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EXHIBIT 10.11
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("AGREEMENT") is made and entered into as
of August 21, 1997, by and among ARTECON, INC., a California corporation
("BUYER"), FALCON SYSTEMS, INC., a California corporation ("SELLER") and XXXXX
XXXXXXX, the sole shareholder of Seller (the "SOLE SHAREHOLDER").
RECITALS
A. Seller is engaged and has been engaged in a variety of activities,
including the manufacture and distribution of computer peripheral equipment (the
Seller's activities and operations being herein referred to as the "BUSINESS").
Buyer is engaged in a similar type of business as Seller.
B. Buyer desires to purchase from Seller, Seller desires to sell to
Buyer, and the Sole Shareholder desires to cause Seller to sell to Buyer, the
Business and substantially all of the property and assets of Seller pursuant to
the terms of this Agreement.
NOW, THEREFORE, In consideration of the foregoing premises, and the
mutual covenants set forth below, and for other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties to this Agreement agree
as follows.
1. PURCHASE AND SALE OF ASSETS
1.1 ASSETS TO BE TRANSFERRED. Subject to the terms and conditions of
this Agreement, on the Closing Date (as hereinafter defined) Seller shall, and
the Sole Shareholder shall cause Seller to, sell, transfer, convey, assign and
deliver to Buyer, and Buyer shall purchase and accept, all of the business,
rights, claims and assets (of every kind, nature, character and description,
whether real, personal or mixed, whether tangible or intangible, whether
accrued, contingent or otherwise, and wherever situated) of Seller, other than
the Excluded Assets (as hereinafter defined) (collectively the "Purchased
Assets"). The Purchased Assets shall include, but not be limited to, the
following:
1.1.1 THE BUSINESS. The Business as a going concern and all
goodwill pertaining thereto;
1.1.2 INTELLECTUAL PROPERTY RIGHTS. Subject to Section 1.2.8,
all of Seller's interest in any Intellectual Property Rights. As used herein,
the term "Intellectual Property Rights" shall mean and include: (i) all United
States, state and foreign trademark rights, trade dress, service marks, trade
names, and brand names, including all claims for infringement, and all
registrations thereof and applications therefor and all goodwill associated with
the foregoing accruing from the dates of first use thereof; (ii) all
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United States and foreign copyrights, copyright registrations and copyright
applications, including all claims for infringement, and all other rights
associated with the foregoing and the underlying works of authorship; (iii) all
United States and foreign patents and patent applications, including all claims
for infringement and all international proprietary rights associated therewith;
(iv) all contracts or agreements granting any right, title, license or privilege
under the intellectual property rights of any third party; and (v) all
inventions, invention disclosures (internal or otherwise), mask works and mask
work registrations, know-how, discoveries, improvements, designs, trade secrets,
shop and royalty rights, employee covenants and agreements respecting
intellectual property and non-competition and all other types of intellectual
property. The Intellectual Property Rights include the items listed on Schedule
1.1.2;
1.1.3 OWNED REAL PROPERTY. All of the real property, including
fixtures, buildings, improvements, and all appurtenant rights owned by Seller,
including the real property described on Schedule 1.1.3 (the "Owned Real
Property");
1.1.4 LEASED REAL PROPERTY. All of the leases of real property
with respect to real property leased by Seller, including the leases (the "Real
Property Leases") described on Schedule 1.1.4 and (to the extent owned by Seller
and transferable under the applicable lease) all fixtures and tenant
improvements with respect to such leased real property (the "Leased Real
Property");
1.1.5 PERSONAL PROPERTY LEASES. All leases of machinery,
equipment, vehicles, furniture and other personal property leased by Seller,
including all such leases (the "PERSONAL PROPERTY LEASES") described in Schedule
1.1.5;
1.1.6 MACHINERY AND EQUIPMENT. All machinery, equipment
(including but not limited to personal computers and any rights to related
software), vehicles, tools, supplies, spare parts, furniture (i.e., desks,
chairs, cabinets, publications, shelves and other office equipment) and all
other personal property not included in inventory (other than personal property
leased pursuant to Personal Property Leases) owned, utilized or held for use by
Seller on the Closing Date, including all such property described in Schedule
1.1.6;
1.1.7 ACCOUNTS AND NOTES RECEIVABLE; COMMITMENTS. All
accounts, drafts and notes receivable of Seller and all of Seller's rights under
commitments, customer orders, bids, contracts and other similar agreements;
1.1.8 INVENTORY. All inventories of raw materials,
work-in-process and finished goods (including all such inventory in transit) of
Seller on the Closing Date, together with related packaging materials
(collectively the "INVENTORY");
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1.1.9 CONTRACTS. All contracts, contractual rights, purchase
orders and sales orders (hereinafter in this Section 1.1.9, "CONTRACTS") of
Seller listed below:
(a) All Contracts described and set forth in Schedule
1.1.9(a); and
(b) Every other Contract to which Seller is a party which
Buyer elects to assume at any time after the Closing Date, by giving written
notice to Seller as set forth in Section 11.11 hereof.
The Contracts described in subsections 1.1.9(a) and 1.1.9(b) above are
hereinafter collectively described as the "ASSUMED CONTRACTS." It is the intent
of the parties that all of Seller's rights and obligations under the Assumed
Contracts be transferred, assigned and delegated to Buyer pursuant to this
Agreement. To the extent that any Assumed Contract for which assignment to Buyer
is provided herein is not assignable pursuant to such Contract without the
consent of another party, this Agreement shall not constitute an assignment or
an attempted assignment thereof if such assignment or attempted assignment would
constitute a breach thereof. Seller and Buyer agree to use their reasonable best
efforts (without any requirement on the part of Buyer, Seller or Sole
Shareholder to pay any money or agree to any change in the terms of any such
Contract) to obtain the consent of such other party to the assignment of any
such Assumed Contract to Buyer in all cases in which such consent is or may be
required for such assignment. If any such consent shall not be obtained, the
Sole Shareholder and Seller agree to cooperate with Buyer in any reasonable
arrangement designed to provide for Buyer the benefits intended to be assigned
to Buyer under the relevant Assumed Contract, including enforcement at the cost
and for the account of Buyer of any and all rights of Seller against the other
party thereto arising out of the breach or cancellation thereof by such other
party or otherwise. If and to the extent that such arrangement cannot be made,
Buyer, upon written notice to Seller, shall have no obligation pursuant to
Section 2.1 or otherwise with respect to any such Assumed Contract and any such
Assumed Contract shall not be deemed to be a Purchased Asset hereunder.
Notwithstanding the foregoing, however, the Assumed Contracts shall include, in
any event, those contracts identified on Schedule 1.1.9(c) which require
consents to be assigned and for which consents have not been received as of the
Closing;
1.1.10 LITERATURE. All Seller's rights in sales literature,
promotional literature, instructional materials, advertising materials, catalogs
and similar materials of Seller;
1.1.11 RECORDS, FILES AND PROMOTIONAL MATERIALS. All records,
files, invoices, customer lists, blueprints, specifications, designs, drawings,
accounting records, business records, operating data and other data of Seller,
all customer and supplier lists, marketing plans, sketches, drawings,
specifications, work standards, manufacturing and
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process information and documentation, bills of material, theories of operation,
repair manuals, service manuals, business planning and financial data and
manuals and other materials of Seller used in the Business or in employee and
management training, and all notebooks, writings, pictures, drawings, magnetic
tapes, computer programs, equipment, prototypes, tools, models and protocols of
Seller;
1.1.12 LICENSES; PERMITS. To the extent assignable by Seller,
all licenses, permits and approvals of Seller;
1.1.13 PRODUCTS. All of Seller's rights to market, license and
sell all products marketed, licensed or sold by Seller in the Business,
including without limitation the products described in Schedule 1.1.13 (the
"PRODUCTS");
1.1.14 CORPORATE NAME. Seller's rights in the name "FALCON
SYSTEMS" and all Seller's rights to use or allow others to use such names;
1.1.15 CASH AND CASH EQUIVALENTS. All cash, cash equivalents
and investments, including without limitation security deposits and other
current assets;
1.1.16 CLAIMS. All of Seller's claims against any parties
relating to any of the Purchased Assets, including without limitation,
unliquidated rights under manufacturers' and vendors' warranties or guarantees;
1.1.17 INSURANCE POLICIES. All rights under policies of
insurance held by Seller (including without limitation rights with respect to
claims and prepayments); and
1.1.18 OTHER ASSETS. All other properties, rights and assets
owned by Seller, whether tangible or intangible, absolute, contingent or
otherwise, in addition to those listed in Sections 1.1.1 through 1.1.17 above
but excluding the Excluded Assets.
1.2 EXCLUDED ASSETS. The provisions of Section 1.1 notwithstanding,
Seller shall not sell, transfer, assign, convey or deliver to Buyer, and Buyer
will not purchase or accept the following assets of Seller (collectively the
"EXCLUDED ASSETS"):
1.2.1 CONSIDERATION. The consideration delivered by Buyer to
Seller for the purchase of the Purchased Assets pursuant to this Agreement;
1.2.2 TAX CREDITS. Federal, state and local income and
franchise tax credits and tax refund claims;
1.2.3 CORPORATE FRANCHISE. Seller's franchise to be a
corporation, its Articles of Incorporation, corporate seal, stock books and
other corporate records having exclusively to do with the corporate organization
and capitalization of Seller. Buyer and
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its designated agents shall have reasonable access to such books and records and
may make excerpts therefrom and copies thereof;
1.2.4 TAX RECORDS. Seller's income and franchise tax returns
and tax records. Buyer and its designated agents shall have reasonable access to
such records and may make excerpts therefrom and copies thereof;
1.2.5 CERTAIN CONTRACTS. Any and all contracts and agreements
of Seller other than the Assumed Contracts;
1.2.6 SPECIFIED ASSETS. The assets listed on Schedule 1.2.6;
1.2.7 MISCELLANEOUS ASSETS. The miscellaneous assets not
integral to the Business listed on Schedule 1.2.7; and
1.2.8 TECHNOLOGY ASSETS. The "Purchased Assets" as defined in
the Technology Purchase Agreement of even date herewith among Seller, the Sole
Shareholder and Founding Partners (the "Technology Purchase Agreement").
2. ASSUMPTION OF LIABILITIES
2.1 LIABILITIES TO BE ASSUMED. Subject to the terms and conditions of
this Agreement, on the Closing Date, Buyer shall assume and agree to perform and
discharge to the extent indicated below the following, and only the following,
specific debts, liabilities and obligations of Seller (collectively the "ASSUMED
LIABILITIES"):
2.1.1 EMPLOYEE OBLIGATIONS. Employee severance and employment
obligations expressly described in Schedule 2.1.1 and health benefits with
respect to any employee of Seller hired by Buyer following the Closing or
employed by Seller immediately prior to the Closing, and employee compensation
obligations of Seller appropriately reflected or reserved against on the Recent
Balance Sheet (as hereinafter defined), as modified on Schedule 2.1.1 to reflect
the period from the date of the Recent Balance Sheet to the Closing Date,
including accrued vacation and sick leave and any other compensation or benefits
provided under any Seller employee contract, bonus or commission plan, but only
in the amounts so reflected or reserved (as modified by Schedule 2.1.1);
2.1.2 RECENT BALANCE SHEET LIABILITIES. (A) The accounts
payable and other accrued liabilities (excluding the tax liabilities described
in Section 2.2.2) ("Accounts Payable") reflected or reserved against on the
Recent Balance Sheet, as modified on Schedule 2.1.2 to reflect the period from
the date of the Recent Balance Sheet to the Closing Date, but only in the
amounts so reflected or reserved (as modified
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by Schedule 2.1.2) and (B) any other Accounts Payable and accrued liabilities
incurred in the ordinary course of business following the Recent Balance Sheet
date;
2.1.3 TECHNICAL SUPPORT OBLIGATIONS. Seller's contractual
obligations incurred prior to the Closing Date for technical and product support
pursuant to the Assumed Contracts described on Schedule 2.1.3 (the "TECHNICAL
SUPPORT OBLIGATIONS");
2.1.4 CONTRACTUAL LIABILITIES. Seller's liabilities and
obligations arising from and after the Closing Date under and pursuant to the
Assumed Contracts;
2.1.5 LIABILITIES UNDER PERMITS AND LICENSES. Seller's
obligations arising from and after the Closing Date under any permits or
licenses listed in Schedule 5.14.2 of the Disclosure Schedule and assigned to
Buyer at the Closing;
2.1.6 TAXES ARISING FROM TRANSACTION. Any United States,
foreign, state or other sales, use or similar taxes applicable to, imposed upon
or arising out of the sale or transfer of the Purchased Assets to Buyer and the
other transactions contemplated by this Agreement, provided that in no event
shall Buyer have any obligation or responsibility for any income, profit, value
added or franchise taxes (or any penalties or interest thereon);
2.1.7 CERTAIN PRODUCT LIABILITIES. Product liability claims
with respect to the Products arising after May 1994.
Buyer hereby agrees to assume and substantially perform and discharge
in all material respects in accordance with their terms the Assumed Liabilities,
and Buyer agrees to indemnify, defend and hold harmless Seller, its affiliates,
agents, officers, directors and employees from and against all losses, damages,
liabilities, expenses, costs, assessments and taxes (including, without
limitation, interest, penalties and attorneys' fees) relating to, arising from
or in connection with Buyer's failure to perform its obligations under this
paragraph.
2.2 LIABILITIES NOT TO BE ASSUMED. Except as and to the extent
specifically set forth in Section 2.1, Buyer is not assuming any debts,
liabilities, obligations or contracts of Seller and all such debts, liabilities,
obligations and contracts shall be and remain the responsibility of Seller.
Notwithstanding the provisions of Section 2.1 and without limiting the
generality of the foregoing, Buyer is not assuming and Seller shall not be
deemed to have transferred to Buyer the following debts, liabilities,
obligations and contracts of Seller:
2.2.1 CERTAIN CONTRACTS. The obligations of Seller under and
pursuant to any and all contracts and agreements other than the Assumed
Contracts;
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2.2.2 INCOME AND FRANCHISE TAXES. Any liability or obligation
of Seller for Federal income taxes and any state, local or foreign income,
profit, value added or franchise taxes (and any penalties or interest due on
account thereof);
2.2.3 INSURED CLAIMS. Except to the extent Buyer receives
payments from the insurer relating thereto, any liability of Seller insured
against, to the extent such liability is paid by an insurer;
2.2.4 PRODUCT LIABILITY. Any liability or obligation of Seller
arising out of or in any way relating to or resulting from any product
manufactured, assembled or sold prior to May 1994 (including any liability or
obligation of Seller for claims made for injury to person, damage to property or
other damage, whether made in product liability, tort, breach of warranty or
otherwise);
2.2.5 LITIGATION MATTERS. Any liability or obligation of
Seller with respect to any suits, actions, claims or proceedings, whether or not
described in Schedule 5.13 of the Disclosure Schedule;
2.2.6 INFRINGEMENTS. Any liability of Seller to a third party
under its intellectual property or other proprietary rights, including, but not
limited to, claims arising out of the manufacture, use or sale of goods or
apparatus, the performance of services, or the copying, modifying, distributing,
performing or displaying of any work or mask work;
2.2.7 LIABILITY FOR BREACH. Liabilities and obligations of
Seller for any breach or failure to perform any of Seller's covenants and
agreements to any third party, or, prior to the Closing, any other contract,
whether or not assumed hereunder, including any breach arising from assignment
of contracts hereunder, other than those identified on Schedule 1.1.9(c),
without consent of third parties;
2.2.8 CERTAIN SEVERANCE OBLIGATIONS. Employee severance
obligations to employees of Seller except as expressly set forth in Schedule
2.1.1;
2.2.9 LIABILITIES TO AFFILIATES. Liabilities and obligations
of Seller to its present or former Affiliates (as defined in Section 5.21.3)
except for, and only to the extent of, obligations of Seller to employees
pursuant to Section 2.1.1;
2.2.10 VIOLATION OF LAW. Liabilities and obligations of Seller
for any violation of or failure to comply with any statute, law, rule,
regulation, order, writ, injunction or decree of any court or governmental
authority, which violation would result in a breach of the representation set
forth in Section 5.14.
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2.2.11 TRANSACTION EXPENSES. All liabilities, costs,
obligations or expenses incurred by Seller in connection with this Agreement and
the transactions contemplated herein;
2.2.12 INVENTORY ON CONSIGNMENT. All liabilities, costs,
obligations or expenses in connection with any inventory on consignment;
2.2.13 INTEREST EXPENSE. Any interest expense on any liability
of Seller not assumed by Buyer hereunder; and
2.2.14 EXCLUDED ASSETS. Liabilities or obligations of Seller
related to any Excluded Assets.
3. PURCHASE PRICE
3.1 PURCHASE PRICE. Subject to the terms and conditions of this
Agreement, the following shall be the sole consideration paid by Buyer for the
Purchased Assets (the "PURCHASE PRICE"):
3.1.1 The assumption of the Assumed Liabilities; and
3.1.2 The sum of two million two hundred fifty thousand
dollars ($2,250,000) to be delivered by Buyer to Seller at the Closing, one
million two hundred fifty thousand dollars ($1,250,000) of which is payable in
the form of a Promissory Note in substantially the form attached hereto as
Exhibit A.
3.2 METHOD OF PAYMENT. All payments under this Section 3, other than
the amount that is to be paid with the Promissory Note, shall be made in the
form of certified or official bank check payable to the order of the recipient
or, at Buyer's option, by wire transfer of immediately available funds to an
account designated by the recipient.
3.3 ALLOCATION OF PURCHASE PRICE. The aggregate Purchase Price
(including the assumption by Buyer of the Assumed Liabilities) shall be
allocated among the Purchased Assets for tax purposes in accordance with
Schedule 3.3. Seller and Buyer will follow and use such allocation in all
income, sales registration and other tax returns, filings or other related
reports made by them to any governmental agencies. To the extent that
disclosures of this allocation are required to be made by the parties to the
Internal Revenue Service ("IRS") under the provisions of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "CODE"), or any regulations
thereunder, Buyer and Seller will disclose such reports to the other prior to
filing with the IRS.
4. CLOSING
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4.1 THE CLOSING. The closing of the purchase and sale of the Purchased
Assets pursuant to this Agreement (the "CLOSING") shall take place at 0000
Xxxxxxxxx Xxxxx, Xxxxx 0000, Xxx Xxxxx, Xxxxxxxxxx 00000 at 10:00 A.M. (local
time) on the date hereof or at such other time and place as the parties hereto
shall agree upon. Such date is referred to in this Agreement as the "CLOSING
DATE".
4.2 DOCUMENTS TO BE DELIVERED BY SELLER AND THE SOLE SHAREHOLDER. At
the Closing, Seller and the Sole Shareholder shall deliver to Buyer the
following documents, in each case duly executed or otherwise in proper form:
4.2.1 DEEDS, BILLS OF SALE. General warranty bills of sale and
such other instruments of assignment, transfer, conveyance and endorsement as
will be sufficient in the reasonable opinion of Buyer and its counsel to
transfer, assign, convey and deliver to Buyer the Purchased Assets as
contemplated hereby.
4.2.2 COMPLIANCE CERTIFICATE. A certificate signed by the Sole
Shareholder certifying that, to Sole Shareholder's knowledge, each of the
representations and warranties made by Seller and the Sole Shareholder in this
Agreement is true and correct in all material respects on and as of the Closing
Date with the same effect as though such representations and warranties had been
made or given on and as of the Closing Date (except for any changes permitted by
the terms of this Agreement or consented to in writing by Buyer), and that
Seller and the Sole Shareholder have performed and complied in all material
respects with all of Seller's and the Sole Shareholder's respective obligations
under this Agreement which are to be performed or complied with on or prior to
the Closing Date.
4.2.3 OPINION OF COUNSEL. A written opinion of Xxxxxx, Brand,
Seymour & Xxxxxx, counsel to Seller, dated as of the Closing Date and addressed
to Buyer in the form of Exhibit B hereto.
4.2.4 NON-COMPETITION AGREEMENT. The Sole Shareholder shall
have duly executed and delivered to Buyer a non-competition agreement in the
form attached hereto as Exhibit C.
4.2.5 CERTIFIED RESOLUTIONS. A certified copy of the
resolutions adopted by the Board of Directors of Seller and by the Sole
Shareholder authorizing and approving this Agreement and the consummation of the
transactions contemplated by this Agreement.
4.2.6 INDEMNITY AGREEMENT. The Indemnity Agreement, in the
form attached hereto as Exhibit D (the "INDEMNITY AGREEMENT"), duly executed by
Seller and the Sole Shareholder.
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4.2.7 ARTICLES; BYLAWS. A copy of (i) the Bylaws of Seller
certified by the secretary of Seller and (ii) a copy of the Articles of
Incorporation of Seller certified by the Secretary of State of the State of
California.
4.2.8 GENERAL RELEASE. The Sole Shareholder shall deliver, and
Seller shall cause the Sole Shareholder to deliver, a general release to Buyer,
in form and substance satisfactory to Buyer and its counsel, releasing Seller
and the directors, officers, agents and employees of Seller from all claims to
the Closing Date, except (i) as may be described in written contracts disclosed
in the Disclosure Schedule and expressly described and excepted from such
release, (ii) compensation for current periods expressly described and excepted
from such release and (iii) claims based on or arising out of any breach or
failure to perform any of Buyer's covenants and agreements contained in,
referred to, or made pursuant to this Agreement.
4.2.9 WAIVER AND RELEASE. A waiver and release, in form and
substance satisfactory to Buyer and its counsel, executed by Xxxxxx X. XxXxxxxx,
Xx., waiving his rights pursuant to that certain letter agreement, dated March
6, 1997, between Seller and Xx. XxXxxxxx, and releasing Sole Shareholder,
Seller, Buyer and their respective directors, officers, agents and employees
from any and all claims relating thereto.
4.2.10 OTHER DOCUMENTS. All other documents, instruments or
writings required to be delivered to Buyer at or prior to the Closing pursuant
to this Agreement and such other certificates of authority and documents as
Buyer may reasonably request.
4.3 DOCUMENTS TO BE DELIVERED BY BUYER. At the Closing, Buyer shall
deliver the following documents, in each case duly executed or otherwise in
proper form:
4.3.1 PURCHASE PRICE. To Seller a certified or bank cashier's
check (or wire transfer) and the Promissory Note as required by Section 3.1.2
hereof.
4.3.2 ASSUMPTION OF LIABILITIES. Such undertakings and
instruments of assumption as will be reasonably sufficient in the opinion of
Seller and its counsel to evidence the assumption by Buyer of the Assumed
Liabilities pursuant to this Agreement.
4.3.3 COMPLIANCE CERTIFICATE. A certificate signed by an
officer of Buyer that, to such officer's knowledge, the representations and
warranties made by Buyer in this Agreement are true and correct in all material
respects on and as of the Closing Date with the same effect as though such
representations and warranties had been made or given on and as of the Closing
Date (except for any changes permitted by the terms of this Agreement or
consented to in writing by Seller), and that Buyer has performed and complied in
all material respects with all of Buyer's obligations under this Agreement which
are to be performed or complied with on or prior to the Closing Date.
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4.3.4 CERTIFIED RESOLUTIONS. A certified copy of the
resolutions of the Board of Directors of Buyer authorizing and approving this
Agreement and the consummation of the transactions contemplated by this
Agreement.
4.3.5 INDEMNITY AGREEMENT. The Indemnity Agreement duly
executed by Buyer.
4.3.6 GENERAL RELEASE. Buyer shall deliver a general release
to Seller, the Sole Shareholder and Xxxxxx X. XxXxxxxx, Xx., releasing such
persons from all claims to the Closing Date, except pursuant to this Agreement
and as otherwise excepted from such release.
4.3.7 SECURITY AGREEMENT. The Security Agreement, in the form
attached hereto as Exhibit E, duly executed by Buyer.
4.3.8 IMPERIAL BANK INDEBTEDNESS. Evidence of payment in full
of Seller's indebtedness to Imperial Bank.
4.3.9 OTHER DOCUMENTS. All other documents, instruments or
writings required to be delivered to Seller at or prior to the Closing pursuant
to this Agreement and such other certificates of authority and documents as
Seller may reasonably request.
5. REPRESENTATIONS AND WARRANTIES OF SELLER AND SOLE SHAREHOLDER
Sole Shareholder (to his knowledge) and Seller, jointly and severally,
make the following representations and warranties to Buyer, each of which is
true and correct on the date hereof, shall remain true and correct to and
including the Closing Date and shall be unaffected by any investigation
heretofore or hereafter made by Buyer, or any knowledge of Buyer other than as
specifically disclosed in the Disclosure Schedule and all schedules (and
accompanying documentation) delivered by Seller to Buyer at the time of the
execution of this Agreement (the "DISCLOSURE SCHEDULE").
5.1 CORPORATE MATTERS
5.1.1 Except as set forth on Schedule 5.1.2, seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. Seller has all requisite corporate power and
authority to own, operate and lease its properties, to carry on its business as
and where such is now being conducted, to enter into this Agreement and the
other documents and instruments to be executed and delivered by Seller pursuant
hereto and to carry out the transactions contemplated hereby and thereby.
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5.1.2 Except as set forth on Schedule 5.1.2, seller is duly
licensed or qualified to do business as a foreign corporation, and is in good
standing, in each jurisdiction where, by reason of the character of the
properties owned or leased by it, or the nature of its business, the failure to
be so licensed or qualified would have a material adverse effect on the
business, financial condition, operations or prospects of Seller.
5.1.3 The authorized capital stock of Seller consists, and on
the Closing Date will consist, of 100,000 shares, .01 par value per share, of
which 2000 shares are issued and outstanding. All of the issued and outstanding
shares of Seller are owned by the Sole Shareholder, are validly issued, fully
paid and nonassessable, and the issuance of such shares were not subject to any
preemptive rights. Except as set forth above, there are not as of the date
hereof, and on the Closing Date there will not be, any capital shares of Seller
authorized, issued or outstanding or any authorized or outstanding
subscriptions, options, warrants, stock appreciation rights, calls, rights,
convertible securities or other agreements or commitments of any character
relating to issued or unissued capital shares or other securities of Seller, or
otherwise obligating Seller to issue, transfer or sell any capital shares of
Seller, or other securities convertible into, exchangeable for, or evidencing
the right to subscribe for, any capital shares of Seller. Seller does not own
any interest in any corporation, partnership or other entity.
5.1.4 Neither the Board of Directors of Seller nor the Sole
Shareholder has adopted any resolution or taken any other action with respect to
dissolution, liquidation or winding up of Seller, no such resolution or other
action is proposed, under consideration or contemplated, and there is no
proceeding or other action pending or, to the knowledge of Seller and the Sole
Shareholder, threatened, proposed or contemplated by any court, administrative
or governmental agency, instrumentality, commission, authority, board or body
with respect to any dissolution, liquidation or winding up of Seller, nor is
there any basis for any such proceeding or other action.
5.1.5 Schedule 5.1.5 contains a true and correct list showing
for any time period during the last seven years: (i) all names under which
Seller or any predecessor to Seller (a "PREDECESSOR") has conducted business,
together with the type of entity of each Predecessor, (ii) the domicile of
Seller and each Predecessor, and the location of the chief executive office of
Seller and each Predecessor, (iii) each location at which Seller or any
Predecessor conducted business, and (iv) each location where the records of
accounts receivable of Seller or any Predecessor were maintained.
5.2 AUTHORITY; APPROVAL; ENFORCEABILITY; CONFLICTS.
5.2.1 The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered by Seller and Sole
Shareholder pursuant hereto and the consummation of the transactions
contemplated hereby and
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thereby have been duly authorized by the Board of Directors of Seller and the
Sole Shareholder. No other or further corporate act or proceeding on the part of
Seller, its Board of Directors or any of its shareholders is necessary to
authorize this Agreement or the other documents and instruments to be executed
and delivered by Seller and Sole Shareholder pursuant hereto or the consummation
of the transactions contemplated hereby and thereby. This Agreement constitutes,
and when executed and delivered, the other documents and instruments to be
executed and delivered by Seller and Sole Shareholder pursuant hereto will
constitute, valid binding agreements of Seller and Sole Shareholder,
respectively, enforceable in accordance with their respective terms, except as
such may be limited by bankruptcy, insolvency, reorganization or other laws
affecting creditors' rights generally, and by general equitable principles.
5.2.2 The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered by Seller and Sole
Shareholder pursuant hereto, and the consummation by Seller and Sole Shareholder
of the transactions contemplated hereby and thereby (1) to the knowledge of
Seller and Sole Shareholder, (a) will not violate any statute or law or any
rule, regulation, order, writ, injunction or decree of any court or governmental
authority, (b) will not require any authorization, consent, approval, exemption
or other action by or notice to any court, administrative or governmental
agency, instrumentality, commission, authority, board or body (including,
without limitation, under any "plant-closing" or similar law), and (c) subject
to obtaining the consents referred to in Schedule 5.2.2 of the Disclosure
Schedule, will not violate or conflict with, or constitute a material default
(or an event which, with notice or lapse of time, or both, would constitute a
material default) under, or result in the termination of, or accelerate the
performance required by, or result in the creation of any Lien (as defined
below) upon any of the assets of Seller under, any term or provision of any
contract, commitment, understanding, arrangement, agreement or restriction of
any kind or character to which Seller or the Sole Shareholder is a party or by
which Seller, the Sole Shareholder or any of Seller's assets or properties may
be bound or affected, and (2) will not violate or conflict with any term or
provision of the Articles of Incorporation or By-laws of Seller. Notwithstanding
the foregoing, Seller and Sole Shareholder shall not be deemed to have breached
this Section 5.2.2 by reason of any claim by XXX Xxxxxxxxxxx, a Massachusetts
corporation ("EMC"), that the execution and delivery of this Agreement
constitutes a violation of that certain Settlement and License Agreement dated
August 16, 1996 by and between EMC and Seller (the "EMC Agreement").
5.3 FINANCIAL STATEMENTS; BOOKS AND RECORDS
5.3.1 Included as Schedule 5.3.1 of the Disclosure Schedule
are true and complete copies of the financial statements of Seller consisting of
(i) an unaudited balance sheet as of July 31, 1997 (the "RECENT BALANCE SHEET"),
and the related unaudited statements of income and cash flow for the seven (7)
month period preceding
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July 31, 1997, (ii) the audited balance sheet of Seller as of December 31, 1996
and the related statements of income and cash flow for the year ended December
31, 1996 (including the notes contained therein or annexed thereto), together
with the report thereon of Xxxxxx Xxxxxxxx, independent certified public
accountants, and (iii) the unaudited balance sheets as at December 31 in each of
the years 1993 through 1995, and the related unaudited statements of income and
cash flow for each of the fiscal years then ended (collectively, the "FINANCIAL
STATEMENTS"). Except as noted in Schedule 5.3.1, the Financial Statements
(including all notes and schedules contained therein or annexed thereto) have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except, with respect to unaudited financial
statements, for the absence of footnotes and subject to normal year-end audit
adjustments applicable to the unaudited financial statements), and fairly
present, in accordance with generally accepted accounting principles (except,
with respect to unaudited financial statements, for the absence of footnotes and
subject to normal year-end audit adjustments applicable to the unaudited
financial statements), the assets, liabilities and financial position, the
results of operations and the cash flows of Seller as of the dates and for the
periods indicated.
5.3.2 All of the books of account and other financial records
of Seller have been made available to Buyer and its counsel and are complete and
correct.
5.3.3 Seller maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
5.4 NO UNDISCLOSED LIABILITIES. Without in any way limiting the other
provisions set forth in this Agreement, except as and to the extent specifically
disclosed in Schedule 1.1.9, 2.1.3, 5.4, 5.14.2 or 5.18.1 or the Recent Balance
Sheet (including any modification pursuant to Schedules 2.1.1 and 2.1.2), to the
knowledge of Seller and Sole Shareholder, Seller has no liabilities, commitments
or obligations (secured or unsecured, and whether accrued, absolute, contingent,
direct, indirect or otherwise), other than commercial liabilities and
obligations incurred since the date of the Recent Balance Sheet in the ordinary
course of business and consistent with past practice which in the aggregate have
not and will not have a material adverse effect on the business, financial
condition or operations of Seller. Except as and to the extent specifically
reflected in the Recent Balance Sheet, neither Seller nor Sole Shareholder is
aware of any facts that could reasonably be expected to give rise to any basis
for the assertion against Seller of any
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liability, and there are no circumstances, conditions, happenings, events or
arrangements, contractual or otherwise, which may give rise to liabilities,
except commercial liabilities and obligations incurred in the ordinary course of
Seller's business and consistent with past practice.
5.5 ABSENCE OF CERTAIN CHANGES. Except as and to the extent disclosed
in Schedule 5.5 of the Disclosure Schedule, since the date of the Recent Balance
Sheet, there has not been:
5.5.1 Any material adverse change in the financial condition,
assets, liabilities, business, prospects or operations of Seller;
5.5.2 Any material loss, damage or destruction, whether
covered by insurance or not, affecting Seller's business or properties;
5.5.3 Any increase in the salaries, wages or other
remuneration or compensation, or in any benefits payable or to become payable to
any employee or agent of Seller (including, without limitation, any increase or
change pursuant to any bonus, pension, profit sharing, retirement or other plan
or commitment), or any bonus or other employee benefit granted, made or accrued
to any such person;
5.5.4 Any labor dispute or disturbance;
5.5.5 Any material commitment or transaction by Seller
(including, without limitation, any borrowing or capital expenditure) other than
in the ordinary course of business consistent with past practice;
5.5.6 Any declaration, setting aside, or payment of any
dividend or any other distribution in respect of Seller's capital stock; any
redemption, purchase or other acquisition by Seller of any capital stock of
Seller, or any security relating thereto; or any other payment to any
shareholder of Seller as such a shareholder;
5.5.7 Any sale, lease or other transfer or disposition of any
properties or assets of Seller, except for the sale of inventory items in the
ordinary course of business;
5.5.8 Any indebtedness for borrowed money incurred, assumed or
guaranteed by Seller;
5.5.9 Any Lien (as defined below) on any of the properties or
assets of Seller;
5.5.10 Any entering into, amendment or termination by Seller
of any material contract, or any waiver of material rights thereunder, other
than in the ordinary course of business;
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5.5.11 Any waiver of rights under any Contract listed on
Schedule 1.1.9;
5.5.12 Any loan or advance (other than advances to employees
in the ordinary course of business for travel in accordance with past practice)
to any person including, but not limited to, any officer, director or employee
of Seller or the Sole Shareholder or any Affiliate;
5.5.13 Any entering into of any type of license agreement or
other agreement regarding intellectual property rights involving fees of $30,000
or more;
5.5.14 Any grant of credit to any customer or distributor on
terms or in amounts more favorable than those which have been extended to such
customer or distributor in the past, any other change in the terms of any credit
heretofore extended, or any other change of Seller's policies or practices with
respect to the granting of credit; or
5.5.15 Any other event or condition not in the ordinary course
of business of Seller.
5.6 TAX MATTERS
5.6.1 The provision made for taxes on the Recent Balance Sheet
(as modified pursuant to Schedules 2.1.1 and 2.1.2) is sufficient for the
payment of all federal, state, foreign, county, local and other income, ad
valorem, excise, profits, franchise, occupation, property, payroll, sales, use,
gross receipts and other taxes (and any interest and penalties) and assessments,
whether or not disputed at the date of the Recent Balance Sheet, and for all
years and periods prior thereto. Since the date of the Recent Balance Sheet,
Seller has not incurred any taxes other than taxes incurred in the ordinary
course of business consistent in type and amount with Seller's past experiences.
5.6.2 Except as set forth on Schedule 5.6, all federal, state,
foreign, county, local and other tax returns required to be filed by or on
behalf of Seller, including information returns, have been timely filed and when
filed were true, correct and complete, and the taxes shown as due thereon were
paid or adequately accrued. Seller has duly withheld and paid all taxes which it
is required to withhold and pay relating to salaries, wages and other
compensation, remuneration or benefits paid to the employees of Seller (other
than solely with respect to such taxes applicable to salaries accrued during the
pay period commencing immediately prior to the Closing and accrued vacation as
of the Closing).
5.6.3 No federal or state income tax returns of Seller have
been audited by the Internal Revenue Service or appropriate state taxing
authorities since inception, and Seller has not received from the Internal
Revenue Service or from the tax authorities of any state, county, local or other
jurisdiction any notice of underpayment of taxes or other
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deficiency which has not been paid nor any objection to any return or report
filed by Seller. There are outstanding no agreements or waivers extending the
statutory period of limitations applicable to any tax return or report.
5.6.4 Seller has never been a member of an affiliated group
that filed a consolidated tax return on which the statute of limitations does
not bar a federal tax assessment.
5.6.5 Seller has never (i) filed any consent or agreement
under Section 341(f) of the Code, (ii) applied for any tax ruling, (iii) entered
into a closing agreement with any taxing authority, (iv) filed an election under
Section 338(g) or Section 338(h)(10) of the Code (nor has a deemed election
under Section 338(e) of the Code occurred), (v) made any payments, or been a
party to an agreement (including this Agreement) that under any circumstances
could obligate it to make payments that will not be deductible because of
Section 280G of the Code, or (vi) been a party to any tax allocation or tax
sharing agreement.
5.7 ACCOUNTS RECEIVABLE. Schedule 5.7 contains a complete and accurate
report showing all accounts receivable of the Business ("ACCOUNTS") outstanding
as of the close of business on July 31, 1997, including an aging of such
Accounts that is true and complete, subject to a reasonable reserve for doubtful
accounts consistent with past practices. Except as specifically set forth on
Schedule 5.7, all Accounts arose in the ordinary course of business, are
collectible (except as provided for in the reserve for doubtful accounts) and
are carried at values determined in accordance with generally accepted
accounting principles consistently applied. Except as specifically set forth on
Schedule 5.7, there is no Account that is contingent upon the future performance
of services or any contract or obligation or the future delivery of products.
5.8 INVENTORY. All Inventory purchased since the Recent Balance Sheet
consists of inventory of a quantity usable and saleable in the ordinary course
of business. All Inventory as of the Closing is listed on Schedule 5.8.
Work-in-process Inventories are now and will be valued on the Closing Date
according to generally accepted accounting principles consistently applied.
5.9 TITLE TO AND CONDITION OF PROPERTIES.
5.9.1 Seller has good and marketable title to all the
Purchased Assets, free and clear of all mortgages, liens (statutory or
otherwise), security interests, claims, pledges, licenses, equities, options,
conditional sales contracts, lease purchase agreements, financing leases,
assessments, levies, easements, covenants, reservations, restrictions,
rights-of-way, exceptions, limitations, charges or encumbrances of any nature
whatsoever (collectively, "LIENS") except those described in Schedule 5.9.1 of
the
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Disclosure Schedule. Except with respect to the Assumed Contracts listed on
Schedule 1.1.9(c) and Schedule 5.2.2, none of the Purchased Assets are subject
to any restrictions with respect to the transferability thereof. Except with
respect to the Assumed Contracts listed on Schedule 1.1.9(c) and Schedule 5.2.2,
Seller has complete and unrestricted power and right to sell, assign, convey and
deliver the Purchased Assets to Buyer as contemplated hereby. At Closing, Buyer
will receive good and valid title to all the Purchased Assets, free and clear of
all Liens of any nature whatsoever except those described in Schedule 5.9.1 of
the Disclosure Schedule.
5.9.2 All tangible assets (real and personal) constituting
Purchased Assets hereunder are in good operating condition and repair, free from
any defects (except such minor defects as do not interfere with the continuing
and safe use thereof in the conduct of the normal operations of Seller), have
been maintained consistent with the standards generally followed in the industry
and, to the knowledge of Seller and Sole Shareholder, applicable legal
standards, and are sufficient to carry on the business of Seller as conducted
during the preceding 12 months. To the knowledge of Seller and Sole Shareholder,
all buildings, plants and other structures utilized by Seller are in good
condition and repair and have no structural defects or defects affecting the
plumbing, electrical, sewerage, or heating, ventilating or air conditioning
systems.
5.9.3 Except as set forth on Schedule 1.1.3 of the Disclosure
Schedule, Seller owns no real property. Schedules 1.1.3 and 1.1.4 set forth all
real property used or occupied by Seller (the "REAL PROPERTY"). To the knowledge
of Seller and Sole Shareholder, no portion of any of the Real Property has been
used as a landfill or for storage or landfill of hazardous or toxic materials.
Neither Seller nor the Sole Shareholder has notice or knowledge of any (i)
governmental agency or court order requiring repair, alteration or correction of
any existing condition affecting any Real Property or the systems or
improvements thereat, (ii) condition or defect which could give rise to an order
of the sort referred to in "(i)" above, or (iii) underground storage tanks, or
any structural, mechanical, or other defects of material significance affecting
any Real Property or the systems or improvements thereat (including, but not
limited to, inadequacy for normal use of mechanical systems or disposal or water
systems at or serving the Real Property).
5.9.4 To the knowledge of Seller and Sole Shareholder, neither
the whole nor any portion of the property or any other assets of Seller is
subject to any governmental decree or order to be sold or is being condemned,
expropriated or otherwise taken by any public authority with or without payment
of compensation therefor, nor to Seller's and the Sole Shareholder's knowledge
has any such condemnation, expropriation or taking been proposed.
5.10 INTELLECTUAL PROPERTY RIGHTS
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5.10.1 Schedule 1.1.2 sets forth an accurate and complete list
identifying all of the following Intellectual Property Rights as of the Closing
Date: (i) all patents and patent applications owned by Seller or any Affiliate,
including the country of filing, filing number, date of issue, expiration date,
title and inventors; (ii) all registered trademarks and servicemarks and
trademark and servicemark applications, including country of filing, filing
number, date of issue and expiration date; (iii) all common law trademarks,
service marks, trade names and copyright registrations; (iv) all material
license agreements pursuant to which Seller or any Affiliate acquired any
Intellectual Property Rights and all material agreements, oral or written,
pursuant to which Seller or any Affiliate is obligated to pay royalties to third
parties with respect to such Intellectual Property Rights; and (v) all material
license agreements, oral or written, including site licenses, pursuant to which
Seller or any Affiliate has granted any person any rights to any of the
Intellectual Property Rights. Complete and accurate copies of all written
agreements (and complete and accurate descriptions of all oral agreements)
referred to in the foregoing clauses (iv) and (v) have been provided to Buyer.
The entire right, title and interest in the Intellectual Property Rights reside
solely with Seller. To the knowledge of Seller and the Sole Shareholder after
due inquiry thereof, there are no actual or claimed infringements, violations or
misappropriations existing by any third party with respect to the Intellectual
Property Rights.
5.10.2 To the knowledge of Seller and the Sole Shareholder,
the operation of the Business as currently conducted, including, but not limited
to, the operation and use of the Purchased Assets and the manufacture, sale or
use of the Products, does not and will not infringe, violate or misappropriate
any patent, trade secret, copyright or other intellectual property rights of any
third party or entity.
5.10.3 Except to the extent set forth in Schedule 1.1.2, no
material licenses, sub-licenses or other agreements relating to the Intellectual
Property Rights exist which would limit or restrict the rights of Buyer to
operate the Business following the Closing, including, without limitation, the
operation and use of the Assets and the manufacture, sale or use of the
Products.
5.10.4 To the knowledge of Seller and the Sole Shareholder,
except as set forth on Schedule 5.10.4, all trademarks, servicemarks, and
related applications and registrations thereof and all copyrights and
registrations thereof related to the Business (collectively the "TRADEMARKS AND
COPYRIGHTS") are valid and enforceable, Seller has the exclusive right to use
the Trademarks and Copyrights in connection with the Business and there are no
oppositions, cancellations or governmental, arbitral or other proceedings
currently pending or threatened that protest the rights of Seller to use and/or
register the Trademarks and Copyrights. Neither Seller nor the Sole Shareholder
has, by act or failure to act, including without limitation, by failure to
attach any required notice, transferred any rights to the Intellectual Property
Rights into the public domain.
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5.10.5 Neither Seller nor any Affiliate is making use of any
patentable or unpatentable invention or any confidential information in the
Business in which any present or past employee of Seller has or has claimed an
interest, and neither Seller nor the Sole Shareholder is aware of facts that
could reasonably be expected to give rise to such a claim. Neither Seller nor
the Sole Shareholder has any knowledge (after due inquiry thereof) of the
assertion against Seller of any conflicting rights to any Intellectual Property
Rights. Each employee of Seller has entered into, and no employee of Seller has
failed or refused to execute and deliver an agreement between such employee and
Seller in substantially the form attached hereto as Schedule 5.10.5, and no such
employee has failed or refused to take any action required under such agreement.
5.11 TRADE SECRETS
5.11.1 The Purchased Assets include all documentation relating
to all of Seller's trade secrets, if any, which, if they exist, may include
customer lists, processes, know-how, computer programs and routines and other
technical data used in the Products or in the Business (collectively, the "TRADE
SECRETS") that is current, accurate, and sufficient in detail and content to
identify and explain such trade secrets, and to allow their full and proper use
by Buyer; provided, however, that the trade secrets do not include the
specialized knowledge and experience of Seller's employees.
5.11.2 To the knowledge of Seller and the Sole Shareholder,
Seller is the sole owner of each of the trade secrets, free and clear of any
liens, encumbrances, restrictions, or legal or equitable claims of others.
5.11.3 To the knowledge of Seller and the Sole Shareholder,
the trade secrets have not been used, divulged, or appropriated for the benefit
of any past or present employees or other persons or to the detriment of Seller.
5.12 PRODUCTS; WARRANTY POLICIES
5.12.1 A true and complete list and description of all
Products marketed, licensed or sold by Seller since April 1993 is set forth on
Schedule 1.1.13, which Schedule indicates each such product currently
manufactured, sold or marketed by Seller.
5.12.2 Schedule 5.12.2 contains a summary of all of the
product warranty and service policies and obligations of Seller relating to the
Products.
5.13 NO LITIGATION. Except as specifically described in Schedule 5.13,
there is no action, suit, arbitration or other proceeding, investigation or
inquiry pending or, to the knowledge of Seller and the Sole Shareholder,
threatened against Seller, its directors (in such capacity), the Sole
Shareholder or Seller's business or any of its assets, nor is Seller or the Sole
Shareholder aware of any facts that could reasonably be expected to give rise
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to any basis for any such proceedings, investigations or inquiries. Schedule
5.13 also identifies all such actions, suits, proceedings, investigations and
inquiries to which Seller, any of its directors (in such capacity) or the Sole
Shareholder have been parties since inception. Except as set forth in Schedule
5.13, neither Seller nor its business or assets is subject to any judgment,
order, writ or injunction of any court, arbitrator or federal, state, foreign,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality.
5.14 COMPLIANCE WITH LAWS
5.14.1 Except as set forth in Schedule 5.14.1, to the
knowledge of Seller and Sole Shareholder, Seller (including each and all of its
operations, practices, properties and assets) is in compliance with all
applicable federal, state, local and foreign laws, ordinances, orders, rules and
regulations (collectively, "LAWS"), including, without limitation, those
applicable to discrimination in employment, occupational safety and health,
trade practices, competition and pricing, product warranties, zoning, building
and sanitation, employment, retirement and labor relations, product advertising
and the Environmental Laws (as hereinafter defined). Except as set forth in
Schedule 5.14.1 of the Disclosure Schedule, Seller has not received notice of
any violation or alleged violation of, and to the knowledge of Seller and the
Sole Shareholder (after due inquiry thereof) is subject to no liability (whether
accrued, absolute, contingent, direct or indirect) for past or continuing
violation of, any Laws. All reports and returns required to be filed by Seller
with any governmental authority have been filed, and were accurate and complete
when filed. Without limiting the generality of the foregoing:
(a) Seller has made all required payments to its unemployment
compensation reserve accounts with the appropriate governmental departments of
the states where it is required to maintain such accounts; and
(b) Seller has delivered to Buyer copies of all records of
Seller required for the past five years under the federal Occupational Safety
and Health Act of 1970, as amended, and under all other applicable health and
safety laws and regulations, and all correspondence relating thereto. The
deficiencies, if any, noted in such records and correspondence have been
corrected.
5.14.2 Seller has all licenses, permits, approvals,
authorizations and consents ("PERMITS") of all governmental and regulatory
authorities and all certification organizations required for the conduct of the
Business (as presently conducted and as proposed to be conducted) and operation
of the Facilities, except for any Permits the failure to possess which would not
have a material adverse effect on the financial condition, assets, liabilities,
business, prospects or operations of the Business. All such Permits are
described in Schedule 5.14.2 of the Disclosure Schedule, are in full force and
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effect and are, except as expressly set forth on Schedule 5.14.2, assignable to
Buyer in accordance with the terms hereof. Except as set forth in Schedule
5.14.2 of the Disclosure Schedule, Seller (including its operations, properties
and assets) is and has been in compliance with all such Permits.
5.14.3 The applicable Laws relating to pollution or protection
of the environment, including Laws relating to emissions, discharges,
generation, storage, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic, hazardous or petroleum or
petroleum-based substances or wastes ("WASTE") into the environment (including,
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of Waste
including, without limitation, the Clean Water Act, the Clean Air Act, the
Resource Conservation and Recovery Act, the Toxic Substances Control Act and the
Comprehensive Environmental Response Compensation Liability Act ("CERCLA"), as
amended, and their state and local counterparts, are herein collectively
referred to as the "ENVIRONMENTAL LAWS." Without limiting the generality of the
foregoing provisions of this Section 5.14.3, to the knowledge of Seller and Sole
Shareholder, Seller is in compliance with all limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental Laws or contained in any regulations,
code, plan, order, decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder. Except as set forth in Schedule
5.13 of the Disclosure Schedule, there is no civil, criminal or administrative
action, suit, demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter pending or, to the knowledge of Seller and
the Sole Shareholder, threatened against Seller relating in any way to the
Environmental Laws or any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder. Except as set forth in Schedule 5.13 of the Disclosure Schedule, to
the knowledge of Seller and Sole Shareholder, there are no past or present
events, conditions, circumstances, activities, practices, incidents, actions or
omissions which could reasonably be expected to interfere with or prevent
compliance or continued compliance with the Environmental Laws or with any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, or which may give
rise to any liability, including, without limitation, liability under CERCLA or
similar state or local Laws, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, notice of violation, study or investigation,
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling, or the emission, discharge,
release or threatened release into the environment, of any Waste.
5.15 INSURANCE. Set forth in Schedule 5.15 of the Disclosure Schedule
is a complete and accurate list and description of all policies of fire,
casualty, general liability,
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product liability, workers compensation, health and other forms of insurance
presently in effect with respect to the business and properties of Seller, true
and correct copies of which have heretofore been delivered to Buyer. Schedule
5.15 of the Disclosure Schedule includes, without limitation, the carrier, the
description of coverage, the limits of coverage, retention or deductible
amounts, amount of annual premiums, date of expiration and the date through
which premiums have been paid with respect to each such policy, and any pending
claims in excess of $10,000. All such policies are valid, outstanding and
enforceable policies and provide insurance coverage for the properties, assets
and operations of Seller, of the kinds (except for product liability and D&O
insurance), in the amounts and against the risks customarily maintained by
organizations similarly situated; and no such policy (nor any previous policy)
provides for or is subject to any currently enforceable retroactive rate or
premium adjustment, loss sharing arrangement or other actual or contingent
liability arising wholly or partially out of events arising prior to the date
hereof. Schedule 5.15 of the Disclosure Schedule indicates each policy as to
which (a) the coverage limit has been reached in the current year of coverage or
(b) the total incurred losses in the current year of coverage equal 75% or more
of the coverage limit in the current year of coverage. No notice of cancellation
or termination has been received with respect to any such policy, and neither
Seller nor the Sole Shareholder has knowledge of any act or omission of Seller
which could result in cancellation of any such policy prior to its scheduled
expiration date. Seller has not been refused any insurance with respect to any
aspect of the operations of the business nor has its coverage been limited by
any insurance carrier to which it has applied for insurance or with which it has
carried insurance during the last three years. Seller has duly and timely made
all claims it has been entitled to make under each policy of insurance. There is
no claim by Seller pending under any such policies as to which coverage has been
denied or disputed by the underwriters of such policies, and neither Seller nor
the Sole Shareholder knows of any basis for denial of any claim under any such
policy. Seller has not received any written notice from or on behalf of any
insurance carrier issuing any such policy that insurance rates therefor will
hereafter be substantially increased (except to the extent that insurance rates
may be increased for all similarly situated risks) or that there will hereafter
be a cancellation or an increase in a deductible (or an increase in premiums in
order to maintain an existing deductible) or nonrenewal of any such policy. Such
policies are sufficient in all material respects for compliance by Seller with
all requirements of law and with the requirements of all contracts to which
Seller is a party.
5.16 CONTRACTS AND COMMITMENTS.
5.16.1 Except as set forth in Schedule 1.1.4 of the Disclosure
Schedule, Seller has no leases of real property.
5.16.2 Schedule 1.1.5 of the Disclosure Schedule sets forth
all leases of personal property.
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5.16.3 Except for Seller's obligations under that certain
Agreement dated April 24, 1997 between Seller and Traaken Software, Inc., Seller
has no material purchase commitments for inventory items or supplies that,
together with amounts on hand, constitute in excess of three months normal
usage, or which are at an excessive price.
5.16.4 Seller has no agreements or commitments to customers or
distributors pursuant to agreements with terms materially different from
Seller's standard form of sales and as to certain products, a license agreement
(which standard forms are attached to Schedule 5.16.4) other than as listed and
described in Schedule 5.16.4, and Seller has no such agreements or commitments
except those made in the ordinary course of business and at arm's length, and no
such agreements or commitments are for a sales price which would result in a
loss to Seller.
5.16.5 Except as disclosed in Schedule 5.16.5, Seller has no
agreement, understanding, contract or commitment (written or oral) with any
Affiliate or any other officer, employee, agent, consultant, distributor, dealer
or franchisee that is not cancelable by Seller on notice of not longer than 30
days without liability, penalty or premium of any nature or kind whatsoever.
5.16.6 Except as set forth on Schedule 5.16.6, seller has not
given a power of attorney, which is currently in effect, to any person, firm or
corporation for any purpose whatsoever.
5.16.7 Seller is not a party to any collective bargaining
agreements with any unions, guilds, shop committees or other collective
bargaining groups.
5.16.8 Except as set forth in Schedule 5.16.8 of the
Disclosure Schedule, Seller is not obligated under any loan agreement,
promissory note, letter of credit, or other evidence of indebtedness as a
signatory, guarantor or otherwise.
5.16.9 Except as set forth on Schedule 5.16.9, Seller has not
guaranteed the payment or performance of any person, firm or corporation, agreed
to indemnify any person or act as a surety, or otherwise agreed to be
continentally or secondarily liable for the obligations of any person.
5.16.10 Except as shown on Schedule 5.16.10, Seller is not a
party to any contract with any national governmental body.
5.16.11 Except as shown on Schedule 5.16.11, Seller is not a
party to nor is it bound by any agreement, deed, lease or other instrument which
is so burdensome as to materially affect or impair the operation of Seller.
Without limiting the generality of the foregoing, Seller is not a party to nor
is it bound by any agreement requiring Seller to
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assign any interest in any trade secret or proprietary information, or
prohibiting or restricting Seller from competing in any business or geographical
area or soliciting customers or otherwise restricting it from carrying on its
business anywhere in the world.
5.16.12 Schedule 5.16.12 contains a description and summary of
terms of contracts relating to the Business involving consideration or other
expenditures in excess of $10,000 or more negotiated or discussed by Seller or
the Sole Shareholder at any time within sixty (60) days prior to the Closing but
not finalized.
5.16.13 Seller has no lease, contract or commitment of any
nature involving consideration or other expenditures in excess of $10,000 by or
from Seller, or involving performance over a period of more than three months,
or which is otherwise individually material to the operations of Seller, except
as explicitly described in Schedule 5.16.13 or in any other Schedule of the
Disclosure Schedule.
5.16.14 A complete and accurate copy of each written agreement
and other document identified on the Schedules referred to in Sections 5.16.1
through 5.16.13, as amended to date, has been delivered to Buyer. Except as set
forth on Schedule 5.16.14, each lease, contract and commitment referred to in
Sections 5.16.1 through 5.16.13 is, except to the extent fully performed on the
date hereof, in full force and effect and valid and binding on Seller in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and subject to general equity principles and to limitations on
the availability of equitable relief. Seller has performed all material
obligations required to be performed by it and is not in default under any
lease, contract or commitment (except any default arising as a result of the
transfer to Buyer of the Assumed Contracts described on Schedule 5.2.2 as
requiring the consent of the other party), nor has any event or omission
occurred which through the passage of time or the giving of notice, or both,
would constitute a default thereunder or cause the acceleration of any of
Seller's obligations or result in the creation of any Lien on any of the assets
owned, used or occupied by Seller. Neither Seller nor the Sole Shareholder has
received any notice that it is in default thereunder, and neither Seller nor the
Sole Shareholder is aware of any facts that could reasonably be expected to give
rise to such a default. No third party is in default under any lease, contract
or commitment to which Seller is a party, nor has any event or omission occurred
which, through the passage of time or the giving of notice, or both, would
constitute a default thereunder or give rise to an automatic termination, or the
right of discretionary termination, thereof.
5.17 LABOR MATTERS. Except to the extent set forth in Schedule
5.17 of the Disclosure Schedule, (a) within the last five years Seller has not
experienced any labor disputes, union organization attempts or work stoppage due
to labor disagreements in connection with its business; (b) to the knowledge of
Seller and Sole Shareholder, Seller
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is in compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and is not
engaged in any unfair labor practice; (c) there is no unfair labor practice
charge or complaint against Seller pending or, to Seller's and the Sole
Shareholder's knowledge, threatened; (d) there is no labor strike, dispute,
request for representation, slowdown or stoppage actually pending or threatened
against or affecting Seller nor any secondary boycott with respect to products
of Seller; (e) no question concerning representation has been raised or is, to
the knowledge of Seller and Sole Shareholder, threatened respecting the
employees of Seller; (f) no grievance and no arbitration proceeding arising out
of or under collective bargaining agreements, is pending and no such claim
therefor exists; and (g) there are no administrative charges or court complaints
against Seller concerning alleged employment discrimination or other employment
related matters pending or, to Seller's and the Sole Shareholder's knowledge,
threatened before the U.S. Equal Employment Opportunity Commission or any state
or federal court or agency.
5.18 EMPLOYEE BENEFIT PLANS.
5.18.1 Seller has no "defined benefit" plan as defined in
ERISA. Schedule 5.18.1 of the Disclosure Schedule sets forth all pension,
thrift, savings, profit sharing, retirement, incentive bonus or other bonus,
medical, dental, life, accident insurance, benefit, employee welfare,
disability, group insurance, stock purchase, stock option, stock appreciation,
stock bonus, executive or deferred compensation, hospitalization and other
similar fringe or employee benefit plans, programs and arrangements, and any
employment or consulting contracts, "golden parachutes," collective bargaining
agreements, severance agreements or plans, vacation and sick leave plans,
programs, arrangements and policies, including, without limitation, all
"employee benefit PLANS" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")). No such employee benefit
plan is a "multiemployer plan" (as defined in Section 4001 of ERISA), and Seller
has never contributed nor been obligated to contribute to any such multiemployer
plan. Schedule 5.18.1 also lists those provisions of all employee manuals, and
all written or binding oral statements of policies, practices or understandings
relating to employment, which are provided to, for the benefit of, or relate to,
any persons employed by Seller ("SELLER EMPLOYEES") with respect to intellectual
property developed by Seller or Seller Employees, or with respect to obligations
of confidentiality related to Seller's affairs or property.
5.18.2 With respect to each employee benefit plan that is
subject to the provisions of Title IV of ERISA and with respect to which Seller
or any of its assets may, directly or indirectly, be subject to any liability,
contingent or otherwise, or the imposition of any lien (whether by reason of the
complete or partial termination of any such plan, the funded status of any such
plan, any "complete withdrawal" (as defined in Section 4203 of
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ERISA) or "partial withdrawal" (as defined in Section 4205 of ERISA) by any
person from any such plan, or otherwise):
(a) no such plan has been terminated so as to subject,
directly or indirectly, any assets of Seller to any liability, contingent or
otherwise, or the imposition of any lien under Title IV of ERISA;
(b) no proceeding has been initiated or threatened by any
person (including the Pension Benefit Guaranty Corporation ("PBGC")) to
terminate any such plan;
(c) no condition or event currently exists or currently is
expected to occur that could subject, directly or indirectly, any assets of
Seller to any liability, contingent or otherwise, or the imposition of any lien
under Title IV of ERISA, whether to the PBGC or to any other person or otherwise
on account of the termination of any such plan;
(d) if any such plan were to be terminated as of the Closing
Date, no assets of Seller would be subject, directly or indirectly, to any
liability, contingent or otherwise, or the imposition of any lien under Title IV
of ERISA;
(e) no "reportable event" (as defined in Section 4043 of
ERISA) has occurred with respect to any such plan;
(f) no such plan which is subject to Section 302 of ERISA or
Section 412 of the Code has incurred any "accumulated funding deficiency" (as
defined in Section 302 of ERISA and Section 412 of the Code, respectively),
whether or not waived; and
(g) no such plan is a multiemployer plan or a plan described
in Section 4064 of ERISA.
5.18.3 There have been no "prohibited transactions" within the
meaning of Section 406 or 407 of ERISA or Section 4975 of the Code for which a
statutory or administrative exemption does not exist with respect to any
employee benefit plan, and no event or omission has occurred in connection with
which Seller or any of its assets or any employee benefit plan, directly or
indirectly, could be subject to any liability under ERISA, the Code or any other
law, regulation or governmental order applicable to any employee benefit plan,
including, without limitation, Section 406, 407, 409, 501, 502, 510, 511, 601,
4062, 4063, 4069, 4071, or 4201 of ERISA, or Section 4971, 4972, 4975, 4976,
4977, 4979 or 4980B of the Code, or under any agreement, instrument, statute,
rule of law or regulation pursuant to or under which Seller has agreed to
indemnify or is
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required to indemnify any person against liability incurred under, or for a
violation or failure to satisfy the requirements of, any such statute,
regulation or order.
5.18.4 The funds available under each employee benefit plan
which is intended to be a funded plan equal or exceed the amounts required to be
paid, or which would be required to be paid if such Plan were terminated, on
account of rights vested or accrued as of the Closing Date (using the actuarial
methods and assumptions then used by Seller's actuaries in connection with the
funding of such Plan).
5.18.5 Seller is not and never has been a member of a
controlled group as defined in Section 414(b) of the Code or in common control
with any unincorporated trade or business as determined under Section 414(c) of
the Code. Seller is not and never has been a member of an "affiliated service
group" within the meaning of Section 414(m) of the Code. Except as set forth on
Schedule 5.18.5, there are not and never have been any leased employees within
the meaning of Section 414(n) of the Code who perform services for Seller, and
no individuals are expected to become leased employees.
5.18.6 With respect to each employee benefit plan, (i) all
payments due from Seller to date have been made and all amounts properly accrued
to date as liabilities of Seller which have not been paid have been properly
recorded on the books of Seller and are reflected in the Recent Balance Sheet;
(ii) Seller has materially complied with, and each such employee benefit plan
conforms in all material respects in form and operation to, all applicable laws
and regulations, including but not limited to ERISA and the Code, and all
reports and information relating to such employee benefit plan required to be
filed with any governmental entity have been timely filed; (iii) to Seller's and
Sole Shareholder's knowledge all reports and information relating to each such
employee benefit plan required to be disclosed or provided to participants or
their beneficiaries have been timely disclosed or provided; (iv) to Seller's and
Sole Shareholder's knowledge each such employee benefit plan which is intended
to qualify under Section 401 of the Code has received a favorable determination
letter from the Internal Revenue Service with respect to such qualification, its
related trust has been determined to be exempt from taxation under Section
501(a) of the Code, and nothing has occurred since the date of such letter that
has or is likely to adversely affect such qualification or exemption; (v) there
are no actions, suits or claims pending (other than routine claims for benefits)
or, to Seller's and the Sole Shareholder's knowledge, threatened with respect to
such employee benefit plan or against the assets of such employee benefit plan;
and (vi) no employee benefit plan is a plan which is established and maintained
outside the United States primarily for the benefit of individuals substantially
all of whom are nonresident aliens.
5.18.7 Except as set forth on Schedule 5.18.7, the
consummation of the transactions contemplated by this Agreement will not (i)
entitle any current or former
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employee of Seller to severance pay, unemployment compensation or any other
payment, except as expressly provided in this Agreement, (ii) accelerate the
time of payment or vesting, or increase the amount of compensation due to any
such employee or former employee or (iii) result in any prohibited transaction
described in Section 406 of ERISA or Section 4975 of the Code for which an
exemption is not available or (iv) result in Buyer being or becoming liable to
any Seller Employee or liable for any amount owed to any employee benefit plan.
5.19 EMPLOYMENT COMPENSATION. Schedule 5.19 of the Disclosure Schedule
contains a true and correct list of all employees to whom Seller is paying
compensation, including bonuses and incentives, at an annual rate in excess of
$60,000 for services rendered or otherwise; and in the case of salaried
employees such list identifies the current annual rate of compensation for each
employee and in the case of hourly or commission employees identifies certain
reasonable ranges of rates and the number of employees falling within each such
range.
5.20 MAJOR CUSTOMERS AND SUPPLIERS.
5.20.1 Schedule 5.20.1 of the Disclosure Schedule contains a
list of the ten largest customers of Seller for each of the two most recent
fiscal years (determined on the basis of the total dollar amount of net sales)
showing the total dollar amount of net sales to each such customer during each
such year. Neither Seller nor the Sole Shareholder has any knowledge of any
facts indicating that any of the customers listed on Schedule 5.20.1 of the
Disclosure Schedule will not continue to be customers of the business of Seller
after the Closing at substantially the same level of purchases as heretofore.
5.20.2 Schedule 5.20.2 of the Disclosure Schedule contains a
list of the ten largest suppliers to Seller for each of the two most recent
fiscal years (determined on the basis of the total dollar amount of purchases)
showing the total dollar amount of purchases from each such supplier during each
such year. Neither Seller nor the Sole Shareholder has any knowledge or
information of any facts indicating that any of the suppliers listed on Schedule
5.20.2 of the Disclosure Schedule will not continue to be suppliers to the
business of Seller after the Closing and will not continue to supply the
business with substantially the same quantity and quality of goods at
competitive prices.
5.20.3 Schedule 5.20.3 of the Disclosure Schedule contains a
list by product line of all dealers, distributors and franchisees of Seller.
5.21 AFFILIATES' RELATIONSHIPS TO SELLER.
5.21.1 All leases, contracts, agreements or other arrangements
between Seller and any Affiliate are described on Schedule 5.21.1 of the
Disclosure Schedule. Except as shown on Schedule 5.21.1, Seller has no business
relationship with any
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Affiliate (other than the direct employment of an individual Affiliate as an
employee, officer or director) where such Affiliate is a customer, supplier,
vendor, licensor, lessor, landlord, distributor, sales representative, lender or
borrower. Schedule 5.21.1 contains a complete list of all business relationships
of Seller with any Affiliate.
5.21.2 Except as set forth on Schedule 5.21.2, no Affiliate
has any direct or indirect interest in (i) any entity which does business with
Seller or is competitive with Seller's business, or (ii) any property, asset or
right which is used by Seller in the conduct of its business (other than an
interest constituting less than 1% of the outstanding voting stock of a company
whose Common Stock is traded on a national securities exchange or traded in the
national over-the-counter market).
5.21.3 For purposes of this Agreement "AFFILIATE" means:
(i) any current or former shareholder, director or officer of
the Seller;
(ii) any sibling, uncle, aunt, niece or nephew of any person
described in clause (i);
(iii) any ancestor or lineal descendant of any person
described in clauses (i) or (ii);
(iv) any current or former spouse of any person described in
clauses (i), (ii) or (iii) or any person who is a member of the same household
of the person described in clauses (i), (ii) or (iii) or who has resided with
such person for more than 10 days in any calendar year;
(v) any ancestor or lineal descendant of any person described
in clauses (i), (ii), (iii) or (iv);
(vi) any entity or person in which any of the foregoing have a
direct or indirect interest (except through ownership of less than 1% of the
outstanding shares of any entity whose securities are listed on a national
securities exchange or traded in the national over-the-counter market).
5.22 ASSETS NECESSARY TO BUSINESS. Except as disclosed in Schedule
5.22, the Purchased Assets include all property and assets (except for the
Excluded Assets), tangible and intangible, and all leases, licenses and other
agreements, which are necessary to permit Buyer to carry on, or currently used
or held for use in, the business of Seller as presently conducted.
5.23 NO BROKERS OR FINDERS. Except for arrangements with Xxxxxx X.
XxXxxxxx, Xx. in connection with the letter agreement and waiver and release
referenced
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in Section 4.2.10 of this Agreement, neither Seller nor any of its directors,
officers, employees, shareholders or agents have retained, employed or used any
broker or finder in connection with the transaction provided for herein or in
connection with the negotiation thereof.
5.24 AS-IS. Buyer acknowledges that Buyer is acquiring the Purchased
Assets and the Business "As-Is, Where-Is, With All Faults," in its current
condition subject to the terms of this Agreement, and that, with the exception
of the representations and warranties contained in this Agreement, no
representations or warranties of any kind whatsoever, express or implied, have
been made by the Seller, Sole Shareholder or Seller's employees, agents or
representatives with regard to the Purchased Assets or the Business, the
condition or quality of either, or the ability of Buyer to develop the Purchased
Assets or the Business.
5.25 SALES REPRESENTATIVE, DISTRIBUTORSHIP AND LICENSE AGREEMENTS.
Schedule 5.25 contains a true and complete list of all distributorship, sales
representative and manufacturing license agreements (if any material term
thereof is oral, Schedule 5.25 contains a complete description of such oral term
or provision). There are no other agreements, oral or written, with any
distributor, sales representative or other party except as set forth in Schedule
5.25.
6. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller and the Sole Shareholder that,
as of the date of this Agreement:
6.1 ORGANIZATION AND STANDING. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of California, and has all
requisite corporate power and authority to own, operate and lease its properties
and carry on its business as now conducted.
6.2 AUTHORITY AND ENFORCEABILITY.
6.2.1 Buyer has full power and authority to execute, deliver
and perform its obligations under this Agreement and all documents to be
executed by Buyer in connection with the transactions contemplated hereby and
all corporate and other action of Buyer necessary for such execution, delivery
and performance has been duly taken.
6.2.2 No approval of this Agreement or the transactions
contemplated hereby is required by the shareholders of Buyer under the Articles
of Incorporation or Bylaws of Buyer, the corporate laws of the State of
California or otherwise; or if such approval is required, it shall be obtained
by the Closing Date.
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6.2.3 This Agreement and all documents to be executed by Buyer
in connection with the transactions contemplated hereby is, and upon due
execution and delivery by the parties thereto will be, a legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
respective terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditor's rights and by rules of law governing
specific performance, injunctive relief or other equitable remedies.
6.2.4 The execution and delivery by Buyer of this Agreement
and all documents to be executed by Buyer in connection with the transactions
contemplated hereby do not, and the performance and consummation by Buyer of the
transactions contemplated by this Agreement and such other documents will not,
result in any conflict with, breach or violation of or default, termination,
forfeiture or lien under (or upon the failure to give notice or the lapse of
time, or both, result in any conflict with, breach or violation of or default,
termination, forfeiture or lien under) any terms or provisions of Buyer's
Articles of Incorporation or Bylaws, each as amended to date, or any statute,
rule, regulation, judicial or governmental decree, order or judgment, or any
agreement, lease or other instrument, to which Buyer is a party or to which it
or its assets are subject that has or is likely to have a material adverse
effect on Buyer's ability to carry out its obligations under this Agreement or
such other documents.
6.3 FINANCIAL STATEMENTS. Buyer has delivered to Seller true
and complete copies of the financial statements of Buyer (the "BUYER FINANCIAL
STATEMENTS") consisting of (i) an unaudited balance sheet as of June 30, 1997
(the "RECENT BUYER BALANCE SHEET"), and the related unaudited statements of
income and cash flow for the three (3) month period preceding June 30, 1997 and
(ii) the audited balance sheet of Seller as of March 29, 1997 and the related
statements of income and cash flow for the year ended March 29, 1997 (including
the notes contained therein or annexed thereto), together with the report
thereon of Delloite & Touche, independent certified public accountants. The
Buyer Financial Statements (including all notes and schedules contained therein
or annexed thereto) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except, with respect to
unaudited financial statements, for the absence of footnotes and subject to
normal year-end audit adjustments applicable to the unaudited financial
statements), and fairly present, in accordance with generally accepted
accounting principles (except, with respect to unaudited financial statements,
for the absence of footnotes and subject to normal year-end audit adjustments
applicable to the unaudited financial statements), the assets, liabilities and
financial position, the results of operations and the cash flows of Buyer as of
the dates and for the periods indicated.
6.4 NO UNDISCLOSED LIABILITIES. Except as and to the extent
specifically disclosed in the Recent Buyer Balance Sheet, to the knowledge of
Buyer, Buyer has no
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liabilities, commitments or obligations (secured or unsecured, and whether
accrued, absolute, contingent, direct, indirect or otherwise), other than
commercial liabilities and obligations incurred since the date of the Recent
Buyer Balance Sheet in the ordinary course of business and consistent with past
practice which in the aggregate have not and will not have a material adverse
effect on the business, financial condition or operations of Seller and other
than liabilities, commitments and/or obligations arising out of or relating to
this Agreement or any related agreement. Except as referred to above in this
Section 6.4 and except to the extent specifically reflected in the Recent
Balance Sheet, Buyer is not aware of any facts that could reasonably be expected
to give rise to any basis for the assertion against Buyer of any liability, and
there are no circumstances, conditions, happenings, events or arrangements,
contractual or otherwise, which may give rise to liabilities, other than
commercial liabilities and obligations incurred since the date of the Recent
Buyer Balance Sheet in the ordinary course of business and consistent with past
practice which in the aggregate have not and will not have a material adverse
effect on the business, financial condition or operations of Seller and other
than liabilities, commitments and/or obligations arising out of or relating to
this Agreement or any related agreement.
6.5 ABSENCE OF CERTAIN CHANGES. Except as and to the extent disclosed
in Schedule 6.5, since the date of the Recent Buyer Balance Sheet, there has not
been:
6.5.1 Any material adverse change in the financial condition,
assets, liabilities, business, prospects or operations of Buyer;
6.5.2 Any material loss, damage or destruction, whether
covered by insurance or not, affecting Buyer's business or properties;
6.5.3 Any increase in the salaries, wages or other
remuneration or compensation, or in any benefits payable or to become payable to
any employee or agent of Buyer (including, without limitation, any increase or
change pursuant to any bonus, pension, profit sharing, retirement or other plan
or commitment), or any bonus or other employee benefit granted, made or accrued
to any such person;
6.5.4 Any labor dispute or disturbance;
6.5.5 Any material commitment or transaction by Buyer
(including, without limitation, any borrowing or capital expenditure) other than
in the ordinary course of business consistent with past practice and other than
transactions and commitments arising out of or relating to this Agreement or any
related agreement;
6.5.6 Any declaration, setting aside, or payment of any
dividend or any other distribution in respect of Buyer's capital stock; any
redemption, purchase or other
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acquisition by Buyer of any capital stock of Buyer, or any security relating
thereto; or any other payment to any shareholder of Buyer as such a shareholder;
6.5.7 Any sale, lease or other transfer or disposition of any
properties or assets of Buyer, except in the ordinary course of business;
6.5.8 Any indebtedness for borrowed money incurred, assumed or
guaranteed by Buyer, except indebtedness arising out of or relating to this
Agreement or any related agreement;
6.5.9 Any Lien on any of the properties or assets of Buyer,
except indebtedness arising out of or relating to this Agreement or any related
agreement;
6.5.10 Any entering into, amendment or termination by Buyer of
any material contract, or any waiver of material rights thereunder, other than
in the ordinary course of business;
6.5.11 Any loan or advance (other than advances to employees
in the ordinary course of business for travel in accordance with past practice)
to any person including, but not limited to, any officer, director or employee
of Buyer;
6.5.12 Any entering into of any type of license agreement or
other agreement regarding intellectual property rights involving fees of $30,000
or more, except in the ordinary course of business and except agreements arising
out of or relating to this Agreement or any related agreement;
6.5.13 Any grant of credit to any customer or distributor on
terms or in amounts substantially more favorable than those which have been
extended to such customer or distributor in the past, any other material change
in the terms of any credit heretofore extended, or any other change of Buyer's
policies or practices with respect to the granting of credit; or
6.5.14 Any other material event or condition not in the
ordinary course of business of Buyer.
7. EMPLOYEES - EMPLOYEE BENEFITS
7.1 AFFECTED EMPLOYEES. "Affected Employees" shall mean employees of
Seller, if any, who are employed by Buyer immediately after the Closing. Buyer
may, but shall have no obligation to, employ any employees of Seller.
7.2 PAYROLL TAX. Seller agrees to make a clean cut-off of payroll and
payroll tax reporting with respect to the Affected Employees paying over to the
federal, state and city governments those amounts respectively withheld or
required to be withheld for
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periods ending on or prior to the Closing Date. Seller also agrees to issue, by
the date prescribed by IRS Regulations, Forms W-2 for salaries, wages and other
compensation paid through the Closing Date. Except as set forth in this
Agreement, Buyer shall be responsible for all payroll and payroll tax
obligations with respect to employment compensation accruing after the Closing
Date for Affected Employees.
7.3 TERMINATION BENEFITS. Buyer shall be solely responsible for, and
shall pay or cause to be paid, severance payments and other termination
benefits, if any, to Affected Employees who may become entitled to such benefits
by reason of any events occurring on or after Closing.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by
this Agreement shall be subject, at its option, to the fulfillment at or prior
to Closing of each of the following conditions:
8.1 DELIVERY OF CLOSING ITEMS. Seller and the Sole Shareholder, as
applicable, shall have duly executed and delivered to Buyer each of the
documents, certificates and other items provided for in Section 4.2 of this
Agreement to the reasonable satisfaction of Buyer and its counsel.
8.2 INDEMNITY AGREEMENT. The Indemnity Agreement shall have been duly
executed and delivered by Seller and the Sole Shareholder.
8.3 WAIVER AND RELEASE. The waiver and release contemplated by Section
4.2.10 of this Agreement shall have been executed by Xxxxxx X. XxXxxxxx, Xx. and
delivered to Buyer.
8.4 TECHNOLOGY PURCHASE AGREEMENT. The Technology Purchase Agreement
shall have been executed and delivered by Seller and the Sole Shareholder.
8.5 APPROVAL. The Board of Directors of Buyer shall have approved this
Agreement and authorized Buyer to enter into this Agreement and to effect the
transactions contemplated hereunder.
8.6 COMPLETION OF DUE DILIGENCE. Buyer shall have completed to its
satisfaction its legal and financial due diligence investigations concerning
Seller.
8.7 SELLER CONSENTS. Buyer shall have received evidence, in form and
substance reasonably satisfactory to Buyer and its counsel, that such licenses,
permits, consents, approvals, waivers, authorizations, qualifications and orders
of governmental
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authorities as are necessary and appropriate in connection with the consummation
of the transactions contemplated hereby have been obtained.
8.8 ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
AGREEMENTS. Each of the representations and warranties made by Seller and the
Sole Shareholder in this Agreement shall be true and correct in all material
respects on and as of the Closing Date with the same effect as though such
representations and warranties had been made or given on and as of the Closing
Date (except for any changes permitted by the terms of this Agreement or
consented to in writing by Buyer), and Seller and the Sole Shareholder shall
have performed and complied in all material respects with all of Seller's and
the Sole Shareholder' respective obligations under this Agreement which are to
be performed or complied with on or prior to the Closing Date.
8.9 ACTIONS OR PROCEEDINGS; COURT ORDERS. No action, suit or other
proceeding before a court, tribunal or other governmental agency or body shall
have been instituted or threatened to restrain or prohibit the consummation of
the transactions contemplated by this Agreement, or seeking to obtain
substantial damages in respect thereof, or involving a claim that consummation
thereof would result in the violation of any law, decree or regulation of
governmental authority having appropriate jurisdiction, or in connection with
any material claim against Seller and the Sole Shareholder not disclosed on the
Schedules hereto, and no preliminary or permanent injunction or other order,
decree or ruling issued by a court of competent jurisdiction or by a government,
regulatory or administrative agency or commission nor any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority shall be in effect which would (a) make the acquisition or holding by
Buyer of the Purchased Assets illegal or impose material limitations on its
ability to exercise full rights of ownership with respect to such Purchased
Assets or (b) otherwise prevent the consummation of the transaction contemplated
hereby.
8.10 NO ADVERSE CHANGE. There shall have been no event which has
occurred or which has been disclosed to Buyer which has had or could be
reasonably expected to have a material adverse effect on the financial
condition, assets, liabilities, business, prospects or operations of Seller.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND SOLE SHAREHOLDER
The obligations of Seller and the Sole Shareholder to consummate the
transactions contemplated by this Agreement shall be subject to the fulfillment,
at or prior to Closing, of each of the following conditions:
9.1 DELIVERY OF CLOSING ITEMS. Buyer shall have delivered the Purchase
Price to be delivered to Seller at the Closing and shall have duly executed and
delivered to
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Seller each of the documents, certificates and other items provided for in
Section 4.3 of this Agreement to the reasonable satisfaction of Seller and its
counsel.
9.2 INDEMNITY AGREEMENT. The Indemnity Agreement shall have been duly
executed and delivered by Buyer.
9.3 TECHNOLOGY PURCHASE AGREEMENT. The Technology Purchase Agreement
shall have been duly executed and delivered by Founding Partners.
9.4 ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by Buyer in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made or given on
and as of the Closing Date (except for any changes permitted by the terms of
this Agreement or consented to in writing by Seller), and Buyer shall have
performed and complied in all material respects with all of Buyer's obligations
under this Agreement which are to be performed or complied with on or prior to
the Closing Date.
9.5 APPROVAL. The Board of Directors of Buyer shall have approved this
Agreement and authorized Buyer to enter into this Agreement and to effect the
transactions contemplated hereunder.
9.6 ACTIONS OR PROCEEDINGS; COURT ORDERS. No action, suit or other
proceeding before a court, tribunal or other governmental agency or body shall
have been instituted or threatened to restrain or prohibit the consummation of
the transactions contemplated by this Agreement, or seeking to obtain
substantial damages in respect thereof, or involving a claim that consummation
thereof would result in the violation of any law, decree or regulation of
governmental authority having appropriate jurisdiction, or in connection with
any material claim against Buyer not disclosed on the Schedules hereto, and no
preliminary or permanent injunction or other order, decree or ruling issued by a
court of competent jurisdiction or by a government, regulatory or administrative
agency or commission nor any statute, rule, regulation or executive order
promulgated or enacted by any governmental authority shall be in effect which
would (a) make the acquisition or holding by Buyer of the Purchased Assets
illegal or (b) otherwise prevent the consummation of the transaction
contemplated hereby.
10. ADDITIONAL AGREEMENTS
10.1 INCORPORATION OF SCHEDULES AND EXHIBITS. All schedules and
exhibits are incorporated into this Agreement by this reference and are
warranted by the party or parties which deliver the same to be accurate and
complete. In the event that any change shall occur with respect to any
information disclosed in any schedule furnished by Seller or the Sole
Shareholder hereunder following the date of the delivery thereof and prior to
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the Closing Date, Seller and the Sole Shareholder shall promptly notify Buyer
thereof in writing.
10.2 COOPERATION. Each party will take all reasonable actions necessary
to comply promptly with all legal requirements which may be imposed on it with
respect to the consummation of the transactions contemplated by this Agreement.
Each party will take all reasonable actions necessary to obtain (and will
cooperate with the other party in obtaining) any consent, approval, order or
authorization of, or any registration, declaration or filing with, any
governmental entity, domestic or foreign, or other person, required to be
obtained or made by such party (or by the other party) in connection with the
taking of any action contemplated by this Agreement. Without limiting the
foregoing, Seller and Sole Shareholder shall cooperate with Buyer in complying
with all provisions of the bulk sales or bulk transfer statutes of all states
having jurisdiction, including the provisions of Section 6106.2 of the
California Uniform Commercial Code.
10.3 CONFIDENTIALITY. For a period of five (5) years from the date of
this Agreement, Seller and Sole Shareholder will hold in confidence and use
their respective best efforts to have all of each of their respective employees,
agents, representatives and affiliates, as applicable, hold in confidence all
documents and other written material containing information of a confidential
nature relating to the Buyer's business or which is disclosed to such person by
Buyer in connection with the transactions contemplated by this Agreement
(including, but not limited to, customer lists and Intellectual Property
Rights), and not disclose, publish, use or permit others to use the same;
provided, however, that the foregoing restriction shall not apply to any portion
of the foregoing which (i) becomes generally available to the public in any
manner or form through no fault of any such party, or their respective
employees, agents or representatives, or (ii) is released for disclosure by one
party with the consent of Buyer, or (iii) when such disclosure is required by a
court or a governmental agency or is otherwise required by law or is necessary
in order to establish rights under this Agreement or any other agreements
referred to herein.
10.4 EFFECTIVE TRANSFER. Buyer, Seller and the Sole Shareholder shall
each use its best efforts to ensure a quick and effective transfer to Buyer of
the Purchased Assets. Effective as of the Closing, the Sole Shareholder shall
cause Seller to cease doing business under the name "Falcon Systems" and
promptly thereafter the Sole Shareholder shall cause Seller to change Seller's
name to a name that is not confusingly similar to "Falcon Systems."
11. MISCELLANEOUS
11.1 EXPENSES. Each party shall bear and pay his or its own expenses
incurred in connection with the transactions referred to in this Agreement.
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11.2 KNOWLEDGE.
11.2.1 KNOWLEDGE AFTER "DUE INQUIRY." An individual shall be
deemed to have "knowledge" of a particular fact or other matter "after due
inquiry thereof" if such individual is actually aware of such fact or other
matter or if a prudent individual could be expected to be aware thereof after
making reasonable inquiry thereof and exercising due diligence with respect
thereto. An entity shall be deemed to have "knowledge" of a particular fact or
other matter "after due inquiry thereof" if any officer of such entity who is
involved in the management of such entity is actually aware of such fact or
other matter or would have knowledge of such fact or other matter after due
inquiry thereof.
11.2.2 KNOWLEDGE WITHOUT INQUIRY. Except as provided for in
Section 11.2.1 where an individual has made due inquiry thereof, an individual
shall be deemed to have "knowledge" of a particular fact or other matter if such
individual is actually aware of such fact or other matter or if a prudent
individual could be expected to be aware thereof after making inquiry of the
officers of Seller. Seller shall be deemed to have "knowledge" of a particular
fact or other matter if any officer of Seller who is involved in the management
of Seller is actually aware of such fact or matter or would have knowledge of
such fact or other matter after making inquiry of the officers of Seller.
11.3 PUBLIC ANNOUNCEMENTS. Buyer and Seller shall have joint
responsibility for the content, timing and other matters relating to the
issuance of any and all press releases or trade releases and the making of such
other public statements (collectively, "PUBLIC STATEMENTS") with respect to the
Closing and the transactions contemplated hereby as may be necessary or
appropriate in Buyer's judgment. Neither Buyer nor Seller shall disclose the
Purchase Price in any Public Statements unless such disclosure is either (i)
required by law, governmental regulation or valid legal process or (ii) in
connection with any governmental filing.
11.4 ENTIRE AGREEMENT; MODIFICATIONS; WAIVER. This Agreement,
together with the schedules and exhibits hereto and agreements referenced
herein, constitutes the final, exclusive and complete understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior agreements, understandings and discussions with respect thereto including,
without limitation, that certain letter agreement, dated June 30, 1997, among
Buyer, Seller and the Sole Shareholder. No variation or modification of this
Agreement and no waiver of any provision or condition hereof, or granting of any
consent contemplated hereby, shall be valid unless in writing and signed by the
party or parties against whom enforcement of any such variation, modification,
waiver or consent is sought.
11.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made by any party to this Agreement or pursuant
hereto shall survive until one
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year after the Closing. The representations and warranties hereunder shall not
be affected or diminished by any investigation at any time by or on behalf of
the party or parties for whose benefit such representations and warranties were
made. All statements contained herein or in any schedule, exhibit or certificate
delivered pursuant hereto shall be deemed to be representations and warranties.
11.6 FURTHER ASSURANCES. The parties hereto shall use their best
efforts, and shall cooperate with each other, to secure all necessary consents,
approvals, authorizations, exemptions and waivers from third parties as shall be
required in order to consummate the transactions contemplated hereby, and shall
otherwise use their best efforts to cause such transactions to be consummated in
accordance with the terms and conditions hereof. At any time or from time to
time after the Closing Date, each party hereto shall execute and deliver any
further instruments or documents and take all such further action as such
requesting party may reasonably request in order to consummate and document the
transactions contemplated hereby.
11.7 CAPTIONS. The captions in this Agreement are for convenience only
and shall not be considered a part of or affect the constructing or
interpretation of any provision of this Agreement.
11.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an original copy
hereof, but all of which together shall constitute one agreement.
11.9 SUCCESSORS AND ASSIGNS. No party shall assign this Agreement to
any third party without the prior written consent of the other parties, except
that after the Closing Buyer may assign this Agreement to any transferee of the
business of Buyer without seeking such consent from Seller or the Sole
Shareholder. This Agreement shall be binding upon, inure to the benefit of and
be enforceable by the respective successors and permitted assigns of the parties
hereto.
11.10 PARTIES IN INTEREST. Nothing in this Agreement, whether express
or implied, is intended to confer any rights or remedies under or by reason of
this Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over against any party to this Agreement.
11.11 NOTICES. All notices, requests, demands and other communications
hereunder ("NOTICES") shall be in writing and shall be deemed to have been duly
given if delivered by hand or by registered or certified mail, postage prepaid,
return receipt requested, but only upon receipt of such return receipt, as
follows:
40.
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To Buyer: Xxxxx X. Xxxxxxx
Artecon, Inc.
0000 Xx Xxxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxx 00000
with a copy to:
Xxxxxx X. Xxxx, Esq.
Xxxxxx Godward LLP
0000 Xxxxxxxxx Xxxxx, Xxxxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000
To Seller or the Xxxxx Xxxxxxx
Sole Shareholder: Falcon Systems, Inc.
0000 Xxxxxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxxx 00000
with a copy to:
Xxxxxxx X. Xxxxxxx, Esq.
Xxxxxx, Brand, Seymour & Xxxxxx LLP
000 Xxxxxxx Xxxx, Xxxxx 0000
Xxxxxxxxxx, Xxxxxxxxxx 00000
or to such other address as either any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt. All Notices shall be deemed received on the date
of delivery or, if mailed, on the date appearing on the return receipt therefor.
11.12 LAW GOVERNING. This agreement shall be governed by, and construed
and enforced in accordance with the laws of the State of California, without
regard to its choice-of-laws or conflicts-of-law rules.
11.13 ATTORNEY'S FEES. In any judicial action or proceeding or
arbitration proceeding between the parties hereto to enforce any of the
provisions of this Agreement, to seek damages on account of the breach hereof,
to seek injunctive relief to prevent the breach or continued breach hereof, to
seek a determination of the rights and obligations of the parties hereunder, or
in which this Agreement is raised as a defense, regardless of whether the action
or proceeding is prosecuted to judgment and in addition to any other remedy, the
unsuccessful party shall pay the successful party all costs and expenses,
including reasonable attorneys' fees, incurred therein by the successful party.
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42.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, all as of the day and year first above written.
SELLER: FALCON SYSTEMS, INC.
By: /s/ XXXXX XXXXXXX
-------------------------------------
Xxxxx Xxxxxxx
President
BUYER: ARTECON, INC.
By: /s/ Xxxxx X. Xxxxxxx
-------------------------------------
Xxxxx X. Xxxxxxx
President
SOLE SHAREHOLDER: /s/ Xxxxx Xxxxxxx
----------------------------------------
Xxxxx Xxxxxxx
43.
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EXHIBIT A
PROMISSORY NOTE
$1,250,000 August 21, 0000
Xxx Xxxxx, Xxxxxxxxxx
For value received, the undersigned (collectively "Payor") promises to
pay to FALCON SYSTEMS, INC. ("FALCON"), a California corporation, or order
("Holder"), in lawful money of the United States of America and in immediately
available funds, the principal sum of one million two hundred fifty thousand
dollars ($1,250,000) (the "Principal Amount") together with interest thereon at
the times and in the manner set forth below.
This note (the "Note") is executed and delivered as part of the Purchase Price
pursuant to that certain Asset Purchase Agreement of even date herewith among
Payor, Holder and the sole shareholder of Holder (the "Purchase Agreement").
Notwithstanding any other provision of this Note, this Note shall be subject in
all respects to the provisions of that certain Indemnity Agreement of even date
herewith among Payor, Founding Partners, a California general partnership (the
"Partnership"), each Partner of the Partnership, Falcon and Xxxxx Xxxxxxx (the
"Indemnity Agreement"), including but not limited to Section 1(d), 1(e) and 2 of
the Indemnity Agreement.
1. REPAYMENT OF PRINCIPAL AND INTEREST. Subject to the terms of this Note, the
outstanding Principal Amount shall be repaid, together with accrued interest
thereon as provided below, in equal monthly combined principal and interest
payment of twenty-six thousand five hundred fifty eight dollars and eighty-one
cents $26,558.81, with the first payment due on the date that is one (1) month
from the date hereof and subsequent payments due each monthly anniversary
thereafter for a period of five years following the date hereof.
2. INTEREST RATE. Subject to the terms of this Note, Payor promises to pay
interest on the outstanding principal amount hereof from the date hereof until
payment in full in accordance with paragraph 1, which interest shall be payable
at the rate of ten percent (10%) per annum or the maximum rate permissible by
law (which under the laws of California shall be deemed to be the laws relating
to permissible rates of interest on commercial loans), whichever is less.
3. DEFAULT RATE. If the undersigned fails to pay any of the principal or accrued
interest when due, then all unpaid amounts, including all accrued but unpaid
interest, shall
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bear interest at 18% per annum, or the maximum rate permissible by law in the
event of a default of a promissory note of this type and nature, whichever is
less.
4. PLACE OF PAYMENT. Payments on this Note shall be payable at Holder's office
located at 000 Xxxxxxx Xxxx, Xxxxxxxxxx, Xxxxxxxxxx 00000, unless another place
of payment shall be specified in writing by Holder.
5. SECURITY. This note is subject to the security and subordination provisions
of that certain Security Agreement by and between Artecon, Inc., a California
corporation, and Holder of even date herewith (the "Security Agreement"), as
well as the security provisions of that certain Subordination Agreement by and
among Payor and Holder of as of the date hereof.
6. APPLICATION OF PAYMENTS. Payments on this Note shall be applied first to
accrued interest, and thereafter to the outstanding principal balance thereof.
7. PREPAYMENTS. This Note may be prepaid in whole or in part at any time without
premium or penalty.
8. MISCELLANEOUS.
(a) This Note will be considered in default if, after fifteen (15) days
following written notice to Payor of Payor's failure to make any payment of
principal or accrued interest hereunder, such failure remains uncured (provided
that such notice shall not be required more than three times in any calendar
year). In such event, at Holder's option, all outstanding principal and accrued
interest and any other amounts payable under this Note will become due and
payable.
(b) Except as otherwise provided in this Note, Payor, all endorsers,
guarantors and sureties of this Note, and each of them, and their successors and
assigns, hereby waive demand, presentment for payment, notice of non-payment,
protest and notice of protest, and notice of dishonor, and expressly agree that
without notice, this Note or any payment due date hereunder may be extended from
time to time, and consent to acceptance of additional or substitute parties or
both, or the release of any party liable with respect to this Note, all without
affecting in any way their liability.
(c) If Payor fails to make any interest or installment payment when
due, Payor promises to pay all costs and expenses of collection and reasonable
attorneys' fees incurred by Holder to enforce the terms of this Note and/or the
Security Agreement including, without limitation, those expenses and fees which
may be incurred in connection with the appointment of a receiver and all
appearances in bankruptcy or insolvency proceedings. In any action brought under
or arising out of this Note, Payor
46
hereby consents to the jurisdiction of any competent court within the State of
California and to service of process by any means authorized by California law.
(d) Holder shall, at all times, have the right to proceed against any
portion of the security for this Note in such order and in such manner as Holder
may consider appropriate without waiving any rights with respect to any such
security. Any delay or omission on the part of Holder in exercising any right
hereunder shall not operate as a waiver of such right, or any other right under
this Note.
(e) This Note may not be terminated or amended orally, but only by a
termination or amendment in writing signed by Holder.
(f) Governing Law. This Note shall be governed by, and construed and
entered in accordance with, the laws of the State of California, as applied to
contracts entered into by California residents within the State of California,
which contracts are to be performed entirely within the State of California.
(g)The provisions of this Note shall inure to the benefit of and be
binding on any successor to Payor and shall extend to any holder hereof.
ARTECON, INC.
By:
-------------------------------------
Xxxxx X. Xxxxxxx, President
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EXHIBIT B
NON-COMPETITION AGREEMENT
This NON-COMPETITION AGREEMENT ("AGREEMENT") is entered into this 21 day
of August, 1997 ("EFFECTIVE DATE"), by and between Xxxxx Xxxxxxx, an individual
residing at ____________________________ ("PARTICIPANT"), and Artecon, Inc., a
California corporation, with its principal place of business at 0000 Xx Xxxxxx
Xxxx, Xxxxxxxx, Xxxxxxxxxx 00000 (the "COMPANY").
WHEREAS, Participant is a founder and the sole shareholder of Falcon
Systems, Inc., a California corporation ("FALCON"), and has been actively
involved in the manufacture, marketing and/or distribution of computer storage,
workstation and/or peripheral equipment on behalf of Falcon (the "PRODUCTS").
WHEREAS, the Company, Falcon and Participant have entered into an Asset
Purchase Agreement dated as of August 21, 1997 (the "PURCHASE AGREEMENT"),
whereby Falcon and Participant have agreed to sell, and the Company has agreed
to purchase, substantially all of the assets of Falcon as provided for therein
(the "ACQUISITION").
WHEREAS, Participant plans to vote in favor of the Acquisition and
receive all the benefits of the Acquisition; and in connection therewith,
Participant has agreed pursuant to and to the extent permitted by Section 16601
of the Business and Professions Code of the State of California to enter into
this Agreement. Participant is entering into this Agreement as an inducement to
the Company to consummate the Acquisition, with all of the attendant financial
benefits to Participant as sole shareholder of Falcon.
NOW, THEREFORE, in consideration of the foregoing premises and the
Company's entering into the Purchase Agreement, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties to this
Agreement hereby agree as follows:
TERMS
1. Participant acknowledges that by virtue of his position with Falcon
he has developed considerable expertise in the Products and has had access to
extensive confidential information with respect to Falcon and the Products.
Participant recognizes that the Company would be irreparably damaged, and its
substantial investment in the Acquisition materially impaired, if Participant
were to engage in activity involving products similar to or competitive with the
Products in violation of the terms of this Agreement or if Participant were to
disclose or make unauthorized use of any confidential information concerning the
Products. Accordingly, Participant expressly acknowledges
48
that he is voluntarily entering into this Agreement and that the terms and
conditions of this Agreement are fair and reasonable to Participant in all
respects.
2. (a) During the Term (as defined below) of this Agreement, Participant
agrees that he will not directly or indirectly (whether for compensation or
without compensation):
(i) As an individual proprietor, partner, corporation,
stockholder, officer, employee, consultant, director, joint venturer, investor,
lender, or in any other capacity whatsoever (other than as the holder of not
more than one percent (1%) of the total outstanding stock of a publicly held
company), engage in any business activity that involves the development,
production, marketing or selling of products, processes, techniques or
technology which are identical to, substantially similar to, or competitive with
the Products, whether for use on alternative computing platforms or environments
or otherwise; or
(ii) solicit, divert or take away, or attempt to divert or
to take away, the business or patronage of any of the clients, customers or
accounts, or prospective clients, customers or accounts, if any, of the Company
that is in any way related to the activities, technology, items or information
described in (i) above or induce or attempt to induce any employee of the
Company to leave the employ of the Company.
(b) The restrictions set forth in Section 2(a) are considered by
the parties to be reasonable for the purposes of protecting the business of the
Company. However, if any such restriction is found by any court of competent
jurisdiction to be unenforceable because it extends for too long a period of
time or over too great a range of activities or in too broad a geographic area,
it shall be interpreted to extend only over the maximum period of time, range of
activities or geographic area as to which it may be enforceable.
3. Notwithstanding anything to the contrary in Section 2(a), Participant
shall be permitted to engage in the distribution or sale of raw disk drives.
4. Participant acknowledges and agrees that all Confidential Information
(defined below) is the property of the Company. Therefore, Participant agrees
that during the term of this Agreement Participant will maintain all
Confidential Information in trust and confidence and shall not disclose to any
third party or use any Confidential Information for any unauthorized purpose,
without the prior express written consent of the Company, whether Participant
has such information in Participant's memory or embodied in writing or
electronic form or otherwise. For purposes of this Agreement the term
"CONFIDENTIAL INFORMATION" shall mean all confidential and proprietary
information relating to the Company's and/or Falcon's business practices,
strategies and technologies, including but not limited to confidential and
proprietary information bearing the legend
49
"Company Confidential and Proprietary" or equivalent and any trade secret,
information, process, technique, algorithm, computer program (source and object
code), design, drawing, formula or test data relating to any research project,
work in process, future development, engineering, manufacturing, marketing,
servicing, financing or personnel matter relating to the Company and/or Falcon,
their present or future products, sales, suppliers, clients, customers,
employees, investors or business, whether in oral, written, graphic or
electronic form. Notwithstanding the forgoing, the term "Confidential
Information" shall not include information which (i) is now, or hereafter
becomes, through no act or failure to act on the part of Participant, generally
known or available or (ii) is hereafter furnished to Participant by a third
party, as a matter of right and without restriction on disclosure.
5. The term of this Agreement ("TERM") shall commence and take effect on
the Effective Date and shall remain in effect until three (3) years following
the Effective Date.
6. Participant expressly acknowledges that damages alone will not be an
adequate remedy for any breach by Participant of the covenants set forth in
Sections 2 and 4 hereof and that the Company, in addition to any other remedies
which it may have, shall be entitled, as a matter of right, to injunctive
relief, including specific performance, in any court of competent jurisdiction
with respect to any actual or threatened breach by Participant of any of said
covenants.
7. This Agreement shall be governed and construed in accordance with the
laws of the State of California without regard to its choice-of-law rules. Any
attempted assignment of rights or delegation of duties by Participant shall be
void without the prior written consent of the Company; provided that Participant
shall be entitled to conduct activities permitted under paragraph 3 through an
entity majority owned by Participant. This Agreement is the entire, final and
exclusive agreement between the Company and Participant concerning its subject
matter, and may be amended only in a writing duly signed by both parties.
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IN WITNESS WHEREOF, the parties have executed this Agreement
(counterparts permitted) as of the date first above written.
PARTICIPANT, ARTECON, INC.
an individual
------------------------------- -------------------------------
Xxxxx Xxxxxxx Xxxxx X. Xxxxxxx, President
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EXHIBIT C
[LETTERHEAD OF XXXXXX, BRAND, SEYMOUR & XXXXXX]
August 21, 1997
Artecon, Inc.
0000 Xx Xxxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Ladies and Gentlemen:
We have acted as counsel to Falcon Systems, Inc., a California
corporation ("Falcon"), in connection with the Asset Purchase Agreement, dated
as of August 21, 1997, between Falcon, Xxxxx Xxxxxxx and you (the "Agreement).
This opinion is furnished to you pursuant to Section 4.2.4 of the Agreement.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned to them in the Agreement, the Accord, the California Provisions and the
California Generic Exception, as defined below.
As counsel to Falcon, we have examined originals or copies, certified or
otherwise identified to our satisfaction, each of the documents identified on
Exhibit A, which is attached hereto and incorporated herein (the "Seller's
Documents"). We have also examined the original or certified copies of Falcon's
Constituent Documents.
We are not licensed to practice in any state other than the State of
California and do not hold ourselves out as experts in the laws of any other
state. The law covered by the opinions expressed herein is limited to the law of
the State of California and the federal law of the United States.
Based upon and subject to the foregoing and the assumptions and
qualifications set forth below, we are of the opinion that:
1. Falcon has been duly incorporated and is a validly existing corporation
in good standing under the laws of the State of California
2. Falcon has all requisite power and authority to own, lease and operate
its properties and conduct its business as it is currently being conducted and
is duly qualified to do business and is in good standing in each jurisdiction in
which the character of the business conducted by it or the location of the
properties owned of record or leased by it makes such qualification necessary,
except with respect to being duly qualified in the following states: Maryland,
New York, Texas, Virginia, and Washington.
3. Falcon has all requisite corporate power and authority to enter into the
Seller's Documents and to perform the obligations thereunder. The Seller's
Documents have been duly
52
and validly authorized, executed and delivered by Falcon and each constitutes a
legal, valid, and binding agreement of Falcon enforceable against Falcon in
accordance with its terms, except as rights to indemnity under that certain
Indemnity Agreement dated August 21, 1997, by and among Artecon, Inc., Falcon
Systems, Inc. and Xxxxx Xxxxxxx.
4. There are no recorded Liens in effect against the Purchased Assets
except those described in Schedule 5.9.1 of the Disclosure Schedule. To our
knowledge, the transfer and assignment of the Purchased Assets at the Closing
pursuant to the Agreement is not subject to any right of first refusal, right of
first offer, or any similar right of any party which has not been waived.
5. The execution, delivery and performance of the Seller's Documents and
the consummation of the transactions contemplated thereby will not result in a
violation of, or constitute a default under (i) Falcon's Articles of
Incorporation or Bylaws, (ii) to our knowledge, any governmental statute, rule
or regulation applicable to Falcon, or (iii) to our knowledge, any order, writ,
judgment, injunction, decree, determination or award that has been entered
against Falcon.
6. To our knowledge, except as identified in Schedule 5.13, there is no
action, proceeding, or investigation pending against Falcon before any court or
administrative agency that questions the validity of the Seller's Documents or
that might result, either individually or in the aggregate, in any material
adverse change in the Purchased Assets, the Assumed Liabilities or the Business.
7. To our knowledge, all consents, approvals, authorizations, orders of and
filings, registrations and qualifications with any regulatory authority or
governmental body required for the consummation by Falcon of the transactions
contemplated by the Seller's Documents have been made or obtained.
In rendering this opinion, we have assumed: the accuracy of the factual
representations made to us by Falcon and its employees and agents; the
genuineness and authenticity of all signatures on original documents; the
authenticity of all documents submitted to us as originals; the conformity to
originals of all documents submitted to us as copies; the accuracy,
completeness, and authenticity of certificates of public officials; and the due
authorization, execution, and delivery of all documents (other than those
Seller's Documents within the scope of this opinion) where authorization,
execution, and delivery are prerequisites to the effectiveness of such
documents.
We have also assumed: that all individuals executing and delivering
documents have the legal capacity to so execute and deliver; that the Seller's
Documents are binding upon all signatories thereto (other than the Seller and
Sole Shareholder); that parties to the Seller's Documents consummated the
transactions contemplated by the Seller's Documents; that any certificates or
other documents upon which we have relied that were given or dated earlier than
the date of this letter continue to remain accurate insofar as relevant to our
opinion, from such earlier date through and including the date of this letter;
that there has not been any mutual mistake of fact or misunderstanding, fraud,
duress, or undue influence; that if either party is a corporation or other
entity, that it has filed any required California franchise or income tax
returns and has paid any required California franchise or income taxes; and that
there are no
53
extrinsic agreements or understandings among the parties to the Seller's
Documents that would modify or interpret the terms of the Seller's Documents or
the respective rights or obligations of the parties thereunder.
In addition to the foregoing and without limiting the foregoing, this
opinion is governed by, and shall be interpreted in accordance with, the Legal
Opinion Accord (the "Accord") of the ABA Section of Business Law. This opinion
is also governed by, and shall be interpreted in accordance with the "California
Provisions" and the "California Generic Exception" as defined in the Business
Law Section of the California State Bar Report on the Third Party Legal Opinion
Report of the ABA Section of Business Law (draft dated May 14, 1992). Without
limiting the foregoing, this opinion does not address the enforceability of the
Non-Competition Agreement and is limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and is subject to general equity principles and to
limitations on availability of equitable relief, including specific performance.
The General Qualifications apply to the opinions set forth in paragraphs
1, 2, 4, 5, 6 and 7 above, as well as our opinion in paragraph 3.
With respect to our opinion in paragraph 4, we have relied solely upon a
Uniform Commercial Code search of the records of the California Secretary of
State and have conducted no further investigation for purposes of this opinion.
This search was conducted on August 20, 1997, and identifies filings up to and
including August 1, 1997.
Our opinions are rendered as of the date set forth above. We have no
duty or obligation, nor do we undertake any such duty or obligation, to advise
you or any third party of changes of law or fact that occur after that date even
though the change may affect the legal analysis, legal conclusion or an
informational confirmation contained herein.
Where our opinion refers to our "knowledge," it is based solely on the
actual knowledge of the attorneys in this office working directly on Falcon
matters as shown in the firm's billing records and the information provided to
us by Xx. Xxxxx Xxxxxxx in an Officer's Certificate provided to us.
This letter and the opinions expressed herein are solely for your
benefit in connection with the Seller's Documents, and may neither be used,
circulated, quoted or otherwise referred to for any other purposes, nor filed
with or made available to any governmental agency or other person or entity
without our prior written consent.
Very truly yours,
XXXXXX, BRAND, SEYMOUR & XXXXXX, LLP
-------------------------------
54
EXHIBIT A
TO
OPINION OF COUNSEL
SELLER'S DOCUMENTS
Asset Purchase Agreement, and each agreement identified in Section 4.2
of the Asset purchase Agreement executed and delivered by the Seller and/or
Selling Shareholder.
55
EXHIBIT D
INDEMNITY AGREEMENT
This INDEMNITY AGREEMENT ("AGREEMENT") is made and entered as of August
21, 1997, by and among ARTECON, INC., a California corporation ("BUYER"),
Founding Partners, a California general partnership ("PARTNERSHIP"), each
Partner of the Partnership (each, a "PARTNER" and collectively, "PARTNERS"),
FALCON SYSTEMS, INC., a California corporation ("SELLER") and XXXXX XXXXXXX, the
sole shareholder of Seller (the "SOLE SHAREHOLDER").
R E C I T A L S
A. Buyer, Seller and the Sole Shareholder have entered in that certain
Asset Purchase Agreement of even date herewith (the "ASSET PURCHASE AGREEMENT")
which provides for the purchase of substantially all of Seller's assets
(excluding the assets purchased pursuant to the Technology Purchase Agreement,
defined below) by Buyer pursuant to the terms thereof (the "ASSET ACQUISITION").
A portion of the consideration for such assets (excluding the assets purchased
pursuant to the Technology Purchase Agreement, defined below) is in the form of
a promissory note dated August 21, 1997 (the "BUYER NOTE"). Except where the
context requires otherwise, capitalized terms used but not defined herein shall
have the meanings assigned to them in the Asset Purchase Agreement.
B. Partners, Seller and Sole Shareholder have entered in that certain
Technology Purchase Agreement of even date herewith (the "TECHNOLOGY PURCHASE
AGREEMENT" and, together with the Asset Purchase Agreement, the "PURCHASE
AGREEMENTS") which provides for the purchase of specified technology assets of
Seller by Partners pursuant to the terms thereof (the "TECHNOLOGY ACQUISITION"
and, together with the Asset Acquisition, the "ACQUISITIONS").
C. Seller and Sole Shareholder have agreed to indemnify and hold Buyer,
Partnership and Partners', and their respective affiliates, etc., harmless as
more fully set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants and agreements contained in the
Purchase Agreements and herein, the parties agree as follows:
56
1. INDEMNIFICATION
(a) BUYER. Notwithstanding any investigation of the business, financial
condition, prospects or assets of Seller by or on behalf of Buyer prior to the
Closing Date, but subject to the indemnification limitations set forth in
Section 1(d), Seller and Sole Shareholder (collectively, the "INDEMNIFYING
PARTIES") shall, jointly and severally, indemnify, defend and hold harmless
Buyer, its affiliates, agents, officers, directors and employees (collectively,
the "ARTECON INDEMNIFIED PARTIES"), from and against any and all losses,
damages, liabilities, expenses, costs, assessments and taxes (including, without
limitation, interest, penalties and attorneys' fees) ("DAMAGES"), and to pay
each Artecon indemnified party on demand the full amount of any and all of the
same that such party may pay or become obligated to pay relating to, arising
from or in connection with:
(i) The breach of any representation or warranty of Seller or
Sole Shareholder or of any agreement or covenant of Seller or Sole Shareholder
contained in the Asset Purchase Agreement or any other agreement, certificate or
other document delivered by Seller or Sole Shareholder pursuant to the Asset
Purchase Agreement;
(ii) Any action, claim or legal proceeding by any present or
former officer, director or shareholder of Seller for any action of Seller or
Sole Shareholder on or prior to Closing (other than the Assumed Liabilities);
(iii) Any debts, liabilities, obligations or contracts of Seller
other than the Assumed Liabilities; or
(iv) Any liability arising from the failure of Seller to comply
with any provision of the EMC Agreement.
(b) PARTNERS AND PARTNERSHIP. Notwithstanding any investigation of the
business, financial condition, prospects or assets of Seller by or on behalf of
Partners prior to the Closing Date, but subject to the indemnification
limitations set forth in Section 1(d), the indemnifying parties shall, jointly
and severally, indemnify, defend and hold harmless the Partnership, each
Partner, and each of their respective affiliates, agents, officers, directors
and employees (collectively, the "PARTNER INDEMNIFIED PARTIES") (the Artecon
indemnified parties and the Partner indemnified parties are hereinafter
collectively referred to as the "INDEMNIFIED PARTIES"), from and against any and
all Damages, and to pay each Partner indemnified party on demand the full amount
of any and all of the same that such party may pay or become obligated to pay
relating to, arising from or in connection with:
(i) The breach of any representation or warranty of Seller or
Sole Shareholder or of any agreement or covenant of Seller or Sole Shareholder
contained in the Technology Purchase Agreement or any other agreement,
certificate or other
57
document delivered by Seller or Sole Shareholder pursuant to the Technology
Purchase Agreement;
(ii) Any action, claim or legal proceeding by any present or
former officer, director or shareholder of Seller for any action of Seller or
Sole Shareholder on or prior to Closing (other than the Assumed Liabilities);
(iii) Any debts, liabilities, obligations or contracts of Seller
other than the Assumed Liabilities; or
(iv) Any liability arising from the failure of Seller to comply
with any provision of the EMC Agreement.
(c) PROCEDURE. All claims (other than fraud) by Buyer, Partners and
Partnership against Seller and Sole Shareholder, including all claims under the
foregoing indemnity, shall be made at the time and in the manner provided for in
this Agreement.
(d) INDEMNIFICATION LIMITATIONS. Notwithstanding Section 1(a) and 1(b):
(iii) The indemnifying parties shall have no liability to the
indemnified parties pursuant to this Agreement unless and until the aggregate
Damages claimed, paid or incurred pursuant to this Agreement by one or more
indemnified parties shall exceed $100,000 (the "100,000 Threshold"), in which
event the indemnifying parties shall become fully liable as provided for above
up to, but not exceeding, an additional aggregate amount of $400,000.
Notwithstanding anything to the contrary in this Agreement, the Purchase
Agreements, or any other agreement, certificate, or other document delivered by
either Seller or Sole Shareholder pursuant to the Purchase Agreements, under no
circumstances will Seller and/or Sole Shareholder (individually or collectively)
be obligated under this Agreement or otherwise to the indemnified parties
(individually or collectively) in an amount in excess of $400,000; and
(iv) Neither Seller nor sole Shareholder shall have any
indemnification obligation with respect to any claim by EMC that the
negotiation, execution and/or delivery of the Asset Purchase Agreement and/or
the Technology Purchase Agreement constitutes a breach of Seller's or Sole
Shareholder's obligations, or a default, under the EMC Contract, or interference
with contract, or interference by Buyer, the Partners and/or the Partnership
with economic advantage, or an inducement by Buyer, the Partners and/or the
Partnership of breach of the EMC Agreement, or similar claim.
(e) PURCHASE PRICE OFFSET. Subject to the terms of this Agreement, (i)
Buyer shall have an express right of offset such that any indemnification
payments payable to Buyer pursuant to this Agreement shall reduce the aggregate
Purchase Price payable by Buyer pursuant to Section 3.1 of the Asset Purchase
Agreement and (ii) the Partners shall
58
have an express right of offset such that any indemnification payments payable
to Partners pursuant to this Agreement shall reduce the aggregate Purchase Price
payable by Partners pursuant to Section 3.1 of the Technology Purchase
Agreement, all as set forth in Section 2(b) below.
2. INDEMNIFICATION PROCEDURE. The indemnified parties shall be indemnified
in accordance with the following:
(a) NOTICE BY INDEMNIFIED PARTY. If any indemnified party has incurred
or suffered Damages for which it is or may be entitled to indemnification
pursuant to this Agreement, such indemnified party shall, on or prior to the
Termination Date (defined below), give written notice of such claim (a "CLAIM
NOTICE") to Buyer (if such indemnified party is other than Buyer) and the
indemnifying parties. Each Claim Notice shall state (i) the amount of claimed
Damages (the "CLAIMED AMOUNT"), (ii) the basis for such claim (iii) a
description of any Damages which, so long as the $100,000 Threshold has not been
reached as a result of Damages claimed by other indemnified parties, may be
subject to the $100,000 Threshold and (iv) a reasonable description of the basis
for such claim. The date that is one (1) year following the Closing Date shall
be referred to herein as the "TERMINATION DATE." Notwithstanding any other
provision of this Agreement, no indemnified party may make any claim for Damages
pursuant to this Agreement or otherwise (except for fraud) after the Termination
Date.
(b) PAYMENT TO INDEMNIFIED PARTY.
(i) Subject to the terms of this Agreement, if any Artecon
indemnified party delivers a Claim Notice pursuant to Section 2(a), Buyer shall
be entitled to withhold payment of amounts otherwise due pursuant to the certain
Promissory Note of even date herewith payable by Buyer the form of which is
attached as Exhibit A to the Asset Purchase Agreement (the "Buyer Note") as set
forth in this paragraph (i). Subject to the terms of this Agreement, if any
Partner indemnified party delivers a Claim Notice pursuant to Section 2(a), the
Partners shall be entitled to withhold payment of amounts otherwise due pursuant
to that certain Promissory Note of even date herewith payable by the Partners
the form of which is attached as Exhibit A to the Technology Purchase Agreement
(the "Partners' Note") as set forth in this paragraph (i).
The amount that may be so withheld from any such Note, as applicable,
shall be determined as follows: Such Note shall be reamortized by (i)
subtracting from the original initial principal amount thereof (prior to any
payment thereon) (the "Original Initial Principal Amount") an amount equal to
the applicable Claimed Amount (excluding in any event any amount subject to the
$100,000 Threshold) (the resulting amount being hereinafter referred to as the
"Recomputed Initial Principal Amount") and (ii) determining the monthly payment
under such Note pursuant to its terms assuming that the
59
Recomputed Principal Amount was the Original Initial Principal Amount thereof.
The resulting monthly payment amount is hereinafter referred to as the
"Recomputed Monthly Payment."
Subject to the provisions of this Section 2 and notwithstanding any
other provision of the Buyer Note or the Partners' Note, as applicable, or the
Security Agreement of even date herewith, (A) the Recomputed Initial Principal
Amount thereafter shall be deemed to the initial principal amount of such Note,
(B) payments previously made on such Note shall be deemed to have been applied
against such Recomputed Initial Principal Amount pursuant to the terms of such
Note and (C) the Recomputed Monthly Payment thereafter shall be deemed to be the
amount payable monthly pursuant to paragraph 1 of such Note.
In addition, Buyer or the Partners, as applicable, shall determine the
"Excess Payment Amount," defined as the difference, if any, between (X) the sum
of the monthly payments actually made pursuant to such Note prior to the date of
such Claim Notice and (Y) the sum of monthly payments that would have been
payable pursuant to such Note through the date of such Claim Notice based on the
Recomputed Monthly Payment amount. Subject to the provisions of this Section 2
and notwithstanding any other provision of the Buyer Note or the Partners' Note,
as applicable, or the Security Agreement of even date herewith, Buyer and/or the
Partners', as applicable, thereafter shall be entitled to withhold further
payments under such Note until such Excess Payment Amount has been fully
recovered by Buyer and/or the Partners', as applicable.
Notwithstanding any other provision of this paragraph (i), however, in
no event shall the aggregate reduction of the Original Initial Principal Amount
of the Buyer Note and the Partners' Note combined exceed $400,000. Buyer may not
settle or compromise any claim by a third party without the prior written
approval of seller and sole shareholder, which consent shall not be unreasonably
withheld.
(ii) If, within 30 days after delivery of a Claim Notice, the
indemnifying parties provide written notice to the indemnified parties to the
effect that all or part of the Claimed Amount is to be contested (the "CONTESTED
AMOUNT"), the matter shall be resolved through binding and nonappealable
arbitration administered by American Arbitration Association ("AAA") in San
Diego County, California. Any such arbitration shall be conducted before a
single arbitrator to be appointed by the parties from AAA's roster. If the
parties fail to agree as to identity of the single arbitrator, AAA shall have
the right to make such appointment. The conduct of the arbitration hearing and
discovery prior thereto shall be in accordance with the California Code of Civil
Procedure, California Rules of Court, and California Rules of Evidence. There
shall be limited discovery prior to the arbitration hearing, subject to the
discretion of the arbitrator, as follows: (a) exchange of witness lists and
copies of documentary evidence and documents related to or arising out of the
issues to be arbitrated, (b) depositions of all party
60
witnesses, and (c) such other depositions and discovery as may be allowed by the
arbitrator upon a showing of good cause. Each party shall pay its own costs and
expenses (including counsel fees) of any such arbitration. The indemnifying
parties and the indemnified parties shall bear equally the fees and expenses of
the arbitrator. The arbitrator shall decide the matter to be arbitrated pursuant
hereto within 60 days after the appointment of the arbitrator.
The arbitrator's decision shall relate solely to whether the indemnified
party is entitled to receive the Contested Amount (or a portion thereof)
pursuant to the applicable terms of the Purchase Agreements and this Agreement.
The final decision of the arbitrator shall be furnished to the Sole Shareholder,
Seller, Buyer, Partners and Partnership in writing and shall constitute a
conclusive determination of the issue in question, binding upon the Sole
Shareholder, Seller, Buyer, Partners and Partnership and all other indemnified
parties and shall not be contested by any of them. Such decision may be used in
a court of law only for the purpose of seeking enforcement of the arbitrator's
award.
(v) Upon either (i) the execution of a settlement agreement
between the indemnified parties and the indemnifying parties or (ii) delivery of
a copy of the final award of the arbitrator, then (A) the portion (if any) of
the Contested Amount not payable to the indemnified parties pursuant to such
settlement agreement or final arbitration award immediately shall be added back
to the Original Initial Principal Amount under the Buyer Note and/or the
Partners' Note, as applicable, the monthly payment shall be redetermined in
accordance with the procedures set forth in paragraph (i) (which shall
thereafter be deemed the monthly payment under such Note) and Buyer and/or the
Partners', as applicable, shall immediately remit to the Holder of such Note the
aggregate amount improperly withheld based on such settlement agreement or final
award with interest accrued from, with respect to each payment withheld, the
date such payment was withheld at the rate provided for pursuant to such Note
(using the applicable default rate or, if such rate exceeds the maximum
permissible rate, then using the maximum permissible rate) and (B) the
provisions of paragraph (i) as applied with respect to the portion (if any) of
the Contested Amount that is payable to the indemnified parties pursuant to such
settlement agreement or final arbitration award and such application shall be
final with respect to such Note.
61
3. NOTICES. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) via a reputable
nationwide overnight courier service, in each case to the address set forth
below. Any such notice, instruction or communication shall be deemed to have
been delivered three business days after it is sent prepaid, or one business day
after it is sent via a reputable nationwide overnight courier service.
To Buyer, Partners Xxxxx X. Xxxxxxx
or Partnership: Artecon, Inc.
0000 Xx Xxxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxx 00000
with a copy to:
Xxxxxx X. Xxxx, Esq.
Xxxxxx Godward LLP
0000 Xxxxxxxxx Xxxxx, Xxxxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000
To Seller or the Xxxxx Xxxxxxx
Sole Shareholder: Falcon Systems, Inc.
0000 Xxxxxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxxx 00000
with a copy to:
Xxxxxxx X. Xxxxxxx, Esq.
Xxxxxx, Brand, Seymour & Xxxxxx LLP
000 Xxxxxxx Xxxx, Xxxxx 0000
Xxxxxxxxxx, Xxxxxxxxxx 00000
Any party may give any notice, instruction or communication in
connection with this Agreement using any other means (including personal
delivery, telecopy or ordinary mail), but no such notice, instruction or
communication shall be deemed to have been delivered unless and until it is
actually received by the party to whom it was sent. Any party may change the
address to which notices, instructions or communications are to be delivered by
giving the other parties to this Agreement notice thereof in the manner set
forth in this Section 3.
62
4. GENERAL
(a) GOVERNING LAW: ASSIGNS; FORUM. This Agreement shall be governed by
and construed in accordance with the laws of the State of California without
regard to conflict-of-law principles and shall be binding upon, and inure to the
benefit of, the parties hereto and their respective successors and assigns.
(b) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(c) ENTIRE AGREEMENT. This Agreement, the Purchase Agreements and the
Buyer Note constitute the entire understanding and agreement of the parties with
respect to the subject matter hereof and supersede all prior agreements or
understandings, written or oral, between the parties with respect to the subject
matter hereof.
(d) WAIVERS. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement shall be effective unless in writing.
No waiver by any party of any such condition or breach, in any one instance,
shall be deemed to be a further or continuing waiver of any such condition or
breach or a waiver of any other condition or breach of any other provision
contained herein.
(e) AMENDMENT. This Agreement may be amended only with the written
consent of Buyer, Partners, Partnership, Seller and the Sole Shareholder (or
their duly designated successors).
[remainder of this page intentionally left blank]
63
IN WITNESS HEREOF, the parties have signed this Agreement on the day
and year first above written.
SELLER: FALCON SYSTEMS, INC.
By:
------------------------------------------
Xxxxx Xxxxxxx
President
SOLE SHAREHOLDER:
------------------------------------------
Xxxxx Xxxxxxx
BUYER: ARTECON, INC.
By:
------------------------------------------
Xxxxx X. Xxxxxxx
President
PARTNERS: By:
------------------------------------------
Xxxxx X. Xxxxxxx
By:
------------------------------------------
X. X. Xxxxx
By:
------------------------------------------
Xxxx X. Xxxxxxxxxxx
PARTNERSHIP: FOUNDING PARTNERS
By:
------------------------------------------
Xxxxx X. Xxxxxxx,
a general partner
