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_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
September 12, 1996
Commission File No. 0-28330
LEGACY SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State of incorporation)
95-456-1156
(IRS Employer Identification No.)
5340 ALLA ROAD 90066
LOS ANGELES, CALIFORNIA (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 823-2423
_______________________________________________________________________________
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ITEM 5. OTHER EVENTS
Acquisition of Substantially All the Assets of On The Toes of Giants, Inc.
On August 30, 1996, Legacy Software, Inc. ("Legacy"), a
developer of multimedia computer software, completed its acquisition of
substantially all of the assets, properties and rights of On The Toes of
Giants, Inc., a California corporation ("OTTOG"), pursuant to an Asset Purchase
Agreement, dated as of August 19, 1996, by and among Legacy, OTTOG and Robert
E. Heitman, an individual and the sole shareholder of OTTOG. The consideration
for the purchased assets consisted of 33,334 newly-issued shares of common
stock, par value $.001, of Legacy and the assumption by Legacy of certain
liabilities of OTTOG. The asset acquisition was structured as a "C"
reorganization pursuant to Section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended.
OTTOG has been engaged in the business of computer consulting
and developing computer systems with applications in game development for the
Internet and the World Wide Web, including the development of billing
infrastructure and full chat functionality. Legacy plans to operate the assets
acquired from OTTOG as a separate Internet-oriented business unit. Legacy also
entered into an Employment Agreement, dated August 30, 1996, with Mr. Heitman,
who has served as President of OTTOG, pursuant to which agreement Mr. Heitman
will be employed as Legacy's Vice President of the Internet Division.
Also, in connection with the acquisition of substantially all the assets of
OTTOG, Legacy entered into a two-year lease with Guyett/ Montgomery, dated
August 20, 1996, for approximately 1,454 square feet of office space in
Oakhurst, California.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
2.1 Asset Purchase Agreement, dated August 19, 1996, by
and among Legacy Software, Inc., On The Toes of
Giants, Inc. and Robert E. Heitman. (Schedules to be
filed upon request of the Commission)
10.1 Employment Agreement, dated August 30, 1996, by and
between Legacy Software, Inc. and Robert E. Heitman.
10.2 Office Lease, dated August 20, 1996 by and between
Guyett/Montgomery and Legacy Software, Inc.
99.1 Press Release, dated August 19, 1996, announcing
acquisition of On The Toes of Giants, Inc. by Legacy
Software, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LEGACY SOFTWARE, INC.
By: /s/ WILLIAM E. SLINEY
-----------------------------------
William E. Sliney
Vice President and Chief Financial Officer
Dated: September 10, 1996
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EXHIBIT INDEX
Exhibit No. Document
2.1 Asset Purchase Agreement, dated August 19,
1996, by and among Legacy Software, Inc., On
The Toes of Giants, Inc. and Robert E.
Heitman. (Schedules to be filed upon request
of the Commission)
10.1 Employment Agreement, dated August 30, 1996,
by and between Legacy Software, Inc. and
Robert E. Heitman.
10.2 Office Lease, dated August 20, 1996, by and
between Guyett/Montgomery and Legacy
Software, Inc.
99.1 Press Release, dated August 19, 1996,
announcing acquisition of On The Toes of
Giants, Inc. by Legacy Software, Inc.
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EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
by and among
LEGACY SOFTWARE, INC.,
ON THE TOES OF GIANTS, INC.
and
ROBERT E. HEITMAN
dated as of August 19, 1996
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TABLE OF CONTENTS
<TABLE>
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ARTICLE I. PURCHASE AND SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Transferred Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Non-Assumption of Agreements . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Excluded Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II. CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III. THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF
SELLER AND SHAREHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.2 Power and Authority of Seller . . . . . . . . . . . . . . . . . . . . . . . 4
4.3 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.4 Power and Authority of Shareholder . . . . . . . . . . . . . . . . . . . . . 5
4.5 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.6 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . 5
4.7 Financial Statements/Inventory. . . . . . . . . . . . . . . . . . . . . . . 5
4.8 Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.9 Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.10 Absence of Certain Changes or Events. . . . . . . . . . . . . . . . . . . . 6
4.11 Title to Property and Assets. . . . . . . . . . . . . . . . . . . . . . . . 6
4.12 Intellectual Property Rights. . . . . . . . . . . . . . . . . . . . . . . . 6
4.13 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.15 Plants, Buildings, Structures, Facilities and Equipment . . . . . . . . . . 8
4.16 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.17 Employee Benefit Plans; ERISA . . . . . . . . . . . . . . . . . . . . . . . 8
4.18 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.19 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.20 Labor Relations and Employment . . . . . . . . . . . . . . . . . . . . . . . 8
4.21 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.22 Copies of Certain Documents . . . . . . . . . . . . . . . . . . . . . . . . 9
4.23 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.24 Representations and Warranties on Closing Date . . . . . . . . . . . . . . . 9
</TABLE>
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ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . 9
5.1 Organization; Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 9
5.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . 10
5.4 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.5 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.6 Representations and Warranties on Closing Date . . . . . . . . . . . . . . . 10
ARTICLE VI. COVENANTS OF SELLER AND SHAREHOLDER . . . . . . . . . . . . . . . . . . . . 10
6.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.3 Efforts to Consummate Transaction . . . . . . . . . . . . . . . . . . . . . 12
6.4 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.5 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.6 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.7 Continued Assistance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.8 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . 13
6.9 Shareholders' Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.10 Vote of the Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.11 Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.12 Bulk Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.13 Adoption of the Plan of Liquidation . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VII. COVENANTS OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.1 Actions and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.2 Continued Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.3 Efforts to Consummate Transaction . . . . . . . . . . . . . . . . . . . . . 14
7.4 Offer of At-Will Employment. . . . . . . . . . . . . . . . . . . . . . . . . 14
7.5 Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VIII. CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.1 Conditions to Obligation of Buyer to Close . . . . . . . . . . . . . . . . . 15
8.2 Conditions to Obligations of Seller and Shareholder to Close . . . . . . . . 17
ARTICLE IX. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.1 Survival of Representations, Warranties, Etc. . . . . . . . . . . . . . . . 18
9.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.3 Procedure for Claims By Third Parties . . . . . . . . . . . . . . . . . . . 19
9.4 Tax Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE X. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.3 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.5 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
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10.6 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.10 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.13 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.14 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.15 Mediation and Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.16 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.17 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
EXHIBITS
Exhibit A-1 Form of Plan of Liquidation
Exhibit A-2 Form of Proprietary and Inventions Agreement
Exhibit B-1 Form of Bring-Down Certificate of Selling Parties
Exhibit B-2 Form of Bring-Down Certificates of Buyer
Exhibit C Form of Bill of Sale
Exhibit D Form of General Assignment
Exhibit E Form of Intellectual Property Assignment
Exhibit F Form of Employment Agreement
Exhibit G-1 Form of Seller Investment Representation Letter
Exhibit G-2 Form of Shareholder Investment Representation Letter
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into as of
August 19, 1996 (the "EFFECTIVE DATE"), by and among LEGACY SOFTWARE, INC., a
Delaware corporation ("BUYER"), ON THE TOES OF GIANTS, INC., a California
corporation ("SELLER"), and Robert E. Heitman, an individual ("SHAREHOLDER,"
and together with Seller, "SELLING PARTIES").
A. Seller is engaged in the business of designing game
software programs and internet-related programs (the "BUSINESS").
B. Seller is in the process of developing for adoption by its
board of directors and shareholders a Plan of Liquidation (to be attached
hereto as Exhibit A-1 and by this reference incorporated herein), pursuant to
which Seller will liquidate all of its assets and dissolve over the next six
(6) months (the "PLAN OF LIQUIDATION").
C. In connection with the Plan of Liquidation, Seller desires
to sell, assign and transfer to Buyer, and Buyer desires to acquire from
Seller, substantially all of the assets, properties and rights used by Seller
in the operation of the Business, subject to the assumption by Buyer of certain
liabilities and obligations of Seller relating to the Business, on the terms
and conditions set forth in this Agreement.
D. Seller is owned entirely by Shareholder. Shareholder, as
the sole stockholder of Seller, has approved the transactions contemplated in
this Agreement.
E. Selling Parties intend that the transactions contemplated
in this Agreement be structured as a "C" Reorganization pursuant to Section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the "CODE").
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I.
PURCHASE AND SALE OF ASSETS
1.1 TRANSFERRED ASSETS. Subject to the terms and
conditions set forth in this Agreement, on the "Closing Date" (as defined in
Section 3 below), Seller shall sell, transfer, assign and deliver to Buyer (the
"TRANSFER") and Buyer shall acquire from Seller, for the consideration
hereinafter described, all of the assets, properties and rights of Seller of
every kind, nature and description, real or personal, tangible or intangible,
known or unknown, wherever located, other than the "Excluded Assets" (as
defined in Section 1.2 below), as the same shall exist on the Closing Date
(collectively, the "TRANSFERRED ASSETS"), free and clear of any mortgage,
security, interest, pledge, lien, conditional sale agreement, charge or other
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encumbrance (each, an "ENCUMBRANCE"). The Transferred Assets will include,
without limitation, the following:
(a) all accounts receivable of Seller or relating to
products sold or services rendered in connection with the Business, whether or
not invoices relating thereto have been issued, set forth in Schedule 1.1(a)
hereto;
(b) all right, title and interest in and to all leases,
contracts, licenses, purchase orders, sales orders, commitments and other
agreements of Seller relating to the Transferred Assets or the Business
(collectively, the "CONTRACTS") set forth in Schedule 1.1(b) hereto;
(c) all prepaid expenses, advances and deposits of Seller
relating to the Transferred Assets or the Business set forth in Schedule 1.1(c)
hereto;
(d) all causes of action, demands, judgments, claims
(including insurance claims), indemnity rights or other rights of Seller
relating to the Transferred Assets or the Business or arising under express or
implied warranties from suppliers with respect to the Transferred Assets;
(e) all inventions, trade secrets, confidential
information, financial, business and marketing plans, customer and supplier
lists and related information, marketing and promotional materials, formulae,
process engineering, technical and computer data, art works, schematic
drawings, secret processes, engineering drawings, proprietary rights,
proprietary knowledge, know-how, computer software and programming know-how
(including source code, object code, on-line files, documentation, testing
materials and reports), product plans, software development tools, marks,
trademarks, names, symbols, service marks, logos, copyrights and patents and
all applications therefor, registrations thereof and licenses in respect
thereof necessary to or used in the conduct of the Business set forth in
Schedule 1.1(e) hereto (the "INTELLECTUAL PROPERTY"). Without limiting the
generality of the foregoing, Intellectual Property shall include all of the
foregoing with respect to (a) Seller's GamePoint system, (b) Seller's current
program for a bridge game, (c) all developments, improvements, modifications or
changes with respect to a billing module to charge users for use of games and
any Internet game-related technology and (d) all rights to the Intellectual
Property produced or developed by employees and/or consultants of Seller
relating to the Transferred Assets or the Business;
(f) all income, royalties, damages and payments due at
Closing (as defined in Article 3 below) or thereafter with respect to any of
the Transferred Assets or the Business and all other rights with respect
thereto (including, without limitation, rights to damages and payments for
past, present or future infringements or misappropriations of any Intellectual
Property) in all countries;
(g) all franchises, consents, licenses, marketing rights,
permits, authorizations, approvals and other operating authorities issued by
governmental or regulatory bodies to Seller relating to the Transferred Assets
or the Business set forth in Schedule 1.1(g) hereto;
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(h) all right, title and interest of Seller in and to the
Business as a going concern, including its goodwill and all other intangible
assets associated therewith;
(i) all books and records of Seller relating to the
Transferred Assets or the Business, including, without limitation,
correspondence, employment records (to the extent permitted by law), production
records, accounting records, property records, mailing lists, customer and
vendor lists, Intellectual Property prosecution files and regulatory files
(including master files);
(j) the name "ON THE TOES OF GIANTS" and variations
thereof and all other trade names of Seller relating to the Business; and
(k) all other assets, inventories and properties of
Seller relating to the Business which exist on the Closing Date, including all
assets reflected on the Financial Statements (as defined in Section 4.7 below).
1.2 EXCLUDED ASSETS. Notwithstanding the provisions of
Section 1.1 above, the Transferred Assets do not include, and Seller does not
hereby convey or transfer to Buyer any property, right or asset set forth in
Schedule 1.2 hereto.
1.3 ASSUMED LIABILITIES. Buyer hereby agrees to assume,
satisfy or perform when due all liabilities and obligations of Seller in
respect of the Contracts to the extent (but only to the extent) each of such
liabilities or obligations arise after the time of Closing (the "ASSUMED
LIABILITIES") whether or not a claim has been asserted in connection therewith
prior to the Closing and excluding without limitation, (i) obligations relating
to breach, if any, of the Contracts occurring prior to the Closing and (ii)
debts relating to services rendered, but not paid for as of the Closing.
1.4 NON-ASSUMPTION OF AGREEMENTS. Except as specifically
set forth in Section 1.1 above, Buyer shall not assume any other agreement,
whether express or implied, that exists between Seller and any of Seller's
current or former employees, or any third party, and nothing in this Agreement
is intended to be or shall be construed as an assumption by Buyer of any
rights, obligations or liabilities of any kind under any such agreement.
1.5 EXCLUDED LIABILITIES. Buyer shall not, by the
execution, delivery and performance of this Agreement, or otherwise, assume or
otherwise be responsible for any liability or obligation of any nature of
Seller, or claims of such liability or obligation, matured or unmatured,
liquidated or unliquidated, fixed or contingent, known or unknown, whether
arising out of acts or occurrences prior to, at or after the date hereof.
Without limiting the generality of the foregoing, Seller shall remain liable
for all liabilities and obligations to Seller's personnel with respect to the
notice and continuation coverage requirements of Section 4980B(e) of the Code
and regulations thereunder, payroll, overtime, accrued vacation time, holiday
time, severance arrangements or workers' compensation of any nature which are
accrued but unpaid as of the Closing Date or which accrued as a result of the
consummation of the transactions contemplated herein.
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ARTICLE II.
CONSIDERATION
Subject to the terms and conditions set forth in this
Agreement, in consideration of the Transfer of the Transferred Assets (and in
addition to the assumption of the Assumed Liabilities), on the Closing Date,
Buyer shall assign, convey and deliver to Seller Thirty- Three Thousand Three
Hundred Thirty-Four (33,334) shares of common stock of Buyer, $.001 par value
per share (the "COMMON STOCK") (the "PURCHASED SHARES").
ARTICLE III.
THE CLOSING
The closing of the transactions contemplated by this Agreement
(the "CLOSING") shall take place at the offices of Brobeck, Phleger & Harrison
LLP, 550 South Hope Street, Los Angeles, California 90071-2604 at 10:00 A.M.
local time, on August 30, 1996, or at such other location, time or date as may
be agreed to in writing by the parties hereto (the "CLOSING DATE"). At the
Closing, the parties hereto will exchange certificates, opinions and other
documents as required hereby. Notwithstanding the foregoing, the Closing shall
be effective at 12:01 A.M. local time on the Closing Date.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF
SELLER AND SHAREHOLDER
Seller and Shareholder, jointly and severally, represent and
warrant as of the Effective Date and as of the Closing Date to Buyer as
follows:
4.1 ORGANIZATION. Seller is a corporation duly organized
and validly existing under the laws of the state of California. Seller has the
corporate power to own its properties and to carry on its business as now
conducted and to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, and where the failure to do so would have a
material adverse effect upon (i) the Transferred Assets or the Business taken
as a whole, (ii) the business, operations or financial condition of Seller,
(iii) the ability of Seller to consummate the transactions contemplated hereby
(any of the foregoing, a "MATERIAL ADVERSE EFFECT"). Seller is not qualified
to do business as a foreign corporation in any jurisdictions.
4.2 POWER AND AUTHORITY OF SELLER. Seller has all
requisite corporate power and authority to enter into this Agreement and to
assume and perform fully its obligations hereunder. The execution and delivery
of this Agreement and the performance by Seller of its obligations hereunder
have been duly and validly authorized by all necessary corporate action.
4.3 CAPITAL STRUCTURE. The total authorized capital
stock of Seller consists of one million (1,000,000) shares of common stock, no
par value ("SELLER COMMON STOCK"), of which ten thousand (10,000) are shares of
issued and outstanding. All outstanding shares of
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Seller Common Stock are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute, Seller's
Articles of Incorporation or Bylaws or any agreement to which Seller is a party
or by which Seller is bound. All of the outstanding shares of Seller Common
Stock are owned beneficially and of record by Shareholder, as the sole
shareholder of Seller, and there shall be no change in the ownership of Seller
Common Stock through the Closing Date. There are no outstanding obligations,
warrants, preemptive rights, or other agreements or commitments to which Seller
or Shareholder is a party, or by which Seller or Shareholder are otherwise
bound, providing for the issuance of any additional shares of Seller capital
stock, nor are there any outstanding nonequity securities (e.g., debt
securities) of Seller.
4.4 POWER AND AUTHORITY OF SHAREHOLDER. Shareholder has
the right, power and authority to enter into this Agreement, to consummate the
transactions contemplated hereby and to perform his obligations hereunder,
without obtaining the approval or consent of any other Person. For purposes of
this Agreement, "PERSON" means any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
other business organization, trust, union, association or governmental or
regulatory authority. This Agreement has been duly and validly executed and
delivered by Shareholder and constitutes a legal, valid and binding obligation
of Shareholder enforceable against Shareholder in accordance with its terms
4.5 SUBSIDIARIES. Seller does not own, directly or
indirectly, any interest in any other corporation, partnership, joint venture
or other legal entity.
4.6 CONSENTS AND APPROVALS; NO VIOLATION. There is no
requirement applicable to Seller or Shareholder to make any filing with, or to
obtain any permit, authorization, consent or approval of, any governmental or
regulatory authority as a condition to the lawful consummation by Seller and
Shareholder of the transactions contemplated by this Agreement. Neither the
execution and delivery of this Agreement by Seller or Shareholder, nor the
consummation by Seller or Shareholder of the transactions contemplated hereby,
nor compliance by Seller or Shareholder with any of the provisions hereof, will
(a) conflict with or result in any breach of any provision of the Articles of
Incorporation, bylaws or other organizational documents of Seller, (b) result
in a breach of, or default under (or give rise to any right of termination,
cancellation or acceleration under), any of the terms, conditions or provisions
of any material agreement or instrument to which Seller or Shareholder is a
party, or by which any of the businesses, properties or assets of Seller or
Shareholder may be bound. For purposes of this Agreement, "KNOWLEDGE OF
SELLING PARTIES" means the knowledge, information or belief of any officer,
director or employee of Seller and of Shareholder, after due inquiry and
reasonable investigation.
4.7 FINANCIAL STATEMENTS/INVENTORY. Seller has
previously furnished to Buyer all the unaudited balance sheets of Seller as of
August 15, 1996, and the related statements of income and changes in
shareholder equity of Seller for the period then ended (together with the notes
thereto, the "FINANCIAL STATEMENTS"). The Financial Statements are correct and
complete in all material respects and present fairly the financial position of
Seller, results of operations
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and retained earnings of Seller for the periods set forth therein. All
inventories of Seller, if any, are owned by Seller free and clear of any
Encumbrance.
4.8 UNDISCLOSED LIABILITIES. Seller has no liabilities
or obligations (absolute, accrued, fixed, contingent, liquidated, unliquidated
or otherwise) which will have a Material Adverse Effect.
4.9 ACCOUNTS RECEIVABLE. The accounts receivable and all
other receivables, if any, are shown on Financial Statements and are valid
receivables subject, to the Knowledge of Selling Parties, to no set-offs or
counterclaims, are collectible, and will be collected within ninety (90) days
after the Closing Date at their recorded amounts.
4.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set
forth in the Disclosure Schedule, and except as otherwise contemplated by this
Agreement, (a) since August 15, 1996, there has not been any Material Adverse
Effect, and (b) neither of Seller nor Shareholder has taken any action which,
if taken after the date of this Agreement without Buyer's consent, would
violate Section 6.1 hereof.
4.11 TITLE TO PROPERTY AND ASSETS. Seller owns all the
Transferred Assets free and clear of all Encumbrances, except such Encumbrances
which arise in the ordinary course of business and do not materially impair
Seller's ownership of such Transferred Assets. With respect to Transferred
Assets leased by Seller, Seller is in compliance with such leases and, to the
best of its Knowledge, holds a valid leasehold interest free of all
Encumbrances. Seller does not own any real property used in or relating to the
conduct of the Business of Seller.
4.12 INTELLECTUAL PROPERTY RIGHTS.
(a) Schedule 1.1(e) lists (i) the federal registration
number and the date of registration concerning registrations of patents and
trademarks and of other marks, trade names or other trade rights currently used
by Seller in the conduct of the Business, all of the copyrights and all
applications for any of the foregoing; and (ii) (A) all Intellectual Property
rights owned by any third party which are not generally commercially available
and are currently used by Seller in the conduct of the Business and (B) whether
such use is or will be pursuant to license, sublicense, agreement or
permission. Schedule 1.1(e) sets forth a list of, and Seller has delivered to
Buyer complete and accurate copies of, each agreement, registration and other
document relating to the Intellectual Property. There is no default or claim
of default or basis therefor, or event which, with the passage of time, could
reasonably be expected to result in a default or give rise to any right of
termination, cancellation or amendment with respect to any such agreement,
registration or other document. Seller owns or possesses adequate and
enforceable licenses or other rights to use (1) all Intellectual Property
rights listed in Schedule 1.1(e) (2) all computer software designed and/or used
by Seller in the conduct of the Business and (3) all other patents, trademarks,
service marks and trade names, all applications for any of the foregoing, all
other trade secrets, designs, plans, specifications and other Intellectual
Property rights of every kind of Seller (whether or not registered) that are
used in, possessed by or necessary for the conduct of the Business. Entry into
this Agreement and consummation of the transactions contemplated hereby will
not impair Seller's ownership or use
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of the Intellectual Property. No Person has a right to receive a royalty or
similar payment in respect of any item of Intellectual Property pursuant to any
contractual arrangements entered into by Seller, Shareholder or otherwise.
Neither Seller nor Shareholder has granted any license, sublicense or other
similar agreement relating in whole or in part to any Intellectual Property.
To the Knowledge of Seller, no Intellectual Property is interfering with,
infringing upon or otherwise violating the rights of any third party, and no
proceedings have been instituted or to the Knowledge of Selling Parties
threatened against or notices received by either Seller or Shareholder alleging
that use or proposed use of any Intellectual Property by Seller infringes upon
or otherwise violates any rights of a third party, and there is no basis upon
which such a claim would validly be made.
(b) Without limiting the generality of the foregoing, all
Intellectual Property that consists of code, except that explicitly stated to
be owned by third parties in Schedule 1.1(e) is owned by Seller and there are
no pending legal actions challenging this ownership, nor are there any legal
actions pending or, to the Knowledge of the Selling Parties, threatened in any
way connected with the Business, including without limitation "look and feel"
contentions or other Intellectual Property claims.
(c) The documentation of the Intellectual Property is
current, accurate and sufficient in detail and content to identify it and
permit its full and proper use by Buyer without reliance on the special
knowledge of others. Seller has taken reasonable security measures to protect
the secrecy, confidentiality and value of the Intellectual Property. Any
employee or other person who, either alone or in concert with others,
developed, invented, discovered, derived, programmed or designed any of the
Intellectual Property or any part thereof, or who has knowledge of or access to
information relating to it, has been put on notice that the Intellectual
Property is proprietary to Seller and not to be divulged or misused (and has
executed a proprietary information and inventions agreement, substantially in
the form of Exhibit A- 2 attached hereto and by this reference incorporated
herein), in form and substance satisfactory to Buyer.
4.13 CONTRACTS. There are no Contracts (written or oral)
binding upon Seller with respect to the Business except the Contracts set forth
in Schedule 1.1(c) or included within the definition of Excluded Assets. Prior
to the Closing, Seller has delivered to Buyer true and complete copies of all
written Contracts and written summaries of all oral Contracts and any
amendments thereto.
4.14 LITIGATION. There are no actions, causes of action,
claims, suits, proceedings, orders, writs, investigations, injunctions or
decrees pending or, to the Knowledge of Selling Parties threatened, against
Seller or Shareholder or affecting the operations of Seller (or its properties,
assets or businesses) or the consummation of the transactions contemplated
herein, at law, in equity or admiralty, or before or by any court or any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. Each of Seller and Shareholder is in compliance with all
applicable laws and regulations, except where a failure to be in compliance
therewith has not had, and will not have, a Material Adverse Effect.
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4.15 PLANTS, BUILDINGS, STRUCTURES, FACILITIES AND
EQUIPMENT. All plants, buildings, structures, facilities and equipment used by
Seller in the conduct of the Business are structurally sound with no known
material defects and are in good operating condition and repair (subject to
normal wear and tear) so as to permit the operation by Seller of the Business
as presently conducted.
4.16 INSURANCE. Seller maintains insurance coverage which
is valid, outstanding, collectible and enforceable, and is adequate in amount,
types and risks insured against in accordance with good judgment, Seller's past
practices and normal trade practice in businesses similar to the Business of
Seller. Complete and accurate copies of all such policies and related
documentation have previously been provided to Buyer by Seller.
4.17 EMPLOYEE BENEFIT PLANS; ERISA. Seller does not have
any Employee Benefit Plan as defined in the Employee Retirement Income Security
Act of 1974. Seller has not entered into any severance or similar arrangement
in respect of any present or former personnel that will result in any
obligation (absolute or contingent) of Buyer or Seller to make any payment to
any present or former personnel following termination of employment.
4.18 TAX MATTERS. All federal, state and local taxes
("TAXES"), fees and assessments of whatever nature upon the Transferred Assets
and the Business which are due and payable by reasons contemplated by this
Agreement, or which would have a Material Adverse Effect, have been or shall be
paid by Selling Parties.
4.19 ENVIRONMENTAL MATTERS. Seller is not in violation of
any applicable statute, law or regulation relating to the environment or
occupational health and safety. Seller has all permits, licenses,
registrations and other governmental authorizations currently required by all
applicable statutes, laws or regulations relating to the environment or
occupational health and safety necessary for the conduct of the Business of
Seller (collectively, "PERMITS").
4.20 LABOR RELATIONS AND EMPLOYMENT. With respect to the
Business, Seller has not failed to comply in any respect with Title VII of the
Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended,
the Occupational Safety and Health Act of 1970, as amended, all applicable
federal, state and local laws, rules and regulations relating to employment,
and all applicable laws, rules and regulations governing payment of minimum
wages and overtime rates, and the withholding and payment of taxes from
compensation of employees. The employment of all persons presently employed or
retained by Seller is terminable at will, all employment agreements, if any,
between Seller and any employee shall terminate as of the Closing, and there
are no labor controversies pending or threatened between Seller and any of the
employees of Seller.
4.21 BROKERS OR FINDERS. Buyer has not or will not have
any obligation to pay any broker's, finder's, investment banker's, financial
advisor's or similar fee in connection with this Agreement, or the transactions
contemplated hereby or thereby, by reason of any action taken by or on behalf
of Seller or Shareholder.
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4.22 COPIES OF CERTAIN DOCUMENTS. Prior to the date
hereof, Seller has delivered or made available to Buyer true and complete
copies of all documents relating to Seller that Buyer has requested. The
minute books of Seller made available to Buyer and its counsel for inspection
contain full, complete and accurate records of all meetings and accurately
reflect all material action and proceedings taken to date by its shareholders
and board of directors, and such minute books contain true and complete copies
of the charter documents of Seller and all related amendments through the
Closing Date. The stock record books of Seller reflect accurately all
transactions in its capital stock through the Closing Date.
4.23 DISCLOSURE. The representations and warranties by
Seller and Shareholder in this Agreement and the statements contained in the
schedules, certificates, exhibits and other writings furnished and to be
furnished by Seller and Shareholder to Buyer pursuant to this Agreement do not
and will not contain any untrue statement of a material fact and do not and
will not omit to state any material fact necessary to make the statements
herein or therein not misleading.
4.24 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The
representations and warranties contained in this Section 4 shall be true,
correct and complete on and as of the Closing Date with the same force and
effect as though such representations and warranties had been made on and as of
the Closing Date.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants as of the Effective Date and as
of the Closing Date to Seller and Shareholder as follows:
5.1 ORGANIZATION; CAPITALIZATION.
(a) Buyer is a corporation duly organized and validly
existing under the laws of the State of Delaware. Buyer has the corporate
authority to own its properties and to carry on its business as now conducted
and to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. Buyer is qualified to do business as a foreign
corporation in all jurisdictions where failure so to qualify would, immediately
following the Closing, have a Material Adverse Effect upon (i) the Transferred
Assets taken as a whole, (ii) the business, operations or financial condition
of Buyer taken as a whole or (iii) the ability of Buyer to consummate the
transactions contemplated hereby (any of the foregoing, a "BUYER MATERIAL
ADVERSE EFFECT").
(b) As of the Closing, (i) all of the issued and
outstanding shares of common stock of Buyer will be validly issued, fully paid
and nonassessable, and (ii) the shares of Purchased Shares to be issued on the
Closing Date will be duly authorized for issuance and will, upon issuance, be
validly issued, fully paid and nonassessable under the laws of the State of
California.
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5.2 POWER AND AUTHORITY. Buyer has all requisite
corporate power and corporate authority to enter into this Agreement and to
assume and perform fully its obligations hereunder. The execution and delivery
of this Agreement and the performance by Buyer of its obligations hereunder
have been duly and validly authorized by all necessary corporate action, and
this Agreement is a valid and binding obligation of Buyer enforceable against
Buyer in accordance with its terms.
5.3 CONSENTS AND APPROVALS; NO VIOLATION. There is no
requirement applicable to Buyer to make any filing with, or to obtain any
permit, authorization, consent or approval of, any governmental or regulatory
authority as a condition to the lawful consummation by Buyer of the
transactions contemplated by this Agreement. Neither the execution and
delivery of this Agreement by Buyer, nor the consummation by Buyer of the
transactions contemplated hereby, nor compliance by Buyer with any of the
provisions hereof, will (a) conflict with or result in any breach of any
provision of the certificate of incorporation, bylaws or other organizational
documents of Buyer, (b) result in a breach of, or default under (or give rise
to any right of termination, cancellation or acceleration under), any of the
terms, conditions or provisions of any material agreement or instrument to
which Buyer is a party, or by which any of the businesses, properties or assets
of Buyer may be bound.
5.4 BROKERS OR FINDERS. Neither Seller nor Shareholder
has or will have any obligation to pay any broker's, finder's, investment
banker's, financial advisor's or similar fee in connection with this Agreement,
or the transactions contemplated hereby or thereby, by reason of any action
taken by or on behalf of Buyer.
5.5 DISCLOSURE. The representations and warranties by
Buyer in this Agreement and the statements contained in the schedules,
certificates, exhibits and other writings furnished and to be furnished by
Buyer to Seller and Shareholder pursuant to this Agreement do not and will not
contain any untrue statement of a material fact and do not and will not omit to
state any material fact necessary to make the statements herein or therein not
misleading.
5.6 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The
representations and warranties contained in this Section 5 shall be true and
complete on and as of the Closing Date with the same force and effect as though
such representations and warranties had been made on and as of the Closing
Date.
ARTICLE VI.
COVENANTS OF SELLER AND SHAREHOLDER
6.1 CONDUCT OF BUSINESS. From the date hereof to the
Closing, except as expressly contemplated by this Agreement or otherwise
consented to by Buyer in writing, Seller shall, and Shareholder shall cause
Seller to:
(a) carry on the Business only in the ordinary course of
business in substantially the same manner as heretofore conducted and use its
reasonable best efforts, consistent with past practice, to preserve intact its
present business organizations, keep available
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the services of its present officers and employees, and preserve its
relationships with customers, suppliers and others having business dealings
with it;
(b) maintain in all material respects all of the
Transferred Assets in good repair, order and condition except for ordinary wear
and tear and damage by unavoidable casualty;
(c) reserve and maintain all Intellectual Property used
in the Business;
(d) keep in full force and effect insurance comparable in
amount and scope of coverage to insurance now carried by Seller or otherwise
insuring the Business, assets and properties of Seller;
(e) perform in all material respects all obligations of
Seller under leases, agreements, contracts and instruments, including without
limitation the Contracts, relating to or affecting the Business;
(f) maintain the books of account and records of Seller
in the usual, regular and ordinary manner;
(g) comply in all material respects with all statutes,
laws, ordinances, rules and regulations applicable to Seller and the conduct of
the Business;
(h) not enter any employment agreement or commitment to
employees or effect any increase in the compensation or benefits payable or to
become payable to any officer, director or management employee or effect any
increase in the compensation of any other employee;
(i) make all capital expenditures required for the items
described in Schedule 6.1(i);
(j) not (i) create or incur any indebtedness for borrowed
money, or (ii) create any Encumbrance on the Transferred Assets, other than
Permitted Encumbrances;
(k) not sell, lease, license or otherwise dispose of any
or any material asset (individually or in the aggregate) of Seller (other than
dispositions of the Excluded Assets), acquire any substantial assets (other
than pursuant to Section 6.1(i)), or make any material commitment relating to
the Business, in each case other than in the ordinary course of business;
(l) not issue, deliver or sell or authorize or propose
the issuance, delivery or sale of, or propose the purchase of, any shares of
its capital stock or securities convertible into, or rights, warrants or
options to acquire, any such shares or other convertible securities;
(m) not commit itself to do any of the actions described
in clauses (a) through (l) above.
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6.2 ACCESS TO INFORMATION. Between the Effective Date
and the Closing Date, Seller will (a) give Buyer and its authorized
representatives reasonable access, with prior notice to Seller or Shareholder,
to all employees, plants, offices and other facilities and property of Seller
and to its books and records, (b) permit Buyer and its authorized
representatives to make such inspections thereof as Buyer may reasonably
request, with prior notice to Seller and Shareholder, and (c) furnish Buyer and
its representatives and advisers with such financial, tax and operating data
and other information with respect to the business and properties of Seller as
Buyer may from time to time reasonably request; provided, however, that (i) any
such investigation shall be conducted in such a manner as not to interfere
unreasonably with the operation of Seller; (ii) contacts with any customer or
supplier of Seller shall be made upon a schedule mutually agreed upon by Buyer
and Seller; and (iii) no contact shall be made with any employee of Seller
without the prior approval of Seller, which approval shall not be unreasonably
withheld or delayed.
6.3 EFFORTS TO CONSUMMATE TRANSACTION. Seller and
Shareholder shall use their reasonable best efforts to take or cause to be
taken all actions required to consummate the transactions contemplated hereby
including, without limitation, such actions as may be necessary (a) to obtain,
prior to the Closing, all necessary governmental or other third-party approvals
and consents required to be obtained by them in connection with the
consummation of the transactions contemplated by this Agreement and (b) to
assist Buyer at Buyer's expense, prior to the Closing, in obtaining or
establishing all licenses, permits, or contractual arrangements necessary for
the Buyer to conduct the Business following the Closing in the manner in which
it was conducted prior to the Closing except for the changes therein
contemplated hereby.
6.4 AUTHORIZATION OF AGREEMENT. Shareholder shall cause
Seller to authorize by all necessary corporate action the execution and
delivery of this Agreement and the performance of its obligations under this
Agreement and (b) to perform its obligations under this Agreement.
6.5 NO SOLICITATION. Unless and until this Agreement
shall have been terminated pursuant to Section 10.1, Selling Parties shall not
directly or indirectly (a) solicit, elicit, encourage or initiate any
discussions or negotiations with or provide any information to any Person
(other than Buyer or its representatives) concerning or in connection with any
sale of substantial assets of, or an equity interest in, Seller or any merger
or other business combination relating to Seller, or (b) disclose any
information not customarily disclosed to any Person concerning the business and
assets of Seller, or afford to any other Person access to the properties, books
and records of Seller, or otherwise assist any Person, in connection with any
of the foregoing (other than persons who are employees or representatives of
Seller and are involved in the transactions contemplated by this Agreement).
Selling Partner shall notify Buyer orally (within one business day) and in
writing (as promptly as practicable) of all relevant details relating to all
inquiries and proposals which it or any such officer, director, employee,
investment banker, financial adviser, attorney, accountant or other
representative may receive relating to any such matters and if such inquiry or
proposal is in writing, Selling Partner shall forthwith deliver to Buyer a copy
of such inquiry or proposal.
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6.6 FINANCIAL INFORMATION. Prior to the Closing, Seller
shall provide to Buyer, as soon as such information becomes available, the
Financial Statements for Seller, together with such other financial information
as Buyer may reasonably request.
6.7 CONTINUED ASSISTANCE. At all times from and after
the Closing Date, Selling Parties shall cooperate with Buyer and provide such
assistance and access to documents and records as Buyer may reasonably request,
at Buyer's expense, in connection with the preparation and audit of financial
statements or the sustaining of accounting, Tax or other financial positions,
including without limitation access to Seller's and Shareholder's accountants
and their work papers.
6.8 NOTIFICATION OF CERTAIN MATTERS. Seller and
Shareholder shall promptly notify Buyer from time to time prior to the Closing
Date of (i) any facts which, to the Knowledge of Selling Parties, make any of
Selling Parties' representations or warranties made herein or in any Exhibit or
Schedule hereto materially false or misleading or that are necessary in order
to make such representations or warranties not materially false or misleading;
and (ii) any failure of any of Seller or Shareholder to comply with or satisfy
in any material respect any covenant, condition or agreement to be complied
with or satisfied by it or him hereunder and each of Seller and Shareholder
shall use its and his reasonable best efforts to take such action as is
necessary to make such representation or warranty not materially false or
misleading, and to remedy any such failure on its or his part to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it or him hereunder. During the period from the date of this Agreement to
the Closing Date, each of Seller and Shareholder shall promptly notify Buyer of
any material change in, or outside of, the ordinary course of business of
Seller and of any written complaints or investigative hearings by a
governmental authority, or the institution, threat or settlement of litigation
with respect to Seller, businesses or Seller's assets and properties, and shall
keep Buyer informed in reasonable detail of such events, to the extent
permitted by law but without waiving any attorney-client privilege.
6.9 SHAREHOLDERS' APPROVAL. Seller shall submit this
Agreement to its shareholders for approval and adoption as provided by law and
its Articles of Incorporation and Bylaws whether at a special meeting or by
written consent of the shareholders of the Seller.
6.10 VOTE OF THE SHAREHOLDER. Subject to the observance
of his fiduciary duties to Seller, Shareholder covenants and agrees that all
shares of Seller Common Stock held by Shareholder shall be voted at the
shareholders' meeting or by written consent in favor of the approval and
adoption of this Agreement, and further covenants to use his best efforts to
facilitate the consummation of the transactions contemplated by this Agreement.
Shareholder further agrees to waive any and all dissenter's rights available to
him under Section 1300 et. seq. of the California Corporations Code.
6.11 TAX TREATMENT. Selling Parties acknowledge and agree
that the responsibility of structuring the sale of the Transferred Assets as a
"C" Reorganization pursuant to Section 368(a)(1)(C) of the Code shall be borne
solely by Selling Parties, and that the tax consequences of a failure for any
reason to obtain and maintain such status shall be at the sole risk of Selling
Parties.
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6.12 BULK SALES. This Agreement is subject to the
condition of complete compliance with the terms of Division 6 of the California
Commercial Code (the "BULK SALES ACT"), and prior to the Closing Selling
Parties will take all steps necessary to comply in full with the requirements
of the Bulk Sales Act. In the event that the notices required by the Bulk
Sales Act reveal a claim against the Transferred Assets different from, or in
excess of, what Buyer had agreed to assume, Seller shall promptly cause such
claim to be extinguished.
6.13 ADOPTION OF THE PLAN OF LIQUIDATION. Prior to the
Closing, Seller and Shareholder shall each approve and adopt, and Shareholder
shall cause Seller to approve and adopt, the Plan of Liquidation, in form and
substance satisfactory to Buyer.
ARTICLE VII.
COVENANTS OF BUYER
7.1 ACTIONS AND CONSENTS. Buyer shall cooperate with
Selling Parties and provide such assistance as Seller may reasonably request,
in connection with Selling Parties' efforts to obtain all consents, approvals
and authorizations of third parties and to make all filings with and give all
notices to third parties which may be necessary or required in order to
effectuate the transactions contemplated hereby.
7.2 CONTINUED ASSISTANCE. At all times from and after
the Closing Date, Buyer shall cooperate with Seller and provide such assistance
and access to documents and records as Seller may reasonably request, at
Seller's expense, in connection with the defense or prosecution of any claims,
actions, suits or investigations arising out of the conduct of the Business
prior to the Closing Date.
7.3 EFFORTS TO CONSUMMATE TRANSACTION. Buyer shall use
its reasonable best efforts to take or cause to be taken all actions required
to consummate the transactions contemplated hereby including, without
limitation, such actions as may be necessary to obtain, prior to Closing, all
necessary governmental or other third-party approvals and consents required to
be obtained by them in connection with the consummation of the transactions
contemplated by this Agreement.
7.4 OFFER OF AT-WILL EMPLOYMENT. Buyer shall offer
employment on an at-will basis to two (2) full-time and two (2) part- time
employees of Seller mutually agreed to by Buyer and Seller, under terms
equivalent to terms received by Buyer's current employees in comparable
positions.
7.5 TAX TREATMENT. Buyer shall cooperate fully with
Selling Parties in order to obtain and maintain the tax treatment of the sale
of the Transferred Assets as a "C" Reorganization pursuant to Section
368(a)(1)(C) of the Code.
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ARTICLE VIII.
CONDITIONS OF CLOSING
8.1 CONDITIONS TO OBLIGATION OF BUYER TO CLOSE. The
obligation of Buyer to close the transactions contemplated hereby shall be
subject to the fulfillment and satisfaction, prior to or at the Closing, of the
following conditions, or the written waiver thereof by Buyer:
(a) Representations, Warranties and Covenants. The
representations and warranties of Seller and Shareholder contained in this
Agreement shall be true and correct on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date (without taking
into account interim disclosure). Seller and Shareholder shall have performed
and complied with all covenants and agreements required by this Agreement to be
performed or complied with by Seller and Shareholder on or prior to the Closing
Date.
(b) No Injunction. No injunction or restraining order
shall be in effect which forbids or enjoins the consummation of the
transactions contemplated by this Agreement, no proceedings for such purpose
shall be pending, and no federal, state, local or foreign statute, rule or
regulation shall have been enacted which prohibits, restricts or delays the
consummation hereof. No litigation or governmental investigation or proceeding
seeking to enjoin or challenging, or seeking damages or relief in connection
with, the transactions contemplated by this Agreement shall be pending, which
in Buyer's reasonable judgment (with advice of counsel), makes it inadvisable
to proceed with the transaction contemplated by this Agreement.
(c) Approvals. All governmental and third party
approvals, consents, licenses, permits or waivers necessary for consummation of
the transactions contemplated by this Agreement and for the operation of the
Business by the Buyer following the Closing shall have been obtained.
(d) Information. Seller shall have provided to Buyer,
upon Buyer's reasonable request therefor, such financial statements, plans of
operation, cash flow analyses and projections as Seller typically prepares; and
Buyers shall be reasonably satisfied with the results of its business, legal
and accounting due diligence investigations of the assets, liabilities
(including, without limitation, the Assumed Liabilities), Business, operations,
labor relations and prospects of Seller. The execution and delivery of this
Agreement by Buyer shall not be deemed to be a waiver of the foregoing
condition with respect to any due diligence investigations conducted, or any
information or other materials provided by Seller or Shareholder prior to the
date hereof.
(e) Continuity of Contracts. Buyer shall have received
assurances reasonably satisfactory to the Buyer that Seller's Contracts with
customers and vendors shall continue in full force and effect or be renewed for
the benefit of the Buyer after the Closing on the same substantive terms as
exist as of the date hereof.
(f) Deliveries. Seller and/or Shareholder shall have
delivered, or caused to be delivered, to Buyer the following documents and
certificates (which shall be in form and substance satisfactory to Buyer):
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(i) Bring-Down Certificate - a certificate,
substantially in the form of Exhibit B-1 attached hereto and by this
reference incorporated herein, dated the Closing Date and signed by an
executive officer of Seller and by Shareholder expressly certifying
that the conditions set forth in Section 8.1(a) have been met and
stating that all other conditions to Seller's and Shareholder's
obligations hereunder have been satisfied or waived;
(ii) Bill of Sale - an original bill of sale,
substantially in the form of Exhibit C attached hereto and by this
reference incorporated herein, and other good and sufficient
instruments of transfer and conveyance in form effective to vest in
Buyer good and marketable title to the Transferred Assets;
(iii) Instruments of Assignment - an original
assignment substantially in the form of Exhibit D attached hereto and
by reference incorporated herein (the "GENERAL ASSIGNMENT"), of all
Contracts, agreements, licenses, purchase orders and leases relating
to the Business; and separate original assignments substantially in
the form of Exhibit E attached hereto and by this reference
incorporated herein (the "INTELLECTUAL PROPERTY ASSIGNMENT"), of all
Intellectual Property, including that set forth in the Disclosure
Schedule;
(iv) Miscellaneous - such other documents of
transfer, conveyance and assignment in form effective to transfer all
of the Transferred Assets to the Buyer;
(g) Material Adverse Change. Since the date of the
Financial Statements, there shall not have been a material adverse change in
the assets, taken as a whole, business, operations, financial condition or
prospects of the Business.
(h) Employment Agreement. Buyer and Shareholder shall
have executed an employment agreement (the "EMPLOYMENT AGREEMENT") on or before
the Closing, substantially in the form of Exhibit F attached hereto and by this
reference incorporated herein.
(i) Treatment under Section 368(a)(1)(C). Buyer shall
have received confirmation from its legal counsel that the transactions
contemplated in this Agreement will receive tax deferred reorganization
treatment under Section 368(a)(1)(C) of the Code
(j) Seller Investment Representation Letter. Seller
shall have executed and delivered to Buyer an Investment Representation Letter
(the "SELLER INVESTMENT REPRESENTATION LETTER"), dated as of the Closing Date,
between Buyer and Seller, substantially in the form of Exhibit G-1 attached
hereto and by this reference incorporated herein.
(k) Shareholder Investment Representation Letter.
Shareholder shall have executed and delivered to Buyer an Investment
Representation Letter (the "SHAREHOLDER INVESTMENT REPRESENTATION LETTER"),
dated as of the Closing Date, between Buyer and Shareholder, substantially in
the form of Exhibit G-2 attached hereto and by this reference incorporated
herein.
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<PAGE> 21
(l) Plan of Liquidation. Prior to the Closing, Selling
Parties shall have delivered to Buyer the Plan of Liquidation, duly approved
and adopted by the board of directors and the shareholders of Seller.
(m) Bulk Sales Compliance. On or before the Closing,
Selling Parties shall have complied with the provisions of the Bulk Sales Act.
8.2 CONDITIONS TO OBLIGATIONS OF SELLER AND SHAREHOLDER
TO CLOSE. The obligations of Seller and Shareholder to close the transactions
contemplated hereby shall be subject to the fulfillment and satisfaction, prior
to or at the Closing, of the following conditions, or the written waiver
thereof by Seller and Shareholder:
(a) Representations, Warranties and Covenants. The
representations and warranties of Buyer contained in this Agreement shall be
true and correct on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date. Buyer shall have performed and
complied with all covenants and agreements required by this Agreement to be
performed or complied with by Buyer on or prior to the Closing Date.
(b) No Injunction. No injunction or restraining order
shall be in effect which forbids or enjoins the consummation of the
transactions contemplated by this Agreement and no federal, state, local or
foreign statute, rule or regulation shall have been enacted which prohibits,
restricts or delays the consummation hereof. No litigation or governmental
investigation or proceeding seeking to enjoin or challenging, or seeking
damages or relief in connection with, the transactions contemplated by this
Agreement shall be pending, which in Seller's or Shareholder's reasonable
judgment (with advice of counsel), makes it inadvisable to proceed with the
transactions contemplated by this Agreement.
(c) Deliveries. Buyer shall have delivered to Seller and
Shareholder the following documents and certificates:
(i) Bring-Down Certificate - a certificate,
substantially in the form of Exhibit B-2 attached hereto and by this
reference incorporated herein, dated the Closing Date and signed by an
executive officer of Buyer, expressly certifying that the conditions
set forth in Section 8.2(a) has been met and stating that all other
conditions to Buyer's obligations hereunder have been satisfied or
waived;
(ii) Purchased Shares - certificates representing
the Purchased Shares, duly executed;
(d) Employment Agreement. Buyer and Shareholder shall
have executed the Employment Agreement on or before the Closing.
(e) Treatment under Section 368(a)(1)(C). Selling
Parties shall have received confirmation from their legal counsel that the
transactions contemplated in this Agreement will receive tax deferred
reorganization treatment under Section 368(a)(1)(C) of the Code
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<PAGE> 22
ARTICLE IX.
INDEMNIFICATION
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC.
(a) The representations, warranties and covenants of
Seller and Shareholder contained in or made pursuant to this Agreement or any
certificate, document or instrument delivered pursuant to or in connection with
this Agreement and the transactions contemplated hereby shall survive the
execution and delivery of this Agreement and the Closing hereunder
notwithstanding any investigation, analysis or evaluation by Buyer or its
designees of the Transferred Assets, Business, operations or condition
(financial or otherwise) of Seller or Shareholder and continue in full force
and effect for one (1) year after the Closing Date; provided, however, that the
representations, warranties and covenants of Seller and Shareholder set forth
in Section 4.18 shall survive until the expiration of the applicable statutes
of limitations, including extensions thereof, with respect to the matters
described therein.
(b) The representations, warranties and covenants of
Buyer contained in or made pursuant to this Agreement or any certificate,
document or instrument delivered pursuant to or in connection with this
Agreement and the transactions contemplated hereby shall survive the execution
and delivery of this Agreement and the Closing hereunder notwithstanding any
investigation, analysis or evaluation by Seller or Shareholder and continue in
full force and effect for one (1) year after the Closing Date
9.2 INDEMNIFICATION.
(a) Seller and Shareholder shall, jointly and severally,
indemnify, defend and hold harmless Buyer and its officers, directors,
employees, agents, successors and assigns (the "BUYER GROUP") from and against
any and all damages, costs, liabilities, losses, judgements, penalties, fines,
claims and expenses, including without limitation, interest, cost of
mitigation, clean-up or remedial action, damages to the Environment, attorneys'
fees and all amounts paid in investigation, defense or settlement of any of the
foregoing (collectively, "LOSSES"), asserted against or incurred by Buyer or
members of the Buyer Group in connection with, arising out of or resulting from
(i) any breach of any covenant, representation, warranty or agreement made by
Seller or Shareholder in or pursuant to this Agreement (in each case without
regard to any materiality threshold or reference to Material Adverse Effect
contained therein) and (ii) the Excluded Liabilities. There shall be no amount
payable by Seller or Shareholder pursuant to their indemnification obligations
in Section 9.2(a), unless and until the cumulative amount of all Losses
incurred by Buyer under this Section 9.2 exceeds $15,000, in which event Buyer
is entitled to recover from Seller and Shareholder pursuant to this Section 9.2
the full cumulative amount of such Losses; provided, however, that the maximum
amount recoverable by Buyer from Seller and Shareholder for indemnification
claims hereunder shall be $225,000 recoverable solely from the Purchased Shares
and/or any proceeds from the sale, transfer or disposition of the Purchased
Shares. In no event shall any claim for indemnification hereunder by required
to be satisfied by any other assets or property, other than the Purchased
Shares and/or any proceeds therefrom, of Seller or Shareholder.
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<PAGE> 23
(b) Buyer shall indemnify Seller and/or Shareholder, and
their respective officers, directors, employees, agents, successors and assigns
(collectively, the "SELLING PARTIES GROUP") from and against any and all Losses
asserted against or incurred by Seller or Shareholder or members of the Selling
Parties Group in connection with, arising out of or resulting from (i) any
breach of any covenant, representation, warranty or agreement made by Buyer in
or pursuant to this Agreement (in each case without regard to any materiality
threshold or reference to Material Adverse Effect contained therein) and (ii)
the Assumed Liabilities. There shall be no amount payable by Buyer pursuant to
its indemnification obligations in Section 9.2(b), unless and until the
cumulative amount of all Losses incurred by Seller and/or Shareholder under
this Section 9.2 exceeds $15,000, in which event Seller and/or Shareholder are
entitled to recover from Buyer pursuant to this Section 9.2 the full cumulative
amount of such Losses; provided, however, that the maximum amount recoverable
by Seller and/or Shareholder from Buyer for indemnification claims hereunder
shall be $225,000.
9.3 PROCEDURE FOR CLAIMS BY THIRD PARTIES.
(a) Any party asserting a right of indemnification
provided for under this Agreement (the "INDEMNIFIED PARTY") in respect of,
arising out of or involving a claim or demand made by any Person, firm,
governmental authority or corporation against the Indemnified Party (a "THIRD
PARTY CLAIM") shall notify the indemnifying party (the "INDEMNIFYING PARTY") in
writing of the Third Party Claim within thirty (30) business days after receipt
by such Indemnified Party of written notice of the Third Party Claim. As part
of such notice, the Indemnified Party shall furnish the Indemnifying Party with
copies of any pleadings, correspondence or other documents relating thereto
that are in the Indemnified Party's possession. The Indemnified Party's
failure to notify the Indemnifying Party of any such matter within the time
frame specified above shall not release the Indemnifying Party, in whole or in
part, from its obligations under this Section 9 except to the extent that the
Indemnified Party's ability to defend against such claim is actually prejudiced
thereby. The Indemnifying Party agrees (and, at such time as the Indemnifying
Party acknowledges his or its liability under this Section 9 with respect to
such Third Party Claim, the Indemnifying Party shall have the sole and
exclusive right) to defend against, settle or compromise such Third Party Claim
at the expense of such Indemnifying Party. The Indemnified Party shall have
the right (but not the obligation) to participate in the defense of such claim
through counsel selected by him or it. If the Indemnifying Party has not yet
acknowledged his or its liability under this Section 9 with respect to such
Third Party Claim, then the Indemnifying Party and the Indemnified Party shall
cooperate in defending against such Third Party Claim at the Indemnifying
Party's expense, and neither party shall have the right, without the other's
consent, to settle or compromise any such Third Party Claim.
(b) If any party becomes obligated to indemnify another
party with respect to any Third Party Claim pursuant to a right of
indemnification provided for under this Agreement and the amount of liability
with respect thereto shall have been finally determined, the Indemnifying Party
shall pay such amount to the Indemnified Party in immediately available funds
within ten (10) days following written demand by the Indemnified Party.
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<PAGE> 24
9.4 TAX INDEMNIFICATION.
(a) Notwithstanding anything in this Agreement to the
contrary, Seller and Shareholder shall, jointly and severally, indemnify,
reimburse, defend and hold harmless Buyer or any member of the Buyer Group from
and against all Losses arising in respect of any "Pre-Closing Period" (as
defined below) asserted against or incurred by Buyer or any member of the Buyer
Group in connection with, arising out of or resulting from a breach of the
representations or warranties set forth in Section 4.18 above ("TAX LOSSES").
(b) For purposes of this Agreement, "PRE-CLOSING PERIOD"
means any taxable period ending on or before the Closing Date, and the portion
of any taxable period beginning on or before but ending after the Closing Date
which portion begins on the first day of such a taxable period and ends on the
Closing Date.
(c) Notwithstanding anything in this Agreement to the
contrary, and pursuant to the terms set forth in Section 9.3 above, Seller and
Shareholder shall have the right to control any audit or determination by any
taxing authority, initiate any claim for refund or amended return, contest,
defend against, resolve and settle any assessment, notice of deficiency or
other adjustment or proposed adjustment of Taxes or otherwise resolve any issue
pertaining to any Tax Losses. Buyer shall have the right to receive in a
timely manner copies of all non- privileged correspondence, records and
relevant documentation and to be timely informed of and to attend all meetings
with third parties relating to any claimed Tax Losses.
ARTICLE X.
MISCELLANEOUS
10.1 TERMINATION.
(a) Anything herein to the contrary notwithstanding, this
Agreement may be terminated at any time prior to the Closing Date:
(i) by mutual written consent of Selling Parties
and Buyer;
(ii) by Selling Parties or Buyer if for any reason
the Closing shall not have occurred on or before August 30, 1996; or
(iii) by Selling Parties or Buyer upon five (5)
business days' prior notice to the other, in the event that a condition to the
terminating party's obligations to close the transactions contemplated by this
Agreement shall become incapable of satisfaction, unless during such five (5)
business day period such condition shall be satisfied; provided, however, that
no party shall be entitled to terminate this Agreement pursuant to clause (ii)
above or this clause (iii) in the event that the failure of the Closing to occur
or any condition to Closing to be satisfied shall be attributable to such
party's breach of this Agreement.
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<PAGE> 25
(b) If any party terminates this Agreement
pursuant to Section 10.1, all obligations of the parties hereto shall terminate
without further liability of any party to any other except for (i) any
liability of any party for the breach of this Agreement as of the date of such
termination, or (ii) any liability of any party for the breach of Section 10.2
below.
10.2 CONFIDENTIALITY. In connection with the negotiation
of this Agreement and the preparation for the consummation of the transactions
contemplated hereby, each party will have access to confidential information
relating to the other party or parties. Each party shall treat such
information as confidential, preserve the confidentiality thereof and not
duplicate or use such information, except in connection with the transactions
contemplated hereby, and in the event of the termination of this Agreement for
any reason whatsoever, each party shall return to the other party or parties
all documents, work papers and other material (including all copies thereof)
obtained in connection with the transactions contemplated hereby and will use
all reasonable efforts, including instructing his or its employees who have had
access to such information, to keep confidential and not to use any such
information, unless such information is now, or is hereafter, disclosed through
no act or omission of such party, in any manner making it available to the
general public. Each party shall use all reasonable steps to safeguard such
information.
10.3 PUBLICITY. No press release or other public
announcement concerning this Agreement or the transactions contemplated hereby
shall be made without advance approval thereof by Seller, Shareholder and
Buyer, which consent will not be unreasonably withheld, except as required by
law.
10.4 ENTIRE AGREEMENT. This Agreement and the other
documents delivered in connection herewith constitutes the entire agreement of
the parties with respect to the subject matter hereof and supersedes all other
prior agreements and understandings, both written and oral, among the parties,
or any of them, with respect to the subject matters hereof. The
representations, warranties, covenants and agreements set forth in this
Agreement and in any financial statements, schedules or exhibits delivered
pursuant hereto constitute all the representations, warranties, covenants and
agreements of the parties hereto and upon which the parties have relied, and
except as specifically provided herein, no change, modification, amendment,
addition or termination of this Agreement or any part thereof shall be valid
unless in writing and signed by or on behalf of the party to be charged
therewith.
10.5 POWER OF ATTORNEY. Effective upon the Closing Date,
Seller hereby irrevocably constitutes and appoints the Buyer as its true and
lawful attorney-in-fact, with full power of substitution, in the name of
Seller, on behalf of and for the benefit of the Buyer, to endorse, without
recourse, checks, notes and other instruments relating to the Transferred
Assets in the name of Seller. Seller agrees that the foregoing powers are
coupled with an interest and shall be irrevocable by Seller. Seller further
agrees that the Buyer shall retain for its own account any amounts collected
pursuant to the foregoing powers and Seller shall promptly transfer and deliver
to the Buyer any cash or other property received by Seller, directly or
indirectly, at any time after the Closing Date in respect of any accounts
receivable or otherwise relating to the Transferred Assets and the Business
transferred, conveyed and assigned to the Buyer as provided herein.
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<PAGE> 26
10.6 CERTAIN TAX MATTERS.
(a) Access and Record Retention. Buyer and
Selling Parties shall each permit authorized representatives of the others, at
all reasonable times after the Closing, access to their offices, records and
accounts which relate to Seller prior to the Closing for the purpose of
obtaining any information necessary for the preparation and filing of any tax
returns or other reports to any governmental agency for any period. Buyer and
Selling Parties shall each retain such records as the others may reasonably
request, including those which shall be necessary to permit preparation and
filing of federal and state tax returns, for reasonable periods (not less than
those during which additional Taxes may be assessed and collected) consistent
with their record retention policies.
(b) Tax Returns and Reports. Seller shall
prepare and file any tax returns due after the date hereof, and shall pay all
Taxes shown due thereon, with respect to all taxable periods ending on or
before the Closing.
(c) Contest. Seller shall have the
responsibility of conducting any audit, examination, proceeding or litigation
with respect to any non-Income Tax for which Seller would be required to pay or
indemnify Buyer (a "CONTEST"). Seller shall keep the Buyer fully and timely
informed with respect to all matters relating to any Contest. The right to
control a Contest shall be limited to amounts and issues in dispute that would
result in a non-Income Tax or indemnification payment by Seller.
Notwithstanding the foregoing, if any issue raised in a Contest could have an
adverse impact on Buyer, (i) Buyer shall be entitled to participate (at its
expense) in any Contest through counsel of Buyer's choosing, and (ii) Seller
shall not, without Buyer's prior written consent, settle, compromise or
otherwise concede a position that could reasonably be expected to have a Buyer
Material Adverse Effect.
10.7 FURTHER ASSURANCES. From time to time after the
Closing, Seller will execute and deliver, or cause its affiliates to execute
and deliver, to Buyer such instruments of sale, transfer, conveyance,
assignment and delivery, and such consents, assurances, powers of attorney and
other instruments as may be reasonably requested by Buyer or its counsel in
order to vest in Buyer all right, title and interest of Seller in and to the
Transferred Assets and the Business, and otherwise in order to carry out the
purpose and intent of this Agreement.
10.8 NOTICES. All notices, requests and other
communications hereunder must be in writing and will be deemed to have been
duly given only if delivered personally against written receipt or by facsimile
transmission with answer back confirmation or mailed (postage prepaid by
certified or registered mail, return receipt requested) or by overnight courier
to the parties at the following addresses or facsimile numbers:
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<PAGE> 27
If to Buyer:
Legacy Software, Inc.
5340 Alla Road
Los Angeles, California 90066
Facsimile: (310) 488-0490
Attention: Ariella J. Lehrer, Ph.D.
With copies to:
Brobeck, Phleger & Harrison LLP
550 South Hope Street
Los Angeles, CA 90071-2604
Facsimile: (213) 239-1253
Attention: V. Joseph Stubbs, Esq.
If to Seller:
On the Toes of Giants
40459 Highway 41
Suite 6
Oakhurst, California 93644
Facsimile: (209) 642-4737
Attention: Robert E. Heitman
With a copy to:
Cooley Godward Castro Huddleson & Tatum
3000 Sand Hill Road
Building 3, Suite 230
Menlo Park, California 94025
Facsimile: (415) 854-2691
Attention: David R. Lee, Esq.
If to Shareholder:
Robert E. Heitman
40459 Highway 41
Suite 6
Oakhurst, California 93644
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<PAGE> 28
With a copy to:
Cooley Godward Castro Huddleson & Tatum
3000 Sand Hill Road
Building 3, Suite 230
Menlo Park, California 94025
Facsimile: (415) 854-2691
Attention: David R. Lee, Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 10.8, be deemed given
upon delivery, (ii) if delivered by facsimile transmission to the facsimile
number as provided in this Section 10.8, be deemed given upon receipt, and
(iii) if delivered by mail in the manner described above to the address as
provided in this Section 10.8, be deemed given five (5) days after deposit in
the United States mail (in each case regardless of whether such notice, request
or other communication is received by any other party to whom a copy of such
notice, request or other communication is to be delivered pursuant to this
Section). Any party from time to time may change his or its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other parties hereto.
10.9 EXPENSES. Seller, Shareholder and Buyer shall each
pay their own respective costs and expenses incurred in connection with this
Agreement, and the transactions contemplated hereby. Without limiting the
generality of the foregoing, Seller shall pay all applicable sales, use,
transfer and documentary taxes arising out of the purchase and sale of the
Transferred Assets and the Business. The parties agree to cooperate to
minimize the taxes arising from the transactions contemplated by this
Agreement, including where practical, but not limited to, the electronic
transmission of Intellectual Property so as to the limit the application of
sales and use taxes.
10.10 WAIVERS. The terms of this Agreement may be waived
only by a written instrument signed by the party waiving compliance.
10.11 COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
10.12 SEVERABILITY. This Agreement shall be governed by
and construed in accordance with the laws of the State of California applicable
to contracts executed and performed in such State, without giving effect to
conflicts of laws principles.
10.13 ASSIGNMENT. This Agreement shall be binding upon,
and inure to the benefit of, the parties and their respective successors and
permitted assigns. This Agreement or any rights or obligations hereunder shall
not be assignable by any party, except that Buyer may (i) assign any or all of
its rights and interests hereunder (A) to one or more of its affiliates or (B)
in connection with the transfer of all or substantially all of the assets of
Buyer after the Closing Date, (ii) designate one of more of its affiliates to
perform its obligations hereunder (in
24
<PAGE> 29
any or all of which cases Buyer shall nonetheless remain liable and responsible
for the performance of all of its obligations hereunder) or (iii) pledge its
rights hereunder to a lender as security for any financing or refinancing.
10.14 SPECIFIC PERFORMANCE. Each of Selling Parties and
Buyer hereto acknowledges and agrees that the other would be damaged
irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are breached and
to enforce specifically this Agreement and the terms and provisions thereof in
any action instituted in any court of the United States or any state thereof
having jurisdiction over Buyer and Selling Parties and the matter, in addition
to any other remedy to which they may be entitled, at law or in equity.
10.15 MEDIATION AND ARBITRATION. Any dispute which may
arise among the parties hereto, as to the construction, interpretation or
effect of this Agreement, including without limitation, the determination of
entitlement to indemnification hereunder and the calculation of the amount of
Losses, which is not resolved by mutual agreement among the parties, shall
first be submitted to nonbinding mediation on terms and conditions to be
mutually agreed upon by the disputing parties. In the event that a dispute is
not resolved by nonbinding mediation, any disputing party may give all other
disputing parties notice of such party's intention to cause the same to be
submitted to binding arbitration. After fifteen (15) days have elapsed from
the giving of such notice, but not before such time, the party who gave such
notice may cause any such dispute which then remains unresolved to be submitted
to arbitration by submitting the same to the Los Angeles, California office of
the American Arbitration Association (the "AAA") (or any successor thereto, but
if no organization is then performing a function reasonably similar to the AAA,
then to a court of competent jurisdiction in accordance with the rules of the
court) with a request for arbitration to be conducted in accordance with the
rules thereof by one (1) arbitrator to be jointly selected by the disputing
parties. The prevailing party's expenses, including without limitation
attorneys' fees, of such arbitration shall be borne by the losing party;
provided, however, that if liability is allocated by the arbitrator among the
parties, the expenses of such arbitration, including without limitation the
other party's attorneys' fees, shall be borne by the parties in proportion to
their respective percentages or proportions of liability assessed by the
arbitrator. The decision of the arbitrator as to all matters properly
submitted to such arbitrator and as to the apportionment of expenses of
arbitration shall be conclusive and binding upon the parties and judgment upon
any award may be entered in any court of competent jurisdiction.
10.16 HEADINGS. The Section and other headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement or of any term or provision
hereof.
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<PAGE> 30
10.17 DEFINITIONS. As used in this Agreement, the
following terms have the meanings defined for such terms in the Sections set
forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Assumed Liabilities 1.3
Bulk Sales Act 6.12
Business Recitals
Buyer Introduction
Buyer Group 9.2
Buyer Material Adverse Effect 5.1
Closing Article III
Closing Date Article III
Code Recitals
Contracts 1.1
Employment Agreement 8.1
Encumbrance 1.1
Excluded Assets 1.2
Excluded Liabilities 1.5
Financial Statements 4.7
General Assignment 8.1
Indemnified Party 9.3
Indemnifying Party 9.3
Intellectual Property 1.1
Intellectual Property Assignment 8.1
Knowledge of Selling Parties 4.6
Losses 9.1
Material Adverse Effect 4.1
Notices 10.8
Permits 4.20
Person 4.4
Plan of Liquidation Recitals
Pre-Closing Period 9.4
</TABLE>
26
<PAGE> 31
<TABLE>
<S> <C>
Purchased Shares Article II
Seller Introduction
Seller Common Stock 4.3
Selling Parties Introduction
Selling Parties Group 9.2
Shareholder Introduction
Tax Losses 9.4
Taxes 4.18
Term 6.13
Third Party Claim 9.3
Transfer 1.1
Transferred Assets 1.1
</TABLE>
27
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed on the date and year first above written.
LEGACY SOFTWARE, INC.
a Delaware corporation
By: /S/ ARIELLA J. LEHRER
----------------------------------------
Name: Ariella J. Lehrer, Ph.D.
Title: President and Chief Executive Officer
ON THE TOES OF GIANTS,
a California corporation
By: /S/ ROBERT E. HEITMAN
----------------------------------------
Name: Robert E. Heitman
Title: President
/S/ ROBERT E. HEITMAN
----------------------------------------
Name: Robert E. Heitman
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT"), dated as of
August 30, 1996, is made and entered into by and between LEGACY SOFTWARE, INC.,
a Delaware corporation (the "COMPANY"), and ROBERT E. HEITMAN (the
"EXECUTIVE").
RECITALS
A. The Company and the Executive are parties to that certain
Asset Purchase Agreement by and among the Company, the Executive and On The
Toes of Giants (the "SELLER") of even date herewith (the "PURCHASE AGREEMENT"),
pursuant to which the Company will acquire (the "ACQUISITION") substantially
all of the assets of the Seller.
B. The execution and delivery of this Agreement by the Company
and the Executive is a condition to closing the Acquisition under the Purchase
Agreement.
C. The Executive possesses an intimate knowledge of the business
of designing computer game software and internet-related software.
D. Upon the consummation of the Acquisition, the Company desires
to secure the services and employment of the Executive, and the Executive
desires to provide such services and accept such employment, to direct an
internet division of the Company (the "INTERNET DIVISION") pursuant to the
terms of this Agreement.
E. The Executive is not, prior to the execution of this
Agreement, a party to or bound by any employment agreement, non-compete
agreement, non-solicitation agreement or other similar agreement with any
person.
F. The Company and the Executive have determined that it is in
their respective best interests to enter into this Agreement on the terms and
conditions as set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties agree as follows:
1. EMPLOYMENT. Subject to and pursuant to the terms of
this Agreement, the Company shall employ the Executive, and the Executive shall
be employed by and shall serve the Company, in the capacity of Vice President
of the Internet Division.
2. TERM AND RENEWALS. Subject to the provisions for
earlier termination provided herein, the term of this Agreement (the "TERM")
shall commence on the effective date hereof (the "EFFECTIVE DATE") and shall
terminate on the 3-year anniversary of the Effective Date (the "INITIAL TERM")
unless renewed pursuant to this Section 2. The Initial Term shall be renewed
for a one (1)-year period (the "INITIAL RENEWAL TERM") if at least six (6)
months prior
<PAGE> 2
to the expiration of the Initial Term either party hereto shall not have given
the other party written notice not to renew this Agreement. The Initial
Renewal Term and each "Renewal Term" (as defined in this Section 2) shall be
renewed for successive one (1)-year periods (each, a "RENEWAL TERM") if at
least three (3) months prior to the expiration of the Initial Renewal Term or a
Renewal Term, as the case may be, either party hereto shall not have given the
other party written notice not to renew this Agreement.
3. DUTIES. During the Term, the Executive shall serve
as and shall have the title of the Vice President of the Internet Division, and
shall have all duties and responsibilities associated with such position, as
determined by the Chief Executive Officer of the Company (the "CEO") and as
limited or expanded pursuant to this Agreement. The Executive shall devote
substantially his full working time and effort during normal business hours to
the business and affairs of the Company, and shall use his reasonable best
efforts to perform such duties and responsibilities faithfully and efficiently.
4. DIRECTION OF SERVICES. The Executive shall at all
times discharge his duties under the supervision and direction of the CEO.
5. COMPENSATION. For services rendered by the Executive
pursuant to this Agreement, the Company shall pay or award compensation to the
Executive as follows:
(a) BASE COMPENSATION. The Company shall pay to
the Executive a base salary ("BASE COMPENSATION") of $85,000 per annum from the
date of this Agreement through the end of the Term, payable in accordance with
the Company's customary practices for its senior executive officers. The
amount of Base Compensation shall be reviewed by the Board of Directors of the
Company (the "BOARD") on at least an annual basis, and may be increased to
reflect inflation or such other adjustments as the Board may deem appropriate;
provided, however, that Base Compensation, if increased from time to time,
shall not be decreased.
(b) STOCK OPTION GRANT. On the Effective Date,
the Company shall grant the Executive a stock option (the "STOCK OPTION")
exercisable for Sixteen Thousand Six Hundred Sixty-Six (16,666) shares of
common stock, $.001 par value per share, of the Company under the Company's
1995 Stock Option/Stock Issuance Plan, which option shall be subject to terms
and conditions substantially similar to options granted to the Company's senior
executive officers. Fifty percent (50%) of the underlying shares of the Stock
Option shall vest on the first anniversary of the grant date, and twenty-five
percent (25%) shall vest on each of the second and third anniversaries of the
grant date.
(c) BONUS COMPENSATION. In addition to Base
Compensation, the Executive may be awarded, for each fiscal year of the Company
ending with or within the Term, an annual bonus ("BONUS"), pursuant to a formal
incentive plan of the Company, in cash or other property acceptable to the
Executive, including stock options, rights or warrants in the Company, which
Bonus shall be based on such criteria as may be deemed appropriate and adopted
by the Board. If earned, the Bonus shall be paid to the Executive within
ninety (90)
2.
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days after the end of each fiscal year of the Company, except to the extent, if
any, that the Executive otherwise shall have elected to defer all or part of
the receipt of such Bonus.
(d) WITHHOLDING. The Company shall deduct and
withhold from the compensation payable to the Executive hereunder any and all
applicable federal, state and local income and employment withholding taxes and
any other amounts required to be deducted or withheld by the Company under
applicable statute or regulation.
6. ADDITIONAL BENEFITS.
(a) FRINGE BENEFITS; REIMBURSEMENT; VACATION. In
addition to Base Compensation and Bonus provided for in Section 5 above, the
Executive shall be entitled to receive:
(i) all fringe benefits customarily
offered by the Company to its senior executive officers, including
without limitation, club memberships, expense accounts, an automobile
allowance, participation in any Company stock compensation plan and
the various employee benefit plans or programs (collectively, the
"BENEFIT PLANS") provided to the employees of the Company in general,
subject to the eligibility requirements with respect to each such
Benefit Plan, and to such other benefits or perquisites as may be
approved by the Board during the Term;
(ii) reimbursement from the Company for
all customary, ordinary and necessary business expenses incurred by
the Executive in the performance of his duties and responsibilities
hereunder, provided that the Executive furnishes the Company with
vouchers, receipts and other substantiation of such expenses within
thirty (30) days after they are incurred; and
(iii) paid vacation benefits in accordance
with the Company's vacation policy in effect for its Senior Executive
Officers.
The Executive may take accrued vacation at such times during each fiscal year
of the Company as mutually may be convenient to the Company and to the
Executive, and all unused vacation time as of the end of any fiscal year of the
Company shall accrue and carry over to the next succeeding fiscal year of the
Company.
(b) CERTAIN EXECUTIVE REIMBURSEMENT. The Company
shall pay the Executive an amount necessary to reimburse the Executive for all
legal fees and expenses incurred by the Executive as a result of the "Change in
Control" (as defined in Section 9 below) of the Company and such termination of
employment, including any fees and expenses incurred in contesting or disputing
any such termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement; provided, however, that the Company shall be
obliged only to pay amounts necessary to reimburse the Executive for legal fees
and expenses incurred by the Executive with respect to any claim or claims made
by him as to which he shall substantially prevail in litigation relating
thereto against the Company. Any such payments to the Executive
3.
<PAGE> 4
hereunder shall be subject to payroll or other taxes required to be withheld by
the Company. Payments to the Executive hereunder shall be considered severance
pay in consideration of past service and the Executive's continued service
after the date of this Agreement. Payments shall be made to the Executive
within five (5) Business Days (as defined in Section 12(b) below) after the
Termination Date. The Executive shall not be require to mitigate the amount of
any payment provided for in this Section 6(b) by seeking other employment or
otherwise, and except as otherwise provided herein, the amount of any payment
provided for in this Section 6(b) shall not be reduced by any compensation
earned by the Executive as a result of employment by another employer after the
date of termination, or otherwise.
7. INDEMNIFICATION.
(a) OBLIGATION OF THE COMPANY. To the maximum
extent permitted by law, the Company hereby indemnifies and agrees to hold
harmless the Executive from any and all costs or expenses incurred by him on
account of the fact that he becomes a party, or is threatened to be made a
party, to any pending, threatened or contemplated action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is, was or becomes a director, officer, employee or agent of the
Company or of any parent or subsidiary of the Company. Such costs and expenses
shall include, without limitation, expenses (including attorneys' fees),
judgements, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with any such action, suit or proceeding. To the
maximum extent permitted by and subject to any requirements of law, costs and
expenses incurred by the Executive in defending a civil or criminal action,
suit or proceeding shall be paid by the Company as bills for such services are
presented by the Executive to the Company. In any such matter, the Executive
shall be entitled to select his own legal counsel.
(b) INSURANCE COVERAGE. To the maximum extent
permitted by law, the Company shall obtain and maintain standard form
director's and officer's liability insurance with responsible carriers and in
reasonable amounts, and any other additional insurance which reasonably may be
obtained, covering to the extent available any liability of the kind described
in Section 7(a) above, and protecting the Executive against costs and expenses
described in Section 7(a) above which are not for any reason satisfied by the
Company.
(c) SUCCESSOR LIABILITY AND SURVIVAL. The
obligations of the Company set forth in this Section 7 shall bind any successor
corporation to the Company (whether direct or indirect, by purchase, merger,
consolidation, acquisition of stock or otherwise) so that the Executive shall
stand in the same position under this Agreement with respect to any successor
corporation as the Executive would have with respect to the Company if its
separate existence had continued. The Company's obligations under this Section
7 shall survive termination of this Agreement, and shall survive indefinitely
with respect to any costs, expenses or liabilities incurred by the Executive on
account of any actual or alleged action or inaction by the Executive while
employed by the Company.
4.
<PAGE> 5
8. TERMINATION OF EMPLOYMENT.
(a) TERMINATION. Except as otherwise provided in
this Agreement, the Executive's employment by the Company hereunder shall
terminate upon the earliest to occur of the dates specified below (as
applicable, the "TERMINATION DATE"):
(i) The close of business on the date of
expiration of the Term.
(ii) The close of business on the date of
the Executive's death ("DEATH").
(iii) The close of business on the date
specified as the effective date of termination of the Executive's
employment in a "Notice of Termination" (as defined below) delivered
by the Company to the Executive due to the Executive's "Disability"
(as defined below). For purposes of this Agreement, the term
"DISABILITY" shall mean the inability or incapacity of the Executive,
due to any medically determined physical or mental impairment, to
perform his duties and responsibilities for the Company for a total of
one hundred eighty (180) calendar days in any twelve (12) month period
during the Term.
(iv) The close of business on the date
specified as the effective date of termination of the Executive's
employment by the Executive in a Notice of Termination delivered by
the Executive to the Company (a "VOLUNTARY TERMINATION").
(v) The close of business on the date
specified as the effective date of termination of the Executive's
employment by the Company for "Cause" (as defined below) in a Notice
of Termination delivered by the Company to the Executive. For
purposes of this Agreement, the term "CAUSE" shall mean termination
based on (A) the Executive's material breach of this Agreement which,
if capable of cure, is not cured fully within ten (10) days after
written notice to the Executive identifying such breach, provided,
that such ten (10)-day period shall be extended to sixty (60) days if
such breach is not reasonably susceptible to cure within ten (10) days
and the Executive shall have commenced to cure and is then proceeding
with due diligence to cure such breach; (B) conviction of the
Executive for (x) any crime constituting a felony in the jurisdiction
in which committed, (y) any crime involving moral turpitude (whether
or not a felony) or (z) any other criminal act against the Company
involving dishonesty or willful misconduct intended to injure the
Company (whether or not a felony); (C) substance abuse by the
Executive which is repeated after written notice to the Executive
identifying such abuse; (D) the failure or the refusal of the
Executive to follow lawful and proper directives of the Board (or of
any superior officer of the Company having direct supervisory
authority over the Executive), which is not corrected within ten (10)
days after written notice to the Executive identifying such failure or
refusal; (E) willful malfeasance or gross misconduct by the Executive
which discredits or damages the Company; (F) indictment of the
Executive by a grand jury for a felony violation of the federal
securities laws; or (G) the engagement by the Executive in any
5.
<PAGE> 6
"PROHIBITED ACTIVITY" or "COMPETITIVE ACTIVITY" (as such terms
respectively are defined in Sections 11(c)(i) and 11(c)(ii) below) in
violation of this Agreement.
(vi) The close of business on the date
specified as the effective date of termination of the Executive's
employment by the Company other than for Death, Disability or Cause in
a Notice of Termination delivered by the Company to the Executive.
(b) NOTICE OF TERMINATION. Any termination of
the Executive's employment hereunder (other than termination as a result of
Death) by the Company or by the Executive shall be communicated by a Notice of
Termination to the other party hereto given in accordance with the provisions
of Section 12(b) below. For purposes of this Agreement, a "NOTICE OF
TERMINATION" shall mean a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, and (ii) if applicable,
sets forth the facts and circumstances claimed to provide a basis for
termination of the Executive's employment.
9. PAYMENT UPON TERMINATION OF EMPLOYMENT.
(a) VOLUNTARY TERMINATION, TERMINATION FOR CAUSE
OR EXPIRATION OF TERM. Subject to the provisions of Section 9(c) below, if the
Executive's employment is terminated pursuant to a Voluntary Termination, a
termination for Cause or the expiration of the Term, then, without limiting any
other rights or remedies available to the Company at law or in equity, the
Company shall pay or provide to the Executive, his legal representatives,
heirs, eligible dependents, if any, or permitted assigns, as applicable, (i)
within ten (10) days after the Termination Date, all Base Compensation earned
but unpaid as of the Termination Date; and (ii) all benefits to which such
persons may be entitled under any of the Benefit Plans which provide for
benefits after termination of employment, in accordance with the terms thereof.
(b) OTHER TERMINATIONS. Subject to the
provisions of Section 9(c) below, if the Executive's employment is terminated
other than pursuant to a Voluntary Termination, a termination for Cause or the
expiration of the Term, (i) the Company shall pay to the Executive, his legal
representatives, heirs or permitted assigns, within ten (10) days after the
Termination Date, all Base Compensation earned but unpaid as of the Termination
Date; (ii) during the period beginning on the Termination Date and extending
until the earlier to occur of the Executive's Death or the date this Agreement
otherwise would have terminated had the employment of the Executive not been
earlier terminated but, regardless of the Executive's Death, not less than a
period of one (1) year from the Termination Date (the "REMAINING TERM"), the
Company shall provide to the Executive, his legal representatives, heirs,
eligible dependents, if any, or permitted assigns, as applicable, all benefits
to which such persons may be entitled under any of the Benefit Plans, and
specifically, without limitation, shall provide the Executive and his eligible
dependents, if any, with life, disability, accident and group health insurance
benefits substantially similar to those which the Executive and his dependents
were receiving immediately prior to the Notice of Termination, provided the
Executive or his legal representatives, heir or permitted assigns pay the
regular premium required of active employees for such coverage (following the
expiration of the Remaining Term, the Executive shall be
6.
<PAGE> 7
eligible to purchase health insurance benefits in accordance with applicable
federal law); (iii) beginning with the first day of the month on or following
the Termination Date and continuing until the expiration of the Remaining Term,
the Company shall pay the Executive in cash an amount equal to one-twelfth
(1/12) of the Base Compensation, less the amount, if any, of monthly disability
income paid to the Executive pursuant to any Company-sponsored long-term
disability plan; (iv) if on the Termination Date the Executive has completed
six (6) or more months of the Company's then current fiscal year, the Company
shall pay to the Executive, his legal representatives, heirs or permitted
assigns, a pro-rata portion of his Bonus for such fiscal year (the "PRO RATA
BONUS"), such payment to be made within ten (10) days following the date on
which a bonus in which the Executive would have participated but for his
termination is declared, provided the criteria established by the Board for
such Pro Rata Bonus have been satisfied fully as of the Termination Date; and
(v) all stock options, warrants, rights and other Company stock-related awards
granted to the Executive by the Company (collectively, the "STOCK AWARDS") that
otherwise would have vested and become exercisable during the fiscal year of
the Company in which the Executive has terminated, shall become upon the
Termination Date fully vested and nonforfeitable, all restrictions (except for
restrictions required by law), if any, thereon shall lapse, all performance
goals, if any, associated therewith shall be deemed met in full, and the
Executive shall be entitled to exercise any or all such Stock Awards in
accordance with the terms of the documentation pursuant to which such Stock
Awards were granted.
(c) TERMINATION FOLLOWING A CHANGE IN CONTROL.
Notwithstanding any other provision of this Agreement to the contrary, if
within two (2) years following a "CHANGE IN CONTROL" (as defined below) of the
Company the employment of the Executive terminates as a result of an
involuntary termination for any reason other than Cause, Disability, Death or
normal retirement which constitutes a "CONSTRUCTIVE INVOLUNTARY TERMINATION"
(as defined below), the Executive shall be entitled to the compensation and
benefits provided in Section 9(b) above as if the Executive's employment had
been terminated other than pursuant to a Voluntary Termination, a termination
for Cause or the expiration of the Term, as of the date of termination by the
Executive following a Change in Control until the later of (i) the date this
Agreement otherwise would have expired had the employment of the Executive not
been earlier terminated by the Executive and (ii) two (2) years from such date
of termination by the Executive following a Change in Control, regardless of
the Executive's Death. Notwithstanding any other provision of this Agreement
to the contrary, the Executive shall not be required to mitigate the amount of
any payment provided for in this Section 9(c) by seeking other employment or
otherwise, and the amount of any payment, provided for in this Section 9(c)
shall not be reduced by any compensation earned by the Executive as a result of
his employment by another employer after the Termination Date or otherwise.
For purposes of this Section 9(c), the following terms shall have the following
meanings:
(i) "CHANGE IN CONTROL" shall mean and
be determined to have occurred if (i) any person ("PERSON") (as such term is
used in Sections 13(b) and 14(b) of the Securities Exchange Act of 1934, as
amended) (the "EXCHANGE ACT") is or becomes the beneficial owner ("BENEFICIAL
OWNER") (as defined in Rule 13d-3 promulgated under the
7.
<PAGE> 8
Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the then outstanding
securities of the Company; provided, however, that neither (x) the Initial
Public Offering nor (y) the beneficial ownership representing 30% or more of
the combined voting power of the then outstanding securities of the Company by
E.B.C. Trust Corporation, an independent trust company incorporated in Monaco,
shall constitute a Change in Control for purposes of this Agreement; (ii)
during any period of two (2) years, a majority of the members of the Board is
replaced by directors who were not nominated and approved by the Board; (iii) a
majority of the members of the Board are represented by, or appointed by or
affiliated with, any Person whom the Board has determined is seeking to effect
a Change in Control of the Company; (iv) the Company shall be combined with or
acquired by another company and the Board shall have determined, either before
such event or thereafter, by resolution, that a Change in Control will occur or
has occurred; or (v) at any time prior to the second anniversary of the
Effective Date during the Initial Term, the Company shall require the Executive
to move his principal place of business from Oakhurst, California to any other
location, including without limitation Los Angeles, California.
(ii) "CONSTRUCTIVE INVOLUNTARY
TERMINATION" shall mean voluntary termination of employment by the Executive as
a result of a significant reduction or adverse change in the duties,
responsibilities, reporting relationship, job description, compensation,
perquisites, office or location of employment of the Executive without the
written consent of the Executive.
(d) EXCLUSIVE PAYMENTS. The payments upon
termination made by the Company to the Executive pursuant to Sections 9(a), (b)
and (c) above shall constitute the exclusive payments due to the Executive upon
termination under this Agreement; provided, however, that all monthly payments
made pursuant to Section 9(b)(iii) above, except as provided in Section 9(c),
shall be reduced or mitigated by the amount of any cash compensation secured or
earned by the Executive during such month for services rendered to another
employer; and provided further that all benefits receivable by the Executive,
his legal representatives, heirs, eligible dependents, if any, or permitted
assigns, as applicable, shall be reduced to the extent comparable benefits
actually are received by the Executive, his legal representatives, heirs,
eligible dependents, if any, or permitted assigns, as applicable, during the
Remaining Term pursuant to similar plans or programs of another employer.
10. LIMITATION ON PAYMENTS. If the severance payments
provided for under this Agreement, either alone or together with other payments
which the Executive would have the right to receive from the Company, will
constitute a "parachute payment" as defined in Section 280G of the Internal
Revenue Code of 1986 (the "CODE") as in effect at the time of payment, such
payment shall be reduced to the largest amount which will result in no portion
being subject to the excise tax imposed by Section 4999 of the Code or the
disallowance of a deduction by the Company pursuant to Section 280G(a) of the
Code. The determination of the amount of any reduction under this Section 10
and the payments to which such reduction shall apply, shall be made in good
faith by the Executive and such determination shall be binding on the Company.
8.
<PAGE> 9
11. EXECUTIVE COVENANTS.
(a) UNAUTHORIZED DISCLOSURE. The Executive
agrees and understands that due to the Executive's position with the Company,
the Executive will be exposed to and will receive confidential and proprietary
information of the Company or relating to the Company's business or affairs
(collectively, the "TRADE SECRETS"), including but not limited to technical
information, computer software (including source and object code data and
related documentation), research and development, know-how, product
information, formulae, processes, business and marketing plans, strategies,
customer information, other information concerning the Company's products,
promotions, development, financing, expansion plans, business policies and
practices and other forms of information considered by the Company to be
proprietary and confidential and in the nature of trade secrets. Except to the
extent that the proper performance of the Executive's duties and
responsibilities hereunder may require disclosure, and except as such
information (i) was known to the Executive prior to his employment by the
Company, (ii) was or becomes generally available to the public other than as a
result of a disclosure by the Executive in violation of the provisions of this
Section 11(a) and (iii) was or becomes available to the Executive on an
non-confidential basis from a source other than the Company or any of its
agents or representatives, provided that such source is not known by the
Executive to be bound with respect to such information by a confidentiality
agreement with, or other obligation of secrecy to, the Company or otherwise
prohibited from transmitting such information of secrecy the Executive by a
contractual, legal or fiduciary obligation, the Executive agrees that during
the Term and at all times thereafter the Executive will keep such Trade Secrets
confidential and will not disclose such information, either directly or
indirectly, to any third person or entity without the prior written consent of
the Company. This confidentiality covenant has no temporal, geographical or
territorial restriction. On the Termination Date, the Executive promptly will
supply to the Company all property, keys, notes, memoranda, writings, lists,
files, reports, customer lists, correspondence, tapes, disks, cards, surveys,
maps, logs, machines, technical data, formulae or any other tangible product or
document which have been produced by, received by or otherwise submitted to the
Executive in the course of his employment with the Company, including the
period during and prior to the Term. Any material breach of the terms of this
Section 11(a) shall be considered Cause.
(b) INVENTIONS. The Executive agrees that any
and all inventions, discoveries, improvements, processes, formulae, business
application software patents, copyrights and trademarks made, developed,
discovered or acquired by him during his employment by the Company, solely or
jointly with others or otherwise, which relate to the business of the Company,
and all knowledge possessed by the Executive relating thereto (collectively,
the "INVENTIONS"), shall be fully and promptly disclosed to the Board and to
such person or persons as the Board shall direct, and shall be the sole and
absolute property of the Company and the Company shall be the sole and absolute
owner thereof. The Executive agrees that he will at all times keep all
Inventions secret from everyone except the Company and such persons as the
Board may from time to time direct. The Executive shall, as requested by the
Company at any time and from time to time, whether prior to or after the
expiration of the Term, execute and deliver to the Company any instruments
deemed necessary by the Company to effect disclosure and assignment of the
Inventions to the Company or its designees and any
9.
<PAGE> 10
patent applications (United States or foreign) and renewals with respect
thereto, including any other instruments deemed necessary by the Company for
the prosecution of patent applications or the acquisition of letters patent.
Reference is hereby made to Appendix A to this Agreement, which reprints the
text of Sections 2870 through 2872 of the California Labor Code. Execution of
this Agreement by the Executive shall confirm that the Executive has received
and read such Appendix A. The provisions of this Section 11(b) shall not apply
to any invention which qualifies fully under the provisions of Section 2870 of
the California Labor Code.
(c) PROHIBITED AND COMPETITIVE ACTIVITIES. The
Executive and the Company recognize that due to the nature of the Executive's
engagement hereunder and the relationship of the Executive to the Company, the
Executive will have access to, will acquire and will assist in developing,
confidential and proprietary information relating to the business and
operations of the Company and its affiliates, including Trade Secrets. The
Executive acknowledges that such information has been and will be of central
importance to the business of the Company and its affiliates and that
disclosure of it to, or its use by, others (including, without limitation, the
Executive (other than with respect to the Company's business and affairs))
could cause substantial loss to the Company. The Executive and the Company
also recognize that an important part of the Executive's duties and
responsibilities will be to develop good will for the Company and its
affiliates through his personal contact with "Clients" (as defined below),
employees and others having business relationships with the Company, and that
there is a danger that this good will, a proprietary asset of the Company, may
follow the Executive if and when his relationship with the Company is
terminated. The Executive accordingly agrees as follows:
(i) PROHIBITED ACTIVITIES. The
Executive will not at any time during the Term: (A) other than in the
course of his employment, disclose or furnish to any other person or,
directly or indirectly, use for his own account or the account of any
other person, any Trade Secrets, no matter from where or in what
manner he may have acquired such Trade Secrets, and he shall retain
all such Trade Secrets in trust for the benefit of the Company, its
affiliates and the successors and assigns of any of them; (B) directly
or through one or more intermediaries, solicit for
employment any person who, at the time of such solicitation, is
employed by the Company or any affiliate thereof; (C) directly or
indirectly, whether for his own account or for the account of any
other person, solicit, divert or endeavor to entice away from the
Company or any entity controlled by the Company, or otherwise engage
in any activity intended to terminate, disrupt or interfere with, the
Company's or any of its affiliate's relationship with, Clients, or
otherwise adversely affect the Company's or any of its affiliate's
relationship with Clients or other business relationships of the
Company or any affiliate thereof; or (D) publish or make any statement
critical of the Company or any shareholder or affiliate of the
Company, or in any way adversely affect or otherwise malign the
business or reputation of any of the foregoing persons (any activity
described in clause (A), (B), (C) or (D) of this Section 11(c)(i)
being herein referred to as a "PROHIBITED ACTIVITY"); provided,
however, that if in the written opinion of counsel, the Executive is
legally compelled to disclose Trade Secrets to any tribunal or else
stand liable for contempt or suffer other similar censure or penalty,
then the disclosure to such tribunal of those Trade Secrets which such
counsel advises in writing legally are required to be disclosed shall
10.
<PAGE> 11
not constitute a Prohibited Activity, provided that the Executive
shall give the Company as much advance notice of such disclosure as is
reasonably practicable. For purposes of this Agreement, "CLIENTS"
shall mean those persons who, at any time during the Executive's
course of employment with the Company (including, without limitation,
prior to the date of this Agreement) are or were clients or customers
of the Company or any affiliate thereof or any predecessor of any of
the foregoing.
(ii) NON-COMPETITION. By and in
consideration of the Company's entering into this Agreement and
providing the compensation and benefits to be provided by the Company
to the Executive, and further in consideration of the Executive's
exposure to the confidential and proprietary information of the
Company (including, without limitation, the Trade Secrets), the
Executive agrees that the Executive will not, during the Term and for
one (1) year following the termination of this Agreement for any
reason, engage in any "COMPETITIVE ACTIVITY" as defined below. For
purposes of this Agreement, the term "COMPETITIVE ACTIVITY" shall mean
engaging in any of the following activities: (A) serving as a
director of any "Competitor" (as defined below); (B) directly or
indirectly through one or more intermediaries, either (x) controlling
any Competitor or (y) owning any equity or debt interests in any
Competitor (other than equity or debt interests which are publicly
traded and, at the time of any acquisition, do not exceed 5% of the
particular class of interests outstanding) (it being understood that,
if interests in any Competitor are owned by an investment vehicle or
other entity in which the Executive owns an equity interest, a portion
of the interests in such Competitor owned by such entity shall be
attributed to the Executive, such portion determined by applying the
percentage of the equity interest in such entity owned by the
Executive to the interests in such Competitor owned by such
entity); (C) employment by (including serving as an officer or
partner of), providing consulting services to (including,
without limitation, as an independent contractor), or managing
or operating the business or affairs of, any Competitor; or
(D) participating in the ownership, management, operation or
control of or being connected in any manner with any
Competitor. For purposes of this Agreement, the term
"COMPETITOR" shall mean any person (other than the Company or
any affiliate thereof) that competes, either directly or
indirectly, at the time of determination, in any "Restricted
Area" (as defined below) with the on-line gaming business of
the Company. For purposes of this Agreement, Executive shall
not be deemed to have breached the condition described in this
Section 11(c)(ii) by virtue of his employment for an entity
that is otherwise deemed a Competitor if the Executive does
not in any way participate in or contribute to such entity's
on-line gaming business. For purposes of this Agreement, the
term "RESTRICTED AREA" shall mean any state or territory of
the United States in which the Company or any affiliate
thereof conducts business or any state or similar subdivision
of any foreign country.
(iii) REMEDIES. The Executive agrees that
any breach of the terms of this Section 11 would result in irreparable
injury and damage to the Company for which the Company would have no
adequate remedy at law. The Executive therefore also agrees that in
the event of any such breach or any threat of such breach, the
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<PAGE> 12
Company shall be entitled to an immediate injunction and restraining
order to prevent such breach and/or threatened breach and/or continued
breach by the Executive and/or any and all persons and/or entities
acting for and/or with the Executive, without having to prove damages,
in addition to any other remedies to which the Company may be entitled
at law or in equity. The terms of this Section 11shall not prevent
the Company from pursuing any other available remedies for any breach
or threatened breach hereof, including but not limited to the recovery
of damages from the Executive.
The provisions of this Section 11 shall survive any
termination of this Agreement. The existence of any claim or cause of action
by the Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
the covenants and agreements set forth in this Section 11.
12. MISCELLANEOUS.
(a) BINDING EFFECT; ASSIGNMENT. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective heirs, executors, representatives, estates, successors and assigns,
including any successor or assign to all or substantially all of the business
and/or assets of the Company, whether direct or indirect, by purchase, merger,
consolidation, acquisition of stock or otherwise; provided, however, that the
Executive, or any beneficiary or legal representative of the Executive, shall
not assign all or any portion of the Executive's rights or obligations under
this Agreement without the prior written consent of the Company.
(b) NOTICES. All notices and other
communications given or made pursuant hereto shall be in writing and shall be
deemed to have been given on the day delivered if delivered personally, within
three (3) "Business Days" (as defined below) after being sent if sent by
registered or certified mail (postage prepaid, return receipt requested), the
next day after being sent if sent by overnight courier (prepaid) or the next
day after being sent if sent by telecopier to either party at the following
address:
IF TO THE COMPANY:
Legacy Software, Inc.
5340 Alla Road
Los Angeles, CA 90066
Attention: Chief Executive Officer
Telephone: (310) 823-2423
Telecopier: (310) 448-0490
12.
<PAGE> 13
WITH A COPY TO:
Brobeck, Phleger & Harrison LLP
550 South Hope Street, 24th Floor
Los Angeles, CA 90071
Attention: V. Joseph Stubbs, Esq.
Telephone: (213) 239-1253
Telecopier: (213) 239-1324
IF TO THE EXECUTIVE:
Mr. Robert E. Heitman
40459 Highway 41, Suite 6
Oakhurst, CA 93644
Telephone: _______________
Telecopier: _______________
or to such other address as either party shall have specified for itself or
himself from time to time to the other party in writing. For purposes of this
Agreement, the term "BUSINESS DAY" shall mean any day other than a Saturday, a
Sunday or any day on which commercial banks in Los Angeles, California, are
authorized or required by law to close.
(c) ENTIRE AGREEMENT. This Agreement contains
the entire understanding of the parties hereto with respect to the subject
matter hereof, and supersedes all prior agreements and understandings, oral or
written, between them as to such subject matter.
(d) AMENDMENT. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
(e) HEADINGS. The headings contained in this
Agreement are inserted for convenience or reference only, and do not constitute
a part of this Agreement.
(f) NO THIRD PARTY BENEFICIARIES. Except as set
forth in Section 12(a) above, this Agreement is not intended to confer any
rights or remedies on any person not a party to this Agreement.
(g) COUNTERPARTS. This Agreement may be executed
in one or more counterparts, all of which shall be considered one and the same
agreement and each of which shall be deemed an original.
(h) INVALIDITY; SEVERABILITY. In the event that
any provision of this Agreement shall be deemed contrary to law or invalid or
unenforceable in any respect by a court of competent jurisdiction, the
remaining provisions shall remain in full force and effect to the extent that
such provisions reasonably can still be given effect in accordance with the
intentions of the parties, and the invalid and unenforceable provisions shall
be deemed, without further
13.
<PAGE> 14
action on the part of the parties, modified, amended and limited solely to the
extent necessary to render the same valid and enforceable.
(i) GOVERNING LAW. The validity and
interpretation of this Agreement shall be governed by the laws of the State of
California, without reference to the conflict of laws principles thereof.
(j) MEDIATION AND ARBITRATION. Any dispute which
may arise between the parties hereto as to the construction, interpretation or
effect of this Agreement which is not resolved by mutual agreement between the
parties, shall first be submitted to nonbinding mediation on terms and
conditions to be mutually agreed upon by the parties. In the event that a
dispute is not resolved by nonbinding mediation, the disputing party may give
the other party notice of such party's intention to cause the same to be
submitted to arbitration. After fifteen (15) days have elapsed from the giving
of such notice, but not before such time, the party who gave such notice may
cause any such dispute which then remains unresolved to be submitted to
arbitration by submitting the same to the Los Angeles, California office of the
American Arbitration Association (the "AAA") (or any successor thereto, but if
no organization is then performing a function reasonably similar to the AAA,
then to a court of competent jurisdiction in accordance with the rules of such
court) with a request for arbitration to be conducted in accordance with the
rules thereof by one (1) arbitrator to be jointly selected by the parties. The
prevailing party's expenses, including without limitation attorneys' fees, in
connection with such arbitration shall be borne by the losing party; provided,
however, that if liability is allocated by the arbitrator between the parties,
the expenses of such arbitration, including without limitation the parties'
attorneys' fees, shall be borne by the parties in proportion to their
respective percentages or proportions of liability assessed by the arbitrator.
The decision of the arbitrator as to all matters properly submitted to such
arbitrator and as to the apportionment of expenses of arbitration shall be
conclusive and binding upon the parties and judgment upon any award may be
entered in any court of competent jurisdiction.
14.
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
LEGACY SOFTWARE, INC., a Delaware
corporation
By: /S/ WILLIAM E. SLINEY
-------------------------------------
Name: William E. Sliney
Title: Vice President
"COMPANY"
/S/ ROBERT E. HEITMAN
-------------------------------------
Robert E. Heitman
"EXECUTIVE"
<PAGE> 16
Appendix A
NOTIFICATION TO EMPLOYEE
Set forth below is the text of Sections 2870, 2871 and 2872 of
the California Labor Code, as published in West's Ann. Cal. Labor Code (1989)
and West's Ann. Cal. Labor Code (1994 Supp.):
Section 2870. EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
(a) Any provision in an employment agreement which provides that
an employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to
practice of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer; or
(2) Result from any work performed by the employee for
the employer.
(b) To the extent a provision in an employment agreement purports
to require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
Section 2871. CONDITIONS OF EMPLOYMENT OR CONTINUED EMPLOYMENT; DISCLOSURE
OF INVENTIONS
No employer shall require a provision made void and unenforceable by
Section 2870 as a condition of employment or continued employment. Nothing in
this article shall be construed to forbid or restrict the right of an employer
to provide in contracts of employment for disclosure, provided that any such
disclosures be received in confidence, of all of the employee's inventions made
solely or jointly with others during the term of his or her employment, a
review process by the employer to determine such issues as may arise, and for
full title to certain patents and inventions to be in the United States, as
required by contracts between the employer and the United States or any of its
agencies.
Section 2872. NOTICE TO EMPLOYEE; BURDEN OF PROOF
If an employee agreement entered into after January 1, 1980, contains
a provision requiring the employee to assign or offer to assign any of his or
her rights in any invention to his or her employer, the employer must also, at
the time the agreement is made, provide a written notification to the employee
that the agreement does not apply to an invention which qualifies fully under
the provisions of Section 2870. In any suit or action arising thereunder, the
burden of proof shall be on the employee claiming the benefits of its
provisions.
<PAGE> 1
EXHIBIT 10.2
OFFICE LEASE
This lease is executed by and between Guyett/Montgomery,
hereinafter referred to as "Lessor", and Legacy Software, Inc., hereinafter
referred to as "Lessee", in connection with those certain premises, hereinafter
referred to as said "Premises", in the County of Madera, State of California,
described as follows: Approximately l,454+ square feet, Suite N, Sierra Center
Building, 40671 Highway 41, Oakhurst, California, 93644, on the following terms
and conditions:
ARTICLE 1. TERM OF LEASE
Section 1.01. This lease shall be for a term of two (2)
years commencing at 12:01 a.m. on the 26th day of August, 1996, and ending at
12:01 a.m. on the 31st day of August, 1998, unless sooner terminated as herein
provided.
Section 1.02. Should Lessee hold over and continue in
possession of said premises after expiration of the term of this lease or any
extension thereof, Lessee's continued occupancy of said premises shall be
considered a month-to-month tenancy subject to all the terms and conditions of
this lease.
Section 1.03. For and as additional consideration Lessor
hereby grants to Lessee one (1) additional option to extend this lease for
three (3) years subject to all of the terms and conditions as specified in this
Lease, save and except the payment of rent. With respect to the payment of
rent, the
<PAGE> 2
parties agree that the amount of rent for each option period shall be the
amount mutually agreed upon by and between the parties. However, in the event
no mutual agreement can be reached, the parties hereby agree to each appoint
one person who will then jointly select an appraiser to determine the fair
rental value for the premises for the next succeeding option period. The
amount of such monthly rental as determined by said appraiser shall be binding
upon both parties. Written notice of exercise of the option shall be given by
Lessee to Lessor at least thirty (30) days prior to the expiration of the term
of this lease or any extension thereto.
ARTICLE 2. RENT
Section 2.01. Lessee agrees to pay to Lessor a fixed rental
for the use and occupancy of said premises of $1,000.00* per month payable on
the 1st day of each month and every month commencing on the 26th day of August,
1996, at the office of the Lessor. *Rent raised to $1,091.00 on 08/01/97.
Section 2.02. Lessee agrees to deposit with Lessor at the
time of the execution of this Lease a total sum of One Thousand Two Hundred
Eighty-Eight and no/100 Dollars ($1,288.00)* which sum represents the first
month's rent and the last month's rent, which last month's rent may be used in
the Lessor's discretion either to pay delinquent rent or as a security deposit
for any damage occasioned to the premises by Lessee in breach of
2
<PAGE> 3
the terms and provisions of this Lease. *8/26/96 to 8/31/96 $197.00
Last Month 1,091.00
---------
TOTAL DEPOSIT: $1,288.00
=========
ARTICLE 3. USE OF PREMISES
Section 3.01. Said premises shall, during the term of this
lease and any extensions thereof, be used for the purpose of operating and
conducting thereon and therein a Computer Programming Office for uses normally
incident to such purpose, and for no other purpose. In conducting the business
specified in this section in and on said premises, Lessee shall sell such
merchandise and render such services, and Lessee shall be entitled to sell such
merchandise and render such services, as are customarily sold and rendered by
the operators of businesses of the same type in the county where said premises
are located.
Section 3.02. Lessee shall not commit or permit the
commission of any acts on said premises nor use or permit the use of said
premises in any manner that will increase the existing rates for or cause the
cancellation of any fire, liability, or other insurance policy insuring said
premises or the improvements on said premises. Lessee shall, at his own cost
and expense, comply with any and all requirements of Lessor's insurance
carriers necessary for the continued maintenance at reasonable rates of fire
and liability insurance policies on said premises and the improvements on said
premises.
Section 3.03. Lessee shall not commit or permit the
commission by others of any waste on said premises; Lessee shall
3
<PAGE> 4
not maintain, commit, or permit the maintenance or commission of any nuisance
as defined in Section 3479 of the California Civil Code on said premises; and
Lessee shall not use or permit the use of said premises for any unlawful
purpose.
Section 3.04. Lessee shall at Lessee's own cost and expense
comply with all statutes, ordinances, regulations, and requirements of all
governmental entities, both federal and state and county or municipal, relating
to Lessee's use and occupancy of said premises whether such statutes,
ordinances, regulations, and requirements be now in force or hereinafter
enacted. The judgment of any court of competent jurisdiction, or the admission
by Lessee in a proceeding brought against Lessee by any government entity, that
Lessee has violated any such statute, ordinance, regulation, or requirement
shall be conclusive as between Lessor and Lessee and shall be grounds for
termination of this lease by Lessor.
ARTICLE 4. TAXES AND UTILITIES
Section 4.01. Lessee shall pay, and hold Lessor and the
property of Lessor free and harmless from, all charges for the furnishing of
gas, water, electricity, telephone service, and other public utilities to said
premises during the term of this lease or any extension thereof and for the
removal of garbage and rubbish from said premises during the term of this lease
or any extensions thereof.
4
<PAGE> 5
Section 4.02. Any utilities not separately metered shall be
prorated to the Lessee based upon the percentage calculated by dividing the
amount of square footage leased by Lessee by the total square footage being
serviced by said un-metered utility.
Section 4.03. Lessee shall pay before they become
delinquent all taxes, assessments, or other charges levied or imposed by any
governmental entity on the furniture, trade fixtures, appliances, and other
personal property placed by Lessee in, on, or about said premises including,
without limiting a generality of the other terms used in this section, any
shelves, counters, vaults, vault doors, wall safes, partitions, fixtures,
machinery, plant equipment, office equipment, television or radio antennas, or
communication equipment brought on said premises by Lessee.
Section 4.04. All real property taxes and assessments
levied or assessed against said premises by any governmental entity, including
any special assessments imposed on or against said premises for the
construction or improvement of public works in, on, or about said premises,
shall be paid, before they become delinquent, by Lessor; provided, however,
Lessee shall reimburse Lessor in equal monthly installments for any increase in
taxes over the tax assessed against the real property for the year 1996. The
amount of such equal monthly installments shall be calculated based upon
dividing the figure calculated by multiplying the amount of such increase by a
percentage figure
5
<PAGE> 6
equal to the percent of the total square footage leased within the building
divided into the amount of square footage leased to Lessee and dividing that
amount by twelve (12).
ARTICLE 5. ALTERATIONS AND REPAIRS
Section 5.01. Lessee accepts said premises, as well as the
improvements thereon including the improvement on Schedule A and the facilities
appurtenant thereto, in their present condition and stipulates with Lessor that
said premises as well as the improvements thereon and the facilities
appurtenant thereto are in good, clean, safe, and tenantable condition as of
the date of this lease. Lessee further agrees with and represents to Lessor
that said premises have been inspected by Lessee and that he has been assured
by means independent of Lessor or any agent of Lessor of the truth of all facts
material to this lease and that said premises are being leased by Lessee as a
result of his inspection and investigation and not as a result of any
representations made by Lessor or any agent of Lessor.
Section 5.02. Lessor shall, at his own cost and expense,
maintain in good condition and repair the exterior roof, exterior walls except
show window glass, structural supports, community restrooms and the foundation
of said premises; provided, however, that Lessor shall not be liable for any
damages to Lessee or the property of Lessee resulting from Lessor's failure to
make any repairs required by this section
6
<PAGE> 7
unless written notice of the need for such repairs has been given to Lessor by
Lessee and Lessor has failed for a period of sixty (60) days after receipt of
the notice, unless prevented by causes not the fault of the Lessor, to make the
needed repairs; provided, further, that Lessor shall promptly be reimbursed by
Lessee for the full cost of any repairs made pursuant to this section required
because of the negligence or other fault, other than normal and proper use, of
Lessee or his employees or agents or sublessees, if any.
Section 5.03. Except as otherwise expressly provided in
Section 5.02 of this lease, Lessee shall at his own cost and expense keep and
maintain all portions of said premises as well as all improvements on said
premises and all facilities appurtenant to said premises in good order and
repair and in as safe and clean a condition as they were when received by
Lessee from Lessor, reasonable wear and tear excepted.
Section 5.04. Lessee shall not make or permit any other
person to make any alterations to said premises or to any improvement thereon
or facility appurtenant thereto without the written consent of Lessor first had
and obtained. Lessee shall keep the premises free and clear from any and all
liens, claims, and demands for work performed, materials furnished, or
operations conducted on said premises at the instance or request of Lessee.
Furthermore, any and all alterations, additions, improvements, and fixtures,
except furniture and trade fixtures, made or placed in or on said premises by
Lessee or any other
7
<PAGE> 8
person shall on expiration or sooner termination of this lease become the
property of Lessor and remain on said premises; provided, however, that Lessor
shall have the option on expiration or sooner termination of this lease of
requiring Lessee, at Lessee's sole cost and expense, to remove any or all such
alternations, additions, improvements, or fixtures from said premises.
Section 5.05. Lessee shall permit Lessor or Lessor's
agents, representatives, or employees to enter said premises at all reasonable
times for the purpose of inspecting said premises to determine whether Lessee
is complying with the terms of this lease and for the purpose of doing other
lawful acts that may be necessary to protect Lessor's interest in said premises
under this lease or to perform Lessor's duties under this lease.
Section 5.06. On expiration or sooner termination of this
lease, or any extensions or renewals of this lease, Lessee shall promptly
surrender and deliver said premises to Lessor in as good condition as they are
now at the date of this lease, reasonable wear and tear and repairs herein
required to be made by Lessor excepted.
ARTICLE 6. INDEMNITY AND INSURANCE
Section 6.01. Lessee agrees to indemnify and hold Lessor
and the property of Lessor, including said premises, free and harmless from any
and all claims, liability, loss, damage, or expenses resulting from Lessee's
occupation and use of said
8
<PAGE> 9
premises, specifically including, without limitation, any claim, liability,
loss, or damage arising by reason of:
(a) The death or injury of any person or persons,
including Lessee or any person who is an employee or
agent of Lessee, or by reason of the damage to or
destruction of any property, including property owned
by Lessee or any person who is an employee or agent
of Lessee, and caused or allegedly caused by either
the condition of said premises, or some act or
omission of Lessee or of some agent, contractor,
employee, servant, sublessee, or concessionaire of
Lessee on said premises;
(b) any work performed on said premises or materials
furnished to said premises at the instance or request
of Lessee or any agent or employee of Lessee; and
(c) Lessee's failure to perform any provision of this
lease or to comply with any requirement of law or any
requirement imposed on Lessor or the leased premises
by any duly authorized governmental agency or
political subdivision.
Section 6.02. Lessee shall, at his own cost and expense,
secure within ten (10) days and maintain during the entire term of this lease
and any renewals or extensions of such term a broad form comprehensive coverage
policy of public liability insurance issued by an insurance company acceptable
to
9
<PAGE> 10
Lessor and insuring Lessor against loss or liability caused by or connected
with Lessee's occupation and use of said premises under this lease in amounts
not less than:
(a) $100,000 for injury to or death of one person and,
subject to such limitation for the injury or death of
one person, of not less than $300,000 for injury to
or death of two or more persons as a result of any
one accident or incident; and
(b) $50,000 for damage to or destruction of any property
of others.
Section 6.03. In order that the business of Lessee and the
gross sales of Lessee as defined in this lease may continue with as little
interruption as possible, Lessee shall, during the full term of this lease and
any renewals or extensions thereof, maintain at Lessee's own cost and expense
an insurance policy issued by a reputable company authorized to conduct
insurance business in California insuring for their full insurable value all
fixtures and equipment and, to the extent possible all merchandise that is, at
any time during the term of this lease or any renewal or extension thereof, in
or on said premises against damage or destruction by fire, theft, or the
elements.
Section 6.04. During the term of this lease, Lessor agrees to
maintain a policy of casualty insurance insuring against the destruction of the
leased premises. Lessee agrees to reimburse Lessor for Lessee's prorata share
of any increase in said insurance which increase is for the period after the
date of
10
<PAGE> 11
execution of this Lease. The amount that said Lessee shall be required to pay
shall be calculated based upon the percentage which the Lessee's leased
premises bears to the percentage of the total leased premises multiplied by the
amount of such increase. Such amount shall be divided into twelve (12) equal
monthly installments and shall be paid as a part of the rental payment as it
becomes due and payable.
ARTICLE 7. SIGNS, TRADE FIXTURES AND PARKING
Section 7.01. Lessee shall have the right at any time and
from time to time during the term of this lease and any renewal or extension of
such term, at Lessee's sole cost and expense, to install and affix in, to, or
on said premises such items, herein called "trade fixture," for use in Lessee's
trade or business as Lessee may, in his sole discretion, deem advisable. Any
and all such trade fixtures that can be removed without structural damage to
said premises or any building or improvements on said premises shall, subject
to Section 7.02 of this lease, remain the property of the Lessee and may be
removed by Lessee at any time or times prior to the expiration or sooner
termination of this lease.
Section 7.02. As security for the faithful performance of
all the terms, conditions, and covenants of this lease to be performed by
Lessee, Lessee hereby grants to Lessor a security interest in all trade
fixtures and equipment owned by Lessee and now or hereafter placed on said
premises by Lessee. Any right or
11
<PAGE> 12
rights of removal of trade fixtures given Lessee by the provisions of Section
7.01 of this lease shall be exercised only if, at the time of the removal,
Lessee is not in default in performance of this lease. Lessee may, however, at
any time he is not in default in performance of this lease, trade in or replace
any trade fixture free of the security interest created by this section and
this security interest will then attach to the item that replaced such trade
fixture. On default in performance of any obligation of this lease to be
performed by Lessee, Lessor shall immediately have as to the trade fixtures the
remedies provided to a secured party under the Uniform Commercial code as
enacted in California.
Section 7.03. Any trade fixtures described in this Article
that are not removed from said premises by Lessee within ten (10) days after
(or prior to) the expiration or sooner termination, regardless of cause, of
this lease shall be deemed abandoned by lessee and shall automatically become
the property of Lessor as owner of the real property to which they are affixed
and not simply because of the lien described in Section 7.02 of this lease.
Section 7.04. Lessor hereby retains the right to designate
parking spaces which are to be used by Lessee's employees. Additionally,
Lessor shall be obligated to designate for use and benefit of Lessee or
Lessee's customers, sufficient parking spaces as defined by the applicable
ordinances of the County of Madera.
12
<PAGE> 13
ARTICLE 8. DESTRUCTION AND CONDEMNATION
Section 8.01. Should said premises or the building on said
premises be partially destroyed by any cause not the fault of Lessee or any
person in or about said premises with the consent, express or implied, of
Lessee, this lease shall continue in full force and effect and Lessor, at
Lessor's own cost and expense, shall promptly commence the work of repairing
and restoring said premises to their prior condition providing such work can be
accomplished under all applicable governmental laws and regulations within 60
working days at a cost not exceeding 50 percent of the total replacement cost
of said premises.
Section 8.02. Should said premises or the building on said
premises be so far destroyed by any cause not the fault of Lessee or any person
in or about said premises with the consent, express or implied, of Lessee that
they cannot be repaired or restored to their former condition within 60 working
days or at a cost not exceeding 50 percent of the total replacement cost of
said premises, Lessor may at Lessor's option either:
(a) Continue this lease in full force and effect by
repairing and restoring, at Lessor's own cost and
expense, said premises to their former condition; or
(b) Terminate this lease by giving Lessee written notice
of such termination.
Section 8.03. Any insurance proceed received by Lessor
because of the total or partial destruction of said premises or
13
<PAGE> 14
the building on said premises shall be the sole property of Lessor, free from
any claims of Lessee, and may be used by Lessor for whatever purpose Lessor may
desire.
Section 8.04. Should Lessor elect under Section 8.02 of
this lease or be required under Section 8.01 of this lease to repair and
restore said premises to their former condition following partial or full
destruction of said premises or the building on said premises:
(a) Lessee shall not be entitled to any damages for any
loss or inconvenience sustained by Lessee by reason
of the making of such repairs and restoration;
(b) Lessor shall have full right to enter said premises
and take possession of so much of said premises,
including the whole of said premises, as may be
reasonably necessary to enable Lessor promptly and
efficiently to carry out the work of repair and
restoration; and
(c) The minimum rent payable by Lessee to Lessor pursuant
to Section 2.01 of this lease, but not the percentage
rent described in Section 2.02 of this lease, shall
be abated to the extent and for the time Lessee is
prevented from using the whole of said premises.
14
<PAGE> 15
ARTICLE 9. DEFAULT, ASSIGNMENT, AND TERMINATION
Section 9.01. Lessee shall not encumber, assign, or
otherwise transfer this lease, any right or interest in this lease, or any
right or interest in said premises or any of the improvements that may now or
hereafter be constructed or installed on said premises without the express
written consent of Lessor first had and obtained. Neither shall Lessee sublet
said premises or any part thereof or allow any other person, other than
Lessee's agents, servants, and employees, to occupy said premises or any part
thereof without the prior written consent of Lessor. A consent by Lessor to
one assignment, one subletting, or one occupation of said premises by another
person shall not be deemed to be a consent to any subsequent assignment,
subletting, or occupation of said premises by another person. Any encumbrance,
assignment, transfer, or subletting without the prior written consent of
Lessor, whether it be voluntary or involuntary, by operation of law or
otherwise, is void and shall, at the option of Lessor, terminate this lease.
The consent of Lessor to any assignment of Lessee's interest in this lease or
the subletting by Lessee of said premises or parts of said premises shall not
be unreasonably withheld.
Section 9.02. Should Lessee breach this lease and abandon
said premises prior to the natural expiration of the term of this lease, Lessor
may:
(a) Continue this lease in effect by not terminating
Lessee's right to possession of said premises, in
15
<PAGE> 16
which event Lessor shall be entitled to enforce all
his rights and remedies under this lease, including
the right to recover the rent specified in this lease
as it becomes due under this lease; or
(b) Terminate this lease and recover from Lessee:
(1) The worth at the time of award of the unpaid
rent which had been earned at the time of
termination of the lease;
(2) The worth at the time of award of the amount
by which the unpaid rent which would have
been earned after termination of the lease
until the time of award exceeds the amount of
rental loss that Lessee proves could have
been reasonably avoided;
(3) The worth at the time of award of the amount
by which the unpaid rent for the balance of
the term of this lease after the time of
award exceeds the amount of rental loss that
Lessee proves could be reasonably avoided;
and
(4) Any other amount necessary to compensate
Lessor for all detriment proximately caused
by Lessee's failure to perform his
obligations under this lease.
16
<PAGE> 17
Section 9.03. Should Lessee default in the performance of
any of the covenants, conditions, or agreements contained in this lease, Lessee
shall have breached the lease and Lessor may, in addition to the remedy
specified in the subparagraph (b) of Section 9.02 of this lease, re-enter and
regain possession of said premises in the manner provided by the laws of
unlawful detainer of the State of California then in effect.
Section 9.04. The insolvency of Lessee as evidenced by a
receiver being appointed to take possession of all or substantially all of the
property of Lessee, or the making of a general assignment for the benefit of
creditors by Lessee, shall terminate this lease and entitle Lessor to re-enter
and regain possession of said premises.
Section 9.05. The remedies given to Lessor in this Article
shall not be exclusive but shall be cumulative and in addition to all remedies
now or hereafter allowed by law or elsewhere provided in this lease.
Section 9.06. The waiver by Lessor of any breach by Lessee
of any of the provisions of this lease shall not constitute a continuing waiver
or a waiver of any subsequent breach by Lessee either of the same or another
provision of this lease.
ARTICLE 10. MISCELLANEOUS
Section 10.01. Should the performance of any act required by
this lease to be performed by either Lessor or Lessee
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be prevented or delayed by reason of an act of God, strike, lockout, labor
troubles, inability to secure materials, restrictive governmental laws or
regulations, or any other cause except financial inability not the fault of the
party required to perform the act, the time for performance of the act will be
extended for a period equivalent to the period of delay and performance of the
act during the period of delay will be excused; provided, however, that nothing
contained in this section shall excuse the prompt payment of rent by Lessee as
required by this lease or the performance of any act rendered difficult solely
because of the financial condition of the party, Lessor or Lessee, required to
perform the act.
Section 10.02. Should any litigation be commenced between
the parties to this lease concerning said premises, this lease, or the rights
and duties of either in relation thereto, the party, Lessor or Lessee,
prevailing in such litigation shall be entitled, in addition to such other
relief as may be granted in the litigation, to a reasonable sum as and for his
attorneys fees in such litigation which shall be determined by the court in
such litigation or in a separate action brought for that purpose.
Section 10.03. Except as otherwise expressly provided by
law, any and all notices or other communications required or permitted by this
lease or by law to be served on or given to either party hereto by the other
party hereto shall be in writing and shall be deemed duly served and given when
personally delivered to (any member of) the party to whom they are directed,
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or in lieu of such personal service when deposited in the United States mail,
first-class postage prepaid, addressed to Lessee at 5340 Alla Road, Los
Angeles, California, 90066; 40671 Highway 41, Suite N, Oakhurst, California,
93644. Either party, Lessee or Lessor, may change his address for the purpose
of this section by giving written notice of such change to the other party in
the manner provided in this section.
Section 10.04. This lease shall be binding on and shall
inure to the benefit of the heirs, executors, administrators, successors, and
assigns of the parties hereto, Lessor and Lessee, but nothing in this section
contained shall be construed as a consent by Lessor to any assignment of this
lease or any interest therein by Lessee except as provided in Article 9 of this
lease.
Section 10.05. Should any provision of this lease be held by
a court of competent jurisdiction to be either invalid, void, or unenforceable,
the remaining provisions of this lease shall remain in full force and effect
unimpaired by the holding.
Section 10.06. This instrument constitutes the sole and only
agreement between Lessor and Lessee respecting said premises, the leasing of
said premises to Lessee, or the lease term herein specified, and correctly sets
forth the obligations of Lessor and Lessee to each other as of its date. Any
agreements or representations respecting said premises or their leasing by
Lessor to Lessee not expressly set forth in this instrument are null and avoid.
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EXECUTED on 20th of August, 1996, at Oakhurst and Los Angeles,
California.
GUYETT/MONTGOMERY "LESSOR"
P.O. Box 1935
Oakhurst, CA 93644 /S/ EVERETT MONTGOMERY
- --------------------- ---------------------------------
(209) 683-4195 (signature)
(209) 683-7807
GUYETT-MONTGOMERY
---------------------------------
(typed name)
"LESSEE"
/S/ WILLIAM E. SLINEY
---------------------------------
(signature)
LEGACY SOFTWARE, INC.
---------------------------------
(typed name)
WILLIAM SLINEY
V.P. Finance & Administration
5340 Alla Road
Los Angeles, CA 90066
(310) 822-2423
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SCHEDULE A
Office Lease between Guyett/Montgomery ("Lessor")
and Legacy Software, Inc. ("Lessee")
1. Toshiba - Strata 6 Key System
<PAGE> 1
EXHIBIT 99.1
LEGACY
FOR IMMEDIATE RELEASE
Contact: William E. Sliney
Vice President
Finance and Administration
Chief Financial Officer
LEGACY SOFTWARE, INC. ANNOUNCES ACQUISITION OF
ON THE TOES OF GIANTS, INC.,
A LEADING ENTERTAINMENT SOFTWARE CONSULTING,
AND PROGRAMMING ENTERPRISE
LOS ANGELES, August 19 - Legacy Software, Inc. (NASDAQ/LGCY), a developer of
multimedia software, announced today the acquisition of On The Toes of Giants,
Inc., an entertainment software consulting and programming company,
specializing in online gaming technology. Under terms of the agreement, Legacy
will purchase substantially all of the assets of the Company for stock. The
acquisition is scheduled to close on August 30, 1996 and is subject to the
satisfaction of certain closing conditions.
With the acquisition Legacy will own the internet entertainment technology
currently under development by On the Toes of Giants, Inc. The proprietary
client/server software includes a transaction based billing system and provides
full chat capabilities. The technology will be used to enhance Legacy's
RealPlay (TM) CD-ROM titles as well as to establish a distributed network of
entertainment and information servers that deliver other games and educational
activities. Legacy also plans to license a turnkey solution to software
publishers and developers who seek to establish an interactive internet
presence.
<PAGE> 2
Bob Heitman, President of On the Toes of Giants, Inc., will join Legacy
Software as Vice President of Internet Technology. A 14 year veteran of the
entertainment software industry, Heitman served as Vice President of
Engineering for Sierra, and Vice President of Product Development for Tsumani
Media as well as Vice President of Product Development for the Sierra Network,
now INN, the first online gaming service.
"The acquisition of the internet technology coupled with Bob's experience
positions Legacy as a leader in online game development and distribution,"
states Ariella J. Lehrer, President and CEO of Legacy Software, Inc. "With
this headstart, we are now prepared to begin building and licensing compelling
multiplayer activities on the internet that enrich and entertain."
Legacy Software produces unique entertainment and educational software products
for children, teenagers and adults. The company's RealPlay (TM) series
provides an engaging and realistic experience of various professions, not
replicable in any other medium. Emergency Room, distributed by IBM, is the
first product in the series.
