
Distributed Product is to operate, be free of Bugs or other defects. GameTek
shall be fully responsible for implementing all necessary corrective measures to
correct any Bugs or other defects found to exist. Each party shall immediately
notify the other party in writing if it discovers any Bugs or other defects in
any Distributed Products.
4.3. All packaging for the Distributed Products shall contain credit to
Take Two or its affiliates as distributor, GameTek as publisher and to
appropriate third parties. The forms of such credits with respect to Take Two
and GameTek shall be substantially in the forms annexed hereto in Schedule "B".
The credits related to such third parties shall be in such form, substance and
scope as to comply with GameTek's contractual obligations relating thereto.
4.4 All title and other ownership rights to each Distributed Product
incorporating a Game Title shall vest in Take Two at such time as the goods are
delivered for shipment by the manufacturer. GameTek shall retain a security
interest in the goods until Take Two shall have paid to GameTek the full
purchase price thereof. Take Two shall bear the risk of loss of any such
Distributed Product from and after the moment at which such Distributed Product
is shipped from the manufacturer's facility.
4.5 Take Two shall use its reasonable best efforts, consistent with
standard industry custom and practice, to sell and to distribute the Distributed
Products throughout the Territory during the Basic Term, subject to the terms to
this Agreement.
- 6 -
4.6 All advertising, packaging and marketing and promotional materials
proposed to be used by Take Two in connection with any of the Game Titles shall
be submitted to GameTek for its written approval prior to any use or
distribution thereof. GameTek shall be deemed to have approved any materials so
submitted unless, within thirty (30) days following its receipt thereof, GameTek
delivers to Take Two a written objection to the submitted materials specifying
in reasonable detail the nature of such objection and the manner in which the
submitted material must be changed in order to meet GameTek's approval.
4.7 Upon request by Take Two, GameTek shall prepare translated versions of
one or both Game Titles. With respect to any such translation request, Take Two
shall, at its own cost, provide GameTek with a complete and accurate translation
of the text of the Game Title (including all relevant documentation) into the
selected language, and GameTek shall insert such translated text into the Game
Title within thirty (30) days after its receipt thereof from Take Two. The
foreign language version of the text for each screen shot within any Game Title
must be close enough to the length of the English version of such text to enable
it to fit within the same text window as the English text. The parties shall
agree on the fee that GameTek will charge and that Take Two will pay for
including such translated text into the Game Title and related documentation
prior to the delivery of the translated text to GameTek. If the parties cannot
agree on a fee for such services, GameTek shall charge $40.00 per hour for each
man hour expended is performing such services.
5. GUARANTEES AND ADVANCES.
5.1 Guarantees Payable by Take Two.
(a) Take Two guarantees to GameTek a minimum aggregate GameTek Share
of $(**) (the "Guaranty") with respect to the first two Game Titles
released hereunder (subject to possible reduction in the manner and to the
extent described below). The Guaranty shall be payable in the manner
described below:
(i) $(**) payable upon execution and delivery of this Agreement;
(ii) $(**) payable within three business days after delivery to
Take Two of written notice of final code approval from Nintendo of
Japan, Inc. for "Wheel of Fortune" game cartridge;
(iii) $(**) payable within three business days after the first
commercial shipment from the manufacturer of "Wheel of Fortune" game
cartridges;
(iv) $(**) payable within three business days after delivery to
Take Two of written notice of final code approval from Nintendo of
Japan, Inc. for "Jeopardy!" game cartridge;
- 7 -
(v) $(**) payable within three business days after the first
commercial shipment from the manufacturer of "Jeopardy!" game
cartridges;
(vi) $(**) payable within one hundred twenty (120) days after
first shipment of the second Game Title released hereunder;
(vii) $(**) payable within two hundred forty (240) days after
first shipment of the second Game Title released hereunder; and
(viii)$(**) payable within three hundred sixty (360) days after
first shipment of the second Game Title released hereunder;
provided, however, that if for any reason GameTek is unable to obtain from
Califon an extension of its existing license for "Wheel of Fortune" and
"Jeopardy!" beyond August 31, 1998, then Take Two shall have no obligation
to make the milestone payments described in clauses (vi), (vii) and (viii)
above, and the aggregate Guaranty payable by Take Two hereunder shall be
reduced from $(**) to $(**), the foregoing being Take Two's sole remedy
hereunder for any failure by GameTek to obtain such license extension.
All payments made hereunder shall be made by wire transfer of immediately
available funds to an account which GameTek shall designate at least two
full business days prior to the due date of any relevant payment.
(b) Notwithstanding any contrary provision contained herein, (i) Take
Two shall be entitled to recoup out of the GameTek Share otherwise payable
to GameTek in respect of any Game Title covered hereunder, on a fully
cross-collateralized basis, the full amount of the advance Guaranty
payments theretofore paid by Take Two to GameTek pursuant to Section 5.1(a)
above, and (ii) to the extent that Take Two furnishes GameTek with
documentation evidencing the fact that Take Two has incurred more than
$150,000 in advertising, marketing, promotion and sales support for the
Game Titles, Take Two may recoup up to $(**) of such costs in excess of
$150,000 from the GameTek Share otherwise payable to GameTek in respect of
the first (**) units of Distributed Product sold or distributed by Take
Two hereunder in excess of the Guaranty (i.e., units (**) through
(**); provided that such numbers shall be proportionately reduced if the
Guaranty is reduced pursuant to the provisions of Sections 5.1(a) or (c)
hereof).
(c) If GameTek (i) is unable to obtain from Califon an extension of
its existing license beyond August 31, 1998, and (ii) does not deliver the
notice of final code approval for the "Wheel of Fortune" game cartridge
and/or the "Jeopardy!" game cartridge by the dates specified in Schedule
"A" annexed hereto, then for each and every month or partial month that
delivery of either such approval notice is delayed beyond the date
specified in Schedule "A," the amount payable by Take Two upon delivery of
such notice shall be decreased by $100,000, provided that the aggregate
amount of such decrease occasioned by the late delivery of either such
notice shall not exceed the amount specified in Schedule "A" as payable
upon delivery of such notice.
- 8 -
(d) If GameTek does not deliver the notice of final code approval for
either the "Wheel of Fortune" game cartridge or the "Jeopardy!" game
cartridge within ninety (90) of the delivery date specified in Schedule "A"
annexed hereto, then Take Two shall have the option on written notice to
GameTek to delete such Game Title from this Agreement without GameTek being
in default as a result thereof, and GameTek shall, within ten (10) business
days of such notice, refund to Take Two all amounts paid by Take Two to
GameTek in respect of the Game Title so deleted. Notwithstanding the
foregoing, if GameTek's rights with respect to any Game Title terminate
prior to the end of the Expoitation Period therefor as a result of a
failure by GameTek to comply with its obligations under any agreement with
respect thereto, Take Two shall have the right to perform or cause to be
performed such obligations, and the reasonable out-of-pocket expenses
incurred by Take Two in connection therewith (to the extent such expenses
exceed amounts that otherwise would have been payable by Take Two hereunder
with respect to such Game Title) shall be recoupable by Take Two out of
funds otherwise payable to GameTek hereunder on a fully
cross-collateralized basis, or at Take Two's election, paid directly by
GameTek with thirty days after receipt of Take Two's invoice therefor.
5.2 Unless and to the extent expressly provided otherwise in this
Agreement, each party hereto shall bear all costs and expenses incurred in
connection with the performance of its obligations hereunder, without any right
of contribution from the other party hereto.
6. RIGHT OF INSPECTION; LATE PAYMENT.
6.1 Each party shall maintain, throughout the term of this Agreement and
for three years thereafter, at its principal executive offices complete and
accurate books of account concerning sales of the Distributed Products
hereunder. Upon five business days' prior written notice, either party hereto,
or its agents on its behalf, may examine the other party's books and records
relating to the sale of the Distributed Products in order to verify the accuracy
thereof,
- 9 -
during normal business hours, and upon reasonable prior written notice; provided
that neither party may conduct more than one such audit in any six month period.
6.2 If either party fails or refuses to pay any amount owing to the other
party hereunder when due, then the party in default shall reimburse the other
party for any collection expenses it may incur and the amount not timely paid,
including any such collection expenses, shall bear interest at a rate per annum
equal to 3% over the prime rate announced from time to time by Citibank, N.A.,
accruing from the first date on which such monies were due and owing.
7. REPRESENTATIONS AND WARRANTIES:
7.1 Take Two hereby warrants and represents that:
(i) This Agreement has been duly authorized, executed and delivered by
Take Two; Take Two has the full power and authority to enter into this
Agreement and to perform its obligations hereunder and is free to enter
into this Agreement; this Agreement constitutes the valid and binding
obligation of Take Two, enforceable in accordance with its terms; and the
making of this Agreement by Take Two does not violate any agreement, right
or obligation existing between Take Two on the one hand, and any other
person, firm or corporation, on the other hand;
(ii) No consents of any third parties are required for Take Two to
enter into this Agreement; and
(iii) Take Two shall devote substantially the same degree of
diligence, effort, resources and care to the performance of its obligations
hereunder as it devotes to the distribution of its proprietary products or
to the performance of its current contractual obligations to third parties
with respect to similar products.
7.2 GameTek hereby represents and warrants that:
(i) This Agreement has been duly authorized, executed and delivered by
GameTek; GameTek has the full power and authority to enter into this
Agreement and to perform its obligations hereunder and is free to enter
into this Agreement; this Agreement constitutes the valid and binding
obligation of GameTek, enforceable in accordance with its terms; the making
of this Agreement by GameTek does not violate any agreement, right or
obligation existing between GameTek on the one hand, and any other person,
firm or corporation, on the other hand; and GameTek has not heretofore
granted such rights to the Game Titles to any other person, party or
company for use in connection with the Distributed Products;
(ii) Neither the computer software, nor the documentation incorporated
in any Game Title, nor the Game Title itself distributed by Take Two
hereunder, or any part of any character, object, sound or music embodied
therein infringes or shall infringe upon any common law or statutory rights
of any third party including, without limitation, contractual
- 10 -
rights, patents, copyrights, trade secrets, rights of privacy, or other
intellectual property rights. The Distributed Products will be free of
material defects in materials and workmanship;
(iii) GameTek shall keep Take Two apprised of any material changes to
the delivery dates set forth in Schedule "A" annexed hereto;
(iv) There are no royalties payable to any third parties in respect of
the Game Titles other than those specified in Schedule "A" annexed hereto.
7.3 Take Two shall make no warranties or representations of any kind with
respect to the Distributed Products to any purchaser end-user thereof, whether
express or implied. To the extent permitted by applicable law, GameTek's
warranty set forth in the last sentence of Section 7.2(iii) above, is the only
warranty, express or implied, that GameTek will make to any third party with
respect to the Distributed Products (such warranty to be limited to ninety (90)
days from the date of purchase by the end-user) and all implied warranties
including but not limited to the implied warranties of merchantability and
fitness for a particular purpose are hereby disclaimed. Any product recalls
shall be GameTek's sole responsibility.
7.4 (a) WalMart, Inc. ("WalMart") has claimed that it is entitled to in
excess of $400,000 in credits from GameTek for price protection, returns, stock
balancing and the like. GameTek disputes that it owes WalMart such amount and
has requested that WalMart furnish it with documentation establishing its rights
to all or any part of such amount. GameTek and WalMart have agreed that, to the
extent WalMart establishes its entitlement to any part of such amount through
documentation that is satisfactory to GameTek (such demonstrated and agreed
credit, the "WalMart Agreed Credit"), WalMart shall recoup the WalMart Agreed
Credit solely by taking a 10% discount off the invoiced price of any GameTek
product subsequently purchased by WalMart from GameTek. Take Two shall not offer
any such discount on GameTek products that it sells to WalMart nor shall it
solicit or encourage a request by WalMart for any such discount in connection
with sales made by Take Two to WalMart hereunder. If, however, WalMart demands
such a discount on product purchased by it from Take Two hereunder without any
such offer, solicitation or encouragement by Take Two, then Take Two may grant
WalMart a 10% discount on the invoiced price of any Distributed Products sold to
WalMart hereunder and may recoup the full amount of such discount from amounts
otherwise payable to GameTek hereunder; provided that in no event may Take Two
recoup from GameTek under this Section 7.4(a), in the aggregate, more than the
total amount of the WalMart Agreed Credit.
(b) Toys "R" Us, Inc. ("Toys") has claimed that it is entitled to
approximately $250,000 in credits from GameTek for price protection, returns,
stock balancing and the like. GameTek and Toys have agreed that Toys shall
recoup the full amount of such credit (the "Toys Agreed Credit") solely by
taking a 10% discount off the invoiced price of any GameTek product subsequently
purchased by Toys from GameTek. Take Two shall not offer any such discount on
GameTek products that it sells to Toys nor shall it solicit or encourage a
request by Toys for any such discount in connection with sales made by Take Two
to Toys hereunder. If, however, Toys demands such a discount on product
purchased by it from Take Two hereunder without any such offer, solicitation or
encouragement by Take Two, then Take
- 11 -
Two may grant Toys a 10% discount on the invoiced price of any Distributed
Products sold to Toys hereunder and may recoup the full amount of such discount
from amounts otherwise payable to GameTek hereunder; provided that in no event
may Take Two recoup from GameTek under this Section 7.4(b), in the aggregate,
more than the total amount of the Toys Agreed Credit.
8. INDEMNIFICATION; INSURANCE.
8.1 Take Two shall indemnify GameTek, its subsidiaries, parents and
affiliates and their respective officers, directors, employees and agents (the
"GameTek Parties") and undertakes to defend the GameTek Parties, and hold the
GameTek Parties harmless from any actions, claims, suits, proceedings, loss,
liability, cost, expense (including reasonable attorney's fees) or damage
suffered by any of them arising out of or connected in any way with any acts,
omissions or misrepresentations by Take Two that constitute a breach of this
Agreement by Take Two or any breach by Take Two of its representations,
warranties or agreements herein made, including without limitation the
reasonable costs of any direct claim by GameTek against Take Two by reason of
the foregoing. GameTek shall not settle any such third party claim or proceeding
without Take Two's prior written consent, which shall not be unreasonably
withheld or delayed. Take Two shall have the right, at its expense, to
participate in the defense thereof with counsel of its choice, provided further
that GameTek shall have the right at all times, in its sole discretion, to
retain or resume control of the conduct thereof. Take Two shall provide GameTek
with any assistance that GameTek reasonably requests in connection therewith at
GameTek's cost.
8.2 GameTek shall indemnify Take Two, its subsidiaries, parents and
affiliates and their respective officers, directors, employees and agents (the
"Take Two Parties") and undertakes to defend the Take Two Parties and hold the
Take Two Parties harmless from any actions, claims, suits, proceedings, loss,
liability, cost, expense (including reasonable attorney's fees) or damage
suffered by any of them arising out of or connected in any way with any acts,
omissions or misrepresentations by GameTek that constitute a breach of this
Agreement by GameTek or any breach by GameTek of its representations, warranties
and agreements herein made, including without limitation the reasonable costs of
any direct claim by Take Two against GameTek by reason of the foregoing. Take
Two shall promptly notify GameTek of any such third party claim or proceeding
and shall not settle any such claim without GameTek's prior written consent,
which shall not be unreasonably withheld or delayed. GameTek shall have the
right, at GameTek's expense, to participate in the defense thereof with counsel
of GameTek's choice, provided that Take Two shall have the right at all times,
in Take Two's sole discretion, to retain or resume control of the conduct
thereof. GameTek shall provide Take Two with any assistance that Take Two
reasonably requests in connection therewith at Take Two's cost.
8.3 (a) Take Two shall obtain and maintain at its own expense, product
liability and errors and omissions insurance from a recognized and qualified
insurance company naming GameTek as insured in the amount of at least $1 million
per occurrence and $2 million in the aggregate against any claims, suits, loss
or damage arising out of any personal injury or property damage arising out of
the Distributed Products. Such policy shall
- 12 -
not be subject to cancellation or material amendment except after thirty (30)
days prior written notice to GameTek. GameTek will be named as an additional
insured on such policy. As proof of such insurance, a fully paid certificate of
insurance will be submitted to GameTek by Take Two on or before approval by
Nintendo of Japan, Inc. of the final code for the first Game Title released
hereunder.
(b) GameTek shall obtain and maintain at its own expense, product liability
and errors and omissions insurance from a recognized and qualified insurance
company naming Take Two as insured in the amount of at least $1 million per
occurrence and $2 million in the aggregate against any claims, suits, loss or
damage arising out of any personal injury or property damage. Such policy shall
not be subject to cancellation or material amendment except after thirty (30)
days prior written notice to Take Two. Take Two will be named as an additional
insured on such policy. As proof of such insurance, a fully paid certificate of
insurance will be submitted to Take Two by GameTek on or before the execution of
this Agreement approval by Nintendo of Japan, Inc. of the final code for the
first Game Title released hereunder.
9. EXPIRATION OR TERMINATION OF AGREEMENT:
9.1 In the event that GameTek materially breaches this Agreement with
respect to a Game Title hereunder and such breach is not cured within thirty
(30) days after receipt of notice from Take Two of such breach (in the case of
any delay in receipt of final code approval from Nintendo for any Game Title,
GameTek shall not be deemed to be in breach until the ninety (90) day period
referred to in Section 5.1(d) has expired; however, GameTek shall have no
further cure rights with respect thereto), then, without in any way limiting any
of Take Two's other rights and remedies in such event, and notwithstanding any
provision to the contrary contained herein, Take Two shall have the right at its
sole election to terminate this Agreement with respect to the affected Game
Title to which GameTek's material breach relates, upon written notice to GameTek
(the "Termination Notice"). In such event, and without in any way limiting any
of Take Two's rights and remedies, and notwithstanding any provision to the
contrary contained herein, but only with respect to the affected Game Title
which is the subject of the Termination Notice, GameTek shall pay to Take Two an
amount equal to any unrecouped portion of the Guaranty allocable to such Game
Title (as set forth on Schedule "A") and theretofore paid by Take Two to GameTek
hereunder. All such amounts as described above may be deducted from payments to
be made to GameTek hereunder, or Take Two shall have the option to require that
GameTek repay to Take Two any such amount owed pursuant hereto, which GameTek
shall do within thirty (30) days following Take Two's written request therefor.
In addition, if so requested by Take Two, GameTek shall purchase from Take Two
all remaining inventory with respect to the affected Game Title at Take Two's
cost, and Take Two shall deliver such inventory to a location or locations
designated by GameTek upon Take Two's receipt of such purchase price. Payment of
any amount owing to Take Two hereunder shall be made within thirty (30) days of
Take Two's invoice therefor.
9.2 In the event Take Two fails to render any accounting or pay any monies
owing to GameTek hereunder or if Take Two otherwise materially breaches this
Agreement
- 13 -
with respect to a Game Title hereunder and such breach is not cured within
thirty (30) days (in the case of a payment default, within two (2) business days
after notice of default) after receipt of notice from GameTek of such breach,
then without in any way limiting any of GameTek's other rights and remedies in
such event, and notwithstanding any provision to the contrary contained herein,
GameTek shall have the right at its sole election to terminate this Agreement.
9.3 If either party to this Agreement files a petition in bankruptcy or is
adjudged a bankrupt, or if a petition in bankruptcy is filed against such party
and is not dismissed with prejudice within sixty (60) days (the "bankrupt or
insolvent party"), the other party shall have the right to terminate this
Agreement, upon written notice to the bankrupt or insolvent party.
9.4 Upon any expiration or termination of this Agreement, all rights
granted to Take Two herein shall immediately revert to GameTek, with the
consequences described below. If the expiration or termination relates to less
than all Game Titles covered hereby, then the provisions of this Section 9.4
shall relate only to such affected Game Titles:
(i) Take Two shall continue to satisfy all of its payment obligations
then or at any time thereafter becoming due and payable;
(ii) GameTek shall thereafter be free to distribute or authorize
others to distribute the affected Game Titles;
(iii) Take Two shall not thereafter advertise, distribute or sell
Distributed Products incorporating the affected Game Titles, and will cease
all display, advertising and use of related GameTek Property, except that
Take Two may, if the termination of this Agreement was not by GameTek as a
result of a breach or default by Take Two, sell off existing inventories of
such Distributed Products in the Territory on a non-exclusive basis for a
period of six (6) months (which is equal to the length of the sell-off
period granted to GameTek under its licenses with Califon Productions,
Inc.), subject to all the other terms and conditions hereof. If this
Agreement is terminated by GameTek by reason of a breach or default by Take
Two, then Take Two shall, at GameTek's request ship such inventory at Take
Two's expense to GameTek's California warehouse promptly upon Take Two's
receipt of payment by GameTek of Take Two's manufacturing cost for such
inventory. In any case, Take Two shall, within ten (10) business days after
any expiration or termination of the Exploitation Period for any Game
Title, deliver to GameTek a complete and accurate statement indicating the
number, description and whereabouts of all units of Distributed Products
relating to such Game Title that are in Take Two's inventory as of the date
of such expiration or termination of the applicable Exploitation Period;
and
(iv) Take Two shall return to GameTek all materials furnished to Take
Two by GameTek hereunder with respect to the affected Game Titles or give
evidence satisfactory to GameTek of their destruction.
9.5 Notwithstanding any contrary provision contained herein but subject to
Take Two's exclusive rights with respect to Distributed Products in the
Territory during the
- 14 -
Basic Term, each of the parties acknowledges and agrees that during the term of
this Agreement and thereafter each party shall be free to market, sell,
distribute, license or sublicense or otherwise deal in or exploit any software
titles, whether for use on personal computers or game console systems, including
titles that may be competitive with the Game Titles, without any liability or
obligation to the other party by reason thereof.
10. NOTICES:
All notices, statements and/or payments to be given to the parties
hereunder shall be addressed to the parties at the addresses set forth on the
first page hereof or at such other address as the parties shall designate in
writing from time to time. All notices shall be in writing and shall either be
served by personal delivery (to an officer of each company), mail, or facsimile
(if confirmed by mail or personal delivery of the hard copy), all charges
prepaid. Except as otherwise provided herein, such notices shall be deemed given
when personally delivered, all charges prepaid, or on the date five (5) days
following the date of mailing, except that notices of change of address shall be
effective only after the actual receipt thereof. Copies of all notices to Take
Two should be sent to Take Two, Attention: Office of the President, with a copy
to Gibson Dunn & Crutcher, LLP, 2029 Century Park East, Suite 4000, Los Angeles,
California 90067, Attention: Don Parris, Esq. Copies of all notices to GameTek
should be sent to GameTek, Attention: Office of the President, and to Ackerman,
Levine & Cullen, LLP, 175 Great Neck Road, Great Neck, New York 11021,
Attention: John M. Gaioni, Esq.
11. MISCELLANEOUS:
11.1 Take Two shall have the right, at its election, to assign any of its
rights or obligations hereunder, in whole or in part, to any subsidiary,
affiliated, or related company, or to any person, firm or corporation owning or
acquiring all or substantially all of Take Two's stock or assets, provided that
any such assignment by Take Two shall not relieve Take Two of its obligations
hereunder, and provided further, that the assignee shall acknowledge to GameTek
in writing that such assignment is subject to, and the assignee agrees to be
bound by, the terms and conditions of this Agreement.
11.2 The entire understanding between the parties hereto relating to the
subject matter hereof is contained herein. There are no representations,
warranties, terms, conditions, undertakings or collateral agreements, express or
implied, between the parties other than as expressly set forth in this
Agreement. This Agreement cannot be changed, modified, amended or terminated
except by an instrument in writing executed by both Take Two and GameTek. The
Schedules annexed hereto constitute a part of this agreement. The headings and
captions used herein are inserted for convenience of reference only and shall
not affect the construction or interpretation of this Agreement. This Agreement
shall not be deemed effective, final or binding upon Take Two or GameTek until
signed by each of them. Only the final, executed Agreement is admissible as the
written agreement between the parties and prior drafts, if any, incorporating
revisions or original language may not be used, and shall not be admissible as
evidence for any purpose in any litigation that may arise between
- 15 -
the parties. This Agreement shall be deemed to have been drafted by all the
parties hereto, since all parties were assisted by their counsel in reviewing
and agreeing thereto, and no ambiguity shall be resolved against any party by
virtue of its participation in the drafting of this Agreement.
11.3 No waiver, modification or cancellation of any term or condition of
this Agreement shall be effective unless executed in writing by the party
charged therewith. No written waiver shall excuse the performance of any act
other than those specifically referred to therein and shall not be deemed or
construed to be a waiver of such terms or conditions for the future or any
subsequent breach thereof. Except as otherwise provided in this Agreement, all
rights and remedies herein or otherwise shall be cumulative and none of them
shall be in limitation of any other right or remedy.
11.4 This Agreement does not constitute and shall not be construed as
constituting a partnership, joint venture, sublicense or agency relationship
between Take Two and GameTek. Neither Take Two nor GameTek shall have any right
to obligate or bind the other in any manner whatsoever, and nothing herein
contained shall give or is intended to give any rights of any kind to any third
persons.
11.5 Any claim, dispute or disagreement between the parties arising out of
or relating to this Agreement or the transactions or relationships contemplated
hereby shall be resolved by arbitration under the Commercial Arbitration Rules
of the American Arbitration Association, as in effect from time to time before a
single arbitrator in New York City, New York. The decision of the arbitrator
shall be in writing, shall include an award of reasonable attorneys' fees to the
prevailing party, and either party may enter judgment thereon in any court of
competent jurisdiction. Notwithstanding the foregoing, in the event of any
breach or threatened breach by either party of the provisions of this Agreement,
the aggrieved party may seek and obtain a temporary restraining order,
preliminary injunction or other equitable relief restraining such breach or
threatened breach from any court of competent jurisdiction.
11.6 This Agreement shall be governed by the laws of the State of New York
applicable to contracts made to be wholly performed in the State of New York
(without regard to choice of law). Subject to the provisions of Section 11.5
hereof, any action, suit or proceeding may be brought in any of the courts of
the State of New York , in New York City, New York, or any of the federal courts
within the Southern District of New York. Each of the parties hereto irrevocably
submits to the personal jurisdiction of such courts in connection with any such
action, suit or proceeding. In any action, suit or proceeding arising out of or
relating to this Agreement or the transactions or relationships contemplated
hereby (including any arbitration proceeding) the prevailing party will be
entitled to recover court costs and reasonable fees of attorneys, accountants
and expert witnesses incurred by such a party in connection with such action.
Any process in any action or proceeding commenced in such courts may, among
other methods, be served upon GameTek or Take Two, as applicable, by delivering
or mailing the same, via registered or certified mail, return receipt requested,
addressed to GameTek or Take Two, as applicable, at the addresses set forth in
the first page hereof or such other address as the parties, as applicable, may
designate pursuant to Section 10 hereof. Any such service by delivery or mail
shall be deemed to have the same force and effect as personal service within the
State of New York.
- 16 -
11.7 Except for GameTek's delivery obligations with respect to delivery of
notice of final code approval for the Game Titles pursuant to Schedule "A"
annexed hereto (which are subject to certain exclusive remedy provisions) and as
may otherwise be provided herein, neither party shall be deemed to be in breach
of any of its obligations hereunder unless and until it shall have been given
specific written notice by certified or registered mail, return receipt
requested, of the nature of such breach and it shall have failed to cure such
breach within thirty (30) days (ten days in the case of a payment default) after
receipt of such written notice.
11.8 If any provision of this Agreement is or becomes or is deemed invalid,
illegal or unenforceable under the applicable laws or regulations of any
jurisdiction, such provision will be deemed amended to conform to such laws or
regulations if such amendment can be effected without materially altering the
intention of the parties; otherwise it shall be stricken and the remainder of
this Agreement shall remain in full force and effect.
11.9 Wherever the approval or consent of a party is required hereunder,
such approval or consent shall be in writing and shall not be unreasonably
withheld or delayed.
11.10 If Take Two is not able to receive payment from any customer in
United States dollars because such payment is prohibited or restricted by
applicable laws or governmental regulations, then GameTek's Share may be paid by
Take Two in the same currency in which Take Two receives such payment, applying
Citibank N.A.'s exchange rate as in effect on the date such payment is due to
GameTek.
12. CONFIDENTIAL INFORMATION
12.1 Each party hereto shall keep in confidence and not disclose to any
third party, without the written permission of the other party, the proprietary
information of such other party disclosed under or pursuant to this Agreement.
This requirement of confidentiality shall not apply to information that is (a)
in the public domain through no wrongful act of the receiving party; (b)
rightfully received by the receiving party from a third party who is not bound
by a restriction of nondisclosure; (c) already in the receiving party's
possession without restriction as to disclosure; or (d) required to be disclosed
by applicable rules and regulations of government agencies or judicial bodies.
This obligation of confidentiality shall survive termination of this Agreement.
13. EFFECT ON AGREEMENT OF BANKRUPTCY OF GAMETEK
13.1 This Agreement and all rights and licenses granted by GameTek to Take
Two pursuant to this Agreement are and shall otherwise be deemed to be, for the
purpose of Section 365(n) of the United States Bankruptcy Code (the "Bankruptcy
Code") an executory agreement under which GameTek is a licensor of "intellectual
property" as defined under Section 101(35A) of the Bankruptcy Code. The
provisions of Section 14 herein relating to the source code escrow and any
separate escrow agreements entered into thereunder shall be
- 17 -
considered "supplementary agreements" (as that term is used in the Bankruptcy
Code) to such license and grant of intellectual property rights. GameTek agrees
that if GameTek as a debtor-in-possession or if a trustee in bankruptcy rejects
this Agreement, Take Two may elect to retain its rights under this Agreement as
provided under Section 365(n) of the Bankruptcy Code. Upon written request of
Take Two to GameTek or the trustee in bankruptcy, GameTek or such trustee shall
allow Take Two to exercise its rights under this Agreement and shall not
interfere with the rights of Take Two as provided in this Agreement, provided
that Take Two shall continue to pay all payments as and when due to GameTek
hereunder and shall continue to otherwise perform all of its obligations
hereunder when due.
14. SOURCE CODE ESCROW
14.1 Deposit of Source Code Into Escrow. GameTek represents, warrants and
covenants that, within 10 days after the execution of this Agreement, it shall
deposit a copy of the source code for the Game Titles and all related technical
information necessary to complete and manufacture the Game Titles (except for
proprietary third party software tools) with an escrow agent to be mutually
agreed upon in writing by GameTek and Take Two (the "Escrow Agent"). GameTek
shall provide updated source code and technical information to the Escrow Agent
on a bi-weekly basis in accordance with and as required by this Agreement or any
amendment hereto. Take Two shall be entitled, at its sole cost, to audit the
escrowed source code and technical information periodically at the offices of
the escrow agent to ensure GameTek's compliance with the deposit requirements of
this Section 14, but without making any copies thereof or removing any portion
thereof from the escrow agent's offices. In addition to the foregoing, in the
event of an occurrence of a condition for release of the source code, Take Two
shall be entitled to obtain from GameTek the source code for any portions of the
of the Game Titles or technical information relating thereto, including
work-in-progress, that has been created but not deposited with the Escrow Agent.
Fees and expenses of any Escrow Agent shall be paid by Take Two.
14.2 Conditions for Release of Source Code. Such copies of the source code
and technical information shall be held in escrow and shall be released to Take
Two only upon the payment of any duplication costs and other handling charges of
the Escrow Agent, and only during the term and prior to the termination of this
Agreement, in the event that:
(a) GameTek (i) files a petition for relief or reorganization in
bankruptcy; (ii) makes an assignment for the benefit of creditors or is
adjudicated as bankrupt or insolvent (iii) a custodian, receiver trustee or
other officer with similar powers is appointed for it or its property or
(iv) an involuntary petition in bankruptcy is filed against GameTek which
is not stayed or discharged within ninety (90) days after filing; or
(b) GameTek ceases to actively develop the Game Titles either directly
or indirectly through the loss and non-replacement of key individuals
responsible for development of the Game Titles (such cessation of
development to be deemed conclusively to have occurred in the event of a
delay of ninety (90) days or more in the delivery of any milestone required
to be delivered by GameTek hereunder); or
- 18 -
(c) GameTek materially fails or discontinues to correct any Bugs or
other defects or comply with any requests by Nintendo for modifications
necessary to obtain required Nintendo approvals and such failure or
discontinuance continues for thirty (30) days after notice of default from
Take Two. GameTek shall promptly provide Take Two with copies of any
request by Nintendo (including memoranda of any oral request), for such
modifications.
14.3 Development of Game Titles. In the event of a release of the source
code pursuant to this Section 14, GameTek shall use its reasonable best efforts
to assign its rights under any applicable agreement with respect to the Game
Titles in order to facilitate the completion of development of such Game Titles.
Take Two may hire any software developer or programmer or outside development
companies, regardless of whether such persons or entities were previously
employed by GameTek, in order to complete the development of the Game Titles but
may not solicit any employees or contractors then employed or retained by
GameTek; provided that to the extent that the services of any such employees or
contractors then employed or retained by GameTek are required for the completion
of any Game Title, the parties shall enter into a service sharing arrangement
under which Take Two may obtain the services of such employees and/or
contractors on a part-time or after-hours basis for the purpose of completing
the development of such Game Title as long as such sharing does not materially
interfere with GameTek's operations. GameTek hereby consents to the utilization
by such persons or entitles of intellectual property of GameTek necessary to
complete the development of the affected Game Titles and agrees to cooperate
with Take Two in obtaining the services of persons or entities required to
complete development of the Game Titles.
[Balance of page left blank intentionally.]
- 19 -
IN WITNESS WHEREOF, the parties hereto have signed this agreement as of the
day and year first above written.
TAKE TWO INTERACTIVE SOFTWARE, INC.
By: /s/ Ryan Brant
-----------------------------------
Its: CEO
-----------------------------------
Date: July 29, 1997
-----------------------------------
GAMETEK, INC.
By: /s/ Robert L. Underwood
-----------------------------------
Its: Authorized Signer
----------------------------------
Date: July 29, 1997
---------------------------------
72371 (taken from 72342)
[Signature page to GameTek/Take Two N64 Distribution Agreement.]
- 20 -
SCHEDULE A
Game Titles:
a. Wheel of Fortune for the Nintendo N64 game system
b. Jeopardy! for the Nintendo N64 game system
Milestone Schedule:
a. Written notice of final code approval for Wheel of Fortune - September
18, 1997.
b. Written notice of final code approval for Jeopardy! - November 10,
1997
Third Party Royalties:
a. Wheel of Fortune: (i) (**)% of the aggregate of (i) GameTek's Cost of
Goods, (ii) the GameTek Share, and (iii) all Third Party Royalties (exclusive of
any Third Party Royalties payable to Califon Productions, Inc.) with respect to
each unit, payable to Califon Productions, Inc.; and
(ii) $(**) per unit, payable to Vanna White.
b. Jeopardy!: (i) (**)% of the aggregate of (i) GameTek's Cost of Goods,
(ii) the GameTek Share, and (iii) all Third Party Royalties (exclusive of any
Third Party Royalties payable to Califon Productions, Inc.) of each unit,
payable to Califon Productions, Inc.; and
(ii) $(**) per unit, payable to Alex Trebek.
72371 (taken from 72342)
- 21 -
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of July 10, 1997 (the "Agreement"),
among Take-Two Interactive Software, Inc., a Delaware corporation ("TTIS");
Take-Two Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of TTIS ("Subsidiary"); Inventory Management Systems, Inc., a Virginia
corporation ("Inventory"); David Clark ("David"), Karen Clark ("Karen"), Terry
Phillips ("Terry") and Cathy Phillips ("Cathy"). David, Karen, Terry and Cathy
are sometimes referred to as the "Shareholders."
W I T N E S S E T H :
WHEREAS, Inventory is in the business of distributing computer software at
wholesale (the "Business"); and
WHEREAS, TTIS desires to combine Inventory's Business with its existing
computer software business; 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 Inventory and Shareholders have: (a) determined that it is in the
best interests of their respective companies for Inventory to be merged with and
into Subsidiary upon the terms and subject to the conditions set forth herein;
and (b) approved the merger of Inventory with and into Subsidiary (the "Merger")
in accordance with the General Corporation Law of the State of Delaware
("Delaware Law"), and the Stock Corporation Act of the State of Virginia
("Virginia 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 Time (as defined in Subsection 1.2), and
subject to and upon the terms and conditions of this Agreement and the Delaware
Law and the Virginia Law, Inventory shall be merged with and into Subsidiary,
the separate corporate existence of Inventory shall cease, and Subsidiary shall
continue as the surviving corporation. Subsidiary, as the surviving corporation
after the Merger, is hereinafter sometimes referred to as the "Surviving
Corporation."
1.2. Effective Time. 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 Inventory 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 Virginia in
the form of Exhibit A hereof and making such other filings as may be required by
the Delaware Law and the Virginia 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 Time").
1.3. Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the
-2-
applicable provisions of Delaware Law and Virginia Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
rights, privileges, powers, franchises and all property (real, personal and
mixed) of Inventory and all debts due Inventory shall vest in Subsidiary, and
all debts, liabilities, obligations and duties of Inventory shall become the
debts, liabilities, obligations and duties of Subsidiary.
1.4. Articles of Incorporation; By-Laws.
(a) The Certificate of Incorporation of Subsidiary, as in effect
immediately prior to the Effective Time (annexed hereto as Exhibit B), shall be,
subject to the name change set forth in the Certificate of Merger, 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 Subsidiary, as in effect immediately prior to the
Effective Time (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 Subsidiary.
(a) The directors of Subsidiary immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold office
in accordance with applicable law, the Certificate of Incorporation and By-Laws
of
-3-
the Surviving Corporation until resignation, removal or replacement.
(b) Except for David, who shall at the Effective Time be duly nominated and
appointed as President of the Surviving Corporation, the officers of Subsidiary
immediately prior to the Effective Time shall constitute the initial officers of
the Surviving Corporation, in each case to serve at the pleasure of the Board of
Directors of Subsidiary until their respective resignation, removal or
placement.
1.6. Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of TTIS, Subsidiary, Inventory or the
Shareholders:
(a) Any share of Inventory Common Stock (as defined in Subsection 2.2
hereof) held in the treasury of Inventory shall be cancelled and
extinguished without any conversion thereof and no payment shall be made
with respect thereto.
(b) All of the outstanding shares (the "Shares") of the Inventory
Common Stock shall be converted into the right to receive 750,000 shares of
Common Stock, $.01 par value per share, of TTIS ("TTIS Common Stock")
(hereafter referred to as the "Share Consideration" or the "Merger
Consideration") against the surrender to Subsidiary of the certificates
representing the Shares. Any share of Inventory preferred stock, warrant,
option or other security convertible or exchangeable into Inventory capital
stock shall be cancelled and
-4-
extinguished without any conversion thereof and no payment shall be made
with respect thereto.
(c) Shares of the common stock, par value $.01 per share, of
Subsidiary issued and outstanding at the Effective Time shall remain
outstanding and unchanged and shall constitute all of the issued and
outstanding shares of the capital stock of the Surviving Corporation.
(d) At the Effective Time, the stock transfer books of Inventory shall
be closed and there shall be no further registration of transfers of any
Shares thereafter on the records of Inventory.
(e) From and after the Effective Time, the holders of certificates
evidencing ownership of Shares shall cease to have any rights with respect
to the Shares, except as otherwise provided herein or by law.
(f) Notwithstanding anything to the contrary in this Subsection 1.6,
no party hereto shall be liable to a holder of a certificate or
certificates formerly representing Shares for any amount properly paid to a
public official pursuant to any applicable property, escheat or similar
law.
(g) No fractional shares of TTIS Common Stock shall be issued in
connection with the Merger and the Shareholders will be issued a whole
share of TTIS Common Stock in lieu of any fractional shares.
2. Representations and Warranties as to Inventory. Each of the
Shareholders, jointly and severally, represents and warrants to TTIS and
Subsidiary as follows:
-5-
2.1. Organization, Standing and Power. Inventory is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Virginia, with full corporate power and corporate authority to (i)
own, lease and operate its properties, (ii) 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. 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 Inventory, or the conduct of its
business makes it necessary for Inventory to qualify to do business as a
foreign corporation, where the failure to so qualify would have a material
adverse effect on the business, operations or financial condition of
Inventory. True and complete copies of the Articles of Incorporation of
Inventory and all amendments thereof, and of the By-Laws of Inventory, as
amended to date, have heretofore been furnished to TTIS. Inventory's minute
books contain complete and accurate records of all meetings and other
corporate actions of Inventory's stockholders and Board of Directors
(including committees of its Board of Directors).
2.2. Capitalization. (a) The authorized capital stock of Inventory
consists of 5,000 shares of common stock, par value $.01 per share (the
"Inventory Common Stock"), of which 40 shares are issued and outstanding.
All of the Inventory Common Stock is duly authorized, validly issued, fully
paid and nonassessable. Schedule 2.2 sets forth a true and complete list
-6-
of the holders of all outstanding shares of Inventory Common Stock, and the
holders of all outstanding options and warrants issued by Inventory. 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 Inventory or any of its
subsidiaries or obligating the Shareholders or Inventory or any of their
subsidiaries to issue or sell any shares of capital stock of or other
equity interests in Inventory or any of its subsidiaries. There is no
personal liability, and there are no preemptive rights with regard to the
capital stock of Inventory or its subsidiaries, and no right-of-first
refusal or similar 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 Inventory or any of its subsidiaries to (A)
repurchase, redeem or otherwise acquire any shares of Inventory 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 such subsidiary or other entity, or (C) issue or distribute to any
person any capital stock of Inventory or its subsidiaries, or (D) issue or
distribute to holders of any of the capital stock of Inventory or its
subsidiaries any evidences of indebtedness or assets of Inventory or its
subsidiaries. All of the outstanding securities of Inventory have been
issued and sold by Inventory in full compliance with applicable federal and
state securities laws.
-7-
(b) The outstanding shares of capital stock of each of the
subsidiaries of Inventory, are duly authorized, validly issued, fully paid
and nonassessable, and such shares are owned by Inventory, directly or
indirectly, free and clear of all security interests, liens, adverse
claims, pledges, agreements, limitations on Inventory's voting rights,
charges and other encumbrances of any nature whatsoever.
2.3. Ownership of Inventory Common Stock. The Shareholders have good and
marketable title to all of the issued and outstanding shares of Inventory Common
Stock, free and clear of any and all liens, adverse claims, security interests,
pledges, mortgages, charges and encumbrances of any nature whatsoever, which
shares are held by them in the amounts set forth in Schedule 2.3 hereof, and on
the Closing Date (as defined in Section 7 hereof) will own all of such Inventory
Common Stock, free and clear of any and all liens, adverse claims, security
interests, pledges, mortgages, charges and encumbrances of any nature
whatsoever, including, but not limited to, any claims by any present or former
stockholders of Inventory.
2.4. Interests in Other Entities.
(a) Schedule 2.4 sets forth a true and complete list of all direct or
indirect subsidiaries of Inventory, together with the jurisdiction of
incorporation of each such subsidiary and the percentage of each such
subsidiary's outstanding capital stock owned by Inventory or another of
Inventory's subsidiaries. Each of such subsidiaries are duly organized
corporations, validly existing and in good standing
-8-
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.
(b) Except for (A) each of Terry's and David's ownership of 33.3% of the
outstanding capital stock of Creative Alliance Group, Inc., and (B) Terry's
ownership of 100% of the outstanding capital stock of Phillips Sales, Inc.
("Phillips"), a Virginia corporation engaged in the business of acting as
representative in the distribution of "front-line" interactive software games
and the sale of "close out" interactive software games, neither the Shareholders
(individually or jointly) nor Inventory (i) 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 Inventory at the Effective Time (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); (ii) 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
Inventory at the Effective Time; and (iii) 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
-9-
investments in, any other person or entity engaged in the same or similar
business to that business engaged in by Inventory at the Effective Time, 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 Inventory at the
Effective Time.
2.5. Authority. The execution and delivery by Inventory of this Agreement
and of all of the agreements to be executed and delivered by Inventory pursuant
hereto (collectively, the "Inventory Documents"), the performance by Inventory
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 Inventory
(including, but not limited to, the unanimous consents of the Board of Directors
of Inventory and of the Shareholders) and Inventory 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 transaction consummated hereby and thereby. This Agreement is,
and when executed and delivered by Inventory 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 Inventory and the Shareholders, to the
extent they are parties thereto, in accordance with their
-10-
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 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 Inventory or the Shareholders of this Agreement or of
any other Inventory 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 Inventory, 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
-11-
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 Inventory (the "Assets"), or (e) interfere with or
otherwise adversely affect the ability of Subsidiary to carry on the Business
after the Effective Date on substantially the same basis as is now conducted by
Inventory.
2.7. Financial Statements. Inventory has heretofore delivered to each of
TTIS and Subsidiary (a) its financial statements consisting of the unaudited
balance sheets for the years ended October 31, 1995 and 1996, and the related
statements of income, stockholders' equity and cash flows for the two years then
ended, which have been compiled by Gregg & Bailey, P.C., independent certified
public accountants, and (b) its unaudited balance sheet at May 31, 1997 (the
"Balance Sheet") statements of income, stockholders' equity and cash flows for
the seven months ended May 31, 1997 (collectively, the "Inventory Financial
Statements"). The Inventory Financial Statements were prepared in accordance
with generally accepted accounting principals ("GAAP"), consistently applied,
and present fairly the financial position of Inventory as at the dates thereof
and the results of operations for the periods and the cash flow indicated. The
books and records of Inventory 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 Inventory as set
forth in the Inventory Financial Statements.
-12-
2.8. Guaranties. Schedule 2.8 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 Inventory (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 Time.
2.9. Absence of Undisclosed Liabilities. Inventory 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 May 31,
1997, or (c) in the case of other types of liabilities and obligations,
described in any of the Schedules delivered pursuant hereto or omitted from said
Schedules in accordance with the terms of this Agreement, or arising under
contracts or leases listed in such Schedules or other contracts or leases which
are omitted from such Schedules in accordance with the terms of this Agreement,
or (d) incurred, consistent with past practice, in the ordinary course of
business of Inventory (in the case of liabilities and obligations of the type
referred to in clause (a) above).
-13-
2.10. Properties. Except as set forth on Schedule 2.10, Inventory has
marketable title to all of the properties and assets, reflected on the Balance
Sheet or thereafter acquired, except properties or assets sold or otherwise
disposed of in the ordinary course of business, free and clear of any and all
mortgages, liens (including liens for current Taxes, as defined in Subsection
2.16(c) hereof), pledges, claims, charges and encumbrances of any nature
whatsoever (hereinafter collectively, "Liens"), other than Liens set forth in
Schedule 2.10 not yet due and payable or being contested in good faith by
appropriate proceedings, and other than such Liens or imperfections of title, if
any, which are not material in character, amount or extent and do not materially
interfere with the present or continued use of such property or otherwise
materially adversely affect the value or transferability thereof or otherwise
materially impair the Business or operations of Inventory as conducted on the
date hereof. All plants, structures and equipment which are utilized in the
Business, or are material to the condition (financial or otherwise) of Inventory
are owned or leased by Inventory and 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 2.10 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
Inventory, or which is subject to a title retention or conditional sales
agreement or other security
-14-
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 Inventory.
2.11. Accounts Receivable; Inventories. The accounts and notes receivable
which are reflected on the Balance Sheet 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 Inventory
which were added after May 31, 1997, are good and collectible in the ordinary
course of business, less the amount of the allowance(s) 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 other than in the ordinary course of business. The inventories reflected
on the Balance Sheet and thereafter added 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 written down to net
realizable value or adequately reserved against on the books and records of
Inventory. All inventories are stated at the lower of cost or market in
accordance with generally accepted accounting principles.
-15-
2.12. Absence of Changes. Since May 31, 1997, there have not been (a) any
adverse change (other than as is normal in the ordinary course of business,
e.g., inventory level changes) in the condition (financial or otherwise),
assets, liabilities, business, prospects, results of operations or cash flows of
Inventory (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 Inventory of any right, or cancellation of any
debt or claim, of material value, (c) any declarations, set asides or payments
of any dividend or other distributions or payments in respect of the Inventory
Common Stock, or (d) any changes in the accounting principles or methods which
are utilized by Inventory.
2.13. Litigation. Except as set forth in Schedule 2.13, there are no
claims, suits or actions, or administrative, arbitration or other proceedings or
governmental investigations, pending or, to the best knowledge of Inventory and
the Shareholders, threatened, against or relating to Inventory 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 Inventory, 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 Inventory in any area, or
the acquisition by Inventory of any properties, assets or businesses, or (b)
-16-
otherwise materially adverse to the Business or any of the Assets.
2.14. No Violation of Law. Inventory 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 Inventory, 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.
2.15. Intangibles/Inventions. Schedule 2.15 identifies (by a summary
description) the Intangibles (as defined below) the ownership thereof and, if
applicable, Inventory'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, licensed, or used by Inventory, and all applications therefor
(collectively, the "Marks"), (B) all inventions,
-17-
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 Inventory is a party or otherwise bound which relate to any
of the Intangibles or the Inventions or Inventory'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) Inventory 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 the Shareholders, are threatened which
challenge the rights of Inventory with respect to the Intangibles or their 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
Inventory'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 Inventory'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) Inventory has not granted any license to third
parties with regard to its Intangibles.
-18-
2.16. Tax Matters.
(a) Inventory 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 Inventory as of May 31, 1997,
whether (i) incurred in respect of or measured by income of Inventory 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. Inventory has duly withheld all payroll taxes, FICA and other federal,
state and local taxes and other items requiring to be withheld by it from
employee wages, and has duly deposited the same in trust for or paid over to the
proper taxing authorities. Inventory 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 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 Inventory have not been examined by the
Internal Revenue Service ("the IRS"), nor has the State of Virginia or any
taxing authority thereof examined any merchandize, personal property, sales or
use tax returns of Inventory.
-19-
(b) Except for adjustments to the income tax returns of the Shareholders
with respect to income derived from or attributable to the business of
Inventory, as set forth in Schedule 2.16 (the "Tax Adjustments"), which shall be
the sole responsibility of the Shareholders, Inventory (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 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.
2.17. Insurance. Schedule 2.17 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 Inventory or any creditor is
an insured party, beneficiary or loss payable payee. Such policies are in full
force and effect, all premiums due and payable with
-20-
respect thereto have been paid, and no notice of cancellation or termination has
been received by Inventory with respect to any such policy.
2.18. Banks; Powers of Attorney. Schedule 2.18 is a complete and correct
list showing (a) the names of each bank in which Inventory 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 Inventory.
2.19. Employee Arrangements. Schedule 2.19 is a complete and correct list
and summary description of all (a) union, collective bargaining, employment,
management, termination and consulting agreements to which any of Inventory 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 Inventory. Said
Schedule also lists the names and compensation of all employees of Inventory
whose earnings during the last fiscal year were $25,000 or more (including
bonuses and other incentive
-21-
compensation), and all employees who are expected to receive at least said
amount in respect of the current fiscal year.
2.20. ERISA.
(a) Plans. Schedule 2.20 lists Inventory's "employee pension benefit plan"
("Inventory Pension Plan"), as such term is defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
Inventory's "welfare benefit plan" (collectively called "Inventory Welfare
Plans") as such term is defined in Section 3(1) of ERISA, which is maintained by
Inventory or to which they contribute or are obligated or required to
contribute. The Inventory Pension Plans and Inventory Welfare Plans are
hereinafter sometimes collectively referred to as the "Plans" and severally
referred to as a "Plan".
(b) Qualification. Each Inventory Pension Plan and the trust (if any)
forming a part thereof has been determined by the IRS to be qualified under
Section 401(a) of the Code, and is exempt from taxation under Section 501(a) of
the Code, and nothing has occurred since the date of such determination which
would adversely affect such qualification.
(c) Plan Documents. Inventory has heretofore delivered to TTIS and
Subsidiary, true, complete and correct copies of (i) the Plans, and all related
trust agreements, (ii) all written interpretations and summary plan descriptions
relating thereto, (iii) the two most recent annual reports (Form 5500 Series)
and accompanying schedules which were prepared in connection with each Plan,
(iii) all IRS
-22-
determination letters relating to the Plans, and (iv) the two most recent
actuarial evaluation reports which were prepared in connection with any of the
Plans.
(d) No Prohibited Transactions. Neither Inventory, nor any of the Plans,
nor any trust created thereunder, nor any trustee or administrator thereof, have
engaged in a transaction which would subject Inventory or any of the Plans to
the tax on prohibited transactions imposed by Section 4975 of the Code or to a
civil penalty assessed pursuant to Section 502(i) of ERISA.
(e) No Accumulated Funding Deficiency. None of the Inventory's Pension
Plans has incurred any "accumulated funding deficiency", as such term is defined
in Section 302 of ERISA and Section 412 of the Code, whether or not waived.
(f) Termination, etc. Inventory has not incurred, and are not expected to
incur, directly or indirectly, any liability to the Pension Benefit Guaranty
Corporation (the "PBGC") with respect to the Inventory Pension Plan. The PBGC
has not instituted proceedings to terminate the Inventory Pension Plan, nor has
it notified Inventory, either formally or informally, of its intention to
institute any such proceedings.
(g) Reportable Events. There have not been, with respect to any of the
Plans, any "reportable events", as such term is defined in Section 4043(b) of
ERISA.
(h) Multiemployer Plans. Inventory has not ever maintained or contributed
to, or been obligated or required
-23-
to contribute to, a "multiemployer plan", as such term is defined in Section
3(37) of ERISA.
(i) Contributions; Benefits. Inventory has paid in full all amounts which
were required to have been paid by them on or prior to the date hereof as
contributions to the Inventory Pension Plans. The current value of all accrued
benefits under Inventory Pension Plans did not, as of the latest valuation date
thereof, exceed the then current value of the assets of such Inventory Pension
Plan allocable to such accrued benefits, based upon the actuarial assumptions
then being utilized with respect thereto.
(j) Claims. There is not pending, and to the best of the knowledge of
Inventory or the Shareholders, there is not threatened, any claims against any
of the Plans or any fiduciary thereof (other than claims for benefits made in
the ordinary course).
2.21. Systems and Software. Inventory and its subsidiaries 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 the businesses of Inventory and its subsidiaries as presently
conducted (collectively, "Systems"). Each System owned or used by Inventory or
its subsidiaries immediately prior to the Effective Time will be owned or
available for use by TTIS, the Subsidiary or their respective affiliates on
identical terms and conditions immediately subsequent to the Effective Time.
With respect to each System owned by a third party and used by
-24-
Inventory or its subsidiaries 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 Time; (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) neither Inventory nor its subsidiaries
have granted any sublicense, sublease or similar right with respect to any such
lease, license, sublicense, agreement or permission; (f) Subsidiary and its
affiliates use and continued use of such Systems 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 its business as presently conducted. Schedule 2.21 is a complete
and correct list and summary description of all Systems.
2.22. Environmental Matters. Inventory and each of its subsidiaries 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
-25-
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 Inventory or any of its subsidiaries. Inventory
has not released, discharged or disposed of on, under or about any facility
currently or previously owned, leased or controlled by the Company or any of its
subsidiaries, any Hazardous Substance (as hereinafter defined), and to the best
of Inventory's knowledge, no third party has released, discharged or disposed of
on, under or about any facility currently or previously owned, leased or
controlled by Inventory or any of its subsidiaries, and Hazardous Substances (as
hereinafter defined). Inventory and each of its subsidiaries is in compliance
with all applicable Environmental Laws. Inventory 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. Neither Inventory nor any of its subsidiaries has received notice of any
past or present events, conditions, circumstances, activities, practices,
incidents, actions or plans of Inventory or its subsidiaries that have resulted
in or threaten to result in any common law or legal liability, or otherwise form
the basis of any claim, action,
-26-
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. Certain Business Matters. Except as is set forth in Schedule 2.23,
(a) Inventory is not a party to or bound by any distributorship, dealership,
sales agency, franchise or similar agreement which relates to the sale or
distribution of any of the products and services of the Business, (b) Inventory
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 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 Inventory, (d) the product and service warranties given by
Inventory or by which it is bound (complete and correct copies or descriptions
of which have heretofore been delivered by Inventory to TTIS) entail no
-27-
greater obligations than are customary in the Business, (e) neither Inventory
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 Inventory or the
Shareholders, and (f) Inventory is not a party to or bound by any agreement in
which any officer, director or stockholder of Inventory (or any affiliate of any
such person) has, or had when made, a direct or indirect material interest.
2.24. Certain Contracts. Schedule 2.24 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 Inventory
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 Inventory (and will be terminable
by Subsidiary) without liability, expense or other obligation on 30 days' notice
or less, or (B) may be anticipated to involve aggregate payments to or by
Inventory of $5,000 (or the equivalent) or less calculated over the full term
thereof, and (C) are not otherwise material to the Business or Inventory.
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 Inventory to TTIS. Except as expressly stated
on any of such Schedules, (1) each of agreements listed on Schedule 2.24 is in
full force and effect,
-28-
no person or entity which is a party thereto or otherwise bound thereby is in
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 Inventory; 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.
2.25. Customers and Suppliers. Inventory has previously provided to TTIS a
complete and correct list setting forth, for the twelve months ended October 31,
1996 and the seven months ended May 31, 1997, (a) the 20 largest customers of
the Business and the amount for which each such customer was invoiced, and (b)
the 20 largest suppliers 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 Inventory 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
-29-
their respective relationships with the Business after the Closing Date on
substantially the same basis as now exists.
2.26. Business Practices and Commitments. Set forth on Schedule 2.26 is a
description of (a) Inventory's rebate and volume discount practice, and
obligations, (b) Inventory's allowance and customer return practice and
obligations, (c) Inventory's co-op advertising and other promotional practices,
(d) Inventory's warranty practices and obligations, (e) price protection
agreements, and (f) return policies and historical return rates, as each of the
foregoing relate to Inventory's customers and suppliers.
2.27. Approvals/Consents. Except as set forth on Schedule 2.27, Inventory
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 to Subsidiary 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 Inventory. None of the representations or
warranties made by the Shareholders in this
-30-
Agreement is, or contained in any of the Inventory 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. Poolability. Except as set forth on Schedule 2.29:
(a) None of Inventory 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 Inventory have been a subsidiary or a division of another
entity since the date two years prior to the Closing date.
(b) Inventory 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) Inventory 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 Closing Date.
The equity transactions and the capital stock transactions for Inventory
and for each Shareholder since the date two years prior to the date hereof
Closing Date 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
-31-
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 Inventory 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, with full corporate power and corporate
authority to (i) own, lease and operate its properties, (ii) 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. Except as set forth on
Schedule 3.1, there are no states or jurisdictions in which the character
and location of any of the properties owned or leased by TTIS or
Subsidiary, or the conduct of their business makes it necessary for either
of them to qualify to do business as a foreign corporation, where the
failure to so qualify would have a material adverse effect on the business,
operations or financial condition of TTIS or Subsidiary. True and complete
copies of the Certificates of Incorporation of TTIS and of Subsidiary, and
of the By-Laws of
-32-
TTIS and of Subsidiary, as amended to date, have heretofore been furnished
to Inventory. The minute books of TTIS and of Subsidiary contain complete
and accurate records of all meetings and other corporate actions of their
respective stockholders and Board of Directors (including committees of its
Boards of Directors).
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 it
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 15,000,000 shares of TTIS Common Stock and 5,000,317 shares of Preferred
Stock, par value $.01 per share (of which 317 shares of Series A Preferred
Stock, $1.00 par value per share, are outstanding). As of the date hereof,
(i) 7,847,455 shares of TTIS Common Stock are issued and outstanding,
-33-
all of which are duly authorized, validly issued, fully paid and
nonassessable, (ii) 1,100,311 shares of TTIS Common Stock are issuable upon
exercise of options and (iii) 2,337,234 shares of TTIS Common Stock are
reserved for future issuance upon exercise of outstanding common stock
purchase warrants. There is no personal liability, and there are no
preemptive rights with regard to the capital stock of TTIS, and no
right-of-first refusal or similar rights with regard to such capital stock.
All of the shares of TTIS Common Stock issuable in connection with the
Merger will be offered, issued and sold by TTIS in full compliance with
applicable federal and state securities laws.
(b) The outstanding shares of capital stock of each of the
subsidiaries of TTIS, including Subsidiary, are duly authorized, validly
issued, fully paid and nonassessable, and, except as set forth in the SEC
Reports (defined in Subsection 3.8 hereof) or 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 in the SEC Reports (defined in Subsection 3.8
hereof) or on Schedule 3.3, TTIS owns all issued and outstanding shares of
capital stock of each Subsidiary and there are no options, warrants or
similar right outstanding with respect to shares of capital stock of any
subsidiary.
3.4. Authority. The execution and delivery by TTIS and Subsidiary of this
Agreement and of each agreement to be
-34-
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, 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. Noncontravention. Except as set forth on Schedule 3.5, neither the
execution and delivery by TTIS or Subsidiary of any TTIS Document, nor the
consummation of any of the transactions contemplated hereby or thereby, nor the
performance by either of them of any of its 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
Certificates of Incorporation or By-Laws of either TTIS or Subsidiary, or (b)
give rise to a default, or any right of termination, cancellation
-35-
or acceleration, or otherwise be in conflict with, or result in a loss of
contractual benefits to, either 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 of them is a party or by which either
of them or 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 of them, or
(d) result in the creation or imposition of any lien, adverse claim,
restriction, charge or encumbrance upon any of their assets, or (e) interfere
with or otherwise adversely affect the ability of TTIS or Subsidiary to carry on
its business on substantially the same basis as is now conducted by it.
3.6. Absence of Litigation. Except as may be disclosed in the SEC Reports
(defined in Subsection 3.8 hereof) or as set forth in Schedule 3.6 hereof, there
are no claims, actions, suits, proceedings or investigations pending or, to the
knowledge of TTIS and Subsidiary, threatened against or relating to TTIS,
Subsidiary, this Agreement, the transactions contemplated hereby, or any
properties or assets of TTIS or Subsidiary. Neither TTIS nor any of its
subsidiaries (including the Subsidiary), nor any of their respective properties
is subject to any order, writ, judgment, injunction, decree, determination or
award which, if enforced, would have a material adverse effect on the business,
the results of the operations,
-36-
cash flows or financial condition of TTIS separately or of TTIS and its
subsidiaries taken as a whole.
3.7. ERISA.
(a) Plans. Schedule 3.7 lists TTIS's "employee pension benefit plan" ("TTIS
Pension Plan"), as such term is defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and TTIS's
"welfare benefit plan" (collectively called "TTIS Welfare Plans") as such term
is defined in Section 3(1) of ERISA, which is maintained by TTIS or to which
they contribute or be obligated or required to contribute. The TTIS Pension
Plans and TTIS Welfare Plans are hereinafter sometimes collectively referred to
as the "Plans" and severally referred to as a "Plan".
(b) Qualification. Each TTIS Pension Plan and the trust (if any) forming a
part thereof has been determined by the IRS to be qualified under Section 401(a)
of the Code, and is exempt from taxation under Section 501(a) of the Code, and
nothing has occurred since the date of such determination which would adversely
affect such qualification.
(c) Plan Documents. Inventory has heretofore delivered to Inventory and to
the Shareholders, true, complete and correct copies of (i) the Plans, and all
related trust agreements, (ii) all written interpretations and summary plan
descriptions relating thereto, (iii) the two most recent annual reports (Form
5500 Series) and accompanying schedules which were prepared in connection with
each Plan, (iii) all IRS determination letters relating to the Plans, and (iv)
the two
-37-
most recent actuarial evaluation reports which were prepared in connection with
any of the Plans.
(d) No Prohibited Transactions. Neither TTIS, nor any of the Plans, nor any
trust created thereunder, nor any trustee or administrator thereof, have engaged
in a transaction which would subject TTIS or any of the Plans to the tax on
prohibited transactions imposed by Section 4975 of the Code or to a civil
penalty assessed pursuant to Section 502(i) of ERISA.
(e) No Accumulated Funding Deficiency. None of the TTIS's Pension Plans has
incurred any "accumulated funding deficiency", as such term is defined in
Section 302 of ERISA and Section 412 of the Code, whether or not waived.
(f) Termination, etc. TTIS has not incurred, and is not expected to incur,
directly or indirectly, any liability to the Pension Benefit Guaranty
Corporation (the "PBGC") with respect to the TTIS Pension Plan. The PBGC has not
instituted proceedings to terminate the TTIS Pension Plan, nor has it notified
TTIS, either formally or informally, of its intention to institute any such
proceedings.
(g) Reportable Events. There have not been, with respect to any of the
Plans, any "reportable events", as such term is defined in Section 4043(b) of
ERISA.
(h) Multiemployer Plans. TTIS has not ever maintained or contributed to, or
been obligated or required to contribute to, a "multiemployer plan", as such
term is defined in Section 3(37) of ERISA.
-38-
(i) Contributions; Benefits. TTIS has paid in full all amounts which were
required to have been paid by them on or prior to the date hereof as
contributions to the TTIS Pension Plans. The current value of all accrued
benefits under TTIS Pension Plans did not, as of the latest valuation date
thereof, exceed the then current value of the assets of such TTIS Pension Plan
allocable to such accrued benefits, based upon the actuarial assumptions then
being utilized with respect thereto.
(j) Claims. There is not pending, and to the best of the knowledge of TTIS
or the Subsidiary, there is not threatened, any claims against any of the Plans
or any fiduciary thereof (other than claims for benefits made in the ordinary
course).
3.8. Securities and Exchange Commission Filings; Financial Statements.
(a) TTIS has filed 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. TTIS has delivered to Inventory, in the form filed with the
SEC (including any amendments thereto), its Registration Statement on Form SB-2,
effective April 14, 1997, and its Quarterly Report on Form 10-QSB for the
quarter ended April 30, 1997. None of such reports (including but not limited to
any financial statements or
-39-
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 May 31, 1997, 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 May
31, 1997, 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.
3.9. Stock Issuable in Merger. The Share Consideration, when issued, will
be duly authorized and validly
-40-
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.
3.10. Properties. Except as set forth on Schedule 3.10, TTIS and the
Subsidiary have good title to all of the properties and assets, reflected on
their balance sheets or thereafter acquired, except properties or assets sold or
otherwise disposed of in the ordinary course of business, free and clear of any
and all Liens, other than Liens not yet due and payable or being contested in
good faith by appropriate proceedings, and other than such Liens or
imperfections of title, if any, which are not substantial in character, amount
or extent and do not materially interfere with the present or continued use of
such property or otherwise materially adversely affect the value or
transferability thereof or otherwise materially impair the business operations
of TTIS as conducted on the date hereof. All plants, structures and equipment
which are utilized in the business operations of TTIS, or are material to the
condition (financial or otherwise) of TTIS, are owned or leased by TTIS, are in
good operating condition and repair (ordinary wear and
-41-
tear excepted) and are adequate and suitable for the purposes for which they are
used.
3.11. Absence of Changes. Since May 31, 1997, there have not been (a) any
material adverse change (other than as is normal in the ordinary course of
business, e.g., inventory level changes) 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 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.
3.12. No Violation of Law. Neither TTIS nor Subsidiary is 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 either TTIS or Subsidiary, their
respective business operations or any of their respective 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
-42-
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.
3.13. Intangibles/Inventions. Schedule 3.13 identifies (by a summary
description) the TTIS Intangibles (as defined below) the ownership thereof and,
if applicable, TTIS's and Subsidiary'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 TTIS, 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 of TTIS
(collectively, the "Rights") and (C) all licenses and other agreements to which
TTIS is a party or otherwise bound which relate to any of the Intangibles or the
Rights or TTIS's use thereof in connection with its business (collectively, the
"TTIS Licenses, and together with the Marks and the Rights, the "TTIS
Intangibles"). No violations of the terms of any of the aforesaid licenses
and/or agreements have occurred. Except as disclosed in the SEC Reports or on
Schedule 3.13, (A) TTIS owns or is authorized to use in connection with the
Business all of
-43-
the TTIS Intangibles; (B) no proceedings have been instituted, are pending, or
to the best knowledge of TTIS, are threatened which challenge the rights of TTIS
with respect to the TTIS Intangibles or their use thereof in connection with the
business of TTIS or the validity thereof and, there is no valid basis for any
such proceedings; (C) neither TTIS's ownership of the TTIS Intangibles nor their
use thereof by TTIS 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 TTIS Intangibles, or TTIS's use thereof is
subject to any outstanding order, decree, judgment, stipulation or any lien,
security interest or other encumbrance; and (E) TTIS has not granted any license
to third parties with respect thereto.
3.14. Tax Matters.
(a) TTIS 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
shown to be due or claimed to be due on such tax returns and reports. The
provisions for Taxes which are set forth on its balance sheets are adequate for
all accrued and unpaid taxes of TTIS as of May 31, 1997, whether (i) incurred in
respect of or measured by income of TTIS 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. TTIS has duly withheld all
payroll taxes, FICA and other federal, state
-44-
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. TTIS 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 TTIS, 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 TTIS have not been examined by the IRS, nor has the State
of Delaware or any taxing authority thereof examined any merchandize, personal
property, sales or use tax returns of TTIS.
(b) TTIS (i) has not agreed to or been required to make any adjustment
pursuant to Section 481(a) of the Code, (ii) has 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.
3.15. Approvals/Consents. Except as set forth on Schedule 3.15, TTIS
currently holds all governmental and administrative consents, permits,
appointments, approvals, licenses, certificates and franchises which are
necessary for the operation of its business. Schedule 3.15 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
-45-
thereof have heretofore occurred or are known by TTIS to exist as of the date of
this Agreement.
3.16. 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 the Shareholders. Each of Inventory 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 material fact contained in any
representation of Inventory and/or the Shareholders contained in, or the breach
by Inventory, or the Shareholders of any warranty or covenant made by any one or
all of them in, any Inventory Document and/or the Shareholders Document,
including without limitation any and all losses, obligations, deficiencies,
-46-
limitations, claims, damages, costs and expenses which TTIS or the Subsidiary
may sustain, suffer or incur and which arise out of, or caused by, relate to, or
result from or in connection with any claims brought by the United States
Internal Revenue Service or applicable state taxing authority pertaining to
income tax returns filed by the Shareholders with respect to income of Inventory
for all periods prior to Closing. The foregoing indemnification shall 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 Inventory (before the Effective Time) 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 material 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 Inventory or the Shareholders against TTIS and/or Subsidiary.
-47-
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
-48-
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
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. 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.
4.5. Exclusive Remedy. The provisions of this Section 4 shall be the sole
and exclusive remedy, other than equitable relief, of the parties hereto.
-49-
4.6. Limitation. Neither TTIS and Subsidiary, on the one hand, nor the
Shareholders on other hand, shall be entitled to any claim for indemnification
under this Section 4 until the aggregate amount of losses, for which indemnity
is claimed exceeds $50,000, and once such threshold amount is met, then the
indemnity shall apply to amounts over such threshold.
5. Covenants
5.1. Investigation.
(a) Between the date hereof and the Closing Date, TTIS and/or Subsidiary,
on the one hand, and Inventory 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 Inventory and the Shareholders, on the other, and the
-50-
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 Party obtains access shall be governed by and
subject to all of the terms and conditions of the confidentiality covenants set
forth in the Letter of Intent dated June 6, 1997 ("Confidentiality Agreement")
among various parties, including the parties hereto (with TTIS signing on behalf
of Subsidiary) and Subsidiary agrees to be bound to the Confidentiality
Agreement.
(c) 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;
(d) After the Effective Time 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 Subsidiary.
-51-
5.2. Noncompete Covenant. Except with respect to Terry's ownership of
Phillips, each of the Shareholders hereby agrees after the Effective Time not
to, until the first anniversary of the Effective Time directly or indirectly (A)
engage or become interested in any business (whether as owner, manager,
operator, licensor, licensee, lender, partner, stockholder, joint venturer,
employee, consultant or otherwise) engaged in the business then engaged in by
TTIS or Subsidiary in any of the areas in which TTIS or Subsidiary then conducts
business or (B) take any other action which constitutes an interference with or
a disruption of TTIS or Subsidiary's operation of the Business or Subsidiary's
use, ownership and enjoyment of the Assets.
5.3. Certain Activities. For purposes of clarification, but not of
limitation (1) each Shareholder acknowledges and agrees that the provisions of
subsection 5.2 above shall serve as a prohibition against him, directly or
indirectly, hiring, offering to hire, enticing away or in any other manner
persuading or attempting to persuade any officer, employee, agent, lessor,
lessee, licensor, licensee, customer, prospective customer or supplier of the
Business of the Subsidiary or TTIS to discontinue or alter his or its
relationship with the Business.
5.4. Injunctive Relief, etc. The parties hereto hereby acknowledge and
agree that (i) TTIS and/or Subsidiary would be irreparably injured in the event
of a breach by any of the Shareholders of any of their obligations under this
Section
-52-
5, (ii) monetary damages would not be an adequate remedy for any such breach,
and (iii) TTIS and/or Subsidiary shall be entitled to injunctive relief, in
addition to any other remedy which it may have, in the event of any such breach.
It is hereby also agreed that the existence of any claims which Shareholders may
have against TTIS or the Subsidiary, whether under this Agreement or otherwise,
shall not be a defense to the enforcement by TTIS and/or Subsidiary of any of
the rights under this Section 5.
5.5. Scope of Restriction. It is the intent of the parties hereto that the
covenants contained in this Agreement shall be enforced to the fullest extent
permissible under the laws of and public policies of each jurisdiction in which
enforcement is sought (the Shareholders hereby acknowledge that said
restrictions are reasonably necessary for the protection of TTIS and
Subsidiary). Accordingly, it is hereby agreed that if any one or more of the
provisions of subsections 5.2 or 5.3 shall be adjudicated to be invalid or
unenforceable for any reason whatsoever, said provision shall be (only with
respect to the operation thereof in the particular jurisdiction in which such
adjudication is made) construed by limiting and reducing it so as to be
enforceable to the extent permissible.
5.6. Additional Undertakings. The provisions of this subsection 5.6 shall
be in addition to, and not in lieu of, any other obligations with respect to the
subject matter hereof, whether arising as a matter of contract, by law or
otherwise, including, but not limited to, any obligations which may be
-53-
contained in any Employment or Consulting Agreements between Subsidiary and the
Shareholders.
5.7. 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.
5.8. 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
-54-
other documents as may be required by this Agreement and as TTIS and/or
Subsidiary, on the one hand, and/or Inventory 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.
5.9. Accuracy of Representations. Each party hereto agrees that prior to
the Effective Date he, she 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.
5.10. Notification of Certain Matters. Inventory and the Shareholders shall
give prompt notice to TTIS and Subsidiary, and TTIS or Subsidiary shall give
prompt notice to Inventory 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
Time and (b) any material failure of Inventory and/or the Shareholders, on the
one hand, and of TTIS and/or Subsidiary, on
-55-
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 5.5 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
5.11. Broker. Each of TTIS, Subsidiary, Inventory, 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, 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.
5.12. Merger Costs. Each party hereto shall be responsible for paying their
respective costs and expenses relating to the Merger and related transactions.
5.13. No Solicitation of Transactions. Prior to the earlier of the
Effective Time or the termination of this Agreement, neither Inventory nor the
Shareholders will, directly or indirectly, through any director, officer,
employee, agent or 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
Inventory Common Stock, Assets or Business of, or any equity interest in,
Inventory, or any business combination with Inventory (other than the Merger)
and
-56-
other than with TTIS and/or Subsidiary, participate in any negotiations
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. Inventory 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). Inventory 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.
5.14. Employment and Consulting Agreements. At the Closing, David will
enter into an employment agreement substantially in the form of Exhibit D hereto
(the "Employment Agreement"). At the Closing, Terry will enter into a consulting
agreement substantially in the form of Exhibit E hereto (the "Consulting
Agreement").
5.15. Registration Rights. At the Closing, TTIS shall enter into a
registration rights agreement substantially in the form of Exhibit F hereto (the
"Registration Rights Agreement"), whereby TTIS would grant the Shareholders
certain "piggyback" registration rights.
-57-
5.16. Prohibited Conduct. Each of Inventory and the Shareholders, jointly
and severally, covenants and agrees that, during the period from the date hereof
to the Effective Time, except pursuant to the terms hereof or unless TTIS shall
otherwise agree in writing, the Business shall be conducted only, and Inventory
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
Inventory shall use its best efforts to preserve intact its Assets, the Business
and the business organization of Inventory, to keep available the services of
the present officers, employees and consultants of Inventory, and to preserve
the present relationships of Inventory with customers, suppliers and other
persons with whom Inventory has business relations. By way of illustration, and
not limitation, neither Inventory nor the Shareholders shall, between the date
of this Agreement and the Effective Time, 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 Inventory Common Stock, or (ii)
split, combine or reclassify any of the Inventory 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 Inventory Common Stock, or otherwise;
(b) authorize for issuance, issue, deliver, sell or agree to commit to
issue, sell or deliver (whether
-58-
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), pledge or otherwise
encumber, any shares of Inventory 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;
(c) (i) increase the compensation payable or to become payable to any
officer, director, employees or consultant of Inventory, 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 Inventory or any of its subsidiaries,
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 Inventory;
(d) amend the Certificate of Incorporation, By-Laws or other
comparable charter or organizational documents of Inventory or alter
through merger, liquidation,
-59-
reorganization, restructuring, or in any other fashion, the corporate
structure or ownership of Inventory;
(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
Inventory, 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 Inventory 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
Inventory, 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 Inventory;
(h) except in the ordinary course of business, enter into any
agreement, contract, commitment, involving a commitment on the part of
Inventory to purchase,
-60-
sell, lease or otherwise dispose of assets or require payment by Inventory
in excess of $10,000;
(i) make any capital expenditures;
(j) adopt a plan of complete or partial liquidation of Inventory or
resolutions providing for or authorizing such a liquidation or the
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization of Inventory;
(k) cause Inventory 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 Inventory, 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 Inventory and it s Subsidiaries, if any, taken as a whole;
(n) settle or compromise any litigation in which Inventory 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 $50,000; and
-61-
(o) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.17. Tax Covenant. The Stockholders shall use their best efforts to cause
the Merger to qualify, and will not (both before and after consummation of the
Merger) take any actions which could prevent the Merger from qualifying as a
reorganization under the provisions of Section 368 of the Code and the
regulations promulgated thereunder. Each of TTIS and the Subsidiary will not
(after the consummation of the Merger) take any actions which will prevent the
Merger from qualifying as a reorganization under the provisions of Section 368
of the Code and the regulations promulgated thereunder. Each of TTIS, the
Subsidiary and the Shareholders shall report the Merger as a reorganization
under the provisions of Section 368 of the Code and the regulations promulgated
thereunder and, to the extent permitted, on all state and local tax returns.
5.18. Pooling. Neither Inventory 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.
5.19. Bank Guaranties.
(a) Immediately following the consummation of the Merger, TTIS and the
Subsidiary shall use their reasonable efforts to cause, on or before the
sixtieth (60th) day after the Effective Time, each of the Shareholders to be
released from the forms of guaranty (the "Guaranties") executed by such
Shareholders in connection with that line of
-62-
credit secured by, among other things, a commercial note dated February 21, 1995
from Crestar Bank (the "Line of Credit"); provided that TTIS and Subsidiary
shall not be obligated to prepay such obligations. The Shareholders covenant to
continue such guaranties until the foregoing releases have been obtained.
(b) Notwithstanding anything to the contrary contained in this Section
5.19, Subsidiary hereby indemnifies and agrees to defend and hold harmless each
of the Shareholders from and against any and all losses, obligations,
deficiencies, liabilities, claims, damages, costs and expenses (including,
without limitation, reasonable legal expenses incurred in connection with the
defense of any matter indemnified pursuant hereto) finally suffered or charged
to any of such Shareholders (the "Loss"), which Loss arises out of, or results
from, the Guaranties by reason of any act or omission of the Subsidiary
subsequent to the Effective Time with respect to the Line of Credit; provided,
however, that the Subsidiary shall not be obligated to indemnify or defend the
Shareholders with respect to any Loss (i) resulting from a claim or assertion of
liability arising out of or caused by acts or omissions of any of the
Shareholders prior to the Effective Time; (ii) incurred or accruing prior to the
Effective Time; or (iii) arising out of, relating to, or resulting from
negligent or tortious conduct by any of the Shareholders.
-63-
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 Time of the following
conditions:
(a) Creative Alliance Group Merger. All of the transactions to be
consummated on or before the closing pursuant to that certain Agreement and
Plan of Merger by and among TTIS, the Subsidiary, Creative Alliance Group,
Inc. and the shareholders (the "Creative Merger"), shall have been
effected.
(b) Accuracy of Representations and Warranties. The representations
and warranties of each of Inventory and the Shareholders contained herein
or in any Shareholders Document or Inventory 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.
(c) Performance of Agreements. Each of Inventory 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
-64-
contained in any Shareholders Document or Inventory Document and required
to be performed, observed or complied with, or to be satisfied or
fulfilled, by Inventory or the Shareholders at or prior to the Effective
Date.
(d) Results of Investigation. TTIS and Subsidiary shall be satisfied
with the results of any investigation of the business and affairs of
Inventory undertaken by them pursuant to Subsection 5.1 hereof.
(e) Pooling of Interests. TTIS shall have received an opinion from
Coopers & Lybrand that the Merger will be treated, for financial reporting
purposes, as a pooling of interests.
(f) Opinion of Counsel for Inventory. TTIS and Subsidiary shall have
received an opinion of Cowen & Owen, counsel for Inventory and the
Shareholders, dated the Closing Date, in substantially the form of Exhibit
G hereto.
(g) 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 TTIS (based on the likelihood of success and
material consequences of such claim,
-65-
suit, action, inquiry or proceeding), makes it inadvisable to proceed with
the consummation of such transactions.
(h) 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) required as a precondition to the performance by
Inventory 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 Time, 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.
(i) Date of Consummation. The Merger shall have been consummated on or
prior to July 31, 1997, or such later date as all of the parties shall
agree in a written instrument.
(j) 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
Inventory and the Shareholders pursuant hereto, shall be satisfactory in
all material respects to TTIS and its counsel.
(k) 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
-66-
TTIS, a material adverse change in the financial or business condition of
Inventory and its subsidiaries, taken as a whole.
(l) Employment and Consulting Agreements. David shall have executed
and delivered the Employment Agreement with Subsidiary. Terry shall have
executed and delivered the Consulting Agreement with Subsidiary.
(m) Satisfaction of Officer/Director Loans from Inventory. All loans
or other indebtedness due from the Shareholders to Inventory, as reflected
on the Balance Sheet, shall have been paid, irrespective of any other due
date contained in the documents executed in connection with any such loan
or indebtedness.
(n) 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 Inventory and the
Shareholders are true and complete and all covenants to be performed by
Inventory 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.
(o) Audited Financials. TTIS shall have received from Coopers &
Lybrand an audit of Inventory's books and records with respect to the
fiscal years ended October 31, 1995 and 1996.
(p) Tax Liabilities. The Shareholders shall have paid (and/or made
adequate allowance for payment of) any and
-67-
all tax liabilities having accrued prior to the Closing Date with respect
to the Tax Adjustments.
6.2. Conditions to Obligations of Inventory and the Shareholders to Effect
the Merger. The obligations of Inventory and the Shareholders to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Time of
the following conditions:
(a) Creative Merger. All of the transactions to be consummated on or
before the closing of the Creative Merger shall have been effected.
(b) Accuracy of Representations and Warranties. The representations
and warranties of Subsidiary and TTIS contained in any TTIS Documents
delivered by either Subsidiary or TTIS 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.
(c) 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.
(d) Opinion of Counsel. Inventory and the Shareholders shall have
received an opinion of Tenzer Greenblatt LLP, counsel for TTIS and
Subsidiary, dated the Closing Date, in
-68-
substantially the form of Exhibit H attached hereto.
(e) 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.
(f) 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
Subsidiary and TTIS 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.
(g) Date of Consummation. The Merger shall have been consummated on or
prior to July 31, 1997, or such later date as all of the parties shall
agree in a written instrument.
(h) Validity of Transactions. The validity of all transactions
contemplated hereby, as well as the form and substance of all agreements,
instruments, opinions, certificates
-69-
and other documents delivered by TTIS and Subsidiary pursuant hereto, shall
be satisfactory in all material respects to the Shareholders and its
counsel.
(i) No Material Adverse Change. There shall not have occurred after
the date hereof, in the reasonable judgment of Inventory or the
Shareholders, a material adverse change in the financial or business
condition of TTIS or Subsidiary, taken as a whole.
(j) Employment and Consulting Agreements. Subsidiary shall have
executed and delivered to David the Employment Agreement and shall have
executed and delivered to Terry the Consulting Agreement.
(k) Closing Certificate. Each of TTIS and Subsidiary shall have
furnished Inventory 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
-70-
days) after satisfaction or waiver of the conditions set forth in Section 6 but
in no event later than July 31, 1997 (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;
(b) copies of (i) (A) resolutions adopted by the Board of Directors of
TTIS authorizing TTIS to execute and deliver the TTIS Documents to which it
is a party and to perform its obligations thereunder, upon the terms and
subject to the conditions set forth therein and authorizing Subsidiary 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, duly certified by the
Secretary or Assistant Secretary of Subsidiary.
(c) Confirmation, in the form of satisfactory to the parties hereto,
from the States of Delaware or Virginia that the Agreement of Merger of
Inventory with and into the Subsidiary has been filed with such Secretaries
of State; together with a copy of the executed form of such agreement.
(d) 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
-71-
and Subsidiary executing the TTIS Documents on behalf of such corporation.
7.2. Deliveries by Inventory and/or the Shareholders at the Closing. At the
Closing, Inventory 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 Inventory Common Stock, duly
executed by the Shareholders;
(b) a copy of the resolutions of the Board of Directors of Inventory,
and the written consent of the Shareholders, authorizing Inventory to
execute and deliver the Inventory Documents, to perform its obligations
thereunder and to effect the Merger, duly certified by the Secretary or
assistant Secretary of Inventory;
(c) Certificates of the Secretary or Assistant Secretary of Inventory
certifying as to the incumbency and specimen signatures of the officers of
Inventory executing the Inventory Documents on behalf of such corporation;
(d) the Employment Agreement, duly executed by David;
(e) the Consulting Agreement, duly executed by Terry.
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.
-72-
8. Termination, Amendment and Waiver.
8.1. Termination. This Agreement may be terminated at any time prior to the
Effective Time:
(a) By mutual consent of the Boards of Directors of TTIS, Subsidiary
and Inventory; or
(b) By TTIS and Subsidiary, on the one hand, or Inventory and the
Shareholders, on the other hand, if (i) the Merger shall not have been
consummated by July 31, 1997, 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 Time 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.
(c) By TTIS and Subsidiary, on the one hand, or by Inventory and the
Shareholders, on the other hand, if, in the reasonable judgment of TTIS and
Subsidiary or Inventory 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
-73-
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 Inventory.
(d) By TTIS and Subsidiary, on the one hand, or Inventory and the
Shareholders, on the other hand, if, in the reasonable judgment of TTIS and
Subsidiary or Inventory 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 May 31, 1997, 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 under the Confidentiality Agreement.
8.3. Fees and Expenses. Each of the parties shall be responsible for, and
shall pay, its or his respective fees and expenses incurred by such party in
connection with the Merger and the transactions contemplated by this Agreement.
-74-
8.4. Amendment. This Agreement may not be amended except by an instrument
in writing signed by each of the parties hereto.
8.5. Waiver. At any time prior to the Effective Time, 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 one (1)
year after the Effective Time.
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 date delivered, if delivered personally, or one (1) business day
-75-
after having been deposited with courier, if sent by overnight courier, or being
sent by telecopy, if sent by telecopy (receipt confirmed), or three (3) business
days after having been mailed, if mailed by registered or certified mail
(postage prepaid, return receipt requested), 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
Facsimile #:
with a copy to: Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Robert J. Mittman, Esq.
Facsimile #: (212) 885-5001
If to Inventory or the Shareholders:
Inventory Management Systems, Inc.
2900 Polo Parkway
Suite 104
Richmond, Virginia 23113
Attn: David Clark
Facsimile #
with a copy to: Cowan & Owen, P.C.
1930 Hugenot Road
P.O. Box 35655
Richmond, Virginia 23235-0655
Attn: Michael C. Hall, Esq.
Facsimile #:
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
-76-
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, the Confidentiality Agreement, the
Inventory Documents, the Shareholder Documents and the TTIS Documents (including
the Employment and Consulting Agreement) 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.
10.4. No Assignment. This Agreement shall not be assigned by operation of
law or otherwise, and any assignment shall be null and void.
10.5. Headings. 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.
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, Inventory and the Shareholders
hereby irrevocably and unconditionally consents to submit to the
-77-
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. Attorneys' Fees. In the event of any dispute arising out of the
subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its reasonable attorneys' fees and costs
incurred in litigating, arbitrating, or otherwise settling or resolving such
dispute.
10.8. 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.
-78-
IN WITNESS WHEREOF, each of Take-Two Interactive Software, Inc.,
Subsidiary, Inventory Management Systems, 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 Brant
-----------------------------------------
TAKE TWO ACQUISITION CORP.
By:/s/ Ryan Brant
-----------------------------------------
INVENTORY MANAGEMENT SYSTEMS, INC.
By:/s/ David Clark
-----------------------------------------
David Clark
By:/s/ Karen Clark
-----------------------------------------
Karen Clark
By: /s/ Terry Phillips
-----------------------------------------
Terry Phillips
By: /s/ Cathy Phillips
-----------------------------------------
Cathy Phillips
-79-
TABLE OF CONTENTS
1. The Merger.............................................................. 2
1.1. The Merger........................................................ 2
1.2. Effective Time.................................................... 2
1.3. Effect of the Merger.............................................. 3
1.4. Articles of Incorporation; By-Laws................................ 3
1.5. Directors and Officers of Subsidiary.............................. 3
1.6. Conversion of Securities.......................................... 4
2. Representations and Warranties as to Inventory.......................... 6
2.1. Organization, Standing and Power.................................. 6
2.2. Capitalization.................................................... 6
2.3. Ownership of Inventory Common Stock............................... 8
2.4. Interests in Other Entities....................................... 9
2.5. Authority......................................................... 10
2.6. Noncontravention.................................................. 11
2.7. Financial Statements.............................................. 12
2.8. Guaranties........................................................ 13
2.9. Absence of Undisclosed Liabilities................................ 13
2.10. Properties....................................................... 14
2.11. Accounts Receivable; Inventories................................. 15
2.12. Absence of Changes............................................... 16
2.13. Litigation....................................................... 16
2.14. No Violation of Law.............................................. 17
2.15. Intangibles/Inventions........................................... 17
2.16. Tax Matters...................................................... 19
2.17. Insurance........................................................ 20
2.18. Banks; Powers of Attorney........................................ 21
2.19. Employee Arrangements............................................ 21
2.20. ERISA............................................................ 22
Plans ........................................................ 22
(b) Qualification......................................... 22
(c) Plan Documents........................................ 22
(d) No Prohibited Transactions............................ 23
(e) No Accumulated Funding Deficiency..................... 23
(f) Termination, etc...................................... 23
(g) Reportable Events..................................... 23
(h) Multiemployer Plans................................... 23
(i) Contributions; Benefits............................... 24
(j) Claims................................................ 24
2.21. Systems and Software............................................. 24
2.22. Environmental Matters............................................ 25
2.23. Certain Business Matters......................................... 27
2.24. Certain Contracts................................................ 28
2.25. Customers and Suppliers.......................................... 29
2.26. Business Practices and Commitments............................... 30
2.27. Approvals/Consents............................................... 30
2.28. Information as to Inventory...................................... 30
2.29. Poolability...................................................... 31
2.30. Securities Act Representation.................................... 31
-i-
3. Representations and Warranties as to .................................. 32
3.1. Organization, Standing and Power................................. 32
3.2. Interests in Other Entities...................................... 33
3.3. Capitalization................................................... 33
3.4. Authority........................................................ 34
3.5. Noncontravention................................................. 35
3.6. Absence of Litigation............................................ 36
3.7. ERISA............................................................ 37
Plans ........................................................ 37
(b) Qualification......................................... 37
(c) Plan Documents........................................ 37
(d) No Prohibited Transactions............................ 38
(e) No Accumulated Funding Deficiency..................... 38
(f) Termination, etc...................................... 38
(g) Reportable Events..................................... 38
(h) Multiemployer Plans................................... 38
(i) Contributions; Benefits............................... 39
(j) Claims................................................ 39
3.8. Securities and Exchange Commission Filings;
Financial Statements........................................... 39
3.9. Stock Issuable in Merger......................................... 40
3.10. Properties....................................................... 41
3.11. Absence of Changes............................................... 42
3.12. No Violation of Law.............................................. 42
3.13. Intangibles...................................................... 43
3.14. Tax Matters...................................................... 44
3.15. Approvals/Consents............................................... 45
3.16. Information as to TTIS and Subsidiary............................ 46
4. Indemnification........................................................ 46
4.1. Indemnification by the Shareholders.............................. 46
4.2. Indemnification by TTIS and Subsidiary........................... 47
4.3. Third Party Claims............................................... 47
4.4. Assistance....................................................... 49
4.5. Exclusive Remedy................................................. 49
4.6. Limitation....................................................... 49
5. Covenants.............................................................. 50
5.1. Investigation.................................................... 50
5.2. Noncompete Covenant.............................................. 51
5.3. Certain Activities............................................... 52
5.4. Injunctive Relief, etc........................................... 52
5.5. Scope of Restriction............................................. 53
5.6. Additional Undertakings.......................................... 53
5.7. Consummation of Transaction...................................... 53
5.8. Cooperation/Further Assurances................................... 54
5.9. Accuracy of Representations...................................... 55
5.10. Notification of Certain Matters.................................. 55
5.11. Broker........................................................... 56
5.12. Merger Costs..................................................... 56
5.13. No Solicitation of Transactions.................................. 56
5.14. Employment and Consulting Agreements............................. 57
-ii-
5.15. Registration Rights.............................................. 57
5.16. Prohibited Conduct............................................... 57
5.17. Tax Covenant..................................................... 61
5.18. Pooling.......................................................... 62
6. Conditions of Merger................................................... 62
6.1. Conditions to Obligations of TTIS and Subsidiary
to Effect the Merger........................................... 62
(a) Accuracy of Representations and Warranties............ 62
(b) Performance of Agreements............................. 62
(c) Results of Investigation.............................. 63
(d) Pooling of Interests.................................. 63
(e) Opinion of Counsel for Inventory...................... 63
(f) Litigation............................................ 63
(g) Consents and Approvals................................ 64
(h) Date of Consummation.................................. 64
(i) Validity of Transactions.............................. 64
(j) No Material Adverse Change............................ 64
(k) Employment and Consulting Agreements.................. 65
(l) Satisfaction of Officer/Director Loans from
Inventory........................................... 65
(m) Closing Certificate................................... 65
6.2. Conditions to Obligations of Inventory and the
Shareholders to Effect the Merger.............................. 65
(a) Accuracy of Representations and Warranties............ 65
(b) Performance of Agreements............................. 66
(c) Opinion of Counsel for TTIS and Subsidiary............ 66
(d) Litigation............................................ 66
(e) Consents and Approvals................................ 67
(f) Date of Consummation.................................. 67
(g) Validity of Transactions.............................. 67
(h) No material Adverse Change............................ 67
(i) Employment and Consulting Agreements.................. 68
(j) Closing Certificate................................... 68
7. The Closing............................................................ 68
7.1. Deliveries by TTIS and Subsidiary at the Closing................. 68
7.2. Deliveries by Inventory and/or the Shareholders at
the Closing.................................................... 69
7.3. Other Deliveries................................................. 70
8. Termination, Amendment and Waiver...................................... 70
8.1. Termination...................................................... 70
8.2. Effect of Termination............................................ 72
8.3. Fees and Expenses................................................ 72
8.4. Amendment........................................................ 72
8.5. Waiver........................................................... 72
9. Survival of Representations and Warranties............................. 73
10. General Provisions..................................................... 73
10.1. Notices.......................................................... 73
-iii-
10.2. Severability..................................................... 74
10.3. Entire Agreement................................................. 75
10.4. No Assignment.................................................... 75
10.5. Headings......................................................... 75
10.6. Governing Law.................................................... 75
10.7. Attorneys' Fees.................................................. 76
10.8. Counterparts..................................................... 76
-iv-
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of July 30, 1997 (the "Agreement"),
among Take-Two Interactive Software, Inc., a Delaware corporation ("TTIS");
Take-Two Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of TTIS ("Subsidiary"); Creative Alliance Group, Inc., a Virginia corporation
("Creative"); David Clark ("David"), Terry Phillips ("Terry") and Russell Howard
("Russell"). David, Terry and Russell are sometimes referred to as the
"Shareholders."
W I T N E S S E T H :
WHEREAS, Creative is in the business of distributing computer software at
wholesale (the "Business"); and
WHEREAS, TTIS desires to combine Creative's Business with its existing
computer software business; 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 Creative and Shareholders have: (a) determined that it is in the
best interests of their respective companies for Creative to be merged with and
into Subsidiary upon the terms and subject to the conditions set forth herein;
and (b) approved the merger of Creative with and into Subsidiary (the "Merger")
in accordance with the General Corporation Law of the Commonwealth of Delaware
("Delaware Law"), and the Stock Corporation Act of the State of Virginia
("Virginia 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 Time (as defined in Subsection 1.2), and
subject to and upon the terms and conditions of this Agreement and the Delaware
Law and the Virginia Law, Creative shall be merged with and into Subsidiary, the
separate corporate existence of Creative shall cease, and Subsidiary shall
continue as the surviving corporation. Subsidiary, as the surviving corporation
after the Merger, is hereinafter sometimes referred to as the "Surviving
Corporation."
1.2. Effective Time. 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 Creative shall cause the
Merger to be consummated by filing an Certificate of Merger (the "Certificate of
Merger") with the Secretaries of State of the State of Delaware and the
Commonwealth of Virginia in the form of Exhibit A hereof and making such other
filings as may be required by the Delaware Law and the Virginia 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 Time").
-2-
1.3. Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Delaware Law and Virginia
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the rights, privileges, powers, franchises and all
property (real, personal and mixed) of Creative and all debts due Creative shall
vest in Subsidiary, and all debts, liabilities, obligations and duties of
Creative shall become the debts, liabilities, obligations and duties of
Subsidiary.
1.4. Articles of Incorporation; By-Laws.
(a) The Certificate of Incorporation of Subsidiary, as in effect
immediately prior to the Effective Time (annexed hereto as Exhibit B), shall be,
subject to the name change set forth in the Certificate of Merger, 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 Subsidiary, as in effect immediately prior to the
Effective Time (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 Subsidiary. (a) The directors of Subsidiary
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with
-3-
applicable law, the Certificate of Incorporation and By-Laws of the Surviving
Corporation until resignation, removal or replacement.
(b) The officers of Subsidiary immediately prior to the Effective Time
shall constitute the initial officers of the Surviving Corporation, in each case
to serve at the pleasure of the Board of Directors of Subsidiary until their
respective resignation, removal or placement.
1.6. Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of TTIS, Subsidiary, Creative or the
Shareholders:
(a) Any share of Creative Common Stock (as defined in Subsection 2.2
hereof) held in the treasury of Creative shall be cancelled and
extinguished without any conversion thereof and no payment shall be made
with respect thereto.
(b) All of the outstanding shares (the "Shares") of the Creative
Common Stock shall be converted into the right to receive 150,000 shares of
Common Stock, $.01 par value per share, of TTIS ("TTIS Common Stock")
(hereafter referred to as the "Share Consideration" or the "Merger
Consideration") against the surrender to Subsidiary of the certificates
representing the Shares. Any share of Creative preferred stock, warrant,
option or other security convertible or exchangeable into Creative capital
stock shall be cancelled and extinguished without any conversion thereof
and no payment shall be made with respect thereto.
-4-
(c) Shares of the common stock, par value $.01 per share, of
Subsidiary issued and outstanding at the Effective Time shall remain
outstanding and unchanged and shall constitute all of the issued and
outstanding shares of the capital stock of the Surviving Corporation.
(d) At the Effective Time, the stock transfer books of Creative shall
be closed and there shall be no further registration of transfers of any
Shares thereafter on the records of Creative.
(e) From and after the Effective Time, the holders of certificates
evidencing ownership of Shares shall cease to have any rights with respect
to the Shares, except as otherwise provided herein or by law.
(f) Notwithstanding anything to the contrary in this Subsection 1.6,
no party hereto shall be liable to a holder of a certificate or
certificates formerly representing Shares for any amount properly paid to a
public official pursuant to any applicable property, escheat or similar
law.
(g) No fractional shares of TTIS Common Stock shall be issued in
connection with the Merger and the Shareholders will be issued a whole
share of TTIS Common Stock in lieu of any fractional shares.
2. Representations and Warranties as to Creative. Each of the Shareholders,
jointly and severally, represents and warrants to TTIS and Subsidiary as
follows:
2.1. Organization, Standing and Power. Creative is a corporation duly
organized, validly existing and in good
-5-
standing under the laws of the Commonwealth of Virginia, with full corporate
power and corporate authority to (i) own, lease and operate its properties, (ii)
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. 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 Creative, or
the conduct of its business makes it necessary for Creative to qualify to do
business as a foreign corporation, where the failure to so qualify would have a
material adverse effect on the business, operations or financial condition of
Creative. True and complete copies of the Articles of Incorporation of Creative
and all amendments thereof, and of the By-Laws of Creative, as amended to date,
have heretofore been furnished to TTIS. Creative's minute books contain complete
and accurate records of all meetings and other corporate actions of Creative's
stockholders and Board of Directors (including committees of its Board of
Directors).
2.2. Capitalization.
(a) The authorized capital stock of Creative consists of 5,000 shares of
common stock, par value $1.00 per share (the "Creative Common Stock"), of which
300 shares are issued and outstanding. As of the date hereof, all of the
Creative 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 Creative Common Stock, and the holders of all
outstanding options
-6-
and warrants issued by Creative. 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 Creative or
any of its subsidiaries or obligating the Shareholders or Creative or any of its
subsidiaries to issue or sell any shares of capital stock of or other equity
interests in Creative or any of its subsidiaries. There is no personal
liability, and there are no preemptive rights with regard to the capital stock
of Creative or its subsidiaries, and no right-of-first refusal or similar 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
Creative or any of its subsidiaries to (A) repurchase, redeem or otherwise
acquire any shares of Creative 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 such subsidiary or other entity, or (C) issue
or distribute to any person any capital stock of Creative or its subsidiaries,
or (D) issue or distribute to holders of any of the capital stock of Creative or
its subsidiaries any evidences of indebtedness or assets of Creative or its
subsidiaries. All of the outstanding securities of Creative have been issued and
sold by Creative in full compliance with applicable federal and state securities
laws.
(b) The outstanding shares of capital stock of each of the subsidiaries of
Creative, are duly authorized,
-7-
validly issued, fully paid and nonassessable, and such shares are owned by
Creative, directly or indirectly, free and clear of all security interests,
liens, adverse claims, pledges, agreements, limitations on Creative's voting
rights, charges and other encumbrances of any nature whatsoever.
2.3. Ownership of Creative Common Stock. The Shareholders have good and
marketable title to all of the issued and outstanding shares of Creative Common
Stock, free and clear of any and all liens, adverse claims, security interests,
pledges, mortgages, charges and encumbrances of any nature whatsoever, which
shares are held by them in the amounts set forth in Schedule 2.3 hereof, and on
the Closing Date (as defined in Section 7 hereof) will own all of such Creative
Common Stock, free and clear of any and all liens, adverse claims, security
interests, pledges, mortgages, charges and encumbrances of any nature
whatsoever, including, but not limited to, any claims by any present or former
stockholders of Creative.
2.4. Interests in Other Entities.
(a) Schedule 2.4 sets forth a true and complete list of all direct or
indirect subsidiaries of Creative, together with the jurisdiction of
incorporation of each such subsidiary and the percentage of each such
subsidiary's outstanding capital stock owned by Creative or another of
Creative'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
-8-
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.
(b) Except for (A) each of Terry's and David's ownership of 25% of the
outstanding capital stock of Inventory Management Systems, Inc., and (B) Terry's
ownership of 100% of the outstanding capital stock of Phillips Sales, Inc.
("Phillips"), a Virginia corporation engaged in the business of acting as
representative in the distribution of "front-line" interactive software games
and the sale of "close-out" interactive software games, neither the Shareholders
(individually or jointly) nor Creative (i) 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 Creative at the Effective Time (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); (ii) 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
Creative at the Effective Time; and (iii) 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
-9-
similar business to that business engaged in by Creative at the Effective Time,
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 Creative at the
Effective Time.
2.5. Authority. The execution and delivery by Creative of this Agreement
and of all of the agreements to be executed and delivered by Creative pursuant
hereto (collectively, the "Creative Documents"), the performance by Creative 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 Creative (including,
but not limited to, the unanimous consents of the Board of Directors of Creative
and of the Shareholders) and Creative 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 transaction consummated hereby and thereby. This Agreement is,
and when executed and delivered by Creative 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 Creative 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,
-10-
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.
2.6. Noncontravention. Except as set forth on Schedule 2.6, neither the
execution and delivery by Creative or the Shareholders of this Agreement or of
any other Creative 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, By-Laws or other constituent documents of Creative, 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
-11-
creation or imposition of any lien, adverse claim, restriction, charge or
encumbrance upon any of the assets of Creative (the "Assets"), or (e) interfere
with or otherwise adversely affect the ability of Subsidiary to carry on the
Business after the Effective Date on substantially the same basis as is now
conducted by Creative.
2.7. Financial Statements. Creative has heretofore delivered to each of
TTIS and Subsidiary (a) its financial statements consisting of the unaudited
balance sheets for the years ended October 31, 1995 and 1996, and the related
statements of income, stockholders' equity and cash flows for the two years then
ended, which have been compiled by Gregg & Bailey, P.C., independent certified
public accountants, and (b) its unaudited balance sheet at May 31, 1997 (the
"Balance Sheet") statements of income, stockholders' equity and cash flows for
the seven months ended May 31, 1997 (collectively, the "Creative Financial
Statements"). The Creative Financial Statements were prepared in accordance with
generally accepted accounting principals ("GAAP"), consistently applied, and
present fairly the financial position of Creative as at the dates thereof and
the results of operations for the periods and the cash flow indicated. The books
and records of Creative 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 Creative as set
forth in the Creative Financial Statements.
-12-
2.8. Guaranties. Schedule 2.8 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 Creative (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 Time.
2.9. Absence of Undisclosed Liabilities. Creative 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 May 31,
1997, or (c) in the case of other types of liabilities and obligations,
described in any of the Schedules delivered pursuant hereto or omitted from said
Schedules in accordance with the terms of this Agreement, or arising under
contracts or leases listed in such Schedules or other contracts or leases which
are omitted from such Schedules in accordance with the terms of this Agreement,
or (d) incurred, consistent with past practice, in the ordinary course of
business of Creative (in the case of liabilities and obligations of the type
referred to in clause (a) above).
-13-
2.10. Properties. Except as set forth on Schedule 2.10, Creative has
marketable title to all of the properties and assets, reflected on the Balance
Sheet or thereafter acquired, except properties or assets sold or otherwise
disposed of in the ordinary course of business, free and clear of any and all
mortgages, liens (including liens for current Taxes, as defined in Subsection
2.16(c) hereof), pledges, claims, charges and encumbrances of any nature
whatsoever (hereinafter collectively, "Liens"), other than Liens set forth in
Schedule 2.10 not yet due and payable or being contested in good faith by
appropriate proceedings, and other than such Liens or imperfections of title, if
any, which are not material in character, amount or extent and do not materially
interfere with the present or continued use of such property or otherwise
materially adversely affect the value or transferability thereof or otherwise
materially impair the Business or operations of Creative as conducted on the
date hereof. All plants, structures and equipment which are utilized in the
Business, or are material to the condition (financial or otherwise) of Creative
are owned or leased by Creative and 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 2.10 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
Creative, or which is subject to a title retention or conditional sales
agreement or other security device, and (b) tangible
-14-
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 Creative.
2.11. Accounts Receivable; Inventories. The accounts and notes receivable
which are reflected on the Balance Sheet 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 Creative which
were added after May 31, 1997, are good and collectible in the ordinary course
of business, less the amount of the allowance(s) 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 other than
in the ordinary course of business. The inventories reflected on the Balance
Sheet and thereafter added 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 written down to net realizable value or
adequately reserved against on the books and records of Creative. All
inventories are stated at the lower of cost or market in accordance with
generally accepted accounting principles.
-15-
2.12. Absence of Changes. Since May 31, 1997, there have not been (a) any
adverse change (other than as is normal in the ordinary course of business,
e.g., inventory level changes) in the condition (financial or otherwise),
assets, liabilities, business, prospects, results of operations or cash flows of
Creative (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 Creative of any right, or cancellation of any
debt or claim, of material value, (c) any declarations, set asides or payments
of any dividend or other distributions or payments in respect of the Creative
Common Stock, or (d) any changes in the accounting principles or methods which
are utilized by Creative.
2.13. Litigation. Except as set forth in Schedule 2.13, there are no
claims, suits or actions, or administrative, arbitration or other proceedings or
governmental investigations, pending or, to the best knowledge of Creative and
the Shareholders, threatened, against or relating to Creative 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 Creative, 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 Creative in any area, or
the acquisition by Creative of any properties, assets or businesses, or (b)
otherwise materially adverse to the Business or any of the Assets.
-16-
2.14. No Violation of Law. Creative 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 Creative, 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.
2.15. Intangibles/Inventions. Schedule 2.15 identifies (by a summary
description) the Intangibles (as defined below) the ownership thereof and, if
applicable, Creative'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 Creative, 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
-17-
relating to the Business (collectively, the "Inventions") and (C) all licenses
and other agreements to which Creative is a party or otherwise bound which
relate to any of the Intangibles or the Inventions or Creative'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) Creative 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 the Shareholders, are threatened which
challenge the rights of Creative with respect to the Intangibles or their 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
Creative'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 Creative'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) Creative has not granted any license to third
parties with regard to its Intangibles.
2.16. Tax Matters.
-18-
(a) Creative 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 Creative as of May 31, 1997,
whether (i) incurred in respect of or measured by income of Creative 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. Creative has duly withheld all payroll taxes, FICA and other federal,
state and local taxes and other items requiring to be withheld by it from
employee wages, and has duly deposited the same in trust for or paid over to the
proper taxing authorities. Creative 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 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 Creative have not been examined by the
Internal Revenue Service ("the IRS"), nor has the State of Virginia or any
taxing authority thereof examined any merchandize, personal property, sales or
use tax returns of Creative.
-19-
(b) Creative (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 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.
2.17. Insurance. Schedule 2.17 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 Creative or any creditor 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 Creative
with respect to any such policy.
2.18. Banks; Powers of Attorney. Schedule 2.18 is a complete and correct
list showing (a) the names of each bank
-20-
in which Creative 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 Creative.
2.19. Employee Arrangements. Schedule 2.19 is a complete and correct list
and summary description of all (a) union, collective bargaining, employment,
management, termination and consulting agreements to which any of Creative 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 Creative. Said
Schedule also lists the names and compensation of all employees of Creative
whose earnings during the last fiscal year were $25,000 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.
2.20. ERISA.
(a) Plans. Schedule 2.20 lists Creative's "employee pension benefit plan"
("Creative Pension Plan"), as such term is defined in Section 3(2) of the
Employee Retirement
-21-
Income Security Act of 1974, as amended ("ERISA"), and Creative's "welfare
benefit plan" (collectively called "Creative Welfare Plans") as such term is
defined in Section 3(1) of ERISA, which is maintained by Creative or to which
they contribute or are obligated or required to contribute. The Creative Pension
Plans and Creative Welfare Plans are hereinafter sometimes collectively referred
to as the "Plans" and severally referred to as a "Plan".
(b) Qualification. Each Creative Pension Plan and the trust (if any)
forming a part thereof has been determined by the IRS to be qualified under
Section 401(a) of the Code, and is exempt from taxation under Section 501(a) of
the Code, and nothing has occurred since the date of such determination which
would adversely affect such qualification.
(c) Plan Documents. Creative has heretofore delivered to TTIS and
Subsidiary, true, complete and correct copies of (i) the Plans, and all related
trust agreements, (ii) all written interpretations and summary plan descriptions
relating thereto, (iii) the two most recent annual reports (Form 5500 Series)
and accompanying schedules which were prepared in connection with each Plan,
(iii) all IRS determination letters relating to the Plans, and (iv) the two most
recent actuarial evaluation reports which were prepared in connection with any
of the Plans.
(d) No Prohibited Transactions. Neither Creative, nor any of the Plans, nor
any trust created thereunder, nor any trustee or administrator thereof, have
engaged in a transaction which would subject Creative or any of the Plans to
-22-
the tax on prohibited transactions imposed by Section 4975 of the Code or to a
civil penalty assessed pursuant to Section 502(i) of ERISA.
(e) No Accumulated Funding Deficiency. None of the Creative's Pension Plans
has incurred any "accumulated funding deficiency", as such term is defined in
Section 302 of ERISA and Section 412 of the Code, whether or not waived.
(f) Termination, etc. Creative has not incurred, and are not expected to
incur, directly or indirectly, any liability to the Pension Benefit Guaranty
Corporation (the "PBGC") with respect to the Creative Pension Plan. The PBGC has
not instituted proceedings to terminate the Creative Pension Plan, nor has it
notified Creative, either formally or informally, of its intention to institute
any such proceedings.
(g) Reportable Events. There have not been, with respect to any of the
Plans, any "reportable events", as such term is defined in Section 4043(b) of
ERISA.
(h) Multiemployer Plans. Creative has not ever maintained or contributed
to, or been obligated or required to contribute to, a "multiemployer plan", as
such term is defined in Section 3(37) of ERISA.
(i) Contributions; Benefits. Creative has paid in full all amounts which
were required to have been paid by them on or prior to the date hereof as
contributions to the Creative Pension Plans. The current value of all accrued
benefits under Creative Pension Plans did not, as of the latest
-23-
valuation date thereof, exceed the then current value of the assets of such
Creative Pension Plan allocable to such accrued benefits, based upon the
actuarial assumptions then being utilized with respect thereto.
(j) Claims. There is not pending, and to the best of the knowledge of
Creative or the Shareholders, there is not threatened, any claims against any of
the Plans or any fiduciary thereof (other than claims for benefits made in the
ordinary course).
2.21. Systems and Software. Creative and its subsidiaries 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 the businesses of Creative and its subsidiaries as presently
conducted (collectively, "Systems"). Each System owned or used by Creative or
its subsidiaries immediately prior to the Effective Time will be owned or
available for use by TTIS, the Subsidiary or their subsidiaries on identical
terms and conditions immediately subsequent to the Effective Time. With respect
to each System owned by a third party and used by Creative or its subsidiaries
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 Time;
-24-
(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) neither
Creative nor its subsidiaries have granted any sublicense, sublease or similar
right with respect to any such lease, license, sublicense, agreement or
permission; (f) use and continued use of such Systems by Subsidiary and its
affiliates 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 its business as presently conducted.
Schedule 2.21 is a complete and correct list and summary of all Systems.
2.22. Environmental Matters. Creative and each of its subsidiaries 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 Creative or any of its subsidiaries. Creative has not released,
discharged or disposed of on, under or about any facility currently or
previously owned, leased or controlled by
-25-
the Company or any of its subsidiaries, any Hazardous Substance (as hereinafter
defined), and to the best of Creative's knowledge, no third party has released,
discharged or disposed of on, under or about any facility currently or
previously owned, leased or controlled by Creative or any of its subsidiaries,
and Hazardous Substances (as hereinafter defined). Creative and each of its
subsidiaries is in compliance with all applicable Environmental Laws. Creative
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. Neither Creative nor any of its subsidiaries
has received notice of any past or present events, conditions, circumstances,
activities, practices, incidents, actions or plans of Creative or its
subsidiaries 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,
-26-
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. Certain Business Matters. Except as is set forth in Schedule 2.23,
(a) Creative is not a party to or bound by any distributorship, dealership,
sales agency, franchise or similar agreement which relates to the sale or
distribution of any of the products and services of the Business, (b) Creative
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 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 Creative, (d) the product and service warranties given by
Creative or by which it is bound (complete and correct copies or descriptions of
which have heretofore been delivered by Creative to TTIS) entail no greater
obligations than are customary in the Business, (e) neither Creative 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 Creative or the Shareholders, and
(f) Creative is not a party to or bound by any agreement in which any officer,
director or stockholder of
-27-
Creative (or any affiliate of any such person) has, or had when made, a direct
or indirect material interest.
2.24. Certain Contracts. Schedule 2.24 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 Creative 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 Creative (and will be terminable
by Subsidiary) without liability, expense or other obligation on 30 days' notice
or less, or (B) may be anticipated to involve aggregate payments to or by
Creative of $5,000 (or the equivalent) or less calculated over the full term
thereof, and (C) are not otherwise material to the Business or Creative.
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 Creative to TTIS. Except as expressly stated on
any of such Schedules, (1) each of agreements listed on Schedule 2.24 is in full
force and effect, no person or entity which is a party thereto or otherwise
bound thereby is in 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
-28-
disputes thereunder; (3) none of them is materially burdensome to Creative; 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.
2.25. Customers and Suppliers. Creative has previously provided to TTIS a
complete and correct list setting forth, for the twelve months ended October 31,
1996 and seven months ended May 31, 1997, (a) the 20 largest customers of the
Business and the amount for which each such customer was invoiced, and (b) the
20 largest suppliers 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 Creative 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.
2.26. Business Practices and Commitments. Set forth on Schedule 2.26 is a
description of (a) Creative's rebate and volume discount practice, and
obligations, (b) Creative's allowance and customer return practice and
obligations, (c) Creative's co-op advertising and other promotional practices,
(d) Creative's warranty practices and obligations, (e) price
-29-
protection agreements, and (f) return policies and historical return rates, as
each of the foregoing relate to Creative's customers and suppliers.
2.27. Approvals/Consents. Except as set forth on Schedule 2.27, Creative
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 to Subsidiary 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 Creative. None of the representations or warranties
made by the Shareholders in this Agreement is, or contained in any of the
Creative 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.
-30-
2.29. Poolability. Except as set forth on Schedule 2.29:
(a) None of Creative 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 Creative have been a subsidiary or a division of another
entity since the date two years prior to the Closing date.
(b) Creative 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) Creative 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 Closing Date. The equity transactions and the capital stock
transactions for Creative and for each Shareholder since the date two years
prior to the date hereof Closing Date 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
-31-
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 Creative 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, with full corporate power and corporate authority to
(i) own, lease and operate its properties, (ii) 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. Except as set forth on Schedule 3.1, there are no states
or jurisdictions in which the character and location of any of the properties
owned or leased by TTIS or Subsidiary, or the conduct of their business makes it
necessary for either of them to qualify to do business as a foreign corporation,
where the failure to so qualify would have a material adverse effect on the
business, operations or financial condition of TTIS or Subsidiary. True and
complete copies of the Certificates of Incorporation of TTIS and of Subsidiary,
and of the By-Laws of TTIS and of Subsidiary, as amended to date, have
heretofore been furnished to Creative. The minute books of TTIS and of
Subsidiary contain complete and accurate records of all meetings and other
corporate actions of their respective stockholders and
-32-
Board of Directors (including committees of its Boards of Directors).
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 it
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
15,000,000 shares of TTIS Common Stock and 5,000,317 shares of Preferred Stock,
par value $.01 per share (of which 317 shares of Series A Preferred Stock, $1.00
par value per share, are outstanding). As of the date hereof, (i) 7,847,455
shares of TTIS Common Stock are issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable, (ii) 1,100,311 shares
of TTIS Common Stock are issuable upon exercise of options and (iii) 2,337,234
shares of TTIS Common Stock are reserved for future issuance upon exercise
-33-
of outstanding common stock purchase warrants. There is no personal liability,
and there are no preemptive rights with regard to the capital stock of TTIS, and
no right-of-first refusal or similar rights with regard to such capital stock.
All of the shares of TTIS Common Stock issuable in connection with the Merger
will be offered, issued and sold by TTIS in full compliance with applicable
federal and state securities laws.
(b) The outstanding shares of capital stock of each of the subsidiaries of
TTIS, including Subsidiary, are duly authorized, validly issued, fully paid and
nonassessable, and, except as set forth in the SEC Reports (defined in
Subsection 3.3 hereof) 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 or on Schedule 3.3, TTIS
owns all issued and outstanding shares of capital stock of each Subsidiary and
there are no options, warrants or similar right outstanding with respect to
shares of capital stock of any 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, have been duly and validly
authorized by all necessary corporate
-34-
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. Noncontravention. Except as set forth on Schedule 3.5, neither the
execution and delivery by TTIS or Subsidiary of any TTIS Document, nor the
consummation of any of the transactions contemplated hereby or thereby, nor the
performance by either of them of any of its 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
Certificates of Incorporation or By-Laws of either TTIS or Subsidiary, 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, either 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 of them is a party or by which either
of them or
-35-
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 of them, or (d) result in
the creation or imposition of any lien, adverse claim, restriction, charge or
encumbrance upon any of their assets, or (e) interfere with or otherwise
adversely affect the ability of TTIS or Subsidiary to carry on its business on
substantially the same basis as is now conducted by it.
3.6. Absence of Litigation. Except as may be disclosed in the SEC Reports
(defined in Subsection 3.8 hereof) or as set forth in Schedule 3.6 hereof, there
are no claims, actions, suits, proceedings or investigations pending or, to the
knowledge of TTIS and Subsidiary, threatened against or relating to TTIS,
Subsidiary, this Agreement, the transactions contemplated hereby, or any
properties or assets of TTIS or Subsidiary. Neither TTIS nor any of its
subsidiaries (including the Subsidiary), nor any of their respective properties
is subject to any order, writ, judgment, injunction, decree, determination or
award which, if enforced, would have a material adverse effect on the business,
the results of the operations, cash flows or financial condition of TTIS
separately or of TTIS and its subsidiaries taken as a whole.
3.7. ERISA.
(a) Plans. Schedule 3.7 lists TTIS's "employee pension benefit plan" ("TTIS
Pension Plan"), as such
-36-
term is defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and TTIS's "welfare benefit plan" (collectively
called "TTIS Welfare Plans") as such term is defined in Section 3(1) of ERISA,
which is maintained by TTIS or to which they contribute or be obligated or
required to contribute. The TTIS Pension Plans and TTIS Welfare Plans are
hereinafter sometimes collectively referred to as the "Plans" and severally
referred to as a "Plan".
(b) Qualification. Each TTIS Pension Plan and the trust (if any) forming a
part thereof has been determined by the IRS to be qualified under Section 401(a)
of the Code, and is exempt from taxation under Section 501(a) of the Code, and
nothing has occurred since the date of such determination which would adversely
affect such qualification.
(c) Plan Documents. TTIS has heretofore delivered to Creative and to the
Shareholders, true, complete and correct copies of (i) the Plans, and all
related trust agreements, (ii) all written interpretations and summary plan
descriptions relating thereto, (iii) the two most recent annual reports (Form
5500 Series) and accompanying schedules which were prepared in connection with
each Plan, (iii) all IRS determination letters relating to the Plans, and (iv)
the two most recent actuarial evaluation reports which were prepared in
connection with any of the Plans.
(d) No Prohibited Transactions. Neither TTIS, nor any of the Plans, nor any
trust created thereunder, nor any trustee or administrator thereof, have engaged
in a
-37-
transaction which would subject TTIS or any of the Plans to the tax on
prohibited transactions imposed by Section 4975 of the Code or to a civil
penalty assessed pursuant to Section 502(i) of ERISA.
(e) No Accumulated Funding Deficiency. None of the TTIS's Pension Plans has
incurred any "accumulated funding deficiency", as such term is defined in
Section 302 of ERISA and Section 412 of the Code, whether or not waived.
(f) Termination, etc. TTIS has not incurred, and is not expected to incur,
directly or indirectly, any liability to the Pension Benefit Guaranty
Corporation (the "PBGC") with respect to the TTIS Pension Plan. The PBGC has not
instituted proceedings to terminate the TTIS Pension Plan, nor has it notified
TTIS, either formally or informally, of its intention to institute any such
proceedings.
(g) Reportable Events. There have not been, with respect to any of the
Plans, any "reportable events", as such term is defined in Section 4043(b) of
ERISA.
(h) Multiemployer Plans. TTIS has not ever maintained or contributed to, or
been obligated or required to contribute to, a "multiemployer plan", as such
term is defined in Section 3(37) of ERISA.
(i) Contributions; Benefits. TTIS has paid in full all amounts which were
required to have been paid by them on or prior to the date hereof as
contributions to the TTIS Pension Plans. The current value of all accrued
benefits under TTIS Pension Plans did not, as of the latest valuation date
-38-
thereof, exceed the then current value of the assets of such TTIS Pension Plan
allocable to such accrued benefits, based upon the actuarial assumptions then
being utilized with respect thereto.
(j) Claims. There is not pending, and to the best of the knowledge of TTIS
or the Subsidiary, there is not threatened, any claims against any of the Plans
or any fiduciary thereof (other than claims for benefits made in the ordinary
course).
3.8. Securities and Exchange Commission Filings; Financial Statements.
(a) TTIS has filed 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. TTIS has delivered to Creative, in the form filed with the
SEC (including any amendments thereto), its Registration Statement on Form SB-2,
effective April 14, 1997, and its Quarterly Report on Form 10-QSB for the
quarter ended April 30, 1997. 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.
-39-
(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 May 31, 1997, 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 May
31, 1997, 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.
3.9. 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
-40-
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.
3.10. Properties. Except as set forth on Schedule 3.10, TTIS and the
Subsidiary have good title to all of the properties and assets, reflected on
their balance sheets or thereafter acquired, except properties or assets sold or
otherwise disposed of in the ordinary course of business, free and clear of any
and all Liens, other than Liens not yet due and payable or being contested in
good faith by appropriate proceedings, and other than such Liens or
imperfections of title, if any, which are not substantial in character, amount
or extent and do not materially interfere with the present or continued use of
such property or otherwise materially adversely affect the value or
transferability thereof or otherwise materially impair the business operations
of TTIS as conducted on the date hereof. All plants, structures and equipment
which are utilized in the business operations of TTIS, or are material to the
condition (financial or otherwise) of TTIS, are owned or leased by TTIS, 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.
3.11. Absence of Changes. Since May 31, 1997, there have not been (a) any
material adverse change (other than as is normal in the ordinary course of
business, e.g., inventory
-41-
level changes) 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 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.
3.12. No Violation of Law. Neither TTIS nor Subsidiary is 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 either TTIS or Subsidiary, their
respective business operations or any of their respective 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.
-42-
3.13. Intangibles/Inventions. Schedule 3.13 identifies (by a summary
description) the TTIS Intangibles (as defined below) the ownership thereof and,
if applicable, TTIS's and Subsidiary'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 TTIS, 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 of TTIS
(collectively, the "Rights") and (C) all licenses and other agreements to which
TTIS is a party or otherwise bound which relate to any of the Intangibles or the
Rights or TTIS's use thereof in connection with its business (collectively, the
"TTIS Licenses, and together with the Marks and the Rights, the "TTIS
Intangibles"). No violations of the terms of any of the aforesaid licenses
and/or agreements have occurred. Except as disclosed in the SEC Reports or on
Schedule 3.13, (A) TTIS owns or is authorized to use in connection with the
Business all of the TTIS Intangibles; (B) no proceedings have been instituted,
are pending, or to the best knowledge of TTIS, are threatened which challenge
the rights of TTIS with respect to the TTIS Intangibles or their use thereof in
connection with the business
-43-
of TTIS or the validity thereof and, there is no valid basis for any such
proceedings; (C) neither TTIS's ownership of the TTIS Intangibles nor their use
thereof by TTIS 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 TTIS Intangibles, or TTIS's use thereof is
subject to any outstanding order, decree, judgment, stipulation or any lien,
security interest or other encumbrance; and (E) TTIS has not granted any license
to third parties with respect thereto.
3.14. Tax Matters.
(a) TTIS 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
shown to be due or claimed to be due on such tax returns and reports. The
provisions for Taxes which are set forth on its balance sheets are adequate for
all accrued and unpaid taxes of TTIS as of May 31, 1997, whether (i) incurred in
respect of or measured by income of TTIS 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. TTIS 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. TTIS has not
executed or filed with any taxing authority any agreement
-44-
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 TTIS, 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 TTIS have not been examined by the IRS, nor has the State of Delaware or any
taxing authority thereof examined any merchandize, personal property, sales or
use tax returns of TTIS.
(b) TTIS (i) has not agreed to or been required to make any adjustment
pursuant to Section 481(a) of the Code, (ii) has 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.
3.15. Approvals/Consents. Except as set forth on Schedule 3.15, TTIS
currently holds all governmental and administrative consents, permits,
appointments, approvals, licenses, certificates and franchises which are
necessary for the operation of its business. Schedule 3.15 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 TTIS to
exist as of the date of this Agreement.
3.16. Information as to TTIS and Subsidiary. None of the representations or
warranties made by TTIS or
-45-
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 the Shareholders. Each of 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 material fact contained in any representation of Creative
and/or the Shareholders contained in, or the breach by Creative, or the
Shareholders of any warranty or covenant made by any one or all of them in, any
Creative Document and/or the Shareholders Document. The foregoing
indemnification shall 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 Creative (before
-46-
the Effective Time) 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 material 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 Creative 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
-47-
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 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
-48-
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. 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.
4.5. Exclusive Remedy. The provisions of this Section 4 shall be the sole
and exclusive remedy, other than equitable relief, of the parties hereto.
4.6. Limitation. Neither TTIS and Subsidiary, on the one hand, nor the
Shareholders on other hand, shall be entitled to any claim for indemnification
under this Section 4 until the aggregate amount of losses, for which indemnity
is claimed exceeds $50,000, and once such threshold amount is met, then the
indemnity shall apply to amounts over such threshold.
-49-
5. Covenants
5.1. Investigation.
(a) Between the date hereof and the Closing Date, TTIS and/or Subsidiary,
on the one hand, and Creative 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 Creative 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 Party obtains access shall be governed by and
subject to all of
-50-
the terms and conditions of the confidentiality covenants set forth in the
Letter of Intent dated June 6, 1997 ("Confidentiality Agreement") among various
parties, including the parties hereto (with TTIS signing on behalf of
Subsidiary) and Subsidiary agrees to be bound to the Confidentiality Agreement.
(c) 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;
(d) After the Effective Time 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 Subsidiary.
5.2. Noncompete Covenant. Except with respect to Terry's ownership of
Phillips, each of the Shareholders hereby agrees after the Effective Time not
to, until the first anniversary of the Effective Time directly or indirectly (A)
engage or become interested in any business (whether as owner, manager,
operator, licensor, licensee, lender, partner, stockholder, joint venturer,
employee, consultant or otherwise)
-51-
engaged in the business then engaged in by TTIS or Subsidiary in any of the
areas in which TTIS or Subsidiary then conducts business or (B) take any other
action which constitutes an interference with or a disruption of TTIS or
Subsidiary's operation of the Business or Subsidiary's use, ownership and
enjoyment of the Assets.
5.3. Certain Activities. For purposes of clarification, but not of
limitation (1) each Shareholder acknowledges and agrees that the provisions of
subsection 5.2 above shall serve as a prohibition against him, during the period
described therein, directly or indirectly, hiring, offering to hire, enticing
away or in any other manner persuading or attempting to persuade any officer,
employee, agent, lessor, lessee, licensor, licensee, customer, prospective
customer or supplier of the business of TTIS or the Subsidiary to discontinue or
alter his or its relationship with the Business.
5.4. Injunctive Relief, etc. The parties hereto hereby acknowledge and
agree that (i) TTIS and/or Subsidiary would be irreparably injured in the event
of a breach by any of the Shareholders of any of their obligations under this
Section 5, (ii) monetary damages would not be an adequate remedy for any such
breach, and (iii) TTIS and/or Subsidiary shall be entitled to injunctive relief,
in addition to any other remedy which it may have, in the event of any such
breach. It is hereby also agreed that the existence of any claims which
Shareholders may have against TTIS or the Subsidiary, whether under this
Agreement
-52-
or otherwise, shall not be a defense to the enforcement by TTIS and/or
Subsidiary of any of the rights under this Section 5.
5.5. Scope of Restriction. It is the intent of the parties hereto that the
covenants contained in this Agreement shall be enforced to the fullest extent
permissible under the laws of and public policies of each jurisdiction in which
enforcement is sought (the Shareholders hereby acknowledge that said
restrictions are reasonably necessary for the protection of TTIS and
Subsidiary). Accordingly, it is hereby agreed that if any one or more of the
provisions of subsections 5.2 or 5.3 shall be adjudicated to be invalid or
unenforceable for any reason whatsoever, said provision shall be (only with
respect to the operation thereof in the particular jurisdiction in which such
adjudication is made) construed by limiting and reducing it so as to be
enforceable to the extent permissible.
5.6. Additional Undertakings. The provisions of this subsection 5.6 shall
be in addition to, and not in lieu of, any other obligations with respect to the
subject matter hereof, whether arising as a matter of contract, by law or
otherwise.
5.7. 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
-53-
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.
5.8. 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 Creative 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.
5.9. Accuracy of Representations. Each party hereto agrees that prior to
the Effective Date he, she 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
-54-
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.
5.10. Notification of Certain Matters. Creative and the Shareholders shall
give prompt notice to TTIS and Subsidiary, and TTIS or Subsidiary shall give
prompt notice to Creative 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
Time and (b) any material failure of Creative 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 5.10 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
5.11. Broker. Each of TTIS, Subsidiary, Creative, 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
-55-
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.
5.12. Merger Costs. Each party hereto shall be responsible for paying their
respective costs and expenses relating to the Merger and related transactions.
5.13. No Solicitation of Transactions. Prior to the earlier of the
Effective Time or the termination of this Agreement, neither Creative nor the
Shareholders will, directly or indirectly, through any director, officer,
employee, agent or 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
Creative Common Stock, Assets or Business of, or any equity interest in,
Creative, or any business combination with Creative (other than the Merger) and
other than with TTIS and/or Subsidiary, participate in any negotiations
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. Creative 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). Creative and the Shareholders shall promptly
notify TTIS if any
-56-
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.
5.14. Registration Rights. At the Closing, TTIS shall enter into a
registration rights agreement substantially in the form of Exhibit D hereto (the
"Registration Rights Agreement"), whereby TTIS would grant the Shareholders
certain "piggyback" registration rights.
5.15. Prohibited Conduct. Each of Creative and the Shareholders, jointly
and severally, covenants and agrees that, during the period from the date hereof
to the Effective Time, except pursuant to the terms hereof or unless TTIS shall
otherwise agree in writing, the Business shall be conducted only, and Creative
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
Creative shall use its best efforts to preserve intact its Assets, the Business
and the business organization of Creative, to keep available the services of the
present officers, employees and consultants of Creative, and to preserve the
present relationships of Creative with customers, suppliers and other persons
with whom Creative has business relations. By way of illustration, and not
limitation, neither Creative nor the Shareholders shall, between the date of
this Agreement and the Effective Time, directly or indirectly do, or propose or
commit to do, any of the following without the prior written consent of TTIS:
-57-
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of the Creative Common Stock, or (ii)
split, combine or reclassify any of the Creative 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 Creative 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 Creative 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;
(c) (i) increase the compensation payable or to become payable to any
officer, director, employees or consultant of Creative, 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 Creative or any of its subsidiaries, 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
-58-
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 Creative;
(d) amend the Certificate of Incorporation, By-Laws or other
comparable charter or organizational documents of Creative or alter through
merger, liquidation, reorganization, restructuring, or in any other
fashion, the corporate structure or ownership of Creative;
(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
Creative, 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 Creative 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
Creative, guarantee any debt securities of another person, or
-59-
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 Creative;
(h) except in the ordinary course of business, enter into any
agreement, contract, commitment, involving a commitment on the part of
Creative to purchase, sell, lease or otherwise dispose of assets or require
payment by Creative in excess of $10,000;
(i) make any capital expenditures;
(j) adopt a plan of complete or partial liquidation of Creative or
resolutions providing for or authorizing such a liquidation or the
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization of Creative;
(k) cause Creative 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 Creative, 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
-60-
to the business, financial condition or results of the operations of
Creative and it s Subsidiaries, if any, taken as a whole;
(n) settle or compromise any litigation in which Creative 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 $50,000; and
(o) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.16. Tax Covenant. The Stockholders shall use their best efforts to cause
the Merger to qualify, and will not (both before and after consummation of the
Merger) take any actions which could prevent the Merger from qualifying as a
reorganization under the provisions of Section 368 of the Code and the
regulations promulgated thereunder. Each of TTIS and the Subsidiary will not
(after the consummation of the Merger) take any actions which will prevent the
Merger from qualifying as a reorganization under the provisions of Section 368
of the Code and the regulations promulgated thereunder. Each of TTIS, the
Subsidiary and the Shareholders shall report the Merger as a reorganization
under the provisions of Section 368 of the Code and the regulations promulgated
thereunder and, to the extent permitted, on all state and local tax returns.
-61-
5.17. Pooling. Neither Creative 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.
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 Time of the following
conditions:
(a) Inventory Merger. All of the transactions to be consummated on or
before the closing pursuant to that certain Agreement and Plan of Merger by
and among TTIS, the Subsidiary, Inventory Management Systems, Inc.
("Inventory") and the shareholders of Inventory (the "Inventory Merger"),
shall have been effected.
(b) Accuracy of Representations and Warranties. The representations
and warranties of each of Creative and the Shareholders contained herein or
in any Shareholders Document or Creative 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.
(c) Performance of Agreements. Each of Creative and the Shareholders,
as the case may be, shall have performed, observed and complied in all
material respects with
-62-
all of their obligations, covenants and agreements, and shall have
satisfied or fulfilled in all material respects conditions contained in any
Shareholders Document or Creative Document and required to be performed,
observed or complied with, or to be satisfied or fulfilled, by Creative or
the Shareholders at or prior to the Effective Date.
(d) Results of Investigation. TTIS and Subsidiary shall be satisfied
with the results of any investigation of the business and affairs of
Creative undertaken by them pursuant to Subsection 5.1 hereof.
(e) Pooling of Interests. TTIS shall have received an opinion from
Coopers & Lybrand that the Merger will be treated, for financial reporting
purposes, as a pooling of interests.
(f) Opinion of Counsel for Creative. TTIS and Subsidiary shall have
received an opinion of Cowen & Owen, counsel for Creative and the
Shareholders, dated the Closing Date, in substantially the form of Exhibit
E hereto.
(g) 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 TTIS (based on the
-63-
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.
(h) 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) required as a precondition to the performance by
Creative 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 Time, 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.
(i) Date of Consummation. The Merger shall have been consummated on or
prior July 31, 1997, or such later date as the parties shall agree by a
written instrument signed by all of them.
(j) 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
Creative and the Shareholders pursuant hereto, shall be satisfactory in all
material respects to TTIS and its counsel.
(k) No Material Adverse Change. Except as otherwise provided by this
Agreement, there shall not have
-64-
occurred after the date hereof, in the reasonable judgment of TTIS, a
material adverse change in the financial or business condition of Creative
and its subsidiaries, taken as a whole.
(l) Satisfaction of Officer/Director Loans from Creative. All loans or
other indebtedness due from the Shareholders to Creative, as reflected on
the Balance Sheet, shall have been paid, irrespective of any other due date
contained in the documents executed in connection with any such loan or
indebtedness.
(m) 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 Creative and the
Shareholders are true and complete and all covenants to be performed by
Creative 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.
(n) Audited Financials. TTIS shall have received from Coopers &
Lybrand an audit of Creative's books and records with respect to the fiscal
years ended October 31, 1996 and 1995.
6.2. Conditions to Obligations of Creative and the Shareholders to Effect
the Merger. The obligations of Creative and the Shareholders to effect the
Merger shall be
-65-
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) Inventory Merger. All of the transactions to be consummated on or
before the closing of the Inventory Merger shall have been effected.
(b) 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.
(c) 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.
(d) Opinion of Counsel for TTIS and Subsidiary. Creative and the
Shareholders shall have received an opinion of Tenzer Greenblatt LLP,
counsel for TTIS and Subsidiary, dated the Closing Date, in substantially
the form of Exhibit F attached hereto and made a part hereof.
(e) Litigation. No order of any court or administrative agency shall
be in effect which restrains or
-66-
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.
(f) 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.
(g) Date of Consummation. The Merger shall have been consummated on or
prior to July 31, 1997, or such later date as the parties shall agree by a
written instrument signed by all of them.
(h) 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
-67-
hereto, shall be satisfactory in all material respects to the Shareholders
and its counsel.
(i) No material Adverse Change. There shall not have occurred after
the date hereof, in the reasonable judgment of Creative or the
Shareholders, a material adverse change in the financial or business
condition of TTIS or Subsidiary, taken as a whole.
(j) Closing Certificate. Each of TTIS and Subsidiary shall have
furnished Creative 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 July 31, 1997 (the "Closing Date"); or such
later date as shall have been fixed by a written instrument signed by the
parties.
-68-
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;
(b) copies of (i) (A) resolutions adopted by the Board of Directors of
TTIS authorizing TTIS to execute and deliver the TTIS Documents to which it
is a party and to perform its obligations thereunder, upon the terms and
subject to the conditions set forth therein and authorizing Subsidiary 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, duly certified by the
Secretary or Assistant Secretary of Subsidiary.
(c) Confirmation, in the form of satisfactory to the parties hereto,
from the States of Delaware or Virginia that the Agreement of Merger of
Creative with and into the Subsidiary has been filed with such Secretaries
of State; together with a copy of the executed form of such agreement.
(d) 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.
7.2. Deliveries by Creative and/or the Shareholders at the Closing. At the
Closing, Creative and/or the
-69-
Shareholders, as applicable, shall deliver to TTIS and/or Subsidiary, as the
case may be, the following:
(a) stock certificate(s) representing the Creative Common Stock, duly
executed by the Shareholders;
(b) a copy of the resolutions of the Board of Directors of Creative,
and the written consent of the Shareholders, authorizing Creative to
execute and deliver the Creative Documents, to perform its obligations
thereunder and to effect the Merger, duly certified by the Secretary or
assistant Secretary of Creative;
(c) Certificates of the Secretary or Assistant Secretary of Creative
certifying as to the incumbency and specimen signatures of the officers of
Creative executing the Creative Documents on behalf of such corporation;
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 Time:
(a) By mutual consent of the Boards of Directors of TTIS, Subsidiary
and Creative; or
(b) By TTIS and Subsidiary, on the one hand, or Creative and the
Shareholders, on the other hand, if (i) the Merger shall not have been
consummated by July 31, 1997, or such
-70-
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 Time 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.
(c) By TTIS and Subsidiary, on the one hand, or by Creative and the
Shareholders, on the other hand, if, in the reasonable judgment of TTIS and
Subsidiary or Creative 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 Creative.
(d) By TTIS and Subsidiary, on the one hand, or Creative and the
Shareholders, on the other hand, if, in the reasonable judgment of TTIS and
Subsidiary or Creative or the Shareholders, as the case may be (and
provided such parties are
-71-
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 May 31, 1997, 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 under the Confidentiality Agreement.
8.3. Fees and Expenses. Each of the parties shall be responsible for,
and shall pay, its or his respective fees and expenses incurred by such party in
connection with the Merger and the transactions contemplated by this Agreement.
8.4. Amendment. This Agreement may not be amended except by an instrument
in writing signed by each of the parties hereto.
8.5. Waiver. At any time prior to the Effective Time, 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
-72-
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 one (1)
year after the Effective Time.
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 date delivered, if delivered personally, or one (1) business day after
having been deposited with courier, if sent by overnight courier, or being sent
by telecopy, if sent by telecopy (receipt confirmed), or three (3) business days
after having been mailed, if mailed by registered or certified mail (postage
prepaid, return receipt requested), 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):
-73-
If to TTIS or Subsidiary: Take-Two Interactive Software, Inc.
575 Broadway
New York, New York 10012
Attn: Ryan A. Brant
Chief Executive Officer
Facsimile #:
with a copy to: Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Robert J. Mittman, Esq.
Facsimile #: (212) 885-5001
If to Creative or the Shareholders:
Creative Alliance Group, Inc.
2900 Polo Parkway
Suite 104
Richmond, Virginia 23113
Attn: David Clark
Facsimile #
with a copy to: Cowan & Owen, P.C.
1930 Hugenot Road
P.O. Box 35655
Richmond, Virginia 23235-0655
Attn: Michael C. Hall, Esq.
Facsimile #:
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.
-74-
10.3. Entire Agreement. This Agreement, the Confidentiality Agreement, the
Creative Documents, the Shareholder Documents and the TTIS Documents 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.
10.4. No Assignment. This Agreement shall not be assigned by operation of
law or otherwise, and any assignment shall be null and void. 10.5. Headings.
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.
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, Creative 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.
-75-
10.7. Attorneys' Fees. In the event of any dispute arising out of the
subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its reasonable attorneys' fees and costs
incurred in litigating, arbitrating, or otherwise settling or resolving such
dispute.
10.8. 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.
[end of page]
-76-
IN WITNESS WHEREOF, each of Take-Two Interactive Software, Inc.,
Subsidiary, Creative Management Systems, 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 Brant
---------------------------------------
TAKE TWO ACQUISITION CORP.
By: /s/ Ryan Brant
---------------------------------------
CREATIVE ALLIANCE GROUP, INC.
By: /s/
---------------------------------------
By: /s/ David Clark
---------------------------------------
David Clark
By: /s/ Terry Phillips
---------------------------------------
Terry Phillips
By: /s/ Russell Howard
---------------------------------------
Russell Howard
-77-
TABLE OF CONTENTS
1. The Merger........................................................... 2
1.1. The Merger.................................................... 2
1.2. Effective Time................................................ 2
1.3. Effect of the Merger.......................................... 3
1.4. Articles of Incorporation; By-Laws............................ 3
1.5. Directors and Officers of Subsidiary.......................... 3
1.6. Conversion of Securities...................................... 4
2. Representations and Warranties as to Creative....................... 6
2.1. Organization, Standing and Power.............................. 6
2.2. Capitalization................................................ 6
2.3. Ownership of Creative Common Stock............................ 8
2.4. Interests in Other Entities................................... 9
2.5. Authority..................................................... 10
2.6. Noncontravention.............................................. 11
2.7. Financial Statements.......................................... 12
2.8. Guaranties.................................................... 13
2.9. Absence of Undisclosed Liabilities............................ 13
2.10. Properties................................................... 14
2.11. Accounts Receivable; Inventories............................. 15
2.12. Absence of Changes........................................... 16
2.13. Litigation................................................... 16
2.14. No Violation of Law.......................................... 17
2.15. Intangibles/Inventions....................................... 17
2.16. Tax Matters.................................................. 19
2.17. Insurance.................................................... 20
2.18. Banks; Powers of Attorney.................................... 21
2.19. Employee Arrangements........................................ 21
2.20. ERISA........................................................ 22
Plans ....................................................... 22
(b) Qualification........................................... 22
(c) Plan Documents.......................................... 22
(d) No Prohibited Transactions.............................. 23
(e) No Accumulated Funding Deficiency....................... 23
(f) Termination, etc........................................ 23
(g) Reportable Events....................................... 23
(h) Multiemployer Plans..................................... 23
(i) Contributions; Benefits................................. 24
(j) Claims.................................................. 24
2.21. Systems and Software........................................ 24
2.22. Environmental Matters....................................... 25
2.23. Certain Business Matters.................................... 27
2.24. Certain Contracts........................................... 28
2.25. Customers and Suppliers..................................... 29
2.26. Business Practices and Commitments.......................... 30
2.27. Approvals/Consents.......................................... 30
2.28. Information as to Creative.................................. 30
2.29. Poolability................................................. 31
2.30. Securities Act Representation............................... 31
-i-
3. Representations and Warranties as to ................................ 32
3.1. Organization, Standing and Power............................. 32
3.2. Interests in Other Entities................................... 33
3.3. Capitalization............................................... 33
3.4. Authority.................................................... 34
3.5. Noncontravention............................................. 35
3.6. Absence of Litigation......................................... 36
3.7. ERISA......................................................... 37
Plans ....................................................... 37
(b) Qualification........................................... 37
(c) Plan Documents.......................................... 37
(d) No Prohibited Transactions.............................. 38
(e) No Accumulated Funding Deficiency....................... 38
(f) Termination, etc........................................ 38
(g) Reportable Events....................................... 38
(h) Multiemployer Plans..................................... 38
(i) Contributions; Benefits................................. 39
(j) Claims.................................................. 39
3.8. Securities and Exchange Commission Filings;
Financial Statements......................................... 39
3.9. Stock Issuable in Merger..................................... 40
3.10. Properties.................................................. 41
3.11. Absence of Changes.......................................... 42
3.12. No Violation of Law......................................... 42
3.13. Intangibles................................................. 43
3.14. Tax Matters................................................. 44
3.15. Approvals/Consents.......................................... 45
3.16. Information as to TTIS and Subsidiary....................... 46
4. Indemnification...................................................... 46
4.1. Indemnification by the Shareholders.......................... 46
4.2. Indemnification by TTIS and Subsidiary....................... 47
4.3. Third Party Claims........................................... 47
4.4. Assistance.................................................... 49
4.5. Exclusive Remedy.............................................. 49
4.6. Limitation.................................................... 49
5. Covenants............................................................ 50
5.1. Investigation............................................... 50
5.2. Noncompete Covenant......................................... 51
5.3. Certain Activities.......................................... 52
5.4. Injunctive Relief, etc...................................... 52
5.5. Scope of Restriction........................................ 53
5.6. Additional Undertakings..................................... 53
5.7. Consummation of Transaction................................. 53
5.8. Cooperation/Further Assurances.............................. 54
5.9. Accuracy of Representations................................. 55
5.10. Notification of Certain Matters........................ 55
5.11. Broker................................................. 56
5.12. Merger Costs........................................... 56
5.13. No Solicitation of Transactions............................ 56
5.14. Registration Rights........................................ 57
-ii-
5.15. Prohibited Conduct........................................ 57
5.16. Tax Covenant........................................... 61
5.17. Pooling................................................ 62
6. Conditions of Merger................................................. 62
6.1. Conditions to Obligations of TTIS and Subsidiary
to Effect the Merger...................................... 62
(a) Accuracy of Representations and Warranties........... 62
(b) Performance of Agreements............................ 62
(c) Results of Investigation............................. 63
(d) Pooling of Interests................................. 63
(e) Opinion of Counsel for Creative...................... 63
(f) Litigation........................................... 63
(g) Consents and Approvals............................... 64
(h) Date of Consummation................................. 64
(i) Validity of Transactions............................. 64
(j) No Material Adverse Change........................... 64
(k) Satisfaction of Officer/Director Loans from
Creative........................................... 65
(l) Closing Certificate................................ 65
6.2. Conditions to Obligations of Creative and the
Shareholders to Effect the Merger........................ 65
(a) Accuracy of Representations and Warranties........... 65
(b) Performance of Agreements............................ 66
(c) Opinion of Counsel for TTIS and Subsidiary........... 66
(d) Litigation........................................... 66
(e) Consents and Approvals............................... 67
(f) Date of Consummation................................. 67
(g) Validity of Transactions............................. 67
(h) No material Adverse Change........................... 67
(i) Closing Certificate.................................. 68
7. The Closing.......................................................... 68
7.1. Deliveries by TTIS and Subsidiary at the Closing.......... 68
7.2. Deliveries by Creative and/or the Shareholders at
the Closing............................................... 69
7.3. Other Deliveries.......................................... 70
8. Termination, Amendment and Waiver.................................... 70
8.1. Termination................................................ 70
8.2. Effect of Termination...................................... 72
8.3. Fees and Expenses.......................................... 72
8.4. Amendment.................................................. 72
8.5. Waiver..................................................... 72
9. Survival of Representations and Warranties........................... 73
10. General Provisions.................................................. 73
10.1. Notices................................................... 73
10.2. Severability.............................................. 74
10.3. Entire Agreement.......................................... 75
10.4. No Assignment............................................. 75
-iii-
10.5. Headings.................................................. 75
10.6. Governing Law............................................. 75
10.7. Attorneys' Fees........................................... 76
10.8. Counterparts.............................................. 76
-iv-
EMPLOYMENT AGREEMENT
AGREEMENT dated as of July 31, 1997 between Inventory Management Systems,
Inc., a Delaware corporation (the "Employer" or the "Company"), and David Clark
(the "Employee").
W I T N E S S E T H :
WHEREAS, the Employer desires to employ the Employee as its President and
to be assured of his services as such on the terms and conditions hereinafter
set forth; and
WHEREAS, the Employee is willing to accept such employment on such terms
and conditions; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and intending to be legally bound hereby, the Employer
and the Employee hereby agree as follows:
1. Term. Employer hereby agrees to employ Employee, and Employee hereby
agrees to serve Employer for a three-year period commencing as of the date of
this Agreement (the "Effective Date") (such period being herein referred to as
the "Initial Term," and any year commencing on the Effective Date or any
anniversary of the Effective Date being hereinafter referred to as an
"Employment Year") unless earlier terminated pursuant to Section 6 hereof. After
the Initial Term and subject to the earlier termination pursuant to Section 6
hereof, this Agreement shall be renewable automatically for successive one year
periods (each such period being referred to as a "Renewal Term"), unless more
than thirty days prior to the expiration of the Initial Term or any Renewal
Term, either the Employee or the Company give written notice that employment
will not be renewed.
2. Employee Duties.
(a) During the term of this Agreement, the Employee shall have the duties
and responsibilities of President of the Employer, reporting directly to the
Chairman of the Employer and the Board of Directors of the Employer (the
"Board"). It is understood that such duties and responsibilities shall be
reasonably related to the Employee's position.
(b) The Employee shall devote substantially all of his business time,
attention, knowledge and skills faithfully, diligently and to the best of his
ability in furtherance of the business and activities of the Company. The
principal place of performance by the Employee of his duties hereunder shall be
the Company's principal executive offices located at 2900 Polo Parkway, 2nd
floor, Midlothian, VA 23113, although the Employee may be required to travel
outside of the area where the Company's principal executive offices are located
in connection with the business of the Company.
3. Compensation.
(a) During the term of this Agreement, the Employer shall pay the Employee
a salary (the "Salary") at a rate of $120,000 per annum in respect of each
Employment Year, payable in equal installments bi-weekly, or at such other times
as may mutually be agreed upon between the Employer and the Employee. Such
Salary may be increased from time to time at the discretion of the Board.
(b) In addition to the foregoing, the Employee shall be paid an amount of
incentive compensation based on Net Income (as defined hereinbelow) in respect
of each year during the term of this Agreement (pro rated for any partial year
during the term of this Agreement) of (i) 6% of Net Income up to $500,000 and
(ii) 9% of Net Income in excess of $500,000. The term "Net Income" means, for
any applicable fiscal year, earnings of the Company before interest and taxes
(EBIT), as calculated in accordance with generally accepted accounting
principles applied on a basis consistent with those utilized in the preparation
of the Company's financial statements for such year. The amount of Net Income
for each year shall be determined no later than 90 days following the end of
such year. Such incentive compensation shall be paid in cash to Employee within
five business days following the date of such determination, and shall be
accompanied by a copy of the determination of such amount, certified by the
Chief Financial Officer or Controller of Take-Two Interactive Software, Inc.
(the "Parent") as having been determined in accordance with the provisions of
this Section 3(b).
4. Benefits.
(a) During the term of this Agreement, the Employee shall have the right to
receive or participate in all benefits and plans which the Company and Parent
may from time to time institute during such period for its employees and for
which the Employee is eligible. Nothing paid to the Employee under any plan or
arrangement presently in effect or made available in the future shall be deemed
to be in lieu of the salary payable to the Employee pursuant to this Agreement.
(b) During the term of this Agreement, the Employee shall be entitled to
receive an automobile allowance of $750.00 per month payable in accordance with
Section 3(a) above. In addition, the Employer shall be responsible (i) for
providing Employee with automobile insurance as well as (ii) reimbursing
Employee, upon the presentation of appropriate vouchers or tax bills, for
personal property taxes incurred by the Employee, in connection with such
automobile.
(c) During the term of this Agreement, the Employee will be entitled to the
number of paid holidays, personal days off, vacation days and sick leave days in
each
-2-
calendar year as are determined pursuant to the Company's Vacation Policies as
in effect from time to time. Such vacation may be taken in the Employee's
discretion with the prior approval of the Employer, and at such time or times as
are not inconsistent with the reasonable business needs of the Company.
5. Travel Expenses. All travel and other expenses incident to the rendering
of services reasonably incurred on behalf of the Company by the Employee during
the term of this Agreement shall be paid by the Employer. If any such expenses
are paid in the first instance by the Employee, the Employer shall reimburse him
therefor on presentation of appropriate receipts for any such expenses.
6. Termination. Notwithstanding the provisions of Section 1 hereof, the
Employee's employment with the Employer may be earlier terminated as follows:
(a) By action taken by the Board, the Employee may be discharged for
cause (as hereinafter defined), effective as of such time as the Board
shall determine. Upon discharge of the Employee pursuant to this Section
6(a), the Employer shall have no further obligation or duties to the
Employee, except for payment of Salary and such incentive compensation, if
any, having accrued to the Employee pursuant to Section 3(b) hereof through
the effective date of termination, and as provided in Sections 5 and 8, and
the Employee shall have no further obligations or duties to the Employer,
except as provided in Section 7.
(b) In the event of (i) the death of the Employee or (ii) by action of
the Board and the inability of the Employee, by reason of physical or
mental disability, to continue substantially to perform his duties
hereunder for a period of 180 consecutive days, during which 180 day period
Salary and any other benefits hereunder shall not be suspended or
diminished. Upon any termination of the Employee's employment under this
Section 6(b), the Employer shall have no further obligations or duties to
the Employee, except as provided in Sections 5 and 8.
(c) In the event that Employee's employment with the Employer is
terminated by action taken by the Board without cause, including
termination upon a Change in Control (as hereinafter defined), then the
Employer shall have no further obligation or duties to Employee, except for
payment of the amounts described below and as provided in Sections 5 and 8,
and Employee shall have no further obligations or duties to the Employer,
except as provided in Section 7. In the event of such termination, the
Employer shall continue to pay Salary to the Employee for one year
following the effective date of termination.
(d) For purposes of this Agreement, the Company shall have "cause" to
terminate the Employee's employment under this Agreement upon (i) the
failure by the Employee to substan-
-3-
tially perform his duties under this Agreement, (ii) the engaging by the
Employee in criminal misconduct (including embezzlement and criminal fraud)
which is materially injurious to the Company, monetarily or otherwise,
(iii) the conviction of the Employee of a felony, (iv) gross negligence on
the part of the Employee or (v) other misconduct of the Employee in the
performance of his duties hereunder. The Company shall give written notice
to the Employee, which notice shall specify the grounds for the proposed
termination and the Employee shall be given thirty (30) days to cure if the
grounds arise under clauses (i) or (v) above.
(e) For purposes of this Agreement, a "Change in Control" shall be
deemed to occur, unless previously consented to in writing by the Employee,
upon the Parent owning less than a majority of the issued and outstanding
capital stock of the Company.
7. Confidentiality; Noncompetition. In addition to and supplementing the
covenants contained in Sections 5.1, 5.2, 5.3, 5.4, 5.5 and 5.6 of the Agreement
and Plan of Merger (the "Merger Agreement"), dated ___________, 1997, among the
Parent, Take-Two Acquisition Corp., Inventory Management Systems, Inc. and
Employee, the Employer and Employee agree as follows:
(a) The Employer and the Employee acknowledge that the services to be
performed by the Employee under this Agreement are unique and extraordinary
and, as a result of such employment, the Employee will be in possession of
confidential information relating to the business practices of the Company
and the Parent. The term "confidential information" shall mean any and all
information (verbal and written) relating to the Company, the Parent or any
of their respective affiliates, or any of their respective activities,
other than such information which can be shown by the Employee to be in the
public domain (such information not being deemed to be in the public domain
merely because it is embraced by more general information which is in the
public domain) other than as the result of breach of the provisions of this
Section 7(a), including, but not limited to, information relating to:
existing and proposed projects, source codes, object codes, forecasts,
assumptions, trade secrets, personnel lists, financial information,
research projects, services, pricing, customers, customer lists and
prospects, product sourcing, marketing and selling and servicing. The
Employee agrees that he will not, at any time during or after the
termination of his employment, directly or indirectly, use, communicate,
disclose or disseminate to any person, firm or corporation any confidential
information regarding the clients, customers or business practices of the
Company or Parent and that Employee agrees that all confidential
information shall be the sole property of the Company.
(b) The Employee hereby agrees that he shall not, during the period of
his employment and for a period of one (1) year following such employment,
directly or indirectly, within
-4-
any county (or adjacent county) in the Commonwealth of Virginia or in any
State within the United States or territory outside the United States in
which the Company is engaged in business during the period of the
Employee's employment or on the date of termination of the Employee's
employment, engage, have an interest in or render any services to any
business (whether as owner, manager, operator, licensor, licensee, lender,
partner, stockholder, joint venturer, employee, consultant or otherwise)
competitive with the Parent's or the Company's business activities;
provided, however, that notwithstanding anything to the contrary contained
herein, the Employee shall not be subject to the one (1) year prohibition
set forth above in the event that he is terminated by the Company without
cause.
(c) The Employee hereby agrees that he shall not, during the period of
his employment and for a period of one (1) year following such employment,
directly or indirectly, take any action which constitutes an interference
with or a disruption of any of the Parent's or Company's business
activities including, without limitation, the solicitations of the Parent's
or Company's customers, or persons listed on the personnel lists of the
Parent or Company. At no time during the term of this Agreement, or
thereafter shall the Employee directly or indirectly, disparage the
commercial, business or financial reputation of the Parent or Company;
provided, however, that notwithstanding anything to the contrary contained
herein, the Employee shall not be subject to the one (1) year prohibition
set forth above in the event that he is terminated by the Company without
cause.
(d) For purposes of clarification, but not of limitation, the Employee
hereby acknowledges and agrees that the provisions of subparagraphs 7(b)
and (c) above shall serve as a prohibition against him, during the period
referred to therein, directly or indirectly, hiring, offering to hire,
enticing, soliciting or in any other manner persuading or attempting to
persuade any officer, employee, agent, lessor, lessee, licensor, licensee
or customer who has been previously contacted by either a representative of
the Parent or Company, including the Employee, to discontinue or alter his
or its relationship with the Parent or Company.
(e) Upon the termination of the Employee's employment for any reason
whatsoever, all documents, records, notebooks, equipment, price lists,
specifications, programs, customer and prospective customer lists and other
materials which refer or relate to any aspect of the business of the
Company or Parent which are in the possession of the Employee including all
copies thereof, shall be promptly returned to the Company.
(f) (i) The Employee agrees that all processes, intellectual property
rights, technologies and inventions ("Inventions"), including new
contributions, improvements, ideas and discoveries, whether patentable or
not, relating to the
-5-
business of the Parent or Company, or conceived, developed, invented or
made by him during his employment by Employer shall belong to the Company.
The Employee shall further: (a) promptly disclose such Inventions to the
Company; (b) assign to the Company, without additional compensation, all
patent, copyright, trademark and other rights to such Inventions for the
United States and foreign countries; (c) sign all papers necessary to carry
out the foregoing; and (d) give testimony in support of his inventorship;
(ii) If any Invention is described in a patent or copyright
application or is disclosed to third parties, directly or indirectly, by
the Employee within two years after the termination of his employment by
the Company, it is to be presumed that the Invention was conceived or made
during the period of the Employee's employment by the Company; and
(iii) The Employee agrees that he will not assert any rights to any
Invention as having been made or acquired by him prior to the date of this
Agreement, except for Inventions, if any, disclosed to the Company in
writing prior to the date hereof.
(g) The Company shall be the sole owner of all products and proceeds
of the Employee's services hereunder, including, but not limited to, all
materials, ideas, concepts, formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Employee may acquire, obtain, develop or create in connection with and
during the term of the Employee's employment hereunder, free and clear of
any claims by the Employee (or anyone claiming under the Employee) of any
kind or character whatsoever (other than the Employee's right to receive
payments hereunder). The Employee shall, at the request of the Company,
execute such assignments, certificates or other instruments as the Company
may from time to time deem necessary or desirable to evidence, establish,
maintain, perfect, protect, enforce or defend its right, or title and
interest in or to any such properties.
(h) The parties hereto hereby acknowledge and agree that (i) the
Company would be irreparably injured in the event of a breach by the
Employee of any of his obligations under this Section 7, (ii) monetary
damages would not be an adequate remedy for any such breach, and (iii) the
Company shall be entitled to injunctive relief, in addition to any other
remedy which it may have, in the event of any such breach.
(i) The parties hereto hereby acknowledge that, in addition to any
other remedies the Company may have under Section 7(h) hereof, the Company
shall have the right and remedy to require the Employee to account for and
pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively, "Benefits") derived or received
by the Employee as the result of any transactions constituting a
-6-
breach of any of the provisions of Section 7, and the Employee hereby
agrees to account for any pay over such Benefits to the Company.
(j) Each of the rights and remedies enumerated in Section 7(h) and
7(i) shall be independent of the other, and shall be severally enforceable,
and all of such rights and remedies shall be in addition to, and not in
lieu of, any other rights and remedies available to the Company under law
or in equity.
(k) If any provision contained in this Section 7 is hereafter
construed to be invalid or unenforceable, the same shall not affect the
remainder of the covenant or covenants, which shall be given full effect,
without regard to the invalid portions.
(l) If any provision contained in this Section 7 is found to be
unenforceable by reason of the extent, duration or scope thereof, or
otherwise, then the court making such determination shall have the right to
reduce such extent, duration, scope or other provision and in its reduced
form any such restriction shall thereafter be enforceable as contemplated
hereby.
(m) It is the intent of the parties hereto that the covenants
contained in this Section 7 shall be enforced to the fullest extent
permissible under the laws and public policies of each jurisdiction in
which enforcement is sought (the Employee hereby acknowledging that said
restrictions are reasonably necessary for the protection of the Company).
Accordingly, it is hereby agreed that if any of the provisions of this
Section 7 shall be adjudicated to be invalid or unenforceable for any
reason whatsoever, said provision shall be (only with respect to the
operation thereof in the particular jurisdiction in which such adjudication
is made) construed by limiting and reducing it so as to be enforceable to
the extent permissible, without invalidating the remaining provisions of
this Agreement or affecting the validity or enforceability of said
provision in any other jurisdiction.
8. Indemnification. The Employer shall indemnify and hold harmless the
Employee against any and all expenses reasonably incurred by him in connection
with or arising out of (a) the defense of any action, suit or proceeding in
which he is a party, or (b) any claim asserted or threatened against him, in
either case by reason of or relating to his being or having been an officer of
the Company, whether or not he continues to be such an officer at the time of
incurring such expenses, except insofar as such indemnification is prohibited by
law. Such expenses shall include, without limitation, the fees and disbursements
of attorneys, amounts of judgments and amounts of any settlements, provided that
such expenses are agreed to in advance by the Employer. The foregoing
indemnification obligation is
-7-
independent of any similar obligation provided in the Employer's Certificate of
Incorporation or Bylaws.
9. General. This Agreement is further governed by the following provisions:
(a) Notices. All notices relating to this Agreement shall be in
writing and shall be either personally delivered, sent by telecopy (receipt
confirmed) or mailed by certified mail, return receipt requested, to be
delivered at such address as is indicated below, or at such other address
or to the attention of such other person as the recipient has specified by
prior written notice to the sending party. Notice shall be effective when
so personally delivered, one business day after being sent by telecopy or
five days after being mailed.
To the Employer:
Inventory Management Systems, Inc.
2900 Polo Parkway, Suite 104
Midlothian, Virginia 23113
Attention: Ryan A. Brant
Chairman
Telecopier:
With copies to:
Take-Two Interactive Software, Inc.
575 Broadway
New York, New York 10012
Attention: Ryan A. Brant, Chief Executive Officer
Telecopier:
and
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attention: Kenneth Selterman, Esq.
Telecopier: 212-885-5001
To the Employee:
David Clark
2900 Polo Parkway, 2nd floor
Midlothian, VA 23113
Telecopier:
-8-
With a copy to:
Cowan & Owen
1930 Hugenot Road
Post Office Box 35655
Richmond, Virginia 23235
Attention: Michael C. Hall, Esq.
Telecopier:
(b) Parties in Interest. Employee may not delegate his duties or
assign his rights hereunder. This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns.
(c) Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with
respect to the employment of the Employee by the Employer and contains all
of the covenants and agreements between the parties with respect to such
employment in any manner whatsoever; provided that the provisions of
Sections 5.1, 5.2, 5.3, 5.4, 5.5 and 5.6 of the Merger Agreement shall also
apply to Employee. Any modification or termination of this Agreement will
be effective only if it is in writing signed by the party to be charged.
(d) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York. Employee agrees to
and hereby does submit to jurisdiction before any state or federal court of
record in New York City, New York, or in the state and county in which such
violation may occur, at Employer's election.
(e) Warranty. Employee hereby warrants and represents as follows:
(i) That the execution of this Agreement and the discharge of
Employee's obligations hereunder will not breach or conflict with any
other contract, agreement, or understanding between Employee and any
other party or parties.
(ii) Employee has ideas, information and know-how relating to the
type of business conducted by Employer, and Employee's disclosure of
such ideas, information and know-how to Employer will not conflict
with or violate the rights of any third party or parties.
(f) Severability. In the event that any term or condition in this
Agreement shall for any reason be held by a court of competent jurisdiction
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other term or condition
of this Agreement, but this Agreement shall be construed as if such
-9-
invalid or illegal or unenforceable term or condition had never been
contained herein.
(g) Execution in Counterparts. This Agreement may be executed by the
parties in one or more 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.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
INVENTORY MANAGEMENT SYSTEMS, INC.
By: /s/ Ryan A. Brant
----------------------------
Name: Ryan A. Brant
Title: Chairman
/s/ David Clark
---------------------------
David Clark
CONSULTING AGREEMENT
CONSULTING AGREEMENT, dated July 31, 1997, by and between Inventory
Management Systems, Inc., a Delaware corporation ("Company"), and Terry Phillips
("Consultant"). In consideration of the mutual covenants and promises herein
contained, the parties hereto agree as follows:
1. Engagement. The Company agrees to engage Consultant as a consultant, and
Consultant accepts such engagement, under and subject to the terms and
conditions hereinafter set forth.
2. Term. Subject to earlier termination as hereafter provided, this
Agreement shall have an original term of three years commencing on the date
hereof (the "Effective Date") and shall be automatically extended thereafter for
successive terms of one year, unless either party provides notice more than
thirty days prior to the expiration of the original or any extension term that
the Agreement is not to be extended.
3. Duties. During the term of this Agreement, Consultant shall perform such
duties as are assigned to him from time to time by the Board of Directors (the
"Board") and/or the President of the Company commensurate with his experience
and reputation. In performing his duties hereunder, Consultant shall devote such
time as the Company and Consultant mutually agree to be necessary to perform his
duties.
4. Compensation. During the term of this Agreement, Consultant shall be
paid an amount of incentive compensation based on Net Income (as hereinafter
defined) in respect of each year during the term of this Agreement (pro rated
for any partial year during the term of this Agreement) of (i) 6% of Net Income
up to $500,000 and (ii) 9% of Net Income in excess of $500,000. The term "Net
Income" means, for any applicable fiscal year, the earnings of the Company
before interest and taxes ("EBIT"), as calculated in accordance with generally
accepted accounting principles applied on a basis consistent with those utilized
in the preparation of the Company's financial statements for such year,
excluding the effect of Parent (as hereinafter defined) company charges. The
amount of Net Income for each year shall be determined no later than 90 days
following the end of such year. Such incentive compensation shall be paid in
cash to Consultant within five business days following the date of such
determination, and shall be accompanied by a copy of the determination of such
amount, certified by the Chief Financial Officer or Controller of Take-Two
Interactive Software, Inc. (the "Parent") as having been determined in
accordance with the provisions of this Section 3(b).
5. Expenses. All travel and other expenses incident to the rendering of
services reasonably incurred on behalf of the Company by the Consultant during
the term of this Agreement shall be paid by the Company. If any such expenses
are paid in the first instance by the Consultant, the Company shall reimburse
him
therefor on presentation of appropriate receipts for any such expenses.
6. Termination. Notwithstanding the provisions of Section 1 hereof, the
Consultant's engagement with the Company may be earlier terminated as follows:
(a) By action taken by the Board, the Consultant may be discharged for
cause (as hereinafter defined), effective as of such time as the Board
shall determine. Upon discharge of the Consultant pursuant to this Section
6(a), the Company shall have no further obligation or duties to the
Consultant, except for payment of Salary through the effective date of
termination, and as provided in Sections 4 and 8, and the Consultant shall
have no further obligations or duties to the Company, except as provided in
Section 7.
(b) In the event of (i) the death of the Consultant or (ii) by action
of the Board and the inability of the Consultant, by reason of physical or
mental disability, to continue substantially to perform his duties
hereunder for a period of 180 consecutive days, during which 180 day period
incentive compensation hereunder shall not be suspended or diminished. Upon
any termination of the Consultant's engagement under this Section 6(b), the
Company shall have no further obligations or duties to the Consultant,
except as provided in Sections 4 and 8.
(c) In the event that Consultant's engagement with the Company is
terminated by action taken by the Board without cause, including
termination upon a Change in Control (as hereinafter defined), then the
Company shall have no further obligation or duties to Consultant, except
for payment of the incentive compensation through the effective date of
termination and as provided in Sections 4 and 8, and Consultant shall have
no further obligations or duties to the Company, except as provided in
Section 7.
(d) For purposes of this Agreement, the Company shall have "cause" to
terminate the Consultant's employment under this Agreement upon (i) the
failure by the Consultant to substantially perform his duties under this
Agreement, (ii) the engaging by the Consultant in criminal misconduct
(including embezzlement and criminal fraud) which is materially injurious
to the Company, monetarily or otherwise, (iii) the conviction of the
Consultant of a felony, (iv) gross negligence on the part of the Consultant
or (v) other misconduct of the Consultant in the performance of his duties
hereunder. The Company shall give written notice to the Consultant, which
notice shall specify the grounds for the proposed termination and the
Consultant shall be given thirty (30) days to cure if the grounds arise
under clauses (i) or (v) above.
-2-
(e) For purposes of this Agreement, a "Change in Control" shall be
deemed to occur, unless previously consented to in writing by the
Consultant, upon the Parent owning less than a majority of the issued and
outstanding capital stock of the Company.
7. Confidentiality; Noncompetition. In addition to and supplementing the
covenants contained in Sections 5.1, 5.2, 5.3, 5.4, 5.5 and 5.6 of the Agreement
and Plan of Merger (the "Merger Agreement"), dated ___________, 1997, among the
Parent, Take-Two Acquisition Corp., Inventory Management Systems, Inc. and
Consultant, the Company and Consultant agree as follows:
(a) The Company and the Consultant acknowledge that the services to be
performed by the Consultant under this Agreement are unique and
extraordinary and, as a result, the Consultant will be in possession of
confidential information relating to the business practices of the Company
and the Parent. The term "confidential information" shall mean any and all
information (verbal and written) relating to the Company, the Parent or any
of their respective affiliates, or any of their respective activities,
other than such information which can be shown by the Consultant to be in
the public domain (such information not being deemed to be in the public
domain merely because it is embraced by more general information which is
in the public domain) other than as the result of breach of the provisions
of this Section 7(a), including, but not limited to, information relating
to: existing and proposed projects, source codes, object codes, forecasts,
assumptions, trade secrets, personnel lists, financial information,
research projects, services, pricing, customers, customer lists and
prospects, product sourcing, marketing and selling and servicing. The
Consultant agrees that he will not, at any time during or after the
termination of his employment, directly or indirectly, use, communicate,
disclose or disseminate to any person, firm or corporation any confidential
information regarding the clients, customers or business practices of the
Company or Parent and that Consultant agrees that all confidential
information shall be the sole property of the Company.
(b) Except for the Consultant's ownership of Phillips Sales, Inc., the
Consultant hereby agrees that he shall not, during the period of his
engagement and for a period of one (1) year following such engagement,
directly or indirectly, within any county (or adjacent county) in the
Commonwealth of Virginia or any State within the United States or territory
outside the United States in which the Company is engaged in business
during the period of the Consultant's engagement or on the date of
termination of the Consultant's engagement, engage, have an interest in or
render any services to any business (whether as owner, manager, operator,
licensor, licensee, lender, partner, stockholder, joint venturer, employee,
consultant or otherwise) competitive with the Company's business
activities; provided, however, that notwithstanding anything to the
contrary
-3-
contained herein, the Consultant shall not be subject to the one (1) year
prohibition set forth above in the event that he is terminated by the
Company without cause.
(c) Except for the Consultant's ownership of Phillips Sales, Inc., the
Consultant hereby agrees that he shall not, during the period of his
engagement and for a period of one (1) year following such engagement,
directly or indirectly, take any action which constitutes an interference
with or a disruption of any of the Parent's or Company's business
activities including, without limitation, the solicitations of the Parent's
or Company's customers, or persons listed on the personnel lists of the
Parent or Company. At no time during the term of this Agreement, or
thereafter shall the Consultant directly or indirectly, disparage the
commercial, business or financial reputation of the Parent or Company;
provided, however, that notwithstanding anything to the contrary contained
herein, the Consultant shall not be subject to the one (1) year prohibition
set forth above in the event that he is terminated by the Company without
cause.
(d) For purposes of clarification, but not of limitation, the
Consultant hereby acknowledges and agrees that the provisions of
subparagraphs 7(b) and (c) above shall serve as a prohibition against him,
during the period referred to therein, directly or indirectly, hiring,
offering to hire, enticing, soliciting or in any other manner persuading or
attempting to persuade any officer, employee, agent, lessor, lessee,
licensor, licensee or customer who has been previously contacted by either
a representative of the Parent or Company, including the Consultant, to
discontinue or alter his or its relationship with the Parent or Company.
(e) Upon the termination of the Consultant's engagement for any reason
whatsoever, all documents, records, notebooks, equipment, price lists,
specifications, programs, customer and prospective customer lists and other
materials which refer or relate to any aspect of the business of the
Company or Parent which are in the possession of the Consultant including
all copies thereof, shall be promptly returned to the Company.
(f) (i) The Consultant agrees that all processes, intellectual
property rights, technologies and inventions ("Inventions"), including new
contributions, improvements, ideas and discoveries, whether patentable or
not, relating to the business of the Parent or Company, or conceived,
developed, invented or made by him during his engagement by Company shall
belong to the Company. The Consultant shall further: (a) promptly disclose
such Inventions to the Company; (b) assign to the Company, without
additional compensation, all patent, copyright, trademark and other rights
to such Inventions for the United States and foreign countries; (c) sign
all papers necessary to carry out the foregoing; and (d) give testimony in
support of his inventorship;
-4-
(ii) If any Invention is described in a patent or copyright
application or is disclosed to third parties, directly or indirectly, by
the Consultant within two years after the termination of his engagement by
the Company, it is to be presumed that the Invention was conceived or made
during the period of the Consultant's engagement by the Company; and
(iii) The Consultant agrees that he will not assert any rights to any
Invention as having been made or acquired by him prior to the date of this
Agreement, except for Inventions, if any, disclosed to the Company in
writing prior to the date hereof.
(g) The Company shall be the sole owner of all products and proceeds
of the Consultant's services hereunder, including, but not limited to, all
materials, ideas, concepts, formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Consultant may acquire, obtain, develop or create in connection with and
during the term of the Consultant's engagement hereunder, free and clear of
any claims by the Consultant (or anyone claiming under the Consultant) of
any kind or character whatsoever (other than the Consultant's right to
receive payments hereunder). The Consultant shall, at the request of the
Company, execute such assignments, certificates or other instruments as the
Company may from time to time deem necessary or desirable to evidence,
establish, maintain, perfect, protect, enforce or defend its right, or
title and interest in or to any such properties.
(h) The parties hereto hereby acknowledge and agree that (i) the
Company would be irreparably injured in the event of a breach by the
Consultant of any of his obligations under this Section 7, (ii) monetary
damages would not be an adequate remedy for any such breach, and (iii) the
Company shall be entitled to injunctive relief, in addition to any other
remedy which it may have, in the event of any such breach.
(i) The parties hereto hereby acknowledge that, in addition to any
other remedies the Company may have under Section 7(i) hereof, the Company
shall have the right and remedy to require the Consultant to account for
and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively, "Benefits") derived or received
by the Consultant as the result of any transactions constituting a breach
of any of the provisions of Section 7, and the Consultant hereby agrees to
account for any pay over such Benefits to the Company.
(j) Each of the rights and remedies enumerated in Section 7(i) and
7(j) shall be independent of the other, and shall be severally enforceable,
and all of such rights and remedies shall be in addition to, and not in
lieu of, any other rights and remedies available to the Company under law
or in equity.
-5-
(k) If any provision contained in this Section 7 is hereafter
construed to be invalid or unenforceable, the same shall not affect the
remainder of the covenant or covenants, which shall be given full effect,
without regard to the invalid portions.
(l) If any provision contained in this Section 7 is found to be
unenforceable by reason of the extent, duration or scope thereof, or
otherwise, then the court making such determination shall have the right to
reduce such extent, duration, scope or other provision and in its reduced
form any such restriction shall thereafter be enforceable as contemplated
hereby.
(m) It is the intent of the parties hereto that the covenants
contained in this Section 7 shall be enforced to the fullest extent
permissible under the laws and public policies of each jurisdiction in
which enforcement is sought (the Consultant hereby acknowledging that said
restrictions are reasonably necessary for the protection of the Company).
Accordingly, it is hereby agreed that if any of the provisions of this
Section 7 shall be adjudicated to be invalid or unenforceable for any
reason whatsoever, said provision shall be (only with respect to the
operation thereof in the particular jurisdiction in which such adjudication
is made) construed by limiting and reducing it so as to be enforceable to
the extent permissible, without invalidating the remaining provisions of
this Agreement or affecting the validity or enforceability of said
provision in any other jurisdiction.
8. Indemnification. The Company shall indemnify and hold harmless the
Consultant against any and all expenses reasonably incurred by him in connection
with or arising out of (a) the defense of any action, suit or proceeding in
which he is a party, or (b) any claim asserted or threatened against him, in
either case by reason of or relating to his being or having been a consultant to
the Company, whether or not he continues to be such a consultant at the time of
incurring such expenses, except insofar as such indemnification is prohibited by
law. Such expenses shall include, without limitation, the fees and disbursements
of attorneys, amounts of judgments and amounts of any settlements, provided that
such expenses are agreed to in advance by the Company. The foregoing
indemnification obligation is independent of any similar obligation provided in
the Company's Certificate of Incorporation or Bylaws.
9. General. This Agreement is further governed by the following provisions:
(a) Notices. All notices relating to this Agreement shall be in
writing and shall be either personally delivered, sent by telecopy (receipt
confirmed) or mailed by certified mail, return receipt requested, to be
delivered at such address as is indicated below, or at such other address
or to the
-6-
attention of such other person as the recipient has specified by prior
written notice to the sending party. Notice shall be effective when so
personally delivered, one business day after being sent by telecopy or five
days after being mailed.
To the Company:
Inventory Management Systems, Inc.
2900 Polo Parkway, Suite 104
Midlothian, Virginia 23113
Attention: Ryan A. Brant
Chairman
Telecopier:
With copies to:
Take-Two Interactive Software, Inc.
575 Broadway
New York, New York 10012
Attention: Ryan A. Brant, Chief Executive Officer
Telecopier:
and
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attention: Robert J. Mittman, Esq.
Telecopier: 212-885-5001
To the Consultant:
Terry Phillips
2900 Polo Parkway,
2nd floor
Midlothian, VA 23113
Telecopier:
-7-
With a copy to:
Cowan & Owen
1930 Hugenot Road
P.O. Box 35655
Richmond, Virginia 23235
Attention: Michael C. Hall, Esq.
Telecopier:
(b) Parties in Interest. Consultant may not delegate his duties or
assign his rights hereunder. This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns.
(c) Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with
respect to the engagement of the Consultant by the Company and contains all
of the covenants and agreements between the parties with respect to such
engagement in any manner whatsoever; provided that the provisions of
Sections 5.1, 5.2, 5.3, 5.4, 5.5 and 5.6 of the Merger Agreement shall also
apply to Consultant. Any modification or termination of this Agreement will
be effective only if it is in writing signed by the party to be charged.
(d) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York. Consultant agrees to
and hereby does submit to jurisdiction before any state or federal court of
record in New York City, New York, or in the state and county in which such
violation may occur, at Company's election.
(e) Warranty. Consultant hereby warrants and represents as follows:
(i) That the execution of this Agreement and the discharge of
Consultant's obligations hereunder will not breach or conflict with
any other contract, agreement, or understanding between Consultant and
any other party or parties.
(ii) Consultant has ideas, information and know-how relating to
the type of business conducted by Company, and Consultant's disclosure
of such ideas, information and know-how to Company will not conflict
with or violate the rights of any third party or parties.
(f) Severability. In the event that any term or condition in this
Agreement shall for any reason be held by a court of competent jurisdiction
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other term or condition
of this Agreement, but this Agreement shall be construed as if such
-8-
invalid or illegal or unenforceable term or condition had never been
contained herein.
(g) Execution in Counterparts. This Agreement may be executed by the
parties in one or more 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.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
INVENTORY MANAGEMENT SYSTEMS, INC.
By: /s/ Ryan A. Brant
---------------------------
Name: Ryan A. Brant
Title: Chairman
/s/ Terry Phillips
---------------------------
Terry Phillips
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement ("Agreement") dated as of July 31, 1997,
among Take-Two Interactive Software, Inc., a Delaware corporation (the
"Company"), and the stockholders listed on the signature pages (each a "Holder"
and collectively, the "Holders").
RECITALS
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto do hereby agree as follows:
WHEREAS, the Company issued to the Holders on the date hereof pursuant to
the merger of Inventory Management Systems, Inc. and Creative Alliance Group,
Inc. with and into a wholly-owned subsidiary of the Company (the "Merger") an
aggregate of 900,000 shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), as more particularly provided for in certain
Agreements and Plans of Merger dated July 10, 1997 and July 30, 1997,
respectively, among the Company, its subsidiary and each of the Holders (the
"Merger Agreements"); and
WHEREAS, it is a condition to the performance of the Holders' obligations
under the Merger Agreements that the Company enter into this Agreement with the
Holders with respect of up to an aggregate of 250,000 shares of the Common Stock
held by the Holders (the "Shares").
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
covenants herein contained, the parties hereto do hereby agree as follows:
1. Piggyback Registration.
(a) If, at any time after the Company becomes eligible to file a
registration statement on Form S-3, the Company proposes to prepare and
file with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S-3 covering equity or debt securities of
the Company, or any such securities of the Company held by its
shareholders, other than in connection with a merger, acquisition, pursuant
to a registration statement on Form S-4 or Form S-8 or any successor form
or any registration statement which convers securities previously issued in
connection with any acquisition or merger (including in connection with the
acquisition of the capital stock of Gametek (UK) Limited and Alternative
Reality Technologies, Inc. and certain assets of Gametek (FL), Inc.) (for
purposes of this Article 1, a "Registration Statement"), the Company will
give written notice of its intention to do so by certified mail ("Notice"),
at least 15 days prior to the filing of each such Registration Statement,
to the Holder. Upon the written request of the Holder, made within ten days
after receipt of the Notice, that the Company include any of the Holder's
Shares in the proposed Registration Statement, the Company shall,
as to the Holder, use reasonable efforts to effect the registration under
the Securities Act of the Shares which it has been so requested to register
("Piggyback Registration"), at the Company's sole cost and expense and at
no cost or expense to the Holder (other than any commission, discounts or
counsel fees payable by the Holder, as further provided in Section 3(c)
hereof); provided, however, that if, the Piggyback Registration is in
connection with an underwritten public offering and in the written opinion
of the Company's underwriter or managing underwriter of the underwriting
group, if any, for such offering, the inclusion of all or a portion of the
Shares requested to be registered, when added to the securities being
registered by the Company or the selling shareholder(s), if any, will
exceed the maximum amount of the Company's securities which can be marketed
(i) at a price reasonably related to their then current market value, or
(ii) without otherwise having an adverse effect on the offering, then the
Company may, subject to the allocation priority set forth in the next
paragraph, exclude from such offering all or a portion of the Shares which
it has been requested to register.
(b) If securities are proposed to be offered for sale pursuant to such
Registration Statement by other security holders of the Company and the
total number of securities to be offered by the Holder and such other
selling security holders is required to be reduced pursuant to a request
from the underwriter or managing underwriter (which request shall be made
only for the reasons and in the manner set forth above), the aggregate
number of Shares to be offered by the Holder pursuant to such Registration
Statement shall equal the number which bears the same ratio to the maximum
number of securities that the underwriter or managing underwriter believes
may be included for all the selling security holders (including the Holder)
as the original number of Shares proposed to be sold by the Holder bears to
the total original number of securities proposed to be offered by the
Holder and the other selling security holders.
(c) Notwithstanding the preceding provisions of this Section, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section (irrespective of whether any written
request for inclusion of such securities shall have already been made) to
elect not to file any proposed Registration Statement, or to withdraw the
same after the filing but prior to the effective date thereof.
2. Covenants of the Company With Respect to Registration. The Company
hereby covenants and agrees as follows; provided, however, that any Registration
Statement for the Company filed subsequent to the consummation of the Merger
will not be declared effective by the Commission without the required
presentation under the Commission's Regulation S-B of an audited balance sheet
as at the end of the most recent fiscal year of the business acquired and
audited statements of income, cash flows and changes in stockholders' equity for
such business
-2-
for each of the two fiscal years preceding the date of such balance sheet:
(a) The Company shall use reasonable efforts to cause the Registration
Statement to become effective as promptly as possible under the
circumstances at the time prevailing and, if any stop order shall be issued
by the Commission in connection therewith, to use its reasonable efforts to
obtain the removal of such order.
(b) Following the effective date of a Registration Statement, the
Company shall, upon the request of the Holder, forthwith supply such
reasonable number of copies of the Registration Statement, preliminary
prospectus and prospectus meeting the requirements of the Securities Act,
and other documents necessary or incidental to the public offering of the
Shares as shall be reasonably requested by the Holder to permit the Holder
to make a public distribution of the Holder's Shares. The obligations of
the Company hereunder with respect to the Holder's Shares are expressly
conditioned on the Holder's furnishing to the Company such appropriate
information concerning the Holder, the Holder's Shares and the terms of the
Holder's offering of such shares as the Company may request.
(c) The Company will pay all costs, fees and expenses in connection
with all Registration Statements filed pursuant to Section 1 hereof,
including, without limitation, the Company's legal and accounting fees,
printing expenses and blue sky fees and expenses; provided, however, that
the Holder shall be solely responsible for the fees of any counsel retained
by the Holder in connection with such registration and any transfer taxes
or underwriting discounts, selling commissions or selling fees applicable
to the Shares sold by the Holder pursuant thereto.
(d) The Company will use reasonable efforts to qualify or register the
Shares included in a Registration Statement for offering and sale under the
securities or blue sky laws of such states as are requested by the Holder,
provided that the Company shall not be obligated to execute or file any
general consent to service of process (unless the Company is already then
subject to service in such jurisdiction) or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction, except
as may be required by the Securities Act and its rules and regulations.
3. Covenant of the Holder.
The Holder, upon receipt of notice from the Company that an event has
occurred which requires a post-effective amendment to the Registration Statement
or a supplement to the prospectus included therein, shall promptly discontinue
the sale of Shares until the Holder receives a copy of a
-3-
supplemented or amended prospectus from the Company, which the Company shall
provide as soon as practicable after such notice.
4. Indemnification.
(a) The Company shall indemnify, defend and hold harmless the Holder
and such person who controls such Holder within the meaning of Section 15
of the Securities Act or Section 20(a) of the Securities Exchange Act of
1934, as amended, from and against any and all losses, claims, damages and
liabilities caused by or arising out of any untrue statement of a material
fact contained in the Registration Statement, or caused by or arising out
of any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission based upon information furnished or
required to be furnished in writing to the Company by the Holder or the
trustees thereof expressly for use therein; provided, however, that the
indemnification in this Section shall not inure to the benefit of the
Holder on account of any such loss, claim, damage or liability arising from
the sale of Shares by the Holder, if a copy of a subsequent prospectus
correcting the untrue statement or omission in such earlier prospectus was
provided to the Holder by the Company prior to the subject sale and the
subsequent prospectus was not delivered or sent by the Holder to the
purchaser prior to such sale. The Holder(s) and their successors and
assigns shall at the same time, severally and jointly, indemnify the
Company, its directors, each officer signing the Registration Statement and
each person, if any, who controls the Company within the meaning of the
Securities Act, from and against any and all losses, claims, damages and
liabilities caused by any untrue statement of a material fact contained in
the Registration Statement, or any prospectus included therein, or caused
by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading.
5. Governing Law.
(a) This Agreement shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal substantive
laws of the State of New York, without giving effect to the choice of law
rules thereof.
(b) Each of the Company and the Holder hereby irrevocably and
unconditionally consents to submit to the exclusive 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 (the "New York Courts") 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 the New York Courts
-4-
and agrees not to plead or claim that such litigation brought in any New
York Courts has been brought in an inconvenient forum.
6. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand or mailed by express, registered or certified mail, postage prepaid, return
receipt requested, as follows:
If to the Company, at:
Take-Two Interactive Software, Inc.
575 Broadway
New York, NY 10012
Attn: Ryan A. Brant, Chairman
with a copy of the same to:
Tenzer Greenblatt L.L.P.
405 Lexington Avenue
23rd Floor
New York, NY 1074
Attn: Kenneth Selterman, Esq.
If to the Holder(s), at that address set forth under their name on the
signature page.
with a copy of the same to:
Cowan & Owen, P.C.
1930 Hugenot Road
P.O. Box 35655
Richmond, VA 23235
Attn: Michael C. Hall, Esq.
Or such other address as has been indicated by either party in accordance
with a notice duly given in accordance with the provisions of this Section.
7. Amendment. This Agreement may only be amended by a written instrument
executed by the Company and the Holders.
8. Entire Agreement. 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.
9. Assignment; Binding Effect; Benefits. Except as otherwise provided
below, the Holder may not assign the Holder's rights hereunder without the prior
written consent of the Company, which consent may be given or withheld for any
reason and any attempted assignment without having obtained such prior written
notice shall be void and of no force and effect. This
-5-
Agreement shall inure to the benefit of, and be binding upon, the parties hereto
and the permitted assigns, heirs and legal representatives of the Holder and the
Company and its successors. Nothing herein contained, express or implied, is
intended to confer upon any person other than the parties hereto and their
respective heirs, legal representatives and successors, any rights or remedies
under or by reason of this Agreement.
10. Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
11. 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. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be
-6-
deemed an original, but all of which together shall constitute one and the same
document.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
Company: TAKE-TWO INTERACTIVE SOFTWARE, INC.
By: /s/ Ryan A. Brant
----------------------------------
Name: Ryan A. Brant
Title: Chairman
Holders: /s/ David Clark
---------------------------------------
DAVID CLARK
Address: 14319 Kenmont Drive
Midlothian, Va 23113
______________________________
Number of Shares: _____________________
/s/ Karen M. Clark
---------------------------------------
KAREN CLARK
Address: 14319 Kenmont Drive
Midlothian, Va 23113
______________________________
Number of Shares: _____________________
/s/ Terry Phillips
---------------------------------------
TERRY PHILLIPS
Address: ______________________________
______________________________
______________________________
Number of Shares: _____________________
/s/ Cathy Phillips
---------------------------------------
CATHY PHILLIPS
Address: ______________________________
______________________________
______________________________
Number of Shares: _____________________
/s/ Russell Howard
---------------------------------------
RUSSELL HOWARD
Address: ______________________________
______________________________
______________________________
Number of Shares: _____________________
-7-
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement dated as of July 29, 1997, by and between
Take-Two Interactive Software, Inc., a Delaware corporation (the "Company"), and
GameTek (FL), Inc., a Florida corporation (the "Holder").
WHEREAS, the Company issued to the Holder pursuant to a Purchase Agreement
dated July 29, 1997, by and among the Company and the Holder (the "Purchase
Agreement"), an aggregate of 406,533 shares (the "Shares") of the Company's
Common Stock, par value $.01 per share; and
WHEREAS, pursuant to the Purchase Agreement, the Company has agreed to
grant to the Holder registration rights set forth herein with respect to the
Shares.
NOW, THEREFORE, the parties do hereby agree as follows:
1. S-3 Registration. The Company shall use its reasonable best efforts to
include the Shares in a registration statement on Form S-3 (the "Form S-3
Registration Statement") to be filed with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Act") on
the date the Company first becomes eligible to use a Form S-3 Registration
Statement (which is currently anticipated to be April 14, 1998) and shall use
its reasonable best efforts to cause the Form S-3 Registration Statement to
become and remain effective under the Act so as to permit a public offering and
sale of the Shares for a period of nine (9) months; provided, however, that (i)
in the event that the Company is engaged in negotiations with respect to an
acquisition, merger, financing or other material event which would require the
Company to file a Form 8-K in the event that such acquisition, merger, financing
or other material event is consummated or has otherwise occurred or (ii) in the
event the Company shall furnish to the Holder a certificate signed by the chief
executive officer of the Company stating that in the good faith judgment of the
Company and its investment banker that it would be detrimental to the Company
and its shareholders for the Company to immediately proceed with such Form S-3
Registration Statement and it is therefore essential to defer the filing of such
Form S-3 Registration Statement, then, in each such case, the Company will have
the right to defer such filing for a reasonable period not to exceed ninety (90)
days; provided, further that the nine (9) month registration period shall be
extended by the length of such deferral period.
2. Piggyback Registration.
(a) If, at any time after April 14, 1998, the Shares have not been included
in the Form S-3 Registration Statement, and the Company proposes to prepare and
file with the Commission a registration statement covering equity or debt
securities of the Company or any such securities of the Company held by its
shareholders, other than in connection with a merger, acquisition or pursuant to
a registration statement on Form S-4
or Form S-8 or any successor form (for purposes of this Section 2, a
"Registration Statement"), the Company will give written notice of its intention
to do so by [certified mail] ("Notice"), at least 10 days prior to the filing of
each such Registration Statement, to the Holder. Upon the written request of the
Holder, made within 8 days after receipt of the Notice, that the Company include
any of the Shares in the proposed Registration Statement, the Company shall, as
to the Holder, use its best efforts to effect the registration under the Act of
the Shares which it has been so requested to register ("Piggyback
Registration"); provided, however, that if the Piggyback Registration is in
connection with an underwritten public offering and in the written opinion of
the Company's underwriter or managing underwriter of the underwriting group, if
any, for such offering, the inclusion of all or a portion of the Shares
requested to be registered, when added to the securities being registered by the
Company or the selling shareholder(s), if any, will exceed the maximum amount of
the Company's securities which can be marketed (i) at a price reasonably related
to their then current market value, or (ii) without otherwise having an adverse
effect on the offering, then the Company may exclude from such offering all or a
portion of the Shares which it has been requested to register.
(b) If securities are proposed to be offered for sale pursuant to such
Registration Statement by other security holders of the Company and the total
number of securities to be offered by the Holder and such other selling security
holders is required to be reduced pursuant to a request from the underwriter or
managing underwriter as set forth in paragraph (a) above, the aggregate number
of Shares to be offered by the Holder pursuant to such Registration Statement
shall equal the number which bears the same ratio to the maximum number of
securities that the underwriter or managing underwriter believes may be included
for all the selling security holders (including the Holder) as the original
number of Shares proposed to be sold by the Holder bears to the total original
number of securities proposed to be offered by the Holder and the other selling
security holders.
(c) Notwithstanding the preceding provisions of this Section, the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section (irrespective of whether any written request for
inclusion of such securities shall have already been made) to elect not to file
any proposed Registration Statement, or to withdraw the same after the filing
but prior to the effective date thereof.
3. Covenants of the Company With Respect to Registration. The Company
hereby covenants and agrees as follows:
(a) Following the effective date of any registration statement filed
under Section 1 or 2, the Company shall, upon the request of the Holder,
forthwith supply such
-2-
reasonable number of copies of the registration statement and prospectus
meeting the requirements of the Act as shall be reasonably requested by the
Holder to permit the Holder to make a public distribution of the Shares.
The obligations of the Company hereunder with respect to the Shares are
expressly conditioned on the Holder's furnishing to the Company such
appropriate information concerning the Holder, the Shares and the terms of
the Holder's offering of such shares as the Company may request.
(b) The Company will pay all costs, fees and expenses in connection
with any registration statement filed pursuant to Sections 1 and 2 hereof,
including, without limitation, the Company's legal and accounting fees,
printing expenses and blue sky fees and expenses; provided, however, that
the Holder shall be solely responsible for the fees of any counsel retained
by the Holder in connection with such registration and any transfer taxes
or underwriting discounts, selling commissions or selling fees applicable
to the Shares sold by the Holder pursuant thereto.
(c) The Company will use its reasonable best efforts to qualify or
register the Shares included in a registration statement for offering and
sale under the securities or blue sky laws of such states as are reasonably
requested by the Holder, provided that the Company shall not be obligated
to execute or file any general consent to service of process (unless the
Company is already then subject to service in such jurisdiction) or to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction, except as may be required by the Act and its rules and
regulations.
4. Covenant of the Holder. The Holder, upon receipt of notice from the
Company that an event has occurred which requires a post-effective amendment to
a registration statement or a supplement to the prospectus included therein,
shall promptly discontinue the sale of Shares until the Holder receives a copy
of a supplemented or amended prospectus from the Company, which the Company
shall provide as soon as practicable after such notice.
5. Indemnification. The Company shall indemnify, defend and hold harmless
the Holder from and against any and all losses, claims, damages and liabilities
caused by or arising out of any untrue statement of a material fact contained in
a registration statement or prospectus included therein or caused by or arising
out of any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission based upon information furnished or required to be
furnished in writing to the Company by the Holder expressly for use therein;
provided, however, that the indemnification in this Section shall not inure to
the benefit of
-3-
the Holder on account of any such loss, claim, damage or liability arising from
the sale of Shares by the Holder, if a copy of a subsequent prospectus
correcting the untrue statement or omission in such earlier prospectus was
provided to the Holder by the Company prior to the sale and the subsequent
prospectus was not delivered or sent by the Holder to the purchaser prior to
such sale. The Holder shall at the same time indemnify the Company, its
directors, each officer signing a registration statement and each person who
controls the Company within the meaning of the Act from and against any and all
losses, claims, damages and liabilities caused by or arising out of any untrue
statement of a material fact contained in a registration statement or prospectus
included therein, or caused by or arising out of any omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case, only insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or omissions based
upon information furnished in writing to the Company by the Holder expressly for
use therein.
6. Governing Law.
(a) This Agreement shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal substantive laws
of the State of New York, without giving effect to the choice of law rules
thereof.
(b) Each of the Company and the Holder hereby irrevocably and
unconditionally consents to submit to the exclusive 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 (the "New York Courts") 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 the New
York Courts and agrees not to plead or claim that such litigation brought in any
New York Courts has been brought in an inconvenient forum.
7. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand or mailed by express, registered or certified mail, postage prepaid, return
receipt requested, as follows:
If to the Company, at:
Take-Two Interactive Software, Inc.
575 Broadway
New York, New York 10012
Attn: Ryan A. Brant, Chairman
with a copy of the same to:
-4-
Tenzer Greenblatt LLP
405 Lexington Avenue
23rd Floor
New York, New York 10174
Attn: Kenneth I. Selterman, Esq.
If to the Holder(s), at that address set forth under their name on the
signature page.
with a copy of the same to:
Ackerman, Levine & Cullen, LLP
175 Great Neck Road
Great Neck, New York 11021
Attn: Leslie J. Levine, Esq.
Or such other address as has been indicated by either party in accordance
with a notice duly given in accordance with the provisions of this Section.
8. Amendment. This Agreement may only be amended by a written instrument
executed by the Company and the Holders.
9. Entire Agreement. 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.
10. Benefits. Nothing herein contained, express or implied, is intended to
confer upon any person other than the parties hereto any rights or remedies
under or by reason of this Agreement. Certain of the Shares have been
transferred to Ocean Bank and the Company agrees that Ocean Bank may participate
pari passu with Holder in any registration of the Shares pursuant to this
Agreement exercised by the Holder. Holder shall be responsible for notifying
Ocean Bank and corresponding with the Company with respect thereto.
11. Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
12. 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.
-5-
13. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
-6-
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
Company: TAKE-TWO INTERACTIVE SOFTWARE, INC.
By: /s/ Ryan A. Brant
-----------------
Name: Ryan A. Brant
Title: Chairman
Holder: GAMETEK INC.
By: /s/ Robert L. Underwood
-----------------------
Name: Robert L. Underwood
Title: Authorized Signer
Address: c/o Northern Blue, LLP
100 Europa Drive
Chapel Hill, No. Carolina
27514
Number of Shares: 406,553_
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
EXECUTED IN CONNECTION WITH THE
ASSET AND STOCK PURCHASE AGREEMENT AMONG
GAMETEK (UK), LIMITED, GAMETEK (FL), INC.,
ALTERNATIVE REALITY TECHNOLOGIES, INC AND
TAKE TWO INTERACTIVE SOFTWARE, INC.
-7-