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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): October 11, 1996
GENERAL AUTOMATION, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 0-5260 95-248811
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
17731 Mitchell North, Irvine, California 92714
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 250-4800
Not applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 11, 1996 (the "Closing Date"), General Automation, Inc. (the
"Company") completed its purchase from Sequoia Systems, Inc. ("SSI") of
substantially all of the assets and business of SSI's "Sequoia Enterprise
Systems" business division ("SES"). SES manufactures, services, integrates and
distributes fault-tolerant Motorola 68K computer systems operating under SSI's
version of UNIX and Intel based computer systems running SSI's and Alpha Micro's
versions of the "PICK" application environment and database software products,
and engages in various related distribution arrangements. The Company's
purchase of SES was made pursuant to an Asset Purchase Agreement dated as of
October 3, 1996 between the Company and SSI (the "Purchase Agreement").
In exchange for SES, the Company has (i) agreed to pay a purchase price
of $10,700,000 (subject to possible adjustment based on the net book value of
SES as of the Closing Date) (the "Purchase Price"), (ii) assumed certain
liabilities of SSI totalling approximately $3,000,000, and (iii) issued to SSI a
Stock Purchase Warrant entitling SSI to purchase 250,000 shares of the Company's
common stock at an exercise price of $2.50 per share (the "Warrant"). The
Warrant will be exercisable during the three year period commencing on the first
anniversary of the Closing Date. The consideration for the Company's
acquisition of SES was determined by negotiation between the Company's
management and the management of SSI.
The Purchase Price will be paid by the Company in a combination of cash
and 750,000 shares of the Company's common stock (the "Payment Stock"). The
cash portion of the Purchase Price will be paid in monthly installments, with
the amount of each such installment being based on a percentage of the gross
revenues received by the Company during the month to which the installment
relates from the operation of SES and the Company's overall service and support
operations; provided, however, that (i) the Company must pay not less than
$490,000 of the cash portion of the Purchase Price by December 31, 1996; and
(ii) the Company must pay by the first anniversary of the Closing Date an amount
(comprised of stock and cash) equal to not less than the net book value of SES
as of the Closing Date.
All 750,000 shares of the Company's common stock which comprise the
Payment Stock will be issued to SSI as soon as such shares are listed on the
American Stock Exchange. However, such shares will be valued, for purposes of
applying the same toward the Purchase Price, as follows: (i) 400,000 shares will
be valued at $2.50 per share; (ii) 200,000 shares will be valued at the average
of the closing per share sales prices of the Company's common stock on the
American Stock Exchange during the ten trading days immediately preceding the
first anniversary of the Closing Date; and (iii) the remaining 150,000 shares
will be valued at the
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average of the closing per share sales prices of the Company's common stock on
the American Stock Exchange during the ten trading days immediately preceding
any date on which a valuation of such 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 anniversary of the Closing Date,
these shares will be valued at the average of the closing per share sales prices
of a share of the Company's common stock on the American Stock Exchange during
the ten trading days immediately preceding the second anniversary of the Closing
Date.
The Company has agreed, at its expense, to register under the
Securities Act of 1933 for sale by SSI the Payment Stock and the shares issuable
upon exercise of the Warrant.
SSI has agreed not to sell, make any short sale of, loan, or grant any
option for the purchase of, any of the Payment Stock without the prior written
consent of the Company (i) until the first anniversary of the Closing Date, with
respect to any shares of the Payment Stock in excess of 400,000 shares; and (ii)
until the second anniversary of the Closing Date, with respect to any shares of
the Payment Stock in excess of 600,000 shares.
The assets which have been purchased by the Company do not include the
accounts receivable of SES. However, under the Purchase Agreement, SSI is
obligated to pay to the Company an amount equal to 40% of SSI's collections of
the accounts receivable of SES in existence on the Closing Date, as those
collections are made, until the Company has received a total of $1,560,000;
provided, however, that SSI will pay the full $1,560,000 to the Company no later
than 120 days following the Closing Date.
Under the Purchase Agreement, until the earlier to occur of (i) payment
of at least 75% of the Purchase Price; or (ii) the date on which SSI no longer
is the holder of at least 50% of the shares of the Payment Stock (or if the
Warrant has been exercised, the aggregate of the Payment Stock and the shares
issued upon exercise of the Warrant), SSI will be entitled to designate an
individual for election to the Board of Directors of the Company ("SSI's
Designee"); provided, however, that such individual is reasonably acceptable to
the Company at the time of his initial designation. Once appointed to the
Company's Board, SSI's Designee will serve until the first annual meeting of the
stockholders of the Company following the Closing Date and until his successor
shall be duly elected and qualified or until his earlier death, disability,
removal or resignation.
So long as SSI possesses the right of designation described in the
immediately preceding paragraph, the Company has agreed that (i) the Company
will nominate (or shall cause to be nominated) for election at each annual
meeting of the stockholders
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of the Company after the Closing Date, the incumbent SSI's Designee or such
other individual as SSI may designate; provided, however, that such other
individual is reasonably acceptable to the Company at the time of his initial
designation; (ii) if SSI's Designee should die, become disabled, be removed,
retire or resign during the term of his office, SSI shall be entitled to
designate a successor SSI's Designee reasonably acceptable to the Company at
the time of his initial designation, in which event the Company shall cause
such successor SSI'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 SSI
(which consent will not be unreasonably withheld, delayed or conditioned),
neither the Company nor its Board of Directors will: (A) recommend that SSI's
Designee be removed by the stockholders of the Company; or (B) fail to
recommend any incumbent SSI's Designee for reelection.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired. Pursuant to Item
7(a)(4) of Form 8-K, the financial statements required by Item 7(a) of Form 8-K
will be filed as an amendment to this Report on Form 8-K as soon as practicable,
but in any event not later than sixty days after this Report on Form 8-K must be
filed.
(b) Pro Forma Financial Information. Pursuant to Item 7(b)(2) of
Form 8-K, the pro forma financial information required by Item 7(b) of Form 8-K
will be filed as an amendment to this Report on Form 8-K as soon as practicable,
but in any event not later than sixty days after this Report on Form 8-K must be
filed.
(c) Exhibits. The following Exhibits are filed herewith and
incorporated herein by this reference:
Exhibit Number Description
-------------- -----------
2 Asset Purchase Agreement dated as of October 3,
1996 between the Company and SSI.
4.1 Stock Purchase Warrant dated October 11, 1996
issued by the Company to SSI.
4.2 Registration Rights Agreement dated October 11,
1996 between the Company and SSI.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GENERAL AUTOMATION, INC.
Date: October 14, 1996 By: /s/ JOHN R. DONNELLY
-----------------------------
John R. Donnelly,
Vice President of Finance
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EXHIBIT 2
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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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
(f) KHP5 System . . . . . . . . . . . . . . . . . . . . . 8
(g) Incidents to Excluded Assets . . . . . . . . . . . . . 8
(h) Litigation . . . . . . . . . . . . . . . . . . . . . . 8
(i) Improperly Recorded Liabilities . . . . . . . . . . . 8
(j) Nontransferable Contracts and Agreements . . . . . . 8
SECTION 3 PRICE AND PAYMENT . . . . . . . . . . . . . . . . . . . . 8
3.1 Consideration . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Payment . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Deferred Payments . . . . . . . . . . . . . . . . . . 9
(b) Shares of Stock . . . . . . . . . . . . . . . . . . . 9
(c) Valuation of Payment Stock . . . . . . . . . . . . . . 10
(d) The Warrant . . . . . . . . . . . . . . . . . . . . . 11
(e) Registration of Securities . . . . . . . . . . . . . . 11
(f) Payment of Agreed Net Worth . . . . . . . . . . . . . 11
(g) Total Purchase Price . . . . . . . . . . . . . . . . . 12
(h) Imputed Interest . . . . . . . . . . . . . . . . . . . 12
3.3 Method of Payment . . . . . . . . . . . . . . . . . . . . 12
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SECTION 4 REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . 13
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
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
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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
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
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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
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
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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
(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
17.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 60
17.9 Public Announcements . . . . . . . . . . . . . . . . . . . . . 60
</TABLE>
(v)
<PAGE> 7
<TABLE>
<CAPTION>
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<S> <C> <C>
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
EXHIBITS
"A" - The Warrant
"B" - Registration Rights Agreement
"C" - Noncompetition Agreement
</TABLE>
(vi)
<PAGE> 8
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
All of the foregoing schedules have been omitted, but will be furnished
supplementally to the Commission upon request.
(vii)
<PAGE> 9
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
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
<PAGE> 10
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 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;
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(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 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
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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").
(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,
4
<PAGE> 13
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 "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 by Seller pursuant to
this Agreement, insofar as disclosure thereof is required hereunder and Buyer
does not receive property
5
<PAGE> 14
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.
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
6
<PAGE> 15
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;
(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
7
<PAGE> 16
(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.
(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.
8
<PAGE> 17
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");
(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
9
<PAGE> 18
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.
(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 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
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<PAGE> 19
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.
(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
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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 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.
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SECTION 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
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 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,
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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.
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
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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 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
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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 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,
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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 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 remarketer or sales organization, except for the Software Contracts
identified as "distributorships, dealerships, franchises, and manufacturer's
representative contracts" in Schedule 1.1(c).
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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 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
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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 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
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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 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
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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 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 Sections 9601 et seq.), the Hazardous Materials
Transportation Act, as amended (49 USC Sections 1801 et seq.), the Resource
Conservation and Recovery Act, as amended (42 USC Sections 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
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current compensation levels of: (i) all employees assigned to or 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 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
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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 POLICIES. 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 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
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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, 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
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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 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.
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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 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
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
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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.
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
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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
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,
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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 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);
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(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 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
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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 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 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
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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
Except as otherwise expressly provided in this Agreement or
the Schedules hereto, or to the extent that Buyer 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.
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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;
(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.
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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, 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.
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(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 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
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Assets to be assigned to Buyer at Closing as Buyer may reasonably request on or
before the Closing.
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 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
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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 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
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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 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.
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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 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
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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:
(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. Section 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;
(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
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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 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);
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(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;
(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.
(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
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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.
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
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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.
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
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(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 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
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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 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.
(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,
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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.
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.
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(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 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.
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
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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.
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.
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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 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,
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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 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
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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
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 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
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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
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 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;
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(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 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
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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 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
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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
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
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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 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 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
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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 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
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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;
(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";
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(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 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
By: /s/ JANE M. CHRISTIE
-----------------------------
Title: President and CEO
-----------------------
SELLER
SEQUOIA SYSTEMS, INC.,
a Delaware corporation
By: /s/ MICHAEL STEWART
-----------------------------
Title: President and CEO
-----------------------
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<PAGE> 1
EXHIBIT 4.1
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) 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.
<PAGE> 2
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
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
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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.
(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.
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(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 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
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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 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.
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3. ADJUSTMENTS.
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 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
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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 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
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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.
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.
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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 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.
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<PAGE> 10
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,
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> 11
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.
By: /s/ JANE CHRISTIE
-----------------------------
Jane Christie, President
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<PAGE> 12
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> 13
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 distribution thereof except in compliance with applicable
securities laws.
----------------------------
(Signature)
----------------------------
(Date)
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<PAGE> 1
EXHIBIT 4.2
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:
<PAGE> 2
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.01. Certain Defined Terms. Capitalized terms used in
this Agreement have the following respective meanings:
"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).
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<PAGE> 3
"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> 4
"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 proposed disposition of such securities by the Holders
will
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<PAGE> 5
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.
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<PAGE> 6
"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> 7
(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, 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
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<PAGE> 8
(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 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
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<PAGE> 9
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
underwriters under such underwriting agreement be conditions precedent to the
obligations of the Participating Holders thereunder.
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<PAGE> 10
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,
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
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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.
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'
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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
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.
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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;
(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;
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<PAGE> 14
(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
(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.
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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 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, 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
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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 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
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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, 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
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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.
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.
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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
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
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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.
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.
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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, 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.
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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
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
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<PAGE> 23
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.
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
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<PAGE> 24
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.
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.
By: /s/ JANE CHRISTIE By: /s/ MICHAEL STEWART
----------------------------- ------------------------------
Printed Name: Jane M. Christie Michael Stewart, President
------------------ and Chief Executive Officer
Title: President and CEO
-------------------------
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