ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into as of
October 20, 2000 by and between SOFTWARE CONNECTIONS, INC., a
Virginia corporation (d/b/a ALE Systems) ("Seller"), GAYLE P.
GOODRICH, the sole shareholder of Seller ("Shareholder"), and
CALIFORNIA SOFTWARE APPLICATIONS, INC., a Nevada corporation
("Purchaser"), which is a wholly owned subsidiary of CALIFORNIA
SOFTWARE CORPORATION, a Nevada corporation ("CSC").
RECITALS
WHEREAS, the Seller desires to sell to the Purchaser, and
the Purchaser desires to purchase from the Seller, substantially
all of the assets, properties and rights, including, but not
limited to, technology and intellectual property, which
constitute the Seller's business (collectively, the "Business"),
except those assets specifically excluded by this Agreement, and
all liabilities associated with the Business, other than those
liabilities expressly excluded by this Agreement, all as more
particularly provided for below.
NOW, THEREFORE, for and in consideration of the premises and
mutual covenants and agreements contained herein, and intending
to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS AND PURCHASE PRICE
1.1 Purchase and Sale of Assets. Subject to the terms and
conditions of this Agreement, on the Closing Date (as defined in
Section 2.1) the Seller shall sell, transfer, convey, assign and
deliver ("Transfer") to the Purchaser, and the Purchaser shall
purchase, acquire and accept and assume from the Seller, all of
the Seller's right, title and interest in and to all of the
properties, assets, contracts, rental agreements, purchase
orders, sales orders and leases of every kind, character and
description, whether tangible or intangible, whether real,
personal or mixed, whether accrued, contingent or otherwise, and
wherever located, used in or relating to the Business as of the
Closing Date as set forth in Schedule 1.1 (such assets are
hereinafter collectively referred to as the "Transferred
Assets"), except those certain assets excluded pursuant to
Section 1.2 below and all liabilities associated with the
Business assumed by Purchaser pursuant to Section 1.3 below.
1.2 Excluded Assets. Notwithstanding anything in Section 1.1 to
the contrary, the Seller shall retain all of its right, title and
interest in and to all of, and shall not Transfer to the
Purchaser any of, the following assets, rights and properties
(the "Excluded Assets"):
(a) any proceeds paid or payable in accordance with this
Agreement and the Seller's right to enforce the Purchaser's
representations, warranties and covenants hereunder and all other
rights of the Seller under this Agreement or any instrument
executed pursuant hereto.
(b) all minute books, stock books and similar corporate records
of the Seller;
(c) any assets relating to any "employee benefit plan" (as
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or any other plans,
programs or arrangements of any kind relating to employee
benefits sponsored or maintained by the Seller for the benefit of
the employees or former employees of the Business;
(d) any assets not relating to the Business; and
(e) any other items set forth on Schedule 1.2.
1.3 Assumption of Liabilities. Subject to the terms and
conditions of this Agreement, on the Closing Date, the Purchaser
shall assume and agree to pay, perform and discharge when due all
liabilities and obligations of the Seller incurred in, or in any
way related to the Transferred Assets or the Business (the
"Assumed Liabilities"), which shall include but not be limited to
(a) those liabilities set forth in the Balance Sheet reflecting
the assets and liabilities of Seller as of September 30, 2000
delivered to Purchaser on or about October 12, 2000 (a copy of
which is attached as Exhibit A to this Agreement), and (b) those
liabilities set forth Schedule 1.3, except as otherwise proved in
Section 1.4 below.
1.4 Excluded Liabilities.
(a) The Purchaser shall not assume, and shall have no liability
for, any debts, liabilities, obligations, expenses, taxes,
contracts or commitments of the Seller or the Business of any
kind, character or description, whether accrued, absolute,
contingent or otherwise, arising out of any act or omission
occurring or state of facts existing (except as expressly
provided below) prior to or on the Closing Date (the "Excluded
Liabilities"), including, without limitation, the following:
(i) any liability of the Seller under any noncompetition,
consulting or employment agreement, or similar agreement,
commitment or arrangement, whether written or oral;
(ii) any liability of the Seller or the Business for any federal,
state, local or foreign taxes (other than sales, withholding,
payroll taxes and real or personal property taxes), including,
without limitation, any income, capital gains or franchise taxes
or any taxes on capital (including, without limitation, any
deferred income tax liability and any penalties and interest
thereon) attributable to the period ending on and including the
Closing Date; other than those listed on the September 30, 2000
balance sheet.
(iii) any liability for any federal, state, local or foreign
sales, withholding, payroll or real or personal property taxes
incurred by the Seller on or prior to the Closing Date other than
those listed on the September 30, 2000 balance sheet;
(iv) any liability for expenses incurred by, or for claims made
against, the Seller in connection with or resulting from or
attributable to this Agreement or the transactions contemplated
hereby;
(v) any liability for any investment banking, brokerage or
similar charge or commission, or any attorneys' or accountants'
fees and expenses, payable and incurred by the Seller in
connection with the preparation, negotiation, execution or
delivery of this Agreement or the transactions contemplated
hereby;
(vi) any liability arising out of any misrepresentation or breach
of any warranty of the Seller contained in this Agreement or any
of the Schedules or Exhibits hereto or in any certificate,
agreement, instrument or other document delivered pursuant hereto
or out of the failure of the Seller to perform any of its
agreements or covenants contained herein or therein;
(vii) any liability arising out of activities undertaken by
the Seller after the Closing Date, including, but not limited to,
any liability or obligation in connection with employment
practices, terms and conditions of employment and wages and
hours, to employees or former employees of the Seller;
(viii) any liability for any personal injury, property damage,
product liability or breach of warranty claim caused by or
allegedly caused by or arising from or allegedly arising from any
goods, products or services supplied by the Seller prior to the
Closing Date;
(ix) any liability arising out of or allegedly arising out of any
tortious, unlawful or unethical conduct of the Seller;
(x) any liability for any group life or health insurance,
property damage or personal injury claim for employees of the
Seller and their eligible dependents in connection with any
accident or event occurring prior to the Closing Date;
(xi) any liability arising under all applicable laws respecting
employment, employment practices, terms and conditions of
employment, and wages and hours, workers' compensation claims or
proceedings, discrimination claims or proceedings, benefits or
severance or other liabilities or obligations in connection with
any accident or incident occurring prior to the Closing Date to
employees or former employees of the Seller;
(xii) any liability or obligation under any pension,
retirement, severance, welfare, vacation, deferred compensation
bonus or other incentive plan, or other employee benefit program,
arrangement, agreement or understanding, or medical, vision,
dental or health plan, or life insurance or disability plan,
retiree medical plan or any other employee benefit plans,
including, without limitation, any "employee benefit plan" (as
defined in Section 3(3) of ERISA) or any "multi-employer plans"
(as defined in Section 3(37) of ERISA), or any "employee welfare
plan" (as defined in Section 3(i) of ERISA) or any other plans,
programs or arrangements of any kind to which the Seller
contributes or is a party or by which it is bound or under which
it may have liability and under which employees or former
employees of the Seller (or their beneficiaries) are eligible to
participate or derive a benefit, whether claims for the same are
asserted by such employees before or after the Closing Date;
(xiii) any liability or obligation of the Business owing to
the Seller or any Affiliate (as defined in Section 3.23 below) of
the Seller; other than those listed on the September 30, 2000
balance sheet.
(b) The Seller shall remain fully liable for the Excluded
Liabilities.
(c) The Purchaser shall be free to hire such persons, whether or
not employees of the Seller or engaged in activities with respect
to the Business, on such terms and conditions of employment as
the Purchaser shall determine in the exercise of its sole
discretion, and nothing in this Agreement shall establish any
enforceable rights, legal or equitable, in any person other than
the parties hereto, including, without limitation, any employee
of the Seller or any beneficiary of such employee, beyond those
which constitute Assumed Liabilities pursuant to Section 1.3.
Any claim, including any claim for benefits, asserted, by or on
behalf of any person with respect to such person's employment by
the Purchaser, shall be governed solely by applicable employment
policies and employee benefit plans, if any, which the Purchaser
shall adopt after the Closing Date, as construed in accordance
with applicable federal and state law. Notwithstanding anything
contained herein to the contrary, the Purchaser shall not be
obligated to establish or maintain for the benefit of employees
of the Business any employee benefit plan or fringe benefit
arrangement of any kind, including, but not limited to, ERISA
plans. The Seller will retain sole and complete responsibility
for the administration of, and benefits payable under, all
employee benefit plans maintained by Seller for the benefit of
the employees of the Business on or prior to the Closing Date
subject to the terms of such plans. Notwithstanding anything to
the contrary herein, the Purchaser may, in its sole and absolute
discretion, terminate, with or without cause, any employee hired
by the Purchaser in connection with the transactions contemplated
hereby.
1.5 Purchase Price. Subject to the terms and conditions set
forth herein below, the aggregate purchase price to be paid for
the Transferred Assets shall be $2 Million (the "Purchase
Price"), plus the issuance to Shareholder of an option to acquire
1,000,000 shares of Common Stock of CSC (the "Option").
The Purchase Price shall be payable and the Option shall be
issued, as follows:
(a) CASH PAYMENT. Purchaser shall pay to Seller, or shall cause
to be paid to Seller, at the Closing US$750,000 (the "Closing
Payment"), in immediately available funds and, subject to the
terms of Section 1.5(c) below, an additional aggregate amount of
$1,250,000 (the "Earn-out Amount") to be paid in 60 equal monthly
payments (of $20,833.33 each) during the subsequent 60 month-
period immediately following the calendar month in which the
Closing Date occurs, which will be paid on the last business day
of each such calendar month commencing on the last business day
of the calendar month immediately following the calendar month in
which the Closing Date occurs.
(b) CSC STOCK OPTION. At the Closing, CSC shall issue to
Shareholder a non-qualified stock option to purchase 1,000,000
shares of CSC Common Stock having an exercise price of equal to
the average of the opening price per share and the closing price
price per share for CSC Common Stock on the Closing Date, but in
no case more than $2.00 per share, and vesting at the rate of
40,000 shares per month, commencing on the last day of the
calendar month immediately following the calendar month in which
the Closing Date occurs, until fully vested and which shall be
exercisable (subject to such vesting schedule) for a period of
five (5) years from the Closing Date. The foregoing option will
be evidenced by a Non-Qualified Option Agreement to be executed
by CSC and Seller, substantially in the form attached hereto as
Exhibit B (the "Option Agreement").
(c) ADJUSTMENT OF EARN-OUT AMOUNT. The Earn-out shall be reduced
or increased, based upon a percentage of achievement. If the
gross revenue of the seller is less than or greater than
$7,772,158 then 50% of the earn-out amount shall be adjusted for
the subsequent fiscal year accordingly on a percentage basis.
Likewise, if the net income of the seller is less than or greater
than $664,696, then 50% of the earn-out amount shall be adjusted
for the subsequent fiscal year accordingly on a percentage
basis. These annualized payments shall be paid in monthly
installments for 60 months. Payments flowing in the months
following the third full year shall be calculated on the last
full year's performance. The minimum earn-out over the 60 month
payout period shall be $625,000 and the maximum shall be
$2,500,000. The earn-out plan is calculated at a rate of
$1,250,000.00. Months 1 and 2 or November and December, 2000
shall be paid at exactly 100%. January through December, 2001 or
months 3-14 shall be paid based upon the % of plan achievement of
Seller's fiscal 2000 results. Months 15-27 shall be paid based
upon the % of plan achievement of Seller's fiscal 2001 results.
Months 28-40 shall be paid based upon the % of plan achievement
of Seller's 2002 results and months 41-60 shall be paid based
upon the % of plan achievement of Seller's 2003 results. For
example, if the gross revenue for 2000 Fiscal Year of Seller is
$6,000,000 and the [net income] for Y2K Fiscal Year of Seller is
$500,000, the Earn-Out Amount shall be reduced by 23.8% for the
payments 3-14, calculated as follows: [$7,772,158 minus
$6,000,000 = $1,772,158, or a 22.8% decrease, multiplied by 0.5 =
11.4%; and $664,696 minus $500,000 = $164,696, or a 24.8%
decrease, multiplied by 0.5 = 12.4%; and 11.4% plus 12.4% = a
total reduction of 23.8%]. The same formula will be used if
seller exceeds the gross revenue or net income targets of
$7,772,158 and $664,696 respectively.
1.6 Allocation of Purchase Price. As soon as practicable after
the Closing Date, the Purchaser shall prepare an allocation of
the Purchase Price among the Transferred Assets mutually
satisfactory to the Seller in accordance with Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). Neither
the Purchaser nor the Seller shall take any position for purposes
of federal or state income taxes respecting the allocation of the
Purchase Price which is inconsistent with the allocation so
agreed upon by the parties.
1.7 Shareholder's Employment Agreement. As an inducement to the
Shareholder to enter into this Agreement, the Purchaser shall
employ the Shareholder for a period of three years from the
Closing Date, at an annual salary of not less than $185,000.00,
and on the terms and conditions as set forth in the Employment
Agreement of even date herewith by and between the Shareholder
and the Purchaser attached hereto as Exhibit B (the "Employment
Agreement").
ARTICLE 2
CLOSING
2.1 Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement will be held at such time, date
and location as the parties hereto may mutually agree upon (the
"Closing Date").
2.2 Instruments of Conveyance and Transfer.
(a) At the Closing, the Purchaser shall deliver (i) to the
Seller the Closing Payment, and as soon as practicable after the
Closing Date, the Option Agreement and the Employment Agreement,
and (ii) those items deliverable by Purchaser pursuant to Article
VII.
(b) As soon as practicable after the Closing Date, the Seller
shall deliver to the Purchaser, and the Purchaser agrees to
accept in form and substance as delivered:
(i) such bills of sale, endorsements, assignments and other good
and sufficient instruments of conveyance and transfer, in form
reasonably satisfactory to the Purchaser, as shall be effective
to vest in the Purchaser all of the Seller's right, title and
interest in and to the Transferred Assets;
(ii) with respect to the patents, trademarks, service marks,
trade names and copyrights, such assignments and endorsements and
other good and sufficient instruments of conveyance and transfer,
in form reasonably satisfactory to the Purchaser, as shall be
effective to vest in the Purchaser all of the Seller's right,
title and interest in and to the Intangible Property Rights, all
in recordable form as may be required by the U.S. Patent and
Trademark Office;
(iii) copies of all of the Seller's books, records and
financial records relating to the Business purchased hereunder
(except the stock books, minute books or similar corporate
records of the Seller); and
(iv) those items deliverable by Seller pursuant to Article VI.
(c) Simultaneously with such deliveries, the Seller shall take
such steps as may be necessary to put the Purchaser in actual
possession and operating control of the Transferred Assets.
2.3 Further Assurances. From time to time after the Closing,
and without further consideration, the Seller shall execute and
deliver such other instruments of conveyance, assignment,
transfer and delivery, and take such other actions as the
Purchaser may reasonably request in order more effectively to
Transfer to the Purchaser, and to place the Purchaser in
possession or control of, all of the rights, properties, assets
and businesses intended to be Transferred hereunder, to
reasonably assist in the collection of any and all such rights,
properties and assets, and to enable the Purchaser to exercise
and enjoy all of the rights and benefits of the Seller with
respect thereto.
2.4 Transfer Taxes. The Purchaser shall pay all sales and
excise taxes, if any, incurred in connection with the
transactions contemplated by this Agreement. With respect to any
item that is exempt from sales or use tax on any basis, the
Purchaser shall deliver to the Seller an appropriate certificate
establishing the basis for such exemption. Except as hereinabove
provided, the party hereto which is responsible under applicable
law shall bear and pay in their entirety all other taxes and
registration and transfer fees, if any, payable by reason of the
Transfer of the Transferred Assets pursuant to this Agreement.
Each party hereto will cooperate to the extent practicable in
minimizing all taxes (other than income taxes) and fees levied by
reason of the Transfer of the Transferred Assets. .
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER
The Seller represents and warrants to Purchaser that the
following representations and warranties are true and correct at
the date hereof:
3.1 Corporate Existence. The Seller is a corporation duly
organized, validly existing and in good standing under the laws
of the Commonwealth of Virginia and has full corporate power and
authority to conduct its business as it is now being conducted
and to own or lease all of its properties and assets. Schedule
3.1(a) sets forth a true and complete list of all jurisdictions
in which the Seller is duly qualified or licensed to do business
as a foreign corporation. The Seller has previously delivered to
the Purchaser true and complete copies of its Articles of
Incorporation and Bylaws as in effect on the date hereof.
3.2 Corporate Power and Authority. The Seller has full
corporate power and authority to enter into this Agreement,
perform its obligations hereunder, Transfer the Transferred
Assets and carry out the transactions contemplated hereby. The
execution and delivery of this Agreement, the performance by the
Seller of its obligations hereunder and the consummation of the
transactions contemplated hereby have been duly authorized by all
corporate, shareholder and other actions on the part of the
Seller required by applicable law, its Articles of Incorporation
or Bylaws, or otherwise. This Agreement constitutes the legal,
valid and binding obligation of the Seller, enforceable against
it in accordance with its terms, except (a) as the same may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditors'
rights generally and (b) that the remedy of specific performance
and injunctive and other forms of equitable relief may be subject
to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
3.3 No Violation. To the actual knowledge of Seller, neither
the execution and delivery of this Agreement nor the performance
by the Seller of its obligations hereunder nor the consummation
of the transactions contemplated hereby will (a) contravene any
provision of the Articles of Incorporation or Bylaws of the
Seller; (b) violate, be in conflict with, constitute a default
under, permit the termination of, cause the acceleration of the
maturity of any debt or obligation of the Seller under, require
the consent of any other party to, constitute a breach of, create
a loss of a benefit under, or result in the creation or
imposition of any Lien (as defined in Section 3.8(d)), other than
Permitted Liens, upon any property or assets of the Seller or the
Business under, any mortgage, indenture, lease, contract,
agreement, instrument or commitment to which the Seller is a
party or by which it, any of its assets or properties, or the
Business may be bound; (c) violate any statute or law or any
judgment, decree, order, regulation or rule of any court or
governmental authority to which the Seller or the Business is
subject or by which the Seller, any of its assets or properties,
or the Business are bound; (d) result in the loss of any license,
privilege or certificate benefiting the Business; or (e) violate
any contract, agreement or commitment to which any of the
Seller's directors or officers or any shareholder of the Seller
owning five percent (5%) or more of the issued and outstanding
capital stock of the Seller on the date hereof is bound or create
a claim of diversion of corporate opportunity against any such
person that could reasonably be expected to have a material
adverse effect on the Business.
3.4 Consents and Approvals of Governmental Authorities. To the
actual knowledge of Seller, and except as set forth on Schedule
3.4, no consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory
authority is required to be made or obtained by the Seller in
connection with the execution, delivery or performance of this
Agreement by the Seller.
3.5 Financial Statements. The Seller has previously delivered
to the Purchaser (a) the audited balance sheets of the Seller as
of December 31, 1999 and 1998 and the related statements of
operations and changes in financial position or cash flows, as
appropriate, and (b) the unaudited balance sheet of the Seller as
of September 30, 2000 (the "Balance Sheet Date"), and the related
statements of operations and changes in financial position or
cash flows, as appropriate, for the nine-month period then ended,
which balance sheets and related statements have been prepared by
Seller's management (all such financial statements are
hereinafter collectively referred to as the "Financial
Statements"). The Financial Statements, together with the notes
thereto, (i) were compiled from the books and records of the
Seller regularly maintained by management and used to prepare the
financial statements of the Seller, which financial statements
were prepared in accordance with generally accepted accounting
principles which have been consistently applied through the
respective periods; (ii) are used by the Seller in the ordinary
conduct of the Business; and (iii) present fairly the financial
position, results of operations and other information included
therein of the Seller for the periods or as of the dates thereof,
subject, where appropriate, to normal year-end audit adjustments,
in each case in accordance with generally accepted accounting
principles consistently applied during the periods covered.
3.6 No Undisclosed Liabilities. To the actual knowledge of
Seller, the Seller has, and on the Closing Date will have, no
debts, liabilities, commitments or obligations of any nature,
absolute, accrued, contingent or otherwise (individually, a
"Liability" and, collectively, the "Liabilities"), other than
those which (a) are reflected on the balance sheet for the fiscal
year ended December 31, 1999 (the "December 31, 1999 Balance
Sheet"), (b) have been incurred since December 31, 1999 in the
ordinary course of business in amounts and for terms consistent,
individually and in the aggregate, with the past practice of the
Business or (c) have been specifically disclosed in the schedules
hereto by reference to the specific section of this Agreement to
which such disclosure relates.
3.7 Absence of Certain Changes. To the actual knowledge of
Seller and except as set forth on Schedule 3.7, since December
31, 1999, the Seller has conducted the Business only in the
ordinary course and consistent with prior practice and neither
the Business, nor the Seller on behalf of, or with respect to,
the Business, has:
(a) suffered any material adverse change in its working capital
from historical trends, condition (financial or otherwise),
results of operations, assets, liabilities, reserves, business,
operations or prospects;
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, materially adversely affecting its business,
operations, assets, prospects or condition (financial or
otherwise);
(c) paid, discharged or satisfied any Liability or other
expenses, other than the payment, discharge or satisfaction of
the Liabilities described in Section 3.6 at the time the same
were due and payable and in the ordinary course of business;
(d) mortgaged or pledged, or permitted the imposition of any
Lien upon, any of its properties or assets (real, personal or
mixed, tangible or intangible), other than those incurred in the
ordinary course of business;
(e) cancelled or compromised any debts, or waived or permitted
to lapse any material claims or rights, or sold, assigned,
transferred or otherwise disposed of, other than in the ordinary
course, any of its properties or assets (real, personal or mixed,
tangible or intangible);
(f) disposed of or permitted to lapse any rights to the use of
any patent, registered trademark, service mark, trade name or
copyright, or disposed of or disclosed to any person any trade
secret, formula, process or know-how material to the Business not
theretofore a matter of public knowledge;
(g) except as disclosed on Schedule 3.7, granted any increase in
the compensation of any officer, employee or consultant of the
Business (including any such increase pursuant to any bonus,
pension, profit-sharing or other plan or commitment) or any
increase in the compensation payable or to become payable to any
officer, employee or consultant;
(h) entered into any commitment or transaction not in the
ordinary course of business or made any capital expenditure or
commitment for any additions to property, plant or equipment,
except commitments, transactions or capital expenditures which do
not in any single case exceed Ten Thousand Dollars ($10,000);
(i) made any change in any method of accounting or accounting
practice;
(j) paid, loaned or advanced any amount to, or sold, transferred
or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or
arrangement with, any of its officers, directors, employees,
shareholders, or any family member or Affiliate (as defined in
Section 12.14 below) of any of its officers, directors, employees
or shareholders, or any officer, director, employee or
shareholder of any such Affiliate;
(k) incurred any property losses or waived any rights of value;
(l) declared, paid or made any dividend or other distribution or
payment in respect of the capital stock of the Seller which would
materially adversely affect the Business, other than payments
made, or to be made prior to the Closing Date, to any of the
shareholders in respect of accrued compensation as employees of
the Seller;
(m) suffered the loss of, or been threatened with the loss of,
any supplier or customer or group of related suppliers or
customers referred to in Section 3.14(b); or
(n) agreed, whether in writing or otherwise, to take any action
referred to in and prohibited by this Section 3.7.
3.8 Title to Properties; Encumbrances.
(a) To the actual knowledge of Seller, and except as otherwise
disclosed on Schedule 3.8(a), the Seller has good and marketable
title to all of its properties and assets (real, personal or
mixed, tangible or intangible) constituting all or part of the
Transferred Assets. None of the Transferred Assets are subject
to any Lien (as defined in Section 3.8(d) below), except (i)
Liens for taxes (excluding Liens for taxes arising out of the
Transfer of the Transferred Assets) not yet delinquent or the
validity of which are being contested in good faith, (ii) Liens
for purchase money security interests, and (iii) Liens described
on Schedule 3.8(a) (collectively, the "Permitted Liens"), none of
which adversely affects the continued operations of the Business.
(b) To the actual knowledge of Seller, all material property and
assets (real, personal or mixed, tangible or intangible) used or
required by the Seller in the conduct of the Business are owned
by the Seller or leased or licensed to the Seller pursuant to a
lease or license listed on Schedules 3.9 or 3.10. To the actual
knowledge of Seller, all such property and assets, or the leases
or licenses thereof, constitute all or a part of the Transferred
Assets and constitute all property, assets and contractual rights
necessary for the conduct of the Business as presently conducted
and as it has been conducted in the past.
(c) To the actual knowledge of Seller, the Seller does not own
or hold, and is not obligated under or a party to, any option,
right of first refusal or other contractual right to acquire any
real property or interest therein in connection with or on behalf
of the Business.
(d) When used in this Agreement, "Lien" or "Liens" shall mean
any mortgage, pledge, security interest, conditional sale or
other title retention agreement, encumbrance, lien, easement,
claim, right, covenant, restriction, right of way, warrant,
option or charge of any kind.
3.9 Leases.
(a) Schedule 3.9 contains a true and complete list of:
(i) all leases pursuant to which the Business or the Seller in
the conduct of the Business leases or subleases any real property
interests, whether as lessor, lessee, sublessor or sublessee;
(ii) all leases pursuant to which the Business or the Seller in
the conduct of the Business leases any type of personal property
(other than computer equipment and related hardware or software)
which provide, individually, for rental payments in excess of Ten
Thousand Dollars ($10,000) per annum;
(iii) all leases pursuant to which the Business or the Seller
in the conduct of the Business leases any computer equipment and
related hardware or software;
(iv) all leases pursuant to which the Business or the Seller in
the conduct of the Business leases any vehicles or related
equipment; and
(v) all leases pursuant to which the Business or the Seller in
the conduct of the Business leases to others any type of property
which provide, individually, for rental payments in excess of Ten
Thousand Dollars ($10,000) per annum or which have a term in
excess of one (1) year.
(b) To the actual knowledge of Seller, each such lease described
on Schedule 3.9 is the legal, valid and binding obligation of the
Seller and, to the the Seller's actual knowledge, the other
parties thereto, enforceable in accordance with their respective
terms, and is in full force and effect. The Seller is not in
default under any such lease, and the Seller has not received any
actual notice from any person or entity asserting that the Seller
is in default under any such lease, and to the actual knowledge
of Seller no events or circumstances exist which, with notice or
the passage of time or both, would constitute a default under any
such lease. No material lease under which the Business operates
will expire on or before twenty-four (24) months from the date
hereof.
(c) Each such lease described on Schedule 3.9 may be assigned by
the Seller to the Purchaser without the consent or approval of
any other person or entity, or if such consent or approval shall
be necessary to assign such lease, Seller shall use its best
efforts to obtain such consent or approval as soon as practicable
after the Closing Date.
3.10 Patents, Trademarks, Service Marks, Trade Names. To the
actual knowledge of Seller, the Seller owns, or is licensed or
otherwise has the full right to use, all intellectual property
rights, both registered and at common law, relating to the
Business, irrespective of where any of the same were issued,
whether pending or existing (collectively, the "Intellectual
Property"), set forth on Schedule 3.10, including, without
limitation, all: United States and foreign patents or any
description and applications therefore; registrations of
trademarks, service marks and of other marks, registrations of
trade names, labels, logos, trading styles or other trade rights,
registered user entries, and applications for any such
registrations or entries; United States and foreign copyrights,
copyright registrations and applications therefor; United States
and foreign trademarks and other marks, trade names, labels and
other trade rights, whether or not registered, and applications
therefor; trade secrets, know-how, inventions, discoveries,
improvements, engineering or other drawings, designs, processes
and formulae, whether patented or patentable or not; customer
lists, technical data, marketing information and plans, software
and software documentation source codes; any other proprietary
information or intangible rights related in any way to the
Business; shop rights, license agreements and other agreements
relating in whole or in part to any of the foregoing; and all
claims and causes of action on behalf of the Seller or against
third parties relating to any of the foregoing, including claims
and causes of action for past infringement. Schedule 3.10
contains a true and complete list of (a) the Intellectual
Property used or proposed to be used by the Business or the
Seller in connection with the conduct of the Business, all
applications therefor and all licenses and other agreements
relating thereto and (b) all agreements relating to technology,
know-how or processes which the Seller is licensed or authorized
to use by others or which the Seller licenses or authorizes
others to use in connection with the conduct of the Business. To
the actual knowledge of Seller, the Seller has (i) the sole and
exclusive right to use the patents, trademarks, service marks,
trade names, copyrights, technology, know-how and processes
described on Schedule 3.10(i), (ii) the partial or limited right
to use the patents, trademarks, service marks, trade names,
copyrights, technology, know-how and processes described on
Schedule 3.10(ii), and except as disclosed on Schedule 3.10, no
consent of any third party is required for the use thereof by the
Purchaser upon the consummation of the transactions contemplated
hereby or, if such consent shall be necessary to assign such
Intellectual Property, Seller shall use its best efforts to
obtain such consent as soon as practicable after the Closing
Date. Except as set forth on Schedule 3.10, to the actual
knowledge of Seller, no claims have been asserted by any person
to the use any of the items of Intellectual Property or
challenging or questioning the validity or effectiveness of any
such license or agreement, and the Seller has no actual knowledge
of any valid basis for any such claims. Except as set forth on
Schedule 3.10, the Seller has no actual notice that the use of
the Intellectual Property by the Seller or the Business infringes
on the rights of any other person or entity. Neither the
Business nor the Seller engages in any unfair competition in a
way that would adversely affect the prospects, conduct or
operations of the Business. To the actual knowledge of Seller,
each item of Intellectual Property is in full force and effect,
fully protected and, if registered, filed or issued, then duly
and properly registered, filed or issued in the appropriate
office and jurisdiction for such registration, filings or
issuance. To the actual knowledge of Seller, each license,
contract or other agreement to which the Seller is a party
pertaining to any item of Intellectual Property owned, used or
available for use by the Seller in the conduct of the Business is
a valid, legally binding obligation of all parties thereto,
enforceable in accordance with its terms and is in full force and
effect. With respect to each such license, contract or other
agreement, there is no payment due and not paid and no default
(or event which, with or without notice, lapse of time or both,
would constitute a default) by any party thereto. Except as
disclosed on Schedule 3.10, the Seller has not disposed of or
permitted to lapse any rights to the use of any item of
Intellectual Property used or usable in the Business. To the
actual knowledge of Seller, the Seller has good and valid title
to, or otherwise possesses adequate and exclusive rights to use,
all Intellectual Property and other proprietary information
necessary to permit the Seller to conduct the Business in the
same manner as the Business is presently conducted, and all items
of Intellectual Property are being transferred to the Purchaser
free of any encumbrance, not disclosed on Schedule 3.10.
3.11 Litigation. Schedule 3.11 sets forth a true and complete
list and description of all actions, claims and proceedings and,
to the Seller's actual knowledge, investigations to which the
Seller is a party (individually, an "Action" and, collectively,
"Actions"), including, without limitation, Actions for personal
injury, products liability, wrongful death or other tortious
conduct, or breach of warranty arising from or relating to
materials, commodities, products or goods used, transferred,
processed, manufactured, sold, distributed or shipped by the
Seller concerning the Business (a) involving or relating to the
Seller concerning the Business, or any of its assets, properties
or rights, or any shareholder of the Seller owning five percent
(5%) or more of the issued and outstanding capital stock of the
Seller on the date hereof, or (b) pending, or, to Seller's actual
knowledge, threatened, against the Business, or any of its
assets, properties or rights, before any court, arbitrator or
administrative or governmental body. There is no Action pending,
or, to Seller's actual knowledge, threatened, against the Seller,
or any of its assets, properties or rights, or the Business
before any court, arbitrator or administrative or governmental
body, which questions or challenges the validity of this
Agreement or any Action taken or proposed to be taken by the
Seller pursuant to this Agreement or in connection with the
transactions contemplated hereby. To the actual knowledge of
Seller, no state of facts exists or has existed which would
constitute grounds for the institution of any Action against the
Business, the Seller or against any assets, properties or rights
of the Seller which would adversely affect the Business, which
would not be covered or defended against by a carrier under
policies of insurance in favor of the Seller. The Seller is not
subject to any judgment, order or decree entered in any lawsuit
or proceeding which has affected, or which can reasonably be
expected to affect, the Seller's business practices as they
affect the Business or its ability to acquire any property or
conduct the Business in any way.
3.12 Insurance. Schedule 3.12 sets forth a true and complete
list and description of (a) all of the Seller's self-insurance
practices and items covered by such self-insurance affecting the
Business and (b) all policies of fire, liability, worker's
compensation and other forms of insurance owned or held by the
Seller for the benefit of the Business. No installment premiums
are due under the policies set forth on Schedule 3.12 or, if
installment premiums shall be due and owing under such policies
prior to the Closing Date, such premiums shall have been paid
prior to the Closing Date. All such policies are in full force
and effect, insure against risks and liabilities to the extent
and in the manner deemed appropriate and sufficient by the Seller
in its reasonable business judgment, and will remain in full
force and effect through the Closing Date, and the Seller has not
received any actual notice of cancellation with respect thereto.
To the Seller's actual knowledge, the Seller is not in default
with respect to any provision contained in any such policy and
has not failed to give any notice or present any claim under any
such policy in due and timely fashion.
3.13 Contracts and Commitments.
(a) Insofar as they relate to the Business and constitute a
portion of the Transferred Assets, Schedule 3.13, together with
the leases set forth on Schedule 3.9, the licenses and other
agreements set forth on Schedule 3.10 and the employee benefit
plans and commitments set forth on Schedule 3.15, contains a true
and complete list and description (stated without duplication)
of:
(i) all contracts (including, without limitation, letters of
credit) and commitments of the Seller which are material to the
operations, business, prospects or condition (financial or
otherwise) of the Seller or the Business;
(ii) all employment agreements, arrangements and commitments,
including severance or termination arrangements and commitments
(whether written or oral), between the Seller and employees of
the Seller;
(iii) all consulting agreements (whether written or oral),
regardless of amounts or duration;
(iv) all manuals or written materials of the Seller relating to
severance or termination pay;
(v) all material contracts or commitments (whether written or
oral) with distributors, brokers, manufacturer's representatives,
sales representatives, service or warranty representatives,
customers and other persons, firms, corporations or other
entities engaged in the sale, distribution, service or repair of
the Seller's products;
(vi) all other contracts, commitments and instruments of the
Seller relating to the Business (excluding, for purposes of this
clause (vi), leases) reflecting obligations for borrowed money or
for other indebtedness or guarantees thereof;
(vii) all purchase orders issued by or sales orders received
by the Business in excess of ten thousand dollars ($10,000.00)
each and any purchase or sales orders which call for delivery or
performance on a date more than three (3) months from the date of
this Agreement;
(viii) all contracts relating to construction-in-progress of
capital assets; and
(ix) all joint venture or materially similar agreements or
arrangements to which the Seller is a party in any way providing
for the manufacture, marketing, sale or distribution of any
products of the Seller.
(b) The Seller shall deliver as soon as practicable after the
Closing Date true and complete copies of all of the documents
identified on Schedules 3.9, 3.10, 3.13 and 3.15 (collectively,
the "Material Contracts") and shall deliver true and complete
copies of all such other agreements, instruments and documents as
the Purchaser may reasonably request relating to the operation,
ownership or conduct of the Business.
(c) The Seller is not a party to any written agreement that
would restrict it from carrying on the Business anywhere in the
world.
(d) Each of the Material Contracts has been entered into in the
ordinary course of business and to the actual knowledge of Seller
is valid and binding, and none of such contracts contains terms
or conditions which are materially adverse to the Seller or the
Business. To the actual knowledge of Seller, the Seller is not,
and no other party is, in default under or in breach or violation
of, nor has the Seller received actual notice of any asserted
claim of default by the Seller or by any other party under, or a
breach or violation of, any of the Material Contracts.
3.14 Suppliers and Customers.
(a) To the actual knowledge of Seller, the Seller enjoys good
commercial relationships under all of its supply, purchase, sale,
distribution, sales representative and similar agreements
necessary for the normal operation of the Business.
(b) Schedule 3.14 contains a true and complete list of all
suppliers and customers of the Business, and groups of related
suppliers or customers of the Business (i.e., any suppliers or
customers, as the case may be, who are directly or indirectly,
through one or more intermediaries, under common control), which
during any of the calendar years 1999 or 1998, accounted for five
percent (5%) or more of the Business's gross purchases or sales,
respectively, during such period.
(c) The Seller has no actual knowledge of, or basis for
knowledge that any such supplier or customer or group of related
suppliers or customers of the Business has cancelled or otherwise
terminated or threatened to cancel or otherwise terminate, its
relationship with the Business or the Seller, which termination
would have a material adverse effect on the Business, or has
during the last twelve (12) months decreased materially, or
threatened to decrease or limit materially, its services,
supplies or materials to the Business or the Seller or its usage
or purchase of the services or products of the Business or the
Seller, as the case may be, or that any such supplier or customer
or group of related suppliers or customers expects to reduce its
business with the Business by reason of the transactions
contemplated by this Agreement or for any other reason
whatsoever.
3.15 Employee Benefit Plans.
(a) Schedule 3.15 contains a true and complete list and
description of, and the Seller shall delive as soon as
practicable after the Closing Date true and complete copies of,
each pension, retirement, severance, welfare, profit-sharing,
stock purchase, stock option, vacation, deferred compensation,
bonus or other incentive plan, or other employee benefit program,
arrangement, agreement or understanding, or medical, vision,
dental or other health plan, or life insurance or disability
plan, retiree medical or life insurance plan or any other
employee benefit plans, including, without limitation, any
"employee benefit plan" (as defined in Section 3(3) of ERISA), to
which the Seller contributes or is a party or by which it is
bound or under which it may have liability and under which
employees or former employees of the Seller (or their
beneficiaries) are eligible to participate or derive a benefit.
Each employee benefit plan which is a "group health plan" (as
such term is defined in Section 5000(b)(i) of the Code) satisfies
the applicable requirements of Section 4980B of the Code. Except
as described on Schedule 3.15, the Seller has no formal plan or
commitment, whether legally binding or not, to create any
additional plan, practice or agreement or modify or change any
existing plan, practice or agreement that would affect any of its
employees or terminated employees. Benefits under all employee
benefit plans are as represented and have not been and will not
be increased subsequent to the date copies of such plans have
been provided.
(b) The Seller does not contribute to or have any obligation to
contribute to, has not at any time contributed to or had an
obligation to contribute to, sponsor or maintain, and has not at
any time sponsored or maintained, a "multi-employer plan" (within
the meaning of Section 3(37) of ERISA) for the benefit of
employees or former employees of the Business.
(c) The Seller has, in all material respects, performed all
obligations, whether arising by operation of law, contract, or
past custom, required to be performed under or in connection with
the employee benefit plans disclosed on Schedule 3.15
(individually, an "Employee Benefit Plan" and, collectively, the
"Employees Benefit Plans"), and the Seller has no actual
knowledge of any default or violation by any other party with
respect thereto.
(d) There are no Actions, suits or claims (other than routine
claims for benefits) pending, or, to the Seller's actual
knowledge, threatened, against any Employee Benefit Plan or
against the assets funding any Employee Benefit Plan.
(e) The Seller neither maintains nor contributes to any
"employee welfare benefit" (as such term is defined in Section
3(i) of ERISA) plan which provides any benefits to retirees or
former employees of the Business.
(f) The Seller shall deliver as soon as practicable after the
Closing Date to the Purchaser true and complete copies, if
applicable, of (i) all documents governing the Employee Benefit
Plans, including, without limitation, all amendments thereto
which will become effective at a later date; (ii) all summary
plan descriptions and each summary of material modifications
relating to the Employee Benefit Plans; (iii) all employment
manuals; and (iv) all insurance policies or contracts with
respect to the Employee Benefit Plans.
3.16 Employment Law Matters.
(a) To the actual knowledge of Seller, the Seller (i) is in
compliance with all applicable laws respecting employment,
employment practices, terms and conditions of employment and
wages and hours with respect to the conduct of the Business; (ii)
is in compliance with all applicable laws and regulations
relating to the employment of aliens or similar immigration
matters with respect to the conduct of the Business; and (iii) is
not engaged in any unfair labor practice, including, but not
limited to, discrimination or wrongful discharge with respect to
the conduct of the Business.
(b) The Seller has not at anytime during the last five (5) years
had, nor to the Seller's actual knowledge, is there now
threatened, a strike, picket, work stoppage, work slowdown or
other labor trouble, against or directly affecting the Business
that had or may have a material adverse effect on the Business or
the Transferred Assets.
(c) To the actual knowledge of Seller, none of the employees of
the Business is represented by a labor union, and no petition has
been filed or proceedings instituted by any employee or group of
employees with any labor relations board seeking recognition of a
bargaining representative. The Seller is not a party to any
multi-employer collective bargaining agreement covering any of
its employees involved in the Business.
(d) There are no controversies or disputes (including any union
grievances or arbitration proceeding) pending, or, to the
Seller's actual knowledge, threatened, between the Seller and any
employees of the Business (or any union or other representative
of such employees). To the actual knowledge of Seller, no unfair
labor practice complaints have been filed against the Business or
the Seller in respect of the Business with the National Labor
Relations Board or any other governmental or administrative body,
and the Seller has not received any written notice or
communication reflecting an intention or a threat to file any
such complaint.
3.17 Compliance with Laws. To the actual knowledge of Seller,
the Seller has not been charged with, and is not threatened with
or under any investigation with respect to, any charge concerning
any violation of any provision of any federal, state, local or
foreign law, regulation, ordinance, order or administrative
ruling affecting the Business or the Transferred Assets, and to
the Seller's actual knowledge, the Seller is not in default with
respect to any order, writ, injunction or decree of any court,
agency or instrumentality affecting the Business or the
Transferred Assets. To the actual knowledge of Seller, the
Seller (a) is not in violation of any federal, state, local or
foreign law, ordinance or regulation or any other requirement of
any governmental or regulatory body, court or arbitrator
applicable to the Business or the Transferred Assets or (b) would
not, to the Seller's actual knowledge, be in violation of any
such law, ordinance, regulation or other requirement that has
been enacted or adopted but is not yet effective if it were
effective at the date hereof. To the actual knowledge of Seller,
the Seller has not made any illegal payment to officers or
employees of any governmental or regulatory body or made any
payment to customers of the Business for the sharing of fees or
to customers or suppliers of the Business for the rebating of
charges, or engaged in any other similar reciprocal practices, or
made any illegal payment or given any other illegal consideration
to purchasing agents or other representatives of customers of the
Business in respect of sales made or to be made by the Seller.
Without limiting the generality of the foregoing, to the actual
knowledge of Seller, the Business or the Seller in its conduct of
the Business is in compliance with all rules and regulations
promulgated by the Occupational Safety and Health Administration
("OSHA"). The Seller shall deliver to the Purchaser as soon as
practicable after the Closing Date a true and complete copy of
the Seller's most recent inspection report or reports relating to
compliance with OSHA rules and regulations in its conduct of the
Business, if any such report or reports exists.
3.18 Licenses, Permits and Authorizations. The Seller has all
licenses, permits, authorizations, approvals, consents,
franchises and orders required for the conduct and operation of
the Business (individually, a "Permit" and, collectively, the
"Permits") and the use and ownership or leasing of its properties
and assets as currently operated, used, owned or leased. All of
the Permits are valid, in full force and effect and in good
standing. No violations have been recorded in respect of any
such Permit. Schedule 3.18 contains a true and complete list and
description of all the Permits and the Seller has previously
delivered to the Purchaser true and complete copies of all such
Permits identified in Schedule 3.18 and in effect as of the date
hereof. There is no claim or Action pending, or, to the Seller's
actual knowledge, threatened, which disputes the validity of any
such Permit or threatens to revoke, cancel, suspend or limit any
such Permit. Except as set forth on Schedule 3.18 or on Schedule
3.4 (Consents and Approvals of Governmental Authorities), no
filing with or consent, approval, or authorization of any Person
is or may be required in order to permit Seller and the
Shareholder to consummate the transactions contemplated by this
Agreement.
3.19 Inventory. All finished goods, work-in-process, packaging,
supplies, spare parts, raw materials and other miscellaneous
inventories, whether current, excess or obsolete (collectively,
the "Inventory"), used in the Business, wherever located, a
complete and accurate list of which as of July 31, 2000, is set
forth on Schedule 3.19 are delivered "as is". The value of the
Inventory set forth on the July 31, 2000 Balance Sheet (net of
such reserves) has been established in accordance with generally
accepted accounting principles and consistent with Seller's
inventory valuation and write down policies.
3.20 Condition of Tangible Assets. The Seller's facilities and
tangible assets, including, without limitation, machinery,
equipment, vehicles, furniture, plants and buildings, which are
included in the Transferred Assets are in good operating
condition and repair (ordinary wear and tear excepted) and are
delivered "as is".
3.21 Sufficiency of Assets. Excepting the Excluded Assets, the
Transferred Assets constitute all property, assets and
contractual rights (i) necessary for the conduct of the Business
as presently conducted and (ii) presently used by the Seller with
respect to the Business. The Business has, and on the Closing
Date will have, a normal operating supply (consistent with past
practices) of Inventories, equipment and supplies.
3.22 Tax Returns and Payments. All of the tax returns and
reports of the Seller required by law to be filed have been duly
filed and all taxes shown as due thereon have been paid. There
are in effect no waivers of the applicable statutes of
limitations for any federal, state, local or foreign taxes for
any period. No liability for any federal, state, local or
foreign income, sales, use, withholding, payroll, franchise, real
property or personal property taxes is pending in connection with
the Business or the Transferred Assets, and there is no proposed
liability for any such taxes to be imposed upon the properties or
assets of the Business.
3.23 Broker's and Finder's Fees. Seller is not a party to, or in
any way obligated to make any payment relating to, any contract
or outstanding claim for the payment of any broker's or finder's
fee in connection with the origin, negotiation, execution or
performance of this Agreement or the consummation of the
transactions contemplated hereby.
3.24 Accounts and Notes Receivable and Accounts Payable.
Schedule 3.24 sets forth an accurate list of the (a) accounts and
notes receivable of the Seller and (b) accounts payable of the
Seller, each as of the Balance Sheet Date, including receivables
from and advances to the Seller's employees and shareholders.
Such list includes an aging of all (a) accounts and notes
receivable and (b) accounts payable, as of the Balance Sheet
Date, showing amounts due or payable, as the case may be, in
thirty (30) day aging categories. Except as set forth on
Schedule 3.24, and to the actual knowledge of Seller, all
accounts receivable, unbilled invoices and other debts due or
recorded in the records and books of account of the Seller as
being due to the Seller as at the date of this Agreement will be
good, payable and collectible in full in the ordinary course of
business within ninety (90) days after the Closing, net of
applicable reserves as recorded on the Seller's books on the date
hereof; to the actual knowledge of Seller, no contest with
respect to the amount or validity of any amount is pending; and
to the actual knowledge of Seller, none of such accounts
receivable or other debts is or will at the Closing be subject to
any counterclaim or set-off. The values at which accounts
receivable are carried reflect the accounts receivable valuation
policy of the Seller which is consistent with GAAP applied on a
consistent basis
3.25 Disclosure of Confidential Information. The Seller has
fully disclosed, or will disclose as soon as practicable after
the Closing Date, to the Purchaser, all processes, inventions,
methods, formulae, plans, drawings, customer lists, secret
information and know-how (whether secret or not) known to it or
usable by it in connection with the Business as it is now
conducted.
3.26 Disclosure. No representation or warranty by the Seller in
this Agreement (including, without limitation, the Schedules
hereto) contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact
necessary to make the statements herein or therein not
misleading. There is no fact actually known to the Seller which
adversely affects, or which might in the future adversely affect,
the operations, business, assets, properties, prospects or
condition (financial or otherwise) of the Seller or the Business
which has not been set forth in this Agreement or on the
Schedules hereto.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND CSC
The Purchaser hereby represents and warrants to the Seller
as follows:
4.1 Existence. Each of Purchaser and CSC is a corporation,
validly existing and in good standing under the laws of the State
of Nevada.
4.2 Power and Authority. Each of the Purchaser and CSC has full
power and authority to enter into this Agreement, perform its
obligations hereunder, acquire and own the Transferred Assets,
assume the Assumed Liabilities and carry out the transactions
contemplated hereby. The execution and delivery of this
Agreement, the performance by each of the Purchaser and CSC of
its obligations hereunder and the consummation of the
transactions contemplated hereby have been duly authorized by all
corporate and stockholder actions on the part each of the
Purchaser and CSC required by applicable law, its Articles of
Incorporation or Bylaws, or otherwise. This Agreement
constitutes the legal, valid and binding obligation of the
Purchaser and CSC, enforceable against Purchaser and CSC in
accordance with its terms, except (i) as the same may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to creditors' rights
generally and (ii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
4.3 No Violation. Neither the execution and delivery of this
Agreement nor the performance by either of the Purchaser or CSC
of its obligations hereunder nor the consummation of the
transactions contemplated hereby will (a) contravene any
provision of its Articles of Incorporation or Bylaws; (b)
violate, or be in conflict with, or constitute a default under,
permit the termination of, or cause the acceleration of the
maturity of any debt or obligation under, require the consent of
any other party to, constitute a breach of, create a loss of a
material benefit under, any mortgage, indenture, lease,
agreement, instrument or commitment to which the Purchaser or CSC
is a party or by which the assets or properties of Purchaser or
CSC may be bound or (c) to the best of the Purchaser's
knowledge, violate any statute or law or any judgment, decree,
order, regulation or rule of any court or governmental authority
to which the Purchaser is subject or by which it or any of its
assets or properties are bound.
4.4 Consents and Approvals of Governmental Authorities. No
consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority is
required to be made or obtained by the Purchaser or CSC in
connection with the execution, delivery and performance of this
Agreement, other than as may be required pursuant to applicable
federal and state securities laws.
ARTICLE 5
CERTAIN OBLIGATIONS OF THE PARTIES
The Seller and the Purchaser hereby covenant as follows:
5.1 Access. The Seller subsequent to the Closing Date shall
afford the Purchaser, CSC and their respective counsel,
accountants, investment bankers, investors and other authorized
agents and representatives (its "Advisors") reasonable access
during normal business hours to the Seller's plants, properties,
books, records and personnel in order that each of the Purchaser,
CSC and its Advisors may have the opportunity to make such
reasonable investigations as they shall desire to make of the
affairs of the Seller. The Seller shall furnish, or shall cause
its accountants to furnish, such additional financial and
operating data and other information as CSC or its Advisors shall
from time to time reasonably request, including, without
limitation, all financial and operating data as shall be
necessary for preparation of the Closing Statements (as defined
in Section 5.2(b)) and verification of the accuracy of the
Financial Statements. The Seller shall, upon the reasonable
request of Purchaser or CSC, assist Purchaser, CSC and its
Advisors in contacting and communicating with suppliers,
customers and employees of the Business.
5.2 Closing Statement. As soon as practicable after the Closing
Date, the Seller shall deliver to the Purchaser, at the Seller's
sole expense, (a) an unaudited balance sheet of the Business as
of the date which is no greater than 15 days prior to the Closing
Date, which balance sheet shall have been prepared by the Seller
in accordance with generally accepted accounting principles and
(b) a valuation statement concerning the valuation of the
Transferred Assets as of the date of such balance sheet
(collectively, the "Closing Statements").
5.3 Lease. To the extent the Purchaser reasonably requests, the
Seller shall cooperate with and provide reasonable assistance to
the Purchaser with respect to the Purchaser's negotiation with
the landlord for a new lease of the premises which is the subject
of the Facilities Lease.
5.4 Cooperation. Seller and Shareholder shall use their
respective best efforts to cause the transactions contemplated by
this Agreement to be consummated, and without limiting the
generality of the foregoing, to obtain all consents and
authorizations of government agencies and third parties listed on
Schedule 3.19, and to make all filings with and give all notices
to government agencies and third parties which may be necessary
or reasonably required in order to consummate the transactions
contemplated by this Agreement. The Seller shall give prompt
notice to the Purchaser, after receipt thereof by the Seller, of
(i) any notice of, or other communication relating to, any
default or event which, with notice or the lapse of time or both,
would become a default under any indenture, instrument or
agreement material to the Business or the operations, condition
(financial or otherwise) or prospects of the Seller, to which the
Seller is a party or by which the Seller or its assets or
properties or the Business are bound and (ii) any notice or other
communication from any third party alleging that the consent of
such third party is or may be required in connection with the
transactions contemplated by this Agreement. The Seller shall
obtain all required consents and approvals (if any) to assign and
transfer the Permits to the Purchaser on the Closing Date and, to
the extent that one or more of the Permits are not transferable,
to obtain replacements therefor satisfactory to Purchaser.
ARTICLE 6
CONDITIONS TO THE PURCHASER'S OBLIGATIONS
Each and every obligation of Purchaser under this Agreement
to be performed on or before the Closing Date shall be subject to
the satisfaction, on or before the Closing Date, of each of the
following conditions:
6.1 Representations and Warranties True. The representations
and warranties of the Seller and Shareholder contained herein, in
the Schedules and Exhibits hereto and in all certificates and
other documents delivered by the Seller or Shareholder to the
Purchaser pursuant hereto or in connection with the transactions
contemplated hereby shall be true and accurate as of the date of
this Agreement and as of the Closing Date with the same effect as
if made on and as of the Closing Date.
6.2 Performance. The Seller shall have performed and complied
in all material respects with all agreements, obligations and
conditions required by this Agreement to be performed or complied
with by it on or prior to the Closing Date, including, without
limitation, those referred to in Article V.
6.3 No Adverse Changes. Since the Balance Sheet Date:
(a) No portion of the Transferred Assets shall have been
damaged, destroyed or taken by condemnation to such an extent
that substantial operation of the Business cannot continue.
(b) No material item of the Transferred Assets shall have been
destroyed, damaged or taken by condemnation under circumstances
where the loss thereof will not be substantially reimbursed
through the proceeds of insurance or condemnation award, which
awards shall be the property of the Purchaser if this Agreement
and the transactions contemplated hereby are consummated.
(c) Neither the Seller nor the Business shall have suffered or
become subject to changes of any kind or nature which either
individually or in the aggregate adversely affect the ability of
the Purchaser to continue the Business or its operations.
(d) No material adverse change in the Business or the
operations, condition (financial or otherwise) or prospects of
the Business since the date of the December 31, 1999 Balance
Sheet shall have occurred and be continuing.
(e) The representations and warranties contained in Section 3.7
above shall be true and accurate on and as of the Closing Date.
6.4 Lease. The Seller, as soon as practicable after the Closing
Date, shall assign the Facilities Lease to Purchaser and shall
obtain any and all consents required in connection with such
assignment or, if requested by Purchaser, the Seller shall
terminate the Facilities Lease and Purchaser shall enter into a
new lease agreement with the landlord of the property and
facilities to which the Facilities Lease relates.
6.5 Certificates. As soon as practicable after the Closing
Date, the Seller shall furnish: the Seller's Articles of
Incorporation, as amended, certified by the Secretary of State of
the State of Virginia; certificates, dated not earlier than
thirty (30) days prior to the Closing Date, of the Secretary of
State of Virginia and the Secretary of State of each foreign
jurisdiction where the Seller has qualified to do business as to
the good standing of the Seller in each such jurisdiction; and
such certificates of its President or Vice President to evidence
compliance with the conditions set forth in Sections 6.1, 6.2,
6.3 and 6.6 and any other certificates to evidence compliance
with the conditions set forth in this Article VI as may be
reasonably requested by the Purchaser.
6.6 Resolutions. As soon as practicable after the Closing Date,
the Seller shall furnish a copy of the resolutions adopted by the
Board of Directors and Shareholder authorizing this Agreement and
the transactions contemplated hereby, certified by a Secretary or
Assistant Secretary of Seller.
6.7 Proceedings. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement,
and all documents incident thereto, shall be in form and
substance reasonably satisfactory to the Purchaser and its
counsel, and the Purchaser shall as soon as practicable after the
Closing Date have received all such originals or certified or
other copies of such documents as it may reasonably request.
6.8 Absence of Litigation. There shall be no Action
pending or threatened before any federal, state or local court,
governmental agency or regulatory body which seeks (a) to
invalidate or set aside, in whole or in part, this Agreement, (b)
to restrain, prohibit, invalidate or set aside, in whole or in
part, the consummation of the transactions contemplated hereby or
(c) to obtain substantial damages in connection therewith.
ARTICLE 7
CONDITIONS TO THE SELLER'S OBLIGATIONS
Each and every obligation of the Seller under this Agreement
to be performed on or before the Closing Date shall be subject to
the satisfaction, on or before the Closing Date, of each of the
following conditions:
7.1 Representations and Warranties True. The representations
and warranties of Purchaser contained herein and in all
certificates and other documents delivered to the Seller pursuant
hereto or in connection with the transactions contemplated hereby
shall be in all material respects true and accurate as of the
date of this Agreement and as of the Closing Date with the same
effect as if made on and as of the Closing Date.
7.2 Performance. The Purchaser shall have performed and
complied in all material respects with all agreements,
obligations and conditions required by this Agreement to be
performed or complied with by it on or prior to the Closing Date,
including, without limitation, those referred to in Article V.
7.3 Consents. All filings with and consents from government
agencies required to consummate the transactions contemplated
hereby shall have been obtained, unless the failure to obtain any
such consent or make any such filing would not have a material
adverse effect on the assets, properties, business or condition
(financial or otherwise) of the Business or the transactions
contemplated hereby.
7.4 Absence of Litigation. There shall be no Action pending or
threatened before any federal, state or local court, governmental
agency or regulatory body which seeks (a) to invalidate or set
aside, in whole or in part, this Agreement, (b) to restrain,
prohibit, invalidate or set aside, in whole or in part, the
consummation of the transactions contemplated hereby or (c) to
obtain substantial damages in connection therewith.
7.5 CSC Approval. The Purchaser shall have obtained the
necessary approval of its sole shareholder, CSC, for the purchase
of the Transferred Assets by the Purchaser upon the terms and
conditions set forth in this Agreement.
ARTICLE 8
INVESTMENT REPRESENTATIONS
8.1 Investment Representations. Shareholder understands that
the options granted to Shareholder pursuant to the Option
Agreement, and the shares of Common Stock of CSC issuable upon
exercise thereof (collectively, the "Securities") have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"). Shareholder also understands that the
Securities are being offered and sold pursuant to an exemption
from registration contained in the Securities Act based in part
upon Shareholder's representations contained in this Agreement.
Shareholder hereby represents and warrants to the Purchaser as
follows:
8.2 Shareholder Bears Economic Risk. Shareholder must bear the
economic risk of this investment and understands that the
Purchaser and CSC have no present intention of registering any of
the Securities. Shareholder also understands that there is no
assurance that any exemption from registration under the
Securities Act will be available and that, even if available,
such exemption may not allow Shareholder to transfer all or any
portion of any of the Securities under the circumstances, in the
amounts or at the times Shareholder might propose.
8.3 Acquisition for Own Account. Shareholder is acquiring the
Securities for Shareholder's own account for investment only, and
not with a view towards their distribution.
8.4 Accredited Investor. Shareholder represents that, giving
effect to the consummation of the transactions contemplated
hereby, he is an "accredited investor" within the meaning of
Regulation D under the Securities Act.
8.5 No Reliance on Purchaser Information. Shareholder
represents and agrees that Shareholder is not relying on any
information concerning CSC contained in its public reports as
filed with the Securities and Exchange Commission and that
neither CSC nor Purchaser is making any representation or
warranty with respect to the financial or business condition of
CSC or Purchaser and/or giving any assurance to Shareholder in
regard to the continued liquidity, value or quality of
performance of any of the securities of CSC, including without
limitation the common stock of CSC. Seller has had an opportunity
to discuss the Purchaser's and CSC's business, management and
financial affairs with directors, officers and management of the
Purchaser and CSC. Seller has also had the opportunity to ask
questions of and receive answers from, the Purchaser and CSC and
their respective management regarding the terms and conditions of
this investment and is making his investment decision solely on
his own accord and in reliance only upon his own independent
investigation of the Purchaser and CSC.
8.6 Legend. Certificates evidencing the Securities shall bear
appropriate legends concerning the restrictions on
transferability imposed by applicable Federal and state
securities laws including, without limitation, the following:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY
STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 AND QUALIFICATION UNDER APPLICABLE
STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT REGISTRATION AND QUALIFICATION IS NOT
REQUIRED.
ARTICLE 9
CERTAIN POST-CLOSING COVENANTS
9.1 Books and Records; Access. Unless otherwise consented to in
writing by the Purchaser, the Seller shall not destroy, alter or
otherwise dispose of any original books or records of the Seller
pertaining to the Business without first offering to surrender
such books and records to the Purchaser and shall maintain such
books and records in good condition in a reasonably accessible
location. The Seller shall allow the Purchaser and its Advisors
reasonable access during normal business hours to examine and
copy such books and records.
9.2 Noncompetition; Confidentiality.
(a) The Purchaser and the Seller acknowledge and understand that
the Purchase Price was fixed on the basis that the Transfer of
the Transferred Assets to the Purchaser would provide the
Purchaser with the full benefit and goodwill of the Business.
Each of the Seller and Shareholder acknowledges that it is proper
for the Purchaser to have assurances that the value of the
Business will not be diminished by acts of the Seller or
Shareholder after the Closing Date. Accordingly, for a period of
three (3) years from and after the Closing Date, neither the
Seller nor the Shareholder shall, directly or indirectly, through
Affiliates, a partnership, joint venture or otherwise, (i) enter
into, engage in, conduct or carry on any business which produces,
manufactures, sells or distributes products now produced,
manufactured, sold or distributed by the Business, or participate
in the management of any person, firm, enterprise or corporation
if such person, firm, enterprise or corporation engages or
proposes to engage in substantial competition with the Business
in any line of business actively conducted at the time by the
Business and which was conducted by the Business prior to the
Closing Date in all of the counties in California, in the
remaining 49 states of the United States, and throughout the
world; (ii) solicit or divert any business or any customer from
the Business; or (iii) hire or seek to hire, or advise or
recommend to any other person that he employ or solicit for
employment, any employee of the Business who is an employee of
the Business on the date hereof or on the Closing Date.
(b) Neither the Seller nor the Shareholder shall use or
disclose, or induce the use or disclosure of, and shall otherwise
keep confidential all secrets, know-how, processes, formulas,
discoveries, improvements, designs, business affairs and other
secrets ("Confidential Matters") used or usable by the Seller in
the Business to the extent that such Confidential Matters are not
or do not become readily available to the public at any relevant
time, other than through Seller's or Shareholder's disclosure of
such Confidential Matters.
(c) If the Seller or Shareholder commits a breach, or threatens
to commit a breach, of any of the provisions of this Section 9.2,
the Purchaser shall have the right and remedy (in addition to any
others) to have the provisions of this Section 9.2 specifically
enforced by any court having equity jurisdiction, together with
an accounting therefor, it being acknowledged and understood by
the Seller and the Shareholder that any such breach or threatened
breach will cause irreparable injury to the Purchaser and that
money damages will not provide an adequate remedy therefor.
9.3 Covenant Not to Sue. The Seller and Shareholder each hereby
covenants and agrees, and Seller hereby undertakes to have each
of its executive officers and directors undertake and agree, that
from and after the Closing Date, it and they will not, directly
or indirectly, commence or prosecute, or assist in the filing,
commencement or prosecution of, any Action, claim or proceeding
against the Purchaser or CSC, any of their respective Affiliates
and each present or former officer, director, employer of or
owner of any equity interest in the Purchaser or any of its
Affiliates, in any federal, state, local or foreign court,
arbitral forum or administrative agency, with respect to the
Intellectual Property Transferred hereunder, whether known or not
now known. Each of the Seller and the Shareholder represents and
warrants that it would not have a claim or cause of action
against the Purchaser if the Intellectual Property were
Transferred on the date hereof.
9.4 Sales Tax Receipt. Purchaser covenants and agrees that it
will, at the earliest practicable date, pay any and all sales tax
due and owing to the State of California, the State of Nevada
and/or the Commonwealth of Virginia on account of the Transfer of
the Transferred Assets to Purchaser hereunder or otherwise, and
Purchaser will deliver to Seller the sales tax receipt or
clearance certificate required by Section 6811 of the California
Revenue and Taxation Code and any similar receipt or certificate
that may be required pursuant to Virginia law. Purchaser further
understands and agrees that any amounts paid by Seller to the
California State Board of Equalization and/or pursuant to the
equivalent governmental authority in the Commonwealth of Virginia
because of Purchaser's sales tax liability will be the subject of
an indemnity claim by Seller against the Purchaser.
9.5 Dissolution of Seller. Within 90 days of the Closing Date,
Seller shall have completed the dissolution and/or winding up of
Seller including, but not limited to, the adoption of the
appropriate shareholder and director resolutions, the necessary
filings with all governmental bodies and agencies (e.g., filing
of a certificate of dissolution with the Secretary of State, if
necessary), the settlement and satisfaction of all of Seller's
liabilities including tax liabilities, and the filing of any
necessary court documents.
9.6 Employment Agreements. The Purchaser agrees that it will
use its good faith best efforts to negotiate and consummate
separate employment agreements between the Purchaser, on the one
hand, and Sabrina Conway, Gary Brown, Robert Reid and W. Burton
Richards (collectively, the "ALE Key Employees"), respectively,
to be duly executed by the ALE Key Employees and delivered to the
Purchaser within 90 days of the Closing Date.
ARTICLE 10
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
10.1 Survival of Representations and Warranties. Notwithstanding
(a) the making of this Agreement, (b) any examination made by or
on behalf of the parties hereto and (c) the Closing hereunder,
the representations and warranties of the Seller and the
Purchaser contained in this Agreement, or in any document
delivered pursuant to the provisions of this Agreement, shall
survive the Closing.
10.2 Indemnification by Seller and Shareholder.
(a) Subject to Section 10.1 above, for a period of two years
from the Closing Date, each of the Seller and the Shareholder
shall jointly and severally indemnify and save harmless the
Purchaser and CSC and their respective officers, directors,
employees, agents, shareholders, successors and assigns
(collectively, the "Indemnified Purchaser") from and against any
loss, claim, liability, damage (including consequential damages),
punitive damages, remedial costs, civil and criminal penalties or
expenses or other damages of any kind or nature, including
Purchaser's reasonable attorneys' fees incurred in connection
with any of the foregoing (collectively, the "Damages"), caused
to the Business by or arising out of (i) the failure by the
Seller or Shareholder to perform any covenant or agreement
required to be performed by it in this Agreement, after the
Closing or pursuant to Article V of this Agreement; (ii) the
failure of the Seller or the Shareholder to pay, perform or
satisfy any Excluded Liability; (iii) any judgments, orders or
decrees entered in any lawsuit or proceeding or Actions against
the Seller, the Shareholder or the Business arising out of
activities undertaken by the Business prior to the Closing Date
and arising out of activities undertaken by the Seller or the
Shareholder prior to the Closing Date; (iv) the failure of the
Seller or the Shareholder to pay promptly any federal, state,
local or foreign taxes of the Seller of the Shareholder
(including, without limitation, all taxes of any kind or nature
and all interest, additions to tax and penalties thereon) claimed
or assessed for any taxable period ended on or prior to the
Closing Date; or (v) any breach of warranty or misrepresentation
in this Agreement (including the Schedules hereto) made by or on
behalf of the Seller or the Shareholder and not waived in writing
by the Indemnified Purchaser.
(b) The Indemnified Purchaser shall notify the Seller within a
reasonable period of time after becoming aware of, and shall
provide to the Seller as soon as practicable thereafter all
information and documentation necessary to support and verify,
any Damages which the Indemnified Purchaser shall have determined
has given or could give rise to a claim for indemnification
hereunder, and the Seller shall be given access to all books and
records in the possession or under the control of the Indemnified
Purchaser which each of the Seller and Shareholder reasonably
determines to be related to such claim.
(c) All claims for indemnity under this Section 10.2 shall be
paid by the Seller and Shareholder on demand in immediately
available funds in U.S. dollars.
(d) The Indemnified Purchaser shall notify the Seller and
Shareholder with reasonable promptness of its discovery of any
matter giving rise to a claim of indemnity pursuant to this
Agreement. With respect to any third party claim or action that
could give rise to indemnity under this Agreement, the Seller
and/or Shareholder shall be entitled to assume the defense
thereof with counsel satisfactory to the Indemnified Purchaaser,
provided, that upon the request of the Indemnified Purchaser, the
Seller and the Shareholder provides reasonable evidence of their
ability to perform its obligations under this Section 10.2; and
after notice from the Seller and the Shareholder to the
Indemnified Purchaser of their election so to assume the defense
thereof, the Seller and the Shareholder shall not be liable to
the Indemnified Purchaser under the foregoing indemnity agreement
for any legal or other expenses subsequently incurred by the
Indemnified Purchaser in connection with the defense thereof
other than (i) those relating to investigation or the furnishing
of documents or witnesses and (ii) all reasonable fees and
expenses of separate counsel retained by such Indemnified
Purchaser if and only if the Seller, Shareholder and the
Indemnified Purchaser shall have agreed to the retention of such
counsel. Promptly after receipt by an Indemnified Purchaser of
notice of the commencement of any action to which the Seller or
the Shareholder is not a party, such Indemnified Purchaser shall,
if such claim in respect thereof is to be made against the Seller
and/or the Shareholder pursuant to this Agreement, notify the
Seller and/or the Shareholder in writing of the commencement
thereof. The failure or delay in so notifying the Seller and/or
the Shareholder shall relieve the Seller or the Shareholder of
its obligations to indemnify pursuant to the terms of this
Agreement. The Indemnified Purchaser shall keep the Seller and
the Shareholder informed of the progress of any such action and
shall not enter into any settlement of any such action without
the prior written consent of the Seller and/or the Shareholder,
as appropriate, which consent shall not be unreasonably withheld
or delayed.
(e) Maximum and DeMinimis Amounts.
(i) The maximum aggregate amount of
indemnification which can be required, collectively, of
Seller and Shareholder under Section 10.2 shall not
exceed $2,000,000, as adjusted pursuant to Section
1.5(c) above.
(ii) Seller shall not be required to indemnify,
defend or hold the Indemnified Purchaser harmless from
and against any Damages under Section this Section 10.2
unless and until the amount of such Damages equals
$20,000 in the aggregate (the "Threshold Amount") in
which event Seller shall be obligated to indemnify the
Indemnified Purchaser, and the Indemnified Purchaser
may assert its right to indemnification hereunder to
the full extent of all Damages (subject to Section
10.2(e)(i) above, including Damages that are less than
the Threshold Amount. Notwithstanding the foregoing,
the parties agree that any Damages resulting from any
failure of Seller to promptly remit to Purchaser any
payment Seller receives relating to any account
receivable outstanding on or after the Closing Date
shall not be included in the Threshold Amount.
10.3 Indemnification by Purchaser.
(a) Subject to Section 10.1 above, for a period of two years
from the Closing Date, each of the Purchaser and CSC shall
jointly and severally indemnify and save harmless the Seller and
Shareholder, and their respective officers, directors, employees,
agents, shareholders, successors and assigns (collectively, the
"Indemnified Seller") from and against any loss, claim,
liability, damage (including consequential damages), punitive
damages, remedial costs, civil and criminal penalties or expenses
or other damages of any kind or nature, including the Indemnified
Seller's reasonable attorneys' fees incurred in connection with
any of the foregoing (collectively, the "Damages"), caused to
Indemnified Seller by or arising out of (i) the failure by the
Purchaser or CSC to perform any covenant or agreement required to
be performed by it in this Agreement, after the Closing or
pursuant to Article V of this Agreement; (ii) the failure of the
Purchaser or CSC to pay, perform or satisfy any Assumed
Liability; (iii) any judgments, orders or decrees entered in any
lawsuit or proceeding or Actions against the Purchaser or CSC
arising out of activities undertaken by them prior to the Closing
Date and arising out of activities undertaken by the Purchaser or
CSC after the Closing Date; (iv) the failure of the Purchaser or
CSC to pay promptly any federal, state, local or foreign taxes of
the Purchaser or CSC (including, without limitation, all taxes of
any kind or nature and all interest, additions to tax and
penalties thereon) claimed or assessed for any taxable period
ended on or prior to the Closing Date, or incurred pursuant this
Agreement; or (v) any breach of warranty or misrepresentation in
this Agreement (including the Schedules hereto) made by or on
behalf of the Purchaser or CSC and not waived in writing by the
Indemnified Seller.
(b) The Indemnified Seller shall notify the Purchaser and CSC
within a reasonable period of time after becoming aware of, and
shall provide to the Purchaser and CSC as soon as practicable
thereafter all information and documentation necessary to support
and verify, any Damages which the Indemnified Seller shall have
determined has given or could give rise to a claim for
indemnification hereunder, and the Purchaser and CSC shall be
given access to all books and records in the possession or under
the control of the Indemnified Seller which each of the Purchaser
and CSC reasonably determines to be related to such claim.
(c) All claims for indemnity under this Section 10.3 shall be
paid by the Purchaser and Seller on demand in immediately
available funds in U.S. dollars.
(d) The Indemnified Seller shall notify the Purchaser and CSC
with reasonable promptness of its discovery of any matter giving
rise to a claim of indemnity pursuant to this Agreement. With
respect to any third party claim or action that could give rise
to indemnity under this Agreement, the Purchaser and/or CSC shall
be entitled to assume the defense thereof with counsel
satisfactory to the Indemnified Seller, provided, that upon the
request of the Indemnified Seller, the Purchaser and CSC provides
reasonable evidence of their ability to perform its obligations
under this Section 10.3; and after notice from the Purchaser and
CSC to the Indemnified Seller of their election so to assume the
defense thereof, the Purchaser and CSC shall not be liable to the
Indemnified Seller under the foregoing indemnity agreement for
any legal or other expenses subsequently incurred by the
Indemnified Seller in connection with the defense thereof other
than (i) those relating to investigation or the furnishing of
documents or witnesses and (ii) all reasonable fees and expenses
of separate counsel retained by such Indemnified Seller if and
only if the Purchaser, CSC and the Indemnified Seller shall have
agreed to the retention of such counsel. Promptly after receipt
by an Indemnified Seller of notice of the commencement of any
action to which the Purchaser or CSC is not a party, such
Indemnified Seller shall, if such claim in respect thereof is to
be made against the Purchaser and/or CSC pursuant to this
Agreement, notify the Purchaser and/or CSC in writing of the
commencement thereof. The failure or delay in so notifying the
Purchaser and/or CSC shall relieve the Purchaser and CSC of its
obligations to indemnify pursuant to the terms of this Agreement.
The Indemnified Seller shall keep the Purchaser and CSC informed
of the progress of any such action and shall not enter into any
settlement of any such action without the prior written consent
of the Purchaser and CSC, as appropriate, which consent shall not
be unreasonably withheld or delayed.
(e) Maximum and DeMinimis Amounts.
(i) The maximum aggregate amount of
indemnification which can be required, collectively, of
Purchaser and CSC under Section 10.3 shall not exceed
$2,000,000, as adjusted pursuant to Section 1.5(c)
above.
(ii) Purchaser shall not be required to indemnify,
defend or hold the Indemnified Seller harmless from and
against any Damages under this Section 10.2 unless and
until the amount of such Damages equals $20,000 in the
aggregate (the "Threshold Amount") in which event
Purchaser shall be obligated to indemnify the
Indemnified Seller, and the Indemnified Seller may
assert its right to indemnification hereunder to the
full extent of all Damages (subject to Section
10.3(e)(i) above, including Damages that are less than
the Threshold Amount. Notwithstanding the foregoing,
the parties agree that any Damages resulting from any
failure of Purchaser to promptly remit to Purchaser any
payment relating to the Purchase Price, Earn-Out or
Option on or after the Closing Date shall not be
included in the Threshold Amount.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 Amendment; Waiver. Neither this Agreement, nor any of the
terms or provisions hereof, may be amended, modified,
supplemented or waived, except by a written instrument signed by
the parties hereto (or, in the case of a waiver, by the party
granting such waiver). No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall
such waiver constitute a continuing waiver. No failure of either
party hereto to insist upon strict compliance by the other party
with any obligation, covenant, agreement or condition contained
in this Agreement shall operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any
party hereto, such consent shall be given in a manner consistent
with the requirements for a waiver of compliance as set forth in
this Section 12.2.
11.2 Fees and Expenses. Except as otherwise provided in this
Agreement, each of the parties hereto shall bear and pay its own
costs and expenses incurred in connection with the origin,
preparation, negotiation, execution and delivery of this
Agreement and the agreements, instruments, documents and
transactions referred to in or contemplated by this Agreement
(whether or not such transactions are consummated) including,
without limitation, any fees, expenses or commissions of any of
its Advisors, attorneys, agents, finders or brokers.
11.3 Bulk Sales Law Waiver. The Purchaser, the Seller and the
Shareholder each agrees to waive compliance by the other with the
provisions of the Bulk Sales Law of the State of California or
comparable law of any jurisdiction to the extent that the same
may be applicable to the transactions contemplated by this
Agreement.
11.4 Notices.
(a) All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing
(including telefax, telegraphic, telex or cable communication)
and mailed, telefaxed, telegraphed, telexed, cabled or delivered:
If to the Seller, to:
SOFTWARE CONNECTIONS, INC.
1616 East Parham Road, Richmond, VA 23228
Attention: President
with a copy to:
L. B. Cann, III, Esquire
LeClair Ryan, A Professional Corporation
707 East Main Street, 11th Floor
Richmond, Virginia 23219
If to the Purchaser, to
California Software Applications, Inc.
c/o California Software Corporation
2485 McCabe Way, Second Floor, Irvine, CA 92614
Attention: Bruce Acacio, Chief Executive Officer
with a copy to:
Rutan & Tucker, LLP
611 Anton Boulevard, 14th Floor
Costa Mesa, CA 92626
Attention: Thomas J. Crane
(b) All notices and other communications required or permitted
under this Agreement which are addressed as provided in this
Section 11.4 (i) if delivered personally against proper receipt
or by confirmed telefax or telex, shall be effective upon
delivery and (ii) if delivered (A) by certified or registered
mail with postage prepaid, (B) by Federal Express or similar
courier service with courier fees paid by the sender or (C) by
telegraph or cable, shall be effective two (2) business days
following the date when mailed, couriered, telegraphed or cabled,
as the case may be. Either party may from time to time change
its address for the purpose of notices to that party by a similar
notice specifying a new address, but no such change shall be
deemed to have been given until it is actually received by the
party sought to be charged with its contents.
11.5 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or
obligations hereunder may be assigned by the parties hereto
without the prior written consent of the other party; provided,
however, that the Purchaser may assign its rights and obligations
under this Agreement to any of its Affiliates or any entity who
by merger, consolidation, purchase or sale subsequently becomes
an Affiliate without the prior consent of the Seller. Any
assignment which contravenes this Section 11.5 shall be void ab
initio.
11.6 Governing Law; Consent to Jurisdiction and Venue. This
Agreement and the legal relations between the parties hereto
shall be governed by and construed in accordance with the
internal laws of the State of California, without giving effect
to the conflicts of laws principles thereof. Any dispute
concerning this Agreement and the transactions contemplated
hereby shall be heard and decided in the Federal and state courts
of Orange County, California.
11.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all
of which taken together shall constitute one and the same
instrument.
11.8 Headings. The headings contained in this Agreement are for
convenience of reference only and shall not constitute a part
hereof or define, limit or otherwise affect the meaning of any of
the terms or provisions hereof.
11.9 Entire Agreement. This Agreement (which defined term
includes the Schedules and Exhibits to this Agreement) embodies
the entire agreement and understanding among the parties hereto
with respect to the subject matter of this Agreement and
supersedes all prior agreements, commitments, arrangements,
negotiations or understandings, whether oral or written, between
the parties with respect thereto. There are no agreements,
covenants, undertakings, representations or warranties with
respect to the subject matter of this Agreement other than those
expressly set forth or referred to herein.
11.10 Severability. Each term and provision of this
Agreement constitutes a separate and distinct undertaking,
covenant, term and/or provision hereof. In the event that any
term or provision of this Agreement shall be determined to be
unenforceable, invalid or illegal in any respect, such
unenforceability, invalidity or illegality shall not affect any
other term or provision of this Agreement, but this Agreement
shall be construed as if such unenforceable, invalid or illegal
term or provision had never been contained herein. Moreover, if
any term or provision of this Agreement shall for any reason be
held to be excessively broad as to time, duration, activity or
subject, it shall be construed, by limiting and reducing it, so
as to be enforceable to the extent permitted under applicable law
as it shall then exist.
11.11 No Third Party Beneficiaries. Nothing in this
Agreement is intended, nor shall anything in this Agreement be
construed, to confer any rights, legal or equitable, in any
Person (other than the parties hereto and their respective
Affiliates, heirs, distributees, beneficiaries, executors,
successors and assigns), including, without limitation, any
employee of the Seller or any beneficiary of such employee.
11.12 Miscellaneous. The persons executing this Agreement in
behalf of the parties hereto are duly authorized to execute,
acknowledge and deliver this Agreement.
11.13 Affiliate. When used in this Agreement, "Affiliate" or
"Affiliates" shall mean, with respect to any individual,
partnership, corporation, association, business trust, joint
venture, governmental entity or other entity of any nature
("Person"), any Person that controls, is controlled by, or is
under common control with, such Person.
[SIGNATURES CONTAINED ON THE FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
"Seller": SOFTWARE CONNECTIONS, INC.
By: /s/ C. Wesley Lucas
Its: President
"Shareholder": GAYLE P. GOODRICH
By:/s/ Gayle P. Goodrich
"Purchaser": CALIFORNIA SOFTWARE APPLICATIONS, INC.
By: /s/ Bruce Acacio
Bruce Acacio, Chief Executive Officer
CSC: CALIFORNIA SOFTWARE CORPORATION
By: /s/ Bruce Acacio
Name: Bruce Acacio
Its: Chief Executive Officer
Index of Exhibits
Exhibit A - Form of Option Agreement
Exhibit B - Form of Employment Agreement
Index of Schedules
Schedule 1.1 - Transferred Assets
Schedule 1.2 - Excluded Assets
Schedule 1.3 - Assumed Liabilities
Schedule 3.1(a) - Jurisdictions Requiring Qualification or
Licensing
Schedule 3.4 - Consents and Approvals of Governmental Authorities
Schedule 3.7 - Certain Changes Since December 31, 1999
Schedule 3.8(a) - Permitted Liens
Schedule 3.9 - Leases
Schedule 3.10 - Intellectual Property; Licenses
Schedule 3.10(i) - Intellectual Property Exclusively Owned by Seller
Schedule 3.10(ii) - Partial or Limited Rights to Intellectual
Property
Schedule 3.11 - Litigation
Schedule 3.12 - Insurance
Schedule 3.13 - Contracts and Commitments
Schedule 3.14 - Suppliers and Customers
Schedule 3.15(a) - Employee Benefit Plans
Schedule 3.19 - Permits; Consents and Approvals of Third Parties
Schedule 3.20 - Inventory
Schedule 3.25 - Accounts and Notes Receivable and Accounts Payable
