EXHIBIT 10.3
DISTRIBUTION AGREEMENT
This Distribution Agreement (this "Agreement"), dated as of October 27,
1998, is made by and among Pinnacle Automation, Inc., a Delaware corporation
("Pinnacle"), Xxxxx Systems, Inc., a Delaware corporation and wholly owned
subsidiary of Pinnacle ("Xxxxx"), and XxXxxx Software International, Inc., a
Delaware corporation and wholly owned subsidiary of Xxxxx ("XxXxxx") and their
respective successors-in-interest.
RECITALS
WHEREAS, prior to the date hereof, Xxxxx operated directly and through its
five principal and wholly owned subsidiaries, The Xxxxxxxx Company, an Ohio
corporation ("Xxxxxxxx"), Xxxxx Bros., Inc., a Wisconsin corporation ("Xxxxx"),
White Systems, Inc., a New Jersey corporation ("White"), Real Time Solutions,
Inc., a Delaware corporation ("RTS"), and XxXxxx, which in turn owns all of the
issued and outstanding capital stock of Xxxxxxx Software Development Corp., a
Connecticut corporation ("Xxxxxxx"), Software Architects, Inc., a Wisconsin
corporation, and Xxxxxx & Associates, Inc., a Minnesota corporation;
WHEREAS, Alvey, Buschman, Xxxxx, White and RTS provide automated materials
handling systems for manufacturing plants, distribution centers and warehouses
and related services (the "Systems Business");
WHEREAS, XxXxxx and its subsidiaries develop, market, implement and support
software solutions for warehouse and transportation management (the "XxXxxx
Business");
WHEREAS, the Board of Directors of Pinnacle has determined to separate the
Systems and XxXxxx Businesses in order (i) to concentrate on its core business
represented by the Systems Business, (ii) to enable XxXxxx to raise equity
capital by the sale of shares of a newly created class of XxXxxx common stock
(the "XxXxxx Class A Common Stock") and warrants to purchase shares of the
common stock, par value $0.01 per share, of XxXxxx (the "XxXxxx Common Stock")
and (iii) to enable XxXxxx to attract and motivate its employees through the
grant of meaningful proprietary equity ownership interests in XxXxxx to such
employees;
WHEREAS, the Board of Directors of Pinnacle has determined to effect such
separation by distributing (the "Spin-Off") on a PRO RATA basis to Pinnacle's
common stockholders the currently outstanding XxXxxx Common Stock;
WHEREAS, in order to effect the Spin-Off of XxXxxx, the parties hereto
desire that Xxxxx distribute all of the shares of XxXxxx Common Stock held by
it, which represents all the issued and outstanding XxXxxx Common Stock, to
Pinnacle (the "Initial Spin-Off Distribution"), and that Pinnacle subsequently
distribute such shares of XxXxxx Common Stock PRO RATA to its common
stockholders (the "Subsequent Spin-Off Distribution," and collectively with the
Initial Spin-Off Distribution, the "Spin-Off Distributions"), thereby effecting
the Spin-Off;
1
WHEREAS, prior to the Spin-Off, the parties hereto desire that XxXxxx
issue to Xxxxx 215,523 shares of Class B Common Stock of XxXxxx, par
value $0.01 per share (the "XxXxxx Class B Common Stock") and 128,022
shares of Class C Non-Voting Common Stock of XxXxxx, par value $0.01 per
share (the "XxXxxx Class C Common Stock"), which will represent all of
the issued and then outstanding XxXxxx Class B Common Stock and XxXxxx
Class C Common Stock, and that Xxxxx subsequently distribute to Pinnacle
such shares of XxXxxx Class B Common Stock and XxXxxx Class C Common
Stock, whereafter Pinnacle will exchange substantially all of such
shares of XxXxxx Class B Common Stock and XxXxxx Class C Common Stock
with holders of Pinnacle Series A, Series B and Series C Preferred Stock
(collectively, the "Pinnacle Preferred Stock") pursuant to that certain
Preferred Stock Exchange Agreement to be entered into among Pinnacle and
the holders of the Pinnacle Preferred Stock (the "Preferred Stock
Exchange Agreement") (all such issuances and distributions to be
referred to collectively as the "Exchange Distribution" and,
collectively with the Spin-Off Distributions, the "Distributions");
WHEREAS, the Distributions may be effected only if consents are received on
terms satisfactory to Xxxxx in its sole discretion from the holders of record of
a majority in principal amount (the "Requisite Consents") of the outstanding
11 3/8% Senior Subordinated Notes due 2003 (the "Notes") of Xxxxx to certain
amendments (the "Proposed Amendments") to the indenture (the "Indenture")
between Xxxxx and The Bank of New York, as trustee (the "Trustee"), governing
the Notes and such amendments permitting the Distributions are effected by Xxxxx
and the Trustee executing and delivering a supplemental indenture setting forth
such amendments to the Indenture (the "First Supplemental Indenture");
WHEREAS, the parties intend that the Distributions be exempt from
registration pursuant to Section 5 of the Securities Act of 1933, as amended
(the "Securities Act");
WHEREAS, the parties intend that the Distributions qualify under Section
355 of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the agreements set
forth below, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DISTRIBUTIONS
1.1 THE SPIN-OFF DISTRIBUTIONS. On or prior to the date on which the
Spin-Off Distributions are effected (the "Spin-Off Distribution Date"), XxXxxx
shall cancel the 100 shares of XxXxxx Common Stock issued to Xxxxx in connection
with the initial capitalization of XxXxxx and Xxxxx shall deliver to Pinnacle a
certificate for the remaining 749,693 shares of XxXxxx Common Stock held by
Xxxxx. Upon direction from Pinnacle as to the number of shares of common stock,
par value $0.01 per share, of Pinnacle (the "Pinnacle Common Stock"),
outstanding on the record date set by Pinnacle for the Subsequent Distribution
(the "Spin-Off Record Date"), XxXxxx shall deliver to Pinnacle, for the benefit
of holders of record of Pinnacle Common Stock on the Spin-Off Record Date, a
stock certificate representing, in the aggregate (and rounded down to
2
nearest whole share), a number of shares representing one (1) share of XxXxxx
Common Stock for each share of Pinnacle Common Stock outstanding on the
Record Date. Pinnacle shall distribute as promptly as practicable following
the Spin-Off Distribution Date to holders of record of Pinnacle Common Stock
on the Spin-Off Record Date one (1) share of XxXxxx Common Stock for each
share of Pinnacle Common Stock and cash in lieu of fractional shares, if any,
in the manner provided in Section 1.5 hereof. XxXxxx agrees to provide to
Pinnacle sufficient certificates in such denominations as Pinnacle may
request in order to effect the Subsequent Distribution.
1.2 ESTABLISHMENT OF AMOUNT OF XXXXXX'X INTERCOMPANY INDEBTEDNESS. The
amount of XxXxxx'x intercompany indebtedness to Xxxxx at the end of business on
the day preceding the Spin-Off Distribution Date shall be deemed to be the
amount of XxXxxx'x intercompany indebtedness to Xxxxx immediately prior to the
Spin-Off.
1.3 XXXXXX COMMON STOCK. All of the shares of XxXxxx Common Stock
distributed in the Spin-Off Distributions shall be fully paid, nonassessable and
free of preemptive rights. The shares of XxXxxx Common Stock received by
holders of Pinnacle Common Stock pursuant to the Subsequent Spin-Off shall be
subject to the transfer restrictions set forth herein and each certificate
representing shares of XxXxxx Common Stock distributed in the Subsequent
Spin-Off Distribution shall bear the legends set forth herein. Notwithstanding
any provision hereof, nothing shall prevent the imposition of additional
restrictions on the transfer of XxXxxx Common Stock, or the modification of the
restrictions on such transfer set forth herein, pursuant to the terms of the
Stockholders Agreement, dated October 27, 1998, by and among XxXxxx and the
stockholders named therein (the "Stockholders Agreement").
(a) TRANSFER RESTRICTIONS. No shares of XxXxxx Common Stock received
by holders of Pinnacle Common Stock pursuant to the Subsequent Spin-Off or any
interest therein shall be transferred by any direct or indirect sale,
assignment, mortgage, transfer, pledge, gift, hypothecation or other disposition
or transfer (each, a "Transfer"), except pursuant to any Transfer (i) to XxXxxx;
(ii) to existing XxXxxx stockholders; (iii) by gift, bequest or operation of the
laws of descent, provided that the shares of XxXxxx Common Stock in the hands of
the transferee remain subject to the same restrictions on Transfer as such
shares were subject when held by the transferor; (iv) to an entity unaffiliated
with XxXxxx pursuant to a merger, consolidation, stock-for-stock exchange or
similar transaction involving XxXxxx; (v) by a partnership to its partners,
provided that the shares of XxXxxx Common Stock in the hands of the transferee
remains subject to the same restrictions on transfer as such shares were subject
when held by the transferor; or (vi) that would be exempt from the registration
requirements of Section 5 of the Securities Act by virtue of the exemption
provided by Section 4(2) of the Securities Act if the transferor were the issuer
of the shares of XxXxxx Common Stock, provided that the transferee is an
"accredited investor" within the meaning of Rule 501(a) under the Securities Act
and the shares of XxXxxx Common Stock in the hands of such transferee remain
subject to the same restrictions on transfer as such shares were subject when
held by the transferor, or a transfer pursuant to an effective registration
under the Securities Act simultaneously with a registration of the XxXxxx Common
Stock under Section 12 of the Securities Exchange Act of 1934, as amended.
3
(b) LEGENDS. Each certificate representing shares of XxXxxx Common
Stock distributed in the Subsequent Spin-Off Distribution shall bear the legends
set forth below.
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED
OF EXCEPT WHILE SUCH A REGISTRATION IS IN EFFECT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT OR SUCH LAWS."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFERS SET FORTH IN A DISTRIBUTION
AGREEMENT, DATED AS OF OCTOBER 27, 1998, BY AND AMONG PINNACLE
AUTOMATION, INC., XXXXX SYSTEMS, INC. AND XxXXXX SOFTWARE
INTERNATIONAL, INC. (THE "COMPANY") AND A STOCKHOLDERS AGREEMENT,
DATED AS OF OCTOBER 27, 1998 (AS AMENDED, MODIFIED OR SUPPLEMENTED),
BY AND AMONG THE COMPANY AND THE STOCKHOLDERS NAMED THEREIN, COPIES OF
WHICH AGREEMENTS ARE AVAILABLE FOR INSPECTION AT THE OFFICES OF THE
COMPANY. NO TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF
THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE
TERMS OF THE DISTRIBUTION AGREEMENT AND THE STOCKHOLDERS AGREEMENT."
1.4 DISTRIBUTION OF XXXXXX CLASS B COMMON STOCK AND XXXXXX CLASS C
COMMON STOCK. On or prior to the date on which the Exchange Distribution is
effected (the "Exchange Distribution Date" and, collectively with the Spin-Off
Distribution Date, the "Distribution Dates"), Xxxxx shall deliver to Pinnacle
certificates held by Xxxxx for (i) 215,523 shares of XxXxxx Class B Common Stock
and (ii) 128,022 shares of XxXxxx Class C Common Stock in order for Pinnacle to
effect the exchange of shares of XxXxxx Class B Common Stock and XxXxxx Class C
Common Stock for shares of Pinnacle Preferred Stock pursuant to the Preferred
Stock Exchange Agreement.
1.5 FRACTIONAL SHARES. No certificate or scrip representing fractional
shares of XxXxxx Common Stock shall be issued as part of the Subsequent
Distribution and in lieu of receiving fractional shares, each holder of Pinnacle
Common Stock who would otherwise be entitled to receive a fractional share of
XxXxxx Common Stock pursuant to the Subsequent Distribution will receive cash
for such fractional shares.
1.6 PINNACLE AND XXXXX BOARD ACTION.
(a) This Agreement and other related agreements have been approved by
the Board of Directors of Pinnacle and Xxxxx, subject to the receipt by Xxxxx of
the Requisite Consents, the execution and delivery of the First Supplemental
Indenture by Xxxxx and the Trustee and the declaration of the Distributions by
the Board of Directors of Pinnacle and Xxxxx, and the consummation of the
transactions provided for herein shall only be effected after the Requisite
4
Consents have been received by Xxxxx, the First Supplemental Indenture has been
executed and delivered by Xxxxx and the Trustee and the Distributions have been
declared by the Board of Directors of Pinnacle and Xxxxx.
(b) The Board of Directors of Pinnacle and Xxxxx, in their sole
discretion, shall establish the Spin-Off Record Date and the Distribution Dates
and all appropriate procedures in connection with the Distributions.
1.7 FURTHER ASSURANCES. Each of the parties hereto promptly shall
execute such documents and other instruments and take such further actions as
may be reasonably required or desirable to carry out the provisions hereof and
to consummate the transactions contemplated hereby.
1.8 TAX MATTERS. The parties agree to treat the Distributions as
tax-free distributions pursuant to Section 355 of the Code and any state or
local counterparts. That certain Tax Sharing Agreement, dated the date
hereof, among Pinnacle, Xxxxx and XxXxxx (the "Tax Sharing Agreement"), sets
forth the rights and obligations of the parties with respect to taxes, and
contains representations and covenants of the parties to satisfy the
requirements of Section 355 of the Code. The indemnification obligations of
the parties with respect to taxes shall be governed exclusively by the Tax
Sharing Agreement.
1.9 CERTAIN XXXXXX SERVICES.
(a) ADS AGREEMENTS. Following consummation of the Spin-Off, for the
period during which White remains obligated to Automated Distribution Systems,
L.P. ("ADS") pursuant to (i) that certain System Procurement and Integration
Agreement, dated July 28, 1995, among Pinnacle, White and ADS as amended by
Amendment No. 1, dated August 22, 1995, and Amendment Xx. 0, xxxxx Xxxxxxxx 0,
0000, (xx) that certain System Maintenance Agreement, dated October 24, 1997,
among Pinnacle, White and ADS and (iii) that certain Preferred Registration
Technology Escrow Agreement, dated as of October 24, 1997, among Data Securities
International, Inc., White and ADS, and including any and all renewal periods
under any of such Agreements (collectively, the "ADS Agreements"), and such that
White may timely and fully fulfill its obligations under the ADS Agreements,
XxXxxx agrees that it shall provide hardware and software services as requested
by ADS or White on the following payment terms: (i) through June 30, 1999,
XxXxxx shall continue to provide hardware and software support services to ADS
without compensation other than the compensation that XxXxxx has already
received to date from ADS; (ii) with respect to hardware support, after June
30, 1999, Pinnacle or Xxxxx shall reimburse, or shall cause White to reimburse,
XxXxxx for all reasonably incurred costs billed to XxXxxx by third-party vendors
in connection with hardware support services provided by XxXxxx in connection
with the ADS Agreements upon presentment by XxXxxx of sufficiently detailed
invoices for such third-party vendor services rendered; and (iii) with respect
to software support, for the period beginning July 1, 1999 and ending June
30, 2001, Pinnacle or Xxxxx shall pay, or shall cause White to pay, $50,000 to
XxXxxx per year, provided xxxxxxx-like services are rendered by XxXxxx in
connection with the ADS Agreements, and, after June 30, 2001, in the event that
Pinnacle, Xxxxx or White shall request that XxXxxx render software support
services in connection with the ADS Agreements, Pinnacle or Xxxxx shall pay, or
shall cause White to pay, upon the rendering of xxxxxxx-like services by XxXxxx
and presentment
5
by XxXxxx of sufficiently detailed invoices for such services, an amount
equal to XxXxxx'x then current fully absorbed rate per hour for applicable
engineers multiplied by 200%.
(b) NATIONAL BEEF. Following consummation of the Spin-Off, XxXxxx agrees
that it will continue to provide software support to National Beef Packing
Company, L.P. ("NBP") in connection with the Systems and Maintenance Support
Agreement, dated November 1, 1997, between Xxxxx Systems, Inc. and NBP, as
amended to date (the "NBP Agreement"), such that Xxxxx may timely and fully
fulfill its obligations under the NBP Agreement through October 31, 2001. In
full and final settlement of any claim by XxXxxx for payment for services
rendered during the period beginning on the date hereof and ending
October 31, 2000, Xxxxx shall credit the amount of $50,000 against the balance
of intercompany indebtedness owed by XxXxxx to Xxxxx at the Effective Time of
the Spin-Off. In the event that Xxxxx requests that XxXxxx provide software
support services to NBP in connection with the NBP Agreement during the one-year
period beginning November 1, 2000 and ending October 31, 2001, Xxxxx shall pay
XxXxxx, on a time and material basis, at the rate of $150 per hour, not to
exceed $75,000 in the aggregate for such one-year period, upon the rendering of
xxxxxxx-like services by XxXxxx and presentment by XxXxxx of sufficiently
detailed invoices for such services indicating the number of engineer hours
rendered.
1.10 XXXXXXX DISPUTE.
(a) Without modifying XxXxxx'x indemnification obligations pursuant to
Section 3.2 hereof, if the Xxxxxxx Dispute (as defined in Section 7.08(b) of the
Amended and Restated Investment Agreement, dated October 2, 1998, by and among
XxXxxx and the other parties named therein and amending and restating the
Investment Agreement, dated as of July 24, 1998 (the "Amended and Restated
Investment Agreement")) results in a payment or payments (each, a "Xxxxxxx
Payment") by XxXxxx in excess of $3,400,000, Xxxxx hereby commits that it shall,
promptly upon receipt of each notice from XxXxxx that a Xxxxxxx Payment has been
made, pay to XxXxxx the amount set forth in such notice, which amount shall
equal (i) the aggregate amount of all Xxxxxxx Payments paid by XxXxxx as at the
date of such notice minus (ii) $3,400,000 minus (iii) the aggregate amount of
all payments previously made by Xxxxx pursuant to this Section 1.10; PROVIDED
that Xxxxx shall not be obligated to make payments to XxXxxx in the aggregate in
excess of $4,000,000.
(b) Xxxxx'x obligation to make such payments shall cease, and XxXxxx
shall be obligated to reimburse Xxxxx for such payments, plus accrued interest
from the date of each such payment at a rate equal to the most recent prime rate
announced by The Chase Manhattan Bank plus 1.00 percent per annum compounded
semi-annually, upon the earlier of (i) the Repurchase Date (as defined in the
Certificate of Incorporation of XxXxxx (the "Certificate of Incorporation") that
is an exhibit to the Amended and Restated Investment Agreement) or (ii) the
closing date of any Qualified IPO (as defined in the Certificate of
Incorporation).
6
ARTICLE II
CONDITIONS PRECEDENT TO THE DISTRIBUTIONS
2.1 The obligations of each party to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment or waiver at
or prior to each of the Distribution Dates of all of the conditions set forth
below in this Section 2.1.
(a) REQUISITE CONSENTS. The Requisite Consents shall have been
received and the First Supplemental Indenture shall have been executed by Xxxxx
and the Trustee.
(b) THIRD-PARTY CONSENTS. All necessary third-party consents to the
Distributions shall have been obtained.
(c) CORPORATE AUTHORITY. The Boards of Directors of each of Pinnacle
and Xxxxx shall have formally approved the Exchange Distribution and the
Spin-Off Distributions, finding in connection with such approval that their
respective surpluses for purposes of Section 170 of the Delaware General
Corporation Law (the "DGCL") at the respective times of the Exchange
Distribution and the Spin-Off Distributions will be sufficient to permit the
Exchange Distribution and the Spin-Off Distributions under Section 170 of the
DGCL.
(d) NO LEGAL RESTRAINT. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Exchange Distribution or the Spin-Off Distributions shall be pending.
(e) THIRD-PARTY INVESTMENT IN XXXXXX. The Amended and Restated
Investment Agreement shall have been executed and delivered by the parties
thereto.
(f) AMENDED XXXXX CREDIT AGREEMENT. The existing credit agreement
among Xxxxx and the lending institutions party thereto shall have been amended
to permit the Distributions.
(g) TAX SHARING AGREEMENT. The Tax Sharing Agreement shall have been
executed and delivered by the parties thereto.
(h) PINNACLE PREFERRED STOCK EXCHANGE AGREEMENT. The Preferred Stock
Exchange Agreement shall have been executed and delivered by the parties
thereto.
(i) PERFORMANCE OF THE PARTIES. Each of the provisions of this
Agreement required to be performed or complied with on or prior to the Exchange
Distribution Date or on or prior to the Spin-Off Distribution Date shall have
been timely performed or complied with by the party owing performance or
compliance.
2.2 ADEQUATE FINANCING FOR SPIN-OFF OFFER. Pinnacle and Xxxxx shall
not consummate the transactions contemplated by this Agreement unless Xxxxx,
immediately prior to the Spin-Off, shall have cash on hand and cash available
under its Revolving Credit Facility (as defined in Xxxxx'x Consent Solicitation
Statement, as amended and supplemented, delivered to holders of the Notes
7
soliciting consents to the Proposed Amendments (the "Consent Solicitation
Statement")) that, taken together with cash to be received by Xxxxx from
XxXxxx in connection with the Spin-Off, would be sufficient to fund the
Spin-Off Offer (as defined in the Consent Solicitation Statement).
ARTICLE III
INDEMNIFICATION
3.1 INDEMNIFICATION BY PINNACLE AND XXXXX. Pinnacle and Xxxxx shall
indemnify, defend and hold harmless, jointly and severally, XxXxxx and each of
its subsidiaries and their respective successors-in-interest and each of their
respective affiliates, stockholders, directors, officers, employees, attorneys,
agents, representatives and beneficiaries (the "XxXxxx Indemnified Parties")
against any and all losses, claims, damages, liabilities, judgments, costs and
expenses, including legal fees and expenses ("Losses"), joint or several,
suffered or incurred by any such party (other than any Loss relating to tax
matters, for which any indemnification shall be as set forth in the Tax Sharing
Agreement) that arise out of (i) any and all lawsuits, actions, proceedings,
inquiries or investigations commenced against Pinnacle, Xxxxx, XxXxxx or any of
their respective subsidiaries or other XxXxxx Indemnified Parties in connection
with the Spin-Off or the Distributions contemplated by this Agreement or the
Recapitalization (as defined herein) (collectively, "Distribution Actions"),
(ii) the assets, business, operations, debts or liabilities of any activity of
Pinnacle and Xxxxx other than the XxXxxx Business or any and all lawsuits,
actions, proceedings, inquiries or investigations related to any activity of
Pinnacle or Xxxxx other than the XxXxxx Business, whether incurred prior to,
concurrently with or after the Spin-Off Distribution Date, (iii) any and all
lawsuits, actions or proceedings that arise out of any untrue statement or
alleged untrue statement of a material fact contained in the Consent
Solicitation Statement, the Information Statement regarding XxXxxx delivered by
Pinnacle to the holders of Pinnacle Common Stock in connection with the
Subsequent Spin-Off Distribution, the Information Statement, as amended or
supplemented, regarding the Exchange Distribution delivered by Pinnacle to the
holders of Series A, Series B and Series C Pinnacle Preferred Stock, any
document incorporated by reference therein or any amendment or supplement to any
of the foregoing or the omission or alleged omission to state therein a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, (iv) any and all other
lawsuits, actions or proceedings that arise out of the Distribution Actions and
(v) any and all lawsuits, actions or proceedings to enforce this indemnity. For
purposes of this Agreement, the term "Recapitalization" shall have the meaning
ascribed to it in the Preferred Stock Exchange Agreement.
3.2 INDEMNIFICATION BY XXXXXX. XxXxxx shall indemnify, defend and
hold harmless Pinnacle and Xxxxx and each of their subsidiaries and their
respective successors-in-interest, and each of their respective affiliates,
stockholders, directors, officers, employees, attorneys, agents,
representatives and beneficiaries (the "Pinnacle Indemnified Parties")
against any Losses, joint or several, suffered or incurred by any such party
(other than any Loss relating to tax matters, for which any indemnification
shall be as set forth in the Tax Sharing Agreement) that arise out of (i) the
assets, business, operations, debts or liabilities of the XxXxxx Business or
any and all lawsuits, actions, proceedings, inquiries or investigations
related to the XxXxxx Business, whether incurred prior to, concurrently with
or after the Spin-Off Distribution Date, including, but not limited to, the
dispute
8
involving Xxxxxxxx X. Xxxxxxx and those certain guarantees by Xxxxx (and
Pinnacle, as noted) of the obligations of each of XxXxxx and its wholly owned
subsidiary, Xxxxxxx Software Development Corp. ("Xxxxxxx"), under leases of
real property occupied by XxXxxx and/or Xxxxxxx at the date of this Agreement
at: 00000 Xxxxxxx Xxxxx, Xxxxx 000, Xxxxxxxx, XX 00000 (guaranteed by XxXxxx
and Pinnacle); 0000 Xxxxxxxxxx Xxxxxx, Xxxxxxx, XX 00000; and 0000 Xxxxxxx
Xxxxx, Xxxxx 000, Xxxx, XX 00000, and under Master Lease No. 155056 of
computer equipment from Computer Sales International, Inc., dated as of July
13, 1998 and (ii) any and all lawsuits, actions or proceedings to enforce
this indemnity.
3.3 NOTIFICATION OF CLAIMS. For the purpose of this Article III, the
term "Indemnifying Party" shall mean the party having an obligation hereunder to
indemnify the other party pursuant to this Article III, and the term
"Indemnified Party" shall mean the party having the right to be indemnified
pursuant to this Article III. Whenever any claim shall arise for
indemnification under this Article III, including any claim related to a
Distribution Action, the Indemnified Party shall promptly notify the
Indemnifying Party in writing of such claim and, when known, the facts
constituting the basis for such claim (in reasonable detail). Failure by the
Indemnified Party to so notify the Indemnifying Party shall not relieve the
Indemnifying Party of any liability hereunder except to the extent that such
failure materially prejudices the Indemnifying Party.
3.4 INDEMNIFICATION PROCEDURES.
(a) For all claims other than Distribution Actions:
(i) After the notice required by Section 3.3 is received by the
Indemnifying Party, if the Indemnifying Party undertakes to defend any such
claim, then the Indemnifying Party shall be entitled, if it so elects, to take
control of the defense and investigation with respect to such claim and to
employ and engage attorneys of its own choice to handle and defend the same, at
the Indemnifying Party's cost, risk and expense, upon written notice to the
Indemnified Party of such election, which notice acknowledges the Indemnifying
Party's obligation to provide indemnification hereunder. The Indemnifying Party
shall not settle any third-party claim that is the subject of indemnification
without the written consent of the Indemnified Party, which consent shall not be
unreasonably withheld; provided, however, that the Indemnifying Party may settle
a claim without the Indemnified Party's consent if such settlement (x) makes no
admission or acknowledgment of liability or culpability with respect to the
Indemnified Party, (y) includes a complete release of the Indemnified Party and
(z) does not require the Indemnified Party to make any payment or forego or take
any action. The Indemnified Party may, at its own cost, participate in any
investigation, trial and defense of such lawsuit, action or proceeding
controlled by the Indemnifying Party and any appeal arising therefrom. If there
are one or more legal defenses available to the Indemnified Party that conflict
with those available to the Indemnifying Party, the Indemnified Party shall have
the right, at the expense of the Indemnifying Party, to assume the defense of
the lawsuit, action or proceeding; PROVIDED, HOWEVER, that the Indemnified Party
may not settle such lawsuit, action or proceeding without the consent of the
Indemnifying Party, which consent shall not be unreasonably withheld.
(ii) If, after receipt of a claim notice pursuant to Section 3.3,
the Indemnifying Party does not undertake to defend any such claim, the
Indemnified Party may, at the Indemnifying
9
Party's expense, but shall have no obligation to, contest any lawsuit, action
or proceeding with respect to such claim and the Indemnifying Party shall be
bound by the result obtained with respect thereto by the Indemnified Party
(including, without limitation, the settlement thereof without the consent of
the Indemnifying Party).
(iii) At any time after the commencement of defense of any
lawsuit, action or proceeding, the Indemnifying Party may request the
Indemnified Party to agree in writing to the abandonment of such contest or to
the payment or compromise by the Indemnifying Party of such claim, whereupon
such action shall be taken unless the Indemnified Party determines that the
contest should be continued and so notifies the Indemnifying Party in writing
within 15 days of such request from the Indemnifying Party. If the Indemnified
Party determines that the contest should be continued, the Indemnifying Party
shall be liable hereunder only to the extent of the lesser of (y) the amount
which the other party(ies) to the contested claim had agreed to accept in
payment or compromise as of the time the Indemnifying Party made its request
therefor to the Indemnified Party or (z) such amount for which the Indemnifying
Party may be liable with respect to such claim by reason of the provisions
hereof.
(b) Pinnacle and Xxxxx shall have responsibility to defend against any
Distribution Actions, PROVIDED, HOWEVER, that (i) if Pinnacle and Xxxxx shall
elect not to assume the defense of such Actions or (ii) if XxXxxx reasonably
determines that there may be a conflict between the positions of Pinnacle and
Xxxxx, on the one hand, and of XxXxxx, on the other hand, in defending such
claim or action, then separate counsel shall be entitled to participate in and
conduct the defense, and Pinnacle and Xxxxx shall be liable for any legal or
other expenses reasonably incurred by XxXxxx in connection with the defense.
Pinnacle and Xxxxx shall not be liable for any settlement of any action, suit,
claim or proceeding effected without its written consent; PROVIDED, HOWEVER,
that Pinnacle shall not unreasonably withhold, delay or condition its consent.
Pinnacle and Xxxxx further agree that they will not, without XxXxxx'x prior
written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof in any pending or threatened action, suit, claim or
proceeding in respect of which indemnification may be sought hereunder (whether
or not XxXxxx is an actual or potential party to such action, suit, claim or
proceeding) unless such settlement or compromise includes an unconditional
release of XxXxxx from all liability arising out of such action, suit, claim or
proceeding..
(c) With respect to all claims, including any Distribution Actions, the
Indemnified Party shall cooperate in all reasonable respects with the
Indemnifying Party and its attorneys in the investigation, trial and defense of
any lawsuit, action or proceeding with respect to such claim and any appeal
arising therefrom (including the filing in the Indemnified Party's name of
appropriate cross claims and counterclaims).
10
3.5 INDEMNIFICATION OF INSURED LOSS.
(a) The amount of any Loss for which indemnification is provided under
this Article III shall be net of any amounts recovered or recoverable by the
Indemnified Party under insurance policies covering such Loss. It is the
express intention of the parties hereto that no transaction contemplated by this
Agreement eliminate or reduce insurance coverage available to any party hereto
with respect to a Loss.
(b) If the Indemnified Party makes any payment under this Article III
in respect of any Loss, the Indemnifying Party shall be subrogated, to the
extent of such payment, to the rights of the Indemnified Party against any
insurer or third party with respect to such Loss. The Indemnified Party shall
execute any required documents or instruments, serve as a named plaintiff or
take any other similar steps necessary to effectuate such subrogation.
3.6 SURVIVAL OF INDEMNIFICATION. The obligations to indemnify and hold
harmless a party hereto shall survive with respect to any claim until any
applicable statute of limitations with respect to such claim expires; PROVIDED
that prior to the expiration of the applicable statute of limitations period the
Indemnified Party shall have delivered a claim notice in accordance with
Section 3.3 hereof to the Indemnifying Person.
ARTICLE IV
ARBITRATION
4.1 IN GENERAL. Any controversy, dispute or disagreement between the
parties hereto arising out of or relating to this Agreement, which controversy,
dispute or disagreement is not settled in writing within 30 days after the date
on which a party subject to this Agreement gives written notice to the other
party(ies) that a controversy, dispute or disagreement exists, shall be
submitted to binding arbitration pursuant to this Article IV, which shall
constitute the exclusive remedy for the settlement of any controversy, dispute
or disagreement between the parties concerning this Agreement, including whether
such controversy, dispute or disagreement is subject to arbitration pursuant to
this Article IV.
4.2 SELECTION OF ARBITRATORS. Within 45 days after the date on which a
party hereto gives written notice to the other party(ies) that a controversy,
dispute or disagreement exists arising out of or relating to this Agreement, the
parties agree to each select one arbitrator to hear and decide such matters.
The two arbitrators so chosen shall then select a third arbitrator. Each of the
arbitrators chosen shall be impartial and independent of all parties to this
Agreement and shall be a retired judge or lawyer experienced in corporate law
matters. If either of the parties fails to select an arbitrator within 20 days
after the end of such 45-day period, or if the arbitrators chosen fail to select
a third arbitrator within such 20 days, then any party may in writing request
the judge of the United States District Court for the Southern District of New
York senior in term of service to appoint the arbitrator or arbitrators.
4.3 CONDUCT OF PROCEEDINGS. Each arbitration hearing shall be held at
a place in New York City, New York acceptable to a majority of the arbitrators.
The arbitration shall be conducted
11
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association to the extent such rules do not conflict with the
terms of this Section. The decision of a majority of the arbitrators shall
be reduced to writing and shall be binding on the parties. Judgment upon the
award(s) rendered by a majority of the arbitrators may be entered and
execution had in any court of competent jurisdiction or application may be
made to such court for a judicial acceptance of the award and an order of
enforcement. The charges and expenses of the arbitrators and all costs of
arbitration shall be paid by the non-prevailing party as determined by a
majority of the arbitrators. The arbitration shall commence within 10 days
after the arbitrators are selected. In fulfilling their duties with respect
to determining the amount of any loss or claim, the arbitrators may consider
such matters as, in the opinion of the arbitrators, are necessary or helpful
to make a proper determination. The arbitrators may consult with and engage
disinterested third parties to advise the arbitrators. If any of the
arbitrators selected hereunder should die, resign or be unable to perform his
or her duties hereunder, the remaining arbitrators or such senior judge (or
such judge's successor) shall select a replacement arbitrator. The procedure
set forth herein for selecting the arbitrators shall be followed from time to
time as necessary.
ARTICLE V
MISCELLANEOUS
5.1 ENTIRE AGREEMENT. This Agreement, together with the Preferred
Stock Exchange Agreement, the Tax Sharing Agreement and the Stockholders
Agreement, constitute the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior written and oral and all
contemporaneous oral agreements and understandings with respect to the subject
matter hereof.
5.2 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware regardless of the laws that
might otherwise govern under principles of conflicts of laws applicable thereto.
5.3 DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
5.4 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given when delivered in person,
by telecopy or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties as follows:
if to Pinnacle or Xxxxx:
c/o Pinnacle Automation, Inc.
0000 Xxxxx Xxxxxxxxx
Xx. Xxxxx, Xxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xx. Xxxxxxx X. X'Xxxxx, President and Chief Executive
Officer
12
if to XxXxxx:
XxXxxx Software International, Inc.
00000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xx. Xxxxx X. Xxxxxxx, President and Chief Executive
Officer
or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Any notice or communication delivered in person shall be deemed effective on
delivery. Any notice or communication sent by telecopy shall be deemed
effective on the first business day at the place of which such notice or
communication is received following the day on which such notice or
communication was sent. Any notice or communication sent by registered or
certified mail shall be deemed effective on the fifth business day at the place
from which such notice or communication was mailed following the day in which
such notice or communication was mailed.
5.5 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement except as
provided in Article III, Article IV, Section 5.7 and Section 5.8 (which are
intended to be for the benefit of the persons provided for therein, and may be
enforced by such persons).
5.6 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
5.7 PERSONAL LIABILITY. This Agreement shall not create or be deemed
to create or permit any personal liability or obligation on the part of any
direct or indirect stockholder of any party hereto or any officer, director,
employee, agent, representative or investor of any party hereto.
5.8 BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives and successors. This Agreement may not be assigned by any party
hereto.
5.9 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
5.10 LEGAL FEES; COSTS. Subject to Section 4.3 hereof, if any party
hereto institutes any action or proceeding, whether before a court or
arbitrator, to enforce any provision of this Agreement, the prevailing party
therein shall be entitled to receive from the non-prevailing party reasonable
attorneys' fees and costs and any other costs incurred in such action or
proceeding, whether or not such action or proceeding is prosecuted to judgment.
13
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized on the day and
year first above written.
PINNACLE AUTOMATION, INC.
By: /s/Xxxxxxx X. X'Xxxxx
-------------------------------------
Xxxxxxx X. X'Xxxxx
President and Chief Executive Officer
XXXXX SYSTEMS, INC.
By: /s/Xxxxxxx X. X'Xxxxx
--------------------------------------
Xxxxxxx X. X'Xxxxx
President and Chief Executive Officer
XXXXXX SOFTWARE INTERNATIONAL, INC.
By: /s/Xxxxx X. Xxxxxxxx
-------------------------------------
Xxxxx X. Xxxxxxxx
Vice President - Finance and Treasurer
14
