<PAGE> 1
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
GENERAL AUTOMATION, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and O-11.
Title of each class of securities to which transaction applies:
----------------------------------------------------------------------------
Aggregate number of securities to which transaction applies:
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Per unit prices or other underlying value of transaction computed pursuant
to Exchange Act Rule O-11 (Set for the amount on which the filing fee is
calculated and state how it was determined):
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Proposed maximum aggregate value of transaction:
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Total fee paid:
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[ ] Fee paid previously with preliminary materials.
<PAGE> 2
GENERAL AUTOMATION, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 19, 2001
TO ALL STOCKHOLDERS OF GENERAL AUTOMATION, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of GENERAL
AUTOMATION, INC., a Delaware corporation (the "Company") will be held at the
offices of the Company, 17731 Mitchell North, Irvine, California 92614, on
January 19, 2001, at 10:00 A.M. Pacific Time, for the following purposes:
1. To approve the sale of the Company's hardware services business unit;
2. To authorize a name change of the Company to GA eXpress;
3. To increase the number of authorized shares of common stock of the Company
from 30,000,000 to 50,000,000;
4. To increase the number of shares reserved for issuance under the Company's
1999 Stock Option Plan from 1,000,000 to 2,500,000; and
5. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
Only stockholders of record at the close of business on November 20, 2000,
are entitled to notice of and to vote at the Special Meeting or any adjournments
thereof.
By Order of the Board of Directors,
/s/ Richard H. Nance
-----------------------------------------
Richard H. Nance, Vice President Finance,
Chief Financial Officer, and Secretary
Irvine, California
December 13, 2000
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE PROMPTLY COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY, AND RETURN IT IN THE ENCLOSED ENVELOPE. THE
PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED, AND STOCKHOLDERS EXECUTING
PROXIES MAY ATTEND THE MEETING AND VOTE IN PERSON, SHOULD THEY SO DESIRE.
<PAGE> 3
GENERAL AUTOMATION, INC.
17731 MITCHELL NORTH
IRVINE, CALIFORNIA 92614
----------------------
PROXY STATEMENT
----------------------
GENERAL INFORMATION
The accompanying proxy is solicited by the Board of Directors of General
Automation, Inc. (the "Company") for a Special Meeting of Stockholders of the
Company to be held at the offices of the Company, 17731 Mitchell North, Irvine,
California 92614 on January 19, 2001 at 10:00 A.M. Pacific time. All proxies
duly executed and received will be voted on all matters presented at the Special
Meeting in accordance with the instructions given by such proxies. In the
absence of specific instructions, proxies so received will be voted "for"
approval of the sale of the Company's Hardware Services Business; "for"
authorization to change the name of the Company to GA eXpress "for" the increase
in the number of authorized shares of common stock of the Company from
30,000,000 to 50,000,000; and "for" the authorization to increase the number of
shares reserved for issuance under the Company's Stock Option Plan from
1,000,000 to 2,500,000. The Board of Directors does not know of any other
matters that may be brought before the Special Meeting. In the event that any
other matter should come before the Special Meeting, the persons named in the
enclosed proxy will have discretionary authority to vote all proxies not marked
to the contrary with respect to such matter in accordance with their best
judgement. The proxy may be revoked at any time before being voted. The Company
will pay the entire expense of soliciting the proxies, which solicitation will
be by use of the mails. This Proxy Statement is being mailed to stockholders on
or about December 28, 2000.
Only holders of shares of Common Stock of record at the close of business
on November 20, 2000 will be entitled to notice of, and to vote, at the Special
Meeting and at all adjournments thereof. As of the close of business on November
20, 2000, the Company had 14,721,265 shares of Common Stock outstanding.
At the Special Meeting, the vote of a majority of the shares of common
stock outstanding is required to approve the items listed above and discussed
herein.
Shares represented, by proxies, which are marked "abstained" or which are
marked to deny discretionary authority will only be counted for determining the
presence of a quorum. In addition, where brokers are prohibited from exercising
discretionary authority for beneficial owners who have not provided voting
instructions (commonly referred to as "broker non-votes"), those shares will not
be included in the vote totals.
A list of the stockholders entitled to vote at the Special Meeting will be
available at the Company's office, 17731 Mitchell North, Irvine, California
92614, for a period of ten days prior to the Special Meeting for examination by
any stockholder.
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Officers and Directors of the Company beneficially own approximately 6.2%
of the outstanding shares of Common Stock. See "Security Ownership of Management
and Principal Stockholders." Accordingly, approval of the aforesaid matters is
not assured and your vote is required in order for the Company to take these
actions.
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS
This proxy statement and the documents to which we refer you to in this
proxy statement contain forward-looking statements. In addition, from time to
time, our representatives or we may make forward-looking statements orally or in
writing. We base these forward-looking statements on our expectations and
projections about future events, which we derive from the information currently
available to us. Such forward-looking statements relate to future events or our
future performance, including:
o Our financial performance and projections
o Our business direction; and
o Our business prospects and opportunities.
You can identify forward-looking statements by those that are not historical in
nature, particularly those that use terminology such as "may," "will," "should,"
"expects," "anticipates," "contemplates," "estimates," "believes," "plans,"
"projected," "predicts," "potential," or "continue" or the negative of these or
similar terms. In evaluating these forward-looking statements, you should
consider various factors, including:
o Our ability to change the direction of the Company;
o Our ability to keep pace with new technology and changing market
needs; and
o The competitive environment of our business.
These and other factors may cause our actual results to differ materially
from any forward-looking statement. Forward-looking statements are only
predictions. The forward-looking events discussed in this proxy statement, the
documents to which we refer you and other statements made from time to time by
our representatives or us, may not occur, and actual events and results may
differ materially and are subject to risks, uncertainties and assumptions about
us. We are not obligated to publicly update or revise any forward-looking
statement, whether as a result of uncertainties and assumptions, the
forward-looking events discussed in this proxy statement, the documents to which
we refer you and other statements made from time to time by us or our
representatives, might not occur.
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AUTHORIZATION FOR SALE OF THE COMPANY'S HARDWARE SERVICES BUSINESS
(PROPOSAL #1)
On November 13, 2000, the Board of Directors approved and the Company
signed a letter of intent with a private investor group to purchase the
Company's hardware services business, which accounted for approximately $6
million in revenue the last fiscal year. Over the last fiscal year, the Company
has focused on the business-to-business market. As the Company's hardware
services business is not in keeping with the Company's strategic focus and in
that it is a business that has consistently been experiencing revenue attrition
in the 20% range over the past three (3) years, management and the Board of
Directors feel that the sale will be beneficial to the Company, employees, and
existing customers. The buyers will be investing in the business with their
primary focus on growing the Company's hardware services business by improving
and broadening the services provided to the customers.
The Company is anticipating a gain on the sale of this business in
addition to further reduction of debt and liabilities allowing the Company to
continue its focus on the ongoing e-business software strategy.
The sale of the hardware services business will be treated as an asset
purchase where a private investor group will pay cash at closing and, in
addition, the Company will receive a percentage of the annual value of any added
gross revenue generated over the subsequent twelve (12) months.
Currently, there are 60 employees in the Company's hardware services
business. The terms of the Agreement state that the Buyer will make offers to
Services Business employees as selected by buyer at their existing salaries and
comparable benefit plan.
All of the Company's existing service contracts will be honored by the
new owners.
The terms of the sale are as follows:
THE BUYER: GA Services, LLC, a newly formed limited liability company
("Buyer"), will be purchasing the Company's hardware services business (the
"Services Business"). GA Services, LLC is located at 10 Vista de San Clemente,
Laguna Beach, CA 92651. The managers of GA Services, LLC are Charles Strauch and
George Harris.
ASSETS BEING ACQUIRED: Buyer will acquire the assets of the Services
Business, consisting of the following, for the following prices:
(a) Trade Names: The names "GA Services" and "General
Automation Services."
(b) Contracts and Deferred Liabilities: Current hardware and
operating system contracts and associated deferred liabilities in effect at the
time of closing subject to Buyer's review and acceptance of the deferred
liabilities prior to the close.
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(c) Accounts Receivable: All of the accounts receivable
balance as of the date of closing to be paid for in cash at closing at a value
of 90% of the value of those accounts receivable which have an aging between 0
and 91 days. Buyer reserves the right to adjust accounts receivable value
actually paid based on the Buyer's review of the accounts receivable aging
existing at the date of close.
(d) Furniture, fixtures, and equipment: All of the furniture,
fixtures, equipment and leasehold improvements to be paid for in cash at closing
at a value of $40,000.
(e) Inventory: All of the inventory as of the date of closing
to be paid for in cash at closing at a value of $800,000 subject to Buyer's
review of the inventory prior to signing the definitive agreement to determine
that the inventory is sufficient to support future business.
(f) Future Revenues: Buyer agrees to pay Seller 10% (up to a
maximum of $300,000) of "revenue" in excess of $7.1 million that is generated by
Buyer during Calendar Year 2001 to be paid in cash to Seller no later than April
30, 2002. "Revenue" shall mean that revenue generated between the date of close
and December 31, 2001, which is collected by Buyer before March 31, 2002.
ADDITIONAL TERMS OF ACQUISITION. The following conditions are
additional material terms of the sale:
(a) Buyer will make offers to Services Business employees as
selected by Buyer at existing salaries and comparable benefit plan. Offers will
be on "at will" basis. Seller will pay employees for all accrued salary and
vacation time at Closing.
(b) Seller shall use its best efforts to execute the Olen
Commercial Realty Corp. option to renew for two years for the two existing
leases on the Irvine facility known as Building 2. If Seller is successful,
Buyer will assume the Olen lease and shall assume the existing lease on the
Bohemia facility. If Seller is not successful in renewing its Building 2 lease,
then Buyer will negotiate a new lease for Building 2. Buyer will not assume any
other leases, but will assume only month-to-month rental obligations that are
mutually agreed upon by the Parties for any other Services Business
storage/office facilities.
(c) Buyer shall assume all Sellers' obligations under the
Services Business contracts with Seller's Customers subject to Buyer's review of
those obligations.
(d) Buyer reserves the right to adjust the purchase price
relative to pre-paid Services Business obligations that Buyer considers to be
excessive.
(e) Seller and Tom Wedrick (NCE) will enter into an agreement
that ensures that NCE will not compete with Seller or Buyer for Seller's
customers or employees.
(f) Seller will assure to Buyer's satisfaction no adverse
results to Buyer should Seller enter into a bankruptcy proceeding following the
Closing.
(g) Seller will provide transition support to Buyer after
Closing for telephone service, information systems (including e-mail), and
accounting (including billing and payroll).
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(h) Seller will allow Buyer the exclusive use of the names "GA
Services" or "General Automation Services."
(i) Seller and Buyer will enter into agreements with Seller's
existing Services Business related vendors to ensure no interruption of parts
and services to the Buyer due in any way to the relationship, which exists now
or in the past between Seller and such vendors.
(j) Seller and Buyer will agree to establish upon Closing an
escrow account amounting to a minimum of $200,000 and a maximum of $240,000 for
a period of 12 months to cover unknown/undisclosed liabilities.
It is currently anticipated that the sale of the Services Business will
become effective as soon as practicable after the Special Meeting; however,
there can be no assurance as to the timing of the consummation of the sale or
that the sale will be consummated.
The definitive agreement provides for mutual indemnification. A copy of the
proposed definitive agreement is included herewith as Exhibit A.
PRO-FORMA FINANCIAL INFORMATION
In accordance with Article 210.11-02(a) of Regulation S-X, the
following narrative description of the pro-forma adjustments related to the sale
of the Company's hardware services business is made a part of the Proxy.
Pro-forma five-year information required by Item 301 of Regulation S-K is, in
the opinion of management, immaterial to the transaction proposed. The proposed
transaction, in the opinion of management, does not meet minimum criteria to
warrant pro-forma adjustments for the five-year-period. The preparation of
pro-forma financial disclosures requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and results
of operations during the reporting period. Actual results could differ from
those estimates. The sale of the Company's hardware services business positions
the Company to operate on a going-forward basis as a software developer and
distributor, providing software support and professional services, or
consulting.
The transaction proposed will effectively sell most accounts
receivable, inventory and some furniture and fixtures. Net proceeds from the
sale will be used to pay existing accounts payable and other debts. The sale is
expected to result in a gain to the Company approximating $1.1 million and the
Unit accounted for approximately $6 million in revenues, from maintenance
contracts, for the fiscal year ended September 30, 2000. Revenues from this unit
approximated $8.5 million for the fiscal year ended September 30, 1999.
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The following table discloses the registrant's financial highlights for the
years ended Sept 30,
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
---------------
Sales 28,868 $ 30,666 $ 36,040 $ 23,668 $ 14,622
Income (loss) from
operations (1,919) (11,798) (38) 489 (1,313)
Extraordinary Gain 3,505 -0- -0- -0- -0-
Net income (loss) 791 $(12,399) $ (514) $ 275 $ (1,712)
Basic and diluted
Net income (loss) per
share $ (1.33) (.06) .03 (.21)
BALANCE SHEET DATA:
-------------------
Working capital
(deficiency) (6,790) (13,495) (6,123) (865) (1,570)
Total assets 11.166 14,114 24,263 11,251 10,484
Long-term obligations 4,604 2,210 3,269 1,072 1,305
Shareholders' equity
(deficit) (7,530) (9,927) 2,688 703 (161)
</TABLE>
The following table reports pro-forma adjusted balance sheet accounts
and results of operations when compared to June 30, 2000. The column "Previously
Reported Adjustments" reflect Pro-forma adjustments related to the sale of the
Company's PICK Database Business reported in August 2000.
<TABLE>
<CAPTION>
Previously Pro-Forma
6/30/00 - Reported Adjustments; 6/30/00 -
As Reported Adjustments This transaction Pro-Forma
----------- ----------- ---------------- ---------
<S> <C> <C> <C> <C>
Total Sales 17,089,000 (11,743,794) (4,000,000) 1,345,206
Cost of Sales 10,326,000 (7,537,629) (2,400,000) 388,371
Gross Profit 6,763,000 (4,205,165) (1,600,000) 957,835
Operating Expenses 8,618,000 (5,257,020) (1,860,980) 1,500,000
Operating Loss (1,855,000) 1,051,855 260,980 (542,165)
Current Assets 4,131,000 (495,356) (1,600,000) 2,035,644
Current Liabilities 12,556,000 (2,636,539) (1,400,000) 8,519,461
Basic EPS (.21) .15 Neg. (.21)
Weighted Shares O/S 12,421,375 12,421,375
</TABLE>
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Pro-Forma results for the year ended September 30, 1999
<TABLE>
<CAPTION>
Pro-Forma
Adjustments:
9/30/99 - Previous This 9/30/99 -
As Reported Adjustments transaction Pro-Forma
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Total Sales 28,868,000 (16,987,152) (8,500,000) 3,380,848
Cost of Sales 17,464,000 (10,722,457) (5,100,000) 1,641,543
Gross Profit 11,404,000 (6,264,695) (3,400,000) 1,739,305
Operating Expenses 13,323,000 (7,409,240) (2,913,000) 3,000,760
Operating Loss (1,919,000) 1,144,545 (487,000) (1,261,455)
Current Assets 7,302,000 (876,240) (1,600,000) 4,825,760
Current Liabilities 14,092,000 (2,959,320) (1,600,000) 9,532,680
Basic EPS .08 .13 .01 .09
Weighted Shares O/S 9,338,851 9,338,851
</TABLE>
The buyers of the Company's hardware services business will form a new
business entity to conduct their operations. As such, there is no pro-forma data
available from the buying entity.
On a going-forward basis, the Company will be developing and selling
its "e-Path(TM)" business-to-business software. The three primary sources of
revenues, as discussed above, for the future are software sales, software
support and consulting.
The vote of a majority of the shares of Common Stock represented at the Special
Meeting is required to authorize the sale of the Company's Hardware Services
Business. Proxies not marked to the contrary will be voted for the authorization
of the sale of the Company's Hardware Services Business.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AUTHORIZATION OF THE
SALE OF THE COMPANY'S HARDWARE SERVICES BUSINESS.
AUTHORIZATION OF NAME CHANGE
(PROPOSAL #2)
The Company has been utilizing the name GA eXpress as a dba over the
last year to more precisely describe the Company's new business strategy of
focusing on the business-to-business (also known as "B2B") market. The Board of
Directors would like to formally change the Company's name from General
Automation, Inc. to GA eXpress.
The vote of a majority of the shares of Common Stock represented at the
Special Meeting is required to authorize the name change. Proxies not marked to
the contrary will be voted for the authorization of the name change.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NAME CHANGE.
APPROVAL OF INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
(PROPOSAL #3)
The Company currently has 30,000,000 shares of common stock authorized
and approximately 14,721,265 shares issued and outstanding. The Board of
Directors has proposed that the Company increase its authorized shares from
30,000,000 to 50,000,000. By increasing the authorized shares, the Company has
merely increased the number of shares that it MAY issue in the future. The Board
of Directors does not believe that the Company will require the entire number of
shares to achieve the business objectives; however, the Company wants to assure
that the authorized capital is sufficient to implement our future acquisition
and fund raising activities.
The vote of a majority of the shares of Common Stock represented at the
Special Meeting is required to authorize the increase in authorized shares of
common stock of the Company. Proxies not marked to the contrary will be voted
for the authorization of the increase in authorized shares of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AUTHORIZATION OF THE
INCREASE IN AUTHORIZED SHARES OF COMMON STOCK OF THE COMPANY.
AUTHORIZATION OF INCREASE IN NUMBER OF SHARES
RESERVED FOR ISSUANCE UNDER THE COMPANY'S
1999 STOCK OPTION PLAN
(PROPOSAL #4)
In 1999, the Company created a Stock Option Plan to award compensation
primarily in the form of qualified and nonqualified stock options to key
employees, directors, and consultants. The 1999 Stock Option Plan reserved
1,000,000 shares for issuance as options under the Plan. To date, the Company
has issued 953,333 options to key employees, directors, and consultants. The
Board of Directors believes it to be in the best interest of the Company to
increase the number of shares reserved under the 1999 Stock Option Plan from
1,000,0000 to 2,500,000, so that the Company will have options available for
issuance over the next few years. The increase in the number of shares reserved
for issuance under the 1999 Stock Option Plan will allow the Board to attract
and compensate key employees, directors, and consultants without using cash.
The vote of a majority of the shares of Common Stock represented at the
Special Meeting is required to authorize the increase in shares reserved for
issuance under the Company's 1999 Stock Option Plan. Proxies not marked to the
contrary will be voted for the authorization of the increase in shares reserved
for issuance under the Company's 1999 Stock Option Plan.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AUTHORIZATION OF
INCREASE IN THE NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER THE
COMPANY'S 1999 STOCK OPTION PLAN.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 2000
The rules of the Securities and Exchange Commission permit stockholders of
the Company, after notice to the Company, to present proposals for stockholder
action in the Company's proxy statement where such proposals are consistent with
applicable law, pertain to matters appropriate for stockholder action, and are
not properly omitted by Company action in accordance with the proxy rules
published by the Securities and Exchange Commission. The Company's 2001 annual
meeting of stockholders is expected to be held on or about May 1, 2001, and
proxy materials in connection with that meeting are expected to be mailed on or
about April 1, 2001. Proposals of stockholders of the Company that are intended
to be presented at the Company's 2000 annual meeting must be received by the
Company no later than December 1, 2000 in order for them to be included in the
proxy statement and form of proxy relating to that meeting.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that the Company's Officers, Directors, and persons who own more than
ten percent of a registered class of the Company's equity securities, file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, Directors and greater than ten percent stockholders are
required by regulation to furnish to the Company copies of all Section 16(a)
forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that during its 2000 fiscal year, all such filing requirements applicable to its
Officers, Directors, and greater than ten percent beneficial owners were
complied with.
OTHER MATTERS
The Board of Directors of the Company does not intend to present any
business at the Special Meeting other than the matters specifically set forth in
the Proxy Statement and knows of no other business to come before the Special
Meeting. However, on all matters properly brought before the Special Meeting by
the Board or by others, the persons named as proxies in the accompanying proxy
will vote in accordance with their best judgement.
It is important that your shares are represented and voted at the Special
Meeting, whether or not you plan to attend. Accordingly, we respectfully request
that you sign, date, and mail your Proxy in the enclosed envelope as promptly as
possible.
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A copy of the Company's Annual Report on Form 10-K for the year ended
September 30, 1999, which has been filed with the SEC pursuant to the Exchange
Act and mailed to all stockholders of record, may be obtained without charge
upon written request to Richard H. Nance, Vice President Finance, Chief
Financial Officer, and Secretary, General Automation, Inc., 17731 Mitchell
North, Irvine, California 92614, or on the Internet at www.sec.gov from the
SEC's EDGAR database.
By Order of the Board of Directors
/s/ Richard H. Nance
-----------------------------------------
Richard H. Nance, Vice President Finance,
Chief Financial Officer, and Secretary
Irvine, California
December 13, 2000
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EXHIBIT A
GENERAL AUTOMATION, INC.
AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT OF PURCHASE AND SALE (the "Agreement"), dated as of the 27th day
of November, 2000, is made by and between General Automation, Inc., a Delaware
corporation (the "Company"), and GA Services, LLC, a California limited
liability company (the "Purchaser").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is engaged in, among other things, the business of
providing support services to computer and telecommunications users through its
GA eXpress division with facilities in Bohemia, New York and Irvine, California
(such activities being hereinafter referred to as the "Business"); and
WHEREAS, subject to the terms and conditions of this Agreement, the Company
desires to sell and Purchaser desires to buy certain assets related to the
Business including certain accounts receivable, inventory, furniture and
equipment and certain leasehold improvements all of which are listed on Schedule
I(a) (the "Assets").
NOW, THEREFORE, in consideration of the terms, covenants and conditions stated
herein, the parties hereto agree as follows:
SECTION I
PURCHASE AND SALE OF THE
ASSETS
(a) PURCHASE AND SALE OF THE ASSETS; LIABILITIES. Subject to the terms and
conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained, the Company
hereby sells, assigns and conveys to the Purchaser, and the Purchaser
hereby purchases, acquires and accepts from the Company, the Assets as
listed on Schedule I(a), free and clear of any mortgages, options,
conditions, liens, charges, security interests, encumbrances, pledges,
equities, claims or liabilities (collectively, "Liens or Encumbrances").
The Assets shall include the financial books and records, of every kind
and nature, real, personal, and mixed, tangible and intangible, wherever
located, of the Company used in or in any way related to the Business
and as further described on Schedule I(a).
(b) ASSUMED OBLIGATIONS. The Purchaser shall not assume and shall have no
responsibility with respect to, any and all liabilities or obligations
of the Company, known or unknown, absolute or contingent, accrued or
unaccrued, whether due or to become due, except for: (i) those
liabilities and obligations specifically set forth on Schedule I(b)
hereto and (ii) those liabilities and executory obligations as expressly
set forth in certain assigned contracts (the "Assigned Contracts"), also
set forth on Schedule I(b) (the items being listed on Schedule I(b)
collectively being referred to as the "Assumed Obligations"). Those
liabilities and obligations under the Assigned Contracts shall be
assumed by Purchaser only upon effective assignment of such agreements.
The Assumed Obligations shall not include any obligations or liabilities
arising out of any act or omission or default of the Company occurring
prior to the Closing (as defined in Section VI(a)) under any Assigned
Contract, regardless of when such liability or obligation is asserted.
The Company represents and warrants that it is not in default of any
Assumed Obligation, and the Purchaser shall not be obligated to assume
any Assumed Obligation which is in default as of the Closing Date (as
defined in Section VI(a)).
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(c) LIABILITIES NOT BEING ASSUMED. Except for the Assumed Obligations, the
Company agrees that Purchaser shall not be obligated to assume or
perform and is not assuming or performing any liabilities or obligations
of the Company, whether known or unknown, fixed or contingent, certain
or uncertain (the "Retained Liabilities"), and the Company shall remain
responsible for and shall indemnify, defend (with counsel reasonably
acceptable to Purchaser and paid for by the Company) and hold harmless
Purchaser from and against all Retained Liabilities, which shall
include, but shall not be limited to, the following obligations or
liabilities of the Company:
(i) Any compensation or benefits payable to present or past employees of the
Company incurred prior to the Closing Date, including without
limitation, any liabilities arising under any employee pension or profit
sharing plan or other employee benefit plan and any of the Company's
obligations for vacation, holiday or sick pay;
(ii) All federal, state, local, foreign or other taxes related to the
operation of the Business and incurred prior to the Closing Date and any
tax liability of the Company which is not related to the Business;
(iii) Any Liens or Encumbrances on any of the Assets and all obligations and
liabilities secured thereby;
(iv) All obligations of the Company, either for borrowed money or incurred in
connection with the purchase, lease or acquisition of any assets;
(v) Any accounts or notes payable of the Company;
(vi) Any claims, demands, actions, suits or legal proceedings that have been
asserted or threatened prior to the Closing Date against the Company,
the Business or the Assets or which may be threatened hereafter against
the Assets, the Business or the Purchaser but only to the extent related
to (i) the Company's operation of the Business prior to the Closing
Date, or (ii) any other business or non-business activities of the
Company conducted prior hereto or hereafter, including, but not limited
to, those legal actions or other proceedings set forth in Schedule II(j)
hereto; and
(vii) Any obligations under any employment, consulting or non-competition
agreements, whether written or oral, incurred prior to the Closing Date
and that is not set forth in Section I(b) or on Schedule I(b).
(d) Intentionally omitted.
(e) INITIAL PURCHASE PRICE. The purchase price (as may be adjusted, the
"Initial Purchase Price") for the Assets shall be equal to (1) Eight
Hundred Forty Thousand dollars ($840,000), plus (2) ninety percent (90%)
of the value of the Business' Accounts Receivable (as defined in Section
II(g)) aged ninety (90) days or less, subject to adjustment (as provided
in subsection (e)(i) below) after Purchaser's review and acceptance of
such Accounts Receivable on the Closing Date, provided that Purchaser's
acceptance is not unreasonably withheld. At the Closing, Purchaser shall
pay to the Company an amount (the "Closing Date Payment"), equal to the
Initial Purchase Price, less the Holdback Amount (as defined in Section
I(g)) and less the Adjustment to the Purchase Price (as defined in
Section I(h) below). The Closing Date Payment shall be made by wire
transfer of immediately available funds to an account designated by the
Company.
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(i) With respect to the purchase price adjustments of the Accounts
Receivable above, such adjustments shall be made if, no later than
December 15, 2000, the Purchaser provides the Company with a list of
items related to the Accounts Receivable, along with the corresponding
values for each item, to be excluded from the Initial Purchase Price.
The list shall also contain the Purchaser's reason for excluding such
item from the Initial Purchase Price.
(f) ADDITIONAL PURCHASE PRICE.
(i) In addition to the amount to be paid to the Company pursuant to Section
I(e) hereof, the Purchaser shall pay the Company, or its successor in
interest, as the case may be, on and subject to the terms of this
Agreement, additional consideration (the "Additional Purchase Price")
only if the Purchaser's gross revenue from the period during the 2001
calendar year, but not commencing before the Closing (the "Revenue
Period"), is in excess of $7,100,000 (the "Base Revenue"). In the event
the Purchaser's gross revenue during the Revenue Period (the "Actual
Revenue") exceeds the Base Revenue, the Purchaser shall pay the Company
an amount equal to ten percent (10%) of the difference between the
Actual Revenue and the Base Revenue; provided, however, that the maximum
Additional Purchase Price payable hereunder shall not exceed $300,000,
subject to reduction pursuant to the provisions of Section I(f)(iii)
below
(ii) The calculation of Actual Revenue for the Purchaser during the Revenue
Period shall be made net of returns and allowances. The determination of
the amount, if any, to be paid in the form of Additional Purchase Price
shall be made by the Purchaser together with its auditors regularly
employed to audit the books of account and financial statements of
Purchaser, and shall be made in accordance with generally accepted
accounting principles ("GAAP"). The calculations of the Base Revenue and
Actual Revenue shall be made based on funds actually received by the
Company and such calculation shall allow for a maximum of ninety (90)
days from the end of the Revenue Period in which to collect funds for
services rendered during the Revenue Period. All determinations of
Purchaser made pursuant to this Section I(f)(ii) shall be deemed binding
and conclusive. Within forty five (45) days of receiving the Purchaser's
calculation of the Actual Revenue the Company shall either (i) notify
the Purchaser in writing of its agreement with such calculation or (ii)
notify the Purchaser of its disagreement with such calculation and
conduct an audit of the Purchaser or review the Purchaser's books and
records with respect to the Actual Revenue within such forty five (45)
day time period. Any audit conducted by the Company shall be at the
Company's sole expense and shall not be binding on the Purchaser unless
agreed to by the Purchaser in writing.
(iii) The Additional Purchase Price shall be paid on or before the expiration
of thirty (30) days following the date upon which the final and binding
determinations are made and agreed to by both parties pursuant to
Section I(f)(ii) above by delivery of a bank cashier's check or wire
transfer of funds to the Company. Subject to the prior exhaustion of the
Holdback Amount pursuant to the terms of Section I(g) below and subject
to the limitations set forth in Section VII(d) below, the Purchaser
shall be entitled to reduce and offset the Additional Purchase Price
payable to the Company by the amount of any unsatisfied claim for
Damages by the Purchaser against the Company pursuant to the provisions
of Section VII(a) below.
(g) PURCHASE PRICE HOLDBACK.
(i) The Purchaser shall withhold not less than $200,000 and no more than
$240,000 of the Initial Purchase Price (the "Holdback Amount") as
collateral to secure the Company's obligations described in Section
VII(a) below, during the period commencing on the Closing Date and
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terminating on the date that is twelve (12) months from the Closing
Date. On the date that is twelve (12) months from the Closing Date (or
if such date is not a business day, on the next business day
thereafter), the Holdback Amount, less the amount of any reductions
thereto, as provided in Section I(g)(ii) below, if a positive amount,
shall be distributed to the Company, without interest. The Purchaser
shall not be required to segregate or set aside the Holdback Amount. The
maximum Holdback Amount shall be subject to reduction in the event the
Company negotiates arrangements, satisfactory to the Purchaser, with the
Company's vendors and suppliers with respect to obligations owed to such
vendors and suppliers.
(ii) The Holdback Amount is subject to reduction and retention by Purchaser
in satisfaction of any claim for Damages by the Purchaser against the
Company pursuant to the provisions of Section VII(a) below.
(h) ADJUSTMENT TO THE PURCHASE PRICE. In addition to the potential
adjustments set forth in Section 1(e) above, the Initial Purchase Price
shall be subject to downward adjustment relative to certain obligations
for services to be rendered in the future by the Company, and assumed by
the Purchaser, for which the Company has already been paid ("Deferred
Obligations"), such customers, services, and prepayment amount being
listed on Schedule I(h). The value of the obligations related to the
Deferred Obligations which the Purchaser, in its sole discretion, deems
to be excessive shall be deducted from the Initial Purchase Price.
Purchaser will notify the Company at least twenty (20) days prior to
Closing Date of the adjustment to the Initial Purchase Price and the
reasons for such adjustment. Company covenants and agrees that after the
date it delivers the Disclosure Schedule (as defined in Section II) as
provided in Section IV(b), it will bill its customers consistent with
its past practices and will promptly notify the Purchaser of any
negotiations with respect to Deferred Obligation agreements. The Company
further covenants and agrees that it shall not enter into any new
Deferred Obligation agreements without the written consent of Purchaser.
(i) ALLOCATION. The Purchase Price for the Assets shall be allocated as set
forth in Schedule I(i) to be attached hereto (the "Purchase Price
Allocation"). Each of the parties, when reporting the transactions
consummated hereunder in their respective Tax Returns (as hereinafter
defined), shall allocate the Purchase Price paid or received, as the
case may be, in a manner that is consistent with the Purchase Price
Allocation set forth in Schedule I(i). Additionally, each of the parties
will comply with, and furnish the information required by Section 1060
of the Internal Revenue Code of 1986, as amended (the "Code"), and any
regulations thereunder.
(j) REMOVAL OF ASSETS BY PURCHASER. The Company shall allow Purchaser up to
one hundred eighty (180) days from the Closing Date in which to
transition the business and remove the Assets from the Company's
inventory storage facilities. Purchaser shall have full access to, and
all rights of the Company relative to such inventory storage facilities.
SECTION II
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE COMPANY
Except as set for on the disclosure schedule attached hereto as Schedule II (the
"Disclosure Schedule"), the Company hereby represents and warrants to, and
covenants and agrees with, the Purchaser, as of the date of the Closing that:
(a) ORGANIZATION AND QUALIFICATION. The Company is duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to own its properties and to
conduct the business in which it is now engaged. The Company has
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full corporate power and authority, and all necessary approvals,
permits, licenses and authorizations to own its properties and to
conduct the Business as currently conducted and to enter into and
consummate the transactions contemplated under this Agreement.
(b) AUTHORITY/ENFORCEABILITY. The execution and delivery of this Agreement
by the Company, the performance by the Company of its covenants and
agreements hereunder and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all
necessary corporate actions. This Agreement constitutes a valid and
legally binding obligation of the Company, enforceable against it in
accordance with its terms. The Bill of Sale (as defined in Section
VI(b)(ii)(A)), when executed and delivered at Closing, and assuming due
and proper execution by the Purchaser, constitutes a valid and legal
binding obligation of the Company, enforceable against it in accordance
with its terms.
(c) NO LEGAL BAR; CONFLICTS. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the charter or by-laws of the Company as
amended or any statute, ordinance, regulation, order, judgment or decree
of any court or governmental agency or board, or conflicts with or will
result in any breach of any of the terms of or constitute a default
under or result in the termination of or the creation of any lien
pursuant to the terms of any contract or agreement to which the Company
is a party or by which the Company or any of its assets are bound. No
consents, approvals or authorizations of, or filings with, any
governmental authority or any other person or entity are required in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, except for
required consents, if any, to assignment of permits, certificates,
contracts, leases and other agreements as set forth in Schedule II(c).
(d) TITLE TO ASSETS. Except as noted on Schedule II(d): (i) the Company has
good and valid title to all Assets and (ii) none of the Assets is
subject to any liens, charges, encumbrances or security interests. None
of the Assets (or uses to which they are put) fails to conform with any
applicable agreement, law, ordinance or regulation in a manner which is
likely to be material to the operations of the Business.
(e) SUFFICIENCY OF ASSETS. The Assets constitute all of the assets,
properties, rights, privileges and interests necessary for the operation
of the Business as it has been owned and operated by the Company.
(f) PERMITS; COMPLIANCE WITH APPLICABLE LAW.
(i) GENERAL. The Company is not in default under any, and has complied with
all, statutes, ordinances, regulations and laws, orders, judgments and
decrees of any court or governmental entity or agency, relating to the
Business or the Assets as to which a default or failure to comply might
result in a material adverse affect on the Assets or the Business. The
Company has no knowledge of any basis for assertion of any violation of
the foregoing or for any claim for compensation or damages or otherwise
arising out of any violation of the foregoing. The Company has not
received any notification of any asserted present or past failure to
comply with any of the foregoing which has not been satisfactorily
responded to in the time period required thereunder.
(ii) PERMITS. Set forth in Schedule II(f) is a complete and accurate list of
all permits, licenses, approvals, franchises, patents, registered and
common law trademarks, service marks, tradenames, copyrights (and
applications for each of the foregoing), notices and authorizations
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issued by governmental entities or other regulatory authorities,
federal, state or local (collectively the "Permits"), held by the
Company in connection with the Business. The Permits set forth in
Schedule II(f) are all the Permits required for the conduct of the
Business in its present form. All the Permits set forth in Schedule
II(f) are in full force and effect, and the Company has not engaged in
any activity which would cause or permit revocation or suspension of any
such Permit, and no action or proceeding looking to or contemplating the
revocation or suspension of any such Permit is pending or threatened.
There are no existing defaults or events of default or event or state of
facts which with notice or lapse of time or both would constitute a
default by the Company under any such Permit. The Company has no
knowledge of any default or claimed or purported or alleged default or
state of facts which with notice or lapse of time or both would
constitute a default on the part of any other party in the performance
of any obligation to be performed or paid by any other party under any
Permit set forth in Schedule II(f). The use by the Company of any
proprietary rights relating to any Permits does not involve any claimed
infringement of such Permit or rights. The consummation of the
transactions contemplated hereby will in no way affect the continuation,
validity or effectiveness of the Permits set forth in Schedule II(f) or
require the consent of any person. Except as set forth on Schedule
II(f), the Company is not required to be licensed by, nor is it subject
to the regulation of, any governmental or regulatory body by reason of
the conduct of the Business in its present form.
(g) ACCOUNTS RECEIVABLE. A complete and current aging of all accounts
receivable of the Company as of November 30, 2000 shall be set forth in
Schedule II(g) (the "Accounts Receivable"). There is no contest, claim
or right of set-off contained in any oral or written agreement with any
account debtor relating to the amount or validity of any Account
Receivable. . Purchaser shall review not more than twenty (20) days
prior to Closing Date a list of any new accounts receivable (the "New
Accounts") of the Company and the assumption by the Purchaser of the New
Accounts shall be subject to the written acceptance of Purchaser and
added to Schedule II(g).
(h) THE MATERIAL CONTRACTS AND OTHER AGREEMENTS. Schedule II(h) contains an
accurate and complete list of each equipment lease, customer order
(whether written or oral, and regardless of the dollar amount) and all
contracts, agreements, indentures, notes, or other instrument or
commitment, written or oral, to which the Company is a party or is bound
and which relates to any of the Assets or the consummation of the
transactions contemplated by this Agreement and which has an aggregate
value to the Company or the other party thereto in excess of ten
thousand dollars ($10,000) (the "Material Contracts"). Accurate and
complete copies of all of the Material Contracts have been made
available by the Company for review by Purchaser prior to the date
hereof. Each of the Material Contracts is a valid and binding obligation
of the Company and, to the Company's knowledge, the other parties
thereto, enforceable in accordance with its terms, except as may be
affected by bankruptcy, insolvency, moratorium or similar laws affecting
creditors' rights generally and general principles of equity relating to
the availability of equitable remedies.
(i) FINANCIAL INFORMATION. The financial information provided to the
Purchaser hereunder was prepared in accordance with GAAP, consistently
applied, and fairly presents the financial condition of the Company with
respect to the Business at the relevant dates thereof and for the
respective periods covered thereby.
(j) LITIGATION; DISPUTES. Except as set forth in Schedule II(j), there are
no claims, disputes, actions, suits, investigations or proceedings
pending or threatened against the Company, the Business or
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any of the Assets, which would hinder the ability of the Company to
consummate the transactions contemplated hereby, and, to the best of the
knowledge of the Company, there is no basis for any such claim, dispute,
action, suit, investigation or proceeding. The Company has no knowledge
of any default under any such action, suit or proceeding. Except as set
forth in Schedule II(j), the Company is not in default in respect of any
judgment, order, writ, injunction or decree of any court or of any
federal, state, municipal or other government department, commission,
bureau, agency or instrumentality or any arbitrator.
(k) ENVIRONMENTAL AND SAFETY MATTERS. Except as set forth in Schedule II(k),
the Company has complied with, and the operation of the Business and the
use of the Assets are in compliance with, in all material respects, all
federal, state, regional and local statutes, laws, ordinances, rules,
regulations and orders relating to the protection of human health and
safety, natural resources or the environment, including, but not limited
to, air pollution, water pollution, noise control, on-site or off-site
hazardous substance discharge, disposal or recovery, toxic or hazardous
substances, training, information and warning provisions relating to
toxic or hazardous substances, and employee safety relating to the
Business or the Assets (collectively the "Environmental Laws"); and no
notice of violation of any Environmental Laws or of any permit, license
or other authorization relating thereto has been received or threatened
against the Company, and to the best knowledge of the Company, is there
any factual basis for the giving of any such notice. Except as set forth
in Schedule II(k), no underground or above-ground storage tanks or
surface impoundments are located on any of the real properties owned or
leased in connection with the Business and (i) except in compliance with
applicable Environmental Laws and any licenses or permits relating
thereto, there has been no generation, use, treatment, storage,
transfer, disposal, release or threatened release in, at, under, from,
to or into, or on such properties of toxic or hazardous substances
during the occupancy thereof by the Company or, to the best knowledge of
the Company, prior to such occupancy, and (ii) in no event has there
been any generation, use, treatment, storage, transfer, disposal,
release or threatened release in, at, under, from, to or into, or on
such properties of toxic or hazardous substances that has resulted in or
is reasonably likely to result in a material adverse effect on the
Business or on the Assets. The Company has not received any notice or
claim to the effect that the Company or the Business is or may be liable
to any governmental authority or private party as a result of the
release or threatened release of any toxic or hazardous substances in
connection with the conduct or operation of the Business, and none of
the operations of the Business or the Company and none of the Assets is
the subject of any federal, state or local investigation evaluating
whether any remedial action is needed to respond to a release or a
threatened release of any toxic or hazardous substances at any of the
real properties owned or leased in connection with the Business. For the
purposes of this Section II(k), "toxic or hazardous substances" shall
include any material, substance or waste that, because of its quantity,
concentration or physical or chemical characteristics, is deemed under
any federal, state, local or regional statute, law, ordinance,
regulation or order, or by any governmental agency pursuant thereto, to
pose a present or potential hazard to human health or safety or the
environment, including, but not limited to, (i) any material, waste or
substance which is defined as a "hazardous substance" pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980 (42 U.S.C. ss. 9601, et seq.), as amended, and its related state
and local counterparts, (ii) asbestos and asbestos containing materials
and polychlorinated biphenyls, and (iii) any petroleum hydrocarbon
including oil, gasoline (refined and unrefined) and their respective
constituents and any wastes associated with the exploration, development
or production of crude oil, natural gas or geothermal energy.
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(l) PRODUCT RETURN POLICIES, WARRANTIES AND LIABILITIES. Schedule II(l) sets
forth all Warranties (as hereinafter defined) given or made by the
Company relating to the Business. "Warranties" shall mean all
obligations to service, repair (including, without limitation, to
provide fixes to program errors), replace, credit, refund and other
obligations based upon or arising out of express and implied warranties
made or deemed made in connection with the license or sale of goods or
the performance of services by the Company. The Company has not given or
made any Warranties with respect to any products licensed or sold or
services performed by it, except for those set forth in Schedule II(l).
Except as otherwise set forth in Schedule II(l), the Company has no
knowledge of any fact or of the occurrence of any event which might
reasonably form the basis of any present or future claim against the
Company, whether or not fully covered by insurance, for liability on
account of negligence or product liability or on account of any
Warranties which would have, individually or in the aggregate, a
material adverse effect on the Business.
(m) NO BROKER. The Company has not retained or used the services of an
agent, finder or broker in connection with the transactions contemplated
by this Agreement.
(n) INSURANCE. Except as set forth in Schedule II(n) hereto, all of the
insurance policies maintained by the Company in connection with the
Business are now in full force and effect and policies covering the same
risks and in substantially the same amounts have been in full force and
effect continuously through the disposition of the Business. The Company
has furnished to Purchaser a schedule of all insurance claims filed by
the Company relating solely and exclusively to the Business and the
disposition thereof. No such claims have been denied by any of the
Company's insurers relating solely and exclusively to the Business and
the Company has not failed to comply with the requirements of any
insurance policies which would provide any insurers the right to deny
any claim relating solely and exclusively to Business.
(o) TAXES AND TAX RETURNS. For purposes of this Agreement, (i) the term
"Tax" or "Taxes" means any federal, state, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes
under Code Section 59A), customs duties, capital stock, franchise,
profits, withholding, social security, unemployment, disability, real
property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any
kind whatsoever, including any interest, penalty, or addition thereto,
whether disputed or not; and (ii) the term "Tax Return" means any
return, declaration, report, claim for refund, or information return or
statement (including, but not limited to, information returns or reports
related to back-up withholding and any payments to third parties)
relating to any Taxes, including any schedule or attachment thereto, and
including any amendment thereof. Purchaser shall have no liability or
obligation whatsoever, and shall not incur any loss, expense or cost,
and none of the Assets, or any assets of the Purchaser, shall be
subjected to any Lien or Encumbrance, by reason of any Taxes arising out
of (x) the Business as conducted by the Company prior to the
consummation of the sale hereunder of the Assets to the Purchaser or (y)
any other operations or activities of the Company whether conducted
prior to the date hereof or hereafter. The Company further represents
and warrants that it is relying solely on its own accountants and
advisors for advice as to the tax consequences to it of the transactions
contemplated hereby.
(p) DISCLOSURE. No representation or warranty made under any Section hereof
and none of the information furnished by the Company set forth herein,
in the exhibits hereto or in any document delivered by the Company to
the Purchaser, or any authorized representative of the Purchaser,
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pursuant to this Agreement contains any untrue statement of a material
fact or fails to state a material fact necessary to make the statements
herein or therein not misleading.
(q) EMPLOYEES. Schedule II(q) contains a complete and accurate list of all
Company employees related to the Business, along with each employee's
annual compensation.
(r) INTELLECTUAL PROPERTY.
(i) Except as set forth on Schedule II(r)(i), the Company owns a valid
right, title, interest or license in and to the Intellectual Property
(as defined below) including the Third Party Technology used in or
necessary for, the conduct of the Business as presently conducted,
including, without limitation, the right to bring actions for
infringement of the Intellectual Property, other than Third Party
Technology, and the conduct of the Business currently does not conflict
with and in the past has not conflicted with intellectual property
rights of others and no person or entity other than the Company owns any
right, title or interest in the Intellectual Property including any
right to manufacture, use, copy, distribute or sublicense any object
code or source code thereof. All Intellectual Property used or held for
use in the conduct of the Business which is owned by the Company is so
owned free and clear of all Liens and Encumbrances and no other person,
including any present or former employee, shareholder, officer of the
Company, has any right whatsoever in such Intellectual Property. The
Company has right to convey to the Purchaser the Intellectual Property
being used or held for use to conduct the Business and such conveyance
will not violate any of the intellectual property rights of any other
person or entity. Neither the Company nor any present or former employee
thereof has violated or, by conducting the Business in the ordinary
course would violate, any of the intellectual property rights of any
other person or entity. Representations contained in Section II(r)(i) as
related to patents expressly exclude any patent searches or obligations
by the Company to conduct patent searches with respect to the
Intellectual Property.
(ii) Except as set forth in reasonable detail in Schedule II(r)(ii) (Third
Party Technology), the Company does not have any obligation to
compensate any person or entity for the use of any Intellectual Property
nor has the Company granted to any person or entity any license, option
or other rights to use in any manner any Intellectual Property whether
requiring the payment of royalties or not. No former or current
employee, contractor or consultant of the Company has any right
whatsoever to any Intellectual Property owned, licensed, being used or
held for use by the Company.
For the purposes of this Section, "Third Party Technology" shall mean all
intellectual property and products owned by third parties and licensed pursuant
to Third Party Licenses as defined below. Notwithstanding the foregoing, Third
Party Technology shall not include any "off-the-shelf" software program if the
use of such program by the Company is in accordance with any applicable shrink
wrap license and no portion of such program is distributed or licensed by the
Company to third parties or incorporated into products distributed by the
Company or licensed to third parties. With respect to this Section II, "Third
Party License" shall mean all licenses and other agreements with third parties
relating to any intellectual property or products that the Company is licensed
or otherwise authorized by such third parties to use in connection with the
Business. For purposes of this Section, "Intellectual Property" shall include
any patents, copyrights, trademarks, service marks, trade names, proprietary
information, know-how, and any other intellectual property or intangible asset.
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(iii) No Intellectual Property is in the public domain.
(iv) All of the Company's copyright registrations related to any and all of
the Company's copyrights relating to the Business are valid and in full
force and effect. If the copyright has not been registered, then it is
not part of the foregoing representation. The Company has valid
copyrights in all material copyrightable material included in the Assets
whether or not registered with the U.S. Copyright Office, and
consummation of the transactions contemplated hereby will not alter or
impair the validity of any such copyrights or copyright registrations.
SECTION III
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE PURCHASER
THE PURCHASER REPRESENTS AND WARRANTS TO, AND COVENANTS AND AGREES WITH, THE
COMPANY, AS OF THE DATE OF THE CLOSING THAT:
(a) ORGANIZATION. The Purchaser is a limited liability company duly formed,
validly existing, and in good standing under the laws of the State of
California.
(b) AUTHORIZATION OF TRANSACTION. The Purchaser has full power and authority
to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes a valid and legal binding
obligation of the Purchaser, enforceable against it in accordance with
its terms. The Purchaser is not required to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
(c) NON-CONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Purchaser
is subject or any provision of its certificate of formation or by-laws,
if applicable, or (ii) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other
arrangement to which the Purchaser is bound or to which any of its
assets is subject.
SECTION IV
ADDITIONAL REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE COMPANY AND THE PURCHASER
UNLESS OTHERWISE STATED, THE FOLLOWING SHALL SURVIVE THE DATE OF THIS AGREEMENT
AND THE CLOSING:
(a) POST CLOSING COOPERATION. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of
this Agreement, each of the parties will take such further action
(including the execution and delivery of such further instruments and
documents) as the other may request, all at the sole cost and expense of
the requesting party (unless the requesting party is entitled to
indemnification therefor under Section VII), so long as such documents
do not increase the liability or risk of liability of the party of whom
action is requested.
(b) DELIVERY OF DISCLOSURE SCHEDULE. The Company covenants and agrees to
deliver to the Purchaser the Disclosure Schedule (as defined in Section
II) on or before December 11, 2000.
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(c) ACCESS. Each party shall give to the other party (the "Reviewing Party")
and its representatives, from and after the date of execution of this
Agreement, on prior reasonable request therefor from the Reviewing Party
or such representatives, such access to the premises, employees, agents
and consultants of the other party, and such copies of the Financial
Statements, books and records, and contracts and leases and other
documentation, so as to enable the Reviewing Party to inspect and
evaluate all aspects of the other party's business and operations,
assets, operating results, financial condition, capitalization,
ownership, and legal affairs thereof. This shall include the right of
the Purchaser to have Phase I environmental evaluations conducted on any
real property owned or leased by the Company in connection with the
Business, at the Purchaser's sole expense. The Reviewing Party agrees to
conduct its review, and to cause its representatives to conduct their
review, in a manner designed to minimize any disruption of the
operations of the other party.
(d) CONDUCT OF BUSINESS. From the date of this Agreement and until the
Closing or termination of this Agreement, whichever first occurs, the
Company shall use commercially reasonable best efforts, consistent with
prior practice (i) to preserve intact the business organization and
employees and other business relationships relating to the Business,
(ii) to continue to operate in the ordinary course of its business and
to maintain its books, records and accounts in accordance with GAAP,
(iii) to preserve and maintain the Assets, ordinary wear and tear
excepted, (iv) notify the Purchaser with respect to any Deferred
Obligation agreements in accordance with Section I(h), (v) to not take
any action which could adversely effect the Business, and (vi) to not
take any action outside of the ordinary course of business, including
without limitation, the creation of new debt or the sale of additional
equity.
(e) PURCHASER'S COVENANTS RELATING TO ADDITIONAL PURCHASE PRICE. During the
period for which the Additional Purchase Price is to be determined
pursuant to Section I(f), the Purchaser shall (a) maintain books and
records and accounting system reflecting the status of the Business for
the purpose of determining Actual Revenue and Base Revenue of the
Business and making all other determinations necessary for determination
of the amount of the Additional Purchase Price, if any; and (b) manage
and operate the Business generally in accordance with the business
principles and practices employed in the management and operation of
Purchaser's own business, with a view to the achievement of reasonable
growth objectives in both sales and earnings.
(f) EMPLOYEES.
(i) The Company agrees that on or before the Closing Date it shall have paid
all of its employees all accrued vacation pay, compensation and other
benefits owing such that on the Closing Date there are no outstanding
liabilities owing to Company employees.
(ii) The Company and Purchaser agree that they shall jointly meet with the
Company employees on or before December 10, 2000.
(iii) The Company agrees to work with the Purchaser and exert its reasonable
best efforts to insure that there are no material interruptions in any
compensation or benefits to the Company employees hired by the Purchaser
after the Closing.
(g) PAYMENT OF OBLIGATIONS AND TERMINATION OF LIENS AND ENCUMBRANCES. The
Company hereby covenants that it shall pay, at the Closing, all of the
indebtedness or other obligations listed on Schedule IV(g) (the
"Obligations") and for the holders of the Obligations to deliver, in
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exchange for such payment, if applicable, (i) UCC Termination Statements
or such other instruments and documents as the Purchaser may reasonably
request to effectuate the removal and termination of such Liens and
Encumbrances and evidence the release by such holders of any claims they
may have against the Assets or the Business, and (ii) such documents as
the Purchaser may reasonably request to evidence the payment of such
Obligations, including, without limitation, pay-off letters in a form
satisfactory to the Purchaser and executed by certain of the Company's
vendors and suppliers (the "Pay-off Letters"). If it is determined at
any time hereafter that the Company failed to remove or cause to be
removed, without liability or cost or expense to the Purchaser and
without the disposition or diminution in the value of any of the Assets,
any Lien or Encumbrance on any of the Assets that was in existence on or
prior to the Closing Date, or if any Lien or Encumbrance is imposed or
placed on any of the Assets (or any replacements thereof) after the
Closing Date as a result of any act or omission of the Company,
occurring on, prior to or after the Closing Date, then, without limiting
any other right or remedy the Purchaser may have, the Company shall
cause such Lien or Encumbrance to be removed at no expense or liability
to the Purchaser, and without any reduction or disposition of any of the
Assets.
(h) FURTHER ASSURANCES. Each party hereto shall execute and deliver after
the date hereof such instruments and take such other actions as the
other party may reasonably request without incurring any unreasonable
expense in order to carry out the intent of this Agreement or to better
evidence or effectuate the transactions contemplated herein.
(i) SUPPORT SERVICES. For a period of six (6) months after the Closing Date,
the Company shall provide support services to the Purchaser free of
charge, which shall include certain telephone services, information
systems (including email and T-1 lines) and accounting systems
(including billing and payroll) necessary for the transition of the
Business to the Purchaser after the Closing. Each party will also
provide the other party with certain additional support services,
including actual telephone usage, benefit plan administration and such
other services to be mutually agreed to between the parties, and each
party will pay for such services on a monthly basis.
(j) TAXES. The Company shall pay all Taxes of any kind or nature arising
from (i) the conduct or operation of the Business up to the Closing Date
and the conduct or operation by the Company, prior to or after the
Closing Date, of any other business or business activities operations
and (ii) any liquidation, partial or whole, of the Company. If any Taxes
required under this Section IV(j) to be borne by the Company are
assessed against the Purchaser or any of the Assets, the Purchaser shall
notify the Company in writing promptly thereafter and the Company shall
be entitled to contest, in good faith, such assessment or charge so long
as such assessment does not materially adversely affect the Purchaser or
the Assets or the Business. Notwithstanding the foregoing, the Purchaser
may (but shall not be obligated to) pay any such Taxes assessed against
it, the Business or any of the Assets, but which are payable by the
Company pursuant hereto, if the Purchaser's failure to do so, in the
reasonable judgment of the Purchaser, could result in the imposition of
a Lien or Encumbrance on any of the Assets or any other assets of the
Purchaser or if the Company fails to contest such assessment or charge
diligently and in good faith. If the Purchaser pays any Taxes which
pursuant hereto are required to be borne by the Company, the Purchaser
shall be entitled to reimbursement thereof from the Company on demand.
Notwithstanding anything to the contrary in this Agreement, each party
hereto agrees to pay fifty percent (50%) of any sales or use tax
assessed in connection with the transaction contemplated by this
Agreement.
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(k) ACCOUNTS AND NOTES RECEIVABLE COLLECTIONS. In the event the Company
receives any payment after the Closing Date in respect of any accounts
or notes receivable included in the Assets, the Company shall promptly
deliver such payment, or the instrument of payment, with proper
endorsements or assignments, to the Purchaser. The Company further
agrees to cooperate with the Purchaser in notifying account obligors of
the transfer of such accounts and notes receivable and instructing them
to make all payments in respect thereof following the Closing Date to
the Purchaser.
(l) NAMES. The Company covenants and agrees it shall not seek to limit or
otherwise impair the Purchaser's use of the names "GA Services" or
"General Automation Services" (collectively, the "Names"). The Company
shall not use in any manner, or convey any right, title or interest to
any third party in, the Names.
(m) LEASES. As soon as practicable after the date hereof, the Company shall
use its best efforts to execute its option to renew the two existing
leases on the Irvine facility (the "Irvine Leases") for a period of at
least two (2) years. If Company is successful in renewing the Irvine
Leases within thirty (30) days of the date hereof and on terms
reasonably acceptable to the Purchaser, it shall notify Purchaser and
Purchaser shall assume the Irvine Leases and the existing lease on the
Company's Bohemia, New York facility (the "New York Lease"), subject to
obtaining the necessary consents and approvals for each lease. If
Company is not successful in renewing its Irvine Leases within thirty
(30) days of the date hereof, then Purchaser shall negotiate a new lease
for the Irvine facility and will not assume any Company leases, but will
lease or sublease, on a month to month basis, storage/office facilities
identified on Schedule IV(m) on terms agreed to by both Purchaser and
the Company.
(n) BOARD RECOMMENDATION. The Company's Board of Directors shall recommend
to its stockholders the approval of the transaction contemplated by this
Agreement and shall not change or withdraw such recommendation.
(o) ACCOUNTS RECEIVABLE AND BUSINESS RECORDS. From and after the Closing,
the Company shall cooperate with the Purchaser, at the Purchaser's sole
expense, in the collection by Purchaser of the Accounts Receivable as
set forth on Schedule I(a). Any and all books and records which may be
deemed part of the Assets shall be made available at no cost to the
Company, upon reasonable prior notice and during normal business hours,
in connection with the collection by Company of its Accounts Receivable
and for any other valid business purpose. None of the business records
that constitute part of the Assets shall be destroyed by Purchasers
without the written consent of Company. The obligations set forth in
this subparagraph shall survive Closing.
SECTION V
CONDITIONS PRECEDENT
(a) CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASER. The obligation
of the Purchaser to consummate the purchase of the Assets from the
Company shall be subject to the fulfillment, or the waiver by the
Purchaser, at or prior to the Closing, of each of the following
conditions precedent:
(i) REPRESENTATIONS AND WARRANTIES. The representations and warranties made
by the Company in this Agreement and in the Schedules hereto shall have
been true and correct on the date hereof,
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and shall also be true and correct at and as of the Closing Date with
the same force and effect as if made again at and as of that time.
(ii) ABSENCE OF MATERIAL LITIGATION. There shall be (i) no pending or overtly
threatened litigation (other than litigation which is determined by the
parties in good faith, after consulting their respective attorneys, to
be without legal or factual substance or merit), whether brought against
the Company or the Purchaser, that seeks to enjoin the consummation of
any of the transactions contemplated by this Agreement, (ii) no order
that has been issued by any court or governmental agency having
jurisdiction that restrains or prohibits the consummation of the
purchase and sale of the Assets hereunder and no proceedings pending
which are reasonably likely to result in the issuance of such an order;
and (iii) no pending or overtly threatened litigation, which has had or
is expected to have an adverse affect on the Business or the Assets.
(iii) PERFORMANCE OF OBLIGATIONS. The Company shall have performed and
complied with all of its covenants required by this Agreement to have
been performed on or prior to the Closing.
(iv) NO MATERIAL ADVERSE CHANGE. Since November 30, 2000, there shall not
have been any change in or other event affecting the Business or the
condition (financial or other) or operating results of Company that has
had or is expected to have a material adverse effect on the Business or
the Assets.
(v) CERTIFICATES. Receipt of a certificate executed by the Company's
President or Chief Financial Officer, dated as of the Closing Date and
reasonably satisfactory in form and substance to the Purchaser,
certifying that (i) each of the representations and warranties of the
Company contained herein was true and correct when made and is true and
correct on and as of the Closing Date with the same force and effect as
if such representations and warranties had been made on the Closing
Date, (ii) the Company has performed and complied with all of its
covenants required to have been performed or complied with by it
pursuant hereto on or prior to the Closing Date, and (iii) all of the
conditions precedent to the Purchaser's obligations the satisfaction of
which was the responsibility of the Company has been satisfied, except
to the extent waived by the Purchaser.
(vi) CONSENTS OBTAINED. All consents, waivers, approvals, authorizations or
orders required to be obtained by the Company and the Purchaser for the
authorization, execution and delivery of this Agreement and the
consummation by it by the transactions contemplated hereby shall have
been obtained by the Company or the Purchaser, as the case may be,
including, without limitation, all lease and equipment assignments
and/or consents for the assumption by, or assignment to, the Purchaser
of the Assigned Contracts, in form and substance acceptable to the
Purchaser or the Purchaser's counsel in its sole discretion.
(vii) DUE DILIGENCE. The results of the Purchaser's business, legal and
accounting due diligence with respect to the Business shall be
satisfactory to Purchaser in its sole discretion. Without limiting the
foregoing, the results of any Phase I environmental evaluation conducted
by the Purchaser on any of the real properties owned or leased by the
Company in connection with the Business shall be satisfactory to
Purchaser in its sole discretion. Upon termination due to such due
diligence there shall be no further rights under this Agreement and
Company shall have absolutely no liability whatsoever to the Purchaser.
(viii) DELIVERY OF ADDITIONAL INSTRUMENTS. On the Closing Date, unless waived
in writing by Purchaser, the Company shall deliver, or cause to be
delivered to the Purchaser, the documents
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and instruments referenced in Section VI(b)(ii), in form and substance
satisfactory to Purchaser and its counsel.
(ix) MANAGER APPROVAL. This Agreement and the transactions contemplated
hereby shall have been approved and adopted by the requisite vote of the
Managers of the Purchaser.
(x) DISCLOSURE SCHEDULE. The Disclosure Schedule to this Agreement shall be
satisfactory to the Purchaser in its sole discretion.
(xi) NO INTERFERENCE. The Company and Purchaser shall each have entered into
an agreement reasonably acceptable to each party with Tom Wedrick and
NCE Computer providing that neither Wedrick nor National Computer
Exchange (or its successor in interest) shall compete with Purchaser or
the Company for the Company's customers or employees or in any way
hinder, interfere with or prejudice Purchaser's relationships with the
Company's customers or employees.
(xii) ACCOUNTS RECEIVABLE. The Company's Accounts Receivable aging as of the
Closing shall be acceptable to the Purchaser (and shall not exceed
ninety (90) days).
(xiii) VENDOR AGREEMENTS. Purchaser shall have entered into agreements with the
vendors and suppliers listed on Schedule V(a)(xiii) upon terms and
conditions satisfactory to Purchaser.
(xiv) IRVINE LEASES. Purchaser shall have either assumed the Company's Irvine
Leases upon terms satisfactory to Purchaser or Purchaser shall have
renegotiated the Irvine Leases upon terms and conditions satisfactory to
Purchaser.
(xv) RECEIPT OF PAYOFF LETTERS. The Company shall have received the Pay-off
Letters executed by certain of the Company's vendors and suppliers.
(b) CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The obligation
of the Company to consummate the sale of the Assets to Purchaser shall
be subject to the fulfillment, or the waiver by the Company, at or prior
to the Closing, of each of the following conditions precedent:
(i) REPRESENTATIONS AND WARRANTIES. The representations and warranties made
by the Purchaser in this Agreement hereto shall have been true and
correct on the date hereof, and also at and as of the Closing Date with
the same force and effect as if made again at and as of that time.
(ii) ABSENCE OF MATERIAL LITIGATION. There shall be (i) no pending or overtly
threatened litigation (other than litigation which is determined by the
parties in good faith, after consulting their respective attorneys, to
be without legal or factual substance or merit), whether brought against
the Company or the Purchaser that seeks to enjoin the consummation of
any of the transactions contemplated by this Agreement, and (ii) no
order that has been issued by any court or governmental agency having
jurisdiction that restrains or prohibits the consummation of the
purchase and sale of the Assets hereunder or any proceedings pending
which are reasonably likely to result in the issuance of such an order.
(iii) PERFORMANCE OF OBLIGATIONS. The Purchaser shall have performed and
complied with all of its covenants required by this Agreement to have
been performed by it at or prior to the Closing.
(iv) CERTIFICATES. Receipt from the Purchaser of a certificate, if
applicable, dated as of the Closing Date and signed by the President or
the Chief Financial Officer of the Purchaser, certifying that
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(i) each of its representations and warranties contained herein was true
and correct when made and is true and correct on and as of the Closing
Date with the same force and effect as if such representations and
warranties had been made on the Closing Date, and (ii) it has performed
and complied with all agreements, obligations, covenants and conditions
required to be performed or complied with by it pursuant hereto on or
prior to the Closing Date, except as may be waived in writing by the
Company.
(v) DELIVERY OF ADDITIONAL INSTRUMENTS. On the Closing Date, unless waived
in writing by Company, the Purchaser shall deliver, or cause to be
delivered to Company, the Initial Purchase Price and the documents and
instruments referenced in Section VI(b)(i), in form and substance
satisfactory to Company and its counsel.
SECTION VI
CLOSING AND DELIVERIES
(a) TIME AND PLACE OF CLOSING. The closing of the purchase and sale of the
Assets as set forth herein (the "Closing") shall take place at 11 a.m.
Pacific Standard Time, on December 29, 2000 at the offices of Stradling,
Yocca, Carlson & Rauth, 660 Newport Center Drive, Newport Beach,
California 92660, or at such other time, date and place as the parties
may agree. The term "Closing Date," as used in this Agreement shall mean
the date on which such Closing takes place. Unless terminated earlier
pursuant to the terms of this Agreement, this Agreement shall be deemed
effective as of 12:01 a.m. Pacific Standard Time on January 1, 2001.
(b) DELIVERIES.
(i) At or prior to the Closing, the Purchaser shall deliver to the Company
the following:
(A) A wire transfer for the Payment of the Initial Purchase Price, as
described in Section I(e); and
(B) Such certificates, instruments and other documents, in form and
substance satisfactory to the Company and its counsel, as they shall
have reasonably requested in connection with the transactions
contemplated hereby.
(ii) At or prior to the Closing, the Company shall deliver to the Purchaser,
as a condition to Closing, the following:
(A) A bill of sale in the form attached hereto as Exhibit A (the "Bill of
Sale"), such other instruments of conveyance and transfer, and such
powers of attorney, as shall be effective to vest in the Purchaser title
to or other interest in, and the right to full custody and control of,
the Assets, free and clear of all Liens or Encumbrances whatsoever;
(B) The Assigned Contracts and the books and records of the Company
constituting a part of the Assets;
(C) Evidence that the Obligations have been paid, including delivery of the
Pay-off Letters;
(D) Such certificates, instruments and other documents, in form and
substance satisfactory to the Purchaser and its counsel, as they shall
have reasonably requested in connection with the transactions
contemplated hereby;
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(E) All necessary consents of third parties under the Assigned Contracts and
other instruments of the Company to the consummation of the transactions
contemplated hereby, which consents shall not provide for the
acceleration of any liabilities or any other detriment to the Purchaser.
SECTION VII
INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. Subject to the limitations set forth in
Section VII(d) below, the Company shall indemnify and hold harmless the
Purchaser and its successors and assigns, directors, officers,
employees, agents and representatives, from and against any and all
losses, claims, assessments, actions, suits, claims, demands, debts,
liabilities, obligations, damages, costs and expenses, including without
limitation the cost of investigation and reasonable attorney's fees and
court costs, arising out of, resulting from, related to, or caused by,
directly or indirectly, in whole or in part any or all of the following
(hereinafter referred to collectively as "Damages"):
(i) Damages based on, arising out of or attributable to the Retained
Liabilities;
(ii) Damages based on, arising out of or attributable to any inaccuracy in or
breach or nonfulfillment of any of the representations, warranties and
covenants made by the Company in this Agreement;
(iii) Damages arising out of or attributable from the failure of the Company
to comply with the provisions of the Uniform Commercial Code and/or any
"Bulk Sales" laws, in connection with the sale of the Assets to the
Purchaser;
(iv) Damages arising out of or attributable to the presence on or in or the
discharge from any of the real properties owned or leased in connection
with the Business, any of the Assets or any toxic or hazardous
substances (as defined in Section II(k) above), that originated or took
place prior to the Closing Date, whether or not the same constitutes a
breach of the representations or warranties contained in Section II(k)
hereof or is disclosed in this Agreement or the Schedules hereto;
(v) Damages arising out of or attributable to the operations prior to the
Closing Date of the Company, and/or to the acts or omissions prior to
the Closing Date of any of its current or former shareholders,
directors, officers, employees or agents, including without limitation
Damages arising out of claims (a) for violation of federal or state
insurance, antitrust, securities, unfair trade practice or other laws,
(b) personal injury claims, (c) claims of any nature by past or present
directors, officers, employees or agents of the Company (including
workers' compensation claims to the extent not fully insured against and
claims under federal or state employment statutes and judicial
decisions), (d) claims based on breach of warranty, products liability
or defective or omitted service, and (e) any other liability not
disclosed to the Purchaser in this Agreement or in the Schedules hereto.
It is understood and agreed that the acts, omissions or events for which
Purchaser is entitled to indemnification hereunder include, but are not
limited to, claims asserted after the Closing (whether such claims are
tort claims, contract claims or otherwise) which are based in whole or
in part upon (1) alleged defects in products or services which were
either sold, delivered or rendered by the Company on or before the
Closing, (2) alleged defects in products which were in the inventory of
the Company at the time of the Closing and sold or delivered thereafter
by the Purchaser, or (3) alleged defects in services which were rendered
by the Company at the time of Closing and were completed thereafter by
the Purchaser. It is further understood and agreed that the acts,
omissions and events for which
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Purchaser is entitled to indemnification hereunder include claims
(whether tort, contract or otherwise) which are based upon any injury to
any Person or any damage to any property which occurs after the Closing
and which results in whole or in part from acts, omissions and events
which occurred at or before the Closing; the Company's lack of knowledge
of such act, omission or event, or the fact that such act, omission or
event was unknowable by such person, shall not be a defense to the claim
for indemnity.
(vi) any liability for taxes heretofore or hereafter imposed by any taxing
authority (including penalties and interest) owed by, relating to,
resulting from or attributable to the business or operations of the
Company on or before the Closing Date, including interest and penalties
related to such taxes.
(vii) any liability or Damages arising out of or attributable to the Company's
bankruptcy, insolvency or reorganization following the Closing Date,
should such bankruptcy, insolvency or reorganization occur.
(b) INDEMNIFICATION BY THE PURCHASER. The Purchaser shall indemnify and hold
harmless the Company from and against, except to the extent resulting
from any breach by the Company of the representations, warranties and
covenants of this Agreement, (i) any and all Damages sustained or
incurred by the Company by reason of the breach of any of the
obligations, covenants or provisions of, or the inaccuracy of any of the
representations or warranties made by, the Purchaser herein; (ii)
Damages arising out of or attributable to the operations after the
Closing Date of the portion of the Business which is purchased by the
Purchaser, including without limitation Damages arising out of claims
(a) for violation of federal or state insurance, antitrust, securities,
unfair trade practice or other laws, (b) personal injury claims, and (c)
claims of any nature by directors, officers, employees or agents of the
Purchaser based on occurrences after the Closing Date (including
workers' compensation claims to the extent not fully insured against and
claims under federal or state employment statutes and judicial
decisions); and (iii) any liability for taxes heretofore or hereafter
imposed by any taxing authority (including penalties and interest) owed
by, relating to, resulting from or attributable to the business or
operations of the portion of the Business which is purchased by the
Purchaser on or after the Closing Date, including interest and penalties
related to such taxes.
(c) THIRD-PARTY CLAIMS. In the event of the assertion, in writing, of a
third-party claim or dispute which, if adversely determined would
entitle any of the parties hereunder and their directors, officers,
stockholders, employees, agents, successors, assigns and such other
persons to indemnification hereunder (the "Indemnified Parties"), the
party asserting such claim ("Claimant") shall promptly notify the other
party hereto ("Respondent") in writing, provided, however, that any
delay in providing or failure to provide such notification shall not
affect the right of the Claimant to indemnification hereunder except to
the extent that the Respondent is materially prejudiced by the delay or
failure. The Respondent may elect, by written notice to the Claimant, to
assume and direct, at Respondent's sole expense, the defense of any such
third-party claim, and may, at their sole expense, retain counsel in
connection therewith, provided that such counsel is reasonably
acceptable to Claimant. After the assumption of such defense by the
Respondent with counsel reasonably acceptable to Claimant, and for so
long as the Respondent conducts such defense on a diligent and timely
basis, Respondent shall not be responsible for the payment of legal fees
incurred thereafter by the Claimant, who may, continue to participate in
the defense thereof with separate counsel. If Respondent fails to and
until Respondent does undertake the defense of any such third party
claim or dispute in accordance with the provisions hereof, or if
Respondent discontinues the diligent and timely conduct thereof, the
Claimant may
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undertake such defense and Respondent shall be responsible for
reimbursing such persons for their reasonable legal fees and expenses
incurred in connection therewith. No party hereto may settle or
compromise any such third-party claim or dispute without the prior
written consent of the other parties hereto.
(d) PROCEDURES APPLICABLE TO INDEMNIFICATION CLAIMS. To be effective, any
claim for indemnification under this Section VII by any of the
Indemnified Parties must be made by a written notice (a "Notice of
Claim") to Respondent given in accordance with the provisions of Section
VII(d) hereof. Upon receipt of a Notice of Claim, Respondent shall have
thirty (30) calendar days to contest its indemnification obligation with
respect to such claim, or the amount thereof, by written notice to
Claimant (a "Contest Notice"). Such Contest Notice shall specify the
reasons or bases for the objection of Respondent to the indemnification
claim, and if the objection relates to the amount of the liability
asserted, such Contest Notice shall also set forth the amount, if any,
which Respondent believes is due the Claimant. If a Contest Notice is
not given to the Claimant within such 30-day period, the obligation of
Respondent to pay to the Indemnified Parties the amount of the Claimant
liability arising out of the matters set forth in the Notice of Claim
shall be deemed established and accepted by Respondent. If, on the other
hand, Respondent contests a Notice of Claim within such 30-day period,
Claimant and the Respondent shall thereafter attempt in good faith to
resolve their dispute by agreement. If they are unable to so resolve
their dispute within the thirty (30) days, the parties may resort to any
remedy they may have at law or in equity. Upon final determination of
the amount of the Claimant liability that is the subject of an
indemnification claim (whether such determination is the result of
Respondent's acceptance of or failure to contest a Notice of Claim, or
of a full and final resolution of any dispute with respect thereto by
agreement of the parties or otherwise as determined by a court of
competent jurisdiction), such amount shall be paid, in cash by
Respondent to the Indemnified Party or Parties who have been determined
to be entitled thereto within ten (10) business days of such final
determination of the amount of the Claimant liability due by Respondent.
Any amount that becomes due hereunder and is not paid when due shall
bear interest at a rate of ten percent (10%) per annum until paid. No
funds shall be paid out of the Holdback Amount once a Contest Notice has
been filed, until such time as a court of competent jurisdiction has
rendered a full and final determination concerning such claim. If any
liability has been established pursuant to Section VII(a), Purchaser
shall be entitled to be paid from the Holdback Amount all or part of the
liability, which shall be deemed to satisfy the obligations of the
Company to pay such liability, only to the extent of such payment.
(e) OFFSET. The Purchaser may reduce the Additional Purchase Price by an
amount equal to the amount of any Damages to which it is entitled to
hereunder. Nothing herein shall be deemed to be a waiver of the
Purchaser's right to seek recovery against the Company through other
means.
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SECTION VIII
TERMINATION
(a) CIRCUMSTANCES OF TERMINATION. This Agreement may be terminated and the
transactions herein contemplated may be abandoned at any time prior to
the Closing by either party.
(b) PROCEDURE UPON TERMINATION. In the event of termination of this
Agreement pursuant to Section VIII(a) hereof, written notice thereof
shall forthwith be given to the other party or parties hereto and the
transactions contemplated herein shall be abandoned without further
action by the Purchaser or the Company. In addition, if this Agreement
is terminated as provided herein:
(i) Each party will redeliver all documents, workpapers and other material
of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same.
(ii) All information of a confidential nature received by any party hereto
with respect to the business of any other party (other than information
which is a matter of public knowledge or which has heretofore been or is
hereafter published in any publication for public distribution or filed
as public information with any governmental authority) shall continue to
be kept confidential for a period of two (2) years.
(iii) Upon any termination of this Agreement pursuant to Section VIII(a)
hereof the respective obligations of the parties hereto under this
Agreement shall terminate and no party shall have any liability
whatsoever to any other party hereto by reason of such termination,
irrespective of the cause of such termination.
SECTION IX
MISCELLANEOUS
(a) NOTICES. All notices, requests or instructions hereunder shall be in
writing and delivered personally, sent by telecopy or sent by registered
or certified mail, postage prepaid, as follows:
If to the Purchaser: GA Services, LLC
17742 Mitchell North
Irvine, California 92614
Attention: Charles S. Strauch
Facsimile No.: (949) 499-4945
Telephone No.: (949) 499-6275
with a copy to: Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660-6441
Attention: Nick E. Yocca, Esq.
Facsimile No.: (949) 725-4100
If to the Company: General Automation, Inc.
17731 Mitchell North
Irvine, California 92614
Attention: Jane Christie
Facsimile No.: (949) 752-6772
Telephone No.: (949) 250-4800
31
<PAGE> 33
with a copy to: Horwitz & Beam
Two Venture Plaza, Suite 350
Irvine, California 92618
Attention: Lynne Bolduc, Esq.
Facsimile No.: (949) 453-9416
Telephone No.: (949) 453-0300
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, and two business days after the date of
mailing, if mailed.
(b) SURVIVAL OF REPRESENTATIONS. Each representation, warranty, covenant and
agreement of the parties hereto herein contained shall survive the
Closing, notwithstanding any investigation at any time made by or on
behalf of any party hereto.
(c) ENTIRE AGREEMENT. Except as provided in Sections 4, 7 and 8 of that
certain Letter of Intent, dated November 13, 2000, this Agreement and
the documents referred to herein contain the entire agreement among the
parties hereto with respect to the transactions contemplated hereby, and
no modification hereof shall be effective unless in writing and signed
by the party against which it is sought to be enforced.
(d) EXPENSES. Except as otherwise provided herein, each of the parties
hereto shall bear such party's own expenses in connection with this
Agreement and the transactions contemplated hereby.
(e) INVALIDITY. Should any provision of this Agreement be held by a court or
arbitration panel of competent jurisdiction to be enforceable only if
modified, such holding shall not affect the validity of the remainder of
this Agreement, the balance of which shall continue to be binding upon
the parties hereto with any such modification to become a part hereof
and treated as though originally set forth in this Agreement. The
parties further agree that any such court or arbitration panel is
expressly authorized to modify any such unenforceable provision of this
Agreement in lieu of severing such unenforceable provision from this
Agreement in its entirety, whether by rewriting the offending provision,
deleting any or all of the offending provision, adding additional
language to this Agreement, or by making such other modifications as it
deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties
expressly agree that this Agreement as modified by the court or the
arbitration panel shall be binding upon and enforceable against each of
them. In any event, should one or more of the provisions of this
Agreement be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not
affect any other provisions hereof, and if such provision or provisions
are not modified as provided above, this Agreement shall be construed as
if such invalid, illegal or unenforceable provisions had never been set
forth herein.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the Company and the
Purchaser.
(g) GOVERNING LAW. The validity of this Agreement and of any of its terms or
provisions, as well as the rights and duties of the parties under this
Agreement, shall be construed pursuant to and in accordance with the
laws of the State of California, without regard to conflict of laws
principles.
32
<PAGE> 34
All actions brought, arising out of, or related to this Agreement shall
be settled in appropriate federal or state courts located in Orange
County, California.
(h) COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
(i) ATTORNEYS' FEES. If legal action is brought by either party to enforce
or interpret this Agreement, the prevailing party shall be entitled to
recover its attorneys' fees and legal costs in connection therewith.
IN WITNESS WHEREOF, THIS AGREEMENT HAS BEEN DULY EXECUTED BY THE PARTIES HERETO
AS OF THE DATE FIRST ABOVE WRITTEN.
PURCHASER: GA SERVICES, LLC
By: /s/ Charles Strauch
---------------------------------------
Name: Charles Strauch
Title: Chairman
COMPANY: GENERAL AUTOMATION, INC.
By: /s/ R. D. Bagby
---------------------------------------
Name: Robert D. Bagby
Title: Vice Chairman
33
<PAGE> 35
PROXY
GENERAL AUTOMATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 19, 2001
The undersigned hereby appoints Richard H. Nance, Vice President Finance, Chief
Financial Officer, and Secretary with full power of substitution, as his or her
Proxy to represent and vote, as designated below, all of the shares of the
Common Stock of General Automation, Inc. (the "Company"), registered in the name
of the undersigned on December 29, 2000, with the powers the undersigned would
possess if personally present at the 2000 Special Meeting of Stockholders to be
held at the offices of the Company, 17731 Mitchell North, Irvine, California
92614, at 10:00 A.M., Pacific time on January 19, 2001 and at any adjournment
thereof, hereby revoking any proxy or proxies previously given.
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<PAGE> 36
Please mark
your votes as [X]
indicated in
this example
FOR AGAINST ABSTAIN
1. To approve the sale of the Company's [ ] [ ] [ ]
service business unit:
FOR AGAINST ABSTAIN
2. To authorize a name change of the [ ] [ ] [ ]
Company to GA eXpress, Inc.:
FOR AGAINST ABSTAIN
3. To increase the number of authorized [ ] [ ] [ ]
shares of common stock of the Company
from 30,000,000 to 50,000,000:
FOR AGAINST ABSTAIN
4. To increase the number of shares reserved [ ] [ ] [ ]
for issuance under the Company's 1999
Stock Option Plan from 1,000,000 to
2,500,000:
Discretionary authority is hereby granted with respect to such other matters
as may properly come before the Special Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED,
WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN, THE PROXY WILL
BE VOTED "FOR" ALL PROPOSALS LISTED,
AND IN THE PROXY'S DISCRETION ON ANY
OTHER MATTERS TO COME BEFORE THE
MEETING.
Signature(s)_________________________ Dated:____________, 2000
PLEASE DATE AND SIGN ABOVE exactly as your name appears on your Stock
Certificate, indicating where appropriate, official position or representative
capacity.
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