EXHIBIT 10.26
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (the "Agreement"), executed on November 10, 1994 to be
effective as of October 31, 1994, among CAD Warehouse, Inc., a Nevada
corporation ("Purchaser"), Summagraphics Corporation, Inc., a Delaware
corporation ("Issuer"), CAD Warehouse, Inc., a Delaware corporation ("Seller"),
and the shareholders of Seller named on the signature page of this Agreement
(collectively, "Shareholders"), for the acquisition by Purchaser of
substantially all the assets of Seller.
1. TRANSFER OF ASSETS; ASSUMPTION OF LIABILITIES; PURCHASE PRICE. (a) On
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the terms and subject to the conditions herein expressed, Seller agrees to sell,
convey, transfer, assign, and deliver to Purchaser, and Purchaser agrees to
purchase, good and marketable title to all of the assets, properties, and
business of Seller of every nature, kind, and description, whether tangible or
intangible, real or personal, contingent or otherwise, wherever so located and
whether or not reflected on the books and records of Seller, including, without
limitation all furniture, fixtures, furnishings, vehicles, equipment,
copyrights, trademarks, and trade names and associated goodwill, work-in-
process, raw materials inventories, finished goods inventories, receivables and
notes, customer lists, sales data, proprietary information, trade secrets,
supplies, materials, catalogs, cash, securities, bank and investment accounts,
and all office supplies, books, files, records, journals, ledgers, disks, reels,
and all other written or electronic depositories of information of Seller,
machinery, supply agreements, claims and causes of action against third parties
whether or not pending, vendor credits, payments and other items in transit,
know how, patents, patent applications, rebates, refunds, material and
manufacturing specifications, drawings, designs, warranties, computer software
and systems, leasehold interests and improvements (including any prepaid rent,
security deposits and options to renew or repurchase thereunder), and all other
property and materials used in the manufacture or distribution of Seller's
products or otherwise in its business (together, the "Transferred Assets"), in
each case as the same shall exist as of the date of this Agreement, together
with such changes in the Transferred Assets as are permitted by this Agreement
on and prior to the Closing Date (as defined in Section 8). Without limiting
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the generality of the foregoing, it is agreed that the Transferred Assets shall
include, without limitation, all of the assets listed on Schedule 1(a) to this
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Agreement.
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(b) Notwithstanding anything to the contrary contained in Section l(a), the
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Transferred Assets shall not include the minute books, the corporate seal, and
the stock records of Seller or the assets described on Schedule l(b) to this
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Agreement (the "Excluded Assets");
(c) Purchaser shall assume all Liabilities of Seller existing as of the
Closing, other than the Excluded Liabilities set forth on Schedule l(c) (the
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"Assumed Liabilities"). For purposes of this Agreement, "Liabilities" means all
liabilities, liens, claims, obligations, and encumbrances disclosed on (i) the
September 30, 1994 or October 31, 1994 Balance Sheets included in the Financial
Statements (as defined in Section 2(d)), together with any increase or decrease
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in Seller's accounts payable and accrued liabilities as disclosed thereon which
occur in the ordinary course of business from October 31, 1994 to the Closing
Date, (ii) Schedule 2(n) and (iii) Schedule 2(q), which Seller and Shareholders
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have represented and warranted to Purchaser and Issuer to be all of the
liabilities, liens, claims, obligations and encumbrances applicable to Seller or
the Transferred Assets as of the Closing Date.
(d) The Purchaser shall purchase the Transferred Assets on the Closing Date
in exchange for the consideration described below in a transaction that is
intended by each of the parties to qualify as a non-taxable reorganization under
Section 368(a)(1)(C) of the Internal Revenue Code of 1986. The purchase price
(the "Purchase Price") for the Transferred Assets shall be equal to the
following amounts:
(i) 510,129 shares of Issuer's Common Stock, $.01 par value per share (the
"Common Stock"), valued at $7.825 per share (the "Share Price") which shall be
increased or reduced by a number of Shares (the "Adjustment Shares") having a
value equal to any amount by which the stockholders' equity of Seller,
determined as of the Effective Date, is greater than (the "Positive Net Worth
Difference") or less than (the "Negative Net Worth Difference") $406,123 (a "Net
Worth Difference"), the number of Adjustment Shares to be determined by dividing
the Net Worth Difference by the Share Price (as so adjusted, the "Shares"); and
(ii) assumption of the Assumed Liabilities.
The Purchaser will determine the stockholders' equity of Seller as of the
Effective Date, in good faith and in accordance with generally accepted
accounting principles as consistently applied by Seller, within ninety (90) days
of the Closing Date and will notify Seller and Shareholders of any Net Worth
Difference. In the event a Negative Net Worth Difference is determined, Seller
and Shareholders, jointly
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and severally, shall return to Purchaser a number of shares of Common Stock
equal to the Adjustment Shares. In the event a Positive Net Worth Difference is
determined, Purchaser shall deliver to Seller a number of shares of Common Stock
equal to the Adjustment Shares.
(e) This Agreement has been executed on November 10, 1994 (the "Closing
Date") to be effective as of the close of business on October 31, 1994 (the
"Effective Date"). It is the intention of the parties that all transactions of
Seller occurring after the Effective Date and until the Closing Date will, upon
completion of the Closing, be deemed to have been undertaken and recorded for
the benefit of Purchaser and that, effective as of the Closing Date, such
transactions are to be recorded on the books and records of Purchaser for
purposes of financial accounting, and state, federal and local income tax
reporting. However, the Assumed Liabilities are intended to be the Liabilities,
other than the Excluded Liabilities, of Seller as they exist as of the Closing
Date, and the Purchased Assets are intended to be the Purchased Assets of Seller
as they exist as of the Closing Date. Purchaser has undertaken no
responsibility for, nor has Seller granted Purchaser any right to direct, the
conduct of Seller's business from the Effective Date until the Closing Date, and
in no event will Purchaser be liable for any act or obligation of Seller
incurred or arising prior to the Closing Date other than the Assumed
Liabilities..
2. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS. Seller and
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the Shareholders each, jointly and severally, represent and warrant to Purchaser
and Issuer, all of which representations and warranties shall be true as of the
Effective Date and as of the Closing Date, and shall survive the Closing for a
period of three (3) years from the Closing Date, the following:
(a) Seller is a corporation duly organized and validly existing and in good
standing under the laws of the State of Delaware and has the corporate power to
own its property and carry on its business as and where it is now being
conducted. Schedule 2(a) sets forth each jurisdiction in which the nature of
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the business conducted by Seller or the assets owned by Seller would require
Seller to qualify to do business as a foreign corporation. Except as set forth
on Schedule 2(a), Seller does not own any capital stock, partnership interest,
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trust interest, loan, note, advance or other ownership of or investment in any
other person or entity. Except as disclosed on Schedule 2(a), neither the
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Seller nor any Shareholder owns any shares of Issuer's Common Stock or
securities convertible into Issuer's Common Stock.
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(b) The execution, delivery, and performance of this Agreement and the
other agreements set forth on Schedule 2(b) (the "Other Agreements") by Seller
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and Shareholders have been duly authorized by all necessary action (corporate or
otherwise) on the part of Seller and its shareholders, and this Agreement and
the Other Agreements to which they are respective parties, have been duly
executed and delivered and constitute legal, valid, and binding agreements of
Seller and Shareholders, enforceable in accordance with their terms.
(c) Except as set forth in Schedule 2(c), neither the execution and
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delivery of this Agreement and the Other Agreements, nor the consummation of any
of the transactions contemplated hereby or thereby, will (i) require any
consent, waiver, approval, authorization or permit of, or filing with or
notification to, any person or Governmental Entity (as defined in Section 2(f))
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(other than any such requirements applicable only to Purchaser and Issuer), or
(ii) result in the breach or violation of any term or provision of, constitute a
default under, or result in the termination of, any right, privilege, license or
agreement of Seller or to which the Transferred Assets are subject, or any loss
or disadvantage to, or the creation of a lien on, any of the Transferred Assets
under any charter provision, bylaw, organizational or constituent document,
agreement, mortgage, deed of trust, note, bond, license, lease, indenture,
instrument, order, writ, judgment, injunction, decree, award, statute, law, rule
or regulation to which Seller or the Shareholders are parties or that is
otherwise applicable to Seller or the Shareholders or any of the Transferred
Assets.
(d) The financial statements of the Seller audited by KPMG Peat Marwick,
Certified Public Accountants, for the years ended December 31, 1993 and the nine
months ended September 30, 1994; financial statements of the Seller prepared by
Seller, for the years ended December 31, 1991 and 1992; and for the one (l)
month period ended October 31, 1994, each attached hereto as Schedule 2(d)
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(together, the "Financial Statements"), constitute true and correct statements
as of such dates of the financial condition of Seller, and fairly present the
financial position, assets, liabilities, revenues and expenses of Seller at the
dates and for the periods indicated, and have been prepared in accordance with
generally accepted accounting principles consistently applied. All expenses of
Seller during the periods covered by the Financial Statements and any subsequent
period until Closing have been appropriately recorded on the books and records
of Seller and have not been paid directly or indirectly by Shareholders or any
other person. The Shareholders have delivered or caused to be delivered to
Seller all funds paid to them or any affiliate (as defined in Section 2(t)) by
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any third party with respect to the business of Seller since the Effective Date.
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Seller and Shareholders have taken all actions necessary in order to permit the
purchase of the Transferred Assets to be accounted for by Purchaser and Issuer
as a pooling of interests in accordance with Accounting Principles Board Opinion
No. 15, the interpretative releases issued pursuant thereto, and the
pronouncements of the Securities and Exchange Commission, and none of the
Shareholders and Sellers have taken any action that would prevent such treatment
or failed to take any action that is necessary to permit such treatment, nor are
any of them aware of any facts or circumstances that would prevent such
treatment.
(e) Since December 31, 1993, there has not occurred or arisen, and the
Seller has not suffered, a material adverse change in the business of Seller and
Seller has not engaged in any transaction that is illegal or not in the ordinary
and usual course of its business consistent with past practice.
(f) Except as disclosed in Schedule 2(f), there are no actions, suits,
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proceedings, arbitrations or investigations pending or, to the best knowledge of
Seller and the Shareholders, threatened against Seller or affecting the business
of Seller before any court, agency or other governmental authority or
instrumentality, domestic or foreign (a "Governmental Entity") or arbitrator,
nor is any order, writ, judgment, injunction, or decree of any Governmental
Entity outstanding against the Seller. The business of Seller is not being, and
has not since its organization been, conducted in violation of any applicable
law, ordinance, rule, regulation, judgment, writ, decree, injunction, or order
of any Governmental Entity or arbitrator.
(g) Seller has, and the Xxxx of Sale with respect to the Transferred Assets
will be sufficient to convey to Purchaser, good and indefeasible title to the
Transferred Assets (including any trade names, trademarks, service marks and
other names and marks included within the Transferred Assets), which Transferred
Assets will be delivered to Purchaser free and clear of any and all liens,
encumbrances or restrictions, other than any liens, encumbrances or restrictions
reflected on Schedule 2(g).
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(h) Seller and Shareholders have timely filed with the appropriate
governmental agencies, and in correct form, all federal, state and local tax
returns, reports and estimates which were required to be filed by it and them
for all periods in which such were due; its and their federal and state income
tax returns have not been selected for examination, or been examined, by the
Internal Revenue Service or other taxing authority; there are no unpaid
assessments nor proposed assessments of additional federal or state income,
franchise, sales or use taxes pending against Seller or Shareholders; and
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Seller and Shareholders have granted no extensions of any limitation periods
with respect to its federal and state income tax returns. All taxes shown as due
on filed federal, state and local tax returns have been paid or the liability
therefor to their respective dates has been provided for in the financial
statements for the periods ending September, 30, 1994 attached as Schedule 2(d)
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hereto, and all federal, state and local income or franchise taxes for periods
subsequent to September 30, 1994 likewise have been paid or adequately accrued.
All withholding and other employment and other taxes Seller is obligated to
collect have been withheld or collected and if due have been duly paid over to
the taxing authority. Seller has made all deposits required by law to be made
with respect to employees' withholding and other employment taxes. There are no
tax liens on any of the assets or properties of Seller or Shareholders, and
Seller and Shareholders have not been notified of any audit or proposed
adjustment of its or their filed returns by any federal, state or local taxing
authority. Seller and Shareholders have delivered to Purchaser and Issuer true
and correct copies of its and their federal, state and local income tax returns
and all related correspondence and filings for the period commencing January 1,
1990 and ending on the Closing Date. On the date that Seller and Shareholders
elected S Corporation status under the Code there existed no built-in gain as
defined in Code Section 1374.
(i) The inventories of Seller as reflected in the financial statements in
Schedule 2(d) accurately reflect the value of such inventories at their
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respective dates, and there has been no change or diminution in value of the
inventory as reflected in Seller's financial statements for the nine months
ended September 30, 1994, except for changes resulting from operations in the
ordinary course of business since that date.
(j) Schedule 2(j) sets forth all (i) employment, severance, compensation,
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consulting, indemnification and other agreements (the "Employee Agreements")
between the Seller and its present employees, officers, directors and
consultants, and any employees, officers, directors and consultants terminated
by Seller in the twelve months prior to the execution date hereof, (ii)
agreements which provide for aggregate future payments by or to the Seller of
more than $10,000 (other than purchase orders entered into in the ordinary
course of business), (iii) agreements containing covenants limiting the freedom
of the Seller to compete with any person in any line of business or in any area
or territory, (iv) license agreements, (v) leases with respect to real property
and (vi) each indenture, mortgage, note, lien, license, government registration,
contract, lease, agreement or other instrument or obligation to which the Seller
is a
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party which is material to the conduct of its business (collectively, the
"Contracts"). True, complete and correct copies of all Contracts have previously
been made available to Issuer and Purchaser. Seller and Shareholders have in all
material respects performed all obligations to be performed by them under all
contracts, agreements and commitments to which Seller and Shareholders are
parties and that relate to the Transferred Assets or the business conducted by
Seller therewith, including the Contracts, and there is not under any thereof
any existing default or event of default or event that, with notice or lapse of
time or both, would constitute a default or event of default by any of the
parties thereto.
(k) Seller has provided to Purchaser and Issuer in Schedule 2(k) a true and
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complete list of each bonus, deferred compensation, incentive compensation,
stock purchase, stock option, severance or termination pay, hospitalization or
other medical, life or other insurance, supplemental unemployment benefits,
profit-sharing, pension, or retirement plan, program, agreement or arrangement,
and each other material employee benefit plan, program, agreement or
arrangement, maintained or contributed to or required to be contributed to by
the Seller or by any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that together with the Seller would be deemed a "single employer"
within the meaning of Section 4001 of the Employee Retirement Income Security
Act of 1974, as amended, and the rules and regulations promulgated thereunder
("ERISA"), for the benefit of any employee or former employee of the Seller or
any ERISA Affiliate, whether formal or informal and whether legally binding or
not (the "Plans"). No Plan is subject to Title IV of ERISA. Neither the
Company nor any ERISA Affiliate has any formal plan or commitment, whether
legally binding or not, to create any additional plan, program, agreement or
arrangement or modify or change any existing Plan that would affect any employee
or former employee of the Seller or any ERISA Affiliate. All records of
benefits paid to or for the benefit of employees of Seller under the Plans since
January 1, 1993 have been provided to Purchaser and Issuer and are true and
correct. Seller and Shareholders are not aware of any circumstance that would
cause the expenses incurred by Purchaser after the Closing under any such Plans
to exceed the amounts incurred since January 1, 1993.
(l) Schedule 2(1) sets forth a complete list of all federal, state and
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local licenses, permits, authorizations and approvals (collectively, the
"Permits') required for the conduct of Seller's business and operations
conducted with the Transferred Assets. Seller is not in violation of any of the
requirements for such Permits and all such Permits are in full force and effect.
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(m) Seller's relationships with its employees are good, Seller is presently
in compliance with all applicable federal and state labor laws, regulations, and
agreements, and there is not any pending, or to the knowledge of Seller and
Shareholders threatened, labor grievance, strike, work stoppage, or other action
by any employee or employees that could have a material adverse effect on the
Transferred Assets or the business of Purchaser conducted therewith. The Seller
is not bound by or subject to (and none of its properties or assets is bound by
or subject to) any written or oral, express or implied, contract, commitment or
arrangement with any labor union, and, since January 1, 1989, no labor union has
requested or, to the best knowledge of the Seller, has sought to represent any
of the employees, representatives or agents of the Seller, nor is the Seller
aware of any labor organization activity involving its employees. To the best
knowledge of the Seller and the Shareholders, no officer or key employee of the
Seller has any plans to terminate his employment with the Seller or refuse to
accept employment with Purchaser after Closing.
(n) Except as set forth on Schedule 2(n), as of September 30, 1994, the
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Seller had no liabilities or obligations (absolute, accrued, fixed, contingent,
liquidated, unliquidated or otherwise) material to the business of the Seller
other than as disclosed on the audited balance sheet of the Seller as at
September 30, 1994 delivered pursuant to Section 2(d). Except as set forth in
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Schedule 2(n), since December 31, l993, the Seller has not incurred any
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liabilities or obligations (absolute, accrued, fixed, contingent, liquidated,
unliquidated or otherwise) material to the business of the Seller, except
liabilities incurred in the ordinary course of business consistent with past
practice.
(o) The Seller owns or is licensed to use all trademarks, trade names,
assumed names, service marks, logos, patents, copyrights (including those
relating to computer software and data bases), trade secrets, technology, know-
how and processes which are material to the business of the Seller as heretofore
conducted (collectively, the "Proprietary Rights", if owned by Seller, and the
"License" if licensed to the Seller) free and clear of all liens, and all of
such Proprietary Rights and Licenses are included in the Transferred Assets.
with respect to Proprietary Rights which are registered or as to which
application for registration has been made, the Seller is the beneficial owner
thereof and is the record owner thereof, or documentation to make the Seller the
record owner thereof has been filed. A list of all such registrations and
applications and all Licenses is set forth in Schedule 2(o). No Proprietary
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Rights or Licenses used by the Seller, and no services or products sold by the
Seller, conflict with or infringe upon any proprietary rights
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available to any third party. The Seller has not entered into any consent,
indemnification, forbearance to xxx or settlement agreement with respect to
Proprietary Rights or Licenses except as disclosed in Schedule 2(o). No claims
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have been asserted in writing by any person with respect to the validity of or
the Seller's ownership or right to use the Proprietary Rights or Licenses and,
to the best knowledge of the Seller, there is no reasonable basis for any such
claim. The Proprietary Rights are valid and enforceable and no registration
relating thereto has lapsed, expired or been abandoned or canceled or is the
subject of a cancellation proceeding. Schedule 2(o) sets forth all of the
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material licenses to which the Seller is a party relating to the licensing of
Proprietary Rights. The Seller has complied with, in all material respects, its
respective contractual obligations relating to the protection of the Proprietary
Rights used pursuant to licenses. Except as set forth in Schedule 2(o), the
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consummation of the transactions contemplated hereby will not alter or impair
any Proprietary Rights. Seller has not infringed upon or violated the
Proprietary Rights of any person and, to the best knowledge of the Seller, no
person is infringing on or violating the Proprietary Rights owned or used by the
Seller. Schedule 2(o) sets forth each trade name, corporate name or assumed name
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under which Seller has conducted any business or owned any property at any time
since January 1, 1990.
(p) No information provided by or on behalf of the Seller or the
Shareholders to Issuer or Purchaser in connection with this Agreement and the
Other Agreements and the transactions contemplated hereby and thereby contains
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(q) None of the Seller, the Shareholders nor any of their officers,
directors or employees has employed any broker or finder or incurred any
liability for brokerage fees, commissions or finder's fees in connection with
the transactions contemplated by this Agreement.
(r)(i) Except as set forth in Schedule 2(r)(i), the Seller is in compliance
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with all Environmental Laws (as hereinafter defined), which compliance includes,
but is not limited to, the possession by the Seller of all permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance in all respects with the terms and conditions thereof. Except as set
forth in Schedule 2(r)(i), the Seller has not received any communication
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(written or oral), whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the
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Seller is not in such compliance, and, to the best knowledge of the Seller and
the Shareholders, there are no circumstances that may prevent or interfere with
such compliance in the future. Except as set forth in Schedule 2(r)(i), there
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are no permits or other governmental authorizations currently held by the Seller
pursuant to the Environmental Laws.
(ii) Except as set forth in Schedule 2(r)(ii) there are no Environmental
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Claims (as hereinafter defined) pending or, to the best knowledge of the Seller
and the Shareholders, threatened against the Seller, or, to the best knowledge
of the Seller and the Shareholders, against any person or entity whose liability
for any Environmental Claim the Seller has retained or assumed either
contractually or by operation of law.
(iii) Except as set forth in Schedule 2(r)(iii), there are no past or
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present actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge, presence, use,
generation, storage, transportation or disposal of any Material of Environmental
Concern (as hereinafter defined), that could form the basis of any Environmental
Claim against the Seller or, to the best knowledge of the Seller, against any
person or entity whose liability for any Environmental Claim the Seller has
retained or assumed either contractually or by operation of law.
(iv) Without in any way limiting the generality of the foregoing, (l) all
on-site and off-site locations where the Seller has stored, disposed of or
arranged for the disposal of Materials of Environmental Concern are identified
in Schedule 2(r)(iv)(1), (2) any underground storage tanks and the capacity and
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contents of such tanks, located on property owned or leased by the Seller are
identified on Schedule 2(r)(iv)(2), (3) except as set forth in Schedule
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2(r)(iv)(3), there is no asbestos contained in or forming part of any building,
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building component, structure or office space owned or leased by the Seller, and
(4) except as set forth in Schedule 2(r)(iv)(4), no polychlorinated biphenyls
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(PCBs) or PCB-containing items are used or stored at any property owned or
leased by the Seller.
(v) For purposes of this Agreement:
(A) "Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any person or entity alleging
potential liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of, based upon or
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resulting from (x) the presence, transportation or release into the environment,
of any Material of Environmental Concern at any or from location, whether or not
owned or operated by the Seller or (y) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
(B) "Environmental Laws" means all federal, state, local and foreign laws
and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), including, without limitation, laws
and regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
(C) "Materials of Environmental Concern" means chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum and
petroleum products.
(s) Neither Seller nor Shareholders have any knowledge of any termination
or cancellation of, or any modification or change in, the business relationship
of Seller with any customer or vendor or any existing condition or state of
facts or circumstances affecting the business of Seller generally which has
adversely affected or might adversely affect in any material way, the business
relationships of Seller with its customers, or has prevented or will prevent
such business relationships from being carried on by Purchaser subsequent to the
Closing in essentially the same manner as currently carried on.
(t) Except as set forth on Schedule 2(t), no affiliate of Seller or any
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Shareholder owns, directly or indirectly, any interest in (excepting not more
than a 5% holding for investment purposes in securities of publicly held and
traded companies), or is an officer, director, employer or consultant of or
otherwise receives remuneration from, any person which is, or is engaged in
business as, a competitor, lessor, lessee, customer or supplier of Seller.
Seller does not have, and no officer or director or shareholder of Seller or any
affiliate of Seller or any Shareholder has, nor during the period beginning July
1, 1991 to and including the Closing Date had, any interest in any property,
real or personal, tangible or intangible, used in or pertaining to the business
of Seller. None of the Shareholders has any claim or right against Seller
except as set forth in Schedule 2(t). Schedule 2(t) and the footnotes to the
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financial statements disclose all related party transactions between
Shareholders and their affiliates and the Seller occurring since January 1,
1993. As
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used in this Section 2(t), "affiliate" means (i) any grandparent, parent, child
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or grandchild of a natural person or that person's spouse, together with any of
their lineal descendants, and (ii) any person that, directly or indirectly,
controls, or is controlled by or under common control with, another person.
"Control" means the power to direct or cause the direction of the management and
policies of a person, directly or indirectly, whether by ownership of voting
securities, by contract or otherwise.
(u) The Liabilities described in Section l(c) are all of the liabilities,
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liens, claims, obligations and encumbrances applicable to Seller or the
Transferred Assets as of the Closing Date. Since September 30, 1994, except as
disclosed on Schedule 2(u), (i) Seller has and the Shareholders have caused
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Seller to, operate its business consistently with the standards set forth in
Section 7(a), (ii) and Seller and Shareholders have not taken any action
described in Section 7(b)(i)-(xv) of this Agreement.
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3. Representations and Warranties of Purchaser and Issuer. Purchaser and
Issuer each, jointly and severally, represent and warrant to Seller and
Shareholders, all of which representations and warranties shall be true as of
the Effective Date and as of the Closing Date, and shall survive the Closing for
a period of three (3) years from the Closing Date, the following:
(a) Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada and has the corporate power to
own or lease the properties and assets it purports to own or lease and to carry
on its business as now being conducted.
(b) Issuer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the corporate power to
own or lease and to carry on its business as now being conducted, and has
authorized capital stock consisting of 20,000,000 shares of Common Stock of the
par value of $.01 per share, of which, as of August 31, 1994, 4,042,501 shares
were issued and outstanding, fully paid and non-assessable.
(c) The execution, delivery, and performance of this Agreement and the
other agreements set forth on Schedule 2(b) (the "Other Agreements") by Issuer
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and Purchaser have been duly authorized by all necessary action (corporate or
otherwise) on the part of Issuer and Purchaser, and this Agreement and the Other
Agreements to which they are respective pa ties have been duly executed and
delivered and constitute legal, valid, and binding agreements of Issuer and
Purchaser, enforceable in accordance with their terms.
-12-
(d) None of the execution and delivery of this Agreement and the Other
Agreements, the delivery of the Shares, and the performance, observance or
compliance with the terms and provisions of this Agreement will violate any
provision of law, any order of any court or other governmental agency, the
Certificate of Incorporation or By-laws of Purchaser or Issuer or any indenture,
agreement or other instrument to which either Purchaser or Issuer is a party, or
by which either Purchaser or Issuer is bound or by which any of their respective
properties are bound, provided that a written consent of Silicon Valley Bank,
Issuer's Lender, will be required to permit the consummation of the transactions
contemplated by this Agreement.
(e) The Shares will, upon delivery in accordance with the terms hereof, be
validly issued, fully paid, non-assessable and free and clear of all liens,
encumbrances and claims of any kind.
(f) Issuer has heretofore delivered to Seller and Shareholders true and
complete copies of Issuer's Form 10-K Report for the fiscal year ended May 31,
1994, Issuer's Form 10-Q Report for the fiscal quarter ended August 31, 1994,
Issuer's Annual Report to Stockholders and Issuer's Proxy Statement for its
annual stockholders' meeting held on September 27, 1994. Such reports
constitute true and correct statements as of such dates of the financial
condition of Issuer at the dates and for the periods indicated, prepared in
accordance with generally accepted accounting principles consistently applied.
Since August 31, 1994, there has been no material adverse change in Issuer's
condition, financial or otherwise.
(g) Except as disclosed in Issuer's Annual Report for the year ended May
31, 1994 previously delivered to Seller and Shareholders, there are no actions,
suits, proceedings, arbitrations or investigations pending or, to the best
knowledge of Purchaser and Issuer, threatened against Purchaser or Issuer or
affecting the business of Purchaser or Issuer before any Governmental Entity or
arbitrator, nor is any order, writ, judgment, injunction, or decree of any
Governmental Entity outstanding against Purchaser or Issuer.
4. Conditions to the Obligations of Purchaser and Issuer. Purchaser and
-----------------------------------------------------
Issuer will have no obligation to close the transactions called for by this
Agreement to be completed on the Closing Date unless all of the following
conditions have been fulfilled or waived by them (or the failure to fulfill any
such condition is caused by Purchaser or Issuer):
-13-
(i) Seller and Shareholders shall in all material respects have performed
all obligations and agreements, and complied with all covenants and conditions,
contained in this Agreement to be performed or complied with by them on or prior
to the Closing Date.
(ii) The representations and warranties made by Seller and Shareholders
herein shall be true and correct in all material respects on the Closing Date as
if made on and as of the Closing Date.
(iii) There shall have been no material adverse change in the condition,
financial, business or otherwise, of Seller from September 30, 1994 to the
Closing Date, including, without limitation, any material adverse change in the
business or assets of Seller as of the result of any fire, explosion,
earthquake, flood, accident, strike, lockout, taking of any such assets by any
governmental authorities, riot, activities of armed forces, or acts of God or of
public enemies.
(iv) No suit, action, investigation, inquiry or other proceeding by any
governmental authority or other person or legal or administrative proceeding
shall have been instituted or threatened which questions the validity or
legality of the transactions contemplated hereby, and on the Closing Date, there
shall not be an effective injunction, writ, preliminary restraining order or any
order of any nature issued by a court of competent jurisdiction directing that
the transactions provided for herein or any of them are not to be consummated as
so provided or imposing any conditions on the consummation of the transactions
contemplated hereby which Issuer and Purchaser deem unacceptable, in their sole
discretion.
(v) Issuer shall have received all necessary consents to the transactions
contemplated by this Agreement from Silicon Valley Bank.
5. CONDITIONS TO THE OBLIGATIONS OF SELLER AND SHAREHOLDERS. Seller and
--------------------------------------------------------
Shareholders will have no obligation to close the transactions called for by
this Agreement to be completed on the Closing Date unless all of the following
conditions have been fulfilled or waived by them (or the failure to fulfill any
such condition is caused by Seller or Shareholders):
(i) Purchaser and Issuer shall, in all material respects, have performed
all obligations and agreements, and complied with all covenants and conditions,
contained in this
-14-
Agreement to be performed or complied with by them on or prior to the Closing
Date.
(ii) The representations and warranties made by Purchaser and Issuer herein
shall be true and correct in all material respects on the Closing Date as if
made on and as of the Closing Date.
(iii) There shall have been no material adverse change in the condition,
financial, business or otherwise, of Issuer from the date of its Form 10-K
report for the year ended May 31, 1994 to the Closing Date, including, without
limitation, any material adverse change in the business or assets of Issuer as
of the result of any fire, explosion, earthquake, flood, accident, strike,
lockout, taking over of any such assets by any governmental authorities, riot,
activities of armed forces, or acts of God or of the public enemies .
(iv) No suit, action, investigation, inquiry or other proceeding by any
governmental authority or other person or legal or administrative proceeding
shall have been instituted or threatened which questions the validity or
legality of the transactions contemplated hereby, and on the Closing Date, there
shall not be an effective injunction, writ, preliminary restraining order or any
order of any nature issued by a court of competent jurisdiction directing that
the transactions provided for herein or any of them are not to be consummated as
so provided or imposing any conditions on the consummation of the transactions
contemplated hereby which Seller and the Shareholders deem unacceptable, in
their sole discretion.
6. COVENANTS OF PURCHASER AND ISSUER. Purchaser and Issuer covenant and
---------------------------------
agree that:
(a) Without the prior written consent of Seller and the Shareholders,
Purchaser and Issuer shall not take any action that would cause or tend to cause
the conditions to the obligations o~ the parties hereto to effect the
transactions contemplated hereby not to be fulfilled, including, without
limitation, taking, or causing to be taken, or permitting or suffering to be
taken or to exist any action, condition or thing that would cause the
representations and warranties made by Purchaser and Issuer herein not to be
true, correct and accurate as of the Closing.
(b) Purchaser and Issuer shall promptly file or submit and diligently
prosecute any and all applications or notices with public authorities, federal,
state or local, domestic or foreign, and all other requests for approvals to any
private persons, the filing or granting of which is necessary, or is
-15-
deemed necessary or appropriate by any party hereto, for the consummation of the
transactions contemplated hereby.
(c) Purchaser and Issuer shall take all reasonable steps which are within
their power to cause to be fulfilled those of the conditions precedent to the
obligation of Seller and Shareholders to consummate the transactions
contemplated hereby which are dependent upon the actions of Purchaser and
Issuer.
(d) Without the prior written consent of Seller or Shareholders holding not
less than 50% of the issued and outstanding shares of Common Stock of Seller,
Purchaser and Issuer will not, and will not permit any director, officer,
employee, or adviser to, disclose to any person (other than persons actively
employed in advising them in connection with the transactions contemplated
hereby) any information regarding the transactions contemplated by this
Agreement and the Confidentiality and Competition Agreement, except disclosures
required by law, regulation or order of a court and disclosures of matters which
are or become publicly known other than as a result of any breach of this
covenant.
7. COVENANTS OF SELLER AND SHAREHOLDERS. Seller and the Shareholders,
------------------------------------
jointly and severally, covenant and agree that:
(a) From the date of execution of this Agreement until Closing Seller will,
and the Shareholders will cause Seller to, operate in accordance with its
current methods of transacting business and use its best efforts to preserve its
business organizations, keep available the services of its employees, maintain
good relationships with providers, suppliers, lessors, governmental authorities,
distributors, employees, customers and others having business relationships with
Seller, and maintain the condition of the Transferred Assets as represented in
this Agreement; make all normal and customary repairs, replacements and
improvements to its facilities and to the Transferred Assets; deliver to
Purchaser and Issuer, promptly after they are prepared, monthly management
operating reports setting forth Seller's revenues and expense for each month, on
a basis consistent with Seller's monthly management reports as prepared prior to
the Closing Date; and to promptly notify Issuer and Purchaser of any event,
occurrence or emergency material and adverse to, or not in the ordinary course
of business or consistent with the past practice of, Seller.
(b) Without limiting the generality of Subsection (a) above, from the date
of execution of this Agreement until Closing, Seller will not, and Shareholders
will not permit the Seller to, without the prior written consent of Issuer and
Purchaser:
-16-
(i) Change its organizational or constituent documents or merge or
consolidate with or into any entity or obligate itself to do so, other than as
required by this Agreement;
(ii) Declare, set aside or pay any dividend or other distribution on or in
respect of shares of its capital stock, or any redemption, retirement or
purchase by them with respect to such shares or make any repayment of
indebtedness to the Shareholders, or make any other payment to any Shareholder
for any purpose other than regular payment of employment compensation in
accordance with past practices;
(iii) Discharge or satisfy any lien, charge, encumbrance or indebtedness
owing by Seller or to Seller outside of the ordinary course of business, or
waive any claims or rights of substantial value;
(iv) Sell, transfer or otherwise dispose of any of the Transferred Assets
other than sales of inventory in the ordinary course of business and on
consistent terms with Seller's prior practice;
(v) Dispose of or permit to lapse any right to the use of any Proprietary
Rights or License or dispose of or disclose to any person any Proprietary Rights
or Licenses;
(vi) Authorize, guarantee or incur any indebtedness for borrowed money;
(vii) Make (A) any capital expenditures or capital additions or
betterments, or commitments therefor, or (B) any non capital expenditures, or
commitments therefor, that are not in the ordinary course of business, or (C)
any non-capital expenditures, or commitments therefor, in the ordinary course of
business (other than purchases of inventory in the ordinary course of business)
if any such expenditure or commitment exceeds $5,000.00;
(viii) Loan funds to any person;
(ix) Institute, settle or agree to settle any litigation, action or
proceeding before any court or governmental body;
(x) Mortgage, pledge or subject to any other encumbrance, any of its
properties or assets, tangible or intangible;
-17-
(xi) Authorize or pay any bonuses or special compensation of any kind
whatsoever for any employee or officer, or increase the rate of compensation,
bonuses or other benefits provided to officers or employees not consistent with
past practice;
(xii) Enter into any contract, agreement, commitment or other
understanding or arrangement other than in the ordinary course of business;
(xiii) Perform, take any action, incur or permit to exist any acts,
transactions, events or occurrences which are inconsistent with the
representations and warranties set forth herein or which would prevent the
performance of any covenant set forth herein;
(xiv) Modify any of its insurance coverage or fail to include Issuer and
Purchaser as additional insureds with respect to liability insurance wherever
possible; or
(xv) Agree, whether in writing or otherwise, to do any of the foregoing.
(c) Without the prior written consent of Purchaser, neither Seller nor
Shareholders shall take any action which would cause or tend to cause the
conditions upon the obligations of the parties hereto to effect the transactions
contemplated hereby not to be fulfilled, including, without limitation, taking,
causing to be taken, or permitting or suffering to be taken or to exist any
action, condition or thing which would cause the representations and warranties
made by Seller and/or Shareholders herein not to be true, correct and accurate
as of the Closing.
(d) Seller shall promptly file or submit and diligently prosecute any and
all applications or notices with public authorities, federal, state or local,
domestic or foreign, and all other requests for approvals to any private
persons, the filing or granting of which is necessary, or is deemed necessary or
appropriate by any party hereto, for the consummation of the transactions
contemplated hereby.
(e) Seller and Shareholders shall take all reasonable steps which are
within their power to cause to be fulfilled those of the conditions precedent to
the obligations of Purchaser and Issuer to consummate the transactions
contemplated hereby which are dependent upon the actions of Seller or
Shareholders or any of them.
(f) Seller shall, upon reasonable notice, afford Issuer, Purchaser, their
counsel, accountants and other representatives full access during normal
business hours
-18-
throughout the period prior to the Closing Date to all of Seller's respective
properties and all of its books, contracts, commitments and records relating
thereto and to the Transferred Assets. Seller shall consult with Issuer and
Purchaser with respect to the financial condition, operations, assets and
liabilities on a regular basis if requested by Issuer and Purchaser. After
Issuer and Purchaser have completed their planned investigation of the business
of Seller to their satisfaction, Issuer and Purchaser shall be provided a
reasonable opportunity, in the presence of an officer of Seller, to consult with
representatives of customers and vendors of Seller regarding any agreement,
commitment or relationship with any such customer or vendor.
(g) From time to time prior to the Closing, Seller shall promptly notify
Purchasers of the development of any facts or events in connection with its
business which, had any such fact existed or event occurred at the date of this
Agreement, would have been required to be set forth or described in any schedule
hereto. No supplement or amendment of any schedule delivered by Seller and
Shareholder pursuant to this Agreement shall be deemed to cure or waive any
breach of any representation or warranty made by Seller and Shareholder in this
Agreement, unless Issuer and Purchaser specifically agree to such cure or waiver
in writing.
(h) Seller and Shareholders shall use their best efforts to preserve, and
shall assist Issuer and Purchaser in retaining, intact the goodwill of Seller,
its relationships with employees being retained by Purchaser their suppliers,
customers, and other persons or entities having business relationships with
Seller or related to the Transferred Assets. Seller and Shareholders each agree
to use their best efforts to cause to be completed each of the transactions
contemplated by this Agreement and to effect the transfer of the Transferred
Assets to Purchaser. Seller covenants and agrees to pay all amounts owed by
Seller to suppliers and vendors with respect to the Transferred Assets and not
expressly assumed by Purchaser as an Assumed Liability hereunder promptly after
each Closing.
(i) Seller and Shareholders shall take all such actions as are necessary to
change the name of Seller effective as of the Closing Date to a name acceptable
to Purchaser and to prepare and file such evidence of such name change as may be
required by any jurisdiction.
(j) Seller and the Shareholders will not, and will not permit any of their
respective officers, employees, representatives or agents to, directly or
indirectly, (i) encourage, solicit or initiate discussions or negotiations with,
or provide any information to, any person other than
-19-
Purchaser and Issuer concerning any merger, sale of assets (other than in the
ordinary course of business consistent with past practice) or sale or issuance
of equity interests of the Seller or other transaction relating to any thereof
(together, an "Alternative Transaction"), or (ii) otherwise solicit, initiate or
encourage inquiries or the submission of any proposal contemplating an
Alternative Transaction. Shareholders and Seller will promptly communicate to
Purchaser and Issuer the terms of any inquiry or proposal which they or it may
receive in respect of an Alternative Transaction, and will promptly advise
Purchaser and Issuer if they or the Seller participate in any such discussion or
negotiation or provide any information to any person proposing an Alternative
Transaction.
(k) This Agreement will evidence the approval by the Shareholders of the
sale of the Transferred Assets pursuant to this Agreement in accordance with
Section 228 of the Delaware General Corporation Law and shall be effective as a
unanimous written consent of the shareholders of Seller under that provision.
(l) Without the prior written consent of Purchaser and Issuer, Seller and
the Shareholders will not, and will not permit any director, officer, employee,
or adviser to, disclose to any person (other than persons actively employed in
advising them in connection with the transactions contemplated hereby) any
information regarding the transactions contemplated by this Agreement and the
Other Agreements except disclosures required by law or regulation or an order of
a court and disclosures of matters which are or become publicly known other than
as a result of any breach of this covenant.
(m) Seller and Shareholders will not (i) take any action that would
jeopardize, or fail to take any action necessary in order to permit, the
treatment of the purchase of the Transferred Assets as a "pooling of interests"
for accounting purposes; (ii) take any action that would jeopardize, or fail to
take any action necessary in order to permit, the qualification of the purchase
of the Transferred Assets as a reorganization within the meaning of Section
368(a)(1)(C) of the Code; or (iii) enter into any contract, agreement,
commitment or arrangement with respect to either of the foregoing. Seller will
concurrently with the Closing distribute Issuer's Common Stock to the
Shareholders as part of a plan of reorganization qualifying under Section
368(a)(1)(C) of the Code.
8. Closing. (a) The closing occurred on November 10, 1994, the date on
-------
which all conditions to the Closing set forth in Sections 4 and 5 were satisfied
----------------
(the "Closing Date"),
-20-
at 10:00 o'clock a.m., at the offices of Xxxxxx & Xxxx, L.L.P., 0000 Xxxx
Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000.
(b) At the Closing, Seller and Shareholders delivered to Purchaser and
Issuer (each such delivery constituting an condition additional precedent to the
obligation of Purchaser and Issuer to consummate the Closing):
(i) a duly executed omnibus assignment, conveyance and xxxx of sale to
Purchaser (the "Xxxx of Sale") for the Transferred Assets in substantially the
form of Schedule 8(b)(i) attached hereto;
-------- -------
(ii) such other good and sufficient instruments of conveyance, assignment,
and transfer (including, without limitation, duly endorsed certificates of title
for all motor vehicles included in the Transferred Assets and assignment and
assumption agreements with respect to the Assumed Liabilities and the Contracts
included in the Transferred Assets or Assumed Liabilities to be assumed on the
Closing Date, in form and substance satisfactory to Purchaser's counsel, as
shall be necessary or desirable to vest in Purchaser good and marketable title
to the Transferred Assets;
(iii) employment agreements executed by the individuals named on Schedule
--------
8(b)(iii) in substantially the form attached hereto as Schedule 8(b)(iii);
--------- ------------------
(iv) an opinion of counsel satisfactory to Purchaser and its counsel;
(v) evidence of any approvals or consents referred to by Section 2(c);
------- ----
(vi) evidence of all necessary corporate action having been taken by Seller
and the Shareholders to approve this Agreement and the transactions contemplated
hereby;
(vii) a Competition and Confidentiality Agreement executed by Seller and
Shareholders in substantially the form attached hereto as Schedule 8(b)(vii)
-------- ---------
(the "Competition and Confidentiality Agreement");
(viii) a certificate signed by the chief executive officer and chief
financial officer of Seller and each Shareholder, dated the Closing Date,
attesting that, to the best of their knowledge after due inquiry, all the
representations and warranties made by Seller and Shareholders herein are true
and correct on the Closing Date as if made on and as of the Closing Date;
-21-
(c) At the Closing, Purchaser delivered to Seller (each such delivery
constituting an additional condition precedent to the obligations of Seller):
(i) duly issued certificates in such names and quantity of shares as Seller
may request prior to the Closing evidencing the Shares issued pursuant to
Section 1(d);
------------
(ii) an opinion of counsel satisfactory to Seller, Shareholders and their
counsel;
(iii) evidence of any approvals and consents referred to by Section 3(d);
------- ----
(iv) evidence of all necessary corporate action having been taken by
Purchaser and Issuer to approve this Agreement and the transactions contemplated
hereby; and
(v) a certificate signed by officers of Purchaser and Issuer, dated the
Closing Date, attesting that, to the best of their knowledge after due inquiry,
all the representations and warranties made by Purchaser and Issuer herein are
true and correct on the Closing Date as if made on and as of the Closing Date.
9. Expenses. Seller and Shareholders and Purchaser and Issuer shall,
--------
respectively, pay their own expenses and costs incident to the preparation of
this Agreement and to the consummation of the transactions contemplated herein,
provided that Shareholders and Purchaser will each pay one-half of the cost of
an audit of Seller's financial statements for the year ended December 31, 1993
and the nine months ended September 30, 1994 by KPMG Peat Marwick. Seller's
expenses incurred in connection with this Agreement will either be paid by the
Shareholders or will be paid by Seller from cash contributions to Seller by the
Shareholders, and none of such expenses will be included in the Assumed
Liabilities or will reduce the amount of the Transferred Assets to be received
by Purchaser.
10. Restrictions on Transfer of Shares and Agreement to Register Shares.
-------------------------------------------------------------------
Seller and the Shareholders acknowledge that the Shares have not been registered
under the Securities Act of 1933, as amended (the "Securities Act") in reliance
upon the exemption provided by Section 4(2) of said Act for transactions by an
issuer not involving any public offering and, in connection therewith, it is
agreed by the parties that:
(a) Seller and Shareholders each acknowledge receipt of a copy of Issuer's
Form 10-K Report for its fiscal year ended May 31, 1994, Issuer's Form 10-Q
Report for its fiscal quarter ended August 31, 1994 a copy of Issuer's Annual
Report to Stockholders and Proxy Statement for its annual stockholders'
-22-
meeting held on September 27, 1994, and that they have had an opportunity to ask
any questions they might have concerning the operations and financial condition
of Issuer.
(b) The certificates for the Shares will bear a restrictive legend in
substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THE SHARES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE
SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL FOR THE COMPANY TO THE EFFECT
THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) Seller and the Shareholders hereby confirm that the Shares will be
acquired for investment for their accounts, not as nominees or agents, and not
with a view to the resale or distribution of any part thereof in a manner which
would require registration under the Securities Act or any applicable state
securities laws, and that Seller and the Shareholders have no present intention
of selling, granting any participation in, or otherwise distributing the same.
Seller and Shareholders covenant and agree that they will not sell, hypothecate
or take any other action to dispose of any Shares or to reduce their risk of
holding the Shares, directly or indirectly, until such time as Issuer has
published consolidated financial statements of the Issuer reflecting at least
thirty (30) days of combined operation of Issuer and Purchaser after the
Closing.
(d) Seller and the Shareholders agree that the Shares distributed, if sold
in market transactions, will not be sold by them, or any person acquiring Shares
from them (other than in a market transaction) (a "Transferee"), in an aggregate
amount on any day in excess of the greater of 3000 shares or twenty percent of
the average daily trading volume of Issuer's Common Stock 'or the ten preceding
trading days, and that any Transferee will be required to provide a written
undertaking to Issuer evidencing the Transferee's agreement to be bound by the
restrictions of this Section 10 as a condition to the Issuer's obligation to
register the transfer shares of Common Stock to such Transferee. Issuer has no
obligation to take any action or to waive in any respect full compliance by
Seller and Shareholders with this Section 10 in order to facilitate any transfer
of Shares to a nominee or brokerage account.
(e)(i) Issuer shall after the Closing use its reasonable best efforts to
cause 133,323 Shares (the "Registrable Shares") to be registered for resale
under the Securities Act (the proposed registration statement being referred to
herein as the "Registration Statement").
-23-
(ii) Issuer may, if it concludes based upon the advice of its counsel or
financial advisors that the registration and sale of the Shares cannot be
undertaken without violating the Securities Act or damaging any interest of the
Issuer, by written notice to the Shareholders, defer the registration of the
Shares for a period of up to ninety (90) days.
(f) Issuer shall use its reasonable best efforts to cause the Registration
Statement to become effective as promptly after filing as is practicable, and
will use its reasonable best efforts to keep such registration statement current
for a period not exceeding ninety (90) days after it becomes effective. Issuer
may include shares of other shareholders having registration rights in the
Registration Statements.
(g) The Shareholders will cooperate with Issuer in the preparation and
filing of the Registration Statement and any amendments thereto, and WILL KEEP
ISSUER ADVISED OF THE SALE of any shares under such Registration Statement.
Issuer shall pay all costs and expenses incidental to preparing and filing the
Registration STATEMENT and any amendments and supplements thereto, except that
each Shareholder will pay (i) underwriting discounts or selling commissions
respecting sales of such shares, (ii) all applicable stock transfer taxes
relating to any Shares transferred, and (iii) all fees and expenses of their
counsel, if any.
(h) Issuer and each Shareholder selling Shares under the Registration
Statement (severally and not jointly) agree that it or they will indemnify and
hold harmless the other and any underwriter (as defined in the Securities Act),
if any, against any losses, claims, damages or liabilities), joint or several,
to which it or they may become subject, whether under the Securities Act or
otherwise, insofar as such are caused by an untrue statement or alleged untrue
statement of any material fact contained in a Registration Statement filed
pursuant to Section 10(e), or any omission or alleged omission to state therein
------- -----
a material fact required to be stated therein or necessary to make the
statements contained therein not misleading, to the extent that the inclusion or
omission was with respect to data relating to Issuer, for which Issuer shall be
responsible, or a selling Shareholder or his or her stock holdings, for which
such selling Shareholder shall be responsible, as the case may be.
(i) Issuer and each Shareholder agree that prior to the filing of the
Registration Statement, they will enter into an agreement providing for cross
indemnity upon terms customarily found in underwriting agreements between
issuers of securities and underwriters offering the same to the public.
-24-
11. Indemnification. (a) Seller and Shareholders. On and after the Closing
---------------
Date, Seller and Shareholders shall, and hereby do, jointly and severally,
indemnify and hold harmless Issuer and Purchaser from and against and shall
defend Purchaser against all liabilities, damages, costs, charges, legal fees,
judgments, expenses or other losses ("Indemnifying Losses"):
(i) Arising from any misrepresentation by Seller or Shareholders in or
pursuant to this Agreement or the Other Agreements or delivered to Purchaser or
Issuer on or before the Closing Date; or
(ii) Resulting from breach of any warranty of Seller or Shareholders
hereunder or under the Other Agreements, or breach or default in the performance
of any of the covenants which Seller and Shareholders are required to perform
under this Agreement or the Other Agreements;
(iii) Arising from or relating to any liability or obligation of Seller or
Shareholders not expressly assumed by Purchaser pursuant to this Agreement,
including without limitation the Excluded Liabilities and any federal, state or
local income tax payable by Seller or any Shareholder as a consequence of the
transactions described in this Agreement; or
(iv) Arising from, relating to the facts alleged in that certain litigation
matter filed in the United States District Court, Northern District of Ohio,
Eastern Division, Case No. 5:94CV692 styled CAD Warehouse, Inc., Plaintiff v.
---------------------------------
Hewlett-Packard Co., et al., Defendant, which has been dismissed by Order dated
--------------------------------------
November 3, 1994.
(b) Purchaser and Issuer. On and after the Closing Date, Purchaser and
--------------------
Issuer shall, and hereby do, jointly and severally, indemnify and hold harmless
Seller and Shareholders from and against, and shall defend them against, all
Indemnifying Losses sustained by Seller or Shareholders:
(i) Arising from any misrepresentation by Purchaser or Issuer in or
pursuant to this Agreement or the Other Agreements delivered to Seller or
Shareholders on or before the Closing Date;
(ii) Resulting from breach of any warranty by Purchaser or Issuer hereunder
or breach or default in the performance of any of the covenants which Purchaser
or Issuer is required to perform under this Agreement or any Other Agreement; or
(iii) Arising from or in connection with the operation of or use of the
Transferred Assets by Purchaser on or after the Closing Date.
-25-
(c) Procedure.
---------
(i) If any claim or demand shall be made or liability asserted against any
party being indemnified ("Indemnitee") or if any suit, action, or administrative
or legal proceedings shall be instituted or commenced in which any Indemnitee is
involved or shall be named as a defendant either individually or with others,
and if such claim, demand, liability, suit, action or proceeding, if
successfully maintained, will result in any Indemnifying Losses, such Indemnitee
shall give the party making the indemnification ("Indemnitor") written notice
within thirty (30) days of the pendency of the same. If, within thirty (30) days
after the giving of such notice, the Indemnitee receives written notice from
Indemnitor stating that Indemnitor disputes or intends to defend against such
claim, demand, liability, suit, action or proceeding, then Indemnitor shall have
the right to select counsel of its choice and to dispute or defend against such
claim, demand, liability, suit, action or proceeding at its expense, and such
Indemnitee shall fully cooperate with Indemnitor in such dispute or defense so
long as Indemnitor is conducting such dispute or defense diligently and in good
faith; provided, however, that Indemnitor shall not be permitted to settle such
dispute or claim without the prior written approval of Indemnitee, which shall
not be unreasonably withheld.
(ii) Even though Indemnitor selects counsel of its choice, Indemnitee shall
have the right to additional representation by counsel of its choice to
participate in such defense at Indemnitee's sole cost and expense. If no such
notice of intent to dispute or defend is received by Indemnitee within the
aforesaid thirty (30) day period, or if diligent and good faith defense is not
being, or ceases to be, conducted, Indemnitee shall have the right to dispute
and defend against the claim, demand or other liability at the sole cost and
expense of Indemnitor and to settle such claim, demand or other liability, and
in either event to be indemnified as provided for herein; provided, further,
that Indemnitee shall not be permitted to settle such dispute or claim without
the prior written approval of Indemnitor, which shall not be unreasonably
withheld.
(d) Limitations on Indemnification. Notwithstanding any other provision of
------------------------------
this Section 11, (i) the aggregate liability of Seller and the Shareholders (and
----------
any successor or affiliate thereof) under this Section 11 shall not exceed the
----------
amount of the Purchase Price; and (ii) no indemnity shall be owing under this
Section 11 unless the amount of the Indemnifying Loss, in any single case or
----------
related series of cases, exceeds $20,000, or if the aggregate amount of all
Indemnifying Losses exceeds $40,000.
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12. Arbitration.
-----------
(a) Any controversy or claim arising out of this Agreement or breach
thereof other than a claim for injunctive relief, (an "Arbitrable Claim") shall
be settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association, and judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction.
(b) If an Arbitrable Claim arises, the Purchaser, Issuer, Seller or a
majority in interest of the Shareholders may demand arbitration by filing a
written demand with the other parties.
(c) The Seller, a majority in interest of the Shareholders and the
Purchaser and Issuer may agree on one (l) arbitrator. If they cannot agree on
one (l) arbitrator, there shall be three (3) arbitrators; one (1) named in
writing by the Seller and a majority in interest of the Shareholders, and one
(l) named in writing by the Purchaser and Issuer. The written notification of
the name(s) of the arbitrator(s) shall be given to the other parties within five
(S) days after demand for arbitration is given, and a third arbitrator shall be
chosen by the two (2) arbitrators so chosen. Should the Seller and a majority in
interest of the Shareholders or the Purchaser and Issuer refuse or neglect to
name an arbitrator, or refuse or neglect to furnish the arbitrator(s) with any
papers or information demanded following a reasonable opportunity to respond,
the arbitrator(s) may proceed ex parte.
(d) A hearing on the matter to be arbitrated shall take place before the
arbitrator(s) in the city of Dallas, County of Dallas, State of Texas, at the
time and place selected by the arbitrator(s). The arbitrator(s) shall select the
time and place promptly and shall give the Seller, Shareholders, Purchaser and
Issuer written notice of the time and place at least thirty (30) days before the
date selected. At the hearing, any relevant evidence may be presented by any
party hereto, and the formal rules of evidence applicable to judicial
proceedings shall not govern. Evidence may be admitted or excluded in the sole
discretion of the arbitrator(s). The arbitrator(s) shall hear and determine the
matter and shall execute and acknowledge the award in writing and cause a copy
of the writing to be delivered to the Seller, Shareholders, Purchaser, and
Issuer.
(e) If there is only one (1) arbitrator, his or her decision shall be
binding and conclusive on the parties, and if there are three (3) arbitrators,
the decision of any two (2) shall be binding and conclusive. The submission of
an Arbitrable Claim to the arbitrator(s) and the rendering of a
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decision by the arbitrator(s) shall be a condition precedent to any right of
legal action on the dispute. A judgment confirming the award may be given by any
court having jurisdiction.
(f) If three (3) arbitrators are selected, but no two (2) of the three (3)
are able to reach an agreement regarding the determination of the dispute, then
the matter shall be decided by three (3) new arbitrators who shall be appointed
and shall proceed in the same manner, and the process shall be repeated until a
decision is agreed on by two (2) of the three (3) arbitrators selected.
(g) The costs of the arbitration shall be borne by the losing party or
shall be borne in such proportions as the arbitrator(s) determine(s).
13. Miscellaneous.
-------------
(a) This Agreement is to be governed by and construed and enforced in
accordance WITH THE SUBSTANTIVE LAWS of the State of Texas.
(b) The rights and obligations of the parties under this Agreement are not
assignable by any party without the prior written consent of the other parties.
(c) All paragraph headings herein are inserted for convenience only. This
Agreement may be executed in several counterparts, each of which shall be deemed
an original, which together shall constitute one and the same instrument.
(d) This Agreement and the Other Agreements set forth the entire
understanding of the parties, there being no terms, conditions, warranties or
representations other than those contained herein and therein. No amendment to
this Agreement will be valid unless made in writing and signed by the parties
hereto.
(e) This Agreement shall be binding upon, and shall inure to the benefit
of, the heirs, executors, administrators, successors and assigns of Seller and
Shareholders, and the successors and assigns of Purchaser and Issuer, provided,
however, that 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.
(f) In the event attorneys' fees or other costs are incurred to secure
performance of any of the obligations provided for in this Agreement, to
establish damages for the breach of this Agreement, or to obtain any other
appropriate
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relief, whether by way of prosecution or defense, the prevailing party will be
entitled to recover reasonable attorneys' fees and costs incurred therein.
(g) All notices, demands, requests, and other communications required or
permitted by any party to this Agreement shall be in writing and shall be sent
by certified mail, return receipt requested to the following addresses, or such
other addresses as any party may request by notice delivered to the other party
as set forth in this Subsection (g):
If to Purchaser: CAD Warehouse, Inc.
0000 Xxxxxxx Xxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxx,
General Counsel
with copies to: Xxxxxxx X. Xxxxxxxxxx, Esq.
Xxxxxx & Xxxx, L.L.P.
0000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
If to Issuer: Summagraphics Corporation
0000 Xxxxxxx Xxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxx,
General Counsel
with a copy to: Xxxxxxx X. Xxxxxxxxxx, Esq.
Xxxxxx & Xxxx, L.L.P.
0000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
If to Seller: CAD Warehouse, Inc.
0000 Xxxx Xxxxxx Xxxx
Xxxxxxxxx, Xxxx 00000
with copies to: Xxxxx Xxxx
Xxxx, Xxxx & Xxxx
0000 Xxxxxxx Xxxxxx X.X.
Xxxxxx, Xxxx 00000
If to Shareholders: The individuals and at the
addresses set forth on
Schedule 13(g)
-------- -----
(h) This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
PURCHASER:
CAD WAREHOUSE, INC., a Nevada corporation
By: /s/ Xxxxxxx X. Xxxxxxx
-----------------------
Its: President
----------------------
ISSUER:
SUMMAGRAPHICS CORPORATION
------------- -----------
By: /s/ Xxxxxxx X. Xxxxxxx
-----------------------
Its: President
----------------------
SELLER:
CAD WAREHOUSE, INC., a Delaware corporation
By: /s/ Xxxx X. Xxxxxxxx
-----------------------
Its: V.P. & C.E.O.
----------------------
SHAREHOLDERS:
/s/ Xxxx X. Xxxxxxxx
-------------------------
Xxxx X. Xxxxxxxx
/s/ Xxxxxxxx Xxxxxx
-------------------------
Xxxxxxxx Xxxxxx
/s/ Xxxxx X. Xxxxxx
-------------------------
Xxxxx X. Xxxxxx
