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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
General Automation, Inc.
-------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $0.10 per share
- --------------------------------------------------------------------------------
(Title of Class of Securities)
369032-10-7
-----------
(CUSIP Number)
Sequoia Systems, Inc.
Attn: Jeremy F. Swett
5959 Corporate Drive
Houston, Texas 77036
(713) 541-8200
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
October 11, 1996
----------------
(Date of Event which Requires Filing of this
Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement [ ]. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Page 1 of 5 pages
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SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 369032-10-7 PAGE 2 OF 5 pages
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Sequoia Systems, Inc. 04-2738973
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- -------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) OR 2(e) [ ]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
United States
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
750,000
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 0
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
750,000
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
750,000
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*[ ]
12
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
9.2%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON
14
CO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
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Page 3 of 5 pages
ITEM 1. SECURITY AND ISSUER
This statement relates to the common stock, par value $0.10 per share (the
"Common Stock"), of General Automation, Inc., a Delaware corporation (the
"Company"), which has its principal executive offices at 17731 Mitchell North,
Irvine, California 92614.
ITEM 2. IDENTITY AND BACKGROUND
This statement is filed by Sequoia Systems, Inc. ("Sequoia"), a corporation
organized under the laws of Delaware, which designs, manufactures and markets
computer systems. The executive officers and directors of Sequoia, together with
the principal occupations of each, are listed on Appendix A hereto. The business
address of Sequoia is 5959 Corporate Drive, Houston, Texas 77036.
During the last five years, none of the individuals listed on Appendix A
have been convicted in any criminal proceedings (excluding traffic violations
and similar misdemeanors). During the last five years, none of the individuals
listed on Appendix A have been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
become subject to a judgment, decree or final order enjoining future violations
of, or prohibiting or mandating activities subject to, federal or state
securities laws or finding any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
On October 3, 1996, Sequoia entered into an Asset Purchase Agreement (the
"Agreement") with the Company pursuant to which Sequoia agreed to sell and the
Company agreed to purchase certain assets (the "Assets") comprising Sequoia's
"Sequoia Enterprise Systems" business. The closing of the sale of the Assets
occurred on October 11, 1996 (the "Closing Date"). In consideration of the sale
of the Assets, the Company agreed to (i) pay to Sequoia $10,700,000 (the
"Purchase Price"), (ii) assume the liabilities associated with the Assets and
(iii) issue to Sequoia a Warrant (the "Warrant") to purchase 250,000 shares of
Common Stock (the "Warrant Shares"). The Warrant becomes exercisable upon the
first anniversary of the Closing Date, and has an exercise price of $2.50 per
share. The Warrant expires upon the fourth anniversary of the Closing Date. Each
of the Agreement and the Warrant is filed as an exhibit hereto and is
incorporated herein by reference.
Pursuant to the Agreement, a portion of the Purchase Price will be
satisfied through the Company's issuance to Sequoia of 750,000 shares of Common
Stock (the "Shares") on the Closing Date. Actual issuance of the Shares with
occur upon the approval of the listing of the Shares on the American Stock
Exchange, which is expected shortly. The balance of the Purchase Price will be
satisfied by certain deferred payments, the amounts of which will be determined
based on the future performance of the Assets and upon future valuations of the
Common Stock delivered in connection with the Closing as set forth in the
Agreement. Any such deferred payments may be made, at the option of the Company,
either in cash through the issuance of in additional shares of Common Stock
valued in accordance with the Agreement. In addition, on the Closing Date the
Company issued the Warrant to Sequoia.
ITEM 4. PURPOSE OF TRANSACTION
The response to Item 3 is incorporated herein by reference. Sequoia does
not have any plans, nor has it made any proposals, which relate to or would
result in any of the events enumerated in paragraphs (a)
<PAGE>
Page 4 of 5 pages
through (j) of Item 4 to Schedule 13D. However, Sequoia reserves the right to
acquire additional shares, to dispose of shares or to formulate other purposes,
plans or proposals to the extent it deems advisable in light of its investment
policies, market conditions and other factors.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
The response to Item 3 is incorporated herein by reference. Sequoia
directly beneficially owns an aggregate of 750,000 shares of Common Stock,
constituting approximately 9.2% of the outstanding shares of Common Stock.
Sequoia has sole power to dispose of and vote such shares.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER
The responses to Items 2, 3 and 4, as well as the Agreement, are
incorporated herein by reference.
In addition, the Company and Sequoia have entered into a Registration
Rights Agreement, dated October 11, 1996 (the "Registration Rights Agreement").
Pursuant to the Registration Rights Agreement, the Company is required to file
certain registration statements with the Securities and Exchange Commission (the
"SEC"), registering the Shares and Warrant Shares (collectively the "Registrable
Shares") held by Sequoia and certain eligible assignees (each a "Holder") under
the Securities Act of 1933, as amended (the "Securities Act"). Holders are also
entitled to include the Registrable Shares in certain registrations initiated by
the Company. The Company is obligated to pay the expenses of any such
registration, with certain exceptions. The Registration Rights Agreement
terminates with respect to any particular Registrable Shares upon the earliest
to occur of (i) the date in which none of the Holders holds any Registrable
Securities, (ii) the date which is four years after a registration statement
with respect to such shares is declared effective by the SEC, (iii) with respect
to Warrant Shares, the date which is two years after such Registration Statement
is declared effective, (iv) the time at which the Company delivers an opinion of
counsel to the effect that such Registrable Shares may be sold without
registration under the Securities Act, and (v) certain other events. The
Registration Rights Agreement terminates with respect to any Holder at such time
as such Holder ceases to hold any Registrable Shares and the Company has no
obligation to issue any further Registrable Shares to such Holder pursuant to
the Purchase Agreement or the Warrants. The Registration Rights Agreement
includes certain limitations on the rights of Holders thereunder and contains
other customary provisions. The Registration Rights Agreement is filed as an
exhibit to this Schedule 13D and is incorporated herein by reference.
ITEM 7. MATERIAL FILED AS EXHIBITS
The following are filed as exhibits to this Schedule 13D:
A. Asset Purchase Agreement, dated October 3, 1996, by and between
Sequoia Systems, Inc. and General Automation, Inc.
B. Registration Rights Agreement, dated October 11, 1996, by and between
Sequoia Systems, Inc. and General Automation, Inc.
C. Stock Purchase Warrant, dated October 11, 1996, by and between
Sequoia Systems, Inc. and General Automation, Inc.
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Page 5 of 5 pages
SIGNATURE
---------
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
Date: October 21, 1996
/s/ Jeremy F. Swett
-------------------
Name: Jeremy F. Swett
Title: Vice President, General Counsel
and Secretary
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A
Directors and Executive Officers
of Sequoia Systems, Inc.
DIRECTORS
<S> <C>
Name Principal Occupation and Address/(1)/
- ---- -------------------------------------
Francis J. Hughes, Jr. Chairman of the Board of Directors of Sequoia
President of American Research & Development
Corporation
45 Milk Street, 4th Floor
Boston, MA 02109
Dean C. Campbell General Partner, Campbell Venture
Management L.P.
375 Forest Street
Palo Alto, CA 94301
A. Theodore Engkvist President, ENJO Consulting
2012 Prince Drive
Naples, FL 34110
Dennis McMalloy President, Malloy's Cash Register Co.
2101 Polk
Houston, TX 77003
Frank B. Ryan Professor, Rice University
20 Sunset Boulevard
Houston, TX 77005
John F. Smith President, PerSeptive BioSystems
500 Old Connecticut Path
Framingham, MA 01701
J. Michael Stewart See below.
EXECUTIVE OFFICERS
Name Principal Occupation and Address/(1)/
----- -------------------------------------
Michael Stewart President and Chief Executive Officer
of Sequoia
John C. Leonardo Executive Vice President of Sequoia;
Chief Operating Officer, Texas Microsystems
William C. Gould Executive Vice President of Sequoia
Jack J. Stiffler Executive Vice President of Sequoia, General
Manager, Technology Business Unit
Jeremy F. Swett Vice President, General Counsel and
Secretary of Sequoia
James E. McDermott Vice President, Operations,
Texas Microsystems, Inc.
Ron Groen Vice President of PC Product Sales, Worldwide,
Texas Microsystems, Inc.
</TABLE>
(1) Unless otherwise indicated, the address of the principal occupation of
each listed individual is Sequoia Systems, Inc., 5959 Corporate Drive,
Houston, Texas 77036.
<PAGE>
ASSET PURCHASE AGREEMENT
BETWEEN
GENERAL AUTOMATION, INC.
("BUYER")
AND
SEQUOIA SYSTEMS, INC.
("SELLER")
OCTOBER 3, 1996
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<S> <C> <C>
SECTION 1 PURCHASE AND SALE OF ASSETS ..................... 1
1.1 Purchase and Sale of Assets ............................ 1
(a) Inventories ........................................ 2
(b) Technical Documentation ............................ 2
(c) Software Contracts ................................. 2
(d) Computer Equipment ................................. 2
(e) Office Furniture ................................... 2
(f) Leases ............................................. 2
(g) Other Contracts .................................... 3
(h) Business Records ................................... 3
(i) Authorizations ..................................... 3
(j) Intellectual Property............................... 3
(k) Claims ............................................. 4
(l) Liquid Assets ...................................... 4
(m) Subsidiaries ....................................... 4
1.2 Intent of the Parties .................................. 4
1.3 Excluded Assets ........................................ 4
1.4 License Agreement ...................................... 4
1.5 Use of Name ............................................ 4
SECTION 2 ASSUMPTION OF LIABILITIES........................ 5
2.1 Assumed Liabilities .................................... 5
(a) Trade Payables ..................................... 5
(b) Accrued Taxes ...................................... 5
(c) Contracts .......................................... 5
(d) Product Warranties ................................. 6
(e) Severance Agreements ............................... 6
(f) Other Accrued Liabilities .......................... 6
2.2 Liabilities Not Assumed ................................ 6
(a) Nonenumerated Liabilities .......................... 6
(b) Taxes .............................................. 7
(c) Violations of Law .................................. 7
(d) Employee Liabilities ............................... 7
(e) Product Liability .................................. 8
(g) Incidents to Excluded Assets ....................... 8
(h) Litigation ......................................... 8
(i) Improperly Recorded Liabilities .................... 8
(j) Nontransferable Contracts and Agreements ........... 8
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 3 PRICE AND PAYMENT .................................... 8
3.1 Consideration ............................................... 8
3.2 Payment ..................................................... 9
(a) Deferred Payments ....................................... 9
(b) Shares of Stock ......................................... 9
(d) The Warrant ............................................. 11
(e) Registration of Securities .............................. 11
(g) Total Purchase Price..................................... 12
(h) Imputed Interest ........................................ 12
3.3 Method of Payment ........................................... 12
SECTION 4 REPRESENTATIONS AND WARRANTIES OF SELLER.............. 12
4.1 Organization ................................................ 13
4.2 Power and Authority ......................................... 13
4.3 No Conflict ................................................. 13
4.4 Required Government Consents ................................ 14
4.5 Required Contract Consents .................................. 14
4.6 Title to Tangible Property .................................. 14
4.7 Condition of Property ....................................... 15
4.8 Inventory ................................................... 15
4.9 Title to Intellectual Property .............................. 15
(a) Ownership ............................................... 15
(b) Procedures for Trade Secret Protection .................. 16
(c) Personnel Agreements .................................... 16
(d) Absence of Claims ....................................... 16
4.10 Adequacy of Technical Documentation ......................... 16
4.11 Contracts--General .......................................... 16
4.12 Third-Party Components in Software Programs ................. 17
4.13 Third-Party Interests or Marketing Rights in
Software Programs ........................................... 17
4.14 Real Property; Leases ....................................... 18
4.15 Accounts Receivable ......................................... 18
4.16 Financial Statements ........................................ 18
4.17 Undisclosed Liabilities ..................................... 18
4.18 Conduct of Business ......................................... 19
(a) Ordinary Course of Business: No Removal or
Disposal of Assets ...................................... 19
(b) No Material Adverse Change .............................. 19
(c) Absence of Particular Events ............................ 19
(d) Absence of Joint Ventures, etc .......................... 19
4.19 Major Vendors and Customers ................................. 19
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4.20 Litigation ................................................... 20
4.21 Court Orders, Decrees, and Laws .............................. 20
(a) Compliance With Laws ..................................... 20
(b) Adequacy of Authorizations ............................... 20
(c) Environmental Compliance ................................. 21
4.22 Taxes ........................................................ 21
4.23 Personnel and Compensation ................................... 21
(a) List of Personnel ........................................ 21
(b) Compensation, etc. ....................................... 22
(c) No Accumulated Deficiency ................................ 22
(d) Submission to Buyer for Review ........................... 22
(e) Multi-employer Plan ...................................... 22
(f) Adequate Reserves for Welfare Plans ...................... 22
(g) Compliance with Laws ..................................... 22
4.24 Insurance Polices ............................................ 23
4.25 Sufficiency of Rights ........................................ 23
4.26 Broker's or Finder's Fees .................................... 23
4.27 Related-Party Transactions ................................... 24
4.28 Investment ................................................... 24
4.29 Materiality Defined .......................................... 25
4.30 Scope of Representations and Warranties ...................... 26
SECTION 5 REPRESENTATIONS AND WARRANTIES OF BUYER ............... 26
5.1 Organization ................................................. 26
5.2 Power and Authority .......................................... 26
5.3 Broker's or Finder's Fees .................................... 27
5.4 No Conflict .................................................. 27
5.5 Consents and Approvals ....................................... 27
5.6 Capitalization ............................................... 27
5.7 Common Stock ................................................. 28
5.8 SEC Reports and Financial Statements ......................... 28
5.9 Conduct of Business .......................................... 29
5.10 Undisclosed Liabilities ...................................... 30
5.11 Title to Assets .............................................. 30
5.12 Litigation ................................................... 31
5.13 Compliance With Laws ......................................... 32
5.14 Taxes ........................................................ 32
5.15 Registration of Securities ................................... 32
SECTION 6 CONDUCT OF THE BUSINESS PRIOR TO CLOSING .............. 32
6.1 Course of Business ........................................... 32
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
6.2 Organization ................................................. 33
6.3 Prohibited Actions ........................................... 33
(a) Liens .................................................... 33
(b) Disposition of Assets .................................... 33
(c) Licenses ................................................. 33
(d) Increases in Compensation ................................ 33
(e) Software Contracts ....................................... 33
6.4 Insurance; Property .......................................... 33
6.5 No Default ................................................... 33
6.6 No Prior Operation ........................................... 33
SECTION 7 COVENANTS OF SELLER AND BUYER PRIOR
TO CLOSING AND OTHER AGREEMENTS ...................... 34
7.1 Access to and Retention of Information ....................... 34
(a) Access ................................................... 34
(b) Destruction on Termination ............................... 35
7.2 Interim Financials ........................................... 35
7.3 Updating of Information ...................................... 35
7.4 Approvals of Third Parties ................................... 35
7.5 Third-Party Certificates ..................................... 35
7.6 Notification of Certain Matters .............................. 36
7.7 Risk of Loss ................................................. 36
7.8 Casualty Loss and Condemnation ............................... 36
7.9 WARN Act ..................................................... 37
7.10 Bulk Transfer Laws. .......................................... 37
SECTION 8 ACCOUNTING MATTERS .................................... 37
8.1 Manual Balance Sheet ......................................... 37
8.2 Unaudited Closing Date Balance Sheet ......................... 37
8.3 Conduct of Audit ............................................. 38
8.4 Basis for Preparation ........................................ 38
8.5 Review by Seller ............................................. 38
8.6 Agreed Net Worth ............................................. 39
(a) Audit Dispute Notice ..................................... 39
(b) Parties' Attempt to Resolve .............................. 39
(c) Resolution by Accounting Referee ......................... 39
(d) Adjustment to Purchase Price ............................. 39
SECTION 9 CONDITIONS TO OBLIGATIONS OF EACH OF THE PARTIES ...... 40
</TABLE>
(iv)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 10 CONDITIONS TO SELLER'S AND BUYER'S OBLIGATIONS ........ 41
10.1 Conditions to Seller's Obligations ........................... 41
10.2 Conditions to Obligations of Buyer ........................... 42
SECTION 11 CLOSING ............................................... 44
11.1 Closing ...................................................... 44
11.2 Actions at Closing ........................................... 44
(a) Copies of Consents ....................................... 44
(b) Conveyance Instruments ................................... 44
(c) Entry Into Premises ...................................... 44
(d) Master Copy of Software Programs ......................... 44
(e) Payment Stock; Warrant ................................... 44
(f) Assumption Agreement ..................................... 44
(g) Other Documents .......................................... 44
11.3 Prorations ................................................... 45
11.4 Further Assurances ........................................... 45
SECTION 12 COVENANTS OF SELLER AND BUYER FOLLOWING CLOSING ....... 45
12.1 Tax Matters .................................................. 45
12.2 Allocation of Purchase Price ................................. 45
12.3 Transfer Taxes ............................................... 46
12.4 Nonsolicitation of Personnel ................................. 46
12.5 Retention of Business Records ................................ 46
12.6 Actions With Respect to Certain Contracts .................... 46
12.7 Board Representation ......................................... 47
(a) Seller's Designee ........................................ 47
(b) Continuing Representation ................................ 47
12.8 No Dividends ................................................. 48
12.9 Amex Listing ................................................. 48
12.10 Buyer's Receivable Amount .................................... 48
SECTION 13 CERTAIN TRANSITION MATTERS ........................... 48
13.1 Hiring of Business Employees ................................. 48
13.2 COBRA ........................................................ 49
13.3 Transition Services Provided by Seller ....................... 49
(a) Commitment ............................................... 49
(b) Definition of Transition Services ........................ 50
</TABLE>
(v)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(c) Manner and Time of Performance ....................... 50
13.4 Data Processing and Support Services Provided by Buyer ... 50
SECTION 14 INDEMNITY ......................................... 51
14.1 Indemnification by Seller ................................ 51
(a) Breach of Obligation ................................. 51
(b) Excluded Liabilities ................................. 51
(c) Non-Compliance with the WARN Act ..................... 51
(d) Brokers' Fees ........................................ 51
14.2 Indemnification by Buyer ................................. 51
(a) Breach of Obligation ................................. 52
(b) Assumed Liabilities .................................. 52
(c) Broker's Fees ........................................ 52
14.3 Notice of Claim .......................................... 52
14.4 Defense .................................................. 53
14.5 Payment .................................................. 53
14.6 Limitations on Indemnification ........................... 54
14.7 Survival of Representations, Warranties and Covenants .... 54
14.8 Offset ................................................... 56
SECTION 15 CONFIDENTIALITY ................................... 56
SECTION 16 TERMINATION PRIOR TO CLOSING ...................... 57
16.1 Termination of Agreement ................................. 57
(a) Mutual Consent ....................................... 57
(b) By Buyer ............................................. 57
(c) By Seller ............................................ 57
16.2 Effect of Termination .................................... 58
SECTION 17 MISCELLANEOUS ..................................... 58
17.1 Entire Agreement; Amendment .............................. 58
17.2 Parties Bound by Agreement; Successors and Assigns ....... 58
17.3 Counterparts ............................................. 59
17.4 Headings ................................................. 59
17.5 Waiver ................................................... 59
17.6 Expenses ................................................. 59
17.7 Notices .................................................. 59
</TABLE>
(vi)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
17.8 Governing Law ............................................ 60
17.9 Public Announcements ..................................... 60
17.10 Third-Party Beneficiaries ................................ 60
17.11 Severability ............................................. 60
17.12 Remedies ................................................. 61
17.13 Submission to Jurisdiction ............................... 61
17.14 Arbitration .............................................. 62
17.15 Prevailing Party Costs ................................... 63
17.16 Interpretation ........................................... 64
</TABLE>
EXHIBITS
- --------
"A" - The Warrant
"B" - Registration Rights Agreement
"C" - Noncompetition Agreement
(vii)
<PAGE>
LIST OF SCHEDULES
-----------------
1.1(c) - Software Contracts
1.1(d) - Computer Equipment
1.1(e) - Office Furniture
1.1(f) - Leases
1.1(g) - General Contracts
1.1(i) - Authorizations
1.1(j) - Intellectual Property
1.1(l) - Liquid Assets
1.1(m) - Subsidiaries
1.3 - Excluded Assets
1.3(a) - Excluded Equipment and Furniture
4.4 - Required Government Consents
4.5 - Required Contract Consents
4.9(b) - Trade Secret Protection Program
4.13 - Third Party Interests
4.17 - Undisclosed Liabilities
4.18(a) - Assets Removed
4.18(b) - Material Adverse Change
4.18(c) - Particular Events
4.18(d) - Joint Ventures
4.19 - Vendors and Customers
4.20 - Litigation
4.21 - Environmental Compliance
4.23(b) - Employment and Consulting Agreements
4.24 - Insurance Policies
4.25 - Additional Assets Needed
4.27 - Other Contracts
5.9 - Conduct of Business
12.2 - Allocation of Purchase Price
(viii)
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
and is effective as of October 3, 1996 (the "Effective Date"), by and between
SEQUOIA SYSTEMS, INC., a Delaware corporation ("Seller"), and GENERAL
AUTOMATION, INC., a Delaware corporation ("Buyer");
R E C I T A L S:
- - - - - - - -
A. Seller is the owner of a business division commonly known as "Sequoia
Enterprise Systems" which manufactures, services, integrates and distributes
fault-tolerant Motorola 68K computer systems operating under Seller's version of
UNIX and Intel based computer systems, running Seller's and Alpha Micro's
versions of the "PICK" application environment and database software products
and other various related distribution arrangements (collectively, the
"Business").
B. Seller desires to sell to Buyer, and Buyer desires to buy from Seller,
substantially all of the assets of Seller relating to the Business, and Seller
desires to transfer, and Buyer desires to assume, certain liabilities of Seller
arising in connection with the Business, all upon the terms and conditions and
subject to the limitations set forth herein.
C. Seller expects to terminate its employment or engagement of a number
of employees and consultants involved with the Business, and Buyer desires to
hire or retain certain of such employees or consultants, all upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, and agreements of the parties hereinafter set forth, the parties
hereto agree as follows:
SECTION 1
PURCHASE AND SALE OF ASSETS
---------------------------
<PAGE>
1.1 PURCHASE AND SALE OF ASSETS. Upon the terms and subject to the
conditions of this Agreement, Buyer agrees to purchase, accept, and acquire from
Seller, and Seller agrees to sell, transfer, assign, convey, and deliver to
Buyer, at the Closing (as defined herein), all right, title, and interest of
Seller in and to all of the rights and assets, real, personal, and mixed,
tangible or intangible, relating primarily to the Business, as owned or held by
Seller, but expressly excluding the rights and assets to be retained by Seller
identified in Section 1.3. Subject to such express exclusion and qualification,
and without in any way limiting the generality of the foregoing, for the
purposes of this Agreement, the term "Assets" shall mean all right and interest
owned or held by Seller in the following:
(a) INVENTORIES. All inventories of: (i) computer program code (in
all media) and materials; (ii) program documentation, including user materials;
(iii) all electrical components and parts; and (iv) all other unused or reusable
materials, stores, and supplies, in each case to the extent used in, relating
to, or arising out of the Business (the "Inventory").
(b) TECHNICAL DOCUMENTATION. All technical and descriptive materials
(other than Inventory) relating to the acquisition, design, development, use, or
maintenance of computer code and program documentation and materials in the
Business (the "Technical Documentation").
(c) SOFTWARE CONTRACTS. To the extent their transfer is permitted
pursuant to the terms thereof, all contracts, agreements, licenses, and other
commitments and arrangements, oral or written, with any person or entity
respecting the ownership, license, acquisition, design, development,
distribution, marketing, use, or maintenance of computer program code, related
technical or user documentation, and databases, in each case relating to or
arising out of the Business as listed in Schedule 1.1(c) (the "Software
Contracts").
(d) COMPUTER EQUIPMENT. All equipment and devices (including data
processing hardware and related telecommunications equipment, media, and tools)
used in the
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Business, as listed in Schedule 1.1(d) (the "Computer Equipment").
(e) OFFICE FURNITURE. All office furniture and fixtures used in the
Business as listed in Schedule 1.1(e) (the "Office Furniture").
(f) LEASES. To the extent their transfer is permitted pursuant to the
terms thereof, the entire leasehold or rental interest arising under leases of
(collectively, the "Leases"):
(i) Real property, including buildings, structures, and other
improvements located thereon, fixtures therein, and
appurtenances thereto, and easements and other rights
relative thereto;
(ii) Equipment, including data processing hardware and
associated telecommunications equipment, media, and tools;
(iii) Office furnishings and fixtures; and
(iv) Other personalty.
The Leases are listed in Schedule 1.1(f).
(g) OTHER CONTRACTS. To the extent their transfer is permitted
pursuant to the terms thereof, all contracts, agreements, licenses, commitments,
arrangements, instruments and understandings which relate to the Business to the
extent not otherwise classified as Software Contracts, Leases, or Insurance
Policies (as defined herein) including those which involve an amount in excess
of Ten Thousand Dollars ($10,000) which are listed in Schedule 1.1(g) (the
"General Contracts").
(h) BUSINESS RECORDS. All business and marketing records, including
accounting and operating records, asset ledgers, inventory records, budgets,
personnel records, payroll records, customer lists, employment and consulting
agreements, supplier lists, information and data respecting leased or owned
equipment, files, correspondence and mailing lists, advertising
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materials and brochures, and other business records used in the Business (the
"Business Records"); provided, however, that to the extent that any of the
Business Records are items susceptible to duplication and are either: (i) used
in connection with any of the Seller's businesses other than the Business; or
(ii) are required by law to be retained by Seller, Seller may deliver
photostatic copies or other reproductions from which, in the case of Business
Records referred to in clause (i), information solely concerning Seller's
businesses other than the Business has been deleted.
(i) AUTHORIZATIONS. To the extent their transfer is permitted
pursuant to the terms thereof and applicable Law (as defined herein), all
governmental approvals, authorizations, certifications, consents, variances,
permissions, licenses, and permits to or from, or filings, notices, or
recordings to or with, Governmental Authorities (as defined herein) as listed in
Schedule 1.1(i) (the "Authorizations"), but subject, as to the assignability to
Buyer, to the procurement of the Required Government Consents (listed in
Schedule 4.4).
(j) INTELLECTUAL PROPERTY. Subject to any rights therein previously
granted to third parties as listed in Schedule 1.1(j), all patents, trademarks,
service marks, trade names, and copyrights (including registrations, licenses,
and applications pertaining thereto), and all other intellectual property
rights, trade secrets, and other proprietary information, processes, and
formulae used in the Business as listed in Schedule 1.1(j) (the "Intellectual
Property").
(k) CLAIMS. To the extent transferable, all claims Seller may have
against any person relating to or arising from the Assets or the Business,
including rights to recoveries for damages or defective goods, to refunds, and
chooses in action, including warranties (the "Claims").
(l) LIQUID ASSETS. The deposits and prepaid expense items, that are
listed in Schedule 1.1(l) and all other products and proceeds of any Assets
arising from the Business after the Closing (the "Liquid Assets").
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(m) SUBSIDIARIES. All of the shares of the outstanding capital stock
of the corporations which are wholly-owned subsidiaries of Seller listed in
Schedule 1.1(m) (the "Subsidiaries").
1.2 INTENT OF THE PARTIES. Although the Schedules to this Agreement are
intended to be complete, to the extent any rights or assets of Seller primarily
relate to the Business or are otherwise necessary for the ownership and use of
the Assets and the conduct of the Business, but are not properly itemized or do
not appear on the applicable Schedules where required, then, unless this
Agreement otherwise provides directly for Buyer to provide for or obtain such
rights or assets in a different way, the general language of Section 1.1 shall
govern and such rights and assets shall nonetheless be deemed transferred to
Buyer at the Closing. It is mutually acknowledged that the Schedules to Section
1.1 are to be prepared as of the Effective Date, and will be updated as of the
Closing Date (as defined herein).
1.3 EXCLUDED ASSETS. For the purposes of this Agreement, the term
"Assets" shall not include and Seller shall not sell or assign to Buyer, and
Buyer shall not purchase or accept assignment from Seller of, any right, title
or interest owned by Seller in the assets identified in Schedule 1.3 (the
"Excluded Assets").
1.4 LICENSE AGREEMENT. At the Closing, Seller shall grant to Buyer a
license to use certain technology of Seller which is not transferred to Buyer
hereunder as set forth in the License Agreement in a form mutually agreeable to
Buyer and Seller (the "License Agreement").
1.5 USE OF NAME. Notwithstanding the sale and transfer to Buyer of the
name "Sequoia" hereunder, as of the Closing Date Buyer hereby grants to Seller a
nonexclusive, nontransferable, fully-paid, royalty free, worldwide license to
use the name "Sequoia" as part of its corporate name, including the right to
execute contracts and issue securities in such name and use such name and any
associated logos in its letterhead and for any other purpose requiring the use
of Seller's corporate name; provided, however, that to the extent practicable,
Seller shall conduct its operations under an assumed name which does not include
the word
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"Sequoia" or any derivation thereof. At the first annual meeting of the
stockholders of Seller occurring after the date of this Agreement, Seller shall
recommend to its stockholders an amendment to its Certificate of Incorporation
providing a change in the corporate name of Seller to a name which does not
include the word "Sequoia" or any derivation thereof.
SECTION 2
ASSUMPTION OF LIABILITIES
-------------------------
2.1 ASSUMED LIABILITIES. At and after the Closing, Buyer shall assume and
agree to pay or perform only the liabilities and obligations of Seller that
arise out of the Business or the Assets and are expressly identified in this
Section 2.1 (the "Assumed Liabilities") or are represented by any other
covenant, agreement, or indemnity of Buyer in this Agreement or the other
agreements and instruments to be executed and delivered by Buyer in connection
with this Agreement. Subject to the express exclusions set forth in Section
2.2, the Assumed Liabilities shall consist of the following:
(a) TRADE PAYABLES. All accrued trade payables of Seller arising out
of the Business, but only to the extent such items are credited in the Closing
Date Balance Sheet (as defined herein) and taken into account in the calculation
of the Agreed Net Worth (as defined herein).
(b) ACCRUED TAXES. The accrued portion of Seller's liability for
state and local tangible or intangible property taxes, but only to the extent
such amount is credited in the Closing Date Balance Sheet and taken into account
in the calculation of the Agreed Net Worth.
(c) CONTRACTS. All payment and performance obligations arising out of
or relating to: (i) the Software Contracts; (ii) the Leases; and (iii) the
General Contracts after the Closing Date, except to the extent attributable to:
(A) any material breach or default by Seller under any of the same on or before
the Closing Date; or (B) any material liability or obligation outside the
ordinary course of business not disclosed
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by Seller pursuant to this Agreement, insofar as disclosure thereof is required
hereunder and Buyer does not receive property or services of substantially
equivalent value in respect of such liability or obligation.
(d) PRODUCT WARRANTIES. All liabilities and obligations of Seller
related to any products sold by the Business at any time for repairs, exchanges,
returns, and warranty claims during the warranty period.
(e) SEVERANCE AGREEMENTS. In the event that William Gould, Steven
Romboli and John Owens (collectively, the "Management Business Employees")
accept offers of employment from Buyer, all liabilities of Seller to each of the
Management Business Employees who accept such employment with respect to the
severance benefits currently in effect with Seller (the "Severance Agreements").
(f) OTHER ACCRUED LIABILITIES. Any other liabilities recorded in the
Closing Date Balance Sheet, but only to the extent of the amount credited with
respect thereto and taken into account in the calculation of the Agreed Net
Worth.
(g) LEASE OBLIGATION. The obligation of Seller to pay rent under that
certain lease (the "Lease") with respect to the leased premises (the "Premises")
which is currently the principal office of the Business will be assumed and paid
by Buyer; provided, however, that if Buyer is no longer entitled to legally
occupy the Premises under the Lease or under any valid assignment, sublease or
amendment to the Lease (other than on account of a default thereof by Buyer or
any voluntary termination thereof by Buyer), Buyer's obligation under this
Section shall terminate as of the date Buyer physically vacates the Premises.
If prior to such termination, Seller is obligated and makes the payments of rent
to the landlord under the Lease, Buyer shall promptly reimburse Seller for such
amount paid by Seller following demand to Buyer by Seller. In no event shall
Seller be liable to Buyer for any costs or expenses incurred by Buyer in
connection with Buyer's vacation of the Premises by Buyer or the relocation of
Buyer to other premises.
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2.2 LIABILITIES NOT ASSUMED. Without in any way expanding the specificity
and limitation of Section 2.1, Buyer shall not assume or be responsible for any
of the following liabilities or obligations expressly identified in this Section
2.2 (the "Excluded Liabilities"):
(a) NONENUMERATED LIABILITIES. Any liability or obligation of Seller
of any kind, known or unknown, contingent or otherwise, not either enumerated as
an Assumed Liability in Section 2.1 hereof or resulting from any other covenant,
agreement, or indemnity of Buyer in this Agreement or the other agreements and
instruments to be executed and delivered by Buyer in connection with Agreement.
(b) TAXES. Any liability or obligation of Seller for federal, state,
or local income, franchise, property (except as provided in Section 2.1(b) with
respect to the current portion of property taxes), sales or use (to the extent
arising from pre-Closing transactions), or recapture taxes, assessments, and
penalties, whether arising out of the transactions contemplated by this
Agreement or otherwise.
(c) VIOLATIONS OF LAW. Any liability or obligation resulting from
violations of any applicable laws or regulations by Seller prior to the Closing
Date or infringement of third-party rights or interests.
(d) EMPLOYEE LIABILITIES. Any employee liabilities relating to
present and past employees of the Business with respect to plans, programs,
policies, commitments, and other benefit entitlements established or existing on
or prior to the Closing which are not assumed by Buyer hereunder (whether or not
such liabilities are accrued or payable at the Closing, and whether or not such
liabilities are contingent in nature), including:
(i) Any liability or obligation for workers' compensation;
(ii) Any current or future liabilities to employees retiring on,
before, or after the Closing, and their dependents;
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(iii) Any current or future liabilities for benefits that may
have been accrued or earned by any employees associated with the Business on or
before the Closing under any pension plans relating to service prior to the
Closing Date;
(iv) Any current or future liabilities for claims incurred prior to
the Closing and related expenses with respect to any employees associated with
the Business under any welfare or disability plans established or existing at or
prior to the Closing, regardless of when filed with Buyer, Seller, or the claims
administrator for any such plan;
(v) Any retrospective premium on pension, savings, thrift, or profit-
sharing plan contribution relating to any employees associated with the Business
incurred or accrued prior to the Closing Date, regardless of when invoiced or
recorded; and
(vi) Any monetary liability for severance payments that may arise at
any time in favor of any of Seller's employees under any plan, program, policy,
commitment, or other benefit entitlement other than for the Severance
Agreements.
(e) PRODUCT LIABILITY. Any liability or obligation for product
liability or warranty claims under expired warranties or damage claims arising
out of defects in or failures of any product, program, or material of Seller or
the Business provided, distributed, licensed, or delivered prior to the Closing
Date.
(f) KHP5 SYSTEM. Any and all liabilities and obligations of Seller to
Keystone Health Plan arising out of the sale by Seller to Keystone Health Plan
of the products commonly referred to as the "KHP5 System."
(g) INCIDENTS TO EXCLUDED ASSETS. Any liability or obligation
associated with any of the Excluded Assets, except to the extent of the amount
of any such liability credited in the Closing Date Balance Sheet and taken into
account in the calculation of the Agreed Net Worth.
(h) LITIGATION. Any Litigation (as defined herein) pending or
threatened against Seller or the Assets.
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(i) IMPROPERLY RECORDED LIABILITIES. Any liability or obligation that
under generally accepted accounting principles ("GAAP") would be required to be
accrued and reflected in the Closing Date Balance Sheet, but is not included
therein.
(j) NONTRANSFERABLE CONTRACTS AND AGREEMENTS. Any liability or
obligation associated with any contract, agreement, instrument, license or other
right or obligation of Seller which is an asset of the Business but which
requires the consent of some third-party to be assigned and/or transferred and
with respect to which such consent of such third-party has not been obtained.
SECTION 3
PRICE AND PAYMENT
-----------------
3.1 CONSIDERATION. Subject to any adjustment pursuant to Section 8.6(d),
the aggregate consideration payable by Buyer to Seller for the Assets consists
of: (i) the payment by Seller to Buyer of Ten Million Seven Hundred Thousand
Dollars ($10,700,000) (the "Purchase Price"); plus (ii) the assumption by Buyer
of the Assumed Liabilities; plus (iii) the issuance by Buyer to Seller of the
Warrants (as defined herein). The Purchase Price shall be payable by Buyer as
provided in Section 3.2.
3.2 PAYMENT. The Purchase Price shall be paid as follows:
(a) DEFERRED PAYMENTS.
(i) PAYMENT AMOUNTS. Following the Closing Date, Buyer shall pay to
Seller the following amounts (collectively, the "Deferred Payments").
(A) An amount equal to eighteen percent (18%) of all gross revenues
received by Buyer from sales of any products in or manufactured from the
Inventory and/or any license fees paid by Seller in connection with the Business
prior to the Closing Date (the "Inventory Related Sales");
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(B) An amount equal to five percent (5%) of all gross revenues
received by Buyer from sales of any product by the Business excluding the
Inventory Related Sales; and
(C) An amount equal to ten percent (10%) of all gross revenues
received by Buyer with respect to all of Buyer's service and support operations.
(ii) TERMS OF DEFERRED PAYMENT. The Deferred Payments shall be paid
by Buyer to Seller within forty-five (45) days following the end of each month
commencing October 1996 and continuing thereafter until the Purchase Price shall
have been paid by Buyer to Seller in full, each such payment to be based upon
the sales of products or the rendition of service and support operations, as
applicable, during such month. In the event that on December 31, 1996, the
aggregate amount of all Deferred Payments made to Seller is less than Four
Hundred Ninety Thousand Dollars ($490,000) (the "Minimum Payment"), Buyer shall
pay to Seller on December 31, 1996, in cash, an amount equal to the difference
between the aggregate amount of all Deferred Payments paid by Buyer to Seller on
or before December 31, 1996, and the Minimum Payment (the "Make-up Amount");
provided, however, that Buyer may deduct from the Deferred Payments due to
Seller thereafter an aggregate amount equal to the Make-up Amount. Each payment
or deduction shall be accompanied by a worksheet certified by Buyer's Chief
Financial Officer which sets forth the calculation of each Deferred Payment and
sets forth the cumulative amount paid with respect to each Deferred Payment.
Not more than once every six (6) months Seller may, following written request
and reasonable notice, during Buyer's normal business hours, inspect the records
of Buyer to verify the Deferred Payment calculations.
(b) SHARES OF STOCK. In addition to the Deferred Payments, Buyer
shall issue and deliver to Seller seven hundred fifty thousand (750,000) shares
(the "Payment Stock") of Buyer's common stock, par value .10 per share, being
the class of common stock of Buyer listed on the American Stock Exchange (the
"Amex") on the date hereof (the "Stock"). The Payment Stock shall be issued and
delivered by Buyer to Seller within two (2) business days following the date on
which the listing of the Payment Stock on the Amex shall have been declared
effective.
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(c) VALUATION OF PAYMENT STOCK.
(i) For purposes of the payment of the Purchase Price, four hundred
thousand (400,000) shares (the "Initial Shares") of the Payment Stock shall be
valued at Two and 50/100 Dollars ($2.50) per share. On the first (1st)
anniversary of the Closing Date, two hundred thousand (200,000) shares of the
Payment Stock will be valued at the average of the closing per share sales
prices of a share of Stock on the Amex during the ten (10) trading days
immediately preceding the first (1st) anniversary of the Closing Date. At all
times after the first (1st) anniversary of the Closing Date, the remaining one
hundred fifty thousand (150,000) shares of Payment Stock (the Remaining Shares")
will be valued at the average of the closing per share sales prices of a share
of Stock on the Amex during the ten (10) trading days immediately preceding any
date on which a valuation of the Remaining Shares is made for purposes of
determining the payment of the Purchase Price; provided, however, that if the
Purchase Price has not been paid in full prior to the second (2nd) anniversary
of the Closing Date, the Remaining Shares will be valued at the average of the
closing per share sales prices of a share of Stock on the Amex during the ten
(10) trading days immediately preceding the second (2nd) anniversary of the
Closing Date. If at any time of valuation of any shares of the Payment Stock,
the shares of Stock are not then listed on the Amex, such shares of Payment
Stock shall be valued at the average of the closing per share sales prices of a
share of Stock on the principal United States securities exchange registered
under the Exchange Act (as defined herein) on which the shares of Stock are then
listed during the ten (10) trading days immediately preceding any date on which
a valuation of the shares of Payment Stock is made, or if shares of Stock are
not then listed on any such stock exchange, the average of the average closing
bid and ask quotations with respect to a share of Stock during such ten (10)
trading days, in each case, on The Nasdaq Stock Market or any successor system
then in use, or if no such quotations are then available, the average of the bid
and asked prices with respect to a share of Stock for such ten (10) trading
days, as furnished by a member of the New York Stock Exchange regularly making a
market in the Stock selected by Seller, or if no such member firm is then making
a market in Stock, the fair market value of a share of Stock on the date of
issuance as determined
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by an appraisal of Buyer (an "Appraisal"). An "Appraisal" shall be prepared by a
mutually acceptable investment banking firm (the "Appraiser"). If Buyer and
Seller cannot agree on an Appraiser within ten (10) days following written
notice from either Buyer or Seller, each of Buyer and Seller shall appoint an
appraiser within ten (10) days following expiration of such period. If Buyer or
Seller fails to timely appoint their respective Appraiser, the timely appointed
Appraiser shall be the sole Appraiser. Those two (2) appraisers shall jointly
appoint a third appraiser within ten (10) days after their appointment. All
three (3) Appraisers shall deliver their appraisal to Buyer within thirty (30)
days following the appointment of the last Appraiser and the middle appraisal
shall be the value of the relevant shares of Stock. The costs, fees and expenses
of each appointed Appraiser shall be paid by the appointing party. The cost,
fees and expenses of the third appraiser or the mutually agreed upon Appraiser
shall be shared equally by Buyer and Seller.
(ii) For purposes of this Agreement, the term "Stock" shall include
any securities issued or issuable with respect to any shares of such Stock by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise, and each of: (A) the number of shares of Payment Stock; and (B) the
valuation of such shares of Payment Stock for purposes of the payment of
Purchase Price by Buyer, shall be adjusted in connection with any such stock
split, combination of shares, recapitalization, merger, consolidation or other
reorganization occurring prior to the delivery of such shares of Stock or
payment of such dividends or distributions to Seller so as to provide Seller
with rights substantially equivalent to those held by Seller immediately prior
to such event.
(d) THE WARRANT. Finally, Buyer shall issue to Seller, without
additional consideration and without any value attributed to them, warrants to
purchase two hundred fifty thousand (250,000) shares of Stock substantially in
the form of Exhibit "A" (the "Warrant"). The exercise price for each share of
Stock subject to the Warrant (the "Warrant Stock") shall be Two and 50/100
Dollars ($2.50) per share.
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(e) REGISTRATION OF SECURITIES. At the Closing, Buyer shall execute
and deliver to Seller a Registration Rights Agreement substantially in the form
of Exhibit "B" (the "Registration Rights Agreement") providing for the
registration under the Securities Act of 1933 and the rules and regulations
thereunder (collectively, the "Securities Act") of the Payment Stock and the
Warrant Stock.
(f) PAYMENT OF AGREED NET WORTH. On the first (1st) anniversary of
the Closing Date, if the aggregate value of: (i) the Initial Shares; and (ii)
the Deferred Payments received by the Seller to date, is less than the Agreed
Net Worth, Buyer shall deliver to Seller either shares of Stock valued in the
same manner as set forth in Section 3.2(d) as of the first (1st) anniversary or
cash, or a combination thereof, in an amount sufficient to increase such
aggregate value to an amount equal to the Agreed Net Worth.
(g) TOTAL PURCHASE PRICE. The Deferred Payments shall continue to be
paid to Seller until the aggregate of the value of all payments and Stock
received by Seller including the Payment Stock, any Stock issued and delivered
or cash payments made to Seller by Buyer under Section 3.2(a)(ii) or (f) and the
Deferred Payments, equals the Purchase Price. At that time, the payment of all
further Deferred Payments shall cease.
(h) IMPUTED INTEREST. For Federal income tax purposes, the Deferred
Payments will be discounted to the Closing Date at the Conditional Payment
Discount Rate (as defined herein), to determine the conditional principal amount
(the "Conditional Principal Amount"). The Conditional Payment Discount Rate
will be the lower of: (i) the lowest Applicable Federal Rate (as defined
herein), based on quarterly compounding in effect during the three (3)-month
period ending with the first (1st) month in which there is a binding written
contract that substantially sets forth the terms under which the sale or
exchange is ultimately consummated; or (ii) the lowest Applicable Federal Rate,
based on quarterly compounding in effect during the three (3)-month period
ending with the month in which the Closing Date occurs. The Applicable Federal
Rate will be the Federal short-term rate, mid-term rate or long-term rate, as
applicable, determined and published by the Secretary of the Treasury or his
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delegate during each calendar month which shall apply during the following
calendar month. The difference between the Deferred Payments and the
Conditional Principal Amount, as determined with respect to each such payment,
will be treated by Buyer and Seller as interest for Federal income tax purposes.
3.3 METHOD OF PAYMENT. All payments to be made hereunder shall be made by
either wire transfer or check drawn on the payor's bank account.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller hereby represents and warrants to Buyer as follows:
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4.1 ORGANIZATION. Seller is a corporation validly existing and in good
standing under the laws of the State of Delaware and the Subsidiaries are
corporations validly existing and in good standing in their respective
jurisdictions of incorporation and Seller and each of the Subsidiaries have the
corporate power and authority to conduct its business as currently conducted
(including the Business) and to own and lease its properties and assets
(including the Assets) and, as to the conduct of the Business and the use and
ownership of the Assets specifically, is duly qualified or licensed to do
business and is in good standing as a foreign corporation in all states or
jurisdictions which the conduct of such business requires such qualification,
except where the failure to be so qualified and in good standing will not, when
taken together with all other such failures, have a Material Adverse Effect (as
defined herein).
4.2 POWER AND AUTHORITY. Seller has the power and authority to execute,
deliver, and perform this Agreement and the other agreements and instruments to
be executed and delivered by it in connection with the transactions contemplated
hereby and thereby, and has taken all necessary corporate action to authorize
the execution and delivery of this Agreement and such other agreements and
instruments and the consummation of the transactions contemplated hereby and
thereby. This Agreement has been duly executed and delivered by Seller and
Seller will, on or prior to the Closing Date, duly execute and deliver the
documents referred to herein to which it is to be a party. Assuming the due
authorization, execution and delivery of this Agreement and the documents
referred to herein by the parties hereto and thereto other than Seller, this
Agreement constitutes, and when executed and delivered each of such documents
referred to herein will constitute the legal, valid, and binding obligations of
Seller, enforceable against Seller in accordance with their terms, except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws affecting creditors' rights generally
and general equitable principles.
4.3 NO CONFLICT. Neither the execution and delivery by Seller of this
Agreement and the other agreements and instruments
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to be executed and delivered by Seller in connection with the transactions
contemplated hereby or thereby, nor the consummation by Seller of the
transactions contemplated hereby or thereby, will violate or conflict with: (i)
subject to obtaining the Required Government Consents, any federal, state,
foreign or local law, statute, rule, regulation, ordinance, zoning requirement,
or governmental restriction (collectively, the "Laws") or any order, judgment,
or decree applicable to Seller, the Business, or the Assets; (ii) any provision
of any charter, bylaw or other governing or organizational instrument of Seller;
or (iii) subject to obtaining the Required Contract Consents, any mortgage,
indenture, license, instrument, trust, contract, agreement, or other commitment
or arrangement to which Seller is a party or by which Seller or any of the
Assets is bound, other than such violations and conflicts that, individually or
in the aggregate, will not have a Material Adverse Effect.
4.4 REQUIRED GOVERNMENT CONSENTS. Except for: (i) receipt of sales tax
and employment tax certificates with respect to the Assets and the employees of
the Business; and (ii) the further exceptions set forth in Schedule 4.4
(collectively, the "Required Government Consents"), no approval, authorization,
certification, consent, variance, permission, license, or permit to or from, or
notice, filing, or recording to or with: (A) any nation or government; (B) any
federal, state, county, province, city, town, municipality, local or other
political subdivision thereof or thereto; (C) any court, tribunal, department,
commission, board, bureau, instrumentality, agency, council, arbitrator or other
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government; or (D) any other governmental entity,
agency or authority having or exercising jurisdiction over any relevant person,
item or matter (each, a "Governmental Authority"), is necessary for the
execution and delivery of this Agreement and the other agreements and
instruments to be executed and delivered in connection with the transactions
contemplated hereby or thereby by Seller or the consummation by Seller of the
transactions contemplated hereby or thereby or the enforceability hereof or
thereof other than: (1) those which will not have a Material Adverse Effect;
and (2) those which have been obtained or made and are in full force and effect.
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4.5 REQUIRED CONTRACT CONSENTS. Except as set forth in Schedule 4.5 (the
"Required Contract Consents"), no approval, authorization, consent, permission,
or waiver to or from, or notice, filing, or recording to or with, any person
(other than the Governmental Authorities) is necessary for the execution and
delivery of this Agreement and the other agreements and instruments to be
executed and delivered in connection with the transactions contemplated hereby
or thereby by Seller or the consummation by Seller of the transactions
contemplated hereby or the enforceability hereof or thereof other than: (1)
those which will not have a Material Adverse Effect; and (2) those which have
been obtained or made and are in full force and effect.
4.6 TITLE TO TANGIBLE PROPERTY. Seller has and will transfer to Buyer at
the Closing, good and indefeasible title to all of the tangible Assets (i.e.,
the Inventories, Technical Documentation, Office Furniture, and Business
Records), except for Assets sold or otherwise disposed of by Seller between the
date hereof and the Closing Date in accordance with this Agreement, free and
clear of all title defects, liens, restrictions, claims, charges, security
interests, or other encumbrances of any nature whatsoever, including any
mortgages, (except for the Leases listed in Schedule 1.1(f)) leases, chattel
mortgages, conditional sales contracts, collateral security arrangements, or
other title or interest retention arrangements, other than: (i) statutory liens
for taxes not delinquent or that may hereafter be paid without penalty or are
being contested in good faith by appropriate proceedings promptly initiated and
diligently conducted; (ii) liens and encumbrances consisting of easements,
zoning restrictions or other restrictions on the use of real property that do
not materially affect the value of the Assets encumbered thereby or materially
impair the ability to use such Assets in the Business as presently conducted;
(iii) liens of landlords, mechanics, materialmen, warehousemen, carriers or
other statutory liens securing obligations that are not yet due and are incurred
in the ordinary course of business; (iv) liens resulting from deposits to secure
payments of workmen's compensation or other social security programs or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids or contracts in the ordinary course of business; (v) liens approved
by Buyer existing on the date hereof securing indebtedness for borrowed money
reflected in the Financial
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Statements (as defined herein); and (vi) other matters which, singly or in the
aggregate, will not have a Material Adverse Effect (each, a "Permitted Lien").
4.7 CONDITION OF PROPERTY. All of the tangible Assets are in good
operating order, condition, and repair, ordinary wear and tear excepted, and are
suitable for use in the Business as currently conducted in the ordinary course.
4.8 INVENTORY. All Inventory is of usable quality and includes no
material amount of obsolete or discontinued items or items that cannot be used
by Buyer in the Business in the ordinary course. All Inventory has been
recorded in accordance with GAAP applied on a consistent basis with prior
practices.
4.9 TITLE TO INTELLECTUAL PROPERTY.
(a) OWNERSHIP. Except for the rights and licenses validly and
effectively established by the Software Contracts, Seller owns, Buyer shall
receive at the Closing, and the Intellectual Property includes, all patents,
trademarks, service marks, trade names, and copyrights (including registrations,
licenses, and applications pertaining thereto) and all other intellectual
property rights, trade secrets, and other proprietary information, processes,
and formulae used in the Business or otherwise necessary for the ownership and
use of the Assets and the conduct of the Business. Schedule 1.1(l) sets
forth all registered trademarks and service marks, all reserved trade names, all
registered copyrights, and all filed patent applications and issued patents
listed in Schedule 1.1(l) used in the Business or otherwise necessary for the
conduct of the Business as heretofore conducted.
(b) PROCEDURES FOR TRADE SECRET PROTECTION. Seller has promulgated
and used its commercially reasonable best efforts to enforce the trade secret
protection program set forth in Schedule 4.9(b). To Seller's knowledge, there
has been no material violation of such program by any person. The source code
and system documentation relating to the Assets: (i) have at all times been
maintained in confidence; and (ii) have been disclosed by Seller only to
employees and consultants having "a
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need to know" the contents thereof in connection with the performance of their
duties to Seller.
(c) PERSONNEL AGREEMENTS. All personnel, including employees, agents,
consultants, and contractors, who have contributed to or participated in the
conception and development of any of the Inventory, Technical Documentation, or
Intellectual Property on behalf of Seller either: (i) have been party to a
"work-for-hire" arrangement or agreement with Seller, in accordance with
applicable Laws, that has accorded Seller full, effective, exclusive, and
original ownership of all tangible and intangible property thereby arising; or
(ii) have executed appropriate instruments of assignment in favor of Seller as
assignee that have conveyed to Seller full, effective, and exclusive ownership
of all tangible and intangible property thereby arising.
(d) ABSENCE OF CLAIMS. No claims have been asserted to Seller by any
person or entity to the use of the Intellectual Property, and Seller does not
know of any valid basis for any such claim. The use of the Intellectual
Property, such as patents and trademarks, by Seller does not infringe on the
rights of any person.
4.10 ADEQUACY OF TECHNICAL DOCUMENTATION. The Technical Documentation
includes the source code, system documentation, statements of principles of
operation, and schematics for all software programs, as well as any pertinent
commentary or explanation that may be necessary to render such materials
understandable and usable by a trained computer programmer. The Technical
Documentation also includes any program (including compilers), "workbenches,"
tools, and higher level (or "proprietary") language used for the development,
maintenance, and implementation of such software program.
4.11 CONTRACTS--GENERAL. The Software Contracts and the General Contracts
constitute all contracts, agreements, licenses,
and other commitments and arrangements to which Seller is a party and which
relate to the Business and are in effect as of the Effective Date, other than
the Leases addressed by Section 4.14. All such contracts are valid, binding,
and enforceable against Seller and, to Seller's knowledge, the other parties
thereto, in
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accordance with their terms and are in full force and effect, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar Laws affecting creditors' rights generally and general
equitable principles. There are no existing defaults by Seller under any such
contracts and no act, event, or omission has occurred that, whether with or
without notice, lapse of time, or both, would constitute a default by Seller
thereunder.
4.12 THIRD-PARTY COMPONENTS IN SOFTWARE PROGRAMS. Seller has validly and
effectively obtained the right and license to use, copy, modify, and distribute
the third-party programming and materials contained in the software programs and
Technical Documentation pursuant to the Software Contracts identified as
"licenses from third parties (development and/or marketing)" or "Licenses from
third parties (internal use only)" in Schedule 1.1(c). The software programs
and Technical Documentation contain no other programming or materials in which
any third party may rightfully claim superior, joint, or common ownership,
including any right or license. The software programs and Technical
Documentation do not contain derivative works of any programming or materials
not owned in their entirety by Seller and included in the Assets.
4.13 THIRD-PARTY INTERESTS OR MARKETING RIGHTS IN SOFTWARE PROGRAMS.
Seller has not granted, transferred, or assigned any right or interest in the
software programs, the Technical Documentation, or the Intellectual Property to
any person, except pursuant to the Software Contracts identified as
"distributorships, dealerships, franchises, and manufacturer's representative
contracts" or "licenses and sublicenses to others" in Schedule 1.1(c). Except
as set forth in Schedule 4.13, all Software Contracts identified as "licenses
and sublicenses to others" in Schedule 1.1(c) constitute only end-user
agreements, each of which grants the end-user thereunder solely the nonexclusive
right and license to use an identified Software Programs and related user
documentation. There are no contracts, agreements, licenses, and other
commitments and arrangements in effect with respect to the marketing,
distribution, licensing, or promotion of the software programs or any other
Inventory, the Technical Documentation, or the Intellectual Property by any
independent salesperson, distributor, sublicensor, or other
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remarketer or sales organization, except for the Software Contracts identified
as "distributorships, dealerships, franchises, and manufacturer's representative
contracts" in Schedule 1.1(c).
4.14 REAL PROPERTY; LEASES. Seller owns no real property which relates,
in any respect, to the Business. The Leases constitute all leasing or rental
contracts, agreements, and other commitments and arrangements to which Seller is
a party and which relate to the Business and are in effect as of the Effective
Date that are in effect for a period of twelve (12) months or longer without
allowing Seller (and, following the Closing, Buyer) to terminate without penalty
for any reason upon the delivery of any required action. All Leases are valid,
binding, and enforceable against Seller, and to Seller's knowledge, the other
parties thereto in accordance with their terms and are in full force and effect,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws affecting creditors' rights generally
and general equitable principles. There are no existing defaults by Seller
thereunder, and no act, event, or omission has occurred that, whether with or
without notice, lapse of time, or both, would constitute a default by Seller
thereunder except for such defaults as to which requisite waivers or consents
have been or will, on or prior to the Closing Date, be obtained or which will
not, alone or in the aggregate, have a Material Adverse Effect.
4.15 ACCOUNTS RECEIVABLE. All of the accounts receivable of the Business
as set forth on the Closing Date Balance Sheet (the "Accounts Receivable") are
fully collectible within the customary collection cycle.
4.16 FINANCIAL STATEMENTS. Seller will deliver to Buyer, concurrently
with the delivery of the Unaudited Closing Date Balance Sheet, the unaudited pro
forma balance sheet and pro forma statements of operation of the Business for
the fiscal years ended June 30, 1994, June 30, 1995, and June 30, 1996, prepared
in accordance with GAAP, consistently applied with the principles and procedures
employed in prior periods by Seller (the "Financial Statements"). The Financial
Statements will properly reflect all Assets and Assumed Liabilities as then in
existence. The Financial Statements will fairly present the
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results of operation and the financial position of the Business as of the dates
thereof and the periods then ended (except as otherwise noted therein) in
conformity with GAAP consistently applied with the principles and procedures
employed in prior periods by Seller.
4.17 UNDISCLOSED LIABILITIES. Except as set forth in Schedule 4.17, there
are no liabilities or obligations, secured or unsecured (whether absolute,
accrued, contingent, or otherwise, and whether due or to become due), of a
nature required by GAAP to be reflected in a balance sheet of the Business
evidencing the Assets and the Assumed Liabilities, except such liabilities and
obligations that either: (i) are disclosed by, or accrued and reserved against
in, the Financial Statements or; (ii) have arisen or been incurred in the
ordinary course of business since the dates of the Financial Statements and
which did not and will not have a Material Adverse Effect.
4.18 CONDUCT OF BUSINESS.
(a) ORDINARY COURSE OF BUSINESS: NO REMOVAL OR DISPOSAL OF ASSETS.
Except as set forth in Schedule 4.18(a), since June 30, 1996 (the "Financial
Statement Date"), Seller has operated the Business in the ordinary course
consistent with past practices.
(b) NO MATERIAL ADVERSE CHANGE. Except as set forth in Schedule
4.18(b), since the Financial Statement Date, there has been no material adverse
change in the Business or the Assets or in the financial condition, or
operations of the Business.
(c) ABSENCE OF PARTICULAR EVENTS. Except as set forth in Schedule
4.18(c), since the Financial Statement Date, Seller has not: (i) suffered any
damage or destruction adversely affecting the Business or involving the Assets
in an amount in excess of Fifty Thousand Dollars ($50,000) in any one instance;
(ii) increased the compensation payable or to become payable to employees of
Seller involved in the Business, except pursuant to the Employment Contracts;
(iii) incurred any liability or obligation relating to the Business other than
in the ordinary course consistent with past practice; (iv) made any change in
any method, practice, or principle of accounting involving the
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Business or the Assets; (v) paid, loaned, or advanced any material monetary
amount or other asset to, or sold, transferred, or leased any asset to, any
employee involved in the Business except for normal compensation involving
salary and benefits; or (vi) agreed to take any action described in this Section
4.18(c).
(d) ABSENCE OF JOINT VENTURES, ETC. Except as set forth in Schedule
4.18(d), Seller is not a party to any joint venture or other similar agreement
or arrangement that involves any sharing of profits of the Business or the
Assets or is similar to or competitive with the Business, other than the
Software Contracts identified as "licenses from third parties (development
and/or marketing)" or "distributorships, dealerships, franchises, and
manufacturer's representative contracts" in Schedule 1.1(c).
4.19 MAJOR VENDORS AND CUSTOMERS. Schedule 4.19 lists each licensor,
developer, remarketer, distributor, and supplier of property or services to, and
each licensee, end-user, or customer of, the Business, to whom Seller paid or
billed in the aggregate Seventy-Five Thousand Dollars ($75,000) or more during
the most recent fiscal year, together with, in each case, the amount paid or
billed during such period. Except as set forth in Schedule 4.19, to the
knowledge of Seller, there is no reason why the relationship with any such
person or entity might not be continued by Buyer after its acquisition of the
Business, at substantially the same level and on substantially the same terms as
Seller will have experienced during the twelve (12)-month period preceding the
Closing.
4.20 LITIGATION. Except as set forth in Schedule 4.20, no claim, action,
suit, proceeding, inquiry, hearing, arbitration, administrative proceeding, or
investigation (collectively, "Litigation") is pending, or, to Seller's
knowledge, threatened, against Seller, its present or former directors or
officers, affecting, involving, or relating to the Business or any of the Assets
which alone or in the aggregate: (i) will have a Material Adverse Effect; or
(ii) seeks to restrain or enjoin the execution and delivery of this Agreement or
any of the documents referred to herein or the consummation of any of the
transactions contemplated hereby or thereby. Seller knows of no facts that
could reasonably be expected to serve as the basis for Litigation
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against itself (or the Buyer upon acquisition of the Business), its present or
former directors or officers, affecting, involving, or relating to the Business
or the Assets that will have a Material Adverse Effect. There are no judgments
or outstanding orders, injunctions, decrees, stipulations or awards (whether
rendered by a Governmental Authority or by an arbitrator) against Seller, any of
the Assets or the Business: (A) that have had or will have a Material Adverse
Effect; or (B) which prohibit or restrict, or will result in any delay of, the
consummation of the transactions contemplated by this Agreement or any of the
documents referred to herein.
4.21 COURT ORDERS, DECREES, AND LAWS.
(a) COMPLIANCE WITH LAWS. Seller is not in violation of any
applicable Laws involving, or relating to the Business or the Assets except for
violations which, individually or in the aggregate, will not have a Material
Adverse Effect and Seller has received no notices of any allegation of any such
violation. For the purposes of this Agreement, the term "Laws shall be deemed
to include federal patent, copyright, and trademark Laws, state trade secret and
unfair competition Laws, and all other applicable Laws, including equal
opportunity, wage and hour, and other employment matters, and antitrust and
trade regulation Laws. This Section 4.21(a) does not relate to environmental
matters, which are exclusively the subject of Section 4.21(c).
(b) ADEQUACY OF AUTHORIZATIONS. Except for those which the failure to
obtain or hold could not, individually or in the aggregate, have a Material
Adverse Effect, the Authorizations constitute all approvals, authorizations,
certifications, consents, variances, permissions, licenses, or permits to or
from, or filings, notices, or recordings to or with, Governmental Authorities
that are required for the ownership and use of the Assets and the conduct of the
Business as currently conducted under the Laws. Seller is in compliance in all
material respects with all terms and conditions of the Authorizations. All of
the Authorizations are in full force and effect, and, to Seller's knowledge, no
suspension or cancellation of any of them is being threatened, nor will any of
the Authorizations be adversely affected in any material respect by the
consummation of the transactions described in this Agreement, except to the
extent
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any such Authorizations are transferable only upon receipt of the Required
Government Consents.
(c) ENVIRONMENTAL COMPLIANCE. Except as set forth in Schedule 4.21,
neither Seller, nor, to the best of seller's knowledge, any prior owner, user,
controller, or occupant, nor any tenant, subtenant, prior tenant, or prior
subtenant has ever used Hazardous Materials (as defined herein) on, from, or
affecting the Assets or any facility, site, area, or property owned, used,
controlled, or occupied by the Business, in any manner that violates in any
material respect any Law governing the use, storage, treatment, transportation,
manufacture, handling, production, or disposal of Hazardous Materials. For
purposes hereof, "Hazardous Materials" means any flammable materials,
explosives, radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances, or related materials defined in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended (42
USC (S)(S) 9601 et seq.), the Hazardous Materials Transportation Act, as amended
(49 USC (S)(S) 1801 et seq.), the Resource Conservation and Recovery Act, as
amended (42 USC (S)(S) 6901 et seq.), and all applicable federal or state
hazardous or toxic waste or environmental Laws. The term "material" includes
asbestos, polychlorinated biphenyls, kerosene, and fuel oil.
4.22 TAXES. All tax returns of every kind (including returns of real and
personal property taxes, sales, use and excise taxes, intangible taxes,
withholding taxes, and FICA and unemployment compensation taxes) relating to the
Business that are required by Law to have been filed have been duly filed; and
all taxes shown to be due on such returns have been paid in full, except to the
extent that any of the same are being contested in good faith by appropriate
proceedings promptly initiated and diligently pursued and with respect to which
adequate reserves have been set aside on the books and records of Seller in
accordance with GAAP.
4.23 PERSONNEL AND COMPENSATION.
(a) LIST OF PERSONNEL. Seller shall have delivered to Buyer prior to
Closing a true and complete list of the names and current compensation levels
of: (i) all employees assigned to or
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whose duties relate primarily to the Business; and (ii) all consultants
primarily involved in the Business (collectively, the "Business Employees").
(b) COMPENSATION, ETC. Except as set forth in Schedule 4.23(b),
Seller is not subject to, and has no obligation under, any employment,
consulting, or collective bargaining contracts, deferred compensation, pension
(as defined in Section 3(2) of the Employee Retirement Income Security Act
(ERISA), profit-sharing, bonus, stock option, stock appreciation, stock
purchase, or other nonqualified benefit or compensation commitments, benefit
plans, arrangements, or plans, including any welfare plans (as defined in
Section 3(1) of ERISA), fringe benefit arrangements, or multi-employer plans (as
defined in Section 3(37)(A) of ERISA) pertaining to the Business Employees
(collectively, the "Plans"). Seller has complied with all of its obligations
under the foregoing in all material respects.
(c) NO ACCUMULATED DEFICIENCY. None of the Plans is subject to Title
IV of ERISA or has an accumulated funding deficiency, as defined in Section
302(a)(2) of ERISA.
(d) SUBMISSION TO BUYER FOR REVIEW. All documents, including plan and
trust instruments, annual reports, and actuarial reports, relating to the Plans
for the Plans' most recently ended Plan years, have been furnished to Buyer for
its review.
(e) MULTI-EMPLOYER PLAN. Neither Seller nor any trade or business
under common control with Seller (within the meaning of Section 414 of the
Internal Revenue Code) has ever contributed to any pension Plan that is a Multi-
employer Plan for the benefit of the Business Employees.
(f) ADEQUATE RESERVES FOR WELFARE PLANS. For welfare plans (as
defined in Section 3(1) of ERISA) listed (or required to be listed) in Schedule
4.23(b), each such plan is insured or reserves have been established by Seller
at least sufficient to pay all claims incurred under the provisions of such
plans on or prior to the Closing Date. Seller has not received notice of, nor
does it know any basis for, any retrospective premium charge
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for claims relating to any period prior to the Closing Date under such
contracts.
(g) COMPLIANCE WITH LAWS. To Seller's knowledge, Seller is in
compliance with all applicable Laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and
occupational safety and health pertaining to the Business and the Business
Employees. There is no labor strike, dispute, slowdown, or stoppage pending
or to Seller's knowledge, threatened, against Seller pertaining to the Business
or the Business Employees. To Seller's knowledge, no certification or
decertification question or organizational drive exists or has existed within
the past twelve (12) months respecting the Business or the Business Employees.
To Seller's knowledge, Seller has not experienced any organized work stoppage or
other labor difficulty involving the Business Employees since at least June 30,
1994. To Seller's knowledge, there are no charges, investigations,
administrative proceedings, or formal complaints of discrimination (including
discrimination based upon sex, age, marital status, race, national origin sexual
preference, handicap, or veteran status) pending or, to the knowledge of Seller,
threatened before the Equal Employment Opportunity Commission or any federal,
state, or local agency or court against Seller pertaining to the Business or the
Business Employees, and, to the knowledge of the Seller, no basis for any such
charge, investigation, administrative proceeding, or complaint exists. To
Seller's knowledge, there have been no audits of the equal employment
opportunity practices of Seller pertaining to the Business or the Business
Employees.
4.24 INSURANCE POLICES. Schedule 4.24 lists all insurance policies
relating to the Business or the Assets in force as of the Effective Date (the
"Insurance Policies"), naming Seller as an insured or beneficiary or as a loss-
payable payee or for which Seller has paid or is obligated to pay all or part of
the premiums. Other than as set forth in Schedule 4.24, Seller has not received
notice of any pending or threatened termination or retroactive premium increase
with respect thereto; and Seller is in compliance in all material respects with
all conditions contained therein, the noncompliance with which could result in
termination of insurance coverage or increased premiums for prior or future
periods. There are no pending material claims against
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such insurance by Seller as to which insurers have denied liability or are
defending under any reservation of rights, and, to the knowledge of Seller,
there exists no material claim under such insurance that has not been properly
filed by Seller.
4.25 SUFFICIENCY OF RIGHTS. Except as set forth in Schedule 4.25, the
Assets constitute all of the properties, rights, and privileges necessary for
the conduct of the Business by Buyer in substantially the same manner as it will
have been operated by Seller during the twelve (12)-month period preceding the
Closing.
4.26 BROKER'S OR FINDER'S FEES. Except for Soundview Financial Group,
Inc., Seller has not authorized any person to act as broker or finder or in any
other similar capacity in connection with the transactions contemplated by this
Agreement and no broker, finder or financial advisor is entitled to any
broker's, finder's, or financial advisor's fee or other commission in respect
thereof based in any way on any agreement, arrangement or understanding with
Seller.
4.27 RELATED-PARTY TRANSACTIONS. Except as disclosed in Schedule 4.27,
Seller is not a party to any written contract, agreement, license, lease, or
arrangement with, or any other commitment to, directly or indirectly: (i) any
officer or salaried employee of the Business in office within two (2) years of
the date of execution hereof; or (ii) any corporation, trust, partnership or
other entity in which any such officer or salaried employee has a material
equity or participating interest; in each case, relating to or involving the
Business, the Assets, or the Assumed Liabilities, except, in each instance, for
existing compensation arrangements listed in Schedule 4.23(b). Each such
contract, agreement, license, lease, arrangement, and commitment was entered
into by Seller in the ordinary course of business upon terms that are fair and
reasonable to the Business without regard to the status and relationship of such
other parties.
4.28 INVESTMENT.
(a) Seller is acquiring the Payment Stock, the Warrant and the Warrant
Stock (collectively, the "Securities") for investment for its own account, not
as a nominee or agent, and not with a view to the sale or distribution of any
part thereof,
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and that it has no present intention of selling, granting participation in or
otherwise distributing the same. By executing this Agreement, Seller further
represents and warrants that it does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to any such person, or to any third person, with respect to any
of the Securities.
(b) Seller understands that the Securities are not registered under
the Act on the ground that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration under the Act
pursuant to Section 4(2) thereof, and that the Buyer's reliance on such
exemption is predicated on Seller's representations and warranties set forth
herein.
(c) Seller represents and warrants that it is experienced in
evaluating companies such as Buyer, is able to fend for itself in the
transactions contemplated by this Agreement and has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment. Seller also represents and warrants that
it is an "accredited investor" as that term is defined in Rule 501 of Regulation
D promulgated under the Act. Seller further represents and warrants that it has
had access, during the course of the transaction and prior to its purchase of
the Securities to financial information of Buyer and that it has had, during the
course of the transaction and prior to its purchase of the Securities, the
opportunity to ask questions of and receive answers from Buyer concerning the
terms and conditions of the offering and to obtain additional information
necessary to verify the accuracy of any information furnished to it or to which
it had access.
(d) Seller understands that the Securities may not be sold,
transferred or otherwise disposed of without registration under the act or an
exemption therefrom, and that in the absence of an effective registration
statement covering the Securities or an available exemption for registration
under the Act, the Securities must be held indefinitely. Seller represents and
warrants that, in the absence of an effective registration statement covering
the Securities, Seller shall only sell or
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transfer the Securities in a manner consistent with its representations and
warranties set forth herein.
(e) All certificates evidencing the Securities may bear the following
legend:
"These securities have not been registered under the Securities Act of
1933. They may not be sold, offered for sale, pledged or hypothecated
in the absence of an effective registration statement as to the
securities under said Act or unless an exemption from registration or
qualification is available or such sale, offer, pledge or
hypothecation is otherwise in compliance with the Act."
(f) The certificates evidencing the Securities shall also bear any
legend required by any applicable state securities law.
4.29 MATERIALITY DEFINED. For purposes of this Agreement, the term
"Material Adverse Effect" means: (i) with respect to Seller, a material adverse
effect on: (A) the Assets or the business, operations, condition (financial or
otherwise) or results of operations of the Business taken as a whole; or (B)
either of the parties' ability to comply with or satisfy in any material respect
any material covenant, condition or agreement to be complied with or satisfied
by it under this Agreement; and (ii) with respect to Buyer, a material adverse
effect on: (A) its business, assets, properties, operations, condition
(financial or otherwise) or results of operations taken as a whole; or (B)
either of the parties' ability to comply with or satisfy in any material respect
any material covenant, condition or agreement to be complied with or satisfied
by it under this Agreement.
4.30 SCOPE OF REPRESENTATIONS AND WARRANTIES. Buyer acknowledges that it
has been afforded full and complete access to the Assets and the officers and
employees of Seller in connection with the purchase of the Assets from Seller.
Buyer acknowledges that neither Seller nor any other person has made any
representation or warranty, express or implied, with respect
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to the Business or the Assets except as expressly set forth in this Agreement,
the Schedules hereto and the documents referred to herein. Buyer acknowledges
that it will acquire the Assets "As Is, Where Is, With All Faults" and without
any representations or warranties, express or implied, as to merchantability,
fitness for a particular purpose or otherwise, except as is otherwise expressly
set forth in this Agreement. For the purposes of this Section, the "Assets"
shall include the assets of each of the Subsidiaries, where appropriate.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to Seller as follows:
5.1 ORGANIZATION. Buyer is a corporation validly existing and in good
standing under the laws of the State of Delaware with the corporate power and
authority to conduct its business as currently conducted and to own and lease
its properties and assets. Buyer is duly qualified or licensed to do business
and is in good standing as a foreign corporation in each state in which the
failure to be so qualified or licensed would have a Material Adverse Effect.
True, accurate and complete copies of Buyer's Certificate of Incorporation and
Bylaws, in each case as in effect on the date hereof, including all amendments
thereto, have heretofore been delivered to Seller.
5.2 POWER AND AUTHORITY. Buyer has the power and authority to execute,
deliver, and perform this Agreement and the other agreements and instruments to
be executed and delivered by it in connection with the transactions contemplated
hereby and thereby, and Buyer has taken all necessary corporate action to
authorize the execution and delivery of this Agreement and such other agreements
and instruments and the consummation of the transactions contemplated hereby and
thereby. This Agreement has been duly executed and delivered by Buyer and Buyer
will, on or prior to the Closing Date, duly execute and deliver the documents
referred to herein to which it is to be a party. Assuming the due
authorization, execution and delivery of this Agreement and the documents
referred to herein by the parties hereto and
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thereto other than Buyer, this Agreement constitutes, and when executed and
delivered each of such documents referred to herein will constitute the legal,
valid, and binding obligation of Buyer, enforceable against Buyer in accordance
with their terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting
creditors' rights generally and general equitable principles.
5.3 BROKER'S OR FINDER'S FEES. Buyer has not authorized any person to act
as broker, finder, or in any other similar capacity in connection with the
transactions contemplated by this Agreement and no broker, finder or financial
advisor is entitled to any broker's, finder's, or financial advisor's fee or
other commission in respect thereof based in any way on any agreement,
arrangement or understanding with Buyer.
5.4 NO CONFLICT. Neither the execution and delivery by Buyer of this
Agreement and of the other agreements and instruments to be executed and
delivered by Buyer in connection with the transactions contemplated hereby or
thereby, nor the consummation by Buyer of the transactions contemplated hereby
or thereby will violate or conflict with: (i) any Law or any order, judgement,
or decree applicable to Buyer; (ii) any provision of any charter, bylaw, or
other governing or organizational instrument of Buyer; or (iii) any mortgage,
indenture, license, instrument, trust, contract, agreement, or other commitment
or arrangement to which Buyer is a party or by which Buyer or any of its assets
or properties is bound, other than such violations and conflicts that,
individually or in the aggregate, will not have a Material Adverse Effect.
5.5 CONSENTS AND APPROVALS. No approval, authorization, consent,
permission, or waiver to or from, or notice, filing, or recording to or with,
any Governmental Authority or any other person is necessary for the execution
and delivery of this Agreement and the other agreements and instruments to be
executed and delivered in connection with the transactions contemplated hereby
or thereby by Buyer or the consummation by Buyer of the transactions
contemplated hereby or thereby, or the enforceability hereof or thereof, other
than: (i) those which will not have a Material Adverse Effect; and (ii) those
which have been obtained or made and are in full force and effect.
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5.6 CAPITALIZATION. The authorized capital stock of Buyer consists of
thirty million (30,000,000) shares of Stock, of which Eight Million One Hundred
Twenty Thousand Two Hundred Seventy-Six (8,120,276) shares are issued and
outstanding on the date hereof, and 10,000,000 shares of preferred stock, of
which no shares are issued and outstanding on the date hereof. All of the
outstanding shares of Stock are duly authorized, validly issued, fully paid and
nonassessable and free of any preemptive rights in respect thereto. As of the
date hereof, there are no outstanding contractual obligations of Buyer to
repurchase, redeem or otherwise acquire any shares of capital stock or other
securities of Buyer. Except as set forth in the Buyer SEC Documents, Buyer does
not have any Subsidiaries. Except as disclosed in writing to Seller prior to the
Closing Date or as set forth in the Buyer SEC Documents, there are no
unexercised Stock Acquisition Rights (as defined herein) outstanding. For
purposes of this Agreement, "Stock Acquisition Rights" means: (i) all options,
warrants, calls, subscriptions, stock appreciation rights, phantom stock and
restricted stock grants and all other rights of any nature to acquire any shares
of capital stock of, or any other equity interests in, Buyer; and (ii) all
securities convertible into or exchangeable for such shares or equity interests
or obligating Buyer to grant, extend or enter into any such option, warrant,
call, subscription, stock appreciation right, phantom stock or restricted stock
grant or other right, agreement or commitment. Except as set forth in this
Section 5.6, as of the date hereof; (1) no shares of capital stock or other
voting securities of Buyer are outstanding; (2) no equity equivalents, interests
in the ownership of Buyer or other similar rights are outstanding; and (3) there
are not existing Stock Acquisition Rights or other contracts, commitments,
plans, programs or arrangements providing for the issuance or grant of any Stock
Acquisition Rights or any capital stock (restricted or otherwise), stock
appreciation rights, phantom stock or other equity interests in Seller,
including stock purchase plans.
5.7 COMMON STOCK. Each share of Stock delivered pursuant to this
Agreement will: (i) at the time of its delivery, be duly authorized, legally and
validly issued, fully paid and nonassessable and free of preemptive rights; and
(ii) upon the Securities and Exchange Commission (the "SEC") declaring the
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registration statement contemplated by the Registration Rights Agreement
effective, be: (A) freely tradable (other than as a result of the actions, or
based upon the status, of the holder thereof), and registered with the SEC under
the Securities Act; and (B) listed on the Amex. Buyer has reserved, free from
preemptive rights, out of its authorized but unissued shares of Stock, such
number of shares of Stock as Buyer is required to issue and/or deliver to Seller
pursuant to this Agreement, such reservation being solely for the issuance of
the Payment Stock pursuant to this Agreement.
5.8 SEC REPORTS AND FINANCIAL STATEMENTS. Buyer has filed with the SEC,
and has heretofore made available to Seller true and complete copies of, all
forms, reports, schedules, statements and other documents (including exhibits,
amendments and supplements thereto) required to be filed by it under the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder (collectively, the "Exchange Act") since January 1, 1994 (such forms,
reports, schedules, statements and other documents, to the extent filed and
publicly available prior to the date of this Agreement, other than preliminary
filings, are referred to herein as the "Buyer SEC Documents"). The Buyer SEC
Documents, at the time filed: (i) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; and (ii) complied in all material
respects with the applicable requirements of the Exchange Act and the Securities
Act, as the case may be. The Buyer SEC Documents include all filings necessary
to correct any Buyer SEC Document which, subsequent to its time of filing: (A)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading; or (B) no longer complied in all material respects with
the applicable requirements of the Exchange Act and the Securities Act, as the
case may be. The financial statements of Buyer included in the Buyer SEC
Documents (the "Buyer Financial Statements") comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except as may be
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indicated in the notes thereto or, in the case of the unaudited statements, as
permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of
the unaudited statements, to normal, recurring audit adjustments) the
consolidated financial position of Buyer and its consolidated subsidiaries as at
the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended.
5.9 CONDUCT OF BUSINESS. Except as set forth in the Buyer SEC Documents
or in Schedule 5.9, since the date of the most recent Buyer Financial Statements
until the Closing Date, Buyer has conducted its business only in the usual and
ordinary course, consistent with past practices, and there has not been:
(a) Any event or events having, or which will have, a Material Adverse
Effect;
(b) Any declaration, setting aside or payment of any dividend or other
distribution with respect to the capital stock (or any other equity interest) of
Buyer or any redemption, purchase or other acquisition of any of such capital
stock (or any other equity interest);
(c) Any split, combination or reclassification of any capital stock
(or any other equity interest) of Buyer or any issuance or the authorization of
any issuance of any other securities in respect of, in lieu of or in
substitution for, shares of such capital stock (or other equity interest);
(d) Any amendment or proposal to amend the Certificate of
Incorporation or Bylaws of Buyer;
(e) Any acquisition of or agreement to acquire (by merger,
consolidation, acquisition of stock or assets or by any other manner) any
business or any corporation, partnership, association or other business
organization or division thereof by Buyer or any investment or agreement to make
any investment (by purchase of stock, contribution to capital, property transfer
or purchase of property or otherwise) in any other person by Buyer;
(f) Any sale, lease, license, encumbrance or other disposition of, or
agreement to sell, lease, license, encumber or
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otherwise dispose of, any material asset of Buyer, except in the ordinary course
of business consistent with prior practice;
(g) Any incurrence of any indebtedness for borrowed money (other than
borrowings and reborrowings in the ordinary course of business under revolving
credit facilities which were in existence prior to the date hereof) or guarantee
of any such indebtedness or issuance or sale of any debt securities or warrants
or rights to acquire any debt securities of Buyer or guarantee of any debt
securities of others by Buyer;
(h) Any modification, amendment or termination of any material
contract to which Buyer is a party or any waiver, release or assignment of any
material rights or claims of Buyer; or
(i) Any capital expenditure or commitment to make capital expenditures
by Buyer in an amount which, when added to the aggregate amount of all other
capital expenditures made or committed to be made by Buyer since June 30, 1996,
exceeds Two Million Dollars ($2,000,000).
5.10 UNDISCLOSED LIABILITIES. Except as set forth in the Buyer SEC
Documents, there are no liabilities or obligations, secured or unsecured
(whether absolute, accrued, contingent or otherwise, and whether due or to
become due), of a nature required by GAAP to be reflected in the financial
statements of Buyer, except such liabilities and obligations that either: (i)
are disclosed or accrued and reserved against in the Buyer Financial Statements
or; (ii) have arisen or been incurred in the ordinary course of business since
the most recent date of the Buyer Financial Statements and which did not and
will not have, a Material Adverse Effect.
5.11 TITLE TO ASSETS. Buyer has good and indefeasible title in fee simple
to all of its real property and good title to all of its leasehold interests and
other assets and properties as reflected in the most recent balance sheet
included in the Buyer Financial Statements, other than such properties that have
been disposed of in the ordinary course of business since the date of such
balance sheet, free and clear of all liens, claims and encumbrances other than:
(i) statutory liens for taxes not
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delinquent or that may hereafter be paid without penalty or are being
contested in good faith by appropriate proceedings promptly initiated and
diligently conducted; (ii) liens and encumbrances consisting of easements,
zoning restrictions or other restrictions on the use of real property that do
not materially affect the value of the assets or properties encumbered thereby
or materially impair the ability to use such assets or properties in the
business of Buyer as presently conducted; (iii) liens of landlords, mechanics,
materialmen, warehousemen, carriers or other statutory liens securing
obligations that are not yet due and are incurred in the ordinary course of
business; (iv) liens resulting from deposits to secure payments of workmen's
compensation or other social security programs or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids or contracts in
the ordinary course of business; (v) liens existing on the date hereof securing
indebtedness for borrowed money reflected in the Buyer Financial Statements; and
(vi) other matters which, singly or in the aggregate, will not have a Material
Adverse Effect. All leases under which Buyer leases any real or personal
property are in good standing, valid and effective and enforceable in accordance
with their terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting
creditors' rights generally and general equitable principles, and there are not,
under any of such leases, any existing default on the part of Buyer or, to the
knowledge of Buyer, any other party thereto, or any event which, with notice or
lapse of time or both would have become a default, other than defaults under
such leases which, singly or in the aggregate, will not have a Material Adverse
Effect.
5.12 LITIGATION. Except as set forth in the Buyer SEC Documents, there is
no Litigation pending, or to the knowledge of Buyer, threatened, against or
affecting Buyer or its present or former directors or officers, affecting,
involving, or relating to Buyer or its business or assets or properties which
alone or in the aggregate: (i) will have a Material Adverse Effect; or (ii)
seeks to restrain or enjoin the execution and delivery of this Agreement or any
of the documents referred to herein or the consummation of any of the
transactions contemplated hereby or thereby. Buyer knows of no facts that could
reasonably be expected to serve as the basis for Litigation against itself or
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its present or former officers or directors, affecting, involving, or relating
to Buyer or its business or assets or properties that will have a Material
Adverse Effect. There are no judgments or outstanding orders, injunctions,
decrees, stipulations or awards (whether rendered by a Governmental
Authority or by an arbitrator) against Buyer or any of its assets or properties:
(A) that have or will have a Material Adverse Effect; or (b) which prohibit or
restrict, or will result in any delay of, the consummation of the transactions
contemplated by this Agreement or any of the documents referred to herein.
5.13 COMPLIANCE WITH LAWS. Buyer is not in violation of any applicable
Law except for violations which, individually or in the aggregate, will not have
a Material Adverse Effect, and Buyer has received no notices of any allegation
of any such violation.
5.14 TAXES. All tax returns of every kind (including returns of real and
personal property taxes, intangible taxes, income taxes, withholding taxes, and
FICA and unemployment compensation taxes) relating to Buyer or its business that
are required by Law to have been filed have been duly filed by Buyer and all
taxes shown to be due on such returns have been paid in full, except to the
extent that any of the same are being contested in good faith by appropriate
proceedings promptly initiated and diligently pursued and with respect to which
adequate reserves have been set aside on the books and records of Buyer in
accordance with GAAP.
5.15 REGISTRATION OF SECURITIES. Buyer is qualified to register its
securities offered in secondary offerings under the Securities Act on Form S-3
and has the financial ability to satisfy its obligations under this Agreement
and the documents referred to herein, including the Registration Rights
Agreement.
SECTION 6
CONDUCT OF THE BUSINESS PRIOR TO CLOSING
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Except as otherwise expressly provided in this Agreement or the
Schedules hereto, or to the extent that Buyer
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shall otherwise consent in writing, Seller shall, during the period commencing
with the date hereof and continuing thereafter until the Closing or the earlier
termination of this Agreement, operate the Business only in the usual and
ordinary course. Without limiting the generality of the foregoing, during such
period:
6.1 COURSE OF BUSINESS. Seller shall not institute any new methods of
accounting or operation or engage in any transaction or activity, enter into any
agreement, or make any commitment, except in the ordinary course of such
business and consistent with past practice.
6.2 ORGANIZATION. Seller shall use its commercially reasonable best
efforts to preserve the Business intact and to preserve for Buyer its
relationships with licensors, developers, consultants, remarketers, suppliers,
distributors, customers, and others having regular business relations with it;
provided, however, that Seller shall not be required to expend any of its funds
outside the ordinary course of business in connection with such obligations.
6.3 PROHIBITED ACTIONS. Seller shall not:
(a) LIENS. Permit any of the Assets to be subjected to any mortgage,
pledge, lien, or encumbrance, except for Permitted Liens.
(b) DISPOSITION OF ASSETS. Waive any claims or rights of substantial
value respecting the Assets, or sell, transfer, or otherwise dispose of any of
the Assets, except in the ordinary course of business and consistent with past
practice.
(c) LICENSES. Other than in the ordinary course of its licensing
activities and consistent with past practice, dispose of, license, or permit to
lapse any rights in any Intellectual Property.
(d) INCREASES IN COMPENSATION. Increase the compensation of officers,
employees, or consultants whom Buyer has stated an intention to hire or retain
on or after Closing, except pursuant to existing Employment Agreements;
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(e) SOFTWARE CONTRACTS. Enter into any Software Contracts other than
in the ordinary course of business and consistent with past practice.
6.4 INSURANCE; PROPERTY. Seller shall maintain the Insurance Policies in
effect and shall at all times continue to insure all property constituting the
Assets in such amounts and against such risks as is consistent with past
practice.
6.5 NO DEFAULT. Seller shall not perform any act or omit to perform any
act, or permit any act or omission, that will cause a material breach or default
of any covenant, agreement, warranty, or representation in this Agreement.
6.6 NO PRIOR OPERATION. Nothing contained in this Agreement shall give
Buyer any rights to control or direct the operations of the Business or the
Assets prior to the Closing Date. Prior to the Closing Date, Seller shall
exercise, consistent with the terms and conditions of this Agreement, complete
control and supervision of the operation of the Business and the Assets.
SECTION 7
COVENANTS OF SELLER AND BUYER PRIOR TO
--------------------------------------
CLOSING AND OTHER AGREEMENTS
----------------------------
7.1 ACCESS TO AND RETENTION OF INFORMATION.
(a) ACCESS. Each of the parties hereto shall, after the date hereof
and prior to the Closing Date or the earlier termination of this Agreement,
afford to the other party and its accountants, counsel, financial advisors and
other representatives involved in the transactions contemplated by this
Agreement and the documents referred to herein (as to each party, its
"Representatives"), upon reasonable request and at the sole cost and expense of
the party making such request, during normal business hours, full and complete
access to its offices, assets and properties, books and records and contracts:
(i) in the case of Seller, which relate to the Business or the Assets; and (ii)
in the case of Buyer, which relate to Buyer or its business,
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operations, assets, properties, condition (financial or otherwise) or results of
operations; provided, however, that such investigation shall be conducted in
such a manner so as to not cause any unreasonable disruption of or to the
personnel and operations of the party providing such access. No investigation
pursuant to this Section 7.1 shall affect any representations or warranties made
in this Agreement or any of the documents referred to herein or the conditions
to the obligations of the parties hereto to consummate the transactions
contemplated hereby or thereby. Each of the parties hereto shall hold and shall
use commercially reasonable efforts to cause its Representatives to hold, in
strict confidence all non-public documents and information furnished to it or
its Representatives in connection with the transactions contemplated by this
Agreement; provided, however, that (i) each of the parties hereto may disclose
any such information to its Representatives and (ii) each of the parties hereto
and their respective Representatives may disclose any such information the
failure of which to disclose would result in the violation of any Law or in the
imposition of any fine, penalty or charge by any Governmental Authority that
under authority of Law has required the disclosure or production of such
information by such party or any of its Representatives and; provided further,
that in the event that either of the parties hereto or any of its
Representatives is obligated to disclose any such information in order to avoid
the violation of any Law or the imposition of any fine, penalty or charge by any
Governmental Authority, it shall provide the other party with such advance
notice thereof as may be reasonable under the circumstances in order to permit
the other party the opportunity to intervene and seek appropriate relief for the
protection of the confidentiality of such information.
(b) DESTRUCTION ON TERMINATION. In the event that this Agreement is
terminated in accordance with its terms, each of the parties hereto shall
promptly destroy or redeliver to the other party all non-public written material
provided pursuant to this Section 7.1 and shall not retain any copies, extracts
or other reproductions in whole or in part of such written material. In such
event, all documents, memoranda, notes and other writings prepared by either of
the parties hereto based on the information in such material shall also be
destroyed (and each of the parties hereto shall use its commercially reasonable
best efforts to
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cause its Representatives to similarly destroy their documents, memoranda, notes
and other writings).
7.2 INTERIM FINANCIALS. As promptly as practicable after each month-end
or quarter-end, as the case may be, from the date of this Agreement to the
Closing Date, Seller shall deliver to Buyer all monthly and quarterly financial
reports in the form that it customarily prepares for its internal purposes
concerning the Business.
7.3 UPDATING OF INFORMATION. From the date of this Agreement to the
Closing Date, Seller shall deliver revised or supplementary schedules to this
Agreement, containing accurate information as of the Closing Date, in order to
enable Buyer to confirm the accuracy of Seller's representations and warranties
and otherwise to give full effect to the provisions of this Agreement. In
addition, Seller shall deliver to Buyer an update of the Schedules not less than
two (2) business days prior to the Closing Date. Nothing contained in this
Section 7.3 shall be deemed in any way to constitute a waiver by Buyer of any of
the conditions contained in Sections 9 and 10. In the event that the
transactions contemplated by this Agreement and the documents referred to herein
are closed following the delivery of such updated Schedules, all representations
and warranties of Seller contained in this Agreement and the documents referred
to herein shall be qualified by the updated Schedules.
7.4 APPROVALS OF THIRD PARTIES. Seller and Buyer shall use all
commercially reasonable best efforts, and shall promptly cooperate with and
furnish information to one another, to secure all Required Government Consents
and all Required Contract Consents, and to obtain the satisfaction of the
conditions specified in Sections 9 and 10, as shall be required in order to
enable Seller and Buyer to effect the transactions contemplated hereby in
accordance with the terms and conditions hereof.
7.5 THIRD-PARTY CERTIFICATES. Seller shall use its commercially
reasonable best efforts to procure for the benefit of Buyer consent, assignment,
and/or estoppel certificates in such form, from such third parties, and with
respect to such Assets to be assigned to Buyer at Closing as Buyer may
reasonably request on or before the Closing.
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7.6 NOTIFICATION OF CERTAIN MATTERS. Each of the parties agrees to give
prompt notice to the other of, and to use its commercially reasonable best
efforts to prevent or promptly remedy: (i) the occurrence or failure to occur
or the impending or threatened occurrence or failure to occur, of any event
which occurrence or failure to occur would be likely to cause any of its
representations or warranties in this Agreement to be untrue or inaccurate in
any material respect at any time from the date hereof to the Closing Date; and
(ii) any material failure on its part to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 7.6
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
7.7 RISK OF LOSS. Risk of loss with respect to any of the Assets shall
pass at the Closing.
7.8 CASUALTY LOSS AND CONDEMNATION. If, prior to the Closing Date, all or
any portion of the Assets is destroyed by fire or other casualty, or is taken in
condemnation or under the right of eminent domain, or if proceedings for such
purposes shall be pending or threatened and: (i) any such destruction, taking
or proceeding or any threat thereof involves, or if more than one in the
aggregate involve, an amount in excess of Fifty Thousand Dollars ($50,000),
Buyer shall have the right, in its sole discretion, to terminate this Agreement
by providing Seller written notice of its election to do so; or (ii) any such
destruction, taking or proceeding or any threat thereof involves, or if more
than one in the aggregate involve, an amount less than or equal to Fifty
Thousand Dollars ($50,000), or involves an amount in excess thereof and Buyer
does not elect to terminate this Agreement pursuant to clause (i) above, Buyer
shall accept the Assets notwithstanding any such destruction, taking or
proceeding or threat thereof (without reduction of the Purchase Price) and
Seller shall, on the Closing Date: (A) pay to Buyer all sums paid to Seller by
third parties by reason of the destruction or taking of such Assets; and (B)
assign, transfer and set over unto Buyer, without recourse against Seller, all
of the rights, title and interests of Seller in and to any unpaid awards or
other payments (including insurance proceeds not expended or committed to
expenditure by Seller to repair or
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restore such destruction) from third parties arising out of the destruction or
taking of such Assets. Prior to the Closing, Seller shall not voluntarily
compromise, settle or adjust any material amounts payable by reason of any
material destruction or taking of any of the Assets without first obtaining the
written consent of Buyer, which consent shall not be unreasonably withheld,
delayed or conditioned.
7.9 WARN ACT. Seller shall provide any notice required under the Worker
Adjustment and Retraining Notification Act (the "WARN Act") and any similar Law,
and to otherwise comply with any such Law with respect to any "plant closing" or
"mass layoff" (as such terms are defined in the WARN Act) or similar event
affecting the Business Employees. Seller shall be solely responsible for, and
shall pay or cause to be paid, any severance payments and other termination
benefits or any other liability, forfeiture, fine or other obligation by virtue
of the WARN Act or any similar Law to Business Employees who may become entitled
to such benefits by reason of any events occurring as a result of the
transactions contemplated by this Agreement.
7.10 BULK TRANSFER LAWS. Buyer hereby waives compliance by Seller with
the provisions of any and all "bulk transfer" Laws of any and all jurisdictions
in connection with the sale of the Assets by Seller to Buyer.
SECTION 8
ACCOUNTING MATTERS
------------------
8.1 MANUAL BALANCE SHEET. Seller and Buyer shall jointly monitor, record,
and compile the results of operations and the changes in the composition and
condition of the Assets and Assumed Liabilities arising between the date of this
Agreement and the Closing Date. Prior to Closing, Seller shall, subject to
Buyer's review, prepare a balance sheet of the Business, based on regular
operating records and procedures, that represents the Assets and Assumed
Liabilities as they exist as near the Closing Date as may practicably be
determined. For purposes of this Agreement, the balance sheet so prepared shall
be referred to as the "Manual Balance Sheet." In no event shall the Manual
Balance
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Sheet serve as a basis for delaying or avoiding Closing. The Manual
Balance Sheet shall be prepared using accounting principles and practices that
are consistent with those used in the preparation of the Financial Statements,
except as otherwise required to conform to GAAP.
8.2 UNAUDITED CLOSING DATE BALANCE SHEET. As soon as practicable
following Closing (and, in any event, within three (3) weeks after the Closing
Date), Seller shall prepare a balance sheet of the Business as of the Closing
Date. For purposes of this Agreement, such balance sheet shall be referred to
as the "Unaudited Closing Date Balance Sheet." The Unaudited Closing Date
Balance Sheet shall be prepared using accounting principles and practices that
are consistent with those used in the preparation of the Financial Statements,
except as otherwise required to conform to GAAP.
8.3 CONDUCT OF AUDIT. Buyer shall cause a national accounting firm of its
choice ("Buyer's Accounting Firm") to audit the Unaudited Closing Date Balance
Sheet as prepared by Seller. Such audit shall be completed as soon as
practicable after delivery of the Unaudited Closing Date Balance Sheet to Buyer
and, in any event, within one hundred twenty (120) days of such delivery. Such
examination and audit shall be conducted in accordance with generally accepted
auditing standards. Buyer's Accounting Firm shall, on behalf of Buyer, make
such adjustments to the Unaudited Closing Date Balance Sheet as appropriate so
that it can issue an unqualified opinion that such statement and the notes
thereto present fairly the financial position of the Business as of the Closing
Date, in conformity with GAAP, without regard to materiality. Such balance
sheet and the notes thereto, as audited and adjusted, are collectively referred
to herein as the "Closing Date Balance Sheet." Prior to the delivery to Seller
of the Closing Date Balance Sheet, Buyer shall cause Buyer's Accounting Firm to
review and discuss its draft audit report and adjustments with Seller and a
national accounting firm chosen by Seller ("Seller's Accounting Firm"), and
Buyer shall provide for Seller's Accounting Firm to have access to Buyer's
Accounting Firm's audit work papers.
8.4 BASIS FOR PREPARATION. In the preparation of the Manual Balance Sheet
and the Closing Data Balance Sheet, the
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Excluded Liabilities shall not be treated as liabilities of the Business, nor
shall the Excluded Assets be treated as assets of the Business. Also in the
preparation of such balance sheets, the carrying value of the Assets shall be
their historical cost and shall not be increased or otherwise adjusted based on
any allocation of the Purchase Price. Such balance sheets shall be prepared on
the basis that no item should have been excluded for lack of materiality.
8.5 REVIEW BY SELLER. The Closing Date Balance Sheet shall be delivered
by Buyer's Accounting Firm to Buyer and Seller as promptly as practicable
following the completion of the audit. The Closing Date Balance Sheet shall be
accompanied by a statement signed by Buyer's Accounting Firm that sets forth the
Agreed Net Worth, which shall be equal to the amount of Net Worth as shown
therein. Buyer shall cause Buyer's Accounting Firm to review and discuss the
Closing Date Balance Sheet with Seller and Seller's Accounting Firm. If Seller
disputes any part of the Closing Date Balance Sheet, it shall so notify Buyer,
and Buyer and Seller shall endeavor in good faith to resolve their differences.
8.6 AGREED NET WORTH.
(a) AUDIT DISPUTE NOTICE. The determination of the Agreed Net Worth
as calculated by Buyer's Accounting Firm shall be binding on Buyer and Seller if
Seller has not delivered to Buyer written notice (the "Audit Dispute Notice") of
Seller's objection to the Closing Date Balance Sheet within thirty (30) days
following Buyer's Accounting Firm's delivery of the Closing Date Balance Sheet.
The Audit Dispute Notice shall specifically enumerate the items to which Seller
objects and the factual or accounting grounds for the objection. For purposes
of this Agreement, "Agreed Net Worth" shall equal the amount of Assets minus the
amount of Assumed Liabilities as set forth in the Closing Date Balance Sheet as
adjusted pursuant to Section 8.6(b) and/or 8.6(c), if applicable.
(b) PARTIES' ATTEMPT TO RESOLVE. Buyer and Seller shall seek in good
faith, for a period of ten (10) business days following delivery of the Audit
Dispute Notice, to resolve the matters set forth in the Audit Dispute Notice.
Any corrections
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to the Closing Date Balance Sheet resulting from such efforts shall serve as an
adjustment to the Agreed Net Worth for the purposes of this Agreement. In the
event the parties are unable to resolve such differences during such ten (10)-
day period, the parties shall submit the matter for the review by Arthur
Andersen LLP (the "Accounting Referee").
(c) RESOLUTION BY ACCOUNTING REFEREE. The review by the Accounting
Referee shall be limited to such items as were addressed in the Audit Dispute
Notice and have not been resolved by the parties. Subject to such limitation,
the parties shall cause the Accounting Referee to review as promptly as
practicable the Closing Date Balance Sheet and to make such corrections thereto
as it deems appropriate consistent with the terms of this Agreement. The
expenses of the Accounting Referee shall be evenly divided between Buyer and
Seller. Any such correction shall serve as an adjustment to the Agreed Net
Worth for purposes of this Agreement. The determination of the Accounting
Referee shall be final and binding on the parties.
(d) ADJUSTMENT TO PURCHASE PRICE. If the Agreed Net Worth is less
than Three Million Eight Hundred Thousand Dollars ($3,800,000) (the "Minimum
Threshold"), the Purchase Price shall be reduced dollar-for-dollar by an amount
equal to the difference between the Agreed Net Worth and the Minimum Threshold.
If the Agreed Net Worth is greater than Four Million Two Hundred Thousand
Dollars ($4,200,000) (the "Maximum Threshold"), the Purchase Price shall be
increased dollar-for-dollar by an amount equal to the difference between the
Maximum Threshold and the Agreed Net Worth. If the Agreed Net Worth is between
the Minimum Threshold and the Maximum Threshold, no adjustment to the Purchase
Price will be made.
SECTION 9
CONDITIONS TO OBLIGATIONS OF EACH OF THE PARTIES
------------------------------------------------
The respective obligations of each of the parties hereto to consummate the
transactions contemplated hereby shall be subject to the fulfillment at or prior
to the Closing Date of the following conditions:
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(a) No Law shall have been enacted or issued by any Governmental
Authority and no decree, temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or any
other Governmental Authority, and no other legal restraint or prohibition
preventing the transactions contemplated by this Agreement or any of the
documents referred to herein or making the consummation of any such transactions
illegal shall be in effect; provided, however, that each of the parties hereto
shall have used reasonable efforts to prevent the entry of any such injunction
or other order or decree and to appeal as promptly as possible any injunction or
other order or decree that may be entered;
(b) Any waiting period applicable to the consummation of the
transactions contemplated by this Agreement and the documents referred to herein
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. (S)18a
(the "HSR Act") shall have terminated or expired;
(c) All Required Governmental Consents legally required for the
consummation of the transactions contemplated by this Agreement and the
documents referred to herein shall have been obtained and be in effect on the
Closing Date;
(d) Buyer and Seller shall have each reviewed and approved the
Schedules listed in this Agreement and prepared by the appropriate party as set
forth herein; and
(e) The form of the License Agreement to be executed at the Closing
shall be reasonably acceptable to Buyer and Seller.
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SECTION 10
CONDITIONS TO SELLER'S AND BUYER'S OBLIGATIONS
----------------------------------------------
10.1 CONDITIONS TO SELLER'S OBLIGATIONS. Each of the obligations of Seller
to be performed hereunder shall be subject to the satisfaction (or waiver by
Seller) at or prior to the Closing Date of each of the following conditions:
(a) Buyer shall have performed or complied with, in all material
respects, all conditions, obligations, agreements and covenants contained herein
which are to be performed or complied with by it on or prior to the Closing
Date;
(b) The representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects on and as of the
date hereof and on and as of the Closing Date, with the same force and effect as
though made on and as of the Closing Date, except for any representations and
warranties made as of a specified date, which shall be true and correct in all
material respects as of the specified date;
(c) Seller shall have received each of the following, dated as of the
Closing Date or, with respect to certificates of Governmental Authorities, dated
within ten (10) business days prior to the Closing Date:
(i) A certificate of the Chairman of the Board, the Chief Executive
Officer, the President or a Vice President of Buyer certifying as to fulfillment
of the conditions specified in Sections 10.1(a) and Section 10.1(b);
(ii) The Certificate of Incorporation of Buyer certified by the
Secretary of State of the State of Delaware, the Bylaws of Buyer certified by
its Secretary or an Assistant Secretary, a certificate of the Secretary of State
of the State of Delaware as to the existence and good standing of Buyer and
certificates of the appropriate Governmental Authorities of each state in which
Buyer is qualified or authorized to transact business as to the good standing
and qualification or authorization of Buyer;
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(iii) Resolutions of the Board of Directors of Buyer, certified by
its Secretary or an Assistant Secretary, which authorize the execution, delivery
and performance of this Agreement and the documents referred to herein to which
it is or is to be a party;
(iv) A certificate of incumbency certified by the Secretary or an
Assistant Secretary of Buyer certifying the names of the officers of Buyer
authorized to execute this Agreement and the documents referred to herein to
which it is or is to be a party (including the certificates contemplated
herein), together with specimen signatures of such officers;
(v) Such other corporate certificates as Seller may reasonably
request;
(vi) Each of the documents referred to herein to which Buyer is
to be a party duly executed by Buyer;
(vii) An opinion of Higham, McConnell & Dunning, in form and
substance reasonably satisfactory to Seller, covering such matters as are
customarily covered in an opinion of counsel in transactions similar to the
transactions contemplated by this Agreement and the documents referred to
herein; and
(viii) From the date of this Agreement, there shall not have
been any material adverse change in the business, assets, properties,
operations, condition (financial or otherwise) or results of operations of Buyer
taken as a whole.
10.2 CONDITIONS TO OBLIGATIONS OF BUYER. Each of the obligations of Buyer
to be performed hereunder shall be subject to the satisfaction (or the waiver by
Buyer) at or prior to the Closing Date of each of the following conditions:
(a) Seller shall have performed or complied with, in all material
respects, all conditions, obligations, agreements and covenants contained herein
which are to be performed or complied with by it on or prior to the Closing
Date;
(b) The representations and warranties of Seller contained in this
Agreement shall be true and correct in all
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material respects on and as of the date hereof and on and as of the Closing
Date, with the same force and effect as though made on and as of the Closing
Date, except for any representations and warranties made as of a specified date,
which shall be true and correct in all material respects as of the specified
date; and
(c) Buyer shall have received each of the following, dated as of the
Closing Date or, with respect to certificates of Governmental Authorities, dated
within ten (10) Business Days prior to the Closing Date:
(i) A certificate of the Chairman of the Board, the Chief Executive
Officer, the President or a Vice President of Seller certifying as to
fulfillment of the conditions specified in Section 10.2(a) and Section 10.2(b);
(ii) The Certificate of Incorporation of Seller certified by the
Secretary of State of the State of Delaware, the Bylaws of Seller certified by
its Secretary or an Assistant Secretary, a certificate of the Secretary of State
of the State of Delaware as to the existence and good standing of Seller and
certificates of the appropriate Governmental Authorities of each state in which
Seller is qualified or authorized to transact business as to the good standing
and qualification or authorization of Seller;
(iii) Resolutions of the Board of Directors of Seller, certified by
its Secretary or an Assistant Secretary, which authorize the execution, delivery
and performance of this Agreement and the documents referred to herein to which
it is or is to be a party;
(iv) A certificate of incumbency certified by the Secretary or an
Assistant Secretary of Seller certifying the names of the officers of Seller
authorized to execute this Agreement and the documents referred to herein to
which it is or is to be a party (including the certificates contemplated
herein), together with specimen signatures of such officers;
(v) Such other corporate certificates as Buyer may reasonably
request;
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(vi) The Noncompetition Agreement in a form reasonably acceptable to
each of Buyer and Seller (the "Noncompetition Agreement");
(vii) Each of the documents referred to herein to which Seller is
to be a party duly executed and delivered by Seller;
(viii) An opinion of Andrews & Kurth L.L.P., in form and substance
reasonably satisfactory to Buyer, covering matters customarily covered in
transactions similar to the transaction contemplated by this Agreement and the
documents referred to herein; and
(ix) From the date of this Agreement, there shall not have been any
material adverse effect on the Assets or any material adverse change in the
business, assets, properties, operations, condition (financial or otherwise) or
results of operations of the Business taken as a whole.
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SECTION 11
CLOSING
-------
11.1 CLOSING. Unless this Agreement is first terminated as provided in
Section 16, the closing of the purchase and sale of the Assets and the transfer
and assumption of the Assumed Liabilities (the "Closing") shall take place at
the offices of Higham, McConnell & Dunning, 28202 Cabot Road, Suite 450, Laguna
Niguel, California 92677 at 10:00 A.M., California time: (i) on October 11,
1996, or as soon as all conditions to the Closing have been satisfied or duly
waived; or (ii) on such other time or date, or at such other place as the
parties may agree (the "Closing Date").
11.2 ACTIONS AT CLOSING. At Closing, Buyer and Seller shall take the
following actions, in addition to such other actions as may otherwise be
required under this Agreement:
(a) COPIES OF CONSENTS. Seller shall deliver to Buyer copies of all
Required Contract Consents and all Required Government Consents which have been
obtained by Seller.
(b) CONVEYANCE INSTRUMENTS. Seller shall deliver to Buyer such
warranty deeds, bills of sale, assignments, and other instruments of conveyance
and transfer as Buyer may reasonably request to effect the assignment to Buyer
of the Assets.
(c) ENTRY INTO PREMISES. Seller shall give Buyer complete and
unrestricted access to the facilities of the Business, and the sites subject to
the Leases.
(d) MASTER COPY OF SOFTWARE PROGRAMS. Seller shall deliver to Buyer a
master copy of each software program (in both source code and object code form).
(e) PAYMENT STOCK; WARRANT. Buyer shall also deliver to Seller: (i)
the Payment Stock, in the event that the listing of the Payment Stock on the
Amex shall have been declared effective; and (ii) the Warrant.
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(f) ASSUMPTION AGREEMENT. Buyer shall deliver to Seller such
instruments of assumption as Seller shall reasonably request, in form and
substance reasonably acceptable to Seller, as shall be effective to cause Buyer
to assume the Assumed Liabilities as and to the extent provided in Section 2.
(g) OTHER DOCUMENTS. Each of the parties hereto shall execute and
deliver the License Agreement, the Exhibits and the documents and certificates
referred to in Section 10 to which it is to be a party and shall cause its
counsel to deliver the opinion of such counsel referred to in Section 10.
11.3 PRORATIONS. At the Closing, taxes on or with respect to the Assets,
and other items normally adjusted in connection with similar transactions, shall
be prorated as of the Closing Date, with Seller liable to the extent such items
relate to any time period prior to the Closing Date and Buyer liable to the
extent such items relate to any time period subsequent to the Closing Date.
Except as otherwise agreed by the parties hereto, the net amount of all such
prorations will be settled and paid on the Closing Date; provided, however, that
the payment of such amounts shall not affect the calculation of, or be deemed to
be a payment towards, the Purchase Price. If the Closing shall occur before the
applicable 1996 tax rate is fixed, the apportionment of taxes shall occur
promptly upon receipt of such 1996 tax bill.
11.4 FURTHER ASSURANCES. At and after the Closing, without further
consideration, each of the parties hereto shall take all such other action and
shall procure or execute, acknowledge, and deliver all such further
certificates, conveyance instruments, assumption instruments, consents, and
other documents as the other party or its counsel may reasonably request: (i)
to vest in Buyer, and perfect and protect Buyer's right, title, and interest in,
and enjoyment of, the Assets and the Business; (ii) to further effect or
evidence the assumption by Buyer of the Assumed Liabilities; or (iii) to ensure
more effectively the compliance of such party with its agreements and covenants
under this Agreement and the other documents referred to herein.
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SECTION 12
COVENANTS OF SELLER AND BUYER FOLLOWING CLOSING
-----------------------------------------------
12.1 TAX MATTERS. Buyer shall use its reasonable efforts to provide Seller
such assistance as it may reasonably request in connection with matters relating
to taxes, including information with respect to Seller's preparation of any
returns of taxes, any audit or other examination by any taxing authority, any
judicial or administrative proceeding relating to Seller's liability for taxes,
or any claims arising hereunder respecting the Business. Buyer shall retain and
provide Seller with records or information which may be relevant to any such
return, audit, examination, proceeding, or determination, and Buyer shall retain
all such books and records for so long as necessary in keeping with applicable
statutes of limitations.
12.2 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
to the Assets and Assumed Liabilities as set forth in Schedule 12.2. Each of
the parties hereto agrees: (i) that
such allocation shall be consistent with the requirements of Section 1060 of the
Code and the regulations thereunder; (ii) to complete jointly and to file
separately Form 8594 with its Federal income tax return for the appropriate
period consistent with such allocation for the tax year in which the Closing
Date occurs; and (iii) that neither of the parties hereto shall take a position
on any income, transfer or gains tax return, before any Governmental Authority
charged with the collection of any such tax or in any judicial proceeding that
is in any manner inconsistent with the terms of any such allocation without the
consent of the other party.
12.3 TRANSFER TAXES. All sales, transfer, and similar taxes and fees
(including all recording fees, if any) incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne equally by the
parties hereto and Buyer shall file all necessary documentation and pay all
amounts due with respect to such taxes and shall offset Seller's share of such
taxes following such payment against the Deferred Payments due hereunder.
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12.4 NONSOLICITATION OF PERSONNEL. For a period of five (5) years after
the Closing Date, Seller shall not solicit, divert, or recruit, for its own
benefit or for the benefit of any other person, any Business Employee whom Buyer
has employed.
12.5 RETENTION OF BUSINESS RECORDS. Buyer agrees: (i) to hold all of the
Business Records existing on the Closing Date, and to not destroy or dispose of
any thereof, for a period of five (5) years commencing on the Closing Date or
such longer period as may be required by Law; and (ii) following the Closing
Date, to afford Seller, its accountants and counsel, at Seller's sole cost and
expense, upon reasonable request, during normal business hours, full and
complete access to such Business Records to the extent that such access may be
requested for any legitimate purpose; provided, however, that such access shall
be provided in such a manner so as to not cause any unreasonable disruption of
or to the personnel and operations of Buyer. Buyer shall have the same rights,
and Seller the same obligations, as are set forth above in this Section 12.5
with respect to any material books and records of Seller pertaining to the
Business that are retained by Seller, with the exception of tax returns relating
to taxes that are not the responsibility of Buyer.
12.6 ACTIONS WITH RESPECT TO CERTAIN CONTRACTS. During the period
commencing on the date hereof and ending on December 31, 1996, Seller shall:
(i) use its commercially reasonable best efforts to promptly: (A) obtain the
consent of Pick Systems, Inc. to the assignment to Buyer of that certain Open
Architecture License Agreement dated as of October 10, 1986, as amended, between
Seller and Pick Systems, Inc. (the "Pick License"); and (B) obtain the consent
of James Anthony Computing, Ltd. to the assignment by Seller to Buyer of that
certain Strategic Partner Agreement dated as of May 24, 1996 between Seller and
James Anthony Computing, Ltd.; and (ii) provide reasonable assistance to Buyer
in its efforts to negotiate a reasonable amendment to the lease by the Business
of the facilities (the "Premises") located in Marlborough, Massachusetts (the
"Lease Amendment"); provided, however, that Seller shall not be required to
expend any of its funds or make any payment to any of the parties to such
contracts in connection with the performance of its obligations under this
Section 12.6 other than payment and performance of all accrued and current
obligations under such
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contracts. If requested by Buyer, Seller shall appoint Buyer as its agent and
representative effective as of the Closing Date solely for the purpose of
obtaining the Required Contract Consents and allow Buyer to contact and
negotiate on behalf of Seller with the third-parties named in this Section and
any other parties to any of the contracts relating to the Required Contract
Consents.
12.7 BOARD REPRESENTATION.
(a) SELLER'S DESIGNEE. From the Closing Date until the earlier to
occur of: (i) payment of at least seventy-five percent (75%) of the Purchase
Price; or (ii) Seller no longer is the holder of at least fifty percent (50%) of
the shares of the Payment Stock (or if the Warrant has been exercised, the
aggregate of the Payment Stock and the Warrant Shares), Seller will be entitled
to designate an individual for election to the Board of Directors of Buyer;
provided, however, that such individual is reasonably acceptable to Buyer at the
time of his initial designation. On or before the Closing Date, Buyer shall
take such actions as are necessary to increase the size of its Board of
Directors by one (1) and cause the vacancy created by such increase to be filled
by the election of the individual designated by Seller (the "Seller's
Designee"), which election shall be effective as of the Closing Date. The
Seller's Designee will serve until the first annual meeting of the stockholders
of Buyer following the Closing Date and until his successor shall be duly
elected and qualified or until his earlier death, disability, removal or
resignation.
(b) CONTINUING REPRESENTATION. So long as Seller possesses the right
of designation described in Section 12.7(a): (i) Buyer shall nominate (or shall
cause to be nominated) for election at each annual meeting of the stockholders
of Buyer after the date hereof, the incumbent Seller's Designee or such other
individual as Seller may designate; provided, however, that such other
individual is reasonably acceptable to Buyer at the time of his initial
designation; (ii) if the Seller's Designee should die, become disabled, be
removed, retire or resign during the term of his office, Seller shall be
entitled to designate a successor Seller's Designee reasonably acceptable to
Buyer at the time of his initial designation, in which event Buyer shall cause
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such successor Seller's Designee to be promptly elected as a member of its Board
of Directors to fill the vacancy created by such death, disability, removal,
retirement or resignation; and (iii) without the prior written consent of Seller
(which consent will not be unreasonably withheld, delayed or conditioned),
neither Buyer nor its Board of Directors will: (A) recommend that the Seller's
Designee be removed by the stockholders of Buyer; or (B) fail to recommend any
incumbent Seller's Designee for reelection.
12.8 NO DIVIDENDS. From the Closing Date until the Purchase Price shall
have been paid in full by Buyer to Seller, Buyer shall not declare, make or pay
any dividend or distribution on any share of its capital stock or any other
equity interest in Buyer.
12.9 AMEX LISTING. Immediately following execution of this Agreement,
Buyer shall submit an application to list on the Amex the shares of the Payment
Stock and the Warrant Shares and will use its best efforts to cause that listing
to become effective as soon as possible. Buyer shall deliver the Payment Stock
to Seller within two (2) business days following the listing being declared
effective.
12.10 BUYER'S RECEIVABLE AMOUNT. At all times following Seller's receipt of
the Payment Stock, beginning on the last business day of that week and
continuing thereafter until Seller pays to Buyer an aggregate amount equal to
One Million Five Hundred Sixty Thousand Dollars ($1,560,000) ("Buyer's
Receivable Amount"), Seller shall pay to Buyer an amount equal to forty percent
(40%) of all proceeds from the Accounts Receivable received by Seller since the
last payment made by Seller to Buyer under this Section. The full amount of the
Buyer's Receivable Amount shall be paid to Buyer no later than one hundred
twenty (120) days following the Closing Date.
SECTION 13
CERTAIN TRANSITION MATTERS
--------------------------
13.1 HIRING OF BUSINESS EMPLOYEES.
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(a) Buyer shall offer employment effective as of the Closing Date,
with comparable duties and at the same salary and bonus level as currently in
place with Seller to at least the minimum number of Business Employees so that
the Seller will not be subject to any applicable plant closure notification
Laws, including the WARN Act (the "Transferred Employees"); provided, however,
that in any event Buyer shall offer employment on such terms to the Management
Business Employees. All such employees to be hired by Buyer shall be terminated
by Seller as of the Closing Date and shall become new employees of Buyer as of
the Closing Date. Seller shall be solely responsible for all obligations and
liabilities with respect to such employees prior to the Closing Date. Seller
shall, after the date hereof and prior to the Closing Date or the earlier
termination of this Agreement, afford to Buyer, upon reasonable request and at
the sole cost and expense of Buyer, during normal business hours, full and
complete access to the Business Employees for the purpose of soliciting such
Business Employees to become a Transferred Employee; provided, however, that
such solicitation shall be conducted in such a manner so as to not cause any
unreasonable disruption of or to the personnel and operations of Seller or the
Business.
(b) Each of the Transferred Employees shall be entitled to participate
in all employee benefit plans and arrangements provided by Buyer on the same
basis and to the same extent as other similarly situated employees of Buyer.
The Transferred Employees shall be given credit for all service with Seller
under all employee benefit plans and arrangements of Buyer for purposes of
eligibility and vesting, to the same extent as if such service were rendered to
Buyer. Buyer shall assume the obligations of Seller with respect to any accrued
and untaken vacation and sick and holiday pay earned by each of the Transferred
Employees as of the Closing Date.
(c) In connection with the employment of any Business Employee, Buyer
shall request that such Business Employee execute a waiver (to be prepared by
Seller) pursuant to which such Business Employee waives certain claims against
Seller. In addition, Buyer shall not grant credit for past service or accrued
vacation to any Transferred Employee that does not execute such waiver.
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13.2 COBRA. Seller shall be responsible for the collection of premiums and
all related costs of benefits offered under the continuation of benefits
provisions of the Consolidated Omnibus Budget Reconciliation Act for all former
Business Employees and their dependents who have elected continuation coverage
under such group health plan with respect to qualifying events occurring on or
prior to the Closing Date.
13.3 TRANSITION SERVICES PROVIDED BY SELLER.
(a) COMMITMENT. Seller shall continue to provide the Transition
Services (as defined herein) while under the ownership of Buyer following
Closing until three (3) months after the Closing Date, to the extent such
Transition Services may be requested by Buyer.
(b) DEFINITION OF TRANSITION SERVICES. For purposes of this
Agreement, "Transition Services" shall mean administrative support services of a
nature previously rendered by the headquarters of Seller to the Business.
(c) MANNER AND TIME OF PERFORMANCE. Seller shall perform the
Transition Services with the degree of care, skill, and diligence with which it
previously performed, or may continue to perform, similar services for itself or
others. Seller will make every reasonable effort to maintain sufficient
resources such that it may provide the Transition Services. Seller reserves the
right to determine staffing and scheduling of Transition Services, and to engage
contractors as needed, provided that Seller shall make every reasonable effort
to conform to the priorities and timeframes given by Buyer. Seller shall not be
required to devote substantial time of its executives to the Transition Services
such as would interfere with their other responsibilities to Seller. To the
extent possible, Buyer shall advise Seller in advance of its projected
requirements, according to skill level of personnel and estimated worktime, and
provide priorities and timeframes with respect to the urgency of completion.
13.4 DATA PROCESSING AND SUPPORT SERVICES PROVIDED BY BUYER. Buyer agrees,
during the period commencing with the Closing Date and continuing thereafter for
ninety (90) days, to make the
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Business Employees who are hired by Buyer (the "Transferred Employees") who
performed accounting functions for Seller prior to the Closing Date or who
perform accounting functions for Buyer after the Closing Date available to
Seller, its accountants and counsel, upon reasonable request, during normal
business hours, to the extent that such availability may be requested for any
legitimate purpose related to the transactions contemplated by this Agreement
and the documents referred to herein; provided, however, that
such availability shall be provided in such a manner so as to not cause any
unreasonable disruption of or to the personnel and operations of Buyer. Seller
shall promptly reimburse Buyer for Seller's pro rata portion of the salary of
such Transferred Employees during such period based upon the use of such
Transferred Employees by Seller. Any failure of Seller to timely pay such
amounts shall be offset by Buyer against the Deferred Payments payable to
Seller.
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SECTION 14
INDEMNITY
---------
14.1 INDEMNIFICATION BY SELLER. Seller shall indemnify, defend, and hold
harmless Buyer and its successors and assigns and the directors, officers,
employees, and agents of each (collectively, the "Buyer Group"), at, and at any
time after, the Closing, from and against any and all demands, claims, actions,
or causes of action, assessments, losses, damages, liabilities, costs, and
expenses, including reasonable fees and expenses of counsel, other expenses of
investigation, handling, and litigation, and settlement amounts, together with
interest and penalties (collectively, a "Loss" or "Losses"), asserted against,
resulting to, imposed upon, or incurred by the Buyer Group, directly or
indirectly, by reason of, resulting from, or arising in connection with any of
the following:
(a) BREACH OF OBLIGATION. Any breach of any representation, warranty,
covenant or agreement of Seller contained in or made pursuant to this Agreement,
including the agreements and other instruments contemplated hereby.
(b) EXCLUDED LIABILITIES. Any liabilities or obligations of any kind
or nature whatsoever, whether accrued, absolute, contingent, or otherwise, known
or unknown, arising out of or in connection with the conduct of the Business or
the ownership or use of the Assets prior to the Closing Date, except to the
extent that such Losses relate to any of the Assumed Liabilities.
(c) NON-COMPLIANCE WITH THE WARN ACT. The non-compliance with the
WARN Act or any similar Law and any Losses under the WARN Act or any similar
Law.
(d) BROKERS' FEES. Any claim to fees or costs for alleged services by
a broker, agent, finder or other person claiming to act in a similar capacity at
the request of Seller in connection with this Agreement or any of the documents
referred to herein.
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Notwithstanding anything to the contrary contained in this Agreement, Seller
shall not be liable for any portion of any Losses resulting from a material
breach by Buyer of its obligations under this Agreement or any of the documents
referred to herein or from a member of the Buyer Group's gross negligence, fraud
or willful misconduct.
14.2 INDEMNIFICATION BY BUYER. Buyer shall indemnify, defend, and hold
harmless Seller and its successors and assigns and the directors, officers,
employees, and agents of each (collectively, the "Seller Group"), at, and at any
time after, the Closing, from and against any and all Losses asserted against,
resulting to, imposed upon, or incurred by the Seller Group, directly or
indirectly, by reason of, resulting from, or arising in connection with, any of
the following:
(a) BREACH OF OBLIGATION. Any breach of any representation, warranty,
covenant or agreement of Buyer contained in or made pursuant to this Agreement,
including the agreements and other instruments contemplated hereby.
(b) ASSUMED LIABILITIES. Any of the Assumed Liabilities or any
liabilities or obligations of any kind or nature whatsoever, whether accrued,
absolute, contingent, or otherwise, known or unknown, arising out of or in
connection with the conduct of the Business or the ownership or use of the
Assets after the Closing Date, except to the extent that such Losses related to
any of the Excluded Liabilities.
(c) BROKER'S FEES. Any claim to fees or costs for alleged services by
a broker, agent, finder or other person claiming to act in a similar capacity at
the request of Buyer in connection with this Agreement or any of the documents
referred to herein.
Notwithstanding anything to the contrary contained in this Agreement, Buyer
shall not be liable for any portion of any Losses resulting from a material
breach by Seller of its obligations under this Agreement or any of the documents
referred to herein or from a member of the Seller Group's gross negligence,
fraud or willful misconduct.
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14.3 NOTICE OF CLAIM. The party entitled to indemnification hereunder (the
"Claimant") shall promptly deliver to the party liable for such indemnification
hereunder (the "Obligor") notice in writing (the "Required Notice") of any claim
for recovery under Section 14.1 or Section 14.2, specifying in reasonable detail
the nature of the Loss, and, if known, the amount, or an estimate of the amount,
of the liability arising therefrom (the "Claim"); provided, however, that the
failure to so notify the Obligor shall not relieve the Obligor from any
liability which it may have to the Claimant pursuant to Section 14.1 or 14.2, as
the case may be, except to the extent of material detriment suffered by the
Obligor as a result of such failure. The Claimant shall provide to the Obligor
as promptly as practicable thereafter information and documentation reasonably
requested by the Obligor to support and verify the claim asserted, provided
that, in so doing, it may restrict or condition any disclosure in the interest
of preserving privileges of importance in any foreseeable litigation.
14.4 DEFENSE. If the facts pertaining to the Loss arise out of the claim of
any third party (other than a member of the Buyer Group or Seller Group,
whichever is entitled to indemnification for such matter), the Obligor will
undertake the defense thereof by representatives chosen by it which are
reasonably acceptable to the Claimant. So long as the Obligor is defending any
such claim actively and in good faith, the Claimant shall not settle such claim.
Each of the Obligor and the Claimant shall take those actions reasonably within
its power which are reasonably necessary to preserve any legal defenses to such
matters. If the Obligor, within a reasonable time after notice of any such
claim, fails to defend such claim actively and in good faith, the Claimant will
(upon further notice) have the right to undertake the defense, compromise or
settlement of such claim or consent to the entry of a judgment with respect to
such claim, on behalf of and for the account and risk of the Obligor, and the
Obligor shall thereafter have no right to challenge the Claimant's defense,
compromise, settlement or consent to judgment. Notwithstanding anything
contained in this Section 14 to the contrary: (i) if there is a reasonable
probability that any such claim will materially and adversely affect the
Claimant other than as a result of money damages or other money payments, the
Claimant shall have the right to defend, compromise or settle
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such Claim; and (ii) no consent order shall be entered into or claim settled
unless the Claimant has given its prior written consent thereto, which consent
shall not be unreasonably withheld, delayed or conditioned; provided, however,
that the Claimant shall consent to any settlement, compromise or discharge of
such claim that the Obligor may recommend that by its terms fully releases the
Claimant from any further Losses with respect to the matters giving rise to such
claim and which does not impose any form of injunctive relief on such Claimant.
14.5 PAYMENT. The Obligor shall promptly pay the Claimant any amount due
under this Section 14 and reimburse each Claimant for all reasonable expenses
(including reasonable counsel fees and costs) for which the Claimant is entitled
to be indemnified hereunder as they are incurred by such Claimant. Upon
judgment, determination, settlement or compromise of any third party claim, the
Obligor shall promptly pay on behalf of the Claimant, and/or to the Claimant in
reimbursement of any amount theretofore required to be paid by it, the amount so
determined by such judgment, determination, settlement or compromise and all
other claims of the Claimant with respect thereto, unless in the case of a
judgment or determination an appeal is made from such judgment or determination;
provided, however, that if the Obligor desires to appeal from an adverse
judgment or determination, then the Obligor shall post and pay the cost of the
security or bond to stay execution of the judgment or determination pending
appeal. Upon the payment in full by the Obligor of all of such amounts, the
Obligor shall succeed to the rights of the Claimant,
to the extent such rights are not waived in settlement, against the third party
who made such third party claim.
14.6 LIMITATIONS ON INDEMNIFICATION. The obligations of the parties hereto
to indemnify any person pursuant to this Section 14 shall be subject to the
following limitations:
(a) Except with respect to Seller's obligation under Section 12.10 for
which Seller shall be liable dollar-for-dollar, no member of either the Seller
Group or the Buyer Group shall be entitled to receive any indemnification
payments until the cumulative amount of all Losses for which indemnification is
sought pursuant to this Section 14 shall exceed an amount equal to One Hundred
Thousand Dollars ($100,000) with respect to the
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member of the Seller Group in the aggregate or the members of the Buyer Group in
the aggregate, as applicable, and then only to the extent that such Losses
exceed One Hundred Thousand Dollars ($100,000) in the aggregate; provided,
however, that, in the event that the cumulative amount of all Losses for which
indemnification is sought from an Obligor pursuant to this Section 14 ever
exceeds an amount equal to Two Hundred Thousand Dollars ($200,000) with respect
to the members of the Seller Group in the aggregate or the members of the Buyer
Group in the aggregate, as applicable, such members of the Seller Group or the
Buyer Group, as the case may be, shall be entitled to receive indemnification
payments from such Obligor for each claim made by such Claimant which is
otherwise entitled to be indemnified hereunder, irrespective of the amount of
such claim.
(b) The aggregate liability of Seller to indemnify the members of the
Buyer Group shall not exceed an amount equal to Six Million Dollars ($6,000,000)
and the aggregate Liability of Buyer to indemnify the members of the Seller
Group shall not exceed Six Million Dollars ($6,000,000); and
(c) Notwithstanding any other provision of this Agreement, no claim
for indemnification pursuant to Section 14.1(b) or (c) or Section 14.2(b) may be
made after the expiration of the two-year period commencing on the Closing Date,
unless notice of a claim relating thereto shall have been delivered by the
Claimant to the Obligor prior to the expiration of such two (2)-year period, in
which case the right to make each such claim and receive indemnification
hereunder in connection with such claim (to the extent that the Losses
underlying such claim are ultimately determined to be indemnifiable hereunder)
shall survive following such two (2)-year period solely with respect to each
such claim until such claim is finally resolved.
14.7 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as
otherwise provided herein, all representations, warranties, covenants and
agreements made by the parties hereto in this Agreement, the documents referred
to herein or in any certificate or other instrument delivered by the parties
hereto under this Agreement or any of the documents referred to herein, and the
right to indemnification with respect to any breaches thereof, shall survive the
execution and delivery of this
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Agreement and the documents referred to herein, regardless of any investigation
made by or on behalf of either party; provided, however, that:
(a) The representations and warranties of Seller, other than those
contained in: (i) Sections 4.1, and 4.2 (which shall survive indefinitely); and
(ii) Sections 4.22 and 4.23 (which shall survive as provided in subsection (b)
of this Section 14.7), shall terminate and have no further force or effect after
the expiration of the two (2)-year period commencing on the Closing Date, unless
notice of a claim relating thereto shall be delivered by a member of the Buyer
Group to Seller prior to the expiration of such two (2)-year period, in which
case such representation or warranty shall survive following such period solely
with respect to such claim until such claim is resolved; and
(b) The representations and warranties of Seller contained in Sections
4.22 and 4.23 shall terminate and have no further force or effect upon the
expiration of the statute of limitations period applicable thereto, unless
notice of a claim relating thereto shall be delivered by a member of the Buyer
Group to Seller prior to the expiration of the applicable period, in which case
such representations or warranties shall survive following such period solely
with respect to such claim until such claim is resolved;
(c) The representations and warranties of Buyer, other than those
contained in: (i) Sections 5.1, 5.2 and 5.4 (which shall survive indefinitely);
and (ii) Section 5.14 (which shall survive as provided in subsection (d) of this
Section 14.7), shall terminate and have no further force or effect after the
expiration of the two (2)-year period commencing on the Closing Date, unless
notice of a claim relating thereto shall be delivered by a member of the Seller
Group to Buyer prior to the expiration of such two (2)-year period, in which
case such representation or warranty shall survive following such period solely
with respect to such claim until such claim is resolved; and
(d) The representations and warranties of Buyer contained in Section
5.14 shall terminate and have no further
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force or effect upon the expiration of the statute of limitations period
applicable thereto, unless notice of a claim relating thereto shall be delivered
by a member of the Seller Group to Buyer prior to the expiration of the
applicable period, in which case such representations or warranties shall
survive following such period solely with respect to such claim until such
claims is resolved.
The right to indemnification provided in this Section 14 shall be the exclusive
remedy of any member of the Seller Group or the Buyer Group with respect to the
inaccuracy of any representation or the breach of any warranty, covenant or
agreement made by any of the parties hereto in this Agreement or any of the
documents referred to herein. Each of the parties hereto shall cooperate in the
defense or prosection thereof and shall furnish such records, information, and
testimony, and attend such conferences, discovery proceedings, hearings, trials,
and appeals, as may be reasonably requested in connection therewith.
14.8 OFFSET. If Seller owes any amount to Buyer under this Section 14,
Buyer may, but is not obligated to, offset such amount against the Deferred
Payments next due and payable, in the discretion of Buyer; provided, however,
that Buyer shall not be entitled to set off any such amount unless and until
such amount is either acknowledged by Seller to be due and owing or finally
determined (by arbitration or otherwise) to be due and owing by Seller. Buyer
shall request such acknowledgment from Seller in writing and if Seller fails to
deny liability for such Loss within ten (10) days following receipt of such
notice, the amount due shall be deemed to have been acknowledged by Seller to be
due and owing solely for proposes of Buyer's right of set off, it being
understood and agreed by the parties hereto that any such deemed acknowledgement
by Seller shall in no event: (i) constitute or be deemed to be an
acknowledgement by Seller of the legitimacy of such amount or any underlying
claim or Seller's ultimate liability with respect thereto; or (ii) be used
against Seller for any other purpose.
SECTION 15
CONFIDENTIALITY
---------------
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Buyer and Seller have previously entered into that certain Mutual Non-
Disclosure Agreement dated as of September 18, 1996, regarding the parties
confidential information (the "Non-Disclosure Agreement"). The Non-Disclosure
Agreement shall remain in full force and effect until the Closing and
thereafter.
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SECTION 16
TERMINATION PRIOR TO CLOSING
----------------------------
16.1 TERMINATION OF AGREEMENT. This Agreement may be terminated at any
time prior to the Closing:
(a) MUTUAL CONSENT. By the mutual consent of Buyer and Seller;
(b) BY BUYER. By Buyer, if:
(i) The Closing has not occurred by November 30, 1996, unless the
failure of the Closing to occur by such time is due to a breach of any
representation or warranty contained in this Agreement or a breach of any
agreement or covenant contained in this Agreement by, or otherwise on account of
delay or default on the part of, Buyer;
(ii) The Closing is enjoined by a final, non-appealable court
order not entered at the request or with the support of Buyer and Buyer shall
have used reasonable efforts to prevent the entry of such order;
(iii) Seller: (A) fails to perform in any material respect any
of its covenants in this Agreement; and (B) does not cure such default in all
material respects within thirty (30) days after notice of such default is given
to Seller by Buyer; or
(iv) Seller shall have breached any of its representations and
warranties set forth in this Agreement, which breach cannot be cured prior to
November 30, 1996, and has not been waived by Buyer; or
(c) BY SELLER. By Seller, if:
(i) The Closing has not occurred by November 30, 1996, unless the
failure of the Closing to occur by such time is due to a breach of any
representation or warranty contained in this Agreement or a breach of any
agreement or
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covenant contained in this Agreement by, or otherwise on account of
delay or default on the part of, Seller;
(ii) The Closing is enjoined by a final, non-appealable court
order not entered at the request or with the support of Seller and Seller shall
have used reasonable efforts to prevent the entry of such order;
(iii) Buyer: (A) fails to perform in any material respect any of
its covenants in this Agreement; and (B) does not cure such default in all
material respects within thirty (30) days after notice of such default is given
to Buyer by Seller; or
(iv) Buyer shall have breached any of its representations and
warranties set forth in this Agreement, which breach cannot be cured prior to
November 30, 1996, and has not been waived by Seller.
16.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either Buyer or Seller, as provided in Section 16.1, this Agreement shall
forthwith become void and there shall be no liability on the part of either of
Buyer or Seller or their respective officers or directors, except that Sections
4.26, 5.3, 15, 16.2, and 17 shall survive any such termination; provided,
however, that nothing herein shall relieve either of the parties hereto for
liability for any willful breach of any covenant or agreement of such party
contained herein.
SECTION 17
MISCELLANEOUS
-------------
17.1 ENTIRE AGREEMENT; AMENDMENT. This Agreement (including the
Schedules), the documents referred to herein, and the other certificates,
agreements, and other instruments to be executed and delivered by the parties in
connection with the transactions contemplated hereby; constitute all of the
promises, agreements, conditions, understandings, warranties and representations
between the parties hereto with respect to the transactions contemplated hereby
and thereby, and supersede all
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prior agreements, arrangements and understandings between the parties hereto,
whether written, oral or otherwise. There are no promises, agreements,
conditions, understandings, warranties or representations, oral or written,
express or implied, between the parties hereto concerning the subject matter
hereof or thereof except as set forth herein and therein. No amendment,
modification, or alteration of the terms or provisions of this Agreement shall
be binding unless the same shall be in writing and duly executed by the parties
hereto.
17.2 PARTIES BOUND BY AGREEMENT; SUCCESSORS AND ASSIGNS. The terms,
conditions, and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and permitted
assigns thereof. Without the prior written consent of the other party, neither
party hereto may assign or transfer all or any portion of its rights, duties and
obligations hereunder and any attempt to do so without such consent shall be
null and void; provided, however, that no assignment by either of the parties
hereto of any of its rights, interests or obligations hereunder shall relieve
such party of its obligations under this Agreement.
17.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same Agreement.
17.4 HEADINGS. The headings of the Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
17.5 WAIVER. No waiver of any provision of this Agreement shall be valid
unless in writing and signed by the party against whom that waiver is sought to
be enforced. No failure or delay on the part of either of the parties hereto in
exercising any right, power or privilege hereunder, and no course of dealing
between the parties hereto, shall operate as a waiver of any right, power or
privilege hereunder. No single or partial exercise of any right, power or
privilege hereunder shall preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder. No notice to or
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demand on either of the parties hereto in any case shall entitle such party to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of any party to any other or further action in
any circumstances without notice or demand.
17.6 EXPENSES. Seller and Buyer shall each pay all costs and expenses
incurred by it or on its behalf in connection with this Agreement and the
transactions contemplated hereby, including fees and expenses of its own
financial consultants, accounts, and counsel.
17.7 NOTICES. Any notice, request, instruction, or other communication to
be given hereunder by any party hereto to any other party hereto shall be in
writing and delivered personally or sent by facsimile, overnight commercial
courier or registered or certified mail, postage prepaid, if to Seller to:
If to Seller to: Sequoia Systems, Inc.
5959 Corporate Drive
Houston, TX 77036
Attention: President
FAX No.: (713) 541-8231
with a copy to: Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
600 Travis
Houston, Texas 77002
Attention: David G. Elkins, Esq.
FAX No.: (713) 220-4285
If to Buyer to: General Automation, Inc.
17731 Mitchell North
Irvine, CA 92614
Attention: President
FAX No.: (714) 752-6772
with a copy to: Scott E. McConnell, Esq.
HIGHAM, McCONNELL & DUNNING
28202 Cabot Road, Suite 450
Laguna Niguel, CA 92677
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FAX No.: (714) 365-5522
or at such other address for a party as shall be specified by like notice.
Notices shall be deemed given upon the earliest of: (i) receipt; (ii) conformed
facsimile transmission; (iii) one day after delivery to an overnight commercial
courier; or (iv) five (5) business days after deposit in U.S. mail.
17.8 GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Delaware without giving effect to the
principles of conflicts of law thereof.
17.9 PUBLIC ANNOUNCEMENTS. Seller and Buyer shall consult with each other
before issuing any press releases or otherwise making any public statements with
respect to this Agreement and the transactions contemplated hereby. Neither
Seller nor Buyer shall issue any such press release or make any public statement
without the agreement of the other party, except as may be required by Law.
17.10 THIRD-PARTY BENEFICIARIES. With the exception of: (i) the parties
to this Agreement; and (ii) the Buyer Group and the Seller Group with respect to
the matters inuring to their benefit under Section 14, there shall exist no
right of any person to claim a beneficial interest in this Agreement or any
rights occurring by virtue of this Agreement.
17.11 SEVERABILITY. Should any clause, sentence, paragraph, subsection,
Section or Article of this Agreement be judicially declared to be invalid,
unenforceable or void, such decision will not have the effect of invalidating or
voiding the remainder of this Agreement, and the parties hereto agree that the
part or parts of this Agreement so held to be invalid, unenforceable or void
will be deemed to have been stricken and effectiveness as if such stricken part
or parts had never been included herein.
17.12 REMEDIES. The parties hereto agree that the covenants and
obligations contained in this Agreement and the documents referred to herein
relate to special, unique and extraordinary matters and that a violation of any
of the terms hereof or thereof would cause irreparable injury in an amount which
would
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be impossible to estimate or determine and for which any remedy at law would be
inadequate. As such, the parties hereto agree that if either of the parties
hereto fails or refuses to fulfill any of its obligations under this Agreement
or any of the documents referred to herein or to make any payment or deliver any
instrument required hereunder or thereunder, then the other party shall have the
remedy of specific performance, which remedy shall be cumulative and
nonexclusive and shall be in addition to any other rights and remedies otherwise
available under any other contract or at law or in equity and to which such
party might be entitled.
17.13 SUBMISSION TO JURISDICTION. Each of the parties hereto hereby: (i)
irrevocably submits to the non-exclusive personal jurisdiction of any Delaware
state or federal court sitting in Delaware, over any claim arising out of or
relating to this Agreement or any of the documents referred to herein and
irrevocably agrees that all such claims may be heard and determined in such
Delaware state or federal court; and (ii) irrevocably waives, to the fullest
extent permitted by applicable Law, any objection it may now or hereafter have
to the laying of venue in any proceeding brought in a Delaware state or federal
court sitting in Delaware, and any claim that any such proceeding brought in a
Delaware state or federal court sitting in Delaware, has been brought in an
inconvenient forum; provided, however, that nothing in this Section is intended
to waive the right of either of the parties hereto to remove any such action or
proceeding commenced in any such Delaware state court to an appropriate Delaware
federal court to the extent the basis for such removal exists under applicable
law. Each of the parties hereto hereby irrevocably: (A) appoints its current
duly designated agent for service of process in the State of Delaware (the
"Process Agent"), as its agent to receive on behalf of it and its properties
service of copies of the summons and complaint and any other process which may
be served in any such action or proceeding; (B) agrees that service of process
may be made on it by mailing, by certified mail, a copy of such process to such
party in care of the Process Agent at the Process Agent's address, with a copy
to such party at its address for notices specified herein; and (C) authorizes
and directs the Process Agent to accept such service on its behalf. Each of the
parties hereto agrees that a final judgment in any such action or
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proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Section shall affect the right of either of the parties hereto to serve legal
process in any other manner permitted by law or affect the right of either of
the parties hereto to bring any action or proceeding in the courts of any other
jurisdictions, domestic or foreign.
17.14 ARBITRATION.
(a) All disputes and disagreements between the parties hereto (each,
a "Dispute") arising in connection with this Agreement shall be resolved by
binding arbitration administered by the American Arbitration Association (the
"AAA") in accordance with, and in the following order of priority: (i) the terms
of these arbitration provisions; (ii) the Commercial Arbitration Rules of the
AAA; (iii) the Federal Arbitration Act (Title 9 of the United States Code); and
(iv) to the extent the foregoing are inapplicable, unenforceable or invalid, the
Laws of the State of Delaware. The validity and enforceability of these
arbitration provisions shall be determined in accordance with this same order of
priority. In the event of any inconsistency between these arbitration provisions
and such rules and statutes, these arbitration provisions shall control. Each of
the parties hereto may, by summary proceedings (e.g., a plea in abatement or
motion to stay further proceedings) bring any action in any court of competent
jurisdiction to: (A) compel arbitration of any Dispute; (B) obtain interim
measures of protection pending arbitration of any Dispute; and/or (C) enforce
any decision of the arbitrators, including the final award. If either of the
parties hereto fails or refuses to submit to binding arbitration following a
lawful demand by the other party, the party so failing or refusing shall bear
all costs and expenses incurred by such other party in compelling arbitration of
such Dispute.
(b) All statutes of limitation applicable to any Dispute shall apply
to any proceeding in accordance with these arbitration provisions.
(c) Arbitrators are empowered to resolve Disputes by summary rulings
substantially similar to summary judgments and motions to dismiss. Arbitrators
shall resolve all Disputes in
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accordance with the applicable substantive Law. Any arbitrator selected shall be
required to be experienced and knowledgeable in the substantive Laws applicable
to the subject matter of the Dispute. With respect to a Dispute in which the
claims or amounts in controversy do not exceed One Hundred Thousand Dollars
($100,000), a single arbitrator shall be chosen and shall resolve the Dispute.
In such case, the arbitrator shall have authority to render an award up to but
not to exceed One Hundred Thousand Dollars ($100,000), including all amounts
properly payable and costs, fees and expenses. A Dispute involving claims or
amounts in controversy exceeding One Hundred Thousand Dollars ($100,000), shall
be decided by a majority vote of a panel of three (3) arbitrators (an
"Arbitration Panel"), the determination of any two (2) of the three (3)
arbitrators constituting the determination of the Arbitration Panel; provided,
however, that all three (3) arbitrators on the Arbitration Panel must actively
participate in all hearings and deliberations. Any award of the arbitrators
shall be final and binding and the parties hereto hereby waive any right to
appeal the arbitral award, to the extent that a right to appeal may be lawfully
waived. Arbitrators, including any Arbitration Panel, may grant any remedy or
relief deemed just and equitable and within the scope of these arbitration
provisions and may also grant such ancillary relief as is necessary to make
effective any award.
(d) To the maximum extent practicable, the AAA, the arbitrator (or
the Arbitration Panel, as appropriate) and the parties shall take any action
necessary to require that an arbitration proceeding hereunder shall be concluded
within one hundred eighty (180) days of the filing of the Dispute with the AAA.
Unless the parties shall agree otherwise, arbitration proceedings hereunder
shall be conducted in Delaware. Arbitrators shall be empowered to impose
sanctions, permit or order depositions and discovery and to take such other
actions as they deem necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure and applicable law. With respect to any
Dispute, each of the parties hereto agrees that all discovery activities shall
be expressly limited to matters directly relevant to such Dispute and any
arbitrator, any Arbitration Panel and the AAA shall be required to fully enforce
this requirement. The provisions of these arbitration provisions shall survive
any termination, amendment or expiration of this
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Agreement, unless the parties otherwise expressly agree in writing. To the
extent permitted by applicable Law, arbitrators, including any Arbitration
Panel, shall have the power to award recovery of all costs and fees (including
attorneys' fees, administrative fees and arbitrators' fees) to the prevailing
party or, if no clear prevailing party, as the arbitrator (or Arbitration Panel,
if applicable) shall deem just and equitable. Each party agrees to keep all
Disputes and arbitration proceedings strictly confidential, except for
disclosures of information required by applicable Law.
17.15 PREVAILING PARTY COSTS. Notwithstanding anything contained herein
or therein to the contrary (except as expressly provided in Section 17.14), if
either of the parties hereto commences an action against the other party to
enforce any of the terms, covenants, conditions or provisions of this Agreement
or any of the documents referred to herein, or because of a breach by a party of
its obligations under this Agreement or any of the
documents referred to herein, the prevailing party in any such action shall be
entitled to recover its Losses, including reasonable attorneys' fees, incurred
in connection with the prosecution or defense of such action, from the losing
party.
17.16 INTERPRETATION. In this Agreement, unless a clear contrary
intention appears:
(a) The words "hereof", "herein" and "hereunder" and words of
similar import refer to this Agreement as a whole and not to any particular
provision of this Agreement;
(b) Reference to any gender includes each other gender and the
neuter;
(c) All terms defined in the singular shall have the same meanings
in the plural and vice versa;
(d) The word "person" means any individual, firm, corporation,
trust, association, company, limited liability company, joint stock company,
partnership, joint venture, Governmental Authority or other entity or
enterprise;
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(e) Reference to any person includes such person's heirs, executors,
personal representatives, administrators, successors and assigns; provided,
however, that nothing contained in this clause (e) is intended to authorize any
assignment not otherwise permitted by this Agreement;
(f) Reference to a person in a particular capacity or capacities
excludes such person in any other capacity;
(g) Reference to any contract or agreement means such contract or
agreement as amended, supplemented or modified from time to time in accordance
with the terms thereof;
(h) All references to Articles, Sections, and Exhibits shall be
deemed to be references to the Articles and Sections of this Agreement and the
Exhibits attached hereto which are made a part hereof and incorporated herein by
reference;
(i) The word "including" (and with correlative meaning "include")
means including, without limiting the generality of any description preceding
such term;
(j) With respect to the determination of any period of time, the
word "from" means "from and including" and the words "to" and "until" each means
"to but excluding";
(k) Reference to any Law means such Law as amended, modified,
codified, reenacted, supplemented or superseded in whole or in part, and in
effect from time to time;
(l) Accounting terms used but not defined herein shall be construed
in accordance with GAAP, and whenever the character or amount of any asset,
liability or item of income or expense is required to be determined, or any
consolidation or accounting computation is required to be made, such
determination or computation shall be made in accordance with GAAP;
(m) All computations and calculations to be made hereunder in
accordance with GAAP shall be made by utilizing such allocations, conventions
and methods as are consistent with GAAP and have been utilized by the applicable
person prior to the date
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hereof or which may be subsequently adopted by such person in accordance with
GAAP except as otherwise provided herein;
(n) The word "knowledge", when used in any representation, covenant
or warranty of either of the parties hereto contained herein, means the actual
knowledge of any officer, director or member of senior management of, or other
person performing similar functions for, such party;
(o) Where any provision of this Agreement refers to action to be
taken by any person, or which such person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such person; and
(p) No provision of this Agreement shall be interpreted or construed
against either of the parties hereto solely because that party or its legal
representative drafted such provision.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, each of the parties hereto has duly executed this Asset
Purchase Agreement as of the date first above written.
BUYER
-----
GENERAL AUTOMATION, INC., a
Delaware corporation
/s/ JANE M. CHRISTIE
By:______________________________
Title: President & CEO
SELLER
------
SEQUOIA SYSTEMS, INC., a
Delaware corporation
/s/ MICHAEL STEWART
By:______________________________
Title: President & CEO
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EXCLUDED ASSETS
---------------
1. Any and all real property owned by Seller, and all of the rights arising
out of the ownership thereof or appurtenant thereto, together with all
buildings, structures, facilities and fixtures thereon and other
improvements thereto;
2. Any and all cash, commercial paper, certificates of deposit and other bank
deposits, treasury bills and other cash equivalents and any and all equity
interests owned by Seller in any person;
3. Any and all life insurance policies of officers and directors of Seller;
4. Any and all financial statements, tax returns and related guidelines;
5. Any and all refunds or credits, if any, of taxes (of any nature) paid by or
due to or from Seller;
6. The production equipment and office equipment and furniture described in
Schedule 1.3(a);
7. The minute books, stock transfer books and corporate seals of Seller;
8. Any and all rights (including indemnification) and claims and recoveries
under litigation of Seller against third parties arising out of or relating
to events prior to the Closing Date (except claims receivable for rejected
Inventory);
9. Any and all rights of Seller with respect to refunds with respect to the
cancellation of any insurance policies or contracts;
10. Any and all rights of Seller in, to and under any and all contracts,
agreements, licenses, commitments, arrangements, instruments and
understandings of any nature other than the Software Contracts, the General
Contracts, and the Leases;
Schedule 1.3
<PAGE>
11. All records of Seller prepared in connection with the sale of the Business,
including the bids and other information received from third parties in
respect thereof and analyses relating to the Business;
12. Assets under any of the Plans which relate to employees of the Business who
do not become Transferred Employees;
13. All rights related to Excluded Liabilities;
14. Any and all patents, trademarks, service marks, trade names, and copyrights
(including registrations, licenses, and applications pertaining thereto),
and any and all other intellectual property and intellectual property
rights, know how, trade secrets and other proprietary information,
processes, and formulae and any and all other assets, properties and
technology, in each case which are covered by the License Agreement;
15. Seller's rights under this Agreement and the documents referred to herein;
and
16. All Accounts Receivable.
(ii)
<PAGE>
EXCLUDED EQUIPMENT AND FURNITURE
--------------------------------
Schedule 1.3 (a)
<PAGE>
REQUIRED GOVERNMENTAL CONSENTS
------------------------------
The filings, permits, authorizations, consents and approvals required under
the Securities Act, the Exchange Act and any State securities Laws and the
filings required by the HSR Act.
Schedule 4.4
<PAGE>
CONDUCT OF BUSINESS
-------------------
1. Buyer has recently completed an acquisition which has a value of less than
$500,000.
2. Buyer has recently entered into a bank loan agreement for a revolving line
of credit in the amount of $1,000,000.
Schedule 5.9
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is entered into as of the 11th day of
October, 1996 between General Automation, Inc., a Delaware corporation (the
"Company"), and Sequoia Systems, Inc., a Delaware corporation ("Sequoia").
- -------- -------
PRELIMINARY STATEMENTS
1. The Company and Sequoia are parties to that certain Asset Purchase
Agreement dated as of October 3, 1996 (the "Purchase Agreement"), which
provides, among other things, for the sale by Sequoia to the Company of
certain assets of Sequoia (the "Business"), and the assumption by the
Company of certain liabilities and obligations of Sequoia related to the
Business.
2. Pursuant and subject to the terms of the Purchase Agreement, and in
partial consideration for the sale of the Business by Sequoia to the
Company, the Company is required to issue and deliver to Sequoia (i)
within two business days of the listing thereof on the American Stock
Exchange, 750,000 shares of Common Stock (as hereinafter defined) and
(ii) at the Closing (as hereinafter defined), warrants to purchase
250,000 shares of Common Stock (the "Warrants").
3. Pursuant to the terms of the Purchase Agreement, and in partial
consideration for the sale of the Business by Sequoia to the Company of
the Business, the Company may, from time to time, issue additional shares
of Common Stock to Sequoia in partial payment for the purchase price for
the Business (the "Optional Payment Shares").
4. It is a condition precedent to the obligation of Sequoia to close the
transactions contemplated by the Purchase Agreement that the Company
shall have executed and delivered this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
contained herein and in the Purchase Agreement and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
------------------------------
Section 1.01. Certain Defined Terms. Capitalized terms used in this
Agreement have the following respective meanings:
<PAGE>
"Affiliate" means (i) when used with reference to any partnership, any Person
that, directly or indirectly, owns or controls 10% or more of either the
capital or profit interests of such partnership or is a general partner of
such partnership or is a Person in which such partnership has a 10% or
greater direct or indirect equity interest, and (ii) when used with reference
to any corporation, any Person that, directly or indirectly, owns or controls
10% or more of the outstanding voting securities of such corporation or is a
Person in which such corporation has a 10% or greater direct or indirect
equity interest. In addition, the term "Affiliate," when used with reference
to any Person, means any other Person that, directly or indirectly, through
one or more intermediaries, controls, is controlled by or is under common
control with such Person. The term "control" (including, with correlative
meaning, the terms "controlling", "controlled by" and "under common control
with") means the possession, directly or indirectly, of the power to direct
or cause direction of the management and policies of a Person, whether
through the ownership of voting securities, by Contract or otherwise;
provided, however, that in no event shall the Company be deemed an Affiliate
of any Holder or vice versa.
"Agreement" means this Registration Rights Agreement.
"Business" has the meaning specified in the Preliminary Statements of
this Agreement.
"Claim" means any claim, demand, investigation, cause of action, suit,
default, assessment, litigation, third party action, arbitral proceeding or
proceeding by or before any Governmental Authority or any other Person.
"Closing" has the meaning specified in the Purchase Agreement.
"Closing Date" has the meaning specified in the Purchase Agreement.
"Common Stock" means the common stock, par value $0.10 per share, of the
Company, and any securities issued or issuable with respect to any such
common stock by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.
"Company" has the meaning specified in the introductory paragraph of this
Agreement.
"Company Indemnified Persons" has the meaning specified in Section 4.02.
"Contract" means any agreement, lease, license, evidence of indebtedness,
mortgage, deed of trust, note, bond, indenture, security agreement,
commitment, instrument, understanding or other contract, obligation or
arrangement of any kind.
"Curative Prospectus" has the meaning specified in Section 2.04(f).
<PAGE>
"Eligible Assignee" means any Person to whom rights hereunder have been
assigned in accordance with Section 6.05.
"Exchange Act" means the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder.
"Governmental Approval" means any authorization, consent, approval,
license, franchise, lease, ruling, tariff, rate, permit, certificate or
exemption of, or filing or registration with, any Governmental Authority.
"Governmental Authority" means (i) any nation or government, (ii) any
federal, state, county, province, city, town, municipality, local or other
political subdivision thereof or thereto, (iii) any court, tribunal,
department, commission, board, bureau, instrumentality, agency, council,
arbitrator or other entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government and
(iv) any other governmental entity with authority over the applicable Person
or assets and properties.
"Holders" means Sequoia and any Eligible Assignee.
"Holder Indemnified Persons" has the meaning specified in Section 4.01.
"Indemnified Party" has the meaning specified in Section 4.03(a).
"Indemnifying Party" has the meaning specified in Section 4.03(a).
"Laws" means all laws, statutes, rules, regulations, ordinances, orders,
writs, injunctions or decrees and other pronouncements having the effect of
law of any Governmental Authority.
"Liability" means, with respect to any Person, any indebtedness,
obligation and other liability of such Person, whether absolute, accrued,
contingent, fixed or otherwise, or whether due or to become due.
"Losses" means any and all damages (including consequential, punitive and
exemplary), fines, penalties, judgments, deficiencies, losses, costs and
expenses, including court costs, reasonable fees of attorneys, accountants
and other experts and other reasonable expenses of any Claim.
"Other Holder" has the meaning specified in Section 2.09.
"Optional Payment Shares" has the meaning specified in the Preliminary
Statements of this Agreement.
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<PAGE>
"Participating Holders" means, with respect to any Piggyback
Registration, Holders that are entitled to participate in, and are
participating in or seeking to participate in, such Registration.
"Participation Notice" means, with respect to any Piggyback Registration,
a written notice from a Holder to the Company pursuant to which such Holder
elects to participate in a Piggyback Registration and specifying the
Registrable Securities intended to be disposed of by such Holder in such
Registration.
"Parties" means the Company and the Holders.
"Permitted Suspension" has the meaning specified in Section 2.02.
"Person" means any individual, firm, corporation, trust, association,
company, limited liability company, joint stock company, partnership, joint
venture, Governmental Authority or other entity or enterprise.
"Piggyback Registration" means any registration of Registrable Securities
under the Securities Act effected in accordance with Section 2.03.
"Piggyback Registration Notice" has the meaning specified in Section
2.03.
"Purchase Agreement" has the meaning specified in the Preliminary
Statements of this Agreement.
"Registrable Securities" means (i) the 750,000 shares of Common Stock to
be issued by the Company to Sequoia in connection with the Closing pursuant
to the terms of the Purchase Agreement, the Optional Payment Shares and the
Warrant Shares and (ii) any securities issued or issuable with respect to any
such shares of Common Stock by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise; provided, however, that,
with respect to any particular securities which are issued and outstanding,
such securities shall cease to be Registrable Securities upon the earliest to
occur of (A) the expiration of the Registration Period, (B) the time at which
a Registration Statement with respect to the sale of such securities shall
have become effective under the Securities Act and such securities shall have
been disposed of in accordance with the plan of distribution set forth in
such Registration Statement, (C) the time at which such securities shall have
been distributed in accordance with Rule 144, (D) the time at which the
Company has caused to be delivered to the Holders and each transfer agent for
the Registrable Securities an opinion of counsel from a law firm reasonably
acceptable to the Requisite Holders, and in form and substance reasonably
acceptable to the Requisite Holders and each such transfer agent, for the
purpose of permitting the transfer by the Holders of securities proposed to
be sold without registration under the Securities Act or the legending of
such securities, to the effect that the
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<PAGE>
proposed disposition of such securities by the Holders will not require
registration or qualification under the Securities Act and that such
securities are distributable (without volume limitation) in accordance with
Rule 144, or (E) the time at which such securities shall have been otherwise
transferred, new certificates therefor not bearing a legend restricting
further transfer shall have been delivered in exchange therefor by the
Company and subsequent disposition of such securities shall not require
registration or qualification under the Securities Act or any similar state
Law then in effect.
"Registration" means any registration of Registrable Securities under the
Securities Act effected in accordance with Section 2.01 or any Piggyback
Registration.
"Registration Expenses" means all costs, fees or expenses incurred by the
Company or Persons engaged by the Company or acting at the Company's request
or direction incident to the Company's performance of or compliance with this
Agreement, including (i) all registration, filing, securities exchange
listing, rating agency and National Association of Securities Dealers fees,
(ii) all registration, filing, qualification and other fees and expenses of
complying with securities or blue sky Laws of all jurisdictions in which the
securities are to be registered and any legal fees and expenses incurred in
connection with the blue sky qualifications of the Registrable Securities,
(iii) all word processing, duplicating, printing, messenger and delivery
expenses, (iv) the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of any special
audits or "cold comfort" letters required by or incident to such performance
and compliance, (v) premiums and other costs of policies of insurance against
Liabilities arising out of the public offering of the Registrable Securities
being registered to the extent the Company elects to obtain such insurance,
(vi) in connection with any Piggyback Registration, any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities (but excluding underwriting discounts and commissions and transfer
taxes, if any, relating to the sale of the Registrable Securities) and (vii)
fees and expenses of other Persons retained or employed by the Company.
"Registration Period" has the meaning specified in Section 2.02.
"Registration Statement" means a registration statement pursuant to Rule
415 under the Securities Act on Form S-3 or such other form as may be
required by applicable Law covering the resale by the Holders of the
Registrable Securities covered thereby.
"Requisite Holders" means, at the time of determination, Holder(s) owning
of record a majority in interest of the Registrable Securities.
"Requisite Participating Holders" means, with respect to any Piggyback
Registration, Participating Holders owning a majority in interest of the
Registrable Securities to be included in such Registration.
-5-
<PAGE>
"Rule 144" means Rule 144 promulgated by the SEC under the Securities
Act, and any successor provision thereto.
"SEC" means the United States Securities and Exchange Commission or any
successor thereof.
"Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder.
"Sequoia" has the meaning specified in the introductory paragraph of this
Agreement.
"Suspension Event" has the meaning specified in Section 2.03(f).
"Suspension Notice" has the meaning specified in Section 2.06.
"Suspension Period" has the meaning specified in Section 2.06.
"Termination Date" has the meaning specified in Section 5.01.
"Warrant Shares" means the 250,000 shares of Common Stock to be issued by
the Company to Sequoia upon exercise of the Warrants (as such number of
shares may be adjusted pursuant to the terms thereof).
"Warrants" has the meaning specified in the Preliminary Statements of
this Agreement.
Section 1.02. Interpretation. In this Agreement, unless a clear
contrary intention appears:
(a) the words "hereof," "herein" and "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular provision
of this Agreement;
(b) reference to any gender includes each other gender and the neuter;
(c) all terms defined in the singular shall have the same meanings in the
plural and vice versa;
(d) reference to any Person includes such Person's heirs, executors,
personal representatives, administrators, successors and assigns; provided,
however, that nothing contained in this clause (d) is intended to authorize
any assignment not otherwise permitted by this Agreement;
(e) reference to a Person in a particular capacity or capacities excludes
such Person in any other capacity;
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<PAGE>
(f) reference to any Contract means such Contract as amended,
supplemented or modified from time to time in accordance with the terms
thereof;
(g) all references to Articles and Sections shall be deemed to be
references to the Articles and Sections of this Agreement;
(h) the word "including" (and with correlative meaning "include") means
including, without limiting the generality of any description preceding such
term;
(i) with respect to the determination of any period of time, the word
"from" means "from and including" and the words "to" and "until" each means
"to but excluding";
(j) the captions and headings contained in this Agreement shall not be
considered or given any effect in construing the provisions hereof if any
question of intent should arise;
(k) reference to any Law or any Governmental Approval means such Law or
Governmental Approval as amended, modified, codified, reenacted, supplemented
or superseded in whole or in part, and in effect from time to time;
(l) where any provision of this Agreement refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision
shall be applicable whether such action is taken directly or indirectly by
such Person; and
(m) no provision of this Agreement shall be interpreted or construed
against either Party solely because that Party or its legal representative
drafted such provision.
ARTICLE II
REGISTRATION OF SECURITIES
--------------------------
Section 2.01. Registrations. The Company shall use its best efforts to:
(a) with respect to the 750,000 shares of Common Stock to be issued by
the Company to Sequoia in connection with the Closing pursuant to the terms
of the Purchase Agreement, (i) within 90 days after the Closing Date, file a
Registration Statement covering such shares of Common Stock with the SEC, and
(ii) on or before the date which is six months after the Closing Date, have
such Registration Statement declared effective by the SEC;
(b) with respect to the Optional Payment Shares, (i) within 60 days after
the issuance thereof, file a Registration Statement covering the Optional
Payment Shares with the SEC,
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<PAGE>
and (ii) on or before the date which is four months after the issuance
thereof, have such Registration Statement declared effective by the SEC; and
(c) with respect to the Warrant Shares, (i) within 60 days after each
exercise by any Holder of any of the Warrants, file a Registration Statement
covering the Warrant Shares issued by the Company as a result of such
exercise with the SEC, and (ii) on or before the date which is five months
after each such exercise, have such Registration Statement declared effective
by the SEC; provided, however, that the Company shall only be obligated to
effect two Registrations in connection with any exercise of the Warrants.
If, on the date by which any such Registration Statement is required to have
been declared effective by the SEC, the effectiveness of such Registration
Statement has been suspended or such Registration Statement is otherwise not
effective, the Company shall use its best efforts to cause such Registration
Statement to be effective as soon thereafter as practicable.
Section 2.02. Maintenance of Effectiveness During Registration Period.
With respect to each Registration Statement (other than any Piggyback
Registration), once such Registration Statement is declared effective pursuant
to Section 2.01, the Company shall use its best efforts to cause such
Registration Statement to remain continuously effective until the earliest to
occur of (a) the date on which none of the Holders holds any Registrable
Securities covered by such Registration Statement or all of the Registrable
Securities covered by such Registration Statement cease to be Registrable
Securities, as the case may be, (b) the date on which all of the securities
covered by such Registration Statement have been sold, but in no event prior to
the expiration of the applicable period referred to in Section 4(3) of the
Securities Act and Rule 174 thereunder, (c) the date which is four years after
such Registration Statement shall have been declared effective by the SEC, or
(d) with respect to Warrant Shares, the date which is two years after such
Registration Statement shall have been declared effective (such period, as the
same pertains to such Registration Statement and as the same may be extended
pursuant to Section 2.07, being herein referred to as its "Registration
Period"); provided, however, that (i) the Company may suspend the use of such
Registration Statement at any time (but no more than once in any 12-month period
and for a period not to exceed 60 days) if the continued effectiveness thereof
would require the Company to disclose a material financing, acquisition or other
corporate transaction, which disclosure the Board of Directors of the Company
shall have determined in good faith to not be in the best interests of the
Company and its stockholders and (ii) the Company may suspend the use of such
Registration Statement during the period starting with the date 30 days prior to
the Company's good faith estimate of the date of filing of, and ending on a date
90 days after the effective date of, a Piggyback Registration, provided that the
Company is actively employing in good faith its best efforts to cause such
Piggyback Registration to become effective (a "Permitted Suspension").
Section 2.03. Piggyback Registrations. In the event that the Company,
at any time during the period commencing on the date hereof and ending on the
Termination Date, proposes to register any of its equity securities under the
Securities Act (other than by a registration on
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<PAGE>
Form S-8), in an underwritten offering, whether for sale for the account of the
Company or any other Person, the Company will provide notice at least 30 days
prior to the proposed date of filing the registration statement relating thereto
to each Holder (a "Piggyback Registration Notice"), such Piggyback Registration
Notice to include a statement of the intention of the Company to register such
securities and of the Holders' rights under this Section 2.03. Each Holder shall
have 15 days after receipt of such Piggyback Registration Notice within which to
elect to request inclusion of such Holder's Registrable Securities in the
registration contemplated by such Piggyback Registration Notice, such election
to be made by providing the Company with a Participation Notice. The Company
shall use its best efforts to cause to be included in the Piggyback Registration
all Registrable Securities which the Participating Holders have requested the
Company to register pursuant to the Participation Notices, to the extent
required to permit the distribution (in accordance with the intended method or
methods thereof) of the Registrable Securities to be registered; provided,
however, that the Company may, in its sole discretion, determine to not file
such registration statement or withdraw such registration statement (if filed)
and abandon any proposed offering by giving notice of such intention to each
Participating Holder, in which event the Company shall be relieved of its
obligation to register any Registrable Securities pursuant to such Participation
Notices (but not from its obligation to pay Registration Expenses in connection
therewith). Notwithstanding any other provision of this Section 2.03 to the
contrary, if the representative of the underwriters in such Piggyback
Registration advises the Company in writing that marketing factors require a
limitation on the number of shares to be underwritten, the representative may
(subject to the limitations set forth below) limit the number of Registrable
Securities to be included in the registration and underwriting. The Company
shall so advise the holders of all securities requesting registration and the
amount of securities that are entitled to be included in the registration and
underwriting shall be allocated among the Company, the Holders and the Other
Holders requesting inclusion of shares pro rata: (a) as between the Company and
the Holders and the Other Holders, on the basis of the number of securities
contemplated to be included in such registration by the Company, on the one
hand, and the number of securities requested to be included by Holders and the
Other Holders, on the other hand; and (b) as between the Holders and the Other
Holders, on the basis of the number of securities held by the Holders and the
Other Holders for which piggyback registration rights are available; provided,
however, that in no event shall the Company limit the number of Registrable
Securities to be included in any registration by any Holder in order to include
securities held by Other Holders with no piggyback or demand registration
rights. The Registrable Securities to be registered under any registration
statement pursuant to the Participation Notices shall be offered for sale upon
the same terms as any similar securities offered for sale by the Company in such
registration. The right of any Holder to participate in any Piggyback
Registration shall be conditioned on the inclusion in the underwriting of those
of the Holder's Registrable Securities to be included in the underwriting. The
Company shall (together with all participating Holders) enter into an
underwriting agreement in customary form with the representative of the
underwriters. However, the Requisite Participating Holders may, at their option,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters be also made to and for the benefit of the Participating Holders
and that any or all of the conditions precedent to the obligations of such
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<PAGE>
underwriters under such underwriting agreement be conditions precedent to the
obligations of the Participating Holders thereunder.
Section 2.04. Registration Procedures. Whenever required under this
Article II to use its best efforts to effect the registration of any Registrable
Securities, the Company shall use its best efforts to, as expeditiously as
reasonably possible:
(a) prepare and file with the SEC a registration statement with respect
to such Registrable Securities and cause such registration statement to
become and remain effective (i) with respect to any Registration other than a
Piggyback Registration, for the applicable Registration Period, or (ii) with
respect to any Piggyback Registration, for the period necessary for the
distribution of such Registrable Securities in accordance with the intended
plan of distribution thereof;
(b) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective (i) with respect
to respect to any Registration other than a Piggyback Registration, for the
applicable Registration Period, or (ii) with respect to any Piggyback
Registration, for the period necessary for the distribution of the
Registrable Securities covered thereby in accordance with the intended plan
of distribution thereof;
(c) furnish to each Holder (and, in the case of any Piggyback
Registration, each underwriter or agent) participating in the disposition of
securities under such registration statement, such numbers of copies of the
registration statement and the prospectus, including any preliminary or
summary prospectus, and each amendment or supplement thereto, in conformity
with the requirements of the Securities Act, and such other documents as any
Holder (or, with respect to any Piggyback Registration, any such underwriter
or agent) may reasonably request to facilitate the disposition of Registrable
Securities owned by the Holders;
(d) with respect to any Piggyback Registration, furnish to each Holder a
signed counterpart, addressed to such Holder (and each underwriter and agent,
if any), of:
(i) an opinion of counsel to the Company, dated the effective date of
such registration statement and the date of the closing under the
underwriting agreement; and
(ii) unless otherwise precluded under applicable accounting rules, a
"comfort" letter, dated the effective date of such registration
statement and the date of the closing under the underwriting
agreement, signed by the independent public accountants who have
certified the Company's financial statements included in such
registration statement,
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<PAGE>
in each case, in form and substance reasonably satisfactory to the
underwriter;
(e) promptly notify each Holder (and, with respect to any Piggyback
Registration, each underwriter and agent, if any, participating in the
disposition of Registrable Securities covered by such registration
statement), at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, upon discovery that, or upon the
happening of any event known to the Company as a result of which, the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made (a "Suspension Event"), and promptly prepare and furnish
to each Holder (and, with respect to any Piggyback Registration, each
underwriter and agent, if any) a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made (a "Curative Prospectus");
(f) provide and cause to be maintained a transfer agent and registrar for
all Registrable Securities covered by such registration statement from and
after a date not later than the effective date of such registration
statement;
(g) list, on or prior to the effective date of such registration
statement, all Registrable Securities covered by such registration statement
on the principal national securities exchange on which any securities of the
Company are then listed or, if not listed on a national securities exchange,
on The Nasdaq Stock Market;
(h) cooperate with each Holder (and, with respect to any Piggyback
Registration, each underwriter and agent, if any) participating in the
distribution of such Registrable Securities to facilitate the timely
preparation and delivery of certificates (which shall not bear any
restrictive legends, other than as required by applicable Law) representing
securities sold under such registration statement, and enable such securities
to be in such denominations and registered in such names as each Holder (and,
with respect to any Piggyback Registration, each underwriter or agent) may
reasonably request and keep available and make available to the Company's
transfer agent, prior to the effectiveness of such registration statement, an
adequate supply of such certificates;
(i) not later than the effective date of such registration statement,
provide a CUSIP number for all Registrable Securities covered by such
registration statement; and
(j) in connection with any Piggyback Registration, participate, to the
extent reasonably requested by the managing underwriter for the offering (if
any), in customary efforts to sell the securities under the offering,
including road shows and similar activities.
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<PAGE>
Section 2.05. Registration Expenses. The Company shall pay all
Registration Expenses incurred in connection with each Registration,
irrespective of whether any such Registration is ever effected or deemed
effected. Each Holder shall pay the brokers' commissions (and, with respect to
any Piggyback Registration, the underwriters' discounts and commissions) and any
transfer taxes applicable to the Registrable Securities sold by such Holder in
any such offering.
Section 2.06. Withdrawal. Each Holder shall be permitted to withdraw
all or part of his or its Registrable Securities from any Registration at any
time prior to the effective date thereof.
Section 2.07. Agreements of Certain Holders. Each Holder shall promptly
furnish to the Company such information regarding such Holder, the Registrable
Securities held by such Holder and the intended plan of distribution of such
Registrable Securities as the Company may from time to time reasonably request
in writing in connection with any Registration, and the provision of such
information shall be a condition precedent to the Company's obligations to
include such Holder's Registrable Securities in such Registration. If any
Registration Statement refers to a Holder or any of its Affiliates by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (a) that such reference be in form and substance
reasonably satisfactory to such Holder and (b) in the event that such reference
is not required by the Securities Act or any similar federal or state blue sky
Laws then in force, that such reference be deleted. Each Holder agrees that,
upon receipt of a notice (a "Suspension Notice") from the Company of the
happening of any Suspension Event or any Permitted Suspension, such Holder will
not dispose of any Registrable Securities pursuant to such Registration
Statement during the period (the "Suspension Period") commencing on receipt by
such Holder of such Suspension Notice from the Company and continuing thereafter
until (i) in the case of a Suspension Event, receipt by such Holder of a
Curative Prospectus, or (ii) in the case of a Permitted Suspension, until the
earlier to occur of (A) the receipt of written notice from the Company that such
Permitted Suspension has terminated or (B) the expiration of 60 days from the
receipt of such Suspension Notice from the Company; provided, however, that the
Registration Period applicable to the Registration Statement covering any such
Registrable Securities shall automatically be extended for a period equal to the
Suspension Period. The Company shall take such actions as are necessary to end
any Suspension Period as promptly as practicable.
Section 2.08. Registration Rights of Others. The Company shall not,
during the period commencing on the date hereof and ending on the Termination
Date, without the prior written consent of the Requisite Holders, enter into any
agreement with any holder or prospective holder of any securities of the Company
(an "Other Holder") which limits or restricts in any manner the performance of
the Company's obligations under this Agreement.
Section 2.09. Relationships and Rights of the Holders. The Holders
agree that, notwithstanding that certain rights of each Holder hereunder may be
affected by similar rights of other Holders, the Holders shall, in respect of
the ownership of the Registrable Securities, not be
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related as, or deemed to be, a partnership, joint venture or other "group" for
the purpose of acquiring, holding, voting or disposing of securities of the
Company.
Section 2.10. Reports under the Exchange Act. The Company shall, for
the period commencing on the date hereof and ending on the Termination Date, use
its best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to any Holder, upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and (iii) such other reports and documents
filed by the Company with the SEC.
Section 2.11. Lock-up Agreement. Each Holder agrees to not sell, make
any short sale of, loan, or grant any option for the purchase of any Registrable
Securities without the prior written consent of the Company, (a) during the
period commencing on the date hereof and continuing thereafter until the first
anniversary of the Closing Date, with respect to any shares of Common Stock
(excluding the Warrant Shares and any Optional Payment Shares) in excess of
400,000 shares; and (b) during the period commencing on the date hereof and
continuing thereafter until the second anniversary of the Closing Date, with
respect to any shares of Common Stock (excluding the Warrant Shares and any
Optional Payment Shares), in excess of 600,000 shares; provided, however, that
the number of shares specified in each such limitation shall be appropriately
adjusted in connection with any stock dividend, stock-split, reclassification of
shares, combination of shares, recapitalization, merger, consolidation,
reorganization or other similar action or event.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
Except as provided in the Company SEC Documents (as defined in the
Purchase Agreement), the Company hereby represents and warrants to each Holder
that:
(a) the Company is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Delaware and has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby;
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(b) the execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by the Board of Directors of the Company and no other corporate
proceedings or approvals on the part of the Company are necessary to
authorize this Agreement;
(c) this Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws affecting creditors' rights
generally and general equitable principles;
(d) except as provided herein, no Governmental Approvals and no
notifications, filings or registrations to or with any Governmental Authority
or any other Person is or will be necessary for the valid execution and
delivery by the Company of this Agreement, or the enforceability hereof,
other than those which have been obtained or made and are in full force and
effect;
(e) the Company is qualified to register the Registrable Securities for
sale by the Holders under the Securities Act on Form S-3 and has the
financial capability to perform its obligations under this Agreement;
(f) the execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated hereby do not and shall not, by
the lapse of time, the giving of notice or otherwise, (i) constitute a
violation of any Law, (ii) constitute a breach or violation of any provision
contained in its Certificate of Incorporation or Bylaws, (iii) constitute a
breach of any provision contained in, or a default under, any Governmental
Approval, any writ, injunction, order, judgment or decree of any Governmental
Authority or any Contract to which the Company is a party or by which the
Company or its assets and properties is bound or affected or (iv) result in
or require the creation of any lien, charge or encumbrance upon any of the
assets and properties of the Company;
(g) there are no Claims pending or, to the knowledge of the Company,
threatened, and the Company has no knowledge of the basis for any Claim,
which either alone or in the aggregate, seeks to restrain or enjoin the
execution and delivery of this Agreement or the consummation of any of the
transactions contemplated hereby;
(h) there are no judgments or outstanding orders, injunctions, decrees,
stipulations or awards (whether rendered by a Governmental Authority or by an
arbitrator) against the Company which prohibit or restrict, or could
reasonably be expected to result in any delay of, the consummation of the
transactions contemplated by this Agreement; and
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(i) except for this Agreement, there are no Contracts between the Company
and any Person providing for registration rights with respect to any
securities of the Company.
ARTICLE IV
INDEMNIFICATION
---------------
Section 4.01. Indemnification by the Company. Subject to the terms and
conditions of this Article IV, the Company agrees to indemnify, defend and hold
harmless, to the fullest extent permitted by Law, each Holder, his or its
Affiliates, their respective directors, officers, shareholders, employees,
investment advisers and agents and their respective heirs, executors, personal
representatives, administrators, successors and assigns (the "Holder Indemnified
------------------
Persons"), from and against any and all Claims, Liabilities and Losses which may
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be imposed on, incurred by or asserted against any Holder Indemnified Person,
under the Securities Act or otherwise, arising out of or resulting from,
directly or indirectly:
(a) any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act (including all documents incorporated
therein by reference), any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto;
or
(b) any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company shall not be liable to any particular Holder
Indemnified Person for any portion of any Claims, Liabilities or Losses to the
extent that it is determined by a court of competent jurisdiction, arbitration
pursuant to Section 6.11 or agreement of the Parties affected thereby that such
Claims, Liabilities and Losses arose out of or resulted from (i) any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, prospectus, amendment or supplement, (ii) any omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, which statement or
omission was contained in or omitted from such registration statement,
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by any Holder Indemnified Person
specifically for inclusion therein, (iii) the failure of such Holder to use a
Curative Prospectus after delivery of the same by the Company to such Holder or
(iv) the sale or distribution of Registrable Securities by such Holder during
any Suspension Period.
Section 4.02. Indemnification by the Holders. Subject to the terms and
conditions of this Article IV, each Holder, severally and not jointly, agrees to
indemnify, defend and hold harmless, to the fullest extent permitted by Law, (i)
each other Holder and his or its heirs,
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executors, personal representatives, administrators, successors and assigns and
(ii) the Company, its Affiliates and their respective directors, officers,
shareholders, employees, investment advisers and agents and their respective
heirs, executors, personal representatives, administrators, successors and
assigns (the "Company Indemnified Persons"), from and against any and all
Claims, Liabilities and Losses which may be imposed on, incurred by or asserted
against such other Holder or his or its heirs, executors, personal
representatives, administrators, successors and assigns or any Company
Indemnified Person, under the Securities Act or otherwise, to the extent that it
is determined by a court of competent jurisdiction, arbitration pursuant to
Section 6.11 or agreement of the Parties affected thereby that such Claims,
Liabilities and Losses arose out of or resulted from, directly or indirectly:
(a) any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act (including all documents incorporated
therein by reference), any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto;
or
(b) any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
which statement or omission was contained in or omitted from such registration
statement, prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such Holder
specifically for inclusion therein; provided, however, that such Holder shall
not be liable to, and shall not be obligated to provide such indemnity to, any
other Holder, any Company Indemnified Person or any other Person for any portion
of any Claims, Liabilities or Losses to the extent that such Claims, Liabilities
and Losses arose out of or resulted from the failure of the Company to promptly
amend or take action to correct or supplement any such registration statement,
prospectus, amendment or supplement based on corrected or supplemental
information provided in writing by such Holder to the Company expressly for such
purpose. The Liability of each Holder pursuant to this Section 4.02 shall be
several, and not joint and several, among all indemnifying parties.
Notwithstanding anything contained in this Agreement to the contrary, in no
event shall the aggregate Liability of any Holder under this Section 4.02 exceed
an amount equal to the amount of the proceeds received by such Holder upon the
sale of his or its Registrable Securities in the offering to which the Claims,
Liabilities or Losses relate.
Section 4.03. Indemnification Procedures. The Liabilities of any party
to indemnify any other party pursuant to this Article IV shall be subject to the
following terms and conditions:
(a) Notice and Defense. Within a reasonable period of time after a
Person to be indemnified (whether one or more, the "Indemnified Party")
receives actual notice of any Claim covered by Section 4.01 or 4.02, as the
case may be, the Indemnified Party shall, if a Claim in respect thereof is to
be made pursuant to Section 4.01 or 4.02, as the case may
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be, notify the Person from whom indemnification is sought (the "Indemnifying
Party") in writing of such Claim; provided however, that the failure to so
notify the Indemnifying Party shall not relieve the Indemnifying Party from
any Liability which it may have to the Indemnified Party, except to the
extent of material detriment suffered by the Indemnifying Party as a result
of such failure. In the event that a Claim, Liability or Loss arises out of
or results from matters with respect to third parties, the Indemnifying Party
will undertake the defense thereof by representatives chosen by it which are
reasonably acceptable to the Indemnified Party; provided, however, that if,
in the Indemnified Party's reasonable judgment, a conflict of interest exists
between such Indemnified Party and such Indemnifying Party in respect of such
Claim, such Indemnified Party shall be entitled to separate counsel at the
expense of the Indemnifying Party. So long as the Indemnifying Party is
defending any such Claim actively and in good faith, the Indemnified Party
shall not settle such Claim. Each of the Indemnifying Party and the
Indemnified Party shall be entitled to consult with each other, to the extent
he or it reasonably requests, in respect of the defense of such Claim and
shall cooperate in the defense of any such Claim, including making his or its
officers, directors, employees and books and records available for use in
such Claim, and shall take those actions reasonably within his or its power
which are reasonably necessary to preserve any legal defenses to such
matters.
(b) Failure to Defend. If the Indemnifying Party, within a reasonable
time after notice of any such Claim, fails to defend such Claim actively and
in good faith, the Indemnified Party will (upon further notice) have the
right to undertake the defense, compromise or settlement of such Claim or
consent to the entry of a judgment with respect to such Claim, on behalf of
and for the account and risk of the Indemnifying Party, and the Indemnifying
Party shall thereafter have no right to challenge the Indemnified Party's
defense, compromise, settlement or consent to judgment; provided, however,
that the provisions of this Section 4.03(b) shall not be deemed to restrict
the ability of the Indemnifying Party to contest any such Indemnified Party's
right to indemnification from the Indemnifying Party under this Article IV.
(c) Indemnified Party's Rights. Notwithstanding anything contained in
this Article IV to the contrary, (i) if there is a reasonable probability
that a Claim will materially and adversely affect any Indemnified Party other
than as a result of money damages or other money payments, such Indemnified
Party shall have the right to defend, compromise or settle such Claim to the
extent such Claim relates to the Indemnified Party (subject, in the case of
defense, to the approval of counsel selected by it by the Indemnifying Party,
and, in the case of compromises and settlements, to the consent of the
Indemnifying Party, which approval or consent shall not, in any case, be
unreasonably withheld, delayed or conditioned), and (ii) no consent order
shall be entered into or Claim settled with respect to an Indemnified Party
unless the Indemnified Party has given its prior written consent thereto;
provided, however, that the Indemnified Party shall consent to any
settlement, compromise or discharge of such Claim that the Indemnifying Party
may recommend that by its terms unconditionally and fully releases the
Indemnified Party from all Claims,
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Liabilities and Losses with respect to the matters giving rise to such Claim
and which does not impose any form of injunctive relief on such Indemnified
Party.
(d) Expenses of Counsel. In the event that any Indemnified Party is
entitled to assume the defense of any Claim, the Indemnifying Party shall not
be obligated to pay the fees and expenses of more than one counsel or firm of
counsel for all Persons indemnified by such Indemnifying Party in respect of
such Claim, unless in the reasonable judgment of any Indemnified Party a
conflict of interest exists between such Indemnified Party and any other
Indemnified Party in respect of such Claim, in which event the Indemnifying
Party shall be obligated to pay the fees and expenses of one additional
counsel or firm of counsel for such Indemnified Parties.
Section 4.04. Payment. The Indemnifying Party shall promptly pay the
Indemnified Party any amount due under this Article IV. Upon judgment,
determination, settlement or compromise of any third party Claim, the
Indemnifying Party shall promptly pay on behalf of the Indemnified Party, and/or
to the Indemnified Party in reimbursement of any amount theretofore required to
be paid by him or it, the amount of the Indemnified Party's Liability so
determined by such judgment, determination, settlement or compromise and all
other Losses and Claims of the Indemnified Party with respect thereto for which
the Indemnified Party is entitled to indemnification pursuant to this Agreement,
unless in the case of a judgment or determination an appeal is made from such
judgment or determination; provided, however, that if the Indemnifying Party
desires to appeal from an adverse judgment or determination, then the
Indemnifying Party shall post and pay the cost of the security or bond to stay
execution of the judgment or determination pending appeal. Upon the payment in
full by the Indemnifying Party of all of such amounts, the Indemnifying Party
shall succeed to the rights of the Indemnified Party, to the extent such rights
are not waived in settlement, against the third party who made such third party
Claim.
Section 4.05. Survival of Representations, Warranties and Covenants.
Except as otherwise provided herein, all representations, warranties, covenants
and agreements made by the Company and the Holders in this Agreement or in any
certificate, document or other instrument delivered by the Company or any Holder
pursuant to this Agreement shall survive the execution and delivery of this
Agreement and any transfer of any Registrable Securities, regardless of any
investigation made by or on behalf of any Person.
Section 4.06. Other Indemnification. The provisions of this Article IV
shall be in addition to any other rights to indemnification or contribution
which an Indemnified Party may have pursuant to any Contract, at law or in
equity or otherwise.
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ARTICLE V
TERM AND TERMINATION
--------------------
Section 5.01. Termination. The rights and obligations under this
Agreement of each Holder shall terminate with respect to such Holder at such
time as (a) such Holder ceases to hold any Registrable Securities and (b) the
Company has no obligation to issue any further Registrable Securities to such
Holder pursuant to the Purchase Agreement or the Warrants. The rights and
obligations of the Company under this Agreement shall terminate at such time
(the "Termination Date") as the rights of all Holders have terminated.
Section 5.02. Effect of Termination. Upon the termination of a Party's
rights and obligations under this Agreement pursuant to Section 5.01, this
Agreement shall terminate and have no further effect with respect to such Party;
provided, however, that the provisions of Article IV, the rights and obligations
of the Parties with respect to the breach of any provision hereof prior to such
termination and any and all accrued rights and obligations as of the date of
such termination shall survive the termination of this Agreement with respect to
any Party.
ARTICLE VI
MISCELLANEOUS
-------------
Section 6.01. Notices. Any and all notices, requests or other
communications hereunder shall be given in writing and delivered by (a) regular,
overnight or registered or certified mail (return receipt requested), with first
class postage prepaid, (b) hand delivery, (c) facsimile transmission or (d)
overnight courier service, to the Parties at the following addresses or
facsimile numbers:
(i) if to the Company, to:
General Automation, Inc.
17731 Mitchell North
Irvine, California 92614
Attention: President
Facsimile Number: (714) 752-6772
Telephone Number: (714) 250-4800
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With a copy to:
Higham, McConnell & Dunning
28202 Cabot Road, Suite 450
Laguna Niguel, California 92677
Attention: Scott E. McConnell
Facsimile Number: (714) 365-5522
Telephone Number: (714) 365-5515
(ii) if to Sequoia or the Holders, to:
Sequoia Systems, Inc.
c/o Texas Microsystems, Inc.
5959 Corporate Drive
Houston, Texas 77036
Attention: President
Facsimile Number: (713) 541-8231
Telephone Number: (713) 541-8200
With a copy to:
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
600 Travis
Houston, Texas 77002
Attention: David G. Elkins
Facsimile Number: (713) 220-4285
Telephone Number: (713) 220-4364
or at such other address or number as shall be designated by any Party in a
notice to the other Parties given in accordance with this Section 6.01. Except
as otherwise provided in this Agreement, all such communications shall be deemed
to have been duly given, (i) in the case of a notice sent by regular mail, on
the date actually received by the addressee, (ii) in the case of a notice sent
by registered or certified mail, on the date receipted for (or refused) on the
return receipt, (iii) in the case of a notice delivered by hand, when personally
delivered, (iv) in the case of a notice sent by facsimile, upon transmission
subject to telephone confirmation of receipt, and (v) in the case of a notice
sent by overnight mail or overnight courier service, the date delivered at the
designated address, in each case given or addressed as aforesaid.
Section 6.02. Benefit and Burden. This Agreement shall inure to the
benefit of, and shall be binding upon, the Parties and their respective heirs,
executors, personal representatives, administrators, successors and permitted
assigns.
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Section 6.03. No Third Party Rights. Nothing in this Agreement shall be
deemed to create any right in any creditor or other Person other than the
Parties and the Indemnified Parties, and this Agreement shall not be construed
in any respect to be a Contract in whole or in part for the benefit of any third
party (other than the Indemnified Parties).
Section 6.04. Amendments and Waiver. No amendment, modification,
restatement or supplement of this Agreement shall be valid unless the same is in
writing and signed by the Company and the Requisite Holders; provided, however,
that no amendment, modification, restatement or supplement providing one or more
Holders priority in registering Registrable Securities or providing for the
elimination of registration rights shall be valid unless the same is signed by
all Holders. No waiver of any provision of this Agreement shall be valid unless
in writing and signed by the Party against whom that waiver is sought to be
enforced. No failure or delay on the part of any Party in exercising any right,
power or privilege hereunder and no course of dealing between or among any of
the Parties shall operate as a waiver of any right, power or privilege
hereunder. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege hereunder. No notice to or demand on any
Party in any case shall entitle such Party to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the rights of
any Party to any other or further action in any circumstances without notice or
demand.
Section 6.05. Assignments. Any Holder may assign, in whole or in part,
his or its rights under this Agreement in connection with the transfer by such
Holder of any Registrable Securities covered hereby; provided, however, that the
Company is given written notice by the Holder at the time of such assignment or
within a reasonable time thereafter, such notice to include the name and address
of such assignee and to identify the Registrable Securities with respect to
which the rights under this Agreement have been assigned and, provided further,
that there shall not, at any one time, be more than ten such assignees in
existence. The rights so assigned shall apply only to the Registrable
Securities received from a Holder and only upon execution of an agreement by the
assignee binding such assignee to the obligations of a Holder hereunder, insofar
as such obligations pertain to such Registrable Securities. Except as otherwise
provided in this Section 6.05, neither this Agreement nor any right, interest or
obligation hereunder may be assigned by any Party and any attempt to do so shall
be null and void.
Section 6.06. Counterparts. This Agreement may be executed in
counterparts and by the different Parties in separate counterparts, each of
which when so executed shall be deemed an original and all of which taken
together shall constitute one and the same agreement. It shall not be necessary
in making proof of this Agreement to produce or account for more than one
counterpart signed by the Party to be charged thereby.
Section 6.07. Severability. Should any clause, sentence, paragraph,
subsection, Section or Article of this Agreement be judicially declared to be
invalid, unenforceable or void, such decision will not have the effect of
invalidating or voiding the remainder of this Agreement,
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and the Parties agree that the part or parts of this Agreement so held to be
invalid, unenforceable or void will be deemed to have been stricken herefrom by
the Parties, and the remainder will have the same force and effectiveness as if
such stricken part or parts had never been included herein, and, in lieu of such
invalid, unenforceable or void clause, sentence, paragraph, subsection, Section
or Article, there will be added automatically as a part of this Agreement a
valid and enforceable provision as similar in terms to such invalid,
unenforceable or void clause, sentence, paragraph, subsection, Section or
Article as may be possible which preserves the economic benefits to the Parties.
Section 6.08. Remedies. The Parties agree that the covenants and
obligations contained in this Agreement relate to special, unique and
extraordinary matters and that a violation of any of the terms hereof or thereof
would cause irreparable injury in an amount which would be impossible to
estimate or determine and for which any remedy at law would be inadequate. As
such, the Parties agree that if any Party fails or refuses to fulfill any of his
or its obligations under this Agreement or to make any payment or deliver any
instrument required hereunder or thereunder, then any other Party shall have the
remedy of specific performance, which remedy shall be cumulative and
nonexclusive and shall be in addition to any other rights and remedies otherwise
available under any other Contract or at law or in equity and to which such
Party might be entitled.
Section 6.09. Applicable Law. This Agreement and the Rights And
Obligations of the Parties Hereunder Shall be Governed by and Construed in
Accordance With the Laws of the State of Delaware, Without Giving Effect to the
Conflict of Law Principles Thereof.
Section 6.10. Submission to Jurisdiction. The Company hereby (a)
irrevocably submits to the non-exclusive personal jurisdiction of any Delaware
state or federal court sitting in Delaware (the "Delaware Courts") over any
Claim arising out of or relating to this Agreement and irrevocably agrees that
all such Claims may be heard and determined in such Delaware Court and (b)
irrevocably waives, to the fullest extent permitted by applicable Law, any
objection it may now or hereafter have to the laying of venue in any proceeding
brought in any Delaware Court and any Claim that any such proceeding brought in
a Delaware Court has been brought in an inconvenient forum; provided, however,
that nothing in this Section 6.10 is intended to waive the right of the Company
or any Holder to remove any such action or proceeding commenced in any Delaware
Court to another Delaware Court to the extent the basis for such removal exists
under applicable Law. The Company hereby irrevocably (i) appoints its then
current designated agent for service of process in the State of Delaware (the
"Process Agent"), as its agent to receive on behalf of it and its properties
service of copies of the summons and complaint and any other process which may
be served in any such action or proceeding, (ii) agrees that service of process
may be made on the Company by mailing, by certified mail, a copy of such process
to the Company in care of the Process Agent at the Process Agent's above
address, with a copy to the Company at its address for notices specified herein,
and (iii) authorizes and directs the Process Agent to accept such service on its
behalf. Each of the Holders hereby irrevocably agrees that
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service of process may be made on him or it by mailing, by certified mail, a
copy of such process to him or it at his or its address for notices specified
herein. As an alternative method of service, the Company also irrevocably
consents to the service of any and all process in any such action or proceeding
by the mailing by certified mail of copies of such process to it at its address
for notices specified herein. Each of the Parties agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
Law. Nothing in this Section 6.10 shall affect the right of any of the Parties
to serve legal process in any other manner permitted by Law or affect the right
of any of the Parties to bring any action or proceeding in the courts of any
other jurisdictions, domestic or foreign.
Section 6.11. Arbitration. (a) All disputes and disagreements among the
Parties (each, a "Dispute") arising in connection with this Agreement shall be
resolved by binding arbitration administered by the American Arbitration
Association (the "AAA") in accordance with, and in the following order of
priority, (i) the terms of these arbitration provisions, (ii) the Commercial
Arbitration Rules of the AAA, (iii) the Federal Arbitration Act (Title 9 of the
United States Code) and (iv) to the extent the foregoing are inapplicable,
unenforceable or invalid, the Laws of the State of Delaware. The validity and
enforceability of these arbitration provisions shall be determined in accordance
with this same order of priority. In the event of any inconsistency between
these arbitration provisions and such rules and statutes, these arbitration
provisions shall control. Each of the Parties may, by summary proceedings (e.g.,
a plea in abatement or motion to stay further proceedings) bring any action in
any court of competent jurisdiction to (A) compel arbitration of any Dispute,
(B) obtain interim measures of protection pending arbitration of any Dispute
and/or (C) enforce any decision of the arbitrators, including the final award.
If any of the Parties fails or refuses to submit to binding arbitration
following a lawful demand by any other Party, the Party so failing or refusing
shall bear all costs and expenses incurred by any other Party in compelling
arbitration of such Dispute.
(b) All statutes of limitation applicable to any Dispute shall apply to
any proceeding in accordance with these arbitration provisions.
(c) Arbitrators are empowered to resolve Disputes by summary rulings
substantially similar to summary judgments and motions to dismiss. Arbitrators
shall resolve all Disputes in accordance with the applicable substantive Law.
Any arbitrator selected shall be required to be experienced and knowledgeable in
the substantive Laws applicable to the subject matter of the Dispute. With
respect to a Dispute in which the claims or amounts in controversy do not exceed
$100,000, a single arbitrator shall be chosen and shall resolve the Dispute. In
such case, the arbitrator shall have authority to render an award up to but not
to exceed $100,000, including all amounts properly payable and costs, fees and
expenses. A Dispute involving claims or amounts in controversy exceeding
$100,000, shall be decided by a majority vote of a panel of three arbitrators
(an "Arbitration Panel"), the determination of any two of the three arbitrators
constituting the determination of the Arbitration Panel; provided, however, that
all three arbitrators on the Arbitration Panel must actively participate in all
hearings and deliberations.
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Any award of the arbitrators shall be final and binding and the Parties hereby
waive any right to appeal the arbitral award, to the extent that a right to
appeal may be lawfully waived. Arbitrators, including any Arbitration Panel, may
grant any remedy or relief deemed just and equitable and within the scope of
these arbitration provisions and may also grant such ancillary relief as is
necessary to make effective any award.
(d) To the maximum extent practicable, the AAA, the arbitrator (or the
Arbitration Panel, as appropriate) and the Parties shall take any action
necessary to require that an arbitration proceeding hereunder shall be concluded
within 180 days of the filing of the Dispute with the AAA. Unless the parties
shall agree otherwise, arbitration proceedings hereunder shall be conducted in
Delaware. Arbitrators shall be empowered to impose sanctions, permit or order
depositions and discovery and to take such other actions as they deem necessary
to the same extent a judge could pursuant to the Federal Rules of Civil
Procedure and applicable Law. With respect to any Dispute, each of the Parties
agrees that all discovery activities shall be expressly limited to matters
directly relevant to such Dispute and any arbitrator, any Arbitration Panel and
the AAA shall be required to fully enforce this requirement. The provisions of
these arbitration provisions shall survive any termination, amendment or
expiration of this Agreement, unless the Parties otherwise expressly agree in
writing. To the extent permitted by applicable Law, arbitrators, including any
Arbitration Panel, shall have the power to award recovery of all costs and fees
(including attorneys' fees, administrative fees and arbitrators' fees) to the
prevailing Party or, if no clear prevailing Party, as the arbitrator (or
Arbitration Panel, if applicable) shall deem just and equitable. Each of the
Parties agrees to keep all Disputes and arbitration proceedings strictly
confidential, except for disclosures of information required by applicable Law.
Section 6.12. Expenses. Except as otherwise expressly provided for in
this Agreement, each of the Parties shall pay his or its own expenses incident
to this Agreement and the transactions contemplated hereby, including legal and
accounting fees and disbursements.
Section 6.13. Prevailing Party Costs. Notwithstanding anything
contained in this Agreement to the contrary (except as expressly provided in
Section 6.11), if any Party commences an action against another Party to enforce
any of the terms, covenants, conditions or provisions of this Agreement, or
because of a breach by a Party of its obligations under this Agreement, the
prevailing Party in any such action shall be entitled to recover its Losses,
including reasonable attorneys' fees, incurred in connection with the
prosecution or defense of such action, from the losing Party.
Section 6.14. No Inconsistent Actions. The Company will not undertake
any course of action inconsistent with the provisions or intent of this
Agreement. Without limitation of the foregoing, the Company will not enter
into, modify, amend or waive any Contract with respect to its securities if such
Contract, modification, amendment or waiver would conflict with the rights
granted to the Holders (or any of them) pursuant to this Agreement.
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<PAGE>
Section 6.15. Entire Agreement. This Agreement sets forth all of the
promises, agreements, conditions, understandings, warranties and representations
among the Parties with respect to the transactions contemplated hereby, and
supersedes all prior agreements, arrangements and understandings among the
Parties, whether written, oral or otherwise. There are no promises, agreements,
conditions, understandings, warranties or representations, oral or written,
express or implied, among the Parties concerning the subject matter hereof
except as set forth herein.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of
the day and year first above written.
GENERAL AUTOMATION, INC. SEQUOIA SYSTEMS, INC.
/s/ Jane M. Christie /s/ Michael Stewart
By: _______________________________ By: _______________________________
Jane M. Christie Michael Stewart, President
Printed Name: _____________________ and Chief Executive Officer
President and Chief
Executive Officer
Title: ____________________________
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<PAGE>
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR QUALIFIED UNDER THE
SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ISSUED IN RELIANCE UPON
EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION FOR NONPUBLIC
OFFERINGS. ACCORDINGLY, THE SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF ANY SUCH SECURITIES OR ANY INTEREST THEREIN MAY NOT BE
ACCOMPLISHED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT AND QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, OR UNLESS
SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT
FROM REGISTRATION OR QUALIFICATION OR IS OTHERWISE IN COMPLIANCE WITH THE
ACT.
GENERAL AUTOMATION, INC.
STOCK PURCHASE WARRANT
----------------------
OCTOBER 11, 1996
FOR VALUE RECEIVED, GENERAL AUTOMATION, INC., a Delaware corporation (the
"Company"), hereby certifies that SEQUOIA SYSTEMS, INC., a Delaware corporation
("Sequoia"), is the registered owner of 250,000 warrants (each, a "Warrant"),
each of which represents the right to purchase from the Company, at any time or
from time to time, on or after the date which is one year after the date hereof
and on or before 5:00 P.M., California time, on the date which is four years
after the date hereof (the "Exercise Period"), initially one share of the common
stock, par value $.10 per share, of the Company ("Common Stock") at the price of
$2.50 per share, subject to the terms and conditions hereof.
For the purposes of this Agreement: (i) the common stock of the Company,
together with any other equity securities which may be issued by the Company in
substitution therefor, is referred to as the "Common Stock"; (ii) the shares of
the Common Stock purchasable hereunder are referred to as the "Warrant Shares";
(iii) the aggregate exercise price payable for all of the Warrant Shares is
referred to as the "Aggregate Exercise Price"; and (iv)
<PAGE>
the price payable hereunder for each of the Warrant Shares is referred to as the
"Per Share Exercise Price". The Per Share Exercise Price and the number of
Warrant Shares are subject to adjustment as hereinafter provided. The Aggregate
Exercise Price is not subject to adjustment.
1. EXERCISE OF WARRANT.
-------------------
1.1 GENERAL TERMS. This Warrant may be exercised, in whole or in
part, at any time or from time to time, during the Exercise Period by the holder
of this Warrant (the "Holder") by the surrender of this Warrant (with the
subscription form at the end hereof duly executed) at the principal office of
the Company, which is currently located at 17731 Mitchell North, Irvine,
California 92614, together with proper payment of the Per Share Exercise Price
for each of the Warrant Shares as to which the Warrant is being exercised. Any
such payment of the Per Share Exercise Price is to be: (i) in cash, (ii) by
certified or official bank or bank cashier's check (or by wire transfer) payable
to the order of the Company; (iii) by tender of shares of Common Stock (which
may be shares of Common Stock to be received by the Holder pursuant to a
concurrent exercise of Warrants), valued as hereinafter set forth, or (iv) by
any combination of the foregoing. For purposes of the payment of the Per Share
Exercise Price, each share of Common Stock tendered by the Holder in payment of
the Per Share Exercise Price shall be deemed to have a value equal to the
average of the closing per share sales prices of a share of Common Stock on the
American Stock Exchange ("Amex") during the ten (10) trading days immediately
preceding the Exercise Date (as defined herein) (the "Market Value"). In the
event that the Holder elects to pay the Per Share Exercise Price through the
delivery of shares of Common Stock to be received by the Holder pursuant to the
concurrent exercise of Warrants (the "Cashless Exercise Shares"), the Holder
shall not be obligated to pay the Per Share Exercise Price for any such Cashless
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<PAGE>
Exercise Shares and the value of each such Cashless Exercise Share, for purposes
of the payment of the Per Share Exercise Price for the shares of Common Stock to
be delivered to and retained by the Holder, shall be an amount equal to the
Market Value minus the Per Share Exercise Price. The Company shall not be under
any obligation to issue any such Cashless Exercise Shares and may, in lieu of
any issuance and redelivery of such Cashless Exercise Shares, retain such
Cashless Exercise Shares as authorized and unissued shares of Common Stock. If
at the time of any valuation of shares of Common Stock, the shares of Common
Stock are not then listed on the Amex, the Market Value shall be the average of
the closing per share sales price of a share of Common Stock on the principal
United States securities exchange registered under the Exchange Act (as defined
herein) on which the shares of Common Stock are then listed during the ten (10)
trading days immediately preceding the Exercise Date, or if shares of Common
Stock are not then listed on any such stock exchange, the average of the average
closing bid and ask quotations with respect to a share of Common Stock during
such ten (10) trading days, in each case, on The Nasdaq Stock Market or any
successor system then in use, or if no such quotations are then available, the
average of the bid and asked prices with respect to a share of Common Stock for
such ten (10) trading days, as furnished by a member of the New York Stock
Exchange regularly making a market in the Common Stock selected by the Holder,
or if no such member firm is then making a market in Common Stock, the fair
market value of a share of Stock on the date of issuance as determined by an
appraisal of the Company (an "Appraisal"). An "Appraisal" shall be prepared by a
mutually acceptable investment banking firm (the "Appraiser"). If the Holder and
the Company cannot agree on an Appraiser within ten (10) days following written
notice from either the Holder or the Company, each of the Holder and the Company
shall appoint an appraiser within ten (10) days following expiration of such
period. If the Holder or the Company fails to timely appoint their respective
Appraiser, the timely appointed Appraiser shall be the sole Appraiser. Those two
(2) appraisers shall jointly appoint a third appraiser within ten (10) days
after their appointment. All three (3) Appraisers shall deliver their appraisal
to the Company within thirty (30) days following the appointment of the last
Appraiser and the middle appraisal shall be the value of the Common Stock. The
costs, fees and expenses of each appointed Appraiser shall be paid by the
appointing party. The cost, fees and expenses of the third appraiser or the
mutually agreed upon Appraiser shall be shared equally by the Holder and the
Company.
1.2 ADDITIONAL PROVISIONS.
---------------------
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<PAGE>
(a) If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock and the Company shall
execute a new Warrant of the same tenor and covering the number of Warrant
Shares with respect to which this Warrant has not been exercised, which Warrant
shall be registered in such name or names as may be directed in writing by the
Holder, and the Company shall deliver such Warrant to the person or entity to
receive the same, subject to the limitations set forth herein.
(b) Upon surrender of this Warrant in conformity with the foregoing
provisions, the Company (or the Acquiring Company in the case of a Transaction)
shall transfer to or upon the written order of the Holder, appropriate evidence
of ownership of any shares of Common Stock or other securities or property and
any money to which the Holder is entitled, registered or otherwise placed in, or
payable to the order of, such name or names as may be directed in writing by the
Holder, and shall deliver such evidence of ownership and any money to the person
or persons entitled to receive the same, together with an amount in cash in lieu
of any fraction of a share as hereinafter provided in paragraph (e) below.
(c) A Warrant shall be deemed to have been exercised or sold
immediately prior to the close of business on the date of the surrender for such
exercise or sale of the Warrant (the "Exercise Date") and, for all purposes
hereof the person entitled to receive any shares of Common Stock or other
securities or property (including any money) deliverable upon such exercise or
sale shall, as between such person and the Company (or the Acquiring Company in
the case of a Transaction), be deemed to be the holder of such shares of Common
Stock or other securities or property (including any money) of record as of the
close of business on such date and shall be entitled to receive, and the Company
shall deliver to such person, the shares of Common Stock or other securities or
property (including any money) to which such Holder would have been entitled had
such Holder been the record holder of such Common Stock on such date.
(d) Without limiting the foregoing, if, on any Exercise Date, the
transfer books for the shares of Common Stock or other securities purchasable
upon the exercise of the Warrants
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<PAGE>
shall be closed, the certificates for the shares of Common Stock or other
securities in respect of which such Warrants are then exercised, shall be
transferred when such transfer book shall next be opened (whether on or after
the 4th anniversary of the date hereof), and until such date the Company (or the
Acquiring Company in the case of a Transaction) shall be under no duty to
deliver any certificates for such shares of Common Stock or other securities;
provided, however, that the transfer books of record, unless required by law,
shall not be closed at any time for a period longer than 20 days.
(e) Notwithstanding anything to the contrary contained herein, the
Company shall not be required to issue any fraction of a share of Common Stock
or to distribute stock certificates that evidence fractional shares of Common
Stock. If any fraction of a share of Common Stock would, except for the
provisions of this paragraph (e), be issuable on the exercise of any Warrant or
Warrants, the Company shall purchase such fraction for an amount in cash equal
to such fraction of the then current Market Value. The Holder, by its
acceptance of this Warrant, expressly waives its right to receive any fraction
of a share of Common Stock or a stock certificate representing a fraction of a
share of Common Stock. Notwithstanding the foregoing, the Company shall issue
Warrants representing a fractional interest of a Warrant; provided that, the
exercise of such fractional Warrant shall be subject to the provisions of this
paragraph (e).
1.3 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Before taking any
action that would cause an adjustment reducing the Per Share Exercise Price
below the then par value of any of the shares of Common Stock issuable upon
exercise of the Warrants, the Company will take any corporate action that may,
in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of such Common
Stock at such adjusted Per Share Exercise Price.
The Company covenants that if any federal or state law or any rule or
regulation of any national securities exchange requires that the shares of
Common Stock reserved for issuance upon exercise of the Warrants be registered
with or approved by any governmental authority or listed on any national
securities
-5-
<PAGE>
exchange before such shares may be issued upon exercise, the Company will in
good faith and as expeditiously as possible endeavor to cause such shares to be
duly registered, approved or listed, as the case may be; provided, however, that
in no event shall such shares of Common Stock be issued, and the Company is
hereby authorized to suspend the exercise of all Warrants, for the period during
which such registration, approval or listing is required but not in effect.
1.4 RIGHTS UPON DISSOLUTION OR LIQUIDATION. Notwithstanding any
other provisions of this Warrant, in the event that, at any time after the date
hereof and prior to the expiration hereof and the termination of the rights of
the Holder hereof as provided in this Section 1, there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Company, then the
Company shall give notice by first class mail to the Holder at such Holder's
address as it appears on the books and records of the Company at the earliest
practicable time (and, in any event, not less than 20 days before any date set
for definitive action), of the date on which such dissolution, liquidation or
winding up shall take place. Such notice shall also specify the date as of
which the holders of the shares of record of Common stock or other securities
underlying the Warrants shall be entitled to exchange their shares for
securities, money or other property deliverable upon such dissolution,
liquidation or winding up, on which date the Holder shall receive the
securities, cash or other property which it would have been entitled to receive
had the Warrants been exercisable and exercised immediately prior to such
dissolution, liquidation or winding up (net of the then applicable Per Share
Exercise Price), and the rights to exercise the Warrants shall terminate.
2. RESERVATION OF WARRANT SHARES. The Company agrees that, prior to the
expiration of this Warrant, the Company will at all times have authorized and in
reserve, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the shares of the Common Stock and other securities
and properties as from time to time shall be receivable upon the exercise of
this Warrant.
3. ADJUSTMENTS.
-----------
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<PAGE>
3.1 DISTRIBUTION WITH RESPECT TO COMMON STOCK. If, at any time or
from time to time after the date of this Warrant, the Company shall distribute
to the holders of the Common Stock, without payment therefor: (i) securities
(including, without limitation, options, warrants, rights and convertible or
exchangeable securities), other than shares of the Common Stock; or (ii)
property, other than cash, with respect to the Common Stock, then, and in each
such case, subject to Section 3.4 hereof, the Holder, upon the exercise of this
Warrant, shall be entitled to receive the securities and properties which the
Holder would hold on the date of such exercise if, on the date of such
distribution, the Holder had been the holder of record of the number of shares
of the Common Stock subscribed for upon such exercise and, during the period
from the date of such distribution to and including the date of such exercise,
had retained such shares and the securities and properties receivable by the
Holder during such period.
3.2 STOCK SPLITS, ETC. If, at any time or from time to time after
the date of this Warrant, the Company shall issue to the holders of the Common
Stock shares of the Common Stock by way of a stock dividend or stock split or
increase the number of shares of Common Stock outstanding by reclassification of
its Common Stock, then, and in each such case, the Per Share Exercise Price
shall be adjusted, or further adjusted, to a price (to the nearest whole cent)
determined by dividing: (i) an amount equal to the number of shares of the
Common Stock outstanding immediately prior to such issuance multiplied by the
Per Share Exercise Price as it existed immediately prior to such issuance; by
(ii) the total number of shares of the Common Stock outstanding immediately
after such issuance. Upon each such adjustment in the Per Share Exercise Price,
the number of Warrant Shares shall be adjusted by dividing the Aggregate
Exercise Price by the Per Share Exercise Price in effect immediately after such
adjustment.
3.3 REVERSE SPLITS, ETC. If, at any time or from time to time after
the date of this Warrant, the number of shares of Common Stock outstanding is
decreased by way of combination of shares or reverse split or reclassification
of Common Stock, then, and in each such case, the Per Share Exercise Price shall
be adjusted, or further adjusted, to a price (to the nearest
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<PAGE>
whole cent) determined by dividing: (i) an amount equal to the number of shares
of the Common Stock outstanding immediately prior to such event multiplied by
the Per Share Exercise Price as it existed immediately prior to such event; by
(ii) the total number of shares of the Common Stock outstanding immediately
after such event. Upon each such adjustment in the Per Share Exercise Price, the
number of Warrant Shares shall be adjusted by dividing the Aggregate Exercise
Price by the Per Share Exercise Price in effect immediately after such
adjustment.
3.4 CHANGES IN COMMON STOCK. If the Company shall be a party to any
transaction (including, without limitation, a merger, consolidation, sale of all
or substantially all of the Company's assets, or recapitalization of the Common
Stock) in which the previously outstanding Common Stock shall be changed into or
exchanged for different securities of the Company or common stock or other
securities of another corporation or interests in a non-corporate entity or
other property (including cash) or any combination of the foregoing (each such
transaction being herein called a "Transaction") then, as a condition of the
consummation of the Transaction, the Company, in the case of the
recapitalization of the Common Stock, or such other corporation or entity, in
the case of a merger, consolidation or such sale (the "Acquiring Company", and
the common stock or equivalent equity interests of the Acquiring Company, the
"Acquirer's Common Stock"), shall make lawful and adequate provision so that,
upon the exercise thereof at any time on or after the consummation of the
Transaction, the Holder shall be entitled to receive and each Warrant shall
represent the right to receive, in lieu of the Common Stock issuable upon such
conversion prior to such consummation, the securities or other property
(including cash) to which the Holder would have been entitled upon consummation
of the Transaction if the Holder had exercised such Warrant immediately prior
thereto, subject to adjustments from and after the consummation date as nearly
equivalent as possible to the adjustments provided for in this Section 3. The
Company shall not effect any Transaction unless prior to the consummation
thereof each corporation or entity (other than the Company) which may be
required to deliver any securities or other property upon the exercise of the
Warrants as provided herein shall assume, by written instrument delivered to the
Holder, the obligation to deliver to the Holder such securities or other
property as in
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<PAGE>
accordance with the foregoing provisions the Holder may be entitled to receive.
The foregoing provisions of this Subsection 3.4 shall similarly apply to
successive mergers, consolidations, sales of assets, liquidations and
recapitalizations.
3.5 NOTICE OF ADJUSTMENT. Whenever the Per Share Exercise Price and
the number of shares of Common Stock and other property, if any, purchasable
upon exercise of Warrants is adjusted, in accordance with this Section 3, as
herein provided, the Company shall mail to the Holder at its address as it
appears in the warrant register established under Section 6, a copy of a
certificate of the Chief Financial Officer of the Company setting forth, in
reasonable detail, the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the Per Share Exercise Price and
the number of shares of Common Stock and other property, if any, purchasable
upon exercise of Warrants after giving effect to such adjustment.
3.6 NOTICE OF CERTAIN CORPORATE ACTION. If the Company shall propose
to take any of the actions specified in Sections 3.1, 3.2, 3.3 or 3.4 hereof,
the Company shall give to the Holder a notice of such proposed action to be
mailed to the Holder at its address in the warrant register, which shall specify
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, or the date such issuance is to take place and the date
of participation therein by the holders of Common Stock, if any such date is to
be fixed, and shall indicate the effect of such action on the Common Stock and
the number and kind of any other shares of stock and other property, if any, and
the Per Share Exercise Price after giving effect to any adjustment which will be
required as a result of such transaction. Such notice shall be so given in the
case of any action covered by Section 3.1, 3.2 or 3.3 at least 30 days prior to
the record date for determining holders of the Common Stock for purposes of such
action.
3.7 STATEMENTS ON WARRANT. The form of this Warrant need not be
changed because of any adjustment made pursuant to this Section 3, and any
Warrant issued after such adjustment may state the same Per Share Exercise Price
and the same number of shares of Common Stock as are stated in this Warrant.
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<PAGE>
3.8 NO IMPAIRMENT. While this Warrant is outstanding, the Company
shall not, by amendment of its Certificate of Incorporation or through a
Transaction, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed under this Warrant by the Company, but shall
at all times in good faith assist in carrying out all of the provisions of this
Section 3 and in taking all such action as may be necessary or appropriate to
protect (but not increase) the Holder's rights hereunder against impairment.
4. FULLY PAID STOCK; TAXES. The Company agrees that the shares of the
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and non-assessable. The Company
further covenants and agrees that it will pay, when due and payable, any and all
federal and state stamp, original issue or similar taxes which may be payable in
respect of the issue of any Warrant Share or certificate therefor; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance of any certificate
for Warrant Shares in a name other than that of the Holder upon any exercise of
this Warrant.
5. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH
SECURITIES ACT.
5.1 RESTRICTIONS ON TRANSFERABILITY. The transferability of this
Warrant and the Warrant Shares (as well as any other securities issued in
respect of the Warrant Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event) shall be subject to
the conditions specified in this Section 5, which conditions are intended to
ensure compliance with the provisions of the Securities Act of 1933 (the "Act")
and applicable state securities laws. Accordingly, neither the Warrant nor the
Warrant Shares (or any other securities issued in respect of the Warrant Shares
upon any stock split, stock dividend, recapitalization, merger, consolidation or
similar event) may be transferred or assigned in whole or in part without
compliance with applicable federal and state securities laws by the transferor
and the transferee. The Holder, and any transferee of
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<PAGE>
this Warrant or the Warrant Shares, by his acceptance hereof or thereof, agree
that this Warrant and the Warrant Shares will be taken and held subject to the
provisions and upon the conditions specified in this Section 5.
5.2 RESTRICTIVE LEGEND. This Warrant and each certificate
representing: (i) the Warrant Shares; or (ii) any other securities issued in
respect of the Warrant Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall (unless
otherwise permitted or unless the securities evidenced by such certificate shall
have been registered under the Act) be stamped or otherwise imprinted with a
legend substantially in the following form (in addition to any legend required
under applicable state securities laws), and shall be subject to the provisions
thereof:
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, (THE "ACT"), OR
QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE, IN RELIANCE ON
EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION FOR NONPUBLIC
OFFERINGS. ACCORDINGLY, THE SALE, TRANSFER OR OTHER DISPOSITION OF
SUCH SECURITIES OR ANY PORTION THEREOF MAY NOT BE ACCOMPLISHED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND
QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, OR UNLESS SUCH
SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT
FROM REGISTRATION OR QUALIFICATION OR IS OTHERWISE IN COMPLIANCE WITH
THE ACT.
5.3 TRANSFER PROCEDURE. Subject to the provisions of this Section 5, the
Holder may transfer all or any part of this Warrant by executing and
delivering to the Company the Assignment Form attached hereto.
6. WARRANT REGISTER. This Warrant is transferable only upon the books
of the Company which it shall cause to be maintained for such purpose. The
Company may treat the registered holder of this Warrant as he, she or it
appears on the Company's books at any time as the Holder for all purposes,
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<PAGE>
notwithstanding the Company's receipt of any notice to the contrary.
7. LOSS, ETC., OF WARRANT. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant if mutilated,
and upon reimbursement of the Company's reasonable incidental expenses, the
Company shall execute and deliver to the Holder a new Warrant of like date,
tenor and denomination. Each substitute Warrant executed and delivered
pursuant to this Section in lieu of any lost, stolen, destroyed, or mutilated
Warrant shall represent an additional contractual obligation of the Company
and shall be entitled to the benefits of this Warrant equally and
proportionately with any and all other Warrants duly executed and delivered by
the Company pursuant hereto.
8. WARRANT HOLDER HAS NO SHAREHOLDER RIGHTS. This Warrant does not
confer upon the Holder any right to vote or to consent or to receive notice as
a shareholder of the Company, as such, with respect to any matters whatsoever,
or any other rights or liabilities as a shareholder, prior to the exercise
hereof.
9. COMMUNICATION. Any notice required or permitted to be given
hereunder shall be in writing and shall be given personally, via commercial
overnight courier service or by deposit in the United States mail, postage
prepaid, registered or certified, return receipt requested, addressed to each
party in the following manner:
To the Company: General Automation, Inc.
17731 Mitchell North
Irvine, California 92612
Attention: President
with a copy to: Scott E. McConnell, Esq.
Higham, McConnell & Dunning
28202 Cabot Road, Suite 450
Laguna Niguel, CA 92677
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<PAGE>
To the Holder: Sequoia Systems, Inc.
5959 Corporate Drive
Houston, TX 77036
Attention: President
with a copy to: Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
600 Travis
Houston, TX 77002
Attention: David G. Elkins, Esq.
Notices shall be deemed given upon the earliest to occur of: (i) receipt;
(ii) the day after delivery to a commercial overnight courier service; or
(iii) five (5) days after deposit in the United States mail. The Company and
the Holder may change the address to which such notices are to be addressed to
them by giving the other party notice in the manner set forth herein.
10. HEADINGS. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
11. APPLICABLE LAW. This Warrant shall be governed by and construed in
accordance with the internal laws of the State of Delaware, without giving
effect to the conflict of laws principles thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed as of the date
first above written.
GENERAL AUTOMATION, INC.
/s/ Jane M. Christie
By: _____________________________
Jane Christie, President
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<PAGE>
FORM OF ASSIGNMENT
------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________________ the right to purchase __________
shares of Common Stock evidenced by the within Warrant, and hereby appoints
____________________ ____________________ to transfer the same on the books of
GENERAL AUTOMATION, INC. with full power of substitution in the premises.
Date: _______________, 19__
------------------------------
(Signature)
Note: Signature must conform in all respects
to the name of the Warrant Holder as
specified on the face of this Warrant in
every particular, without alteration or
enlargement or any change whatsoever.
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<PAGE>
EXERCISE FORM
-------------
TO: GENERAL AUTOMATION, INC.
The undersigned (______________________________)
Please insert Social Security or other identifying
number of Holder
hereby irrevocably elects to exercise the right of purchase represented by the
within Warrant for, and to purchase thereunder, __________ shares of Common
Stock provided for therein and tenders payment herewith the Per Share Exercise
Price for each such share of Common Stock. The undersigned requests that
certificates for such shares of Common Stock be issued as follows:
Name: _________________________________________________________
Address: ______________________________________________________
Deliver to: ___________________________________________________
Address: ______________________________________________________
Date: _________________, 19__
------------------------------
(Signature)
Note: Signature must conform in all respects
to the name of the Warrant Holder as written
upon the face of this Warrant in every
particular, without alteration or enlargement
or any change whatsoever.
The undersigned represents and warrants to GENERAL AUTOMATION, INC. that the
undersigned is acquiring the shares referred to above solely for its own
account and not as a nominee for any other person or entity and not with a
view toward the resale or
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<PAGE>
distribution thereof except in compliance with
applicable securities laws.
--------------------------
(Signature)
--------------------------
(Date)
-16-
